EU support for business sector development in third countries

In the light of the importance of businesses for growth, development, employment, income generation and poverty reduction strategies, the Commission has produced proposals to reorganise and restructure Community support for business sector development in third countries. These proposals consist of a raft of new measures to be implemented by the Community at three different levels: macroeconomic, sectoral and business.

ACT

Communication from the Commission to the Council and the European Parliament of 19 May 2003: "European Community Cooperation with Third Countries: the Commission's approach to future support for the development of the business sector" [COM(2003) 267 final - not published in the Official Journal].

SUMMARY

On the basis of past experience in supporting business sector development in third countries, the Commission has identified five areas of intervention or instruments on which it will base its approach:

• overall policy dialogue and support, in particular as regards macroeconomic and trade policy, and good governance, providing the regulatory framework;
• investment and inter-enterprise cooperation promotion activities;
• facilitation of investment financing and development of financial markets;
• support for small and medium-sized enterprises (SMEs) in the shape of non-financial services;
• support for micro-enterprises.

"Third countries" here include developing countries, countries in transition and/or reconstruction, the so-called "emerging economies", Mexico and the OECD countries. The term does not include the candidate countries for accession to the EU.

Businesses concerned include private sector enterprises of whatever size and those public sector enterprises operating under market conditions.

Overall policy dialogue and support

The Community's action in this area will aim at creating, through dialogue with its local counterparts, a policy framework at national and regional level to support and foster competitiveness, the market economy and good governance.

This will encompass technical assistance in support of reforms, particularly in the areas of legislation, banking, finance, taxation, public expenditure, customs procedures, trade facilitation measures, institution building and administrative efficiency.

Investment and inter-enterprise cooperation promotion activities

Community support for the promotion of investment and technology transfer from industrialised to developing countries will aim, at national and regional levels, to enhance:

• sustainable and environmentally friendly investment (especially from abroad);
• inter-enterprise cooperation agreements with a view to increasing the competitiveness of the economies concerned, and in particular enhancing export prospects.

Depending on the level of development of the countries involved, Community support could include strengthening the role of Investment Promotion Agencies (IPAs), providers of investment-related services and other private intermediaries (Chambers of Commerce and Industry, professional associations, consultancies).

Facilitation of investment financing and development of financial markets

On the assumption that more efficient financial markets are essential for healthy private sector development in developing countries, the Commission intends to provide the appropriate framework for supplying well-developed and efficient financial services for SMEs.

The instruments that will be set up, especially the investment financing facilities, will ensure that high-quality and dedicated financial services are available to private companies in both the formal and informal sectors.

This should in particular mobilise private savings flows (both domestic and foreign) to finance investments that are essential for a thriving business sector.

Support for SMEs in the form of non-financial services

On the understanding that effective business development services are essential for the growth of SMEs and micro-enterprises, the Commission will encourage private sector companies to enhance their competitiveness, gain access to modern technology, improve management and seek new markets.

Several measures will be introduced, including:

• initial and ongoing guidance for companies and professional associations;
• upgrading of skills to help modernise enterprises and encourage the creation of networks of enterprises or cooperatives;
• assistance with preparing and implementing business plans; etc.

Support for micro-enterprises

In many countries, micro-enterprises are the ideal means of participating in economic growth, particularly for the most disadvantaged. The greatest obstacle to the development of such enterprises is a shortage of appropriate local services, both financial and non-financial, the lack of a business culture and information about markets, and access to financial resources.

To support micro-enterprise development, the Commission proposes, in addition to the macro-and micro-economic criteria noted above, helping third countries to:

• strengthen institutions and the capacity of intermediary bodies which represent micro-enterprises and act as providers of public goods;
• encourage micro-finance institutions to develop new services and financial products which are well adapted to the medium- and long-term needs of small and micro-enterprises;
• integrate micro-finance within local financial systems;
• improve the performance of micro-finance bodies.

Implementation and follow-up

The Commission plans to retain complete control of the monitoring and assessment of the instruments put in place, and of policy, programming and design aspects of these five areas of intervention. This may also involve the implementation of specific measures, including technical assistance.

As regards the implementation and management of financial instruments, including micro-finance and non-financial services (Business Development Services), the Commission plans to make full use of intermediaries with whom it will establish appropriate management/financial agreements or conventions.

The Commission will also seek to promote and develop more effective cooperation and coordination between the Community's external assistance programmes and the activities of the European Investment Bank and other financial intermediaries, particularly in third countries.

Last updated: 12.04.2005