Better framework conditions for business development in developing countries

Private businesses in dynamic and competitive markets are important drivers for innovation, investment and economic growth. Poor framework conditions are often a limitation for businesses in developing countries. Norway supports measures to improve framework conditions, thereby promoting job creation and a stable income for the poorest people. Initiatives are aimed, among other things, at improving access to financial and human capital, technology and markets.

Norad’s work on framework conditions for business development

The work to improve framework conditions for business development involves a broad range of initiatives aimed at creating better conditions for business in developing countries and ensuring well-functioning and open markets. The focus areas are:

• Reform work and regulations: Support with policy dialogue via multilateral organisations and reforms to improve the business climate, including further development of legal frameworks and regulations at sectoral and general level to promote transparency and fair competition.
• Infrastructure: Better access to economic infrastructure such as energy and telecommunications.
• Capacity-building and better access to skilled labour and technology. Training and development of local expertise and adoption of more productive technology to strengthen businesses’ ability to compete and grow.
• Access to capital, both in local and foreign currency: Improving opportunities for access to credit and other financing (equity), especially for small and medium-sized businesses. Limiting the risk of currency exchange fluctuations when borrowing foreign currency.

Developing countries face significant challenges in connection with business development due to relatively poor framework conditions for business development. Well-adapted framework conditions for business are essential in ensuring economic growth that includes the poorest people and contributes to sustainable development. Without adequate reforms and support, it will be difficult to attract investment, stimulate innovation and create jobs. There are a number of challenges in the framework conditions that limit local business development in poor countries:

• Lack of infrastructure, such as inadequate access to energy, transport and other necessary infrastructure prevents economic activity.
• Unstable regulatory environments with deficient and inconsistent regulations and laws and, at times, unpredictability create uncertainty and deter investors.
• Limited access to capital: The majority of businesses in many developing countries lack the necessary financing to grow and develop. Small and medium-sized businesses (which account for at least three quarters of employment in many developing countries) in particular are often unable to get credit from banks or bonds (external capital) and local markets are not adequately developed for businesses to obtain capital by issuing shares (equity). Developing countries are often highly vulnerable to foreign currency exchange fluctuations on loans in foreign currency and partial shielding from currency exchange rate risk can help improve framework conditions for local businesses and other borrowers.
• Weak education systems and a lack of skilled labour limit the potential of business and the adoption of new, more productive technology.

To contribute to improved framework conditions for business development, Norad cooperates with and provides financial support to a number of multi-donor funds, programmes and projects that are implemented in developing countries by the organisations that receive funding. Such cooperation may involve authorities and stakeholders that are key to the framework conditions for business in developing countries, i.e. foundations, business/industry organisations, chambers of commerce and public institutions, as well as Norwegian and international businesses and organisations, especially multilateral organisations within the World Bank group and the UN system. In addition to improving the overall (often national) framework conditions, Norway also provides support to promote competitiveness in individual value chains and their sector-specific, business-oriented framework conditions. This is done in the form of support to strategic partnerships with business based on competitive calls for proposals. These are often partnerships between a business and a civil society organisations in which the business provides business expertise relating to the value chain in question and bottlenecks in business-oriented framework conditions and the civil society organisation provides a local network and expertise relating to local conditions.

Similar to general Norwegian aid, efforts to improve framework conditions for business development in developing countries also prioritise aid to countries in sub-Saharan Africa, but projects in other regions are also funded.

Contact

For more information, please contact Section for Partnerships.