Private
finance
Debt
Tax
justice
Aid
Financial
architecture

EU’s support to private sector development: focus on poverty reduction and job creation is needed

Added 25 Apr 2013

By María José Romero, Eurodad and Gustavo Hernández, Alop

An April seminar on the “Evaluation of the European Union’s support to private sector development in third countries” showed that much more needs to be done to maximise the impact of EU money on the ground, since linkages between EU support to private sector development and poverty reduction and job creation remain very distant.  

On 22 April, the European Commission (EC) presented an evaluation report on its support to private sector development in third countries, with the objective of identifying key lessons. The aim is to improve current and future strategies and programmes. The evaluation includes a survey with representatives of EU delegations and country visits, and covers all the support given during the 2004-2010 period in all regions where the EU provided direct funds, which amounted to €2.4 billion. Most of the funding was focused on the areas of facilitation of investment and access to finance (23%); sector budget support (20%); and investment and inter-enterprise cooperation (19%). In contrast, there was minimal support for micro-enterprises (2%).

The seminar devoted most attention to the key issue of the EC’s value added at the time of providing support to private sector development in third countries. On this point, the evaluation report mentions that “different types of value added by the Commission’s support were observed. They related to its financial weight, its trade mandate, its capacity to transfer EU good practices, its capacity to use a variety of support mechanisms and modalities, its continued presence and focus on poverty reduction, and the fact that it was perceived as less tied to specific economic or political interests. It cannot however be stated that any of these factors really stood out.” 

Furthermore, the evaluation report indicates that “Commission representatives did not have a clear and shared conception of what the Commission’s value added was or should have been with respect to PSD [private sector development] support.” The report covers neither the resources channelled through the EU blending facilities nor the African, Caribbean and Pacific countries Investment Facility managed by the European Investment Bank (EIB) to support private sector development. However, its findings are similar to concerns raised during the public seminar organised at the European Parliament on 21 March, which specifically addressed the blending mechanisms and the EU Latin American Investment Facility (LAIF). The civil society organisation (CSO) report on the LAIF concludes that “no direct link has been observed between the LAIF and the reduction of poverty and inequality. Indeed, the vast majority of projects do not include poverty reduction, inequality and exclusion (social cohesion) among their objectives”.

The evaluation report further states that, even if there is a broad consensus on the importance of the private sector for job creation, “linkages between the EU support for PSD and employment generation remained very distant and that the EU did not really use its support for PSD as an opportunity to promote crosscutting issues and the Decent Work Agenda”. CSO findings presented at the European Parliament, based on an in-depth analysis of four case studies, highlights that one out of four projects “has the potential to have positive impacts if the expected results are achieved. However, the lack of available information did not allow for a rigorous analysis and leads to a series of questions regarding the mechanisms and procedures for participation, monitoring and selection, and the prioritisation of energy efficiency over other financing needs of the SMEs [small and medium-sized enterprises].”

At the seminar, CSOs argued that – in times of scarce public resources – the EC should address these concerns by revisiting its support to PSD in order to ensure positive impacts on poverty eradication and job creation.