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Enhancing aid effectiveness: tackling private sector challenges

Brussels roundtable discussion looks into ways to improve public-private sector cooperation to encourage private investments and risk transfer solutions in emerging markets and developing countries.

Friends of Europe, European Development Finance Institutions, TXC Fund and Swiss Re co-hosted a high-level roundtable in Brussels on 6 June 2012 that focused on tackling private sector challenges to enhance aid effectiveness. Some 130 participants from EU institutions, national governments, public and private development organizations, NGOs and media attended this Development Policy Forum event at the Bibliothèque Solvay.

EU Commissioner for Development Andris Piebalgs stressed the importance of using public development funding as a catalyst to lower the entry threshold for private investments. Thus, by "taking out the risk", as Commissioner Piebalgs put it, public development finance can leverage substantial amounts of private investments. However, what is equally important for this leveraging to succeed, is a favorable regulatory framework on the recipient country's side.

Local engagement critical

Jürg Trüb, Head Environmental & Commodity Markets at Swiss Re, suggested that engagement of local leaders was critical as they have the potential to bring together the various actors along the value chain. He cited Swiss Re's commitment in the World Economic Forum's "New Vision for Agriculture" project, which drives concrete agricultural development projects by bringing together partners from both public and private sectors.

In illustrating the key challenges from a private sector perspective, Trüb used the example of a small holder farmer to show the concrete value of agricultural insurance and its role in supporting the transition from subsistence to commercial farming.

“Farming is a risky business: It’s an open roof with exposure to the weather as well as pests and diseases,” Trüb told the audience.   “Furthermore, farmers are exposed to the cost of agricultural inputs such as seed and fertilizer and to the value of their production. Farmers are good risk managers: They diversify their crops, they reduce input costs by using their own seeds and they may or may not use fertilizer. As a result, many produce enough to sustain their families but not enough to sell to markets and generate additional income".

Crop insurance as a safety net

With crop insurance, farmers have the certainty that a minimum income is guaranteed – either they have a good harvest or they receive the payout of their insurance. With this safety net in place they have the confidence to purchase better quality seeds and fertilizer and increase production. They can either use their savings or borrow the money. It is this nexus between insurance as a pre-requisite to risk their own money or to get access to funding, the ability to purchase better seeds and fertilizer, and the resulting increase in production and income that allows for the shift from subsistence to small-scale commercial farming.

Listen below as Jürg Trüb explains three ways to increase aid effectiveness

Published 14 June 2012

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