Impact Unknown: Private Sector Engagement in Development Cooperation

Bonn, 23.06.2022 – By engaging the private sector, development cooperation expects to mobilise additional funding for the achievement of the Sustainable Development Goals. For instance, a German company that imports mangos from Ghana and invests locally, may access support from German development funding to provide training to farmers. One condition for the funding is that the company itself covers half the costs of the training. But it is often unclear whether the public support was really necessary and what it achieves in the long term, as a new study by the German Institute for Development Evaluation (DEval) shows.

Development cooperation with the private sector

The study summarises the findings from 51 studies and evaluations on private sector engagement in development cooperation. Examples of this include financial support for German or European companies wishing to engage in development cooperation projects, or joint investment in developing countries by public donors and private investors. “The aim of this cooperation is to reduce the huge financing gap that exists in developing and emerging countries”, explains the study's team leader, Valerie Habbel. “The findings of the studies we examined support this expectation: the cooperation partners do make additional private funding available for development projects. Added to that, there are often other positive effects such as the creation of new jobs.”

Doubts about value added by cooperation

However, an analysis of the quality of the evaluations raises some doubts about the positive findings. “Firstly, it is rare for unintended or negative effects of projects to be reviewed at all”, says Amélie Gräfin zu Eulenburg, Head of the Department for Sustainable Economic and Social Development at DEval. "Secondly, most evaluations do not sufficiently analyse whether the public funding is financing activities that contribute to long-term improvements in the situation on the ground. Thirdly, only a few evaluations investigate whether the cooperation partners would have carried out these activities even without the subsidy.”

However, these last two aspects – the long-term impacts and the so-called additionality of projects – would need closer analysis before conclusions could be drawn about the efficiency of the projects – in other words, whether the public funding might have been put to better use elsewhere.

An additional difficulty is the lack of any uniform policy marker for private sector engagement, which all the implementing organisations could use. This currently makes it impossible to put an exact figure on the amount of funding made available for this approach.

Recommendation: Improve evaluation quality

DEval recommends that implementing organisations such as KfW Development Bank and Deutsche Gesellschaft für internationale Zusammenarbeit (GIZ) should assess the additionality of private sector engagement projects more systematically than they have done hitherto. Not just in retrospect but starting from the project conception stage, greater care should be taken not to support activities that the private sector partners would have carried out anyway.

The Institute also recommends improving the analysis of development impacts. Often, the evaluations under review only report short-term effects such as the number of trainings delivered. However, the more relevant effects in development policy terms are the long-term consequences, such as whether the training has helped to upgrade farmers' skills and increase their standard of living. In most cases, these impacts are only roughly estimated rather than explicitly measured. Finally, DEval recommends introducing a uniform policy marker to identify projects and instruments for private sector engagement.

About the evaluation

The subject of the evaluation synthesis consisted of evaluations from German and international development cooperation as well as academic studies on private sector engagement.

Original Publication: Habbel, V. et al. (2021), Evaluation Synthesis – Private Sector Engagement, German Institute for Development Evaluation (DEval), Bonn.