By Carlos Villota,
The Belgian Investment Company for Developing Countries’ (BIO) is turning ten and 11.11.11, a member of Eurodad, is celebrating the occasion with a report looking at the institution’s performance. The report tries to answer the following question: Do BIO´s investments really contribute to poverty reduction and sustainable development? More precisely, 11.11.11 assesses whether non-domestic public finance for private investments in the South lives up to promises to provide finance to credit-constrained companies in developing countries and to deliver positive development outcomes.
The report comes at a very timely moment and complements very well Eurodad´s report Private profit for public good?, which was launched only a few weeks ago. Both reports address similar questions and try to shed some light on the most pressing questions raised by the emergence of the private sector as a development actor. This trend has intensified in the last couple of years as a result of the pressure of the crisis on European budgets.
The research conducted by 11.11.11 clearly indicates that financial outputs take precedence over development outcomes. BIO is not able to sufficiently respect the legally established basic principles it should keep in mind upon performing its core task. The report found sufficient indicators that the principles of additionally, sustainable development and local added value are not always guaranteed. The structural use of tax havens for investments through intermediary funds is also highlighted in the report as something particularly problematic.
In order to be considered true development actors, DFIs need to better demonstrate that they engage exclusively in the pro-poor and equitable investments, where development impact is held above financial returns. BIO, and DFIs in general, need to ensure that their investment strategies are in line with internationally agreed upon development goals and agreed upon principles of aid effectiveness. As Eurodad points out, the increasing reliance on financial intermediaries to channel development finance must be complimented by increased transparency in order to ensure that the funds have a clear development impact. In addition, DFIs need to make sure their investments in the private sector are responsible and have a clear financial and development additionality, as outlined in Eurodad´s Responsble finance charter.