EU and development policy
European Aid governed by the Cotonou agreement and financed by the EDF
Introduction:
European aid to countries from the ACP countries (Africa, the Caribbean and the Pacific) is the oldest of the EU’s external actions. It has always been governed by specific agreements (Yaoundé, Lomé, and now Cotonou) and financed by a specific fund from the EU’s general budget, namely the European Development Fund (EFD). An overview of the most recent developments is given below:
Table of contents:
1/ Cotonou Agreement
2/ European Development Fund (EFD)
3/ Trade relations and Aid for Trade
4/ European Investment Bank (EIB) – Africa Infrastructure Fund
1/ Cotonou Agreement
The Cotonou Agreement is a comprehensive partnership agreement between the EU and the African, Caribbean and Pacific (ACP) countries. It aims to reduce and eventually eradicate poverty and promote sustainable development. Notably, it provides for a commitment by the parties to human rights, democratic principles and the rule of law.
The Agreement was signed on 23 June 2000 in Cotonou for twenty years and may be revised every five years. Revised for the first time in 2005, it has just been amended again (June 2010) after a year of negotiations.
Compared with the Yaoundé and Lomé Agreements that preceded it as of 1975, the Cotonou Partnership Agreement introduced significant innovations in relations between the EU Member States and the ACP countries. It rests on five interdependent pillars: a comprehensive political dimension; a participatory approach that increasingly involves civil society; a more strategic approach focused on poverty reduction; the negotiation and conclusion of Economic Partnership Agreements (EPAs) and efficient financial cooperation.
The second revision of the Cotonou Agreement was signed by the European and ACP governments in Ouagadougou in June 2010. This revision compromises neither the attainments nor the specific nature of the ACP-EU Partnership. It has made it possible to adapt the ACP-EU Partnership to developments regarding the international context and the EU’s commitments on development cooperation. It focuses on taking due account of the following developments: the Africa-EU partnership and the strengthening of the role of the African Union (AU); negotiations on EPAs; the Paris Declaration in 2005 and, more generally, the commitments on aid efficiency; the strategic commitments concerning the Millennium Development Goals (MDGs); taking due account of climate change; the matter of food security; the interdependence between security and development and the EU governance initiative.
2/ European Development Fund
The European Development Fund (EDF) is the basic financial instrument for cooperation between the EU and the ACP countries. It consists of several instruments, including grants, venture capital and loans to the private sector. The 10th EDF covers the period from 2008 to 2013 and has an overall budget of €22,682 billion.
Belgium’s contribution amounts to 3.53%, or €800,674,600.
Under the 10th EDF, the amount set aside for the ACP countries is allocated to national and regional indicative programmes, intra-ACP and intra-regional cooperation and facilitating investment. An increased share of the budget is devoted to regional programmes, thereby emphasising the importance of regional economic integration as the basic framework for national and local development. The way aid is gives varies: it can take the form of projects or programmes, but is increasingly given as sectoral or general budget support, which is contributed directly to national budgets to help the countries implement their public policies.
Each ACP country is given a programmable allocation (budget section A) to implement the National Indicative Programme (NIP) and a non-programmable allocation (budget section B) for other needs. The amount of these allocations is initially fixed according to objective criteria (population, etc.) as well as in accordance with need and previous performance. The NIP is itself the financial expression of the Country Strategy Paper (CSP) that defines the priority sectors selected by mutual agreement with the country concerned for its long-term development. The CSP is adopted annually during an operational review. The NIP is adopted during the Mid-Term Review (MTR), i.e. in 2009-2010 for the 10th EDF, and may lead to a change in distribution, likewise based on need and previous performance. This mid-term review process is currently in progress.
To mitigate the soaring food prices, €200 million from the 10th EFD was freed up in 2008 to provide support to 30 countries, mostly in Africa. These funds were intended to help the beneficiary countries finance fiscal and budgetary measures so as to alleviate the impact of this abnormal rise in prices and support social measures for vulnerable population groups, particularly in urban areas. In 2009, the EU also set up a facility of €1 billion for rapid response to spiralling food prices.
In response to the consequences of the financial crisis for developing countries, the European Commission mobilised €500 million from the 10th European Development Fund to help ACP countries offset the effects of the crisis (through a financing mechanism called Vulnerability-Flex). In concrete terms, requesting countries were granted additional aid, subject to several eligibility conditions. Their economic, social and political vulnerability, in particular, was taken into consideration, based on such parameters as the deterioration of government revenues, the reduction of foreign currency reserves and the increase of the fiscal deficit. The objective of this funding is to lessen the social impact of the financial crisis, primarily by supporting the countries’ national budgets. In 2009, 13 countries benefited from such financing, including Benin, Burundi and Haiti. Several ACP countries will benefit from this aid again in 2010.
A sum of €300 million from the 10th EFD was reserved in the 2008-2010 period for the African Peace Facility (APF), an instrument intended to help the African Union (AU) and sub-regional organisations of the African continent to finance peace-keeping operations. The APF is based on the idea that maintaining peace and security in Africa is an indispensable condition for development.
Other facilities worth mentioning are the ACP-EU Energy and Water Facilities.
The ACP-EU Energy Facility is one of the instruments that Europe uses to address the issue of sustainable access to energy in ACP countries. That is why an initial Energy Facility was established in 2005, with a total budget of €220 million from the 9th EDF. The EU capitalised on the success of this initiative to create a second Energy Facility with a budget of €200 million for the 2009-2013 period, drawn from the 10th EFD. The first call for proposals for a total of €100 million was issued on 30 November 2009. The new Facility will include new co-financing instruments, namely financial support for energy governance through the EUEI Partnership Dialogue Facility and a pooling mechanism that will involve the European financial institutions and the private sector.
The ACP-EU Water Facility was set up in 2004 (€500 million) with the principal objective of providing water and basic sanitation to the poor and improving water management governance in African, Caribbean and Pacific (ACP) countries. A further €200 million were allocated to the new ACP-EU Facility under the 10th European Development Fund (EDF) for the 2010-2013 period. Two new calls for proposals were published in February 2010. The specific objectives of the Water Facility are: (1) to help achieve the Millennium Development Goals (no. 7), in particular sustainable access to water and basic sanitation so as to reduce child and maternal mortality and combat disease; and (2) to contribute significantly to improving water management governance and to the sustainable development and maintenance of the water infrastructure (particularly the technical, environmental and economic viability).
3/ Trade relations and Aid for Trade
Thanks to the Lomé and Cotonou Agreements, ACP countries enjoyed preferential and non-reciprocal access to the EU market in trade relations as well. Such access, however, is contrary to the rules of the World Trade Organisation (WTO), which all ACP countries have joined. For this reason, the Cotonou Agreement provided for the replacement of preferential trade regimes with new Economic Partnership Agreements (EPAs) geared to the development of ACP countries through enhanced trade and regional integration. These EPAs are asymmetrical (the EU opens its market more than the ACP countries) and provide for a gradual liberalisation with a transition period of up to 25 years for sensitive products. In addition to trade in goods, which is necessary for WTO compliance, they also deal with trade in services, investments, development cooperation, and so on.
The negotiations to conclude the EPAs took longer than expected, so at the end of 2007, the EU and ACP countries decided to conclude interim EPAs. This temporary solution was necessary to continue to comply with WTO requirements and to avoid trade distortion. The only ‘comprehensive’ agreement concluded to date is the EPA with the Caribbean (CARIFORUM). Negotiations with the other regions to reach ‘regional’ and ‘broad’ agreements are still ongoing. Progress is difficult, particularly because of the political sensitivity of this issue in certain African countries.
The ACP countries have made out a case that concluding an EPA will come at a cost. An EPA will lead to an increase in competition for national producers for one, and also to a loss of tariff revenue through liberalisation – an important source of government income in many of these countries. To help ACP countries capitalise on the opportunities offered by the EPAs, the EU charted an Aid for Trade strategy in 2007, undertaking to invest €2 billion per year (€ 1 billion by the Commission and €1 billion by the Member States) in technical assistance for trade by 2010. Moreover, the EU wishes to increase its aid in other important areas such as production capacity and infrastructure, which constitute what is known as the broad Aid for Trade agenda. ACP countries are given priority (about 50% of the increase in resources). Recent OECD-DAC figures in the Monterrey Report show that the EU will achieve these objectives in 2010.
Furthermore, the Council Decisions of May and November 2008 mention regional Aid for Trade packages, intended to optimise coordination of the aid provided by the Commission and the Member States. An example of a regional Aid for Trade package is the West African EPA Development Programme (known by the French acronym PAPED). This programme describes the needs of West Africa so that it can be brought in line with the EPA.
Belgium wants to see these EU commitments materialise and as such, charted its own Belgian Aid for Trade strategy in 2008. This strategy is geared to integrating aid for trade more structurally in our cooperation.
4/ European Investment Bank (EIB) – Africa Infrastructure Fund
The Africa Infrastructure Fund is geared to financing major regional projects in Africa in four sectors: energy, transport, telecommunications and water. The cross-border nature of the project is a vital prerequisite to eligibility for financing from this fund. The European Investment Bank took the initiative of creating the fund at the instigation of the European Commissioner for Development Cooperation. Thirteen donor countries contribute to this fund, which currently amounts to €172.7 million.
The fund governance bodies are: the secretariat, located physically at the EIB and headed by a Belgian, a former official of the Société Financière d’Investissement (Financial Investment Company), which belongs to the World Bank group; the financial committee, composed of financial expert representatives from the donor countries and the Executive Committee, which takes the final financing decisions (a more political level).
In practice, decisions are taken in the Financial Committee and are then adopted by the Executive Committee. The representatives of countries in the Financial Committee are major financial institutions such as the KfW for Germany, the AFD for France, or the COFIDES for Spain. These institutions are capable of presenting technical and financial projects for the account of multinationals with considerable contributions from banks. Once these projects are accepted, they are provided with support from the fund in the form of interest rate subsidies or funding for feasibility studies. Although the principle of untied aid is applied, once the projects are accepted, the countries that have invested in this fund and have an institution capable of presenting projects will get a return on their investment in the fund through the aforementioned support. Besides, companies from those countries will be selected through the invitations to tender.
The Belgian contribution amounts to €1 million. Belgium is represented in the Financial Committee by the Société belge d’Investissement pour les Pays en Développement (BIO - Belgian Investment Company for Developing Countries) and in the Executive Committee by the DGCD (Directorate General for Development Cooperation).
