Role of Private Sector in Developing Countries

At the launch of the UN-private sector alliance to fight poverty, AIDS, illiteracy aimed at achieving targets set at the 2000 Millennium Summit, United Nations Secretary-General Kofi Annan called it a task of ‘crucial importance’ going on to say:

“We cannot reach these goals without support from the private sector most of all, we cannot reach them without a strong private sector in the developing countries themselves, to create jobs and build prosperity”

The United Nations (UN) Commission on the Private Sector and Development states that:

"poverty alleviation requires a strong private sector. It is the source of growth, jobs and opportunities for the poor. The lack of key elements of the investment climate, particularly in the rural economy, result in high costs that inhibit the emergence of small-scale entrepreneurs and traders and deny the poor the opportunity to participate in economic growth.”

UNCTAD´s Least Developed Countries Report 2006 argues that the development of domestic productive capacities and concomitant expansion of productive employment opportunities is the key to sustained economic growth and poverty reduction in the least developed countries (LDC’s). The report also states that unless more aid is channeled into building up the productive bases of LDC economies, they will remain vulnerable to sudden downturns, and substantial long-term reductions in poverty will not occur, since productive jobs are the way economic growth translates into rising living standards for most inhabitants.

In a joint report by World Bank, IFC and Oxford University Press Doing Business in 2005 the lag in reforms in poor countries is highlighted as a constraint for the private sector:

"Businesses in poor countries face much larger regulatory burden than those in rich countries. They face 3 times the administrative costs, and nearly twice as many bureaucratic procedures and delays”

The Digital Divide Report: ICT Diffusion Index 2005 UNCTAD. The digital divide between nations remains wide: a person in a high-income country is over 22 times more likely to be an Internet user than one in a low-income nation. The report ranks 180 countries and monitors how the digital divide is evolving. As expected, the top places are dominated by industrial nations from North America and Western Europe and by the Asian "tigers," while many of the lower-ranking countries are in Sub-Saharan Africa. According to the report there are many reasons for the digital divide, but most are related to the primary cause: poverty. 

The importance of Information technology is highlighted by Kofi Annan, Secretary-General, United Nations:

 “Information technology... is a powerful force that can and must be harnessed to our global mission of peace and development. This is a matter of both ethics and economics; over the long term, the new economy can only be productive and sustainable if it spreads worldwide and responds to the needs and demands of all people. I urge everyone in a position to make a difference to add his or her energies to this effort.”

Irish Aid support to ICT


Foreign Direct Investment Flows

2005 World Investment Report –The World Investment Report (UNCTAD) focuses on trends in foreign direct investment (FDI) worldwide, at the regional and country levels and emerging measures to improve its contribution to development.

OECD Trends and Recent Developments in Foreign Direct Investment: 2006 The global environment for foreign direct investment (FDI) improved in 2005.

Investment for Development: 2005 Annual Report - Investment Policy Co-operation with non-OECD Economies Mobilising private investment is recognised as a priority area for development so that poor countries are not left further behind. But reaping the maximum benefits of investment is not automatic. Policies matter too. A key challenge, therefore, is how to frame investment policies in a way that supports and reinforces economic development.

Global Development Finance 2006: The Development Potential of Surging Capital Flows. Net private capital flows to developing countries reached a record high of $491 billion in 2005, driven by privatizations, mergers and acquisitions, external debt refinancing, as well as strong investor interest in local-currency bond markets in Asia and Latin America, says the World Bank’s annual 2006 Global Development Finance report. The surging flows, including record bank lending and bond issuance, among others, coincided with 6.4-percent economic growth in the developing world last year, more than double the 2.8-percent growth in developed countries.

Determinants of FDI in Developing Countries: Has Globalization Changed the Rules of the Game Source: Working Paper 1122. Kiel Institute for World Economics, Kiel, July 2002. This paper conducts an analysis of the determinants of foreign direct investment (FDI) in light of globalization and recent policy changes in many countries. A complete literature review and econometric analysis reveal that only the availability of local skills has clearly gained importance in attracting FDI.