Press Notice 57a, Session 2005-06

DFID MUST AVOID "SCATTER GUN" APPROACH
TO PRIVATE SECTOR, SAYS COMMITTEE

DFID may be trying to "run before it can walk" in its approach toward the private sector, says a report by the Commons International Development Committee, released today, Sunday 23 July 2006.

The report concludes an inquiry into private sector development (PSD), an approach to poverty reduction that underlines the central role of economic growth, driven by businesses, in alleviating poverty. The Committee argues that PSD is not a sector approach, but a "way of doing things" that should be integrated across DFID's policies but also through more efficient co-ordination with other UK departments. The Committee is concerned that DFID's structure has not "caught up" with its growing prioritisation of PSD, and that a "cultural divide" seems to exist between DFID and the private sector, which could compromise the capacity of companies to contribute to PSD.

The typical private sector entity is not the archetypal large multinational company, but a rural smallholding, a market stall or co-operative factory. 90% of people from sub-Saharan Africa are in the private sector: as the Secretary of State for International Development, Hilary Benn, recently stated, "Poor people are the private sector". The Committee argues that sustained poverty reduction will require the development of small and medium-sized enterprises and increasingly it will be the role of donors to help governments and the private sector deliver the "right kind of growth" that will benefit the poor.

This could involve working with companies on the way they trade, invest, employ staff and address their social and environmental impacts, and working with UK banks and other country governments to tackle corruption, for example reviewing the practice of lending to countries based on their natural resources. A particular area where greater co-ordination across Departments would be beneficial is the implementation of international codes on the private sector's social and environmental impacts. The Committee also concludes that the mistakes of the 1990s €” assuming that the private sector will shoulder the burden of responsibility for infrastructure investments €” must not be repeated.

The Committee makes a series of recommendations for DFID's work on supporting private sector development:

- focus more explicitly on creating and sustaining jobs, especially for young people, and prioritise minimum labour standards globally

- use its authority amongst the Africa Infrastructure Consortium donors to build on initial momentum and swiftly generate extra investment for African infrastructure

- increase and broaden its property rights programmes

- expand and develop its successful leadership on the Extractive Industries Transparency Initiative and consider transferring it to mandatory approach

- develop a work stream on PSD for fragile states and the poorest countries and expand work on microfinance and other financing initiatives

- encourage China to invest responsibly in Africa

- increase support to co-operatives

- increase support for the Ethical Trading Initiative and consider its expansion into a company monitoring mechanism and support improved implementation of international codes for multinational companies

- explore remittances and other inward investment schemes and engage the private sector to find additional ways to channel investment into home countries

The Committee concludes that it is imperative that DFID's PSD policies are underpinned by a clear strategic plan. DFID should be aware of changing donor 'fashions' in PSD and carve out a sustainable, long-term model for its PSD policies.

The recent White Paper, while it devoted a chapter to PSD, did little to assuage the Committee's concerns regarding DFID's private sector approach. The Committee say that the impressive array of policies and financing mechanisms set out in the Paper remain just that - a collection of initiatives that are not necessarily adequately linked by a clear PSD strategy. DFID must take time out from innovation to develop a clear PSD strategy, together with deliverable, practical and time-bound plans for the full implementation of existing PSD policies.

Rt Hon Malcolm Bruce MP, Chairman of the Committee, said: "DFID's thinking is definitely heading in the right direction on this area, but we are afraid that they are simply not "walking the talk" when it comes to the capacity in the Department. Without a long-term vision and coherent strategy, backed up by the necessary resources and expertise in the Department, their capacity for innovation could end in a scatter-gun approach to PSD.

"The success of the Asian growth economies has been largely private sector led. If increased aid to Africa is to deliver poverty reduction a dynamic private sector is essential. If this is not done properly, we could get an incoherent mix of new policies that would actually undermine the private sector's potential to contribute to poverty reduction."

An embargoed electronic or hard copy will be available for witnesses, Government Departments and the press from 11.00 a.m. on 21 July. If you would like to be emailed an embargoed copy or would like to arrange collection of an embargoed report from 7 Millbank please e-mail [email protected] or call 020 7219 1223.

If you would like to arrange interviews with the Chairman or Committee Members please contact the Media Officer, Jessica Bridges-Palmer on 020 7219 0724 / 07917 488 447.

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Detailed enquiries to Chloe Challender, Committee Specialist on 020 7219 1522 or [email protected]

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Further Information:

The membership of the Committee is as follows: Malcolm Bruce MP (Chairman, Lib Dem), John Barrett MP (Lib Dem), John Battle MP (Lab), John Bercow MP (Con), Hugh Bayley MP (Lab), Richard Burden MP (Lab), Mr Quentin Davies MP (Con), Mr Jeremy Hunt MP (Con), Ann McKechin MP (Lab), Joan Ruddock MP (Lab), Mr Marsha Singh (Lab).