Private Sector Development in Developing Countries

Bergen, 2. juni 2015

Statsråd Vidar Helgesens åpningsinnlegg under seminaret «Jobs for the Poor: The Role of Private Sector Development» på Christian Michelsens Institutt.

Dear Ladies and Gentlemen, friends and colleagues.

We all know that Official Development Assistance (ODA) cannot meet the needs of eradicating poverty. The relative importance of aid is declining. Whereas ODA in 1990 constituted 72 % of capital flows into development countries (of a total of 77,5 bn), this had in 2013 changed to only 16% (of a total of 889 bn). Foreign Direct Investments (FDI) and private capital has increasingly become much more important for the development of poor countries.

According to the World Bank, there is a need for 600 mill new jobs by 2028.Private sector creates nine out of 10 jobs in the developing world. Hence, it is quite clear that this has a much greater impact on poverty reduction than other forms for financial aid. A robust private sector is crucial for development and poverty reduction. Development countries want partnership and investments. Not aid.

This is why private sector development as part of our development aid, is an important political priority for my Government.

Smart investments with small money, may trigger bigger investments. An increasing part of our development aid should therefore be used to enable private sector development and leveraging private sector investments.

The Norwegian government will soon present a White Paper to our Parliament on these issues. The reason is:We want a change of pace in our development cooperation. We want to step up support to private sector development as part of our cooperation with developing countries. In addition, we want to step up our economic diplomacy in the same countries.

The Government has also announced change of pace for the promotion of Norwegian companies abroad, and facilitating international trade. This is not contradictory: business creates values and jobs in the countries where they invest. As an example:

The Norwegian industry sits on competence and skills, which is highly sought after internationally, not the least within the renewable energy and climate sector. This is an untapped potential. Norwegian investments in Africa and other places will bring jobs, infrastructure and skills to the local population. Today, Norwegian companies have a total of 250 000 jobs abroad. This is likely to increase. Several companies are now entering new and emerging markets, many of which have traditionally been "aid recipients." Aid and trade have mutual interests, and we want to strengthen this linkage.

Business is a key partner for achieving development objectives. Creating the right conditions for businesses to expand and grow is essential for job creation and development. We need to work with the private sector and businesses – small and large – to reduce global poverty. The contribution private companies can make to development is dependent of their success – investing, improving productivity, securing employment and taxes.

However, to assume automatic trickling down and redistribution of wealth is too simplistic. Governments have to get their policies right; creating enabling environment as well as preconditions for inclusive growth. Investment climate, transparency, anti-corruption, rule of law, taxation, etc, are crucial matters. How can we make it work? We need policy, legal and institutional measures that provide a sound framework for the private sector to invest.

What this really boils down to, it to have a better understanding and strategy for:

  • How to strengthen the regulatory framework for local businesses.
  • How to contribute to the development of essential infrastructure.
  • How to ensure local effects of economic activity.
  • And how to develop local expertise in the entire supply chain.

Another challenge is knowledge development. Lack of competencies, research based knowledge, local innovation and education are some of the biggest bottlenecks. Without relevant knowledge and education, it is difficult to get a job or create sustainable local businesses. It is also difficult to be innovative and competitive on the global market. This is why the Government launched a White paper on education last year: "Education for development," and has increased support to education. Skills are fundamental to create development.

Furthermore, our increased efforts in private sector development will include R&D cooperation and promote innovation. We are also keen on supporting partnerships between Norwegian private companies and local private sector, as well as increased cooperation between research and innovation institutions.

However, we have to be realistic, and prioritize. What is our comparative advantage? What are the priorities of development countries? Moreover, what are our international obligations? How can we support this in an efficient manner? Who should be our partners?

Norwegian support to private sector development will require cooperation on many levels and through several channels and partnerships. We believe there is a strong potential for Norwegian bilateral initiatives and Norwegian private sector actors, as well as partnering with multilateral institutions.

These are some of the key issue we want to address, and we would welcome any input from other stakeholders.

Thank you.