The Peer Review of EU aid: a challenge from the OECD

Posted by

The peer review of EU aid from the Development Assistance Committee of the OECD was published just before Christmas. It is a timely report which should change the debate about external funding in the EU’s Multi-Annual Financial Framework for 2021-27, and also cause political parties and their groups to rethink their manifestos for the European Parliament elections in May 2019.

The DAC peer review was formally led by Canada and Japan, based on extensive work by the DAC Secretariat. There are definitely accomplishments on which the EU can pride itself, and signs of progress since the last review in 2012. For example, the EU has shown global leadership in development policy by building a common vision, including in its contribution to the design of the Sustainable Development Goals, by leading in humanitarian assistance, and by championing the development effectiveness agenda. Among other observations, references to strong public support within the EU, investments into multi-stakeholder partnerships, and maintaining 15% of EU aid disbursed as budget support are all positive features.

All this is to be celebrated. Two decades ago, the OECD’s Development Assistance Committee’s peer review of the European Community was brutal. It observed a ‘splintered administrative and policy culture’ that was more interested in procedures than in actual development results. It said that ‘the organisational framework has appeared to influence policy, rather than the opposite’. And, among a bundle of challenging recommendations, it called for a unifying development policy statement. Since then, key changes made to address these challenges have included EU Treaty changes advancing an integrated EU foreign policy, and a central Directorate General in charge of development policy and implementation (minus relations with the EU’s Neighbourhood, and humanitarian aid, both of which are managed separately). On the policy side, strong efforts have been made to advance aid effectiveness, including through the  European Consensus on Development, originally adopted in 2005 and updated in 2017, and the 2016 Global Strategy which outlines the roles of EU development policy in advancing the EU’s values and foreign policy aims.

However, the DAC review also makes clear that the EU’s development policy is far from reaching a moment of ‘mission accomplished’. The review is diplomatic and carefully worded. However, there are six main issues highlighted in the report, most also common themes of ETTG publications on EU development finance.

First, disproportionate funding to Middle Income and Upper Middle Income countries. A startling 43% of EU aid is spent in Upper Middle Income countries, principally Turkey and others in Europe itself and in the Middle East and North Africa. It is shocking that only 27% of EU aid is spent in least developed countries; and – perhaps even more so given the continent’s prominence in the EU’s policy discourse – only 26% in sub-Saharan Africa. The EU institutions provide only 10% of the aid that sub-Saharan Africa receives. Turkey has a case for support, not least to help support its humanitarian case load, but as an Upper Middle Income Country, and given current growth projections, it will in due course graduate from the OECD’s list of ODA-eligible countries. Will the EU’s aid budget then be cut, or will the money be redistributed to other needy regions?

Second, a proliferation of poorly coordinated instruments and special purpose vehicles, including the geographical and thematic instruments under the Budget, the European Development Fund, the European Fund for Sustainable Development, various investment facilities, and a series of Trust Funds. Some of these are managed holistically at country level, supporting unified results frameworks and implemented through country systems, but many are not. The DAC Report is especially critical of EU Trust Funds in this regard, as also was a recent report by the EU Court of Auditors on the EU’s Emergency Trust Fund for Africa.

Third, and a related point, the report gives prominence to the fact that 27% of all EU aid is spent through the European Investment Bank, which stands somewhat apart from the rest of the EU’s aid programme. Most of the EIB’s activities are not aid-related and take place within the EU, and of those which do not, about 10% of the total, most take place in the immediate neighbourhood, where most countries are middle-income.  Another recent development to be addressed is the considerable and unhealthy competition between the Commission, the European Investment Bank and the European Bank for Reconstruction and Development – among others – on blended finance. Does the EIB need a new external mandate, and does it need better oversight?

Fourth, a generous, but casual and under-strategised engagement with the UN and other multilaterals. The DAC report points out that as much as a quarter of EU ODA is channelled through multilateral organisations, mainly in the UN. This is much higher than the 16% average of EU Member States. For example, the EU is the second largest donor to the World Food Programme. However, hardly any of the EU’s funding provides core support to the UN agencies, but is rather disbursed on a contractual basis for specific programmes (so-called ‘multi-bi’ funding). Further, it entails considerable financial cost, since the EU itself and international organisations, as well as any subsequent intermediaries, all add their overhead costs. The DAC report calls for a more systematic engagement with the UN, and for the EU to set out a convincing rationale for its current practice.

Fifth, inadequate staffing, especially in terms of professional expertise on the technical aspects of development. It is remarkable that the EU, almost alone among large development organisations, has no cadre of professional advisers – economists, engineers, governance and so on. The EU has to rely on national experts seconded to Brussels by Member States, or on external consultants.  The position is very different in Member States, especially those with independent aid agencies: the UK’s DFID, for example, has over 850 professional advisers, organised into 13 cadres. The total number of staff employed by DEVCO, the EU’s development agency, fell from 4000 people in 2012 to 3000 in 2018. ECHO, the humanitarian agency of the EU, has a further 800 staff. The DAC report notes that far too much of this small amount of staff time is spent administering the slow, bureaucratic complexity of the EU’s aid machinery. The report also notes that the EU can make better use of its dense network of Delegations in developing countries, by giving them more financial autonomy. This would be a welcome development in view of the considerable centralisation of funding decisions on development policy under the Barroso II and Juncker Commissions.

Sixth, promoting policy coherence continues to be a problem. The DAC Report notes that the biennial report reviewing the development impact of EU policies with respect to trade, finance, migration, climate change and food security has been suspended. The last report was published in 2015. Yet achievement of the SDGs requires more than aid, and demands strong integration of internal and external policies. In fact, the EU itself strongly promoted ‘beyond-aid’ engagement during the negotiation of the 2030 Agenda. The EU is challenged by its continuing fragmented setup, with different treaty articles (including separate ones on development defined as poverty reduction and sustainable development) having been assigned to different Directorates General.

The peer review offers many other topics for discussion. ETTG work has focused, for example, on migration, food policy, renewable energy and climate change, as well as the topics above. We have set out the case for a new, ‘positive multilateralism’, to reframe globalisation, reduce conflict, and deliver sustainability. It is not axiomatic that the EU should be the instrument of choice in all these areas, so a degree of focus is necessary, but the EU does bring many assets and has a track record to be proud of.

The key issue, however, is to seize the opportunity provided by the publication of the DAC peer review to re-focus discussion about the next Multi-Annual Financial Framework, as well as the overall shape of development policy into the 2020s.

As far as the MFF is concerned, the Commission has submitted proposals, which are now being discussed by Member States and the European Parliament. The centre piece is a new Neighbourhood, Development and International Cooperation Instrument (NDICI), proposed by the Commission in May 2018. The proposed instrument would provide € 89 bn over 7 years, of which 92% is to be counted as official development assistance. € 32 bn (or just over a third) is to be earmarked for sub-Saharan Africa, a slight increase on the current share. 20% of the NDICI envelope is to be spent on human development, the current target, but one which, the DAC Report makes clear, is far from being fulfilled. Simplification of instruments is promised, including incorporation of the European Development Fund (EDF) into NDICI, and greater flexibility. There is no mention of the UN, or the EIB. Direct negotiations of the proposed instrument will follow in due course between the European Parliament and the EU Member States, the latter group having had frequent discussions since last summer. The European Parliament, in turn, is currently considering its position on the proposed regulation through a joint report by its development and foreign affairs committees. At the time of writing, 1377 amendments have been proposed.

Turning to wider development issues, the EU needs to improve its profile in the area of policy coherence: the SDG agenda is global and universal. There is also a wider question about where the EU will position itself in relation to its Member States. Historically, it has gradually been entrusted with development policy as an area of European integration. Although the EU Member States have traditionally been sensitive as regards their own bilateral development policy, recent trends whereby national interests are gaining more weight in EU policy-making, the Member States’ implementing agencies, development finance institutions and other national actors are increasingly involved in implementing EU aid makes this discussion unavoidable. At present, the EU institutions disburse about 20% of EU ODA. If EU Member States meet their commitment to reach 0.7% of GNI as aid by 2030, and if the MFF proposals are agreed in their current form, this share will fall sharply. Is that what policy-makers want? If not, the current funding proposal represents the bare minimum.

Authors: Niels Keijzer (DIE) and Simon Maxwell (ETTG, Chairperson)

Image courtesy of the European Parliament press room.

Leave a Reply