Last week the European Parliament passed a resolution setting out its stance on the EC Communication on “Increasing the impact of EU Development Policy: an Agenda for Change”. The resolution on the future of EU development policy (rapporteur: Charles Goerens - ALDE) was passed with the overwhelming support of 540 votes in favour, 36 against and 65 abstentions. Despite having only general remarks on aid (ODA), the Financial Transactions Tax (FTT) and innovative financing, the resolution insists that the implications of the proposed blending platform, which includes the mixing of public with private funds, need to be more carefully thought through, with parliament's involvement.
ODA, FTT and innovative financing
The EP resolution points out that ODA “has to remain the backbone of the European development cooperation policy aiming at eradicating poverty”. This has a clear implication in relation to innovative sources of development financing, as for the EP “they must be additional, must be used on the basis of a pro-poor approach, and cannot be used to replace ODA in any circumstances”.
The Parliament “encourages the Council to take action on the Commission's proposal for a well-designed, effective financial transaction tax designed to raise revenue in order to meet inclusive global development priorities”. It is worth mentioning that the October European Council meeting of development ministers ignored the Commission proposal on the issue.
On the role of the private sector
The EP resolution “demands that any support provided to the private sector in the form of ODA come within the framework of the national plans and/or strategies of the partner countries,” and that these monies should be focused on “the development of human resources, decent work, the sustainable management of natural resources and the development of high-quality inclusive public services for the benefit of the population.” This statement is very much in line with Eurodad's stance on the issue.
Eurodad research shows that the majority of aid flows through the private sector in the form of procurement contracts for goods and services, and that the vast majority of this goes to rich country firms. Furthermore, the proposed use of aid to leverage private sector investments may detract from much-needed public sector investments, which still face huge financing gaps. In addition the EP resolution advocates for “safeguards to ensure that private companies respect human rights, offer decent jobs and pay their taxes in the countries where they operate”.
On leveraging private finance through a blending mechanism
In response to the EC suggested blending mechanism, “proposed to mix public grants with financial institutions' loans and other risk-sharing mechanisms”, the EP resolution call on the EC “to provide clear information on how this mechanism serves the purpose of a development policy based on ODA criteria and how the power of scrutiny of Parliament will be exercised.” This is a welcome step, since it supports Eurodad and partners concerns in relation to the purpose and added value of the blending mechanism and to the way blending has been articulated. According to the EP resolution, the blending mechanism “should have no objective besides that of poverty reduction and the fight against inequality,” while there is also a need to promote better redistribution.
Specifically, Eurodad and partners submission to the EC consultation on the proposed EU Platform for External Cooperation and Development pointed out that there are a number of issues that deserve further consideration, including:- the risk of financial incentives outweighing development principles;
Finally, the EP warns against the “exclusive attention to economic growth and excessive confidence in the effects of automatic redistribution of development in the private sector” which could lead to unbalanced and non-inclusive growth without having a real impact on poverty reduction. In this regard, the EP also calls on the EU “to reconsider this policy in favour of sustainable development policies including trade, redistribution of wealth and social justice.”