Western firms 'receive lion's share of aid contracts'
Eurodad report lambasts development finance institutions that support
private sector projects which are shrouded in secrecy
* Liz Ford <
http://www.theguardian.com/profile/lizford>
* Follow _at_lizfordguardian <
https://twitter.com/lizfordguardian>
Follow _at_GdnDevelopment <
https://twitter.com/GdnDevelopment>
* theguardian.com <
http://www.theguardian.com/> , Thursday 10 July
2014 00.01 BST
The dealings of public finance institutions, which use billions of euros of
taxpayers' money to fund
<
http://www.theguardian.com/global-development/private-sector> private
sector projects in poor countries, remain shrouded in secrecy and skewed to
favour the governments of wealthy states, according to a coalition of NGOs.
The European Network on Debt and Development (Eurodad) says some development
finance institutions (DFIs), which are playing an increasing role in
supporting development programmes, offer "minimal support" to companies in
low-income countries, favouring organisations domiciled in wealthy states.
Recipient governments, it claims, have little influence over investments
made in their countries.
After two years of research, Eurodad found that between 2006 and 2010 only a
quarter of companies supported by the EU's European Investment Bank (EIB)
and the World Bank's International Finance Corporation (IFC) were domiciled
in low-income countries.
"Eurodad's principal concern is that almost all DFIs are owned and
controlled by rich country governments, with little effective input or
influence from developing country governments, and even less from other
developing country stakeholders," Eurodad says in the report.
"This imbalance in power structures means, among other things, that
companies from wealthy nations have often received the lion's share of
contracts. Investments are sometimes routed through tax havens, helping to
legitimise their role in the loss of hundreds of billions of dollars to
developing countries through tax dodging by multinationals."
The report states that the financial sector has been singled out for
particular attention from DFIs in recent years. More than 50% of funding for
the private sector went to financial organisations, a move Eurodad says
raised serious questions about the kind of impact the investment would have
on the ground following the recent financial crisis that "was driven by
irresponsible investment decisions and financial deregulation".
A lack of transparency had led to investments that have a questionable
impact on development, says the report. It cites
<
http://www.theguardian.com/global-development/2014/may/02/british-aid-money
-gated-communities-shopping-centres-cdc-poverty> investments by Britain's
aid investment arm, CDC, in gated communities, shopping centres and luxury
property developments in developing countries. Investors justified its
funding on the basis of job creation, but critics said these investments
were not a good use of <
http://www.theguardian.com/global-development/aid>
aid money.
Eurodad is calling for a review of DFI operations by a committee of
independent experts from governments of low-income countries, civil society
groups and the private sector in developing countries.
It wants to see financial institutions align their investment decisions with
the priorities and development plans of low-income countries, demonstrate
clear financial and development benefits from their investments, and comply
with responsible finance guidelines.
"DFIs are not the right organisations to deliver on development goals, and
their huge expansion is extremely worrying when so many questions about
their operations remain," says Maria José Romero, the report's author. "They
are controlled by developed countries, with little input into strategies or
governance from developing countries. Not only does this make them less
likely to align their investments with national plans and needs, but also
means they will always be likely to be influenced by the desire to support
companies from their home country. In fact, several have this objective in
their mandate, which can only divert attention from pure development
objectives."
According to the report, the amount of money being channelled through the
private sector by 2015 is expected to exceed $100bn, almost two-thirds of
official development assistance (ODA), as donors look for alternative ways
to fund development programmes. The recent financial crisis has seen aid
budgets squeezed.
The UK's Department for International Development has made clear
<
http://www.theguardian.com/global-development/2013/feb/07/justine-greenign-
dfid-investment-africa-economic-growth> its intention to work more with the
private sector to boost economic growth overseas. In May, the European
commission
<
http://www.theguardian.com/global-development/2014/may/14/eu-warned-private
-sector-involvement-aid-profit-before-poverty> laid out its intention to use
its political muscle to encourage more private sector investment in poorer
countries.
The role of the private sector in development is expected to be further
enhanced – and scrutinised – over the coming year, as governments debate how
the next set of development goals (the sustainable development goals) will
be funded from 2015. A big meeting of stakeholders is expected to take place
next summer.
Received on Thu Jul 10 2014 - 13:31:57 EDT