EU Involves Private Sector in Development Assistance

Written by | Thursday, May 15th, 2014

The European Commission has recently published its first round of guidelines and rules that aim at involving private sector stakeholders in promoting development processes of poor economies through provision of development aid. EU’s effort to engage companies in the Union’s development agenda has proven to be a controversial long-standing practice that gathered criticism from non-profits and development advocacies on the grounds of a lack of accountability, transparency, and potential for corporate profit-taking.
The Commission has listed six broad criteria for using public money to leverage private sector engagement, covering numerous issues such as disbursement procedures, “additionality” of projects, and environmental, social, and fiscal considerations of foreign aid provision. Yet, the guidelines do not include any specific information on how criteria will be tracked and evaluated or whether penalties will apply if they are violated.
According to Oxfam, the European Union, which was allocating scarce development aid money to private sector, failed to make sure that businesses would establish transparent and accountable structures that would be capable to contribute to the alleviation of poverty and hardship in developing countries. The EU’s guidelines stress that providing public sector with access to public funds is a way of leveraging support for a project that has a measurable development impact, is neutral, transparent, temporary, fair in bidding processes, non-market bidding, and cost-effective. Moreover, such a project must take into account social, environmental, and fiscal considerations as well as respect for different cultures, indigenous and human rights, and good corporate governance.
Nonetheless, Brussels has neither defined what measurements should be used to gauge a development impact, nor laid out any further guidelines on cost-effectiveness and market distortion, which has immediately became a focal point of criticism from the non-profit sector. Development NGOs described the criteria as “woolly, vague, and open to abuse” but the Commission replied that companies were primarily used to measuring financial performance, but measuring socio-economic impact on poor societies might indeed be more of a challenge for them.

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