EU donor profile

The EU is the largest multilateral donor and the only multilateral member of the OECD DAC

The European Union is a multilateral organization that receives funding from its member states. At the same time, it is a donor that channels ODA itself: EU institutions are the fourth-largest donor of the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD), after the United States, Germany, and the United Kingdom. The EU’s ODA stood at US$15.7 billion in 2016 (in 2016 prices; US$18.5 billion in 2014 prices), decreasing slightly from 2015 levels. Development assistance is projected to increase moderately in the coming years, despite cuts to the EU’s general seven-year budget. The projected ODA growth is largely driven by increases in funds allocated from the EU budget to deal with the migration crisis; the EU budget for 2017 includes an additional €6 billion to fund actions within and outside the EU to address the root causes and consequences of migration.

The EU’s current multiannual financing framework (MFF) runs from 2014 to 2020, and the allocation of development funding for this period has largely been determined, except for reserves that are flexible (see section four: ‘How is the EU’s ODA budget structured?’). The EU’s development funding comes mostly from two sources: the European Development Fund (EDF), financed by direct contributions from the member states with US$40.5 billion for the seven-year period, and the EU’s general budget line for ‘Global Europe’ (Heading 4). Heading 4 includes the Development Cooperation Instrument (DCI), to which US$26 billion has been allocated for 2014 to 2020.

The EU’s ODA stood at US$15.7 billion in 2016, decreasing slightly from 2015 levels

Focus on poverty reduction and the SDGs; increased emphasis on human rights and inclusive growth

The EU’s development strategy is outlined in the European Consensus on Development, signed by the three main EU institutions (the European Commission, the European Parliament, and the Council of the European Union) in 2006. Its overarching objectives are poverty reduction and achieving the Millennium Development Goals (MDGs), which have been translated into nine focus areas:

• trade and regional integration;
• environment and sustainable management of natural resources;
• infrastructure;
• water and energy;
• rural development and food security;
• governance and human rights;
• conflict prevention;
• human development;
• and social cohesion and employment.
   

The Consensus is currently being revised for after 2020. A communication presented by the European Commission in November 2016 suggested an ambitious, collective European development policy. It highlighted the need to give more prominence to key drivers (including women and youth), and to better coordinate the development cooperation of the EU and the member states. The proposal will be discussed by the EU member states and the European Parliament in the first half of 2017. The objective is to agree on a joint text (a ‘Joint Statement’), which contains a common framework for European development policy under the shared ownership of EU institutions and the member states. The review is likely to influence the mid-term reviews of the two main instruments of the EU’s development assistance: the European Development Fund (EDF) and the Development Cooperation Instrument (DCI).

In 2012, the Agenda for Change was adopted, which outlines policy guidelines that complement the Consensus. The main objective of the Agenda for Change is to improve the effectiveness of EU development policy, and as such it prioritizes human rights and inclusive growth, as well as general budget support with stricter aid conditionality. It calls for a focus on the poorest countries and increased engagement with the private sector. It also further highlights the use of innovative financing mechanisms such as the blending of grants and loans.

The EU’s development strategy is outlined in the European Consensus on Development, jointly signed by the 3 main EU institutions.

The Cotonou Agreement, a partnership framework signed in 2000, governs relations between the EU and African, Caribbean and Pacific (ACP) countries; it thus presents the framework for the EDF. The agreement is set to expire in 2020. Principally, negotiations to renew and discuss the terms of the cooperation between the EU and ACP after 2020 must begin no later than September 2018 (18 months before the current agreement’s expiration). In practice, they were already under discussion in 2016; a joint communication from November 2016 suggests that the renewed partnership with ACP countries should build on the Agenda 2030, on the EU’s Foreign and Security Policy, and on coherence with the Consensus. A central issue under consideration is whether to incorporate the EDF into the EU’s general budget (the so-called ‘budgetization’). This would allow for the European Parliament to have a say in the allocations made by the EDF. While the issue has already been debated during the negotiations of the current multiannual financial framework (MFF), the decision was postponed. The Commission will do outreach and gather feedback on the new Cotonou Agreement until mid-2017.

The EU disburses nearly all of its ODA bilaterally; focus is on economic development, humanitarian aid, and infrastructure projects

The EU is a multilateral institution that receives funding from its member states. At the same time, it is a donor that channels ODA itself; it provides the vast share directly to countries as bilateral ODA (99% in 2015).

The largest share of the EU’s bilateral ODA is allocated to financial services and business support (14% in 2015, or US$2.6 billion), in line with the EU’s focus on economic development. Humanitarian aid and infrastructure projects come second and third, each accounting for 11% of bilateral ODA in 2015 (around US$2 billion each). The EU’s humanitarian assistance is mainly carried out by the Directorate-General for European Civil Protection and Humanitarian Aid Operations (DG ECHO) to address humanitarian crises outside the EU. Infrastructure projects largely benefit middle-income countries (MICs), which received 71% of ODA for such projects in 2015. Turkey alone received 23% of this funding in 2015.

Implications of the refugee crisis

The ‘refugee crisis’ has had a major impact on the EU’s external action and development policy. In response to the high influx of refugees in Europe, the Commission provides increasing humanitarian aid in fragile areas and within the EU. In March 2016, the Commission committed €700 million to fund emergency support operations within EU borders for 2016 to 2018; it has disbursed €300 million in 2016 and will disburse €200 each year in 2017 and 2018.

The Commission amended its 2015 and 2016 general budget to increase spending on the refugee crisis by €4.7 billion each year, amounting to a total of €9.3 billion (US$12.2 billion). This included the establishment of the ‘Emergency Trust Fund for Africa’ (to which the Commission contributed €1.8 billion) and the ‘EU Regional Trust Fund in Response to the Syrian Crisis’ (aiming to raise €1.2 billion by early 2017), both targeted at tackling the root causes of migration abroad.

For 2017, EU institutions agreed on spending a total of €6 billion on addressing the consequences of the migration crisis within Europe, as well as tackling the root causes of the refugee flow outside of the EU. This includes the protection of the EU’s external borders, actions within the EU, and actions outside the EU to address the root causes of migration.

Implications of ‘Brexit’: the UK’s decision to leave the EU

In June 2016, the British people voted in favor of exiting the EU. It is still unclear how this decision  will affect EU development policy. Brexit  could potentially impact the EU’s development policy in the following ways:

• Reduce financial resources for development programs: the UK contributes around US$2 billion per year to EU development programs through the EU’s general budget and the EDF; these may see cuts
• Create a leadership gap: the UK has been a strong supporter of value for money, evidence-based policy, and a strong results agenda within EU development policy, placing emphasis on multilateral development assistance
• Reduce the focus on poorest countries: the UK has advocated for a stronger focus on low- income countries and fragile states within the EU’s aid programs.

The Council and the European Parliament decide on strategy and budget; DG DEVCO of the Commission develops policies and programs jointly with European External Action Service (EEAS)

The European Council, currently chaired by President Donald Tusk and composed of all EU heads of state and government, meets regularly to set high-level political and budgetary priorities for the EU.

The Council of the European Union (Council; not to be confused with the European Council, see above) includes ministers of EU member states who define overall strategic priorities. The Council meets in different configurations, depending on the issue at stake. For development cooperation, the most relevant configuration is the Foreign Affairs Council. It includes ministers of foreign affairs and/or development from all member states, who vote on legal acts, coordinate policies, and decide on the annual budget in co-decision-making with the European Parliament. The Council’s meeting agendas are set by the member state which has the presidency for six months; the presidency until June 2017 is held by Malta, to be followed by Estonia between July and December 2017.

The EU’s Foreign Affairs Council decides on strategic priorities and the annual budget, in cooperation with the European Parliament.

The Foreign Affairs Council is chaired by the EU’s High Representative for Foreign Affairs and Security Policy, Federica Mogherini. She is assisted by the EEAS to coordinate the EU’s foreign policy tools, including development assistance and humanitarian aid.

Along with the Council, the European Parliament (headed by President Antonio Tajani), decides on the annual EU budget, which includes the Development Cooperation Instrument (DCI). The Parliament cannot influence the European Development Fund (EDF), as it is not included within the EU’s general budget – it is one of the issues that may come up in the course of the negotiations of the renewal of the Cotonou Agreement. The Parliament also scrutinizes the European Commission (Commission) during policy and program implementation.

Within the Commission (headed by President Jean-Claude Juncker), the Directorate-General for Development Cooperation – EuropeAid (DG DEVCO) is responsible for the formulation of EU development policy and the implementation of programs. DG DEVCO manages the EU’s main external financing instruments, including the DCI and EDF. Other Directorates-General involved in ODA allocation include the Directorate-General Humanitarian Aid and Civil Protection (DG ECHO) and Directorate-General Research and Innovation. In her role as High Representative and Vice-President of the Commission, Mogherini coordinates the Commissioners’ Group on External Action with the view to develop a joint approach to EU global activities. The EEAS is the diplomatic service of the EU. EU country offices (called delegations) are part of the EEAS structure and are co-responsible with DG DEVCO for the programming of development funding. The Commission is responsible for management and implementation.

The EDF is an extra-budgetary instrument that funds development activities in African, Caribbean and Pacific (ACP) countries. Its programming and implementation structure is different from the instruments that are financed from the EU’s budget (e.g., the DCI). The EDF is financed by direct contributions from the EU member states according to a contribution key, and approved by a Joint Council of Ministers of ACP countries and EU countries. It is not renewed every year: the current EDF (11th) was adopted for the 2014-2020 period. Most of the funding has already been allocated (see section four: ‘How is the ODA budget structured?’). The EDF is established within the framework of the Cotonou Agreement, which defines the EU-ACP relations and priorities. Management of the EDF is delegated to DG DEVCO and the EEAS, which take the lead on allocating funds to the specific countries and regions. Regarding implementation, each ACP country appoints a National Authorizing Officer who, together with the EU delegation, is responsible for all program-related matters. The EDF will face a mid-term review in 2017, which will allow for a reassessment of priorities and allocations.

EU ODA comes from the EU budget and the EDF

The EU’s ODA comes from two main sources: the European Development Fund (EDF; €30.5 billion or US$40.5 billion for 2014 to 2020) and part of the EU’s general budget’s Heading 4, ‘Global Europe’. Heading 4 is part of the multiannual financial framework (MFF), which sets political priorities and provides a framework for financial programming and budgetary control from 2014 to 2020, and it includes funding instruments that are most relevant for ODA: the Development Cooperation Instrument (DCI), the European Neighborhood Instrument (ENI), and the Instrument for Pre-accession Assistance (IPA).

• the Development Cooperation Instrument (DCI; €19.6 billion or US$26 billion for 2014 to 2020), whose prime objective is the reduction of poverty
• the European Neighborhood Instrument (ENI; €15.4 billion or US$20.4 billion for 2014 to 2020) is accessible to the EU’s neighbor countries only and is focused on promoting human rights, supporting the transition towards the market economy, and promoting sustainable development and policies of common interest
• the Instrument for Pre-accession Assistance (IPA; €11.7 billion of US$15.5 billion for 2014 to 2020) is restricted to EU accession candidates and focuses on capacity-building, aiming to prepare EU candidates for the rights and obligations of EU membership.

The EDF – which is outside of the EU’s general budget and financed by direct contributions from EU member states – and the DCI are the EU’s funding instruments that place the strongest focus on developing countries (unlike the ENI and IPA). Together, they account for 65% of the EU’s ODA (US$66.5 billion between 2014 and 2020). For these reasons, the section focuses on these two funding sources. The European Commission manages funding from both instruments.

The EDF is the largest funding instrument. It provides assistance to the African, Caribbean, and Pacific Group of States (ACP countries) and focuses on low-income countries (LICs). Germany, France, the United Kingdom, and Italy are the largest contributors to the EDF. The EDF includes country and regional programs (US$32.6 billion for 2014 to 2020), as well as Intra-ACP funds (US$4.8 billion for 2014 to 2020, increasing by 25% compared to the 2007-2013 period) that finance cooperation among ACP states. Intra-ACP funds are also used to finance contributions to multilateral institutions, including the Global Fund to fight AIDS, Tuberculosis and Malaria (Global Fund; €215 between 2014 and 2020 will go to the Global Fund through intra-ACP funds), and Gavi, the Vaccine Alliance (€40 million between 2003 and 2012). An estimated €3.9 billion (US$5.2 billion) of the EDF is kept as unallocated reserves to fund responses to ‘unforeseen needs’. For example, €1 billion (US$1.3 billion) has been sourced from EDF reserves to fund the Emergency Trust Fund for Africa, a funding facility set up in November 2015 to tackle root causes of migration in different African regions. Reserves include a total of €3.4 billion (US$4.5 billion) from country programs and €507 million (US$672 million) from intra-ACP funds.

The DCI includes €19.6 billion (US$26 billion) for 2014 to 2020 (30% of Heading 4), of which up to 5% (US$1.3 billion) is also kept as a reserve. The DCI covers country program support to EU partner countries in Asia and Latin America (US$15.6 billion for 2014 to 2020), as well as ‘thematic programs’ that are open to all developing countries (US$9.3 billion for 2014 to 2020). The ‘Global Public Goods and Challenges’ (GPGC) program comprises €5.1 billion (US$6.8 billion) for the period 2014 to 2020, of which at least €980 million (US$1.3 billion) will be allocated to health and €1.4 billion (US$1.9 billion) to food and nutrition security and sustainable agriculture. Within the GPGC, the Commission finances ‘EU flagship programmes’ that will address global challenges through multi-sectoral or cross-cutting approaches. No concrete funding amounts are earmarked for these programs. Moreover, the DCI’s €845 million (US$1.1 billion) ‘Pan-African Program’ will support the Comprehensive Africa Agriculture Development Programme (CAADP) under the Joint Africa-EU Strategy, however, the exact amount is not yet known.

The current MFF is subject to a mid-term review in 2017: the Commission presented a review of the MFF in September 2016, taking full account of the economic situation at that time as well as the latest macroeconomic projections. In the review, the Commission put forward a package to free an additional €6.3 billion in financing by 2020 to foster economic growth and investment in Europe, to address migration and its root causes, and to increase the EU's responsiveness to unforeseen circumstances. The mid-term review will give the chance to the EU institutions to reassess general development priorities. The Commission is also set to present a proposal for the post-2020 MFF before the start of 2018; in a Communication in November 2016, the Commission mentions that the new MFF will explore how EU budgets and future financial programmes can best continue to adequately contribute to the delivery of the 2030 Agenda and support member states in their efforts. In addition, the Commission will conduct mid-term reviews of the EDF and the DCI in 2017, after which it might revise their respective geographic and thematic allocations.

The Commission develops the draft budget in April-May; programming runs from November until July

While the European Development Fund (EDF) is approved for five-year periods, the European Union’s general budget is negotiated and approved annually. However, the annual budget process takes place within the political priorities and financial programming set in the multiannual financial framework (MFF). The MFF is the EU’s ‘long-term spending plan’: it states expenditure ceilings for a period of at least five years. The current MFF covers seven years, from 2014 to 2020. The annual budget can only be adopted within the spending limits set in the MFF.

• The European Commission presents its draft budget: By June 30, the European Commission (Commission) presents its annual draft budget to the European Council (Council) and the European Parliament (Parliament). This budget is developed in a closed process, without consultation from external stakeholders, and in accordance with MFF’s spending ceilings. The annual draft budget includes country and thematic programs within the Development Cooperation Instrument (DCI).
• Council and Parliament prepare positions on draft budget: Once the Commission has presented its draft budget, the Council prepares its position on it between July and September and proposes amendments. The Council forwards its position to the European Parliament by mid-September. However, the committees of the Parliament already start holding internal discussions on the draft budget between July and September. This includes the Committee on Development (DEVE), which delivers its opinion along with proposed budgetary amendments on funding to DCI country and thematic programs, and the Budget Committee (BUDG). This period is thus a key opportunity for engaging with Members of the European Parliament (MEPs) on the relevant committees around budget allocations to the DCI.
• Parliament votes on amendments to Council’s position: Once Parliament has received the Council’s position, it has 42 days to approve or amend it. BUDG prepares the Parliament’s position, based on the previous inputs from the thematic committees. Usually in late October, the Parliament votes in plenary on the Council’s position, including the proposed amendments.
• Conciliation procedure between Parliament and Council: Parliament forwards the amended text to the Council. If the Council approves all amendments, the budget is considered adopted. If not, a conciliation committee – consisting of an equal number of Council and Parliament representatives – is convened to reach an agreement. The Conciliation Committee has 21 days to find a compromise, after which the Parliament and Council must adopt the agreed budget.

The EU disburses nearly all of its ODA bilaterally

The EU reports virtually all of its ODA as bilateral ODA (99% in 2015). However, this does not mean that European institutions do not provide support to other multilateral organizations: they often do so through funding that is earmarked for specific thematic priorities or countries/regions and is thus reported as bilateral ODA. In 2015, the EU channeled 16% of its bilateral ODA to multilateral organizations, which implemented projects earmarked for certain geographic or thematic areas. For example, a large share of EU contributions to United Nations organizations (including UNICEF, UNDP, World Food Programme, UNRWA, and UNHCR) are reported as bilateral aid. In 2015, the EU’s full support to the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) was reported as a multilateral contribution.

Grant disbursements made up 72% of bilateral ODA of the EU in 2015. One of the Commission’s key instruments for the delivery of grants (within all funding instruments) is budget support. Under this instrument, funds are transferred directly to the recipient country’s budget, as a means to strengthen national development policies and reforms, and to foster country ownership. In 2015, budget support accounted for 12% of bilateral ODA (US$2.2 billion), a much higher share than the average amongst the members of the Development Assistance Committee (DAC; 2%). Disbursements have remained relatively stable over the past years. Sub-Saharan Africa is the largest recipient of budget support (49% in 2015).

Despite the vast majority of the EU’s ODA being provided as grants, the share of loans and equity investments in the EU’s ODA (28%) is much higher than the averages amongst DAC donors (16%), and has increased significantly in past years: in 2010, loans and equity investments accounted for only 0.5% of the EU’s bilateral ODA. This is due to the fact that the EU started to report unsubsidized loans by the European Investment Bank (EIB) as ODA in 2011. The EIB is the European Union’s bank, which provides finance for investment projects. More than 90% of investments support activities within Europe, however it also supports the EU’s development policy. EIB loans focus almost exclusively on middle-income countries (MICs): in 2015, they received 87% of EIB’s total volume of ODA loans. As a result of an upcoming change in OECD reporting rules for ODA loans, the amount of loans reported as ODA by the EU may considerably decrease. From 2018 onwards only the grant element of loans will be counted as ODA (i.e., the concessional part of a loan), while currently the full face value of loans is counted as ODA. This change in reporting may lead to a considerable decrease in total EU ODA.

Under the framework of the European External Investment Plan (EIP), set up in September 2016 by Commission President Juncker, the Commission set up a European Fund for Sustainable Development (EFSD). This fund is intended to scale up investment in the European neighborhood and Africa through setting up investment windows on a range of social and economic development issues. The EIP also includes technical assistance to support local authorities and companies in developing projects.

Who are the ODA recipients?

Large shares of ODA go to EU neighborhood and accession countries

Due to the large share of ODA funding delivered to neighboring countries through the European Neighborhood Instrument (ENI) and the Instrument for Pre-accession Assistance (IPA) (see section four: ‘How is the EU’s ODA budget structured?’), a large share of the EU’s ODA goes to MICs. They received 58% of the EU’s bilateral ODA between 2013 and 2015 (DAC average: 33%). Low-income countries (LICs) were allocated 25%, below the DAC average of 28%.

As the European Development Fund (EDF) and the Development Cooperation Instrument (DCI) have the strongest focus on developing countries and poverty alleviation, this section analyzes the recipients of these two funding instruments in more detail.

• EDF: The EDF focuses on providing development assistance to countries of the African, Caribbean, and Pacific Group of States (ACP countries): of those 79 countries, 48 are in Sub-Saharan Africa. Subsequently, the majority of EDF funding is allocated to countries in the region (82% of total EDF funding in 2015). Funding is also directed towards LICs: nine of the top 10 recipient countries of the EDF in 2015 belong to this category.
• DCI: When considering both geographic and thematic programs of the DCI, countries in South, Central and Far East Asia receive the largest share (50% of total funding in 2015). DCI’s geographic programs focus on South and Far-East Asia as well as Latin America. The thematic fund, however, is more focused on sub-Saharan Africa, as 27% of the funds in 2015 were allocated to countries in this region. The DCI focuses rather heavily on MICs: with the exception of Afghanistan, all top 10 recipients belong to this category.

Under the multi-annual financial framework (MFF) for 2014 to 2020, the EU will be closing 16 bilateral programs with MICs in Asia and Latin America; this will increase funding to LICs.

How is bilateral funding programmed?

The European Commission’s Directorate-General for International Cooperation and Development (DG DEVCO) and the European External Action Service (EEAS) are jointly responsible for approving the EU’s seven-year strategy with partner countries regarding EDF and DCI allocations. These documents, referred to as ‘multi-annual programs’ (for cooperation under the DCI) and ‘national/regional indicative programs’ (for cooperation under the EDF) are developed by EU delegations on the basis of pre-existing national development plans or strategies and with instructions from DG DEVCO and the EEAS. They define priority sectors of bilateral cooperation between the EU and the partner country, and state indicative amounts allocated to each sector. Both instruments will undergo mid-term reviews, which offer possibilities to reshuffle programmed EDF and DCI funding, within a country as well as between different countries.

On a yearly basis, DG DEVCO and EU delegations jointly prepare Annual Action Programs (AAPs) that set budget allocations and goals for each country and for the DCI’s thematic programs. AAPs are usually adopted by the Commission leadership during the summer following agreement over the budget. DG DEVCO may also adopt ‘addendums’ to the AAPs towards the end of the year for additional financing of programs.

The decision-making process on ‘flagship programmes’ (see section four: ‘How is the EU’s ODA budget structured?’) is unclear. DG DEVCO proposed to focus on 12 initiatives that should be partially funded through the thematic GPGC program. In addition, the Commission could, for example, open new ‘flagship programmes’ on global health and earmark funding for these purposes.