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Canada bolsters private sector in developing countries
March 01, 2004
Ottawa, Ontario
NEWS RELEASE
Prime Minister Paul Martin today announced two initiatives aimed at unleashing the power of the private sector to help reduce poverty in developing countries. The announcement was made in New York as the Prime Minister and his Co-Chair, former Mexican President Ernesto Zedillo, presented the report of the Commission on Private Sector and Development to United Nations Secretary General Kofi Annan.
The report, entitled Unleashing Entrepreneurship: Making Business Work for the Poor, calls on the international public and private sectors to identify the best practices, domestic policies, enabling reforms and strategic partnerships that will encourage entrepreneurship in developing countries.
"The Commission’s report is a call to action on behalf of the billions of people in this world who want to fulfill their wishes and develop their capacities. So that they can be freed of the denial of their humanity that poverty inflicts. So that they can gain dignity, self-respect and a livelihood that is their right as fellow humans,” said the Prime Minister. “With the Commission’s report and the initiatives we announce today, we have taken the first of what we hope to be many steps towards enlightened partnerships that will make small business growth and reduced poverty in the developing world a reality.”
Canada, in partnership with the United Nations Development Programme, will convene a taskforce of public and private sector representatives to propose an organizational infrastructure for a global brokerage function. This brokerage function – creating links between developed and developing country private sectors – would help to reduce overall risk and transaction costs that often serve as impediments to investment and action in developing countries.
In addition, the Prime Minister announced that Canada will support the Local Enterprise Investment Centre, to be piloted in Dhaka, Bangladesh. The Centre will provide services that help small and medium enterprises in that country prepare for and identify investment partnership opportunities. With support from the Canadian International Development Agency (CIDA), the project will test the effectiveness and developmental benefits of this improved two-way information exchange between the public and private sectors in developed and developing countries.
CIDA has supported private sector development for over 30 years, with programming in excess of $200 million a year. Last year, CIDA launched its policy statement: Expanding Opportunities Through Private Sector Development. A good example of ongoing support for private sector development is the Canada Fund for Africa's program for building African Capacity for Trade (PACT). PACT, which was announced at the G-8 Summit in Kananaskis in 2002, is a trade-related technical assistance program designed to provide practical support to small and medium enterprises in Africa, to enhance their capacity to do business internationally.
A copy of the report of the Commission on Private Sector and Development, entitled Unleashing Entrepreneurship: Making Business Work for the Poor, is available at the following address: www.undp.org
BACKGROUND
Report of the Commission on Private Sector and Development
The UN Commission on the Private Sector and Development, co-chaired by Prime Minister Paul Martin and Ernesto Zedillo, Mexico's former president, was created by UN Secretary General Kofi Annan in July 2003.
The Commission was to identify and address the legal, financial, and structural obstacles to expanding the local private sector in developing countries, especially in the poorest regions and communities.
The Commission’s report of March 1, 2004, entitled Unleashing Entrepreneurship: Making Business Work for the Poor, drew on the expertise of the Commission’s 15 members from both the developed and developing worlds. The Commission intends to see its recommendations put into practice, unleashing the full economic and social potential of small and mid-size businesses employing and serving the world’s poor.
Initiatives to be announced in the coming months will include projects led by the United Nations, as well as projects conceived and managed by members of the Commission, the private sector, and international development institutions. To ensure that the many issues identified in the report are acted upon, the Commission has asked that the United Nations track the progress of private sector development through an annual report.
Canada responded to the Commission’s recommendations immediately by announcing two initiatives aimed at removing obstacles to the expansion of the local private sector in developing countries. These are a task force to develop a mechanism to foster greater links between the private sector in developed and developing countries, and a pilot project in Bangladesh to spur growth in small and medium companies.
Task Force on the Brokerage Function
A key finding of the Commission is the need to tap private sector capabilities and resources in developed and developing countries to promote economic growth in developing countries. Existing energies and opportunities are rarely used because the needs in developing countries have not been well matched with resources and interests around the globe.
In response, the report stresses that an effective brokerage infrastructure that promotes links between private sectors in developed and developing countries would make more transactions between them feasible by reducing the overall risk and transaction costs that often serve as impediments to investment and action.
Establishing a brokerage function would
- support the growth of small and mid-size firms;
- harness the power of private sectors;
- increase access to market information, technology, and finance in developing countries;
- strengthen links between private sector actors — including entrepreneurs, businesses, institutions, civil society, and non-governmental organizations in developed and developing countries; and
- support, accelerate, scale up or replicate innovative initiatives. These initiatives include public-private sector partnerships and new business models that serve the poor. They also involve helping small and medium-size businesses obtain access to national and international markets; linking international investors or partners with local companies or entrepreneurs; and helping bring new technologies into use.
Many private sector, civil society, bilateral and multilateral organizations are already involved in private sector development activities in developing countries. They do this, for example, by supporting regulatory reforms to create strong environments for private sector growth; by providing capacity building, technical assistance, and training to micro, small, and medium enterprises; and by increasing access to markets — rural, national, regional, and international.
Canada and the United Nations Development Program will convene an action-oriented task force of experts from the public and private sectors to examine the proposed brokerage function and to recommend an organizational structure to develop and deliver the brokerage role.
To develop an organizational structure to support the role, the task force will explore the following questions:
1. How can brokerage be used to unleash entrepreneurship and support small and mid-size enterprises in developing countries?
2. Who are the key actors or partners, and how can they best engage in the brokerage function?
3. What kinds of financing mechanisms would be necessary to support this
brokerage function, and who would be best placed to deliver them?
The task force will propose an organizational structure to manage the development of a brokering relationship between partners in developed and developing countries. This structure will seek to involve existing complementary groups that are best placed to strengthen business links between the organizations.
Canada will host a small secretariat to aid the work of the task force, which will complete its work by Sept.1, 2004.
Local Enterprise Investment Centre Pilot, Bangladesh
In developing countries, there are not enough competitive small and medium firms, and the existing ones are not growing into large companies. In Bangladesh, 177,000 small and medium enterprises employ 82 per cent of the industrial labour force (23 per cent of the total labour force). However, these companies contribute only half of the industrial output.
Many of the Commission’s recommendations speak to the need to channel private sector initiative into development efforts, facilitate access to broader financing options, assist skill and knowledge development, and develop new partnerships between multinational and large domestic companies to nurture smaller businesses in developing countries.
Canada, through the Canadian International Development Agency, will pilot a $5 million, three-year Local Enterprise Investment Centre in Dhaka, the capital of Bangladesh. The investment centre will help small and mid-size firms attract investors by strengthening the capacity of a local institutional partner to provide them with core services that build the knowledge, skills, and partnerships needed to navigate the early stages of the investment process. Services will be tailored to the needs of these businesses in such areas as project design, feasibility studies, business planning, and due diligence.
The Centre will support
- small and mid-size enterprises entering joint ventures or other partnerships that improve competitiveness and growth through capital, technology and good business practices;
- a local development finance institution experienced in financing, leasing, guarantees, syndication, and equity investment; and
- links to networks of small and medium firms and partnerships between domestic and global investors.
Canada will examine whether the Local Enterprise Investment Centre could be used as a model for other countries that have been identified as priorities for development assistance.
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