How Government Engages the Private Sector in the Fight Against Global Poverty

At the Public-Private Partnerships (PPP) Conference hostedTown_Hall_Meeting_with_USAID_Administrator_Rajiv_Shah last fall by Georgetown University’s Master of Science in Foreign Service program, former Administrator of USAID, Rajiv Shah, highlighted the changing landscape of foreign aid. In particular, he noted the game-changing emergence of the private sector. “This is the first time in history we are actually succeeding at reducing extreme poverty, and we have the ability to end it altogether,” Shah observed. “At the same time, the development sector has widened, and private companies are responsible for much of what has brought people out of poverty.” The lesson for the development community, he said, is to welcome in the private sector and operationalize PPPs to solve future problems.A Brief History of Partnership.

A Brief History of Partnership

For a long time, the fight against global poverty was almost exclusively the realm of traditional development actors—governments, international organizations, NGOs, and contractors. As Shah’s recent comments illustrate, this paradigm is shifting dramatically. Today, major donors are putting private-sector engagement at the forefront of their strategies on virtually all development issues, from health to infrastructure to education. According to a recent Brookings report, USAID engaged in an estimated 1,600 PPPs between 2001 and 2014.

Recently, governments have begun to seek private-sector partners to advance the United Nations Sustainable Development Goals (SDGs), a sweeping set of 17 goals and 169 targets that have an estimated price tag of $2-3 trillion a year for the next 15 years. To put this in perspective, total official development assistance (ODA) flows totaled just $168 billion in 2013, a number that has been shrinking for decades as a share of overall financial flows to developing countries and is now a small fraction compared to private capital. In 1990, ODA was the largest resource flow for 95 developing countries; 11 years later this had halved to just 43 countries.

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Figure 1: International resource flows to all developing countries in US$ trillions (http://bit.ly/22jAhBN)

Not long ago, the term “public-private partnership” was almost synonymous with large infrastructure projects in power, transportation, and water, the private sector managing construction, maintenance, and day-to-day operations while the public sector focused on higher-level strategic policy, planning, and financing. Burkina Faso’s rural water supply, once managed at the community level, became so dysfunctional that a 2010 review revealed that 34 percent of the country’s community-based water management systems were non-functional. Developing a traditional PPP to address this gap, the local government contracted with a private company to take over the operations of its rural water supply, while the national government took on a regulatory, advisory, and arbitration role.

Today, governments and development institutions are going beyond infrastructure and engaging the private sector as a key partner in all areas of development, including education, health, agriculture, and climate change. With this expansion, the types of companies involved in PPPs have diversified as well, including everything from large multinationals to small enterprises. The structure and characteristics of public-private partnerships vary widely based on sector, type of project, country, and a plethora of other factors. But on a very basic level, a PPP is an agreement between a government and a private company to share risks and responsibilities, leveraging each actor’s particular skills and assets to advance the shared and individual objectives of each side.

Incentives That Motivate Cross-Sector Engagement

Governments are eager to leverage private sector funds, skills, technology, and know-how to provide higher quality public services at a lower cost. Especially in developing countries, where government capacity is relatively low, the private sector can be more efficient, innovative, and experienced in providing a range of services, from building roads and schools to delivering healthcare.

For business, several factors are converging to incentivize socially-driven activities. The culture of business is changing, as companies increasingly recognize that pursuing social good actually improves competitiveness. In a recent PwC study, 88 percent of global investors surveyed agreed that socially responsible investment increases financial value. Among other benefits, engaging in socially-oriented projects can reduce reputational risk and positively impact brand awareness. Studies show that consumers are more likely than ever to consider the social impact of companies when making purchasing decisions, as are employees when choosing where they want to work. The ability to attract and retain talent is a primary concern for companies of all sizes. New models of PPPs aim to transcend traditional philanthropy and engage meaningfully with companies’ core business interests.

Between governments and the private sector, international organizations often play a significant role in facilitating partnerships by providing advice and technical assistance through the different stages of creating and implementing PPPs. For example, they support governments during the bidding process by helping to identify and vet potential partners; they provide advice on technical, legal, and regulatory requirements during the design phase; and they craft strategies for implementation. The International Finance Corporation (IFC), the private sector arm of the World Bank, is perhaps the biggest intermediary in the PPPs for international development, claiming to have facilitated $20 billion in private investment for international development since 2004.

To illustrate some of these incentives at work, consider one PPP in Colombia, Empresarios por la Educación (“Business people for Education”). The Ministry of Education is working closely with the Colombian business community to improve education in public schools nationwide. While the schools are publicly run, company-led initiatives like a management skills training program for school administrators, a program to strengthen foreign language teaching, and an evaluation of public schools inform education policy reform. Through this PPP, the government is able to improve the quality of a public good that it must provide, while companies benefit from a more highly educated and skilled workforce. Better educated students become more qualified job applicants who can command higher wages and therefore become better consumers of companies’ goods and services.

Factors to Consider

Public-private partnerships can also offer companies a significant strategic advantage when entering new markets or sectors by cultivating what is called license to operate. By working on social initiatives, companies can build trust and relationships with local stakeholders, making it easier for them to do business. For example, the pharmaceutical corporation Merck partnered with the World Health Organization, UNICEF, the World Bank, and others through the Gavi Vaccine Alliance, which seeks to increase access to vaccines for children living in the world’s poorest countries.

A Future of Shared Value Through Partnership

Public-private partnerships can provide higher quality services at a larger scale in a more efficient and cost-effective way. At the PPP Conference, Shah highlighted the value of partnerships in responding to humanitarian crises. During the Somalia drought crisis in 2010, USAID partnered with the private sector to bring in medically designed, nutrient dense foods instead of bulk grains and used local market traders to identify spikes in food prices and map the hardest hit areas. During the Ebola crisis of 2014, USAID partnered with DuPont, Motorola, and Kimberly Clark to create a new biohazard suit for frontline health workers.

When properly designed and implemented, PPPs allow the public and private sectors to exercise their own comparative advantages and combine their unique skills and capabilities to reach better, more sustainable development outcomes. While they are certainly not a silver bullet or the answer to every development challenge, PPPs are a vital part of the international development toolkit for improving lives and reducing poverty worldwide.

Photo from DFID – UK Department for International Development.

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