Select Committee on International Development Minutes of Evidence

Memorandum from the Foreign and Commonwealth Office

I. THE EFFECTIVENESS OF LOMÉ IV IN MEETING ITS OBJECTIVES AND ENCOURAGING DEVELOPMENT

INTRODUCTION

  1. The objectives of the fourth Lomé Convention, which came into effect in 1990, are to "promote and expedite the economic, cultural and social development of the ACP states and to consolidate and diversify [ACP-EU] relations in a spirit of solidarity and mutual interest". These were confirmed by the Mid Term Review of Lomé IV (signed in Mauritius in 1995) which further added to, and strengthened, the emphasis on shared basic principles and human rights.

  2. The assessment of the Commission's Green Paper published in November 1996, is that progress to date has been patchy. The following summary looks at all aspects of Lomé, but concentrates on the European Development Fund where most formal evaluation has been carried out.

DEVELOPMENT ASSISTANCE

  3. Some projects under Lomé IV have been completed and evaluated. But these are not sufficient to provide a representative sample of European Development Fund (EDF) activities. EDF VII (1990-95) only started to spend in 1991; by the end of 1996 only just over 80 per cent had been committed and less than one-half spent: though this covers considerable variations between countries, there are few where expenditure exceeds 50 per cent of allocation. In some countries, disbursement has been hindered by hostile conditions such as civil war or unrest, or suspended in the face of human rights abuses (for example, Nigeria); and in other cases, implementation has been delayed due to local administrative difficulties or problems putting in place an appropriate legal framework. The average project has a life of several years, so some projects begun early in EDF VII are still continuing. The Mid Term Review of Lomé IV has yet to be ratified by all the EU member states and two-thirds of the ACP, so EDF VIII has yet to come into effect. However programming work has been done in advance of release of funds to avoid undue delay.

  4. In the absence of sufficient evidence from Lomé IV, evaluation of projects from earlier EDFs helps form a picture of the effectiveness of Lomé subject to two caveats:

(i)  Lomé has evolved considerably over time and these projects will reflect earlier policies and implementation arrangements, rather than those under Lomé IV and so will not give an adequate view of the effectiveness of current programmes. Similarly, progress under Lomé IV to improve the effectiveness of co-ordination with other donors and tighten internal procedures, and guidance in incorporating the lessons learnt from previous evaluations, will not be reflected.

(ii)  There are information gaps and differences between sectors in the quantity of evaluation material available. However a major evaluation of EC aid to the ACP countries is currently underway. The Commission's Evaluation Unit is currently managing a wide range of evaluations which should fill many of these gaps.

RESULTS: STRENGTHS AND WEAKNESSES

  5. Evaluation of a sample of EDF projects in the 1980s suggests that about 50 per cent of overall project expenditure was effective in planning and implementation, and about 40 per cent in impact and sustainability. Less than 25 per cent was not effective. Within these figures there were significant differences between sectors. For example, implementation of large infrastructure projects, including roads, has generally been strong and technical objectives have largely been met. About 70 per cent of transport projects in the sample were considered effective. In contrast, more complex projects with greater focus on people have generally been less successful. Only about 30 per cent of rural development projects have been effective (the large Integrated Rural Development Programmes of Lomé III have disappeared under Lomé IV). Some sectors, such as health and education, were insufficiently represented to make judgments.

  Weaknesses identified fell into three broad areas:

(i)  policy objectives did not always take account of macro-economic and sectoral objectives, and proved less effective in cases where recipient governments did not set up the necessary policy frameworks. Consequently, even where projects were efficiently implemented their development impact could be limited;

(ii)  project design and appraisal tended to be weak and over-optimistic, failing to incorporate cross-cutting issues such as gender and the environment and lessons learnt from the past, as well as not taking full account of local capabilities. Consequently a number of projects ran into difficulties, and monitoring of impact was weak because of a lack of clear objectives and indicators;

(iii)  management of projects suffered from complicated or inadequate procedures and poor monitoring, leading to delays in implementation.

MEASURES TAKEN TO ADDRESS WEAKNESS

  6. In negotiations for Lomé IV (and its Mid Term Review) and in its internal procedures and practices, the Commission has taken a number of steps to tackle these problems.

Policy Environment

  7. More attention has been paid to the policy environment. The major innovation in Lomé IV was the formalisation of structural adjustment lending through a special facility, open to all the ACP but dependent on reform. The EC is increasingly participating in the policy dialogue, although largely at sectoral level, but in 1995 initiated discussion of practice on conditionality, proposing a more flexible approach to avoid the stop/go approach common when countries went off track.

  8. Concern for policy is also reflected, following the Mid-Term Review of Lomé IV, in the replacement of pre-programming documents with country strategies prepared for each country. National indicative programmes (NIPs) and other Community instruments are then designed to support these strategies. In addition, aid will be tranched, with the second instalment dependent on performance against conditions attached to the NIP.

  9. We cannot yet see the effect on aid effectiveness of the changes. But there are examples of increased policy focus, and some results, in a number of project areas. There has, generally, been a shift away from stand-alone investment projects towards sectoral policy. In the health sector, where EU activity has increased significantly over the last few years, there has been a move away from projects in specific areas to focus on co-ordinated action to reform the health sector. Counterpart funds and the NIPs have been well co-ordinated within the countries strategy and there have been a number of innovative projects with a high level of local ownership. For example in Ivory Coast, a project helping the Ministry of Health set up a network of pharmacies dispensing generic drugs at prices well below those of private suppliers, has generally met its objectives, although there remain some problems. In other cases (such as Chad and Cameroon) results have still been disappointing.

  10. The shift to sectoral policies is also clear in the transport sector. In Senegal, the PAST project—comprehensive transport sector project planned for 1991-96 with the EC and World Bank as lead donors—provides funds for rehabilitation and maintenance (previously a major problem in transport projects), and restructuring of the road transport administration, rather than simply construction and extension of the road network. In Tanzania, an Integrated Road Programme is based on national sectoral objectives and capacities, and real progress has been achieved with the setting-up of a Road Fund.

Project design and appraisal

  11. Various other initiatives have been taken to address the problem of weak project design and appraisal including the introduction of integrated project cycle management (PCM) from about 1992, and introduction of a Quality Support Group (QSG) in 1997.

  12. Introduction of PCM, using the logical framework to help in identification of strategies and objectives and the conditions required for success, was accompanied by extensive staff training. An assessment in 1996 concluded that significant improvements had been made in the quality of new project proposals. This was confirmed by the DAC Review of EC Aid in 1996. A new manual of financial and economic analysis of projects and programmes was issued in September 1997. It is too early to say what impact these improvements will eventually have on project effectiveness.

  13. Introduction of the QSG in 1997 should make a further significant improvement to project quality, as this will be an independent quality control on the project. But it is only now beginning to influence projects which are in the design stage: it is too early to see what results it will have on project effectiveness. Although some good progress has been made since 1992, more effort is needed to ensure the results of evaluations are reflected in the design of new projects, as confirmed by the DAC review.

  14. More attention is also now being paid to co-ordination with the aid programmes of Members States. On our part, the UK is working closely with the Commission on a number of co-financed projects, which provide an opportunity for us to help improve project design and effectiveness.

Project management and implementation

  15. Project implementation has been more effective then planning. But delays exist due to heaviness and complexity of procedures, and the multiplicity of instruments. Shortage of staff, especially specialists (as noted by the DAC Review), and lack of delegation to appropriate operational levels have also been noted as problems. Some work has been done. Lomé IV extended delegation, for example in relation to micro-projects, and this has brought some good results; and ongoing work on monitoring and internal quality control will help identity potential problems at an earlier stage. The Lomé IV Mid Term Review agreed that the ACP-EC Council of Ministers should look further at procedures, particularly relating to award of contracts and the role of executing agents. But much remains to be done in this area. Progress may be made in the context of Commission consideration of an aid implementation unit responsible for the implementation of all EC aid (ACP and other regions).

FURTHER ACTION

  16. Despite some evidence of improvements, there are still areas where the results available are disappointing (e.g., the still insufficient attention to gender issues or poverty). The main weaknesses appear to be in the wider policy framework, lack of genuine commitment to it, or lack of capability to carry it out. The issues on which the Commission should continue to focus are deepening of the policy dialogue with the recipient country; strengthening of local capacity to enhance ownership of programmes; increased donor co-ordination to ensure that all programmes are working together towards sound and sustainable development; full integration of cross-cutting issues and lessons learnt from evaluations into the project cycle; and simplification of procedures.

POLITICAL DIALOGUE

  17. Exchanges at political level are mainly confined to the annual ACP-EC Council at ministerial level. Ministers discuss a wide range of topics, including conflict prevention and trade access. But they are also required to address issues of a more technical nature relating to the mechanics of administering the ACP-EU relationship (such matters could arguably be dealt with at official level). Parliamentarians from ACP countries and MEPs meet regularly in the ACP-EU Joint Assembly to debate issues of common interest such as human rights or trade matters. Despite some shortcomings, the political dialogue has helped to foster increased exchanges and better relations between the EU and the ACP. The increased emphasis on respect for human rights was demonstrated by the inclusion in the Lomé IV Mid Term Review of a clause allowing for suspension of the application of the Convention to a member on human rights grounds. This clause has not yet been invoked (because the Mid Term Review is not yet in force) and so its effectiveness remains untested.

TRADE RELATIONS

  18. Since 1975 the Lomé Convention has provided a framework for trade between 70 African, Caribbean and Pacific countries and the EU. Under these arrangements the ACP signatories have duty-free access to the EU for all industrial goods and a wide range of agricultural products. They also have preferential access for a number of more sensitive products covered by the Common Agricultural Policy. Four separate Protocols associated with the Convention allow special market access terms for sugar, bananas, beef and rum.

  19. Lomé arrangements have traditionally offered ACP countries comprehensive, concessional access to EU markets and ACP countries still derive some 40 per cent of their export earnings from the EU. Trade performance has however been poor overall and the ACP share of the EU market is declining, from 4.7 per cent to 2.8 per cent between 1990 and 1994. Take-up of available preferences has been limited and there is little evidence that Lomé provisions have led the ACP to diversify their economies. As a result many countries remain dependent on a few primary products.

II. THE RELATIONSHIP BETWEEN THE PROVISIONS OF THE LOMÉ CONVENTION, THE WTO AND GLOBALISATION

  20. Lomé IV has co-incided with a time of rapid growth and increased participation in world trade and significant changes in international trade policy. As the momentum toward multi-lateral trade liberalisation has accelerated, the average tariff rate for industrial goods has halved. The lowering of barriers and resulting liberalisation of trade has increased trade opportunities worldwide and the value of world trade has increased by 49 per cent. The conclusion of the Uruguay Round and the establishment of the World Trade Organisation (WTO) in 1995 has underlined the benefits of the commitment to a rule-based multi-lateral trading system.

  21. The WTO system recognises the particular importance of market access to developing countries. Its rules also recognise that developing countries cannot always assume market opening obligations at the same pace as developed countries. Under a special exemption, developed countries may also discriminate, on a non-reciprocal basis, in favour of developing countries as a group provided that such discrimination does not differentiate between different countries. The one exception to non-discrimination is that the Least Developed Countries Group can be given more favourable terms than the rest.

  22. All Lomé trade arrangements require a WTO waiver because, contrary to WTO rules, they discriminate in favour of a specific group of countries. The waiver for Lomé's general trade provisions will expire with the Convention in 2000. Waivers are not a foregone conclusion and must be regularly renegotiated.

  23. In addition to the Lomé trade arrangements, the EU has a WTO-compatible Generalised System of Preferences (GSP) through which all developing countries (including the ACP countries, although in practice they do not make use of the scheme) can have preferential access to the EU market. Current GSP provisions are less comprehensive than Lomé terms. The scheme will be subject to a mid-term review in 1998.

  24. Although developing countries continue to attach importance to the principle of preferential market access, in practice margins of preference for industrial products have declined sharply as tariffs have reduced. The value of preferences will continue to be eroded with further trade liberalisation. Fully open markets are increasingly replacing more localised concessional arrangements.

III. THE COMMISSION GREEN PAPER

  25. The Green Paper, which issued in November 1996, does not attempt to prescribe a model for future EU-ACP relations. Instead it sets out the various options. It is divided into two main sections. The first is a lengthy analytical piece, surveying changes in the global context of Lomé, the lessons of ACP-EU co-operation to date and developments in ACP countries.

  26. The second, more operational, section is divided into four parts:

(A) EU-ACP RELATIONSHIP; THE FUTURE OF THE ACP GROUPING

  An enhanced political relationship is needed, with more political conditionality (human rights/good government) and a policy on conflict prevention. The current geographical coverage is questioned and a number of alternatives considered, e.g., expanding to include all Least Developed Countries.

(B) DEVELOPMENT CO-OPERATION

  The paper identifies four priority sectors:

—  stimulating growth through competitiveness and private sector development;

—  increasing employment and support for social policies;

—  integrating environmental protection into development policy;

—  institutional development.

(C) TRADE ARRANGEMENTS

  Five options for the trading relationship with the ACP are identified:

—  the status quo;

—  integrating the Lomé preferences into the EU's Generalised System of Preferences;

—  requiring all ACP countries to extend reciprocal measures to EU exports (i.e., an EU-ACP Free Trade Area);

—  differentiated reciprocity (i.e., a series of Free Trade Areas with ACP countries or regions);

—  differentiation under a single framework (i.e., the ACP could choose to offer reciprocity or rely on GSP; the Least Developed would keep their current level of market access).

  The agricultural commodity Protocols including that for sugar (which is of indefinite duration) and bananas (currently the subject of a WTO ruling) receive minimal analysis.

(D) AID QUALITY

  The paper proposes an overhaul of the complex system of aid envelopes and instruments and a review of the cumbersome joint Commission-ACP management arrangements. A revision of criteria for allocating resources is also considered, with poverty and performance (both economic and human rights) suggested.

IV. REQUIREMENTS FOR THE RENEGOTIATION OF THE CONVENTION AND PRIORITIES FOR LOMÉ V

TIME-TABLE

  27. Lomé IV expires at the end of February 2000. Under the terms of the Convention, negotiations on a successor must begin no later than 18 months before that date, i.e., in September 1998. This means that the EU's mandate for the negotiations must be agreed by then; in practice, the mandate must be largely agreed during the UK Presidency of the EU in the first half of 1998, on the basis of a Commission draft, due to issue by the end of 1997.

  28. The ACP will work on a negotiating mandate on the same time scale (i.e., by end of September 1998). ACP Heads of State/Government are due to meet in Gabon in November; the Lomé renegotiation will be one of the key questions to be addressed by the Summit.

COMMISSION APPROACH

  29. The Commission issued a Communication on 30 October setting out policy orientations for the negotiations. The Communication will be discussed at the 10 November GAC and the 28 November Development Council. It concentrates on five main guidelines:

—  a stronger political dimension: the EU-ACP relationship should occupy a new position in the EU's external policy. Clear political objectives should enhance the developmental aspects of the Convention; conditionality and respect for human rights, good governance and the rule of law should underpin the partnership through an improved dialogue;

—  poverty alleviation: this should be the cornerstone of co-operation. An integrated approach is required, taking into account economic growth, regional integration, integration into world markets and the social impact of growth. Special attention needs to be given to the private sector, the role of women, environmental factors and local capacity-building;

—  a more ambitious approach to economic partnership: the EU should seek closer economic partnerships on a regional basis with groups of ACP countries. Such agreements might cover trade-related measures such as services, health and safety standards, labour rights or intellectual property. They would include preferential trade access with reciprocity introduced gradually. The negotiation of such regional arrangements might take until 2003, until when the existing Lomé preferences should be rolled over.

—  a complete overhaul of aid management: co-operation instruments need to be simplified and rationalised. Not only the needs but also the merits of recipient countries should determine levels of allocations which should gradually move towards sectoral support;

—  regionalisation under a single framework: the principle of keeping a single umbrella framework emerged strongly from the consultation process. But there is a need for greater geographical differentiation to reflect the increasing role of regional integration in development and to focus Lomé activities more effectively.

  30. There is much in this Communication which is in line with HMG's approach. The sections on improving aid management, political dialogue and poverty alleviation are generally welcome. We also support the objective of using economic co-operation to promote the full integration of developing countries into the world trading environment. But we will need to examine closely the proposal on regional economic partnerships. Our concerns are to protect the interests of the Least Developed and to ensure that all new arrangements are WTO-compatible. We look forward to seeing the further work that the Commission has undertaken to produce on this idea.

PRIORITIES FOR LOMÉ V

  31. For many developing countries, Lomé lies at the heart of their relations with the EU. Thirty eight of the 71 ACP are also members of the Commonwealth. We will need to think of ways to move the relationship onto a more mature basis, giving due weight to the growing economic strength of some of its members and focusing also on the needs of the poorest countries. HMG's position on priorities for Lomé V are set out in the attached UK position paper.

Foreign and Commonwealth Office

6 November 1997

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Prepared 2 June 1998