SPEECH
Speech by Peter Baxter at the National dialogue on
the role of the private sector in development and aid for trade
Introduction
Good evening and thank you for your welcome.
I would like to acknowledge the traditional owners of the land where we meet and pay my respects to their elders past and present.
It is a pleasure to be invited to speak at this National Dialogue on the Role of the Private Sector in Development and Aid for Trade.
I would like to make four points tonight in order to frame our discussions tomorrow.
- Private sector led growth is fundamental to people leaving poverty, but by itself, is not enough.
- Development assistance can support sustainable growth, and help the poor participate in that growth.
- The business community and AusAID have a strong intersection of interests.
- We need to be more precise about what we mean by 'private sector engagement'.
Private sector led growth is fundamental to people leaving poverty, but it is not enough
The fundamental purpose of Australian aid is to help people overcome poverty.
We know that people leave poverty when they get a job, or get a better job.
The overwhelming majority of these jobs are created by the private sector.
No sustained reduction in poverty has ever occurred without economic growth, underpinned by well-functioning markets.
We are here hosted tonight by the Institute of International Trade–an appropriate venue given the well-established empirical link between the degree of openness of an economy and sustained economic growth.
Trade provides opportunities for businesses in developing countries to expand–either by exploiting economies of scale or natural cost advantages.
International competition drives productivity improvements as firms need to innovate and increase their productivity to stay competitive–and this leads to better paying jobs.
But there is no guarantee that the poor will benefit from this increase in growth and productivity.
And when strong and sustained growth occurs, it occurs in the formal sector, meaning people in subsistence agriculture or the informal sector typically miss out.
People with few financial assets and low human capital also may not benefit from growth.
When the focus is on meeting the day to day needs of the household, there is little scope to take risks, innovate, or invest in new skills.
In most societies women are over-represented in the informal and subsistence sectors, meaning they usually benefit less from growth.
When a large share of the population doesn't participate in or benefit from growth, the economy's growth potential is constrained because potentially productive resources are not utilised, or not utilised fully.
Rapid growth and improved standard of living for only some people or some regions increases inequality–and when this leads to instability or conflict, it can rapidly unwind any gains from growth.
The role of development assistance
Development assistance should be seen as a complementary tool to release the transformative changes made possible by the private sector, and promote a more equal spread of the benefits.
There are four distinct areas where AusAID and the broader Australian Government see a key role.
First, there remains a primary role for development assistance to support and foster economic growth.
This includes supporting business environment reform, investments in infrastructure and human capital in developing countries.
It also means supporting public financial management so countries can use their own resources well.
Second, the aid program can support the development of tax and transfer systems in developing countries–including social safety nets–that ensure the poor have greater access to the benefits of growth.
This also includes working in fora like the G20 to support a better global tax system.
Third, development assistance can play a key role in supporting domestic institutions in developing countries that design and administer these policies.
Finally, there is an important role the aid program can play in supporting the poor to participate in growth.
Where do the interests of the private sector and aid agencies intersect?
One of the great things about working with the private sector is that interests are clear–business has a clear and transparent fiduciary responsibility to deliver returns to their shareholders.
This makes it easy to identify the intersections in their interests and those of aid agencies.
Put simply, the private sector wants to be able to hire people; development agencies want people to get jobs.
Equally, the private sector wants an expanding consumer base; development agencies want the poor to be able to consume more.
More generally, the sorts of things that companies need to deliver a return to their shareholders are exactly what aid agencies believe lay the foundations for sustained reductions in poverty:
- secure and stable governments
- a healthy and educated workforce
- reliable infrastructure
- a well-functioning bureaucracy
- an effective social safety net that balances the risks of everyday life between the citizen and the state
- a sustainable government budget.
Being more precise about what we mean by 'private sector engagement'
There are several very distinct ways in which the private sector and aid agencies can work together to support sustainable development.
This is an area where there has been some confusion, so I want to spend some time clearly delineating three quite distinct dimensions.
The first area is exchanging information to support improvements to the business environment.
As a development agency, it is important that AusAID obtains an understanding of where business sees barriers or binding constraints to private sector growth in developing countries.
This can then guide AusAID investments in business enabling and governance, as well as human and physical capital.
The second area is directly supporting the poor to benefit from and contribute to growth.
Through inclusive business investments, AusAID can facilitate access to capital or support risk sharing instruments that help the poor access markets.
Focused training can support the poor in becoming 'job-ready', and equip them with the right skills to participate in growth sectors.
The third area is using the private sector as a delivery partner for local, regional or national public goods.
Where private firms have an established presence or established infrastructure they may be able to provide services more effectively than other partners.
Private firms may have access to alternative or innovative ways of doing business that are not currently being exploited for inclusive growth.
In going down this path, we need to have a frank discussion about the allocation of Australian taxpayer funds to private companies.
We need to be direct about additionality–does taxpayer funding lead to a greater benefit or would the company have done the project anyway as part of their CSR or to gain local support?
Conclusion
Let me conclude by thanking Jim Redden and the conference organisers for hosting this National Dialogue.
This is an important initiative and the deliberations of attendees will be informative for all of us. I am scheduled to speak again on the panel tomorrow morning.
At that time I would like to focus on specific examples from the fourth point–the way AusAID engages with the private sector to meet our central goal of helping people overcome poverty.
I look forward to a discussion about the possibilities and views on better ways we can work together.