CIDA: Enterprise Development and Immigration

Definition of the Private Sector

The private sector is conceived as a basic organizing principle for economic
activity:

• where physical and financial capital is generally privately owned;

• where markets, competition, and profit drive production; and,
• where decisions are made and risks are taken as a result of private
initiative

The focus of CIDA's policy is on the growth of the domestic private sector
and well-functioning markets in developing countries and countries in
transition. This includes the informal sector, rural sector, and cooperatives
engaged in market activities.

Defining the private sector in this way is an important starting point. A

narrow, enterprise-based definition of the private sector encompassing
businesses, firms, and corporations would view PSD as the expansion of
enterprises. A development agency's role in PSD with this definition would
lead to programming focused on more or less direct support to enterprises.

The broader definition outlined above leads to an understanding of PSD that

is as concerned with conditions, constraints, institutions, and the economic
activities of people as it is with enterprises per se. It encourages us to see
the huge base of economic activity in most developing countries in the
informal sector, where individuals may be "enterprising" but where there
may be few formal enterprise structures. The definition also allows greater
understanding of how the rural sector contributes to economic growth and
points to the challenges marginalized populations may face in participating in
the market economy. Finally, looking at systems of economic organization
leads us to more clearly understand the significant economic contributions
made by women in the productive and reproductive spheres.

The entry points for a development agency such as CIDA include then many
types of interventions. Choosing the entry points that are most strategic and
effective in generating development is one of the key challenges this
framework seeks to address. The starting point for CIDA policy is the growth
of the domestic private sector, and well-functioning markets in developing
countries and in countries in transition.

Shifting Perspectives on Economic Growth and Private Sector

Development

Perspectives on PSD have been influenced by successful economic

development—or lack thereof—in many parts of the developing world.
Success of the "Asian tigers,"4 for example, led to focus on export-led and
outward-oriented development as the solution. Extensive liberalization in
other countries, however, has often not resulted in sustained growth.
Structural adjustment programs have too often failed. Debt relief, though
often significant, has also not led to a resurgence of healthy growth. While
the virtues of foreign direct investment (FDI) continue to be heralded, only a
few developing economies benefit sizably, leaving questions of how best to
stimulate broad-based economic growth.

Shifting away from the market fundamentalism of the 1980s, increasing

recognition was given during the 1990s to the view that good governance
and the enabling role of the state are also critical factors underpinning
sustainable growth. It has become increasingly evident that the state has an
important role to play for markets to function well, for growth to significantly
contribute to poverty reduction, to not lead to increasing disparities
(including gender inequality), and for growth to be environmentally
sustainable. Key interventions to support growth are now seen to lie in the
area of institutions and governance interventions that serve to enable market
access, prevent market failures, and support well-functioning markets. This
shift has also been termed as attention to "the quality of growth" its
composition, distribution, and sustainability.

PSD in developing and transition countries is embedded in and linked to

global markets and institutions. An international "enabling environment" is a
critical factor for the successful growth of most small economies around the
world. India and China can rely on large internal markets, but most
developing countries do not have this "luxury." As an institution that is a part
of this "international enabling environment" for developing and transition
countries, CIDA has a responsibility to develop a comprehensive and
coherent understanding of its roles in this context.

The functioning of the domestic private sector in developing countries can be

viewed through a number of perspectives, or "lenses." The first lens views
the private sector from the perspective of entrepreneurs and focuses on
whether there exists a supportive business and investment climate (the
"business lens"). The second lens focuses on the role that institutions play in
fostering the conditions for PSD (the "governance lens"). The third
perspective looks to see if the pattern of growth and its benefits is inclusive
of the poor: to what extent it enables the poor to access and participate in
markets and expanding opportunities (the "pro-poor lens").

The Pro-Poor Lens: Economic Freedom and Market Access

Achieving pro-poor growth requires policies and programs that facilitate

access to markets by poor men and women who are then able to use their
assets and capabilities to generate enhanced and sustainable livelihoods. For
example, in many countries, small- and medium-size enterprises (SMEs)
have been shown to play a particularly important role in generating
employment, including for poor women and men. Microfinance and support
to smallholder farming can increase access to and opportunities for market
participation by the poor. Often the challenge is to adopt innovative
approaches for reaching the poorest, or to make institutional or regulatory
changes to level the playing field for participation by smaller, marginalized
economic actors.

Chapter 2: Private Sector Development Programming in

CIDA

Summary:

This chapter begins by recognizing that the development of the private sector
is supported by economic, social, environmental, and governance
investments, all of which make important contributions. A description of the
range of CIDA's current PSD projects and programs is provided using five
levels: global/international, national/macro, sectoral/institutional,
micro/transactional, and informal.

Key Messages:

• There are many levels at which CIDA invests to support the

development of the private sector in developing countries.
• CIDA has recently produced a Review of its PSD programming, which
found that this programming has contributed positively to CIDA's
poverty reduction goal, and there are important lessons that indicate
areas in which we can do better.

This chapter describes CIDA's current PSD programming. The nature of

programming in support of the private sector undertaken by an agency such
as CIDA will take a variety of forms. Sometimes, the link between a CIDA
program and the resulting development of the private sector will be very
clear. For example, CIDA has helped to create business-development centres
to support SMEs.

In other instances, a CIDA investment in another area might be the single

best thing that CIDA can do to support the private sector. For example,
assisting in the provision of basic literacy education for girls and women will
have a significant impact in raising the level of productivity of a society's
labour force. Similarly, assisting in the creation of legal systems of contract
enforcement will increase the security of risk-takers and investors, both large
and small, without which the private sector cannot function successfully.

Figure 2 depicts the ways in which investments across the economic,

governance, environmental, and social dimensions may support the
development of the private sector.