Halt private investment vehicle, development leaders tell EU

The European Commission wants to expand its private sector-led investment programme in African countries. [Oxfam/Flickr]

A group of leading development NGOs have urged the European Commission to halt plans to expand its External Investment Plan (EIP), which seeks to leverage private investment in developing countries, according to a letter seen by EURACTIV.

The letter, sent to the Commission, MEPs and national governments, also calls on the Commission to prioritise the use of grants in social policy sectors and exclude health and education projects from the scope of the EIP. It was signed by a number of leading NGOs including Oxfam, Eurodad and ActionAid.

Unveiled by Commission President Jean-Claude Juncker in September 2016, and modelled on the so-called ‘Juncker plan’ which has marshalled infrastructure investment across the EU, the EIP promises to leverage €44 billion in private sector investments in developing countries.

The letter demands an impact assessment on the current EIP. It also calls on the Commission to clarify what role the EIP will play in helping to meet the Paris climate change target and its core principles; the governance and transparency of the Programme; and the impact of the EIP on the level of countries’ indebtedness.

“The EU has increasingly used its development funding to invest in private sector projects, even though there is a lack of evidence to suggest these investments reduce poverty or tackle inequality,” said Maria Jose Romero, a policy and advocacy manager at the European Network on Debt and Development (Eurodad).

“Despite this, the EC proposal for the next EU budget favours leveraging private finance, which in practice means expanding the scope of the External Investment Plan.”

In its proposal for the next seven-year EU budget framework, the European Commission earmarked €123 billion for the bloc’s external spending. It is not clear how much of that will be allocated to development policy, but the EU executive has confirmed that there will be increased spending.

In the meantime, the expansion of the EIP is expected to form part of the next multi-annual financial framework.

The European Fund for Sustainable Development currently relies on a combination of grants, loans and financial guarantees from the EU budget worth €3.3 billion.

EU sources say there has been huge interest in the first five calls for projects. A board meeting in June is expected to decide the first projects to receive funding under the EIP.

However, while increasing its private investment instruments, the EU executive says that the bloc will spend more on development in the 2021-2027 cycle.

“We are very content with the proposal on the table. It shows that the EU respects and stands by the commitments that it has made. It clearly increases the money for development co-operation,” an EU official told EURACTIV.

He added that including the European Development Fund, the largest single EU instrument in development funding, “is not going to cut a cent of development funding.”

“The key elements of the MFF are positive on development co-operation,” he said.

But the lack of a track-record for the EFSD is concerning MEPs and many development NGOs.

Meanwhile, many civil society organisations argue that private sector firms tend only to invest in wealthier developing countries. Contracts for the projects themselves often go to European firms, they add.

They have also complained that the EIP was intended to help ‘tackle the root causes of migration’ from sub-Saharan Africa.

The EU official defended the Commission’s stance, telling EURACTIV that “development policy has a clear focus on poverty eradication but it does not stand in isolation. Addressing the root cause of migration is clearly part of development policy.”

“The reality is that we have a lot of migration pressures,” he added.

The Commission will publish the legislative proposals accompanying the budget on 14 June.

“Civil society organisations across Europe and beyond are asking the EU not to expand the EIP before impact assessments are carried out and strong safeguards are put in place,” said Romero.

“The EU must ensure that scarce development funding provides vital services for the world’s poorest people, rather than lining the pockets of private companies based in rich countries,” she added.

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