Brussels — Why EU development cooperation focuses on the private sector
Creating growth and job opportunity in Africa is crucial as this continent, as well as other developing regions lack employment and income generation opportunities, combined with a fast-growing, young population.
In many developing countries, the expansion of the private sector, notably micro-, small and medium-sized enterprises (MSMEs) is a powerful engine of economic growth and the main source of job creation. The private sector provides some 90 percent of jobs in developing countries, making it an essential partner in the fight against poverty.
Yet, the private sector in Africa faces a formidable range of obstacles compared to their rivals in other emerging markets: widespread and rising informality, a "missing middle" in the size of enterprises and little upward mobility, weak inter-firm linkages, lack of export competitiveness, lack of innovation capabilities, complexity of registering business and taxation, infrastructure shortages, a spluttering electricity supply, limited access to finance and corruption.
How the EU supports private sector development
EU assistance covers a wide range of areas in the private sector, such as support in creating an enabling business environment. A better business climate helps to promote efficient domestic investment, attract foreign direct investment and increase productivity, thereby raising income and employment opportunities.
Assistance is given to reduce administrative and regulatory barriers for business, provide support to relevant ministries to help them trade, and review existing legislation and policies. Support is also provided for business development services such as training, advice and information services, which aim to improve technical and managerial skills and encourage the transfer of know-how and technologies. EU projects and programmes also involve support for professional institutions, such as chambers of commerce, industrial federations or SME associations, as well as the promotion of reliable local financial institutions.
Other areas of support include the promotion of investment and co-operation activities among businesses, and the facilitation of access to financial markets. An important focus is also put on support for microfinance and financial inclusion. The African continent receives approximately 50% of overall EU direct support to Private Sector Development in developing countries. Between 2004 and 2010, €1.2 billion was allocated to Africa (including Sub-Saharan Africa and Northern Africa).
Working with partners
In implementing its support to private sector, the EU works with international organisations (including European Investment Bank, or EIB, UN Agencies, etc), public institutions from partner countries (e.g. ministries), private companies (i.e. consultancies), civil society organisations (including professional associations, chambers of commerce and industry), EU member states and their development agencies, and with universities and research institutes.
In addition, substantial financing in the form of senior loans, credit lines and equity investment has been provided to the private sector in Africa through the ACP Investment Facility, a revolving fund managed by the European Investment Bank) (about €3.5 billion since 2003. )
The EU's Work on Aid for Trade
The EU (and its Member States) is the world's largest provider of Aid for Trade (AfT) and a longstanding provider of development assistance to support increased international and regional trade. Africa accounts for the largest share of AfT from the EU and its Member States: the latest estimations indicate that commitments amounted to about €4.7 billion, corresponding to 43% of total AfT in 2012 - the best ever year for EU and Member States Aid for Trade, totalling more than €11 billion worldwide. There were substantial increases in Sub-Saharan Africa. This region received by far the largest amounts of EU AfT. The EU remains the most important market for many African countries' exports.
Private sector and energy
If businesses want to expand, they will need energy. This is why the European Commission channels its support to fill in the gaps for energy infrastructure and off grid solutions that allows people to benefit of sustainable energy services.
Through innovative financial schemes as well as microfinance, the EU is leading the way in channelling private sector investment into the energy sector in the developing world. The private sector is thus a key player in this holistic approach; and the EU and Member States will look to mobilise additional support of up to several hundred million euros to support concrete new investments in sustainable energy for developing countries - working with financing institutions and the private sector to create a leverage effect to multiply this amount many times over.
Private sector and agriculture
Developing a viable and vibrant agriculture sector in Africa presents a significant market opportunity for companies, especially small and family farmers, who are the largest private investors in African agriculture.Further integration into the agricultural economy provides the possibility for rural and urban farming households, as well as agribusinesses, to earn a living to increase wealth and prosperity.
The World Bank estimates that by 2030 the total volume of agriculture and agribusiness will be USD 1 trillion, from USD 313 billion in 2010. If countries and regions within Africa manage to build a competitive agri-business sector, the agricultural sector could play a major role in economic transformation. This will create jobs and provide income to people - mostly in rural areas, but also in urban areas.
A key way that the EU works with the private sector is through blending - combining EU grants with other public and private sector resources, such as loans and equity, in order to leverage additional non-grant financing.
Since 2007, the European Commission, together with Member States, has set up eight regional blending facilities, covering the entire region of EU external cooperation. €1.6 billion grants from the EU budget, the European Development Fund (EDF) and Member States have financed more than 200 operations of EU blending mechanisms. EU grant contributions to individual projects have leveraged more than €16 billion of loans by eligible finance institutions, unlocking project financing of at least €42 billion, in line with EU policy objectives.
Examples of EU cooperation projects to support economic growth and trade
Support to agricultural markets in Somalia:
Agricultural production and productivity in Somalia suffer from a variety of problems ranging from widespread insecurity to harsh climate, weak agricultural support services and lack of inputs (e.g. seeds and fertilisers). Lack of access to markets (local and international) and marketing information are additional obstacles. Food aid and large distribution of food had always kept local production very low and marginalised.
In 2011 the EU financed the first phase of to support agricultural markets in Somalia. For the first time, Somali farmers were able to produce, store, select and sell high quality maize to the World Food Programme (WFP). A second phase of the programme of (EU support €3 million) will start in July 2014. In total, 10 cooperatives or farmer associations joined the last programme. The next phase will benefit up to 1,000 farmers.
Support to West Africa Quality System:
In the West Africa region, a Quality System Programme (PQAO) was put in place, to support business competitiveness and ensuring compliance with international trade and technical rules and regulations. Financed by the European Union for a total of €16.5 m, it covered the 16 ECOWAS States, along with Mauritania, and set up quality, standards, compliance assessment and accreditation measures of 17 laboratories and private standard certification for 17 companies.
The programme also contributed to the creation of national quality infrastructure in most of the countries. It also promoted a genuine "Culture of Quality" from governments to consumer groups, in laboratories and in companies.
Sustainable access to raw materials
The subject of raw materials is in the centre of discussions Vice President Tajani will have during the summit. Sustainable access and management of raw materials plays a crucial role in translating mineral resource wealth into inclusive economic growth and supporting development. In this context the Commission has recently adopted a regulation. It provides for a voluntary certification scheme for companies importing certain minerals from conflict zones, and aims at supporting good governance and transparency in mining, which is one of the building blocks of the first pillar of the Raw Materials Initiative. Discussions will also focus on high-capacity infrastructures, enhancement of knowledge and skills, and the management of raw materials from waste.
Africa-EU Cooperation in the field of Space
The EU supports a number of new initiatives for technological cooperation and development in the space sector, to secure the achievement of global sustainable growth.
Space technologies, infrastructure and services could play a positive role in the developing world to favour sustainable development and growth, to facilitate good governance of resources and to contribute to the implementation of policies in various fields such as food security, health and education, not to mention the important role they can have in disasters management and climate change adaptation.
The private sector plays a key role in delivering technical solutions for EU space programmes, including its flagships Galileo (the European Satellite Navigation system)and Copernicus (European Earth Observation programme). These programmes are open, under certain conditions, to non-EU countries, including developing countries, such as in Africa.
The private sector is also a partner in a number of space research projects supported by FP7 (Framework Programme for Research and Technological Development) on space research, which also involve developing countries such as in Africa and Latin America. The private sector is to continue to play an important role also in the successor to FP7, the H2020 space programme, open in principle for international cooperation, is even more private sector user friendly than its predecessor, due to the simplification of the rules for participation.
Earth Observation, Copernicus
A Free and Open data policy has been set up for the COPERNICUS programme allowing the access to the satellite data and service products to specialised users but also to public and private sector as well as to general public. Many value-added services can be tailored to specific public or commercial needs. In this context, the Commission encourages new business opportunities for the private sector in developing countries.
Satellite navigation is another area of cooperation aimed to develop the African economy. Building on the success of the European programme EGNOS (European Geostationary Navigation Overlay Service), the European Commission and African partners are investigating possible financing and governance schemes to extend the provision of satellite navigation services over the African continent.
Benefits of use of satellite navigation in Africa
Optimising transport with the use of satellite guidance (air, maritime, inland waterways, rail).
Increase in the safety of the African skies, guiding safely to airports along regional and international routes. Benefits associated to this safety increase in Africa are estimated at more than € 1100 M!
Satellite services - remote sensing and accurate positioning - are also efficient tool for the management of the African abundant natural resources: agriculture, oil, minerals, etc.
The management of the land would help the development of cadastre services with much greater efficiency than the traditional methods, avoiding conflicts.