Risks of private finance investing in the South: is the EC aware?

Added 18 Jan 2011

By Nuria Molina,

The European Commission (EC) is preparing in the coming months to debate the future of its development policy. For this purpose it has launched a number of public consultations to receive inputs from stakeholders regarding key issues for EU’s development policy.

Eurodad contributed to the public consultation on the Green Paper on "EU development policy in support of inclusive growth and sustainable development: Improving the impact of EU development policy," which is intended to set the foundations of how the EU can “best support poorest countries' efforts in promoting inclusive and sustainable growth, including by leveraging new opportunities to speed up progress towards the Millennium Development Goals (MDGs) and to reduce poverty.”

Eurodad’s submission focuses specifically on section 3.1 of the paper - “Partnerships for inclusive growth”

 – and its linkages with the key principles of EU development cooperation, such as Policy Coherence for Development (PCD) and the effectiveness of European aid.

While the paper contains welcome reiterations of previous EU commitments to make sure that policies in areas such as trade and finance are coherent with EU development goals, Eurodad is concerned that the strong focus placed on private sector investments as an engine for inclusive growth fails to take into account critical factors to ensure that these investments contribute to positive development outcomes.

The submission is based on recent Eurodad research that shows how all too often public development finance has been greatly used to support investments by Northern multinational companies in the South, rather than to support domestic investments in smaller companies from low-income countries. In addition, Eurodad’s research has found that the development impact of these investments is at best unclear and at worst harmful to the poor.

Therefore, before embarking on the risky business of “fostering leverage between aid and financial instruments,” in a context where aid is a scarce resource, Eurodad calls upon the European Commission to carefully take account of the flawed experiences of past and existing publicly-supported private sector investments and put in place stringent measures to ensure that past mistakes are not repeated again. The submission also requests that if the EC is to use aid money to support private sector investments in developing countries, it should at the very least put in place a strict and binding set of standards to ensure responsible financing and the effectiveness of publicly-supported private financial flows to the South.

Read the full submission.

Eurodad submission - EC consultation "Green paper on inclusive growth"