A call to safeguard public services and sustainable businesses in Least Developed Countries

by | May 27, 2021 | Financing / funding for sustainable development

 

Official Development Assistance (ODA) to Least Developed Countries (LDCs) remains a scarce resource: EU ODA to LDCs in 2019 was only € 13.8 billion (0.10% of GNI). The EU remains far off-track from the target to disburse 0.15%-0.20% of Gross National Income (GNI) towards LDCs¹. Globally, from 2012- 2018, close to €11 billion of private investments to LDCs were leveraged through official development finance². While this corresponds to only 6% of private sector finance mobilised for developing countries – it still represents an important share of overall investments available in LDCs.

Core social services to ensure health, education and social protection are traditionally financed by public funds in high income countries, but already require significant shares of private customer contributions in low and lower middle income countries.

EU donors insist that blending is a crucial tool to fill the annual gap to finance the Sustainable Development Goals (SDGs). Under the new European Fund for Sustainable Development Plus (EFSD+) – the financial arm of the EU External Investment Plan (EIP)³ under the EU multiannual budget 2021-2027 – the EU puts a strong emphasis on LDCs and fragile countries⁴. The EU foresees mobilising half a trillion euros under EFSD+ and has put blending and guarantees⁵ at the centre of Global Europe (formerly “NDICI”).

Seen together with the Team Europe approach⁶, the EU is gearing up to present itself as a partner of preference in an increasingly competitive development and investment landscape⁷. In fact, Global Europe’s guarantee option of up to €53 billion keeps pace with recent US efforts, such as an investment cap of US$60 billion of the Development Finance Corporation which openly competes with China and emerging players in LDCs and other challenging markets.

While the high ambitions of EFSD+ will have to drive big investment decisions rather quickly, there is so far no public account of the negative impacts that any of these projects may have caused.

At a time when funding for public goods and access to social services for the most marginalised countries and people are under the spotlight, this paper examines the sectors, actors and modalities that are best suited for LDCs to achieve crucial SDGs. With a particular focus on EFSD+, the paper also reviews accountability structures and examines the extent to which the existing sets of voluntary principles – in the absence of robust binding legislation – can produce meaningful behaviour change for market-driven private sector operations in a development environment.

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Katarzyna Krok | Communications Officer

camilla.falsetti@concordeurope.org


Notes to editors:

¹ European Commission (2021), Team Europe increased ODA to €66.8 billion as the world’s leading donor in 2020. For a detailed analysis of EU aid to LDCs, see: CONCORD (2020), The importance of keeping commitments.

² OECD (2020), Blended finance in the Least Developed Countries 2020: Supporting a Resilient COVID-19 Recovery, p.20; N.B. Data in USD (USD 13.4 billion) was converted into € as per World Bank data on official exchange rates for the period.

³ The EIP also works through technical assistance and investment climate support to attract investors. All activities are covered by the budget of the Global Europe geographic programme.

⁴ According to the EFSD operational report, blending and guarantee operations from 2017-2019 in Sub-Saharan Africa have managed to cover most LDCs in the region.

⁵ Blending is a diverse mix of public & private finance, increasingly used to subsidize, guarantee and provide loans and other financial instruments to profitable operations through ODA. For details see K. Bayliss et al.(2020), The use of development funds for de-risking private investment: how effective is it in delivering results?; Study requested by the European Parliament DEVE committee; S. Kapor (2019), Billions to Trillions – A Reality Check, Stamp Out Poverty; S. Attridge & L .Engen (2019), Blended finance in the poorest countries, ODI.

⁶ Focused on strengthening the visibility of EU institutions’ and MS’ collective contribution to COVID-19 recovery efforts.

⁷ Against the backdrop of growing geopolitical issues at stake, it aims at positioning itself through a substantive investment package at the sixth AU-EU summit in 2021, as illustrated here: European Council, Conclusions, 15-16 October 2020.