Less aid, more private capital: new colonization of developing countries?

With dwindling budgets for development and a growing uncertainty in Europe, donors are increasingly looking to the private sector as partners for development. With the right approach, the private sector can make a positive contribution, but it also brings specific risks.

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In the last decade, development aid has shifted more and more from traditional aid for Third World countries to international cooperation that has to benefit development. “We have long lived in the illusion that, with development aid, we can generate change in developing countries. Gradually, we have learned that this is not the solution, but an incentive for local change at best. Developing countries must develop themselves”, says Geert Laporte of the European Centre for Development Policy Management (ECDPM).

This new vision of development was first clearly formulated in the European Consensus on Development in 2005, but has further gained importance with Agenda 2030, the agenda for the Sustainable Development Goals that have to be achieved by 2030 by the UN Member States. “The Sustainable Development Goals clearly state that development is no longer just the responsibility of the state, but of all stakeholders,” says Geert Laporte.

With the sustainable development goals, Europe must internally respond to challenges such as pollution and inequality.

While the Millennium Development Goals up to 2015 mainly focused on helping the Third World, Europe needs to internally respond to challenges such as pollution and inequality with the Sustainable Development Goals. It’s a responsibility shared globally.

According to Geert Laporte, this will the main topic in the new European Consensus on Development the EU is publishing next month: “In a globalized world, developing countries and developed countries are responsible for issues such as climate change, tackling global conflicts, fighting terrorism and inequality. The last-mentioned is an important point on the agenda. “

Short-term thinking against populism

‘You can address those issues only if you do not dissociate the development of other policy areas, which often have a much greater impact in developing countries than development itself. The new development consensus will therefore have a broader perspective and that’s a good thing, but that’s only true on paper. We must take action and that is often a major weakness in the EU’, says Laporte.

The EU itself is facing great challenges and is divided internally, which makes it difficult to pursue a coherent policy. ‘After the Brexit, we are facing a growing secession, concerns about security and migration, and a possible collapse of the Eurozone awaiting us in the coming years. The political climate cannot afford to take risk and implemented major changes’, says Geert Laporte.

‘Ultimately, we invest more in securing our borders than in fighting the causes of migration.’

According to Laporte, because of increasing pressure, the EU lost sight of the long-term perspective. ‘We want to stop migration and so we say we are going to tackle the causes of migration, but ultimately we are investing much more in securing our borders, controls at the Mediterranean sea and building walls than in fighting the causes of migration. We opt for short-term solutions to satisfy public opinion in Europe in light of growing populist movements.’

‘Furthermore, we must –in the context of sustainable development – reform our societies to address, for example, growing inequality and climate change,’ says Geert Laporte. ‘But for fundamental changes in our economic and social structures, there is currently too little attention in Europe.’

A lot of ambitions, few resources

The efforts that the EU must make internally and the uncertain economic and political environment in which Europe is situated have led to a shrinking of the budget for development, and donors are increasingly looking to other sources, the private sector, for example. ‘What certainly will emerge in the new European consensus on development are the resources. Our ambitions are growing, but we have fewer and fewer resources’, says Geert Laporte.

We must ask ourselves whether we expect too much from the private sector and which private sector we mean.

‘I expect more and more abuse of the development budget. Sweden gives 30 percent of its development budget to housing and care of refugees in Sweden. In the Netherlands, this is around 20 percent. The main beneficiaries of the Swedish and Dutch development budget are Sweden and the Netherlands itself. We need to find other financing for aid to developing countries. The private sector can play a part in this, but that is not so obvious. There are few private companies that are easy to convince to make a substantial financial contribution to development.’

In the developing consensus, the private sector is expected to play a big role and especially public-private partnerships, but this is not without risks: ‘The private sector is recognized as a legitimate player in development and that is positive, but we must also ask ourselves whether we expect too much from the private sector and which private sector we mean. Do we mean multinationals or small and medium enterprises? Are we talking about the African private sector or our own private sector?’ says Geert Laporte.

The poorest countries do not benefit from extensive free trade.

‘Many European governments are set very mercantilist. Their only ambition is to make their own private profit. The entry of the private sector is not a win-win guarantee. It will require a continuous effort to ensure that all parties win. Moreover, we do not have much experience in creating such win-win situations. When it comes to development in the private sector and public-private partnerships, we still have much to learn’, Geert Laporte.

Therefore, it is important that the EU and Member States in their negotiations with partner countries in the developing world are not only guided by their own commercial interests, but rather strike a good balance between the interests of all parties. ‘The EU promotes free trade and market opening and sometimes puts enormous pressure on developing countries to do this. They believe that a free trade agreement is beneficial to both parties, but to benefit from free trade, you must have full equal partners’, says Geert Laporte.

Countries agree to adopt certain measures, but once that’s over, they find themselves in the jungle of free trade.

‘These pure free-trade agreements are not appropriate for a lot of poorer countries. There are exceptions for the least developed countries, but it is simultaneously expected that they go into economic partnership agreements with a wider region. The underlying logic remains a free-trade logic. Countries agree to adopt certain measures, but once that’s over, they find themselves in the jungle of free trade. The weakest countries and sectors need more protection which that has not yet fully seeped the EU resolutions.’

‘Nevertheless, I am convinced that we can find a good match between our own interests and those of African countries’, says Geert Laporte. He himself is convinced that small and medium enterprises (SMEs) will contribute the most to the prosperity of a country. ‘SMEs make up the fabric of society. They are embedded in the local society and there are many SMEs that also create much-needed jobs in Africa, that is facing an explosive population growth and a high unemployment rate among young people. That should not mean that multinationals cannot create jobs. If AB InBev opens a brewery somewhere, it will undoubtedly create a lot of jobs.’

The New Alliance for Food Security and Nutrition

The New Alliance for Food Security and Nutrition (NAFSN) is such an initiative where participation in development cooperation is through public-private partnerships in the agricultural sector. The NAFSN was launched in 2012 by the G8 to help 50 million people in Africa get out of poverty and hunger in ten African partner countries. The projects under NAFSN should be giving special attention to supporting small-scale farmers and women. The initiative is supported by the EU, the US, the UK, the World Bank and the Bill & Melinda Gates Foundation among others, but has been strongly criticized by NGOs and civil movements since the beginning.

The criticism keeps on coming: last year, Olivier De Schutter, former rapporteur on the right to food in the UN food agency FAO, wrote a critical report on the NAFSN. ICAI, an independent committee that monitors the British development assistance and gives feedback to the British government, said in a report (2015) that the NAFSN projects can serve to promote the companies involved and to strengthen their influence in negotiating policies at most. In May this year, the European Parliament also published a critical report on the NAFSN to urge the European Commission to take action.

There is a great lack of transparency. The NAFSN creates a market for agricultural land, leading in some cases to land grabbing.

There are many points of criticism: the small-scale farmers that should be helped by the NAFSN were not involved in the design of the project. There is a great lack of transparency. The NAFSN creates a market for agricultural land, leading in some cases to land grabbing. Regarding human rights and the environment, NAFSN provides only voluntary guidelines. There is no coordinated approach to confront companies liable for infringements.

It is also important to know that the NAFSN is not an organization. It is a vision in which different projects come together. Therefore, it involves a lot of different projects, some good ones and some bad ones. Donors, for example, label a part of their development budget as NAFSN, but there is no central instance to coordinate and monitor everything. The results presented by the NAFSN in the annual progress report are very vague.

The new colonialism?

Some analysts call the NAFSN a new form of colonialism, because African governments must make all kinds of changes in their legislation to create a more attractive business environment so as to attract investors. Certain legislative changes, e.g. concerning intellectual property rights on seeds, undermine the sustenance of small-scale farmers who would support NAFSN.

Some projects under the NAFSN bring large-scale agribusiness into partner countries. These megaprojects must involve the small-scale farmers, for example, through contract manufacturing, but it will make them dependent on expensive seeds, fertilizers and pesticides. They often practice monoculture farming with contract manufacturing, which is risky for their own food security: as soon as the prices fall or harvests fail, they will make a loss.

‘To actually make the NAFSN useful, such far-reaching reforms would be required that it would no longer be the NAFSN.’

One of the NGOs that have been actively campaigning against NAFSN is Oxfam: ‘Public-private partnerships can be beneficial under certain circumstances for all parties, but the approach must come from below and should not be imposed from the top. Many public-private partnerships are initiated by donors, governments or companies. When citizen movements and farmers get involved, the decisions have already been made’, said Hanna Saarinen.

‘To actually make the NAFSN useful, such far-reaching reforms would be required that it would no longer be the NAFSN’, says Isabelle Brachet, who does lobbying in the European institutions for ActionAid Brussels. ‘One of the measures we propose is free, prior and informed consent (FPIC). It is a principle in international law to give indigenous people more say, but many local African communities would not define themselves as indigenous people and would thus not be covered by that legislation.’

‘We would like to see an amendment of the law with a more progressive interpretation. This way, local people would get a better bargaining position. They could, for example, ensure that they would still be able to cultivate the crops they need to eat on the edge of the agricultural project or that they could get houses or electricity. It gives to them a lot of power, but there is much resistance because then a community would have the right to reject a project that does not serve its interests’, says Brachet.

EU refuses to negotiate UN Convention

Member of European Parliament (MEP) Mary Heubuch, rapporteur of the critical report of the European Parliament, is concerned about the NAFSN as well. In September, Heubuch visited Tanzania with a few fellow MEPs to follow what happens under the NAFSN: ‘There is no doubt that we need to support small-scale farmers, but is the NAFSN the right model to do this? Absolutely not! Unfortunately, many policymakers have the persistent idea that investment would be beneficial to the people through a kind of trickle-down effect. It seems like a dogma. It’s hard to get people to change their minds, because – even if you provide evidence to the contrary – they continue to repeat it.’

‘Especially when public funds are at stake, we must ensure that there are clear benefits associated with it for the people.’

‘Investment from the private sector can help the poor, but only when there are necessary precautions on a social level and with regard to the environment. In addition, there should be binding rules for the private sector on human rights. Especially when public funds are at stake, we must ensure that there are clear benefits associated with it for the people. Otherwise, we will squander the scarce development budget.‘Unfortunately, since July 2015, the EU refuses to discuss a binding UN treaty on trade and human rights. The EU stopped negotiating last year because the treaty would only apply to multinationals. A pure Chinese company that commits human rights violations could therefore not be prosecuted in accordance with the Convention. The EU would like the treaty to be binding for any given type of business.

‘It is obviously a legitimate objection, but the concluding of a treaty is a negotiation process. That the EU fully refuses to cooperate is not constructive. The development of a sound legal framework for corporate accountability for human rights violations abroad is totally ahead in Europe’, said Isabelle Brachet. From 24 October, the second working group of the UN Convention will be held in Geneva. It remains to be seen whether the EU will be sitting at the negotiating table.

Ebe Daems & Kweli Ukwethembeka Iqiniso
This article was created with the support of Journalismfund.eu

Translation coordinated by Koen Van Troos

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