EN Official Journal of the European Union C 67/1

Opinion of the European Economic and Social Committee on ‘The Involvement of the private sector in the post-2015 development framework’ (exploratory opinion)

2014/C 67/01

Rapporteur: Mr VOLEŠ

In a letter from Commissioner Šefčovič dated 19 April 2013, the European Commission asked the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, to draw up an exploratory opinion on:

Involvement of the private sector in the post 2015 development framework.

The Section for External Relations, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 25 September 2013.

At its 493rd plenary session, held on 16 and 17 October 2013 (meeting of 16 October 2013), the European Economic and Social Committee adopted the following opinion by 100 votes to 2 with 2 abstentions.

1. Conclusions and recommendations

1.1 Strengthening the position of the private sector in development cooperation

1.1.1 Assuming that internationally recognised principles of development cooperation are respected and that the jobs created are decent, in conformity with the ILO Decent Work Agenda, the private sector can play a key role in tackling global poverty, as it creates jobs, provides goods and services, generates income and profit and, by paying taxes, helps to fund public spending.

1.1.2 The Committee calls for far more marked involvement of the private sector in the post-2015 development framework and the new worldwide partnership. Its participation in setting goals to eradicate poverty and achieve sustainable development and quantitative and qualitative fair inclusive growth will lead to the private sector shouldering its share of responsibility for achieving these goals.

1.1.3 Civil society organisations draw attention not only to the benefits of private sector activity, but also the risks, and so support to the private sector in developing countries should be based on the principles of transparency, accessibility of public tenders, effectiveness, purposeful use of resources and the responsibility of public officials to all interested parties for implementing the adopted development strategy. The growing total share of official development aid (ODA) for private sector development should not come at the expense of the amount of ODA funding provided to the poorest developing countries.

1.2 Steering the private sector towards meeting development goals

1.2.1 In this opinion the private sector also includes the social sector and comprises the self-employed, micro-businesses, SMEs, large multinationals, cooperatives and other social economy businesses and covers employers in private companies and their trade unions and NGOs collaborating on private projects. Support to – and collaboration with – the private sector should take into consideration the different nature of each stakeholder. Developing countries also have an enormous informal private sector and the development cooperation should help to combat informal employment and the circumstances that encourage it.

1.2.2 Civil society should be actively involved in establishing the role and setting the indicators measuring the contribution of the private sector. The creation of a broad platform at EU level bringing in all interested parties would help this process.

1.2.3 ODA should be used as a multiplying factor for matching private capital with investments in developing countries by using innovative financial instruments. The aid thus provided should be linked to clearly defined aims, such as the creation of more and better jobs, production quality improvement and transfer of management know-how to the private sector.

1.2.4 Public Private Partnerships could be an important instrument for implementing development strategies, assuming they are correctly calibrated and communicate with interested parties.

1.3 Helping to create a favourable business environment

1.3.1 If the private sector in developing countries is to fulfil its development role development, it needs a favourable business environment that includes respect of generally recognised democratic principles, facilitates the establishment and growth of companies, reduces rampant bureaucracy, increases transparency, reduces the ubiquitous corruption and encourages foreign and local investors.

1.3.2 Corporate social responsibility (CSR) should be understood as a voluntary initiative on the part of companies and an indication of their commitment to ethical business practice. A CSR framework of some kind should be proposed for the development sphere, in compliance with "OECD Guidelines for Multinational Enterprises" and other globally acknowledged principles.

1.3.3 In creating new jobs the private sector should respect basic economic and social rights, especially the core ILO conventions and the new jobs created should comply with the ILO Decent Work Agenda.

1.4 Stimulating the innovation potential of business for development

1.4.1 Institutional capacity building programmes for State administrations in developing countries should be crafted in close collaboration with the social partners and interested NGOs working in development aid. They should improve the conditions for doing business of SMEs in particular, who have the greatest potential for creating jobs and reducing poverty.

1.4.2 Business organisations in developing countries need to acquire the skills that will improve their ability to exercise a beneficial influence on the business environment. Partner organisations from the developed countries need to play an active part in helping to build up their capacities. European external aid programmes should therefore also fund the technical assistance that European business organisations provide to their partners in developing countries and boost their motivation.

1.4.3 Development aid should be used more to help innovative projects and business models that foster inclusion, including support for a barrier-free society, which would help to eradicate poverty among at-risk groups such as those with a disability, women and the elderly.

1.4.4 Collaboration between the private sector and NGOs should be supported, for example by using volunteers to transfer managerial and technical know-how to local companies. Successful businesses innovation projects merit broader, systematic publicity.

1.4.5 Developing the private sector necessitates wider support for education and the assimilation of know-how in key technologies, especially for low-skilled workers.

1.4.6 The Committee recommends extending the Erasmus programme for young entrepreneurs to interested candidates from developing countries, or putting together a programme that would serve the same purpose and allocating the necessary funding for it.

1.4.7 Particular attention must be paid to the mining and raw materials industry, where environmental protection standards, the social conditions for workers and the sustainability of the State's economic development need to be consistently promoted.

1.4.8 Developing countries do not usually have SME development strategies and development cooperation should help to better overcome this handicap. European experience with policy to support SMEs should be transferred in a targeted and relevant way to developing countries.

2. Outline background to the opinion

2.1 Commissioner Šefčovič wrote to the EESC president informing him that the Commission was drafting proposals for getting the private sector more effectively involved in the global partnership for development post 2015, and hence asking the Committee to produce an exploratory opinion on the role of the private sector in accelerating smart, sustainable and inclusive growth over this period – a matter which is now being debated in the UN.

2.2 In its opinion REX/372 (1) on the Commission's communication on "A decent life for all: Ending poverty and giving the world a sustainable future", the Committee made a series of recommendations for involving civil society in the development, implementation and monitoring of the sustainable development goals post 2015 worldwide.

2.3 The Committee has been addressing development and external cooperation in its opinions (2) very attentively over a long period and in drafting the present opinion has drawn on the considerable tangible experience and insights gained through its own work on issues concerning the ACP, Euromed, the Eastern Partnership, international trade negotiations and other domains with a development angle.

3. General comments

3.1 Assuming that internationally recognised principles of development cooperation are respected, the private sector can play a key role in tackling global poverty, as it creates jobs, provides goods and services, generates income and profit and, by paying taxes, helps to fund public spending. Even post 2015, official development assistance (ODA) will continue to be a major catalyst for development, but it will not be able to eradicate poverty on its own (3).

3.2 The Millennium Development Goals for eradicating poverty lacked any very precise formula for how they were to be achieved. They were not interlinked and they neglected the role of the private sector in development (4). The private sector should be far more prominently involved in the post-2015 development framework as a strategic partner and engine of sustainable growth in all its three pillars – economic, social and environmental – based not only on quantitative, but also qualitative indicators.

3.3 Civil society organisations (5) draw attention to both the benefits and risks of enlisting the private sector in development cooperation. To eliminate these risks, support to the private sector from development funding must respect the principles of transparency, effectiveness, purposeful use of resources, open access to public tenders and the responsibility of public officials to all interested parties for implementing the adopted development strategy.

3.4 The private sector comprises self-employed people, micro-enterprises, SMEs, large multinational companies, cooperatives and other social economy enterprises, and financial institutions. Also part of this sector, more generally speaking, are employees of private companies, their trade unions, and NGOs taking part in private projects. Alongside legally operating private businesses, developing countries in particular also have an enormous informal private sector. When providing development aid, a distinction must be drawn between individual private entities and the impact of their activities on development depending on their size, sector and the country's level of development (least developed, moderately developed, developing and at risk).

3.5 The private sector should be actively involved, along with civil society representatives, in identifying development needs in each country and should take part in establishing new sustainable development goals post 2015 so that it can take on its share of responsibility for achieving them. These goals should follow on from the Millennium Development Goals, should be tangible and measurable, and should include the spheres of water, farming, food safety, energy, transport infrastructure, education, the health sector, the digital economy, and gender and social equality.

3.6 The private sector should be recognised as a key element in the new global partnership for development. It would be advisable to set up a platform for dialogue with representatives of European and financial institutions about involving the private sector in international development cooperation. It should include representatives of European entrepreneurs and employers and also be open to other interested parties, including civil society representatives.

3.7 The private sector in donor countries participates in development cooperation by providing the services and equipment paid for by ODA, by supplying development aid directly for philanthropic reasons or as part of joint projects with the public sector and non-governmental organisations, and by investing in projects that, as well as benefiting business, also have a significant impact on development. Support should go in the first place to innovative projects in the form of building innovation capacity, advisory services, business incubators and clusters in the beneficiary countries. Public tenders for development projects must be transparent and open.

3.8 The private sector's contribution to development should also include support for a barrier-free society, which would help to eradicate poverty among at-risk groups such as those with a disability, women, the elderly and those suffering temporary injury. The framework agreement on inclusive labour markets concluded by the European social partners in March 2010 could provide inspiration for incorporating this requirement in the new development framework.

3.9 In order to play its part in development, the private sector in developing countries needs systematic assistance, which is why a growing proportion of ODA is going to private sector development (PSD). This trend must not, however, be at the expense of ODA to the least developed countries (LDCs), without which they would be unable to address some major problems.

3.10 Private investment with development benefits by large multinational companies provides opportunities to involve new or existing local SMEs in carrying out projects. This which will enable them to obtain technical know-how and to access appropriate advanced technology. Multinational companies must follow accepted principles drafted by the UN, the OECD and other international organisations (6).

3.11 In developing countries, as elsewhere in the world, SMEs embody the main potential for development and microcredits and preferential loans from European and international development financial institutions should help to liberate this potential. Remittances of savings and other funds from migrants are also a significant source of investment, and incentives can be used to shift them more towards the countries' development needs.

3.12 The Committee welcomes the issues raised by the Commission in its Beyond 2015: towards a comprehensive and integrated approach to financing poverty eradication and sustainable development (7) and calls for the private sector and organised civil society to be involved in the proposed discussion on an integral approach to funding.

3.13 ODA should be used as the main multiplying factor for enlisting private capital in investment in developing countries. This should entail the use of innovative financial instruments such as blending, various guarantee mechanisms and discounted interest rates. Calculations of ODA levels should take account of State guarantees for investment in developing countries. The aid thus provided to private capital should be linked to clearly defined aims and indicators that take account of sustainable development, environmental protection, the green economy, job creation, production quality improvement, transfer of management know-how to the private sector, and so on.

3.14 Investment should be more targeted to strengthening the services sector, such as banking, insurance, telecommunications, transport and other services to support business, without which healthy development of industry and farming is impossible. Here the State must ensure that the competitive environment is respected and investments are properly protected.

3.15 Public-private partnerships could be an important instrument for implementing development strategies, given that they combine the grant mechanism of public funding with private investment initiatives to cover the development needs of final aid recipients. If these projects are to be successful, they require transparency in information and open communication with interested parties.

4. Helping to create a favourable business environment

4.1 If the private sector in recipient developing countries is to play its role in development, it needs to have the basics for safeguarding its existence and operations. Development cooperation should therefore focus more on continuously improving the business environment, which would facilitate the establishment and growth of companies, rein in rampant bureaucracy, increase transparency and so reduce the ubiquitous corruption. Reinforcing the rule of law will encourage foreign and domestic investors and help to diversify local economies.

4.2 The creation of a healthy business environment must rest on market mechanisms, including competition, functioning financial markets, judicial independence, general enforcement of the law and commercial law in particular, and adherence to the rules of international trade and intellectual property rights. Local cultural customs should be respected as long as these are not inimical to competition and do not lead to corruption and the sharing out of funds without achieving any added value.

4.3 Corporate social responsibility (CSR) in development cooperation should be understood as a voluntary initiative on the part of companies and an indication of their commitment to ethical business practice. Companies themselves should select from a basic framework of globally acknowledged principles (8) the elements and methods acceptable for their economic activity. Establishing such a framework will ensure fair competition with other companies in the sector.

4.4 The private sector creates jobs and in this way can help eradicate poverty. In so doing, however, it must respect basic economic and social rights. Adherence to the core ILO conventions (freedom of association and the right to collective bargaining, prohibition of forced labour, abolition of child labour and prohibition of discrimination in respect of employment) must be rigorously promoted.

4.5 Newly created jobs should be in accord with the ILO Decent Work Agenda, which requires that workers are recruited voluntarily, social protection is in place, the fundamental rights of workers are respected and a social dialogue is established. It is important that all investors, especially those using public development aid, adhere strictly to these principles in projects and encourage their partners to do likewise.

4.6 Institutional capacity building programmes for State administrations in developing countries should strengthen the principles of the rule of law and so help to improve the conditions for doing business and increase the take-up capacity of local businesses. Such programmes should be drafted in close collaboration with the social partners and the NGOs concerned.

5. Involving the private sector effectively in development

5.1 Business organisations in the donor countries, such as chambers of commerce, sector associations, and employers' and social economy organisations should be actively involved throughout the project life cycle in programmes providing aid to the private sector in developing countries. A programme should be created to this end that would support local SME umbrella organisations and enable them to gain experience, especially in marketing, joining supplier chains, certification, logistics, and so on.

5.2 Business organisations in developing countries need to acquire the competences to improve the business environment, strengthen the democratic management of their organisations, attract more members and maintain communication with them. They should be given support for building their capacity, including with the active involvement of similar partner organisations in the EU. European external assistance programmes should therefore also fund the technical assistance that European business organisations give their partners.

5.3 Private sector development should feature training courses for entrepreneurs, including internships in developed countries. The Committee recommends that consideration be given to extending the Erasmus programme for young entrepreneurs to interested candidates from developing countries, or putting together a programme that would serve the same purpose and allocating the necessary funding for it.

5.4 More extensive support should be provided for education and knowledge development in key technologies, especially for low-skilled workers. Apprenticeship programmes have been needed for a long time, but donor countries mostly offer grants for tertiary study. However, the private sector in industry and elsewhere requires the normal skills required in traditional apprenticeship fields and the work habits needed to work for a foreign investor or a joint venture.

5.5 Development aid should do more to support innovative projects and new business models that support inclusion, where there is large scope for private sector collaboration with NGOs. One example could be the posting of volunteer experts to help nurture entrepreneurship in developing countries (9). Greater publicity for successful innovative business development projects would help the pooling of experience among Member States.

5.6 Particular attention must be paid to the mining and raw materials industry. Investment projects must take on board environmental protection, social conditions for workers and the sustainability of development. State and local authorities in recipient countries must establish and oversee enforcement of a proper framework, including payment of taxes, for the given sector. Support should contribute to the creation of this systematic approach and, at the same time, identify the best rules for curbing undue red tape and opportunities for corruption.

5.7 Development aid should support sustainable farming and the local processing industry in order to improve food and raw material processing. Support should be given to the creation of associations of farmers and small agricultural processors and their incorporation in supply chains.

Brussels, 16 October 2013. The President of the European Economic and Social Committee Henri MALOSSE

(1) EESC opinion on "A decent life for all: Ending poverty and giving the world a sustainable future", OJ C 271, 19.9.2013, p. 144–150.

(2) For example: EESC opinions on the EU-Africa Strategy (2009), OJ C 77, 31.3.2009, p. 148–156, Trade and food security (2010) OJ C 255, 22.9.2010, p. 1–9, Proposal for a Regulation of the European Parliament and of the Council applying a scheme of generalised tariff preferences (2012) OJ C 43, 15.2.2012, p. 82–88, Increasing the impact of EU Development Policy: an Agenda for Change/The future approach to EU Budget Support to third countries (2012) OJ C 229, 31.7.2012, p. 133–139, Civil society involvement in the EU's development policies (2012) OJ C 181, 21.6.2012, p. 28–34 and Social protection in European Union development cooperation (2013) not yet published in the OJ.

(3) Only a few developed countries have reached or exceeded the agreed target of devoting 0,7 % of their gross national product (GNP) to ODA.

(4) Preliminary BIAC Perspectives for the Post-2015 Development Agenda, February 2013.

(5) ITUC: www.ituc-csi.org; Concord: www.concordeurope.org; DCED (Donor Committee for Economic Development): www.enterprise-development.org.

(6) UN Guiding Principles on Business and Human Rights; OECD Guidelines for Multinational Enterprises; The Extractive Industries Transparency Initiative; OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

(7) COM(2013) 531 final, 16 July 2013.

(8) For example: ISO 26000; the United Nations' Six Principles for Responsible Investment.

(9) See, for example, the non-profit organisation Ex-Change: www.ex-change.be.