Italy donor profile

Italy’s ODA has been increasing since 2012, but costs for hosting refugees inflate ODA levels

Following sharp decreases between 2008 and 2012 due to the economic crisis, Italy’s ODA has been steadily increasing since 2012. In 2016, it spent US$4.9 billion (in 2016 prices; US$5.7 billion in 2014 prices), ranking as the eighth-largest donor country. This corresponds to 0.26% of Italy’s GNI.

Between 2012 and 2016, Italy’s spending for development increased by 94%. This increase is the result of two dynamics: a significant rise in costs of hosting refugees in Italy, some of which is reportable as ODA, and the political will of former Prime Minister Matteo Renzi’s government to use development cooperation as a tool to strengthen Italy’s international standing. The government – which was replaced in December 2016 by Prime Minister Paolo Gentiloni – pledged to gradually increase the ODA/GNI share to reach 0.3% by 2020. 2017 will be an important year as Italy holds the G7 presidency and general elections will be held at the latest by May 2018.

The government of former Prime Minister Renzi pledged to gradually increase the ODA/GNI share  to reach 0.3% by 2020.

Since 2011, Italy has been at the frontline of the refugee crisis in Europe, as high numbers of asylum seekers continue to reach the continent by crossing the Mediterranean Sea. ODA-reportable costs for hosting refugees in Italy rose from US$260 million in 2012 to US$2 billion in 2016, when they accounted for 34% of Italy’s ODA. However, unlike several other donor countries, Italy so far does not use its development budget to cover those costs. The funds are instead additional to planned development funding, thus ‘inflating’ Italy’s ODA levels. In parallel, funding for development programs abroad is also increasing: when when excluding in-country refugee costs, net ODA went up by 5% between 2015 to 2016.

Focus on tackling root causes of migration, particularly in Africa

Strategic priorities of Italy’s development cooperation are spelled out in the three-year Programming Guidelines and Directions (‘linee guida programmazione triennale’), developed by the Ministry of Foreign Affairs and International Cooperation (MAECI). The MAECI is still in the process of drafting new guidelines for the period 2016 to 2018.

Italy’s development priorities:

• Migration: Tackling root causes of displacement, particularly in Africa, will be a key priority of Italy’s G7 presidency in 2017; focus on food security and nutrition, health, and women’s empowerment.
• Agriculture, food security and nutrition: Italy has shown international leadership, e.g., through EXPO 2015 in Milan, maintains close relationships with the UN’s Rome-based Food and Agriculture Organization (FAO), the World Food Programme (WFP), and the International Fund for Agricultural Development (IFAD).

Italy has recently overhauled its development cooperation system (see section three ‘Who are the main actors in Italy’s development cooperation?’). In 2014, the parliament approved the first major reform of its development cooperation since 1987. As part of the reform, Italy established its first-ever development agency, the Italian Agency for Development Cooperation (AICS). The agency started operating in January 2016. AICS’s budget is set to gradually increase over the coming years, from €292 million in 2016 to €532 million in 2018. AICS outlines five thematic areas on which it will focus its bilateral cooperation: 1) economic development and opportunities; 2) human development (including health and education); 3) environment and use of natural resources; 4) rural development and food security; 5) emergency and fragile states.

At the frontline of the refugee crisis, Italy places an increasing focus on tackling the root causes of migration

Due to its position on the frontline of the refugee crisis, Italy places an increasing focus on tackling the root causes of migration, particularly from Africa to Europe. To this end, Italy plans to put the areas promoting food security and nutrition, health, and women’s empowerment at the forefront of its G7 agenda in 2017. At the European level, Italy pushes for a ‘Migration Compact’, a plan that aims to strengthen cooperation with countries of transit and of origin to tackle root causes of displacement.

Leadership in agriculture and food security; large amounts of bilateral funding dedicated to hosting refugees

In the past two years, rising costs for hosting refugees drove a significant increase in Italy’s bilateral ODA: costs rose from US$260 million in 2012 to US$1.2 billion in 2015, when they represented 52% of Italy’s bilateral ODA. Other priority sectors for bilateral ODA include government and civil society, humanitarian aid, education, agriculture, and health. These will likely continue to be in focus.

However, Italian priorities for development are also well reflected within its multilateral contributions, which make up more than half of Italy’s overall ODA (54% in 2015). The multilateral share is particularly high for agriculture and rural development, which in 2015 received US$245 million in the form of multilateral funding, or 67% of total agricultural ODA. Italy has shown international leadership on agriculture and the related areas of nutrition and food security, most recently during the EXPO 2015 in Milan, entitled ‘Feeding the Planet, Energy for Life’. These areas are also expected to feature prominently during its G7 presidency in 2017. The Italian government is likely to launch a new initiative focused on food security and nutrition during the G7 presidency; this is likely to be presented during the high-level meeting on nutrition in November 2017.

The MAECI leads on strategy; Italy’s new development agency will implement

Since December 2016, Prime Minister Paolo Gentiloni (Democratic Party, PD) leads the government. The Italian Prime Minister engages in development when it comes to high-level commitments or international conferences. He is a key stakeholder, particularly in light of Italy’s upcoming G7 presidency in 2017, in which development issues related to migration, agriculture, and food security are expected to feature prominently.

ITALY'S DEVELOPMENT COOPERATION SYSTEM

The 2014 law on cooperation profoundly restructured Italy’s development cooperation system: it strongly aligns development policy with foreign affairs. Within government, two ministries are involved in development cooperation:

• The Ministry of Foreign Affairs and International Cooperation (MAECI) is responsible for defining the strategic direction of development policy. It is currently headed by Angelino Alfano (founder of the New Centre-Right party). Within the MAECI, the Deputy Minister of Foreign Affairs (Mario Giro) manages development policy. He supervises the MAECI’s Directorate General for Development Cooperation (DGCS) and the work of the Italian Agency for Development Cooperation (AICS), as well as Italy’s new development bank. The DGCS is in charge of defining the strategic direction of development programs. Pietro Sebastiani, its Director-General since August 2016, intends to restructure the DGCS internal offices.
• The Ministry of Economy and Finance (MEF), led by Pier Carlo Padoan (no party affiliation), is also a key player: it has control (jointly with the MAECI) over relations with and contributions to development banks and funds, and collaborates with the MAECI on the ODA budget.

MAECI and MEF are also members of the Interministerial Committee for Development Cooperation (CICS), established in 2014 as part of the reform. The CICS usually meets twice a year to approve the three-year Programming Guidelines and Directions and the overall ODA budget. The CICS is chaired by the Prime Minister and composed of the Minister of Foreign Affairs, the Deputy Minister, and representatives from other ministries, including Finance and Environment. The Joint Development Cooperation Committee (Comitato Congiunto) decides on operational issues, including on funding for projects over €2 million. It is chaired by the MAECI and composed of the heads of MAECI’s DGCS and the development agency AICS.

The 2014 law restructured Italy’s development cooperation system, aligning development policy with foreign affairs

Italy’s new Italian Agency for Development Cooperation (AICS) was set up in January 2016 and is headed by Laura Frigenti. AICS is in charge of developing, supervising, or directly implementing programs. The agency may only autonomously approve funds of up to €2 million. Its staff number is limited by law to 200. Italian civil society organizations (CSOs) are concerned that this could limit the agency’s capacity to implement the planned increase in development programs.

In addition, the 2014 reform introduced the first Italian development finance institution as part of the Bank of Deposits and Loans (CDP), a joint-stock company under public control that manages postal savings. It finances development projects through private and public financing (primarily blending MAECI and MEF resources with EU funding), risk-sharing, and capital-risk instruments, and is meant to improve “access, control, and coordination of the financial activities of banks and multilateral funds”. The CDP is supervised by the MAECI.

Civil society is involved in the policy-making process mainly through the National Council for Development Cooperation (CNCS). It is a consultative body – introduced by the 2014 reform – which brings together 50 members of different backgrounds:  private-sector organizations, CSOs, and public authorities. It expresses its views on the three-year programming guideline and other development issues. The CNCS currently divides its work into three groups (‘Agenda 2030’, ‘private sector’, and ‘migration and development’) that each meet every two months.

The parliament plays an important role in the budget process. The Italian parliament has two chambers: the Chamber of Deputies and the Senate. They examine, amend and vote on the draft budget bill developed by the government. The Foreign Affairs Committees of both chambers give recommendations on ODA budget amendments, while the Budget Committees of both chambers make the final decision.

Foreign Ministry manages the main ODA budget line; Ministry of Interior holds high share of total ODA as it manages costs for hosting refugees

In 2017, Italy’s ODA is expected to stand at around €4.8 billion (US$6.4 billion). Around a third of ODA includes costs for hosting refugees in Italy, managed by the Ministry of Interior. The total costs for hosting refugees are expected to be €2.3 billion in 2017 (see budget). This means a continuous increase since 2015, when these costs were US$1.2 billion.

The Ministry of Economy and Finance (MEF) manages the largest part of the ODA budget (€1.8 billion in 2017). The MEF mainly contributes to Italy’s development funding through contributions to the EU's general budget (which includes the Development Cooperation Instrument, DCI), other multilateral development banks and funds, and managing debt relief.

The Ministry of Foreign Affairs and International Cooperation (MAECI) manages the last third of the ODA budget (€1.3 billion in 2017). The main ODA-related budget envelope within the MAECI’s budget is the program 4.2 for ‘development cooperation’. It comprises ‘chapters’ for funding to Italy’s new development agency, AICS, and contributions to the European Development Fund. It also includes several ‘chapters’ for contributions to the UN and other multilaterals. The budget for the ‘development cooperation’ program will increase over the coming years, with AICS’s budget alone set to increase from €273 million in 2016 to €532 million in 2018.

Overall ODA levels are set in spring; allocations to countries are made following budget approval

• Ministry of Economy and Finance (MEF) develops the three-year budgetary guidelines: From February to April each year, the Minister of Economy and Finance (MoF) develops the Economic and Financial Document (DEF), which sets three-year budgetary guidelines. Over the past years, the DEF has also outlined estimates of the share of GNI dedicated to ODA for the next three years. Key decision-makers in this process are the Prime Minister, the MoF, the Minister of Foreign Affairs and International Cooperation (MAECI), and the Deputy Minister of Foreign Affairs.
• Government develops the budget draft: From July to September, the Cabinet develops the budget draft, in which suggested ODA increases need to be protected. Key stakeholders include the Deputy Minister of Foreign Affairs, the Minister of Foreign Affairs, the Minister of Finance, and the Prime Minister. As budget negotiations between the government and parliament start prior to the presentation of the draft budget in mid-October, engaging MPs over this period of time may prove effective for advocacy purposes.
• Parliament examines, amends, and votes on budget draft: Parliamentary budget discussions run from October to December. The Foreign Affairs Committees of the Chamber of Deputies and the Senate give recommendations on budget amendments. The Budget Committees make the final decision; members of these committees are thus key stakeholders to engage when it comes to budget allocations.

In addition to the regular budget process, the government usually issues a decree known as the ‘one thousand extension decree’ (‘milleproroghe’) at the end of December. It uses this decree to finance additional measures in the next budget year, relating to any budgetary issue. Parliament examines and may amend the decree from January to February. This may provide additional opportunities to influence the ODA budget.

Italy disburses much of its ODA multilaterally, but bilateral cooperation is expected to increase

Italy currently provides ODA mainly through multilateral organizations. The share of ODA disbursed multilaterally is much higher than that of other donors: it reached more than half of Italy’s total ODA in 2015. Member countries of the Development Assistance Committee (DAC) of the OECD provide on average 39% of their ODA multilaterally. This high share is the result of a traditional inclination towards multilateral funding. However, it is also due to implementation constraints and budget cuts for bilateral programs between 2008 and 2012, while binding contributions to EU institutions were maintained. As a result, the EU is also the key recipient of Italy’s ODA: in 2015, 42% of Italy’s total ODA went through the EU. In 2013 and 2014, bilateral ODA has started to increase again. This has been driven by the rising costs of hosting refugees, which are reported as bilateral ODA, but also increased humanitarian aid. Looking forward, multilateral and bilateral ODA are expected to be more balanced, as funding for bilateral cooperation programs is set to increase with the establishment of Italy’s new development agency, AICS.

Italy currently provides almost all bilateral ODA in the form of grants (95% in 2015). However, the share of ODA provided as loans and equity investments is expected to increase as Italy’s new development bank is expected to engage in innovative financing mechanisms.

Who are the ODA recipients?

Focus is on sub-Saharan Africa and MENA

Sub-Saharan Africa and the Middle-East and North Africa (MENA) region are the priority areas for Italy’s cooperation. With the exception of Albania and Pakistan, all top ten recipients are in one of these regions.  These regions will remain in focus in the coming years, particularly as Italy places increasing emphasis on tackling the root causes of migration from Africa. The government is currently finalizing an updated list of priority countries. These will be listed in the three-year guidelines for 2016 to 2018.

As a result of Italy’s engagement in sub-Saharan Africa, Italian development cooperation strongly benefits least-developed countries. When excluding ODA that is not allocated to specific countries (63%; see figure), Italy allocated 73% of its bilateral ODA in 2015 to low-income countries. This corresponds to 27% when considering total bilateral ODA.

How is bilateral funding programmed?

MAECI is responsible for strategy and programming, but embassies also play a key role on the ground

The programming and implementation of bilateral ODA have been significantly restructured by the 2014 reform. As the new agency AICS only started operating in January 2016, it is still unclear what processes AICS and the Foreign Ministry’s Directorate General for Development Cooperation (DGCS) will use to program bilateral funding.

Up until the 2014 reform measures come into effect, allocations of bilateral funding to partner countries are based on multi-year country programs developed by DGCS. To do so, the DGCS consults Local Technical Units and embassies in the field. Priority sectors and allocations are outlined in these documents. Based on the country programs, the DGCS annually reviews and updates its Programming Guidelines and Directions. They define annual priority countries and key bilateral programs within these. At a country level, regional departments at DGCS’ headquarters then develop and approve projects, after consultation with embassies. Due to their close relations with partner country stakeholders, embassies often have an influential role.