Tag Archives: Aid

Eurodad briefing paper: The UNCTAD principles on promoting responsible sovereign lending and borrowing

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Money matters for development. How to make financing more responsible and ultimately a more effective driver of development has been a key concern for the development community in recent years. In 2009, Eurodad released the first Responsible Finance Charter, outlining a comprehensive set of principles on how to regulate international finance better in order maximize its benefits while minimizing the harm it could do. This was comprehensively updated in 2011 to include private as well as public finance. Last year, the United Nations under the leadership of UNCTAD released the Principles on Promoting Sovereign Lending and Borrowing which are the first comprehensive set of principles on the subject from official side.

This briefing paper analyses the UNCTAD Principles and compares them with the Eurodad Responsible Finance Charter.  It finds that the UNCTAD Principles have started to fill the gaping hole in the international financial architecture caused by the lack of institutions to promote responsible financing. Among their many benefits is that the UNCTAD Principles make clear that state officers dealing with debt – borrowing or lending – are agents of citizens and obliged to act as such, in an accountable and transparent manner. They also promote the principle of co-responsibility of both parties – borrowers and lenders – for prevention and solution of debt crises that can result from irresponsible lending. As such, the UNCTAD principles stand out positively when compared to the debt management work done by creditor institutions such as the World Bank and the IMF, who tend to put the blame for wrongdoings on the borrower side, and make their populations pay the price for adjustments.

We also find, however, that limited political risk appetite has constrained the Principles and reduced their value. Compared to Eurodad’s Charter, the scope of the UNCTAD Principles is narrow as they cover just sovereign loans, neglecting private finance. Significant gaps remain, for instance in the area of effective debt work-out mechanisms. Implementation will be a challenge as so far neither hard nor soft accountability mechanism exist that would drive their implementation.  Just 13 of the 193 UN Member States have so far formally endorsed the Principles, and even their actual compliance reamins unclear because it is not yet monitored. While the UNCTAD Principles signify an important step forward on the path to responsible financing, much work remains to be done to reach the goal. 

Download the briefing paper here

Negative outlook for development cooperation

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By Jeroen Kwakkenbos

The latest figures from the Organisation for Economic Co-operation and Development (OECD) on donor official development assistance (ODA) have been released. For the most part, the Development Assistance Committee figures do not make for very positive reading.

The majority of donors, particularly the largest by volume, have reduced their contributions to development assistance by $ 5.4 billion – from $ 133.7 billion to $ 128.3 billion between 2011 and 2012. In the European Union, the share of combined gross national income (GNI) to ODA fell from 0.44% to 0.42%, representing an overall drop of 7.3% in total ODA compared to 2011.

The poorest countries are hit particularly hard, with bilateral support to Least Developed Countries dropping by 12.8% or $ 26 billion. The OECD, the European Commission and civil society groups are calling for donors to meet their international commitments, which they have publicly reaffirmed time and time again. 

Aid effectiveness still an issue

Very little recent data on the effectiveness of development cooperation exists, as no comprehensive monitoring has been conducted since the Paris Monitoring Survey 2011. However, data on contract awards does exist and reveals a bleak picture.   

The OECD 2012 report on untying aid notes that many countries have officially untied aid, but the “very high shares of procurement that continue to go to enterprises in donor countries raises concerns about how untied some of that aid really is”. So, while aid may be untied de jure, it may not be untied de facto. The figures on contract awards unveil that much aid flows to donor country businesses rather than contributing to local economic development in recipient countries.

Incorporating private finance through leveraging and Public Private Partnerships (PPPs) has become commonplace in discussions surrounding aid effectiveness, particularly in terms of how to ‘crowd in’ investment in a manner that is pro-development. As Eurodad has pointed out, these types of financial flows are problematic for a variety of reasons, ranging from whether they are fit for purpose to measuring impact. Furthermore it is unclear whether they would provide real development additionality or would detract financing from gaps in the public sector. Further problems are related to transparency, accountability and the fact that the majority of the beneficiaries of these flows are firms based in OECD countries and tax havens.

Aid figures still inflated 

Not all the gains were positive. Austria saw an increase of 6.1%, primarily due to debt relief in sub-Saharan Africa. However, while debt relief is positive, civil society groups such as ActionAid and Aidwatch have argued for some time now that it should be additional and should not be counted towards ODA. Furthermore, as Aidwatch has repeatedly pointed out, the reported figures should not be taken at face value as they are inflated by other means such as including student and refugee costs. According to AidWatch, “[a]t least € 7.35 billion (14%) of EU aid was inflated aid in 2011”.

Several donors have expressed an interest in opening the ODA definition to include a variety of other financial flows outlined in a European Centre for Development Policy Management paper commissioned by the German and Dutch governments. This initiative was further spelled out in an OECD DAC discussion paper prepared before the high-level meeting held in London on December 4-5 in 2012. This paper notes that “the ODA concept may need to be re-examined in the light of two somewhat opposing critiques: first, that it is too broad, allowing the inclusion of items that do not involve cross-border transfers of resources and budgetary effort; second, that it is not broad enough, omitting or undercounting some official and effective efforts in favour of development.”

While DAC members have agreed not to open the ODA definition before 2015, a workplan is being developed that will explore new ways of incorporating cross-border flows such as climate finance and peacekeeping. There is also further pressure to represent ‘ODA neutral flows’ from Development Finance Institutions and other investment tools that focus on concessional lending rather than grants.

Overall, the DAC presents a mixed picture, which is mainly negative. Within Europe, most of the gains made in good faith were small compared to overall losses. Though the proportion of aid in government budgets is tiny, the economic crisis is frequently stated as a key reason for aid cuts. However, examples such as those of the UK show that it is possible to scale up ODA in difficult times when the right political priorities are set. Instead, many donors are looking for ways to increase their figures without scaling up commitments. Civil society watchdogs will have to keep a close eye on the discussions surrounding ODA to ensure that donors meet their commitments fairly and not by including dodgy financial flows that may or may not have a positive development impact.

Smart procurement for food security

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Eurodad  has produced a new briefing on smart procurement and food security.

Procurement is an important share of economic activity in any country. In most developing countries, public procurement is either the main or second area of government expenditure, often with considerable finance from Official Development Assistance (ODA).

Smart procurement can make a major contribution to the eradication of hunger and poverty in several ways. Local and regional procurement can support the development of the domestic economy, such as in the agricultural sector. Smallholder farmers, mainly women, can benefit from new opportunities by creating new markets and raising incomes. Moreover, the use of country procurement systems increases ownership and domestic accountability in recipient countries. Open and efficient public procurement practices can contribute towards the sound management of public expenditure and poverty reduction through delivery of public services in health, education and infrastructure.

In the last decade, the international community has committed to ensuring aid effectiveness, by untying aid and using recipient countries’ procurement systems as the first option. Despite this, donors keep tying their aid and influencing developing countries’ government policies. Eurodad research shows that two thirds of contracts awarded by bilateral donors still go to firms from Organisation for Economic Co-operation Development (OECD) countries.

Some initiatives have already arisen in support of local procurement, such as the World Food Programme’s Purchase for Progress. Brazil and India have also launched their own national food purchase programmes and are sharing the expertise and lessons learned.

Food advocates and campaigners have an opportunity to put smart procurement at the top of the international agenda. Donors should stop thinking of aid, especially food aid, as another channel to export agricultural surpluses and consider its purpose in helping developing countries to be independent and to provide for their own people.

Read the full briefing: Smart procurement for food security

Committee on World Food Security takes step towards pro-poor procurement

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by Francesca Giubilo

The 39th session of the Committee on World Food Security (CFS) drew to a close on 20 October. Its final report endorsed some interesting recommendations, including a clear message to support local purchases. Recognising the relevance of local procurement for food security may hint at a positive change in mindset for the years ahead.

Based on the High Level Panel of Experts’ report on social protection and food security, the CFS – the most inclusive international and intergovernmental platform for all stakeholders working on food security and nutrition – recommends that Member States and international organisations should launch programmes aimed at supporting “agricultural livelihoods and productivity for the poor”. In an exhaustive list that includes “production input support” and “agricultural livelihood packages and extension services”, there is a strong message on procurement, supporting “home-grown school feeding that purchases food from local smallholder farmers”. In line with recent Eurodad research, buying locally is recognised as an important way of developing domestic resources and eradicating hunger.

Over the years, pro-poor procurement has come back onto the international agenda, including at the High Level Forum on Aid Effectiveness and the recent Rio+20 meeting. Research conducted by Eurodad highlights how sustainable and public procurement can generate income, reduce costs and support the transfer of skills and technology. Local procurement allows aid monies to have a double dividend and to support domestic enterprises. It helps smallholder farmers to access markets, as well as strengthening farmers’ organisations. Moreover, through the use of country procurement systems, developing countries’ governments can increase their accountability and ownership, which allows them to launch social programmes efficiently and to provide for their own people.

However, the CFS also includes another element in the list above: the “in-kind transfers”, which is problematic. At present, some countries abuse this food delivery system to raise the incomes of their own agribusiness companies, instead of boosting domestic resources. Strong positions must be taken against this form of food assistance. Eurodad has been fighting for smart procurement and untying aid for a long time. For instance, with the support of partner organisations, we are currently calling on the World Bank to review its procurement policies and to promote pro-poor procurement guidelines.

The CFS recommendations are a small step forward in this struggle. Nothing will happen overnight, but now is the time to make faster progress and to convert this positive change in the international mindset towards something concrete.

European Parliament resolution on the EU “Agenda for change”: a welcome step

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Last week the European Parliament passed a resolution setting out its stance on the EC Communication on “Increasing the impact of EU Development Policy: an Agenda for Change”. The resolution on the future of EU development policy (rapporteur: Charles Goerens – ALDE) was passed with the overwhelming support of 540 votes in favour, 36 against and 65 abstentions. Despite having only general remarks on aid (ODA), the Financial Transactions Tax (FTT) and innovative financing, the resolution  insists that the implications of the proposed blending platform, which includes the mixing of public with private funds, need to be more carefully thought through, with parliament’s involvement.

ODA, FTT and innovative financing

The EP resolution points out that ODA “has to remain the backbone of the European development cooperation policy aiming at eradicating poverty”. This has a clear implication in relation to innovative sources of development financing, as for the EP “they must be additional, must be used on the basis of a pro-poor approach, and cannot be used to replace ODA in any circumstances”.

The Parliament “encourages the Council to take action on the Commission’s proposal for a well-designed, effective financial transaction tax designed to raise revenue in order to meet inclusive global development priorities”. It is worth mentioning that the October European Council meeting of development ministers ignored the Commission proposal on the issue.

On the role of the private sector

The EP resolution “demands that any support provided to the private sector in the form of ODA come within the framework of the national plans and/or strategies of the partner countries,” and that these monies should be focused on “the development of human resources, decent work, the sustainable management of natural resources and the development of high-quality inclusive public services for the benefit of the population.” This statement is very much in line with Eurodad’s stance on the issue.

Eurodad research shows that the majority of aid flows through the private sector in the form of procurement contracts for goods and services, and that the vast majority of this goes to rich country firms. Furthermore, the proposed use of aid to leverage private sector investments may detract from much-needed public sector investments, which still face huge financing gaps. In addition the EP resolution advocates for “safeguards to ensure that private companies respect human rights, offer decent jobs and pay their taxes in the countries where they operate”.

On leveraging private finance through a blending mechanism

In response to the EC suggested blending mechanism, “proposed to mix public grants with financial institutions’ loans and other risk-sharing mechanisms”, the EP resolution call on the EC “to provide clear information on how this mechanism serves the purpose of a development policy based on ODA criteria and how the power of scrutiny of Parliament will be exercised.” This is a welcome step, since it supports Eurodad and partners concerns in relation to the purpose and added value of the blending mechanism and to the way blending has been articulated. According to the EP resolution, the blending mechanism “should have no objective besides that of poverty reduction and the fight against inequality,” while there is also a need to promote better redistribution.

Specifically, Eurodad and partners submission to the EC consultation on the proposed EU Platform for External Cooperation and Development pointed out that there are a number of issues that deserve further consideration, including:

-    the risk of financial incentives outweighing development principles;
-    insufficient attention to transparency and accountability;
-    unclear monitoring and evaluation methods;
-    opportunity costs may be high, but are not carefully considered; and
-    debt risks for developing countries.

Finally, the EP warns against the “exclusive attention to economic growth and excessive confidence in the effects of automatic redistribution of development in the private sector” which could lead to unbalanced and non-inclusive growth without having a real impact on poverty reduction. In this regard, the EP also calls on the EU “to reconsider this policy in favour of sustainable development policies including trade, redistribution of wealth and social justice.”

PRESS RELEASE: Donor focus on “results” can lead to ineffective international aid

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BRUSSELS, 16 October 2012: The donor trend of making poorer countries earn overseas aid by achieving set targets before the funds are provided often does little to improve the impact of the assistance, the development network Eurodad says in a new report.

As the European Union debates its new long-term budget, the success of its Millennium Development Goals Contracts (MDG-C) is a good reason why the EU should continue its ambitious aid programme and remain the world’s top aid provider.

The MDG-C fares best in the report’s rigorous assessment of the six major international relief initiatives that use a results-based aid approach, but significant problems are found with several of the others.  They have failed to effectively improve local ownership, increase donor and recipient accountability, build on national policies, or significantly develop local procurement systems.

“The strengths, weaknesses and impacts of different results-based approaches are really not clear”, says Javier Pereira, the author of the report. “So it seems reasonable to use results-based approaches with some degree of caution”.

The 27-page report – “Hitting the Target? Evaluating the Effectiveness of Results-based Approaches to Aid” – examines the trend of making aid disbursements conditional on results to ensure value for money as pressure on budgets mounts due to the global economic crisis. It warns of the expense of monitoring and verification mechanisms to prove that results are being achieved.

Eurodad advises donors to conduct an aid impact assessment and only to opt for a results-based system if it will meet the needs of recipient governments, parliaments and civil society. Together, they should lead the design and coordination of the intervention. Donors must be wary not to undermine country systems or democratic processes.

Donors should also ensure that the results they impose are not based on controversial assumptions, such as adopting fully liberalised trade policies. The programmes, too, must be made predictable and sustainable by leaving sufficient time between the assessment of progress and the payment of funds. The intervention must not create aid dependency.

In addition, financial management and procurement should be handled by the recipient where possible, and if that is not possible help must be provided to strengthen the country’s own systems, rather than create parallel structures.

“There is very little reliable information about the links between results-based approaches and aid impact”, says Javier Pereira “Until there is, it is wise to use them sparingly and keep the aid effectiveness agenda in mind, lest we fall back into bad old habits”.

ENDS

The report, “Hitting the Target? Evaluating the Effectiveness of Results-based Approaches to Aid”, is available at: http://eurodad.org/1543793/; you can also download the report directly at: http://eurodad.org/wp-content/uploads/2012/10/Hitting_the_target.pdf

For further details or comment, contact:

  •  Javier Pereira, Eurodad policy and advocacy officer, on jpereira@eurodad.org or Tel: + 32 (0) 2 894 46 47; Mobile: +32 (0) 488 570 654; or
  • Jesse Griffiths, Eurodad director, on jgriffiths@eurodad.org or Tel: +32 (0) 2 894 46 40; Mobile: +32 (0) 491 429 697

Eurodad (the European Network on Debt and Development) unites 50 non-governmental organizations from 19 European nations working on issues related to debt development finance and poverty reduction

Hitting the Target? Evaluating the Effectiveness of Results-based Approaches to Aid

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Public and political pressure on budget allocations, coupled with the genuine need to make aid more effective to tackle the global poverty crisis, have resulted in a renewed focus on results. Several donors are promoting the use of aid to reward the achievement of predetermined performance targets. Though this is a recent trend, in 2010, total disbursements for results-based approaches broke the $5 billion barrier.

Results-based approaches make part or all funding conditional upon verification of progress. Donors like this because it allows them to point to tangible outcomes of aid expenditure, and, proponents argue, this will lead to more effective aid. But is this the case?

In this report we assess the potential of results-based approaches to deliver long-term and sustainable results by measuring the performance of different initiatives against widely agreed aid effectiveness principles. These principles – developed and agreed by all donors in four high level summits -were a response to the failure of project-based approaches that increased transaction costs, failed to have sustainable impact on recipient countries’ systems and often collapsed once funders moved on. They were an important attempt to move away from donor-driven aid that tended to promote the foreign policies of donors rather than focusing on poverty reduction.

Eurodad examined the following six major results-based initiatives and assessed their performance against four key internationally agreed aid effectiveness principles: ownership; accountability and mutual accountability; harmonisation; and alignment and use of country systems. We also examined whether they had a ‘broad’ scope or a ‘narrow’ one, in terms of: how specific the objectives are; the level of funding (from national to local); and the flexibility with which the recipient can use the money.

  • The European Commission’s Millennium Development Goals Contract (MDG-C).
  • The GAVI Alliance (GAVI) Health System Strengthening support and Immunization Services Support (due to their similarities both initiatives have been these two initiatives have been depicted together in the tables examining their alignment with aid effectiveness principles.).
  • The Millennium Challenge Corporation’s (MCC) Threshold and Country Programs.
  • The Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM).
  • The Global Partnership for Output-Based Aid (GPOBA). 

We then assigned each a traffic light score against each key principle. Green means that there is a good level of alignment with the principle, orange means average and red low.

The main findings of this research are:

  • In general, results-based approaches are not particularly good at supporting aid effectiveness principles, with the exception of the MDG-C. However, broader approaches do appear to be better aligned with aid effectiveness principles. 
  • Ownership tends to be higher when the responsibility for designing programmes falls on recipient governments. This does not mean that donor led approaches such as the MCC cannot achieve significant degrees of ownership, but results are likely to be less consistent, have higher costs and impose a significant burden on host governments and civil society. 
  • Results-based approaches tend to reinforce accountability to donors and in doing so, undermine mutual accountability. In general, the problem is less acute with country wide initiatives and it is most pressing when working through third party service providers. 
  • The level of harmonisation of results-based approaches is low because of their widespread use of parallel structures. Donor harmonisation seems to be higher the broader the approach, with the MDG-C being the best performer. 
  • Only two of the approaches examined in this report use country systems to a significant extent: MDG-C and GAVI. Even in these cases there are significant eligibility and public financial management criteria that influence and limit the type of country systems that recipient countries can implement.

In addition to these concerns, one of the most important findings is that there is little evidence or evaluation of the strengths, weaknesses and impacts of different results-based approaches. Therefore, it seems reasonable to use results-based approaches with a degree of caution.

Read the full report: Hitting the Target? Evaluating the Effectiveness of Results-based Approaches to Aid

An updated summary of “How to spend it: smart procurement for more effective aid” report

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Procurement is a keystone in development finance. Eurodad estimates that US$ 69 billion of aid money is spent on procuring goods and services annually either by donors or by recipient countries, more than 50% of total Official Development Assistance (ODA). Procurement practices are, therefore, key to ensure that aid delivers the best development results. More than ten years after initial agreements to untie aid, two thirds of contracts awarded by bilateral donors still go to firms from Organisation for Economic Cooperation and Development (OECD) countries.

Aid untying is essential for smart procurement as well as the use of country systems, which increases ownership and domestic accountability, and improves the chances for local firms to win contracts. Much more can and must be done to fully exploit the potential of targeted and wellregulated procurement, which can yield a double dividend for poverty eradication and sustainable development.

Read the full updated summary: How to spend it: Smart procurement for more effective aid

Download the full report published on September 2011 in different languages: How to spend it: Smart procurement for more effective aid

(Español) Fondos públicos para el sector privado ¿Es posible invertir en empresas privadas para beneficiar a los pobres?

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Desde hace décadas, los gobiernos donantes y las instituciones multilaterales conceden subvenciones y préstamos a empresas privadas que operan en países en desarrollo. Sin embargo, fue en los años noventa cuando este tipo de financiación se multiplicó drásticamente. En 2010, la inversión externa de las IFIs en el sector privado superó los 40.000 millones de USD. Se espera que en 2015 la cantidad de dinero invertido en el sector privado supere los100.000 millones de USD, es decir, casi un tercio de la financiación pública externa a los países en desarrollo. Ante el estancamiento de la AOD mundial, algunas agencias de ayuda han sugerido que se aumente drásticamente la financiación pública para apoyar las inversiones del sector privado.

El uso de AOD para invertir en el sector privado es un hecho controvertido para las
organizaciones de la sociedad civil. La financiación pública al desarrollo puede representar un papel esencial a la hora de proporcionar fondos a empresas con limitaciones de crédito, desatando así el potencial de un sector privado pujante que contribuya a la creación de empleos decentes, pague unos impuestos justos a los gobiernos y proporcione bienes y servicios a los ciudadanos. Sin embargo, es fundamental que la financiación pública se dirija a las empresas y sectores que tienen un peor acceso a los mercados de capital privado, garantizando así que los escasos recursos públicos constituyan realmente un complemento de la financiación privada. Por tanto, deben dirigirse a empresas y sectores que tengan un mayor impacto sobre la pobreza, garantizando que las inversiones públicas para el desarrollo se emplean para los objetivos marcados.

El presente informe evalúa si la financiación pública externa (no nacional) a las inversiones privadas en el Sur cumple con el compromiso de proporcionar financiación a empresas de países en desarrollo con limitaciones de crédito y tener un impacto positivo sobre el desarrollo. Más precisamente, el informe analiza la cantidad de financiación al desarrollo que se destina al sector privado en lugar de al sector público; qué instituciones conceden este tipo de financiación y cómo; qué tipos de empresas son las que más se benefician de la financiación pública; y cómo se aseguran las instituciones de desarrollo de que financian inversiones responsables que contribuyen a un desarrollo equitativo y sostenible.

Para ello, Eurodad evaluó las recientes tendencias de las subvenciones, los préstamos y
las carteras de algunas de las principales agencias multilaterales y bilaterales de desarrollo que proporcionan financiación pública a inversiones privadas en países en desarrollo. Entre los ejemplos analizados se encuentra la Corporación Financiera Internacional del Banco Mundial (CFI), los préstamos externos del Banco Europeo de Inversiones (BEI) a través de sus mecanismos de inversión en los países de África, el Caribe y el Pacífico y el Fondo Fiduciario UE-África para la Infraestructura, además de seis IFD de Dinamarca, Bélgica, los Países Bajos, Noruega, España y Suecia.

Fondos públicos para el sector privado ¿Es posible invertir en empresas privadas para beneficiar a los pobres?

US food aid contracts: what lies beyond aid?

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By Francesca Giubilo,

Is the real purpose of aid to eradicate poverty or is it just another excuse to allow rich firms to raise their own incomes and boost the economy of developed countries? Recent research conducted by the Guardian has assessed that two-third of the US food aid contracts are awarded to three of the biggest agribusiness companies. (Louis) Dreyfus; ADM, Bunge and Cargill, also known as the ABCD group, account for between 75% and 90% of the global grain trade, yet receive the majority of US food aid contracts.

So, what lies beyond aid? Food aid refers to a specific category of ODA aimed at reducing hunger and starvation either in the short term, through emergency operations, or in the long term. However, an Oxfam study which assesses the inefficiency of US food aid, points out that in 2010 it reached roughly 65 million people despite spending more than $2 billion. According to this research, US food aid would have been able to reach between 4.8 million and 7.3 million more hungry people if food was purchased locally.

Although the US is the largest provider of food aid, accounting for 56% of all food aid, it still uses its food aid programme as ‘corporate welfare’ for its own companies. US food aid is problematic as it relies on “in-kind” food and shipments from US suppliers, spending most of the aid on transportation and non-food items. A more productive and less costly alternative would be to procure directly from local and regional markets in the affected areas as that would not only provide food, but also boost the incomes of local farmers and suppliers.

Studies show that multiple benefits can be achieved through local and regional procurement in terms of timeliness and cost-effectiveness as well as boosting domestic resources, accountability and country ownership, which are the core issues of Eurodad proposals on aid effectiveness.

How much longer do we have to wait before donors change their mindset towards food aid and developing countries? Food aid should not be another channel to export agricultural surpluses and to pay back political favours at home, rather it should be a tool, whose main aim should be to help developing countries to be independent and to provide for their own people.

Despite some steps towards the reform, US efforts must decouple aid from narrowly defined national or sectoral interests if developing countries are to truly benefit from these financial flows. Time for change has come! No more excuses!