This report summarises the results of a study focussed on ‘transition countries’, defined as “a set of middle income countries … where the longer term prospects of the poor are overall good, but not necessarily secure or sustainable, and at risk of development reversals.” The specific aim of the study was to provide evidence, conclusions and recommendations on the development of private sector development (PSD) strategies in such places.
The challenge to such countries in transforming economic development into durable poverty reduction stems from a number of factors. Countries are at risk where there is a narrow economic base and low degree of structural sophistication in the economy; a country that is reliant on a small number of basic products is more vulnerable to shocks such as falls in commodity prices. A second challenge is that of infrastructure: not simply building the infrastructure that has never been in place, but also building that required by the progression to middle-income status. Thirdly, a plentiful labour supply is only an asset if it is well-skilled and employment opportunities are available. Underlying all of these challenges is the quality of a country’s governance: institutions capable of providing good governance, rule of law and transparency are vital. They give confidence to both foreign and domestic investors that their investments are safe and that the challenges of broadening the economy, building infrastructure, and delivering education and training will all be properly addressed.
The issues surrounding PSD in these countries are complex, intractable and inevitably will take time to address. Developmentally the challenge is to address the fundamental political economy constraints to a country’s stability, and to the sustainability of its economic development. PSD therefore needs to be more nakedly political, and better joined-up with wider processes of reform. This is undoubtedly difficult but offers the opportunity, not to reduce poverty for select communities and perhaps only for a time, but to create an environment in which durable poverty reduction and development can be achieved for a whole population.
Finally, and perhaps most importantly, this report questions the advisability of withdrawal from countries just because they reach middle-income status. The binary decision ‘aid/ no aid’, is an illusion: the situation is more fluid, the kind of support needed may vary significantly, and be better provided by other parts of a donor government than its development agency. However the fact remains that there are many tasks in middle-income countries where development partners can assist greatly. Donor governments should therefore re-think their approach to work out how the support they give and the tools they use should change over time to ensure that those countries are able successfully to progress from poverty.
Davis, P. Private sector development in countries progressing from poverty. Ecorys, Rotterdam, The Netherlands (2016) 66 pp.