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Private-sector dynamism in development cooperation

The PPP programme of GTZ

Better working conditions in Asia

A review of PPP from the vantage of the participating private sector

Agreement and dissent


  

Private-sector dynamism in development cooperation

Can the aspiration for profit promote development?

By Ulrike Haupt

The PPP facility has been a BMZ budget item for four years now. Behind it lies the concept of sensitising the private sector for the goals of development policy through joint project financing. It is a concept that has drawn criticism, says Ulrike Haupt, but there have also been successes: what needs to be found is a balance between government expectations and entrepreneurial dynamism.


The globalisation of the world economy has boosted the international gearing of German business and considerably extended its radius of action in the developing countries. Aside from the big German groups expanding their international networks of companies, more small and medium-scale enterprises (SMEs) are also engaging in Asia, Eastern Europe, Latin America and Africa. From that engagement a new form of cooperation has developed between the private sector and the German development ministry BMZ – an arrangement which enables both partners to realise their objectives in developing countries more successfully. The catchy name given to this innovative approach to development partnership with the business community is public-private partnership (PPP)

A look at the record of PPP to date shows that over a thousand public-private partnerships have been launched since 1999 – on a financial platform of more than 4.5 billion euros. The projects span some 70 countries in four continents and cover a broad sectoral spectrum. Even the profiles of private-sector partners could hardly be more diverse: German firms in the 'PPP boat' today range from transnational giants such as DaimlerChrysler to small-scale heating engineers. PPP is evidently suitable for all levels of business.


Fast and flexible tools

Effective cooperation between the development cooperation (DC) institutions and private enterprise calls for tools designed for fast and flexible use. Here, the PPP facility with its few rules has proven a practical solution. The DC organisations can respond swiftly to private-sector proposals and thus plan, finance and implement projects with private partners quickly and simply. That is not always possible with conventional state-based bilateral development projects. In particular, the comparatively unbureaucratic PPP facility simplifies cooperation between official DC and mid-scale German companies. Although it might be easier to conduct projects only with the big 'DAX 30', the majority of cooperations within the framework of the PPP facility are with SMEs. Official DC offers the private sector broad-based cooperation and takes the opportunity to sensitise and mobilise as many companies as possible for developmental issues and at the same time learn from the expertise and experience of private-sector partners.


A contribution to the fight against poverty

It is often asked whether PPP is confined to the more dynamic developing and threshold countries. BMZ experience so far has shown that PPP can also make a contribution to the fight against poverty in smaller and poorer countries. Increasingly, PPP measures are being initiated in the least developed countries (LDCs); there are PPP projects, for example, in poor countries such as Ethiopia, Bangladesh, Congo, Laos, Madagascar, Malawi, Mali, Mozambique, Nepal, Tanzania and Uganda. Examples like this show that private sector and DC institutions can work together for development even in countries where framework conditions tend to be difficult. For the BMZ, that is an incentive to step up such efforts in LDCs. Many projects which are now on a purely commercial footing in the more dynamic countries need public support in LDCs to encourage private-sector involvement where conditions are difficult and risks are high.

Nevertheless, the eleven major threshold countries account for around half the world population and by far the largest number of people living in absolute poverty. No one can seriously maintain that launching as many PPP measures in those countries as possible flies in the face of development policy objectives. PPP projects can certainly provide valuable help and stimuli for the cause of poverty reduction. Good examples are seen in the following three sectors:

• Introduction of social and environmental standards in manufacturing operations. Valuable potential, for example, lies in qualification and certification measures initiated by companies in industrialised countries to improve social and environmental standards at their manufacturing plants and supply operations in developing countries.
&Mac183; Private-sector involvement in investment in infrastructural facilities which are particularly important for poor sections of the population. Examples are water supply and disposal systems and power supply facilities in rural areas.

&Mac183; Private provision of social services, e.g. in the health sector. Various HIV/AIDS prevention and treatment measures are conducted in Southern Africa in cooperation with German companies.


PPP facility a kind of "laboratory"

The first phase of the PPP programme was marked by the facility's role as a kind of "laboratory", where attention was focused on creating a diverse and innovative project portfolio and developing flexible procedures for cooperation with the private sector. Efforts in that early phase were geared to awakening private-sector interest in development cooperation and testing the possibilities and limits of PPP by working with as many partner enterprises in as many different countries and sectors as possible. Contrary to a number of sceptical forecasts, it was found that cooperation between DC institutions and the private sector has enormous potential from which everyone involved can profit.

The aim is always to mobilise a private-sector contribution to a partner country's social and economic development – not to promote German and European enterprise. Intensive public cooperation with private companies can give rise to objections on competitive grounds only where selection procedures are not transparent. As a matter of principle, German DC is open to cooperation with companies in Germany, Europe and partner countries.


'Windfall' effects are the exception, not the rule

The programme is repeatedly criticised for having 'windfall' effects. However, such effects occur only where public funding creates a developmental added value which companies would realise without the state contribution or where the state contribution is not in reasonable proportion to the developmental benefit. This is not always easy to judge. In practice, genuine public-private partnership is possible only on the basis of respect and trust between the participating actors. There is always the risk, of course, that that trust may be abused. So windfall effects can certainly not be entirely ruled out. But they are the exception, not the rule. The implementing organisations of the PPP programme and their partner companies have gathered a great deal of experience in recent years, as a result of which windfall effects for individual black sheep are largely avoided. The risk can be considerably diminished by close scrutiny of PPP proposals (whose administrative costs need to be in proportion to the financial volume of the PPP measure) and, where possible, high private-sector contributions to PPP measures.


Strategic alliances with the private sector

After the experience gained from – generally small-scale – PPP pilot projects with individual companies, we are now seeing increasingly intensive dialogues with industry associations and top-ranking companies in various sectors. There are also signs of growing participation by civil society actors – trade unions, non-governmental organisations (NGOs) or church institutions. The concept of partnership between private and public sector is being amplified to include exciting dialogue processes and new strategic alliances between government, private enterprise and civil society.

So small pilot projects frequently provide a 'culture medium' for larger-scale transnational partnerships spanning entire sectors. They should not be abandoned. Without them, no strategic alliance would have been formed with the Association of the German Coffee Industry (DKV), for example, a partnership created to develop and implement an international code of practice for sustainable coffee production. With a membership of more than a hundred companies, the DKV represents interests right across the coffee sector. The coffee-growing, processing and trade guidelines being developed will affect the entire coffee sector in three continents. As well as private partners, the PPP is being extended to include the International Coffee Organisation (ICO), NGOs, political foundations and international trade union organisations.

PPP projects with DKV members were a major source of impetus for this strategic alliance. They included, for example, new quality standards developed for Peruvian coffee in cooperation with Kraft Foods Deutschland and modern organic coffee-growing methods introduced in Uganda in partnership with the Neumann Group. A dialogue initiated by the BMZ also furnished stimuli for the development of this cooperation. In particular, the partners were brought closer together by a Round Table on codes of practice, in which ministries, companies and NGOs are involved. Experience, confidence and open debate are the cornerstones on which the strategic alliance with the DKV was built. The potential of such strategic alliances can be increased. In the years ahead, more strategic alliances should be created to extend the use of PPP tools even further at sectoral and transnational level.


Further integration of the PPP approach

Right at the top of the political agenda is integration of the PPP concept in bilateral development cooperation. But PPP moves in the field of tension between greater involvement of partner countries and efficient cooperation with private enterprise. While bilateral programmes and projects require long periods of planning, projects with private-sector partners can be planned and implemented within shorter time-frames. Here, the BMZ seeks pragmatic solutions.

PPP today already forms an integral part of the government negotiations the BMZ conducts with the partner countries of the Federal Government. The intention is to reach a consensus with those countries' governments on the need to integrate PPP more fully in the relevant country programmes. So-called "PPP windows" are to be incorporated in concrete plans, i.e. PPP components will be built into the project design, although the private partners needed for them will not be acquired till later. We thus aim to build bridges between the needs of governments and those of private enterprise. Even though the process of integration in bilateral development cooperation is still at an early stage, it is a move in the right direction. The BMZ pays special attention here to two particular aspects.

Firstly, projects should be geared as closely as possible to the priorities agreed with partner countries. Smaller PPP projects thus flank larger TC and FC projects and enhance their effect. In practice, this step towards setting priorities has mostly been taken already. Deviations are now the exception; they should continue to be possible, however, for innovative project ideas.

Secondly, PPP projects in the future will be pitched more frequently at what is known as the meso-level, i.e. they will actively involve political, business and civil society institutions in the partner countries. This is the best way to achieve a sustained transfer of expertise and technology to those countries. The involvement of local training facilities, universities, associations, NGOs and public authorities has now become a fairly typical component of new PPP projects. With sights focused on these two aspects, PPP projects in the future will make a greater contribution to structure-building and sustainable development in partner countries.


Constructive criticism in PPP debate

Like the programme itself, the debate about the future of PPP is getting very lively. In 2001, the BMZ commissioned an evaluation, the results of which were summarised in a synthesis report and set out in detail in April 2003 in D+C (pp. 144-147). Even though the study raised some critical points, the BMZ takes a largely positive view of PPP's performance so far and intends to further develop and extend the programme, taking account of what has been learned from the PPP debate. The aim is to continually improve the PPP toolkit and systematically adapt it to the needs of DC and private enterprise.

The PPP evaluation revealed conflicts of objectives which will be impossible to eliminate altogether even in the future. Indeed, the BMZ consciously accepted such conflicts in the pilot phase of the PPP programme in order to explore the possibilities and define the limits of the instrument. What is important now is to ensure a better future balance and to identify and reduce any areas of tension in advance.
The BMZ intends in future to integrate the PPP programme more fully into bilateral development cooperation and hopes thus to achieve structure-building effects. The first strategic alliances have already been formed; they will assume even greater importance in the future.


German approach receives international attention

Development partnerships with the private sector are increasingly becoming an integral part of German development policy. Internationally too, PPPs are gaining importance. This was made abundantly clear at the World Summit on Sustainable Development in Johannesburg. The delegates in South Africa heard that new partnerships between state, business and civil society have enormous potential for meeting the challenges of sustainable development. The claim that private enterprise can – and must – play a particularly important role in promoting development in partner countries seems now to be widely accepted.

German development cooperation is increasingly perceived in the world as a pioneer of cooperation with the private sector. This was evidenced among other things by Germany's role as host last year to the United Nations Annual Global Compact Learning Forum. More than 200 representatives of business, politics, science and civil society met in December 2002 in Berlin to compare notes on the implementation of the nine principles of the Global Compact launched by UN Secretary-General Kofi Annan. PPP projects between German DC and private enterprises were hailed as trail-blazing models of constructive public-private sector cooperation.

In conclusion, development cooperation needs to form partnerships with the private sector even if some major questions still need to be answered. At the same time, further conceptual development work is needed and "learning by doing" remains a must. What is crucially important, however, is a good balance between public expectations and entrepreneurial dynamism. This is the real challenge for PPP in the future.




Ulrike Haupt is director of BMZ Division 315 (Cooperation with the Private Sector).