FORWARD: Ending poverty, the aspiration of the Millennium Development Goals, is the overriding developmental objective of the 21st century.Despite great progress in the past 50 years, 1.2 billion people—one-fifth of the people on Earth—live on less than US $1 a day, without access to many of the social services basic to a decent human life. Their plight requires a global response making full use of all the financial, intellectual and organizational resources that we can muster.

It is against this urgent background that Secretary-General Kofi Annan asked us to convene the Commission on the Private Sector and Development to answer two questions. How can the potential of the private sector and entrepreneurship be unleashed in developing countries? And how can the existing private sector be engaged in meeting that challenge? This report is our responses to these questions.

The report offers recommendations on how the major actors—governments, public development institutions, the private sector and civil society organizations— can modify their actions and approaches to significantly enhance the ability of the private sector to advance the development process. The objective of poverty alleviation leads us to focus on developing businesses that create domestic employment and wealth— by unleashing the capacity of local entrepreneurs.

We set an ambitious time limit for our work, which has been completed in a little more than half a year since our first meeting in June 2003. Our intention was not to carry out basic research. Much work on the subject is already under way, and major development agencies, private foundations and academic institutions are already focusing their energies on the private sector’s contributions to development. Instead, our approach has been to understand and assimilate the work already carried out by all parts of the development coalition, including business, civil society and labour organizations, and to integrate that thinking in the framework presented here.

The Commission’s work has been heavily influenced by the voices of entrepreneurs, expressed through their actions and through their responses to wide-ranging surveys launched to understand what most affects their ability to be productive and to grow. It is the capacity, drive and innovation of entrepreneurs that increase the impact of a broadly constituted private sector.

Entrepreneurship encompasses the actions of small, informal, villagebased individuals as much as it does that of the managers and innovators in multinational corporations and large local companies. It is their voices that we have heard the loudest.

The Commission has also attempted to highlight a broad range of good practices that show how the capabilities of the private sector can best be harnessed for the cause of development and poverty alleviation. The cases include successful approaches that originate with the traditional development players, such as the multilateral development institutions and bilateral aid agencies. But more often they include lesser known but innovative approaches implemented by the private sector—both by companies and civil society organizations. Those approaches rely on market mechanisms and private sector incentives and thus lend themselves much more to the replicability and scalability that we believe needed. One of our key observations is the lack of knowledge about best practices and the great need for more sustained research and analysis of what works and what doesn’t.

We concluded at the outset that it would not be enough for this Commission to produce a traditional report voicing opinions and urging others to take action. Instead, we believe that it is critical to develop a set of pilot actions and initiatives that would test the main observations and conclusions of our work— so that their relevance to the real world of development could be demonstrated on the ground. That is why the report ends with an illustrative portfolio of actions that will be developed in greater detail over the next few months—actions that could be implemented on a pilot basis shortly thereafter. Some of them could be driven by the UN system, and some by other partners and stakeholders.

These initiatives are far from enough.We put them out to all of you as indicative of the types of actions that we believe can and should be replicated for the widest possible impact. Nor do we believe that each of them is a perfect model. Country differences require modifying the initiatives—as well as some of our overall recommendations—to fit particular circumstances. Our ideas and conclusions are presented as directional, to elicit reaction and constructive dialogue. The intent is to catalyze a renewed coalition of the major stakeholders—focused more clearly on the challenges outlined here. Such a coalition is essential to unleashing the capacity of the private sector, to achieving the Millennium Development Goals and to alleviating poverty.

Paul Martin
Co-Chair
Ernesto Zedillo
Co-Chair

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TABLE OF CONTENTS:
COMMISSION MEMBERS
FOREWORD i
ACKNOWLEDGEMENTS i i i
HIGHLIGHTS 1
CHAPTER 1. WHY THE PRIVATE SECTOR
IS SO IMPORTANT IN ALLEVIATING POVERT Y 5
Deep poverty remains intractable 6
The private sector is important for the poor—and often is the poor 7
Who are all the entrepreneurs? 8
A focus on the domestic private sector 9
CHAPTER 2. CONSTRAINTS O N T H E
PRIVATE SECTOR IN DEVELOPING COUNTRIES 11
Widespread informality for microenterprises 12
Few competitive small and medium size enterprises 13
Lack of competitive pressure on large companies 14
Foundations for entrepreneurship—not yet in place 14
Three pillars of entrepreneurship—too often missing 17
CHAPTER 3. UNLEASHING THE
POT E N T I A L O F THE PRIVATE SECTOR 21
Building the foundations 23
Erecting the pillars 24
CHAPTER 4. ENGAG I N G T H E
PRIVATE SECTOR IN DEVELOPMENT 29
Serving markets at the bottom of the pyramid 30
Forming ecosystems and building networks 30
Fostering public-private partnerships for sustainable development 33
Improving corporate governance 34
Advancing responsible business practices
and corporate social responsibility standards 34
CHAPTER 5. RECOMMENDED ACTIONS 37
Actions in the public sphere: create an enabling environment 38
Actions in the public-private sphere: partner and innovate 40
Actions in the private sphere: mobilize capabilities and resources 41
Looking forward 42
BIBLIOGRAPHIC NOTE 43
BIBLIOGRAPHY 45

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HIGHLIGHTS:

The Commission believes that any approach to private sector development—and the policy and action recommendations that accompany it—should be grounded in the realization that the savings, investment and innovation that lead to development are undertaken largely by private individuals, corporations and communities.

The private sector can alleviate poverty by contributing to economic growth, job creation and poor people’s incomes. It can also empower poor people by providing a broad range of products and services at lower prices.

Small and medium enterprises can be engines of job creation—seedbeds for innovation and entrepreneurship. But in many poor countries, small and medium enterprises are marginal in the domestic ecosystem. Many operate outside the formal legal system, contributing to widespread informality and low productivity. They lack access to financing and long-term capital, the base that companies are built on.

The Commission believes that the primary responsibility for achieving growth and equitable development lies with developing countries. This responsibility includes creating the conditions that make it possible to secure the needed financial resources for investment.

Those conditions—the state of governance, macroeconomic and microeconomic policies, public finances, the financial system and other basic elements of a country’s economic environment—are largely determined by the actions of domestic policymakers. Their challenge is to capitalize on advances in macroeconomic stability and democracy and to launch reforms that bring about further changes in institutional frameworks to unleash and foster the private sector.

Most of the recommended actions involve more than one of the actors working together.Where governments are implementing policy change, it is often with the direct support and involvement of multilateral development institutions.

Where the private sector is taking a more active stance on sustainable development, it is often with civil society raising the profile of this issue.Where governments are implementing regulatory reform, it may be in direct consultation with representatives of the private sector. The individual actions identified here should be seen in the framework of this broader cooperation—needed even more to reduce poverty.

Our interest lies in three areas:

1. In the public sphere, promoting the reform of laws, regulations and other barriers to growth.

2. In the public-private sphere, facilitating cooperation and partnerships between public and private players to enhance access to such key factors as financing, skills and basic services.

3. In the private sphere, encouraging the development of business models that can be scaled up and copied and that are commercially sustainable.

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