The EU's choice for aid: big business or those in need?

Growth does not automatically create jobs, let alone decent and sustainable jobs.

Without strong, clear safeguards, the EU risks making life worse for the very people that development is meant to help.

Supporting companies may come at the expense of people who need the most help.

The EU’s External Investment Plan will use aid meant for development to offset risk for firms investing in developing countries, “blending” public and private finance.

The EU commission, which launched the proposal, argues that the wealth generated by investment will trickle down to the countries’ poorer inhabitants.

However, there is widespread and growing evidence that economic growth has often benefited the richest, while the rest of society suffers, casting grave doubts on “trickle down” theories.

The investment plan is likely to favour supporting large-scale infrastructure projects aimed at macro-economic growth.

Such infrastructure development can be an essential contribution to relieving poverty and can create jobs.

However, unless there are checks and balances to ensure those jobs are secure and sustainable, and that women are not consigned to positions with little opportunity for development, then it will be the few who benefit while the many are left behind.

The European Parliament, meanwhile, has put a more effective approach on the table, one that contains clear safeguards for sustainability, women’s and workers’ rights and environmental standards. Those improvements must remain a priority in negotiations.

No subsidies for damaging industries

The new EU plan must guarantee that development funds will not be used for the kinds of business that can prove harmful to people, communities and the environment.

It must not support, for example, the fossil fuel industry or investments linked to land grabbing.

The parliament should push for effective checks and balances, such as an “exclusion list” of damaging industry practices that should not benefit from the plan. This would help the EU to live up to its principle of “doing no harm”.

It would also avoid the risk that investment in industry in the name of development would undermine other EU priorities, such as fighting climate change and promoting human rights.

Also, it is a real risk that the new EU plan could end up doing more harm than good.

More than half of all corporations listed on the largest stock exchanges in the UK, France, and Germany – businesses that are more likely to benefit from the EU plan – have been accused of being linked to human rights abuses.

In developing countries, where there is less (or less well-enforced) regulation, ensuring good corporate conduct is a challenge, to say the least.

That’s why it is crucial that if the EU channels funds through private business, it must also enforce strong policies to make companies accountable on human rights and environmental standards.

It is also why the EU must establish grievance mechanisms that work. Local people must be guaranteed safety and freedom to speak out against corporate malpractice when it occurs.

Transparent and domestic

Furthermore, evidence from previous “blending” projects shows that it is essential to ensure full transparency in how the External Investment Plan works and how it is achieving its aims.

Local communities and civil society have valuable contributions to make. They are the ones who know most about what helps people improve their lives.

Enabling them to see what is going on and to have their say can only help in the process of improving development.

A positive way forward is also to focus on domestic businesses.

The investment plan should ensure that development aid focuses on these businesses – run by the same people that EU aid is supposed to help – not multinationals or investment firms who have no need of subsidies.

Domestic businesses, often run by women, contribute most to poverty alleviation and to helping communities lift themselves up from poverty.

Such enterprises are embedded in their own economies, and supporting them would mean supporting new sustainable, local jobs and raising living standards.

Development is about more than just money, and more than just growth. It is about human rights, environmental well-being, and empowering local communities and civil society. The EU recognises this in its own objectives for foreign aid.

If it is going to achieve those targets, and achieve fair and sustainable development, it must make sure that development money goes to those who are most in need.

Hilary Jeune is an Oxfam EU development policy adviser