- Brookings argues that reducing poverty depends on expanding high-productivity private enterprises that create better jobs and productivity spillovers.
- Key constraints are weak institutions and rule of law, heavy regulation, poor infrastructure, and limited access to markets, trade, and finance.
- Extreme poverty has fallen sharply since 1990 but progress is slowing and is increasingly concentrated in Sub-Saharan Africa and fragile states.
- Policy priorities include strengthening the business environment and scaling MSME support and private investment aligned with inclusive goals like youth and women’s employment.
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The 2005 Brookings report provides historical context for debates about how best to leverage the private sector in international development. It emphasizes that simply growing markets is not enough; the kind of enterprise and the quality of employment matter deeply. High-productivity, formal firms create not only income but spillovers in skills, technology, market structure, and investment patterns. For example, firms investing in technology (such as ACS opening operations in Ghana) raise wages well above national averages and generate value that supports broader economic improvement.
Consistent with the Brookings framing, more recent evidence confirms the persistence of two central facts: first, extreme poverty has declined dramatically since 1990, driven largely by growth in East and South Asia; second, poverty reduction is uneven. The international poverty headcount fell from over 2 billion to around 831 million by 2025, but gains have slowed and many remaining poor live in regions with weak governance, inadequate infrastructure, and limited markets.
Moreover, there is growing recognition in recent World Bank analyses that MSMEs are the most important engine of job creation in developing economies. However, despite their importance, MSMEs often lack access to finance, formal markets, and regulatory environments conducive to growth. Western and Central Africa, for example, faces an annual entry of about 6 million young people into the labor force, but creates only about half a million formal jobs, illustrating enormous missed opportunities.
Looking forward, strategic implications are several and include: first, investing in institutions and rule of law; second, focusing aid and policy support to enhance firm‐level capabilities—finance, technology adoption, market access; third, aligning public policy (trade, regulation, property rights, infrastructure) to reduce costs and risk for private investment; fourth, combining private capital mobilization with inclusive development goals (gender, youth, informal sectors).
Open questions remain: what incentives will attract private investment in conflict‐affected or low‐profitability regions? How much can informal firms scale into formal high productivity ones? What role should philanthropy and impact investing play relative to government policy? And how to balance efficiency vs equity in prioritizing which private sector activities to support?
Supporting Notes
- Brookings 2005 report notes that high productivity jobs—both domestic and foreign firms—raise incomes, citing ACS in Ghana, which created 900 jobs and pays many times the national average wage.
- The Brookings report identifies major barriers—such as weak institutions, regulatory friction, lack of infrastructure, barriers to trade and investment—that prevent private firms from generating higher productivity and scaling operations.
- World Bank data: extreme poverty fell globally from about 2.3 billion in 1990 to ~831 million in 2025, largely driven by growth in East and South Asia; yet the pace of reduction has slowed, with poverty increasingly concentrated in Sub-Saharan Africa and fragile states.
- Recent World Bank and IFC estimates: over the next decade 1.2 billion young people will enter the workforce but only ≈420 million jobs are likely to be generated, highlighting a looming employment deficit linked to private sector limitations.
- Western and Central Africa example: 6 million new labor‐market entrants per year but only ~500,000 formal jobs created annually; interventions in business regulation, MSME support, trade alignment are yielding early job creation results (Senegal: >21,000 jobs supported; many for women).
- Data from 2013 shows private investment (vs public investment) correlates strongly with economic growth and poverty reduction; fastest‐growing economies tend to have higher levels of private investment.