Market-led growth and trade: Towards a modernised EU development policy?

4 April 2011

Reflections on the future of the European Union's (EU) development policy largely focus on strengthening support for inclusive growth and sustainable development, notably through market-led reforms, private sector development and Aid for Trade. In this context, the European Commission published a Green Paper(1)in November 2010 with considerations on how to increase the impact of EU development policy   and how it can best support the efforts of developing countries in promoting inclusive and sustainable growth. Over 200 stakeholders provided written contributions to the consultation process and the Green Paper has been discussed in multiple forums. The consultation process will be followed by a Communication of the Commission on a "modernised EU development policy" in June 2011.  This article examines the trends reflected in the Green Paper and its possible implications.

The changing context

Rapid changes in the world require the EU to continuously adapt its role and policies. The balance of economic power in the world is shifting, particularly with emerging economies in Asia and Latin America gaining ground. Global challenges, such as climate change, increasingly require joint action. The relative importance of development aid, as part of global financial flows to developing countries, is declining.   Public expenditures for development cooperation, in the EU and beyond, are under pressure due to the financial and economic crisis.

At the same time, EU external action is undergoing changes following the entry into force of the Lisbon Treaty in December 2009. The European Council appointed a High Representative for Foreign Affairs and Security Policy  assisted by the  European External Action Service (EEAS) and the role the European Parliament has been strengthened.

In an effort to adapt to this changing context, Development Commissioner Andris Piebalgs launched a process to "modernise" the EU development policy. The Commission adopted the Green Paper "EU development policy in support of inclusive growth and sustainable development: Increasing the impact of EU development policy" in November 2010, followed by a consultation process(2).

A reform of the EU's development policy may lead to a review of the overall reference document in the area, the European Consensus on Development(3). While this option is provided in the Green Paper, various member states are not in favour of a review, as they fear it could result in a tedious negotiation process and lower ambition levels in this time of economic crisis. A review of the Consensus is uncertain at this stage; however, the policy reform will shape the new EU financial instruments post-2013.

Main trends in the Green Paper

Four main trends can be identified in the Green paper:

1. An increased emphasis on results and impact

Results and impact are put at the centre of EU development cooperation, which should provide "value for money". The need to demonstrate results is stressed to ensure continued public support for EU development cooperation.

2. Focus on inclusive economic growth and private sector promotion

It is argued that inclusive economic growth is most effective in reaching development objectives. For EU support to enhance growth, aid needs to target governance reforms and the private sector. The private sector will be assisted in bringing about growth through risk-sharing etc. while governments receive assistance to create growth-conducive conditions, including a favourable business climate.

3. Aid as a catalyst to leverage additional resources for development

European aid should leverage other forms of development funding, including from the private sector. An enhanced use of "blending" - mixing grants and loans - is proposed. Aid should also increasingly be used as a tool to strengthen domestic resource mobilisation in developing countries.

4. Priority for the areas of climate change, renewable energy and agriculture/food security

Commissioner Piebalgs has repeatedly emphasized that the EU will need to prioritise to increase impact. Areas that receive particular attention in the Green Paper, and thus may be interpreted as proposed priority areas are climate change, renewable energy and agriculture/food security.

Results of the consultation process

The Commission received 229 written responses from EU member states, non-EU donors, regional and local authorities, NGOs, the private sector, international organisations, think tanks, academics and individuals, in reaction to the Green Paper. The largest group of contributors were NGOs with over 40%, whereas the group that contributed least were partner countries, representing  only 4% of the total. The Commission will publish a synthesis report of all contributions received.

The contributions reveal a wide range of views. The majority welcomes the main trends described above. This may not come as a surprise as the trends are in line with shifts in the current global discourse on development cooperation. A recurring remark in many contributions is the call for more conceptual clarity. For example, while the paper focuses on inclusive growth, stakeholders remark that no definition is given of what inclusive growth entails, and its origination. Further analysis and debate is considered essential if the "inclusiveness" of growth is to be ensured, as the link between economic growth and poverty reduction is complex and not automatic.

The various contributors highlight opportunities and risks of the policy proposals. Many value the greater emphasis on market-led mechanisms and private sector involvement toward more equitable and inclusive growth. However, some emphasise that an increased focus on results may lead to the pursuit of quick, easily measurable results, rather than effectively supporting development which is a long-term, complex process. Others point to the risk of instrumentalisation of aid to pursue EU economic interests at the expense of poverty eradication. Some fear that the EU might not remain committed to its collective ODA target of 0.7% of GNI by 2015 given the accent put on leveraging additional resources.(4)

Key issues on the way forward

The modernisation of EU development policy is an ongoing process. It seems unlikely that it will result in a revolutionary and complete overhaul of the current policy and practice; it could, however, contribute to reshaping EU development cooperation by putting a greater emphasis on regulatory reforms, market development, regional integration and trade in its development agenda.

Several issues will need to be better addressed by the EU. For instance, the Green Paper pays only lip service to the EU‘s major support to regional integration initiatives; and while private sector support is emphasised, the EU has a rather weak track record to claim any comparative advantage in this area.

If the EU is to elaborate a more effective, visible and coherent development policy, it must address four key issues:(5)

1. Strengthen partnerships

A more ‘strategic' approach to partnerships as envisaged by the new EU leadership requires the EU to move beyond a donor-recipient approach and invest in responding more specifically to its partners' interests. To do this, the EU could substantially enhance its regional focus and capacities to work at the (sub-) regional level. New policy priorities need to be articulated firmly with those of existing partnership agreements. The current trend of a proliferation of partnership frameworks and related strategies could be halted to allow for clarity of focus in policy and action, so as to achieve results and impact. There is a need, particularly in partnerships, to narrow the gap between rhetoric and action. The ambitious objectives but disappointing results of the EU's relations with North Africa in the context of the EU Neighbourhood Policy are a case in point.

The EU should also strengthen its partnership approach at the global level. The EU has considerable leverage to influence global governance structures and policies affecting developing countries. In this regard, EU  efforts to contribute to a successful conclusion of the Doha Development Round will be crucial.

2. Political economy analysis

The EU should integrate a political economy dimension in its  development policies and practices. This implies taking into account that development is essentially a political change process, involving context specific and historically shaped interactions of formal and informal institutions driven by a broad range of incentives.

In this way, the EU can appropriately adapt to partner country contexts and examine the role it can realistically play in institutional reform, avoiding overly technocratic and blueprint development models. A more rigorous attention to domestic and regional drivers for (and obstacles to) change may also inform the EU on the potential for longer-term objectives such as ‘inclusive growth'.

3. Exploit the opportunities of the Lisbon Treaty

The EU could exploit the potential of the Lisbon Treaty for a more coherent and integrated EU approach to development, improving its overall impact on developing countries. It can do so by systematically implementing its policy objectives regarding Policy Coherence for Development (PCD) and advancing the Division of Labour agenda.

The creation of the High Representative post and the EEAS are opportunities to build more synergies between development policy and EU policies in other areas such as conflict prevention, trade, agriculture, fisheries and climate change. The momentum of the Lisbon Treaty should be used to establish development cooperation as a key area of a new integrated EU external policy. Contributing to inclusive and sustainable growth in developing countries should be recognized as an interest and responsibility for the EU as a whole, not for the development community alone. Buy-in at the highest political levels is crucial: PCD should not be seen as a technocratic exercise.

For the advancement of the Division of Labour agenda it is essential that the EU practices what it has preached in past years. The Commission's areas of comparative advantage need to be clarified and strengthened in an increasingly complex multi-actor and multi-layered system of international cooperation. This will have to involve a consultative process on the criteria to determine the comparative advantage. Only after such an agreement has been reached within the EU, a choice of topics (private sector, climate change, energy, food security etc.) can be made.

4. Address the implementation gap / delivery challenge

The European Commission needs to address the delivery challenge in realizing the ambitions it sets for itself. Many evaluations of EU development cooperation show that it is not the quality of its policy but its implementation that faces most obstacles. Much progress has been made in recent years, yet the Commission should continue to reform its systems, further improving incentives, rules and capacity.

Authors

Henrike Klavert, Eleonora Koeb and Jeske van Seters are Policy Officers at the European Centre for Development Policy Management (ECDPM).

1http://ec.europa.eu/development/icenter/repository/GREEN_PAPER_COM_2010_...

2 In parallel the European Commission came out with a Green Paper on budget support and a consultation document on funding for EU external action after 2013. http://ec.europa.eu/europeaid/how/public-consultations/index_en.htm. A Commission Communication and Council Conclusions on a modernised EU development policy will follow in the coming months.

http://ec.europa.eu/europeaid/what/development-policies/european-consensus/index_en.htm

4 A large number of contributions to the consultation process can be found on http://ec.europa.eu/europeaid/how/public-consultations/5241_contributions_en.htm.

5 See ECDPM contribution to the Green Paper consultation. www.ecdpm-talkingpoints.org/increasing-the-impact-of-eu-development-policy-what-the-european-commission-needs-to-prioritise-now/

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