Private sector development:
Strengthening the role of the private sector in the European development policy
The Finnish Institute of International Affairs
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Private sector development (PSD) is becoming a major
development policy area. PSD has enormous potential to function as a catalyst
for private sector investment in developing countries, creating inclusive and
sustainable growth and alleviating poverty.
PSD is still being (re)formulated. A decrease in the importance of official
development aid (ODA), the economic crisis, the challenge posed by emerging
powers in development cooperation, the EU’s institutional development, and the
partnership with the African, Caribbean and Pacific Group of States (APC) have
affected PSD in the EU.
PSD is interlinked with the EU’s coherence challenges. PSD
has paradoxically been seen as a retreat back to protecting national interests
or as an ambitious attempt to achieve common development goals. Loose groups of
member states are beginning to form around PSD. The EU Commission, together
with the most advanced member states, functions as a concept and policy
generator for PSD.
There is growing competition for the decreasing funds
allocated to more traditional development cooperation, to PSD, and in certain
cases to finance the costs of the refugee crisis. A major concern is that
private sector development reduces financial flows to the least developed
The success of PSD is also strongly linked to the success of
Agenda 2030, the Addis Ababa International Conference on Financing, and climate
financing. The EU plays a pivotal role in these global commitments, which also
have a major impact on shaping PSD within the EU.