This study on the business sector provides an overview of evaluation findings, studies and research on performance, lessons learned and evidence for effective development cooperation. The overall purpose is to show experiences of support to the business sector. There are three major types of interventions: (1) interventions aimed at creating an enabling environment, for example through policy dialogue, privatisation measures, developing the legislative framework and labour markets; (2) Interventions aimed at business development services, standardisations and certification, business management and audits and at the provision of financial services; (3) Interventions that target specific enterprises with technical assistance, information and advisory services, and provision of equity capital and other forms of finance.
A database was built of as many evaluations relevant to the sector as possible, mainly from the past ten years; 240 reports were found, mainly from the English-speaking bilateral and multilateral donor agencies. A selection of 60 reports was established, based on a stepwise approach using randomised and judgmental sampling respectively. In addition to these evaluations, the report makes use of research, technical and policy papers.
Key Findings:
- Evaluations point to the need for a holistic approach to the business sector, for the importance of macro-level interventions and for the need to sequence interventions. Agencies have standardised instruments that are applied uniformly, still the experience is clear that “there is no one size that fits all.”
- The interventions supporting the creation of an enabling environment underlined the importance of context, political sensibility and local ownership. Many projects face similar problems of lacking connection between macro-, meso- and micro-levels, questionable commitment and ownership, too short planning horizons, as well as in some cases basic shortcomings in implementation.
- Financial sustainability is a critical issue for all types of BDS services. The positive impact of micro-credit found in many donor evaluations is not supported by more rigorous research studies. Interventions supporting supplier and producer enterprises organised in clusters or value chains have gained increasing importance among donors and the intervention approaches have been improved on the basis of experiences and best practices.
- The outcome of the different forms of direct donor support interventions tends to differ. Direct donor support of non-financial BDS can provide a direct positive impact for the involved enterprises but the programmes are inefficient and lack sustainability. Business partnerships are rarely sustained but may have benefited local partners. Lack of institutional ownership and lack of cost recovery makes the interventions unsustainable.
- Direct donor credit schemes to enterprises are subsidised and lack sustainability. There is no clear evidence that they have broader development effects. Direct equity funding to private investments have multiple objectives but bilateral donor organisations generally perform well because they can manage their risk exposure. There is generally a trade-off between financial performance and development objectives, which often lowers the performance of investments in Africa more than in Asia. Direct intervention projects are costly – the unit cost per enterprise is high and spear effects are rarely demonstrated.
- The evaluations of trade-related capacity building echo many of the themes from previous types of interventions, such as: the need for integrated approaches; the importance of political commitment and effective local ownership; tailor-made approaches work better and are better adjusted to local context; the most effective interventions have been implemented through small organisations with a practical approach and concrete assistance; the least effective interventions have been diffuse, theoretically-dominated, up-stream interventions.
Recommendations:
- The nature and dynamics of the business sector is often not fully understood in development agencies and hence the complexity of the sector is not appropriately reflected at the policy level, nor is it sufficiently integrated in country strategies and in related sector strategies. Development interventions and policies need to consider the role of the business sector in specific programmes, as well as the impact of those programs on the business sector.
- The experience of many donors suggests that business sector interventions need to take account of the enabling environment as well as to provide scope for interventions at firm level. Interventions at multiple levels are interdependent and support each other and create scope for more relevant and effective programs. The sequence of interventions is important and it is often better to start at the macro-level with interventions in respect to sector policies, legislative frameworks and the development of an enabling environment.
