Private sector development – Creating incentives for private-sector activities

View into a factory building in Bosnia-Herzegovina, where numerous women sew shoes on sewing machines.
In its partner countries, such as Bosnia-Herzegovina, the SDC is committed to ensuring that vocational training meets the needs of the labour market. © SDC

Economic development is the basis of a country's development and therefore the means by which poverty can be overcome.  The private sector is the most important driving force in the move to create jobs and income opportunities.  Stable framework conditions, a positive investment climate and functioning markets and institutions are necessary to mobilise the potential of the private sector – which is what the SDC works towards.

The SDC’s focus

In its partner countries, the SDC promotes the private sector and market access for all, particularly for poor and disadvantaged sections of the population. In so doing, the SDC works to ensure better framework conditions for the private sector and promotes an effective financial sector that is also geared towards the needs of small enterprises. It strengthens public administration capacities, improves vocational education and training (VET) opportunities and supports the dialogue between the private and public sectors as well as with civil society.

The SDC mainly focuses its efforts on rural areas because of the overarching importance agriculture has in terms of sustainable development and poverty reduction. Different approaches are used depending on the context, such as:

  • Value chains: the SDC helps poor producers, primarily in the agricultural sector, to better position themselves in markets.  It also promotes the development of effective value chains so that producers can exploit local, national and global market opportunities more effectively, enhance their added value and diversify into higher-value product lines.
  • Local economic development: the SDC supports states, the private sector and civil society at the regional level to develop and implement joint strategies for economic development.


Private enterprises are the backbone of a national economy. They identify and exploit market opportunities, which is instrumental in creating jobs and, thereby, ways of earning a living.  However, the efficiency and competitiveness of a company depend not only on in-house factors.  External factors such as the legal framework, an efficient public administration, correctly functioning goods and labour markets, and the availability of financial and other business development services are equally, if not more, important.

Current challenges

The key challenge is to formulate the political and legal framework so as to create incentives for broad-based private-sector activities based on properly functioning markets. This is necessary above all in countries where markets are weak, i.e. where there are no defined standards, pricing lacks transparency, the provision of technology, infrastructure and services is deficient, or market access is restricted.

Sustainable growth therefore not only requires measures to promote certain types of businesses; it is also, more importantly, a question of strengthening and enhancing the competitiveness of the socio-economic system as a whole.


Economic growth alone cannot reduce poverty over the long term. What is needed are effective and sustainable market systems that poor and disadvantaged people can also take part in.

Local economic development

Regional structural programmes improve not only the economic competitiveness of regions but also the involvement of all sections of the population in political and economic decision-making processes.

Value chain development

Effective value chains boost opportunities for producers in developing and transition countries in local, regional and global markets.