edz.bib.uni-mannheim.deedz.bib.uni-mannheim.de/edz/pdf/swd/2014/swd-2014-0235-1-en.pdfTABLE OF...

EUROPEAN

COMMISSION

Brussels, 3.7.2014 SWD(2014) 235 final

PART 1/5

COMMISSION STAFF WORKING DOCUMENT

EU Accountability Report 2014 on Financing for Development

Review of progress by the EU and its Member States

EN EN

TABLE OF CONTENTS

List of acronyms ......................................................................................................................... 3

Executive summary .................................................................................................................... 7

Introduction .............................................................................................................................. 18

1. Looking Ahead: Financing and Other Means of Implementation in the Post-2015 Context ....................................................................................................................... 19

1.1. Towards an Integrated Approach to All Implementation Measures .......................... 19

1.2. Policy Coherence for Development as an Important Non-financial Means of Implementation .......................................................................................................... 20

1.3. Financing and Other Means of Implementation: What’s Available? ......................... 24

1.4. Future of Development Finance Reporting ................................................................ 29

1.5. Strengthening Global Governance ............................................................................. 37

2. Domestic Public Finance for Development ............................................................... 39

2.1. Domestic Resource Mobilisation ............................................................................... 39

2.2. Maintaining Sustainable Debt Levels ........................................................................ 50

3. Private Finance for Development ............................................................................... 55

3.1. Private Investment for Development ......................................................................... 55

3.2. Corporate Social Responsibility ................................................................................. 60

3.3. Trade and Development ............................................................................................. 64

3.4. Remittances for Development .................................................................................... 70

4. International Public Finance for Development .......................................................... 75

4.1. Introduction ................................................................................................................ 75

4.2. Official Development Assistance ............................................................................... 76

4.3. Climate Finance ......................................................................................................... 90

4.4. Funding for Addressing Biodiversity Challenges ...................................................... 98

4.5. Technology Development and Transfer ................................................................... 104

5. Combining Public and Private Finance for Development ........................................ 110

5.1. Introduction .............................................................................................................. 111

5.2. Implementation Table .............................................................................................. 113

5.3. Recent Trends........................................................................................................... 114

5.4. EU policies and programmes ................................................................................... 116

6. Using Development Finance Effectively ................................................................. 129

2

6.1. Introduction .............................................................................................................. 130

6.2. Implementation Table .............................................................................................. 131

6.3. EU policies and programmes ................................................................................... 132

3

List of acronyms

ACP Africa, Caribbean and Pacific

ADF Asian Development Fund

AfT Aid for Trade

AEEP Africa-EU Energy Partnership

AGOA US African Growth and Opportunity Act

AITF EU–Africa Infrastructure Trust Fund

ALSF African Legal Support Facility

AMC Advance Market Commitment

AMCOST African Ministerial Council on Science and Technology

AMIS Agricultural Market Information System

AT Austria

ATAF Africa Tax Administration Forum

BE Belgium

BG Bulgaria

BEPS Base Erosion and Profit Shifting

BMZ Germany’s Federal Ministry for Economic Cooperation and Development

BPM Balance of Payments Manual

BSG Budget Support Group

BWI Bretton Wood Institutions

C2D Debt Reduction Development Contracts

CAC Collective Action Clauses

CBD Convention on Biological Diversity

CDKN Climate and Development Knowledge Network

CIAT Inter-American Centre of Tax Administrations

CIC Climate Innovation Centre

CIIP Competitive Industries and Innovation Programme

COP Conference of the Parties to the CBD

CPRD Country Poverty Reduction Diagnostic

CPSS Committee on Payment and Settlement Systems

CRS Creditor Reporting System

CSO Civil Society Organisation

CSR Corporate Social Responsibility

CTCN Climate Technology Centre and Network

CY Cyprus

CZ Czech Republic

DAC Development Assistance Committee

DANIDA

DC Developing Countries

DE Germany

DFID Department for International Development UK

DGGF Dutch Good Growth Fund

DK Denmark

DMF World Bank Debt Management Facility for Low Income Countries

DMFAS Debt Management and Financial Analysis System from United Nations UNCTAD

DRM Domestic Resource Mobilisation

DSF Debt Sustainability Framework

EBA Everything but Arms Arrangement

4

EBRD European Bank for Reconstruction and Development

ECOSOC United Nations Economic and Social Council

ECOWAS Economic Community of West African States

ECREEE ECOWAS Regional Centre For Renewable Energy And Energy Efficiency

EDCTP European and Developing Countries Clinical Trials Partnership

EDF European Development Fund

EE Estonia

EEAS European External Action Service

EIB European Investment Bank

EITI Extractive Industries Transparency Initiative

EL Greece

ERMI Renewable Energies and Industrial Maintenance

ES Spain

ETS EU Emission Trading System

EU European Union

EUACC EU-Africa Chamber of Commerce

EUR Euro

EUEI The EU Energy Initiative

FDI Foreign Direct Investment

FfD Financing for Development

FI Finland

FP Framework Programme

FR France

FTT Financial Transaction Tax

G20 Group of Twenty (G8 countries plus Argentina, Australia, Brazil, China, EU, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, and Turkey)

G8 Group of Eight (i.e. Canada, France, Germany, Italy, Japan, Russia, United Kingdom and USA, plus EU)

GAVI Global Alliance for Vaccines and Immunisation

GDP Gross Domestic Product

GEF Global Environment Facility

GFR Global Forum on Remittances

GIZ Gesellschaft für Internationale Zusammenarbeit

GNI Gross National Income

GSP Generalized System of Preferences

HIC High Income Countries

HIF Health Insurance Fund

HIPC Highly Indebted Poor Countries

HIV/AIDS Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome

HLF High Level Forum

HLM OECD/DAC High Level Meeting

HR Croatia

HU Hungary

IATI International Aid Transparency Initiative

ICF International Climate Fund

ICPE International Center for Promotion of Enterprises

ICT Information and Communication Technology

IDB Inter-American Development Bank

IE Ireland

IF EIB Investment Facility

IFCA Investment Facility for Central Asia

5

IFFIm International Financial Facility for Immunisation

IFI International Financial Institutions

IFM Innovative Financing Mechanisms

ILO International Labour Organisation

IMF International Monetary Fund

IRENA International Renewable Energy Agency

ISO International Standard Organisation

IT Italy

ITC International Tax Compact

KfW Kreditanstalt für Wiederaufbau

KNOMAD Global Knowledge Partnership on Migration and Development

LAIF Latin America Investment Facility

LECBP Low Emission Capacity Building Programme

LDC Least Developed Countries

LIC Low Income Countries (LDC+OLIC)

LT Lithuania

LU Luxembourg

LV Latvia

MDG Millennium Development Goals

MDRI Multilateral Debt Relief Initiative

MFF Multi-annual Financial Framework

MIC Middle Income Countries

MNC Multinational Corporation

MOI Means of Implementation

MoU Memorandum of Understanding

MS Member States

MSME Micro, Small and Medium Enterprises

MT Malta

NGO Non-Governmental Organisation

NIF Neighbourhood Investment Facility

NL Netherlands

ODA Official Development Assistance

OECD Organisation for Economic Cooperation and Development

OOF Other Official Flows

OWG Open Working Group on SDGs

PCD Policy Coherence for Development

PFM Public Financial Management

PIDG Private Infrastructure Development Group

PPP Private Public Partnerships

PRF Preliminary Reporting Framework

PRGT Poverty Reduction and Growth Trust

PSD Payment Services Directive

PSE Private Sector Engagement

PT Portugal

R&D Research and Development

REDD and REDD+ Reducing Emissions from Deforestation and Forest Degradation. REDD+ goes beyond deforestation and forest degradation, and includes the role of conservation, sustainable management of forests and enhancement of forest carbon stocks.

RO Romania

SADC South African Development Community

SSC South-South Cooperation

SDG Sustainable Development Goals

6

SE Sweden

SE4ALL Sustainable Energy for All Initiative

SES Senior Expert Service

SK Slovak Republic

SIDS Small Island Developing States

SME Small and Medium-sized Enterprises

SSA Sub-Saharan Africa

StAR Stolen Assets Recovery Initiative

STI Science Technology & Innovation

TA Technical Assistance

TADAT Tax Administration Diagnostic Assessment Tool

TCX The Currency Exchange

TEC Technology Executive Committee

TOSD Total Official Support for Development

TRA Trade Related Assistance

TRIPS Agreement on Trade Related Aspects of Intellectual Property Rights

TT Technology Transfer

UK United Kingdom

UN United Nations

UN DESA United Nations Department of Economic and Social Affairs

UNCAC United Nations Convention Against Corruption

UNCTAD United Nations Conference on Trade and Development

UNEP United Nations Environment Programme

UNFCCC United Nations Convention on Climate Change

UNGA United Nations General Assembly

UNITAID International Drug Purchasing Facility

UNTT UN System Task Team on the Post-2015 UN Development Agenda

US or USA United States of America

US$ United States Dollar

VAT Value Added Tax

WB World Bank

WIPO World Intellectual Property Organisation

WTO World Trade Organisation

7

Executive summary

This Staff Working Document is the twelfth in a series of annual progress reports prepared by the European Commission since 2003 (previously labelled ‘Monterrey report’). The Report responds to the Council’s mandate to the European Commission to monitor progress and report annually on European Union (EU) collective commitments, initially focusing on ODA commitments agreed to at the 2002 International Conference on Financing for Development in Monterrey. The Council later expanded the original monitoring mandate to cover more areas of Financing for Development, including domestic revenue mobilisation, aid effectiveness, aid for trade, and fast-start climate finance. The implementation table below summarises progress by the EU and its Member States in the implementation of forty commitments in all areas of Financing for Development.

Overall, the 2014 EU Accountability Report found:

substantial progress on EU commitments concerning domestic resource mobilisation, private finance for development, combining public and private finance for development, and using development finance effectively; and

limited or no progress on EU commitments concerning international public finance for development

All commitments analysed in this report have emerged over the last decade, as new challenges became clearer and the EU recognised the need to strengthen its global leadership in finding solutions to global problems.

EU Commitments Target Date Status1 Change

2012 -2013

Comments

Domestic Public Finance for Development

1. Support on tax policy, administration and reform

No date specified

= The EU and 18 MS provided support to strengthen tax systems of developing countries, but as last year this is still rather limited

2. Support for established regional tax administration frameworks (e.g. CIAT, ATAF)

No date specified

= The EU and five MS support the ATAF; the EU and four MS support the CIAT; the EU and four MS support the IOTA

3. Exploring country-by-country reporting by MNCs, exchange of tax information, transfer

No date specified

= The two amended Accounting and Transparency Directives introduce new disclosure

1Green: achieved or on track to be achieved; Orange: limited achievement, partly off track; or Red: off track.

Change in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour.

8


2012 -2013

Comments

pricing and asset recovery

requirements for the extractive industry and loggers of primary forests (Country by Country Reporting).

The EU and all MS are members of the Global Forum on Transparency and Exchange of Information for Tax Purposes;

The EU and 13 MS provided support to developing countries in adopting and implementing guidelines on transfer pricing.

Five MS provided support to the StAR Initiative

4. Encourage participation of developing countries in international tax cooperation

No date specified

= The EU and 17 MS support at least one forum or dialogue platform, including the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters (8), the International Tax Dialogue (4) and the International Tax Compact (4).

5. Ratify and implement the UN Convention Against Corruption (UNCAC) and the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions

As soon as possible, preferably before 2010 for UNCAC; no date specified for OECD Convention

+ The EU and all MS have signed the UNCAC.

22 MS have ratified the OECD Convention against bribery, but only two actively enforce it, 9ensure moderate or limited enforcement, while 11ensure only little or no enforcement.

6. Support transparency and accountability through EITI and similar initiatives, possibly also in other sectors

No date specified

= The EU and 9 MS provided support to the EITI, mostly through financial support to the international EITI Secretariat and/or the

9


2012 -2013

Comments

Multi-Donor Trust Fund. France, Germany, Italy and UK have committed to implementing the EITI Standard.

No consensus among Member States over whether and how the approach of EITI should be extended to other sectors

7. Support existing debt relief initiatives, in particular the HIPC Initiative and the MDRI

No date specified

= The EU and several MS are involved in either the MDRI or the HIPC, or both.

No new country reached completion point for HIPC in 2013; only one country (Chad) is yet to reach the completion point. Three other countries (Eritrea, Somalia and Sudan) remain eligible to access debt relief under the HIPC.

8. Support discussions, if relevant, on enhanced sovereign debt restructuring mechanisms, on the basis of existing frameworks and principles

No date specified

= The EU and 10 MS support ongoing discussions on the experience with and possible reforms to the existing frameworks and principles to deal with potential future sovereign debt distress.

9. Participate in international initiatives such as the WB/IMF Debt Sustainability Framework (DSF) and promote responsible lending practices

No date specified

= The EU and 4 MS support the Debt Management Facility. In 2013. France launched a proposal to commit for G20 members to commit to sustainable lending principles when lending to LICs.

10. Promote the participation of non-Paris Club members in debt-workout settlements

No date specified

= 7 Member States continue to support outreach actions by the Paris Club. The Paris Club organised in October 2013 a meeting attended by India and

10


2012 -2013

Comments

China.

11. Take action to restrict litigation against developing countries by distressed debt funds

No date specified

+ The Netherlands have adopted a new law in 2013 preventing litigation by “vulture funds”. In addition, France filed an amicus brief in the US Supreme Court in support of Argentina’s appeal within the context of the litigation against a group of investors. In July, 2013 German courts have rejected a similar claim by a hedge fund on Argentine assets.

Private Finance for Development

12. Support the development of the private sector, including small and medium-sized enterprises, through measures to enhance the overall investment climate for their activity, inter alia by promoting inclusive finance and through relevant EU investment facilities and trust funds

No date specified

= A new Communication on 'A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries' was approved in 2014, jointly with the new programming for the period 2014-2020.

EU and Member States continue to expand their initiatives to support the private sector with a variety of financial and non-financial instruments.

13. Enhance efforts to promote the adoption, by European companies, of internationally agreed principles and standards on Corporate Social Responsibility, the UN principles on business and human rights and the OECD Guidelines for Multinational Enterprises

No date specified

= The EU and 16 MS have indicated their support to various initiatives aimed at promoting internationally agreed CSR principles

14. Respond to the Commission’s invitation to develop or update Member States’ plans or

No date

specified

= 22 MS have committed to

publish their national

action plans on business

and human rights; 4 MS

11


2012 -2013

Comments

lists of priority actions in support of CSR

have already done.

15. Sustain EU and Member States’ efforts to collectively spend EUR 2 bn annually on Trade-Related Assistance by 2010 (EUR 1 bn from MS and the Commission respectively).

no date specified

= The EU & MS collective AfT reached an all-time high in 2012 (20% increase compared to 2011).

Concerning trade related assistance (TRA), the EUR 2.5 bn committed in 2012 by the EU and its MS exceed the EUR 2 bn target (approx. EUR 1.9 bn from MSs and EUR 0.6 bn from the Commission). An all-time high was reached in 2011 with EUR 3.0 bn, compared with EUR 1.8bn in 2007.

16. Give increased attention to LDCs and to joint AfT response strategies and delivery

No date specified

= In absolute terms, AfT committed to LDCs has increased from EUR 1.68 bn in 2011 to EUR 1.8 bn in 2012, although its share decreased in percentage terms.

33% of AfT flows were dedicated to ACP countries in 2012.

17. Reach agreement on regional Aid for Trade packages in support of ACP regional integration, under the leadership of the ACP regional integration organisations and their Member States, and involving other donors

No date specified

= In support of the negotiation and future implementation of the Economic Partnership Agreement EU-West Africa, the EU, its Member States and the EIB had committed EUR 8.2 billion (exceeding their EUR 6.5 billion target) for the period 2010-2014. An identical amount of additional EUR 6.5 billion has again been committed in 2014 for the period 2015-2020.Other packages are under preparation for other regions under the new MFF.

12


2012 -2013

Comments

18. Continuously review the EU’s Aid for Trade strategies and programmes, taking into account lessons learnt and focusing on results

No date specified

= An 'Evaluation of EU's Trade-related Assistance in Third Countries'2 was concluded in April 2013. Lessons learned are being incorporated in the new programming cycle for 2014-2020.

7 MS support the idea of revising the current EU AfT strategy which dates back to 2007. However, such a review process would need to wait until the recent WTO Trade Facilitation Agreement as well as the ongoing Post 2015 processes has concluded.

19. Enhance the complementarity and coherence between trade and development instruments, focusing on LDCs and developing countries most in need and increasing the engagement of the private sector

No date specified

= The new Communication on Strengthening the Role of the Private Sector in Achieving Inclusive Growth in Developing Countries provides policy and operational orientations on private sector engagement

20. Better coordinate EU aid for trade, and align it behind the development strategies of partner countries

No date specified

+ The Annual AfT Questionnaire reveals that 40% of EU Delegations and MS in partner countries consider that coordination and alignment of EU AfT has improved over 2013, in comparison to 2012, while 53% have perceived no particular change. Only 7% believe the situation has worsened3.

21. Enhance the impact on development of remittances

No date specified

= The EU and 8 MS reported specific actions aiming at increasing remittances'

2 European Commission (2013), Evaluation of the European Union's Trade Related Assistance in Third

Countries, http://ec.europa.eu/europeaid/how/evaluation/evaluation_reports/reports/2013/1318_vol1_en.pdf 3 More information can be found in the Aid for Trade Report, in Annex 4 of this Report.

13


2012 -2013

Comments

channelling to productive and social investments.

22. Reduce the global average cost of transferring remittances from 10% to 5% by 2014 (G8/G20 commitment)

2014

= The global average of sending remittances decreased in 2013, including in Italy, Germany and the UK.

The EU and 9 MS have indicated that they are taking action towards reducing the cost of remittances, including through the setting up/improvement of national remittances price-comparison sites.

International Public Finance for Development

23. The EU and its Member States agreed to achieve a collective ODA level of 0.7% of GNI by 2015

2015

= EU collective ODA/GNI ratio remained at 0.43% in 2013 and is projected to increase to 0.45% by 2015, but 24 MS do not expect to reach the 0.7% target by 2015

24. Take realistic, verifiable actions for meeting individual ODA targets by 2015 and to share information about these actions

No date specified

- 21 Member States provided information about their 2014 financial year allocations. Limited information was however provided on realistic/verifiable actions.

25. Increase collective ODA to Sub-Saharan Africa

No date specified

- EU ODA to Sub-Saharan Africa (SSA) was higher in 2012 than in 2004, but the increase is minimal and the share of ODA/GNI targeted to SSA fell to its lowest since 2004. EU bilateral ODA to SSA was stagnant in 2013 compared to 2012.

26. Provide 50% of the collective ODA increase to Africa as a whole

No date specified

= Only 22% of total EU ODA growth between 2004 and 2012 went to Africa, and EU bilateral ODA decreased by a little

14


2012 -2013

Comments

over 1% in 2013.

27. Provide between 0.15 and 0.20% of collective ODA/ GNI to the Least Developed Countries by 2010

No date specified

= EU ODA/GNI to LDCs was 0.14% in 2010, 0.13% in 2011, and 0.11% in 2012, moving away from the target, although there was a 20% increase of bilateral ODA to LDCs in 2013 compared to 2012.

28. Contribute EUR 7.2 billion over the period 2010-2012 to fast start climate funding

End 2012

= The EU and its Member States contributed EUR7.3 billion to fast start climate funding over the period 2010-2012

29. Work towards pathways for scaling up climate finance from 2013 to 2020 from a wide variety of sources, to reach the international long term committed goal of mobilising jointly US$100 billion per year by 2020

2013-2020

In 2013, the EU and its Member States submitted their first report to the UNFCCC on the EU strategies and approaches for mobilising and scaling-up climate finance on long-term. It will report again in 2014.

The EU Court of Auditors stated that coordination between Commission and MS on climate finance was still inadequate.

30. Hyderabad commitment to double total biodiversity-related international financial resource flows to developing countries, in particular Least Developed Countries and Small Island Developing States, as well as countries with economies in transition, by 2015 and at least maintain this level until 2020 compared to 2006-2010

2015 and 2020

EU biodiversity-related official financial flows to developing countries increased by 37% in 2011 and by 82% in 2012 compared to the average for the period 2006-2010, while preliminary data for 2013 indicate that such positive trend might have continued last year. However, several MS are still unable to report any biodiversity-related financial data, and none reported data on private flows.

31. Improve mechanisms for international STI

Not specified

- At least four MS funded initiatives aimed at

15


2012 -2013

Comments

cooperation and for the development of ICT on major sustainable development challenges

improving STI cooperation and several supported ICT projects.

32. Promote clean and environmentally sound technologies as a means to facilitate a transition to a green economy for all countries, regardless of their development status

2014-2020

- Marked advances only at EU level. 60% of the new Framework Programme 'Horizon 2020' will go to projects related to sustainable development, 35% to projects on climate change. Little spill-over funding expected for developing countries. Several MS are funding initiatives in this area

33. Support STI research cooperation and capacity building to enhance sustainable development in developing countries, including through the new Horizon 2020 research and innovation programme

2014-2020

= Several initiatives have been launched recently by the EU in the area of capacity, including through the 'Horizon 2020'programme. However, the absence of a coherent policy in STI for developing countries, the budgetary changes may result in an actual decline in STI funding in several areas. The EU and MS have invested respectively EUR 25 million and EUR 415 million in STI programmes.

Combining Public and Private Finance for Development

34. Consider proposals for innovative financing mechanisms with significant revenue generation potential, with a view to ensuring predictable financing for sustainable development, especially for the poorest and most vulnerable countries

No date specified

= There has been no particular increase in innovative financing sources. Some progress has been made in the implementation of a Financial Transaction Tax.

35. Promote new financial tools, including blending grants and loans and

No date specified

= The EU Platform on blending in External Cooperation is

16


2012 -2013

Comments

other risk-sharing instruments

progressing. New requirements to access grant financing put more emphasis on results to be achieved and the additionality of EU funding.

36. Use innovative financing mechanisms taking into account debt sustainability and accountability and avoiding market disturbances and budgetary risks.

No date specified

=

37. Strengthen the EIB’s capacity to support EU development objectives and promote the efficient blending of grants and loans in third countries, including in cooperation with MS’ finance institutions or through development financing facilities

No date specified

=

Using Development Finance Effectively

38. Implement the European Transparency Guarantee and the commitments related to the common open standard for publication of information on development resources including publishing the respective implementation schedules by December 2012, with the aim of full implementation by December 2015

December 2012 (schedule) and December 2015 (implementation)

= By December 2013, the European Commission and twenty Member States, including all nine that are signatories to IATI, had published schedules to implement the common standard, although a majority of published schedules were rated as unambitious by Publish What You Fund (PWYF). The EU had an average rating of “fair” in PWYF’s 2013Transparency Index.

39. Promote joint programming, and increase coordination in order to develop a EU joint analysis of and response to partner

No date specified

= Joint programming is underway in 20 partner countries, and may cover up to 40 partner countries over the next few years. In the programming period

17


2012 -2013

Comments

country’s national development strategy

2014-2020, joint programming will cover a considerable share of EU bilateral development cooperation instruments.

The EU and 8 Member States have issued guidelines on joint multiannual programming, and another 3 plan to issue them in 2014.

40. Implement the Results and Mutual Accountability Agenda

No date specified

= At this stage, the EU and 24 Member States participate in mutual accountability arrangements in more than 10% of their priority countries, with the EU and17 Member States doing so in 50% or more of their priority countries.

The EU and 23Member States participate in country-level results frameworks and platforms in more than 10% of their priority countries, with the EU and 16 Member States doing so in 50% or more of their priority countries.

18

Introduction

This Accountability Report is the twelfth in a series of annual progress reports prepared by the European Commission since 2003 (previously labelled ‘Monterrey report’). Building on previous reports, it assesses where the EU and its Member States stand in relation to forty common commitments on Financing for Development. This report is especially focused on the evolution in key areas since the 2013 report, and thus only summarises issues discussed at length last during previous years.

The Report responds to the Council’s invitation to the European Commission to monitor progress and report annually on common EU commitments. It initially focused on ODA commitments made at the 2002 International Conference on Financing for Development in Monterrey. The Council later expanded the original monitoring mandate to cover other areas of Financing for Development, including domestic revenue mobilisation, aid effectiveness, aid for trade, and fast-start climate finance.

For the fourth time, the Commission presents a single comprehensive report covering all topical issues of the international Financing for Development agenda. The report takes stock of progress of the EU as a whole (including Croatia, for the first time) towards the common commitments on financing for development, provides transparent reporting on progress and a factual basis for common EU positions in view of international events planned for 2014, particularly the discussions on the post-2015 Development Agenda including the Rio+20 follow-up on sustainable development.

The report is based on input provided by the 28 EU Member States and the Commission through (i) the 2014 EU annual questionnaire on Financing for Development, which covers key EU commitments related to the international Financing for Development agenda, and was for the first time filled in online, and (ii) public sources and online databases on development cooperation.

The Council also called on the Commission to make the annual progress report a model of transparency and accountability. As in 2011, 2012 and 2013, all Member States have agreed to the online publication of their replies to the annual questionnaire on Financing for Development. The Commission complements this exercise through Donor Profiles that give an overview of the overall development strategy of each Member State. All these documents are available on the EuropeAid webpage4. Annex 1 lists the bibliography for all chapters. Annex 2 presents the methodology applied for analysing ODA and climate finance. Annex 3 is the Statistical Annex on ODA trends (including individual graphs for all EU Member States showing the gaps to reaching 2015 targets for ODA to Africa and ODA to LDCs). Annex 4 consists of the Aid for Trade Report 2014.

4http://ec.europa.eu/europeaid/what/developmentpolicies/financing_for_development/index_en.htm

19

1. Looking Ahead: Financing and Other Means of Implementation in

the Post-2015 Context

1.1. Towards an Integrated Approach to All Implementation Measures

Over recent years, several international processes and consultations have fed into the contours of the so-called post-2015 development agenda, which is the agenda that should follow up on the Millennium Development Goals (MDGs) and the Rio processes. In general terms, the various processes feeding this agenda have two dimensions: on the one hand, some processes aim primarily at defining the content and goals of the post-2015 development agenda (what), and other processes discuss the means to reach internationally agreed goals (how). The post-2015 agenda will be negotiated from the end of 2014 on, with a view to agreeing a post-2015 development framework in September 2015. This negotiation will also be informed by the preparations of the follow-up to the Monterrey conference, foreseen in 2015 or 2016.

The first phase of the discussions on the post-2015 agenda focused on the potential issues and areas to be covered, but the means of implementation have surfaced throughout the process and are becoming increasingly central to the debate.

Means of implementation are sometimes seen as financial or non-financial (i.e. policies, capacity, governance), with the former going beyond official finance, and the latter including international as well as domestic policies of developed and developing countries. Such a separation does not reflect the Monterrey substance, which combines both policy and financing actions into a comprehensive strategy. While all countries should make best use of available tools, the optimal mix of means of implementation differs among countries. The deployment of the means of implementation in a post-2015 era must continue to be guided by the basic principle according to which each country has the primary responsibility for its own development.

The focus on means of implementation challenges the concept of costing which represents the theoretical underpinning of many EU commitments that are reviewed in this Report, as shown by current work on the infeasibility of assessing the financing needs with any credibility for a set of goals5; calculating a “means of implementation gap” suffers even more from the complexity. Conducive policies are key for moving towards sustainable development and can, for example, increase the domestic revenues and the impact of private resources, thus reducing the dependence on international public support. At the same time, the lack of transparency, predictability, and use of country systems of international official flows can negatively affect their impact. Complexity is further increased by the fact that financial and non-financial means of implementation influence each other’s quantity and quality, requiring their strategic mobilisation in a way that maximises synergies and impact.

Means of implementation are increasingly being discussed together with post-2015 goals. At Rio+20, Member States agreed to establish an intergovernmental open working group to design Sustainable Development Goals (SDGs). Established in January 2013, the Open Working Group (OWG) was tasked with preparing a report containing a proposal on a set of

5http://sustainabledevelopment.un.org/content/documents/2096Chapter%201-global%20investment%20requirement%20estimates.pdf

20

SDGs. The report is to be submitted to the 68th session of the UN General Assembly (UNGA) by September 2014 for consideration and appropriate action.

In its conclusion of 12 December 20136, the Council of the European Union recognised the intrinsic inter-linkage between poverty eradication and sustainable development, confirmed the EU commitment to “a single comprehensive framework and a single set of global goals.” The Council also reaffirmed the Union’s willingness to "contribute to the reflection on an integrated financial strategy framework which brings together different international financing discussions”, merging the Rio+20 financing strand and the Financing for Development follow-up process.

In its resolution of 20 December 2013 on the follow-up to the international conference on Financing for Development7, the UNGA stressed that "the holistic financing for development

agenda as contained in the Monterrey Consensus and the Doha Declaration should provide

the conceptual framework, including in the context of the post-2015 development agenda, for

the mobilisation of resources from a variety of sources and the effective use of financing

required for the achievement of sustainable development". In particular, the UNGA highlighted the need to "reinforce coherence and coordination and to avoid duplication of

efforts with regard to the financing for development process, with a view to ensuring a single,

comprehensive, holistic, forward-looking approach addressing the three dimensions of

sustainable development".

There is therefore a need for an integrated coherent approach towards financing for development, as also highlighted in the 2012 Council Conclusions on Financing for Development. Building on the Doha Declaration's promise to take concerted global action on different challenges, all the relevant international financing discussions should be linked within an overarching setting. The process to identify a sustainable development financing strategy, which emerged from the Rio+20 conference and the financing for development process should thus become one.

The focus of this Accountability Report, as per the Council’s mandate and the international FfD agenda as defined in the Monterrey Consensus and the Doha Declaration, covers most of the means of implementation, albeit mostly from a finance mobilisation angle. The EU actions on some of the non-financial means of implementation are also reviewed through the biennial EU Report on Policy Coherence for Development (PCD) and the annual Aid for Trade Report (published as Annex 4 to the Accountability Report).

1.2. Policy Coherence for Development as an Important Non-financial Means of

Implementation

1.2.1. Policy coherence for development is needed at all levels (national, regional and

global)

As a major global actor, the policies of the EU can also have a strong impact on third countries, especially developing and emerging economies. The Treaty on European Union, in its Article 208, requires the EU to take into account the objectives of development cooperation in all its policies. In addition avoiding negative impacts, by identifying the most damaging incoherencies and amending them where possible, this also entails looking for

6EU Council Conclusions of 12/12/2013: §4. 7 A/RES/68/204

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synergies between the objectives of EU development policies and other EU policies in order to make them more effective. The international reflection on the form and content of a post-2015 development framework has further highlighted the key importance of ‘beyond-aid’ issues, including Policy Coherence for Development (PCD). Beyond remaining a legal and political commitment at EU level, and an essential part of the EU development cooperation policy, PCD should be a key part of the discussion on means of implementation for the new framework. By emphasising and sharing its own experience on PCD, the EU could provide a useful contribution to the debate.

The EU promotes PCD in twelve policy areas8. Since Council Conclusions of 2009, the follow-up of these areas has been gathered broadly under five main PCD challenges: trade and finance, climate change, food security, migration and security. The European Commission reports every two years on the EU and Member States’ progress in advancing PCD.

1.2.2. PCD reporting and Accountability reporting

The biennial EU PCD Report is policy and process oriented9. As it looks at progress made towards promoting more coherence for development in various EU policies, it covers issues that also come up the Accountability Report, such as Aid for Trade and fast-start climate finance.

However, contrary to the Accountability Report, the biennial EU PCD Report goes beyond financial issues and addresses many cross-cutting, procedural and more general policy issues. The latter are not readily quantifiable but are part of the EU’s efforts to ensure that EU development objectives are fully taken into account by other policies. While the focus and scope of the EU PCD Report and the Accountability Report are complementary, their nature and objectives are different. In order to avoid duplication of reporting efforts, the PCD Report usually builds upon the Accountability Report on relevant and overlapping issues.

1.2.3. EU Progress on Policy Coherence for Development

The 2013 EU PCD Report was launched in November 2013 at the European Development Days, and has been followed by Council Conclusions on PCD10, as well as by a resolution of the European Parliament11. The report shows that the European Union and its Member States have made good progress on PCD, both at the process and coordination level, as also acknowledged by the OECD in the 2012 OECD DAC peer review.12

The EU remains the lead actor for PCD internationally, ahead of its main partners, with the highest levels of political and legal commitment. In particular, between 2011 and 2013, PCD issues have benefited from sustained high-level political attention in the EU and featured more prominently on the agenda of the Foreign Affairs Council (Development). The 2013 report has also gone beyond the usual self-reporting exercise — based on contributions from European Commission services, the European External Action Service (EEAS) and Member States — and includes many references to, and examples of, independent PCD ‘development-friendliness’ assessments.

8 The twelve policy areas are: trade, environment, climate change, security, agriculture, fisheries, social dimension of globalisation, employment and decent work, migration, research and innovation, information society, transport, and energy 9 http://ec.europa.eu/europeaid/what/development-policies/policy-coherence/index_en.htm 10http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/140063.pdf 11http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2014-0251+0+DOC+XML+V0//EN&language=EN 12 http://www.oecd.org/dac/peer-reviews/50155818.pdf

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Moreover, Member States have also been more active in their exchanges on the issue, both among themselves and with the Commission and the High Representative of the Union for Foreign Affairs and Security Policy. Several Member States now also produce national reports on PCD and many more have included it as a key element in their annual reports on development cooperation. Several Member States have also invested to improve the measuring of PCD in their national systems.

Progress has also been registered as regards awareness of and attention to PCD issues, especially in the policy-making process and in relation to key policy initiatives. The PCD training that has been introduced for the Commission’s staff in headquarters and Delegations (and also open to EEAS and Member States' officials) is likely to further improve awareness and implementation of PCD principles at EU and Member State level. There has also been an increase in the last two years in the number of pilot studies, inter-service processes and public debates on PCD, as well as good practices at EU level and in the Member States, reaching far beyond the traditional development policy community.

At the same time, there is still room for improvement in terms of using mechanisms such as impact assessments, evaluation and/or measuring, monitoring progress and reporting on implementation.

Many positive developments have also been recorded over the last few years in the five PCD challenges (i.e. trade and finance, climate change, food security, migration and security).

In the area of trade, the EU’s revised Generalised Scheme of Preferences (GSP) came into force in 2014, and continues to provide trade preferences to developing countries. The revision focuses on countries most in need and is geared to accommodating their exports, thus confirming the EU’s position as the most open market in the world for exports from developing and, in particular, least developed countries (LDCs). Under the Everything-But-Arms (EBA) scheme, LDCs are granted duty-free/quota-free access for all their products, except arms and ammunition. Besides providing developing countries with new opportunities for trading and economic growth, the EU has concluded and continues to negotiate a series of bilateral trade agreements, including with developing countries and regions. These agreements also entail or encourage related domestic reforms.

In order to help developing countries reap the benefits of new trade agreements and promote regional integration, the EU and its Member States have considerably increased their Aid for Trade (AfT) in recent years. Collectively, they are the largest provider of AfT in the world, accounting for a third of global international AfT flows13. The EU supports developing countries in their efforts to comply with core human rights and international labour and environmental conventions, particularly through the incentive-based GSP+ scheme.

The European Commission and Member States encourage European companies in many ways to adhere on a voluntary basis to internationally recognised guidelines for corporate social responsibility (CSR) in their business operations. The Commission’s Communication on CSR, one of the main sections of which covers international aspects of CSR, contains an EU level action plan and invites Member States to draw up or update national action plans on business and human rights14.

The EU continues at bilateral and multilateral level to pursue a balanced intellectual property rights (IPR) policy vis-à-vis developing countries, taking into account their level of

13See Chapter 3.3 for more details on progress on Trade and Development, as well as the 2013 Aid for Trade Report in Annex 4 14See Chapter 3.2. for more details on progress on CSR commitments

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development and capacity, and the importance of striking a balance between encouraging and rewarding innovation on the one hand, and ensuring access for users and the public on the other. The revised strategy for the protection and enforcement of IPR in third countries should further consolidate this approach. The EU is also committed to preserving access to affordable medicines in line with the principles of the Doha Declaration.

The EU’s policy on raw materials attaches great importance to improving governance in developing countries and making sure that due revenues are received by governments and used in a transparent and development-oriented way. The EU therefore supports raw materials transparency schemes such as the Extractive Industries Transparency Initiative (EITI) and Forest Law Enforcement, Governance and Trade (FLEGT).

The EU has an established policy of promoting good governance in tax matters aimed at tackling harmful tax competition and tax evasion within the EU and at international level. In June 2013, the EU adopted amendments to the Accounting and Transparency Directives which, inter alia, promote the disclosure of payments to governments by listed and other large EU companies in the extractive and forestry industries (country-by-country reporting) as well as providing civil society in resource-rich countries with the information they need to hold governments to account for income from the exploitation of natural resources, such disclosure will provide pointers as to possible cases of tax avoidance and evasion. This is considered an important step towards bringing more transparency to an industry often shrouded in secrecy and towards fighting tax evasion and corruption.

In the area of climate change, the EU is not only the largest contributor of climate finance to developing countries, but it has also delivered on and surpassed its commitment on Fast Start Finance. In addition, the EU (including its new Member States) has outperformed on its emission reduction target for the first Kyoto commitment period.

The EU continues to be attentive to the possible effects of its climate-related policies on other development objectives and challenges such as environmental, social and economic sustainability e.g. in the area of renewable energy, where a study on the impacts of biofuels production in developing countries was conducted in 2012.

In the area of food security, impact analysis indicates that, thanks to profound reorientations in recent decades, the impact of the CAP on third-country markets has become more limited and is projected to remain negligible. The regular use of export refunds has been gradually eliminated and the EU has become a ‘price-taker’ in the world markets for most agricultural products.

Another recent major policy reform to impact global food security has been that of the common fisheries policy, which will also influence the new generation of Fisheries Partnership Agreements. The reform is aimed at reinforcing resource sustainability and the FPAs seek to make funding for sectorial support more efficient and transparent and to increase added value for partner countries. Key aspects of the reform also include support to better regional and local resource governance, fighting illegal, unreported and unregulated fishing and financial support for scientific research and better monitoring of the resource at global and regional levels.

In the area of migration, the EU policy framework for migration and development has been strengthened significantly during the reporting period. The revised Global Approach to Migration and Mobility (GAMM) is more comprehensive and strategic, with greater emphasis on ensuring coherence between internal and external policy priorities. This has brought positive change as regards short-term mobility to the EU of persons such as business

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travellers, tourists, researchers or visiting family members as well as promoting international protection of migrants in partner countries. The Commission's Communication on 'Maximising the Development Impact of Migration' of 21 May 2013 outlined a broadened approach to the migration-development nexus at EU level, giving greater attention to South-South flows, effective integration of migration into national development and poverty reduction plans and the inclusion of refugees and other displaced persons in long-term development planning. The subsequent Council conclusions from September 2013 re-emphasised the importance of PCD for migration and outlined a broader, more ambitious approach to migration issues under the GAMM and EU development policy in general. A first implementation report of the GAMM has since been published in February 2014.

The EU has made significant efforts to promote PCD in policy dialogues on migration with non-EU countries and regions, notably African and ACP partners and countries to the East. In addition, Mobility Partnerships and Common Agendas in Migration and Mobility, which provide useful platforms for cooperation and promoting PCD in the context of migration, continue to be negotiated and concluded with partner countries in the Eastern and Southern neighbourhood and further afield.

In the area of security, progress has been made in recent years in addressing fragility in the EU’s development cooperation and strategies and improving its overall response. The EU is the key stakeholder for implementation of the New Deal for Engagement in Fragile States and has offered to lead the pilots in three countries: the Central African Republic, Somalia and Timor-Leste. PCD has also been explicitly included as one of the programming principles of the future Instrument for Stability (2014-20), with a view to prioritising those security issues that have the greatest impact on EU development policy objectives.

In addition, the EU has been working on initiatives to improve management of natural resources so as to pre-empt potential conflict. An initiative on minerals originating in conflict-affected and high-risk areas has been presented in early 2014.

1.2.4. Promoting research and measuring PCD

The latest report demonstrates that knowledge of and research into the development impacts of key sectorial policies have grown, partly thanks to increased political and financial support. Research and innovation policy has been supportive of development cooperation in specific thematic sectors as well as a cross-cutting driver for inclusive and sustainable growth. However, despite efforts at EU, Member State and OECD level, the main challenge for EU progress on PCD still remains the issue of measuring – baselines, targets and PCD indicators (including the cost of incoherence) – and in general PCD-targeted research (e.g. case and country studies) is necessary if PCD commitments are to be translated into more concrete results and to demonstrate the added value of PCD.

In this context, in addition to working with the OECD and other actors on the methodologies for assessing country-level impacts of OECD countries’ policies (e.g. in the area of food security), the EU has also earmarked funds under Horizon 2020 (2014-2020) for the topic “The European Union's contribution to global development: in search of greater policy coherence”.

In addition, and to improve the feedback on impacts of EU non-development policies on and in developing countries, a first PCD reporting from EU Delegations has been organised at the beginning of 2014, jointly by the European Commission and the EEAS.

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1.3. Financing and Other Means of Implementation: What’s Available?

There are various needs assessments with huge variations in their scope and estimates. While these estimations vary greatly in their scope and methodology, it is widely recognised that financial needs cannot be realistically measured. This is due to a number of reasons. In particular, assessments are often based on a narrow sector approach (thus not accounting for interactions with other sectors); they are calculated ceteris paribus (i.e. not accounting for reduced financing need from policy reforms); they assign the financing gap to a specific source, or only look at a selection of countries. In any case, global needs call for a combination of financial and non-financial means of implementation, coming from both the official and private sectors.

At an aggregate level, as shown in figure1.3 below, a significant share of financial means of implementation needed to achieve the agreed goals can be mobilised by the public sector domestically, and by the private sector, both domestically and internationally, while public international finance is likely to remain very small in comparison.

While data presented in figure 1.3 are currently the best available, they nonetheless substantially underestimate the level of tax revenues and domestic private investment. This is due to the fact that only data for ODA are readily available, while data for all other financial means of implementation need to be assembled from a variety of sources. As for non-financial MoI, they are virtually impossible to quantify. The methodology used in assembling such data is described in Annex 2, while the limitations of available data are discussed in box 1.3.

Box 1.3 – Limitations of available data on Financing for Development Flows

As explained in Annex 2 of this Report, there is no single source of data on Financing for Development. Data on official flows are mostly drawn from OECD DAC statistics, while statistics on domestic resources and private flows are from the World Bank. Two types of financial flows are particularly difficult to track: domestic tax revenues and private gross capital formation, for which data are either unavailable or unreliable. As a consequence, both public domestic resources and private domestic resources are most likely underestimated in figure 1.3. Differences with last year’s Accountability Report are due to the unavailability of the same data sources. For example, last year's Report included IMF statistics on 2010 tax revenues that are not available for any other year. Data collected for publicly available IMF Article IV consultations reports are unfortunately not made available in any database but only in a piecemeal fashion.

Public finance fulfils the same function, whether it comes from domestic or external sources. Domestic public finance is directly available for implementing government plans from the moment of collection. International public finance should complement domestic resources and help to implement nationally owned development strategies, using development finance effectively.

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Figure 1.3 – Financing for Development Resources Available to Developing Countries by Income Group (US$ million at 2005 prices,

cumulative over the period 2002-2011)

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Over the decade 2002-2011, domestic revenues represented the main financial source for middle income countries (MICs), while ODA had only a marginal role (4% of total financing flows shown in figure 1.3). On the contrary, domestic revenues of low income countries (LICs) are relatively lower, and public international finance, including ODA, remains the most significant source of finance for development (54%).

The aggregate data above hide many country differences. While the specific situation of each country requires an individual approach, the above analysis points nonetheless to massive differences of vulnerabilities and abilities between MICs and LICs. Yet, it is clear that all countries need to do more to mobilise resources and to use them in a targeted way in order to reach the global development goals.

Over the decade 2002-2011, private sector finance accounted for over 30% of all flows in LICs, but for almost 60% or twice as much in MICs. Private sources are particularly important, and can be leveraged through innovative financial instruments like blending15. This illustrates the extent to which private finance has become pivotal in many developing countries, and confirms the need to work more closely with private sector actors and include them in the post-2015 dialogue.

Non-financial means of implementation are difficult to quantify, but are potentially of far greater importance than financial ones, representing in a way the difference between potential and actual resources available for development-related expenditure, as well as directly reducing the need to spend on compensating for bad policies. As discussed elsewhere in this Report, developing countries lose an estimated EUR 660-870 billion each year through illicit financial flows (see Chapter 2.1.4.), EUR 48 billion could be raised annually through better tax collection, particularly by middle income countries (Chapter 2.1.3.), while policies that damage the environment have also significant financial costs as shown by the EUR 423 billion spent on fossil fuel consumption subsidies in 2012 (see Box 4.3.4 for further details). Finally, it is estimated that reducing global trade costs by 1%, notably through enhanced trade facilitation, would increase worldwide income by more than EUR 30 billion, 65% of which would benefit developing countries (see Chapter 3.3.4).

These four examples alone, which cover only a small part of non-financial MoI, show how these dwarf all other means of implementation by comparison.

1.4. Future of Development Finance Reporting

In parallel to the current debate on the post-2015 development goals and finance, discussion is also on-going on the measurement and monitoring of development finance. Up to now, this discussion has focused on external public finance measurement and has taken place essentially in the OECD. Beyond the OECD, the Forum of South-South Cooperation partners, managed by an Indian think tank, coordinates the dialogue on how South-South Cooperation can be incorporated into the post-2015 global measure of development finance.

1.4.1. Need for modernisation of development finance reporting

The current external development finance measurement framework of the OECD/DAC, centred on the concept of Official Development Assistance (ODA), was established in the late 1960s and has not changed much since (see box 1.4.1). Yet, the practice of development finance has evolved significantly over the past decades: new instruments as well as more complex financing mechanisms have been introduced to complement grants, a broader set of objectives are being pursued in the context of sustainable development, developing countries have become more

15Blending is discussed in Chapter 5 of this Report

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heterogeneous, and increasing attention is being paid to the effectiveness and quality of aid and more generally to results.

Box 1.4.1 – Evolution of the ODA Definition16

The definition and measurement of “aid” had been one of the first tasks of the OECD/DAC, and a subject of significant controversy among donors, with some countries supporting a very rigorous definition of “development” while others in favour of considering more official flows to developing countries as “aid”. The first comprehensive survey of flows of financial resources to developing countries (then called “countries in course of economic development”) was published in March 1961, and covered the period 1956-59. It was then followed by DAC Annual Reports and time series were collected from 1961 onwards for aggregate flows (DAC data) and from 1973 for country level activities (CRS data). The definition of ODA was adopted in 1969, allowing a distinction to be made between development assistance and other flows without developmental objectives. Since then, the major changes of the definition of ODA have concerned two aspects: first, the activities to be considered as promoting economic development and welfare, and second, the DAC list of aid recipients. The definition itself was changed only once, in 1972, adding a more precise definition of “grant element” and replacing the previous term “social development” with “welfare”. The OECD/DAC currently defines ODA as “those flows to countries and territories on the DAC list of ODA Recipients and to multilateral institutions which are: i) provided by official agencies, including state and local governments, or by their executive agencies; and ii) each transaction of which: a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; and b) is concessional in character and conveys a grant element of at least 25% (calculated at a rate of discount of 10%).

The current measurement framework has served us well, providing a metrics to monitor the efforts of donor countries for development. However, it should now be adapted to better reflect the new development landscape and respond to today’s challenges.

Against this background, the OECD/DAC agreed at its High Level Meeting of December 2012to (1) elaborate a proposal for a new measure of total official support for development; (2) explore ways of representing both “donor effort” and “recipient benefit” of development finance; and (3) investigate whether any resulting new measures of external development finance (including any new approaches to measurement of donor effort) suggest the need to modernise the ODA concept. It also agreed to establish, as soon as possible and at the latest by 2015, a clear quantitative definition of the criterion “concessional in character”, in line with prevailing financial market conditions.

This is a complex undertaking, essentially technical, yet eminently political. Work has started in the OECD/DAC and its Working Party Statistics. The OECD/DAC Secretariat has also set up an Expert Reference Group to provide strategic advice on implementing the HLM mandate.

1.4.2. Eight principles for the design of a modern external finance measurement framework

The design of a modern external finance measurement framework should take into account a number of key principles:

16The OECD/DAC defines ODA as “those flows to countries and territories on the DAC list of ODA Recipients and to multilateral institutions which are: i) provided by official agencies, including state and local governments, or by their executive agencies; and ii) each transaction of which: a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; and b) is concessional in character and conveys a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent).

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1. Integration. A modernised measurement framework should serve the overarching post-2015 policy framework. It should, in that sense, allow the tracking of external finance for all global goals in a coherent fashion. To this end, it will be important to improve and expand the existing system of policy markers, allowing for better tracking of flows, both qualitatively and quantitatively.

2. Transparency. A key purpose of the measurement framework should be transparency. Reliable data is a prerequisite for good policy-making. Without prejudging the outcome of the important discussion on aggregates, a key objective in the modernisation of the measurement framework should therefore be to promote data transparency – allowing all to retrieve the information they need. Transparency of all actors is crucial to reflect shared responsibility.

3. Instrument-inclusivity. The current system does not capture non-traditional ways of financing development. This causes a bias against certain forms of finance (in particular, those without any immediate cash outlay, such as guarantees) and can result in negative incentives and sub-optimal allocation of public resources. Going forward, it will be important to eliminate the existing disincentives to use financial instruments that work for development and to recognise both the effort of extending aid via innovative financial instruments as well as the benefits derived by partner countries from their use.

4. Comprehensiveness. The current system does not cover all external development finance. Going forward, the comprehensive approach to financing development (as endorsed by the Monterrey Consensus and the Doha Declaration) should be translated into a more inclusive measurement framework. To this end, it is important to engage non-DAC countries in these discussions, as the post-2015 monitoring system should also valorise their efforts.

5. Differentiation. The Council Conclusions on the ‘Agenda for Change’ state that “resources should be targeted at countries most in need, including those in situations of fragility, and where they can have the greatest development impact in terms of poverty reduction”. The measurement framework should thus accompany such differentiation without compromising on the need for transparency.

6. Donor effort and recipient benefit. The current system has been designed to monitor the efforts of donor countries. While this remains important, the system’s exclusive focus on input is not sufficient anymore. The ultimate objective of development action is to have a positive impact on the development of partner countries. The system thus needs to better take this reality into account, including through a better monitoring of the development effectiveness of the finance provided and of the benefits derived by recipient countries.

7. Mutual accountability. External finance is only one part of total development finance. Similarly, the monitoring of external finance conducted by the OECD/DAC should only constitute one component of a broader global mutual accountability framework. All actors need to take action to help achieve global goals, and these actions should be monitored in a consistent manner. This would provide a better understanding of who does what and how this contributes to delivering agreed policy objectives.

8. User-friendliness. To remain fully relevant in today’s world, the external finance measurement framework should expand its scope in a way to serve more than one purpose. While this is likely to add certain complexity to the exercise (including through the introduction of new aggregates), the system should nonetheless remain manageable in terms of data collection (feasibility), and understandable to the general public (simplicity).

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1.4.3. Sequencing

The work of the OECD/DAC should be framed in the context of the wider post-2015 discussions, with outcomes supporting post-2015 goals. Close attention should therefore be paid to sequencing.

Up to the DAC High Level Meeting of December 2014, the DAC could focus its work on a number of statistical building blocks, without taking any firm decision on the shape of the new aggregates. In particular, substantial technical work is still needed on the following issues: concessionality, accounting for new instruments, accounting for leverage, accounting for recipient benefit, and improving the markers system. In parallel, the OECD/DAC could continue its reflection on the general architecture of the new monitoring framework. Decisions on the exact composition of the new aggregates would then be left to a later stage, once there is more clarity on the whole post-2015 framework. Such an approach would help ensuring that the statistical system serves the policy framework.

1.4.4. Practical considerations for the design of a modern external finance measurement

framework

1.4.4.1. Modernising the ODA definition

The current ODA definition17 has been criticised for a number of reasons. Critics have argued that (1) it leaves too much room for interpretation, (2) it includes expenditures that should not be included, and/or (3) it leaves out expenditures that should be in.

Proposals to modernise the ODA concept can therefore be grouped under three categories: (a) clarifying some of the statistical recording rules; (b) removing components from the current definition to possibly include them in a new aggregate; and (c) expanding the ODA definition to include elements currently excluded. The three approaches are not mutually exclusive.

i. Clarifying statistical recording rules

Concessionality. A flow is currently classified as concessional if it conveys a grant element of at least 25% (calculated at a rate of discount of 10%) and is “concessional in character”.

The current concessionality definition has a number of weaknesses, presented in Table 1.4.4 below.

Table 1.4.4 – Weaknesses of the current concessionality definition

Current situation Weaknesses

Eligibility criteria: 25% grant element It artificially leaves out some concessional loans (e.g. loans with 24% grant element) and incentivises minimising efforts (i.e. loans with 26% grant element and loans with 99% grant element are accounted for the same)

“Concessional in character” criteria Over recent years, differences in the interpretation of this vague concept have

17 The OECD/DAC defines ODA as “those flows to countries and territories on the DAC list of ODA Recipients and to multilateral institutions which are: i) provided by official agencies, including state and local governments, or by their executive agencies; and ii) each transaction of which: a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; and b) is concessional in character and conveys a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent)

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led to protracted discussions that have damaged the credibility of the ODA concept.

System accounts for net cash flows It does not properly value loans (ODA-neutral over the long-term)

Applied only to loans This does not reflect the current development finance reality

Face value counted upfront, reflows then discounted

It allows front-loading of ODA

A clearer quantitative concessionality criterion for loans is needed to help sustain the credibility of ODA as a measure.

One interesting idea that has been put forward in early discussions is that of the grant-equivalent concept.

The grant-equivalent would be computed by multiplying the grant-element by the loan value. The grant-element is the face value of the loan (disbursements) minus the present value of the future repayments. The present value of future repayments is calculated by applying a discount rate proxying the opportunity cost of foregone domestic investment. Such an approach would break with the long-established practice of accounting for flows on a cash basis.

A grant-equivalent concept could fix some of the downsides of the current definition, notably by:

turning concessionality into a continuum (i.e. no more benchmarks)

eliminating the need for an additional “concessional in character” criterion

being measured in gross terms

grant-equivalents could be devised for all relevant instruments in a consistent fashion

being potentially split over the life-time of the loan

The OECD/DAC Senior-Level Meeting of March 2014 has mandated the DAC to further investigate the feasibility of moving towards such an option.

Standardisation of reporting. Not all DAC donors report on all expenditures in the same way. In particular, there seems to be different practices as regards the reporting of some in-donor country costs. The OECD/DAC Senior-Level Meeting of March 2014 has mandated OECD/DAC to examine how reporting on in-donor country costs may be standardised to improve the legitimacy, transparency and comparability of data.

ii. Removing components from the ODA definition

In-donor country costs. In-donor country costs (e.g. costs for refugees hosted in the donor country, administrative costs, funds spent to increase development awareness in the donor country) represent a budgetary effort but do not generate cross-border flows. At the same time, some of them represent core elements of donors’ development policies.

List of recipients. The current list of aid recipients includes some of the largest and fastest growing economies of the world. One option would be to accelerate graduation from the DAC list, which currently happens when countries reach a per capita income above USD 12,275 for three

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consecutive years. Another option would be to lower the graduation threshold, but this could have serious downsides:

1. In terms of transparency, it is important to account for flows to all developing countries. Excluding recipient countries from the monitoring would go against that principle, while data on sub-group aggregates would remain available and allow making better allocation decisions.

2. A widening of the development concept to global public goods would call for wide country coverage. For instance, many climate mitigation actions may have to take place in Middle-Income Countries: this effort should be properly valued. Countries "most in need" may be different when seen from a "climate change" rather than "poverty reduction" perspective.

3. The current list is not static. More than 50 countries have already graduated from it over the past four decades, and the OECD Secretariat simulations suggest that nearly 30 more could join them by 2030.

A better way to promote differentiation may be by introducing higher-profile targets for selected sub-categories of countries (i.e. building on what currently exists for LDCs).

1.4.4.2. Expanding the coverage of the ODA definition

New instruments (e.g. guarantees, mezzanine finance, equity). Current rules for ODA statistics are not well suited to capture a range of new instruments like guarantees. As the importance of such instruments is likely to grow under all post-2015 scenarios, there is an urgent need to modernise DAC rules in this respect.

One key objective should be to eliminate the disincentives to use financial instruments that work for development. Currently, guarantees are only accounted for when they are drawn upon, which constitutes a wrong incentive structure as it in a way rewards failure.

The pending question of how to account for loans in a post-2015 measurement system is linked to the accounting of new and even more complex instruments. The final package needs to be consistent, especially since it is often difficult to draw clear lines between instruments. For instance, if we were to move towards using a grant-equivalent of loans to measure donor effort, we should consequently identify a consistent grant-equivalent for other instruments too.

Box 1.4.4 - OECD/DAC survey on the monitoring of guarantees

Guarantees mitigate risk and can crowd in private finance, as discussed in Chapter 5. Currently, guarantees are not considered ODA, unless they are called upon and they are therefore not monitored thoroughly by the DAC. Guarantees are actually currently not monitored anywhere else, and there is no comprehensive database on them. As noted by the OECD/DAC18 in 2013, the DAC Working Party on Statistics on Development Finance (WP-STAT) carried out a Survey on guarantees for development19 aiming to fill this information gap. Its main findings were that: i) guarantees for development mobilised over USD 15 billion of private sector finance over 2009-11; ii) there is potential for scaling up their use as several donors are yet to establish guarantee programmes, while those who do offer guarantees are expanding their use; and iii) collecting information on the amount mobilised by guarantees is feasible in practice.

18DCD/DAC/STAT(2013)17, Guarantees for Development: Options for Data Collection. 19http://www.oecd.org/dac/stats/guaranteesfordevelopment.htm.

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According to the OECD/DAC Secretariat, the objective of the data collection would be to capture the volume of resources made available to developing countries, facilitated by both long-term and short-term guarantees that are issued by public institutions with a developmental mandate -bilateral and international development finance institutions (DFIs and IFIs), aid agencies and development cooperation departments of Ministries of Foreign Affairs.

The Survey on guarantees was limited to guarantees with a development motive (i.e. those extended with the promotion of the economic development and welfare of developing countries as the main objective) and based on the implicit assumption that guarantees issued by institutions with a developmental mandate – aid agencies, DFIs and IFIs – had a developmental motive. Limiting data collection to guarantees with a developmental motive implied that guarantees issued by ECAs and public insurers were generally excluded.

There are on-going discussions within DAC on the approach to follow, although it is likely that data collection will concern all guarantees to developing countries, involving OECD Trade and Agriculture Directorate (TAD) that already collects data on export credit guarantees and the Berne Union on untied and investment guarantees. In practice, OECD DAC will collect data on guarantees with a developmental motive from any source that are currently not monitored by anyone, and liaise with OECD TAD and the Berne Union to get access to data on guarantees on export credits, untied flows, and investment.

Global public goods and peace & security. For instance, several elements of climate finance are currently not reportable as ODA. Under the current ODA definition, support to activities such as Carbon Capture and Storage (CCS) and potentially early-stage mitigation technology development may not be counted as ODA, while carbon market finance flows are excluded on the basis of a 2004 DAC decision.

Climate change and development are inter-linked. In practice, it does not make sense to separate climate and development finance. Climate change mitigation and adaptation action in areas such as renewable energy, energy efficiency, public transport, reduced emissions from solid waste, climate smart agriculture and disaster prevention and management all have strong developmental objectives alongside being climate-relevant. Actually, it is hard to think about climate interventions that do not aim at contributing to (sustainable) development. Moreover, in principle all support should contribute to a low-emission climate-resilient development path. Creating artificial boundaries should be avoided.

Most climate finance provided by DAC members as ODA, OOF and through multilateral channels is already reported to DAC, and the so-called Rio markers form the basis for much of the monitoring and reporting on public finance flows to UNFCCC. The work already initiated with the establishment of a joint WPSTAT / ENVIRONET Task Force should further improve the Rio marker system and explore ways to reconcile the system with the reporting needs under UNFCCC and other Rio Conventions.

Yet the soundness of excluding very specific activities such as Carbon Capture and Storage can be questioned. Most CCS activities are part of a broader energy package that have direct developmental benefits; excluding certain activities raises a number of methodical and definitional issues; all countries have a responsibility to contribute to safeguarding our global climate and integrate this into their development planning and investments; excluding global public goods and benefits could create perverse incentives. For similar reasons, the framework should also cover CDM-like mechanisms and other carbon market-related flows that contribute to low-emission climate-resilient development.

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The current DAC Reporting Directives (that set the rules on what is ODA and what it is not) stipulate that certain conflict prevention and resolution, peace-building and security expenditures meet the development criteria of ODA. However, the bulk of Peace & Security expenditure remains outside ODA.

The OECD/DAC estimates that 7% of UN peace-keeping operations are developmental. The remaining 93% mostly relates to the so-called “security components” of the operations, implemented by military personnel.20 These expenditures are essential to establish a more secure and peaceful environment without which sustainable development cannot happen. The debate is on whether security operations should be considered as ODA or included in a broader measure of official support for development. Similar discussions are taking place for bilateral participation in international peacekeeping operations, military debt, and police training.

The debate on the Peace & Security measurement framework must be framed within, and not pre-empt, the wider post-2015 discussion. The Principles for Engagement in Fragile States, the New Deal and the work of the International Network on Conflict and Fragility (INCAF) could provide guidance in this respect.

Similarly, human rights activities could be better valued in the framework.

Non-DAC donors. The importance of non-DAC donors has been expanding over time. Yet little data is available for many of them. Their efforts should also be valorised.

1.4.4.3. Introducing a new measure of total mobilised finance

The DAC High-Level Meeting of December 2012 agreed to introduce a new measure of 'Total Official Support for Development' as part of the post-2015 framework.

Such an aggregate could capture flows not accounted for in ODA. It could also cover everything made possible by the public intervention, including leveraged finance. However, in devising this new aggregate the OECD/DAC will have to address a number of technical issues:

- Attribution: How to ensure appropriate attribution to recipient country's action/investment? How to avoid double-counting?

- Where to draw the line: How to assess leverage given the lack of international standards on what it means? Should we only include direct leverage? What about positive spill-overs?

- Data collection: What can be measured and attributed?

The advantages of such a measure are clear: it would allow valorisation of all development-related actions of donors. The new measure should be consistent with climate discussions, including in terms of terminology – it might therefore be more appropriate to speak of “total mobilised finance.”

1.4.4.4. Introducing a new measure of recipient benefit

The current ODA definition focuses on development input of the official sector’s assistance of donor countries, rather than on development impact/relevance of donor countries’ financial flows. Such a system does not capture recipient benefit.

While impact is difficult to measure, recipient receipts could be used as a proxy of recipient “benefit”. The concepts of “provider effort” and “recipient benefit” should not be mixed up as they

20DCD/DAC(2014)7

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measure two separate, although related, financial aggregates. In this regard, these concepts could differ not only in terms of what is measured, but also of how these aggregates are measured.

More specifically, measures of donor effort would be accounted for in net terms (except if we go towards the grant-equivalent solution), there might be a case for accounting for recipient benefit using gross flows, which would correspond better to the results logic (e.g. “x € investment created y jobs”).

1.5. Strengthening Global Governance

EU Commitments

Council Conclusions of 18 May 2009, §36: Considering that world trade, investment and

financial stability are essential for restoring global sustained growth, the Council welcomes the

G20 agreement (…) on the reform of the mandates, scope and governance of [International

Financial Institutions]to reflect, inter alia, changes in the world economy and the new

challenges of globalisation, to ensure greater voice and representation for emerging and

developing countries, including open, transparent and merit-based top management selection

processes.

1.5.1. International Financial Institutions

The EU has considered that the implementation of the World Bank voice reforms as well as the IMF Quota and Governance reform (both agreed in 2010) is a priority.

IMF members are currently in the process of ratifying the 2010 Quota and Governance Reform which, once implemented, will enhance the credibility, legitimacy and effectiveness of the Fund. All EU Member States have already fully concluded national ratification procedures. Pending implementation of the 2010 reform package, the IMF Board of Governors adopted in February 2014 a resolution to postpone the conclusion of the 15th General Review of Quotas and the associated review of the quota formula by one year, to January 2015. It is expected that the 15threview will result in further increases of the quota shares emerging market and developing countries, in line with their relative positions in the world economy.

In 2013, EU Member States supported the second distribution of gold sale windfall profits and its transfer to the Poverty Reduction and Growth Trust Fund.

The World Bank voice reform of 2008-2010 was aimed at enhancing the voice and participation of developing and transition countries. But more is needed to strengthen the World Bank Group's (WBG) efficiency, accountability and legitimacy. In October 2013, the Governors adopted the new WBG strategy21 (first at Group level) with the double objective of ending extreme poverty by 2030 and boosting shared prosperity in developing countries in a sustainable manner. As a result, the WBG is undergoing a major internal restructuring, strengthening the core by establishing 14 global practices, which replace the old matrix management system.22

21https://openknowledge.worldbank.org/bitstream/handle/10986/16095/32824_ebook.pdf?sequence=5 22The 14 Global Practices and Cross-Cutting Solution Areas (i.e. Agriculture; Education; Energy and Extractives; Environment and Natural Resources; Finance and Markets; Governance; Health, Nutrition, and Population; Macroeconomics and Fiscal Management; Poverty; Social Protection and Labour; Trade and Competitiveness; Transport and Information Technology; Urban, Rural, and Social Development; and Water) - that will become operational on July 1, 2014 - will bring technical staff together, available to be deployed across regions rather been pre-assigned to specific geographical areas.

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The replenishment process for IDA 17 (International Development Association), which covers fiscal years 2015-2017, was finalised in December 2013. The negotiations resulted in a record commitment of over EUR 39 billion in financing over the next three years, in form of grant contributions (92%) and concessional loans (8%). EU Member States provided 40.4% of all grant and grant equivalent contributions, and 29.9% of all concessional loans23. This is a remarkable result considering the tight economic conditions in which the negotiations took place, reaffirming the full support of the shareholder countries for the World Bank’s fund for the poorest. The overarching theme for IDA 17 is maximising development impact, with inclusive growth, gender, climate change and fragile and conflicted affected states as special themes.

In September 2013, the African Development Bank completed the African Development Fund (ADF) 13th replenishment for a total amount of EUR 5.6 billion for the 2014 – 2016 cycle, of which EUR 764 million will be dedicated to a special facility for fragile states. The replenishment included donor contributions of EUR 4.4billion, representing a slight increase over ADF12 (2011-2013). The EU Member States’ pledges to ADF 13 totalled EUR 3.4 billion, representing 61% of total pledges made.

1.5.2. G20

In 2013, the Russian G20 Presidency concentrated on Food Security, Human Resource Development, Financial Inclusion, Infrastructure, Domestic Resource Mobilisation and support to the Post-2015 process; all of this underpinned by an Accountability Framework. The EU continued to press for concerted G20 action on Inclusive Green Growth as part of the G20 Development Agenda. The Green Growth agenda is designed to help structurally transform economies towards a climate-friendly path over the medium term, and especially to help build the capacity of developing countries to design and implement Green Growth policies and strategies. The EU continues to express its strong support for representation of groups such as the African Union, both at Summits and other preparatory meetings wherever practical.

In 2013, several Member States took concrete actions within the G20 context to enhance the coherence and inclusiveness of the international monetary, financial and trading systems in support of development. For example, Germany continued its active engagement in the G20 Global Partnership for Financial Inclusion. The German Government has initiated an Emerging Markets Dialogue to enhance peer-learning on G20 financial standards. Several events on this topic have been organised around the world, including in South Africa and India, with inputs from the G20 Financial Stability Board or the European Central Bank. Furthermore, Germany has launched an Emerging Markets Dialogue on Green Finance to increase the contribution of the private financial sector to climate change mitigation and adaptation and biodiversity conservation. The programme brings together financial institutions from emerging and developed economies, policy makers and scientific institutions and builds on the work of international initiatives, such as the Economics of Ecosystems and Biodiversity for business initiatives. Germany continued its active support of the Agricultural Market Information System (AMIS) initiated by the G20 in the context of global food security, with the aim of enhancing food market transparency and encouraging coordination of policy action in response to uncertainty of markets.

23FR provided SDR373 million as concessional loan contributions and UK SDR 494 million. The balance was provided by China, Japan, and Saudi Arabia.

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1.5.3. United Nations

The UN is playing a central role in the preparations for the Post-2015 development agenda. As stated in Article 21 of the Treaty on European Union24, the EU is a firm promoter of effective multilateralism and supports the fundamental role of the UN system in global governance. The EU welcomes the practice of informal engagement between the UN and inter-governmental groupings that make policy recommendations or take policy decisions with global implications, including the G20, through informal briefings organised at the initiative of the President of the General Assembly. The EU also supports dialogue between the UN and the G20 and welcomes the practice that has developed of regularly inviting the UNSG and regional groupings to G20 meetings.

Concerning trade issues, it is important to recall that governance in the area of international trade resides in the WTO. At the same time, the UN's leadership role in development gives it a major role in global efforts aimed at making trade openness work for development and poverty reduction, including through technical assistance and capacity building, support to good governance and ownership.

2. Domestic Public Finance for Development

2.1. Domestic Resource Mobilisation

EU Commitments

EU policy on tax and development is set out in the 2010 Communication on “Tax and

Development Cooperating with Developing Countries on Promoting Good Governance in Tax

Matters”25

and the accompanying Staff Working Document. Their main recommendations were

endorsed by the Council in its Conclusions of 14 June 201026

and by the European

Parliament in a resolution of March 2011. In these Conclusions, the Council encouraged the

Commission and Member States to:

1. support developing countries in tax policy, tax administration and tax reforms, including in

the fight against tax evasion and other harmful tax practices;

2. support, including financially, already established regional tax administration frameworks

such as CIAT (Centro Inter-Americano de Administraciones Tributarias) and ATAF (African

Tax Administration Forum), as well as IMF Regional Technical Centre;

3. further promote a transparent and cooperative international tax environment, including the

principles of good governance in tax matters; and enhance the aspects of policy coherence for

development by exploring country-by-country reporting as a standard for multinational

corporations; a global system for exchange of tax information; reducing incorrect transfer

pricing practices; and promoting asset recovery;

24 "The Union shall seek to develop relations and build partnerships with third countries, and international, regional or global organisations which share the principles referred to in the first subparagraph. It shall promote multilateral solutions to common problems, in particular in the framework of the United Nations." 25.COM(2010) 163 final 26 Council Conclusions on Tax and Development – Cooperating with developing countries in promoting good governance in tax matters, 11082/10, 15 June 2010

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4. encourage the participation of developing countries in structures and procedures of

international tax cooperation should be strongly encouraged, including in the United Nations

and the OECD, in the International Tax Dialogue and International Tax Compact; and

5. enhance their support to the EITI (Extractive Industries Transparency Initiative) and

consider expanding similar practices to other sectors.

The relevance of this agenda was reinforced through the 2011 Commission Communications on

“An Agenda for Change” and “The future approach to EU Budget support to third

countries”.27

These Communications provide further emphasis on tax policy and administration

by stating that “the EU will continue to promote fair and transparent domestic tax systems in its

country programmes, in line with the EU principles of good governance in the tax area,

alongside international initiatives and country by country reporting to enhance financial

transparency”.28

The main recommendations of the Agenda for Change were endorsed by the

Council in its Conclusions of 14 May 2012.

In September 2012, the EU adopted new Budget Support Guidelines in line with the 2011

Communication, which places a stronger emphasis on encouraging partner countries' efforts to

mobilise domestic revenues and to reduce their aid dependency. In particular, the guidelines

state that "within budget support contracts, DRM will be considered within the macroeconomic

(fiscal policy) and public financial management (tax administration) eligibility criteria, and it

should be given greater attention in policy dialogue and capacity development."

An updated synthesis of EU position on tax reform is presented in the 2012 Commission

Communication on “Improving EU support to developing countries in mobilising Financing

for Development”29

. The Commission stressed that “it is up to the partner government to enact

and uphold the appropriate regulatory measures and policies to ensure that the virtuous cycle

of tax collection-development spending-development progress-increased tax collection

materialises. The EU and its Member States can facilitate this process by continuing to expand

their support to strengthen the capacity of tax systems, and to “incorporate tax administration

and fair tax collection, including rationalising tax incentives and good governance in tax

matters, into policy dialogue with partner countries.” Additional support can be through

regulatory means, such as combating illicit capital flows and reducing the misuse of transfer

pricing as well as strengthening the Extractive Industries Transparency Initiative (EITI) and

adopting legislation for country by country reporting for multinational enterprises.

The EU has committed to take action at the international level to fight corruption, tax evasion

and illegal financial flows. In the Council Conclusions of 11 November 2008 (EU position for

Doha FfD conference), §18, the EU promised in particular to:

1. ratify and implement the United Nations Convention against Corruption (Merida) as soon

as possible and best before 2010;

2. adhere to the OECD Convention on Combating Bribery of Foreign Officials in

International Business Transactions;

3. adopt and implement international norms to prevent money laundering, as well as the

financing of terrorism and proliferation, support international cooperation repatriation of

stolen assets, among those the Stolen Assets Recovery initiative (STAR); and

4. promote the principles of transparency and accountability over natural resource revenue

by supporting and implementing the Extractive Industry Transparency Initiative (EITI), as

well as other specific initiatives aiming at improved governance and transparency in the

extractive sector.

27 COM(2011) 638 final 28 COM(2011) 637 final 29 Recommendations based on the 2012 EU Accountability Report on Financing for Development. COM(2012) 366

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Commission Communication of 6 December 2012 on an Action Plan to strengthen the fight

against tax fraud and tax evasion30

. The Action Plan sets out 34 actions that the Commission

proposes to take with Member States over the next two years, in order to combat tax fraud and

evasion.

The Action Plan was accompanied by two Recommendations on measures intended to

encourage third countries to apply minimum standards of good governance in tax matters, and

on aggressive tax planning31

.

The Council Conclusions of 14 May 2013 recognised the useful role the Commission Action

Plan and the two Recommendations on Aggressive Tax Planning and on good governance in tax

matters in third countries can play to combat tax fraud, tax evasion and aggressive tax planning

(§7).

The Council Conclusions of 12 December 201332

reiterated the EU and its Member States'

commitment "to supporting increased domestic resource mobilisation and supporting the

capacity of partner countries in the area of taxation". In particular, "the EU and its Member

States will continue to support good governance, including good financial governance, the fight

against corruption, tax havens and illicit financial flows, and will increase its support for

effective, efficient, transparent and sustainable tax policies and administration, including

through providing its expertise and technical assistance. They also call for the gradual

elimination of environmentally harmful subsidies." In addition, "the EU and its Member States

will continue to encourage the participation of all countries in international tax cooperation

and to support regional tax administration cooperation frameworks."

2.1.1. Introduction

Mobilising domestic resources is crucial in developing countries. Domestic revenue is considered the most sustainable resource for development and a way out of aid dependency as it boosts resources available for governments to drive development and tackle poverty, and is more stable than other resource flows. Moreover, there is a growing recognition of the strong linkages between taxation, accountability and state-building.

The importance of Domestic Resource Mobilisation (DRM) has been recognised at various international conferences (including in the Monterrey Consensus and the Doha Declaration on Financing for Development, as well as the HLF in Busan). DRM for development figured among the prominent topics recently discussed at the first high-level meeting of the Global Partnership on Effective Development Cooperation held in Mexico, in April 2014. Moreover, DRM is considered as a top priority in the context of the post-2015 development agenda, as underlined in the outcome document of the Rio+20 Conference33 and the report of the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda34.

30COM(2012) 722 final. 31COM(2012)8805 and COM(2012)8806. 32Council Conclusions on financing poverty eradication and sustainable development beyond 2015, 12 December 2013 33Outcome Document of the Rio+20 UN Conference on Sustainable Development, "The Future We Want", June 2012, http://www.uncsd2012.org/content/documents/774futurewewant_english.pdf 34Report of the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda, "A new global

partnership: eradicate poverty and transform economies through sustainable development", May 2013, http://www.post2015hlp.org/wp-content/uploads/2013/05/UN-Report.pdf

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In June 2013, the G8 Summit in Lough Erne under UK Presidency focused on three inter-related topics of 'Trade, Tax and Transparency' with the aim of fostering international trade, fighting tax evasion and tax fraud, and promoting global transparency issues. G8 leaders looked into how to fight tax evasion and aggressive tax avoidance, as well as how to help developing countries improve their ability to collect tax. The G8 leaders also discussed how to drive greater transparency globally so that revenues from oil, gas and mining can help developing countries to forge a path to sustainable growth, and eliminate conflict and corruption.

The G20 Development Working Group has played a critical role in bringing together international and regional organisations to address the challenges facing developing countries, including LICs, in the DRM area. The importance of domestic resource mobilisation was re-emphasised at the G20 Summit in Saint Petersburg in September 2013 and figures among the five priority areas35 identified in the St Petersburg Development Outlook

36. G20 Leaders underlined in particular that a number of

systemic issues block the ability of developing country governments to maximise their domestic revenue, and committed in particular to new actions aimed at identifying obstacles to information exchange and strengthening tax administrations, as well as addressing base erosion and profit shifting, particularly in LICs.

2.1.2. Implementation table

The table below37 summarises progress made in 2013 in implementing the EU commitments on domestic resource mobilisation. Further details are discussed in the main text.

EU Commitments Target Date Status Change

2012 -2013

Comment

Support on tax policy, administration and reform

No date specified

= The EU and 18 MS provided support to strengthen tax systems of developing countries, but as last year this is still rather limited

Support for established regional tax administration frameworks (e.g. CIAT, ATAF)

No date specified

= The EU and five MS support the ATAF; the EU and four MS support the CIAT; the EU and four MS support the IOTA

Exploring country-by-country reporting by MNCs, exchange of tax information, transfer pricing and asset recovery

No date specified

= The two amended Accounting and Transparency Directives introduce new disclosure requirements for the extractive industry and loggers of primary forests (Country by Country Reporting).

The EU and all MS are members of the Global Forum on

35The five priority areas are infrastructure, food security, financial inclusion, domestic resource mobilisation, and human resource development. 36The G20 Saint Petersburg Development Outlook frames the G20 approach to development, stating the main challenges, the responses and new G20 actions required. http://www.oecd.org/g20/topics/development/St-Petersburg-Development-Outlook.pdf 37

Green: achieved or on track to be achieved; Orange: limited achievement, partly off track; or Red: off track. Change in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour.

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2012 -2013

Comment

Transparency and Exchange of Information for Tax Purposes;

The EU and 13 MS provided support to developing countries in adopting and implementing guidelines on transfer pricing.

Five MS provided support to the StAR Initiative

Encourage participation of developing countries in international tax cooperation

No date specified

= The EU and 17 MS support at least one forum or dialogue platform, including the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters (8), the International Tax Dialogue (4) and the International Tax Compact (4).

Ratify and implement the UN Convention Against Corruption (UNCAC) and the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions

As soon as possible, preferably before 2010 for UNCAC; no date specified for OECD Convention

+ The EU and all MS have signed the UNCAC.

22 MS have ratified the OECD Convention against bribery, but only two actively enforce it, 9ensure moderate or limited enforcement, while 11ensure only little or no enforcement.

Support transparency and accountability through EITI and similar initiatives, possibly also in other sectors

No date specified

= The EU and 9 MS provided support to the EITI, mostly through financial support to the international EITI Secretariat and/or the Multi-Donor Trust Fund. France, Germany, Italy and UK have committed to implementing the EITI Standard.

No consensus among Member States over whether and how the approach of EITI should be extended to other sectors

2.1.3. Recent trends and developments

It is estimated that domestic revenues generated by emerging and developing economies reached USD 7.7 trillion in 2012, corresponding to a 14 percent annual increase since 200038. As shown in

38World Bank (2013), Financing for Development Post-2015, http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/WB-PREM%20financing-for-development-pub-10-11-13web.pdf

44

figure 2.1.3 below, domestic tax revenues represented a significant share of the overall development finance available for developing countries, especially middle-income countries, between 2002 and 2011.

Figure 2.1.3. - Domestic Tax Revenues as a Share of Total Resource Flows of Low-Income and

Middle-Income Countries between 2002 and 2011 (cumulative, constant prices)

The revenue collecting performance of governments is generally measured by the tax-to-GDP ratio. Latest statistics indicate that developing countries raise on average 17% of GDP in taxes while OECD countries raise around twice as much. Fragile states are a particular concern as taxes account for only 14% of GDP on average, according to a recent OECD report39. This figure is well below the 20% UN benchmark considered as the minimum needed to meet development goals40. Moreover, fragile states are less able to expand tax revenue as a percentage of GDP and any gains are more difficult to sustain41.

While these figures point to the gap that exists between developed and developing countries, it should be noted however that they also hide significant variations between individual countries, including within a same category of countries. Moreover, caution needs to be exercised in drawing conclusions from these numbers as they are often incomplete, lack reliability and only cover part of the picture. Indeed, the tax-to-GDP ratio is not a very revealing indicator of performance because it is heavily affected by structural conditions that the government cannot control. For instance, tax ratios are determined by a wider range of factors, such as the structure of the economy, the state institutions and the tax system, as well as interest group politics, all of which influence the capacity of countries to increase the mobilisation of their tax revenues. Moreover, what counts is not only what and how much to tax, but also how and who to tax. In that sense, the way taxes are levied is also important, notably in terms of tax compliance, as well as of possible distortions they introduce in the economy.

Broadening the tax base, improving tax administration, and closing loopholes could make a significant difference in low income countries. It is estimated that investments in this sector can yield impressive returns, between ten- and twenty-fold. According to the OECD, every dollar of ODA spent on building tax administrative capacity generates about USD 350 (around EUR 264) in

39OECD (2014), Fragile States Report 2014 – Domestic Resource Mobilisation in Fragile States, http://www.oecd.org/dac/incaf/FSR-2014.pdf 40 UNDP (2010), What Will It Take To Achieve the Millennium Development Goals? An International Assessment, http://content.undp.org/go/cms-service/stream/asset/?asset_id=2620072 41ODI (2013), Taxation and Developing Countries – Training Notes, http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/events-documents/5045.pdf

45

incremental tax revenues42. About EUR 48 billion could be raised every year through better DRM including improved tax collection, especially in MICs43.

Donors play an important role in strengthening tax systems (both tax policy and tax administration) in developing countries. It is however difficult to determine how much ODA currently goes to DRM44, partly due to the difficulty in quantifying the amount of international assistance with the current OECD CRS. According to recent estimates by the OECD, only 0.07% of aid to fragile states is dedicated to improving DRM45.

2.1.4. EU policies and programmes

Increasing domestic revenue mobilisation remains a challenge for many governments, particularly in low income countries, which lack the capacity to achieve and sustain significant increases in the tax-to-GDP ratio.

In December 2013, the EU Council Conclusions on Financing poverty eradication and sustainable

development beyond 201546

reiterated that "the EU and its Member States remain committed to

supporting increased domestic resource mobilisation and supporting the capacity of partner

countries in the area of taxation". In that context, the Council stressed that the EU "will increase its

support for effective, efficient, transparent and sustainable tax policies and administration,

including through providing its expertise and technical assistance".

Support provided in this area typically focuses on strengthening tax systems, and strengthening good governance in the tax area.

2.1.4.1. Strengthening tax systems

Supporting tax reforms and tax administrations

The EU and eighteen Member States47 reported new initiatives to strengthen tax systems of developing countries.

While most support activities took the form of bilateral technical assistance and capacity building programmes – notably through training (for example, Austria, Denmark, Latvia and the Netherlands), workshops (Germany and Slovenia) and study visits (Bulgaria, Hungary and Slovakia), a number of other initiatives were part of broader support schemes. The EU and several Member States provided support through IMF topical trust funds (e.g. Tax Policy and Administration Trust fund or Managing natural resources wealth Trust Fund) and other international programmes such as the International Tax Dialogue and the Global Forum on Transparency and Exchange of Information for Tax Purposes48. The UK is funding the Global Forum Secretariat and the International Finance Corporation to give support to developing countries seeking to join the

42OECD (2014), Domestic Resource Mobilisation in Fragile States, Op. Cit. 43 European Parliament (2014), Modernising ODA in the framework of the post-MDG Agenda: Challenges and

opportunities, http://www.europarl.europa.eu/RegData/etudes/etudes/join/2014/433702/EXPO-DEVE_ET(2014)433702_EN.pdf 44Development Initiatives (2014), Aid for domestic resource mobilisation: how much is there?, http://devinit.org/wp-content/uploads/2014/02/Aid-for-domestic-resource-mobilisation-%E2%80%93-how-much-is-there.pdf 45 See OECD Report on fragile states 2014 46http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/140060.pdf 47AT, BE, BG, DE, DK, EE, ES, FI, FR, HU, IE, LU, LV, NL, PT, SL, SK, UK 48The Global Forum is the premier international body for ensuring the implementation of the internationally agreed standards of transparency and exchange of information in the tax area by both OECD and non-OECD countries. The Global Forum monitors through an in-depth peer review process that its members comply with the standard of transparency and exchange of information they have committed to implement.

46

Global Forum and help them putting in place the necessary legislation, tax treaty networks and information handling processes before they embark on the Forum’s rigorous peer review process.

Moreover, the EU and three Member States49, together with other development partners (Switzerland, Japan, the WB and IMF) supported the development of the 'Tax Administration Diagnostic Assessment Tool' (TADAT), a joint tool to assess the strengths and weaknesses of tax administrations in developing countries against nine performance outcome areas. It is expected that the TADAT will constitute a basis for reform design for strengthened tax administrations, enhanced revenue mobilisation, and improved services to taxpayers as well as better taxpayer compliance and discipline.

Several Member States50 also provided support to the recently launched OECD initiative "Tax Inspectors Without Borders"51 aiming at enabling the transfer of tax audit knowledge and skills to tax administrations in developing countries. Support took the form of funding and/or secondment of tax audit experts to the OECD Secretariat.

Increasing attentions is also being paid to the political economy of DRM in developing countries. In 2013, the European Commission launched two studies aimed at discerning the drivers and constraints of domestic resource mobilisation in developing countries: a study on the feasibility and effectiveness of tax policy changes to support inclusiveness and sustainability of growth52, and a study on vulnerability and resilience factors of tax revenues in developing countries53. Both studies focus in particular on the economic, political and institutional contexts that enable poor countries to mobilise domestic resources for development.

Monitoring DRM in EU budget support operations

The EU and eleven Member States54 report monitoring domestic resource mobilisation through their budget support operations. The Guidelines for EU Budget Support55 issued in September 2012 place a stronger emphasis on encouraging partner countries' efforts to mobilise domestic revenues, and effort of partner countries to this end will be evaluated much more thoroughly, notably within the macroeconomic(fiscal policy) and public financial management (tax administration) eligibility criteria. In June 2013, Denmark has adopted new Guidelines for Development Contracts56defining criteria for support in connection with general budget support operations. These criteria foresee a more systematic assessment of domestic resource mobilisation and are in line with the revised guidelines on budget support from the European Commission. The criteria for assessing domestic revenue-raising in terms of the level of tax collection include trends, prospects and policies, reforms and strengthening of systems regarding its volume and structure.

Revenue raising efforts and public expenditures are monitored through joint donor coordination efforts and/or Joint Performance Assessment Frameworks. For example, in the case of the budget support provided to Cape Verde, the monitoring and evaluation of domestic resource mobilisation is done twice a year through the “Budget Support Group” (BSG) where different donors are involved (notably EU donors such as the Commission, Spain, Luxembourg, Portugal). The results of these

49 DE, NL, UK 50 ES, FR, NL, UK 51http://www.oecd.org/tax/taxinspectors.htm 52Forthcoming 53http://www.die-gdi.de/uploads/media/Vulnerability_of_tax_revenue_Final_Report.pdf 54DE, DK, FI, FR, IE, IT, LU, NL, PT, SE, UK 55European Commission (2012), Budget Support Guidelines: Executive Guide - A modern approach to Budget support, http://ec.europa.eu/europeaid/how/delivering-aid/budget-support/documents/budget_support_guidelines_part-1_en.pdf 56DANIDA (2013), Guidelines for development contracts, http://amg.um.dk/en/~/media/amg/Documents/Technical%20Guidelines/Guidelines%20for%20Development%20Contracts/Guidelines%20for%20development%20contracts%20final%20June%202013.pdf

47

joint working and monitoring meetings are set out in an "Aide Memoire" which provides a general overview and sectorial analyses on domestic resource mobilisation. Such analyses typically aim at measuring the extent to which domestic revenue has improved and fiscal policy targets have been respected.

Germany continues to apply its 'Fiduciary Risk Assessment Tool', consisting of eight indicators, one of which is the revenue-to-GDP ratio. A revenue-to-GDP ratio below 10% is an exclusion criterion for granting budget support. The indicator values are completed by a narrative assessment of the country's ongoing domestic resource mobilisation efforts.

The UK (via DFID) continues to link part of budget support payments to progress in domestic revenue collection, through the use of Performance Tranches linked to indicators in a Performance Assessment Framework. Moreover, the distributional and growth impact of the recipient government’s revenue raising policies forms part of its assessment and determines the extent to which aid is aligned with the partner countries' systems and strategies.

Assessing the impact of tax expenditures.

Tax expenditures due to tax incentives are substantial and often underestimated burden in most developing countries. Yet there is no consensus as to their impact on attracting Foreign Direct Investment and therefore boosting economic growth57. Moreover, tax exemptions are often distortionary and may deteriorate the business environment by creating wrong incentives to firms.

The EU and thirteen Member States58 report supporting developing countries’ efforts to assess the impact of tax expenditures (e.g. tax exemptions, deductions, credits) on their overall tax receipts. Support is mostly provided through direct technical assistance, provision of experts, twinning, training and studies. Moreover, the EU and a number of Member States support multilateral initiatives and programmes such as the OECD Tax and Development Programme, the IMF’s Regional Technical Assistance Centres for support on tax expenditure analysis, the African Taxation Administrators’ Forum (ATAF), or the CIAT’s Measurement of Tax Expenditure Working Group.

The UK is funding the OECD to provide developing countries with expert reviews of their investment tax incentive regimes with a view to the production and implementation of action plans for improving the transparency and value for money of these incentives.

France has initiated collaboration with the Economic Community of West African States (ECOWAS) to reduce derogatory tax regimes and harmful tax competition with a view to strengthening regional fiscal harmonisation. A joint work programme has been adopted for in partnership with the tax and customs administrations of the 8 member states of the ECOWAS.

There is still no consensus in the EU on foregoing tax exemptions on projects financed through external aid, but a majority of Member States agrees that a coordinated EU approach to giving up tax exemptions on aid projects is desirable.

2.1.4.2. Strengthening good governance in the tax area

Strengthening good governance in the tax area aims essentially at enhancing transparency and cooperation in the international tax environment, including through increased exchange of information and fair tax competition.

57 IMF (2009), Empirical Evidence on the Effects of Tax Incentives, WP/09/136, http://www.imf.org/external/pubs/ft/wp/2009/wp09136.pdf 58BE, DE, DK, EE, ES, FR, HU, IE, LV, NL, SE, SK, UK

48

The fight against tax fraud and evasion is a central aspect of good governance in the tax area and can significantly enhance the tax collection capacity of developing countries. It is estimated that developing countries lose between EUR 660 and EUR 870 billion each year through illicit financial flows, mainly in the form of tax evasion by multinational corporations59. According to a recent report by Global Financial Integrity60, illicit financial flows out of developing countries have been increasing by an average of more than 10% per year between 2002 and 2011. The report estimates that over the decade, cumulative illicit financial outflows from developing countries reached a total of USD 5.9 trillion (around EUR 4.2 trillion).

In September 2013, G20 leaders agreed on concrete measures to curb corporate tax avoidance worldwide61. The measures include addressing base erosion and profit shifting, tackling tax avoidance, and promoting tax transparency and automatic exchange of information. In particular, the G20 confirmed a move to greater international tax transparency, by agreeing that automatic exchange of information should be the new global standard of cooperation between tax administrations, and by endorsing the OECD Action Plan to address Base Erosion and Profit Shifting62 (BEPS).

Released in July 2013, the OECD BEPS Action Plan identifies 15 actions to address profit shifting and transfer pricing by multinationals63. The Action Plan aims to provide “countries with domestic and international instruments that will better align rights to tax with economic activity.” It sets deadlines for the delivery of the “expected output” from each action, ranging from 12 to 24 months. The BEPS Action Plan is particularly relevant for developing countries as corporate income tax revenue also constitutes a substantial part of their total tax revenues, and their engagement in this work is encouraged. The international donor community can assist and support developing countries to implement measures to address base erosion and profit shifting, including through capacity building initiatives64.

Remarkable progress has also been made at EU level, following the adoption in 2012 of the EU Action Plan to fight tax fraud and evasion65, and a number of important new initiatives have been put forward by the Commission in 2013. In particular, the European Commission set up a Platform for Tax Good Governance to monitor Member States' progress in tackling aggressive tax planning and clamping down on so-called tax havens66, in line with the two Recommendations presented by the Commission in 201267. Its work programme also includes several other areas of focus, including an EU Taxpayer’s Code, ways to increase transparency of multinationals and looking at the effects of EU tax policy on developing countries.

The EU and sixteen Member States68 have reported new initiatives to support developing countries in addressing the challenges of cross-border tax evasion and harmful tax competition. Many activities are aimed at promoting and supporting the exchange of tax information, in particular

59Eurodad (2013), "Giving with one hand and taking with the other: Europe's role in tax-related capital flight from developing countries 2013", http://www.eurodad.org/files/pdf/52dfd207b06d7.pdf; 60 Global Financial Integrity (2013), Illicit Financial Flows from Developing Countries: 2002-2011, 61St Petersburg G20 Leaders Declaration, paras 50-52, http://en.g20russia.ru/load/782795034 62OECD (2013), Action Plan on Base Erosion and Profit Shifting, http://www.oecd.org/ctp/BEPSActionPlan.pdf 63Transfer pricing is the process of determining prices for transactions between connected companies. The transactions are usually cross-border, and should be the same as those that would have been agreed between independent parties. 64http://www.oecd.org/ctp/tax-global/tf-on-td-sess-five-transferpricing.pdf 65COM (2012) 722 final 66 Commonly understood to be jurisdictions which are able to finance their public services with no or nominal income taxes and offer themselves as places to be used by non-residents to escape taxation in their country of residence 67COM (2012) 8805 and COM (2012) 8806 68AT, DE, DK, EE, ES, FI, FR, HU, IE, LT, LU, LV, NL, PT, SK, UK

49

through the OECD Task Force on Tax and Development69, the ATAF, and in the framework of the Global Forum on Transparency and Exchange of Information for Tax Purposes70. For example, the UK has provided assistance to Kenya and Ghana in adapting their legal and regulatory tax framework to meet international tax information exchange standards; Finland supported an expert seminar in Tanzania with participants from several African countries focusing on transfer pricing of natural resources and extractive industries. Strengthened dialogue between duty bearers and right holders and increased awareness among right holders was one of the results. The EU and several Member States supported other relevant multilateral initiatives in the area of tax cooperation such as the International Tax Compact (ITC)71, the IMF Regional Technical Assistance Centres72, the OECD Tax and Development programme73, the ATAF74 or the CIAT75. The EU and several MS also provided support to the IMF Topical Trust Fund on Tax Policy and Administration and to regional tax organisations in Africa and Latin America.

Four Member States76 supported activities, such as training and capacity building programmes for revenue and customs authorities in partner countries. For example, Germany provided technical assistance to the East African Community (EAC) Integration Process through trainings for the implementation of Double Taxation Agreements, regional workshops on the exchange of information, the development of a code of conduct on harmful tax competition and the development of a model Double taxation Agreement between the EAC and third countries.

In addition, the EU and eleven Member States77 have reported specific activities in supporting developing countries to adopt and implement guidelines on transfer pricing. For example, the EU and several Member States supported and participated in various technical workshops and seminars in partner countries78 on transfer pricing.

To ensure that developing countries get their fair share of revenues from economic activity within their borders, it is essential that multinational corporations make more and better information available. The new Accounting and Transparency Directives79 adopted in 2013 introduce new reporting obligations for listed and non-listed companies active in the logging and extractive industry. The new legislation80 requires oil, gas, mining and logging companies to annually disclose the payments they make to governments on a country-by-country and project-by-project basis. Such disclosure will bring more transparency to industries often shrouded in secrecy and will contribute to fighting tax evasion and corruption in resource-rich developing countries. It will notably provide civil society with the information needed to hold governments to account for any income made through the exploitation of natural resources.

69The programme is composed of four key pillars: 1) State building, Taxation and Aid, 2) Effective transfer pricing in developing countries, 3) Increased Transparency in the Reporting of Relevant Financial Data by MNEs, 4) Supporting the work of the Global Forum on Transparency and Exchange of Information. 70 The EU and all EU Member States are members of the Global Forum on Transparency and Exchange of Information for Tax Purposes 71DE, EC, ES, NL 72 DE, EC, ES, FR, LU, NL, SL, UK 73AT, BE, DE, ES, IE, LU, NL, UK 74DE, EC, FI, IE, NL, UK 75 DE, EC, ES, FR, NL 76DE, ES, LV, UK 77BE, DE, ES, FI, FR, HU, LU, NL, PL, PT, UK 78European Commission in Ghana, Finland in Tanzania, France in Senegal, Poland in Armenia 79Directive 2013/34/EU of 26 June 2013, and Directive 2013/50/EU of 22 October 2013 80 Transposition of the Directives into EU Member State law can take up to 24 months and must be complete by July 2015 (Accounting Directive) and November 2015 (Transparency Directive). Companies’ public disclosure of payments in an annual report is anticipated to begin in 2015 or 2016.

50

The requirements of the amended Accounting and Transparency Directives are broadly similar to those of the US Dodd Frank Act, but go further in two respects. First, the EU logging industry is within the scope of the reporting requirement in addition to the oil, gas and mining industries (in the US oil, gas and mining are the only targeted sectors). Second, the EU rules apply to large unlisted companies, as well as listed companies, whereas the US rules are restricted to listed extractive companies only. Together, the combined scope of EU and U.S. regulations on mandatory disclosure is expected to cover 90% of the world’s major international extractive companies81 and contribute to making governments more accountable for the use of these resources and promote good governance.

The amended Accounting and Transparency Directives are in line with the voluntary requirements set by the Extractive Industries Transparency Initiative82 (EITI) which they are also expected to promote in a number of countries. In 2013, the EU and nine Member States83 provided support to the EITI, mostly through financial support to the international EITI Secretariat and/or the Multi-Donor Trust Fund. While Belgium, Italy and Spain are to date the only EU Member States to have signed the EITI, France and UK have committed to implementing the EITI Standard, the reporting of which has been strengthened in 2012. Like in 2012, there is still no consensus among Member States over whether and how the approach of EITI should be extended to other sectors.

EU Member States are signatories to several conventions aimed at fighting corruption, including the OECD Anti-Bribery Convention, and the UN Convention against Corruption (UNCAC). The Czech Republic has ratified the UNCAC in November 2013. Out of the twenty-two EU Member States analysed in the 2013 'Transparency International Progress Report on Country Enforcement of the Anti-Bribery Convention'84, only two85 actively enforce the OECD Anti-Bribery Convention, nine86 ensure moderate or limited enforcement, while eleven ensure only little or no enforcement.

In 2013, ten Member States87 participated in, cooperated with, or provided support to the StAR Initiative88 in various forms (including through joint work with the OECD or UNCAC, financial support or staff secondment). In addition, Italy participated to the Arab Forum on Asset Recovery and has produced a national Guide on Asset Recovery (translated in English, Arabic and French) to promote international collaboration on those issues.

2.2. Maintaining Sustainable Debt Levels

EU Commitments

The EU is committed to supporting debt sustainability in developing countries, in line with the

2001 Doha Declaration. This has been clearly articulated, inter alia, in the Council

Conclusions of 18 May 2009 (§12), which state that ‘the EU will continue supporting the

existing debt relief initiatives, in particular the Heavily Indebted Poor Countries (HIPC)

81http://www.transparency.org/news/pressrelease/09042013_natural_resource_corruption_dealt_a_blow_by_new_eu_transparency_ru 82The EITI provides a standard for companies to publish what they pay and for governments to disclose what they receive from the extractive industries. 83 BE, DE, DK, FI, FR, IT, NL, SE, UK 84 Transparency International (2013), Exporting Corruption – OECD Progress Report 2013, http://files.transparency.org/content/download/683/2931/file/2013_ExportingCorruption_OECDProgressReport_EN.pdf 85DE, UK 86 AT, BG, DK, FI, FR, HU, IT, PT, SE 87BE, HR, IE, IT, LU, NL, PT, RO, SE, UK 88The Stolen Asset Recovery (StAR) initiative was launched in 2007 by the World Bank and UN to support international efforts to end safe havens for corrupt funds.

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Initiative and Multilateral Debt Relief Initiative (MDRI) and values the Evian approach as an

appropriate flexible tool to ensure debt sustainability’. The EU also confirmed that it ‘supports

discussions, if relevant, on enhanced forms of sovereign debt restructuring mechanisms, based

on existing frameworks and principles, including the Paris Club, with a broad creditors’ and

debtors participation and ensuring comparable burden-sharing among creditors with a central

role for the Bretton Woods Institutions (BWI) in the debate’.

More recently, the Council Conclusions of 15 October 2012 stated that (§3) ‘The EU will

continue to deliver on debt relief commitments to support the sustainability of public finances in

developing countries, participate in international initiatives such as the WB/IMF Debt

sustainability framework, and promote responsible lending practices. Moreover, the EU will

promote the participation of non-Paris Club members in debt-workout settlements, and Member

States that have not yet done so will take action to restrict litigation against developing

countries by distressed-debt funds. The EU will also support developing countries’ efforts to

avoid unsustainable debt levels.’

2.2.1. Introduction

Until the last decade, the external debt of many developing countries had been rising to unsustainable levels due in part to development strategies that relied on debt financing to foster economic growth. Ensuing debt distress of many low income countries prompted a change in the policy debate emanating from the main creditor countries. In particular, the latter agreed to restructure unsustainable debt stocks and to establish debt relief programmes, such as the Heavily Indebted Poor Countries initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI). As a result, external debt stocks of many low income countries have been reduced dramatically, freeing up resources for poverty reduction and other development goals.

Debt relief initiatives have produced positive results for developing countries: the sustainability of overall debt exposure (domestic and external) is far better in countries that benefitted from the HIPC and have reached completion point, than in non-HIPC countries89.

Still, the risks associated with unsustainable debt levels are not completely overcome. A few developing countries, mostly in the Caribbean, which were not eligible to the debt relief initiatives, are still burdened with heavy external debt stocks90. Furthermore, the combination of rising government debt (including domestic) with high level of domestic private debt poses additional risks to financial stability in several developing countries, including some that benefited from debt relief programmes91.

2.2.2. Implementation Table

The table below92 summarises progress made in 2013 in implementing the EU commitments on debt sustainability.

89 See also, Bua, G., Pradelli, J., and A. Presbitero (2013); “Domestic public debt in low-income countries trends and structure”; World Bank Policy Research Working Paper (forthcoming). Quoted by Sudarshan Gooptu, The Debt

Sustainability Framework for Low-Income Countries, Brussels, November 8, 2013. 90Sudarshan Gooptu (2013), Debt Sustainability in ACP Countries, Presentation at the ACP-EU Joint Parliamentary Assembly, Meeting of the Committee on Economic Development, Finance, and Trade, Brussels. 91IMF(2013), Low-Income Countries Global Risks and Vulnerabilities Report; IMF (2014),Heavily Indebted Poor

Countries Initiative and Multilateral Debt Relief Initiative – Statistical Update 92


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EU commitments Target Date Status Change

2012-2013

Comment

Support existing debt relief initiatives, in particular the HIPC Initiative and the MDRI

No date specified

= The EU and several MS are involved in either the MDRI or the HIPC, or both.

No new country reached completion point for HIPC in 2013; only one country (Chad) is yet to reach the completion point. Three other countries (Eritrea, Somalia and Sudan) remain eligible to access debt relief under the HIPC.

Support discussions, if relevant, on enhanced sovereign debt restructuring mechanisms, on the basis of existing frameworks and principles

No date specified

= The EU and 10 MS93 support ongoing discussions on the experience with and possible reforms to the existing frameworks and principles to deal with potential future sovereign debt distress.

Participate in international initiatives such as the WB/IMF Debt Sustainability Framework (DSF) and promote responsible lending practices

No date specified

= The EU and 4 MS94 support the Debt Management Facility. In 2013. France launched a proposal to commit for G20 members to commit to sustainable lending principles when lending to LICs.

Promote the participation of non-Paris Club members in debt-workout settlements

No date specified

= 7 Member States continue to support outreach actions by the Paris Club. The Paris Club organised in October 2013 a meeting attended by India and China.

Take action to restrict litigation against developing countries by distressed debt funds

No date specified

+ The Netherlands have adopted a new law in 2013 preventing litigation by “vulture funds”. In addition, France filed an amicus brief in the US Supreme Court in support of Argentina’s appeal within the context of the litigation against a

93AT, BE, FI, FR, HU, IE, IT, LU, SL, UK - Source: Questionnaire for the 2014 EU Accountability Report 94AT, BE, DE, NL - Source : World Bank

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2012-2013

Comment

group of investors. In July, 2013 German courts have rejected a similar claim by a hedge fund on Argentine assets.

2.2.3. Recent Trends

Global trends show that external debt exposure is slightly worsening, due in part to the economic slowdown in some large MICs in 2012 and the first half of 2013, which were also affected by volatile capital flows. Exchange rates in MICs continued to depreciate in 2013, although at a slower pace than in 2012. Although LICs tend to be less exposed to the volatility of capital flows due to lower short-term capital stocks, their commodity exports were nonetheless curtailed because of the economic slowdown in MICs. The downward trend of commodity prices also negatively affected the economies of developing countries.

In 2012, developing countries (including some emerging market countries) saw a 9% decrease of external debt95stocks, down from 11% in 2011. Short-term debt did not rise as fast as it had in 2011. The external debt stock grew from EUR3.2trillionin 2011 to EUR3.7trillionin 2012, representing respectively 21.4% and 22.1% of GNI. After reaching a peak in 2010, the trend in net debt inflows continued to decline, from EUR 363.3 billion in 2010 to EUR 320.4 billion in 2012.

However, leaving out the substantial drop of net debt flows to China(which fell to less than 30 % of its 2011 level), the trend is considerably altered: net debt flows to developing countries increased

significantly by 20% in 2012, with a rapid increase (55%) in short term debt.

95World Bank (2014), International Debt Statistics – 2014, Washington DC; Note: USD/EUR exchange rates provided

by OECD/DAC.

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Considering external debt by income groups, stocks of MICs increased marginally from 21.2% of GNI in 2011 to 22% in 2012. In LICs, the decline of debt stocks continued in 2012: from 30.7% of GNI in 2010 to 27.6% in 2012. However, some regions have fared differently from others: Sub-Saharan Africa has seen a steady increase in its external debt stocks, which grew from EUR 196.3billion in 2010 to EUR 257.5billion in 2012, with increases in both official and private lending. In terms of percentage on GNI, Sub-Saharan Africa's external debt stock grew from 25.2% in 2010 to 27.2% in 2012, while debt stocks represented 71.9% of total export of goods, services and primary income, up from 69.3% in 2011.96

The major change for the aggregate developing countries was the reallocation in the source of financing: in 2012, private sector credits increased significantly from EUR87billion to EUR 139.3 billion. International private long-term debt to developing countries has increased from 0.8% of GDP in 2008 (or EUR 104 billion) to nearly 2.0% in 2012 (or EUR 289 billion), due to a surge in bond issues, while bank lending has decreased. In addition, in 2012, for the first time in over ten years, the ratio of external debt stocks to exports increased slightly from 69.3% to 71.9%. The rise in bond issues may pose some challenge in the future to the financial stability of debtor countries.

In spite of a slightly improving global economic outlook and the gradual recovery of advanced economies, emerging and developing economies are now facing an increasingly uncertain financial environment. The rapid expansion of private debt stocks in China since 2008 and the existence of a domestic credit risk97 could accelerate again the capital flight from developing countries, in particular MICs.


The financing environment for LICs has changed significantly over the past few years. External financing opportunities for LICs have expanded and diversified, thanks to increasing financing flows, successive rounds of debt relief, favourable commodity markets, and commercial and financial globalisation. In this context, lending countries should contribute to supporting borrowing countries' economic and social progress, without endangering their financial future and long term development prospects.

The IMF-World Bank Debt Sustainability Framework (DSF) for LICs seeks to balance the need for using debt to finance development and the imperative of maintaining long-term debt sustainability. The EU is committed to implementing this framework, which provides guidance on lending and grant allocation decisions. The DSF is a key reference for assessing debt sustainability in the context of EU's development cooperation. In that context, the EU provides grant support to lending operations and takes into account the IMF debt limits policy (which is in turn based on the DSF) to define the appropriate concessionality element of the loan.

The EU has also supported the French initiative, under the Russian G20 Presidency, proposing a commitment by G20 countries to adhere to sustainable lending principles. The aim is to help avoiding the build-up of unsustainable debt levels in LICs, given that the HIPC initiative will soon come to an end, and that LICs may increasingly seek finance from emerging market lenders outside the Paris Club. The EU provides development assistance through blending of grants with loans, which has increased its interest in ensuring that all partners are committed to sustainable lending practices. On the other hand several EU Member States98actively support the outreach work of the Paris Club.

96World Databank, International Debt Statistics. 97Ruchir Sharma (2014),China’s debt-fuelled boom is in danger of turning to bust, Financial Times, January 27th 2014 98AT, DK, FI, FR, IT, NL, UK

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Several Member States99 as well as the EU100continued contributing to the Heavily Indebted Poor Countries (HIPC) initiative101. Initially established for a two-year period, the HIPC was renewed several times and is still active although the number of countries that are currently supported or on the point of being accepted in the review process has decreased dramatically. Since 2012, when three countries were considered eligible for debt relief under the HIPC Initiative (Comoros Islands, Ivory Coast, and Guinea Conakry), no other country reached completion point. As of March 2014, Chad is the only country in the interim phase and three more (Eritrea, Somalia, and Sudan) are potentially eligible.

Several Member States102 are also contributing to the Multilateral Debt Relief Initiative (MDRI)103.The objective of the MDRI is to free additional resources that will help eligible countries to reach the MDGs.

The EU and four Member States104support the Debt Management Facility (DMF), a trust fund launched in 2008 by the World Bank to strengthen eligible countries’ debt management capacity with performance assessment tools, strategy and reform plans, training and knowledge exchange. The EU and four Member States105also contribute to the Debt Management and Financial Analysis System (DMFAS) Programme, an initiative to support partner countries develop administrative, institutional and legal structures for effective debt management. DMFAS provides technical assistance and analysis and acts as a knowledge platform and focal point for exchange of experiences in debt management106.

In matters of protection against aggressive litigation by certain private investors, three EU Member States107contributed to the African Legal Support Facility, administered by the African Development Bank. Established in 2010, the Facility supports with legal advice and technical assistance African governments in their negotiations and legal disputes with international investors. In addition, France issued a legal statement in US courts in support of Argentina’s appeal within the context of the litigation against a group of investors in the courts of New York. In July, 2013 German courts have rejected a similar claim by a hedge fund on Argentine assets. The Netherlands adopted new legislation preventing litigation by vulture funds.

3. Private Finance for Development

3.1. Private Investment for Development

EU Commitments

99AT, BE, DE, DK, ES, FI, IE, IT, NL,PT, SE, UK 100Mainly through a direct grant to the Debt Relief Trust Fund of the World Bank and via the EIB as a creditor. 101 The HIPC initiative was set-up in 1996 with the support from the World Bank and the IMF to facilitate a coordinated approach among donor countries to help reduce poor countries’ external debt to sustainable levels 102AT, BE, DE, DK,EL,ES, FI, HR, IE, IT, LV, NL,PT, SE, SK, SL,UK 103The MDRI) was set-up in 2006 to further reduces debt burden of qualifying countries by providing full debt relief on outstanding debt from the IMF, IDA, African Development Bank and the Inter-American Development Bank. 104AT, BE, DE, NL 105DE, IE, IT, NL - Data from the Accountability questionnaire and the DMFAS web site 106In 2013, UNCTAD carried out a mid-term review of the DMFAS Strategic Plan for 2011-2014 - See: N. Kappagoda and R. Culpeper, Mid-Term review of the Strategic Plan for 2011-2014 - Debt Management and Financial Analysis

System Programme, UNCTAD, October 2013 107BE, IT, NL

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Council Conclusions of 15 June 2010 on the Millennium Development Goals, §25: The EU

and its Member States will continue to encourage and to support the development of the private

sector, including small and medium enterprises through measures enhancing the overall

investment climate for their activity, inter alia through promoting inclusive finance and through

relevant EU Investment Facilities and Trust Funds.

Council Conclusions of 9 March 2012 on Rio+20, §30: Underscores the importance of the

private sector and of partnerships between the private and the public sector in promoting

investment, trade and innovation, including in delivering a global GESDPE.

Council Conclusions of 14 May 2012 ‘Increasing the Impact of EU Development Policy: an

Agenda for Change’: The private sector and trade development are important drivers for

development. An enabling business environment and more effective ways of leveraging private

sector participation and resources in partner countries as well as increased regional

integration, aid for trade and research and innovation will be key to the development of a

competitive private sector. This has to go along with promoting labour rights, decent work and

corporate social responsibility.

3.1.1. Introduction

The role of the private sector in developing countries is widely recognised, and governments and donors alike support initiatives aimed at supporting the growth of the local private sector to produce goods and services, create jobs, furthering innovation and generating public revenues essential for economic, social and environmental policy objectives. In this context governments in partner countries have concentrated their action in creating conditions that facilitate the development of a dynamic private sector.

In most developing countries, the private sector consists mainly of micro, small and medium enterprises (the EU definition of which is enterprises with less than 250 employees)108, which provide the bulk of wealth and job creation and contribute directly to poverty alleviation. A vital and dynamic SME sector is an essential part of the economic potential of these countries, which can also foster the emergence of local industrial groups, and link as subcontractors to larger foreign or local firms.

In June 2013, the UN Global Compact presented a report to the UN General Secretary outlining the prospective and priorities for the private sector to achieve sustainable development goals in a post-2015 agenda. Special emphasis was put on working towards an enabling environment for private sector development, consisting of three pillars: a) building peaceful and stable societies, by providing equitable access to services and economic opportunities and reduce crime and violence; b) modernising infrastructure and technology including lowering their impact on the environment; and c) promoting good governance and realisation of human rights, encompassing a supportive business climate and reducing discriminatory barriers to economic development.

The importance of partnering with the private sector has been strongly reaffirmed by the EU in the 'Agenda for Change'. The EU recognises that “economic growth needs a favourable business

environment. The EU should support the development of competitive local private sectors including

by building local institutional and business capacity, promoting SMEs and cooperatives, supporting

legislative and regulatory framework reforms and their enforcement (including for the use of

108 Tom Gibson, H. J. van der Vaart (2008), Defining SMEs: A Less Imperfect Way of Defining Small and Medium

Enterprises in Developing Countries, Brookings, Washington DC.

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electronic communications as a tool to support growth across all sectors), facilitating access to

business and financial services and promoting agricultural, industrial and innovation policies.”

As shown in figure 3.1.1.below, the private sector is also essential to complement public financing for investments aimed at delivering public goods in crucial sectors such as transportation, health, education, agriculture, energy and public utilities, when the conditions are set to do so on commercial terms: “In the same vein, crucial to developing countries’ success is attracting and

retaining substantial private domestic and foreign investment and improving infrastructure. The EU

should develop new ways of engaging with the private sector, notably with a view to leveraging

private sector activity and resources for delivering public goods. It should explore up-front grant

funding and risk-sharing mechanisms to catalyse public-private partnerships and private

investment."

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Figure 3.1.1. - Domestic Private Finance Flows as a Share of Total Resource Flows of Low-

Income and Middle-Income Countries between 2002 and 2011 (cumulative, constant prices)


The table below109 summarises progress made in 2013in implementing the EU commitments on private sector development. Further details are discussed in the main text.


2012-2013

Comment

Support the development of the private sector, including small and medium-sized enterprises, through measures to enhance the overall investment climate for their activity, inter alia by promoting inclusive finance and through relevant EU investment facilities and trust funds

No date specified

= A new Communication on 'A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries' was approved in 2014, jointly with the new programming for the period 2014-2020.

EU and Member States continue to expand their initiatives to support the private sector with a variety of financial and non-financial instruments.


According to the latest statistics on global FDI released by UNCTAD110, after a sharp decrease between 2011 and 2012 from USD 1.69 trillion to USD 1.32 trillion, global FDI recovered partially in 2013 and are estimated to have attained USD 1.46 trillion111. With a new high of USD 759

109Green: achieved or on track to be achieved; Orange: limited achievement, partly off track; or Red: off track. Change

in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour. 110UNCTAD (2014), Global Investments Trend Monitor, No. 15 111Other scenarios, notably by OECD, present a less favourable outcome for 2013, which may have been affected by the changing mood in global financial markets during the second half of 2013. See, OECD (2014), FDI in Figures,

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billion and 56% share in total FDI, developing and emerging economies retained their lead as the major recipient of FDI. The volatility of capital flows, which affected exchange rates and stock markets of some emerging markets in 2012 and 2013, was concentrated on portfolio investments and had minor impact on FDI flows, which remained relatively sustained112.

For the fourth consecutive year, FDI to Latin America and the Caribbean has increased (+18% in 2013) due largely to strong foreign investments in Central America (+96%, mainly in Mexico), partially offset by a decline (-7%) in South America, which had been the main source of FDI growth in previous years. Despite a slight decline, Brazil consolidated its position, with a share of 47%, as the main recipient of FDI in South America.

In 2013, total FDI inflows to developing Asia remained steady at about USD 406 billion. The region, which includes large emerging economies like China, India and Turkey, confirmed its position as the first recipient of FDI on a global scale with a 28%share. There were marked differences among sub-regions: while FDI to West Asia declined significantly (-20%), the inflows to the other regions increased slightly (between 1% and 3%).

FDI flows to Africa, which on a global scale represent 3.8% of FDI, increased by 6.8% to USD 56 billion in 2013 consequent to record-high investments in South Africa and Mozambique.


At the start of the EU’s multiannual financial framework for 2014 - 2020, and amidst preparations for a post-2015 global agenda, the European Commission adopted in May 2014 a Communication113 which defines the future direction of EU policy and support to private sector development in partner countries, and introduces private sector engagement as a new dimension into EU development cooperation. In that context, the Commission will look beyond public interventions in the area of private sector development to also harness the potential of closer engagement of the private sector, both as a partner in the financing and delivery of development results, and by encouraging positive development impact that arises from companies' engagement for development as part of their core business strategies.

Partnership with the private sector and trade figured among the prominent topics at the eighth edition of European Development Days organised in Brussels in November 2013.

The development of the private sector is one of the main areas of support by the EU and its Member States. Their activities are concentrated on three main axes: i) establishing an enabling environment for private sector development in partner countries, mainly through changes in regulatory arrangements, so as to improve the overall business climate for the private sector; ii) support for the development of SMEs, which includes targeted actions to enhance their competitiveness on local and export markets; and iii) engaging with the private sector to achieve development goals. Private sector engagement (PSE) can take different forms, ranging from public-private dialogue in policy formulation, to private-public partnerships for the provision of infrastructure services; or bringing private enterprises and financial intermediaries on board of blending projects run by eligible financing institutions. Moreover, the EU will encourage businesses to achieve positive development results as part of its core business strategies, for instance, by promoting sustainable production patterns, responsible investment, or inclusive business models.

International Investment Struggles. OECD predicts a further slide of global FDI in 2013, which will decline by 6%. No specific forecast is made for developing countries. 112UNCTAD (2014), Global Investments Trend Monitor, Op. Cit. 113 Communication on 'A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in

Developing Countries', 13 May 2014,COM(2014) 263 final

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In 2013, the European Commission finalised the 'Evaluation of the European Union's Support to Private Sector Development in Third Countries'114. The study confirmed the role of the EU as one of the leading sources of finance and policy support for Private Sector Development in partner countries, and suggested to make better use of its own technical capabilities to programme and manage operations in this sector. Another study was launched in 2013, on how to engage with the private sector in development policies and extend the blending activities115of the EU. The study will explore concrete possibilities and options for improving and scaling up existing blending mechanisms, including the development of private sector windows within these facilities. It will also provide concrete recommendations for improving engagement with the private sector, as well as enhancing public and private partnerships and dialogue. Results of the study are expected in mid-2014.

A new partnership was launched in April 2013 between the World Bank, the EU and the Secretariat of the African, Caribbean and Pacific Group of States (ACP) on the Competitive Industries and Innovation Programme (CIIP)116. The CIIP, a five-year programme with a target funding of EUR 70 million, aims at helping partner countries strengthen the competitiveness and innovation of specific industries in order to unlock the potential for firms and industries to compete successfully in the global marketplace. It is implemented through active dialogue and effective joint action between the private and public sector.

Several EU Member States117 have set-up programmes aimed mostly at supporting SMEs in home countries to form partnerships with businesses from developing countries. These programmes usually include advisory services, support for investment and training. Germany and Finland have also created programmes to support Civil Society Organisations.

Of note, Germany launched the programme “develoPPP.de”, which supports development partnerships between the private sector and national governments in developing countries in order to foster sustainable development118. Another initiative worth mentioning is the Senior Expert Service (SES) which offers interested retirees the opportunity to pass on their skills and knowledge to partners in developing countries.

Slovenia supported the International Centre for Promotion of Enterprises (ICPE), an intergovernmental organisation mandated to pursue and promote international cooperation in areas of transfer of technology, sustainable entrepreneurship and promotion of knowledge-based societal change through research, training, consultancy an information services.

To support private investment, the EU and its Member States have also established a number of innovative instruments (discussed in more detail in chapter 5 of this report), including loans, guarantees and equity funds, which aim at leveraging private and public financing mostly for SMEs and infrastructure projects.

114European Commission/ADE, ‘Evaluation of European Community Support to Private Sector Development in Third Countries’, 2013. 115 Blending refers to a mix of financial instruments, mostly grants and loans, in which the grant component is aimed at reducing costs and/or risk of financing of operations in developing countries. Support can take the form of risk mitigation, interest rate subsidies, technical assistance, guarantees or direct investment. 116New Partnership Takes Fresh Approach to Creating Jobs and Strengthening Private Sector Growth Potential, Press Release, World Bank, September 18, 2013. 117AT, BE, CZ, DE, FI, FR, IT, NL, PL, PT, SE, SK, UK 118develoPPP.de Public-Private Partnerships with the BMZ, Federal Ministry for Economic Development and Cooperation, 2013.

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3.2. Corporate Social Responsibility

EU Commitments

Council Conclusions of 15 June 2010 on the Millennium Development Goals,§26: In addition

the EU and its Member States commit to increasing their efforts to mobilize the private sector

and engage with business to help accelerate progress towards the MDGs including by

promoting the UN Global Compact and the Corporate Social Responsibility principles.

Innovative public-private partnerships with the business and NGO community, combining and

reinforcing each other’s knowledge and capabilities, can enhance the effectiveness of our aid.

Competitiveness Council Conclusions of 5 December 2011, §7: Welcomes the Communication

from the Commission A Renewed EU Strategy 2011-2014 for Corporate Social Responsibility

as well as of the Social Business Initiative; emphasises market advantages of responsible

business conduct; encourages the Member States to respond to the Commission’s invitation to

develop or update their plans or lists of priority actions in support of the Europe 2020 Strategy.

EU Strategic Framework and Action Plan on Human Rights and Democracy (25 June 2012):

The EU will promote human rights in all areas of its external action without exception. In

particular, it will integrate the promotion of human rights into trade, investment, technology

and telecommunications, Internet, energy, environmental, corporate social responsibility and

development policy as well as into Common Security and Defence Policy and the external

dimensions of employment and social policy and the area of freedom, security and justice,

including counter-terrorism policy. In the area of development cooperation, a human rights

based approach will be used to ensure that the EU strengthens its efforts to assist partner

countries in implementing their international human rights obligations.

Council Conclusions of 12 December 2013, §11:The EU and its Member States urge

companies to adhere to internationally-agreed corporate social and environmental

responsibility and accountability principles and standards, including the ILO core labour

standards and OECD guidelines.

3.2.1. Introduction

Corporate social responsibility (CSR) is a commitment by businesses to adopt socially, economically and environmentally responsible policies, with the aim of contributing to sustainable and inclusive economic growth. Up to now, most efforts of the EU and Member States were aimed at promoting the adoption of CSR principles by enterprises of developed economies, notably multinational companies. Increasing attention is now also being paid to the promotion of CSR in developing and emerging economies.

As underlined in last year's Accountability Report, it is difficult to assess and measure the extent to which CSR impacts sustainable development outcomes in developing countries. Nevertheless, it is widely acknowledged that businesses can play a crucial role in creating decent jobs and fighting poverty by acting responsibly in developing countries.

3.2.2. Implementation table

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The table below119 summarises progress made in 2013 in implementing the EU commitments on Corporate Social Responsibility. Further details are discussed in the main text.

EU commitments Target

date Status Change

2012 -2013 Comments

Enhance efforts to promote the adoption, by European companies, of internationally agreed principles and standards on Corporate Social Responsibility, the UN principles on business and human rights and the OECD Guidelines for Multinational Enterprises

No date specified

= The EU and 16 MS have indicated their support to various initiatives aimed at promoting internationally agreed CSR principles

Respond to the Commission’s invitation to develop or update Member States’ plans or lists of priority actions in support of CSR

No date specified

= 22 MS have committed to publish their national action plans on business and human rights; 4 MS have already done so.


The recently adopted Communication on "A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries" highlights the importance of CSR and sustainable and responsible business practices for private sector investment and trade in developing countries to strengthen the contribution of the private sector to inclusive and sustainable growth. In particular, it calls on the European and international private sector to increase efforts to integrate CSR principles into their core business operations, including adherence to environmental, labour and human rights standards, and to increase transparency (in particular in the extractive industries) and tax compliance.

In 2013, all Member States made progress in their CSR activities, whether through implementing a national action plan for CSR or by making preparations for a national action plan or CSR activities. Twenty-four Member States have or will have a CSR national action plan by end 2014.

During 2013, the Commission ran a peer review of EU Member States' activities on CSR to which all Member States took part. Seven meetings of 4 countries each were held between June and December 2013120 to enable Member States to understand each others' CSR policies better, and to


in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour. 120 Peer review reports of the seven meetings are available here: http://ec.europa.eu/social/keyDocuments.jsp?advSearchKey=CSRprreport&mode=advancedSubmit&langId=en&policyArea=&type=0&country=0&year=0

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ask each other questions about them. Emerging results indicate that there are a number of cross-cutting themes as well as Member State specific themes that will require continued attention. The project will be completed in July 2014 by the production of a new compendium of Member States activities and action plans on CSR.

To enhance the visibility of CSR and disseminate good practices, the EU and several EU Member States121 have recently established award schemes. For example, Austria’s renowned award for responsible business (TRIGOS) now has a new category for “Best Partnership” to reward impactful private sector cooperation in developing countries. In September 2013, the first ever European CSR Awards Scheme for ‘Corporate Social Responsibility: Partnership, Innovation and Impact’ brought together CSR networks from 30 European countries to reward collaborative partnerships between business and non-business organisations which have developed innovative solutions for sustainability. The European award is based on a series of national CSR award schemes in EU Member States and some other European countries. Coordinated within a common European framework, this scheme has contributed to establish new award schemes in countries where such schemes did not exist and to bring a new European dimension to some existing national award schemes.

Of note, the first edition of the EU-Africa Chamber of Commerce (EUACC) CSR awards in Africa was launched during the European Development Days organised in Brussels in November 2013. The EUACC CSR Awards aim to increase the visibility of CSR best practices among the business community in Africa and to raise awareness on the positive impact that sustainable business initiatives can have.

On 6 February 2013, the European Parliament adopted two resolutions122 acknowledging the importance of improving company transparency on environmental and social matters, including the need to improve the quality of CSR disclosure via regulatory measures. The Parliament had also called the Commission to bring forward a legislative proposal.

On 16 April 2013, the Commission proposed an amendment123 to existing accounting legislation in order to improve the transparency of certain large companies on non-financial and diversity information. Non-financial transparency is a key element of any CSR policy, and the objective of the new proposal is to increase the transparency and improve the performance of European companies on environmental and social matters, thereby contributing to long-term economic growth and employment. Companies concerned will need to disclose information on policies, outcomes and principal risks relating linked to respect for human rights, social and employee matters, environmental matters, anti-corruption and bribery issues, as well as diversity in the board of directors. The Directive on disclosure of non-financial and diversity information by certain large companies and groups was adopted by the European Parliament in April 2014, while the Council will formally adopt it subsequently.

121AT, BE, EE, SK 122European Parliament resolution of 6 February 2013 on: ‘Corporate social responsibility: accountable, transparent and responsible business behaviour and sustainable growth’ (2012/2098(INI)); and European Parliament resolution of 6 February 2013 on ‘Corporate social responsibility: promoting society’s interests and a route to sustainable and inclusive recovery’ (2012/2097(INI). 123COM(2013) 207 final - Proposal for a Directive of the European Parliament and the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of nonfinancial and diversity information by certain large companies and groups

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The EU and several Member States have openly indicated their support to initiatives such as the UN Global Compact Principles124, the OECD Guidelines for Multinational Enterprises125, ISO 2600011126, and the Global Reporting Initiative Framework. For example:

Four Member States127 support the promotion and implementation of the OECD Guidelines for MNEs;

Four Member States128 support the UN Global Compact (especially with regard to promoting the role of the private sector in the post-2015 development framework; Global Compact Local Networks)

Three Member States129 have adopted national guidelines or policies aimed at promoting CSR principles internally. For example, the Government of the Netherlands has adopted in June 2013a new policy paper titled ‘Corporate Social Responsibility Pays Off’ which clarifies the CSR framework for Dutch companies and the role of the Government in that area.

Moreover, five Member States130 have established platforms and multi-stakeholder fora to facilitate knowledge and experience sharing as well as to foster partnerships.

Three Member States131 have indicated paying particular attention to the promotion of CSR principles in the textile sector, especially following the in Bangladesh.

The UN Guiding Principles on Business and Human Rights132 define what companies and governments should do to avoid and address possible negative human rights impacts by businesses, but many challenges remain when it comes to the implementation of the Guiding Principles. The second Forum on Business and Human Rights was held in Geneva in December 2013. The EU and a dozen EU Member States participated to this forum where almost 1500 participants from more than 100 countries were gathered. This is the largest global meeting to date to discuss progress and challenges in addressing business impacts on human rights and implementation of the Guiding Principles.

Twenty-two Member States have committed to publish their national action plans on business and human rights. Four have already done so. Several EU MS have taken, or are planning to take, initiatives aiming at promoting the UN Guiding Principles on Business and Human Rights. For instance, Germany's BMZ supports the Business and Human Rights Resource Centre, Denmark's DANIDA supports the UN Working Group on Business and Human Rights' regional forum in Africa;

124The Global Compact is a principle-based framework for businesses based on ten principles in the areas of human rights, labour, the environment and anti-corruption. It brings together businesses with UN agencies, labour groups and civil society organisations. http://www.unglobalcompact.org/ 125The OECD Guidelines for Multinational Enterprises provide voluntary principles and standards for responsible business conduct in areas such as employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation. http://mneguidelines.oecd.org/ 126The International Organisation for Standardisation (ISO) is the world's largest developer and publisher of international standards. ISO 26000 is an international standard providing "guidance" on corporate social responsibility.http://www.iso.org/iso/home/standards/iso26000.htm 127 AT, BE, IT, NL 128 BE, DE, DK, IT 129 FR, NL, SK 130 AT, DE, DK, FR, PT 131 DK, IT, NL 132Endorsed in 2011 by the Council on Human Rights, the ‘Guiding Principles’ are recognised as the authoritative global standard for preventing and addressing adverse impacts on human rights arising from business-related activity, http://www.ohchr.org/EN/Issues/Business/Pages/BusinessIndex.aspx

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In 2013, the Commission published guiding material for companies to help them implement the UN Guiding Principles on Business and Human Rights133. In addition, the Commission plans to publish by mid-2014 a staff working document on Commission activities relating to the guiding principles. It will aim to clarify the existing framework regarding the application of the UN Guiding Principles on Business and Human Rights.

3.3. Trade and Development

EU Commitments

Council Conclusions of 15 October 2007 laying down a joint "EU Strategy on Aid for Trade:

Enhancing EU support for trade-related needs in developing countries"

Council conclusions of 15 June 2010, §24: The EU and its Member States have already

reached their collective target to spend EUR 2 billion annually on Trade Related Assistance,

and their total Aid for Trade has reached record high levels of EUR 10.4 billion. The Council

calls upon them to sustain their efforts, and in particular to give increased attention to LDCs

and to joint AfT response strategies and delivery. (…) In particular, the Council calls on the EU

and its Member States to reach agreement on regional Aid for Trade packages in support of

ACP regional integration, under the leadership of the ACP regional integration organisations

and their Member States, and involving other donors.

Council Conclusions of 16 March 2012, §28: Confirming that the EU and its Member States

should continue to lead global efforts to respond to the Aid for Trade demands, and calling on

the Commission and Member states to continuously review the EU’s Aid for Trade strategies

and programmes, taking into account lessons learned and focusing on results; §29: Recognising

the need for better targeted, result-oriented and coordinated Aid for Trade as part of the aid

and development effectiveness agenda, as agreed in Busan, by encouraging developing

countries to integrate trade as a strong component in their development strategies, enhancing

the complementarity and coherence between trade and development instruments, focusing on

LDCs and developing countries most in need and increasing the engagement of the private

sector; §30: Calling on the Commission and Member States to better coordinate their aid for

trade, and to align it behind the development strategies of partner countries, supporting efforts

to integrate the inclusive and sustainable growth dimension in these strategies, keeping in mind

the importance of capacity building.

Council Conclusions of 15 October 2012, §4: The EU will continue work to deliver more

focused, targeted and coordinated Aid for Trade in line with the EU’s Agenda for Change and

with robust monitoring and evaluation framework.

Council Conclusions of 12 December 2013, §15: The EU remains developing countries'

largest trading partner and the market most open to them. The EU and its Member States have

delivered on their commitments to increase Aid for Trade, helping developing countries to

better harness the benefits of trade. Going forward, they will endeavour to improve

coordination and effectivness of EU Aid for Trade and to align it with the development

strategies of partner countries.

133This material includes: For SMEs (My Business and Human Rights); three Sector Guidance notes (ICT, Oil & Gas, Employment & Recruitment Agencies); five SME case studies (Demystifying human rights)

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3.3.1. Introduction

Trade has a pivotal role in ensuring the sustainable economic development of developing countries. The international trade architecture will continue to be supportive of and responsive to the special needs and priorities of the least developed countries (LDCs).

The EU has consistently supported developing countries to use trade as a tool for development. As the impact of trade policy on development is covered in a separate report on Policy Coherence for Development, it is not covered in detail in the current report, which concentrates on Aid for Trade (AfT). The full report on EU AfT is included in Annex 4 of this Accountability Report.

Aid for trade is defined as the "activities identified as trade-related development priorities in the

recipient country's national development strategies". The 2013 global report on Aid for Trade134provides evidence that AfT indeed increases trade performance, estimating that every USD 1 invested in AfT produces between USD 8 and 20 in additional exports from developing countries.


The table below135 summarises progress made in 2013 in implementing the EU commitments on Trade and Development. Further details are discussed in the main text.

134 WTO (2013), Aid for trade at a Glance 2013: Connecting to value chains, http://www.wto.org/english/res_e/publications_e/aid4trade13_e.htm 135


EU commitments Target date Status Change

2012 -2013

Comments

Sustain EU and Member States’ efforts to collectively spend EUR 2 bn annually on Trade-Related Assistance by 2010 (EUR 1 bn from MS and the Commission respectively).

No date specified

= The EU & MS collective AfT reached an all-time high in 2012 (20% increase compared to 2011). Concerning trade related assistance (TRA), the EUR 2.5 bn committed in 2012 by the EU and its MS exceed the EUR 2 bn target (approx. EUR 1.9 bn from MSs and EUR 0.6 bn from the Commission). An all-time high was reached in 2011 with EUR 3.0 bn, compared with EUR 1.8bn in 2007.

Give increased attention to LDCs and to joint AfT response strategies and delivery

No date specified

= In absolute terms, AfT committed to LDCs has increased from EUR 1.68 bn in 2011 to EUR 1.8 bn in 2012, although its share decreased in percentage terms. 33% of AfT flows were dedicated to ACP countries in 2012.

Reach agreement on No date

= In support of the negotiation

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136 European Commission (2013), Evaluation of the European Union's Trade Related Assistance in Third Countries, http://ec.europa.eu/europeaid/how/evaluation/evaluation_reports/reports/2013/1318_vol1_en.pdf

regional Aid for Trade packages in support of ACP regional integration, under the leadership of the ACP regional integration organisations and their Member States, and involving other donors

specified

and future implementation of the Economic Partnership Agreement EU-West Africa, the EU, its Member States and the EIB had committed EUR 8.2 billion (exceeding their EUR 6.5 billion target) for the period 2010-2014. An identical amount of additional EUR 6.5 billion has again been committed in 2014 for the period 2015-2020.Other packages are under preparation for other regions under the new MFF.

Continuously review the EU’s Aid for Trade strategies and programmes, taking into account lessons learnt and focusing on results

No date specified

= An 'Evaluation of EU's Trade-related Assistance in Third Countries'136 was concluded in April 2013. Lessons learned are being incorporated in the new programming cycle for 2014-2020. 7 MS support the idea of revising the current EU AfT strategy which dates back to 2007. However, such a review process would need to wait until the recent WTO Trade Facilitation Agreement as well as the ongoing Post 2015 processes has concluded.

Enhance the complementarity and coherence between trade and development instruments, focusing on LDCs and developing countries most in need and increasing the engagement of the private sector

No date specified

= The new Communication on Strengthening the Role of the Private Sector in Achieving Inclusive Growth in Developing Countries provides policy and operational orientations on private sector engagement

Better coordinate EU aid for trade, and align it behind the development strategies of partner countries

No date specified

+ The Annual AfT Questionnaire reveals that 40% of EU Delegations and MS in partner countries consider that coordination and alignment of EU AfT has improved over 2013, in comparison to 2012, while 53% have perceived no particular change. Only 7% believe the situation has

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3.3.3. Recent trends

Exports of goods and services of advanced economies increased by 2.6% in 2012, and those of emerging and developing economies increased by 2.4% in volume terms. According to the WTO138, world merchandise trade grew by 2% in volume terms in 2012 against a backdrop of weak global demand and declining prices. This is significantly less than the 5% increase recorded in 2011. While developed economies are responsible for more than half of world merchandise exports, they saw a decline of 3% in their exports in 2012. In contrast, exports of developing countries went up by 4%, and they accounted for 42% of world merchandise trade in 2012. At the same time, merchandise exports of LDCs plunged to 1% growth in 2012, from 25% growth in 2011. Their share of world merchandise exports remains at 1%.

The services sector is playing an increasingly important role in the global economy and the growth of developing countries in particular. The poverty reduction impact of services is particularly attributed to its role in economic growth and employment creation. World exports of commercial services saw a slowdown in 2012, growing by only 2% (compared to +11% in 2011). While exports of commercial services vary significantly from region to region, it is estimated that developing economies accounted for 35% of world trade in commercial services in 2012139. Tourism and transport continue to be the two major export items for developing countries, representing half of their total services exports140.

In December 2013, the 9th WTO Ministerial Conference in Bali resulted in the adoption of the "Bali package". In particular, Ministers adopted a number of decisions on trade facilitation, on agriculture and development. The EU has notably committed141 to cover a significant share of the estimated funding needs of developing countries to implement the trade facilitation agreement142, which is of particular importance for developing countries. The trade facilitation agreement aims at making importing and exporting more efficient and less costly by increasing transparency and improving customs procedures, notably through increased use of new technologies. It is estimated that reducing global trade costs by 1%, notably through enhanced trade facilitation, would increase worldwide income by more than EUR 30bn, 65% of which would benefit developing countries. It is further expected that gains from the trade facilitation agreement would be distributed among all countries and regions implementing the agreement, with the largest benefits being accrued by landlocked developing countries143.


The EU is the most open market in the world for developing country exports144. In its approach to the post-2015 development agenda, the EU sees market-friendly and open economies as key drivers for inclusive and sustainable growth145.

137 More information can be found in the AfT report in Annex 4 138WTO (2013), International Trade Statistics 2013, http://www.wto.org/english/res_e/statis_e/its2013_e/its2013_e.pdf 139 WTO (2013), International Trade Statistics 2013, Op Cit. 140 UNCTAD (2013), Exploiting the Potential of the Trade in Services for Development, http://unctad.org/en/PublicationsLibrary/ditctncd2013d4_en.pdf 141EU Press Release, "EU pledges new financial support to help developing countries implement WTO Trade Facilitation Agreement", http://europa.eu/rapid/press-release_IP-13-1224_en.pdf 142The Trade Facilitation Agreement is meant to be formally adopted by WTO Members by 31 July 2014. It will then be opened for acceptance until 31 July 2015. 143http://ec.europa.eu/trade/policy/eu-and-wto/doha-development-agenda 144http://trade.ec.europa.eu/doclib/docs/2012/january/tradoc_148990.pdf

worsened137.

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3.3.4.1. Trade policies

Following its revision in October 2012, the new Generalised System of Preferences (GSP) entered into force in January 2014. The new scheme is now focused on fewer beneficiaries (90 countries) in order to increase impact on those countries most in need. Countries which are committed to implementing international human rights, labour rights and environment and good governance conventions benefit from additional tariff reductions (GSP+). LDCs continue to receive duty and quota free access under the 'Everything but Arms' (EBA) arrangements for almost all of their products.

EPA negotiations continued in 2013, all incorporating aid for trade principles.

3.3.4.2. Aid for Trade

The fourth Global AfT Review was held from 8 to 10 July 2013 in Geneva. It focused on the challenges that developing countries, LDCs in particular, face in integrating and moving up within value chains and the role of Aid for Trade in addressing these challenges. Discussions were structured around three broad themes: trade, development goals and value chains; understanding value chains and development; and future perspectives on Aid for Trade. One important feature of the 4th Global Review was the large and active participation of private sector participants from all countries. Key themes that emerged from the Review include: the need to engage the private sector; the importance of services for adding value; the key role played by skills; the role that Aid for Trade could play in reducing investor risk; how Aid for Trade resources should leverage investment; the critical role of border management and transport services; the importance of access to trade finance.

Towards a renewed EU AfT strategy?

In 2012, four European development think tanks have launched a two-year research project on "Exploring the impact, effectiveness and future of Aid for Trade". A paper on "Future directions for Aid for Trade"146, published in November 2013, suggests that Aid for Trade should focus on helping developing countries trade more by building their productive capacity (impact level), reduce the cost of trading (outcome level) and increase trade infrastructure (output level). It should do this by increasing its alignment with other financial flows as well as solving challenges in concert with other aid initiatives.

Indeed, the concept of AfT has been evolving with changing needs and demands. As regards the EU, some Member States147 have supported the idea of revising the current EU AfT strategy, which was adopted in 2007and which had set the year 2010 as the deadline for several targets. In addition to setting new targets, the AfT strategy should be updated in light of the recent trends and developments that have occurred since 2007, such as the lessons learned from the successive Global AfT reviews, the growing role of the private sector, and the recent agreement on trade facilitation at the Bali WTO Ministerial in December 2013. However, engaging in such a review process should wait until the ongoing discussions on the post-2015 development agenda have reached their conclusions.

EU Aid for trade148

145ECDPM (2013), Interview with EU Trade Commissioner Karel De Gucht. GREAT Insights, Volume 2, Issue 5. July-August 2013 146ODI (2013), Future directions for Aid for Trade, http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8740.pdf 147 CY, DK, FI, FR, IE, NL, SE 148 See Annex 4 of this report for the full EU AfT Report 2013

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With EUR 11.6bn in 2012, total EU and Member States’ Aid for Trade (AfT) commitments showed another all-time high, up 20% from 2011. The EU and its Member States therefore remain by a large margin the most significant AfT donor in the world, ahead of Japan (EUR 6.7 bn) and the USA (EUR 3 bn). Almost 90% of EU AfT comes from the EU institutions (EUR 3.4 bn), France (EUR 2.7bn), Germany (EUR 2.6 bn), the Netherlands (EUR 0.8bn), and the UK (EUR 0.8 bn).

While the EUR 2.5 bn committed in Trade Related Assistance (TRA) in 2012 by the EU and MS far exceeds the EUR 2 bn target adopted in the 2007 joint EU Aid for Trade Strategy, the 2012 figures represent an 18% decrease from an historic high in 2011. TRA commitments returned to the 2009 and 2010 average, largely reflecting decreased commitments from some significant TRA donors (namely Germany, Spain, Belgium, Finland and EU).

The analysis of detailed figures suggests that the decline in the TRA is revealing a change in the type of AfT flows (more than a decrease in EU Collective commitments). In fact, EU and EU MS lower commitments on trade policy and regulation and trade development programmes, were more than balanced by large amounts on building productive capacity (agriculture, banking and financial services,…), and trade related infrastructure programmes (energy, transports and storage,…). It is important to note that such trends are a direct result of beneficiary countries’ demands.

In this edition of the report, European Investment Bank ODA loans are again reported as AfT, after having been excluded 2007 and 2010. EU ODA loans amount EUR 5.8 bn in 2012. This comes in addition to the EUR 11.6 bn AfT mentioned above. 100% of the EIB ODA loans are concentrated in two categories only: trade related infrastructure (EUR 3.1bn or 54% of EU ODA loans in 2012) and building productive capacity projects (EUR 2.7 bn or 46%).

Africa has again received the largest share of AfT in terms of EU collective grants (55%), followed by Europe (21%), Asia (10%), America (8%) and Oceania (8%). Moreover, the downward trend that was observed since 2008 on AfT flows in Africa was reversed in 2012. Europe (mainly the Balkans and Turkey) has received most of AfT in terms of ODA loans and Equity investments (58%), followed by Africa (31%) and America (6%).

A detailed analysis of EU and MS shows that grants are mostly dedicated to Sub-Saharan Africa and particularly to the South of Sahara, and to a lesser extent Asia and Latin America. In the case of ODA loans and equity flows, EU is primarily targeting Europe and to a lesser extent North Africa, while Member States favour more Africa, Asia and Latin America.

In absolute terms, AfT to LDCs has remained stable over the years. It has increased from EUR 1.68 bn in 2011 to EUR 1.8 bn in 2012. In percentage terms, aid for trade to these countries has decreased over recent years (a trend that is particularly marked for the EU). The proportion of AfT flows dedicated to African, Caribbean and Pacific Group of States (ACP) is rather stable since 2006 (33% in 2012). It is important to note that such trends are a direct result of beneficiary countries’ demands.

Trade facilitation, a component of AfT149, has been a key area for EU support to developing and least developed countries for many years, although commitments fluctuate according to programming cycles, varying from EUR 195 mn in 2010 to EUR 76 mn in 2012. Nevertheless, the EU and its Member States are among the top donors of aid for Trade Facilitation.

149Given its diversity, EU support for trade facilitation may be registered as trade related assistance (TRA) under AfT categories 1 (trade policy and regulation), 2 (trade development) or 6 (other trade-related needs). Related transport infrastructure development projects fall under category 3

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The EU and Member States contributed almost equally to trade facilitation programmes in 2012 (44% for EU and 56% for the MS), which was not the case in recent years (80% for the EU in 2011 and 40% in 2010). The UK is a regular contributor to the category (25% of the total in 2012), while the contribution of other MS is more variable and is often driven by a few donors150.

The EU announced that it would aim to provide EUR 400 million over the next five years in order to support developing countries implement the WTO Trade Facilitation Agreement approved during the 9th WTO Ministerial Meeting in Bali in December 2013 and other Trade Facilitation reforms.

AfT commitments on access to affordable services (telecommunications, logistics, financial services, etc.) are important ingredients to foster competitiveness of all economic sectors in developing countries. In 2012, AfT dedicated to these services represented 32% of EU collective AfT, a level that has been particularly stable over time (EUR 3.4 bn in 2010, EUR 3.6 bn in 2011 and EUR 3.7 bn in 2012).

EU Member States are the main providers of AfT for these services (with 67% of EU collective commitments), with most programmes dedicated to transport & storage (50% of the total) or banking & financial services (38%); the rest being shared between business & other services (9%) and communication (3%).

Blending is another of the Commission's instruments to deliver grants to partner countries, that has been gaining momentum. To a large extent, such grants can be considered AfT, as they support infrastructure projects and private sector. These funds, through innovative financial instruments, catalyse additional public and private financing for development. They can address market inefficiencies and make feasible, projects with a high economic and social return but insufficient financial return.

3.4. Remittances for Development

EU Commitments

The Council has repeatedly committed to reduce the cost and improve the safety of transfers

and to further work to enhance the impact of remittances on development (e.g. Council

Conclusions of 18 May 2009, §11). It has committed to "adopt General principles for

International Remittances Services agreed by the Committee on Payments and Settlements

Systems (CPSS) and operational definitions and recommendations allowing the improvement of

data on remittances" (Council conclusion of 11 November 2008, §27). The Council also

committed "to ensure that relevant legislation does not contain provisions hampering the

effective use of legal remittances channels" (Council conclusions of 18 November 2009, §10).

Council Conclusions of 29 May 2012, §27: The Council reaffirms the need to ensure faster,

easier and cheaper remittance transfers and enhance the impact on development of social and

financial remittances, while ensuring coherence with other development priorities.

Council Conclusions of 15 October 2012, §5: Remittances are a key private source of

financing for developing countries. The EU recalls the G8 and G20 goal of reducing the

average cost of transferring remittances from 10% to 5% by 2014 and reaffirms the need to

ensure faster, easier and cheaper remittance transfers, in line with the 29 May 2012 Council

Conclusions, to maximise the development impact of migration and mobility.

150DK, NL, SE

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On 21 May 2013, the Commission adopted a Communication on "Maximising the

Development Impact of Migration"151

, which includes proposals on how the EU can adopt a

more ambitious approach to migration and development. The main orientations of the

Communication were endorsed through Council Conclusions adopted on 23 September

2013152

, in which the Council acknowledges (§5) that remittances and Diaspora investments

can “constitute innovative sources of private financing for development beyond 2015” and that

work on lowering the cost of remittances should be continued.

Council Conclusions of 12 December 2013, §14: Recognising the key importance of

remittances for many developing countries, the EU and its Member States recall the G8 and

G20 goal of reducing the average cost of transferring remittances from 10% to 5% by 2014 and

reaffirm the need to ensure faster, easier and cheaper remittance transfer, to maximise the

development impact of migration and mobility. They will also endeavour to strengthen, extend

and standardise the measurement of remittance flows.

3.4.1. Introduction

Remittances, or low value repeat person-to-person transactions, are a major source of funds flowing to the developing world. Remittances have largely exceeded global development aid to developing countries, but many challenges remain with regard notably to lowering their transaction cost and maximising their development impact.


The table below153 summarises progress made in 2013 in implementing the EU commitments on remittances. Further details are discussed in the main text.


2012 -2013

Comments

Enhance the impact on development of remittances

No date specified

= The EU and 8 MS reported specific actions aiming at increasing remittances' channelling to productive and social investments.

Reduce the global average cost of transferring remittances from 10% to 5% by 2014 (G8/G20 commitment)

2014

= The global average of sending remittances decreased in 2013, including in Italy, Germany and the UK.

The EU and 9 MS have indicated that they are taking action towards reducing the cost of remittances, including through the setting up/improvement of national remittances price-comparison

151COM (2013) 292 final 152Council Conclusions on the 2013 UN High-Level Dialogue on Migration and Development and on broadening the development-migration nexus, 12415/13, 23 September 2013 153


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2012 -2013

Comments

sites.


Remittances to developing countries represented a significant share of the overall development finance available for low income countries in 2013, while it was more marginal for middle income countries. According to an analysis of World Bank estimates154, remittances accounted for 8% of GDP of low-income countries in 2012, while it represented less than 2% of GDP for middle-income countries. The share of remittances to the GDP of LICs overall has more than doubled since 2000.

According to the World Bank155, global remittance flows could reach EUR 414 billion worldwide in 2013, and over EUR 527 billion by 2016; while remittance flows to developing countries are expected to reach EUR 312 billion in 2013 (+6.3% 2012), and EUR 407 billion by 2016.Middle income countries receive the lion's share of global remittances, with an estimated 71% of global remittance flows in 2013, while LICs received 6%. However, the share of remittances to LICs has also doubled since 2000156. The EU as a whole is the second largest region globally for sending remittances. According to the latest data from Eurostat157, remittance flows in the EU, including both extra-EU27158 and intra-EU27159 flows, amounted to EUR 38.8 billion in 2012. Almost three quarters of this total went outside the EU, with extra-EU27 flows of EUR 28.4 billion and intra-EU27 flows of EUR 10.3 bn. Over the last four years, workers' remittances have been stable at around EUR 28 billion for extra-EU27 flows, and EUR 10 billion for intra-EU27 flows.

Among the Member States for which data are available, the outflow of workers' remittances in 2012 was highest in France (EUR 8.8 billion, of which 69% were extra-EU flows), Italy (EUR 6.8 billion, 84% extra-EU), Spain (EUR 6.6 billion), the United Kingdom (EUR 6.3 billion, 78% extra-EU) and Germany (EUR 3.1 billion, 63% extra-EU). These five Member States accounted for more than 80% of total worker’s remittances of the EU27.


The EU played a central and influential role in the preparations for the second High-level Dialogue on International Migration and Development which took place in October 2013 during the UN General Assembly in New York. In preparation for the High-Level Dialogue, the European Commission issued in May 2013 a Communication on "Maximising the Development Impact of Migration – The EU contribution for the UN High-Level Dialogue and next steps towards broadening the development-migration nexus". The Commission commits itself, among others, to take measures to facilitate remittance flows between developing countries and supporting research

154Pew Research Center (2013), “Changing Patterns of Global Migration and Remittances”, Washington D.C. 155 World Bank (2013), Migration and Development Brief n°21, "Migration and Remittance Flows: Recent Trends and Outlook 2013-2016", http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief21.pdf 156Pew Research Center (2013), Op. Cit. 157Eurostat (2013), Eurostat News release, "Workers' remittances in the EU27", STAT/13/187, 10 December 2013, http://europa.eu/rapid/press-release_STAT-13-187_en.pdf 158Extra-EU flows: Money sent from an EU Member State to a country outside the EU 159Intra-EU flows: Money sent from an EU Member State to another EU Member State

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to better understand the role of Diasporas residing in low- and middle-income countries as development actors in their countries of origin. The Communication was followed by Council Conclusions that reaffirmed the EU's commitment to maximising the positive impact of migration on development by continuing work on current priority areas including remittances, brain drain and circular migration. It also stressed the importance of a broader view of the link between migration and development, including by giving greater attention to South-South migratory flows, promoting the mainstreaming of migration into development strategies and strengthening migration governance and cooperation in and between developing countries.

The High-level Dialogue successfully renewed and strengthened the political commitment to the issue of international migration and development. Particular attention was paid to the governance of migration – in particular as regards the protection of the human rights of all migrants; perceptions of migrants and migration. Governments also made a clear call to have migration reflected in the post-2015 development agenda.

In October 2013, the Commission adopted the 2013 EU Report on Policy Coherence for Development which includes a chapter on migration issues.

3.4.4.1. Facilitating transfers &reducing the cost of remittances

The G20 made a commitment in 2011 to lower the cost of remittances by 5 percentage points to 5% of face value by the end of 2014. To put this into context, if the EU could meet this commitment an extra EUR 1.5 billion could be put into the hands of the remitters or their families that receive the money that they send. According the latest data from the World Bank160, the global average cost of sending remittances decreased to 8.36% at the beginning of 2014. This represents a 0.7 percentage point decline over the last year. At the same time, the average cost for sending remittances from the G8 countries dropped to 7.73%, while it was 8.31% from the G20 countries. According to the World Bank, the cost of sending remittances from Germany, Italy, and UK declined during 2013. However, there are significant disparities in the cost structure across countries: while France and Germany maintain an average total cost above both the global average and the G8 average; average costs in Italy and the UK are below both the global and G8 averages.

While these figures show a notable decline, with global averages standing at an historic low, the cost of remitting money still remains too high in many corridors and the 5% objective seems out of reach in 2014.Particular attention should be paid to reducing the cost of South-South remittances as they represent the biggest share of remittances sent to LDCs, where it has been estimated that two thirds of recorded remittances inflows were sent from other Southern countries in 2010161. The cost of sending money through the South-South corridors remains very high, especially for intra-African transfers which figure among the most expensive in the world162. World Bank data indicate that the cost of sending money to and within Africa was 12.06% at the end of 2013, with sub-Saharan Africa remaining the most expensive region of the world to send money to. These results call for additional efforts of national authorities, as well as the international community, with a view to improving the market for remittances in Africa.

160 World Bank (2013), Remittance Prices Worldwide, Issue 9, March 2014,

https://remittanceprices.worldbank.org/sites/default/files/RPW_Report_Mar2014.pdf

161 UNCTAD (2012), The Least Developed Countries Report 2012 - Harnessing Remittances and Diaspora Knowledge

to Build Productive Capacities, http://unctad.org/en/PublicationsLibrary/ldc2012_en.pdf 162 European Parliament (2014), The Impact of Remittances on developing countries, Directorate-General for External Policies of the Union

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The 2013 Global Forum on Remittances163, supported by the Commission and jointly organised by the International Fund for Agricultural Development (IFAD) and the World Bank, was held in May 2013 in Bangkok. Discussions during the forum, focused on the supply and intermediation sides of remittances, and more specifically on the cost of sending remittances and their link to development.

The EU and nine Member States164 have indicated that they are taking action towards reducing the cost of remittances, in line with the G20 commitment. In particular, five Member States165 have set up national remittances price-comparison sites to allow consumers to find the best and cheapest service for payment transfers. While the websites of France, Germany and Italy meet the minimum requirements and have been certified by the World Bank, the Swedish Government has recently tasked the Swedish Consumer Agency to set up a similar web-based information service. Germany is also supporting the development of a remittances price comparison website for Armenian migrants.France and the Netherlands have supported studies, while the EU is funding two projects seeking to enhance competition in the African remittance market through enabling African post offices to offer modernised financial services in that connection and to increase their rural reach.

In November 2013, the European Commission also organised a seminar on reducing the cost of remittances at the EU level. Participants exchanged views and best practices on reducing the cost of remittances at a national level in support of the G20 commitment to reduce the global costs of sending remittances to developing countries to 5% by 2014. They agreed to create a peer group to informally share success and failure stories and thereby contribute to developing the remittances market. This could lead to a greater level of shared knowledge on remittances, quicker design and production of relevant programmes from development agencies, implementation of more effective projects and greater co-ordination and collaboration between development agencies and other actors. A list of potential short and long-term solutions to reduce the cost of remittances was also set up. The implementation of these solutions could lead to market improvements that will either contribute to reducing the cost of remittance and/or lead to a greater development impact of remittances.

As a follow up of this seminar, the working group on reducing the price of remittances on Capacity for Development webpage was set up. This remittances working group brings together a multidisciplinary group that includes European Institutions, EU Member States and Think Tanks (Financial Regulators, Treasury, Ministry of Finance and Development specialists). The group will facilitate sharing of knowledge and experience by allowing its members to post and exchange information, articles, documents and opinions concerning what has been and can be done to bring down the cost of sending money home by immigrants.

In order to facilitate similar exchange of knowledge and experience, the World Bank established in 2013 the "Global Knowledge Partnership on Migration and Development" (KNOMAD) as a global hub of knowledge and policy expertise on migration and development issues. KNOMAD draws on experts from all parts of the world to synthesise existing knowledge and generate new knowledge for use by policy makers in sending and receiving countries.

163The Global Forum on Remittances is a unique platform to promote global awareness of migrant remittances and to highlight the immense impact of the money sent home to developing countries. The 2013 GFR was the fourth of a series of forums, which focused last year on the potential of the Asian remittance market, as well as the role of regulatory frameworks and the private sector in maximizing micro, local and national impacts of remittances. 164 AT, DE, EL, ES, FR, IT, NL, SE, UK 165 DE, FR, NL, IT, UK

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3.4.4.2. Enhancing the development impact of remittances

The EU and eight Member States166 reported specific actions aiming at increasing remittances' channelling to productive and social investments. Activities range from support to migrants' investment and business creation initiatives in their countries of origin (BE, IT, NL), including through training and co-funding of projects, to initiatives aimed at improving the financial literacy and access to financial services of remittance recipients (DE, EC, FR). In 2013, France adopted a new strategy on Migration and Development which notably focuses on supporting both the solidarity and investment potentials of migrants. France provided support to the Migration and Development multi-donor trust fund which was set up in 2009 and finances activities aimed at improving knowledge on migrants’ remittances in Africa; assisting the reform of regulatory frameworks in order to improve the conditions of transfer; developing new financial products that respond better to the needs of migrants, and supporting the initiatives of migrants in productive investment and local development in their country of origin.

3.4.4.3. Improving data collection on volume & geography of remittances

There is no harmonised way of collecting data on remittance transfers across EU Member States, which makes it very challenging for to obtain accurate data, as remittances are not currently covered by OECD/DAC statistics.

Member States undertook a number of initiatives in 2013 in view of improving their remittances related data collection and reporting. In particular, several Member States167 indicated that the implementation of the IMF's Balance of Payments Manual (BPM6) would lead to improved data collection in their countries.

Italy's approach to data collection has been recognised as a best practice as it allows for control on so-called "one-leg transactions". In line with this approach, the European Commission adopted in July 2013 a proposal for a new directive on payment services in the internal market that extends the rules on transparency to one-leg transactions, hence covering payment transactions to persons outside the EU as regards the "EU part" of the transaction. This should notably contribute to better information availability for money remitters and to lower the price of remittances as a result of higher transparency on the market.

4. International Public Finance for Development

4.1. Introduction

Public finance, domestic or foreign, accounts for almost 70% of financing for development in low income countries (LICs), while it represents just over 40% in middle income countries (MICs). International public finance in particular has been a stable and increasing source of finance at the global level, but volatile at the country level. As shown in Figure 4.1.1 below, international public finance accounts for only 4% of overall financing for development flows in MICs. At the same time, it remains an important source of finance for LICs, where it accounts for 54% of overall financing for development flows. In this context, it is interesting to note that about 52% of ODA is still spent in MICs. The potential of significant increases in ODA is low, due to the current

166 BE, DE, FR, IT, LU, LV, NL, PL 167CY, EL, PT

77

recession and limited increases in the national budgets of donor countries, but existing sources can be better used.

Figure 4.1.1 – International Public Finance Flows as a Share of Total Resource Flows of Low-


There are two types of commitments relating to international public finance for development: those concerning the quantity and volume of flows, and those concerning their quality and effectiveness. Quantitative commitments are the subject of this chapter, while qualitative commitments are

analysed in Chapter 6. As the focus of this chapter is on quantitative targets, EU policies or programmes will not be reviewed, unless they have a direct bearing on such quantities.

A number of commitments have been made with respect to increasing the quantity of public finance and distributing it for development and other global challenges, as well as improving their impact in developing countries. Most of these commitments concern a subset, Official Development Assistance (ODA), which comprises official loans of concessional character and grants used for development purposes.

EU Member States and other donors have agreed to global targets for ODA to developing countries, expressed as shares of their GNIs, and to more specific targets concerning aid to particular groups of countries (e.g. LDCs, Africa, or Sub-Saharan Africa) or for specific purposes (e.g. aid for trade, Fast Start Climate Finance). Other quantitative targets were set for increasing public finance for global goals (e.g. climate change adaptation and mitigation activities), but are not necessarily funded through ODA.

As highlighted in Chapter 1, the concept of ODA itself is presently under discussion, as many donors feel the need to review and/or to broaden its definition. In particular, some donors argue in favour of monitoring the full breadth of public financial flows to developing countries, even at less than concessional terms, as long as they have a developmental focus. The terms under which public finance is provided are also crucial. Lending has gained prominence in the debate about different development financing instruments. According to some studies168, grants have a tendency to substitute (rather than supplement) domestic revenues, while loans are associated with stronger domestic revenue mobilisation. While the shift towards lending instruments helps to frontload development spending, it also needs to be accompanied by measures to ensure debt sustainability of the borrower.

4.2. Official Development Assistance

EU Commitments

168IMF (2011), Revenue Mobilization in Developing Countries. Box 3.

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ODA Levels. In 2002, the EU and its Member States adopted joint commitments on ODA

increases. These commitments were further developed and broadened, and endorsed by the

European Council in 2005 ahead of the UN World Summit that undertook the first review of

progress on the Millennium Declaration and the MDGs. Then, the EU and its Member States

agreed to achieve a collective ODA level of 0.7% of GNI by 2015 and an interim target of

0.56% by 2010, both accompanied by individual national targets. The EU Member States

agreed to increase their ODA to 0.51% of their national income by 2010 while those countries

which had already achieved higher levels (0.7% or above) promised to maintain these levels.

The Member States that acceded to the EU in or after 2004 promised to strive to spend 0.17% of

their GNI on ODA by 2010 and 0.33% by 2015.

The commitment to these goals has been repeatedly confirmed by the Council, most recently in the Conclusions of the European Council of 8 February 2014 and the Council Conclusions of 19 May 2014 (on the Annual Report to the European Council on EU Development Aid Targets).

The European Council Conclusions of 8 February 2013 reaffirmed that the 0.7% goal was a

key priority, adding that “the European Union should as part of this commitment therefore aim

to ensure over the period 20142020 that at least 90% of its overall external assistance be

counted as official development assistance according to the present definition established by the

OECD Development Assistance Committee (DAC).”

Predictability of ODA increases. The Council has also stressed the importance of increasing

predictability of the ODA increases through national multiannual planning. In 2007, the

Council invited Member States concerned to introduce such timetables by the end of 2007. In

November 2008 and May 2009 this call was reiterated and the deadline extended to the end of

2010.

In its Conclusions of 15 June 2010 (§30), the Council asked Member States to take realistic,

verifiable actions for meeting individual ODA targets by 2015 and to share information about

these actions and, within the budgetary processes of the Member States, to share information on

their planned ODA spending for the next budgetary year as well as the intentions for remaining

period until 2015. It has repeated this commitment in subsequent conclusions.

ODA to Africa. In addition the EU committed in 2005 to: (a) increase ODA to Sub-Saharan

Africa and (b) provide 50% of the ODA increase to Africa as a whole (North Africa and Sub-

Saharan Africa).

ODA to LDCs. In 2008 the EU collectively also committed to provide between 0.15 and 0.20%

ODA/ GNI to the Least Developed Countries by 2010.169

4.2.1. Introduction

Although the goal of allocating annually 0.7% of GNI to ODA is accepted by all OECD/DAC donors (except the United States of America), only EU donors and Norway have set a date to achieve it, transforming the longstanding UN 0.7% goal, considered by many as aspirational, into an achievable, time-bound target. The EU decided to move forward and achieve this goal gradually within 15 years (2000 – 2015), in line with the set deadline for reaching the MDGs, and based on a mix of individual and collective intermediate targets. The first intermediate EU ODA objectives were defined in 2002, during the preparation for the Monterrey International Conference on Financing for Development, based on the EU’s collective ODA levels in 2000.

169 European Council, 11 November 2008, Doc. 15075/1/08, Rev. 1

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The table below summarises progress made in 2013 in implementing the EU ODA commitments. Further details are discussed in the main text.

EU commitments Target Date Status170

Change

2012-2013

Comments

The EU and its Member States agreed to achieve a collective ODA level of 0.7% of GNI by 2015

2015

= EU collective ODA/GNI ratio remained at 0.43% in 2013 and is projected to increase to 0.45% by 2015, but 24 MS do not expect to reach the 0.7% target by 2015

Take realistic, verifiable actions for meeting individual ODA targets by 2015 and to share information about these actions

No date specified

- 21 Member States provided information about their 2014 financial year allocations. Limited information was however provided on realistic/verifiable actions.

Increase collective ODA to Sub-Saharan Africa

No date specified

- EU ODA to Sub-Saharan Africa (SSA) was higher in 2012 than in 2004, but the increase is minimal and the share of ODA/GNI targeted to SSA fell to its lowest since 2004. EU bilateral ODA to SSA was stagnant in 2013 compared to 2012.

Provide 50% of the collective ODA increase to Africa as a whole

No date specified

= Only 22% of total EU ODA growth between 2004 and 2012 went to Africa, and EU bilateral ODA decreased by a little over 1% in 2013.

Provide between 0.15 and 0.20% of collective ODA/ GNI to the Least Developed Countries by 2010

No date specified

= EU ODA/GNI to LDCs was 0.14% in 2010, 0.13% in 2011, and 0.11% in 2012, moving away from the target, although there was a 20% increase of bilateral ODA to LDCs in 2013 compared to 2012.

170Green: achieved or on track to be achieved; Orange: limited achievement, partly off track; or Red: off track. Change in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour.

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EU ODA Performance during the period 2005 – 2013 compared to other donors

The EU’s combined efforts are already delivering substantially greater amounts of ODA than non-EU donors, and individual EU Member States (with a few exceptions) are still making greater efforts than other donors in relative terms.

Figure 4.2.3a –ODA/GNI by Donor (% and EUR million, net disbursements, current prices)

Source: OECD/DAC and European Commission

Table 4.2.3a – ODA/GNI and ODA per capita of EU Member States and Non-EU DAC

Members

Donor

Net ODA per

capita (EUR) ODA/GNI (%)

Net ODA (EUR

Billion)

2011 2012 201

3 2011 2012 2013 2011 2012 2013

EU (Collective) 112 109 112 0.45 0.43 0.43 56.3 55.3 56.5

Non EU DAC Members

79 85 85 0.23 0.22 0.23 44.6 48.1 48.3

USA 71 75 75 0.20 0.19 0.19 22.2 23.7 23.8

Japan 61 64 70 0.18 0.17 0.23 7.8 8.2 8.9

Canada 113 126 105 0.32 0.32 0.27 3.9 4.4 3.7

Source: OECD/DAC and European Commission

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As shown in figure 4.2.3aand table 4.2.3a, both the EU collective per capita net ODA and its

ODA/GNI ratios are greater than those of non-EU DAC Members. Indeed, the collective ODA/GNI ratio of the EU Member States is more than double that of the USA. Collectively, the EU outperforms most other donors by a wide margin. The USA, Japan and Switzerland have higher per capita income than the average for EU Member States but much lower per capita ODA. The USA's GNI is close to 97% of the EU28's GNI, but USA's ODA represents less than half of EU ODA.

Performance on ODA targets (2005-2013)

ODA figures on 2013 net disbursements are preliminary, based on provisional information

provided by the EU Member States and the European Commission. For those EU Member States

that report to the OECD/DAC, final and more comprehensive ODA figures will become available at

the end of 2014.

EU collective net ODA spending in 2013 was EUR 56.5 billion (equivalent to an ODA/GNI ratio of 0.43% of the EU collective GNI). This represents an increase compared to 2012 where EU collective ODA stood at EUR 55.3 billion (0.43% of GNI).

A significant amount of the EU Institutions' ODA (EUR 2.9billion, equivalent to 0.02% of EU GNI) is however not imputed as ODA to EU Member States by the OECD/DAC. As a consequence, the ODA spending of the twenty-eight Member States (i.e. the sum of bilateral ODA and EU Institutions ODA imputed to them) was EUR 53.6billionin 2013, equivalent to an ODA/GNI ratio of 0.41%. The increase in nominal terms in 2013 was of EUR 2.9 billion (+5.7%). This figure breaks the downward trend observed in 2011 and 2012.

Since 2002, when the EU took its initial time-bound ODA commitments, EU ODA has fluctuated but has overall been on an upward trend until 2010. As of 2010 however, EU ODA has been declining in both absolute and relative terms, and the speed of this decline markedly accelerated in 2012.

EU Member States have been hard hit by the financial crisis since 2008, triggering the deepest global economic recession in decades. State-financed rescue packages for the affected banking sector, higher social protection costs and lower budget revenues have dramatically changed the fiscal situation in many Member States. The crisis and the ensuing austerity measures that Member States introduced have led to low or even negative economic growth rates in the EU, which have in turn led to strong pressures on ODA.

Through the first three years of the crisis, the EU's aggregate ODA spending continued to increase, but eventually succumbed to the pressure in 2011 and 2012, resulting in a reversal in the slow trajectory of scaling up to meet 2015 targets. However, while the aftermath of the crisis persists in 2013, there were promising signs of the possibility of increasing ODA

The 2013 increase in ODA was driven by an overall positive performance by most Member States. Increases in ODA volumes are substantial, almost equivalent to the cuts that had been observed between 2011 and 2012. Sixteen Member States171 increased their ODA in 2013 in nominal terms, amounting to a total of EUR 4.15 billion. This growth was largely attributable to significant ODA budget increases in the United Kingdom (representing alone 64% of the total gross increase). The UK managed to increase ODA while cutting its budget deficit at the same time, allowing its ODA/GNI ratio to reach 0.72% in 2013. Another fifth of the increase of EU collective ODA was due to increases in Germany (13% of total gross increase), Sweden (8%), and Italy (8%). At the

171 AT, BG, HR, DK, EE, FI, DE, IT, LV, LU, PL, SK, SL, ES, SE, UK

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same time, twelve Member States172 reduced their ODA in nominal terms, by a total of EUR 1.22 billion. France counts for two thirds of the reduction and the Netherlands for one sixth.

As shown in figure 4.2.3b, ten Member States173 increased their ODA/GNI ratio between 2012 and 2013, ten decreased it, and eight kept it unchanged.

Looking at overall developments since 2004, five Member States174now have lower ODA/GNI ratios than at the beginning of the period under consideration. Three175 among them had also ODA volumes at current prices that were lower in 2013 than in 2004. Only one Member State (UK) has already surpassed its 2015 target by doubling its ODA/GNI ratio from 0.36 in 2004 to 0.72 in 2013, while three (DK, LU, SE) had ratios above the 2015 collective target of 0.7 % both at the beginning and the end of the period. The remaining nineteen Member States have yet to reach their 2015 targets. No Member State that has not yet reached its 2015 target expects to be able to do so on time.

Figure 4.2.3b – Gap between 2015 targets and 2013 results 176

Source: OECD/DAC and European Commission (EU annual questionnaire on Financing for

Development)

Achievement of the 0.7% ODA/GNI Target by 2015

Based on the forecasts provided by Member States and/or estimates based on their 2008-2013 compound annual growth rate177, the EU collective ODA is expected to increase to 0.45% of GNI

172 BE, CY, CZ, FR, EL, HU, IE, LT, MT, NL, PT, RO 173 BG, DE, DK, EE, FI, HR, IT, PL, SE, UK 174FR, EL, NL, PT, ES 175EL, PT, ES 176The direction of the arrows was determined based on changes of at least 0.01% after rounding both the 2012 and 2011 ratios to the second decimal.

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by 2015, below the level reached in 2010, and 37% below the 0.7% target. Considering the expected GNI growth rate until 2015, reaching the 0.7% ODA/GNI target by 2015 would require the EU and its Member States to increase their current collective ODA by over 70% in nominal

terms, raising it from EUR 56.5 billion today to EUR 97.8 billion in 2015. Table 4.2.3b below shows the projections in individual Member States' budgets for 2014 and 2015, and the sometimes drastic increases that would be needed if they are to meet their targets by 2015.

The projections provided by Member States suggest that many of them do not plan to make

such increases under the current tight budget conditions. 21 Member States provided projections for their 2014 ODA, and 15 have provided projections for 2015. Responses to the 2014 EU annual questionnaire on Financing for Development suggest that all Member States, except

four178

(that have already achieved the 0.7 target), believe that they will not achieve their

respective ODA/GNI targets by 2015.

Most Member States179 cite tight budgets and unfavourable fiscal circumstances as the main cause for failing to meet their 2015 ODA targets. Some, such as Ireland, Italy and Slovenia, point out that stabilising ODA spending, in volume terms, already demonstrates a very strong political commitment to international development cooperation. Other Member States, such as Czech Republic and Estonia, state that their own national plans envisage lower targets for 2015. Along the same line, Germany refers to the prerogatives of its national Parliament to set annual budgets for all activities, including ODA. Belgium has enshrined the 0.7% target into its legislation without providing a precise timeframe to reach the target, and does not expect to reach such target by 2015.

177Annex 2 outlines the methodology used to analyse ODA indicators and forecasts provided by Member States.

178 DK, LU, SE, UK 179AT, EL, ES, FI, FR, HR, IE, IT, NL, PT, RO, SL

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Table 4.2.3b: Estimates and gaps to be bridged for reaching the 2015 net ODA targets, based on Member States' forecast information and

Commission simulation

Member State

2012 2013 2014 2015 2015 commitment 2015 financial gap

EUR

Million

% of

GNI

EUR

Million

% of

GNI

EUR

Million

% of

GNI

EUR

Million

% of

GNI

EUR

Million % of GNI

EUR

Million % of GNI

Austria 860 0.28 882 0.28 1393 0.43 1386 0.42 2,328 0.70 942 0.28

Belgium 1,801 0.47 1,718 0.45 1,731 0.44 1,745 0.43 2,843 0.70 1,099 0.27

Bulgaria 31 0.08 37 0.10 46 0.11 56 0.13 140 0.33 83 0.20

Croatia 15 0.03 32 0.07 26 0.06 27 0.06 217 0.33 190 0.27

Cyprus 20 0.12 19 0.11 19.5 0.13 19.5 0.13 51 0.33 32 0.20

Czech Republic 171 0.12 160 0.11 156 0.12 156 0.11 458 0.33 302 0.22

Denmark 2,095 0.83 2,206 0.85 2,234 0.84 2,269 0.83 2,748 1.00 479 0.17

Estonia 18 0.11 23 0.13 28 0.15 30 0.15 66 0.33 36 0.18

Finland 1,027 0.53 1,081 0.55 1103 0.55 1069 0.52 1,448 0.70 379 0.18

France 9,358 0.45 8,568 0.41 10327 0.48 10,588 0.48 15,428 0.70 4,840 0.22

Germany 10,067 0.37 10,590 0.38 10,779 0.37 10,971 0.37 20,996 0.70 10,025 0.33

Greece 255 0.13 230 0.13 198 0.11 170 0.09 1,293 0.70 1,123 0.61

Hungary 92 0.10 91 0.10 90 0.10 94 0.10 322 0.33 228 0.23

Ireland 629 0.47 619 0.45 600 0.43 554 0.38 1,015 0.70 461 0.32

Italy 2,129 0.14 2,450 0.16 2,618 0.17 3,152 0.20 11,306 0.70 8,154 0.50

Latvia 16 0.08 18 0.08 18 0.07 19 0.07 87 0.33 68 0.26

Lithuania 40 0.13 39 0.12 40 0.11 41 0.11 125 0.33 84 0.22

Luxembourg 310 1.00 324 1.00 316.37 0.96 324 0.93 348 1.00 24 0.07

Malta 14 0.23 14 0.20 13 0.19 14 0.19 24 0.33 10 0.14

The Netherlands 4,297 0.71 4,094 0.67 3,816 0.61 3,990 0.62 4,499 0.70 509 0.08

Poland 328 0.09 357 0.10 381 0.10 407 0.10 1,346 0.33 939 0.23

Portugal 452 0.28 365 0.23 353 0.22 341 0.21 1,163 0.70 822 0.49

Romania 111 0.08 101 0.07 134 0.09 139 0.09 500 0.33 362 0.24

Slovak Republic 62 0.09 64 0.09 71 0.10 77 0.10 249 0.33 172 0.23

Slovenia 45 0.13 45 0.13 43 0.12 44 0.12 118 0.33 74 0.21

Spain 1,585 0.16 1,656 0.16 1,739 0.17 1,408 0.13 7,306 0.70 5,898 0.57

Sweden 4,077 0.97 4,392 1.02 4,348 1.00 4,557 1.00 4,557 1.00 - -

UK 10,808 0.56 13,468 0.72 14,304 0.70 14,961 0.70 14,961 0.70 - -

EU15 Total 49,749 0.42 52,643 0.44 55,859 0.45 57,484 0.44 92,238 0.72 34,754 0.27

EU13 Total 964 0.10 1,000 0.10 1,065 0.10 1,122 0.10 3,704 0.33 2,581 0.23

EU28 Total 50,713 0.39 53,643 0.41 56,925 0.42 58,607 0.42 95,942 0.69 37,335 0.27

EU Institutions ODA 13,669 11,995 of which:

Gap between 2013 collective EU ODA

85

Imputed to Member States 9,125 9,122

and 2015 collective EU ODA target

(0.7%) in EUR million

Not imputed to Member States 4,544 0.04 2,873 0.02 3,249 0.02 3,675 0.03

2015 Target 97,830

Collective EU ODA (1)

55,257 0.43 56,517 0.43 59,776 0.45 61,959 0.45

2013-2015 Gap 41,314

(1) Including EU Institutions ODA not imputed to Member States

Shaded cells are Commission estimates

86

Figure 4.2.3c EU Collective ODA/GNI Ratios (1995-2013) and Projections (2014-2015)

gu ( ) oj (2

Source: OECD/DAC and European Commission (EU annual questionnaire on Financing for Development)

87

Figure 4.2.3c above shows the long-term trends in ODA volumes for the EU28. It can be observed that ODA growth has stalled and that the path to the 0.7% target is bleak. It appears that by 2015, EU ODA is projected to stabilise somewhere between its 2010 and 2011 levels.

Fifteen Member States mentioned that the main action taken in 2013 towards reaching their 2015 ODA targets consisted in increasing development budgets. France, Germany and Latvia also mentioned debt relief actions, notably through the Paris Club or the Bretton Woods Institutions. Innovative financial tools were also introduced or considered by four Member States180. France highlighted the potential of an EU-wide financial transaction tax if 10% of its revenues were allocated to development cooperation; while Romania is considering the introduction of an airline ticket levy181. Four Member States182 indicated that a national plan on development cooperation could be a potential action, while only Luxembourg mentioned that the adoption of a budget law could be used to reach the targets.

For 2014, the forecast (based on Member Sates’ replies or Commission’s projections)

confirms the projected ODA/GNI ratio for 2015 at 0.45%.

The ODA graphs in Annex 3 show the prospect for each EU Member State to meet its individual ODA targets183 in 2015, as well as the size of the gap and how much of it is likely to be filled by 2015.

Based on past ODA performance and future plans, two categories of Member States can be identified:

Four Member States that are leaders in ODA performance. Sweden, Luxembourg, and Denmark have shown consistent performance over the entire period, always remaining above the 2015 targets; UK has just reached the 0.7% target and is planning to maintain

it

Twenty-four Member States that do not expect to reach their targets by 2015.

Table 4.2.3c below shows the funding gap between the current level of EU collective ODA and the 0.7% target. It appears clearly that unless decisive action is taken, the 2015 target will be missed by a large margin. EU collective ODA would need to increase by an additional 58% over projected numbers for 2015 to meet the collective target of 0.7% by 2015.

180DE, FR, RO, UK 181See Chapter 5 of this report for more details on the FTT and other innovative financing mechanisms 182AT, EE, SK, UK 183 ODA/GNI targets for 2015 are of 0.7% for EU15, and 0.33% for EU12

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Table 4.2.3c - Gap between 2013net ODA levels and the 0.7% and 0.33% ODA/GNI

individual targets,

by Member State

Member State ODA 2013

Projected

increase in

ODA by

2015

Remaining gap to

national targets

Total ODA in

2015 to meet

national targets

EUR

Million

% of

GNI EUR Million EUR

Million

% of

gap

EUR

Million

% of

GNI

Austria 882 0.28 504 942 2.6 2,328 0.70

Belgium 1,718 0.45 26 1,099 3.1 2,843 0.70

Bulgaria 37 0.10 19 83 0.2 140 0.33

Croatia 32 0.07 (5) 190 0.5 217 0.33

Cyprus 19 0.11 0 32 0.1 51 0.33

Czech Republic 160 0.11 (4) 302 0.9 458 0.33

Denmark 2,206 0.85 63 479 1.3 2,748 1.00

Estonia 23 0.13 7 36 0.1 66 0.33

Finland 1,081 0.55 (12) 379 1.1 1,448 0.70

France 8,568 0.41 2,020 4,840 13.6 15,428 0.70

Germany 10,590 0.38 381 10,025 28.2 20,996 0.70

Greece 230 0.13 (60) 1,123 3.2 1,293 0.70

Hungary 91 0.10 3 228 0.6 322 0.33

Ireland 619 0.45 (65) 461 1.3 1,015 0.70

Italy 2,450 0.16 702 8,154 22.9 11,306 0.70

Latvia 18 0.08 1 68 0.2 87 0.33

Lithuania 39 0.12 2 84 0.2 125 0.33

Luxembourg 324 1.00 (0) 24 0.1 348 1.00

Malta 14 0.20 0 10 0.0 24 0.33

The Netherlands 4,094 0.67 (104) 509 1.4 4,499 0.70

Poland 357 0.10 49 939 2.6 1,346 0.33

Portugal 365 0.23 (23) 822 2.3 1,163 0.70

Romania 101 0.07 38 362 1.0 500 0.33

Slovak Republic 64 0.09 13 172 0.5 249 0.33

Slovenia 45 0.13 (1) 74 0.2 118 0.33

Spain 1,656 0.16 (248) 5,898 16.6 7,306 0.70

Sweden 4,392 1.02 165 4,557 1.00

UK 13,468 0.72 1,492 14,961 0.70

Total EU MS 53,643 0.41 4,641 37,335 105.0 95,942 0.69

Unassigned

1,888 5.3 1,888 0.01

EU Institutions ODA not imputed to Member States 2,873 0.02 802 -3,675 -10.3

EU collective 56,517 0.43 5,443 35,548 100.0 97,830 0.70

Source: OECD/DAC and European Commission (EU annual questionnaire on Financing for

Development)

89

Several factors explain why, under the status quo, targets will be missed by a wide margin:

First, the reduced ambition of some national plans has had a real impact on EU collective progress on ODA. Some of the more ambitious Member States have reduced their targets compared to the ones that formed the basis for the 2005 Council Conclusions. As mentioned above, most of the Member States do not plan to reach their individual targets.

Second, the current fiscal crunch has led some countries to revise downwards their commitments and targets.

Third, back-loading the increase in ODA expenditure is often unrealistic. Experience shows that missing intermediate targets in a significant way leads to missing subsequent targets too. A good example is provided by the Member States that significantly missed the 2006 target of 0.33% GNI (i.e. Greece, Italy and Portugal). Once the target was missed, and despite statements assuring that the 2006 target would be achieved by 2007 or 2008, none of these Member States has yet reached the 2006 target, and all three have ended up missing both the 2006 and the 2010 targets.

Fourth, reaching the EU ODA targets is contingent not only on the medium-sized donors, but also on EU Member States with large economies in order to boost average aid levels. France, Germany, Spain, and Italy account for almost 75% of the gap to be filled between 2013 and 2015. If the EU as a whole is to meet the collective target of 0.7% ODA/GNI by 2015, it is imperative that all the big players take on their full part.

Falling Short of EU’s Promise on ODA to Africa184

Between 2004, the baseline year for the commitment made in 2005 to direct 50% of EU aid increases to Africa, and 2012, the combined EU aid to Africa has risen by about EUR 2.45 billion at constant 2012 prices. Overall only 22.4% of EU ODA growth185 between 2004 and 2012, or EUR 2.45 billion out of EUR 10.93 billion, went to Africa, as shown in figure 4.2.3c, far short of the EU commitment to direct 50% of EU aid increases to Africa. However, Africa remains an important recipient of EU ODA, as shown by the fact that 43% or EUR 20.7 billion of EU ODA186 was targeted to Africa in 2012, over 40% of which (EUR 8.6 billion in 2012) through multilateral channels. EU Institutions are particularly important in this respect, as 80% of the growth of EU ODA to Africa was through ODA channelled through EU Institutions. The growth in gross bilateral ODA to Africa over the period 2004-2012 (EUR 3.3 billion at 2012 prices) was almost equally subdivided between grants and loans, with the latter growing in importance from 12% of total gross ODA in 2004 to 18% in 2012.

Preliminary data for 2013 show a 1% decline in nominal terms of bilateral EU ODA to Africa compared to 2012.

Several Member States187 made specific efforts to direct at least 50% of their new bilateral ODA commitments to Africa, and plan to keep these levels in 2014. For instance, in July 2013, France decided to direct 85% of its new ODA commitments to Africa and the Mediterranean, and 50% to its 16 priority countries, all of which are in Sub-Saharan Africa.

184 For the second time, DAC statistics include information on all EU Member States. Unlike previous editions of the Accountability Report, the analysis in this chapter concerns all EU Member States and not just the EU15, and this change explains most differences in values. 185Considering only EU ODA allocated geographically plus imputed multilateral ODA. 186Idem. 187 DE, DK, ES, FI, FR, IE, IT, LU, PT, SE, UK

90

Figure 4.2.3d – EU DAC members' net ODA to Africa in EUR million and as a % of GNI

(including imputed multilateral flows) (i ng mp s)

Source: OECD/DAC Table 2A. Only EU MS Reporting to DAC.

EU ODA to Sub-Saharan Africa has slightly increased since 2005

EU ODA to Sub-Saharan Africa increased by only EUR 1.4 billion in real terms over the period 2004-2012, thus enabling the EU and MS to achieve the less demanding target of increasing ODA to Sub-Saharan Africa. Over 80% of this increase was provided through multilateral channels and ODA to Sub-Saharan Africa through EU Institutions accounted for over two thirds of EU ODA growth to the region. At the same time, several Member States significantly decreased their bilateral ODA to Sub-Saharan Africa between 2004 and 2012: Portugal (-67%), the Netherlands (-38%), Italy (-23%), Spain (-19%), Greece (-16%) and France (-7%). Preliminary data for 2013 show zero nominal growth in bilateral EU ODA to Sub-Saharan Africa compared to 2012.

The growth in gross bilateral ODA to Sub-Saharan Africa over the period 2004-2012 (EUR 1.7 billion at 2012 prices) was entirely due to grants that grew by 14% in real terms, while loans declined by 9% over the period with their share falling from 10% to 8% of gross ODA flows.

Missing the EU target on ODA to Least Developed Countries

In November 2008, the EU Member States promised, as part of the EU’s overall ODA commitments, to provide collectively 0.15% to 0.20% of their GNI to LDCs by 2010, while fully meeting the differentiated commitments set out in the ‘Brussels Programme of Action for the LDCs for the decade 2001-2010’. Between 2004 and 2010, the LDCs' share of EU ODA increased both in absolute and relative terms, without however reaching the 0.15% target but moving closer even without considering debt relief. This positive trend was drastically reversed in 2011. Last year’s Accountability Report provided estimates, based on preliminary data, which indicated that EU ODA

91

to LDCs corresponded to 0.12% of EU GNI. Final statistics however showed that these estimates were too optimistic, and that EU ODA to LDCs actually amounted to EUR 14.1 billion in 2012, declining by EUR 2.7 billion from 2011 (-16%), and representing only 0.11% of EU GNI compared to 0.13% in 2011. This is the lowest level over the period 2004-2012, lower than the 0.13% reached in 2004, even though the share of grants over gross EU ODA to LDCs grew from 91% in 2004 to 96% in 2012.

However, there are signs suggesting that the negative trend of the period 2010-2012 might have been reversed in 2013, as EU bilateral ODA to LDCs grew by almost 20% over 2012 (estimates do not include Germany due to lack of data).

Figure 4.2.3e below summarises the evolution of ODA/GNI ratios to LDCs for EU Member States reporting to DAC over the period 2004-2012. The peak was due to large debt relief operations that were granted in 2005 and 2006.Denmark, Finland, Ireland, Luxembourg, Sweden and the

United Kingdom remained above the target in 2012.Fourteen Member States188 do not expect to be able to reach the 0.15% target any time soon. Those Member States that also provide non-grant ODA to developing countries do not provide ODA loans to LDCs. For several Member States, even allocating all of their ODA to LDCs would not suffice to meet the target, given their actual and projected ODA/GNI targets below 0.15%.

Figure 4.2.3e –EU DAC member's net ODA to LDCs in EUR million and as a % of GNI

including imputed multilateral flows g pu

Source: OECD/DAC Table 2A. Only EU MS Reporting to DAC.

4.2.4. EU policy

The EU and its Member States have repeatedly reiterated their commitments to achieve the 0.7% ODA to GNI ratio by 2015, as a concrete time-bound goal. Although EU Heads of State and

188AT, BG, CY, CZ, EE, EL, ES, FR, HR, HU, IT, LV, MT, and PL.

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Government confirmed that ODA remains an important element of the EU support to developing countries, the Council has not agreed any concrete measures to ensure the national steps necessary for fulfilling this commitment.

In the last six annual Accountability Reports on FfD, the European Commission presented three ways to step up efforts: (a) drawing up realistic and verifiable national ODA action plans outlining how Member States aim to scale up efforts to achieve the 2015 ODA targets; (b) introducing a peer review mechanism whereby the European Council would assess the progress of each Member State and give guidance for further joint EU progress for attaining the agreed ODA targets; and (c) enacting national legislation ring-fencing ODA. Under current trajectories, the EU as a whole is set to miss its 2015 collective target by a wide margin

Even though the EU and its Member States remain among the most generous donors, it seems highly likely that several ODA commitments will not be met by 2015.

4.3. Climate Finance

EU Commitments

Under the December 2009 Copenhagen Accord, developed countries made important pledges

for fast start as well as for long-term climate financing. The collective commitment by

developed countries was to provide new and additional resources approaching US$ 30 billion

for the period 2010 – 2012 with balanced allocation between adaptation and mitigation.

Funding for adaptation would be prioritised for the most vulnerable developing countries, such

as the Least Developed Countries and Small Island Developing States. In the context of

meaningful mitigation actions and transparency on implementation, developed countries

committed to a goal of mobilising jointly US$ 100 billion per year by 2020 to address the needs

of developing countries. This funding should come from a variety of sources, public and private,

bilateral and multilateral, including alternative sources of finance.

The EU has frequently confirmed the importance of supporting developing countries moving

towards sustainable economic growth and adapting to climate change (e.g. European Council

Conclusions of 19-20 June 2008, §28). It has also underlined that climate financing should not

undermine or jeopardise the fight against poverty and continued progress towards the

Millennium Development Goals (§23 European Council Presidency Conclusions 30 October

2009).

European Council meeting of 10-11 December 2009. In the run-up to the Copenhagen

Conference, the EU and its Member States committed to contributing EUR 2.4 billion annually

over the period 2010 – 2012 to the fast start climate funding (§37).

The Council Conclusions of 15 May 2012 and 13 November 2012:

reaffirmed the EU and its Member States' commitment to provide EUR 7.2 billion cumulatively

over the period 2010 – 2012 to fast start finance;

reaffirmed the importance of continuing to provide support by developed countries beyond 2012

for policies, programmes and initiatives that will deliver substantial results and value for money

in the context of meaningful mitigation actions and transparency in implementation, and in

helping to increase climate resilience; and

reiterated that, in this respect, the EU and other developed countries should work in a

constructive manner towards the identification of pathways for scaling up climate finance from

2013 to 2020 from a wide variety of sources, public finance and private sector finance, bilateral

93

and multilateral, including alternative sources of finance, as needed to reach the international

long term committed goal of mobilising jointly US$100 billion per year by 2020 in the context of

meaningful mitigation actions and transparency on implementation.

The Council Conclusions of 15 October 2013:

§3: the EU and its Members States have committed to scaling up the mobilisation of climate

finance in the context of meaningful mitigation actions and transparency of implementation, in

order to contribute their share of the developed countries' goal to jointly mobilise USD 100 bn

per year by 2020 from a wide variety of sources public and private, bilateral and multilateral,

including alternative sources of finance.

§5: Confirms the EU and its Member States' efforts to mobilise climate finance as part of a

comprehensive and integrated approach to financing for different global policy goals and

expresses its support for ensuring coherence and coordination of different international

financing discussions. Notes that mainstreaming climate objectives into public and private

investment and development planning is crucial to the process for increasing climate-resilient

and low-Greenhouse Gas emission investments while emphasising the need to phase down high

carbon investments. Also notes that development and climate actions are intrinsically linked for

mitigation, adaptation and capacity building. Climate finance should support the shift towards a

low-emission climate resilient development path.

§6: Calls for a strengthening of the coordination between donors, and donors and recipient

Governments, on the ground for the effective mobilisation and deployment of funds for climate

actions in developing countries.

§7: Reiterates that the EU and its Member States have outlined a range of strategies and

approaches to unlock the potential of different sources of climate finance and that these provide

some of the components of pathways to scale up climate finance.

§9: Private finance and investment will be pivotal to achieve long-term transformation of

developing countries into low-carbon and climate-resilient economies. The EU and its Member

States have in place and will continue to develop a broad set of policy instruments to mobilise

private sector finance for climate actions.

§10: Stresses that a robust and harmonised Monitoring Reporting and Verification (MRV)

framework and the development of a common understanding are essential to ensure the

necessary transparency and trust; views tracking and transparency of climate finance flows as

key to increasing the effectiveness of the resources provided. Underlines the need to accelerate

work towards common internationally agreed standards for MRV of climate finance flows. This

work should build on existing reporting systems, while taking into consideration cost-

effectiveness and feasibility. Emphasises the intention of the EU and its Member States to play a

leading role in this respect.

§14: Notes that adaptation planning to improve climate resilience through development

strategies is essential. Commits to support adaptation actions through various multilateral and

bilateral instruments, by public and – where appropriate – private finance; and confirms that

EU and its Member States in providing finance for adaptation will continue to take into account

the needs of the particularly vulnerable developing countries, including Small Islands

Developing States, the Least Developed Countries and Africa.

§17: Reiterates the EU and its Member States' commitment to continue to work together with

other countries and relevant stakeholders on mobilising long term finance.

4.3.1. Introduction

Development and climate change are closely interconnected. If not contained, climate change risks undermining years of progress in reducing poverty and meeting the MDGs. Conversely, economic

94

development and consumption growth, and the associated increased use of fossil fuels and other resources, are the main drivers of climate change.

Investing early in the development process in a green, low-emission and climate resilient growth path is likely to be more efficient and cost-effective than polluting first, and cleaning up afterwards. The integration of climate change concerns in development offers real win-win opportunities.

Climate change constitutes a significant additional burden and challenge for many developing countries, adding costs and complexity to poverty reduction efforts. Reducing the risks of climate change, so far highly correlated with increases in prosperity, therefore offers benefits for both developing and developed countries. A global agreement in 2015189 is crucial to limit the risks of climate change, from which the poorest countries will likely be the hardest hit. In the absence of such an agreement, applicable to all countries, climate finance alone is less likely to be able to address the huge challenges posed by climate change.

Climate finance has been an important element of the negotiations under the UN Framework Convention on Climate Change (UNFCCC). In article 4.3 of the Convention, developed countries agreed to provide funding to developing countries in order to support them in their transition to low-emission climate-resilient development paths.

At the Conferences of Parties in Copenhagen (2009) and Cancun (2010), the developed country parties committed to the provision of USD 30 billion in "fast start financing" in 2010 – 2012, and to a longer term goal to jointly mobilise USD 100 billion per year by 2020, for developing countries in the context of meaningful mitigation actions and transparency on implementation. This funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.

A major difficulty in this endeavour is that there is no precise internationally agreed definition of climate finance at present, nor any agreed methodology for estimating the amount of private finance mobilised. The term 'climate finance' broadly refers to resources that catalyse low-carbon and climate-resilient development. It covers actions aimed at both, mitigating climate change (by reducing greenhouse gas emissions), as well as adapting to climate change (by addressing the impacts). This includes support to an enabling environment, capacity for adaptation and mitigation, Research and Development, and the deployment of new technologies.

The global climate finance architecture is complex and evolving. Funds flow through multilateral channels – both within and outside of UNFCCC financing mechanisms – and increasingly, through bilateral channels, as well as through national climate change funds in some recipient countries. In order to live up to the commitments, climate finance will have to be mobilised through a range of instruments and from a wide variety of sources, including international and domestic, public and private, multilateral and bilateral, as well as through new and innovative sources of financing. To date, most of the financing from developed to developing countries reported to UNFCCC has been development related public finance.

Current efforts to track climate finance are still insufficient in terms of transparency, comparability and comprehensiveness due to the lack of clear agreed definitions, standards and methodologies, as well as limited data availability for private finance in particular.

189At the initiative of the European Union and the most vulnerable developing nations, taken at the Durban climate conference in December 2011, UN negotiations are under way to develop a new international climate change agreement that will cover all countries. United Nations flag © Comstock The new agreement will be adopted in 2015, at the Paris climate conference, and implemented from 2020. It will take the form of a protocol, another legal instrument or 'an agreed outcome with legal force', and will be applicable to all Parties. It is being negotiated through a process known as the Durban Platform for Enhanced Action.

95


The table below190 summarises progress made in 2013in implementing the EU commitments on climate finance. Further details are discussed in the main text.

EU commitments Target Date Status Change 2012 - 2013 Comments

Contribute EUR 7.2 billion over the period 2010-2012 to fast start climate funding

End 2012

= The EU and its Member States contributed EUR7.3 billion to fast start climate funding over the period 2010-2012

Work towards pathways for scaling up climate finance from 2013 to 2020 from a wide variety of sources, to reach the international long term committed goal of mobilising jointly US$100 billion per year by 2020

2013-2020

In 2013, the EU and its Member States submitted their first report to the UNFCCC on the EU strategies and approaches for mobilising and scaling-up climate finance on long-term. It will report again in 2014.

The EU Court of Auditors stated that coordination between Commission and MS on climate finance was still inadequate.


Tracking and monitoring ODA related to climate change and other environmental issues has long been a difficult task, because of the complexity of the issues and their multidimensional character. For a number of years, the OECD/DAC CRS reporting system has included specific policy markers for environment and climate change mitigation. Since 2010, reporting also includes a climate change adaptation marker. Data prepared on the basis of both climate markers (mitigation and adaptation) were released for the first time in January 2012, and now cover ODA disbursed during 2010, 2011 and 2012.

Most of the EU Member States that are also DAC members base their reporting to UNFCCC

on the so-called Rio markers191

. Member States, however, use different approaches to convert


in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour. 191 The OECD/DAC is monitoring aid targeting the global environmental objectives of the Rio Conventions through its Creditor Reporting System (CRS) using the "Rio markers". Every aid activity reported to the CRS should be screened and marked as either (i) targeting the Conventions as a 'principal' objective or a 'significant' objective, or (ii) not targeting the objective. Five statistical markers exist to monitor aid for environmental purposes within the OECD DAC Creditor Reporting System (CRS). These are: the ‘environment marker’, introduced in 1992; the ‘Rio markers’ covering climate change mitigation, biodiversity, and desertification, introduced in 1998; the ‘Rio marker’ for climate change adaptation, introduced in 2010. The Rio markers are applicable to ODA and recently also to other official flows (i.e.

96

the Rio-marked OECD/DAC to quantified climate finance flows. For instance, the method followed by the European Commission and the Netherlands is to report the budget of programmes marked with Rio marker 2 (principal objective) as 100% climate relevant, while only 40% of the budget of programmes and projects marked with Rio marker 1 (significant objective) is reported. Germany and Sweden report 50% of the budget of programmes and projects marked with Rio marker 1, and 100 % of the budget for Rio Marker 2, while Ireland reports 100% of expenditure for both. Spain reports 100% of the budget of any activity with one principal or one principal and one significant Rio marker, 40% of any activity with two significant Rio Markers, and 20% of any activity with only one significant Rio Marker. In the case of Finland, specialists at the Ministry for Foreign Affairs go through the Rio marked projects analysing the share of climate change activities relative to the total project disbursements. Depending on whether adaptation or mitigation is the principal objective or a significant objective, the share varies between 10% and 100%. Thus, the methodology used by the EU and its Member States to report on climate finance to UNFCCC is only partially harmonised. The same applies to the internal reporting under the Monitoring Mechanism Regulation that requires annual reporting following the same guidelines as the UNFCCC Biennial Reports.

Table 4.3.3 below presents the overall ODA committed by EU donors in 2010, 2011 and 2012 for climate change adaptation and mitigation relevant activities, based on data from the OECD DAC CRS database.

Data show that the EU and its Member States committed over EUR24 billion to climate change over the period 2010-2012, of which about 30% or EUR 7.3 billion were in the form fast-start finance for tackling climate change over the period 2010-2012, thus exceeding the goal of EUR 7.2 billion, despite difficult economic situation and budgetary constraints.

Table 4.3.3 – EU ODA for Climate Change Adaptation and Mitigation in 2010-2012 (Commitments, EUR million at constant 2011 prices)192

Type 2010 2011 2012 Total

Adaptation 2,343 1,912 2,100 6,355

of which:

Principal 373 336 670 1,379

Significant 1,969 1,577 1,430 4,976

Mitigation 5,214 3,277 4,349 12,840

of which:

Principal 3,527 1,811 2,217 7,555

Significant 1,687 1,466 2,133 5,286

Adaptation and

Mitigation

1,928 1,736 1,820 5,483

non-concessional developmental flows, excluding export credits), where OECD DAC members have started reporting for 2010 data onward. 192 The table avoids double counting using the following method. Principal (2) always prevails over substantial (1). If mitigation is set as principal and adaptation substantial for the same activity, the higher mark prevails and the activity is classified as mitigation. When the ratings are equal, the ODA is classified under “Adaptation and Mitigation”. The combinations are as follows. Mitigation or Adaptation: Principal (20 and 21); Substantial (10). Mitigation and Adaptation: Principal (22); Substantial (11).

97

Type 2010 2011 2012 Total

of which:

Both Principal 923 235 298 1,455

Both Significant 1,005 1,501 1,522 4,028

Total Climate Change 9,484 6,925 8,269 24,679

Sources: DAC CRS

With a share of 51% of ODA for climate change from all donors reporting to OECD/DAC,

the EU and its Member States have been the largest contributor to both mitigation-related

and adaptation-related ODA in the period 2010-2012. However, the real share is certainly lower as the United States does not provide any data on its climate finance to DAC. The significant reduction in real terms observed between 2010 and 2011 has been partially reversed in 2012.

It is difficult to get an overview of total climate related financial flows from EU to developing countries due to the above-mentioned weaknesses in tracking and reporting systems.


Mobilising climate finance to support developing countries in designing and implementing their mitigation commitments and in addressing adaptation challenges will remain a central concern in the climate change negotiations under UNFCCC.

While no specific intermediary targets have been established for the midterm period 2013 – 2020, the Warsaw climate change conference in 2013 ‘urges developed country Parties to maintain continuity of mobilization of public climate finance at increasing levels from the fast-start finance period” There is no agreed key for determining the specific commitment of individual developed countries towards the US$100 billion per year target. In a submission to the UNFCCC in September 2013 the EU and its Member States provide information on their strategies and approaches for scaling up the mobilisation of climate finance towards the developed countries' goal to jointly mobilise US$ 100 billion per year by 2020"193.

Improving the tracking of climate financial support is a priority, in particular for non-public flows. In this context, the current work that has started at the OECD aiming at improving the tracking of climate finance, including by devising methodologies for tracking private flows, is very important.

Following a legislative proposal by the European Commission in November 2011, the EU adopted a Regulation on a mechanism for monitoring and reporting greenhouse gas emissions and for

reporting other information at national and Union level relevant to climate change194

. The latter entered into force in mid-2013 and requests Member States to report annually to the Commission information of financial and technological support to developing countries, in accordance with the UNFCCC provisions. This new mechanism for monitoring and reporting will eventually replace the data gathering exercise on climate finance which has been carried out so far through the annual EU Accountability Report questionnaire, and provide the necessary data for future editions of the Accountability Report. However, the UNFCCC biennial reports published by the EU Member States between December 2013 and January 2014 (also analysed for the preparation of this year's edition of the Accountability Report) do not provide uniform data that could be aggregated or thoroughly compared, showing significant gaps in coverage. This is mainly due to the current

193https://unfccc.int/files/documentation/submissions_from_parties/application/pdf/cop_suf_eu_02092013.pdf 194Regulation (EU) No 525/2013 OF the European parliament and of the Council of 21 May 2013 on a mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant to climate change and repealing Decision No 280/2004/EC, OJ L165, p.13.

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format and requirements of the UNFCCC reporting framework. This situation impacts in particular reporting on other means of implementation, as no comprehensive tracking system for this kind of support is yet in place, making it very difficult to picture accurately the full technology and capacity building support provided.

In its recent report on EU climate finance in the context of external aid195, the European Court of Auditors (CoA) found that coordination between the Commission and Member States in the area of climate finance for developing countries is inadequate. In particular, the CoA found that “the Commission has not exercised sufficient leadership in some areas and the Member States have not been sufficiently responsive to some of its initiatives. Significant further efforts are needed to ensure complementarity between the EU’s and Member States’ country programmes. The Commission and Member States have not agreed how to meet the commitment to scale up climate finance by 2020. A robust monitoring, reporting and verification system providing comprehensive and reliable information on the Commission’s and Member States’ climate-related spending to monitor compliance with commitments made has not yet been established, and the extent to which the Fast-Start Finance pledge has been fulfilled is unclear. No attempt has been made to reduce the proliferation of climate funds. Significant further coordination between the Commission and Member States is needed to prevent and combat corruption.”

The CoA recommended, inter alia, that the Commission should propose a roadmap for the scaling-up of climate finance towards the 2020 target set by the Copenhagen Accord, and report on the extent to which the target of spending 20 % of the EU budget and the EDF over 2014 to 2020 on climate-related action is implemented in development aid196. In addition, the CoA recommended that the Commission and its Member States should agree on common standards for monitoring, reporting and verification of climate finance for developing countries in the framework of the Monitoring Mechanism Regulation, and intensify their cooperation to implement the EU Code of Conduct on Division of Labour in the field of climate finance.

The EU and its Member States undertook a number of initiatives, and launched new (and/or further developed) instruments in 2013.

- The Agence Française de Développement (AFD), in the context of its financial contribution to tackling climate change over the period 2012-2016, has committed to a target of 50% of its grants to foreign countries and 30% of grants from PROPARCO, its subsidiary in the private sector. Furthermore, in October 2012, the AFD adopted a new energy strategy that lays down a target commitment of EUR 2 billion to renewable energy and energy efficiency projects in developing countries for the next three years.

- Between 2007 and mid-2013, EU regional investment facilities197have co-funded over 96 climate-related projects, with EUR750 million in grants and EUR 10 billion in loans, leveraging EUR 20 billion in total project financing. Up to now, the EU regional investment facilities have mainly supported public investments, but the intention is to make more use of the grants to facilitate private sector participation in investment projects.

- The Low Emission Capacity Building Programme (LECBP) was launched in January 2011 as part of a joint collaboration between the EU, Germany, and the UNDP. Since its

195European Court of Auditors, Special Report No 17/2013 – EU climate finance in the context of external aid, December 2013. 196The EU Multiannual Financial Framework (MFF) for 2014 - 2020 includes a commitment to ‘mainstream’ climate change across different policy areas and for at least 20 per cent of the EU budget to support climate change related activities, whether for mitigation or adaptation. The Commission has thus been including numerical data on climate and biodiversity-related expenditure in the annual EU budget since 2014. 197See Chapter 5 for more details on EU blending facilities

99

inception, the LECBP has grown both in scope and breadth, including 25 participating countries, and enhanced technical support through contributions from the European Union, the Germany, and Australia.

- The EU and several EU Member States support the implementation of the Climate Technology Centre and Network (CTC-N), one of the UNFCCC's Technology Mechanisms alongside the Technology Executive Committee (TEC), both fully operational since early 2013 (see also Section 4.5.3). Located in Copenhagen, the CTC-N aims to address the need of low income countries to access information on mitigation and adaptation technologies through its demand driven system and training offers.

- In 2013, the UK Government increased by EUR 1.2 billion its allocation for the UK financial year 2015/16 to the International Climate Fund (ICF). The ICF aims to help the poorest people adapt to the effects of climate change on their lives and livelihoods and to support developing countries to reduce harmful greenhouse gas emissions. The ICF provides EUR 4.8 billion for international climate finance as part of the rising UK aid commitment for the period 2011–12 to 2015–16.

Policy coherence between policies in both developed and developing countries is an important element for climate action. For example, a crucial but politically difficult task is to reduce fossil fuel subsidies, as discussed in Box 4.3.4 below.

Box 4.3.4 - The case of Fossil Fuel Subsidies

Fossil fuel subsidies are often used to alleviate energy poverty, but are an inefficient means for doing so, creating market distortions that result in wasteful energy consumption. Not only do fossil fuel subsidies undermine international efforts to combat climate change, they also represent a drain on national budgets because of their substantial fiscal and economic costs. Many countries could significantly increase their domestic spending on priorities by removing harmful fossil fuel subsidies. It is estimated that the potential of removing harmful fossil fuel subsidies could amount to a saving of over EUR 300 billion for developing countries198.Phasing out fossil fuel consumption subsidies in emerging and developing countries could also reduce global greenhouse gas emissions by 6% by 2050199.

In 2009, G20 leaders made a commitment "to rationalise and phase out inefficient fossil fuel subsidies that encourage wasteful consumption". In 2013, at the G20 St Petersburg Summit, leaders called for the "development of a methodology for a voluntary peer review process and the initiation of country-owned peer reviews". In December 2013, the EU Council in 2013 also called for the "gradual elimination of environmentally harmful subsidies"200.

While the level of subsidies is hard to quantify and varies greatly between countries, latest estimates indicate that fossil-fuel consumption subsidies worldwide amounted to $544 billion in 2012 (4% higher than the 2011 total of $523 billion)201. In particular, many emerging markets spend heavily on fossil fuel subsidies, especially in the Middle East and North Africa which account for about two-thirds of the total. While such subsidies are often justified by Governments based on their

198COM(2013) 531 final 199 OECD (2011), OECD Environmental Outlook to 2050 – The consequences of inaction,

http://www.oecd.org/env/cc/49082173.pdf 200Council Conclusions on financing poverty eradication and sustainable development beyond 2015, 12 December 2013 201 IEA (2013), IEA World Energy Outlook 2013, http://www.iea.org/media/files/WEO2013_factsheets.pdf

100

industrial policy and poverty reduction goals, they also entail high economic and social opportunity costs. However, according to the IMF202, fossil fuel subsidies mostly benefit upper-income households. Meanwhile, several countries, including Egypt, Indonesia, Pakistan and Venezuela, spend at least twice as much on fossil fuel subsidies as on public health. Some of these same countries are also providing fossil fuel subsidies at levels that are multiples of the ODA that they receive203.

4.4. Funding for Addressing Biodiversity Challenges

EU Commitments

In the Council Conclusions of 14 October 2010 "Preparation of the tenth meeting of the

Conference of the Parties (COP 10) to the Convention on Biological Diversity (CBD)", the

Council asked the Commission to "continue reporting on the amount of funds related to

biodiversity conservation and sustainable use". Previously, such monitoring was done via

reporting on the Biodiversity Action Plan, which ended in 2010.

At the 10th

meeting of the Conference of the Parties to the Convention on Biological Diversity in

Nagoya, Parties, including the EU, made a commitment to mobilise financial resources for

effectively implementing the Strategic Plan 20112020 and to substantially increase resources

from all sources, including innovative financial mechanisms, against an established baseline.

Within the EU, Council Conclusions of 21 June 2011 endorsed the EU Biodiversity Strategy to

2020204

. Action 18 of the Strategy: "Mobilise additional resources for global biodiversity

conservation" requests the Commission and its Member States to "contribute their fair share to

international efforts to significantly increase resources for global biodiversity as part of the

international process aimed at estimating biodiversity funding needs and adopting resource

mobilisation targets for biodiversity at CBD COP11 in 2012. The Strategy also stresses that

'discussions on funding targets during COP11 should recognise the need for increases in public

funding, but also the potential of innovative financing mechanisms'.

The Council Conclusions of 11 June 2012 on the preparation of 11th

meeting of the Conference

of the Parties to the Convention on Biological Diversity (CBD COP 11) recognised the need to

further improve the effectiveness of existing funding and mobilise new types of funding sources,

including the private sector and other stakeholders, whilst emphasising the importance of

innovative financing mechanisms as an essential and necessary funding source, in addition to

traditional financing mechanisms, and as a tool for mainstreaming.

At CBD COP11 in Hyderabad, the Parties decided on an overall substantial increase of total

biodiversity-related funding, from a variety of sources, and resolved to achieve a number of

preliminary targets including to 'double total biodiversity-related international financial

resource flows to developing countries, in particular Least Developed Countries and Small

Island Developing States, as well as countries with economies in transition, by 2015 and at least

maintain this level until 2020, in accordance with Article 20 of the Convention, to contribute to

achieving the Convention’s three objectives, including through a country-driven prioritisation

of biodiversity within development plans in recipient countries', using the preliminary baseline

202IMF (2013), Energy Subsidy Reform: Lessons and Implications, https://www.imf.org/external/np/pp/eng/2013/012813.pdf 203ODI (2013), Time to change the game: Fossil fuel subsidies and climate, http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8668.pdf 204COM(2011) 244 final

101

of annual biodiversity funding for the years 2006-2010. Parties also agreed complementary

targets on making appropriate domestic financial provisions, reporting, and developing

national financial plans. They also decided to use a preliminary reporting framework205

as a

flexible and preliminary framework to report on and monitor the resources mobilized for

biodiversity at a national and global level. Progress will be reviewed at COP12 with the aim of

adopting the final target for resource mobilisation.

The decision of the European Parliament and of the Council on the 7th

EU Environment

Action Programme (EAP) of 20 November 2013 indicates that: The global biodiversity targets

under the Convention on Biological Diversity need to be met by 2020 as the basis for halting

and eventually reversing the loss of biodiversity worldwide. The EU will contribute its fair

share to these efforts, including to the doubling of total biodiversity-related international

resource flows to developing countries by 2015 and at least maintain this level until 2020, as set

out among the preliminary targets agreed in the context of the CBD’s resources mobilisation

strategy.

The Council Conclusions of 12 December 2013 reaffirm the EU and its Member States’ resolve

to contribute to the achievement of the Hyderabad commitments to double total biodiversity-

related financial resource flows to developing countries by 2015, using as the reference level

the average of annual biodiversity funding for the years 2006-2010, and at least to maintain this

level until 2020 and include biodiversity in national prioritisation and planning.

4.4.1. Introduction

As noted in the EU Biodiversity Strategy to 2020206, biodiversity — defined as the extraordinary

variety of ecosystems, species and genes that surround us —is humanity’s natural capital, delivering ecosystem services that underpin the world’s economy. Its deterioration and loss jeopardises the provision of these services. In addition, biodiversity and climate change are inextricably linked as the former contributes positively to climate change mitigation and adaptation207, while achieving the 'two degrees' target coupled with adequate adaptation measures to reduce the impact of unavoidable effects of climate change are also essential to avert biodiversity loss.


The table below208 summarises progress made in 2013in implementing the EU commitments on biodiversity-related finance. Further details are discussed in the main text.

EU commitments Target Date Status Change 2012-

2013

Comments

Hyderabad commitment to double total biodiversity-related international financial resource flows to developing countries, in particular Least Developed Countries and Small Island Developing

2015 and 2020

EU biodiversity-related official financial flows to developing countries increased by 37% in 2011 and by 82% in 2012 compared to the average for

205UNEP/CBD/COP/11/14/Add.1 206 Council Conclusions on the EU Biodiversity Strategy to 2020, 11978/11, 23 June 2011 207 See for example the Report from the Secretariat of the Convention on Biological Diversity (2009), Connecting Biodiversity and Climate Change Mitigation and Adaptation. 208


102


2013

Comments

States, as well as countries with economies in transition, by 2015 and at least maintain this level until 2020 compared to 2006-2010

the period 2006-2010, while preliminary data for 2013 indicate that such positive trend might have continued last year. However, several MS are still unable to report any biodiversity-related financial data, and none reported data on private flows.


In previous editions of the EU Accountability Report on FFD, EU support to biodiversity was measured using the specific Biodiversity Rio Marker of the OECD/DAC Creditor Reporting System (CRS). In July 2012, the Convention on Biological Diversity (CBD) invited the EU and its Member States to report biodiversity-related financial flows, including but not limited to ODA, through the Preliminary Reporting Framework (PRF) agreed by the Parties of the CBD.

It is thus the second time that data on biodiversity-related finance included in the present report have been collected using the Common Reporting Format (see tables below).

As part of this process, the EU and some Member States have developed particular methodologies to capture biodiversity-related ODA; sometimes applying specific coefficients to better capture the real biodiversity component of projects with a Rio Marker equal to 1 (i.e. projects targeting biodiversity as a significant rather than principal objective). Such methodologies are not uniform. The European Commission, for example, reported only 40% of the allocated budget of Rio Marker 1 projects, while Germany reported 100% of the specific biodiversity-targeting components of such projects rather than considering each project’s entire budget. Finland determined instead a “biodiversity relevance percentage” for each biodiversity-related project that was then applied to all projects marked as significant.

Because of the adjustments applied by each Member State as part of their specific methodologies, the amounts presented under the Preliminary Reporting Framework may be lower than those reported previously to the OECD/DAC. They are also incomplete, as some Member States are still working on their processes for reporting biodiversity-related financial flows. Finally, no Member State provided information on support for biodiversity from private sources. As mentioned in previous CBD decisions, further work is certainly needed to improve the methodological guidance on reporting biodiversity-related finance.

103

Table 4.4.3a Official and Private Financial Flows Directly or Indirectly Related to Biodiversity by Member State

(Commitments, EUR million at current prices)

Cou

ntr

y o

r

Inst

itu

tion

2006 2007 2008 2009 2010 2011 2012

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Austria 6 4 10 6 4 10 8 6 14 10 6 16 11 9 20 8 8 16 5 7 12

Belgium

Bulgaria

0

0 0

0 0

0 0

0 0

0

Croatia

0 0

0 0

0 0

0 0

0 0

0 0

0 0

Cyprus 34

34 6

6 17

17 12

12 7

7 23

23 24

24

Czech Republic 1 1 2 1 1 2 1 1 2 1 1 2 1 1 2 1 1 2 1 2 3

Denmark 5 10

4

109

5 70 75 2 113

115

1 82 83 2 241 243 1 117

118 0 252

252

EU Institutions

120 25

145 73 62

135 97 66

163 64

201 265 98 163 261 45

129 174 97

192 289

Estonia

0

0

Finland 1 10 11 1 8 9 1 11 12 1 10 11 2 10 12 5 16 20 3 11 14

France 72 44 117 26 34 61 64 82

146 26 82 108 29 118 147 49 76 125 110 74 184

Germany 75

75

125

125

219

219

250

250

300

300

499

499 549

549

Greece

2 2

Hungary 0

0 0

0 0

0 0

0 0

0 0

0 0

0

Ireland

20

20 14

14 75

75 25

25 21

21 22

22

Italy 11 5 16 10 5 15 10 12 22 5 7 12 2 3 5 7 4 11 20 3 23

Latvia 0

0 3

3 0

0 0

0 0

0 0

0 0

0

Lithuania

Luxembourg

1 1 3 0

0

Malta

Cou

ntr

y o

r

Inst

itu

tion

2006 2007 2008 2009 2010 2011 2012

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Dir

ect

In-d

irec

t

Tota

l

Netherlands 159

159 97

97 93

93 95

95 87

87 82

82 76 15 91

Poland

Portugal 1 0 1 1 3 4 1 3 4 1 4 5 0 3 3 0 3 3 0 0 0

Romania

0 0 0 1 0 1

Slovak Republic

0 0

0 0

0 0

0 0

0 0 0 0 0

Slovenia

1

1 0

0 0

0 0

0

Spain 11 17 28 17 44 61 17 32 49 19 31 50 40 25 65 5 18 24 2 4 6

Sweden 9 26 35 15 39 54 18 54 72 17 92 109 21 108 129 13 128 141 50

154 204

United Kingdom

Total 50

5

23

6

74

1

40

6

27

0

67

7

56

2

38

0

94

3

57

8

51

6

1,0

95

62

6 682

1,3

09

75

9

50

0

1,2

60 959

71

6

1,6

75

Source: 2014 EU Financing for Development Questionnaire (BE, LT, LU, PL and UK did not provide any new data this year). Totals may not match

due to rounding.

Table 4.4.3b Official and Private Financial Flows Directly or Indirectly Related to

Biodiversity by Type

(Commitments, 2006-2012, EUR million at current prices)

Type of Financial Flows 2006 2007 2008

200

9 2010 2011

201

2

1. Directly related

1.1 Official Development Assistance

1.1.1 Bilateral 354 318 449 464 506 641 790

1.1.2 Multilateral 96 57 68 71 82 84 134

1.2 Other public funds 44 16 27 22 17 34 34

1.3 Private/Market - - - - - - -

1.4 Not for profit organisations - - - - - - -

Unallocated (1)

(2) (3) (4) (5)

(7)

Subtotal directly related 504 407 562 578 627 759 959

2. Indirectly related

2.1 Official Development Assistance

2.1.1 Bilateral 191 219 320 408 564 461 648

2.1.2 Multilateral 9 1 4 4 5 37 68

2.2 Other public funds 0 0 0 0 0 0 0

2.3 Private/Market - - - - - - -

2.4 Not for profit organisations - - - - - - -

Unallocated 36 50 57 106 112 3 0

Subtotal indirectly related 237 270 381 517 682 501 716

3. Grand total 741 677 943

1,0

95

1,30

9

(8) 1,6

75

Annual total/ 2006-2010 average

(target of at least 2.0 by 2015) Average: 953 1.32

1.7

6

Source: 2014 EU Financing for Development Questionnaire (BE, LT, LU, PL and UK did not

provide any new data this year). Totals may not match due to rounding.

Data summarised in Tables 4.4.3a and b above represent an update of figures provided in last year’s Accountability Report (which had been presented as “work in progress and likely to be updated in future editions of the EU Accountability Report”). Revised data indicate that biodiversity-related finance almost doubled in nominal terms between the period 2006-2010 and 2012. During the period 2006-2010, the EU and Member States who reported data committed an average of EUR 953 million209per year in biodiversity-related official finance, including ODA. Nonetheless, this average needs to be considered as indicative, as it is based on figures from twenty-three Member-States and the Commission.

Preliminary data for 2013 provided by eleven Member States and the Commission indicate a total spending of EUR 1.1 billion, half of which has been provided by Germany, who has committed to provide EUR 500 million per year to protect biodiversity. Only eight Member States have provided projections for 2014-2015. According to these projections, around EUR 750 million are expected per year. A little over half of preliminary 2013 expenditures on biodiversity, and one third of current projections for 2014 and 2015, are in the form of ODA. The above figures underestimate

209At current prices.

106

potential flows as they do not include any preliminary figures or projections for France whose cadre

d’intervention transversal Biodiversité de l’Agence française de développement foresees annual expenditures on biodiversity of at least EUR 160 million per annum over the period 2013-2016.

Figures displayed in Table 4.4.3.b, based on partial reporting, show that the EU as a whole seems to be on track to deliver on the collective Hyderabad commitment, as its 2012official financial flows for biodiversity were 1.76 times higher than its 2006-2010 average. However, the picture is incomplete and contributions uneven, which makes assessing overall EU delivery difficult. Such

data should therefore not be interpreted as an EU baseline for the period 2006-2010.


In June 2011 and December 2011, the Council adopted Conclusions on the implementation of the Europe 2020 Biodiversity Strategy. The new strategy has six main targets, with twenty actions to help the EU address biodiversity challenges. Internationally, the EU contribution to averting global biodiversity loss is to be stepped up through a reduction of indirect drivers of biodiversity loss (e.g. changing consumption patterns, reducing harmful subsidies, and including biodiversity issues in trade negotiations), and mobilisation of additional resources for global biodiversity conservation. Council Conclusions were also adopted in preparation for CBD COP meetings.

Delivering on the Hyderabad targets, as explained above, requires the mainstreaming of biodiversity in the main development sectors. This is in line with the 'Agenda for Change' and with the 2011 Communication on ‘A budget for Europe’ which indicated that in the area of development cooperation, climate and environment, notably biodiversity, would be mainstreamed in all relevant programmes. European Commission includes numerical data on climate and biodiversity-related expenditure in the annual EU budget.

It is also apparent that biodiversity financing needs to come from a variety of sources, both public and private, including from innovative financing mechanisms. Adequate reporting on progress towards meeting these commitments will also require improved mechanisms for tracking financing flows at both EU and national level. Measuring private flows in particular still remains a challenge.

4.5. Technology Development and Transfer

EU Commitments

Council Conclusions of 9 March 2012 on Rio+20, §33: Underlines the important role played

by cooperation on technology, research and innovation, education and training programmes

and emphasises the need to improve mechanisms for international research cooperation and for

the development of information and communication technology on major sustainable

development challenges.

Council Conclusions of 25 October 2012 on follow-up to Rio+20,§36: Reaffirms the EU's

commitment to promote clean and environmentally sound technologies as a means to facilitate a

transition to green economy for all countries regardless of their development status, as well as

its commitment to support cooperation and capacity building for developing countries. Recalls

that the EU research framework programmes are open to third countries and that the EU will

further cooperate with developing countries through its new programme for research and

innovation ‘Horizon 2020’ to promote sustainable development.

107

Council Conclusions of 30 May 2013 on EU international cooperation in research and

innovation: Recognises the added value of deepening the cooperation with developing countries

(§10); recommends further exploring how to strengthen the innovation dimension in the

cooperation with developing countries (§9).

4.5.1. Introduction

Science, technology and innovation (STI) play an important enabling and driving role in empowering developing countries to lift themselves out of poverty, whether through increasing productive capacity to trade, or to deliver more effective services at a lower cost. Moreover, STI can help leapfrog development steps building on the distinctive abilities or conditions of each country.

Global challenges are also important drivers for research and innovation. Our planet has finite resources which need to be cared for sustainably; climate change and infectious diseases do not stop at national borders, food security needs to be ensured across the globe. The Union needs to strengthen its dialogues with international partners to build critical mass for tackling these challenges especially now as research and innovation are increasingly interlinked internationally, aided by rapidly developing information and communication technologies.

In this context, there is ample and clear evidence that the investment in research, science, technology and innovation is fundamental in creating growth, jobs and improving competitiveness of countries and regions to the benefit of people’s lives and societies as a whole. Therefore science, technology and innovation are underpinned as drivers of socio-economic growth. Enhancing opportunities to strengthen the mobility among the countries, also for researchers and innovators, as well as twinning activities between research organisations and between innovation-oriented organisations (e.g. technology transfer agencies, etc.) can enable conditions for innovations that can lead to employment generation (e.g. creation of SMEs, transfer of know-how and dissemination of knowledge).

As recalled by the Open Working Group on Sustainable Development, "science, technology and

innovation are drivers of social and economic development and have potential to be a game

changer for all countries’ efforts to achieve sustainable development."210

The issue of international transfer of technologies has become of crucial importance not only for economic growth, but also development paths that follow a more environmentally sustainable pattern.

The EU defines technology transfer as "the ways and means through which companies, individuals

and organisations acquire technology or know-how from foreign sources"211

. There are several types of technologies as well as several channels of transmission. Indeed, the acquisition by developing countries of a sound and viable technological base does not depend solely on the provision of physical objects or equipment, but also on the acquisition of know-how, on management and production skills, on improved access to knowledge sources as well as on adaptation to local economic, social and cultural conditions. Technology transfer is therefore just one component of a more complex project, rather than a stand-alone activity.

210United Nations, Sixth session of the Open Working Group on Sustainable Development Goals, Co-Chairs Summary bullet points for OWG-6 [http://sustainabledevelopment.un.org/content/documents/2868Co-Chairs%20Summary%20Bullet%20Points_OWG6_2012_comments.pdf] 211 EU contribution to the WTO reporting on the implementation of Article 66.2 of the TRIPS Agreement (re. incentives provided to their enterprises or institutions for the purpose of promoting and encouraging technology transfer to least developed country Members) – See IP/C/W/594/Add.3 4, October2013

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The table below212 summarises progress made in 2013 in implementing the EU commitments on Science, Technology and Innovation.


In December 2013, the UN General Assembly adopted a resolution213 which reasserted the importance of STI as "essential enablers and drivers for the achievement of the Millennium

Development Goals and the promotion of the economic, social and environmental components of

sustainable development and should be given due consideration in the elaboration of the post-2015

development agenda". The resolution outlined, inter alia, the role of the government in providing an


in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour. 213 A/RES/68/220

EU commitments Target

Date

Status Change

2012-2013

Comments

Improve mechanisms for international STI cooperation and for the development of ICT on major sustainable development challenges

Not specified

- At least four MS funded initiatives aimed at improving STI cooperation and several supported ICT projects.

Promote clean and environmentally sound technologies as a means to facilitate a transition to a green economy for all countries, regardless of their development status

2014-2020

- Marked advances only at EU level. 60% of the new Framework Programme 'Horizon 2020' will go to projects related to sustainable development, 35% to projects on climate change. Little spill-over funding expected for developing countries. Several MS are funding initiatives in this area

Support STI research cooperation and capacity building to enhance sustainable development in developing countries, including through the new Horizon 2020 research and innovation programme

2014-2020

= Several initiatives have been launched recently by the EU in the area of capacity, including through the 'Horizon 2020'programme. However, the absence of a coherent policy in STI for developing countries, the budgetary changes may result in an actual decline in STI funding in several areas. The EU and MS have invested respectively EUR 25 million and EUR 415 million in STI programmes.

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enabling environment, the need to assist developing countries in enhancing their STI capabilities, the need to support technology transfer mechanisms via existing and future financing mechanisms, and to facilitate investment, public and private, domestic and foreign. The UN process in this context brings together all major themes and support actions from capacity building to technology transfer in areas that can affect climate change, uptake of technology by domestic stakeholders from the private and public sector.

The Istanbul Declaration214adopted in 2011 at the 4thUN Conference on the Least Developed Countries (LDCs) recognised the need to promote access of LDCs to knowledge, information, technology and know-how and to support the LDCs in improving their scientific and innovative capacity needed for their structural transformation. The ensuing 'Programme of Action for LDCs' thus called for undertaking on a priority basis by 2013 a joint gap and capacity analysis, with the aim of "establishing a technology bank and a science, technology and innovation supporting mechanism dedicated to the least developed countries". Discussions on the setting up, structure and functions of the Technology Bank are still ongoing.

The UN established the Climate Technology Centre and Network (CTCN) with support from the EU and some MS215. The CTCN aims to stimulate technology cooperation and enhance the development and transfer of technologies and to assist developing countries with regard to development and transfer of technologies for climate change mitigation and adaptation.


The EU supports technology-related programmes216 through two major funding channels: the EU Framework Programme for Research and Innovation ('Horizon 2020') and the development cooperation instruments managed by EuropeAid (DCI, EDF).

Development cooperation. The programmes supported by EU development cooperation instruments include activities such as capacity building or regulatory reform with measures aimed at promoting an enabling environment for the development of local technology capabilities217. The development of STI requires an enabling environment which will allow widespread adoption of technology in society and the emergence of skills and clusters that will form the foundation of innovation and business models218. Through appropriate regulation and investment, governments can help to create the right conditions for technology markets to function. A government’s willingness to create optimal conditions to attract technology is a strong determinant of whether transfers will be directed towards their domestic industrial sector. One concrete example of EU development cooperation support here is the EUR 5 million start-up funding for the UN Climate Technology Centre and Network (CTCN).

In their efforts to encourage and promote technology transfer, governments of advanced economies are limited by the fact that the technologies concerned are usually owned by the private sector, which public authorities cannot force to transfer. Incentives can therefore only take the form of encouragement, promotion and facilitation of programmes and projects provided through ODA, as part of a global and comprehensive approach to development. Furthermore, there are technology transfer aspects in many "technical assistance" projects. In particular, most projects in sectors such

214http://www.un.org/wcm/webdav/site/ldc/shared/documents/Istanbul%20Declaration.pdf 215 DK, NL, IT 216On the topic of EU’s role in Technology Transfer, see also W. Park, P. Krylova, L. Reynolds, O. Barder, Europe

Beyond Aid: Evaluating Europe’s Contribution to the Transfer of Technology and Knowledge to Developing Nations, Center for Global Development, 2014. 217For example, the ACP Science and Technology Programme which is the main initiative in the area of technology cooperation funded by the EDF. 218 See for instance, Bravo-Biosca, A., C. Criscuolo and C. Menon (2013), “What Drives the Dynamics of Business

Growth?”, OECD Science, Technology and Industry Policy Papers, No. 1,OECD Publishing.

110

as energy, water, agriculture, governance and infrastructure include some degree of transfer of know-how and technology. Depending on the country concerned, its level of development and institutional capacity, the EU strategy may rely more on technical assistance in capacity building than on negotiations aiming to improve Intellectual Property Rights regimes219.The EU captures this differentiation in its policy, as confirmed in the 2012 Commission Communication on "Trade, growth and development"220.

EU research programmes. The Framework Programme 'Horizon 2020' operates essentially through open calls for proposals targeted at specific themes or initiatives. The 7th Framework Programme for Research (2007-2013) channelled about EUR 192 million for STI projects with over 960 participants from developing and emerging countries, in the framework of 325 Specific International Cooperation Actions221 (SICAs).SICAs aimed notably at encouraging the participation of countries which lack capacity to participate in other topics of the FP7 Cooperation programme in general. This is out of a total of EUR 330 million granted in FP7 to more than 2 500 researchers in developing countries from Africa, Asia, Latin America and the Southern Mediterranean region participating in 1 500+ collaborative projects with European researchers.

The new Framework Programme for Research and Innovation, 'Horizon 2020' (2014-2020), is the world's largest multinational programme for supporting research and innovation, with nearly EUR 80 billion of funding available over 7 years. 'Horizon 2020' will promote cooperation with third countries on the basis of common interest and mutual benefit through the development of targeted international cooperation activities for all societal challenges and enabling and industrial technologies222.

'Horizon 2020' is open to participants from public and private organisations from across the globe who wish to join forces in projects with EU based applicants223. The new European and Developing Countries' Clinical Trials Partnership (EDCTP2) Programme will become operational from May 2014 with a budget allocation of EUR 683 million. It will continue to support the clinical development of new or improved diagnostics, drugs, vaccines and microbicides, and will also include support to studies on neglected infectious diseases. The geographical focus of the programme will remain Sub-Saharan Africa. 'Horizon 2020' funding mechanisms can set additional criteria in order to require participation of third country entities where this is considered necessary.

This general openness of 'Horizon 2020' is complemented by targeted actions aimed at seeking synergies with EU external programmes and contributing to the EU's international development commitments, such as the achievement of the MDGs. In particular, 'Horizon 2020' signals an increased commitment by the EU for the sustainable development policy objectives agreed to in Rio+20. The funding for projects related to sustainable development and to climate change is expected to increase, respectively to 60% and 35% of the total budget for the framework programme. Targeted actions with key partners and regions will focus on societal challenges and enabling and industrial technologies.

219Falvey, R. and Foster, N. (2006) The Role of Intellectual Property Rights in Technology Transfer and Economic

Growth: Theory and Evidence, UNIDO. 220COM(2012)22 – http://trade.ec.europa.eu/doclib/docs/2012/january/tradoc_148992.EN.pdf 221 SICAs under FP7 were international cooperation instruments for undertaking research dedicated to third countries where there is mutual interest with the EU on the basis of both the scientific and technical (S&T) level and the needs of the countries concerned. 222 Regulation (EU) No 1291/2013 of the European Parliament and of the Council of 11 December 2013 establishing

Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020) and repealing Decision N°

1982/2006/EC, Article 27 1&2, OJ L347/117 of 20.12.2013 223Even if the call for proposals or topic text do not state this explicitly

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Such actions will notably be implemented with certain partner countries and/or regions, including strategic partners, with the objective of promoting cooperation on the basis of a strategic approach as well as common interest, priorities, and mutual benefit, taking into account the scientific and technological capabilities of partner countries, their specific needs, market opportunities, and the expected impact of such actions.

The EU-Africa High Level Policy Dialogue on science, technology and innovation, endorsed by the 3rd Africa-EU Summit in 2010, aims at enhancing the dialogue between the EU and Africa on STI and strengthen the overall cooperation framework. It serves as a platform to define and agree on shared priorities of mutual benefit for current and future implementation. The policy dialogue is led by the European Commission and the Chair of the African Ministerial Council on Science and Technology (AMCOST) and involves the African Union Commission as well as EU Member States and AU Member States. At its last meeting in November 2013, steps were taken to work towards a long-term jointly funded and co-owned research and innovation partnership, in particular promoting food and nutrition security and sustainable agriculture. The European Commission (EuropeAid) is working on a paper setting out its approach on Research and Innovation for Sustainable Agriculture, Food Security and Nutrition

At least four Member States224 funded initiatives aimed at improving STI cooperation, such as capacity building for government agencies to assist and fund research and innovation, supporting the development of innovative enterprises, promoting cooperation in STI projects at regional level, enhancing the ability of SMEs to participate in international networks and projects, or of academic institutions to strengthen their participation in international research fora.

Several MS225 supported projects in the area of Information and Communication Technologies (ICT), ranging from enhancing global and regional industrial value chains, to e-government initiatives, the use of ICT in agriculture, the management of sustainable land and natural resources, telecommunication policy and regulatory reform, health care, and support to the land mapping and cadastre.

Germany supported the South African Development Community (SADC) programme “Train for Trade”, which aims to strengthen the private sector with vocational training and assistance in export promotion, quality management, open innovations and regional economic development; establishment of a regional network for intellectual property and open innovation. In Ethiopia, the German bilateral cooperation provided support to the Ministry of Science and Technology for the implementation of the National Policy for Quality Infrastructure (QI) and the National Policy for STI; setting up innovation networks composed of QI-institutions, educational/research institutions, industry representatives. In Sri Lanka, Germany established a programme for SMEs which provides advisory services and helps setting up networks between technology transferring institutions and banks to support the development of SMEs; the initiative also incorporates guidelines on ethical/social groups and gender equality; the set-up of a technology transfer facility is currently under review with the Ministry for SME development.

Italy supported the International Centre for Genetic Engineering and Biotechnology and a project for the conservation and equitable use of biological diversity in the SADC region: from Geographic Information System (GIS) to Spatial Systemic Decision Support System (SSDSS).

The UK supported the Climate and Development Knowledge Network (CDKN), a five-year initiative launched in March 2010, and led by the UK, to enhance developing country access to high quality, reliable and policy-relevant information, based on cutting edge knowledge and research evidence on climate change and development. It intends to achieve this through a combination of

224DE, EE, FR, IT 225DE, EE, IT, LU, LV

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knowledge management, research, technical assistance and advice, and partnership support. CDKN is an alliance of 6 private and non-governmental organisations.

Denmark and the UK, in collaboration with the World Bank, supported the first Climate Innovation Centre (CIC), which was launched in Kenya in September 2012 with total budget of EUR 11 million. As of August 2013, the Kenyan CIC is supporting 47 clean technology ventures with mentoring, training and proof-of-concept funding, from over 200 applications in the following sectors: renewable energy, agribusiness, and water and sanitation. Within the first five years, the Kenyan CIC aims to support over 70 climate technology enterprises and provide over 104,000 households with low carbon energy by 2015. It will help create up to 4,650new ‘green’ jobs and support the development of local partnerships, supply chains and collaborations.

Slovakia supported an initiative for the long-term sustainable utilisation of biodiversity in Kenya through bio-prospecting and transfer of model technology (2-year project, started in 2013).

Several Member States226 are funding initiatives in the area of clean and environmentally sound technologies.

Luxembourg: the Vocational Training Centre (VTC), specialised in Renewable Energies and Industrial Maintenance (ERMI), is currently under construction and is supposed to become operational by the end of 2014. It is aligned to Cape Verde’s stated intention of a 100% transition to renewable energies by 2020, as well as its aim to provide a “centre of excellence” to the CEDEAO region in the field of renewable energies. Luxembourg also provided funding for the Institut Pasteur in Laos in stepping up capacity for surveillance of infectious diseases.

France is the sixth largest contributor (EUR 1.8 million in 2012) to the International Renewable Energy Agency (IRENA), with which it collaborates to facilitate energy transition in developing countries towards a low-carbon growth. The Agency is currently working on a unifying framework of the Sustainable Energy for All initiative (SE4All) proposed by the UN Secretary General. Pushing three important objectives227for a low-carbon development, this initiative has a broad catalysing action by providing a common framework and visibility to issues related to sustainable energy. France is actively involved in this initiative, directly by providing human support or mobilising its cooperation actors in the field, or indirectly through the action of the EU's regional financial facilities and specialised instruments, such as the ACP-EU Energy Facility.

5. Combining Public and Private Finance for Development

EU Commitments

Council Conclusions of 15 June 2010, §27: In the framework of the review of the European

Investment Bank’s (EIB) external mandate, the EU and its Member States should strengthen the

capacity of the EIB to support EU development objectives and to promote efficient blending of

grants and loans in third countries including in cooperation with Member States finance

institutions or through facilities for development financing;§31: The EU is committed to

seriously consider ‘proposals for innovative financing mechanisms with significant revenue

226AT, DE, DK, EE, FR, IT, NL 227 The objectives are: a) ensure universal access to modern energy services; b) double the global rate of improvement in energy efficiency; and c) double the share of renewable energy in the global energy mix.

113

generation potential, with a view to ensuring predictable financing for sustainable development,

especially towards the poorest and most vulnerable countries’;§32: The EU also committed to

use these resources in line with the international Aid Effectiveness principles.

The Council Conclusions of 14 May 2012 (on Agenda for Change), §17: In order to leverage

further resources and increase the EU’s impact on poverty reduction, new financial tools will

be promoted, including blending grants and loans and other risk-sharing instruments.

The Council Conclusions of 15 October 2012 made a distinction, as in this year’s report,

between the funding side (innovative financing sources) and the expenditure side (innovative

financial instruments), §1: The Council stresses the importance of increasing use of innovative

financial instruments to promote stronger private sector engagement in inclusive and

sustainable development, especially at the local level. The EU agrees to use grants more

strategically and effectively for leveraging public and private sector resources, including in the

context of blending grants and loans and innovative risk-sharing and joint financing

mechanisms. The Council supports the setting up of the ‘EU Platform for External Cooperation

and Development’ to provide guidance to existing blending mechanisms. The EU also stresses

the central role of enabling domestic business environments and promoting corporate social

responsibility principles, at local and global level. Use of innovative financing mechanisms will

take account of debt sustainability and accountability and will avoid market disturbances as

well as budgetary risks.

22 July 2013 Council Conclusions (on Local Authorities in Development), §11: The Council

encourages the Commission to explore new and innovative funding modalities in support of

local authorities and their associations that are in line with internationally agreed development

effectiveness principles and commitments.

28 May 2013 Council Conclusions (on the EU Approach to Resilience), §10: For countries

facing recurrent crises, the EU and its Member States will work to make humanitarian and

development funding more timely, predictable, flexible multi-annual and sufficient. In this

context, the EU and its Member States will examine ways in which to strengthen the

coordination of humanitarian and development funding modalities. The use of innovative

financing mechanisms will also be encouraged.

5.1. Introduction

The debate over financing of the post-2015 development agenda covers different sources of financing that can be mobilised to achieve sustainable and inclusive development. While low income and fragile countries will continue to rely on ODA to achieve their development goals, the official financing is insufficient to cover financing needs of middle income countries, in which most of the poor live. Given the growth in trade and FDI, and the growing involvement of MICs in international markets, policy makers in partner as well as donor countries see an opportunity to raise additional funds from the private sector to help meet the financing needs of the development agenda.

Figure 5.1. -International Private Finance Flows as a Share of Total Resource Flows of Low-


114

With domestic resources and ODA funding devoted to sectors that are essential to reduce poverty and ensure basic public services, the financing needs in other areas will remain largely uncovered, unless private finance is mobilised. Public resources in developing countries are insufficient to cover all of the financing needs for investment, notably in infrastructure, public utilities, energy and other types of services. According to World Bank estimates228, the annual investment needs for infrastructure in developing countries will amount to approximately EUR 600 billion on average between 2015 and 2030. Resources from the private sector, including from international finance, will be essential to cover such huge needs.

In that connection, the combination of public and private financing, also referred to as innovative financing, will be required to attract financing that is mutually beneficial for the private and public sector.

Traditionally, innovative financing mechanisms (IFM) encompass both mechanisms aimed at mobilising new sources of financing, and mechanisms aimed at stimulating and channelling new investments. However, the definition of innovative financing mechanisms, let alone the classification of public incentives as ODA, is still debated in the international community. As mentioned in chapter 1.3 of this Report, the OECD is currently reviewing the definition of ODA to possibly take into account other investments, including guarantees and other innovative finance mechanisms.

228World Bank (2013),Financing for Development Post-2015

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5.2. Implementation Table

The table below229 summarises progress made in 2013 in implementing the EU commitments on innovative financing sources and instruments. Further details are discussed in the main text.


2012-2013

Comments

Consider proposals for innovative financing mechanisms with significant revenue generation potential, with a view to ensuring predictable financing for sustainable development, especially for the poorest and most vulnerable countries

No date specified

= There has been no particular increase in innovative financing sources. Some progress has been made in the implementation of a Financial Transaction Tax.

Promote new financial tools, including blending grants and loans and other risk-sharing instruments

No date specified

= The EU Platform on blending in External Cooperation is progressing. New requirements to access grant financing put more emphasis on results to be achieved and the additionality of EU funding.

Use innovative financing mechanisms taking into account debt sustainability and accountability and avoiding market disturbances and budgetary risks.

No date specified

=

Strengthen the EIB’s capacity to support EU development objectives and

No date specified

=


in the fourth column refers only to change in colour of the traffic light, and therefore does not reflect positive or negative changes that did not lead to a change in colour.

116

promote the efficient blending of grants and loans in third countries, including in cooperation with MS’ finance institutions or through development financing facilities

5.3. Recent Trends

5.3.1. Innovative Financing Sources

Innovative financing sources accounted for about 2% of EU ODA over the period 2010-2013, as shown in Figure 5.3.1 below, with an average of EUR 1.2 billion per year. Over one third of innovative financing sources were reported as ODA by EU Member States in 2013. The revenues generated by such sources were highly concentrated in five countries accounting for 97% of the total: France (52%), Germany (23%), United Kingdom (10%), Belgium (7%), and Italy (5%).

Figure 5.3.1. – Distribution of Innovative Sources of Financing for Development (%, 2011-

2013)

Source – 2014 EU Questionnaire on Financing for Development

117

The auctioning of emission permits remains the main source of innovative financing in the EU, although its overall share has declined when compared to previous years. Funds raised through solidarity taxes have increased, especially due to the introduction of the Financial Transaction Tax in France, which harnessed EUR 100 million in 2013. All other types of innovative financing sources stayed in the range of previous years.

5.3.2. Innovative Financing Instruments

While increased resources have been provided by EU Member States for innovative finance instruments, they still represent a small part of global official development aid.

According to the OECD230, guarantees represent less than 1% of total flows to developing countries. Among the innovative finance instruments, guarantees have experienced a significant increase in recent years. Figure5.3.2 below shows the private sector amounts mobilised and the net exposure231through guarantees extended by DAC donor government (agencies and DFIs).

Figure 5.3.2. – Amounts mobilised and Net Exposure (EUR billion, 2009-2011)

Source – OECD-DAC, 2013

The latest data available from the OECD/DAC shows that the volume of guarantees mobilised had more than doubled between 2009 and 2010, but grew only by 5% in 2011. For the following years, evidence from the EU blending facilities shows a steady increase of their investment portfolio since their inception in 2007, which continued throughout 2013232.

230OECD (2013), “Guarantees for Development", OECD Development Cooperation Working Papers , No. 11 231 Global volume covered by the guarantor, minus amounts that have been re-insured to third parties and which would be recovered by the guarantor. 232European Commission (2014), Blending – European Union aid to catalyse investments.

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5.4. EU policies and programmes

5.4.1. Innovative Financing Sources

Table 5.4.1below displays the main sources of innovative finance used by the EU and Member States. Close to EUR 1.2 billion was raised through innovative financing sources in 2013, which is slightly less than in the previous year, mainly because of the fall in the revenue raised from the sale of emission permits.

Some progress has been made in 2013 as regards the political discussions on the Financial Transaction Tax (FTT), which eleven Member States233have committed to implement by 1st January 2014. In February 2013, the European Commission presented a new proposal for a Council directive234 implementing enhanced cooperation, a procedure which will include all MS in the discussion while the approval will be limited only to participating countries. In July 2013 the European Parliament approved the proposal with amendments235, which is currently reviewed by the Council. In this context the European Commission supports the objective of devoting part of the revenue raised with the FTT taxes for development purposes.

According to the impact assessment carried out by the European Commission236, a FTT set at 0.01% could raise as much as EUR 37.7 billion if applied to financial markets such as equity, bonds and derivatives. France, Hungary (since 2012) and Italy (since 2013) are the only EU MS already levying a FTT. France reported that EUR 100 million of revenue generated by the FTT in 2013 (compared to 60 million in 2012) has been devoted to development aid, and thus qualified as ODA.

France is also leading the efforts at EU level in levying funds through the Air ticket levy: EUR 185 million were raised for development financing in 2012 through this instrument. Other countries, including developing countries, also participate to this financial scheme.

Germany and Finland privileged market mechanisms such as the CO2European Trading System (ETS). As of 2014, Belgium will also allocate financing from emission trading to climate change and mitigation programmes in developing countries. Germany estimates that by 2015 it will have earmarked up to EUR 3.2 billion for the special fund for energy and climate. Finland raised EUR 80 million in 2012-2013.

Belgium and Croatia raised respectively EUR 88 million and EUR 8 million through a contribution on the sale of lottery tickets, which were invested in the Special Fund for food Security and Agriculture.

The UK, France, Italy, Netherlands and Sweden have made long-term pledges to the International Finance Facility for Immunisation (IFFIm)237. Nearly EUR 3.4 billion have been raised by the facility so far. As shown in figure 5.4.1 below, the financial base of IFFIm consists of legally binding grant payments from its sovereign grantors.

233AT, BE, DE, EE, EL, ES, FR, IT, PT, SI, SK 234COM(2013) 71 235http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2013-312 236SWD(2013) 28 finalhttp://ec.europa.eu/taxation_customs/resources/documents/taxation/swd_2013_28_en.pdf; Technical fiche : http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/fact_sheet/revenue-estimates.pdf 237Launched in 2006, the IFFIm aims to rapidly accelerate the availability and predictability of funds for immunisation. IFFIm sells bonds (called Vaccine Bonds) on the capital markets to raise funds for the Global Alliance for Vaccines and Immunisation (GAVI).The World Bank has been appointed as Treasury Manager of the facility.

119

Figure 5.4.1. IFFIm Financing Scheme

Source: IFFIm website

Italy raised funds for the IFFIm Programme and through Advanced Market Commitments (AMC). Cyprus and Luxembourg contributed both to UNITAID.

120

Table 5.4.1 - Revenues Generated by Innovative Financing Sources as reported by Member States (2011-2013, EUR million)238

Innovative Financing

Sources

Total revenue Reported

as ODA

in 2012

Mechanisms to ensure that this financing is used in

accordance with the aid effectiveness principles 2011 2012 2013

Belgium Contribution Belgian Lottery

88,0 88,0 88,0 88,0

The budget provided through the National lottery is not used through a parallel mechanism, but is integrated in the normal programming of our bilateral cooperation. Alignment of the projects and programmes with local policies

Croatia Income from State Lotteries

8,1 3,8 8,1

Income from State Lotteries is used exclusively for providing humanitarian assistance, in accordance with the recipient countries' identified needs. The provision of humanitarian assistance is conducted in coordination with other humanitarian actors

Cyprus UNITAID 0,4 0,4 0,4 0,4 Existing initiative in the field of health which has shown its ability to provide stable and predictable resources in a coordinated manner.

France

Contribution by local government institutions (Loi Oudin-Santini or 1% eau)

21,1 22,8

The Oudin-Santini law, adopted in 2005, allows the public inter-municipal cooperation (EPCI) and water agencies to devote up to 1% of the revenue of their water and sanitation services to international solidarity in actions aimed at this sector. Types of intervention of local authorities vary. Among local communities engaged in 2012,just over half are part of a process of decentralised cooperation in partnership with a common partner in the South, while others have chosen to support the project financially by a third.

238Source: 2014 EU Questionnaire on Financing for Development

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Sources


as ODA

in 2012



France Financial Transaction Tax

60,0 100,0 60,0 These funds finance the IFFIm, the Global Fund, UNITAID, GAVI, the Green Fund, the initiative RWSSI and Sahel Solidarité Santé initiative. France ensures that these funds are used in accordance with the principles of aid effectiveness through its participation in the work of the Board of Directors or by the work of French representative when there is one, or through monitoring board decisions from the capital.

France International Solidarity Levy (tax on airline tickets)

175,1 185,5 185,4 185,5

France International Financing Facility for Immunisation (IFFIm)

147,0 99,3 70,5 30

IFFIm is based on the ‘front loading ’principle. IFFIm/GAVI estimates that IFFIm has a leverage of approximately 2.00. France ensures that the funds are used in line with development effectiveness principles through its participation in the Board of Directors of GAVI.

France Debt Reduction-Development Contracts (C2Ds)

135,5 143,1 265,6

C2D device ensures good use of debt relief, both in terms of assignments (commonly agreed priority sectors for poverty reduction) on the management of credit (double signature account). Its sectoral allocation depends on the C2D and partners. The instrument C2D improves the predictability of aid flows, which is very significant for its partners who can commit to long-term programmes.

Germany Special Energy and Climate Fund(previously:

562,0 482,7 276,9 30,4 All programmes are aligned with country priorities. The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) coordinates

122


Sources


as ODA

in 2012



emission allowances sales revenues)

its activities with BMZ. BMZ’s programmes are fully integrated with existing German development cooperation and as such adhere to the principles of aid effectiveness.

Germany Debt2Health 3,3

Implementing agency: KfW Entwicklungsbank. Type of grant support: debt swap; health focus.

Italy Advance Market Commitments (AMCs)

38,0 38,0 38,0 38,0

Italy

International Financing Facility for Immunization (IFFIm)

26,7 26,7 26,7 26,7

Luxembourg Fund to fight against certain forms of crime

0,6 0,5 NA 0,8

Funds are channelled through existing mechanisms (UNODC, NGOs, Lux Dev), while the project documentation indicates how aid effectiveness principles are respected.

Luxembourg Contribution to UNITAID

0,5 0,5

Netherlands

International Financing Facility for Immunization (IFFIm)

11,5 11,5 11,5

123


Sources


as ODA

in 2012



Spain IFFIm/GAVI (participant/member of the board of GAVI)

9,5 9,5 8,7 8,7

United Kingdom

Advance Market Commitment (AMC)

40,4 14,8 51,8

The AMC is an innovative ‘pull mechanism’ which is being piloted to encourage manufacturers to invest in and scale-up the production of pneumococcal vaccine for developing country markets. In addition, core GAVI funding is used for the long-term funding of these pneumococcal programmes.

United Kingdom

GAVI Matching Fund 2,4 4,1 4,0

The GAVI Matching Fund is designed to raise US$ 260 million for immunisation by the end of 2015. Under the initiative, the UK Department for International Development (DFID) and the Bill & Melinda Gates Foundation have pledged about US$ 130 million combined (UK£ 50 million and US$ 50 million, respectively) to match contributions from corporations, foundations and other organisations, as well as from their customers, members, employees and business partners. US$73.5m raised during 2011-2013 from 11 private companies and foundations, matched by a combination of DFID and Gates Foundation money.

United Kingdom

International Finance Facility for Immunisation

50,7 66,0 67,5

The IFFIm uses long-term pledges from donor governments to sell 'vaccine bonds' in the capital markets, making large volumes of funds immediately available for GAVI immunisation programmes. Nine

124


Sources


as ODA

in 2012



donors have made legally-binding commitments to IFFIm of up to 20 years.

Total 1312,6 1261,4 1198,7 476,6

% of EU

ODA 2.33% 2.28% 2.12%

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5.4.2. Innovative Financing Instruments

Blending of loans and grants239 is considered as an innovative mechanism aimed at mobilising investment in developing countries, by combining grant funding with additional financing from private or public sources. Blending includes the use of guarantees and insurance schemes, risk capital (i.e. equity and quasi-equity), interest rate subsidies and technical assistance. As a complementary way of project finance to traditional purely public or private financing, blending has a strong leverage potential by addressing financing gaps and moving forward projects with a low financial but high social return.

Blending is a tool of EU external policy and follows priorities of EU partner countries and relevant EU policies. Projects supported through blending are demand-driven and always subject to thorough screening240. Lessons can also be drawn from the use of financial instruments within the European Union to support, for instance, SME as well as infrastructure projects.

Under the 2014-2020 Multiannual Financial Framework, the EU intends to deploy an increased share of its external cooperation funds through blending mechanisms in order to support responsible investments infrastructure and private sector investments, in particular for SMEs. Blending is particularly relevant in sectors such as energy, transport, environment, agriculture as well as in social sectors. The expanded use of blending is motivated by the need to use the limited available budget funds as efficiently as possible, as well as by the assessment that grants may not constitute the optimal type of support in some settings. This applies particularly to cash flow generating projects whose viability is impeded by specific market failures or institutional failures that can be addressed by financial instruments.

The use of blending can be particularly useful when market participants, which may include development finance institutions, are not providing the required financing in sufficient amounts or suitable terms for otherwise financially viable projects due to the presence of market failures. In addition to addressing market failures or sub-optimal investment situations, financial instruments need to provide clearly defined additionality (value-added) as well as leverage for the EU budget funds, and their design must ensure the alignment of interest between the Commission and its implementing partners.

In December 2012, the EU Platform for Blending in External Cooperation (EUBEC) was launched to further increase the effectiveness of blending. The Platform is led by a Policy Group which makes recommendations based on work carried out in technical groups. The Policy Group is chaired by the Commission and involves representatives from Member States, the European Parliament and the EEAS. In 2013, the technical groups of the Platform, in which experts from the EU and from finance institutions and Member States work together,

239The revised Financial Regulation, which governs the establishment and implementation of the EU budget, defines EU "financial instruments" as "measures of financial support provided on a complementary basis from

the budget in order to address one or more specific policy objectives of the Union. Such instruments may take

the form of equity or quasi-equity investments, loans or guarantees, or other risk-sharing instruments, and may,

where appropriate, be combined with grants". 240Projects to be supported by the EU facilities have to go through a selection process which examines the following aspects: a) geographic and sector eligibility; b) degree of local ownership; c) development criteria, including poverty reduction and contribution to economic development and trade; d) economic viability of the project and other non economic benefits; e) debt sustainability; and f) social and environmental impact.

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reviewed existing blending mechanisms, including the ex-ante technical and financial analysis of projects, indicators for measuring results, monitoring and reporting, as well as the further development of financial instruments. The results of the technical groups were presented to the Policy Group in December 2013. A report to the European Council and Parliament will be prepared in the course of2014.

While duplication of efforts needs to be avoided, finance institutions are asked to systematically involve EU delegations in the consultation process with local civil society and local population on the specific projects. So far, the Commission has engaged in dialogue with representatives of NGOs. The main output was reflected in the reports of the technical groups. A broader consultation event with civil society specifically linked to the work of the EUBEC is foreseen for the 2nd Quarter of 2014.

By using limited grant resources, blending has the potential to leverage significant amounts of non-grant resources and to enable projects to reach a larger group, to have wide sector impact and to generate higher quality outcomes. Grant additionality is a key concept when considering blended finance241. The use of the scarce grant funding can only be justified when significant additionality is shown for that funding. In order to assess EU grant additionality in a structured and measurable manner, the EU Platform has determined several dimensions of additionality (e.g. financial additionality, project quality etc.) and incorporated them in the grant application form. Another very concrete outcome of the work in the EU Platform was the revised grant application form, which is now structured so as to provide 37 areas of information about the project, including information on local consultation, involvement of EU delegations, additionality, financial structure, risks, debt sustainability and results measurement indicators.

The Platform also developed a results-based framework and a more standardised reporting method applicable to EU blending mechanisms. Such a result measurement framework would provide ex-ante information on the expected results of blending projects, measure the outcome of their funding activities ex-post, and allow further enhancement of reporting. The framework includes sector specific indicators (e.g. population benefitting from safe drinking water), cross sector indicators (e.g. number of beneficiaries living below the poverty line) and more general considerations. To make the implications of this new framework as practical as possible, the improved and harmonised Grant Application Form and accompanying Guidelines were produced on this basis.

The EU and several Member States continued expanding the activities of the regional investment facilities. Table 5.4.2 below summarises the state of the facilities.

Table 5.4.2. - EU Regional Blending Facilities, 2007-2013, EUR million242

Name of the Facility Launch Allocation of funds Participating financial

institutions

EU Africa 2007 Grant funds allocated: AFD, AfDB, BIO,

241The EU financial regulation indeed specifically requires that “the added value of Union involvement” has to be demonstrated ex-ante for all programmes and activities occasioning budget expenditure. In the context of blending it must be demonstrated what the grant element will actually achieve in terms of benefits or positive results, and in terms of outputs, so as to determine whether a given activity would have taken place without a grant and if so whether it would have had the same scope or scale, etc. 242Adapted from Nuñez Ferrer, J., Behrens, A. (2011) Innovative Approaches to EU Blending Mechanisms for

Development Finance, CEPS Special report

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Infrastructure Trust Fund (EU-AITF)

637,70from 9th and 10th EDF(incl. 329,0 SE4All) + 160,0from MS budgets (as of 31 Dec. 2013)

COFIDES, EIB, FINNFUND, KfW, Lux-Development, OEeB, SIMEST, SOFID, PIDG

Neighbourhood Investment Facility (NIF)

2008 789.42 for 2007 - 2013 from EU budget + 80,0 from MS budgets (as of 31/12/13)

AECID, AFD, CassaDepositiPrestiti, CEB, EBRD, EIB, KfW, NIB, OeEB, SIMEST, SOFID

Western Balkan Investment Framework (WBIF)

2009 €166.00 from EU budget + €10m EIB, €10m EBRD, €10m CEDB + €88.1m in grants from MS budgets (+ Norway) (as of 31/12/13)

CEB, EBRD, EIB, World Bank Group, KfW, MFB, CMZR, OEeB, SID

Latin America Investment Facility (LAIF)

2010 196.65 2010-2013 from EU budget

EIB, NIB, AECID, AFD, KfW, OeEB, SIMEST, SOFID. Regional development banks in association: BCIE, IDB, CAF.

Investment facility for Central Asia (IFCA)

2010 85.57for 2010-2013 from the EU budget

EIB, EBRD, NIB, AfD, KfW, OeEB, SIMEST, SOFID

Asia Investment Facility (AIF)

2011 60.00for 2011-2013 from the EU budget

EIB, EBRD, NIB, AfD, KfW, OeEB, SIMEST, SOFID and ADB in association

Caribbean Investment Facility (CIF)

2012 70.2 m from 10th EDF EIB, NIB, AECID, AFD, KfW, OeEB, SIMEST, SOFID, CDB, IDB. Regional development banks in association: CAF, CABEI.

Investment Facility for the Pacific (IFP)

2012 10.0

EIB, AFD, KfW, ADB, and World Bank Group in association.

Overall, between 2007 and 2013, the EU earmarked EUR 1.6 billion to leverage investments amounting to over EUR 40 billion in 200 blended projects. With 39% of the portfolio, the energy sector was the main recipient of these grants, followed by transport (22%), Water and Sanitation (19%) and the Private sector (9%). Neighbouring countries in Eastern Europe and North Africa received EUR 750 million in grants, Africa EUR 505 million, and Latin America EUR 190 million. Central Asia benefited from EUR 64 million, while the Caribbean and Asia were recipients of approximately EUR 35 million each.

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The mid-term evaluation of the Neighbourhood Investment Facility, which was carried out in 2013, concluded that the facility is an effective instrument with good project selection procedures but improvable consultation processes.243

Other innovative financing instruments supported by EU MS are described below.

Belgium, France, Germany, the Netherlands and Spain are shareholders the Currency Exchange Fund (TCX). The TCX provides OTC derivatives244to hedge the currency and interest rate mismatch in cross-border investments between international investors and local borrowers in certain emerging markets. The goal is to promote long-term local currency financing, by contributing to a reduction in the market risks associated with currency mismatches. To achieve this objective, TCX acts as a market-maker in currencies and maturities not covered by commercial banks or other providers, where such markets offer only limited or no hedging instruments. To date the TCX covers 70 currencies in all developing regions. Beyond its capital base, the TCX adopts a risk-management profile based on the diversified pool of currency exposures. TCX’s investor base predominantly consists of development finance institutions and microfinance investment vehicles active in the long-term debt markets of emerging and frontier markets.

Austria, Germany, Ireland, Netherlands, Sweden and UK are members of the Private Infrastructure Development Group (PIDG). The PIDG is a multi-donor organisation established to promote private participation in infrastructure in developing countries, with a strong focus on Africa. The PIDG comprises both project financing initiatives – which provide long-term capital and local currency guarantees – and project development initiatives. The latter provide assistance to governments for efficient structuring and execution of an infrastructure transaction. The United Kingdom indicated that it will provide EUR 115 million of funding to the Green Africa Power (GAP) initiative, a new facility of the Private Infrastructure Development Group, which will provide quasi-equity loans and guarantees to encourage private investment in renewable energy projects in Africa.

Denmark, Spain and the UK support the African Guarantee Fund for Small and Medium-Sized Enterprises (AGF), an AfDB-sponsored company, which provides partial risk guarantees to African banks and other African financial institutions to encourage them to increase their lending to SMEs.

Austria established two investment guarantees, via the Oesterreichische Kontrollbank (OeKB) and the Austria Wirtschaftsservice (AWS), to cover, respectively, political and commercial risk. The key focus of AWS international activities is to support the establishment and formation of subsidiaries and joint ventures or to enable the acquisition of companies abroad.

Germany made use of structured investment vehicles: the grant amount allocated combines several structured investment funds, which orient their activities towards different regions of the world (Eastern Europe, Asia, Middle East/North Africa, Sub-Saharan Africa and Latin America). Generally, the funds are structured in three types of risk tranches: 1) Junior tranche (funded through grants provided by donors, such as BMZ); 2) Mezzanine tranche (funds provided by international or development financial Institutions); and 3) Senior tranche (designed to attract private investors). Most of the funds are still in their leverage phase, with

243European Commission (2013),Mid-Term Evaluation of the Neighbourhood Investment Facility under the

European Neighbourhood and Partnership Instrument (ENPI) 2007-2013 244Over-the-counter derivatives are hedging instruments which are often tailor-made to cover against certain risks and are therefore not tradable on official markets.

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additional private investment expected in the future. The majority of these funds targets especially micro, small and medium-sized enterprises.

The Danish Investment Fund for Developing Countries (IFU) makes investments on commercial terms by committing equity capital, loans and guarantees. Investments are channelled directly to a project company established in the relevant developing country.

The Dutch Good Growth Fund (DGGF), initiated by the Dutch government, issues export and investment financing to Dutch and local businesses for activities in developing countries, with a total budget of EUR 750 million. It will commence its operations in July2014.

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6. Using Development Finance Effectively

EU Commitments

The Council Conclusions of 17 November 2009245

on an Operational Framework on Aid

Effectiveness, with additions made in June 2010 (cross country division of labour) and

December 2010 (accountability and transparency)246

contains measures in three areas:

(1) Division of Labour (selected measures to further implement the EU Code of Conduct

on the Complementarity and Division of Labour in Development Policy); (2) Use of

Country Systems, and (3) Technical Cooperation for Enhanced Capacity Development.

EU Member States and the Commission were asked to start implementing them

immediately (both individually and jointly).

The Council Conclusions of 17 November 2009247

on an Operational Framework on Aid

Effectiveness, with additions made in June 2010 (cross country division of labour) and

December 2010 (accountability and transparency)248

contains measures in three areas:

(1) Division of Labour (selected measures to further implement the EU Code of Conduct

on the Complementarity and Division of Labour in Development Policy); (2) Use of

Country Systems, and (3) Technical Cooperation for Enhanced Capacity Development.

EU Member States and the Commission were asked to start implementing them

immediately (both individually and jointly).

Council Conclusions of 14 November 2011 on the EU Common Position for the Fourth

High Level Forum on Aid Effectiveness specified the importance of joint programming,

cross-country division of labour, use of country systems, mutual accountability, results,

and transparency. It also endorsed application of the aid effectiveness principles to

climate change finance.

Council Conclusions of 15 October 2012 (on Financing for Development): The EU will

implement the European Transparency Guarantee and the commitments related to the

common open standard for publication of information on development resources

including publishing the respective implementation schedules by December 2012, with the

aim of full implementation by December 2015, as set out in the Busan Outcome

Document. The EU is also committed to reducing aid fragmentation in line with the Busan

Outcome Document, notably through promoting joint programming, as defined in the

Council Conclusions on the EU Common Position for the Fourth High Level Forum on

Aid Effectiveness, and increasing coordination in order to develop a common EU joint

analysis of and response to partner country’s national development strategy.

Council Conclusions of 12 December 2013 (financing poverty eradication and

sustainable development beyond 2015): The Council underlines the importance of more

245 Council Conclusions on An Operational Framework on Aid Effectiveness, 15912/09, 18 November 2009 246Council Conclusions on An Operational Framework on Aid Effectiveness – Consolidated text, 18239/10, 11 January 2011. 247 Council Conclusions on An Operational Framework on Aid Effectiveness, 15912/09, 18 November 2009 248Council Conclusions on An Operational Framework on Aid Effectiveness – Consolidated text, 18239/10, 11 January 2011.

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effective development cooperation, the central role of the Busan Global Partnership and

its commitment to implementing the Busan Outcome.

Council Conclusions of 17 March 2014 on the EU common position for the First High

Level Meeting of the Global Partnership for Effective Development Cooperation in

Mexico City on 15-16 April 2014: The EU and its Member States are strongly committed

to Policy Coherence for Development to ensure that their policies across all sectors are

consistent with development objectives. In addition to progress in the areas measured by

the ten agreed indicators, attention should also be given to other key areas of the

effectiveness agenda, such as aid fragmentation. Underlining the importance of

democracy, good governance and the rule of law, the Council notes that the Global

Partnership should commit to supporting the development of strong institutional capacity

for tax-administration and policy-making. It should also support the fight against

corruption, tax havens and illicit financial flows, including through international

cooperation on tax matters and on the efficient use of natural resource revenues.

6.1. Introduction

Quality of development expenditure is at least as important as its funding. Such quality has several dimensions. Development effectiveness of the financial flows analysed in the previous chapters, both public and private, is of paramount importance, and has been subject to a series of agreements initially on aid effectiveness at the successive OECD/DAC High Level Fora(HLF) of Rome, Paris and Accra, and then on effective development cooperation at the Busan HLF. The latter resulted in the launch of the "Global Partnership for Effective Development Cooperation" (GPEDC), a new inclusive forum bringing together a wide range of countries and organisations that are committed to ensuring that development cooperation is effective and supports the achievement of results. As explained in Chapter 1, the debates on Financing for Development (FfD) and on the Means of Implementation (MOI) for the Rio+20 Conference are converging. The Busan principles for Effective Development Cooperation therefore apply to all Financing for Development discussed in this report, including Means of Implementation for financing of Global Public Goals/ sustainable development goals, as well as all actors involved as both civil society organisations and the private sector are part of the post-Busan GPEDC.

A first progress report on progress made after Busan was presented in April 2014at the GPEDC High Level Meeting in Mexico. This meeting was the first opportunity at the highest level to assess the global progress in implementing the Busan commitments and its monitoring framework as well as to anchor effective development cooperation in the post-2015 global development agenda. The report found that globally, the results are mixed: “longstanding efforts to change the way development cooperation is delivered are paying off, but much more needs to be done to transform cooperation practices and ensure country ownership of all development efforts, as well as transparency and accountability among development partners.”249

A specific report focusing on the EU “The Busan Commitments: An analysis of EU Progress and Performance” was prepared for the Mexico High Level Meeting, which builds on the core findings below and supplements them with additional evidence. This study finds “There is evidence that previous achievements towards the implementation of aid effectiveness

249 See http://effectivecooperation.org/wordpress/wp-content/uploads/2014/04/MakingDevCoopMoreEffective2014PROGRESSREPORT.pdf (p.6).

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principles have been sustained, giving the EU and EU MS an incentive for targeted action to build on success, encourage continued investments in the implementation of Busan Commitments and address the remaining bottlenecks.”

As stated in the EU Common Position for the First High Level Meeting of the Global

Partnership250, “the Global Partnership could make an important contribution to the post-

2015 agenda, offering a more effective means of implementation. In order to achieve effective development outcomes, the implementation of the post-2015 agenda should integrate the Busan principles of country ownership, inclusive development partnerships, transparency and mutual accountability, and focus on results. ”The Council Conclusions also noted the need to further improve working practices and structures of the Global Partnership in order to fulfil its potential. In particular, Steering Committee functioning could be improved by increased transparency, effective and regular communication and consultations with the full membership and a focused mandate. In particular, the Building Blocks of the GPEDC should be better integrated into its decision-making, implementation and advisory structures, and more support should be provided to implementation at country level.

6.2. Implementation Table

The table below251 summarises progress made in 2013 in implementing the EU commitments on aid transparency, joint programming, and mutual accountability. Further details are discussed in the main text.


2013

Comments

Implement the European Transparency Guarantee and the commitments related to the common open standard for publication of information on development resources including publishing the respective implementation schedules by December 2012, with the aim of full implementation by December 2015

December 2012 (schedule) and December 2015 (implementation)

= By December 2013, the European Commission and twenty Member States, including all nine that are signatories to IATI, had published schedules to implement the common standard, although a majority of published schedules were rated as unambitious by Publish What You Fund (PWYF). The EU had an average rating of “fair” in PWYF’s 2013Transparency Index.

250Council Conclusions on the EU common position for the First High Level Meeting of the Global Partnership

for Effective Development Co-operation in Mexico City on 15-16 April 2014. 251


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2013

Comments

Promote joint programming, and increase coordination in order to develop a EU joint analysis of and response to partner country’s national development strategy

No date specified

= Joint programming is underway in 20 partner countries, and may cover up to 40 partner countries over the next few years. In the programming period 2014-2020, joint programming will cover a considerable share of EU bilateral development cooperation instruments.

The EU and 8Member States have issued guidelines on joint multiannual programming, and another 3 plan to issue them in 2014.

Implement the Results and Mutual Accountability Agenda

No date specified

= At this stage, the EU and 24 Member States participate in mutual accountability arrangements in more than 10% of their priority countries, with the EU and17Member States doing so in 50% or more of their priority countries.

The EU and23Member States participate in country-level results frameworks and platforms in more than 10% of their priority countries, with the EU and 16Member States doing so in 50% or more of their priority countries.

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6.3. EU policies and programmes

6.3.1. Post-Busan Implementation

Busan Implementation Plans. Only two Member States252 have published their Busan implementation plan so far; another four253 plan to do so in 2014. Five Member States254 have opted instead for including the Busan principles into their development cooperation policies, strategies or plans. For example, DFID has incorporated the principles and commitments from Busan into its working practices, alongside its co-chairing of the Global Partnership for Effective Development Cooperation.

Ensuring the application of Busan principles in financing global policy goals. Many Member States255have not created separate rules for global policy goals, and aid effectiveness principles apply equally to all regular programming. As highlighted by Slovenia, aid effectiveness principles are applied to financing of global policy goals as long as this is done using ODA rather than other means of implementation. Where specific strategies for achieving these global policy goals exist, such as in France, the Busan principles have informed their design.

6.3.2. Transparency of Development Finance

Although significant improvements have been achieved since 2011 in terms of transparency of aid data, notably with the adoption by the EU and its Member States of the EU Transparency Guarantee in line with the Busan common standard for transparency, EU performance on transparency can still be enhanced. The 2013 EU Aid Transparency Index score was 48.9% (fair), on a scale from 0 to 100%, if calculated as a weighted average256, and 23.6% (poor) using a simple average, where the first presents a better summary of relative transparency of every Euro of EU ODA and the second captures the average performance of the EU and its Member States independently from the relative size of their ODA programmes. The EU and six Member States257 are publishing full activity-level data to the International Aid Transparency Initiative (IATI) registry, as part of the EU commitment to implement the common standard by 2015. The EU and twenty Member States258 have published implementation schedules for the common standard. Eleven Member States will be publishing data from 2014259, 2015260 or 2016261. Four Member States262 that are not signatories to IATI, even though covered by the Busan common standard commitments, have not produced a common standard implementation schedule yet nor have plans to do so, while one Member

252 DK and PT. FR and SL answered yes but they were referring to their Common Standard Implementation Plans. 253 BE, DE, LU, MT 254 FI, IE, LV, RO, UK 255 AT, BE, DE, FI, IE, IT, LT, LV, NL, PT, RO, SE, SL, SK, UK 256 Calculated as the weighted average of the IATI 2013 donor scores of Member States and the Commission, using their respective net ODA volumes as weights. 257 DE, ES, FI, NL, SE, UK 258AT, BE, CZ, DK, FR, FI, DE, EL, IE, IT, LU, LV, NL, PL, PT, SK, SL, ES, SE, UK – see also 2013 EU Accountability Report, Table 6.3.2. 259 BE, HR, MT 260 BG, CZ, EE, EL, IE, IT, SK 261 DK 262 CY, HU, LT, RO

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State263has published such a schedule, but has no intention of joining IATI. Several Member States pointed out that the level of details required by the IATI standard is not well suited for small donors.

6.3.3. Joint Programming Process

The EU has achieved substantial progress on joint programming. The joint programming process aims to provide a joint response of the EU and its Member States to partner countries’ development strategies, and therefore to strengthen alignment, coordination and ownership. In accordance with the Council Conclusions of November 2011264, Joint Programming calls for a joint analysis of, and a joint response to, the partner country's/region's development plan. It should include the identification of the sectors of intervention, in-country division of labour and indicative financial allocations. Joint programming is underway in 20 partner countries, and may cover up to 40partner countries over the next few years. In the programming period 2014-2020, joint programming will cover a considerable share of EU bilateral development cooperation instruments.

Joint programming guidelines. Eight Member States265 and the EU have issued guidelines for joint programming. Denmark, France, Germany, Spain, and Sweden plan to issue such guidelines in 2014 and Austria in 2015, although Sweden may issue them only in a questions and answers format. Estonia, Poland, Slovakia and the United Kingdom are participating or may participate in joint programming exercises but prefer to provide guidance on a case-by-case basis. Others, such as Croatia and Romania, do not have any multi-annual development budget, and therefore do not see a need for multi-annual programming, be it individual or joint.

Synchronisation of programming cycles between EU and partner countries. Four Member States266 and the Commission synchronise their programming cycles with those of all their partner countries, and ten Member States267 do so only in their priority countries. Eleven Member States268do not synchronise their programming cycles with those of partner countries, while an additional three269 did not provide any information in this respect. For a number of Member States270, this is due to the fact that they do not undertake any multi-annual programming. Among those Member States that are carrying out, or plan to carry out, some form of multi-annual programming, Poland and Slovenia intend to synchronise them after 2015. Finland uses an indicative 2013 – 2016 planning cycle although its programming guidelines provide flexibility to synchronisation with planning cycles of partner countries and can be updated accordingly.

Synchronisation is often not complete and happens frequently in countries where there are already ongoing joint programming exercises, as it is the case for Austria and Germany. For example, while the United Kingdom synchronises its programmes with those of all partner countries, the country programming plans (which are all country led and aligned with partner

263 SL 264Council Conclusions of 14 November 2011 on the EU Common Position for the 4th High Level Forum on Aid

Effectiveness, Doc. 16773/11. 265 BE, CZ, DK, ES, FI, LU, NL, PT 266 DK, ES, FR, UK 267 AT, BE, DE, HU, IE, IT, LU, LV, PT, SK 268 CY, EE, EL, FI, LT, MT, NL, PL, RO, SE, SL 269 BG, CZ, HR. 270 HR, LT, RO

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countries national development plans and priorities) do not necessarily cover the same exact time period of partner countries’ plans, as they need to coincide with the UK Spending Review period. Likewise, France often uses interim strategies as an intermediate step towards full synchronisation.

6.3.4. Promotion of a Common Results-Based Approach

As part of the promotion of a common results-based approach, the EU is in the process of designing its Development and Cooperation Results Framework, which will be based on partner countries' own poverty reduction and related strategies. It will draw on both country-level results frameworks and donor experience, and will aim at strengthening accountability, including mutual accountability, and transparency.

Twenty-five Member States participate in mutual accountability frameworks. One Member State271 participates in such frameworks in less than 10%, three272 in 10-25%, four273 in 25-50%, four274 and the EU in 50-80%, and thirteen275 in over 80% of their priority countries. Bulgaria, Cyprus and Malta, all of which have no or very limited bilateral ODA programmes, are the only EU Member States that do not participate in any mutual accountability framework.

Twenty-five Member States participate in country-level results frameworks processes

and platforms. Two Member States276 participate in such frameworks in less than 10%, three277 in 10-25%, four278in 25-50%, eight279and the EU in 50-80%, and eight280 in over 80% of their priority countries. Bulgaria, Cyprus and Malta are the only EU Member States that do not participate in any country-level results frameworks processor platform.

Twenty-five Member States use country-level results frameworks processes and

platforms in programme design and monitoring. Six Member States281use such frameworks in less than 10%, three282 in 10-25%, three283 in 25-50%, four284 and the EU in 50-80%, and nine285 in over 80% of their priority countries. Only three Member States286 do not use any country-level results framework processor platform in their project or programme indicators, or in other parts of their monitoring and reporting processes.

6.3.5. New Deal for Engagement in Fragile States

The 'New Deal for Engagement in Fragile States' has improved the involvement of development partners in a number of countries that have taken it forward, including

271 EL 272 EE, HU, SK 273 CZ, IT, LT, SL 274 AT, DE, LV, NL 275 BE, DK, ES, FI, FR, HR, IE, LU, PL, PT, RO, SE, UK 276 EL, SK 277 EE, HU, SL 278 CZ, LT, PT, SE 279 AT, BE, HR, IT, LU, LV, NL, PL 280 DE, DK, ES, FI, FR, IE, RO, UK 281 BE, EE, EL, PL, PT, SK 282 HU, LU, SL 283 CZ, IT, LT 284 DE, FR, LV, NL 285 AT, DK, ES, FI, HR, IE, RO, SE, UK 286 BG, CY, MT

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Afghanistan, the Democratic Republic of the Congo, Liberia, Sierra Leone, Somalia, South Sudan and Timor Leste. Having endorsed the New Deal in 2011 along 36 countries, the EU is committed to further building upon its framework and adapting it to each local context, and calls on others to do likewise. The EU and seventeen Member States287adapt their procedures to the specificities of fragile and conflict affected countries when designing and implementing programmes in these countries, in line with the EU Common Position for the Fourth High Level Forum on Aid Effectiveness (e.g. taking into account the Fragile States Principles, New Deal for Engagement in Fragile States, Conflict Sensitivity/Do-No-Harm assessments, political/social/conflict analysis).Policy dialogue on fragility and conflict has been strengthened between EU Member states and the EU institutions and also with key international and strategic bilateral partners. The EU and its Member States play an active role in the OECD DAC International Network on Conflict and Fragility (INCAF) and in the International Dialogue on Peace-building and State-building. As of January 2014, the EU has taken up the co-chairmanship of the INCAF Task Team on Implementation and Reform aiming to focus attention on implementation on the ground.

Box 6.3.5 -Tackling Aid Effectiveness in Fragile Situations – Examples from Select

Member States and the EU

Austria. Awareness of the Peace-building and State-building Goals (PSGs) of the New Deal and/or the Fragile States Principles is emphasised in the 3 year strategy of the Austrian Development Cooperation (ADC). A Whole-of-Government strategy document on fragility, also including civil society, is in place and a working group on fragility with a specific focus on Austrian programmes in fragile and conflict affected areas has been established. Other efforts of ADC to integrate these principles into Austria’s engagement in fragile states include policy briefings and the thematic screening of project documents with regard to conflict sensitivity and the integration of some of the PSGs.

European Union. Addressing the challenges in fragile and conflict-affected countries is a top priority for the EUEU as notably emphasised in the 'Agenda for Change' and in the joint EEAS-Commission Communication on 'The EU's comprehensive approach to external conflict and crises'. The Commission also issued two internal joint guidance notes on 'Addressing conflict prevention, peace-building and security issues under external cooperation instruments', and 'Conflict Analysis in support of EU external action', which have already been put in practice: Several internal conflict analysis workshops have taken place, more than 180 people were trained yearly on engagement in fragile and crisis situations which all contribute to a more conflict-sensitive programming. Special attention to fragile contexts was further demonstrated by the adoption of the new budget support guidelines which offer the possibility to use State-building Contracts in transition countries, the possibility of using flexible procedures in crisis situations...The EU is active in New Deal implementation, it has taken up to be the lead international partner in Somalia, the Central African Republic – together with France – and has also offered its support to Timor Leste joining the support of Australia. In September 2013, the first New Deal Compact was endorsed in Brussels, as a joint engagement of the Federal Government of Somalia and of the donor community on a set of priorities aligned with the five Peace-building and State-building Goals, accompanied by a mechanism for aid architecture and a mutual accountability framework. In the Central African Republic, the EU is supporting the stabilisation process and is preparing to co-sponsor the New Deal implementation once the situation allows. In Timor Leste, EU interventions have

287 AT, BE, DE, DK, EE, FI, FR, HR, IE, IT, LT, LV, NL, PT, RO, SE, UK

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strong state-building elements. The EU is a strong supporter of the New Deal also in countries where others have taken up the role of lead donor, such as in Liberia, Sierra Leone and South Sudan. The New Deal and its approach will continue to stay high on the agenda. In the ongoing programming exercise, the EU is striving to ensure consistent and congruent links between the focal sectors of EU support and the Peace-building and State-building Goals in the eighteen G7+ countries and beyond, as well as aligning with the overall principles of the New Deal framework. The EU's comprehensive approach will further strengthen the security-development nexus and contribute to state-building and peace-building.

Germany. For German development cooperation, essential guidance for the objectives and areas of intervention for peace and security is provided by the "New Deal for Engagement in Fragile States". German development policy supports the 5 Peace-building and State-building Goals. Furthermore, BMZ country strategies in fragile states must reflect the particular way in which involvement in development policy is structured by drawing reference to the needs for peace and security and by taking risks into account. When designing projects in these countries, there is a duty on bilateral Technical and Financial Cooperation to apply minimum standards, based on the findings of a Peace and Conflict Assessment (PCA), for example, and to gear the projects to the aforementioned provisions of the country strategies in terms of requirements and risks. Monitoring by implementing agencies is to be organised in such a way that even unintended negative effects are considered and projects are implemented with a particular emphasis placed on the 'Do No Harm principle'.

Netherlands. The Fragile States Principles and the New Deal for Engagement in Fragile States have formally been incorporated in the Dutch policy for Security and Rule of Law in fragile and conflict-affected states and situations. Programmes and projects are based on conflict/context analyses, local priorities and ownership and build on a long-term perspective. Key objectives include support for security for people, a functioning rule of law, inclusive politics, capable and legitimate governments and socioeconomic opportunities. Moreover, the Netherlands work on the basis of a comprehensive approach of defence, diplomacy and development in close cooperation with international and national partners.

Sweden. In 2007, the Swedish Government decided to direct half of Swedish development assistance to conflict and post-conflict countries, and in 2010, a “Policy For Security and Development in Swedish Development Cooperation 2010-2014” was launched. The overall objective of that policy was to contribute to lasting peace that makes development possible. The Swedish Government believes that support to joint donor funds (“Multi Donor Trust Funds”) is a useful and effective way of channelling funds to fragile states. It makes development cooperation possible also in situations when direct cooperation with Governments is assessed not to be feasible. SIDA has a specific Support Unit for Conflict and post-Conflict with the mandate to support the organisation in adapting programmes to the specific contexts on fragile and conflict-affected countries, ND-implementation and conflict sensitivity. SIDA has made an extra effort in recent two years to ensure conflict sensitivity is integrated in all of the agency’s work; by targeted Conflict Sensitivity trainings to program officers working in/with fragile and conflict-affected countries, by arranging regional meetings on Peace and Security for experience-sharing between different country offices in fragile and conflict-affected countries; and by ensuring conflict sensitivity is effectively integrated in the contribution management system and a part of SIDA’s considerations when assessing a new program/project. SIDA has procured a helpdesk for Human Security to provide Country Units with prompt and flexible support in areas of conflict sensitivity/Do No Harm-assessment and Conflict Analysis, and has with the help of the helpdesk made

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mappings of existing conflict analyses before elaborating results proposals for several fragile and conflict-affected countries and made reviews of its country portfolios to monitor the implementation of the Swedish policy on security and development, which resonates strongly with the FSP, ND and principles of Conflict sensitivity and Do No Harm.

United Kingdom. DFID has a mandatory Country Poverty Reduction Diagnostic (CPRD) which aims to help country offices determine how DFID resources can be best used to reduce poverty in a particular country. The CPRD draws on analysis such as political economy analysis (PEA) or Joint Analysis of Conflict and Stability (JACS). The JACS is an integrated cross-HMG approach to understanding conflict and stability in fragile countries. Its purpose is to provide a basis to support integrated planning, policy and resource allocation, creating synergy between the UK’s diplomatic, development and defence analytical processes. It can be applied equally in contexts that are in active conflict, are post conflict, or are fragile but currently peaceful. DFID also uses conflict sensitivity reviews (or audits) of strategy, organisational policies and procedures, and programmes at country level – to identify and mitigate risk of ‘doing harm’ and strengthen UK contribution to peace and stability. To support this work, the UK government is establishing the Conflict, Stability and Security Fund in 2015/16. The UK has also taken up donor co-lead positions in New Deal pilot countries, including Afghanistan, South Sudan and Somalia. DFID is also an active member of the OECD DAC’s International Network on Conflict and Fragility.

6.3.6. Public-private Engagement for Development Impact

The engagement of the private sector in development finance has progressed, in particular through the innovative financial instruments discussed in Chapter 5. Ten Member States288 have put in place a single public-private mechanism for dialogue and knowledge sharing on development, while another ten289 have put in place multiple mechanisms (e.g. sectorial, regional). Seven Member States290 and the Commission have no such mechanism, while one Member State291 did not provide any information.

The European Commission is not yet running its own public-private mechanism for dialogue and knowledge sharing, but is regularly convening a Policy Forum on Development with CSOs, including private sector representatives and social dialogue partners. The European Commission also uses existing national, government-led public-private dialogue mechanisms in countries where private sector development, trade and regional integration are focal sectors.

Several Member States are using national private sector platforms to discuss how their private sector can participate in development cooperation. These platforms either have a general scope and cover all sectors (e.g. Austria’s CorporAID platform for business, development and global responsibility; the Czech Republic’s Business Platform for Development Cooperation; France’s Global Compact; Sweden’s Leadership for Sustainable Development Network; the Slovak Republic’s Platform of Entrepreneurs for International Development Cooperation; the United Kingdom’s Business Fights Poverty and Business Call to Action), or are sector or issue specific (e.g. the German Food Partnership, Health Care Partnership, and Sustainable Cocoa Forum; the Dutch Initiative for Sustainable Trade – IDH).

288CZ, DE, ES, HU, IE, IT, LT, PL, SE, SK 289AT, BE, DK, FI, FR, LV, NL, PT, RO, UK 290CY, EE, EL, HR, LU, MT, SL 291BG

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6.3.7. Division of Labour

Reduction in the number of intervention sectors. The vast majority of Member States (21) plus the EU have procedures that restrict, or target a reduction in the number of intervention sectors. In most cases, the number of sectors is restricted by law or programming procedures to a maximum of three or four sectors, plus budget support where envisaged. In some cases, the number is reduced for small countries, and increased for countries in difficult situations. Five Member States292have no specific procedure, while two293 did not provide any information on this matter.

In 2013, seven Member States294 exited from 14 sectors in 16 countries, while six Member States295 entered into 12 sectors in 16 countries. Between 2014 and 2016, five Member States296 expect to pull out from 14 sectors in 12 countries, and four Member States297 plan to enter into 12 sectors in 8 countries.

Reduction in the number of partner countries. In 2013, Denmark, the Netherlands, and Sweden decided to terminate development cooperation with 10 partner countries, while Cyprus and Finland decided to start cooperation with 2 new partner countries. Finland also decided to shift to a new development cooperation model with one partner country. Between 2014 and 2016, four Member States298 expect to terminate cooperation with 31 partner countries, one Member State299 plans to start cooperation with 3 new partner countries, and one other Member State300 plans to shift to a new development cooperation model with one partner country. Most of the exits concern middle income countries (e.g. Algeria, Cameroon, Nicaragua, Pakistan, South Africa, Vietnam).

Major obstacles to in-country Division of Labour. As noted by several Member States and by the Commission, experience has shown that there are still obstacles to in-country Division of Labour (DoL):

Donors’ development policies continue to be controlled by headquarters, driven in part by their global goals rather than country goals, leaving less space for DoL in the field;

Several donors have limited interest in participating in DoL, due to an increasing demand for "quick results" that has led to reduced incentives to engage in joint approaches, limited participation in donor working groups and less collective analysis;

Mapping and monitoring exercises related to DoL are time and resource consuming. The growing number of surveys and questionnaires tend to increase transaction costs, often straining limited capacity at embassies, partner governments and other development partners;

In many partner countries, sector ministries seem to prefer a decentralised approach where access to development partners’ involvement and support is managed at sector level;

292 CY, IE, MT, SE, UK 293 BG, EL 294 AT, DE, DK, FI, IT, LU, UK 295 DE, EE, ES, HR, LT, UK 296 BE, DE, FI, IT, LU 297 BE, DE, FI, NL 298 ES, LU, SE, SK 299 EE 300 UK

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Development partners have ongoing programmes and it is not always an easy decision for them to reduce the number of sectors, in particular when they have been active in them for a long time and long-term staff provisions have been made in the sector.

The predictability of ODA is often too limited to allow for proper DoL as not all donors are able to commit multi-annual support to specific sectors in certain countries

6.3.8. Domestic Accountability and Good Public Financial Management

Type of ODA spending. As shown in figure 6.3.8, most Member States make a very limited use of budget support, be it general or sector budget support. A majority of Member States either does not use any of those budget support modalities at all, or channels less than 10% of their total bilateral ODA through budget support.

Figure 6.3.8 - Type of ODA Spending of Member States and the EU in 2013

Only the European Commission uses both types of budget support (respectively 'Good Governance and Development Contracts' and 'Sector Reform Contracts') for a 25 to 50% share of its overall ODA, while Belgium, France and Ireland use sector budget support for a 10 to 25%share of their bilateral ODA. Likewise, use of country financial systems is either nil or below 10% for most Member States, with four301 using it for a share between 10 and 25% of their ODA, and two302 for a share between 25 and 50%. Eight Member States have tied aid for more than 10% of their ODA: two303 between10 and 25%, three304 between 25 and 50%,

301 DK, EE, LU, NL 302 PT, SL 303 ES, HR 304 CZ, EE, SK

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one305 between 50 and 80%, and two306 above 80%. All of these countries have also ODA/GNI ratios below 0.25%.

Support for building governance, institutions and public financial management (PFM)

in partner countries. While the use of country system by the EU and the Member States is still limited, this is often due to the inadequate quality of such systems in partner countries. It is therefore important to provide support to enhance country systems so that they can be used more extensively in managing EU ODA. In 2013, the EU and its Member States provided assistance in this field through over 1,300 projects amounting to above EUR 5 billion in total.

305 PT 306 SL, HU

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