Private sector development Aligning goals for economic growth and poverty reduction

April 10, 2014
Mary O'Neill
Inclusive Growth Insights
As an engine of economic growth, private enterprise plays an important role in combatting poverty by creating jobs and livelihood opportunities. In helping developing countries pursue private sector development strategies that benefit women, youth, and the poor, innovative research supported by IDRC is laying the groundwork for more inclusive growth.
 
Ghanaian woman sitting in front of a computer
Despite recent economic gains, the World Bank estimates that some 1.2 billion people worldwide — more than one-third of them in sub-Saharan Africa — continue to live on less than $1.25 a day.

As the bustling street corners and markets in the developing world vividly illustrate, the entrepreneurial spirit is strong among the poor. According to the Global Entrepreneurship Monitor (GEM), rates of entrepreneurship are generally much higher in developing countries than in advanced economies — reaching as high as 41% in Zambia.

Small businesses can be an important vehicle for advancement, but many spring from need rather than opportunity. Micro-entrepreneurs, such as street vendors, small-holding farmers, and hairdressers, have no steady income and no insurance against sickness or loss. And, with little access to credit, their businesses rarely bring secure and prosperous livelihoods.

In recent decades, a number of developing countries have graduated to middle-income status on the strength of trade and industrial growth. Research shows that private sector development can increase incomes and spread economic benefits. But this does not always happen, and, in some instances, economic growth has been correlated with rising inequality. Little is known about the kinds of policies and supportive infrastructure that give small enterprises a strong start, creating the right conditions for growth to benefit society overall.

Pinpointing enterprise strategies that benefit the poor

While there is a growing body of research on firms and entrepreneurs, governments need to better understand how policy frameworks and other factors influence firm behaviour, and whether they have different impacts on male- and female-led enterprises. How do they shape the ability of businesses to innovate, create jobs, and increase productivity to lift owners, suppliers, and employees out of poverty?

Canada’s International Development Research Centre (IDRC), along with other members of the Donor Committee for Enterprise Development, promotes research on the factors that generate pro-poor economic growth. Through our Supporting Inclusive Growth program, we foster multidisciplinary research on strategies that benefit women, youth, and other disadvantaged groups. We focus on both the firm and the entrepreneur in exploring three key areas: regulatory and policy frameworks, factors that spur small and medium enterprise development, and ways to help businesses increase innovation and productivity.

Mary O'Neill is an Ottawa-based writer.

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