European aid policy at crossroads

I was very lucky to attend the 2-day “EU change makers” high level conference at the Overseas Development Institute in my last 2 weeks at Bond. The event provided an excellent overview of the main issues and challenges facing the international development sector in Europe and was attended by senior stakeholders from governments, think tanks, NGOs, and a couple of politicians. I’ll attempt to summarise them, but this is my own selection and interpretation – other blogs by Simon Maxwell and Olivier Consolo may provide a broader overview. Also, the event – was held under Chatham House rules, so I won’t quote anyone.

The background is that there are obviously major challenges facing global global economic, resource and environmental systems. Beyond the well known (but still dramatically neglected) issue of climate change or the European financial crisis, there is an increasing concentration of key resources in very few countries, coupled with dramatic changes in global resource flows in the past few years. Chatham House has a very helpful interactive site on this.

Meanwhile, the development finance agenda is undergoing rapid change, with many plainly questioning the relevance of Overseas Development Assistance. “Non traditional” flows of finance – such as the growing role of remittances from migrants, or the emergence of China as a key actor in Africa’s development – have increased rapidly. At a time of constrained aid budgets, and rapid growth of some Middle Income Countries, the need for “domestic resource mobilisation” – such as the need to increase taxation of rich people and companies in poor countries –  becomes much more prominent. I recently commissioned three reports on this, as a key piece of work during my time at Bond.

Within the context of those global challenges, many ask whether traditional development aid donor agencies have to be reconfigured to focus on wider issues rather than mainly poverty reduction. There is talk of aid agencies engaging more heavily in a government-wide approach on topics such as global macro-economic management, climate change, security of state fragility, demonstrating leadership in managing the international system, including the reform of international agencies.

They are also called upon to step up their engagement with the private sector and work more intensely in difficult environments, e.g. fragile and conflict affected states (as the richest of the developing countries no longer need the same kind of help). This seems like a very broad agenda for aid agencies to take on, while they are also under enormous pressure to perform better in terms of effectiveness, and specific and measurable results on the ground.

A changing EU

The EU is the largest multilateral aid donor in the world, and its policies – from trade to agriculture or climate policy – have a major impact on developing countries. For the EU to adapt to this changing global scene, there are various options. But given the increasing challenges posed by resource concentration in a few countries – many of which are the very ones that are “graduating” from aid – how can the EU’s relationship with these countries be reconfigured? What is the EU’s role in establishing bilateral relations with these countries to solve global challenges given no individual member state can have the necessary clout?

Then again, Europe is in a deep crisis. This also reflects a more general crisis of the multilateral system, which can’t be good for the future chances of solving the multiple global challenges we are facing. Where is this new global agenda being organised? The EU? The G20? Or – as somebody put it a the ODI event – the “G0”…(nobody is really doing it!).

This also means the EU is way too focused on its internal problems, and this is likely to dominate the agenda for 2014 European Parliament elections, at a time when the EU’s leadership skills in the world would be really needed.

What is the role of the international development community within this context? Perhaps we need to remember that positive stories about the EU need to be told, too. Someone mentioned that European development – not just the EU’s role as a donor outside its borders but specifically reducing poverty within its own in a few decades – is a really important success story. But it is not being told.

Perhaps the EU (and those in the development world) need to focus on what is already working, and build on that, well rather than agonise over what isn’t going well.  For example, the EU could also find a priority focus for its global work on the green economy, where it definitely has a competitive advantage.

At the same time, if the EU wants to strengthen its role in the world, it needs to become more democratically responsive, and improve its ability to make decisions. Perhaps development should then not just be about least developed countries but also about safeguarding decent livelihoods for European citizens.

Crisis or opportunity?

Interestingly, a German senior official told me on the sidelines that this framing of the challenges we face as a major crisis is not as common in Germany: people there to think of them as major opportunities as well. We agreed this may have something to do with the major decision they have taken post Fukushima to completely overhaul the energy system away from nuclear and towards renewable energy in a few years, which has created a great momentum and a sense that change is really possible (and it’s probably not a coincidence that this decision was greeted with great scepticism here in the UK).

There were of course many discussions on the growing role of the private sector and the possible benefits and pitfalls of that. The risks coming from excessive reliance of developing countries on private flows were mentioned, as they are also easily reversible. (“Blending of grants and loans is very promising….provided you don’t cause a new debt crisis later”). Regulatory certainty was mentioned by a private sector person as key to reducing volatility in private investment.

Then again, a senior official at the event made the point that in the 50s European countries made huge investments in infrastructure, but now there seems to be a reluctance for the state to take an active role in solving national and global problems. Why are we unable to solve our challenges? Why can we not make the necessary investments now?

Countries have undermined their own ability to tackle these challenges by reducing the influence of the state on many issues, including transnational corporations or global financial flows. Global negotiations on all issues happen between weak national states (other than China and to some degree Germany).

Even the EU, with its large power to influence trade, is “nowhere” in terms of being able to control the international financial system. This also means that citizens – rightly – see both the state and the multilateral system as uncapable of tackling these challenges; which brings us back to the need for more democratic legitimacy.

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