In 2015, the global community set an ambitious agenda to realise sustainable development through adopting the Addis Ababa Action Agenda on financing for development, the 2030 Agenda and its Sustainable Development Goals, and the Paris Agreement on climate change. Taken together, these agreements outline a pathway to sustainability for our planet, prosperity and equity for all, and a new approach to working together in partnership.

Member countries of the Organisation for Economic Co-operation and Development’s (OECD) Development Assistance Committee (DAC) are increasingly developing partnerships with the private sector to leverage private capital, expertise, innovation and core business to benefit sustainable development. To learn from this experience and complement DAC peer reviews, the DAC introduced an in-depth, thematic peer learning review on working with and through the private sector. The review aims to identify good practice and lessons in private sector engagement.

Development Assistance Committee (DAC) members are increasingly working with the private sector in development co-operation to realise sustainable development outcomes. This chapter introduces the DAC peer learning review on working with and through the private sector in development co-operation that was undertaken over 2015-16. It notes the importance of private sector engagement in development co-operation in light of successive international agreements aimed at facilitating greater financing for development, realising the Sustainable Development Goals and combating climate change. The chapter presents the methodology that informs the key findings highlighted in this report. The peer learning review drew on a range of research methodologies, including a literature review, survey of DAC members and others, four in-depth country reviews and three workshops.

This chapter examines the politics, policies and institutional dimensions of private sector engagement in development co-operation. Political drivers for private sector engagement include the need to harness other sources of finance to address sustainable development challenges, ambitions to benefit from private sector-inspired solutions to development challenges and the desire to support domestic commercial interests while realising development results in partner countries. The promotion of domestic commercial interests as part of private sector engagements in development co-operation has two implications. On one hand, it undermines aid effectiveness. On the other hand, the integration of policy objectives can create opportunities for better policy coherence and more policy coherence for development, with development considerations becoming a greater focus in trade and foreign policy. The review of policies for private sector engagement revealed the importance of a coherent narrative matched with clear communication of objectives, activities and results as an important success factor in implementation. Finally, with respect to institutional dimensions, the peer learning review showed that private sector engagement in development co-operation requires lead time, capacity development and the right incentives for the effective adoption and evolution of strategies and tools. Also, ensuring coherence and knowledge sharing between government implementing partners requires mechanisms for regular co-ordination.

This chapter examines the focus of private sector engagement strategies and their delivery. It begins with a discussion of the difficulties related to capturing a full picture of private sector engagements in development co-operation. DAC members target countries eligible for official development assistance (ODA) or focus on specific target countries in their private sector engagements. They also tend to target economic infrastructure and services as the top sector for engagement. Though private sector engagement is possible in all countries and sectors, the review revealed the importance of aligning the geographic and thematic focus of private sector engagements with overall strategies for development co-operation. This approach ensures coherence across development co-operation programming and ensures that donors have the necessary expertise and resources to effectively engage with partners. To ensure effectiveness and relevance, private sector engagement tools should be catered to country type and context.

This chapter begins with a presentation of a new typology for private sector engagements. Key lessons from the peer learning review are then presented on how DAC members establish private sector engagement mechanisms and the structure of private sector engagement portfolios, including the need for consultation and an examination of available human resources to implement such mechanisms. The critical need for DAC members to continue to support business-enabling environments alongside these mechanisms is highlighted. An overarching lesson for private sector engagement portfolios is that an effective approach is characterised by a mix of financial and nonfinancial private sector engagement mechanisms that are flexible, work together and are selected according to desired development results. This approach involves establishing and leveraging linkages between financial and non-financial engagement mechanisms, ensuring flexibility in implementation with balanced roles for headquarter and field staff to originate private sector engagements, and the selection of private sector mechanisms grounded in development priorities. Finally, experimentation and reflection on the effectiveness of such mechanisms is important since portfolios are being established and evolve over time.

This chapter provides lessons for partnering with different stakeholders in private sector engagements and identifies factors that contribute to successful partnerships. An important overarching message is that the selection of partners in development co-operation should be determined by development objectives and desired results. Depending on goals, partner country governments, CSOs, multilateral organisations, the private sector or a combination of stakeholders may be best placed to realise results. It is helpful to use diverse approaches to private sector engagement that offer opportunities to a range of different types of private sector actors in line with the goals of development co-operation. The chapter also provides lessons on the inclusion of traditional development partners, such as knowledge institutions, CSOs and multilateral organisations, in private sector engagements. The final section of the chapter focuses on lessons for successful partnership. It highlights the need to develop effective mechanisms to attract the right partners, include provisions for scaling success into the initial design of partnerships, ensure alignment of interests, and be inclusive in multi-stakeholder partnerships.

This chapter examines risk management, leverage, additionality and issues related to measuring private sector engagements – results as well as monitoring and evaluation. Government institutions must be willing to take risks if they want to encourage the private sector to do likewise. Risk management strategies used by DAC members include the use of clear partnership criteria, drawing on expertise and evidence-based analysis to inform decision making, due diligence processes and careful attention to private sector motivations. The chapter provides an extensive analysis on the question of additionality in private sector engagements. It highlights that the concept of additionality is understood in a number of ways by different stakeholders and suggests the need for DAC members to establish systematic approaches to additionality assessment, commensurate with the size of investments. The discussion on results points to the significant gap in results reporting among DAC members at project, mechanism and portfolio levels, and calls for the use of standardised results indicators to measure outcomes and allow for comparability across private sector engagements. Finally, good practice suggests the need for government institutions to prioritise monitoring and evaluation of private sector engagements and invest in the creation of knowledge systems that promote learning and facilitate course correction.