Financing for Development Forum 2018 – Update from Day 4 – 26 April

On the 26 April 2018, Day 4 of the Financing for Development follow-up Forum (FfD Forum), trade unions participated in a side event on the role of private finance and report on the plenary round table on development cooperation.

Private Finance: Urgent need for a Systemic View was the title of the side event organised by the Civil Society Financing for Development Group. The discussion was framed by Stefano Prato (Society for International Development). He identified three ways of structuring the private sector contribution to development efforts:

  1. Regulation – the classic way to ensure that the private sector meets social and environmental standards. Ensuring a human rights approach is only achievable through regulation, and referred to the ongoing push for a UN binding treaty on business and human rights (more information here). It was noted that there has been a push by a number of actors for deregulation. This has resulted in regulatory gaps that have allowed for serious human rights breaches as well as large scale corporate tax evasion. The de-regulation push is driven primarily by the private sector itself.
  2. Engaging the private sector for public service delivery – two alternatives to this approach were identified: public procurement versus privatisation. Public procurement is characterised by a well-defined separation of roles. It was noted that privatisation has been accompanied by a process of commodification (with examples of food, health and education). At the intersection of the two alternatives are public-private partnerships (PPPs).
  3. Incentivising private finance – the use of public funding, through what is known as Private Sector Instruments, to incentivise or de-risk private investments that would otherwise not be commercially viable. This is accompanied by a process of financialisation, whereby risk is calculated according to financial markets.

The ensuing discussion highlighted a number of interrelated trends associated to the rise of new types of contractual arrangements and financing instruments that to variable degrees have introduced private actors in areas that were traditionally in the remit of public sector. The increasing concentration of wealth and the trend towards monopolies was linked to the challenges of the public sector’s capacity to regulate. In response, the emphasis is placed on seducing the private sector towards public interest priorities, rather than forcing it to comply. The financialisation that is a result of this approach leads to removing the focus on localisation issues, that traditionally link productive investments to the people they impact.

In contrast, private sector engagement was framed not just about doing good, but also about doing no harm. The UN Guiding Principles on Business and Human Rights (also known as the “Ruggie Principles”) were seen as a step in the right direction. However, examples of systematic impunity of human rights abuses by the private sector showed that this was not sufficient. Rather than a voluntary approach, participants called on a binding treaty.

Public Private Partnerships

A particular focus of the discussion was placed on PPPs. A number of problems with PPPs were identified: they generated higher costs, the true costs are often open ended and hard to adequately budget for and there are problems with transparency (more details in the Global Manifesto). A contrast was noted between the domestic use of PPPs in advanced economies and the push for PPPs in development cooperation. It was noted that in the EU, use of PPPs is in decline, due to their high expense and inefficiency. A recent report by the European Court of Auditors notably found that they cannot be regarded as an economically viable option for delivering public infrastructure. Notably, the report highlighted an unbalanced capacity at the design level of PPPs between the public and private actors involved. It was noted that if the well-resourced governments of advanced economies suffer from a capacity deficiency, developing countries are likely to lead to a result that is even more skewed in the interests of private sector actors. Rather than a capacity issue, this issue was framed as a structural problem of PPPs.

Sandra Vermuyten (PSI) made the link between the emerging debt crisis of developing countries and the unsustainable practices lack of budgetary transparency of PPPs. It was noted that PPPs often suffer from hidden costs that are generally borne by the public sector actor. Ms Vermuyten referred to examples from water provision (see one example here) and indicated that PPPs suffer from low transparency and favour corruption. In comparison, public procurement is cheaper and more efficient.

Round table discussion on international development cooperation

This round table sought to review the shifts in the development cooperation policies and approaches adopted by traditional providers and multilateral development banks in response to the 2030 and Addis Agendas (full description and guiding questions here). Blended finance was a major part of the discussion.

Overall the discussion highlighted a shift of aid from social sectors to productive sectors. Alimatou Zongo-Kabore (Burkina Faso) highlighted the role of ODA as a major part of national budgeting in all sectors. Jorge Moreira da Silva (Development Co-operation Directorate, OECD) highlighted the commitment to the quality of ODA and suggested that better links be made between the Financing for Development and the Development Effectiveness agendas.

Meja Vitalice (Reality of Aid - Africa) delivered a statement on behalf of the civil society group on financing for development, in which he warned against approaching development cooperation from the angle of supporting private sector investment. Rather Mr Vitalice put forward the caveat that productive sector investment must “lead to sustainable livelihoods, sustainable wages, sustainable environment and the empowerment of society at large”. Underlining the need a clarification of the requirements of blended finance, Mr Vitalice recalled that it must meet the effectiveness principles of democratic ownership, inclusive partnership, transparency and for it to produce verifiable development results.

Further information: