• Discussion paper
  • 14 March 2018

The enabling environment for private sector development: donor spending and links to other catalytic uses of aid

Enabling environment ODA for private sector development is a priority area for developing countries. Donors face pressure to resource private finance.

Author

Cecilia Caio

Our discussion paper presents analysis on how donors allocate official development assistance (ODA) to enabling environment support, and calls for donors to adopt context-specific, strategic approaches to catalyse private investment for sustainable development outcomes.

Donors are increasingly facing pressure to allocate their resources towards direct mechanisms that catalyse private finance in developing countries. Such mechanisms, for example blended finance, will have a legitimate role to play in certain contexts. However, it is critical for donors to understand that we must be careful not to divert scarce ODA away from establishing the robust environments that are needed for national and international private investments to thrive.

This discussion paper defines what an enabling environment for private sector development is and a methodology to measure spending in this area. It presents key analysis on how donors currently allocate ODA toward enabling environment support and highlights the gaps in evidence that prevent effective decision-making and impactful investments. Crucially, it calls for donors to adopt context-specific, strategic approaches to catalyse private investment for sustainable development outcomes.

Key findings

  • US$9.9 billion in ODA was spent on the enabling environment for private sector development in 2015
  • A wide range of donors invest in this area, and in 2015 the US, UK and Germany provided the largest volumes
  • Turkey received the largest volume of ODA to the enabling environment at $US499 million in 2015, followed by Pakistan (US$407 million) and India (US$378 million)
  • Enabling environment ODA reaches least developed countries (LDCs) more than blending, but most goes to non-LDC middle income countries, which also benefit the most from blended finance
  • A strong enabling environment is a key prerequisite to ensuring the success of other catalytic aid approaches, including blended finance
  • It is crucial to identify appropriate indicators of need for this type of support and to improve reporting in order to enhance accountability and maximise impact

The paper sets out a series of questions that require particular attention. We would be grateful for your feedback and comments on these as we continue our work on this important topic. Please get in touch with our Lead Analyst, Cecilia Caio via cecilia.caio@devinit.org.

Download the discussion paper

Download the data

Read our briefing paper The enabling environment for private sector development: Donor support and implications for the blended finance agenda presented on the margins of the recent OECD DAC conference Private finance for sustainable development.