Donor agencies are paying increasing attention to how private sector development (PSD) can be leveraged to support poverty reduction and sustainable, equitable and inclusive economic growth. This topic guide synthesises the most recent evidence on the social impacts of private sector development work, documenting emerging approaches and lessons learned. The private sector incorporates all economic activity that occurs outside of the state, ranging from smallholder farmers and informal entrepreneurs, to multinational corporations (MNCs) and the financial services sector. For the purposes of this guide, the focus is on organised firms and chains, such as agri-supply chains and large consumer base companies.
As a creator of jobs and producer of goods and services that poor people use, the private sector can have a transformational impact on peoples’ lives. Making use of social development thinking is essential to effective private sector development work that is responsible, inclusive, and delivers sustainable benefits to poor people.
Despite increasing donor attention in this area, in general, there is a lack of systematic evaluations and rigorous evidence of the social impacts of PSD. This guide focuses on the social impact of private sector development work delivered through three modalities: regulation, supply chain relationships and market development. It also looks at two overarching issues – women, girls and private sector development; and monitoring and evaluation frameworks – and two emerging issues – business and human rights; and participation and technology. Some of the emerging findings from the available literature include:
- Regulation: Regulatory processes include national legislation and voluntary self-regulation within firms. Evidence on the links between regulation and inclusive growth are inconsistent. Some regulatory efforts have had positive social impacts; however the evidence base is limited.
- Firms and supply chains: Many interventions focus on upgrading and sharing the gains from participating in global, regional and national value chains, including linking producers to high value markets and improving working conditions. Evidence of the impact of interventions is limited by a lack of rigorous evaluations; however, there are some case study examples of success.
- Market development: Markets are particularly important for poor men and women; however they are often costly or difficult to access. Interventions aim to increase access to markets through the provision of new technologies, technical assistance, and brokering links between producers and buyers.
- Monitoring and evaluation: There is limited evidence on how M&E approaches can measure changes in private sector activity in ways that reach the poorest and most excluded. Some organisations have produced specific guidelines for assessing the impacts of programmes on particular groups. However, in the main, many M&E approaches fail to reach the poorest groups, are gender blind, or make little mention of gender dynamics.
- Women, girls and private sector development: The integration of gender issues into private sector development work is essential for achieving inclusive, pro-poor growth. However, women’s economic participation is often hampered by a combination of structural and cultural barriers. There is some evidence that PSD approaches that integrate women and girls have had positive impacts; however, the evidence base is fairly limited and dominated by a small number of descriptive studies.
- Business and human rights: Businesses have an impact on almost all areas of human rights. Key issues include working conditions, discrimination, and access to land. Donor interventions in this area range from developing mechanisms to address rights issues, to holding government to account for rights enforcement.
- Participation and new technology: Information Communication Technology (ICT) can transform business, support entrepreneurship, and drive innovation and economic growth. PSD interventions incorporating ICT include technology transfer in agriculture, and the use of mobile phones for delivering financial services. As this is an emerging body of evidence, there is limited evidence of long-term impacts.
This Transmission diagram (PDF, 82KB, 1pp) illustrates some of the main transmission mechanisms between private sector development work and social impacts. It is an illustration of some of the key issues, interventions and impacts discussed in this topic guide.
This Evidence guide (PDF, 460KB, 2pp) in table format provides an overview of the evidence discussed in this topic guide.