BRUSSELS, 29 May 2012: A new Eurodad report reveals how donor governments and international institutions are increasingly seeing investing public money in private companies as a panacea for combatting global poverty, despite weak evidence of effectiveness.
Eurodad’s report shows that this is far from being a silver bullet. “Private investment where it’s needed and appropriate can be valuable,” said Eurodad private finance analyst and report author Jeroen Kwakkenbos, “but there is little evidence that donors and international institutions have a clear plan. Too much public money ends up supporting rich country firms. Too little goes to nurture the domestic private sector in the world’s poorest countries.”
After examining almost $30 billion of private sector investments in the world’s poorest countries by European governments, the European Investment Bank and the World Bank, the report shows that:
“The majority of the World Bank’s investments go to firms from rich countries,” Kwakkenbos notes. “This is not the way to target limited public resources or help the poorest countries.”
In spite of this, international public finance to private companies investing in developing countries is expected to exceed €100 billion by 2015. While Eurodad’s report acknowledges that supporting private-sector investments can have a useful, if limited, multiplier effect on public funds, it casts serious doubts on claims made about their leveraging potential and reveals that it is often impossible to know where this public money ends up. The report also highlights that much investment is just following rather than leading the market – and potentially locking out investment from private firms.
The report, “Private profit for public good? Can investing in private companies deliver for the poor?”, is available at: http://eurodad.org/files/integration/2012/05/Private-Profit-for-Public-Good.pdf
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Eurodad (the European Network on Debt and Development) unites 50 non-governmental organizations from 19 European nations working on issues related to debt development finance and poverty reductio.