Rassegna Stampa

EU development policy must put ‘people before profits’

With the European commission set to increase the private sector’s role in development, Natalia Alonso warns against ‘extracting profit’ from public services.

Written by Natalia Alonso

As the European commission proposes to rapidly increase the trend of using overseas aid to subsidise private finance, it is important to highlight that growth must put people, especially the most marginalised, first, and not profits.

Central to achieving this is the principle that businesses, put simply, must play by the rules and behave responsibly. In doing so, firms can have a positive impact on society while avoiding enhancing wealth or gender inequality and environmental degradation. For the private sector to become a key player in alleviating poverty, the basic tenet of ‘do no harm’ must be implemented by respecting robust fiscal, social and environmental standards.

Transparency and accountability can help tackle this crucial issue. If the European Union wishes to include the private sector in development cooperation, steps need to be taken to address other areas of EU policy that give advantage to the private sector over developing countries and their citizens.

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For example, the EU should work to tackle tax dodging by companies with a presence in developing countries, which should include public access to tax data. As around €700bn is drained every year from some of the world’s poorest countries by mainly private-sector groups, a recognition that tax dodging is diverting money from health and education for the poorest people must emerge.

While a pro-poor private sector has the ability to create jobs and prosperity, it must also be recognised that some investments have an adverse effect. Most disturbingly, the commission has stated that social services, such as schools and hospitals, are a key opportunity to partner with the private sector. Oxfam believes that essential public services should be a guaranteed right provided by the state, not something designed to extract profit.

A shocking example of the dark side of public-private partnerships (PPP) has recently emerged in Lesotho. At the encouragement of the World Bank, the government keenly engaged in a PPP based around healthcare, it quickly emerged that the project was a far more expensive and less equitable way of delivering public services. By locking themselves into an 18 year contract with a private contractor, the Lesotho government found itself spending half the annual health budget on just one hospital, more than three times the cost of the one it replace, depriving thousands from rural areas from basic healthcare in the process.

In Honduras, a similar private-sector engagement left the World Bank red-faced after it emerged a €11m loan was being given to a national commercial bank linked to controversial land grabs by a palm oil company. Such partnerships clearly violate the principle of human-rights based development and demonstrate how blended aid can be marred with malpractice by the private sector.

For example, the EU should work to tackle tax dodging by companies with a presence in developing countries, which should include public access to tax data. As around €700bn is drained every year from some of the world’s poorest countries by mainly private-sector groups, a recognition that tax dodging is diverting money from health and education for the poorest people must emerge.

While a pro-poor private sector has the ability to create jobs and prosperity, it must also be recognised that some investments have an adverse effect. Most disturbingly, the commission has stated that social services, such as schools and hospitals, are a key opportunity to partner with the private sector. Oxfam believes that essential public services should be a guaranteed right provided by the state, not something designed to extract profit.

A shocking example of the dark side of public-private partnerships (PPP) has recently emerged in Lesotho. At the encouragement of the World Bank, the government keenly engaged in a PPP based around healthcare, it quickly emerged that the project was a far more expensive and less equitable way of delivering public services. By locking themselves into an 18 year contract with a private contractor, the Lesotho government found itself spending half the annual health budget on just one hospital, more than three times the cost of the one it replace, depriving thousands from rural areas from basic healthcare in the process.

In Honduras, a similar private-sector engagement left the World Bank red-faced after it emerged a €11m loan was being given to a national commercial bank linked to controversial land grabs by a palm oil company. Such partnerships clearly violate the principle of human-rights based development and demonstrate how blended aid can be marred with malpractice by the private sector.

These are a few examples among many and should be a warning to the European commission and many European governments which are starting to significantly increase its use of scarce overseas aid budgets on the private sector. What is needed is transparent and accountable structures that ensure these interventions tackle poverty, economic and gender inequality and ultimately help improve the lives of the poorest and most vulnerable.

This must include a series of ambitious regulations and monitoring mechanisms which ensure that growth is not just pro-business, but pro-poor as well. The recipients and beneficiaries of aid or European taxpayers would expect no less.

About the author

Natalia Alonso is head of Oxfam’s EU office