Briefing Paper

Briefing Paper 190 (2016)   

Private sector development:
Strengthening the role of the private sector in the European development policy

Publicerad 25.1.2016

Tito Gronow
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 countries (LDCs).

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.