Blind Faith in Aid Donor Private Sector Partnerships Alone Won't Reduce Inequalities

Are rich countries really serious about reducing global inequalities? On the eve of the latest meeting of the G7 nations, Claire Godfrey looks at the case of blended finance.

The ink will doubtless already be dry on the now-familiar phrase “Leave no one behind” in the draft communiqué for next week’s Group of 7 meeting in Carbis Bay, Cornwall. The leaders of seven of the world’s biggest economies will descend on the English seaside resort to nail down responses to today’s manifold crises – including the vexed issue of transferring essential finance to mitigate their damage in hard-hit low-income countries.

“Leave no one behind” has been hard-wired into most international agreements since the UN’s Sustainable Development Goals (SDGs) were agreed in 2015. Governments, however, rarely articulate how they intend to fix the various drivers of intersecting inequalities that mean so many people are denied equal power, rights and the opportunity to thrive.

As that forthcoming Carbis Bay communiqué will doubtless reveal, the G7 will continue to concentrate on incentives aimed at mobilising private finance as the most effective route to deliver the transformative change required to meet the SDGs. Rich donor countries and transnational bodies increasingly rely on using development aid as an incentive to leverage private finance.

Does the reality match donors’ enthusiastic rhetoric?

The research findings covered in the new Development in Practice paper “‘Flash blending’ development finance: how to make aid donor-private sector partnerships help meet the SDGs”, recognises some isolated success stories. But the jury is still out on whether generalised positive results from donor private partnerships (DPPs) can be demonstrated.

This research is based on a new framework that has been developed to categorise and assess a broad range of arrangements between donors and private-sector actors. The framework provides a standardised way to gauge donor private partnerships’ strengths and weaknesses, and to identify good practice. The assessment criteria are rooted in widely accepted development objectives and norms (eg, achieving the SDGs, alignment with country plans and human rights frameworks, demonstrating the additional investment leveraged, and ensuring the robust management of results).

The paper details how the framework was applied to 20 different partnerships involving nine donors – Australia, Canada, the European Commission, France, Germany, the Netherlands, the United Kingdom, the United States and the World Bank. It found that donors fail to sufficiently integrate development, human rights and environmental standards in their programmes and partnerships. They inconsistently implement due diligence and risk management requirements, and impact assessments are inadequate.

For example, one assessment of agricultural blended finance found that partnerships generally focus on commercialising value chains, with much less emphasis on reducing income and gender inequality, or promoting food security and environmental sustainability. The most commercially viable small-holders are more likely to attract investment than impoverished small-holder farmers, or those operating on the margins of business. DPPs are likely to leave behind the most vulnerable farmers, who are far more often women than men. This reality is illustrative of the all too familiar trade-off between development and profit-making.

Improving the effectiveness of donor private partnerships

This framework offers policy-makers, practitioners and academics valuable tools to examine how DPPs could more effectively support sustainable development. It seeks to balance the ideal and the pragmatic, based on already agreed standards, principles and international law. It is not a one-off analytical tool, but rather a way to inform ongoing legislative and policy debates, to ensure that donors integrate the underlying principles when they allocate development aid to private partners.

Until there is an effective mechanism in place to manage risks to people and the environment before engaging in partnerships, donors must recognise the need for caution. As a starting point, G7 donors should promise to develop transparent systems on aid transfers to private-sector partners in order to monitor their results. Otherwise, the “win-win” scenario they like to posit, in which the shared value of private sector gains in competitive advantage and profit opportunities automatically result in no one being left behind, will never be borne out in evidence or in reality, and all-too-scarce aid resources are liable to be wasted.

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Atlantic Fellows for Social and Economic Equity programme, the International Inequalities Institute, or the London School of Economics and Political Science.