Private Sector and Trade

The Private Sector is a key player in the aid system

The private sector is responsible for approximately 90% of employment in the developing world (both formal and informal jobs). Private entrepreneurs and their profit-making activities – whether large multinationals, medium- and small-scale, local enterprises or informal farmers – provide critical goods and services that improve people’s lives, generate domestic tax revenues and are key to stimulating economic growth (World Bank, IFC). In many developing countries the private sector plays a vital role in producing goods and services for export markets, thereby generating foreign exchange (crucial for macroeconomic stability) and enabling firms to expand their production frontiers, achieve economies of scale and enhance their competitiveness (EU, 2017).

While donor agencies differ in their approaches and priorities to alleviating poverty, they all see economic growth as the requisite factor for meeting sustainable development goals and ending poverty – and they recognise that sustainable development solutions will require a role for the private sector. This is underscored by strong evidence that private investment and private sector-led productivity increases are the transformational force in development (Sida, 2014). Therefore, many bilateral agencies recognize the private sector as an equal partner in key development issues.

Trade can reduce poverty

 Trade is essential for sustained economic growth and development. Opening up economies to international exchange acts as a growth driver for three main advantages: international trade promotes specialization, markets’ expansion and access to technology.  In fact, not only does trade enhance growth but that growth in turn may reduce poverty. However, developing countries often face internal constraints that prevent them from accessing the economic benefits of expanded trade. It is very important to identify and reduce these constraints. To reduce poverty, trade must be accompanied by appropriate policies and institutions.  The December 2005 World Trade Organisation (WTO) Ministerial Conference in Hong Kong acknowledged these constraints and paved the way for the Aid for Trade Initiative (link is external), as a complement to the Doha Development Agenda. The Initiative aims to improve the quantity and quality of Aid for Trade (AfT), allowing developing countries to more easily access the benefits of WTO agreements, expand their productive sectors and integrate more fully into the international trading system (EU, 2017).