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How Will the EU’s Private Sector Strategy Play Out?

02-06-2014

Byiers, B; Kratke, F; June 2014. How will the EU's Private Sector Strategy Play Out? Maastricht: ECDPM.

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Having spent an average of €350 million ($477 million) per year on private sector development over the past decade, the newly launched European policy statement on the topic is an important addition to a crowded field.

But what tools and actions will the European Commission’s development directorate-general — EuropeAid — put forward to work towards private sector development outcomes? And just how will this new strategy play out?

Commission policy statements — known as communications — can bring attention to an issue, but they’re rarely groundbreaking. Usually, they are light on “how to” achieve new goals and commitments, having emerged from a long and tortuous process of consultation, compromise, careful word-choice and numerous re-drafts. As such, they serve as stocktaking exercises and broad strategic statements of intent. They should therefore be viewed as a point of reference for those actually designing European Union programs and actions, and as something against which EU institutions can be held accountable.

At first glance, this timely communication clearly and concisely covers the main ways in which the institutions could support or work with the private sector for development outcomes. The underlying narrative for the EU’s policy is the elusive “win-win” — arriving at private sector profit and development outcomes while avoiding the dangers of abuse, exploitation and social or environmental harm.

But what tools can the EU deploy and are they up to the job? And what can the EU add that the 28 EU member states don’t already do?

Tools for a decent job

The Commission spent €2.4 billion over the period 2004-2010 and an average €350 million per year on support to private sector development over the past decade. While this is significant, scale is not everything.

A recent evaluation found it hard to conclude what had actually worked, particularly for creating jobs. The Commission is not alone in this: the United Kingdom’s Department for International Development is the most recent donor to come under pressure to more rigorously evaluate its private sector work. The Swedes and the Austrians face similar challenges.

So it is good that the EU also brings other tools to bear. As highlighted in the communication, the EU will further private sector development and partner with the private sector for development through a combination of:

     •   Structured policy dialogue.

     •   Blending EU grants with other sources of finance.

     •   Harnessing its political weight.

Stepping up dialogue and financing partnerships with firms and investors in developing countries will require skilled and dedicated staff accustomed to working with the private sector. But not all EU embassies — or delegations — on the ground have staff versed in working with the private sector for development. Indeed, many don’t even have a trade section or a qualified attaché responsible for trade and commercial affairs. Where they do, these attachés usually don’t report to EuropeAid but to those Commission services responsible for trade or enterprise.

As this is not the case everywhere, lessons might be shared — the EU delegation in Kampala, Uganda, for example, has reputedly been forward-thinking in how it engages with the financing mechanisms to agricultural enterprises through equity funds. The commitment to increasingly co-locate offices of the European Investment Bank in delegations also suggests that this is an old problem for which solutions can and are being found. It nevertheless underlines the need for institutional adaptation to new approaches.

The EU: Donor or investor?

Relatedly, the issue of how the EU will promote investment in developing countries by European companies is not clearly addressed. The experience of member states such as the Netherlands and Finland should lead the EU to ask a plain question: Do we present ourselves as a donor or as an investor, and can we ably present ourselves as both?

Dutch and Finnish embassies are a “first point of contact” for the private sector. These embassies employ members of staff who are specifically trained to work with companies.

Some EU member states are much more explicit about their commercial intent and interests in working with the private sector than is the case for the EU. So delegations are still a far cry from the private sector’s dedicated network of professionals of other member state embassies. Is this a matter of adaptation or choice?

While the EU’s political weight — the third tool mentioned — is often said to be its main added value, the communication is in fact remarkably apolitical. As Eurodad cautions, the document lacks reference to developing countries’ ownership or own policies for private sector development. The space for success or failure of any private sector development intervention — by the EU or others — ultimately depends on domestic politics and policies of developing countries: They determine what reforms are carried out, what standards are upheld and how contracts are awarded.

Finally, the Commission cannot work on the assumption that the private sector is necessarily interested in working with the EU. Unlike in matters of conflict resolution and peacebuilding, the private sector is unlikely to buy into the EU’s image as a “neutral partner” and the transaction costs of “engaging with the development sector” may ultimately be too high for many companies.

Beyond aid

A more useful political role for the EU — in development cooperation but also more generally in policy dialogue with third countries — has been to serve as a conduit or coordinator of member state activities on the ground. Big international development discussions and forums — including recent meetings in Mexico and the EU’s own Policy Forum — have remained donor-focused, offering little that might stimulate or engage the private sector.

Arming EU delegations with nationally identified, preloaded project pipelines full of opportunities for investors — matched with project preparation support — could do the trick. Yet it’s not clear whether that is on offer.

The communication should be viewed primarily as an aid strategy document in both narrative and tools — albeit a progressive one. As a snapshot of where the debate currently stands on engaging with the private sector, and laying out a sensible framework for how the Commission might do so, it is certainly a welcome document. Now the real work starts on working out what it means to implement it in practice.

Can the European Commission ably present itself as both a donor and an investor? Are the roles compatible or do they represent a conflict of interests? How will the EU Commission’s private sector strategy play out? Have your say below. 

This blog also appeared in DEVEX Impact.

This post represents the views  of the authors and may not represent those of ECDPM.

Photo courtesy of DfID.

In addition to structural support by ECDPM’s institutional partners The Netherlands, Belgium, Finland, Ireland, Luxembourg, Portugal, Sweden, Switzerland, and Austria, this publication also benefits from funding from the Department of International Development (DFID), United Kingdom.

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Cross-cutting TopicsEconomic Transformation and TradeEuropean external affairsAid for TradeBusiness and DevelopmentDevelopment Finance and TaxationEU AidEU Development Policy and PracticeAid effectivenessBlendingPrivate Sector Development (PSD)Private sectorAfricaEurope