Support from development finance institutions (DFIs) and donor governments to the private sector in developing countries has increased in the last decade. This study explores the scope, role and impact of publicly supported private finance (PSPF) in Rwanda and Zambia between 2000 and 2013. It argues that there is need for Zambia and Rwanda to develop and adopt a PSPF framework with clear guidelines and principles that govern PSFP investments to manage the shortcomings available.
The study analyses various PSPF projects (by DFIs and bilateral donors) that took place in Rwanda and Zambia between 2000 and 2013 and their possible economic and social impact to development and poverty reduction. The study is primarily limited to secondary sources, including DFI reports, related studies, country reports and post project evaluation reports. Other data sources include interviews with private sector, government officials, development partners and civil society.
Key findings
Recent trends suggest aid channeled towards the private sector has been on the increase while ODA has, at least in real terms, been decreasing. The major concern that the private sector has limited mandate to directly tackle poverty reduction is reflected in the outcomes of some PSPF investments explored here.
Rwanda has managed to attract substantial PSPF investments over the last decade and has achieved sustainable economic growth.
- The major instruments used for PSPF investments include loans, guarantees, grants, equity and bond flows. These investments are most dominant in the energy, financial and infrastructure sectors. Investments are also made in SMEs although they do not contribute much to tax revenue.
- Major reforms have been undertaken to improve the PSPF operating environment with new regulations, institutions and policies.
- Rwanda’s economy grew by an average 8% over the period and has seen rapid poverty reduction, with the poverty rate declining by 14%, from 58.9% in 2001 to 44.9% of the population in 2011.
- PSPF investments face challenges that include major infrastructure deficits, reliable and affordable power to businesses as well as better transport connections to link producers to markets.
Zambia receives varying but significant amounts of PSPF investments.
- Major reforms have been undertaken to improve the PSPF operating environment with new regulations and policies. A number of laws have been passed, such as the Zambia Development Agency (ZDA) Act and the Public Private Partnerships (PPP’s) Act, to attract more PSPF. Thousands of new jobs have been directly and indirectly created in the economy.
- Despite high economic growth rates – averaging 6% in the last decade – poverty levels remain high. In 2010, 60.5% of the Zambian population were living below the poverty line, with 42.3% in extreme poverty. There have been accusations of land grabs and corruption by some of the PSPF investors. Zambia still a number of challenges both structurally, as well as institutionally. There is need to address these challenges so that PSPF investments effectively contribute to economic and social development in Zambia, especially for rural populations.
Recommendations
- An enabling investment climate is necessary in order for PSPF investments to make major impacts and effectively contribute to development and poverty reduction. This climate needs to address three key factors: supply side constraints, improved local raw materials and infrastructure (mainly energy and transportation).
- In Zambia, policy consistency is necessary to reduce investment risks. This requires the inclusion of all stakeholders in policy making and implementation.
- Donors and the private sector need to be flexible and responsive to partner countries priority areas.
- The governments of Rwanda and Zambia should develop a PSPF framework that sets out guidelines and principles necessary to ensure economic activities address national priorities as set out in their National Development Plans, and to properly regulate private sector operations, especially tax avoidance.
- PSPF’s should also focus on addressing the underlying socio-economic conditions that perpetuate poverty, particularly in livelihoods such as agriculture and the informal sector.
- Transparency and accountability should be upheld and improved. Minimum international accounting standards and guidelines on public governance and information should be publicly and easily accessible.
