The European Commission's new plan to boost the role of the private sector in development cooperation could put efforts to reduce poverty second to the interests of European companies, said leading NGOs Oxfam and the European Network on Debt and Development (Eurodad) today.
In its new Communication, "A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries," the Commission promotes the adherence to internationally and EU agreed social, environmental and fiscal standards, but Oxfam and Eurodad are concerned about a number of aspects detailed below. The Communication:
Promotes the use of public resources, including scarce overseas aid money, to invest in the development of private businesses and leverage private finance, without transparent and accountable structures to adequately explain how their intervention reduces poverty, tackles economic inequality or improves the lives of the poorest and most vulnerable.
Fails to address other areas of EU policy, such as trade, investment, agriculture and tax, where current policies have the biggest negative impacts on developing countries and their domestic private sector.
Emphasizes the use of Europe's "political weight" to influence the policies of partner countries, running the risk of undermining the sovereignty and democratic decision-making in developing countries and favouring policies that pursue European commercial objectives.
Fosters the scale-up of private sector provision in social sectors. Health and education and other basic services to vulnerable people cannot be left to the private sector to run as profit-or-loss businesses. The evidence shows that prioritising the private sector is extremely unlikely to deliver for poor people at big scale. Instead, the EU should help support state capacities to regulate and focus on the rapid expansion of free publicly provided health care and education.
While the private sector has an important role to play in overseas development, both as a creator of decent jobs and as a key component in achieving economic growth, the limitations of the private sector must not be underplayed.
María José Romero, Policy and Advocacy Manager at Eurodad, said: "There is currently a dangerous emphasis on using EU power to push change in developing countries without recognising that narrow investment interests could be promoted ahead of development objectives. Using public resources to 'leverage' private finance is of great concern due to the high risk of profit-making motives outweighing poverty reduction objectives."
Hilary Jeune, Oxfam's EU policy advisor, said: "The European Commission highlights social services as an opportunity for private sector engagement, but areas like health and education should not be determined by profit margins. Governments should provide free and public essential services for all, and maintain stringent rules for any business which might risk hindering social and environmental progress."
"The most important role that businesses can play in helping fight poverty is to behave responsibly. By playing by the rules, avoiding practices which risk harming the most vulnerable and paying a fair share of taxes, the private sector has great potential to pull people out of poverty," added Jeune.