The new EUEuropean Union development policy. A waymark reached. Is the finish line in sight?

Here is another test for the Kremlinologists, and others intrigued by ambiguity in EUEuropean Union policy-making. The European Foreign Affairs Council has finally issued Conclusions regarding the new European Union development policy, ‘Agenda for Change’, published in October 2011. A 12-page document from the Commission has been whittled down to five. What has been gained and lost in the process? And is it now possible to see what kind of settlement will be reached when the Multi-Annual Financial Framework for 2014-20 is agreed?

The main outcome of the Council process seems to be that it has welcomed the new policy and ‘endorsed’ the key strategic priorities of Agenda for Change. These are (a) a focus on two over-arching pillars of development cooperation, broadly governance and growth; (b) a new focus on ‘differentiation’, with different strategies for countries at different levels of development; and (c) (up to a point) greater emphasis on the EUEuropean Union as a whole working better together at country level.

At the same time, there are some important differences of emphasis between the Communication and the Conclusions. To a large extent, these reflect the ‘hidden hand’ of the EUEuropean Union Presidency in the first half of 2012, in the shape of the Danish Minister for Development Cooperation, Christian Friis Bach. This is evident, for example, in strengthened language on rights, in which he has a special interest, and also on fragile states. Other Member State preoccupations are also reflected in the document. For example, it would not be surprising to learn that the UK had had a hand in drafting the paragraph on aid volume, reiterating the commitment to reach 0.7 by 2015. This topic was not mentioned in the Communication.

Language on some aspects of Agenda for Change has been weakened. There are, for example, approving references to sharing a common results framework at country level; but there is no mention in the Conclusions of the proposal in Agenda for Change that there should be single ‘EU contracts’ for budget support. Similarly, whereas there are many references to aid conditionality in Agenda for Change, the topic is not mentioned in the Council Conclusions.

We commented on the strategic priorities when they were first published, and made the point that it would really only be possible to judge the new policy when more detail had been provided. It will be interesting to see whether more detail will be provided in the Regulations currently under negotiation, which will govern spending on different aid instruments in the period of the next Multi-Annual Financial Framework (2014-20). The draft Regulations are quite specific, for example about which countries will and will not receive aid. For the time being, the Council has kept its powder dry on issues like these.

Nevertheless, there are some challenging features of the new policy, especially as now agreed by the Council.

Governance and human rights

With regard to governance and human rights, there can, of course, be no argument with the core principles, enshrined in both the Treaty on European Union and in the Cotonou Partnership Agreement with the ACP. Thus, Article 2 of the Treaty states that ‘The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail’. By the same token, Article 9 of the Cotonou Agreement describes human rights, democratic principle, the rule of law, and good governance as ‘essential elements’ of the partnership.

The challenges arise in the messy world of implementation, where poor and often fragile states with weak institutions have to be supported in what Francis Fukuyama has described as ‘getting to Denmark’. Do civil and political rights ‘trump’ economic and social rights, such that the right to assembly, for example, becomes the dominant factor, regardless of progress on health and education? Are rights absolute, or is it correct to look for concrete and targeted steps towards progressive realisation? Concretely, should aid be conditional on the democracy and the protection of rights? And what happens to the poor who depend on aid, if rights are threatened?

Many donors have struggled with these questions, turning aid on and off, changing aid instruments (for example more or less budget support), and working through or by-passing Government. These are live issues for many donors, in countries like Zimbabwe, but also in donor darlings like Ethiopia or Rwanda. For example, the EUEuropean Union itself has just revised its policy on budget support. Commenting on the political dimensions of the new policy, a group of researchers affiliated with the European Think-Tanks Group has concluded that

‘while the ECEuropean Community can no longer afford to be ambivalent to democratic governance conditions in recipient countries, tying budget support more strictly to political conditions poses a number of significant challenges. (In particular) in certain contexts donors can leverage changes in democratic governance, provid­ed they drastically improve on coordination to produce coherent incentives for the recip­ient government and employ a credible set of sanctions in case of non-compliance. Yet donors do not have a strong track record in doing either of these. Currently no clear strategy exists on how bud­get support can be used to leverage politi­cal change and promote democratic gov­ernance.’

Inclusive and sustainable growth

As far as growth is concerned, the phrase of choice in both Communication and Conclusions is not just ‘growth’ pure and simple, but ‘inclusive and sustainable growth’. Agenda for Change defines the challenge as follows:

‘Inclusive and sustainable economic growth is crucial to long-term poverty reduction and growth patterns are as important as growth rates. To this end, the EUEuropean Union should encourage more inclusive growth, characterised by people’s ability to participate in, and benefit from, wealth and job creation. The promotion of decent work covering job creation, guarantee of rights at work, social protection and social dialogue is vital. Development is not sustainable if it damages the environment, biodiversity and natural resources and increases the exposure/vulnerability to natural disasters. EUEuropean Union development policy should promote a ‘green economy’ that can generate growth, create jobs and help reduce poverty by valuing and investing in natural capital, including through supporting market opportunities for cleaner technologies, energy and resource efficiency, low-carbon development while stimulating innovation, the use of ICT, and reducing unsustainable use of natural resources.’

The Council Conclusions define the problem slightly differently, and it may – but may not - be that the nuances are important. Thus

‘As for inclusive and sustainable growth, support for inclusiveness will be focused primarily on social protection, health and education. Support to social inclusion and human development will continue through at least 20% of EUEuropean Union aid. Furthermore, the EUEuropean Union will strengthen those sectors that have a strong multiplier effect in developing countries, notably sustainable agriculture and energy, including natural resources management. In this context, giving poor people better access to resources such as land, forests, food, water and energy without harming the environment will be given special emphasis. These sectors are key to the transition to a green economy, including resource efficiency, and also contribute to food and nutrition security, environmental protection and climate change mitigation and adaptation.

Decent work – an ILOInternational Labour Organisation construct - appears to have dropped off the agenda here, and the focus on social protection, health and education as the instruments of inclusivity appears to sideline the role of industrial policy – a rising topic, as the World Bank’s Chief Economist, Justin Lin, has argued in his new book, ‘New Structural Economics’.

More generally, the green growth agenda is beset with public policy dilemmas, as the World Bank has argued in its new paper on green growth, and as the new European Report on Development, dealing with resource scarcity, has demonstrated. The word ‘transformation’ is over-used, but the UK’s Royal Society is right, in its recent report on People and the Planet, to say that tackling climate change and dealing with other environmental threats will require ‘radical transformation’.

Differentiation

On differentiation, the question of whether or not donors should continue to give aid to middle-income countries is one of the most debated issues in development. Jonathan Glennie has reviewed the arguments. Some believe that poor people are entitled to aid wherever they live, and that MICs should receive aid for other reasons also, for example as regional growth poles. Others argue that aid should be concentrated on the poorest and most resource-constrained countries.

Agenda for Change clearly sides with the latter group. It argues that

‘The EUEuropean Union must seek to target its resources where they are needed most to address poverty reduction and where they could have greatest impact. Grant-based aid should not feature in geographic cooperation with more advanced developing countries already on sustained growth paths and/or able to generate enough own resources. Conversely, many other countries remain heavily reliant on external support to provide basic services to their people. In between, there is a spectrum of situations requiring different policy mixes and cooperation arrangements. A differentiated EUEuropean Union approach to aid allocation and partnerships is therefore key to achieving maximum impact and value for money. The EUEuropean Union should continue to recognise the particular importance of supporting development in its own neighbourhood and in Sub-Saharan Africa. It should, in all regions, allocate more funds than in the past to the countries most in need, including fragile states.’

The Council endorses the Commission’s proposed aid allocation priorities, including to the neighbourhood – a policy that will not be popular with those (including UK parliamentarians in a recent report) who argue that spending on middle income countries in the neighbourhood is not a good use of aid money. The allocation of resources as between geographies will be a major issue in the negotiations over the multi-annual financial perspective. Again, the Council is keeping its powder dry for the time being.

Specifically, the criteria laid out in Agenda for Change are: country need; capacity; country commitments and performance; and potential impact. We know from the proposed regulation of the Development Cooperation Instrument that, in addition, the Commission proposes to exclude countries accounting for more than 1% of global GNI. 19 countries will be excluded on this basis from traditional bilateral aid: Argentina, Brazil, Chile, China, Colombia, Costa Rica, Ecuador, Kazakhstan, India, Indonesia, Iran, Malaysia, Maldives, Mexico, Panama, Peru, Thailand, Venezuela and Uruguay. This list is likely to prove controversial.

Moreover, as one of us has commented:

‘the 19 countries that the ECEuropean Community proposes to graduate from aid are on the list because they are upper-middle-income countries or, in the case of India and Indonesia, has more than 1% of the global Gross National Income (GNI). The 1% of global GNI cut-off point seems rather arbitrary, as does the formula for deciding eligibility. Despite the list, South Africa, an upper-middle-income country, will continue to be a key recipient of ECEuropean Community aid. And the African, Caribbean and Pacific (ACP) group of coun­tries will also be exempt from the process, illustrating the importance of political factors in such decision-making.

Overall, it seems that the ECEuropean Community uses income status of a country as the basis for the decision, yet this fails to recognise that aggregates say little about the capacity of a country to address poverty. Furthermore, in some cases, joint phasing-out strategies focused on the common objective of fighting poverty and inequality will be needed.

The proposal to cut aid to influential emerging coun­tries presupposes that the Commission has devel­oped a strategy to find new ways to work with them to address global challenges. However, the focus of the Partnership Instrument is clearly on cooperation with EUEuropean Union strategic partners to promote mutual interests and give the ‘Europe 2020’ strategy a global reach, rather than on tackling regional and global problems and the provision of global public goods (where emerg­ing countries are key). Apart from climate change, the main focus of the instrument is on growth, finance and trade. Tackling global challenges is left mainly to the thematic programme under the DCI.’

Working better together

Finally, as regards working better together, references to ‘joint programming’ and ‘a single EUEuropean Union contract’ have been dropped. What began with: ‘The EUEuropean Union should develop a common framework for measuring and communicating the results of development policy, including for inclusive and sustainable growth’, has been transformed into: ‘The Council calls on the EUEuropean Union and its Member States to promote a common results-based approach, including through the use of strengthened results-based frameworks at country level, and to strengthen their capacities to monitor and evaluate results.’

The background to this is that in the Agenda for Change, the Commission had proposed for the EUEuropean Union and the Member States to jointly prepare strategies and programmes and better divide labour amongst themselves. Behind this was the idea that the Commission would take a more active leadership role in coordinating and harmonising donor activities. The Agenda for Change proposed that the EU, together with the Member States, should develop a single programming document for each recipient country, laying down a division of labour and financial allocations to guide Member States’ aid as well. Evidently, some Member States interpreted this as a bid by the Commission to have a bigger say over national development aid, and over aid channelled through the European Development Fund which is controlled by the Member States.

In conclusion, it is important that the Council has endorsed Agenda for Change – and of interest that additional guidance has been issued on rights and some other topics. The Commission will need to reflect on the guidance and, hopefully, amend its policy. Andris Piebalgs and his colleagues will also need to come to terms with the fact that coherent and joined-up working by the EUEuropean Union and its Member States will remain work in progress. No surprise there.

At the same time, insiders and outsiders need to recognise that the real negotiation is yet to come, particularly around the financial framework and the Regulations for the various instruments. The Council Conclusions make a generally helpful contribution to the eventual agreement, but many big questions remain to be answered.

This commentary, written jointly with Mikaela Gavas, was originally published on www.international-development.eu .