This article was exclusively written for the Sting by Mr Neven Mimica, EU Commissioner for International Cooperation & Development.
There’s never been a more relevant time to look at what role the private sector has to play in development. What are the challenges, and what can it help to deliver?
The current world situation leaves us facing unprecedented challenges in development cooperation, for which urgent solutions are needed. The ambitious targets for the forthcoming years arising from the Sustainable Development Goals, the climate finance deal and the growing need to address the root causes of forced displacement, require a high level of financial resources.
However, at the same time, resources allocated to cooperation are limited and we need to find innovative ways for the scale and nature of traditional development co-operation models to match the universal sustainable development needs. In addition, the current strained economic and budgetary environment makes it imperative to ensure that resources are spent effectively, deliver the best possible results and — especially — are used to leverage further financing for development. EU blending (ie the principle of combining grants and loans, or equity from public and private financiers) can be used in all partner countries and relies on strong partnerships with partner finance institutions and other key stakeholders, in order to achieve leveraged financing and thus contribute to sustainable growth and reduced poverty. The figures are impressive and speak for themselves. From the creation of the first Blending Facilities in 2007, €2.7 billion of grants have been used under blending to make more than €50 billion of total investments possible, in order to provide better infrastructure and support to Micro, Small and Medium Enterprises, as well as to social and environmental sectors.
Drawing on the experience with the existing investment programs, and in particular the blending facilities, in autumn 2016 the Commission will make a proposal for a new Fund as part of an ambitious External Investment Plan in order to mobilize investments in developing third countries, with a structure similar to the successful ‘Investment Plan for Europe’. This will initially cover Africa and the EU Eastern and Southern Neighbourhood, with the objective of being extended to other regions at a later stage. €3.1 billion will be mobilised to this end, expected to trigger total investments of up to €31 billion and the potential to increase to €62 billion if Member States and other partners match the EU contribution. The External Investment Plan will be offering additional guarantees and concessional funds, will help local authorities and companies develop a higher number of bankable projects and make them known to the international investor community, and will also focus on targeted assistance to improve the business environment and good governance in the countries concerned.
It is crucial to work together to identify how to better attract the participation of the private sector in development projects, what are the barriers that prevent private sector from participating further, and how the Commission and its partner finance institutions can make the best use of EU resources in order to further increase the impact of our development cooperation.
But this is not new to us. The Commission already established a strategic framework to support the private sector in achieving inclusive and sustainable growth in developing countries in 2014, as called for in the Agenda for Change (the EU’s development policy, which refocused our aid to ensure that it supported those sectors, and countries, where it was most needed and where it could make the biggest difference).
Now, as key thinkers from the business world come together in Brussels, we need to look at how to further involve the private sector in the design and implementation of a potential Investment Plan for emerging countries, building on the experience gained through blending. We need to establish a continuous dialogue with the private sector so that we can work together on the most adequate mechanisms to boost investments, while keeping in mind the overall objective of poverty eradication.
The role of the private sector is key to achieving inclusive economic growth, to creating decent jobs, to moving to a green economy, to securing food and nutrition, to protecting the environment to mitigate and adapt to climate change, and to ensuring the social and economic empowerment of women and young people.
I will continue to keep these objectives at the forefront of my discussions with our international partners. We rely on the engagement of the business community to establish a continuous dialogue to find the most efficient way to team up in order to achieve our common goals and developing countries into a new global framework.