Role (Implications)   of the private sector in the development   process

Positive role (Implications)

1. It creates more employment opportunities. This is in form of the production activities    and business enterprises   established.   This increases income for the population.
2. It increases efficiency in resource allocation.   The   major   aim   of   private    firms    is   profit maximization.    Therefore,    they employ   efficient   techniques    of production    which   leads   to the production   of more goods and services hence economic   growth and development.
3. It increases government revenue through taxation. A strong  private  sector  helps  to  widen   the tax  base   in  form   of  employment    and  business    activities    set up  hence   generating    more   tax revenue   to  the  government.    The revenue   realized   is used to construct   social and economic infrastructure   like hospitals, roads, schools etc.
4. It increases capital inflow in the country. The private   sector  helps  to attract  foreign  investments in the economy   especially   in high  risk  ventures  Where private  local  entrepreneurs cannot  invest. This increases   the level of investment in the country.
5. It leads to the development of social and economic infrastructure. The expansion   of the private sector  promotes   the  development   of  the  social  and  economic’  infrastructures    in  form  of  roads, schools,  hospitals,   financial  institutions   etc.
6. It promotes technological   development   in   the   country.   The   private    sector    facilitates technological    progress   through   innovation,   invention    and technology   transfer   due  to  foreign ownership  of some  enterprises.   This leads to the production   of better quality goods and services.
7. 7. It facilitates the exploitation and utilization of the idle local resources. This helps to improve on the productive capacities in the economy hence growth and development.
8. It reduces the balance of payment problems in the country. This is because the private   sector increases   the production    of goods and services   for domestic   market.   This helps   to save   the scarce foreign exchange which would be used for import purposes.
9. It helps to reduce on corruption and embezzlement of funds which   is rampant   in the public sector.  This promotes   accountability   in resource allocation   in the economy.
10. It promotes industrial development.  The   backward    and   forward   linkages    created    in   the economy  promote   the  establishment   of small  scale  industries  which  can later  be developed   into large scale  industries.
11. It promotes competition in business activities. This leads to the production of better   quality goods and services at reduced prices hence better standards of living.
12. It increases the GDP of the country. This is because the private sector  widens  the production    and economic  activities  in the country  which  increases  trade  in the economy.
13. It leads to the production of a variety of consumer commodities. This widens   the choice   of consumers hence improving   their standards of living through utility maximization.
14. It helps to create a class of entrepreneurs in the economy.  The private   sector   provides individuals   with the necessary   practical   skills required   to operate modem   business   enterprises. This promotes   managerial    capacity   building   and helps   to reduce government    expenditure    on training costs.
15. It leads to political stability in the economy. This is because  the private  entrepreneurs    who  have invested  a lot of capital  in their businesses   have  to see it that there is security   and stability  to in the economy  to secure  their lives  and property.

Negative role (implications)   of the private sector

1. It leads to wasteful competition through duplication   of goods and services.  This leads to misallocation of resources in the economy.
2. It leads to emergence of private monopolies. This increases   consumer   exploitation    as private monopolies   restrict output and charge high prices with the aim of maximizing   profits.
3. It promotes regional income inequalities in economy. This is because most of the production and business are concentrated in urban areas neglecting rural areas
4. It leads to profit repatriation. This is due to the dominance of the private sector by Foreign Direct Investment   (FDI’s).  This leads to low capital formation in the economy.
5. The private sector under mines the provision of basic essential goods and services which are nonprofit making. This is because the private individuals   aim at venturing   in activities   in which   they maximize profits.
6. It limits the foreign exchange earnings of the country.   The private   sector mainly   produces goods and services   for domestic   consumption.    This limits the export potential   of the country hence low foreign exchange earnings.
7. It leads to technological unemployment.   This   is due   to increased    use   of   capital   intensive techniques   mainly by the foreign investors and inefficient   firms being pushed out of the production process due to stiff competition.
8. It leads to rural -urban migration.   This   is because   most   of the   business    activities    are concentrated   in urban centers due to poor infrastructures    in rural areas.  This leads to congestion and increased cost of living in urban areas.
9. It leads to low rate of economic growth and development. This is because  the private  sector  has limited  capital  for expansion   especially  the private  local  investors  who  lack  collateral   security  to acquire  loans   from  financial   institutions.    This   leads   to underutilization    of resources    in the economy.
10. It increases economic dependence of the economy. This is true in case most of the private investments    are   owned   by   foreigners.    This   increases    foreign   dominance    and   control   of   the economy through foreign direct investments
11. It leads to divergence between private and society interests. This is because private individuals may   maximize    profits   at the   expense   of   the   society   in terms   of negative    externalities    like environmental        pollution   and over exploitation    of natural   resources.   This leads to failure   of the economy to be self-sustaining   in the long-run.
12. Some key areas like production of fire arms cannot be left in the hands of private individuals. This is because it may cause insecurity in the country.

13. It makes planning   by the government difficult.  This is because   it makes   it difficult   for the government   to coordinate and carry out proper planning for a large private sector.