Combine generous aid with clear signals

Development Policy19 Jun 2008Nadia Molenaers, Robrecht Renard

We see two major issues that Europe could and should address as a matter of some urgency: combating European donor proliferation, and harmonizing policy analysis and policy dialogue. Both aspects relate to the Development Assistance Committee (DAC) 2005 Paris Declaration.

Firstly, the EU, as a group, is by far the largest provider of aid, far more important than the US or Japan, as we keep reminding ourselves. However, on the downside, the EU is also the major source of donor proliferation. The problem is that the EU, rather than seeking constructive ways of harnessing the efforts of its 27 member states, just makes things worse by insisting (implicitly) that all 27 member countries set up their own bilateral programmes and agencies. The EC itself acts as the 28th EU donor, happily competing with the member states and only occasionally constituting a vehicle for joint action. It is not an exaggeration to state that the EU, as a group, is the major source of proliferation of public donors in the world. Over the last decade for instance, the EU has been instrumental in adding 12 additional bilateral donors (the new member states) most of them toddlers in terms of size. More promising is that, since the Paris Declaration, the EC is discovering its potential coordination role – especially in field delegations in recipient countries. The EC is increasingly trying to take a lead coordinating role, through the 2005 European consensus, and the 2007 code of conduct. Much will depend on how strict such a voluntary code will be followed. To sum up, as long as the efforts to ‘delivering as one Europe’ are not taken up too vigorously, including a critical look at the role of the EC aid delivery machinery in all this, many of the donor proliferation problems correctly identified in the DAC 2005 Paris Declaration will not be addressed.

Secondly, it is increasingly understood that the relative failure of aid in Paul Collier’s ‘bottom billion’ countries has to do with the way the state operates in these countries. The new aid approach has therefore correctly shifted attention from the micro to the macro, and from the technical to the political. Aid is seen as a way of strengthening state institutions and functioning, through a judicious combination of flexible budget support, policy dialogue, and macro and sectoral capacity building. However, one of the major problems is that there are strong vested interests in recipient countries that detract from these efforts. This produces and increased amount of conflict between donors and recipients than the official discourse on both sides would have us believe.

It is our conviction that the new aid approach will only succeed if it manages to combine generous aid with clear signals – in terms of aid selectivity and limited, but well chosen, and effectively sanctioned conditions – to partner governments. One area of donor harmonization the Paris Declaration is fairly mute about, however, is the need for all providers of budget support to make a joint policy analysis and decide on a joint long-term course of action in terms of policy dialogue. This is the niche par excellence that the EU should try to occupy. There are, at present, some opportunities to do this. The EC has developed an interesting new instrument which could facilitate more and better harmonization. The recently launched ‘Governance Incentive Tranche’ requires that the EC (in the field) fills out a long questionnaire related to the governance profile of the recipient. In some countries this time consuming endeavour has been a fruitful first attempt to coordinate European donors in sharing information on governance and even making a joint governance assessment. In other countries however, there was no such harmonization effort linked to the filling out of the governance profile. The EC should thus, institutionally, have much more of a harmonization reflex built in its instruments and activities.

But finally, the EU does not need to produce yet another series of development reports on top of what others are already doing. Instead, the EU should concentrate on documents that help it fulfill its basic task of solving collective action problems among the member states.