Are corporations saving the world?

Article AS news
Since 2010, multinationals have been investing more than 600 billion dollars annually in business activities in developing countries – and the figure is still rising. Are multinational corporations therefore now spearheading development cooperation?

Since 2010, multinational corporations have been investing more than 600 billion dollars annually in business activities in developing countries – and the figure is still rising. Their direct investments have increased not only in China, India or South Africa, but also in the poorer countries of Asia, Africa and Latin America. They clearly outstrip spending by the industrialized countries on official development assistance to these countries.

Today these corporations are portraying themselves as voluntarily adhering to criteria of corporate social and environmental responsibility when investing in developing countries. And no small number of them are portraying themselves as pioneers in the implementation of the UN 2030 Agenda for Sustainable Development. In many cases, it is purely marketing considerations that underlie their promises, in others, however, it is also the recognition that there is ultimately no alternative to sustainable development. Are multinational corporations therefore now spearheading development cooperation?

The answer, unfortunately, is no. Multinational corporations can indeed contribute to creating jobs and life prospects in developing countries. Or to the dissemination of environmentally sustainable technologies. But often enough, they squeeze weak local businesses out of the market and replace local workers with imported machines. At the same time they wield their political influence to secure privileged access for themselves to publicly funded infrastructure. But above all else, they are still shifting too much of their profits to foreign tax havens.

This notwithstanding, development agencies in industrialized countries are relying ever more on partnerships with these corporations. Their aim is to mobilise private investments destined for developing countries by covering the risks entailed. The preferred partners are often corporations from their own country. What this means is that public development funds and the know-how of government development experts are being used to make the investments of large private corporations from donor countries less risky and more lucrative.

There are two reasons for this new strategy. On the one hand, it is hoped that more pro-development investment will in fact flow into poor countries. On the other, it is a way of concealing budget cuts. If industrialized countries with their shrinking official development assistance budgets can generate more private investment flows, it serves a strategic purpose – it is less obvious just how far they are drifting from the target of investing 0.7% of gross national income in official development assistance. It is yet to be seen whether and how the real development benefits of partnerships with the private sector will be measured.

The private sector is also expected to take the lead in funding protective measures against climate change. But there will never be a return on investment in protective embankments – to take just one of many examples. Yet according to its latest report on Switzerland's international climate funding, the Federal Council is relying as far as possible on private contributions. The problem is that the Council has no plan for how this is expected to work. Its motto would seem to be that the lower the cost of development to the public purse, the better it is. This cynical approach is tantamount to misconstruing the facts.

Mark Herkenrath, Director Alliance Sud