House of Commons - EU Development Assistance - International Development Committee

EU Development Assistance - International Development Committee Contents

4 Commission Proposals: An Agenda for Change and Budget Support

47. The European Commission has been seeking to improve its development assistance. The Commission proposal for a new EU development policy An Agenda for Change[36] was published in October 2011 for approval by the Council in May 2012. It is intended to update and refocus EU development assistance, building on commitments made in the 2005 European Consensus on Development. The Development Commissioner, Andris Piebalgs, said the EU must "keep pace with changing realities in the world" and that the EU should "refocus aid priorities to ensure that countries are on track to achieving sustainable and inclusive growth." He wanted to make sure that "every euro reaches those that need it most,"[37] echoing the Secretary of State's aspiration "to ensure that aid secures 100 pence of value for every hard-earned British taxpayer's pound we spend".[38]

48. An Agenda for Change focuses on four key areas:

i. The concentration of EU activities on two broad priorities: (a) human rights, democracy and good governance, linked to greater conditionality; and (b) inclusive and sustainable economic growth, with a strong focus on leveraging in private sector money;

ii. Policy coherence for development;

iii. EU joint work and coordination of EU Member States development programmes; and

iv. Differentiated development partnerships (reassessing aid to middle income countries and reducing the number of aid recipients).

Human rights, good governance and greater democracy - conditionality

49. An Agenda for Change says that EU support should focus on partners' "commitments to human rights, democracy and the rule of law and to meeting their peoples' demands and needs."[39] It specifies that the mix and level of aid would depend on the country's situation and that if a country loosens its commitment to human rights and democracy then stricter conditionality would be warranted.

50. ODI was very sceptical of the use of conditionality. It indicated a 'significant body of research' which shows that conditionality cannot buy reform; that it is overburdening and hinders performance.[40]

51. The Commissioner told us that although conditionality was not popular with NGOs it was important. He explained that the EU needed to be asking questions such as:

are the conditions right, is public finance management there, is the human right situations there, is the macroeconomic situation there?[41]

52. Mr Stephen O'Brien MP, DFID Parliamentary Under-Secretary of State, was aware of the different views on "what would be appropriate conditionality" and how it would be defined.[42] He questioned how funding could be withdrawn without impacting on "the very poor people that the whole purpose of your programme was intended to address."[43] He was also concerned that the divergent views across the EU could mean setting such a high political eligibility criteria that it could exclude all but the but the very best-performing low income countries. However he made clear that a commitment to human rights was a key condition of UK aid under the Coalition Government and that the UK was waiting to see what the Danish Presidency drafted on the matter.[44]

53. We need to be careful that money spent is not directly or indirectly used for the wrong purposes by the heads of corrupt regimes. However we also agree with the UK Government that conditionality should not punish the poorest people for the sins of their governments.

Economic growth and the private sector

54. An Agenda for Change said that the EU should encourage more "inclusive and sustainable economic growth" which was "crucial to long-term poverty reduction".[45] Its vision includes:

attracting and retaining private domestic and foreign investment and levering the private sector to deliver public goods;
corporate social responsibility at international and national level;
creating healthy educated workforces by focusing on social protection, health and education - supporting sector reforms and strengthening local capacities;
creating favourable business environments by supporting regulatory framework reforms and promoting agricultural, industrial and innovation policies;
better and more targeted Aid for Trade and trade facilitation;
supporting sustainable agricultural practices; and
offering technology and expertise as well as funding to secure access to affordable, clean and sustainable energy.

55. The Commissioner told us:

economic growth per se does not guarantee less poverty in the country, but without growth you can't expect to win against poverty. [...] the private sector brings economic prosperity but also the rule of law. It brings also democracy and human rights.[46]

He recognised that there were three basic difficulties for the private sector in developing economies: access to money which he believed could be achieved through development banks; access to energy, which he saw as crucial particularly in rural areas; and governance which he saw could be achieved through political dialogue and discussion with the EU.[47]

56. The NGOs' main concern is that the focus on the private sector will benefit international multinational companies rather than local business and that commercial profit will be prioritised over social and environmental concerns. BOND said:

The Agenda fails to recognise that increasing levels of economic growth will not automatically deliver desired development results. Its narrow focus on GDP-led growth and a reliance on 'trickle down' effects of private sector development alone, without full consideration of environmental and social impacts and resource constraints, will only deliver unsustainable development, the challenges of which will far outweigh any short-terms gains.[48]

57. The Minister used the example of China as where the growth of the private sector had delivered millions of people out of poverty. His vision for economic growth was to "focus on building local institution and business capacity, to encourage the development of small and medium sized enterprises and co-operatives" and to create regulatory and legislative framework reforms which are conducive to growth.[49] He thought that this had been suitably reflected in An Agenda for Change saying:

I am pleased to see that they are looking to support economic growth and the private sector, which is again aligned with the realignment of DFID policies for the UK

and he said that the UK was working with the EU to make more effective use of the European Investment Bank in supporting the private sector by boosting resources available to business.[50] However, we are unclear how the Commission proposes to assist the private sector as the Agenda lacks specific details.

58. We support both the UK Government and the European Commission's focus on wealth creation through the private sector. DFID needs to get clarification from the European Commission on what this means in practice, how it is to be achieved and, in particular, how the Commission intends to support local business and ensure access to finance for small to medium-sized businesses or entrepreneurs in developing countries.

Policy coherence

59. Article 208 of the Lisbon Treaty obliges the EU to take into account development policy objectives in any other policies which might impact on developing countries. An Agenda for Change states that the EU is at the 'forefront' of the Policy Coherence for Development agenda. However, the Agenda is very light on detail only singling out the need for a joined-up approach to security and poverty and smoothing the transition from humanitarian aid and crisis response to long term development cooperation. It also mentions migration and mobility.

60. ODI suggests that, in order to promote development, the EU needs to implement meaningful reforms to the Common Agricultural Policy (CAP) to remove damaging distortions in the market.[51] The ODI said:

the Common Agricultural Policy, is one of the main obstacles to a lot of development objectives.[52]

This has also been echoed by African academics who said back in 2010 through a letter to the Daily Telegraph:

A real offer from the British people to help our development would consist of the abolition of the Common Agricultural Policy, which keeps African agricultural exports out of the European marketplace.[53]

61. The Minister told us that the UK Government was working to ensure there was a strong focus on developing countries in EU trade negotiations. The UK was also pressing for trade liberalisation and new economic partnership agreements with the ACP countries.[54] He highlighted the importance of policy coherence on climate change and its consequences on poverty, survival and economic opportunity and said that the UK was pressing for greater coherence between DG CLIMA[55] and DG DEVCO to gain a clearer EU position on climate finance .[56]

62. Greater policy coherence in Europe on development is a worthy aim. There has been a slight improvement in the trade agenda and the Minister is optimistic on the potential for coherence between Climate Change and Development policies. However, as African academics have highlighted, the reform of the Common Agricultural Policy (CAP) could do more good than anything else. DFID needs to take a greater role in UK Government discussions highlighting the damage done by both tariff and non-tariff barriers to the developing world. In particular DFID should press Commissioner Piebalgs to engage widely in Europe on development, challenging those with vested interests in the CAP and who oppose its reform. There needs to be a much tougher approach to joined up government on development.

Joint programming

63. An Agenda for Change highlights that "fragmentation and proliferation of aid is still widespread and even increasing" and as a result concludes that the European Commission "must take a more active leadership role" to make European aid more effective. The European Commission's solution is joint programming of EU and Member States' aid through multi annual programming documents which draw up the division of labour and financial allocations per donor and per sector. The intention is for Member States to follow the document when devising their own bilateral aid plans. As Simon Maxwell told us:

there are too many donors in the world. We do not need lots and lots of small donors all trying to tell the Government of Ghana how to run its health policy. There is a strong case for multilateralism simply in order to reduce transaction costs.[57]

64. So far joint programming is being piloted in two areas, one of which - South Sudan - we have recently visited and reported on.[58] It was evident from our visit that the establishment of the EU's full delegation is still in an early stage and we are unable yet to assess how this arrangement is working.

65. The Minister told us that joint programming was the one area of concern for the UK Government with An Agenda for Change. He said that the UK was pushing the case in negotiations for any joint programming to be "country led", "locally owned", and that it must be a "partnership arrangement"—he was firm that it must not be a "mandatory, EU led process."[59] He concluded that:

We would never sanction the idea of joint programming going to the point where ultimately Ministers were not responsible for the decision that we make about the way that DFID's budget is spent, and about the way that we can achieve greatest value for money through the impact we can have on the poorest people.[60]

Simon Maxwell explained that DFID and other big bilaterals were "nervous that the Commission does not have the capacity to lead and do not necessarily want to be coordinated in that way."[61]

66. The concern is, however, that without joint programming the European Commission merely becomes a 28^th donor—a further donor for the recipient country to have to deal with on top of the 27 Member States' bilateral programmes. The Minister recognised this. He also thought that the pilot in South Sudan was going well—coordinating the significant donors.[62] For joint programming to work his vision was for a situation:

where people come together in order to share what they believe to be the best way forward, to be tailored to the country, to be country led, to be negotiated partnership arrangements, and then to make sure that there is a real sense of ownership.[63]

67. It seems sensible that there is a reduction in the overlap between donors by having a form of joint programming, however the question remains over who coordinates the process if Governments do not want to hand over responsibility of bilateral projects to the European Commission. As the ODI points out—everybody wants to coordinate, but no one wants to be coordinated.[64]

68. We have concerns that, although joint programming has the potential to prevent the overlap of Member State bilateral programmes and reduce transaction costs for recipient countries, the European Commission does not necessarily have the capacity or the expertise to lead the coordination. The lead donor who coordinates policy for bilateral donors should be the one with the most experience in the area and a proven track record.

Differentiated development partnerships

69. An Agenda for Change states that:

The EU must seek to target its resources where they are needed most to address poverty reduction and where they could have greatest impact.

A differentiated EU approach to aid allocation and partnerships is therefore key to achieving maximum impact and value for money.[65]

The Commissioner intends to do this by allocating funding according to country needs assessed using several indicators including: its fragility and vulnerability; its ability to generate domestic resources and its access to other sources of finance; its investment in education, health and social protections as well its progress on democracy and good governance; and the potential impact the EU funding would have especially on political reform and on private sector investment.[66] The Communication recognises that this could result in "less or no development grant aid" for some countries and a different development relationship with others.[67]

70. The proposals for differentiated development partnerships are already underway in the EU. In December 2011 the European Commission unveiled its proposals for the EU's external action instruments as part of the Multi Annual Financial Framework (the European Commission spending review) for 2014-20. The Commission has proposed that all countries that represent more than 1% of the world's GDP or are upper middle income are to be excluded from receiving bilateral aid. So as of 1 January 2014, 19 countries will no longer be eligible for bilateral aid.[68] However these countries may still be eligible for aid through the European Neighbourhood and Partnership Instrument, European Instrument for Democracy and Human Rights and the Instrument for Stability, as well as thematic funding under the Development Cooperation Instrument. It is expected that the Commission will 'save' around €2 billion which can then be invested in poorer countries.[69] Simon Maxwell explained:

if countries have resources, including large foreign exchange resources—and India has over $250 billion-worth of foreign exchange—it is hard to see why we should be taxing British people in order to add to those resources.[70]

However last year we concluded that we supported DFID's programme in India as there were more poor people there than in the whole of sub-Saharan Africa.[71]

71. BOND has expressed concern about differentiation between countries on the basis of whether they are middle income or low income, saying this is too simplistic and inconsistent with the objective of reducing poverty. BOND prefers the UK approach of using "individual, country specific analysis, transparent criteria and a pro poor approach which allows different targeted forms of cooperation to be developed."[72] Tearfund also argues that the European Commission should follow DFID's lead and target aid to the poorest regions within middle income countries whilst working with the governments to develop their own poverty reduction strategies.[73]

72. ODI has questioned the validity of the European Commission's proposed criteria given that South Africa and Cuba both qualify for the cut to funding as countries that represent more than 1% of the world's GDP and yet are excluded. ODI's key questions are: what countries will graduate next? How will this be approved? How will these funds be redistributed?[74]

73. A further concern amongst NGOs is that, for those countries which will no longer receive aid, there should be a clear exit strategy and not a sudden cut in funding.[75] ODI suggests relationships with these middle income countries might be developed: as countries such as India are often strategically important, the European Commission might not have an "aid" relationship, instead one based on mutual cooperation in specific sectors, in particular climate change.

74. Considering the concern that so much EU funding goes to middle income countries - the Commission's proposal of differentiated development partnerships seems in line with DFID policy. We questioned the Minister on the reduction in the number of countries and he said that

The UK has pushed very hard to ensure that aid is targeted where it will have the most impact, very much based upon individual country needs, as properly assessed, and the priorities we have set[76]

and he was keen that EU policy should be focused on 'pro-poor' projects.[77] In addition by being in fewer countries the European Commission administration costs should be reduced.

75. We support the European Commission's proposals for differentiated partnerships and, in particular, that there should be a reduction in the number of countries in which the Commission has a programme. However, the Commission should go further. So far the proposals have been focused on the Development Co-operation Instrument. We believe that this should also cover countries which receive funding under the European Neighbourhood Partnership Instrument and those who are members of the African, Caribbean and Pacific group covered by the European Development Fund.

Budget support

76. Alongside the publication of the Communication on An Agenda for Change, the Commission published proposals on the use of its budget support.[78] The Communication on Budget Support ties in with An Agenda for Change's greater emphasis on conditionality. As the Commissioner told us:

When we engage in budget support we should spell out much more the obligations and expectations from both sides. They expect, and rightly expect, that the money will be delivered exactly on the date and they could put it in the budget [...] but from the other side I also need a clear commitment that is deliverable. I also need the political situation in the country not to deteriorate so that I have a full conscience when I am delivering budget support.[79]

77. Simon Maxwell explained the advantages of budget support as being twofold:

The first is you save a lot of money on admin costs by spending on budget support. It costs about a third as much to deliver budget support as it does project aid. Secondly, and more importantly from a development point of view, budget support empowers local governments; it supports their political process in setting budget priorities, and strengthens institutions in the recipient country. There is a good substantive reason why budget support has been very popular. [80]

78. DFID said that whilst it supported joint dialogue on political and other conditions for budget support, it would ensure that the UK and other EU Member States retained ministerial authority over bilateral budget support operations.[81] The Minister also told us that DFID would be reducing the proportion of its overall bilateral spending through budget support over time.[82]

79. Whilst we approve of the concept of budget support we also recognise that it has its limitations when countries are emerging from conflict and are fragile. It is only suitable in countries with sound administrative capacity and a reasonable record of pluralism and human rights.

36 European Commission Communication Increasing the Impact of EU development Policy: an Agenda for Change, Brussels 13 October 2011 Back

37 "Commissioner Piebalgs proposes changes to EU development policy" European Commission press release October 2011 Back

38 Andrew Mitchell speech on 5 October 2010 http://www.conservatives.com/News/Speeches/2010/10/Andrew_Mitchell_Value_for_money_and_a_rigorous_focus_on_results_for_British_aid.aspx Back

39 European Commission Communication Increasing the Impact of EU development Policy: an Agenda for Change Brussels 13 October 2011 p 5 Back

40 Ev 54 Back

41 Q 105 Back

42 Q 156 Back

43 Q 155 Back

44 Q 163 Back

45 European Commission Communication Increasing the Impact of EU development Policy: an Agenda for Change Brussels 13 October 2011 p 7 Back

46 Q 107 Back

47 Q 107 Back