EU releases new private sector engagement policy

A woman selling beans at a market in Sudan. The European Commission released its new private sector engagement communication Tuesday, including plans to support micro, small and medium-sized enterprises in partner countries. Photo by: Devaux / EuropeAid

The European Commission has outlined plans to strengthen the engagement of the private sector in its development work in a new policy paper. However, Devex has learned that several concerns raised by civil society apparently remain unaddressed even after a lengthy public consultation.

Released on Tuesday, the new policy paper — or communication — comes three months after the Commission invited input from various stakeholders — including European and local businesses — on how it can better channel support to the private sector and at the same time harness business as a source of additional development support in countries where the EU is present.

In the paper, the European Commission identifies a series of actions it plans to take to support the private sector, such as providing advisory services to improve the local business environment, and increased financial access for micro, small- and medium-sized enterprises, and in particular women, youth and those living in rural areas.

The Commission also lays out how it plans to engage the private sector in different social sectors, including sustainable energy, agriculture and agribusiness, infrastructure and the "green sectors.”

But not everyone is happy. Hilary Jeune, Oxfam’s EU policy adviser, pointed out in a statement sent to Devex that when the private sector gets involved in sectors such as education or health, it often “doesn’t deliver results for the poorest,” citing the case of the International Finance Corp.’s failure to reach the “underserved” in its Health in Africa initiative.

Guiding principles

In the paper, the Commission elaborates a set of principles that it aims to follow in its programs in the forthcoming financial period to support the private sector.

These include a strong focus on job creation — which the Commission arguably failed to address in the past decade — and taking on a differentiated approach, not only based on the different types of businesses, but also on different local contexts. For instance, support for startups will differ from that given to multinationals, and assistance in an emerging country context may be different from one still mired in conflict.

The Commission also listed the new criteria according to which its resources will be used. Support will be now provided when, for instance, there's measurable development impact, and there’s clear evidence that companies are adhering to a series of pre-defined international standards.

“Private enterprises receiving support have to demonstrate that their operations are complying with environmental, social and fiscal standards, including respect for human and indigenous rights, decent work, good corporate governance and sector-specific norms,” the paper notes.

Adherence will be a “precondition” for EU support to any private entity, which groups like Oxfam welcome, but the organization argues that the Commission should do more to ensure compliance long after the money has been allocated, and explicitly state that it will withdraw support in case of noncompliance.

Other issues

The paper also notes the EU aims to channel more support to the informal sector, and says it will coordinate with the 28 EU member states to define a “clear and active role” for the private sector in the post-2015 development framework — issues that it will seek input on in January. The EU will also push for gender-sensitive business regulations and provide training and other support to women, who often face constraints in their quest to find jobs or as entrepreneurs.

As for improving its blending mechanisms, the EU notes it is working with other financial institutions on how to “further exploit the potential of blending as a catalyzer for private financing, notably through the use of innovative financial instruments.”

But some of questions raised during the consultation process remain unanswered, for instance, how the EU will mainstream disaster risk management in its private sector work.

With the new communication now set to feed into discussions on EU development assistance programming and multi-annual country plans, Oxfam cautioned that focusing on economic growth does not always link to lifting people out of poverty and commented that the policy paper “does not go far enough in explaining” how this will be done in practice.

What are your reactions to the communication? Is the European Commission on the right track or were key issues neglected? Does the policy paper go far enough? And how successful will the new policy prove in creating an enabling environment for businesses to invest in developing countries? Have your say below or send us an email to news@devex.com.

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About the author

  • Ravelo jennylei

    Jenny Lei Ravelo

    Jenny Lei Ravelo is a Devex Senior Reporter based in Manila. She covers global health, with a particular focus on the World Health Organization, and other development and humanitarian aid trends in Asia Pacific. Prior to Devex, she wrote for ABS-CBN, one of the largest broadcasting networks in the Philippines, and was a copy editor for various international scientific journals. She received her journalism degree from the University of Santo Tomas.