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What should Canada’s portfolio for private sector engagement in development look like?

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Published: January 27, 2016

by Shannon Kindornay

In my first blog on private sector engagement in Canadian development cooperation, I highlighted some of the overarching lessons for Canada’s engagement with the private sector in development cooperation based  on my years of research in this area. In this blog, I take a closer look at Canada’s current approach to private sector engagement and offer some lessons which could inform a consolidated and expanded approach in the future.

Canada’s current approach to private sector engagement

The Canadian government does not have an overarching policy that sets out the objectives of and mechanisms for private sector engagement in development cooperation. Global Affairs Canada (GAC) has a website which does however articulate some of the key elements of Canada’s approach. It notes that Canada “pursues strong results” in the following areas: coordination, investments, partnerships and innovations.

In the area of coordination and investments, the website points to Canada’s role on the Redesigning Development Finance Initiative, and efforts to create global mechanisms that enable the blending of public and private capital to finance development goals. In addition, the website highlights a number of funds and initiatives supported by Canada to leverage private financing, including the New Partnership for Sustainable Impact Investing in Frontier Markets and the Global Health Investment Fund.

With respect to multi-stakeholder partnerships, the website provides a number of examples of partnerships between the private sector and not-for-profit organizations in which the Canadian government has played a facilitation and financing role. Finally, in the area of innovation, Canada is supporting a number of initiatives, such as GAVI, the Vaccine Alliance and the Global Financing Facility for Every Women Every Child which aim to develop viable business models to increase access to goods and services for those who need them.

The Canadian government does not have an overarching policy that sets out the objectives of and mechanisms for private sector engagement in development cooperation.

In addition to these efforts, Canada also has the Development Finance Initiative which was announced in the 2015 budget and whose future is less clear given the change of government that occurred as a result of the October 2015 election. When announced, the Development Finance Initiative was mandated to provide finance, technical assistance and business advisory services to companies looking to invest in developing markets.

While Canada’s efforts are commendable, the current approach to private sector engagement is ad hoc. There is no clear articulation of GAC’s comparative advantage and offer to private sector partners, nor are the entry points for engagement clear. As the government moves forward on examining new approaches to aid delivery and partnerships, as outlined in the Minister of International Development and la Francophonie’s mandate letter, potential exists to further rationalise and ramp up Canada’s suite of private sector engagement tools.

Here are some of the key lessons which could inform Canada’s approach.

Continue to address the enabling environment for private sector engagement in development

While private sector partners welcome greater collaboration, the ongoing role of development aid in addressing the business enabling environment in partner countries, such as by supporting a level playing field, strengthening institutions and fighting corruption, remains crucial. In Canada’s case, sustainable economic growth – which includes activities to improve the enabling environment – is already a development priority and one that should continue.

Develop a flexible suite of private sector engagement tools that work together

Private sector engagement tools should work together with possibilities for tailoring according to partnership type and local context. Smaller companies for example, tend to require technical assistance and longer time frames for support than larger firms. Policy dialogues aimed at improving responsible business practices and industry standards should be matched with funding for concrete plans and initiatives arising.

Currently Canada lacks specific funding windows for the private sector and modalities for cooperation are not clearly articulated. Potential partners can apply for support through GAC calls for proposals or submit unsolicited proposals according to a set application process which is available to all development partners. A consolidated and enhanced approach to private sector engagement in development should be grounded in modalities that clearly articulate what GAC offers in terms of financing (and on what terms), technical assistance, capacity development and opportunities for policy dialogue. Such an approach would also improve transparency, particularly in terms of how initiatives and partners are selected for support.

While private sector partners welcome greater collaboration, the ongoing role of development aid in addressing the business enabling environment in partner countries, such as by supporting a level playing field, strengthening institutions and fighting corruption, remains crucial.

Make it easy for private sector partners to engage

It is important to ensure transparency towards partners in terms of the objectives that are trying to be achieved and the entry points for engagement. Once clear modalities for engagement are established, it should be easy for companies to navigate opportunities. Some countries – such as the Netherlands and Finland – have adopted a one-stop shop approach – private partners see one entry point into engagement activities (regardless of how opportunities are structured and managed internally). This approach seems to be appreciated by private sector partners.

Adopt a holistic approach

Finance and direct partnership are important tools, but are not the only tools to engage the private sector in development. Support for legal and regulatory reforms, and voluntary standards related to corporate social responsibility are also important for realising sustainable development outcomes. Dialogue is an effective tool in this context and can allow governments to broach sustainability issues with respect to core business operations. The role of government as a neutral facilitator to bring partners (and competitors) together is important to build confidence among competitors that it is acceptable to collaborate on sustainability issues.

Work with and learn from like-minded donors where possible to maximize the effectiveness and impact of private sector engagements

Multi-donor initiatives are a good way to harmonize efforts around key issues, combine available resources to reach scale, create and improve shared standards, including in the area of oversight, and reduce duplication of efforts. Canada’s current approach to private sector engagement includes significant support for multilateral initiatives. This is positive, and should continue.

A number of blueprints, tools and innovations exist with respect to how to work best with the private sector. Canada can gain efficiencies in the development of new instruments and partnerships by exploring and adopting best practices from others.

Multi-donor initiatives are a good way to harmonize efforts around key issues, combine available resources to reach scale, create and improve shared standards, including in the area of oversight, and reduce duplication of efforts.

Lessons on working with the private sector in development are accumulating, particularly as countries consolidate and expand their approaches, and development partners increasingly explore what works and what does not. For its part, the OECD-DAC has launched a peer learning process on working with and through the private sector in development – a process which I am helping to facilitate. In the summer, we will release a report on key lessons from the review of four donor countries and a series of events. The final report will focus on practical lessons learned from Canada’s peers, and offer further insights as Canada explores new approaches for the delivery of Canadian development assistance.

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