The strategic role of the private sector in agriculture and rural development (Part 2)

The strategic role of the private sector in agriculture and rural development

Platform Knowledge Piece (Part 2)

Jonathan Mitchell

Wednesday 28th March 2012International Fund for Agricultural Development, Rome

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Rationale for working with private sector

• Donors must understand market systems to avoid using aid ineffectively or suffering unintended consequences

• Private sector may need support to implement market initiatives with pro-poor impacts

• Donor funding is small compared with domestic sources of rural finance (private and public sector) so emphasis should be on how donors can leverage these other sources of finance to reduce poverty at scale

• Donor funds are transient on a project and a recipient country basis (donors are withdrawing from Peru, Thailand and Vietnam) – the private sector is the key anchor for sustainability

Donor approaches Progression of PSD

approachesMACRO LEVEL INTERVENTIONS

•Structural Adjustment

•Infrastructure

•Access to financial services

FILLING GAPS LEFT BY MARKETS

•Research

•Extension Services

•Input Subsidies

•Business dev services

MARKET DEVELOPMENT PROGRAMMES

•Supporting producer groups

•Helping producers meet standards

•Value chain development

DIALOGUE AND PARTNERSHIP WITH BUSINESS

•Corridors

•Policy engagement

•Core corporate strategy

Summary of findings on impact (1)

Macro-level interventions to improve enabling environment:• Structural adjustment: still largely support but, in themselves,

insufficient to generate private sector-led development• Infrastructure development: sustainability issues but road and ICT

infrastructure have had striking results• Business development services: Many different approaches with

varying success, sustainability often an issue

Direct financial assistance to business:• Social venture & patient capital: Limited availability and donor

acceptance of risk is limited• Challenge funds & loan/equity through DFIs: clear rationale & some

success but donors concern with failure rate and poor M&E• Credit enhancement: mixed evidence on additionality & sustainability of

credit enhancement mechanisms

Summary of findings on impact (2)

Market development:• Overcome barriers to market entry: some successes, particularly

with using technology improvements to upgrade farmer output• Supporting producer groups to be viable: some good results if

focus is on giving farmers access to viable value chains• Incentivising commerical sector to engage smallholders: Some

significant impact at low cost, donors adopt facilitating role

Dialogue & partnership with business:• Partnerships and strategic initiatives: Private sector takes a leading

role, donors focus on improving development impact & sustainability of initiatives

• Policy dialogue: importance of consultation mechanisms to promote market development success & sustainability

Donor approaches:An evolving agenda

FAO & EU

WB/IFC

AusAidCIDA

GIZ

IDH

DFID

SDC

USAID

partnerships

Market transformation

Value chains

Challenge funds

Market development

Donor approaches: Conclusions &

Recommendations (1)1. Engage more closely with private sector:

Many traditional approaches to ARD have failed and spending on private sector development is limited

2. Strengthen knowledge sharing: Much hope in market based approaches, although limited evidence of impact or learning from each other

3. Challenge traditional ways of delivering aid: Different donors are in different places on this agenda – and the enthusiasm for private sector engagement varies

Donor approaches: Conclusions &

Recommendations (2)4. Support institutional innovation: Many donor

agencies are not well equipped to work with the private sector and partner with DCED

5. Evidence supports porfolio approach: There is evidence that donors can help private sector development both with short-term market development initiatives and also ‘hard’ infrastructure

6. Impact at scale: The prospect of working more closely with the private sector is more effective aid and poverty reduction at scale through leveraging in additional finances

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