COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries
Date: 2014-05-13
Institutions: European Commission
Subjects: developing countries, economic growth, private sector, public-private partnership, sustainable development













EUR-Lex - 52014DC0263 - EN











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52014DC0263

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries /* COM/2014/0263 final */










1.            
Introduction
1.1.   
The role of the private sector in fostering development

Having
a decent job is widely recognised as the best way out of poverty. The private
sector provides some 90 per cent 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. And through innovation and
investment in low-carbon and resource-efficient solutions, it will have a major
role to play in the transformation towards an inclusive green economy. Given
the private sector’s potential for generating inclusive and sustainable growth
in developing countries, private stakeholders including businesses, financial
intermediaries, associations and workers and employers organisations are
emerging as ever more active in the development field, both as a source of
finance and as partners for governments, non-governmental organisations (NGOs)
and donors.

1.2.   
European Union support for private sector development:
achievements and lessons

The
European Commission works closely with governments in developing countries to
help them develop and implement policies in support of private sector
development. It provides substantial grant funding across a wide range of
activities, including regulatory reforms, capacity-building and the provision
of business development services, with a particular focus on strengthening
local micro, small and medium-sized enterprises. Over the last decade, support
by the Commission for private sector development has averaged EUR 350 million
per year. This, combined with development assistance and private investment
from Member States, makes the EU a key player in supporting local private
sector development in partner countries. With the creation of regional blending
facilities, the Commission has also started developing new tools for
implementing private sector development objectives. The strategic use of grants
allows the Commission to leverage additional development finance for
infrastructure investments and to facilitate access to finance for micro, small
and medium-sized enterprises. 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. Scaling up of blending in cooperation with development
finance institutions also facilitates the involvement of the private sector as
a source of finance. Successful examples of past EU support to private sector
development that may inspire future actions are illustrated throughout the Communication.
A
recent evaluation of EU support for private sector development between 2004 and
2010[1]
confirmed the important contribution made by the Commission to private sector
development in partner countries, and identified ways of improving future
programmes and strategies, which include: (i) putting more emphasis on decent
job creation; (ii) mainstreaming private sector engagement across the EU’s
support portfolio; (iii) promoting more effectively cross-cutting issues such
as the Decent Work Agenda, women and youth employment, and human rights, and
(iv) enhancing the operational effectiveness and impact of private sector
development support by improving diagnostics and results measurement.

2.            
Strategic framework for
strengthening the role of the private sector with a view to achieving inclusive
and sustainable growth

Building
on past achievements and lessons, and taking account of feedback received from
consultations with stakeholders[2] this
Communication proposes a strategic framework for strengthening the role of the
private sector in achieving inclusive and sustainable growth. It consists of
two levels at which the EU believes it can add value and effectively complement
actions by its Member States, development financing institutions and other
development partners.
In
terms of private sector development support, the Commission wants to remain an
important partner of governments and business intermediary organisations in
developing countries for supporting the creation of an enabling business
environment and the development of local enterprises that are equipped to
create decent jobs, generate public revenues, and harness the opportunities
offered by globally integrated markets.[3] In
so doing, the Commission will look for new ways of harnessing the potential of
the private sector as a financing partner, implementing agent, advisor or
intermediary to achieve more effective and efficient delivery of EU support,
not only in the field of local private sector development, but also in other
areas of EU development cooperation such as sustainable energy, sustainable
agriculture and agribusiness, digital and physical infrastructure, and the
green and social sectors.
Looking
beyond the private sector as a partner in development cooperation, the proposed
strategic framework will also include actions and tools to help the private
sector achieve positive development results as part of its core business
strategies. This means that the Commission intends to play a stronger role as
facilitator of companies’ own engagement for development, for instance by
encouraging responsible investment in developing countries, or sustainable
supply chains and production patterns.
This
strategic framework is being reflected in the programming of EU development
assistance from 2014 to 2020 with regard to national and regional private
sector development strategies such as the joint ACP-EU work on a new cooperation
framework for private sector development in ACP countries, at the level of
thematic programmes that address private sector engagement as a cross-cutting
issue, and in sectoral interventions designed to mainstream engagement with the
private sector in agriculture, sustainable energy, and infrastructure, or in
green and social sectors.

2.1.    Principles
for strengthening the role of the private sector in EU development cooperation

The
EU’s support for private sector development and its engagement with both the
local and international private sector will be guided by clear principles that
complement aid effectiveness principles and are intended also to inspire
efforts by EU Member States, financing institutions, and other development
partners of the EU.   
–       
Focus
on employment creation, inclusiveness and poverty reduction.
Programmes and partnerships have to be designed in ways that contribute to
poverty reduction, for instance through decent job creation, better labour
conditions, a progressive transition from the informal to the formal economy, or
the economic empowerment of women and girls, youth, and vulnerable groups.
–       
A
differentiated approach to the private sector. Private sector
activity can take many forms and will impact on economic development in various
ways. The private sector is highly diverse, ranging from enterprising
individuals to large multinational corporations and financial institutions;
from enterprises creating shareholder value to people-centred social
businesses, cooperatives and workers and employers organisations. They may
operate at a local, national, regional or international level, in rural or
urban areas, in the formal or informal sector and in very different country
contexts. Each of these private sector actors requires different conditions and
incentives to contribute to development, entailing differentiated approaches to
their support and engagement for development.
–       
Create
opportunities through market-based solutions. While
donor interventions should not distort markets, more emphasis has to be put on
harnessing the potential of development assistance to catalyse market
development in partner countries. There is an as yet untapped potential to
create business opportunities for local entrepreneurs through programmes that
adopt market-based approaches to the delivery of their support, for instance by
working with local enterprises as implementing partners or suppliers of works
and services, or in social programmes by opting for cash transfers rather than
support in kind, as the former have the additional benefit of stimulating
purchasing power and hence demand among low-income populations.
–       
Follow
clear criteria in the provision of direct support to private sector actors.
While official development assistance is clearly justified for intervention at
macro and meso levels, it can also be effective at micro level to speed up
local enterprise development or to overcome market failures and sub-optimal
investment situations. However, to guarantee development impact and
sustainability, avoid market distortions, and mitigate reputational and
fiduciary risks, clear criteria have to be applied in decisions on support to
enterprises or financial intermediaries through direct grants or subsidised
business development services, or in the form of guarantees, insurance or
concessional finance. The European Commission has developed a set of criteria
to guide such decisions. They complement the rules laid down in the
Commission’s financial regulations[4]
and are broadly aligned with standards applied by other development partners
(see Box 1).
–       
Account
for different local contexts and fragile situations. Differentiating
between country contexts in the design of private sector development support
and setting priorities according to the needs and stage of development and
degree of vulnerability of partner countries is essential to ensure the
greatest impact and best value for money of EU support. Specific approaches are
required particularly for fragile and conflict-affected countries that are
urgently in need of jobs and economic opportunities to restore social cohesion,
peace and political stability.
–       
Put
strong emphasis on results. Support for
private sector development and partnerships must be accompanied at all levels
by efforts to strengthen results measurement and assessment of the development
impact of interventions.
–       
Observe
policy coherence in areas affecting the private sector in partner countries. Besides
ensuring that EU policy action does not adversely affect the development
prospects of partner countries, close coordination between relevant Commission
services, as well as with EU Member States, will remain a priority to ensure a
comprehensive EU approach and make development and other relevant EU policies
coherent and mutually reinforcing. The 2012 Commission Communication on Trade,
Growth and Investment[5]
articulates approaches that illustrate how this is being implemented in
relation to trade and investment policies.
Box 1:
Criteria for supporting private sector actors
(1)     
Measurable development impact: Support
given to a private enterprise or financial intermediary has to contribute in a
cost-effective way to the achievement of development goals such as job
creation, green and inclusive growth or broader poverty reduction. This
requires transparency as regards objectives and results, along with appropriate
monitoring, evaluation and results measurement arrangements.
(2)    
Additionality: Without
public support the private enterprise would not undertake the action or
investment, or would not do so on the same scale, at the same time, in the same
location or to the same standard. The supported action should not crowd out the
private sector or replace other private financing.
(3)    
Neutrality: The support given should not
distort the market and should be awarded through an open, transparent and fair
system. It should be temporary in nature with a clearly defined exit strategy.
Support justified by market failures and consequent risks should not have the
effect of discouraging regulatory reform efforts addressing the causes of
market failure.
(4)    
Shared interest and co-financing:
Partnerships with the private sector have to be based on cost-effectiveness,
shared interest and mutual accountability for results. The risks, costs and
rewards of a joint project have to be shared fairly.
(5)    
Demonstration effect: A
supported action should aim to have a clear demonstration effect that catalyses
market development by crowding in other private sector actors for the
replication and scaling-up of development results.
(6)    
Adherence to social, environmental and fiscal standards:
Private enterprises receiving support have to demonstrate that their operations
are compliant with environmental, social and fiscal standards, including
respect for human and indigenous rights, decent work, good corporate governance
and sector-specific norms.

2.2.    Private
sector development support in future EU development cooperation
2.2.1.      Creating a business environment conducive to private sector
initiative

Provision
of support for improving the business and investment climate, especially for
micro, small and medium-sized enterprises, and strengthening of business
intermediary and support organisations, will remain essential pillars of EU
private sector development assistance. This approach can be made more effective
by improving the quality of country and sector diagnostics for prioritisation
of reforms, and through engagement of the private sector in action-oriented
public-private dialogue at the level of policy formulation. The Commission also
aims at contributing to the improvement of available policymaking tools for
measuring and comparing the quality of the business environment across
countries.
With
a view to effectively combining business environment reforms with support for
other aspects of the investment climate like financial market development,
trade facilitation, management of migration, and the strengthening of legal and
juridical institutions, the Commission will seek synergies between its private
sector development support, the aid for trade agenda, budget support and the
associated political dialogue with partner countries. The Commission recognises
that building the domestic institutions and legal frameworks that allow markets
to become more efficient and fairer requires good governance and ownership by
partner governments. It stands ready to provide support where there is
political will for reform, combined with efforts to implement internationally
agreed norms and guidelines such as the United Nations Convention against
Corruption. It will also make better use of political economy analysis in the
design of private sector development programmes.
In
Paraguay, an EU-funded Economic Integration Programme supported the
creation of a Single Window for Exports, which reduced the total time for
administrative procedures needed to export meat from 40 days to 50 minutes and
boosted the number of
enterprises in Paraguay oriented to exports by 500% since 2004, resulting in a significant increase in
exports.
In Tunisia the microfinance industry was under­developed, with only two Financial Services
Providers serving around 300 000 clients. Thanks to policy dialogue
with the EU, and in the framework of joint donor budget support
operations launched before the revolution, the government in 2011 reformed the
legal and regulatory framework for the national microfinance industry in line
with best international practice to allow new operators to serve the unmet
demand (estimated at 700 000 clients)
for microfinance from vulnerable
groups.
Constraints on private sector growth may stem not only
from the overall business environment, but also from industry- or
sector-specific gaps in the support infrastructure. Not every sector or
industry in an economy has the same potential for productivity increase and
decent job creation. Support to partner governments should not merely trickle
down from a political demand but should also respond to proper analysis of a
country’s latent comparative advantage. Priority should be given to removing
constraints in those sectors that have the highest potential to contribute to private
sector-led growth and decent job creation in a given country.
Industrial
clusters can be a promising way to build strategic alliances for the provision
of sector-specific support services and access to global value chains.
Appropriate and predictable industry-specific regulatory frameworks are also
needed to enable effective and sustainable market-based solutions to be found
for rural electrification, sustainable urban energy, or access to finance and
infrastructure services such as mobile telecommunications, water, transport,
energy and housing.
Action 1:   Finance advisory
services and state-of-the-art diagnostic tools for policy formulation to help
governments and business intermediary organisations improve domestic business
regulations and their enforcement to increase legal certainty, improve the
business climate and reduce the cost of doing business.

2.2.2.          
Stepping up support to micro, small and
medium-sized enterprises in the formal and informal sector

Macro-level
and sectoral interventions to strengthen the business environment require
complementary provision of support services at the meso and micro levels to
increase productivity and accelerate investment and decent job creation.
Emphasis will be put on supporting micro, small and medium-sized enterprises,
which play a particularly vital role in job creation, and in raising
productivity and working conditions in the informal economy. In providing
enterprise development support, the Commission will work as much as possible through
existing business intermediaries and service providers, thereby taking into
account the lessons learned from creating own support structures that have a
high administrative cost. It will promote market-based approaches requiring
private sector beneficiaries to share in the cost of the service received.
The
Commission’s experience in supporting European SMEs can provide useful lessons
also for developing countries. For instance, public support provided by the
Enterprise Europe Network can serve as a model also for encouraging SME
cooperation across developing countries. European companies can contribute to
enterprise development in partner countries by integrating local micro, small
and medium-sized enterprises into their supply chains, especially in the
agriculture and agro-food sectors, as well as through transfer of technology including
eco-innovations or renewable energy solutions. The Commission is also working
with public finance institutions on programmes such as the EBRD Small Business
Initiative in which EU funds are used for advisory services, tailor-made for
specific sectors and countries. It is necessary also to encourage stronger
North-South collaboration among companies, for instance in the form of twinning
arrangements on coaching and training on the job. Moreover, the Commission will
use its development cooperation with partner countries to strengthen national
vocational education and training systems in line with labour market demands
and skill needs of formal and informal enterprises.
The
Enterprise Growth Programme and Business Advisory Services (EGP-BAS)
provides consultancy services to SMEs from Eastern Partnership countries,
helping them to develop and improve their
businesses. To date, more than 600 SMEs have benefited from this support, with
the outstanding result that 90 % of them increased their turnover
by an average of 43 % after one year.
In Tanzania, the Trade and Agriculture Support Programme contributed to improve quality
standards and increase productivity in the tea and coffee value chains by 50%.
Besides increased access to international markets, net income of smallholder
farmers was increased by at least 20 % with a direct impact on household
assets, women’s empowerment, better children’s education and improved food
security.
An
estimated 60 to 80 per cent of enterprises 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. A combination of measures is needed, on
the one hand, to increase incentives for formalisation driven by effective
institutions, legal systems, and secure property rights, especially for land,
that can be used as collateral for loans. On the other hand, measures need to
be taken to improve productivity and working conditions in the informal sector
through a safer working environment and easier access to markets, finance,
infrastructure and social services. One useful way to deliver support is
through training and capacity strengthening of informal support organisations,
such as producer associations and member-owned self-help organisations.
Cooperatives, social enterprises and other forms of people-centred business are
often leading the way in providing decent jobs, sustainable livelihoods and
inclusive solutions to social problems.
Action 2:   Co-finance
market-based schemes for micro, small and medium-sized enterprises to access
business support services from local providers including business intermediary
organisations, incubators, informal self-help organisations and cooperatives to
increase management skills, technological know-how and market linkages for
micro, small and medium-sized enterprises in the formal and informal sector.
Action 3:   Support alliances
between companies and relevant training providers to develop and implement
demand-driven technical and vocational education and training programmes.

2.2.3.          
Empowering women as entrepreneurs and workers

As
part of its support to micro, small and medium-sized enterprises and the
creation of an enabling environment for their development, the Commission will
give particular attention to female
entrepreneurship and employment. Typically, women are under-represented in
business communities in developing countries. This is often a result of
legal differences in how men and women are treated that hamper women’s
opportunities for starting businesses, owning property and land, or accessing
credit, and are thus a major obstacle to gender equality. The Commission will
push for gender-sensitive business regulation, and will address the specific
training and support needs of women as entrepreneurs and workers to ensure that
recent improvements in girls’ education are
translated into real economic opportunities for women.

2.2.4.          
Increasing access to finance and deepening
financial inclusion

Lack
of access to capital and appropriate financial services is a major constraint in
particular on the development of micro, small and medium-sized enterprises. The
Commission supports wider access to a diversified set of financial services
both for households and micro, small and medium-sized enterprises, with
interventions ranging from capacity strengthening of financial intermediaries
to the provision of capital to local banks for the financing of micro, small
and medium-sized enterprises. Future programmes will in addition focus on the
use of information and communication technologies (ICTs) as a tool for
achieving financial inclusion of the poor, especially in Africa where they are
already dramatically changing the financial
landscape. Particular emphasis will also be put on customer-centric
models to promote inclusive credit, savings, insurance and payment services, as
well as on making the transfer of remittances cheaper, faster and more secure while
facilitating their productive investment. These activities will be complemented
by support for the creation of an appropriate financial infrastructure and
regulatory framework for the financial sector to ensure customer protection,
responsible finance and the long-term stability of the financial system.
In South Africa, the Risk Capital Facility established by the
Government with EU funding to promote the participation of disadvantaged people
in the economy, with a specific focus on women, has provided equity or
quasi-equity to 60 enterprises and led to the creation of 7 000 new jobs.
MX Metal Shoppe, for example, received a EUR 200 000 subordinated loan
that allowed the company to leverage additional funding for the purchase of new
equipment, and to cover working capital requirements and initial set-up costs.
After 18 months of operation, 52 unskilled people have been employed and the
business is profitable and growing fast.
Through the ACP-EU
Microfinance programme, the EU funded a project providing capacity building
to 12 microfinance institutions in remote areas in 12 Sub Saharan African
countries and Haiti. It also supported the creation of 14 new financial
products such as water tank and school fees credits, term deposits and transfer
services. More than 750 staff of microfinance institutions received from
training, while 120 000 new clients in rural areas benefited from better
access to innovative financial services.
Blending
EU grants with other sources of development finance has already proved to be a
successful way to increase access to finance, for example through guarantee
facilities and microfinance funds. More attention will be given to the
financing of female entrepreneurs, to impact financing for social businesses
and high-impact investments[6],
as well as to improving access to loan and equity financing for SMEs referred
to as the ‘missing middle’, as their financing needs typically are not met by
either microfinance institutions or traditional banks.
Action 4:   Make strategic use of
EU grants, including through blending mechanisms, to improve access to loans,
equity finance, guarantees and patient capital for micro, small and
medium-sized enterprises also in high-risk countries and through impact
financing of social enterprises.
Action 5:   Increase support for
inclusive finance, with a particular focus on the financial inclusion of women,
youth and rural populations.

2.3.    Mainstreaming
private sector development and engagement in EU development cooperation

Opportunities
for strengthening the role of the private sector with a view to achieving
inclusive and sustainable growth exist in most areas of EU support. The private
sector plays a strong role in agriculture and agribusiness, sustainable energy,
infrastructure and social sectors, and is also prominent in the areas of
environment, climate change, migration, risk management[7], raw
materials[8],
natural resources, healthcare and pharmaceuticals, sustainable tourism, and
nutrition. The Commission will, in line with partner governments’ policies,
develop ways to better integrate private sector development objectives in
support strategies, and will identify modalities for using the private sector
as an implementing and financing partner in these areas.
In
this context, a larger share of the EU blending facilities could be allocated
to financial instruments such as loans, guarantees, risk-sharing instruments,
and equity or quasi-equity instruments. A key objective of these instruments is
to catalyse private investment that has proved to be financially viable but
does not give rise to sufficient funding from market sources. Access to finance
and risk-sharing instruments in developing countries is also an important
prerequisite for EU investors seeking to venture into these markets. This is
particularly true for areas such as construction, including transport,
utilities and buildings, characterised by high up-front investments, high risk
exposure and often unfair international competition that require action to
ensure a level playing field.

2.3.1.          
Engaging the private sector in sustainable
energy

Action 6:   Increase the provision
of risk capital through private investment for energy efficiency and renewable
energy and rural electrification projects in developing countries, following
the successful example of the Global Energy Efficiency and Renewable Energy
Fund (GEEREF).
                 Set
up a risk-sharing mechanism with European Development Financing Institutions to
increase private investment in energy-related projects.

2.3.2.          
Engaging the private sector in sustainable
agriculture and agribusiness

Action 7:   Link farmers to
markets through market-driven models such as the initiatives developed within the framework of the Comprehensive African
Agriculture Development Programme.
                 Build
capacity of agri-business SMEs and smallholder farmers and enhance their access
to finance, market information and technologies.
                 Accelerate
sustainable local and global trade in agricultural commodities by supporting
coalitions of companies, NGOs, producers, governments and other stakeholders. 
                 Develop
and finance risk management instruments such as price, weather and disaster insurance.
                 Support
inclusive PPPs and business models with due recognition of processes such as
the voluntary guidelines on responsible governance on tenure of land, fisheries
and forests, responsible agriculture investment and the African Land Policy
Initiative.

2.3.3.          
Engaging the private sector in infrastructure
sectors

Action 8:  Leverage private
sector capital and expertise for infrastructure investments in developing
countries through EU regional blending facilities such as the EU-Africa
Infrastructure Trust Fund.
                Aim
at introducing design, build and operate contracts, as well as concepts of
sustainability
and life-cycle costs into EU procurement procedures.
                Promote
cooperation on the development and use of space technology for sustainable
development through research programmes, technology transfer, capacity
building, and joint business initiatives, including the development of
satellite navigation infrastructure and Earth Observation services.

2.3.4.          
Engaging the private sector in green sectors

Action 9:   Promote
eco-entrepreneurships and green job creation through the SWITCH TO GREEN
flagship that builds on the positive experience of the SWITCH-Asia programme
and combines policy dialogue on enabling conditions for green business
development with co-funding of innovative projects that support sustainable
consumption and production patterns and practices in partner countries.
                 Support the management
of protected and other sensitive biodiversity areas among others through the
‘Biodiversity for Life’ thematic flagship that engages the private sector in
design and implementation of Payments for Ecosystem Services schemes,
community-based management of natural resources, and public-private
partnerships.

2.4.   
Catalysing private sector engagement for development
2.4.1.          
Promoting responsible business practices through
EU development policy

Private
investment in low- and middle-income countries, both domestic and
international, more than tripled over the last decade, and now accounts for
over half of the financial resources available to developing countries, by far
exceeding official development assistance.[9] Even
a small shift in private investment strategies can significantly change the
impact of these investments on developing countries.
The
EU Corporate Social Responsibility (CSR) strategy[10]
provides a good basis for the responsible engagement of European companies in
developing countries. The Commission encourages companies to adhere to
internationally recognised guidelines and principles, including the UN Global
Compact, the UN Guiding Principles on Business and Human Rights, the
International Labour Organisation (ILO) Tripartite Declaration of Principles
Concerning Multinational Enterprises and Social Policy, the ISO 26000 Guidance Standard
on Social Responsibility and the Organisation for Economic Cooperation and
Development (OECD) Guidelines for Multinational Enterprises. The Commission is
moving towards a rights-based approach encompassing all human rights in EU
development cooperation, including private sector development support. It also
expects all companies to respect human rights. Companies investing or operating
in developing countries should ensure that they have policies in place to
prevent bribery and tax evasion, and systems to assess risks and mitigate
potential reverse impacts related to human rights, labour, environmental
protection and disaster-related aspects of their operations and value chains,
including through meaningful engagement with governments, social dialogue
partners and NGOs. Adherence to social, environmental and fiscal standards is
also considered a precondition for any EU engagement with, or public support
to, the private sector. Responsible business practices by companies will be
reinforced through the promotion of consumer awareness concerning sustainable consumption and production patterns and practices,
and the promotion of fair and ethical trade.
Voluntary
efforts by companies to adopt more responsible and sustainable business
practices should be coupled with enhanced business transparency and the fight
against corruption, as well as efforts at promoting the ratification and
effective implementation of international labour and environmental conventions
in the EU’s political dialogue with partner countries and through EU trade
policy. Provisions on sustainable development issues are also included in
recent EU trade and investment agreements[11], and
some EU autonomous trade preference schemes[12]
involve respect for international human and labour rights, as well as
environmental and good governance conventions. Particular attention will have
to be given to ensuring fair and transparent practices in the employment and
treatment of migrant workers.
Responsible
business practices deserve specific attention and action in certain industries
such as mining and logging where opportunities and risks of private investment
for development are particularly high. Building on ongoing support to
initiatives such as the Extractive Industry Transparency Initiative (EITI), the
Kimberley Process, and the EU Forest Law Enforcement, Governance and Trade
(FLEGT) Action Plan, the Commission will step up efforts to improve
transparency in the extractive industries (oil, gas and mining) and the forest
sector by allowing effective use of information generated by the EITI and
disclosed by companies on their payments to governments from the exploitation
of natural resources as part of the new EU legislative requirements on
country-by-country reporting. Moreover, a Joint Communication on responsible
sourcing of minerals from conflict and high-risk areas, and the proposal for a
related Regulation, were adopted recently.[13] 
Action 10: Promote
international CSR guidelines and principles through policy dialogue and development
cooperation with partner countries, and enhance market reward for CSR in public
procurement and through promotion of sustainable consumption and production.

2.4.2.          
Scaling up inclusive business and market-based
solutions for development

For
growth to be inclusive, it has to deliver economic opportunities conducive to
sustainable livelihoods, especially for the poor. The private sector can
directly contribute to inclusive growth by engaging in economic activities that
have an immediate impact on the poor by enhancing their economic opportunities
as clients and customers on the demand side, and as producers, distributors or
workers on the supply side. Many EU Member States are already working with
companies through various partnership programmes on the piloting of such
inclusive business models.[14] The
Commission can play a complementary role by helping to build an ecosystem of
local support institutions for inclusive businesses through its private sector
development programmes. It will, moreover, support the replication and
scaling-up of successful inclusive business models by strengthening networks
and platforms that facilitate private sector dialogue and knowledge sharing,
provide transparency about existing support services and funding opportunities,
and facilitate partnerships between companies, financing institutions, workers
and employers organisations, NGOs, donors and/or governments.
Action 11:      Support
the replication and scaling-up of successful inclusive business models and innovative,
market-based solutions to development problems by strengthening action-oriented
private sector platforms and networks that facilitate knowledge sharing,
partnerships and match-making between businesses and other actors.

2.4.3.          
Facilitating public-private partnerships (PPPs)
and multi-stakeholder alliances

Partnerships
between the public and private sectors for the purpose of delivering a project
or a service traditionally provided by the public sector can be an effective
means of making the supply of public goods and services to poor people more
reliable and affordable, while complementing government resources with private
sector investment. The construction sector and the low-carbon and
resource-efficient economy are examples where European expertise, through PPPs,
can provide innovative solutions in areas such as renewable energy, green
buildings, or other infrastructure services such as water and sanitation, waste
management and transport.
In
this area, the Commission will continue to provide technical assistance to
public institutions to reinforce their administrative capacities, and set up
legal and regulatory frameworks and guidelines for PPPs, promote public-private
dialogue mechanisms to explore opportunities for PPPs and advocate reforms in
the legal and regulatory framework, and use financial instruments to leverage
private funding for infrastructure projects by reinforcing the private sector
lending and equity operations of eligible financing institutions through EU
blending facilities. These activities will have to be complemented by efforts
aiming at improving expertise, transparency and governance in the public sector
to ensure that the profit incentives of private actors coincide with public
interests.
Looking
beyond classical PPPs in the infrastructure sectors, the Commission will
support new forms of partnerships and multi-stakeholder alliances between
national or local authorities, enterprises and NGOs for skills development and
the provision of basic services, such as
access to sustainable and affordable energy, water, health care, and
education, as well as in the areas of agriculture and nutrition especially in rural areas, to women and other excluded groups.

2.4.4.          
Defining the role and responsibility of the
private sector on the global development agenda

The
Commission Communication ‘A Decent Life for All’[15]
considers promoting the drivers of inclusive and sustainable growth, including
the provision of essential human development services and decent job creation,
as one of five priority areas on which a post-2015 global agenda should be
built. This agenda will respond properly to the challenge of achieving
inclusive and sustainable growth only if the private sector has a say in
formulating it. The Commission, in close coordination with Member States, will
engage fully in defining a clear and active role of the private sector in any
post-2015 development framework. It also agrees with the recognition in the Rio+20 outcome document that active participation of the private sector can contribute to
the achievement of sustainable development and the transformation towards an
inclusive green economy. At the same time, the Commission will step up its
efforts to fulfil the commitments it made at the Busan High-Level Forum on Aid
Effectiveness regarding effective public-private collaboration for development.
Action 12:      Endorse
the Joint Declaration on public-private cooperation and take an active role
in the Partnership for Prosperity that
emerged from the Busan Private Sector Building Block.

3.            
The way forward: tools
and modalities for making the private sector a partner in development
cooperation

The
Commission will use a combination of interventions under its national, regional
and thematic programmes to implement and mainstream its approach to private
sector development, and to harness the potential of the private sector as a
partner in development cooperation. Implementing the approach and priorities
outlined above will mean adapting existing approaches and tools, and adding new
ones to the portfolio of instruments of EU development cooperation.

3.1.   
A framework for structured dialogue and joint action with
the private sector

Understanding
the needs and constraints of a local private sector, and harnessing the
potential of the European private sector to engage for development and with
businesses in developing countries, requires spaces for private-public
interaction and collaboration. At local level, the Commission, through EU
Delegations, will encourage inclusive public-private policy dialogue by
supporting the functioning of existing or new dialogue mechanisms such as
national employment, labour or export councils, and by targeted capacity
building of private sector representatives, including chambers of commerce,
social partners, and organisations representing micro, small and medium-sized
enterprises, female entrepreneurs, and firms and workers in the informal
sector, to improve their contribution to such dialogue mechanisms. The
Commission will, moreover, use its political dialogue with partner countries to
try to increase willingness among governments and local authorities to engage
in open discussions with private sector representatives.
At
European and global level, the Commission will contribute to the development of
a framework for dialogue and effective joint action with the private sector,
preferably by reinforcing existing initiatives, including the recently
established Policy Forum on Development (PFD)[16],
and with a view to enhancing coordination among individual European platforms and
programmes. More direct interaction with companies and their sectoral
associations will also be sought through sector-level dialogue mechanisms to
encourage more private sector engagement and market-based solutions in
sustainable agriculture and agribusiness, sustainable energy, infrastructure
and social sectors.

3.2.   
Mobilising private resources for development through
blending

The
Commission recognises blending, which combines EU grants with loans or equity
from other public and private financiers, as an important vehicle for
leveraging additional resources for development and increasing the impact of EU
aid. Through the EU Platform for Blending in External Cooperation, the
Commission is working together with finance institutions on increasing the
catalytic effect of blending in crowding in more private financing through
greater use of financial instruments such as guarantees, equity and other
risk-sharing instruments for infrastructure investments. In this context, the
Commission is also exploring options to expand the scope of blending in new
areas such as sustainable agriculture and social sectors, and to facilitate
more projects with a strong impact on local private sector development like SME
access to finance through the creation of dedicated private sector windows in
regional blending facilities.

3.3.   
Harnessing the EU’s political weight in support of
inclusive and sustainable growth

A
common view expressed during consultations with stakeholders in the preparation
of this Communication is that the EU’s political weight represents a
comparative advantage that it should harness more fully in support of private
sector development objectives. To this end, the Commission will seek to further
increase the positive interaction and private sector development impact of EU
policies and instruments regarding trade, enterprises, employment and other
relevant fields.
Through
policy dialogue with partner countries and in multilateral fora, the
Commission, in consultation with the European External Action Service, will
continue to aim at securing commitments to internationally agreed principles
and guidelines regarding responsible business practices in the fields of human
and labour rights, environmental standards, as well as anti-corruption and
tax-related conduct. It will also explore how best, in the context of its
political dialogue, to address issues such as business environment reforms that
are crucial for investment, innovation and private sector development,
including the rule of law, anti-corruption, public financial management, fiscal
reform and the effectiveness and capacity of public institutions.
Finally,
the Commission will continue to seek synergies between budget support and
direct interventions for achieving private sector development objectives.
Budget support, and the associated policy dialogue, can usefully underpin
business environment reforms in partner countries by promoting the stability of
macroeconomic frameworks, sound public financial management, transparency and
oversight of the budget. Furthermore, specific reform contracts and results
indicators focusing on private sector development can help achieve business
environment reforms.
The
political weight of the EU depends on the ability of the Commission and Member States to mobilise their various strengths and capacities and work together with a
common strategic vision. Through better donor coordination and joint
programming, the EU will speak with one voice, and can better capitalise on the
fact that in most partner countries it is one of the largest donors providing
support for inclusive and sustainable economic development.
By
increasing its investment in developing countries and playing a more active
part in development cooperation, the private sector is sending a powerful
signal about the important role it can play in contributing to inclusive and
sustainable growth in developing countries. The strategy set out in this
Communication will enable the Commission to facilitate and speed up the
engagement of both local and European businesses for tangible and positive
development outcomes on the ground.
[1] See http://ec.europa.eu/europeaid/how/evaluation/evaluation_reports/2013/1317_docs_en.htm.

[2] Consultations on the
issues relevant for this Communication were carried out between November 2013
and February 2014 with EU Member States, partner governments, local
authorities, European and local private sector representatives, social partners
and NGOs. 
[3] These interventions are
closely related to, and complemented by, activities in the field of trade and development that are outlined in the 2012 Trade,
Growth and Development Communication [COM(2012) 22 final].
[4] Regulation No 966/2012
of the European Parliament and of the Council, and Commission Delegated
Regulation No 1268/2012 on the rules of application of that regulation. 
[5] COM(2012)22 final.
[6] For example, the EIB’s
Impact Financing Envelope for the ACP region, set up as a new special window of
EUR 500 million under the existing ACP Investment Facility, aims to generate
high developmental impact with the overarching objective of poverty reduction
by addressing the social and environmental challenges ACP countries are
confronted with, including decent job creation, sustainability of small and
rural enterprises, climate change mitigation, food security, access to basic
resources such as water and energy, as well as economic and social integration
of women and young people. 
[7] The Green paper on the
insurance for natural and man-made disasters [COM(2013) 0213 final] highlights
the role of insurance in helping developing countries vulnerable to disasters
to establish effective contingency mechanisms.
[8] In line with the 2008 Raw Materials Initiative [COM(2008) 699].
[9] Commission
Communication ‘Beyond 2015 — towards a comprehensive and integrated approach to
financing poverty eradication and sustainable development’
[COM(2013) 531].
[10] A renewed EU strategy
2011-14 for Corporate Social Responsibility [COM(2011) 681 final].
[11] For instance the
Framework Agreement with the Republic of Korea signed on 10.5.2010. 
[12] For instance the GSP+
that requires least-developed countries benefiting from the scheme to ratify
and respect 27 international conventions, and thus to embed minimum standards
on labour, the environment and anti-corruption in their legislation, which
businesses have to respect.
[13] JOIN (2014) 8, 28.2.2014 and COM(2014) 111,
5.3.2014.
[14] For instance, the
German develoPPP programme, the Austrian economic partnerships programme,
SIDA’s Business for Development Programme, or challenge funds set up, among
others, by DFID, and the Dutch Ministry of Foreign Affairs.
[15]  COM(2013)
92 final.
[16] The PFD has been
established by the Commission as a multi-stakeholder dialogue space where local
authorities, CSOs and private sector representatives contribute to EU
development policies and programmes.