Article written

  • on 11.07.2014
  • at 04:50 PM
  • by Kevin Hind

Roberto Ridolfi: “Let me explain development cooperation 2.0” 0

Brussels – Private equity, guarantees, risk capital… Ten years ago no one could have imagined financial jargon would make its way into development cooperation. Today these terms are a reality NGOs, social enterprises and cooperatives have to face. A revolution which Roberto Ridolfi – Sustainable Growth and Development Director at the Directorate General for Development and Cooperation at the European Commission – is bringing forward within EU institutions in an attempt to fight poverty with investments and allow Europe to lead the way in “cooperation 2.0”. Here’s why.

Today, the EU is the world’s primary donor in terms of Official Development Assistance (ODA). Yet it seems that through blending, the Commission and a number of Member States want to do more. Why?

ODA is not enough to eradicate poverty worldwide. We need new financial instruments that involve the private sector. I have been EU Ambassador for many years and can assure the only way of having a positive impact on poorer countries is to make the investments necessary for economic growth and development. This is something we have not achieved so far. Let me give you one example: when working as Head of the EU Delegation in Uganda, I was asked for a loan to build a dam as only 10% of the Ugandan population has access to electricity. Needless to say we did not have the budget to meet this request. With blending this and even more is possible. One of the additional values of this mechanism is that funds are found through open and transparent public tenders. Quite unlike Chinese investments in Africa, for example, which are led by the export import (EXIM) bank and reserved to Chinese companies, or the Power Africa programme in the US where 6 of the 6.3 USD billion are tied into supporting American companies involved in the project. The EU uses untied funds instead.

Among various concerns, NGOs have pointed to the loan component of blending and the risk of indebting poorer countries…  

First, we verify the macroeconomic situation of the recipient country in order to avoid increasing its debt, then we combine loans with grants (often in the form of interest rates subsidies). This gives recipients a grace period and they are only expected to pay back once investment returns become profitable.

Others have pointed to the lack of attention given to the social sphere – in which the third sector plays a crucial role – and to the small and medium enterprises that are often excluded from the large-scale infrastructural projects promoted through blending. What is your response?

So far blending has mainly focused on large-scale infrastructure, but a reverse trend has already begun with energy investments which will also target other sectors that feature small and medium enterprise such as agriculture and agribusiness. The reform we are working on also aims to strengthen the role of political actors, including EU Delegations and the governments of recipient countries, finally allowing them to use an instrument that has been a prerogative of banks for too long. This will also result in greater attention to the social sector, education and sanitation, where NGOS, cooperatives and social enterprises play a crucial role. It is important to remember blending is not an alternative to the third sector but complements it. Nowadays, the only way for the third sector not to suffocate is to collaborate with the private sphere. Consider for example the case of electricity in Africa. If there were a private investor, ready to fund infrastructure but alien to the local context, there would certainly be need for a partner familiar with the territory and its communities. At this point NGOs and private actors could manage the service together. What the EU can do is open tenders to partnerships between NGOs and private actors where the former know the local context and the latter knows the business. Part of the financing would be a grant integrated into the private investment. This way there is also an increase in the funds available to NGOs.

What’s the future scenario?

The European Commission aims to introduce further innovative instruments such as equities, mezzanines, or guaranties: instruments designed to maximize the use of every euro given by European taxpayers. Grants will be equities as the aim is to create a revolving fund that can be reinvested once it is paid back. This mechanism can multiply each euro given to development cooperation up 32 times from the initial investment.

By Joshua Massarenti and Evelina Urgolo –

Photo credit: Google

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