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A new approach to private sector engagement in Canadian development cooperation?

Published: January 15, 2016

by Shannon Kindornay

Following the 2015 election, the mandate letter for MP Bibeau, Canada’s Minister of International Development and La Francophonie, was clear – it is time for a new approach to Canada’s development assistance. The letter, inter alia, says that Canada should become a leader in development innovation and effectiveness, including by examining new aid delivery mechanisms and partnerships.

In my view, there is no question that increased engagement with the private sector will have a role to play in this context. Notwithstanding Canada’s leadership on innovative financing for development and engagement in results-based financing initiatives, Canada lags behind its peers, particularly in terms of adopting specific funding windows and mechanisms for private sector engagement. Canada’s approach tends to be ad hoc, with the government providing support for specific initiatives or partnerships, rather than establishing a transparent, holistic and coherent suite of engagement tools with standardized entry points for the private sector, clear objectives and specific criteria for partner selection.  While the Development Finance Initiative that was announced in 2015 by the previous government will expand Canada’s toolbox, Canada’s approach to private sector engagement in development could do with some revamping and ramping up.

I have been conducting research on the role of the private sector in development, particularly in the context of development cooperation for nearly five years. Here are some of the most pertinent lessons for Canada that I have encountered so far. The lessons below are more general in nature. In a second blog, I will outline specific lessons that could inform the consolidation and expansion of Canada’s suite of private sector engagement mechanisms going forward.

Use development objectives and desired results to determine the selection of partners

This might seem obvious, but in the development world of trends and fads we can often lose sight of the “what” in our excitement over the “how.” Notwithstanding the excellent reasons for partnering with the private sector in development, we need to avoid the risk of partnership for the sake of partnership.

This might seem obvious, but in the development world of trends and fads we can often lose sight of the “what” in our excitement over the “how.”

The private sector brings a lot to development – finance, job creation, tax revenues, technology transfer, and know-how – and will no doubt play an important role in realising the Sustainable Development Goals. However, traditional development partners – civil society organisations (CSOs), international organisations, partner country governments, research institutions and others – continue to serve as valuable partners.  Development objectives should be set first, and from there, the process of selecting the best partners to realise desired results. This approach allows for flexibility in exploring potential partnerships with a wide range of stakeholders, and ultimately selecting partners according to their ability to help realise results.

Use push and pull levers

Private sector engagement is as much about pulling along like-minded partners as it is about pushing the laggards. The provision of finance and expertise, and the convening role government can play in facilitating multi-stakeholder partnerships are pull factors. Any new approach to partnership with the private sector should be rooted in the comparative advantages of Global Affairs Canada (GAC) – competent staff with significant sectoral and regional expertise, local networks, convening power, policy dialogue, and established relationships with a wide range of traditional development partners. Though GAC brings finance to the table as well, most donors agree that finance is not really the biggest incentive for the private sector engage, particularly large companies.

Private sector engagement is as much about pulling along like-minded partners as it is about pushing the laggards.

Private sector engagement is not just about the hero companies – those that understand the value proposition of engaging in sustainable development for their core business and are leading their respective industries. It is also about pushing companies to take action on sustainability issues and fostering corporate social responsibility and responsible business practices through regulatory and voluntary initiatives. Canada’s Corporate Social Responsibility Policy – which includes support for CSR initiatives around the world and the promotion of CSR at multilateral and bilateral levels – is a start, but efforts could go further in development cooperation. For example, Sweden’s Drivers of Change program supports organizations that work to influence the private sector and/or the market for the benefit of people living in poverty and for a sustainable development. Under this mechanism, funding is available for advocacy activities geared towards improving business practices within particular sectors and watchdog functions, as well as for partnerships between CSOs and the private sector.

Plan now to communicate results later

Existing data management and information systems may require updating to effectively capture the totality of private sector engagements. This can be particularly challenging when funding is allocated through CSOs, international organizations or knowledge partners as implementers in private sector partnerships. Thanks to the reporting requirements under the ODA Accountability Act, and our commitments to the International Aid Transparency Initiative, Canada has fairly good systems in place. Nevertheless, capturing the breadth of engagements, and their results, will likely require new markers or other provisions. Moreover, there is the question of how to report on the intangible impacts and benefits of working with the private sector. This is particularly true in the case of policy dialogues which may lead to significant changes in business models and approaches but may not include financial disbursements.

In addition to the challenges presented by existing information systems, results frameworks need to be adapted to meet the needs of all partners. At the same time, reporting aggregate figures requires some level of harmonization. The Netherlands has taken a stab at aggregate reporting in the area of private sector development where the bulk of its private sector engagement activities take place. The report, which makes use of indicators produced by international organizations as well as those used in partnerships is not perfect, but it does provides an overall narrative on results for the Netherlands’ work in the sector and is digestible for the public.

There is no simple answer on how best to communicate the overall results from private sector engagements, particularly given that partnership is possible in every sector. Nevertheless, consideration should be given to how results will be defined, measured and communicated across partnerships.

Don’t underestimate the resources needed to engage the private sector effectively

Finally, perhaps one of the most important lessons I’ve seen so far in my work is how resource intensive it is to effectively engage the private sector in development (though we know from the private sector’s perspective, the same is true of the public sector). The reality is that more complex engagement instruments and partnerships require greater human resourcing. The use of non-traditional finance mechanisms – such as blended financing, an area in which Canada wants to lead –   should be matched with varied and greater staff capacities. Program staff may require support by specialists depending where partnerships originate and how they are managed. Partnerships with larger companies tend to require significant investments in time to explore potential collaborations while multi-stakeholder partnerships add complexity to project design and implementation, placing higher demands on staff time. These realities need to be factored in when adopting new approaches to partnership.

Stay tuned for part two of this blog which takes a closer look at how Canada can consolidate and expand its suite of private sector engagement tools.

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