The balance of international aid is shifting, with emerging donors contributing a growing proportion of the international development budget. The surge in investment needs careful handling to avoid gaps and overlaps, and to keep poverty reduction and lowering inequality at the heart of aid. Collaborative projects between the EU, emerging donors and beneficiary countries could be the way forward, according to a European Commission report, ‘The European Union, Africa and New Donors’.
Understanding the two donor groups’ different styles, reporting methods and reception in beneficiary countries is the first step towards better coordination.
“The importance of emerging donors has been increasing in recent years, and we wanted to understand better how they operate, what their impact is, and how they interact with traditional donors and partner countries,” says Jose A. Becerra, Policy Officer in DEVCO’s International Cooperation and Dialogue unit.
The ‘new’ donors - Brazil, China, India, Kuwait, Saudi Arabia, Turkey and the United Arab Emirates – committed close to €80bn of official development assistance (ODA) and other official flows to Africa from 2003-12. China alone committed €11bn of development finance to Africa in 2012, dwarfing the €4bn of ODA from EU institutions.
“The report gave us an opportunity to hear how governments and stakeholders in partner countries perceive assistance from different donors,” says Becerra.
Emerging donors, particularly China, have one main advantage over their traditional counterparts: speed. “Some [African countries] said, ‘While we are waiting to have the decision of a traditional donor to start a certain project, the Chinese have already finished the project,’” recalls Becerra.
Another attraction of funds from emerging donors is the perception of equality. “They are on an equal footing, with no history of colonial exploitation, and no policy conditions attached to the loans,” says Axel Dreher, Professor of Economics at Heidelberg University and author of the report. While traditional donors have in the past made loans provisional on the recipient country reducing its budget deficit or creating an independent central bank, emerging donors' approach is different.
“Emerging donors look less at the variables which traditional donors take into account, such as low GDP or targeting aid to the Millennium Development Goals,” says Becerra. India stands out among emerging donors for granting significantly more aid to countries with greater need, supporting programmes to reduce undernourishment in schools, improve access to water and sanitation and increase literacy. “But in general, emerging donors’ aid is more commercially-oriented,” says Becerra. “And if aid is less need-oriented, it may have less impact on poverty reduction.”
In addition, emerging donors’ funds are frequently ‘tied’ to services or goods bought from the donor country. 85% of loans from India’s Exim Bank are linked to the purchase of Indian goods and services, and China’s Exim Bank insists that at least 50% of all procurement should come from China.
Insisting on ‘tied’ aid can increase the costs of a development project by 15-30%, according to the OECD. Recipient countries are unable to seek the cheapest materials or laborers, and local firms are prevented from bidding for contracts. Foreign workers brought in by the donor country often return home upon a project’s completion without imparting knowledge or skills to local workers. Traditional donors reporting to the DAC had significantly reduced tied aid to 14% of total aid by 2012.
The European Commission uses a Joint Programming strategy to synchronize the efforts of multiple EU donors working in a single country, replacing several bilateral strategies and planning cycles with a single plan. No sector should have more than five active donors involved, advise the EU guidelines, and no donor should work in more than three sectors. Non-EU development partners are involved wherever possible, to help reduce fragmentation, lower transaction costs and make projects more predictable.
Significantly, the traditional donors are moving towards a facilitating role, and local governments are encouraged to take the lead, supported by emerging donors.
- Highlights from the report: The European Union, Africa and New Donors
- Information on EUROsociAL, the programe for social cohesion in Latin America
- Details of the newly-launched Regional Facility for International Cooperation and Partnership forjoint activities between the EU and Latin America and the Caribbean
- Voices & Views: EUROsociAL
- Voices & Views: Joint Programming