How the EU plans to get the private sector to 'play by the rules' of development

As the European Union continues its push for enhanced private sector involvement in its development work, many wonder whether businesses will agree to sacrifice part of their profit in order to meet development goals, or even just align themselves with EU aid objectives in partner countries. EU Commissioner for International Cooperation and Development Neven Mimica certainly understands these concerns. In an interview on the eve of this week’s European Development Days, he stressed to Devex that involving the private sector is “crucial” to meeting the sustainable development goals, given “scarce” public resources that are “insufficient to finance all the investments needed in developing countries.” The collective resources of the private sector are “far bigger” than the development budgets of even larger donors like the EU and its member states, the commissioner emphasized. “Even a small shift in private investment strategies can significantly change the impact of these investments on developing countries,” Mimica said. “Catalyzing private sector investment for development is a strategic objective for the EU.” Further, he believes the private sector is the “driving force” that could push developing countries into adopting productive supply chains and integrating better into the global economy. But that doesn’t mean that business should just take over development efforts altogether. Private sector’s ‘complementary roles’ “A precise framework and clear criteria” are needed to guide engagements with the private sector. This is something the EU addressed in a policy it set out last year, which laid out criteria on how the private sector can be involved in efforts to create sustainable and inclusive growth for developing countries. That policy outlines two complementary roles for the private sector. First, the private sector could help create an enabling environment for businesses in EU partner countries, whether by helping introduce regulatory reforms, launching vocational training schemes or increasing access to finance. It can provide targeted support to small and midsize enterprises in these countries as well. Second, the policy defined principles to help create synergies between the private sector’s commercial aims and the partner country’s development goals. This could be by focusing on creating jobs, for example, or adopting a differentiated approach in fragile contexts. What the EU expects from the private sector, Mimica explained, is for corporates to commit to a process to integrate certain social and development aspects into their operations. To get businesses on board, the EU will support initiatives such as responsible supply chains and a “smart mix” of voluntary and binding measures when it comes to corporate social responsibility. “We have designed a framework for the private sector engagement in development which should allow to make a difference in developing countries in a safe way for their people,” the commissioner said. “We will of course look at lessons to be learned but I am convinced that this is the way forward.” More than just financing to address ‘interlinked challenges’ Beyond unlocking additional financing to fund the post-2015 development agenda, the EU also plans to maximize the use of these resources to address the “interlinked challenges” of poverty eradication and sustainable development. “The EU is responding to the complex global development challenges by increasingly targeting our support where it is most needed and can make the biggest difference. The world’s poorest countries will receive 70 percent of bilateral allocations from our main development instruments. And we will concentrate on a maximum of three sectors per country to ensure higher impact,” Mimica explained. Joint programming with EU member states — currently undertaken in at least 40 partner countries — will be increased as well. This means the bloc will together assess the biggest problems and challenges in a partner country, before deciding on focus sectors and drafting a common framework for action. “Each donor brings their strengths, expertise and comparative advantages to the table to then decide how the work can be divided,” the commissioner said. Improving EU aid transparency and accountability are being addressed as well. In March, the European Commission launched the International Cooperation and Development Results Framework, which outlines indicators against which results will be reported each year; each report will cover results on three levels. First, development progress will be measured in all partner countries to provide overall context. Among the indicators that will be used at this level are mortality rate of children under 5 and prevalence of early marriages. The second level will measure how EU support contributed to each partner country’s development progress, and will include indicators such as the number of children enrolled in primary school as a result of EU-funded programs. The third level focuses on the European Commission as a whole, and will focus on how it managed its performance as an organization. This is seen as a way to ensure the EU’s work constantly improves, for instance by assessing the quality and design of each project and program, or by evaluating how much the EU has been spending on projects related to climate change. “This marks a significant improvement in how the EU will report on development results from now on,” Mimica stressed. The first results of this new transparency and accountability framework will be published as part of the EU’s 2016 annual report on its development and external assistance policies and their implementation. Follow @Devex, @DevexImpact and @DevexTV to stay abreast of the latest news and developments from #EDD15 in Brussels. Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.