Oxfam's EU Advocacy office in Brussels

by Hilary Jeune
Last year, the world has agreed on a massive plan to achieve sustainable development by 2030, and the EU is currently discussing its implementation, starting today with European development ministers meeting in Brussels. One element in the EU strategy: the new External Investment Plan. The idea behind this is to use public funds to foster private investment in developing countries. But there is little indication that this could actually work.

Financing the Sustainable Development Goals (SDGs) will be an enormous undertaking, with a funding gap in developing countries estimated at between US$1.9 trillion and US$3.1 trillion each and every year between now and 2030.

So what’s the solution? The EU, like other donors, and developing countries point to the private sector as the key source of new development finance. The EU’s vision has been clearly reiterated and laid out in the newly released proposal on a new European Consensus on Development, which is part of the EU’s external support for implementing the SDGs.

One proposal, which is currently being discussed between the member states and the European Parliament, is the creation of an External Investment Plan that includes a new fund. The European Commission believes that this fund will trigger additional public and private investment volumes, mobilising up to €44bn (or even expecting it to go up to €88bn if EU member states agree to contribute), based on an initial €3.35bn contribution.

How does it work?

What’s new is the use of ‘guarantees’ available under the European Fund for Sustainable Development (EFSD) for public and private investors. Basically, this means using development aid to remove investment ‘barriers’—making private finance invest in developing countries when purely commercial motives would have precluded this.

Will it really be pro-poor?

The proposal on a new Consensus on Development states that ‘the prime focus of development cooperation remains poverty eradication and there will be no diversion of effort from that goal’. Therefore we need to check every proposal coming from the EU against this criterion.

This is why Oxfam is cautious about how far this External Investment Plan can take us to eradicate poverty.

It’s true that many developing-country governments want more private investment, both domestic and foreign. And, if companies pay their fair share of taxes, they will offer the government important resources that it can use to further national development plans.

The EIP could play a key role in helping developing-country small businesses get the access to credit that they all too often lack. It could also support projects where private sector engagement could really make a difference for poor people, such as investments in accessible, renewable energy.

Unfortunately, there’s way too little evidence about blending benefits in general, let alone development impact. Even the latest Court of Auditors report and the Commission’s evaluation on past EU guarantees differ in opinion on impact.

From the evidence that Oxfam has been able to put together, past blending projects really don’t align with development effectiveness principles like country ownership, transparency, and accountability. And projects often aren’t aimed at reducing poverty, empowering women, or protecting the environment.

Another problem is that donors can’t spend a euro of aid twice. Unless they are going to increase the overall level of aid (something that doesn’t seem remotely likely at the current political moment), increasing the amount of development aid used for blending will mean a decrease in what’s available for social programs and public services.

Oxfam urges the EU to base their blended development finance activities on the following principles:

• Carefully target blending to where it can help achieve clear sustainable development outcomes, poverty reduction, and advancing women’s rights.

• Only use development aid and other public funds in support of private investment if the project jibes with the norms and standards of development effectiveness.

• Judiciously monitor the share of development aid going to blending, while trying to minimise diversion of aid from public investments and ensure the public sector is not undermined but rather strengthened.

• Make sure that companies and financial institutions that benefit from blending respect human rights and the environment, including setting up safeguards and legal frameworks with grievance mechanism for all blending projects.

• Include robust monitoring and evaluation in all projects to ensure the ‘do no harm’ principle is respected and that this instrument ‘maximises positive benefits’ for people in poverty.

• Emphasise business models that keep more value with local workers and entrepreneurs, focussing on domestic industry, particularly small enterprises.

Oxfam, as part of a group of concerned civil society organisations, have compiled a list of recommendations regarding the EIP.

 

This is the first blog in a series analysing the details of the proposed review of the European Consensus on Development. Read all our stories on the EU’s new development framework.

Tweet about this on TwitterShare on Facebook0Share on Google+0Share on LinkedIn0
Author :
Print

Leave a Reply