EU ministers push for larger private sector role in development

A small shop in Abuja, Nigeria. Europe should do its part to provide small and medium-size enterprises in partner countries access to financing mechanisms, according to EU development ministers. Photo by: O. Lehner / European Commission

Recognizing that the private sector is adopting an increasingly higher profile in global development efforts, European Union development ministers agreed Friday on an ambitious set of proposals to strengthen the role of the private sector in future EU-funded projects.

During their Development Council meeting in Brussels, the 28 ministers adopted an “action-oriented perspective” that lists various forms in which companies can contribute to development cooperation.

“The private sector is emerging as an increasingly active player in the development field,” the ministers noted in the document. “The council underlines in particular the need to strengthen the role of the private sector in implementing the future sustainable development goals.”

Building on proposals presented in May by the European Commission, the EU’s executive arm, EU member states decided to forge ahead with the commission’s ideas and “raise awareness [over] opportunities and conditions for successful partnerships with the private sector.”

“The ministers were quite vocal on enhancing private investments and contributions to development goals,” European Commissioner for Development Cooperation Neven Mimica said in a press conference after the meeting. “Member states are ready to engage themselves at the national level — just as we at the European Commission will do so at EU level — in order to provide incentives and a favorable climate for investments in our partner countries.”

The council’s perspective paper foresees a number of actions and instruments that EU countries can use to include the business world in development cooperation actions.

“Official development assistance will remain at the core of our contribution,” Mimica explained, “but there are so many financial and nonfinancial means in which the private sector can play an important role — such as trade, technology transfer, research and innovation.”

The ministers encouraged using innovative financial instruments to leverage funding for development from the private sector like solidarity funds, multidonor mechanisms, microdonations and blending. Europe, they asserted, should also do its bit to provide small and medium-size enterprises in partner countries access to these financing mechanisms.

Other ways to promote business in developing countries is through vocational training, access to technology and markets, and investing in pro-poor sectors that have a multiplying effect in creating jobs, notably sustainable agriculture, agribusiness and the energy sector.

The EU and its member states, the council added, should ensure that the new framework and actions are reflected in their development assistance at the subnational, national, regional and global level, notably in the commission’s aid programming for the 2014-2020 funding cycle.

Private sector keen on bigger role in development

For the Netherlands, private sector participation in development has been a priority for some time already, according to Dutch Minister for Development Cooperation and Foreign Trade Liliane Ploumen, who told Devex that the private sector is a force that can truly boost global development efforts “as long as companies do their work in a socially responsible way.”

Ploumen expects the number of development public-private partnerships to continue to grow, and cited Dutch beer giant Heineken’s business in the Democratic Republic of the Congo as a prime example.

“In the DRC, Heineken wants to use as much as possible local raw materials for its productions,” she explained. “That’s why we support the company in helping local farmers organize themselves in cooperatives, so that they can bargain a better deal for themselves and learn how to improve the quality and the quantity of their production.”

Despite Ploumen’s enthusiasm about this project, a recent report warned that the CSR program of Bralima, Heineken’s subsidiary in the DRC, is involved commercial conflict-dependent actors who benefit financially from armed strife, such as rebel groups, private security companies and the Congolese state security forces.

The EU business community welcomed more the opportunities and facilities for engaging in the development sector.

“A viable business environment, in which the rule of law is respected and implemented, will help developing countries attract long-term investments”, according to a statement by Businesseurope, the advocate organization for European business companies.

EU ‘only seeing the good side’ — NGOs

Nongovernmental organizations, meanwhile, pointed out that companies are less easily swayed by the rosy prospects foreseen by the council, and three top organizations — ActionAid International, Oxfam International and Eurodad — joined forces to present their reservations about the role of the private sector in EU development programs.

“We are worried EU governments are only seeing the good side of possible engagement,” said Hilary Jeune, Oxfam’s EU policy adviser. “Development ministers seem charmed by the prospects of private finance flows, and have failed to provide guarantees that ensure businesses will play by the rules and that their investment will benefit the poorest in society.”

NGOs urged caution with the use of public-private partnerships, which they stressed should deliver real results for the poor, citing as an example a recent failed PPP in Maseru, Lesotho, where the running costs of a hospital supported by the International Finance Corp. are gobbling up half of the country’s health budget.

A critical question concerns the rules for private sector involvement. Mimica stressed that development policymakers “must ensure that private sector engagements take place according to the rules of fair trade and fair labor,” and both the council and the commission establish criteria for corporate actions such as a measurable development impact, additionality, transparency, compliance with labor, social, environmental and fiscal standards including respect for human rights.

However, this not enough for NGOs, which demand a stronger and robust regulatory framework, based on internationally agreed principles such as the 2011 Busan Declaration and U.N. principles. Such a framework should include a checklist for private companies who wish to take up development initiatives, as well as monitoring and evaluation of private sector development actions. The setup proposed by the ministers, according to the NGOs, might offer more benefits at macro level — by promoting business-friendly environments — and the intermediate level (through PPPs and blending mechanisms), at the expense of micro-level programs.

“Europe needs to invest more in the smallholder farmers and SMEs that generate the kind of jobs needed to raise people out of poverty for good”, said Laura Sullivan, ActionAid’s European policy and campaigns manager. “Smallholder farmers are the real backbone of the private sector in Africa and the potential driving force behind lasting development that champions the poorest over the clamor to sustain economic growth.”

Oxfam, Eurodad and ActionAid also do not share the EU’s enthusiasm for blending, which the ministers see as “an important tool to boost economic growth, innovation and job creation.”

Blending mechanisms, these aid groups noted, combine grants from donors with loans from financial institutions in order to leverage additional financing. The ministers are anxious to see the commission implement blending frameworks in its existing financial instruments, and look forward to the creation of a new Africa blending facility. But before expanding the scope of blending activities, NGOs want the EU to carefully investigate the effects and results of blending, and referred to a recent study by the European Court of Auditors that found that blending had no additional value in half the cases they investigated.

“The EU must recognize that leveraging private finance and promoting PPPs entails many risks and is not always the best way to trigger development,” argued María José Romero, policy and advocacy manager at Eurodad. “A better policy would be to ask ‘southern’ countries to test the development impacts of these new proposals, putting developing countries back in the driving seat of their own development — where they belong.”

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About the author

  • Diederik kramers

    Diederik Kramers

    Diederik Kramers is a freelance correspondent in Brussels covering EU and NATO affairs. A former spokesperson and communications officer for UNICEF and UNHCR, he previously worked as foreign desk and Eastern Europe editor for the Dutch press agency ANP and as editor-in-chief of the Dutch quarterly Ukraine Magazine.