Private sector development (PSD) has taken on an increasingly prominent role in both the debates as well as budgets of international development cooperation in recent years. PSD interventions generally put emphasis on comparative advantage, an enabling business environment and horizontal/neutral policies. However, the debate on the role of industrial policy in supporting economic development is re-emerging. Important drivers of this debate have been the financial crisis, green growth initiatives, the obvious success of China as an industrial powerhouse, and the increasing locational competition for high value-added activities.
While the promotion of local private sector activities in developing countries and the support of donor countries’ business activities in partner countries have for a long time been part of development cooperation strategies, the private sector has more recently also taken on a more proactive role in development policy. Businesses, particularly international ones, are increasingly given space in international and national policy discussions, acting as a partner to address development challenges and designing, financing and implementing development activities together with official development actors.
Important questions emerge in this context that ÖFSE assesses:
- What are the reasons for the increasing importance of PSD?
- Which activities are currently subsumed under the term private sector development by different actors, donors and institutions? What strategies, concepts and theoretical approaches are being pursued?
- To what extent do PSD interventions reflect the interests of the private sector in partner countries or of businesses of donor countries?
- How have discourses and policies changed with the, mostly international, private sector becoming increasingly a partner (and not only a tool) for development?
- How can PSD interventions contribute to inclusive development and poverty reduction?
- What is the role of industrial policy in PSD interventions? To what extent is the re-emerging debate on industrial policy reflected in new generations of PSD interventions?
- Which industrial policy measures are required, that support structural change as well as employment creation, decent jobs and environment sustainability?
Since the beginning of 2016, ÖFSE has been working on a study commissioned by the German Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on institutional setup for industrial policy in developing countries. This project is part of EQuIP (Enhancing the Quality of Industrial Policies). The study begins with an analysis of aspects of the political-economy of countries that essentially determine whether industrial policy plays an important role and is effective and which institutions are necessary. The project combines state-theoretical approaches and concepts such as hegemony and embedded autonomy with institutional approaches and examines industrial policy institutions in case studies. The goal is to develop a manual for policy makers who want to build industrial policy institutions. The manual is designed as an analysis tool to understand the country-specific context and to adapt industrial policy strategies and institutions to this context.