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Private sector development - Creating incentives for private-sector activities

E_I_Website_PSD.jpg Economic development is the basis of a country's development and therefore the means by which poverty can be overcome. The private sector is the most important driving force in the move to create jobs and income opportunities. Stable frame conditions, a positive investment climate and correctly functioning markets and institutions are required in order to unleash the potential of the private sector.

Key facts

• The richest 5% of the world's population earns 114 times as much as the poorest 5%.
• In Africa, 70 to 80% of non-agricultural workers are engaged in the informal sector.
• The intensity, structure and poverty-reducing impact of economic growth is hampered by inequality.

Private enterprises are the backbone of a national economy. It is their ability to identify and exploit market opportunities that is instrumental in creating jobs and hence ways of earning a living. However, the efficiency and competitiveness of a company depend not only on in-house factors. External elements such as the regulatory and legal framework, an efficient public administration, correctly functioning goods and labour markets, and the availability of financial and other business development services are equally, if not more, important.

Current challenges
The key challenge from a development standpoint is to formulate the political and legal framework so as to create incentives for broad-based private-sector activities based on properly functioning markets. This is necessary above all in countries where markets are poorly organised, i.e. where there are no defined standards, pricing lacks transparency, technology, infrastructure and service offerings are deficient, or market access is restricted.

Sustainable, comprehensive and hence poverty-reducing growth therefore requires not only measures to promote different types of businesses (e.g. different sizes of company, specific fields of activity, servicing specific sectors). It is also, more importantly, a question of taking appropriate steps to strengthen and enhance the competitiveness of the socio-economic system as a whole.

SDC focus

Rather than direct intervention, SDC is increasingly focusing its activities on systematic approaches to promote the private sector, with the aim of improving the socio-economic conditions for market operations and encouraging the growth of properly functioning markets. To this end, various policy components and measures are typically combined, including: the reduction of obstacles to economic activities in the formal sector, promotion of a reliable financial sector which is also geared to the needs of small and micro entreprises, strengthening public administration capacities, improving the range of vocational training opportunities, or developing an inclusive dialogue between the private and public sector.

SDC concentrates its activities primarily at the regional and local levels. Given the major role played by agriculture in sustainable development and broad-based poverty reduction, the focus is on promoting the private sector and stimulating the market dynamics in rural regions. Depending on the context, SDC applies different development approaches, including the following:

  • Value chains: SDC helps poor producers, primarily in the rural areas, to position themselves better along local, regional and global value chains or foster the development of effective value chains. The aim is to enable them to exploit local, national or global market opportunities more effectively, enhance added value and diversify into higher-value product lines.
  • Local economic development: SDC supports participative processes in which the government, private business and civil society of a region cooperate with the aim of jointly developing and implementing a strategy for the region's economic development and its positioning within the country and/or in the global context.

Theme contact: Peter Tschumi

Principaux thèmes liés:

Approches and Methodes
Economic growth is a prerequisite for poverty reduction, but no guarantee in itself.

Private sector development
An efficient private sector is the main driving force behind the creation of income and employment opportunities and hence for poverty reduction.

Local economic developpement (LED)
Regional structural programmes do not only improve the economic competitiveness of regions, but also aim to ensure the sustained involvement of all population groups in political and economic decision-making processes.

Additional Information and Documents

Documents
  • Making the most of agricultural investment
    A survey of business models that provide opportunities for smallholders
    Download :  [en]  
  • M4P. Expanding the poor's access to business information and voice through radio in Uganda
    Download (PDF, 223 KB) :  [en]  
  • Social standards in the context of employment and income - Factsheet 3
    Download (PDF, 75 KB) :  [en]  
  • M4P. Improving the environment for small businesses in Indonesia and Russia
    Download (PDF, 180 KB) :  [en]  
  • Decent Work: a target to achieve the MDGs. Factsheet
    Download (PDF, 58 KB) :  [en]  
  • Social standards in the context of employment and income - Factsheet 1
    Download (PDF, 56 KB) :  [en]  
  • Social standards in the context of employment and income - Factsheet 2
    Download (PDF, 56 KB) :  [en]  
  • M4P. The role and impact of radio in reforming the rural business environment in Africa
    Download (PDF, 309 KB) :  [en]  
  • Comparative Approaches to Private Sector Development - a M4P perspective
    Download (PDF, 270 KB) :  [en]   [fr]   [es]  
  • Social standards in the context of employment and income - Factsheet 4
    Download (PDF, 52 KB) :  [en]  
  • Social standards in the context of employment and income - Briefing Paper
    Download (PDF, 54 KB) :  [en]  
  • Employment, Income and the MDGs - Critical Linkages and Guiding Actions
    Briefing Paper
    Download (PDF, 72 KB) :  [en]  
  • Afghan women’s income-generating ventures: Between bee stings and ra ys of hope
    Asia Brief - March 2012
    Download (PDF, 636 KB) :  [en]  

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