Contributions from
the Column
InWEnt News

Millennoum Project .”Private sector is a key partner”

MDGs: The need for PPP

Vocational Training: Making appropriate use of e-learning

“Ch@t of Worlds” – a tool for sustainable development


04/2005		  

[ UN Millennium Project ]

“The private sector is a key partner”

Attainment of the Millennium Development Goals is seen mainly as a task for the public sector. The role private-sector actors can play was examined at an International Policy Dialogue of the InWEnt Development Policy Forum in Berlin in February. The event was attended by UN Millennium Project Director Jeffrey Sachs. In an interview with D+C/E+Z, Sachs explains how companies can contribute to the campaign to reduce poverty.


[ Interview with Jeffrey Sachs ]

Professor Sachs, pro-poor growth is one of the buzzwords in the debate on the role of the private sector with regard to the MDGs. What makes growth pro-poor?
Economic growth, in general, is a key factor in poverty reduction. Sustained long-term growth is necessary to lift people out of poverty and enable countries to achieve all the MDGs. Yet to achieve long-term growth, free-market policies are hardly enough. The poor need basic investments in human capability (health, education, and gender equality), the environment, and basic infrastructure in order to create the conditions for sustained growth. In this sense, investments in health care, disease control, and environmental conservation are not simply “nice” things to do for humanitarian purposes. They are core strategies for long-term economic development. Only by investing in the “non-income” Millennium Development Goals (as hunger, education, disease control, environmental sustainability), will it be possible to achieve the “income” Millennium Development Goal of reducing income poverty as well.

In many poor countries, especially in Africa, the vast majority of small and medium-sized companies is not growing at all but rather producing on a subsistence-level. What must be done for them to become able to grow and create jobs?
In countries where there is insufficient basic infrastructure such as roads and electricity, and where large numbers of people have not had access to education or suffer from chronic illnesses, it is very difficult to make businesses, even small-holder farms, profitable. Often markets are small so that economies of scale and scope are difficult to achieve. Sub-Saharan Africa, in particular, also faces adverse agro-ecological conditions (disease ecology, unstable rainfall in sub-humid and arid climates), which present an enormous challenge to the region’s biggest private sector: small farming. None of these challenges is insurmountable, but all of them require physical investments in order to counteract the biophysical and geographical difficulties. Public investments in basic infrastructure, social services, and regional integration can facilitate growth of the private sector in Africa, especially the transition from subsistence agriculture to commercial agriculture, and from informal urban services to urban-based exports of manufactures and services. This is also the lesson from East Asia where major investments in people, the environment and physical infrastructure laid the foundation for long-term growth. In addition to public investments, countries of course also need to continue to improve the policy environment.

Under which conditions does foreign direct investment (FDI) contribute to development and poverty reduction?
Foreign direct investment is critical to growth, but it only reaches parts of the developing world that have an adequate base of infrastructure and human capital. For example, currently less than 5% of non-oil FDI goes to sub-Saharan Africa. In addition to creating the necessary macroeconomic conditions for the private sector to grow, countries need to ensure a baseline of physical infrastructure and human capital (labour force health and education). In addition, to help to give birth to new, non-traditional export-oriented sectors, low-income countries should offer temporary incentives to attract foreign investment. This is why the UN Millennium Project recommends specific actions such as establishing export-processing zones and creating tax incentives, to encourage responsible foreign investment in low-income countries that have not yet received such inflows in sizeable amounts.

How do Public-Private Partnerships relate to poverty reduction?
Some basic services need to be publicly financed – for example those for basic education, scientific research, and basic health care. But in many cases the private sector can be a key partner in setting up and delivering key infrastructure and services. We see every day that private companies are excellent at delivering services and creating infrastructure efficiently and at scale. The issue in poor countries is that poor people simply cannot afford to pay for the basic needs – adequate energy, clean water, and basic sanitation, for example – that provide the means to a productive life. Under such circumstances, private companies will not on their own supply these inputs. Therefore we stress that public financing is absolutely essential where household resources are insufficient. Public-Private Partnerships, whereby public financing (especially subsidisation of the poor) supports private delivery of essential services, can be an effective strategy for delivering key social services.

Your report mentions the importance of private donations for development financing. Wouldn’t it be better, however, to increase taxes for the highest incomes to be able to finance public goods rather than to stay dependent on the generosity of the wealthy?
One of the most important findings of the Millennium Project is that domestic resources in low-income countries are insufficient to finance the key investments needed to meet the MDGs. The resources are simply not there, under any effective national taxation scheme. Private international donations make valuable inputs to global development, but they make up a very modest share of the net development assistance world-wide, and, more importantly, they do not generally fund public-service delivery in low-income countries. The main source of external finance for meeting the MDGs at the national level will therefore remain Official Development Assistance (ODA) to support national MDG strategies. Our results show that 0.7 percent of rich countries’ GNP – the long-standing internationally agreed target – would provide sufficient financing to achieve the MDGs. It is for this reason that we call on all rich countries to raise development assistance to the level of 0.7 percent of GNP by 2015. We are hopeful that Germany will soon follow the example set recently by Belgium, Finland, France, Ireland, Spain, and the UK who have committed to a schedule for reaching the target. They will join Denmark, Luxembourg, the Netherlands, Norway, and Sweden who have reached this target long ago.

Are you satisfied with the support for the MDGs by multinational companies?
I’ve been approached by many major multinational companies that want to do more to meet the MDGs. We’re working right now on several ways to help harness their expertise and energy. It’s remarkable how much enthusiasm and willingness to help there is right now in the private sector, and I only expect it to grow. The key challenge is to find the right interface to allow these corporations to work with governments, civil society, and international organisations. I certainly encourage any multinational company that would like to do more to contact the Millennium Project. Corporate involvement with the MDGs is vital for a healthy and secure world, and is excellent for the long-term morale and performance of socially responsible companies.

Questions by Tillmann Elliesen.