THE ROLE OF THE PRIVATE SECTOR IN

DEVELOPMENT FINANCE

Afia Agyekum
World Bank MOOC 2015 Participant
12/09/2015

Key Lesson from Financing for Development Course

The key lesson gained from participating in the
financing for development course was that
importance role the Private sector plays in
mobilizing finances for development.
Such as its role as an investor and their
contribution to resource mobilization,
especially taxes in developing countries.
Also, the great role the private sector is suppose
to play for the world to achieve the SDGs.

Overview
The private sector is recognized as a critical
stakeholder and partner in economic
development. The private sector finance can
be from both domestic and international
sources.

The

private sector include:

Capital

markets

Banks
Pension

funds

Remittances
Insurance
Civil

communities

society organizations

Foundations

and Non-Governmental
Organizations

(Week 2 Video talk, MOOC Financing for

Development Course, 2015).

Contribution of Private Sector to Development

The private sector can contribute to:
Revenue generation, through salaries to employees
and employee and company taxes to the
government.
Job creation: the private sector provide over 90%
of jobs in developing countries, (World Bank
World Development Report, 2005).
Investment in development activities. Private
sectors contribution to Development finance has
increased over tenfold since 2000. However, the
private sector only account for 25% of funds to
developing countries of which the capital market
contribute 12.5%.
These show that there is room for improvement on
the part of the private sectors, particularly the

Funds to Developing Countries by Sources

1800
1600
1400
1200
1000
800
600
400
200
0

Source: Week 2 Video talk, MOOC Financing for

Development Course, 2015

Private Sectors contribution to Development Contd

Investment

in infrastructure, especially from the capital

markets through project bond markets and FDI

Establish

/build thematic bonds with specific focus on

education, health, technology, etc. that allows for growth in
specific areas to achieve specific developmental targets
such as SDGs

Establishing
Attract

Business linkages and partnerships

other investors and philanthropist

Mentorship

for entrepreneurs especially citizens of

developing countries

Why the Private Sector would want to invest in

Development Projects
Private sectors will invest when they anticipate higher returns and/or lower risk of
investment (Week 2 Development for Finance)
Private sectors prefer to invest in emerging markets because

experience rapid growth with much industrialization and prospects for high returns.

However, most emerging markets present high risk mainly due to the unstable nature of the
economy.
Thus, to attract the private sectors into emerging markets, the public sector must institute
policies and measures to reduces the risk faced by private investors and provide a sound
environment for investment

How to attract the Private Sectors to Invest in

Development
The Public sector must:
Provide a stable and predictable economy, in terms of, stable macro-economic factors such as
exchange rate, inflation,
Reliable resources such as electricity and water resources.
Rule

of Law

Stable

political economy, safe and peaceful economies

Fare-play
Lobby

environment for both domestic and international private investors

for and making changes in policy reforms to promote private sector investment: e.g. Making
the business registration system fairly easy to comply, land rights and ownership policies, etc.

Conclusions
The public sector through processes such as the blended finance concept can attract the private sector to
carry out and finance development projects to promote development in the local economies; specially for
LDCs.
Indeed,

there is a huge potential for the private sector to contribute to development finance

Thank You
(see week 2 video talks for more information on blended finance)

Reference
Aidflows,

(2015). Website: http://www.aidflows.org/

Financing

for development Week 2 Videotalks available at

https://class.coursera.org/fin4devmooc-001/wiki/Week_2_Video_Talks

World Bank Group (2015). Financing for Development: Week 2. Availble at

https://class.coursera.org/fin4devmooc-001/wiki/Week_2_Overview
World

Bank (2005). World Development Report,

http://www.un.org/en/development/desa/policy/cdp/ldc_info.shtml