Luxembourg’s Development Cooperation and the Private Sector
The private sector is one of the most important contributors to poverty reduction and sustainable development in the world. In developing countries, the private sector generates more than 90% of jobs. Private businesses and investments are an important engine for economic growth and improving people's living conditions. Furthermore, thanks to its innovative strength, the private sector contributes to the search for innovative solutions and products for more sustainable economic development, particularly through the transfer of skills from Luxembourgish companies to our partner countries. Finally, the mobilisation of private finance to complement public investment will ultimately be a crucial factor in achieving the United Nations' Sustainable Development Goals (SDGs).
On an international level, the Addis Ababa Action Agenda and the 2030 Agenda for Sustainable Development, in particular SDG 17 (Inclusive partnerships to achieve all the SDGs), set out the general framework for the role of the private sector in international cooperation. At EU level, the 2017 European Consensus on Development confirms the role of the private sector, investment and trade in delivering more sustainable and inclusive growth and decent jobs.
Luxembourg's general development cooperation strategy attaches particular importance to partnership with the private sector. Within this framework, Luxembourg is committed to promoting increased collaboration with private sector actors, particularly within its partner countries, in order to develop innovative and mutually beneficial partnerships that will contribute to sustainable development and inclusive growth.
Finally, based on a recommendation by the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD), Luxembourg attaches great importance to the principle of untied aid. Untied aid refers to donations or loans granted to a developing country for which contracts are not restricted to companies in the donor country. Compliance with this principle generally increases the effectiveness of aid.
Promoting the private sector
As part of its development projects and programmes, Luxembourg is committed to promoting education and vocational training, strengthening the financial system, and supporting the development of economic sectors, particularly in the agricultural sector, which is often dominant in developing countries. This helps to create jobs and stimulate economic development.
Luxembourg’s Development Cooperation has three instruments for financing the private sector in developing countries.
The first instrument, the LuxAid Challenge Fund, targets innovative, high-impact businesses that offer a solution to a specific development challenge identified in one of the partner countries. Through open calls for proposals, companies in these countries can apply for co-financing grants of up to 70% of project costs, and will receive additional non-financial support, notably for monitoring and measuring the positive impact generated. The LuxAid Challenge Fund will support up to 32 projects until the end of 2026, proposing quasi-experimental and innovative approaches to solving a societal challenge.
The second instrument, the Demonstration Projects, targets companies in three pilot countries: Senegal, Rwanda and Kosovo. Demonstration Projects generally focus on scaling up an innovative solution that has been tested on a smaller scale and whose impact has been proven. Luxembourg’s Development Cooperation will actively seek 24 promising innovations in these three pilot countries on the basis of challenges identified in bilateral cooperation programmes. As with the other two instruments, the companies selected will benefit from a co-financing grant of up to 50% of project costs, averaging EUR 350,000 per project.
Finally, Luxembourg’s Development Cooperation has set up the Business Partnership Facility, which helps to initiate sustainable partnerships between companies in the North and South to set up viable business projects. The projects supported by the BPF must contribute to achieving the SDGs through green and inclusive growth, job creation and technology transfer. The existing portfolio includes more than 39 companies and up to 32 new projects will be supported by the end of 2026 with grants of up to 50% of the project cost, capped at EUR 200,000 per project.
Responsible business conduct
A key element in mobilising the private sector for development cooperation is respect for human rights and environmental, social and governance standards. Companies must ensure that they comply with international standards for responsible business conduct, as enshrined in the United Nations Guiding Principles on Business and Human Rights and the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises on Responsible Business Conduct.