What is the EU's comparative advantage with respect to aid?
Gareth Thomas MP, Under-Secretary of State International Development, DFID
Carlos Montes, Development Strategies Consultants
Tony Baldry MP, Chair, International Development Committee, House of Commons
1. Tony Baldry, Chair of International Development Committee, House of Commons, welcomed the audience and introduced the two speakers.
2. Gareth Thomas, Under-Secretary of State International Development, DfID, emphasized that development cooperation is one area where Europe has the potential to be a tremendous force for good. This requires an understanding of where the EC's comparative advantages are or should be. One needs to identify not only what the EC is the best at, but also what the EC is relatively good at when compared to other multilateral and bilateral donors.
3. Gareth Thomas said that it was easy to criticize the Commission for being inefficient but examples like EU aid to the Western Balkans, particularly Kosovo, show that EC aid can be administered efficiently and effectively. Sadly, there are also several EU projects that have not been effective. There is a need to learn from these bad examples. He therefore welcomed the EU reform programme and called for further reforms, particularly with the EU enlargement in mind. The recently published UK White Paper on the Intergovernmental Conference (IGC) supports key DFID objectives for EU development policy, such as the commitment to poverty reduction as the main objective for development co-operation.
4. From Gareth Thomas' point of view, a natural division of labour in the development community should emerge whereby partners and donors work where they can add value. DFID is currently thinking internally about options for the future of the international aid system and, in particular, is reflecting on the bilateral/multilateral aid split. Multilateral aid has a number of distinct advantages, for example by offering economies of scale and a potentially less confusing range of partnerships for recipient countries. DFID is considering what should be the right amount of resources to channel through multilaterals - including through the EC.
5. The European Commission manages some €10bn of external assistance with only 1900 staff. This is why it is so important to concentrate energies on where it can add value. The EC identified six areas of engagement where it can add value based on the Commission's expertise, experience and preferences:
- Trade and development
- Regional integration and co-operation
- Macro-economic support and equitable access to social services
- Food security and sustainable rural development
- Institutional capacity-building
7. To conclude, Gareth Thomas asked whether the EC reforms have been sufficient. He saw evidence of recent short-termism and responding to political diplomacy. The EC risks again trying to engage in everything. This has to stop, said Thomas - it is worsening the dysfunctionality of the aid system. There is a danger of turning the EC into a 26th donor. Gareth Thomas gave the example of the disproportionate funding for the Mediterranean (US$98 per capita) and for Asia (just 50 cents per capita). Along the lines of poverty reduction, it will need to deal with its funding allocations. He called for a European-wide consensus around the objectives and strategy for EC aid policy, while building the capacity and systems within EU institutions.
8. Carlos Montes, Development Strategies Consultants, began his discussion with the premise that donors provide aid not only to address development goals but also to support foreign policy, security and commercial objectives. This can be seen when one looks at who are the top recipients of aid from major donors. These top aid recipients include many countries that rank at the bottom of democracy performance or of both democracy and corruption.
9. Montes observed that competition between donors is strong and donor specialisation and support to good governance is difficult to achieve. For example, there is strong competition between EU aid and the World Bank. This makes specialization difficult because donors want to be involved in a particular sector regardless of their effectiveness. Also, because of the need to pursue non-development objectives, aid to countries with bad governance is common.
10. A second observation was that good governance improves aid quality but countries with poor governance still remain important recipients of aid. This is lamentable because the development impact depends on quality not quantity. The quality is greater when supported governments are reasonably democratic and respect the rule of law. Carlos Montes stressed that more aid is not always good and that aid to governments of poor countries is not the same as aid to the poor.
11. Montes argued that, to improve the governance focus of aid, the American Millennium Challenge Account offers some innovative approaches. They consider allocating funds to reward only good governance countries, for example by passing a corruption test. This might be innovative but is also ensures stability. The rest of the aid programme remains available to traditional strategic partners.
12. The main value for the EU and its Member States is that it is an essential soft-power tool to promote EU foreign, security and commercial objectives which are central to promoting European values. It would equally support multilateral solutions, such as the Kyoto protocol or the International Criminal Court. In addition, it provides support to the near abroad and on neighbourhood issues that are central to EU citizens, like the control of borders, organised crime, drug and women trafficking, and regional stability.
13. From the perspective of the recipients of aid, the added value would be that the variety of aid increases. It provides recipient countries with a European option to the standard US / World Bank menu. In addition, it has the potential to address democracy and rule of law constraints to development. The value of EU aid is also shown by its focus on Russia, the Balkans and near abroad and on neighbourhood issues. Furthermore, the EU can play an important role in providing space for aid coordination between its Member States and for harmonisation of procedures at EU level.
14. To realise these values, Montes proposed to learn from EU aid experiences. External inspections should become common. In addition, the EU has to simplify its approach and focus on comparative advantages , while creating a fund to reward good governance performers. Lastly, he was proposing that the European Parliament and the Member States should exchange micro-management for greater role in strategy and external inspections.
15. A number of points were raised in the discussion:
- The relationship between common foreign policy goals and development policy was critically regarded: Should institutional capacity building rank higher on the agenda of EU aid?
- It was asked who is pushing priorities of the Mid-Term Reviews and whether Montes should more usefully distinguish between efficient aid and efficient ODA?
- It was criticized that EU aid is mainly channeled towards governments whereas support for civil society organization is scarce.
- The budget and capacities of DG Research could possibly provide useful starting points to build capacity in developing countries.
- The minister was asked whether he thought that the new accession countries had sufficient expertise to contribute to EU development cooperation.
- Montes approach of focusing on good governance was criticized for excluding the poor in bad governance countries.
The European Commission manages some €10bn of external assistance with only 1900 staff. This event looked at where this could be used to greatest effect to help developing countries.