Development Aid: Karel De Gucht calls on all EU Member States to ‘work together’ to ensure billions of euros in aid doesn’t get wasted

European Commissioner for Development and Humanitarian Aid, Karel De Gucht, will today call upon EU Member States to work better together to ensure that more than 3 billion euros of aid can avoid being wasted every year. A European approach to development aid could bring massive ‘savings’, he’ll warn, through more effective management of aid policy, actions and projects – savings which must then be reinvested in better development.

The appeal from the European Commissioner follows upon a first version of an independent study entitled ” Aid Effectiveness: benefits of a European Approach” which was launched just 3 weeks ago at the European Development Days in Stockholm, Sweden. The report seeks to quantify the costs for the EU of not fully implementing international commitments taken in Paris (2005) and Accra (2008). First estimates by experts suggest that over €3 billion euros of efficiency gains per year could be made 2010 and 2015. The major obstacles to cost-effectiveness of aid are to be found in the volatility of aid flows, the proliferation of donors and implementing organisations and the ensuing fragmentation of aid programmes into tens of thousands of projects.

Karel De Gucht stated: “At a time of global economic crisis, it is clearly unacceptable that critical aid money is being wasted when the worlds’ most vulnerable need it more than ever. The European Commission along with the EU Member States have a responsibility to make every euro count for the world’s poor. EU tax payers also have the right to expect our aid is spent as effectively and efficiently as possible. Our report shows a number of systemic weaknesses in all forms of EU aid delivery. Despite European leadership on the international front to advance the aid effectiveness agendawe clearly still have a lot more to do and now is the time to press the accelerator.”

Overall there are two main areas where concerted EU action would have a major impact: improved conditions for aid predictability and a better division of labour. By fully implementing international commitments taken in Paris (2005) and Accra (2008) and using tools agreed at EU level (The Code of Conduct on Division of Labour, the Division of Labour Tool-kit and forthcoming under the Swedish Presidency the “Operational Framework”), the EU could make development work better for the developing countries and trigger similar undertakings by other donors ahead of the next global forum on aid effectiveness in Seoul in 2011.

The main findings of the study are:

*an overall lack of management information systems to properly account for the costs or benefits or using different aid modalities

*increased consolidation of programmes and projects, use of joint financing arrangements, delegated cooperation and agreed division of labour could result in savings of between €200-500 million per year

*with an average cost (staff time and consultants) for design, formulation, appraisal and approval of a new project estimated at somewhere between €90,000 and 140,000, the total costs to the EU donors of preparing the 22 000 new projects approved in 2007 would be between €1.9-3 billion per year

*problem of donor proliferation: 41% of all sectors in recipient countries had recorded disbursements from more than three EU donors in 2007

*problem of fragmentation of aid : EU member states and the Commission together accounted for 40–50,000 aid activities or projects in 2007; improvements in this context can be achieved through more division of labour

*increased predictability of future total EU bilateral aid commitments could increase the value of EU country programmable aid by between €2-4 billion per year

*at present around ten percent of EU aid is still tied meaning it has to be spent back in the donor country. Costs to the EU aid programme from remaining tied aid may be estimated at €500 million per year

Background

The European Union is the largest aid donor, with more than a half of global aid to developing countries coming from the EU.

In 2008, the EU provided €49 billion euros in Official Development Assistance (ODA): approximately 60% of all global aid.

The purpose of the study was to identify and present costs associated with ineffective, fragmented aid, as well as potential savings in such transaction costs from further implementing basic aid effectiveness principles into European (EU and Member States) development cooperation.

The report (Draft Version of 23 rd October 2009) ” Aid Effectiveness: benefits of a European Approach”


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