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
6.1.
Introduction .............................................................................................................. 130
6.2.
Implementation Table .............................................................................................. 131
6.3.
EU policies and programmes ................................................................................... 132
2
List of acronyms
ACP
ADF
AfT
AEEP
AGOA
AITF
ALSF
AMC
AMCOST
AMIS
AT
ATAF
BE
BG
BEPS
BMZ
BPM
BSG
BWI
C2D
CAC
CBD
CDKN
CIAT
CIC
CIIP
COP
CPRD
CPSS
CRS
CSO
CSR
CTCN
CY
CZ
DAC
DANIDA
DC
DE
DFID
DGGF
DK
DMF
DMFAS
DRM
DSF
EBA
EBRD
Africa, Caribbean and Pacific
Asian Development Fund
Aid for Trade
Africa-EU Energy Partnership
US African Growth and Opportunity Act
EU–Africa Infrastructure Trust Fund
African Legal Support Facility
Advance Market Commitment
African Ministerial Council on Science and Technology
Agricultural Market Information System
Austria
Africa Tax Administration Forum
Belgium
Bulgaria
Base Erosion and Profit Shifting
Germany’s Federal Ministry for Economic Cooperation and
Development
Balance of Payments Manual
Budget Support Group
Bretton Wood Institutions
Debt Reduction Development Contracts
Collective Action Clauses
Convention on Biological Diversity
Climate and Development Knowledge Network
Inter-American Centre of Tax Administrations
Climate Innovation Centre
Competitive Industries and Innovation Programme
Conference of the Parties to the CBD
Country Poverty Reduction Diagnostic
Committee on Payment and Settlement Systems
Creditor Reporting System
Civil Society Organisation
Corporate Social Responsibility
Climate Technology Centre and Network
Cyprus
Czech Republic
Development Assistance Committee
Developing Countries
Germany
Department for International Development UK
Dutch Good Growth Fund
Denmark
World Bank Debt Management Facility for Low Income
Countries
Debt Management and Financial Analysis System from United
Nations UNCTAD
Domestic Resource Mobilisation
Debt Sustainability Framework
Everything but Arms Arrangement
European Bank for Reconstruction and Development
3
ECOSOC
ECOWAS
ECREEE
EDCTP
EDF
EE
EEAS
EIB
EITI
EL
ERMI
ES
ETS
EU
EUACC
EUR
EUEI
FDI
FfD
FI
FP
FR
FTT
G20
G8
GAVI
GDP
GEF
GFR
GIZ
GNI
GSP
HIC
HIF
HIPC
HIV/AIDS
HLF
HLM
HR
HU
IATI
ICF
ICPE
ICT
IDB
IE
IF
IFCA
IFFIm
United Nations Economic and Social Council
Economic Community of West African States
ECOWAS Regional Centre For Renewable Energy And Energy
Efficiency
European and Developing Countries Clinical Trials Partnership
European Development Fund
Estonia
European External Action Service
European Investment Bank
Extractive Industries Transparency Initiative
Greece
Renewable Energies and Industrial Maintenance
Spain
EU Emission Trading System
European Union
EU-Africa Chamber of Commerce
Euro
The EU Energy Initiative
Foreign Direct Investment
Financing for Development
Finland
Framework Programme
France
Financial Transaction Tax
Group of Twenty (G8 countries plus Argentina, Australia,
Brazil, China, EU, India, Indonesia, Mexico, Saudi Arabia,
South Africa, South Korea, and Turkey)
Group of Eight (i.e. Canada, France, Germany, Italy, Japan,
Russia, United Kingdom and USA, plus EU)
Global Alliance for Vaccines and Immunisation
Gross Domestic Product
Global Environment Facility
Global Forum on Remittances
Gesellschaft für Internationale Zusammenarbeit
Gross National Income
Generalized System of Preferences
High Income Countries
Health Insurance Fund
Highly Indebted Poor Countries
Human Immunodeficiency Virus/Acquired Immune Deficiency
Syndrome
High Level Forum
OECD/DAC High Level Meeting
Croatia
Hungary
International Aid Transparency Initiative
International Climate Fund
International Center for Promotion of Enterprises
Information and Communication Technology
Inter-American Development Bank
Ireland
EIB Investment Facility
Investment Facility for Central Asia
International Financial Facility for Immunisation
4
IFI
IFM
ILO
IMF
IRENA
ISO
IT
ITC
KfW
KNOMAD
LAIF
LECBP
LDC
LIC
LT
LU
LV
MDG
MDRI
MFF
MIC
MNC
MOI
MoU
MS
MSME
MT
NGO
NIF
NL
ODA
OECD
OOF
OWG
PCD
PFM
PIDG
PPP
PRF
PRGT
PSD
PSE
PT
R&D
REDD and REDD+
RO
SADC
SSC
SDG
SE
International Financial Institutions
Innovative Financing Mechanisms
International Labour Organisation
International Monetary Fund
International Renewable Energy Agency
International Standard Organisation
Italy
International Tax Compact
Kreditanstalt für Wiederaufbau
Global Knowledge Partnership on Migration and Development
Latin America Investment Facility
Low Emission Capacity Building Programme
Least Developed Countries
Low Income Countries (LDC+OLIC)
Lithuania
Luxembourg
Latvia
Millennium Development Goals
Multilateral Debt Relief Initiative
Multi-annual Financial Framework
Middle Income Countries
Multinational Corporation
Means of Implementation
Memorandum of Understanding
Member States
Micro, Small and Medium Enterprises
Malta
Non-Governmental Organisation
Neighbourhood Investment Facility
Netherlands
Official Development Assistance
Organisation for Economic Cooperation and Development
Other Official Flows
Open Working Group on SDGs
Policy Coherence for Development
Public Financial Management
Private Infrastructure Development Group
Private Public Partnerships
Preliminary Reporting Framework
Poverty Reduction and Growth Trust
Payment Services Directive
Private Sector Engagement
Portugal
Research and Development
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.
Romania
South African Development Community
South-South Cooperation
Sustainable Development Goals
Sweden
5
SE4ALL
SES
SK
SIDS
SME
SSA
StAR
STI
TA
TADAT
TCX
TEC
TOSD
TRA
TRIPS
TT
UK
UN
UN DESA
UNCAC
UNCTAD
UNEP
UNFCCC
UNGA
UNITAID
UNTT
US or USA
US$
VAT
WB
WIPO
WTO
Sustainable Energy for All Initiative
Senior Expert Service
Slovak Republic
Small Island Developing States
Small and Medium-sized Enterprises
Sub-Saharan Africa
Stolen Assets Recovery Initiative
Science Technology & Innovation
Technical Assistance
Tax Administration Diagnostic Assessment Tool
The Currency Exchange
Technology Executive Committee
Total Official Support for Development
Trade Related Assistance
Agreement on Trade Related Aspects of Intellectual Property
Rights
Technology Transfer
United Kingdom
United Nations
United Nations Department of Economic and Social Affairs
United Nations Convention Against Corruption
United Nations Conference on Trade and Development
United Nations Environment Programme
United Nations Convention on Climate Change
United Nations General Assembly
International Drug Purchasing Facility
UN System Task Team on the Post-2015 UN Development
Agenda
United States of America
United States Dollar
Value Added Tax
World Bank
World Intellectual Property Organisation
World Trade Organisation
6
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-bycountry reporting by
MNCs, exchange of tax
information, transfer
pricing and asset
No date
specified
=
The two amended
Accounting and
Transparency Directives
introduce new disclosure
requirements for the
1
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.
7
EU Commitments
Target Date
Status1
Change
2012 -2013
recovery
Comments
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.
6. Support transparency and
accountability through
EITI and similar
initiatives, possibly also
in other sectors
No date
specified
=
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.
8
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
EU Commitments
Target Date
Status1
Change
2012 -2013
Comments
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 debtworkout 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.
11. Take action to restrict
litigation against
No date
specified
+
The Netherlands have
adopted a new law in 2013
9
EU Commitments
Target Date
Status1
Change
2012 -2013
developing countries by
distressed debt funds
Comments
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
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
14. Respond to the
Commission’s invitation
to develop or update
Member States’ plans or
lists of priority actions in
support of CSR
15. Sustain EU and Member
States’ efforts to
=
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.
=
The EU and 16 MS have
indicated their support to
various initiatives aimed at
promoting internationally
agreed CSR principles
=
22 MS have committed to
publish their national
action plans on business
and human rights; 4 MS
have already done.
=
The EU & MS collective
AfT reached an all-time
No date
specified
no date
10
EU Commitments
Target Date
collectively spend EUR 2
bn annually on TradeRelated Assistance by
2010 (EUR 1 bn from
MS and the Commission
respectively).
specified
16. Give increased attention
to LDCs and to joint AfT
response strategies and
delivery
No date
specified
Status1
Change
2012 -2013
Comments
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.
=
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
No date
regional Aid for Trade
specified
packages in support of
ACP regional integration,
under the leadership of
the ACP regional
integration organisations
and their Member States,
and involving other
donors
=
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.
18. Continuously review the
=
An 'Evaluation of EU's
No date
11
EU Commitments
EU’s Aid for Trade
strategies and
programmes, taking into
account lessons learnt
and focusing on results
Target Date
Status1
Change
2012 -2013
specified
Comments
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'
channelling to productive
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.
12
EU Commitments
Target Date
Status1
Change
2012 -2013
Comments
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 pricecomparison 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
over 1% in 2013.
13
EU Commitments
Target Date
Status1
Change
2012 -2013
Comments
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
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
31. Improve mechanisms for
international STI
cooperation and for the
development of ICT on
Not specified
In 2013, the EU and its
Member States submitted
their first report to the
UNFCCC on the EU
strategies and approaches
for mobilising and scalingup 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.
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.
-
14
At least four MS funded
initiatives aimed at
improving STI cooperation
and several supported ICT
EU Commitments
Target Date
Status1
Change
2012 -2013
major sustainable
development challenges
Comments
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
other risk-sharing
instruments
No date
specified
=
The EU Platform on
blending in External
Cooperation is
progressing. New
requirements to access
15
EU Commitments
Target Date
Status1
Change
2012 -2013
Comments
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
(implementat
ion)
=
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
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
16
EU Commitments
Target Date
Status1
Change
2012 -2013
Comments
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.
17
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.
4
http://ec.europa.eu/europeaid/what/developmentpolicies/financing_for_development/index_en.htm
18
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 post2015 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
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.
5
http://sustainabledevelopment.un.org/content/documents/2096Chapter%201global%20investment%20requirement%20estimates.pdf
19
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
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
6
7
EU Council Conclusions of 12/12/2013: §4.
A/RES/68/204
20
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 ‘developmentfriendliness’ assessments.
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
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
10
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/140063.pdf
11
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-20140251+0+DOC+XML+V0//EN&language=EN
12
http://www.oecd.org/dac/peer-reviews/50155818.pdf
21
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-ButArms (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
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
13
See Chapter 3.3 for more details on progress on Trade and Development, as well as the 2013 Aid for Trade
Report in Annex 4
14
See Chapter 3.2. for more details on progress on CSR commitments
22
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
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
23
approach to the migration-development nexus at EU level, giving greater attention to SouthSouth 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 reemphasised 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 conflictaffected 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.
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
24
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.
25
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)
26
27
28
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 post2015 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
15
Blending is discussed in Chapter 5 of this Report
29
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:
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).
16
30
1. Integration. A modernised measurement framework should serve the overarching post2015 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).
31
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
led to protracted discussions that have
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)
17
32
damaged the credibility of the ODA
concept.
System accounts for net cash flows
It does not properly value loans (ODAneutral over the long-term)
Applied only to loans
This does not reflect the
development finance reality
current
Face value counted upfront, reflows then It allows front-loading of ODA
discounted
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
consecutive years. Another option would be to lower the graduation threshold, but this could have
serious downsides:
33
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 MiddleIncome 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.
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.
18
19
DCD/DAC/STAT(2013)17, Guarantees for Development: Options for Data Collection.
http://www.oecd.org/dac/stats/guaranteesfordevelopment.htm.
34
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.
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,
35
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 preempt, 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
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”).
20
DCD/DAC(2014)7
36
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 15 threview 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
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.
21
https://openknowledge.worldbank.org/bitstream/handle/10986/16095/32824_ebook.pdf?sequence=5
The 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 preassigned to specific geographical areas.
23
FR provided SDR373 million as concessional loan contributions and UK SDR 494 million. The balance was provided
by China, Japan, and Saudi Arabia.
22
37
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 (20112013). 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.
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,
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."
38
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;
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
25
.COM(2010) 163 final
Council Conclusions on Tax and Development – Cooperating with developing countries in promoting good
governance in tax matters, 11082/10, 15 June 2010
27
COM(2011) 638 final
28
COM(2011) 637 final
26
39
(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.

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 201332reiterated 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
29
Recommendations based on the 2012 EU Accountability Report on Financing for Development. COM(2012) 366
COM(2012) 722 final.
31
COM(2012)8805 and COM(2012)8806.
32
Council Conclusions on financing poverty eradication and sustainable development beyond 2015, 12 December 2013
30
40
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.
In June 2013, the G8 Summit in Lough Erne under UK Presidency focused on three interrelated 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 Outlook36. 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.
33
Outcome 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
34
Report 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
35
The five priority areas are infrastructure, food security, financial inclusion, domestic resource mobilisation, and
human resource development.
36
The 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-PetersburgDevelopment-Outlook.pdf
41
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
Support on tax policy,
administration and
reform
Support for established
regional tax
administration
frameworks (e.g. CIAT,
ATAF)
Exploring country-bycountry reporting by
MNCs, exchange of tax
information, transfer
pricing and asset
recovery
Target Date
Status
Change
2012 -2013
Comment
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
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
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
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
=
37
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).
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.
42
EU Commitments
Target Date
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
+
No date
specified
=
Support transparency
and accountability
through EITI and similar
initiatives, possibly also
in other sectors
Status
Change
2012 -2013
Comment
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.
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 2000 38. As shown in
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)
38
World Bank (2013), Financing for Development Post-2015,
http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/WB-PREM%20financing-fordevelopment-pub-10-11-13web.pdf
43
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 report 39. 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
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.
OECD (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
41
ODI (2013), Taxation and Developing Countries – Training Notes, http://www.odi.org.uk/sites/odi.org.uk/files/odiassets/events-documents/5045.pdf
42
OECD (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/EXPODEVE_ET(2014)433702_EN.pdf
44
Development Initiatives (2014), Aid for domestic resource mobilisation: how much is there?, http://devinit.org/wpcontent/uploads/2014/02/Aid-for-domestic-resource-mobilisation-%E2%80%93-how-much-is-there.pdf
45
See OECD Report on fragile states 2014
39
44
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
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
46
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/140060.pdf
AT, BE, BG, DE, DK, EE, ES, FI, FR, HU, IE, LU, LV, NL, PT, SL, SK, UK
48
The 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.
49
DE, NL, UK
50
ES, FR, NL, UK
51
http://www.oecd.org/tax/taxinspectors.htm
47
45
effectiveness of tax policy changes to support inclusiveness and sustainability of growth 52, 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
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
52
Forthcoming
http://www.die-gdi.de/uploads/media/Vulnerability_of_tax_revenue_Final_Report.pdf
54
DE, DK, FI, FR, IE, IT, LU, NL, PT, SE, UK
55
European 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
56
DANIDA (2013), Guidelines for development contracts,
http://amg.um.dk/en/~/media/amg/Documents/Technical%20Guidelines/Guidelines%20for%20Development%20Contr
acts/Guidelines%20for%20development%20contracts%20final%20June%202013.pdf
53
46
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.
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
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
58
BE, DE, DK, EE, ES, FR, HU, IE, LV, NL, SE, SK, UK
59
Eurodad (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,
61
St Petersburg G20 Leaders Declaration, paras 50-52, http://en.g20russia.ru/load/782795034
47
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
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
62
OECD (2013), Action Plan on Base Erosion and Profit Shifting, http://www.oecd.org/ctp/BEPSActionPlan.pdf
Transfer 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.
64
http://www.oecd.org/ctp/tax-global/tf-on-td-sess-five-transferpricing.pdf
65
COM (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
67
COM (2012) 8805 and COM (2012) 8806
68
AT, DE, DK, EE, ES, FI, FR, HU, IE, LT, LU, LV, NL, PT, SK, UK
69
The 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
71
DE, EC, ES, NL
72
DE, EC, ES, FR, LU, NL, SL, UK
73
AT, BE, DE, ES, IE, LU, NL, UK
74
DE, EC, FI, IE, NL, UK
75
DE, EC, ES, FR, NL
63
48
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 Directives 79 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.
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 MultiDonor 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
76
DE, ES, LV, UK
BE, DE, ES, FI, FR, HU, LU, NL, PL, PT, UK
78
European Commission in Ghana, Finland in Tanzania, France in Senegal, Poland in Armenia
79
Directive 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.
81
http://www.transparency.org/news/pressrelease/09042013_natural_resource_corruption_dealt_a_blow_by_new_eu_tr
ansparency_ru
82
The 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
77
49
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)
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
Transparency International (2013), Exporting Corruption – OECD Progress Report 2013,
http://files.transparency.org/content/download/683/2931/file/2013_ExportingCorruption_OECDProgressReport_EN.pdf
85
DE, UK
86
AT, BG, DK, FI, FR, HU, IT, PT, SE
87
BE, HR, IE, IT, LU, NL, PT, RO, SE, UK
88
The 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.
84
50
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.
EU commitments
Support existing
debt relief
initiatives, in
particular the
HIPC Initiative
and the MDRI
Support
discussions, if
relevant, on
enhanced
sovereign debt
restructuring
mechanisms, on
the basis of
Target Date
Status
No date
specified
Change
2012-2013
Comment
=
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.
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
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.
90
Sudarshan 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.
91
IMF(2013), Low-Income Countries Global Risks and Vulnerabilities Report; IMF (2014),Heavily Indebted Poor
Countries Initiative and Multilateral Debt Relief Initiative – Statistical Update
92
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.
93
AT, BE, FI, FR, HU, IE, IT, LU, SL, UK - Source: Questionnaire for the 2014 EU Accountability Report
89
51
EU commitments
existing
frameworks and
principles
Participate in
international
initiatives such as
the WB/IMF Debt
Sustainability
Framework (DSF)
and promote
responsible
lending practices
Promote the
participation of
non-Paris Club
members in debtworkout
settlements
Take action to
restrict litigation
against developing
countries by
distressed debt
funds
Target Date
Status
Change
2012-2013
Comment
debt distress.
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.
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.
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.
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.
94
AT, BE, DE, NL - Source : World Bank
52
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.
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: SubSaharan 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
World Bank (2014), International Debt Statistics – 2014, Washington DC; Note: USD/EUR exchange rates provided
by OECD/DAC.
96
World Databank, International Debt Statistics.
95
53
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.
2.2.4. EU policies and programmes
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.
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
97
Ruchir Sharma (2014),China’s debt-fuelled boom is in danger of turning to bust, Financial Times, January 27th 2014
AT, DK, FI, FR, IT, NL, UK
99
AT, BE, DE, DK, ES, FI, IE, IT, NL,PT, SE, UK
100
Mainly 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
102
AT, BE, DE, DK,EL,ES, FI, HR, IE, IT, LV, NL,PT, SE, SK, SL,UK
103
The 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.
98
54
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

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
104
AT, BE, DE, NL
DE, IE, IT, NL - Data from the Accountability questionnaire and the DMFAS web site
106
In 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
107
BE, IT, NL
105
55
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 post2015 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
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."
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.
56
Figure 3.1.1. - Domestic Private Finance Flows as a Share of Total Resource Flows of LowIncome and Middle-Income Countries between 2002 and 2011 (cumulative, constant prices)
3.1.2.
Implementation Table
The table below109 summarises progress made in 2013in implementing the EU commitments on
private sector development. Further details are discussed in the main text.
EU commitments
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
3.1.3.
Target Date
Status
No date
specified
Change
2012-2013
=
Comment
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 nonfinancial instruments.
Recent Trends
According to the latest statistics on global FDI released by UNCTAD 110, 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 billion
109
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.
110
UNCTAD (2014), Global Investments Trend Monitor, No. 15
111
Other 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,
57
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.
3.1.4.
EU policies and programmes
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.
112
UNCTAD (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
58
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 mid2014.
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.
European 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.
116
New Partnership Takes Fresh Approach to Creating Jobs and Strengthening Private Sector Growth Potential, Press
Release, World Bank, September 18, 2013.
117
AT, BE, CZ, DE, FI, FR, IT, NL, PL, PT, SE, SK, UK
118
develoPPP.de Public-Private Partnerships with the BMZ, Federal Ministry for Economic Development and
Cooperation, 2013.
114
59
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
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.
119
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.
60
EU commitments
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
Target
date
Status
No date
specified
Change
2012 -2013
=
Respond to the
Commission’s
No date
invitation to develop or
specified
update Member States’
plans or lists of priority
actions in support of
CSR
=
Comments
The EU and 16 MS have
indicated their support to
various initiatives aimed at
promoting internationally
agreed CSR principles
22 MS have committed to
publish their national action
plans on business and
human rights; 4 MS have
already done so.
3.2.3. EU policies and programmes
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
ask each other questions about them. Emerging results indicate that there are a number of crosscutting 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.
120
Peer review reports of the seven meetings are available here:
http://ec.europa.eu/social/keyDocuments.jsp?advSearchKey=CSRprreport&mode=advancedSubmit&langId=en&policy
Area=&type=0&country=0&year=0
61
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.
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:
121
AT, BE, EE, SK
European 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).
123
COM(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
124
The 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/
125
The 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/
122
62



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;
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.
126
The 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
132
Endorsed 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
133
This 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)
63
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.
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
64
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.
3.3.2.
Implementation Table
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.
EU commitments
Target date
Status
Change
2012 -2013
=
Sustain EU and Member
States’ efforts to
collectively spend EUR
2 bn annually on TradeRelated Assistance by
2010 (EUR 1 bn from
MS and the Commission
respectively).
No date
specified
Give increased attention
to LDCs and to joint
AfT response strategies
and delivery
No date
specified
=
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
=
134
Comments
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.
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.
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
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
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.
65
Continuously review the
EU’s Aid for Trade
strategies and
programmes, taking into
account lessons learnt
and focusing on results
No date
specified
=
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
Better coordinate EU aid
for trade, and align it
behind the development
strategies of partner
countries
No date
specified
=
No date
specified
+
3.3.3.
new MFF.
An 'Evaluation of EU's Traderelated 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.
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
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
worsened137.
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,
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
137
More information can be found in the AfT report in Annex 4
138
WTO (2013), International Trade Statistics 2013, http://www.wto.org/english/res_e/statis_e/its2013_e/its2013_e.pdf
66
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.
3.3.4.
EU policies and programmes
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.
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.
139
WTO (2013), International Trade Statistics 2013, Op Cit.
UNCTAD (2013), Exploiting the Potential of the Trade in Services for Development,
http://unctad.org/en/PublicationsLibrary/ditctncd2013d4_en.pdf
141
EU 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
142
The 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.
143
http://ec.europa.eu/trade/policy/eu-and-wto/doha-development-agenda
144
http://trade.ec.europa.eu/doclib/docs/2012/january/tradoc_148990.pdf
145
ECDPM (2013), Interview with EU Trade Commissioner Karel De Gucht. GREAT Insights, Volume 2, Issue 5. JulyAugust 2013
140
67
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
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
146
ODI (2013), Future directions for Aid for Trade, http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publicationsopinion-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
68
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.
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).
149
Given 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
150
DK, NL, SE
69
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.

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.
151
COM (2013) 292 final
Council Conclusions on the 2013 UN High-Level Dialogue on Migration and Development and on broadening the
development-migration nexus, 12415/13, 23 September 2013
152
70
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.
3.4.2.
Implementation Table
The table below153 summarises progress made in 2013 in implementing the EU commitments on
remittances. Further details are discussed in the main text.
EU commitments
Target date
Status
Change
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.
3.4.3.
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.
Recent Trends
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
153
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.
154
Pew 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/3349341288990760745/MigrationandDevelopmentBrief21.pdf
71
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 intraEU27159 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 extraEU27 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% extraEU) 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.
3.4.4.
EU policies and programmes
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
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 post2015 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.
156
Pew Research Center (2013), Op. Cit.
Eurostat (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
158
Extra-EU flows: Money sent from an EU Member State to a country outside the EU
159
Intra-EU flows: Money sent from an EU Member State to another EU Member State
157
72
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 2010 161. 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.
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
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
163
The 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
73
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.
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
166
167
BE, DE, FR, IT, LU, LV, NL, PL
CY, EL, PT
74
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
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 LowIncome and Middle-Income Countries between 2002 and 2011 (cumulative, constant prices)
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,
75
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

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.
168
IMF (2011), Revenue Mobilization in Developing Countries. Box 3.
76

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 SubSaharan 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.
4.2.2.
Implementation Table
The table below summarises progress made in 2013 in implementing the EU ODA commitments.
Further details are discussed in the main text.
EU commitments
The EU and its
Member States
agreed to achieve a
collective ODA level
of 0.7% of GNI by
2015
Take realistic,
verifiable actions for
meeting individual
ODA targets by 2015
and to share
information about
these actions
Increase collective
ODA to Sub-Saharan
Africa
Provide 50% of the
collective ODA
increase to Africa as
a whole
Target Date
Status170
Change
2012-2013
Comments
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
No date
specified
-
21 Member States provided
information about their 2014
financial year allocations.
Limited information was
however provided on
realistic/verifiable actions.
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.
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
169
European Council, 11 November 2008, Doc. 15075/1/08, Rev. 1
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.
170
77
1% in 2013.
Provide between 0.15
and 0.20% of
collective ODA/ GNI
to the Least
Developed Countries
by 2010
4.2.3.
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.
Recent Trends
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 nonEU 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
Net ODA (EUR
ODA/GNI (%)
capita (EUR)
Billion)
201
2011 2012
2011 2012 2013 2011 2012 2013
3
78
EU (Collective)
112 109 112
Non
EU
DAC 79
85 85
Members
USA
71
75 75
Japan
61
64 70
Canada
113 126 105
Source: OECD/DAC and European Commission
0.45 0.43 0.43 56.3 55.3
0.23 0.22 0.23 44.6 48.1
56.5
48.3
0.20 0.19 0.19
0.18 0.17 0.23
0.32 0.32 0.27
23.8
8.9
3.7
22.2 23.7
7.8 8.2
3.9 4.4
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
79
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
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
171
AT, BG, HR, DK, EE, FI, DE, IT, LV, LU, PL, SK, SL, ES, SE, UK
BE, CY, CZ, FR, EL, HU, IE, LT, MT, NL, PT, RO
173
BG, DE, DK, EE, FI, HR, IT, PL, SE, UK
174
FR, EL, NL, PT, ES
175
EL, PT, ES
176
The 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.
172
80
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
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.
177
Annex 2 outlines the methodology used to analyse ODA indicators and forecasts provided by Member States.
DK, LU, SE, UK
179
AT, EL, ES, FI, FR, HR, IE, IT, NL, PT, RO, SL
178
81
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
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
The Netherlands
Poland
Portugal
Romania
Slovak Republic
Slovenia
Spain
Sweden
UK
EU15 Total
EU13 Total
EU28 Total
EU Institutions ODA
of which:
2012
EUR
Million
860
1,801
31
15
20
171
2,095
18
1,027
9,358
10,067
255
92
629
2,129
16
40
310
14
4,297
328
452
111
62
45
1,585
4,077
10,808
49,749
964
50,713
13,669
%
GNI
0.28
0.47
0.08
0.03
0.12
0.12
0.83
0.11
0.53
0.45
0.37
0.13
0.10
0.47
0.14
0.08
0.13
1.00
0.23
0.71
0.09
0.28
0.08
0.09
0.13
0.16
0.97
0.56
0.42
0.10
0.39
of
2013
EUR
Million
882
1,718
37
32
19
160
2,206
23
1,081
8,568
10,590
230
91
619
2,450
18
39
324
14
4,094
357
365
101
64
45
1,656
4,392
13,468
52,643
1,000
53,643
11,995
% of
GNI
0.28
0.45
0.10
0.07
0.11
0.11
0.85
0.13
0.55
0.41
0.38
0.13
0.10
0.45
0.16
0.08
0.12
1.00
0.20
0.67
0.10
0.23
0.07
0.09
0.13
0.16
1.02
0.72
0.44
0.10
0.41
2014
EUR
Million
1393
1,731
46
26
19.5
156
2,234
28
1103
10327
10,779
198
90
600
2,618
18
40
316.37
13
3,816
381
353
134
71
43
1,739
4,348
14,304
55,859
1,065
56,925
% of
GNI
0.43
0.44
0.11
0.06
0.13
0.12
0.84
0.15
0.55
0.48
0.37
0.11
0.10
0.43
0.17
0.07
0.11
0.96
0.19
0.61
0.10
0.22
0.09
0.10
0.12
0.17
1.00
0.70
0.45
0.10
0.42
2015
EUR
Million
1386
1,745
56
27
19.5
156
2,269
30
1069
10,588
10,971
170
94
554
3,152
19
41
324
14
3,990
407
341
139
77
44
1,408
4,557
14,961
57,484
1,122
58,607
% of
GNI
0.42
0.43
0.13
0.06
0.13
0.11
0.83
0.15
0.52
0.48
0.37
0.09
0.10
0.38
0.20
0.07
0.11
0.93
0.19
0.62
0.10
0.21
0.09
0.10
0.12
0.13
1.00
0.70
0.44
0.10
0.42
2015 commitment
EUR
% of GNI
Million
2,328
0.70
2,843
0.70
140
0.33
217
0.33
51
0.33
458
0.33
2,748
1.00
66
0.33
1,448
0.70
15,428
0.70
20,996
0.70
1,293
0.70
322
0.33
1,015
0.70
11,306
0.70
87
0.33
125
0.33
348
1.00
24
0.33
4,499
0.70
1,346
0.33
1,163
0.70
500
0.33
249
0.33
118
0.33
7,306
0.70
4,557
1.00
14,961
0.70
92,238
0.72
3,704
0.33
95,942
0.69
2015 financial gap
EUR
% of GNI
Million
942
0.28
1,099
0.27
83
0.20
190
0.27
32
0.20
302
0.22
479
0.17
36
0.18
379
0.18
4,840
0.22
10,025
0.33
1,123
0.61
228
0.23
461
0.32
8,154
0.50
68
0.26
84
0.22
24
0.07
10
0.14
509
0.08
939
0.23
822
0.49
362
0.24
172
0.23
74
0.21
5,898
0.57
34,754
0.27
2,581
0.23
37,335
0.27
Gap between 2013 collective EU ODA
82
Imputed to Member States
Not imputed to Member States
Collective EU ODA (1)
9,125
4,544
55,257
0.04
0.43
9,122
2,873
56,517
0.02
0.43
3,249
59,776
(1) Including EU Institutions ODA not
imputed to Member States
Shaded cells are Commission estimates
83
0.02
0.45
3,675
61,959
0.03
0.45
and 2015 collective EU ODA target
(0.7%) in EUR million
2015 Target
97,830
2013-2015 Gap
41,314
Figure 4.2.3c EU Collective ODA/GNI Ratios (1995-2013) and Projections (2014-2015)
Source: OECD/DAC and European Commission (EU annual questionnaire on Financing for Development)
84
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 States 180. 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.
180
DE, FR, RO, UK
See Chapter 5 of this report for more details on the FTT and other innovative financing mechanisms
182
AT, EE, SK, UK
183
ODA/GNI targets for 2015 are of 0.7% for EU15, and 0.33% for EU12
181
85
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
Projected
increase in
ODA by
2015
ODA 2013
EUR
% of
Million GNI EUR Million
882
0.28 504
1,718
0.45 26
37
0.10 19
32
0.07 (5)
19
0.11 0
160
0.11 (4)
2,206
0.85 63
23
0.13 7
1,081
0.55 (12)
8,568
0.41 2,020
10,590 0.38 381
230
0.13 (60)
91
0.10 3
619
0.45 (65)
2,450
0.16 702
18
0.08 1
39
0.12 2
324
1.00 (0)
14
0.20 0
4,094
0.67 (104)
357
0.10 49
365
0.23 (23)
101
0.07 38
64
0.09 13
45
0.13 (1)
1,656
0.16 (248)
4,392
1.02 165
13,468 0.72 1,492
53,643 0.41 4,641
Total ODA in
Remaining gap to 2015 to meet
national targets
national targets
% of EUR
% of
EUR
gap
Million
GNI
Million
942
2.6
2,328
0.70
1,099
3.1
2,843
0.70
83
0.2
140
0.33
190
0.5
217
0.33
32
0.1
51
0.33
302
0.9
458
0.33
479
1.3
2,748
1.00
36
0.1
66
0.33
379
1.1
1,448
0.70
4,840
13.6
15,428
0.70
10,025
28.2
20,996
0.70
1,123
3.2
1,293
0.70
228
0.6
322
0.33
461
1.3
1,015
0.70
8,154
22.9
11,306
0.70
68
0.2
87
0.33
84
0.2
125
0.33
24
0.1
348
1.00
10
0.0
24
0.33
509
1.4
4,499
0.70
939
2.6
1,346
0.33
822
2.3
1,163
0.70
362
1.0
500
0.33
172
0.5
249
0.33
74
0.2
118
0.33
5,898
16.6
7,306
0.70
4,557
1.00
14,961
0.70
0.69
37,335
105.0
95,942
1,888
5.3
1,888
0.01
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
The Netherlands
Poland
Portugal
Romania
Slovak Republic
Slovenia
Spain
Sweden
UK
Total EU MS
Unassigned
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)
86
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 growth 185 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.
185
Considering only EU ODA allocated geographically plus imputed multilateral ODA.
186
Idem.
187
DE, DK, ES, FI, FR, IE, IT, LU, PT, SE, UK
87
Figure 4.2.3d – EU DAC members' net ODA to Africa in EUR million and as a % of GNI
(including imputed multilateral flows)
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
88
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
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
188
AT, BG, CY, CZ, EE, EL, ES, FR, HR, HU, IT, LV, MT, and PL.
89
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
and multilateral, including alternative sources of finance, as needed to reach the international
90
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 costeffectiveness 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
development and consumption growth, and the associated increased use of fossil fuels and other
resources, are the main drivers of climate change.
91
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 lowemission 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.
189
At 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.
92
4.3.2.
Implementation Table
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
Contribute EUR 7.2
billion over the
period 2010-2012 to
fast start climate
funding
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
Target Date
Status
End 2012
Change 2012 - 2013
=
2013-2020
Comments
The EU and its
Member States
contributed EUR7.3
billion to fast start
climate funding over
the period 2010-2012
In 2013, the EU and its
Member States
submitted their first
report to the UNFCCC
on the EU strategies
and approaches for
mobilising and scalingup 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.
4.3.3.
Recent Trends
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
190
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.
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.
93
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
Adaptation
2011
2012
Total
2,343
1,912
2,100
6,355
373
336
670
1,379
Significant
1,969
1,577
1,430
4,976
Mitigation
5,214
3,277
4,349
Principal
3,527
1,811
2,217
7,555
Significant
1,687
1,466
2,133
5,286
1,928
1,736
1,820
of which:
Principal
12,840
of which:
Adaptation
Mitigation
and
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).
94
Type
2010
2011
2012
Total
of which:
Both Principal
Both Significant
Total Climate Change
Sources: DAC CRS
923
235
298
1,455
1,005
1,501
1,522
4,028
9,484
6,925
8,269
24,679
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.
4.3.4.
EU policies and programmes
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 change 194. 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
193
https://unfccc.int/files/documentation/submissions_from_parties/application/pdf/cop_suf_eu_02092013.pdf
Regulation (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.
194
95
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 scalingup 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
European Court of Auditors, Special Report No 17/2013 – EU climate finance in the context of external aid,
December 2013.
196
The 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.
197
See Chapter 5 for more details on EU blending facilities
195
96
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 countries 198.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
198
COM(2013) 531 final
OECD (2011), OECD Environmental Outlook to 2050 – The consequences of inaction,
http://www.oecd.org/env/cc/49082173.pdf
200
Council 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
199
97
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 10thmeeting 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
of annual biodiversity funding for the years 2006-2010. Parties also agreed complementary
targets on making appropriate domestic financial provisions, reporting, and developing
202
IMF (2013), Energy Subsidy Reform: Lessons and Implications,
https://www.imf.org/external/np/pp/eng/2013/012813.pdf
203
ODI (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
204
COM(2011) 244 final
98
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 7 thEU 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 biodiversityrelated 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 adaptation 207, 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.
4.4.2.
Implementation Table
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
Hyderabad commitment to
double total biodiversityrelated 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
Target Date
Status
2015 and
2020
Change 20122013
Comments
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.
205
UNEP/CBD/COP/11/14/Add.1
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
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.
206
99
EU commitments
Target Date
Status
to 2006-2010
4.4.3.
Change 20122013
Comments
However, several MS are
still unable to report any
biodiversity-related
financial data, and none
reported data on private
flows.
Recent Trends
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.
100
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech
Republic
Denmark
EU
Institutions
Estonia
Finland
6
4
6
4
10
8
0
1
5
1
10
4
12
0
25
1
10
France
72
44
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
75
0
34
2
10
9
14
5
11
11
7
75
0
6
14
10
0
0
0
0
17
1
5
1
70
2
11
5
16
3
1
1
73
0
1
62
26
12
5
34
8
12
14
6
21
9
0
6
17
2
75
1
2
1
11
3
97
66
1
11
64
21
9
82
13
5
0
9
61
12
5
6
16
11
0
0
0
0
12
1
82
2
83
1
2
64
20
1
265
1
10
26
25
0
82
12
9
20
8
0
0
0
0
7
1
241
2
243
1
1
98
163
261
11
2
10
108
29
30
0
118
250
7
8
16
5
0
0
0
0
23
2
118
1
0
45
1
11
7
12
9
174
12
5
16
147
49
49
9
76
300
23
7
12
0
0
0
24
24
3
252
97
2
25
2
19
2
20
3
11
14
125
110
74
184
499
549
2
0
11
0
0
5
16
0
0
20
10
3
5
0
20
15
3
0
14
10
0
12
0
14
22
0
0
75
5
0
7
0
75
12
0
0
25
2
0
1
3
1
0
25
5
0
0
21
7
0
3
0
4
Total
In-direct
Direct
Total
In-direct
2012
Direct
Total
In-direct
2011
Direct
Total
In-direct
2010
Direct
6
0
34
Total
In-direct
2009
Direct
Total
Direct
Total
10
2008
In-direct
2007
In-direct
2006
Direct
Country or
Institution
Table 4.4.3a Official and Private Financial Flows Directly or Indirectly Related to Biodiversity by Member State
(Commitments, EUR million at current prices)
0
21
11
0
0
0
22
20
0
3
289
549
2
0
22
23
0
Sweden
United
Kingdom
15
9
1
0
15
9
97
1
1
97
93
3
4
1
0
0
93
95
3
4
1
0
0
95
87
4
5
0
0
0
40
21
31
0
1
50
109
11
17
28
17
44
61
17
32
49
1
19
9
26
35
15
39
54
18
54
72
17
92
50
5
23
6
74
1
40
6
27
0
67
7
56
2
38
0
94
3
57
8
51
6
87
82
3
3
0
0
0
25
0
0
65
0
5
108
129
13
Total
In-direct
Direct
Total
In-direct
2012
Direct
Total
In-direct
2011
Direct
Total
In-direct
2010
Direct
Total
In-direct
2009
Direct
Total
In-direct
2008
Direct
Total
In-direct
2007
Direct
Country or
Institution
Netherlands
Poland
Portugal
Romania
Slovak
Republic
Slovenia
Spain
2006
82
76
15
91
3
0
3
0
0
1
0
0
0
1
0
0
0
24
0
0
2
0
0
0
6
141
50
18
12
8
4
15
4
204
62
75 50 1,2
71 1,6
1,0
682 1,3
959
6
9
0
60
6
75
95
09
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.
Total
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)
200
201
Type of Financial Flows
2006
2007 2008 9
2010 2011 2
1. Directly related
1.1
Official
Development
1.1.1 Bilateral 354
318
449 464 506
641
790
Assistance
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
(1)
(2) 1 (3)
1(4) (5)
1
2
2
(6)
(7) 0
0
Unallocated
1
7
9
1
2
Subtotal directly related
504
407 562
578 627
759
959
2. Indirectly related
2.1
Official 2.1.1 Bilateral 191
219
320
408 564
461
648
Development
2.1.2
Assistance
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
1,0 1,30 (8)
1,6
3. Grand total
741
677
943
95
9
75
1,260
Annual total/ 2006-2010 average
1.7
(target of at least 2.0 by 2015)
Average: 953
1.32
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 twentythree 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
209
At current prices.
103
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.
4.4.4.
EU policies and programmes
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.

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).
104
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.
4.5.2.
Implementation Table
The table below212 summarises progress made in 2013 in implementing the EU commitments on
Science, Technology and Innovation.
210
United 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/2868CoChairs%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
212
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.
105
EU commitments
Target
Date
Improve mechanisms for
international STI
cooperation and for the
development of ICT on
major sustainable
development challenges
Not
specified
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
20142020
Support STI research
cooperation and capacity
building to enhance
sustainable development
in developing countries,
including through the
new Horizon 2020
research and innovation
programme
20142020
4.5.3.
Status
Change
2012-2013
-
Comments
At least four MS funded
initiatives aimed at improving
STI cooperation and several
supported ICT projects.
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 spillover funding expected for
developing countries. Several
MS are funding initiatives in
this area
-
=
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.
Recent Trends
In December 2013, the UN General Assembly adopted a resolution 213 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
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.
213
A/RES/68/220
106
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.
4.5.4.
EU policies and programmes
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 capabilities 217. 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
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
214
http://www.un.org/wcm/webdav/site/ldc/shared/documents/Istanbul%20Declaration.pdf
DK, NL, IT
216
On 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.
217
For 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.
219
Falvey, R. and Foster, N. (2006) The Role of Intellectual Property Rights in Technology Transfer and Economic
Growth: Theory and Evidence, UNIDO.
215
107
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.
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.
COM(2012)22 – http://trade.ec.europa.eu/doclib/docs/2012/january/tradoc_148992.EN.pdf
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
223
Even if the call for proposals or topic text do not state this explicitly
220
221
108
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
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
224
225
DE, EE, FR, IT
DE, EE, IT, LU, LV
109
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
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.
226
AT, DE, DK, EE, FR, IT, NL
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.
227
110

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 LowIncome and Middle-Income Countries between 2002 and 2011 (cumulative, constant prices)
111
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.
228
World Bank (2013),Financing for Development Post-2015
112
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.
EU Commitments
Target Date
Status
Change
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 risksharing 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
promote the
No date
specified
=
229
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.
113
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 (%, 20112013)
Source – 2014 EU Questionnaire on Financing for Development
114
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.
OECD (2013), “Guarantees for Development", OECD Development Cooperation Working Papers , No. 11
Global volume covered by the guarantor, minus amounts that have been re-insured to third parties and which would
be recovered by the guarantor.
232
European Commission (2014), Blending – European Union aid to catalyse investments.
230
231
115
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.
233
AT, BE, DE, EE, EL, ES, FR, IT, PT, SI, SK
COM(2013) 71
235
http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2013-312
236
SWD(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/revenueestimates.pdf
237
Launched 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.
234
116
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.
117
Table 5.4.1 - Revenues Generated by Innovative Financing Sources as reported by Member States (2011-2013, EUR million)238
Innovative
Sources
Belgium
Contribution
Lottery
Croatia
Income from
Lotteries
Cyprus
UNITAID
France
238
Reported
Mechanisms to ensure that this financing is used in
as ODA
accordance with the aid effectiveness principles
in 2012
Financing Total revenue
2011
Belgian
88,0
State
0,4
Contribution by local
government institutions
21,1
(Loi Oudin-Santini or
1% eau)
2012
88,0
2013
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
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
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.
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.
22,8
Source: 2014 EU Questionnaire on Financing for Development
118
Innovative
Sources
2012
2013
Reported
Mechanisms to ensure that this financing is used in
as ODA
accordance with the aid effectiveness principles
in 2012
Financing Total revenue
2011
France
Financial Transaction
Tax
60,0
100,0
60,0
France
International
Solidarity Levy (tax 175,1
on airline tickets)
185,5
185,4
185,5
France
International
Financing Facility for 147,0
Immunisation (IFFIm)
99,3
70,5
France
Debt
ReductionDevelopment
135,5
Contracts (C2Ds)
143,1
265,6
Germany
Special Energy and
562,0
Climate
Fund(previously:
482,7
276,9
30
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.
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.
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.
30,4
119
All programmes are aligned with country priorities.
The Federal Ministry for the Environment, Nature
Conservation and Nuclear Safety (BMU) coordinates
Innovative
Sources
Reported
Mechanisms to ensure that this financing is used in
as ODA
accordance with the aid effectiveness principles
in 2012
Financing Total revenue
2011
2012
2013
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.
emission allowances
sales revenues)
Implementing agency: KfW Entwicklungsbank. Type
of grant support: debt swap; health focus.
Germany
Debt2Health
3,3
Italy
Advance
Market
Commitments
38,0
(AMCs)
38,0
38,0
38,0
Italy
International
Financing Facility for
26,7
Immunization
(IFFIm)
26,7
26,7
26,7
Luxembourg
Fund to fight against
0,6
certain forms of crime
0,5
Luxembourg
Contribution
UNITAID
0,5
Netherlands
International
Financing Facility for
11,5
Immunization
(IFFIm)
to
0,5
11,5
NA
0,8
11,5
120
Funds are channelled through existing mechanisms
(UNODC, NGOs, Lux Dev), while the project
documentation indicates how aid effectiveness
principles are respected.
Innovative
Sources
Spain
United
Kingdom
2012
2013
Reported
Mechanisms to ensure that this financing is used in
as ODA
accordance with the aid effectiveness principles
in 2012
9,5
8,7
8,7
Financing Total revenue
2011
IFFIm/GAVI
(participant/member
9,5
of the board of GAVI)
Advance
Market
40,4
Commitment (AMC)
United
Kingdom
GAVI Matching Fund
United
Kingdom
International Finance
Facility
for 50,7
Immunisation
2,4
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.
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 20112013 from 11 private companies and foundations,
matched by a combination of DFID and Gates
Foundation money.
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
14,8
121
Innovative
Sources
Reported
Mechanisms to ensure that this financing is used in
as ODA
accordance with the aid effectiveness principles
in 2012
Financing Total revenue
2011
2012
2013
donors have made legally-binding commitments to
IFFIm of up to 20 years.
Total
% of
ODA
EU
1312,6
1261,4
1198,7
2.33%
2.28%
2.12%
476,6
122
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,
reviewed existing blending mechanisms, including the ex-ante technical and financial analysis
239
The 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".
240
Projects 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.
124
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
EU Africa
Infrastructure Trust
Launch
2007
Allocation of funds
Grant funds allocated:
637,70from 9th and 10th
Participating financial
institutions
AFD, AfDB, BIO,
COFIDES, EIB,
The 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.
242
Adapted from Nuñez Ferrer, J., Behrens, A. (2011) Innovative Approaches to EU Blending Mechanisms for
Development Finance, CEPS Special report
241
125
Fund (EU-AITF)
EDF(incl. 329,0 SE4All) +
160,0from MS budgets (as
of 31 Dec. 2013)
789.42 for 2007 - 2013
from EU budget + 80,0
from MS budgets (as of
31/12/13)
Neighbourhood
Investment Facility
(NIF)
2008
Western Balkan
Investment Framework
(WBIF)
2009
Latin America
Investment Facility
(LAIF)
2010
Investment facility for
Central Asia (IFCA)
2010
85.57for 2010-2013 from
the EU budget
Asia Investment
Facility (AIF)
2011
60.00for 2011-2013 from
the EU budget
Caribbean Investment
Facility (CIF)
2012
70.2 m from 10th EDF
Investment Facility for
the Pacific (IFP)
2012
10.0
€166.00 from EU budget +
€10m EIB, €10m EBRD,
€10m CEDB + €88.1m in
grants from MS budgets (+
Norway) (as of 31/12/13)
196.65 2010-2013 from EU
budget
FINNFUND, KfW, LuxDevelopment, OEeB,
SIMEST, SOFID, PIDG
AECID, AFD,
CassaDepositiPrestiti,
CEB, EBRD, EIB, KfW,
NIB, OeEB, SIMEST,
SOFID
CEB, EBRD, EIB, World
Bank Group, KfW, MFB,
CMZR, OEeB, SID
EIB, NIB, AECID, AFD,
KfW, OeEB, SIMEST,
SOFID.
Regional development
banks in association:
BCIE, IDB, CAF.
EIB, EBRD, NIB, AfD,
KfW, OeEB, SIMEST,
SOFID
EIB, EBRD, NIB, AfD,
KfW, OeEB, SIMEST,
SOFID and ADB in
association
EIB, NIB, AECID, AFD,
KfW, OeEB, SIMEST,
SOFID, CDB, IDB.
Regional development
banks in association: CAF,
CABEI.
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.
126
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 MediumSized 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
243
European Commission (2013),Mid-Term Evaluation of the Neighbourhood Investment Facility under the
European Neighbourhood and Partnership Instrument (ENPI) 2007-2013
244
Over-the-counter derivatives are hedging instruments which are often tailor-made to cover against certain
risks and are therefore not tradable on official markets.
127
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.
128
6.
Using Development Finance Effectively
EU Commitments

The Council Conclusions of 17 November 2009245on 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 2009247on 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
effective development cooperation, the central role of the Busan Global Partnership and
its commitment to implementing the Busan Outcome.
245
Council Conclusions on An Operational Framework on Aid Effectiveness, 15912/09, 18 November 2009
Council 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
248
Council Conclusions on An Operational Framework on Aid Effectiveness – Consolidated text, 18239/10, 11
January 2011.
246
129
 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 post2015 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
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.”
249
See http://effectivecooperation.org/wordpress/wpcontent/uploads/2014/04/MakingDevCoopMoreEffective2014PROGRESSREPORT.pdf (p.6).
130
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 post2015 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.
EU commitments
Target Date
Status
Change 20122013
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.
Promote joint
programming, and
increase coordination
in order to develop a
EU joint analysis of
and response to
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
250
Council 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
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.
131
EU commitments
Target Date
Status
Change 20122013
partner country’s
national development
strategy
Comments
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.
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
252
DK and PT. FR and SL answered yes but they were referring to their Common Standard Implementation
Plans.
253
BE, DE, LU, MT
132
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 average 256, 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 States 258 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
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
254
FI, IE, LV, RO, UK
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
258
AT, 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
263
SL
255
133
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-bycase 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 multiannual 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
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 country264
Council 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
134
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
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
271
EL
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
287
AT, BE, DE, DK, EE, FI, FR, HR, IE, IT, LT, LV, NL, PT, RO, SE, UK
272
135
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
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 securitydevelopment 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
136
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
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
137
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).
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.
288
CZ, DE, ES, HU, IE, IT, LT, PL, SE, SK
AT, BE, DK, FI, FR, LV, NL, PT, RO, UK
290
CY, EE, EL, HR, LU, MT, SL
291
BG
292
CY, IE, MT, SE, UK
293
BG, EL
289
138
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 States 297 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;
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.
294
AT, DE, DK, FI, IT, LU, UK
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
295
139
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%,
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.
301
DK, EE, LU, NL
PT, SL
303
ES, HR
304
CZ, EE, SK
305
PT
306
SL, HU
302
140