Development aid: A job for the Commission?

James Gubb, 3 April 2007

A report published today by the OECD confirms the EU’s position as the biggest aid donor in the world. Combined, the EU-15 gave away €48 billion in overseas development aid (ODA), or 0.42 percent of their GDP, in 2006. This represents a massive 57% of world development aid. The report also highlights how there is a hefty discrepancy within this chunk between the most generous member states, for example Sweden (1.03%), Luxembourg (0.89%) and the Netherlands (0.81%), and the stingiest, Greece (0.16%), followed by Italy (0.20%) and Portugal (0.21%). Significantly, the latter are all behind their EU aid targets. Putting this aside though, just how effective is EU development aid?

For a start we should say that the €48 billion figure cited by the OECD is extremely misleading. As is reported by EUPolitix around €11bn of this figure accounts for one-off debt cancellations for Iraq and Nigeria. This, as a joint NGO report in May 2006 revealed, is largely exported credit debt issued primarily to subsidise European companies operating in these countries. This takes ‘real’ ODA below the EU’s target for 2006 of giving 0.39 % of GDP. Concord NGOs also highlight how around €1bn was also spent on housing refugees in European countries and €1.6bn went on educating foreign students in European countries. Neither are necessarily bad policies, but they should not properly be described as ODA. So we are left with €34.4 billion ‘real’ ODA spending. But this is still a huge amount to be playing with.
The overall aid ‘strategy’ of the EU is defined by Article 177 of the Maastricht Treaty, which sets out the objectives of external assistance: broadly sustainable economic and social development, integration into the global economy and consolidating democracy and the rule of law. It also states that priority should be given to ‘the most disadvantaged’. Since then, the EU member states have signed up to the Millennium Development Goals and the Paris Declaration (an international agreement signed by the EU that lays down a practical, action-orientated roadmap to improve the quality of aid and its impact on development). The EU has also produced a document entitled ‘The European Consensus on Development’, which in many ways particularises the text of the Maastricht Treaty. More specifically, this enshrines poverty eradication as the primary objective of EU aid.
At this point we should be clear about one thing. The EU itself does not distribute all the aid; it sets targets for the ODA its member states should give (0.7 percent of combined GNI by 2015 for ‘old’ member states and 0.33 percent for ‘new’ member states) and helps set the objectives of this aid, but itself only contributes €7.5 billion, or 22%, of the €34 billion we are calling ‘real’ ODA. Nor have member states given up ODA as a competence to the Commission. As the House of Lords’ European Union Committee (July 2006) reports, the European Consensus on Development was redrafted to stress that development is a shared competence and the EU policy ‘shall be complementary to the policies pursued by the Member States’. The €7.5 billion the EU does spend directly on ODA comes from two sources: directly from the EU budget and from the European Development Fund (EDF), an intergovernmental body. EuropeAid – a department of the European Commission – is then charged with implementing development projects and programmes (except those using humanitarian aid), under the guidance of the External Relations and Development DGs, Country Strategy Papers, and using local delegations in the relevant regions.
What are the results of these arrangements? Perhaps unsurprisingly, not that great. It has been estimated, for example, that only 70 percent of pledged aid is actually delivered. The Commission President Jose Barroso said in 2005 that: “One of the EU’s most central challenges in development co-operation remains to ensure a coherent and effective approach between 26 different actors, the 25 Member States and the European Commission, with 26 development policies.” Very true, not least – as is highlighted by a report by the House of Lords European Union Committee – on how much ODA should be provided, to which countries and relationships with other key areas such as trade and security.
Their solution seems to be to give up competence to the Commission to effectively coordinate ODA. On page 47 there is an extensive list of reasons of the comparative advantage the Commission would have in relation to ODA, including a ‘global perspective’, evident in its Country Strategy Papers, that is ‘shared by very few Member States’. It concludes: ‘in relation to overall EU development assistance the Commission is best placed to analyse global distribution and remedy any imbalances’.
Such a solution is also evident, although not explicit, in the own-initiative report by the Belgian Socialist, Alain Hutchinson, adopted by the European Parliament in October last year. This resolution on ‘aid effectiveness’ notes that: ‘the EU supplies more than half of all public aid in the world…but this position does not translate into effective leadership’. It called for Member States and the Commission to speak with ‘one voice’ on development, highlighting how ‘a lack of consistency between various EU policies is an obstacle to aid effectiveness’. It goes on to say: ‘better coordination should go hand-in-hand with greater complementarity of action, involving a better division of work between the Member States themselves and between Member States and the Commission’. The resolution highlights how frameworks – in the form of The European Consensus on Development and the Paris Declaration – exist by which speaking with ‘one voice’ should be entirely possible, but it is hard to see how this could happen without an increased role for the Commission. Significantly, the resolution was passed by 521 votes to just 20, with 8 abstentions.
But the Commission itself does not exactly have the world’s best record on aid. A recent report (March 2007) by CIDSE – an alliance of 15 development organisations and Caritas Europe, the umbrella body for Catholic NGOs – found ODA directly from the EU ‘often makes little difference to the poor’. In fact only in Bangladesh, of six countries surveyed in detail, did the authors find any steady improvement in poverty reduction. Instead, it found focal sectors chosen to target aid often reflected the EU’s own perceived ‘comparative advantage’, political priorities or economic interests at the cost of subsidiarity and participation of those living in poverty – i.e. the goals of the Paris Declaration. For example, in Cameroon, the report found that over two-thirds of the Commission’s €125m funding from 2002 to the present has been spent on the construction of large international roads. A similar story is told in Zambia, where €365m has been spent on transport projects. This is not to say transport links are not important, but the fact is that in both countries the vast majority of the poor live in rural areas ‘who need smaller roads that connect them with urban areas if they are to benefit from economic development’. The report is particularly scathing in relation to Zambia, concluding: ‘the aid, in effect, has had no noticeable impact on the lives of poor people’.
Related to this criticism is that in a recent report (6 March 2007) by the House of Commons’ International Development Committee, which highlights how only 46% of net disbursement of EU aid from the EU budget went to the least-developed countries in 2005. This is hardly consistent with the EU’s stated goal of giving to the ‘most disadvantaged’.
The same report also highlights how there are serious internal problems in the Commission concerning development. For example, the Commissioner for Development is in charge of EU development policy for Africa, Caribbean and Pacific states (ACP), yet EuropeAid is managed by the Commissioner for External Relations (RELEX), which deals with Asia, Latin America and all other states outside the EU. Even Bernard Petit, the Deputy DG of Development for the Commission admits “[I entirely agree] the structure is not optimal”. The Commission has also announced that the focus on education and health will be diminished in aid distributed by the EDF, despite it being a priority in the Millennium Development Goals and the European Consensus. The Commission simply implies that Member States should fill the gap.
But most problematic and damaging of all concerning the Commission is the problem actually highlighted by the Hutchinson own-initiative report. It states: ‘EU aid effectiveness policy should include coherence between trade, development cooperation and the CAP and CFP in order to avoid direct or indirect adverse effects on the economies of developing countries’. How exactly can an aid effectiveness policy be coherent with CAP, a policy that subsidies European cows by an average of €2 per day, which is more than what half the world’s population have to live on? And this is far from everything that developing countries have to deal with. What about the tariffs whacked on their agricultural produce and their textile industries? Lesotho, Namibia and Swaziland, for example, pay an average tariff of over 20% on their exports to the EU. If the EU dropped these tariffs and their ‘anti-dumping’ practices, African GDP could rise by as much as 5.4%, according to Oxford Economic Forecasting, that would lift millions out of poverty. Instead, the EU continues to refuse to budge and is blocking the Doha Round of trade negotiations. And all this is not mentioning the rather one-sided nature of the ongoing EPA negotiations that threaten to bully developing countries into over-rapid liberalisation while offering limited gains in market access (Open Europe).
Whatever the possible benefits of a Commission-coordinated aid effectiveness policy, until the EU shows a willingness to scrap the CAP and liberalise its trade with the developing countries, it seems highly contradictory for it to play a primary role in ODA. There is, after all, also a case not mentioned in this piece, that poor countries have a limited capacity to absorb and benefit from aid. It much harder to say the same for genuine, and reciprocal, trade liberalisation.