New EU aid plan risks handing billions to private companies at expense of the poorest, despite safeguards

Added 28 Jun 2017
Brussels, June 28 2017. Proposals to regulate a new multi-billion euro EU fund aimed at driving more private investment in development have just [June 28] been agreed by the European Parliament, Member States and the European Commission. But campaigners say although the proposed safeguards in the External Investment Plan are a step in the right direction, there is a risk that billions of euros of tax payers’ money will benefit big multinational corporations at the expense of the people in poverty that it is meant to support.

Positive aspects of the proposals include references to decent jobs, gender equality, human rights, climate change, development effectiveness principles and better provisions to enhance transparency and accountability. But European companies may end up gaining undue influence and subsidies from the plan while developing countries are not given a say.

The EC claims the wealth generated by investment will trickle down to poorer people in developing countries, but there are fears of a renewed and controversial push to channel aid to private investors, running the risk of diverting scarce public resources.

María José Romero, Policy and Advocacy Manager at Eurodad, the European Network on Debt and Development, said,

“We worked closely with the Parliament to influence the new regulations, and we appreciate that some of our concerns have been taken on board.

“Unfortunately the drive by the EU to establish this without any effective say over the use of funds by those countries or the poor people who will be affected by the fund is enormously worrying. This fund risks becoming a mechanism more focused on subsidising European multinationals than helping developing countries.”

“We are also concerned that the fund continues to focus on using aid to leverage private finance, despite the lack of evidence that works effectively. And there’s no clear mechanism to ensure that selected projects will deliver sustainable development outcomes,” said Romero.

Oxfam’s EU development policy adviser Hilary Jeune said:

“The Parliament has fought hard to ensure the External Investment Plan supports sustainable development. However, the new EU plan’s focus on migration could risk diverting aid away from poverty eradication. Development cooperation must focus on the actual needs of people, not on stopping them from moving.

“When development money is used to subsidise private investors, European companies are actually more likely to profit than are the domestic businesses who contribute most to poverty alleviation.”

A coalition of civil society groups welcome the Parliament’s insistence that projects funded by the European Fund for Sustainable Development (EFSD) must not contribute to tax avoidance. However, to succeed, new regulations should require companies that receive EFSD money to publish information about who their real owners are and to release their public country-by-country reporting.

Notes to editors 

  • The plans for channelling aid money for Africa and the European neighbourhood region through the European Fund for Sustainable Development (EFSD) - the financial part of the European External Investment Plan - are expected to be confirmed in a Parliament vote next week.
  • The EFSD will “blend” public and private finance to offset the risk to firms investing in developing countries. According to the European Commission, it will mobilise up to €44bn - and possibly double that if Member States agree to contribute. 
  • Other concerns highlighted by civil society include the lack of agreement on a centralised grievance mechanism for people and communities negatively affected by projects.