The private sector is the main driver of growth and employment creation. Private sector actors are responsible for approximately 90% of jobs in developing countries. IDG uses a market-systems approach. A market-systems approach is one that recognizes the intertwined linkages in the public and private sectors among the 5Rs (resources, roles, relationships, rules, and results). The market-systems approach seeks to understand how a market functions by identifying the root causes limiting economic diversification and linkages to regional value chains (RVCs) and global value chains (GVCs). The approach also identifies the characteristics constraining target groups (female-owned businesses, SMEs, youth, domestic investors) competitiveness. A significant impediment facing SMEs is the difficulty associated with expanding their market reach beyond their own country—assistance that help firms with export-oriented development can be particularly impactful.
IDG’s approach to private-sector development generally would start by using metrics like Revealed Comparative Advantage (RCA) and the more rigorous and innovative “Theoretical RCA” as a first step in identifying promising subsectors, supplemented by consideration of market system networks, donor and country economic growth priorities, and opportunities for diversification and increasing productivity. PSD activities could focus on some of the following topics: registering and meeting formal tax and regulatory and standards requirements; lack of commercial business consultancy and advisory services; access to key commercial and technical information that would enable more effective competition; access to finance and financial services (including assistance to Development Finance Corporation investment transactions); access to markets; weak marketing and product development; high transport costs (especially for rural and agri-based activities); and weak workforce development. We place an emphasis on business service providers (BSPs) and strengthening their capacity to develop and provide services on a sustainable fee basis, while transferring know-how and skills to their SME clientele. We work to reduce trade and transaction costs, create opportunities for business service providers, including targeted training, and share good practice lessons on knowledge platforms, and in outreach events. We work with a wide range of private sector advocacy organizations, and business associations to build participatory support for improved competitiveness and innovation.
Private-sector development obviously needs to go hand-in-hand with private-sector engagement. The private sector needs to be a full partner in IDG activities to support the sector.