“So what we are discussing is how to give public money to private firms and call it development assistance. That is it.”
This was the closing remark in a recent government on developing a strategy to work with the private sector for development. Whilst stark, it captures the broad ambivalence felt by many in the development sector about working with the private sector.
Despite that ambivalence, most European governments are now linking their economic policy with development– something of a political win-win in these financially straightened times. They include the UK, Finland, the Netherlands, Sweden, Denmark and Portugal among others.
The European Commission is now also stepping into the fray with the launch of its communication. Given that the EC’s communication will aim to impact not only on its own activities but also how other governments operate and discussions regarding engaging business in the Post-2015 agenda, it seems important to bring some clarity to what this whole agenda entails and the challenges for such a communication.
Four main narratives seem to be at work in the business for development discussion, particularly for Africa.
The Africa rising narrative heralds high economic growth rates across many African countries in the last decade with reductions in poverty, greater macroeconomic and social stability, and expanding opportunities for portfolio and direct investment to tap a growing middle-class whether through traditional or social business models.
But there is a second narrative, often from NGOs, that focuses on the dangers of working with the private sector for development. This exploitation narrative focuses on the tales of bad behaviour by firms who flout social, environmental and other standards, abuse of human rights, land-grab and generally put profits before people leading to dependency and disenfranchisement. The policy conclusion is that donors should limit private sector engagement to a few so called good firms operating in so called good sectors – ring-fencing the development agenda for a select few operating in ‘safe’ sectors, such as health, education and the environment.
A third related narrative treads the fine line between these two, reflecting African countries’ own agendas: the economic transformation narrative. African governments, regional economic communities and continental bodies are increasingly designing industrialisation strategies to encourage a move from low-productivity, informal jobs to more and higher productivity jobs with better conditions, through domestic and foreign investment, value-chain integration, export diversification etc. Eurodad, in this quick analysis, believe that the communication risks putting business profits before the needs of the world’s poorest
Donors increasingly promote a fourth narrative – the win, win. In this view, PPP stands for people, planet and profit, where the private sector brings development as well as benefits to the home economy. This narrative, previously shunned as a return to tied aid, capture and exploitation, is the new conventional wisdom and something of a coup for savvy politicians. Driven partly by pressure on aid budgets, or to show ‘value for money’, it also responds to the worry that European investors are losing out to the Chinese and others in Africa.
The fear expressed in the exploitation narrative is that the development agenda is being captured by private interests and economic diplomacy, the potentially dark side to the Africa rising story. That and the economic transformation agenda are also susceptible to horror stories of corrupt governments and domestic political processes that belie any formal statement of intent to promote economic development.
But of course, all four narratives are likely to be true to a degree for different cases at different times. This then is the challenge that development agencies face to get the win-win.
Navigating the Narratives
So where might donor strategies such as the EC’s communication take us within these narratives?
As the above suggests, finding a balance is essentially about identifying and measuring development impact, and therefore identifying counterfactuals and opportunity costs.
What actually counts as development impact and how do you measure it? Does who is driving the process affect impact? Should we care if development aid goes to firms that produce luxury goods but create jobs in the meantime? Is traditional FDI necessarily less developmental than a small-scale social enterprise? Can we compare giving EUR5m to a multi-national firm partnership to a EUR5m health project? For all the rage about evaluations, this is not a question we can answer, not least because the development outcome is not the same.
But it is important to remember that despite the rise of emerging powers in Africa, according to UNCTAD the largest FDI inflows and stocks in Africa are still held by French and US companies!
Yet private investment is happening anyway, most of which is not by social enterprises nor explicitly targeting development objectives. French companies have long been investing, creating jobs, building, investment and paying taxes (French companies pay 50 percent of tax revenues in Côte d’Ivoire), even if they do not class themselves as impact investors. They may not always behave well, but they are there and cannot be ignored.
So even if we are talking about giving public money to private firms and calling it development assistance, limiting donor engagement to what are perceived to be good firms, is also likely to limit the development impact. By aligning with private sector initiatives and incentives, public finance and investment can help contribute to economic transformation and bring the jobs that are needed to improve livelihoods, and help to ensure development benefits are maximised at least in terms of scale if not depth. Well-being stems from a lot of things, but a lot comes from income for employment for which economic activity can only be encouraged.
For donors that should mean supporting countries’ strategies where they align government and private sector interests, being aware of the political nature of any intervention, and recognising that anyway, what governments and donors do will essentially be marginal compared to private investment taking place regardless of donor support.
This is the basis on which the new European Commission communication needs to be judged.
The views expressed here are those of the authors, and may not necessarily represent those of ECDPM.