22 May, 2014

Challenges of the Private Sector in Effective Development: A Civil Society Perspective

By Jiten Yumnam
Centre for Research and Advocacy, Manipur

As global Official Development Assistance stagnates, many donor countries and aid agencies are struggling to mobilise private financial capital. However, multiple challenges persist for private sector involvement in development. The key to overcoming them lies in incorporating human rights commitments, regulatory frameworks, and democratic ownership.

The private sector is no doubt a major actor in creating economic opportunities for impoverished communities. It generates employment, creates innovation and produces revenue for various sectors of society. But we must note that not all investments reduce poverty or address growing inequalities. For instance, many corporate bodies and bilateral institutions are yet to adopt the UN Declaration on the Rights of Indigenous Peoples, or to recognise these peoples’ inherent right to “free, prior, and informed consent” to extractive operations in indigenous lands and territories.

Setting Public-Private Priorities

In the case of Public-Private Partnerships (PPPs), focus on profit over public services can distort national development priorities. Many countries, including Mexico, India, and Bangladesh, are promoting PPPs in their policy frameworks, seeing such deals as facilitating greater economic infrastructure investment.

Across the Asia Pacific region, PPPs target infrastructure such as transport over more important social concerns such as health and education. Private corporations favour constructing roads, railways, ports and electricity lines because of the profit-making user fees they can generate, in addition to profits from construction.

Large scale projects, such as dams in India’s North East, can lead to widespread displacement, conflict and violation of indigenous populations’ rights. The wide environmental and cultural impacts often come with limited socio-economic benefits to communities. There are environmental and human rights challenges of private sector involvement in such mega projects. Indeed, many communities will lose their land and future.

Human Rights

The private sector can take a more effective development role by improving compliance with human rights standards. Issues with business involvement across the Asia-Pacific have included exclusive decisionmaking, misprioritisation, misinformation, limited public gains, and lack of accountability, among others.

IndiaquoteMultiple challenges persist for private sector involvement in development. The key to overcoming them lies in incorporating human rights commitments, regulatory frameworks, and democratic ownership.

Various cases in India attest to this. Natural resources and basic service sectors have been increasingly privatised. For example, since the Government of India’s 2002 National Water Policy, privatisation in New Delhi and Mumbai has led to price hikes and inaccessibility of water services for marginalised and poor people, such as slum dwellers. Privatisation of New Delhi’s power sector also led to a 328% tariff increase for domestic consumers after privatisation – from 1.37 rupees per unit in 2002 to 5.87 rupees in 2013.

Many corporations have also failed to take free, prior and informed consent from communities affected by extractive mining operations, such as Jubilant Enegy’s oil exporation move in Manipur while community participation is denied in major decision-making processes.

CSOs have been engaging to ensure citizen participation in such processes, to demand detailed impact assessments, and to promote development models compatible with communities’ way of life, traditions and cultures and their development needs and wishes

There are several instances of efforts for equitable benefit-sharing for affected communities – especially in the mining and extractive industries and to ensure adequate rehabilition and compensation etc. There are also efforts to recognise communities’ rights over their land and resources.

Several communities are also partnering with private enterprises in India’s North East to promote alternative energies. One successful PPP can be seen in the work of the Nagaland Empowerment of People through Energy Development (NEPeD). This CSO used state support to set up an assembly unit for 3 KW hydrogen generators – with machines and parts supplied by private parties. With more on the way, it has installed 25 of these so-called “hydrogers” so far mainly in Nagaland state. These facilitate sustainable development and provide clean energy to villagers in very remote areas with no other power facilities.

To give another example there are several successful ecotorism projects in indigenous peoples’ territories wirth collaboration between communities and private tour companies and hotels.

However, in many situations, the private sector tends to have patronage from the state and can cause inconveniences and violations for many communities. We must put transparency and accountability at the heart of all private sector engagement in development, with full public access to all project documentation.

Private Sector and Development Effectiveness Principles

Development effectiveness principles must be integrated into national development frameworks in order for the private sector to adhere to them. Private sector participation must therefore keep pace with progressing development and human rights standards but many donors and institutions have not sufficiently incorporated human rights, development effectiveness principles and other international standards into their private sector strategies. Very few donors make specific reference to Paris or Accra in their private sector regulatory policies and mechanisms, though Spain and New Zealand do.

What can governments do?

Governments should issue enforceable human rights and environmental guidelines for corporations and monitor compliance with participation of civil society and affected communities. A clear regulatory and accountability framework for PPP development models is also crucial.

Governments of the Asia-Pacific can also focus on domestic investors – the small and medium enterprises which can promote livelihoods and create jobs for more people. They should also promote inclusive development and poverty eradication based on innovative investments, such as agrarian reform and development of co-operatives for domestic market development. Can there be real poverty reduction from corporations in developed countries, without empowerment of private sector and informal economies in developing countries?

If businesses are to be true partners in development, they must collaborate to improve the social and economic rights of marginalised populations, focus on the economic empowerment of women, create conditions for decent work, and promote socio-economic inclusion and social protection.

The private sector can genuinely contribute to development only if it maintains country ownership and delivers effective development outcomes to the poorest and most vulnerable populations.


YumnamJiten Yumnam is Secretary of the Centre for Research and Advocacy in the Indian state of Manipur. This post is adapted from his presentation at the Global Partnership’s Asia Pacific Consultation held in Seoul in March, 2014.

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