EU donor profile

The EU is the largest multilateral donor; spending on migration drove ODA increases in recent years

The European Union (EU) is a multilateral organization that receives funding from its member states. At the same time, it is a donor that channels ODA itself: The EU’s ODA in 2018 stood at US$16.4 billion (current prices). This makes the EU institutions the fourth-largest donor of the OECD Development Assistance Committee (DAC), after the United States, Germany, and the United Kingdom (UK).

These numbers are based on the new methodology for measuring ODA loans which the OECD DAC will apply to ODA reporting for 2018 onward. Preliminary ODA figures for 2018 using this new methodology were first released in April 2019. This methodology, called ‘grant-equivalent’ methodology, provides a more accurate way to count donor efforts in concessional ODA loans because only the ‘grant’ portion of loans, expressed as a monetary value, is counted as ODA. Due to the EU’s high volume of loans, its grant-equivalent ODA is 4% lower than its net ODA would have been based on the ‘cash basis’ methodology used previously.

To allow for comparison overtime, the OECD still publishes net ODA disbursements according to the cash basis methodology. ODA in 2018 decreased by 2% compared to 2017. Nevertheless, this comes after a 25% increase between 2015 and 2016: The EU’s net ODA in 2016 peaked at US$17.6 billion, largely due to increased contributions from several member states (France, Germany, Italy, Spain, and the UK) as a response to the unprecedented arrivals of asylum seekers starting in 2015.

The overall allocation of development funding for the EU’s current 2014-2020 multiannual financial framework (MFF) has largely been determined. The EU’s development funding comes mostly from two sources: The Development Cooperation Instrument (DCI), which provides funds primarily to countries in Asia and Latin America, is part of the EU’s general budget that is laid out in the MFF and comprises €19.7 billion (US$22.2 billion) for 2014 to 2020. The European Development Fund (EDF), which provides funds for African, Caribbean, and Pacific (ACP) countries, is financed by direct contributions from the member states (thus outside the MFF), with €30.5 billion (US$34.4 billion) for the 2014-2020 period (for more details see Question 5: ‘How is the EU’s ODA budget structured?’).

The MFF for 2021-2027 is currently being negotiated. The European Commission (Commission) put forward its proposal for the structure, priorities, and budget limits of the next MFF in June 2018. The Commission suggests combining all the EU’s development instruments (including the EDF and DCI) under the single Neighborhood, Development, and International Cooperation Instrument (NDICI), which would be part of ‘Heading 6’ in the general budget, titled ‘Neighbourhood and the World’.

Within this heading, the NDICI is to focus on development assistance and humanitarian action. The Commission proposes to provide €89.2 billion (US$100.6 billion, in 2018 prices) to the NDICI for the seven-year period. This would mean an increase over the development instruments in the current MFF, despite contributions from the UK stopping after its exit from the EU (‘Brexit’). 92% of the NDICI funds are to be ODA-reportable, amounting to €80.3 billion (US$90.5 billion) as ODA. The proposal is being discussed in the European Parliament and Council throughout 2019; the Commission’s overall budget proposal faces various challenges by the Council, which could change the amounts allocated to Heading 6. A final agreement on the next MFF is to be made by the end of 2019.

Addressing migration-related issues and humanitarian assistance remain top focus areas

The EU’s development strategy is outlined in the European Consensus on Development from 2017. Its overarching objectives are poverty reduction and alignment with the 2030 Agenda for Sustainable Development. The objectives have been translated into four frameworks for action:

• ‘People – human development and dignity’, which includes education, nutrition, access to water, health, decent work, environment, and human rights;
• ‘Planet – protecting the environment, managing natural resources, and tackling climate change’;
• ‘Prosperity – inclusive and sustainable growth and jobs’, which includes investment and trade, sustainable agriculture, illicit financial flows, and innovation;
• ‘Peace – peaceful and inclusive societies, democracy, effective and accountable institutions, rule of law, and human rights for all’, which includes a focus on humanitarian assistance.

The Consensus highlights the EU’s commitment to strengthen interlinkages between sectors, such as development, peace, and humanitarian assistance. It aims to improve the effectiveness of EU development policy through performance-based budget support, among other ways. With this, the Consensus aligns with the EU’s 2012 Agenda for Change, which aims to improve aid effectiveness by concentrating the EU’s country programs on a maximum of three sectors per country and by prioritizing general budget support with stricter conditions. Finally, the Consensus underlines the EU’s intention to combine traditional development assistance with other resources, including private-sector investments and domestic resource mobilization.

Further strategic priorities are outlined in the Cotonou Agreement, which was signed in 2000 to govern relations between the EU and 79 African, Caribbean, and Pacific (ACP) countries, focusing on development cooperation, political dialogue, and trade. The Cotonou Agreement is set to expire in February 2020. Negotiations between the EU and ACP states to renew the terms for 2020-2040 officially began in September 2018 and aim to be finalized by end of 2019. EU and ACP countries agreed on the structure and strategic priorities of the future agreement: an umbrella agreement will define common values and interests, while three distinct agreements will focus on each region’s specific needs (replacing the current single agreement with all ACP countries). The priorities proposed by the EU are:

• Africa: Peace and stability, migration, democracy and good governance, economic development, human development, and climate change.
• Caribbean: Vulnerability to climate change, good governance and human rights, and human development.
• Pacific: Vulnerability to natural disasters and climate change, and maritime security.

Following the increased inflow of asylum seekers in 2015, the EU significantly increased funding to migration-related issues. This includes the establishment of the ‘Emergency Trust Fund for Africa’ (€3.7 billion or US$4.2 billion as of February 2019), and the ‘EU Regional Trust Fund in Response to the Syrian Crisis’ (€1.5 billion or US$1.7 billion as of November 2018). Humanitarian assistance is one of the top sectors of EU ODA, accounting for 11% of the EU’s bilateral spending. The EU’s humanitarian assistance budget for 2019 reached record levels (US$1.8 billion), primarily to address the crises in Syria and Yemen. The European Commission (Commission) proposes to double the budget for migration and border management from €13 billion (US$14.7 billion) in the current multiannual financial framework (MFF) 2014-2020 to €34.9 billion (US$39.3 billion) in the MFF 2021-2027.

The priorities for the next MFF 2021-2027 are currently being negotiated by the three EU institutions: the Commission, the European Parliament (Parliament), and the Council. The Commission put forward a proposal in June 2018, which suggested merging all external funding under a single instrument, the Neighborhood, Development and International Cooperation Instrument (NDICI). NDICI is to have a large geographic component; a thematic component comprising global challenges, human rights and democracy, civil society organizations, and stability and peace; a rapid response component; and an additional “cushion” for emerging challenges and priorities. Cross-cutting priorities are to be strengthened through spending targets, including 20% for climate change, 10% for tackling root causes of migration, with 92% of funding set to be ODA-reportable.

Following approval of the proposal by Parliament in spring 2019, EU member states (Council) plan to agree by fall 2019 on what the spending limits and priorities for development cooperation should be. A final agreement is to be achieved by the end of 2019. The EU external action budget is likely to be strongly affected by battles over other elements of the EU’s general budget, notably the Common Agricultural Policy (CAP) and regional policy, and the proposed NDICI has yet to gain support from all member states.

Implications of ‘Brexit’ on the EU’s ODA

As things stand, the UK is due to leave the EU by end of March 2019 (‘Brexit’). While details on how this will affect EU development policy remain unclear, Brexit could impact the EU’s development policy in the following ways:

• Reduce financial resources: If the EU institutions agree to the proposed NDICI, the UK will no longer to able to contribute to EU ODA via the extra-budgetary EDF. Nonetheless, the Commission’s latest proposal does not foresee reductions in the EU’s external action budget despite Brexit.
• 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 development assistance programs. It also provides significantly more ODA for health than any other EU member state.

The EU has a strong preference for bilateral financing

The EU shows a strong preference for bilateral financing, providing 98% of its ODA as bilateral funds to partner countries (2017). A preferred channel is budget support, which according to the European Commission (Commission) promotes country ownership and aligns EU funding with national development strategies. Though the EU does not provide much core funding to multilaterals, a quarter of the EU’s bilateral ODA is earmarked for programs implemented by other multilaterals organizations.

Bilateral funding focuses on government and civil society, humanitarian assistance, and infrastructure projects

The largest share of the EU’s bilateral ODA supports the sector ‘government and civil society’ (12%). This sector received US$2.2 billion in 2017, a significant increase of 31% compared to 2016. This includes e.g., funding for public sector policy and administrative management, decentralization, and anti-corruption (which increased by 88%). The EU’s second-largest sector of bilateral funding is humanitarian assistance, amounting to US$2.1 billion in 2017 (11%). Following significant increases between 2015 and 2016 (and peaking at US$2.4 billion in 2016), humanitarian assistance declined 15% in 2017 but remains at high levels. Infrastructure and energy receive significant shares of EU bilateral financing, US$2.0 billion (11%) and US$1.6 billion (9%) respectively.

EU ODA is largely grant-based. Three-quarters, or 73%, of the EU’s bilateral ODA in 2017 was provided in the form of grants (average amongst the members of the OECD Development Assistance Committee, DAC: 91%). One of the Commission’s key instruments for the delivery of grants is budget support; in 2017, budget support accounted for 12% of bilateral ODA (US$2.2 billion), a much higher share than the 2% DAC average.

The EU provides the remaining quarter of its bilateral ODA as loans and equity investments (27% in 2017). This is much higher than the average amongst DAC donors (9%). The European Investment Bank (EIB) Group provides the EU’s loans. While 82% of the EIB’s loans support activities within Europe, the rest supports the EU’s external action. EIB loans to ODA recipient countries focus on middle-income countries (MICs, 63% in 2018), while only 11% went to low-income countries (LICs; the rest is not allocated by country). A change in OECD reporting rules for ODA loans may considerably decrease the amount of loans reported as ODA by the EU, because data from 2018 onwards will only count the grant element of loans as ODA, while currently the full face-value of loans is counted.

In 2016, the Commission established the European External Investment Plan (EIP). The EIP includes a European Fund for Sustainable Development (EFSD), endorsed by the EU with US$4.6 billion (€4.1 billion). This fund is intended to scale up investment in the European Neighborhood and Africa through two investment windows that aim to address socio-economic causes of migration. Focus sectors are transport and energy, environment, agriculture, urban development, and improved financial access for local micro, small, and medium enterprises (MSMEs). In addition, it includes an EFSD guarantee that will be used to balance risks. The EIP also includes technical assistance to support local authorities and companies in developing projects and making regulatory improvements.

EU’s key instruments for bilateral ODA differ in geographic focus

Among the various EU instruments that provide ODA, the European Development Fund (EDF) and Development Cooperation Instrument (DCI) have the strongest focus on developing countries and poverty alleviation.

• EDF recipients: The EDF focuses on providing development assistance to African, Caribbean, and Pacific states (ACP). Given that the vast majority are in sub-Saharan Africa (48 out of 79 ACP states), most EDF funding is allocated to countries in the region (91% of total EDF funding in 2016 goes to Africa). Funding is also directed towards LICs: of the top 10 recipients of EDF funding in 2016, eight are LICs, according to the Commission’s Annual report on the implementation of the EU’s instruments of 2017.
• DCI recipients: When considering both geographic and thematic programs, countries in Asia receive the largest share of DCI funding (43% of total funding in 2016). DCI’s geographic programs focus on Asia (70%) and Latin America (26%). The thematic fund, however, is more focused on Africa, with 40% of the funds in 2016 going to countries in this region. Of the top 10 recipients of the DCI, half are MICs, half are LICs.

Along with other OECD donors, the EU is committed to spending 0.15-0.2% ODA/GNI in LICs; however, EU funding for LICs has not increased, remaining stable at 25% of total bilateral ODA in 2017.

Given that a large share of EU ODA is provided to neighboring countries through the European Neighborhood Instrument (ENI) and the Instrument for Pre-accession Assistance (IPA, see Question 5: ‘How is the EU’s ODA budget structured?’), much of the EU’s total ODA goes to MICs. MICs received 58% of the EU’s bilateral ODA between 2015 and 2017 (DAC average: 33%), while LICs were allocated 24%, according to OECD data. Top recipients are Turkey, Morocco, Serbia, and Tunisia, all MICs.

For a deeper understanding of EU funding at the recipient level, please consult data from the International Aid Transparency Initiative (IATI). IATI is a reporting standard and platform on which organizations and governments voluntarily publish data on their development cooperation, including more recent activity than is available through OECD data. Data can be searched by recipient country, the ‘publisher’ (including funders that do not report to the OECD), and other filters. Click here for more information on IATI’s data. Click here to go directly to IATI’s ‘d-portal’, a user-friendly interface for data searches.   

Quarter of bilateral aid is earmarked for multilateral organizations

While the EU reports virtually all its ODA as bilateral ODA, it funds other multilateral organizations through contributions that are earmarked for specific thematic or geographic priorities and is thus reported as bilateral ODA. In 2017, the EU channeled a fifth of its ODA (20%), or US$3.8 billion, to multilateral organizations (the DAC average is 13%). Major recipients of this earmarked funding are UN agencies, which collectively received US$2.0 billion earmarked funds in 2017; largest contributions went to the UN Children’s Fund (UNICEF, US$340 million in 2017) and the UN Development Programme (UNDP, US$292 million). Other multilateral organizations receiving earmarked ODA from the EU include the World Food Programme (WFP, US$430 million) and regional development banks (US$246 million). Earmarked multilateral funding decreased almost threefold between 2014 and 2015, which is explained by changed reporting procedures for loans provided by the EIB: Until 2014 loans were reported as ‘earmarked funding’, but they moved to the ‘bilateral ODA’ category in 2015.

Only a small share of EU ODA is channeled in the form of core contributions to other multilateral organizations (2% or US$352 million in 2017), including US$229 million to the Global Fund to Fight AIDS, Tuberculosis and Malaria, and US$115 million to the UN Relief and Works Agency for Palestine Refugees (UNRWA).

Council and European Parliament approve strategy and budget presented by European Commission; EU delegations define priority sectors of bilateral cooperation with partner countries

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 above) includes ministers of EU member states, who coordinate member states’ policies to define strategic priorities for the EU. The Council meets in different configurations, depending on the issue at stake. The Foreign Affairs Council includes ministers of foreign affairs and/or development from all member states. They meet once a month and vote on legislative acts, coordinate policies, and decide on the annual budget, usually in co-decision-making with the European Parliament (Parliament). The Council’s meeting agendas are set by the member state that holds the rotating presidency for six months; Romania holds the presidency from January until June 2019, to be followed by Finland, Croatia, and Germany. Meetings are chaired by the EU’s High Representative for Foreign Affairs and Security Policy, currently Federica Mogherini. She is assisted by the European External Action Service (EEAS) to coordinate the EU’s foreign policy tools, including development assistance and humanitarian assistance.

Together with the Council, the Parliament, currently headed by President Antonio Tajani, decides on the annual EU budget, which includes the Development Cooperation Instrument (DCI). The Parliament has an exclusively advisory role vis-a-vis the European Development Fund (EDF), as the EDF is not currently included within the EU’s general budget, though this may change in the 2021-2027 MFF. Budget allocations and strategic priorities of the EDF are approved by a Joint Council of Ministers of African, Caribbean, Pacific (ACP), and EU countries. The Parliament also scrutinizes the 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 and implementation of the EU’s development policy. DG DEVCO manages 50% of the EU institutions’ ODA commitments, including the DCI and EDF. Other Directorates-General involved in ODA allocation and implementation include the Directorate-General for Neighborhood and Enlargement (DG NEAR, covering the EU’s enlargement process and the European Neighborhood Instrument, 23%) and Directorate-General for European Civil Protection and Humanitarian Aid Operations (DG ECHO).

EU country offices (called delegations) are part of the EEAS structure and are responsible for the programming of development funding, together with the Commission. EU delegations develop seven-year strategies with partner countries or regions regarding EDF and DCI allocations. These ‘multi-annual indicative programs’ within the DCI and ‘national/regional indicative programs’ within the EDF are developed based on pre-existing national development plans or strategies and with instructions from DG DEVCO and EEAS. They define priority sectors of bilateral cooperation between the EU and the partner country and state indicative amounts allocated to each sector. The agreements established within the EDF also specify the share each EU member state is to contribute (‘contribution key’); the final country agreements therefore also need to be ratified by each EU member state.

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. For the implementation of the EDF, each ACP country appoints a National Authorizing Officer who, together with the EU delegation, is responsible for all program-related matters.

EU ODA comes from the general budget and EDF

The multiannual financial framework (MFF) sets political priorities and provides a framework for financial programming for a period of five to seven years. The current MFF covers 2014 to 2020; the next one will cover 2021 to 2027. Within the 2014-2020 MFF, ODA comes from two main sources:

• The European Development Fund (EDF; €30.5 billion or US$34.4 billion for 2014 to 2020), which is outside of the EU’s general budget and is financed by direct contributions from EU member states according to a contribution key. The largest contributors are Germany, France, the UK, and Italy;
• The EU general budget’s Heading 4, ‘Global Europe’, which includes 12 external funding instruments (in total €63.3 billion or US$71.3 billion). The Development Cooperation Instrument (DCI, with €19.7 billion or US$22.2 billion) is the funding source that places the strongest focus on developing countries.

This section focuses on the DCI, together with the EDF. Together they account for 53% of the EU’s external action budget (US$56.5 billion, between 2014 and 2020). Other external funding instruments covered by Heading 4 include:

• The European Neighborhood Instrument (ENI) (€15.4 billion, or US$17.4 billion, for 2014 to 2020), which is accessible to the EU’s neighbor countries and is focused on addressing the root causes of migration;
• The Instrument for Pre-accession Assistance (IPA) (€11.7 billion, or US$13.2 billion, for 2014 to 2020), which is restricted to EU accession candidates and focuses on capacity-building to prepare candidates for the rights and obligations of EU membership;
• Smaller instruments such as the Instrument contributing to Stability and Peace (IcSP) and the European Instrument for Democracy and Human Rights (EIDHR).

The DCI accounts for 31% of Heading 4. The DCI covers geographic program support to EU partner countries in Asia and Latin America, as well as thematic programs that are open to all developing countries. Within the latter, the ‘Global Public Goods and Challenges’ (GPGC) program comprises US$5.6 billion for the period 2014 to 2020, largely centered on food and nutrition security and sustainable agriculture (US$1.5 billion) and to health (at least US$1.1 billion). The DCI’s ‘Pan-African Program’ (US$935 million) supports the Comprehensive Africa Agriculture Development Programme (CAADP) under the Joint Africa-EU Strategy. Of DCI’s funding between 2014 and 2020, 5% or US$1.1 billion is kept as a reserve.

The EDF provides assistance to African, Caribbean, and Pacific (ACP) countries and focuses on low income countries (LICs). The EDF includes country and regional programs (US$27 billion for 2014 to 2020), as well as intra-ACP funds (US$3.9 billion for 2014 to 2020) that finance cooperation among ACP states. An estimated US$4.1 billion of the EDF is kept as unallocated reserves to fund responses to unforeseen needs (US$3.8 billion from country programs and US$561 million from intra-ACP funds). In 2015, for example, the EU tapped into the EDF reserves to provide US$1.7 billion to the Emergency Trust Fund for Africa.

The Commission’s proposal for the next MFF 2021-2027 (presented in June 2018) suggests merging all external funding instruments, including the EDF, under the Neighborhood, Development and International Cooperation Instrument (NDICI), which will be part of the new Heading 6, ‘Neighborhood and the World’. The Commission has suggested increasing the budget of Heading 6 to €89.2 billion (US$100.6 billion) for MFF 2021-2027, with two-thirds (€68 billion, US$76.7 billion) allocated to a geographic pillar focusing on the EU’s neighborhood and Africa, €7 billion (or US$7.9 billion) to a thematic pillar (which includes €3 billion, or US$3.4 billion, for global challenges), and €4 billion (or US$4.5 billion) for a rapid response pillar. A further €10.2 billion (US$11.5 billion) would go to an additional flexibility cushion for emerging challenges and priorities. The Commission’s proposal is currently being discussed and negotiated in the European Parliament and Council; a final budget is to be adopted by the end of 2019.

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

The EU’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 annual budget can only be adopted within the spending limits set in the MFF. The European Development Fund (EDF) is approved for five- to seven-year periods, and while its budget is not renewed every year accounts are reviewed each year by the European Commission (Commission), and adjustments can be made.

The following points outline the steps in EU’s annual budget process:

• The Commission presents its draft budget: Usually by the end of May, the 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 must be 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 in 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 representatives from Council and Parliament – 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.