Communication from the Commission to the Council and the European Parliament - European Community Co-operation with Third Countries: the Commission's approach to future support for the development of the Business sector
Date: 2003-05-19
Institutions: European Commission
Subjects: cooperation policy, development aid, economic cooperation, industrial cooperation, type of business

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 19.5.2003
COM(2003) 267 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT

European Community Co-operation with Third Countries:
The Commission's approach to future support for the development of the Business
sector

   
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT

European Community Co-operation with Third Countries1:
The Commission's approach to future support for the development of the Business
sector2

I.

The importance of the Business Sector

The  important  contribution  that  the  business  sector  and  in  particular  the  private  sector  can
make to aid development and help fight poverty, over and above public action, is now widely
understood  and  appreciated.  The  objective  evidence  supporting  this  statement  is  now
abundant. Indeed the main bilateral and multilateral donors, including the United Nations (and
its specialised development agencies) and the Bretton-Woods Financial Institutions, as well as
the  OECD  -Development  Assistance  Committee  and  NGOs  are  all  now  agreed  on  the
importance of business and private sector support. This wide consensus reflects the perception
that economic growth creates the resources to combat poverty and that business development
and  a  dynamic  private  sector  are  essential  for  economic  growth  providing  ,  as  they  do,  the
main source of employment in developing countries, particularly when the informal sector is
included.

The importance of supporting private sector and, more widely, business sector development is
borne out in the guidance issued by the international development institutions, for example, in
the DAC orientations for Development cooperation in support of Private Sector development
(1995) and in the World Bank Report entitled Supporting Private Sector Development (1998)
and  Africa  can  compete  -  A  framework  for  support  for  Private  Sector  Development  in  sub-
Saharan  Africa  (August  1998),  together  with  other  policy  documents  prepared  by  the
Regional  Development  Banks  ,  the  IFC  ,the  Multilateral  Guarantee  arm  of  the  World  Bank
(MIGA ), and the European Investment Bank. Indeed the central role of the private sector is
now reflected in the policy objectives of most if not all developing and transition economies
as well as in those of the main bilateral donors and multilateral financial institutions.

The  central  role  of  the  private  sector  in  terms  of  growth,  employment  and  trade  integration
was  also  duly  stressed  in  the  conclusions  and  recommendations  of  the  UN  Conferences  on
Development  Finance  (Monterrey,  March  2002)  and  on  Sustainable  Development
(Johannesburg,  September  2002).  The  Community  is  committed  to  supporting  and
implementing the main recommendations of these UN Conferences to which it made an active
contribution.

Also  the  recently  launched  NEPAD  (New  Economic  Programme  for  African  Development)
focuses  on  domestic  and  international  resource  mobilisation  to  support  private  sector
development  as  a  way  to  reinvigorating  the  ailing  economy  of  the  African  continent.  In
addition  to  these  international  commitments,  it  is  important  to  take  account  of  the  Doha

1

2

“Third  countries”  here  include  the  developing  countries,  the  countries  in  transition  and/  or
reconstruction, the so-called “emerging economies” and Mexico as OECD countries. The term does not
include the candidate countries for accession to the EU.
In this paper the term Business sector covers private sector enterprises of whatever size and those public
sector enterprises operating under market conditions.

2

                                                
Development Agenda, adopted at the WTO Ministerial Conference in November 2001, which
stresses  the  importance  for  developing  Countries  to  mainstream  trade  into  their  national
development policies.

This Communication builds on the above consensus and understanding, and aims to simplify,
rationalise and harmonise Community support for business and private sector development in
partner countries, and provides a comprehensive set of new proposals to be implemented by
the Community at three different levels: the macro-economic , sectoral and enterprise levels.

II.

Community experience gained

To encourage the development of the business sector the Community already has in place a
wide variety of instruments, each with its own raison d'etre, procedures and legal basis. These
instruments are often tailored to meet the specific requirements of the partner countries within
the framework of the Community's various cooperation agreements. Moreover,  a number of
large regional programmes have either a private sector focus or contain private sector- related
activities.

In particular in the Mediterranean region Community support has taken the form of traditional
project financing, sectoral support to national industrial modernization programmes, support
to privatisation and support to the reform of national fiscal and financial systems. Technical
assistance, including trade and investment promotion activities, has also been made available
in  order  to  strengthen  institutional  and  legal  environments,  administrative  efficiency,  good
governance  and  financial  transparency  and  help  the  creation  of  integrated  Business  Centres
and  local  organisations  of  Entrepreneurs.  Support  for  the  private  sector  has  often  been
undertaken in close co-operation with the European Investment Bank (EIB).

In Asia and Latin America the Community manages the ALA -INVEST instrument through
which  support  is  provided  to  Small  and  Medium  sized  Enterprises  (SMEs)  in  the  form  of
Technical Assistance and trade /investment promotion and partnership programmes.

In  the  Balkans  the  new  CARDS  Regulation,  approved  in  the  year  2000,  provides  a  new
medium  term  programming  framework  (2000-2006  )  for  the  promotion  of  Stabilisation  and
Association  Agreements  and  support  for  efficient  market  economies,  based  upon  private
sector  development  and  trade  integration  at  both  the  international  and  regional  levels.  The
TACIS  Regulation  has  the  same  medium  term  objectives  for  the  Newly  Independent  States
(NIS ).

In the ACP countries the PRO -INVEST Facility mainly focuses on capacity building and the
development of small businesses in the framework of poverty alleviation strategies.

Nonetheless  ,  following  a  number  of  evaluations  made  in  the  past,  some  co-operation
instruments  in  the  field  of  private  sector  development  have  been  discontinued  (for  instance
ECIP,  MED  -INVEST,  EBAS  etc  ).  At  the  same  time,  new  instruments  have  been  created
managed mainly by the EIB (the FEMIP Facility for the third partner countries in the MED
region and the Cotonou Investment Facility for the group of the ACP countries).

III.

The purpose of this Communication

The importance now attached to business and private sector development is clearly set out in
a number of documents which the Commission and the Council have adopted in recent years.
Thus,  in  1998  a  Communication  was  adopted  on  Private  Sector  Development  in  ACP
countries; in 1999 the Council adopted a Resolution on Community Strategy for Development

3

of  the  private  sector  in  Developing  Countries  and  in  2000  the  importance  of  private  sector
development was stressed in the Communication on Community development policy and the
subsequent Joint Declaration of the Council and the Commission. As regards employment, the
Commission  adopted  a  Communication  in  2001  on  Promoting  core  labour  standards  and
improving  social  governance  in  the  context  of  globalisation  along  with  a  further
Communication  in  2002  on  Corporate  Social  Responsibility.  Moreover,  following  the
Commission's  Communication  on  Trade  and  Development  of  September  2002,  the
Community  is  committed  to  expanding  market  access  for  Least  Developed  Countries,  to
enhancing Trade- Related Technical Assistance  (TRTA)  and to  facilitating  North-South and
South-South trade.3

However,  administration  of  the  existing  instruments  for  supporting  business  sector
development  requires  substantial  resources  and  ensuring  their  coherence  with  other
instruments  and  actions  is  often  a  heavy  task.  There  is  a  need  to  re-assess  the  role  and  the
"modus  operandi"  of  the  Community  in  providing  official  (i.e.  grant-based)  support  to  the
private  sector  which  in  many  third  partner  countries  is  still  very  weak,  and  to  simplify,
rationalise and harmonise the available instruments, in close co-operation with other bilateral
and multilateral donors.

Moreover, evaluations of Community policies, programmes and instruments carried out over
recent years have pointed to the need for the Commission to focus its energies and resources
on what it does best, i.e., the preparation of strategies and programmes, together with strategic
evaluation, and ensuring overall policy coherence and donors co-ordination. With the change
of focus, policy implementation and direct financing are then better done through a set of well
reputed  financial  intermediaries  whilst  the  Commission  continues  to  maintain  general
regulation, supervision and control.

With  this  in  mind,  the  main  policy  documents  cited  above  highlight  the  need  for  a  single
coherent  framework  together  with  harmonised  support  for  the  business  sector  in  all  third
countries  allowing  the  necessary  flexibility  and  adaptability  to  different  regions  and
programmes.

Against this background, the purpose of this Communication is to set down proposals for
the  reorganisation  and  restructuring  of  the  Community's  support  for  the  development  of
the business sector in third countries.

The proposals are based on five considerations:

(1) 

(2) 

(3) 

(4) 

3

The importance of the business sector for development.

The  experience  the  Commission  has  gained  in  the  management  of  a  range  of
instruments designed to support business and in particular private sector development.

The benefits gained from action at a Community level

The  need,  given  the  reform  of  the  Community’s  external  assistance  programmes,  to
harmonise instruments and procedures so as to improve efficiency and delivery.

COM (1998) 667; Council Resolution of 21.05.1999; COM (2000) 212, COM (2000) 416, COM (2002)
347 and COM (2002) 513.

4

                                                
(5) 

A  clear  understanding  of  what  the  Commission  does  best  and  what  is  best  left  for
others to do.

The  proposed  simplification,  rationalisation  and  harmonisation  of  the  management  of  these
instruments, leading to the improved coherence of the Community's external action, will boost
the  effectiveness  and  efficiency  of  the  Community's  assistance  programmes.  This  will  be
especially  important  in  those  middle-income  developing  or  transition  countries  where
prospects for a dynamic growth of local entrepreneurship are promising, and where European
SMEs  can  develop  their  business  or  trade  through  forms  of  partnership  (Joint  Ventures),
twinning , technology transfers or technical assistance. This is the important value added that
further Community action can now bring.

IV.

Proposed Approach to Supporting Business Sector Development

Drawing  the  appropriate  lessons  from  past  experience  in  supporting  business  sector
development in third countries, the Commission has now identified five areas of intervention
or instruments on which it will base business sector support:

1.

Overall  policy  dialogue  and  support,  in  particular  as  regards  macro-  economic  and
trade policy, and good  governance ,  providing the necessary  regulatory  framework,
institution building and advice.

Objectives:  This  covers  action  at  macro-economic  level  and  was  clearly  mentioned  in  the
Council's Resolution of May 1999 as the level on which the Commission should concentrate
its activities ("More efforts must be undertaken for the analysis of the general policy and the
institutional  and  regulatory  framework  in  which  the  Private  sector  is  active  ").  The
Community's actions in this area will aim at creating a policy framework, at the national and
regional  level,  which  supports  and  fosters  competitiveness  ,  market  economy.  and  "good
governance". This would encompass technical assistance in support of reforms, particularly in
the  fields  of  legislation,  banking  and  finance,  taxation,  public  expenditure,  customs
procedures and trade facilitation measures, institutional building, administrative efficiency. In
addition,  the  implementation  of  appropriate  "good  governance"  and  financial  transparency
measures  could  facilitate  the  re-integration  of  a  large  informal  sector  into  the  formal
economy.

Ensuring a harmonised approach: The assistance that the Commission can provide to third
countries varies from country to country, and should be tailored to meet specific needs within
the  coherent  programming  framework  provided  by  Country  Strategy  Papers  and  National
Indicative  Programmes.  It  may  take  the  form  of  a  financial  contribution  to  the  reform
programme agreed with the World Bank , the International Monetary Fund and other donors.
The diagnosis and assessment of a given macro-economic and sectoral situation will lead to
the identification of projects and beneficiaries, and hence to  the  mobilisation of the  specific
instruments  and  financial  intermediaries  that  seem  best  tailored  to  meeting  the  specific  or
local  requirements.  Correct  analysis  and  diagnosis  of  the  situation  will  also  help  the
Community  to  engage  in  a  policy  dialogue  with  its  local  counterparts  on  what  institutional
support  is  needed  for  successful  implementation  of  the  measures  for  which  the  Community
could  provide  specific  assistance.  It  should  be  borne  in  mind  that,  thanks  to  the  acquis
communautaire, the Community has genuine expertise to share with third partner countries.

5

The measurable results expected from implementing programmes in this field include:

(cid:1)

(cid:1)

(cid:1)

creation of a better micro/macro- economic environment measurable through a set of
economic indicators;

better functioning institutions and organisation and improvement of local conditions
for  Small  and  Medium-sized  Enterprises  (SMEs),  measurable  through  a  set  of
efficiency indicators;

accelerated  development  of  the  private  sector  and  its  contribution  to  sustainable
economic  growth  for  example  through  initiatives  supporting  specific  privatisation
projects or public- private  sector  -  Joint  Ventures.  Achievements  in  this  area  could
also be measured through a set of quantitative and qualitative indicators.

To  achieve  these  results  the  Commission  in  this  field  of  intervention  proposes  to  focus  on
three instruments:

(cid:1)  Preparation  of  technical  and  economic  analysis  focusing  on  major  strengths  and
weaknesses of the private sector in  each  given situation,  recommending  priority fields of
intervention,  and  indicating  conditions  necessary  for  the  success  of  externally  supported
private sector activities.

(cid:1)  provision  of  policy  advice,  analytical  /  diagnostic  work  and  institutional  support  for
capacity building, implementing good governance and financial transparency measures and
strengthening the public regulatory and legislative framework, at the national and regional
level. Of course it will be also necessary to take into account the impact of regional trade
arrangements through Technical Assistance. Policy advice should also focus on ways and
means of bolstering the role and functioning of the organisations representing the private
sector, and  encouraging  Foreign  Direct  Investment  (FDI)  and  international  economic  co-
operation.

(cid:1)  Establishing  and  confirming  the  Economic  Dialogue  instrument  as  an  important  forum
allowing  to  present  and  establish  facts  and  key  policy  issues  ,  notably  as  regards
entrepreneurship  ,  private  sector  development  and  the  de-monopolization/  liberalization
policies.

(cid:1)  Identification  of local institutional  partners (both  at  central and local level )  or  specific
sectors of intervention via field work which could involve all the local human resources ,
including the Commission Delegations .

2.

Investment and inter-enterprise co-operation promotion activities

Objectives:  The  purpose  of  the  Community  support  for  the  promotion  of  investment  and
technology  transfer  from  industrialised  to  developing  countries  will  be  to  enhance,  at  both
national  and  regional  levels,  sustainable  and  environmentally  friendly  investment  and  inter-
enterprise  cooperation  agreements.  This  with  a  view  to  increasing  the  efficiency  and
competitiveness of the economies concerned, and in particular to enhance export prospects.

Such a support is based upon the assumption that most third partner countries, whilst making
progress to improve their overall investment environment and domestic resource mobilisation,
still  need  external  support  in  order  to  attract  Foreign  Direct  Investment.  FDI  is  also  an
important  vehicle  for  the  North-South  transfer  of  know-how  and  the  development  of

6

managerial  skills.  Depending  on  the  level  of  development  of  the  countries  involved
Community support could include strengthening the role of Investment Promotion Agencies
(IPAs)  and  other  private  intermediaries  (Chambers  of  Commerce  and  Industry,  professional
associations, consultancies) and providers of investment - related business services.

The  programme  will  seek  to  support  investment  and  trade  promotion  activities,  including
investments  and  partnerships  that  will  help  both  to  attain  wider  social  objectives  and  to
facilitate  the  management  of  the  process  of  trade  integration.  EU  enterprises  could  provide
capital,  technology,  access  to  markets,  and  technical/management  skills  to  their  partners  in
these countries where entrepreneurial resources are largely untapped.

To ensure a harmonised approach five groups of activities will be considered, according to a
flexible  "modus  operandi"  (support  is  expected  to  be  provided  to  directly  to  enterprises  or
their organizations, and other intermediaries. Sectoral support could also be considered)

a) Institutional strengthening

This  first  group  of  activities  will  be  designed  to  support,  mainly  on  a  regional  and  group
basis:

(cid:1)

(cid:1)

(cid:1)

(cid:1)

(cid:1)

the  development  of  investment-  related  intermediary  organisations  responsible  for
the  organisation  and  delivery  of  successful  and  sustainable  investment  promotion
events;

a  centralized  and  compehensive  provision  of 
investment-  related  business
development services to SMEs ( following the positive experience of the Euro Info
Correspondence Centres in third partner countries);

the development of regulatory and supervisory activities at sectoral level;

the  development  of  project  management-  elated  and  event-  related  skills  and
information systems;

the training of local consultants.

b) Support for key sectors

This  group  of  activities  would  address  beneficiaries  and  stakeholders  in  both  industrialised
and developing countries and would include

(cid:1)

(cid:1)

(cid:1)

the  conducting  of  regional  or  country  surveys  to  identify  key  sectors  and  priority
areas of intervention in order to improve the investment environment;

the  preparation  of  forward  studies  and  surveys  of  key  sectors  or  sub-sectors
identified in the regions and countries concerned;

identification  of  project  support  due 

intermediary
the 
organisations-  and  consultancies  before,  during  and  after  sector  or  sub-sector,
business-to-business cooperation meetings. Special attention will be given to follow-
up  support  for  investments  and  to  cooperation  agreements  initiated  during  these
meetings.

to  be  delivered  by 

7

(cid:1)

the strengthening of local private financial intermediaries which play  a vital  role in
entrepreneurship and private sector development.

c) Business-to-Business cooperation meetings

This harmonised approach will provide support for key sectors by encouraging, among other
things,  direct  one-to-one  business  contacts,  with  a  view  to  promoting  and  concluding
investment  and  inter-enterprise  cooperation  agreements  in  these  sectors.  To  this  end  the
approach  will  host  sector  and  sub-sector  investment  promotion  meetings  to  promote  the
projects identified and supported.

d) Regional sector investment promotion meetings (e.g. on mining, agro-industry, tourism)

These  meetings  will  cover  all  EU-  (and  eventually  non-EU)  countries,  and  the  developing
region concerned (plus other selected third countries, where appropriate).

e) Sub -regional sector investment promotion meetings

These meetings will address smaller specialised sub-sectors of the economy such as leather,
horticulture/floriculture, timber/wood products and furniture, or chemical/plastics. They could
be  organised  under  the  institution-  building  group  of  activities  on  a  demand-driven/  cost-
sharing basis at the initiative of the Community intermediary organisation or the beneficiary
country.

If required, investment  promotion  meetings  could  also  exceptionally  have  country  or  multi-
region coverage, and a multi-sector or cross-sector approach.

Certain "ad- hoc" promotion mechanisms could also be identified to address those areas and
activities  that  are not suited to  investment  promotion  meetings.  This  could  be  the  case  with
financial  services,  infrastructure,  privatisation  projects,  information  and  communication
technologies and other horizontal managerial issues (such as financial transparency at sector
level,  supervisory  and  regulatory  rules  and  procedures,  legislation  on  twinning  and  joint
ventures,  enterprise-banks  relations,  implementation  of  core  labour  and  environmental
standards,  listing  of  companies  in  Stock  Exchange,  and  Corporate  Social  Responsibility
matters).

3.

Facilitation of investment financing and development of financial markets

Objectives:  The  Development  Council  Resolution  of  May  1999  mentions  support  for
enterprises- "with particular attention to small companies in the formal and informal sector,
channelled as far as possible through local intermediaries… ". The strategy set out  aims to
provide  the  appropriate  framework  for  supplying  well-  developed-  and  efficient  financial
services for Small and Medium- sized Enterprises (SMEs). The instruments used must ensure
that high- quality and dedicated financial services are available to private companies in both
the formal and informal sectors. More precisely the overall objective of these instruments and
services  is  to  mobilise  private  savings  flows  (both  domestic  and  foreign)  to  finance
investments that are essential for a thriving  business sector. This  strategy  is  based  upon  the
assumption  that  more  efficient  financial  markets  are  essential  for  healthy  private  sector
development  in  developing  countries.Of  course  these  new  investment  financing  facilities
supported  by  the  Community  should  not  have  distortive  effects  on  the  national  or
international  financial  market  ,  and  they  should  avoid  unfair  competition  among  potential
private or public beneficiaries .

8

Investment financing facilities will be set up with the aim of:

(cid:1)  mobilising private savings (both domestic and foreign) for finance investment;

(cid:1)  ensuring  better  access  to  capital  markets  for  commercially  -run  companies  (both  private

and public) established in developing countries;

(cid:1)  supporting  the  operations  in  the  partner  countries  which  help  small  and  medium-  sized
enterprises to gain access to capital markets. This support can be provided in conjunction
with support measures aimed at capacity building;

(cid:1)  improving the efficiency and effectiveness of financial systems, including supervision and
financial regulation. This support could be provided in conjunction with support measures
aimed at capacity building (see above );

(cid:1)  strengthening domestic regulatory frameworks for investment and competition;

(cid:1)  developing  innovative  and  more  effective  financing  instruments.  These  may  include
investment  funds,  risk  capital  and  equity  and  quasi-equity  investments,  underwriting
guarantees  for  private  (national  or  -foreign)  investment,  or  supporting  private  sector
guarantee funds as well as Public Private Partnership (PPP) ;

(cid:1)  mobilising  loan  and  credit  lines  and  various  forms  of  conditional  and  /or  subordinated

loans.

Ensuring  a  harmonised  approach:  When  providing  financial  resources  for  investment
financing, the Community should be sensitive to local market conditions. Nonetheless, where
appropriate the Community may also decide, in agreement with partner countries, to provide
concessional financing based upon the specific nature of certain operations (as in the case of
certain  public  projects,  or  projects  with  significant  impact  at  social  or  environmental  level,
even if private). This should be reflected in the political agreements established between the
Community and the countries concerned.

An  example  of  this  new  approach  is  given  by  the  instrument  known  as  the  Investment
Facility now being set up for the ACP countries which will be financed on the 9th European
Development  Fund  (EDF).  Such  Funds  aim  to  promote  commercially  viable  business
primarily in the private sector, or  those activities in  the  public  sector  supporting  the  private
sector.

Enterprises  will  have  access  to  the  Funds  directly  or  through  intermediaries.  Operations
should  include  participation  in  privatisation  operations  and  should  aim  to  mobilise  internal
and  external  savings,  by  helping  to  build  the  capacities  of  local  financial  institutions  and
capital  markets,  and  by  leveraging  foreign  investment.  Co-financing  operations  with
European and local financial institutions will be facilitated.

Another  interesting  example  is  the  role  of  EIB  within  the  context  of  the  Euro-MED
partnership. Following the recent EU Ministerial Summit in Barcelona (March 2002) and the
Euro-MED Ministerial Conference in Valencia in April 2002, a new EIB Investment Facility
has been launched with the objective of increasing progressively the Bank's loan activities to a
level  of  around  2  billion  Euro  a  year.  This  investment  facility  should  result  in  a  significant
increase in loans to the private sector. The EIB also provides risk capital as well as lending
support  to  SMEs  (both  European  and  non-European)  from  its  own  resources  ,  making

9

recourse  to  specialised  financial  intermediaries  and  using  innovative  financial  instruments
such as global loans etc.

The Community is also active in supporting private sector development through multilateral
channels  (co-financing  with  the  World  Bank,  including  the  IFC,  the  Regional  Development
Banks and UN specialised Organisations or Funds).

As  far  as  the  management  of  these  instruments  is  concerned,  the  Community  (i.e.  the
Commission)  will  not  be  involved  directly  in  the  implementation  and  management  of
financing  activities  since  these  programmes  will  normally  fall  under  the  responsibility  of
specialised  institutions  such  as  the  European  Investment  Bank  ,  the  European  Bank  for
Reconstruction and Development (EBRD) or other multilateral institutions which may in turn
channel the funds through other regional and / or national financial institutions.

On  the  other  hand  the  Commission  will  work  in  close  cooperation  with  these  specialised
financial  institutions  and  take  a  leading  role  in  defining  regional  objectives,  financial
conditions  attached  to  investment  facilities,  guidelines  for  allocation  of  resources,  and
monitoring and evaluation procedures. It will also support the necessary reforms or policies in
this area.

4.

Support  for  Small  and  Medium-  sized  Enterprises  in  the  form  of  non-financial
services

Objectives:  Past  experiences  and  empirical  evidence  suggest  that  effective  business
development  services  are  vital  for  the  growth  of  SMEs  and  micro-entreprises  .  The
Commission's programme for SMEs will encourage private sector companies to enhance their
competitiveness,  gain  access  to  modern  technology,  improve  management  and  seek  new
markets.

To ensure a harmonised approach a number of supportive measures will aim to improve the
macro-and micro-economic foundations of competitiveness of SMEs and micro-entreprises ,
whilst other measures will focus more directly on developing an effective market for business
development services. These will include:

(cid:1)

(cid:1)

(cid:1)

(cid:1)

initial  and  on-going  guidance  for  companies  and  professional  associations  (usually
on  a  demand  -driven  basis)  or  more  pro-active  strategies  paid  for,  in  part,  by  the
beneficiaries (cost- sharing principle  ), covering the range of services available  and
how  to  obtain  them  (also  in  this  case  the  experience  of  Euro  Info  Correspondence
centres as providers of an integrated set of services could be useful );

different forms of skills up-grading , to help modernise enterprises and encorage the
creation of enterprises' networks or cooperatives

assistance with preparing and implementing business plans;

coordination  with  other  sub-programmes,  -  e.g.  support  for  companies  -  and  their
organisations  and  investment  financing  at  company  level,  linked  to  opportunities
made available by the EIB.

Support measures may be organised and managed on a national or regional basis. However,
when  European  expertise  is  involved,  the  Commission  will  ensure  a  harmonised  approach
within each region.

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Specific efforts will have to be made in cooperation with the European Investment Bank and
other  financial  institutions  to  improve  the  current  level  of  effectiveness  of  local  financial
systems  and  increase  the  possibilities  for  SMEs  to  gain  access  to  the  different  sources  of
financing. Where necessary, modernisation plans will have to be drawn up and improvement
made to production capacity.

Small businesses and the craft trades should be given  consideration in developing countries,
since they often do not follow the same pattern as fast- growing SMEs. Yet they are essential
for  economic  and  social  development.  In  this  regard,  the  European  Charter  for  Small
Businesses  approved  by  the  European  Council  in  Feira  in  June  2000  should  serve  as  a
reference  for  the  dialogue  with  stakeholders  from  both  the  Community  and  third  partner
countries.

5.

Support for micro-enterprises

Objectives:  In  many countries  micro-enterprises  offer the ideal  opportunity  for  participation
in  economic  development.  More  precisely  supporting  the  creation  and  the-up-grading  of
micro-enterprises and cooperatives , thereby improving conditions for self- employment, can
be an effective way of making economic opportunities accessible to the poor and therefore of
fighting poverty. The greatest obstacle to the development of such enterprises is shortage of
appropriate local services, both financial and non- financial, the lack of a business culture and
information about markets, and access to financial resources.

Ensuring a harmonised approach: Apart from the work to be done to improve the macro and
micro-economic  foundations of competitiveness -  (see  above),  support for  small  and  micro-
enterprises may take the form of;

(cid:1)

(cid:1)

(cid:1)

(cid:1)

institutional and capacity building of intermediary institutions acting as the voice of
micro-enterprises and as providers of public goods;

encouraging  micro-finance  institutions  to  develop  new  services  and  financial
products  which  are  well  adapted  to  the  medium  and  long  term  needs  of  small  and
micro-enterprises;

helping integrate micro-finance within local financial systems by disseminating best
practices  and  performance  standards,  setting  up  a  framework  for  regulation  and
appropriate supervision, and supporting institutional development;

improving  and  monitoring  the  performance  of  micro-finance  institutions,  their
governance mechanisms , and their ability to serve micro-enterprises.

These  activities  will  be  carried  out  in  close  coordination  (possibly  by  way  of  co-financing)
with  multilateral  bodies  (the  Committee  of  Donors  Agencies  for  Small  Enterprise
Development,  the  Consultative  group  to  assist  the  poor,  CGAP,  for  instance)  and  with
financial  institutions  (European  Investment  Bank,  other  Development  Banks,  Investment
institutions).  Local  programmes,
Funds  and  other 
intermediary  institutions,  and  service  providers  could  also  be  involved,  to  ensure  the
necessary market analysis and follow-up, needs assessment, and management.

international  financial 

local  and 

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V.

Implementation and Follow-up

The Commission plans  to  retain  complete  control  of  the  policy,  programming  and  design
aspects  of  these  five  areas  of  intervention  together  with  the  implementation,  where
appropriate, of particular actions, including technical assistance. General monitoring and
evaluation will also remain under full Commission control.

As regards the implementation and management of financial instruments, including micro-
finance,  and  non-financial  services  (Business  Development  Services),  the  Commission
plans  to  make  full  use  of  intermediaries  (  to  be  selected)  with  whom  it  will  establish
appropriate management / financial Agreements or Conventions.

The  proposals  set  out  above  are  based  on  the  conclusion  drawn  from  past  experience  that
management of these programmes requires substantial and specialised  human  resources  and
that a decentralised approach is best carried out by intermediaries rather than the Commission
itself. Nonetheless, given its institutional competencies and responsibilities, the Commission
would remain in control of policy matters of which strategies and  programming and overall
monitoring of the support programme.

The five areas of intervention or instruments set out above are general, i.e. they are available
for all regions. The framework of support and the instruments chosen must, as far as possible,
be harmonised and rationalised, so as to ensure a coherent approach in all regions. However,
there must also be a measure of flexibility in the use of these instruments to reflect both the
more  important  regional  differences  and  the  different  political  and  economic  links  between
the  Community  and  the  various  third  countries.  This  is  why  the  proposed  framework  for
supporting business sector development  will  be  harmonised  but  flexible.  As  a  consequence,
the mix of support /instruments chosen  will clearly  differ from region to region,  as  will  the
detailed way in which each is implemented.

To  follow  progress  it  is  proposed  to  examine  whether  a  set  of  Private  Sector  Development
indicators  could  be  developed  to  assess  the  process  of  structural  change,  including  the
creation of new SMEs, co-operatives and micro-enterprises, and policy implementation.

The  Commission  is  now  completing  a  comprehensive  strategy  and  programming  exercise
based  on  a  new  generation  of  Country  Strategy  Papers  (CSPs)  and  National  Indicative
Programmes  (NIPs)  as  well  as  Regional  Strategy  papers  (RSPs)  and  Regional  Indicative
Programmes  (RIPs)  for  all  the  countries  and  regions  with  which  it  has  cooperation  and
assistance agreements. The CSPs cover the period to 2005 or 2006 and the NIPs the period to
2003  or  2006  according  to  the  programme.  It  is  intended  that  the  current  proposals  for
ensuring  a  harmonised  and  coherent  approach  to  business  sector  development  should  be
implemented within the above strategy and programming framework as soon as possible, i.e.
when the NIPs are subject to major revision. This will take place from 2003 onwards

Moreover, the Commission intends to develop further its strategies to support private sector
development in third countries. One of the priority areas is that of the management failures of
State-owned enterprises  (SOEs), a subject  at  the  centre  of  structural  reform  programmes  all
over  the  world  for  the  past  two  decades.  As  one  of  the  main  sources  of  concessional
development assistance, the EU has long been involved in the funding and reforming of SOEs
in developing and transition countries.

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This  experience  shows  that  the  Community  has  a  role  to  play,  with  its  assistance
complementary  to  the  International  Financial  Institutions  in  promoting  and  supporting  the
reform  agenda.  However,  given  the  numerous  shortcomings  of  privatisation  in  developing
countries,  the  likely  impact  of  these  failures  on  the  attainment  of  the  Millennium
Development  Goals,  and  the  prominent  roles  of  some  European  firms  in  Public-Private
Partnerships (PPPs)  , the EU must become a  more  active  partner  in  trying  to  make  reforms
more efficient and effective. It is therefore proposed that the issue of privatisation and State
Owned Enterprises should be addressed in a separate Communication.

The  Commission  will  also  seek  to  promote  and  develop  more  effective  cooperation  and
coordination between the Community’s external assistance programmes and the activitites of
the  European  Investment  Bank  (and  other  financial  intermediaries),  particularly  in  third
partner countries.

13