Private Sector

Background

Private sector accountability in times of crisis

29 March 2021 | Minutes

Moderator: Ziad Abdul Samad, Executive Director, ANND
Panelist 1:  Kinda Mohamadieh, Legal Advisor and Senior Researcher, Third World Network
Panelist 2:  Wael Gamal, Economic Journalist, ANND
Panelist 3:  Roberto Bissio, Coordinator, Social Watch
Panelist 4:  Sufyan Abed Alhameed M. Al Issa, MENA Regional Head Operations, International Finance Corporation

Barbara Adams: Global Policy Forum:

The international context is very diverse. There are quite a few tensions within the system. There is a need to find a point of entry.

The development discourse suffers from an exclusive focus on financing gap – private sectors focus does not translate to support to entire private sector, but large enterprises. Approach focuses on turning development programmes into ‘bankable’ projects, which raises concerns about equity and access. UN Human Rights Council (HRC) is working on binding treaty for business.  Focus on sustainable development – progressive tax policies. Address illicit financing and tax evasion. The Covid-19 pandemic highlights the need to revisit the discourse.

The emphasis on private sector-led development does not work well with a human rights framework, as it focuses on win-wins for business. Public sectors end up guaranteeing profits. Spotlight Report – Civil Society reflections of 2030 agenda.

About 5 years ago – Roberto Bissio reported on the missteps of Odebrecht PPPs in Brazil and noted its role in undermining governance. Initiative supported by Spotlight. Likewise Bridge Academy, for-profit schooling has raised serious concerns with the reliance on the private sector.

The reliance on the private sector to support the development agenda has been challenged very strongly for not meeting the ‘don’t leave anyone behind’ agenda. The World Bank’s 2017 Pandemic Bonds, with a view to generate resources provides lessons. Quote: bonds have failed. Bond intended to prevent a pandemic but would only pay out in case of a pandemic.

The model does not support Human Rights. It seems that much effort is focused on creating the political will to bring in private investments. The key question remains: Is the model flawed or are the examples above mere exceptions.

Notes that the prime ministers of Canada and Jamaica will meet with the UN Secretary General to discuss Credit Ratings Agency, which remain a key obstacle to ensuring sustainable development finance. The UN expert on debt and Human Rights has submitted a new report on Credit Ratings – IMF submitted to report. Fund submission outlined the relationship between the IMF and Human Rights: IMF involvement in questions of Human Rights is defined by Articles of Agreement. Its powers are limited. Focus on macroeconomic stability, does not include Human Rights concerns per se. Cannot engage in Human Rights and does not accept the Universal Declaration on Human Rights as a motivating or operating assumption.

The international community must recognise responsibility of governments to lead. States have suffered from decades of state and international financial institution (IFI) policies that undermined state capacity to fulfil their role.

What is the role of the IFIs toward public goods e.g. TRIPS waiver? Market-based solutions are clearly not sufficient.

Panelist 1:  Kinda Mohamadieh, Legal Advisor and Senior Researcher, Third World Network

Follows closely business and Human Rights issues and the treaty on Business and Human Rights in particular.

The trend is moving away from reliance on voluntarism. Away from reliance on statement of intent to binding frameworks. John Ruggie, former UN Special Representative on Business and Human Rights supported mandatory human rights law. There are many cases in quite a few jurisdictions. As the recent Shell case demonstrates, it is evident that when costs are involved, non-binding frameworks are discarded.

Role of private sector is increasing – thus a need for a clearer framework. This would be also positive for businesses, who would benefit from clarity. Would benefit all businesses as it would address uneven competition that drives race to the bottom.

There is currently a Working Group on Business and Human Rights within the UN High Commissioner for Human Rights’ office.

OECD – need to address business responsibility under investment treaties. Multilateral Development Banks (MDBs) have a very strategic position. That said, there is a lack of action by MDBs on the issue, particularly given their pivotal role.

What is it that we talk about when we discuss accountability?

  1. Do no harm – prevent violations of third-party rights, recognise externalities and focus on internalising them. Avoid harm and ensure access to remedy.
  2. Additional contribution to sustainable development – fulfilment of basic laws, tax, technological advancements and contributions to addressing challenges such as climate change and Covid-19.

What are the legal frameworks that apply? Investor state procurement or PPP contracts, for example apply do domestic and international settings. These should contain and reflect Human Rights elements.

IFC has played a key role, particularly in MENA region. There is a need for more transparency in these contracts and advisory services. Significant critique on guidance on PPPs and contractual provisions – for example: The World Bank model contracts prioritise private vs. public needs and disproportionally allocate risks and financial obligations to the public sector. They also support the idea that policies that apply to underpinning public good could lead to legal action by private sector.

OECD – DAC private sector developmental framework lacks comprehensive tools.

Panelist 2:  Wael Gamal, Economic Journalist, ANND

Overview of alternative models of development, based paper for ANND.

Current model prioritises growth based on neoliberal policies. Presumes equality, sustainable development will follow growth. Thatcher – no society only individual incentives.

World undergoing complex crisis – post 2008. Secular recession for at least a decade. Hitting bottom of ecological crisis. Covid-19 exacerbated and underscored prior flaws.

Would share three critical ideas:

  1. Crises have caused political legitimacy crises. Rise of rentier capital. Crisis has seen that despite the crisis wealthiest are doing very well as poor suffer and incomes are under pressure. Unregulated markets do not work for the common good. Even IMF now acknowledges that austerity is not conducive to growth. IMF has also come around on taxes and social spending. Even Fund has come to refer with concern to rise of corporate market.
  2. Three dimensional reactions: One on policy; one trying to save capitalism from itself and others to go beyond capitalism (e.g. circular economy trying to decouple economic activity from consumption.) Redefine growth. Modern Monetary Theory – ability to expand spending. Reduce waste.
  3. Global Green New Deal focus on a just and green transition. The “doughnut economy” framework highlights that economic activity must fall within ceiling of ecology and social needs. Cooperative, econo-socialism ideas are coming back.

Focus on Arab world:

One of the highest rates of inequality in the world – not according to the World Bank, but by Picketty. MENA region is of the most reliant on extractive industry. Financial capital has achieved an even more commanding role.

Usually MDBs ignore a significant part of the private sector – small peasants, cooperatives, etc fall outside the focus of MDB programmes.

In his book “Cleft capitalism”, Amr Adly conceptualised three types of capitalism: Dandy capitalism based on links to global circuits; Crony capitalism and finally Balady capitalism – peasants and others who are ignored by MDBs.

Must reconsider measurement issues – GDP is insufficient. Must include access to public services, integrate ecological impacts and inequality rates. Need to widen scope to include syndicates, cooperatives other actors. Must be supported by economic and political democracy.

Minouche Shafik, who now leads the LSE is very focused on the New Social Contract, in which Society is Everything.

Panelist 4:  Sufyan Abed Alhameed M. Al Issa, MENA Regional Head Operations, International Finance Corporation

IFC has comprehensive policies. Performance Standards are not voluntary.

Tax transparency – follow Global Forum to ensure there is no tax evasion. Also follow anti-money laundering protocols.

Contribution to public goods – have regional targets which include a climate investment component.

Ensure that all clients adhere to global best practice. Also consider additionality, gender and jobs, for example. It is evident now that financial sustainability goes hand-in-hand with high development impact. The IFC is in fact criticised by private sector for cumbersome processes.

Why is private sector important in the MENA region?

Region suffers from fragility and conflict and many macroeconomic imbalances – e.g. debt/ GDP ratio. High unemployment: need for 300 million jobs by 2050, particularly given fiscal constraints. Public sector should focus on health and education.

What do IFC do?

Support investment in private sector – in the region the infrastructure gap is estimated at $100 billion just to maintain current status.

Access to finance – micro and small enterprises in the region require $150 to $250 billion in investment, access to credit.

The climate issue is being integrated within infrastructure investments.

Advisory services: Works on enabling business environment as the region lags in providing an enabling business environment, including gender issues.

Covid-19 focus: Protect jobs and support trade finance.  Advisory services have increased by 40%.

Q&A:

  1. How does IFC address the tension between need for profit, de-risking and human rights concerns, as Billion to Trillions have not materialised. What are the implications of the non-participation of private creditors in the G20s DSSI?
  2. Need for reform on legal frameworks – and need for currency devaluations – focus on finance vs. real sector.

Babara Adams:

Picking up on de-risking issue raised by BWP. It seems a bad use of the word as it seems it is not about de-risking, but rather about the shifting of risk to the public sector.

WTO studies have demonstrated that job creation is really about creating jobs at the small and medium enterprise level. Need to also focus on ‘decent work’. UN system also lacks proper systems. Current systems continue to increase inequalities.

Cannot ignore the link between international dynamics and domestic resource mobilisation. Leakages, as in illicit financial flows are not leakages, but indeed part of the system.

Kinda Mohamadieh:

 One gets lost in references to terms such as global best practices, etc. There is a need to deconstruct the discourse. What are the mandatory requirements imposed by IFC? The financial impact or developmental impact? Internal and other OECD documents continue to critique IFC and other IFIs for lack of robust development impact analysis.

IFC:

Agrees on the need for better development impact measurements. Normally the international community focuses on assessing direct impact. IFC Have been working on AIMM. Have begun rating projects and may chose to implement a project rated 40, if a first type of project with ‘demonstration’ potential.

How to measure impact of incubator project? How to measure indirect impacts?

Refocuses on need for job creation, which cannot be done by the public sector alone. Focuses on additional developmental issue.

De-risking is not merely about financial de-risking. IFIs are trying to avoid market distortions and subsidies. De-risking also includes support to companies to implement best practices to attract investments.

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