Making Markets Work for the Poor: Challenges to SIDA's Support to Private Sector Development

This paper provides a framework that discusses private sector development (PSD) as an instrument for poverty reduction.

The paper clarifies the concept and the role of PSD and provides insights on pro-poor private sector development. It further provides minutiae about the traditional markets of the poor to impart a clearer understanding of the framework.

The paper then explains the key determinants of PSD operating at four stages:

• Meta Level: The major determinants in the international environment include:
  • Technology developments and innovations;
  • International trade;
  • Global capital movements;
  • Universal institutions;
  • Global public goods.
• Macro level: Determinants discussed are the rules of the game in a specific country, including:
  • Sound macroeconomic policies;
  • Peace and stability;
  • Legal and regulatory framework.
• Meso level: Determinants discussed are the resources required for the business operators. It includes:
  • Financial capital;
  • Physical capital;
  • Human capital;
  • Labor.
• Micro level: There are several types of donor assistance aimed directly at private sector operators, including:
  • Financial assistance;
  • Competence building;
  • Promotional activities and match making;
  • Technical services like accounting, marketing.

The author concludes by suggesting strategies to Sida for integrating PSD into its work by:

• Making PSD a cross-sectoral theme by building explicit linkages with other sectors;
• Developing specific analytical instruments;
• Working with Swedish partners specializing in different dimensions of market and private sector development.