Implementing the EU's private sector strategy: Where to start?

In recent years, private sector involvement in development projects sponsored by the European Union has been on the rise — growing both in volume and scope. Upheld for the first time in the Agenda for Change — the bloc's blueprint for development aid programming — the EU’s drive to leverage private finance in development has since then been reaffirmed in numerous policy papers and public statements. Published in May 2014, the European Commission’s communication on “A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries” is the most detailed policy framework for enhanced, structured engagement of EU aid programs with the private sector. But more than one year on, fundamental questions remain about how the EU should go about operationalizing it. Although the communication was largely branded as an action-oriented plan — with 12 concrete areas in which the private sector can complement EU aid efforts — its actual execution remains an open-ended question. So what will it take for the EU to move from paper to practice? In areas such as blending and corporate social responsibility, the EU has made headway toward operationalizing the communication. Yet, there are other real opportunities for progress. Based on discussions with experts, Devex identified four areas where the 28-member bloc can — and should — get started. Concrete indicators With quality support groups to assess projects during the stages of identification and formulation, the EU has well-defined quality assurance mechanisms it can rely on to screen private sector engagement in its development projects. In this context, the seven principles and six criteria spelt out in the commission’s policy paper were portrayed as the final step in ensuring transparency and accountability in EU engagement with the private sector. But close observers have noted that because they are formulated as high-level statements, they fail to provide real indications on how projects will be monitored. “A specific EU framework [has yet] to be developed for this purpose, including qualitative and quantitative indicators for measuring the social, environmental and economic impacts of private sector companies engaged in development,” Deirdre de Burca, director of advocacy and justice for children at the EU office of World Vision, told Devex. The EU still lacks the most fundamental practices and measurements it needs to gauge the impact — both positive and negative — the private sector has on social and environmental development. In fact, between 2004 and 2010, an independent evaluation found that the EU had overall failed to enforce a systematic, standardized approach to evaluate private sector compliance with human rights and public interest. So how should the EU begin improving its ability to monitor private sector performance? According to Hilary Jeune, a good starting point would be for the EU to ensure reliable self-reporting by international companies. “A business regulatory framework should be established,” the EU policy adviser at Oxfam, underlined. “For the EU, this most notably means requiring multinationals — before they actually give the private sector a greater role in development — to publicly report their profits and taxes on a country-by-country basis, in the EU and in developing countries.” Structured dialogue To build confidence in and consensus on the role of the private sector in development activities, the communication proposes to resort to structured dialogue — an exchange which would take place at all levels, and would include businesses, partner countries, member states, trade unions and nongovernmental organizations. At the European level, the EU has already established a formal space for discussions and cross-learning with NGOs and civil society in the context of the Policy Forum on Development. In the same vein, the EU Platform for Blending and External Cooperation promotes cooperation and coordination between the EU, the European Investment Bank, and other relevant stakeholders to improve the quality of EU blending mechanisms. But experts note that it is now time for the EU to connect the dots. “The EU already has well-established mechanisms for dialogue with civil society and with the private sector,” De Burca pointed out. “But these tend to function independently of each other,” she said. A number of existing platforms could also be scaled up. The Inclusive Business Action Network, jumpstarted in 2014 by Germany’s GIZ and Federal Ministry for Economic Cooperation and Development, and the Rotterdam School of Management’s Partnerships Resource Center are two such examples. Both aim to centralize know-how, initiatives and opportunities related to public-private partnerships for development. Meanwhile, in areas where shared learning and dialogue processes do not exist, De Burca still believes the EU has an important part to play. “The commission [could] provide seed funding to support the establishment of self-organizing, multistakeholder, sectoral platforms,” she suggested. Technical expertise EU delegations have a pivotal role to play in undertaking many of the actions articulated in the communication. But stepping up collaboration and partnerships with the private sector in developing countries will require a change in skills and mindset. “If delegations really want to work with the local private sector in partner countries, the expertise and attitude needed are completely different from what is currently available,” Ad Ooms, chairman of Concord’s task force on private sector and development, explained. This sentiment is echoed by other EU experts. As noted by Bruce Byiers and Florian Kratke from the European Center for Development Policy Management, many EU delegations do not have specialized staff members accustomed to working with the private sector. In fact, some don’t even have a trade section or qualified attaché responsible for trade and commercial affairs. A recent assessment of the EU’s support for private sector development further highlights a number of human resources-related weaknesses. In particular, the commission’s organizational setup and management practices present gaps which hinder the ability of delegation staff to successfully engage with the private sector in partner countries. However, solutions do exist. For one, there is much knowledge-sharing potential the EU can capitalize on. Internal and external examples of successful partnerships with the private sector are indeed available — the EU just needs to step up mechanisms and tools to ensure that existing experience and knowledge are more widely and efficiently shared. Second, training to foster the necessary competencies and technical knowledge will obviously be key — but the onus will not solely be on the EU. “One of the things the European Commission can do is to train their staff, but we as civil society actors should lend a helping hand in organizing that sort of training because we share the same objective: To make the engagement of the private sector in development relevant for poverty eradication,” Ooms said. As the EU works toward gaining more hands-on experience in engaging the private sector in its aid activities, NGOs should show support in a variety of areas. “Development NGOs are likely to be called on to function as consultants, facilitators, bridges to local communities and even as investors and loan guarantors where certain development initiatives are concerned,” World Vision’s De Burca stressed. The local private sector The commission’s communication recognizes the vital importance of small and midsize enterprises for job creation and poverty reduction. While various analysts welcome such a move, they emphasize the need for the EU to further differentiate its private sector support by acknowledging the great diversity of actors composing the private sector. “The private sector has a role in development, but it is the private sector in developing countries that must be strengthened, not a Western private sector interested in profit,” María José Romero, policy and advocacy manager at the European Network on Debt and Development, said. Past experience shows the EU has had a poor track record in prioritizing the domestic private sector of partner countries. In the 2004-2010 period, only 2 percent of EU private sector support in developing countries went to local SMEs. Similarly, Eurodad analysis has found that the EU often chooses its own companies as partners in development projects, with the EIB directing only 25 percent of its financing to companies domiciled in low-income countries between 2006 and 2010. As a result, the prioritization of local SMEs will require the EU to operate a major shift in approach. But there are ways delegations can already get the ball rolling in the right direction — notably through structured dialogue and knowledge transfer. “Delegations could build and strengthen networks of SMEs and private actors in partner countries, as well as their capacities,” Concord’s Ooms explained. “In Europe, we have a very strong and developed culture of SMEs and chambers of commerce — something that is often lacking in developing countries, and which the EU could help them with." The EU also has several promising initiatives it could further examine and potentially replicate or scale up. A commonly cited example is the small agribusiness development fund set up by the EU delegation in Kampala, Uganda, and which makes innovative use of equity funds to invest in local agricultural enterprises. What else will it take for the EU to successfully implement its private sector strategy for development? Have your say by leaving a comment below. Check out more insights and analysis for global development leaders like you, and sign up as an Executive Member to receive the information you need for your organization to thrive.