The Swiss government has announced its international cooperation strategy for 2021-2024 which includes the intention for private companies to become more involved in development projects.
At the moment, private sector co-finances only about 5% of development aid whereas the Swiss authorities would like this level to double by 2024. This strategy relates to 17 of the Sustainable Development Goals of the United Nations 2030 Agenda.
Furthermore, the Swiss government believes that increasing the level of involvement of the private sector in development aid could also increase the number of jobs offered by such companies and thus present a potential remedy for poverty.
Representatives of the Swiss Agency for Development and Cooperation argue that developing countries themselves require the private sector to engage further in development aid projects and that increasing the number of jobs available represents a long-term solution. They also believe this strategy is an effective way of helping those countries become independent of external financial aid.
The Swiss proposal is not a new idea since the engagement of the private sector in development aid has become a recent global trend. One of the models that aims to encourage private companies to support the poorest assumes that these investments, which are not necessarily attractive for private investors, will be backed by public money in an approach referred to as blended finance.
There are many existing developing aid projects based on public-private partnerships (PPPs) undertaken, amongst others, by the International Committee of the Red Cross (ICRC) and development banks. Thanks to PPPs, the ICRC is able to run rehabilitation centres for people who have been wounded during conflicts. Private companies help to finance these centres then donor countries give money to the ICRC to repay the private investors depending on how effective each project has been in terms of helping people. If successful, investors are guaranteed to receive their money back thanks to the involvement of public financial resources.
Development banks act similarly by offering loans to underdeveloped countries which would normally be deemed by commercial banks to be too risky. However, development banks can afford to lend to poorer countries because they are backed by money that is contributed by developed countries. They also invest money in the international capital markets to recoup the money granted to developing countries.
Although the PPP-based development aid model is promising, it should not be forgotten that some countries have also had negative experiences of this as some investors’ main goal was to benefit from their engagement themselves in circumstances that were conducive to abuse such as corruption. In response, the United Nations has developed another model based on people-first public-private partnerships which assumes that these PPPs must, in the first instance, focus on helping people with financial benefits being a secondary goal.
This is why Switzerland is planning to engage independent experts to evaluate its projects to ascertain their effectiveness. The plan to further involve the private sector in development aid it is not the only step recently taken by Switzerland in terms of external aid. In mid-September, the Swiss parliament decided to increase the country’s development aid budget for 2021-2024 by CHF 147 million compared to the previous period.
