European Parliament must tackle serious concerns following flawed workshop on private sector in development

Added 13 Mar 2015
On 5 March, I attended a workshop organised by the European Parliament (EP) Committee on Development. It was part of the preparation process for a forthcoming report on the role of the private sector in fostering sustainable development that will be published ahead of the pivotal Financing for Development conference in Addis Ababa.

Chaired by the report’s rapporteur, MEP Nirj Deva, and attended by Eurodad and many other civil society organisations (CSOs), the workshop had the potential to offer an opportunity for discussion about the benefits and challenges of engaging the private sector in development cooperation. However, in practice it turned out to be an opinionated discussion that looked mostly at the rewards of private finance, but turned a blind eye towards its problems.

The workshop faced problems right from the outset. The panel consisted of an all-male cast of seven speakers from the global north, mostly academics, government representatives or private sector actors, whilst excluding representatives of small and medium-sized enterprises (SMEs), trade unions, cooperatives and CSOs. The poor judgement displayed by the organisers by not taking into account issues such as gender and North-South balance when compiling the panel proved to be particularly problematic in a discussion on sustainable development. Shouldn’t balance be a logical precondition for workshops like this under the auspices of the EP?

Furthermore, most of the panellists seemed to look only at one side of the coin. For example, public-private partnerships (PPPs) were repeatedly described as an important tool for mobilising long-term private finance, while tax subsidies were seen as worth considering as a business incentive. Multinationals such as Unilever, in turn, were praised for providing risk capital to entrepreneurs. (Apparently it wasn’t worth mentioning that, as of May 
Absent from the debate

Meanwhile, some of the key problems with private finance remained largely absent from the debate, such as:

Added value of EU blending: The panel remained remarkably silent when questions were raised about the unclear effectiveness and poor levels of transparency and accountability of current EU blending mechanisms. It remains uncertain, for example, how the report is going to take into account the recent findings by the European Court of Auditors report, which states that – for half of the European Commission’s blending projects for the period 2007-2013 – the added value of the grant component was unclear.

Problems with PPPs: The EP needs to carefully consider the rapidly growing evidence – including findings from a report by the World Bank’s Independent Evaluation Group (IEG) – showing that PPPs are a very expensive method of financing, and can significantly increase the cost to the public purse. There are also development considerations: the IEG showed that “data are scarce on the effects on the poor” and that the World Bank’s development outcome ratings are insufficient for evaluating PPP projects properly. Furthermore, PPPs can lead to detrimental outcomes for the governments involved (see Oxfam’s case of the PPP hospital in Lesotho).

Policy Coherence for Development (PCD): Other areas of EU policy, such as trade, investment, and tax, have the biggest negative impacts on developing countries and their domestic private sector. Therefore, if the EU commits to using more overseas development assistance (ODA) to leverage private finance, it needs to ensure that the private sector actor it engages with is operating in the spirit of the PCD principle, as prescribed by the binding Lisbon Treaty.

But let’s end on a positive note: some panellists put forward some broad yet important points that others must build upon. These included the need for modesty in defining the objectives of private sector engagement, as the private sector might not have the same values as the targeted developing countries. Such statements are needed in the final EP report if the EU is to take on a balanced approach – one that recognises rewards and risks – towards the role of the private sector in development cooperation.