8 The private sector and inclusive and
sustainable growth
| Committee's assessment
| Politically important
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| Committee's decision
| Cleared from scrutiny; drawn to the attention of the International Development Committee; relevant to the debate already recommended on an EU results framework
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| Document details
| Commission Communication: A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries
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| Legal base
| — |
| Department
| International Development
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Summary and Committee's conclusions
8.1 The Commission Communication proposes
the adoption of a strategic framework for strengthening the role
of the private sector in achieving inclusive and sustainable growth.
The proposed framework includes actions and tools for the Commission
to add value and complement actions by Member States, development
financing institutions, and other partners in supporting the private
sector's role in development cooperation.
8.2 The Parliamentary Under-Secretary
of State for Development (Lynne Featherstone) welcomes a Communication
on the role of the private sector, describing private investment
as "the engine of economic development", and noting
that "it is the private sector that creates wealth in society,
taking risks, innovating, and transforming economies". She
says the proposed framework is in line with the UK's new strategic
approach to supporting economic development, noting that both
UK and other EU companies would benefit from the presence of a
pro-business policy environment and infrastructure in partner
countries which could create potential trade and investment opportunities.
8.3 The Minister also welcomes the emphasis
on economic empowerment of girls and women featured in the framework,
and the focus on results, noting that:
"It is important that the EU results
framework — currently under preparation — is integrated
into this agenda."
8.4 Given the importance of the Commission's
welcome endorsement of the private sector in achieving inclusive
and sustainable growth, we are drawing this chapter of our Report
to the attention of the International Development Committee.
8.5 We have already recommended
a debate in European Committee B on a Commission Staff Working
Document on "A results framework for EU funded development
cooperation", which sets out the Commission's progress towards
a results framework to monitor and report results achieved by
EU development and cooperation projects and programmes. We consider
this chapter of our Report relevant to that debate.
8.6 In the meantime, we clear this
Commission Communication.
Full details of the
documents: Commission Communication:
A Stronger Role of the Private Sector in Achieving Inclusive
and Sustainable Growth in Developing Countries: (36016), 9802/14,
COM(14) 263.
Background
8.7 The Communication, prepared by the
European Commission, proposes the adoption of a strategic framework
for strengthening the role of the private sector in achieving
inclusive and sustainable growth. The proposed framework includes
actions and tools for the Commission to add value and complement
actions by Member States, development financing institutions,
and other partners in supporting the private sector's role in
development cooperation. It builds on the recommendations of a
recently published evaluation of €2.4 billion of Commission
support for private sector development in developing countries,
as well as any support provided by the Commission's humanitarian
aid body, ECHO.[30]
The Minister's Explanatory Memorandum of 2 June
2014
8.8 In her Explanatory Memorandum, the
Minister states that this study confirmed the important contribution
made by the Commission to private sector development in partner
countries, while identifying ways of improving future programmes
and strategies.
8.9 She then helpfully summarises the
Commission Communication as follows:
"The Communication's proposed framework
includes: 1) supporting the creation of an enabling business environment
and the development of local enterprises that are equipped to
create decent jobs, generate public revenues, and harness the
opportunities offered by globally integrated markets; and 2) helping
the private sector achieve positive development results as part
of its core business strategies, responding to the evaluation.
"Over the last decade, the Commission's
support for local private sector development in partner countries
averaged €350 million (£288.05 million) per year. This
included grant funding across a wide range of activities, including
regulatory reforms, capacity-building and the provision of development
services to small and medium-sized businesses. The EU is also
starting to use innovative financial instruments such as guarantees
to boost small and medium enterprise (SME) lending by commercial
banks, and risk capital to invest in funds that lend on or invest
in SME energy efficiency projects.
"In the first part of the Communication
the European Commission proposes seven principles for supporting
and engaging with the private sector. These are intended to complement
aid effectiveness principles and to inspire efforts by EU Member
States (MSs), European Development Finance Institutions (EDFIs),
and other EU development partners. The principles are:
i) "Focus on employment creation,
inclusiveness and poverty reduction;
ii) "Adopt a differentiated
approach that takes into consideration the diversity of the private
sector, which includes small businesses vs large companies, local
vs international, self-employees etc;
iii) "Create opportunities
for local entrepreneurs through market-based solutions;
iv) "Follow the following criteria
in the provision of direct support to private sector actors: a)
measurable development impact; b) additionality; c) neutrality;
d) shared interest and co-financing; e) demonstration effect;
and f) adherence to social, environmental and fiscal standards;
v) "Account for different local
contexts and fragile situations, setting priorities according
to the needs and stage of development and degree of vulnerability
of partner countries;
vi) "Put strong emphasis on
results;
vii) "Observe policy coherence
in areas affecting the private sector in partner countries, such
as trade and investment policies.
"In the second part of the Communication
the framework presents the type of activities that the EU will
adopt in future EU development cooperation, which include:
i) "Supporting the private
sector through: a) creating a business environment conducive
to private sector initiatives; b) stepping up support to micro,
small and medium-sized enterprises in the formal and informal
sector; c) empowering women as entrepreneurs and workers; d) increasing
access to finance and deepening financial inclusion;
ii) "Mainstreaming private
sector development and engagement in EU development cooperation
by better integrating private sector development objectives in
support strategies; and catalysing private investment in sustainable
agriculture, energy and infrastructure investment through a greater
use of EU blending facilities for providing loans, guarantees,
risk-sharing instruments, and equity or quasi-equity instruments;
iii) "Catalysing private
sector engagement for development through the EU Corporate
Social Responsibility strategy, which encourages companies to
adhere to internationally recognised guidelines and principles;
by helping to build an ecosystem of local support institutions
for inclusive businesses through its private sector development
programmes; by facilitating public-private partnerships and multi-stakeholder
alliances; and by defining the role and responsibility of the
private sector on the global development post-2015 agenda.
"The Communication concludes by
laying out the way forward which includes promoting dialogue and
joint action with the private sector, mobilising private resources
for development through blending, and harnessing the EU's political
weight in support of inclusive and sustainable growth."
The Government's view
8.10 The Minister says that the proposed
framework is in line with the UK's new strategic approach to supporting
economic development, and "will not have implications on
the design of our policy or related programmes [or] … affect
UK policy on economic development as it does not limit or restrict
the activities of MS and International Financial Institutions
(IFIs) on this agenda".
8.11 The Minister then notes that the
proposals within the Communication could helpfully promote:
· "a cohesive and coherent
EU approach to supporting economic development, where the Commission,
EDFIs, and MSs use their comparative advantage and wide range
of instruments to support private sector investment and inclusive
growth;
· "greater engagement
and dialogue between the Commission and partner governments on
policy reforms that support economic development;
· "joint working and sharing
of lessons learnt amongst EU development actors."
8.12 The Minister welcomes a Communication
on the role of the private sector:
"Private investment is the engine
of economic development: it is the private sector that creates
wealth in society, taking risks, innovating, and transforming
economies.
"The UK has made economic development
a priority in recent years. Economic development takes place when
a country achieves high sustained growth rates combined with wider
economic transformation that benefits the poor. The private sector
is a key contributor to economic development by creating productive
jobs and income opportunities for poor people, and providing a
sustainable base for domestic resource mobilisation to fund countries'
development and end aid dependency."
8.13 The Minister notes that the UK
is "scaling up" its work on economic development:
"In January 2014, the government
published an Economic Development Strategic Framework which sets
out our priorities and identified five pillars against which we
are organising our programmes and policy activities:
i) "Improving international
rules for shared prosperity;
ii) "Supporting the enabling
environment for private sector growth;
iii) "Catalysing capital flows
and trade in frontier markets;
iv) "Engaging with businesses
to help their investments contribute to development; and,
v) "Ensuring growth is inclusive,
and benefits girls and women."
8.14 The Minister professes herself
"pleased to see" that the Communication:
· "reflects the views
of MSs [Member States] that the EU has many levers at its disposal
such as trade negotiations, development assistance (including
innovative finance), and political dialogue; and
· "encourages the Commission
to use its collective weight in political dialogue with partner
governments to create stable, pro-business environments that unlock
their growth potential."
8.15 The Minister welcomes the emphasis
on economic empowerment of girls and women featured in the framework.
8.16 She also welcomes the focus on
results, noting that:
"It is important that the EU results
framework — currently under preparation — is integrated
into this agenda."
8.17 In the long term, the Minister
says, EU stakeholders, including EU private sector, would benefit
from the presence of a pro-business policy environment and infrastructure
in partner countries which could create potential trade and investment
opportunities for UK businesses.
8.18 More immediately, the Minister
notes that, the Commission having presented the Communication
at the Development Foreign Affairs Council meeting on 19 May,
the Greek Presidency "is keen to draft and adopt Council
Conclusions on the Communication as soon as possible".
Previous Committee Reports
None; but see (35735) 17709/13: Forty-seventh
Report HC 83-xlii (2013-14), chapter 1 (30 April 2014).
30 See http://ec.europa.eu/europeaid/how/evaluation/evaluation_
reports/reports/2013/1317_vol1_en.pdf Back
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