Sunday

17th Feb 2019

Opinion

Next EU aid budget - less private finance tools, please

  • EU-funded project for street kids in Dakar, Senegal. But private finance tools and 'tied aid' see much money flowing back to Western companies (Photo: Matt Tempest)

The EU budget for developing countries should be about tackling poverty in the poorest countries, not making profit for the richest.

Fierce negotiations are taking place today, as EU ministers for foreign affairs begin to thrash out a deal on the next budget allocation for development cooperation and neighbouring countries, to be spent between 2021-2027. The way EU aid is going to support private companies is one of the main stumbling blocks in those discussions.

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What is going to happen? It's too early to say.

European governments generally wish to give more subsidies to companies to encourage them to invest in the developing world, sometimes with the explicit aim to generate business opportunities for European companies – what they call a 'win-win situation'.

This trend is illustrated by the persistently high levels of "tied aid", which development experts working closely with the most vulnerable people in the world had hoped was something of the past.

Tied aid is when development assistance is given on the condition that it be used to buy goods or services from companies in the donor country.

This is a missed opportunity to use procurements to source locally and support local economic development.

According to Eurodad, more than half of all reported development assistance contracts were awarded back to firms in the donor countries in 2016.

Cynical

Supporting our companies under certain conditions may be a good thing, but it is cynical to use aid to do so.

If aid is used to subsidise private firms, the focus should primarily be on local economic actors and inclusive business models such as cooperatives and social enterprises – to ensure profit generated remains in the country and is fairly shared.

When European companies are subsidised with aid, there needs to be safeguards to ascertain beneficiary companies will generate positive social and environmental impacts, even if that translates into lower returns for their shareholders in industrialised countries.

Sadly this is often not the case.

If aid is a hypocrisy, should we end it? No, we just need to get it right.

Aid should be about rights and empowerment, justice and equality – including gender equality.

It has a crucial role to play as long as poor countries can't raise the income they need, through tax and remittances in particular.

Aid should be used to reduce – rather than exacerbate – inequalities.

How? By providing political and financial support to workers', farmers' and women rights' organisations to hold their governments to account and strengthen participatory democracy; by supporting public services available to all such as education, health care, clean water or housing and universal social protection schemes; by ensuring scarce public resources are used in the most effective way to generate decent livelihoods opportunities and support land rights of local communities.

People living in developing countries are entitled to fulfilling lives, as is every one of us living here in Europe.

That aspiration is not just a dream: it is a commitment that all countries around the world have made - to implement the Sustainable Development Agenda by 2030 – and there are only twelve years left to transform that aspiration into reality.

European countries have a major role to play to make this happen:

by fighting tax avoidance by European companies that deprives countries in the Global South from resources they are entitled to;

by replacing the obsession with GDP growth with the objective to improve people's well-being while respecting and protecting planet earth;

by ending the fetishism for trade expansion and ensuring trade is liberalised only to the extent that it improves people's lives;

by urgently regulating European companies and investors operating in the Global South to avoid the reckless exploitation of natural resources and cheap un-unionised labour.

And at next week's UN Climate talks, our governments should be championing effective measures to fight climate change.

Last but not least, our governments must ensure EU aid effectively contributes to reduce poverty and inequalities, and to the realisation of human rights.

That implies a cautious approach when using aid to leverage private investments in the Global South – a prudence which we hope our ministers of foreign affairs will champion when they meet today.

Isabelle Brachet is the international EU advocacy advisor for the NGO ActionAid

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