EU to boost private sector's role on inclusive growth in developing countries

A new EU policy paper – formally known as 'a Communication' - setting out the role of private sector at the forefront of international development in its partner countries has been adopted today (13 May) by the European Commission.

The private sector provides some 90% of jobs in developing countries, and is thus an essential partner in the fight against poverty. It is also needed as an investor in sustainable agricultural production if the world is to meet the challenge of feeding 9 billion people by 2050. In many developing countries, the expansion of the private sector, notably micro-, small and medium-sized enterprises (MSMEs) is a powerful engine of economic growth and the main source of job creation. The Communication outlines a new strategic framework to ensure that private sector operations in developing countries have a positive impact on society – and particularly women, young people and the poor.

Development Commissioner Andris Piebalgs said: "The private sector has a crucial role to play in helping people to lift themselves out of poverty, but we have to make sure that it benefits all of society, not just the few. That’s why today’s new Communication is so important – ensuring that businesses find an enabling environment to invest more, and more responsibly, in developing countries to help everyone enjoy the economic opportunities which the private sector can bring."

The new communication proposes 12 concrete actions in order to, for instance, improve regulatory business environments in partner countries, support business development and increase access to finance with a focus on micro, small and medium-sized businesses in the formal and informal sector, which play a particularly vital role in job creation. The Communication also identifies actions in other areas such as sustainable energy, sustainable agriculture, infrastructure and the green sectors, where private sector engagement can effectively complement and add value to EU development assistance, including through the use of blending (combining grants and loans).

Promoting responsible investment in developing countries, sustainable trade or inclusive investment into low-income markets are also highlighted as a key priority to maximize private sector positive impact on development. Currently, an estimated 60-80% of businesses in developing economies are informal firms. They represent a huge potential for growth and job creation, and the fact that they are operating outside formal law must not exclude them from support through development assistance.

The Communication also proposes to step up EU's support to raising productivity and working conditions in the informal economy and help countries move to a formal economy, where possible. This could be done through the provision of training and expertise to informal support organisations, such as producer associations, or contributing to a safer working environment and easier access to markets, finance, infrastructure and social services.

Background

Following the recognition of the private sector as a main partner in EU development cooperation in the 2011’s Agenda for Change (its blueprint to refocus its development policy to prioritise those countries and sectors most in need), this comprehensive strategy looks beyond public interventions in the area of private sector development to also harness the potential of closer engagement of the private sector for development as part of companies’ core business strategies.

The European Commission has been a very active partner in supporting the creation of an enabling business environment and local enterprise development in partner countries. Over the last decade, support by the Commission for private sector development has averaged €350 million per year.

With the creation of regional blending facilities, the Commission has also started developing new tools for implementing private sector development objectives. The EU is also starting to use innovative financial instruments such as guarantees to boost SME lending by commercial banks, and risk capital to invest in funds that lend on or invest in SME energy efficiency projects.

More information

Communication: A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries
New EU Communication on the Private Sector MEMO/14/345
Website of DG Development and Cooperation – EuropeAid

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