House of Commons - International Development

Select Committee on International Development Second Report

III THE POVERTY FOCUS: POLICY AND RESOURCES

13. We set out to assess whether the EC's policies and objectives in the sphere of international development are backed up by an appropriate allocation of resources. Such an assessment requires that we consider: the EC's development policy, and its coherence with other policies which impact on developing countries; the allocation of resources for development; and related issues of clarity and control—is it clear what resources are intended to achieve development objectives, and who controls the allocation of resources?

Development Policy and Policy Coherence

14. In our previous report on the effectiveness of EC development assistance, we welcomed "the production of a clear statement of the developmental aims and objectives of the EC", and hoped that it would be a first step towards making EC development policy more effective, poverty-focussed, and accountable.[21] These sentiments were echoed in the written evidence received by the Committee during this most recent inquiry.[22] The statement on development policy provides a clear statement of objectives, and a benchmark against which the EC can and should be held accountable for its development assistance, to ensure that its policy aspirations produce results. But the Commission must ensure that other EC policies which are likely to impact upon developing countries are compatible with the poverty reduction objectives of EC development policy; and that the goal of poverty reduction is incorporated throughout EC policy. If poverty reduction is a priority, it must not be marginalised within the EC's external relations policies, including those which relate to issues of trade and security.

15. Whilst we welcome the statement on development policy, we agree with DFID that "Considerable work remains to be done ... to operationalise the Development Policy across all the programmes that it applies to", and to work through the implications of the poverty focus.[23] In particular we are concerned to ensure that other EC policies which are likely to impact upon developing countries are compatible with the poverty reduction objectives of EC development policy; and, that the goal of poverty reduction is incorporated throughout EC policy. If poverty reduction is a priority, it must not be marginalised within the EC's external relations policies, including those which relate to issues of trade and security.

16. As regards trade, we were encouraged to hear Mr Defraigne—the Chef de Cabinet to Mr Pascal Lamy, the Trade Commissioner—state that the EU had a strategic objective to make the coming round of World Trade Organization negotiations a "development round". We were somewhat sceptical however about his assertion that "the focus has changed from arranging business among rich countries to integrating the developing countries".[24] It is good that the EU has inaugurated a new office to enable ACP countries to participate more fully in World Trade Organization (WTO) negotiations in Geneva,[25] but, in a context where EU spending on agricultural support and export subsidies is nine times greater than European development assistance; where developing countries' access to EU markets—including those for key agricultural products such as sugar, rice and beef—continues to be restricted; where food processed in many developing countries still attracts punitive tariffs—during its recent visit to Ghana the Committee learnt that Ghanaian chocolate exports to the EU face an average duty of £50 per 100 kg, while unprocessed cocoa beans are tariff free; where many developing countries' efforts to deal with their HIV/AIDS crises are hampered by disagreements about intellectual property rights; and where developing countries' negotiating capacities are being stretched to exhaustion by the inclusion on the WTO agenda of new issues, we remain to be convinced that the EU is serious about delivering a "development round". There is a range of concerns, but we would agree with Chris Patten that, "the most important issue that we will have to resolve as a Union and as a Commission in order to convince developing countries that we really have their interests at heart is the whole issue of [Common Agricultural Policy] CAP reform".[26] It is time that the EU backed up its warm words with good deeds, and made concrete progress with removing export subsidies and improving access to the EU market.

17. We welcome the EU's Everything-but-Arms (EBA) initiative as a move in the right direction. This initiative aims to provide tariff and quota-free access to EU markets for all products, except arms, exported from the world's poorest countries. As such, the initiative provides least developed countries with improved access to EU markets, and gives a signal that the EU is serious about opening its markets. We acknowledge that the EBA initiative in part improves the competitive position of the least developed countries by eroding the preferences enjoyed by other merely low income countries; in part the least developed countries gain at the expense of the not-quite-so-poor.[27] This is not a reason to scrap the EBA initiative. Rather, the market access enjoyed by low income countries which do not qualify for the EBA, such as Ghana, should be improved too, especially as regards the many products which they are not competing with least developed countries to export to the EU. The fact that some of the gains arising from the Everything but Arms Initiative will come from re-distribution amongst developing countries, should not obscure the fact that the initiative does improve overall developing country access to EU markets. Most importantly this fact must not be allowed as an argument against further improvements in market access—and technical assistance to make market access a reality—for all developing countries.

18. We are also keen to ensure that development policy does not get subsumed within the EU's Common Foreign and Security Policy. We note the view that "there is a long-term congruence of foreign policy and poverty reduction",[28] but are not sure that such a congruence necessarily exists in the short term. There is a danger that development will be marginalised. We agree with Glenys Kinnock—Member of the European Parliament's Committee on Development and Cooperation—that a key challenge will be to ensure that we do not lose a specific development perspective in the process of strengthening the EU's foreign policy.[29] We recognise that development is one voice among many in EC policy-making, but take the firm view that greater attention must be paid to policy coherence so that EC policies in other areas, be they internal affairs, security, trade, or enlargement, at the very least do not undermine, and preferably promote, development.[30] Most importantly, if we are to take at face value the EC's stated objective of making the Doha round of WTO negotiations a development round, progress must be made with reforming the EU's Common Agricultural Policy.

Resource Allocations

19. In our view too much European development assistance is allocated to middle income countries on the basis of political priorities and the wish to foster stability in the countries surrounding the EU—the "near abroad"—rather than in order to eliminate poverty. The proportion of EC ODA spent in low income countries, having been at 76 percent a decade earlier, reached a new low of 39 percent in 2000. For the UK, the share of ODA going to low income countries in 2000 was 77 percent, for EU member states 66 percent, and for all DAC donors combined 63 percent.[31] Chris Patten may be correct in suggesting that the reason why EC development assistance is less focussed on low income countries than that of member states is because member states have decided that their assistance to the "near abroad" is best managed at the European level,[32] but from our perspective this possibility does not justify the skewed—and increasingly skewed—resource allocations we currently observe. We are of course pleased that the total volume of the EC's ODA has nearly doubled over the last decade, but this must not be allowed to obscure the fact that the absolute volume of EC ODA to low income countries has fallen by $217 million or nearly 12 percent over the same time period.[33] Over the years 1999-2000, the top ten recipients of EC ODA were: Yugoslavia (including Kosovo); Morocco; Bosnia and Herzegovina; ex-Yugoslavia; Egypt; Tunisia; South Africa; Turkey; Albania; and Macedonia (former Yugoslav Republic of).[34] At 1 January 2000, none of these were classified as low income countries by the DAC.

Table 4: Percentage of ODA Spent in Low Income Countries

	1980	1990	2000
DAC Countries	60	58	63
European Community	85	76	39
UK	73	77	77

Data source: OECD 2001 International Development Statistics Online

20. There is clearly a mismatch between the objective of poverty reduction and the allocation of resources. The Commission's programme of action states that "financial resources (from the EDF and budget resources from under Category 4 for external actions) must be allocated to maximise their effect on poverty reduction. Consequently the least developed and other low income countries should be given particular attention".[35] The Commission is failing to achieve this objective. The EC's ODA is much less focussed on low income countries than that of its member states. If EC development assistance is to contribute effectively to the reduction of poverty and to retain the support of member states whose bilateral aid has a clearer poverty focus, this situation must change. The fact that we have criticised the allocation of European development assistance in our earlier reports only adds to our frustration at the lack of progress.[36]

21. Just as we heard suggestions that the overall allocation of resources is determined by short-term political priorities rather than by development objectives, we also heard concerns about the vulnerability of development spending and development budget lines to "raids" for specific and immediate political objectives, for instance to foster stability and reconstruction in the Balkans, or in Afghanistan and the surrounding region.[37] In addition, we heard concerns voiced about development spending being squeezed by spending in pursuit of more diffuse objectives such as shoring up support for the "coalition against terrorism".[38] Such objectives may well be important, but they must not be pursued and funded at the expense of developing countries. We agree with Action Aid that, "If there is a political need to increase funding for Afghanistan, then new funding needs to be approved by the EU, instead of trying to squeeze already oversubscribed existing budgets".[39] We recommend that either, sufficient reserves are set aside, or appropriately flexible procedures are established, to enable the rapid approval of new funds in situations of crisis.

22. In our previous report, we undertook to return to the issue of the attribution to DFID's budget of the UK's contribution of funds for pre-accession countries. We were concerned to satisfy ourselves that DFID's funds were focussed on poverty reduction,[40] and that the attribution of pre-accession funds to DFID's budget did not actually reduce DFID's budget for spending in developing countries. As part of the current inquiry, Clare Short described the attribution of pre-accession funds to DFID's budget as "not logical", but explained that as an allowance was made for this in the Comprehensive Spending Review, she did not feel that this accounting practice resulted in a loss of funds for DFID's poverty reduction goals.[41] The Secretary of State did reason however that once countries have joined the EU and are then in receipt of structural funds, such assistance must not draw-down on DFID's budget. This makes perfect sense. We agree with Clare Short that the attribution of pre-accession funds to DFID's budget does not reduce DFID's budget for poverty reduction, but this accounting practice does give this impression. The Government should remove this source of confusion, and make progress towards the standards of transparency that we expect of the European Commission.[42]

23. The European Commission has no qualms about justifying its allocation of resources. Whilst DFID told us that "The balance of EC spending is out of line with international best practice",[43] Chris Patten plainly and without compunction stated that, "We spend in Poland, an enlargement candidate, every year more than we spend in Asia and Latin America together",[44] and asserted that spending in the "near abroad" was not at the expense of allocations to low income countries.[45] Defending forcefully the allocation of EC resources, and explaining carefully that Category 4 External Actions is not a development budget, Chris Patten argued that, "What bedevils this debate is, first of all, that one is very often comparing apples with oranges".[46]

24. It would indeed be a mistake to simply compare the poverty focus of DFID's budget with that of the EC's Category 4, and we are aware that this conceptual mistake is sometimes made. Our concern however, is simply to ensure that development objectives and development spending are not marginalised by concerns about the "near abroad". This task is not made any easier by the fact that Category 4 of the EC's Financial Perspective includes funds for a variety of external actions, not all of which are primarily about poverty reduction and development. Neither is transparency improved by the fact that financial perspective headings do not easily map onto budget headings; for instance, budget subsection B-7 is funded from both financial perspective categories 4 and 7 .[47] We would welcome progress towards a separate budget heading for development, in order to make it clear which funds are earmarked for the elimination of poverty. More immediately, we look forward to the full introduction of activity-based budgeting, which needs to be done in a way which allows the EU to report on its development assistance expenditure in DAC-compliant terms so that accurate comparisons can be made, and co-ordination achieved with, the development assistance programmes of member states. Clare Short,[48] DFID officials,[49] and BOND[50] all concurred in seeing DAC-compliant reporting as a priority. This is the only way to ensure that resources are re-allocated to policy priorities and to ensure that decisions about policy priorities are fully informed by related resource requirements. This should allow us, in Chris Patten's words, "to better compare apples with apples rather than other fruit".[51]

25. In addition, whilst we agree with Chris Patten that the stability, security and prosperity of neighbouring countries is important to the stability, security and prosperity of the EU, such inter-dependence is hardly limited to the EU's relations with countries in Eastern Europe and the Mediterranean; this much must surely be clear. As Clare Short put it, "in this globalising world, this concept of [a] near abroad is becoming really very foolish."[52] The Mediterranean and the Newly Independent States are important, but events and conditions in Africa and Asia matter too, not least to the billions of people who live there. This should be reflected in the EC's external allocation of resources. Poverty matters globally; as Clare Short reminded us, "bin Laden was in Sudan before he went to Afghanistan".[53]

Aid Effectiveness

26. Clarity about resources and objectives is important, but will not in itself bring about a sharper focus on poverty reduction. As Clare Short argued, "Improving the financial systems is important but it will not deliver different political priorities. You need to improve the financial systems so that they can follow the shift in political priorities. ... if we do not win the political argument about where aid is best allocated we will just have a more efficient way of measuring spending that is skewed against the poor".[54] Decisions about aid allocations ought to be based on evidence and analyses about the effectiveness of aid in reducing poverty.

27. Aid is most effective at reducing poverty when it is focussed on countries with high poverty levels, and government policies which create an environment for broad-based growth and poverty reduction. Unpublished research by David Dollar of the World Bank shows that in 1998, while 63 percent of global aid went to countries with high poverty levels, only 38 percent of EC aid did, and 18 percent of EC aid went to countries which had both low levels of poverty and poor government policies.[55] Such allocations of aid are not the most efficient way of reducing poverty. A million Euros spent in high-poverty good-policy countries will lift more people out of poverty, than the same amount spent elsewhere. As Clare Short explained, "if the existing money in the system was deployed according to its greatest effectiveness in reducing poverty ... we could probably double the value in terms of poverty reduction of the money we have got in the international development system".[56] This is not to suggest that countries which are not the poorest, or which have less than ideal policies, should be ignored; rather, more thought should be given to the quality and type of assistance that is provided to such countries.

28. The current allocation of financial resources to Europe's "near abroad" is not a developmentally efficient allocation of aid; the money could be better spent elsewhere. In addition, providing large volumes of ODA is not the best way of reducing poverty in such middle income countries; more effective assistance could be provided to Europe's neighbours. As Anthony Smith—the head of DFID's EU department—clearly expressed it, "there is a high political priority for the Union in dealing with the Mediterranean, because it is a neighbouring region, whatever the logic of that might be; but ... [the fact that it is a] ... high political priority does not mean you throw money at it in an ineffective way".[57] Rather than simply providing middle income neighbours with large volumes of scarce development assistance, we can best assist them by reducing barriers to trade, improving the international financial architecture, and working to shape the broader policy environment.[58]

29. If the EC's development assistance is not allocated effectively to poor countries and the elimination of poverty, the EC's policy statements and management reforms will not have the desired impact. The admirable objectives of poverty reduction must be backed up with financial resources, targeted appropriately. Otherwise, observers may be forgiven for doubting the value of the EC's multilateral development assistance. We recommend that the Commission adopts clear targets for the proportion of its ODA that is allocated to low income countries, and moves quickly towards a situation where the EC's focus on low income countries matches that of its member states.

Budgetisation and the Role of Member States

30. In contrast to budgetised ODA, spending from the European Development Fund (EDF) is not subject to approval by the European Parliament. The EDF, which is made up of voluntary contributions from member states, is managed by a Committee consisting of members states' representatives. This EDF Committee considers for approval both general strategies for supporting partner countries, and specific larger projects. The EDF's activities are also audited by the European Court of Auditors.

31. Debates about the budgetisation of the EDF—bringing it into the Commission budget, and subjecting it to the approval of the European Parliament—have surfaced periodically over the last twenty years. Action Aid, British Overseas NGOs for Development (BOND), and Glenys Kinnock argued in favour of the budgetisation of the EDF in their evidence.[59] Those in favour of budgetisation—particularly the European Parliament's Committee on Development and Cooperation, and Committee on Budgets— argue that it would improve the coherence and integration of European development assistance, reduce the administrative burden placed on recipient developing countries, and, through subjecting the funds to approval by the European Parliament, increase oversight and transparency, and enhance accountability. On the other side of the debate, it is argued that budgetisation would reduce member states' control of the funds, and might make funds for the ACP countries susceptible to the same sort of raids to which budgetised development funds are currently vulnerable.

32. Budgetisation has not taken place so far because the member states have not been sufficiently in favour of it. Largely, this has been because member states want to maintain their control rather than surrender it to the European Parliament.[60] DFID has in the past been opposed to budgetisation, but currently seems ambivalent. Whilst we agree with Clare Short that such a technical solution would not necessarily lead to a more intelligent allocation of resources,[61] we do regard budgetisation as desirable in the long term. However, as it is not likely to happen soon, pushing for budgetisation now would perhaps be a distraction from the pressing work of making the current arrangements more effective. We will continue to monitor the workings and use of the EDF and the wider issue of the organisation of European development assistance into budgetised and non-budgetised assistance.

33. The debate about budgetisation illustrates an issue which runs throughout discussions of European development assistance; the role of member states. We acknowledge the point made most forcefully by Commissioners Patten[62] and Nielson,[63] that it is member states that decide on the geographical and political priorities of aid programmes through their participation in the Council of Ministers. This in no way relieves the European Commission of its responsibility to manage its development assistance efficiently and effectively, but it does usefully refocus attention on the role of member states in determining development policy and the allocation of resources. The Government needs to win the political argument and persuade other member states of the importance of a clear poverty focus and an effective allocation of aid to low income countries, as well as continuing to press the Commission to become more efficient in its management of European development assistance.

21 Ninth Report from the International Development Committee, Session 1999-2000, The effectiveness of EC development assistance, HC 669, para.23. Back

22 Ev 1, [para. 3]; Ev 18, [para. 4]; Ev 54, [para. 4] Back

23 Ev 1, [para. 6] Back

24 Q133 Back

25 http://europa.eu.int/comm/trade/miti/devel/pr160102_en.htm (accessed 16-4-02). Back

26 Q216 Back

27 Q114; Q128 Back

28 Q19 Back

29 Ev 54, [para. 9] Back

30 Q73 Back

31 OECD International Development Statistics Online. Back

32 Ev 85 Back