Private sector engagement: a perilous path

Working with the private sector is nothing new in the framework of Switzerland’s international cooperation, whether in the activities of the State Secretariat for Economic Affairs (SECO) or the Swiss Agency for Development and Cooperation (SDC).[1] In accordance with Sustainable Development Goal No. 17 enshrined in the 2030 Agenda, that of entering into partnerships in pursuit of the Sustainable Development Goals (SDGs), Swiss international cooperation had already increased involvement with the private sector during the period 2017-2020.[2] So far, however, that cooperation had never been framed within an SDC strategy. This will now change, at least in part.

Published in January 2021, the “General Guidance on the Private Sector in the context of the International Cooperation Strategy 2021–24” lays out the basic principles governing SDC activities in connection with the private sector and outlines various forms of cooperation with private sector players, as well as the associated challenges and opportunities.

Considering that the private sector makes “the largest contribution to global poverty reduction and sustainable development” – especially as pertains to jobs, taxes and “innovative products that increase living standards in developing countries”[3] – the document states that the Federal Department of Foreign Affairs (FDFA) as well as the Federal Department of Economic Affairs, Education and Research (EAER) plan to step up cooperation with the private sector under the International Cooperation Strategy 2021-2024 and the Federal Council’s new 2030 Sustainable Development Strategy.

In this connection, the SDC points out that in addition to official development assistance (ODA) and domestic tax revenues, the 17 Sustainable Development Goals can only be achieved if “private sector investments are successfully mobilised.” The private sector is therefore considered by SDC as “part of the solution” for reaching the global development and climate protection goals.

Four areas of activity

For the SDC, private sector involvement in sustainable development is focused on the following four areas of activity: (1) Economic policy frameworks: this includes promoting the rule of law as well as responsible business conduct and sustainable investment. (2) Promotion of local companies in the priority countries for Swiss international cooperation, especially small and medium-sized enterprises (SMEs). (3) Private Sector Engagement (PSE): this entails engaging in partnerships with private sector players from Switzerland and other countries. And last but not least, (4) Public procurement. This area of activity encompasses SDC contracts awarded to private sector players (at home and abroad), which must meet more stringent sustainable development criteria in the future.

PSE – did you say PSE?

According to the SDC, the third area of activity, private sector engagement (PSE) encompasses ways in which Swiss international cooperation can engage with “established" private sector players that “consistently promote” sustainable development. The SDC states that such private sector players – in both the real economy and the financial sector – can contribute to poverty reduction and therefore make interesting partners for international cooperation. They include large companies and multinational enterprises, SMEs, social enterprises, impact investors and grant-making foundations. Each of these categories has its own “specific strengths”. In this connection, the SDC also mentions, for example, NGOs and academic institutions as possible implementation partners.

As stated in the “SDC Handbook on Private Sector Engagement”, the SDC plans, over the medium term, in other words during the implementation of the International Cooperation Strategy 2021-2024, to increase engagement with the private sector as well as the financial volume of its PSE portfolio. In addition to “traditional” PSE approaches, “new financial instruments” are to be developed, whereby the volume of public-private cooperation can be increased also in least developed countries (LDCs) and in fragile contexts.

500 million per year?

Although the document mentions that the setting of a quantitative growth objective is not meaningful, it does note that currently some 8 per cent of all SDC-funded projects (bilateral activities and global programmes) entail partnerships with the private sector. Based on a combination of various factors, it is estimated that over the long run, some 20-25% of all SDC operations could be implemented in collaboration with the private sector, in both the bilateral and multilateral spheres. If we take as a baseline value the 2020 volume of spending of CHF 165 million for the roughly 125 existing partnerships, the volume could rise to almost half a billion in annual spending over the long term.

It should be recalled that the International Cooperation Strategy 2021-2024 makes no provision for the increase of the respective credit lines for the funding of these partnerships, but provides for them to be paid for with funds already earmarked for bilateral development cooperation.[4] This means that the increase in partnerships with the private sector will take place at the expense of other forms of cooperation that have been shown to hold implications for poverty alleviation, more particularly programmes in support of essential public services including education and health. It could also negatively impact other forms of private sector support in developing countries, including the promotion of local SMEs.

What are the impacts?

It is therefore necessary to ensure the developmental impacts of these partnerships and the relevance of the goals being pursued through this kind of cooperation with the private sector. On this point, the “General Guidance on the Private Sector” nevertheless remains vague, or as it stands, fails to convey any clear idea of how SDC plans to guarantee, under such partnerships, the effective fulfilment of its primary mandate, that of combating poverty in priority countries.

The SDC internal handbook lays out various criteria and modalities for cooperation as well as a complex risk analysis procedure. But as always, the devil is in the detail. The SDC will have to ensure that in creating the partnerships, these criteria and processes are effectively observed by all players and not merely ticked off on a list.

Given the clear trend among the Multilateral Development Banks (MDBs) and bilateral donors, the SDC could find itself under pressure to “boost” its PSE portfolio without being able to guarantee that these partnerships are consistent with the core objective of the 2030 Agenda, that of “leaving no one behind”.

[1] See external audit report 2005-2014 on the promotion of employment.

[2] See “Switzerland’s international cooperation is working. Final report on the implementation of the Dispatch 2017–20”, p. 7.

[3] This statement must be qualified in many respects. More on this later.

[4] “In the event that the SDC establishes new forms of cooperation with the private sector, a new budgetary credit line could be created and the requisite funding will be drawn from the ‘Development cooperation (bilateral)’ credit.” IC Strategy 2021-2024, p. 35.