House of Commons - EU Development Assistance - International Development Committee

EU Development Assistance - International Development Committee Contents

3 Advantages and disadvantages of EU as a channel for development funding

21. There are a variety of arguments for and against EU aid.

Advantages:

WHERE THE UK IS NOT PRESENT

22. The EU provides a vehicle for the transfer of funds to countries where the UK does not have a presence, for example in Haiti and Niger. The Secretary of State informed us that 700,000 lives had been saved from famine in Niger through emergency food assistance by the European Commission. As Commissioner Piebalgs said, the EU is present in around 150 countries, such as the Solomon Islands, "addressing poverty issues in the countries that member countries alone will never reach."[9] The EU is present in all 43 fragile states: DFID operates in only 21.[10]

ALL EU MEMBER STATES CONTRIBUTE TO DEVELOPMENT

23. The European Commission development instruments allow newer Member States, which have not historically provided aid, to channel their development obligations and meet agreed targets, and provide a forum for best practice and lesson learning. This helps smaller countries such as Latvia to reach their poverty reduction objectives and meet their 0.7% target. Simon Maxwell, Senior Research Associate at the Overseas Development Institute told us that it enabled such Member States to "perform more effectively and on a bigger stage" by working through Brussels, rather than independently.[11]

PREDICTABLE FUNDING

24. Andris Piebalgs, the Development Commissioner, highlighted the EU's seven year financial programme which he said ensured "predictability of the fight against poverty".[12] He argued that national governments could not guarantee such stability of funding as domestic governments tended to have three or four year spending rounds.

LARGE PROJECTS

25. The size of the EU's budget means that it is able to implement large-scale infrastructure projects such as road building which the UK would be unable to do alone.[13]

ADDRESSING GLOBAL CHALLENGES

26. The EU is a vehicle for addressing key global challenges. The increasingly global nature of development challenges such as climate change, peace and stability, migration, financial stability, food security and communicable diseases, clearly indicate that solutions require new forms of international cooperation with the involvement of emerging developing countries. The EU's new structures, such as the European External Action Service, offer the potential for joined-up engagement in international development, combining aid, diplomacy, military power and economic tools such as trade policy.

Disadvantages

RELATIVELY HIGH ADMINISTRATION COSTS

27. The European Commission has higher administration costs than DFID as this table demonstrates. However as the table also shows the costs are not as high as the World Bank.

Table 2 - Administrative costs as a percentage of total aid disbursements for the past three reporting years

Year DFID
Administrative costs as a % of total development expenditure
European Commission Administrative costs as a % of total external aid commitments/
disbursements
World Bank
Administrative costs as a % of total gross disbursements - IBRD[14]
World Bank
Administrative costs as a % of total gross disbursements - IDA[15]

2008 (08/09) 4.2 5.9 (commitments)[16] 10.3 9.7

2009 (09/10) 3.5 5.3 (disbursements) 6.7 10.6

2010 (10/11) 2.7 5.4
(disbursements)
4.9 10.0

DFID Ev 70-71[17]

28. The Committee was told that one of the main reasons that European Commission administrative costs were higher than the UK was because a substantial amount of DFID spending was through multilaterals and therefore DFID was 'exporting' its costs. ODI highlighted that DFID spent 62% of its budget through multilaterals contrasting with 2% by the European Commission institutions.[18] Simon Maxwell, Senior Research Associate at the ODI, compared the UK to being a "wholesaler" and the Commission a "retailer".[19]

29. It was also put to us by BOND that "lower admin costs do not automatically generate better value for money, and often they might result in poorer outcomes, simply because the support is not there".[20] BOND also argued that administration costs depended on the area you operated in "for instance, in a situation of conflict or a fragile state, it is going to be much more difficult and much more expensive to deliver that aid than if you are in a much more stable context".[21]

30. When we questioned the Minister on the European Commission's administration costs he said that the UK was trying to "drive a much greater efficiency".[22]

31. Although the European Commission has higher administration costs for development than DFID it is difficult to compare like for like. The Commission does far more direct work which requires a greater level of administration. We urge however, the Government to continue to stress the need for value for money.

DISTRIBUTION OF ADMINISTRATIVE RESOURCES

32. Simon Maxwell questioned the use of the European Commission's administrative costs asking whether the 4,000 staff working for the Commission on development were "the right staff doing the right jobs?"[23] He believed that the Commission was lacking in serious 'policy' capacity comparing DFID's policy division of over 200 staff to the equivalent department in Brussels which had fewer than a dozen staff. He argued that as a result, the Commission was under-resourced to look at the big development challenges.

33. Furthermore, having visited a number of EU delegations in developing countries, we are not convinced that the European Commission has enough development staff on site. An example of this was on our recent visit to South Sudan where we were told that there had been significant delays in scaling up the EU delegation and as of March 2012 it had 18 vacancies in an expected office of 27 people.[24]

34. The UK Government should push the European Commission to improve its policy capacity, given its status as the largest supplier of development aid in the world.

BUREAUCRACY AND PROCUREMENT

35. Although UK NGOs have received a great deal of funding through the European Commission: in 2009 UK NGOs were paid around €340 million from the Commission, more than any other national group of NGOs in the EU - there is much criticism of procurement policy.

36. Adam Smith International reported that the EU procurement process was bureaucratic and cumbersome. It expanded:

one needs to provide copies of the academic degree certificates of each of the consultants that one is putting forward. Signed project references from clients of past projects are also required. There has been a bit more flexibility here over the years, but not much. E.g. if your previous client has died the EU will take a sworn statement from you instead, rather than insisting that he still signs. The EU is very particular - if they say an expert needs 15 years of experience then 14 years 11 months will not do.[25]

We were told that the complex process particularly limits the access of smaller NGOs to funding as they do not have the capacity to deal with the application process.[26]

37. BOND reported that the speed of the disbursement of the actual European Commission funds was dependent on the delegation in country due to the different levels of expertise on the ground.[27]

38. On our recent visit to Zambia we heard that following an agreement to have an extra official, it had taken 18 months before the person was actually in place due to the level of bureaucracy that they had had to go through.

39. Commissioner Piebalgs agreed that slowness was "a weakness of the system" and that it was "built extremely conservatively". He said that the reason was because:

we work in very unstable places, at the end of the process, even in the middle of the process, they have the Court of Audit and Budget Control Committee.[28]

He also thought there were limits on improvements he could make because he could not "compromise the accountability of the money being spent".[29]

40. We welcome the Government's commitment to improve the bureaucracy of procurement at the European Commission but there still seems to be a long way to go. The Government must put more pressure on the Commission to make further improvements.

TOO MUCH ODA TO MIDDLE INCOME COUNTRIES

41. As highlighted in the Multilateral Aid Review (MAR) the European Commission budget instruments channel a large amount (85%) of Official Development Assistance (ODA) to middle income countries. Turkey has consistently been in the top five recipients of European Commission aid (€223 million in 2010) as has Serbia (€218 million in 2010). Overall in 2009, including the European Commission budget and the EDF, only 46% of aid disbursed through European institutions went to low income countries, compared with 62% disbursed by all donors and 72% by the UK.[30]

Box 2: Official Development Assistance
The Organisation for Economic Co-operation and Development (OECD)'s Development Assistance Committee (DAC) produces a list of official development assistance recipients which shows all countries and territories eligible to receive Official Development Assistance (ODA). These consist of all low and middle income countries based on gross national income per capita as published by the World Bank, with the exception of G8 members, European Union members and countries with a firm accession date for entry into the EU. The list also includes all of the least developed countries as defined by the United Nations. This list is designed for statistical reporting purposes. Only flows to or for the benefit of the countries and territories on the list may be reported as ODA.

42. It has been argued that by funding development through the European Commission there is a significant diversion of UK money designed for the poorest countries. Simon Maxwell said:

every time the UK transfers £1 from the bilateral aid programme to Brussels, 26p is taken from low income countries (LICs) and given to middle (MICs) or upper income countries. Given that the UK spends about £1.3 billion through Brussels each year, the transfer from LICs to MICs amounts to as much as £340 million a year. For the European Commission as a whole, spending close to €11 billion on ODA in 2010, the equivalent figure is close to €3 billion per annum 'lost' to low income countries.

43. Our concern is that DFID money is being spent through Europe on projects which would not qualify for DFID bilateral funding. We asked the Minister whether there was an argument for OECD redefining what qualified as ODA[31] and he informed us that the Government had "no intention to seek to change the current definition at the moment".[32] The Government's argument was that it would "take forever" and be "very difficult". The Minister also highlighted the potential risk to the 0.7% target if definitions were changed.[33]

44. When questioned on the European aid budget going to neighbourhood and pre-accession countries such as Turkey, the EU Commissioner Andris Piebalgs told us:

it is up to member countries to make this decision. I do not control how much money will be decided for Turkey because it is decided by member countries.[34]

The Minister said that it was a decision for the Treasury whether DFID was the appropriate budget holder for Pre-Accession and Neighbourhood Instruments and that because it was ODA-qualifying—it was. The Minister also said that if the money was not spent on Pre-Accession or Neighbourhood Instruments that it would not necessarily "be released back" to spend on "alternative development opportunities".[35]

45. It is unacceptable that only 46% of aid disbursed through European institutions goes to low income countries. It devalues the concept of aid when so much of what is defined as Official Development Assistance (ODA) goes to relatively rich countries such as Turkey. We do not agree with the Government that it should not seek to change the definition of what qualifies as ODA—money given to higher middle income countries should not be classified as ODA, nor do we believe it is right to keep the present definition as a way of fudging the figures to meet the 0.7% target. The UK must continue to press for funding to be diverted from those higher middle income countries, who have their own resources to provide for their people, to give greater help to the poorest people in the world, including in lower income countries.

Conclusion

46. The UK has a certain amount of choice as to whether it spends its aid bilaterally or through multilaterals. Although we have acknowledged that there are some problems with channelling aid through the European Commission, for example the large amount of aid going to middle income countries and its slow bureaucracy, on balance we are not convinced it is any worse than the other multilaterals DFID funds, for example the World Bank which we have previously reported our concerns on. However, DFID should continue to press the Commission to improve its aid effectiveness and value for money.

9 Q 88 Back

10 Q 120 Back

11 Q 50 Back

12 Q 88 Back

13 Q 122 Back

14 IBRD: International Bank for Reconstruction and Development operates as a development bank for more credit-worthy low and middle income countries Back

15 IDA: International Development Association is responsible for grant and concessionary lending primarily to low income countries Back

16 For 2008 only, this percentage is available only for Commitments, and not Disbursements, and so is not strictly comparable to the figures for 2009 and 2010 Back

17 These figures come from DFID with a couple of explanations:

The presentation of administrative costs is not standardised across institutions and the level of detail varies significantly between them. It is therefore not possible to ensure that the items under 'administrative costs' are the same for each organisation

As the EDF is not a separate organisation from the European Commission, and its costs remain administered by the Commission, its costs are given by the Commission's administrative costs for External Aid. Back

18 Ev 61 Back