Economic development, growth and employment

Private sector promotion

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Bricklayer in South Africa.

Private businesses provide jobs and generate income. The taxes they pay lay the foundations for ensuring a viable public sector. Private sector promotion offers vitally im­por­tant leverage for structural pov­er­ty reduction, em­ploy­ment pro­mo­tion and the mobilisation of indigenous resources.

In many co­op­er­a­tion coun­tries the private sector has a com­pa­ra­tive­ly low level of pro­duc­ti­vi­ty, com­pe­ti­tive­ness and di­ver­si­fi­ca­tion. A large percentage of the private sector is accounted for by small and micro-enterprises operating in the informal sector. A productivity gulf separates small and large enterprises, a gulf far wider than that seen in industrialised coun­tries. Few small enter­prises manage to expand and become medium-sized or large businesses.

Their lack of competitiveness is thanks partly to shortcomings in the coun­tries' infra­struc­ture and education systems, as well as the enter­prises' lack of access to credit. Unfavourable political and legal conditions on the ground, corruption, the lack of access to state and private services and the in­ade­quate inter­action between the state and industry are all obstacles to businesses.

The strategy of German de­vel­op­ment policy

In private sector promotion, German de­vel­op­ment co­op­er­a­tion aims to strengthen private businesses in co­op­er­a­tion coun­tries. There is a special focus on micro, small and medium-sized enterprises, which account for the lion's share of private businesses in co­op­er­a­tion coun­tries, and offer poor sections of the popu­la­tion employ­ment and income op­por­tu­ni­ties. Over and above this a few measures, such as im­prov­ing the business en­vi­ron­ment, can also attract more invest­ment on the part of foreign busi­nes­ses. This too can boost the domestic economy.

To further increase the impact, private sector promotion measures are linked with com­ple­men­tary programmes in the fields of economic policy, financial systems de­vel­op­ment, (vocational) education, infra­struc­ture and good governance.

The following measures are at the heart of the German private sector promotion strategy.

Putting in place an enabling en­vi­ron­ment for private investment

Germany supports state actors, enabling them to work with the private sector to analyse the opportunities for and constraints to private sector de­vel­op­ment, and to draw up reform plans. Together the two sides devise strategies to improve legislation and bureau­cratic procedures, and put these improve­ments into practice. This might, for instance, involve procedures for registering companies or issuing licenses. German de­vel­op­ment co­op­er­a­tion aims to achieve "good regulation" that also takes into account social and environmental values and standards.

Moves to put in place a more enabling en­vi­ron­ment for cross-border economic activities include dismantling barriers to trade and invest­ment, and simplifying and harmonising the pertinent legislation and standards. At the same time, within the scope of aid for trade, co­op­er­a­tion coun­tries are enabled to play an active part in shaping the in­ter­na­tional terms of trade.

Establishing competitive and sus­tain­able economic structures

In many co­op­er­a­tion coun­tries, structural changes are needed if the private sector is to develop or build on competitive advantages.

Within the framework of sectoral economic promotion, Germany supports the de­vel­op­ment of specific branches of the economy that offer good prospects in terms of economic growth, value added and employment. Local and regional economic promotion approaches aim to improve the competitiveness of selected locations and economic areas.

Germany also supports co­op­er­a­tion coun­tries in their efforts to put local private industry on an environmentally sus­tain­able footing. Important aspects of activities in this field include adjustment to climate change and the iden­ti­fi­ca­tion of the potential in "green" branches of industry. To support ecologically sus­tain­able pro­duc­tion procedures, the Federal Ministry for Economic Co­op­er­a­tion and De­vel­op­ment (BMZ) is working to help industry make more efficient use of resources, and to ensure compliance with environmental standards.

Robust systems that foster innovation enable businesses to boost their productivity and com­pe­ti­tive­ness, and allow them to gain a toehold on new markets. The Federal Republic of Germany advises co­op­er­a­tion coun­tries on how to develop and imple­ment strategies and promotion programmes of this sort. The capacities of essential institutions in an innovation-promoting system, including research and de­vel­op­ment facilities with close links to industry, are established and developed with German support.

German de­vel­op­ment co­op­er­a­tion also helps develop the institutional en­vi­ron­ment that is needed to represent the interests of private businesses and to deliver the services that these businesses need. Chambers of commerce, industry and skilled crafts, and business associations can play a key role in representing the interests of the private sector and shaping reform processes, as well as acting as service providers for private enterprises.

Promoting sus­tain­able corporate governance

The German gov­ern­ment would like to better harness the potential offered by the private sector in the interests of achieving sus­tain­able de­vel­op­ment. Co­op­er­a­tion arrangements with private businesses help mobilise private funds that can then be used for de­vel­op­ment purposes, while also main­stream­ing socially and en­viron­men­tal­ly sus­tain­able business practices.

Germany provides long-term financing for sus­tain­able investment projects of private businesses provided they are environ­men­tal­ly and socially sound. This is often flanked by advisory services that ensure compliance with the principles of sus­tain­ability and good corporate governance.

The promotion of inclusive, broad impact business models encourages businesses to adopt approaches geared to resolving social and environmental problems. Approaches of this sort often offer financially sus­tain­able ways forward to boost de­vel­op­ment and reduce pov­er­ty, by focusing on integrating poor individuals in value chains as consumers and clients, but also as employees, producers and entrepreneurs.

By promoting corporate social re­spon­si­bil­i­ty and establishing pertinent initiatives and networks, the Federal Ministry for Economic Co­op­er­a­tion and De­vel­op­ment (BMZ) helps develop awareness and private-sector commitment in areas such as environ­mental protection, resource efficiency, labour rights, human rights, health and safety, and training.

Special rules apply to private sector promotion during conflicts and in post-conflict scenarios. Special attention must be paid to making measures conflict sensitive (in line with the "do no harm" principle), so as to avoid ag­gra­vat­ing existing conflicts. At the same time, private sector promotion in coun­tries like this can help build market structures and stimulate economic cycles. Jobs and income provide the popu­la­tion at large and the (former) parties to the conflict with a "peace dividend".

BMZ glossary

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