When Public Development Efforts Meet Private in the Americas
DEVELOPMENTS
U.S. Secretary of State Hillary Rodham Clinton recently told a gathering of Western Hemispheric leaders at the fortieth Washington Conference on the Americas that partnerships between the private and public sectors are important for the region and need to be stronger, and among other things spoke of an important aspect of development: using public sector funds to procure private sector investments.
In the aftermath of the global financial crisis, the development sector has witnessed an increasing—and to many, a troubling—divergence in approach. On one side are those who champion market-based solutions to poverty-alleviation. These organizations tend to work mainly with economic actors such as microfinance institutions/associations, small and growing businesses (SGBs) and philanthrocapitalists. On the other side of the debate, we find entities advocating institutional reform, social policies and further government intervention to create an environment favorable for economic growth. It’s the classic “chicken or egg” debate.
While a substantial body of opinion recognizes that effective sustainable development requires components of both approaches, the current disharmony is beginning to affect the coordination of efforts to tackle development challenges that are, by their very nature, multifaceted. More than half of humanity continues to live on less than $2 per day, and Latin America and the Caribbean experience one of the highest income equality gaps in the world.
Historically, the region is known for the close relationship of government and the economy. In this regard, Latin America and the Caribbean provide a strong example of the partnership that can, and increasingly does, exist between the public and private sectors, though more must be done to take advantage of it. The former has an advantage and an incentive to create a friendly economic climate for the latter. Increasingly, as the effects of the global recession begin to subside and Latin America emerges wounded but not broken comparative to other regions, these partnerships will increase economic opportunity and end poverty for millions of people.
BACKGROUND
In Latin America, Brazil has demonstrated that a strong public sector can encourage and support foreign and private investment and growth throughout a massive economy. Banco de Brasil, the largest bank in Latin America, is the country’s leader in credit lending to both companies and consumers, and it posted record profits last quarter. The bank even lends to and accepts lending from the country’s international development bank BNDES, and has helped create an environment for the reemergence of private equity and business following the global recession.
Brazil is also leading the charge for creating an investment environment for sustainable energy, with many of its private and public companies taking part. A few of the continent’s, indeed the world’s, major hydro-power development and construction projects are located in Brazil. In order to meet electricity demand by 2030 throughout Latin America, it is estimated that more than 85% of the $572 million investment needed will come from the private sector.
And the country’s oil exploration and extraction efforts in Macaé have created a boomtown where over 4,000 domestic and international companies have located because of the favorable economic environment. For years, Brazil’s economy has continued to grow and strengthen.
Colombia has also seen increased revenues and prosperity due to its oil extraction efforts. The country’s low tax rates and royalty fees have long attracted private and foreign investment, and as the country continues to wind down its decades-long conflict and prepares for a peaceful democratic transition in the upcoming presidential election, it is experiencing an increased quality of life.
The debate over the role of the public and private sectors in development and prosperity is perhaps studied and analyzed in Venezuela more than anywhere else in the Americas. Massive oil and natural gas reserves have not equaled increased revenues or development for the country; in fact, production is declining and has recently experienced setbacks. Roving and government-planned blackouts plague the country, and inflation recently topped 30%. President Hugo Chávez is now asking for a $1 billion development loan to help the country weather the now seven-year recession.
Though not as magnified as the problems facing Venezuela, other countries are having difficulty attracting private and foreign investment or creating sustainable, long term partnerships. In Chile, experts predict that the country will need to do more to invest in research and development to attract foreign investment. And in Bolivia, despite some strong indicators of economic prosperity since the election of President Evo Morales in 2005 and his subsequent nationalization campaign, the country lags behind in industrialization and in technological know-how, and has a hostile relationship with foreign companies generally.
ANALYSIS
Inclusive business models that encourage public-private partnerships and more are yielding results and benefiting hundreds of thousands of people throughout the region. For example, seventy Inclusive Business initiatives have been launched throughout Latin America as part of a joint venture of the World Business Council for Sustainable Development (WBCSD) and SNV Netherlands Development Organisation (SNV). Over 500,000 members of the low-income segment in eight countries will benefit from participating as suppliers, distributors, and/or consumers in a wide variety of value chains and industries, including agriculture, biofuels, tourism, forestry and financial services. The businesses involved represent both multinational corporations and national companies in Ecuador, Peru, Bolivia, Honduras, Nicaragua, Colombia, Guatemala ad El Salvador.
There is a strong body of work that demonstrates the benefits of public-private partnerships in Latin America in areas such as education, infrastructure and agriculture. The current examples of the leaps and bounds made by the Brazilian economy can also serve as a model for the rest of Latin America: a strong and active public sector that competitively funds private sector initiatives and creates an attractive environment for foreign investment will positively benefit the economy and the livelihood of citizens.
As ending poverty is beyond the reach of any single sector or actor, it is time for the development community to build on progress made in establishing partnerships and collaborative efforts across sectors. Development workers, analysts, and government leaders must not become sidetracked by discussions that serve only to create false—and paralyzing—dichotomies. The further development of these relationships will continue to deliver real results that will benefit millions of people in the Americas, and billions more worldwide.
Neil Ghosh joined SNV Netherlands Development Organisation in 2007 and is the Director of SNV-USA. Based on his extensive experience in the private sector and the government, Neil brings a multi-sectoral approach to poverty alleviation and good governance. ( nghosh@snvworld.org)
Sean Bartlett is the Americas Regional Editor for Foreign Policy Digest.