Annexes to COM(2012)366 - Improving EU support to developing countries in mobilising Financing for Development - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2012)366 - Improving EU support to developing countries in mobilising Financing for Development. |
|---|---|
| document | COM(2012)366  |
| date | July 9, 2012 |
Addressing all these challenges means mobilising significant resources from all possible areas of financing for development. But it also means that financing for these policy areas cannot be seen separately from the domestic policy environment of partner countries, e.g. the fossil fuel subsidies in emerging and developing countries which amounted to € 309 billion in 2010[15] and which more than offset the effects of financing provided to reduce global greenhouse gas emissions. This also shows that EU should continue to promote policies in both donor and partner countries that reinforce each other to leverage the best possible development results.
5. Leveraging Development Finance and Seeking Synergies
5.1. Innovative Financing Sources
‘Innovative financing’ is considered an important financing source for most global public goods, including addressing global development challenges. At the same time, given their innovative nature, it is impossible to establish a complete list of sources and mechanisms that fall under this term. Because of this, the estimated potential of innovative financing to mobilise new funds varies greatly.
The Commission has proposed an EU-wide financial transaction tax, strongly supported by the European Parliament[16], which would contribute through the EU budget also to tackling global challenges. Although not explicitly directed to development financing, it would reduce the share of other resources in the EU budget, in the magnitude of EUR 54 billion by 2020[17], which could in turn make it easier for Member States to mobilise funding required for meeting aid targets and tackling other global challenges. Another potential source of increasing importance is the revenue from the Emissions Trading System that some Member States already partly direct towards supporting developing countries.
Action: The Council should adopt the proposed EU-level Financial Transaction Tax.
5.2. Innovative Financing Mechanisms and Engaging Private Sector
There is an increasing range of ways to collect and pool revenues, use traditional development finance and deliver aid. Engaging the private sector in development financing is another innovative way of mobilising new funds.
In many developing countries, the expansion of the private sector is a powerful engine of economic growth and the main source of job creation. Foreign investment also plays an important role, including through domestic firms’ linkages to international markets and through investments. One of the main challenges for governments in developing countries is to ensure an environment that supports private sector development. This often requires far-reaching economic reforms aimed at improving the investment climate and facilitating access to finance. Accordingly, and as outlined in the EU Agenda for Change[18], the EU should continue to assist partner countries’ efforts to improve their business environment with a view to fostering inclusive growth.
The EU promotes actively the Corporate Social Responsibility (CSR) principles including human and labour rights, decent work parameters, as well as attention to local environmental conditions. The recent Commission Communication on CSR[19] outlined this in detail and the Council took specific commitments in its Conclusions on “Reinforcing Industrial Policy in the EU”[20].
The EU should also use its grants more strategically and effectively for leveraging public and private sector resources. Half of the Member States are already actively engaged in several innovative mechanisms. The EU and Member States, together with European and International public financing institutions are actively collaborating though various regional blending mechanisms which are expected to be further scaled up in future in order to leverage grant resources. This includes the potential to make greater use of guarantee mechanisms, equity investments and other types of innovative financing. In this context, the EU is currently exploring with Member States and financing institutions, the establishment of an "EU Platform for External Cooperation and Development" to maximise the impact of resources through enhanced cooperation, coherence, monitoring and development of new innovative financing mechanisms.
Action: The EU, Member States and public financing institutions should step up efforts for increased use of innovative financing mechanisms on a coherent, coordinated and strategic basis. The EU should leverage more private resources and capacities through blending mechanisms that can crowd-in additional private and public financing: i) create a private sector window within the regional blending mechanisms, ii) make greater use of risk-sharing mechanisms such as guarantees that can unlock investments and iii) promote investments through instruments that entail improved risk management and equity participation in structured funds.
5.3. Strengthening Synergies between various Financing Sources
The resources covered in the previous chapters are intrinsically linked to each other, as are also the global challenges these need to address. Ultimately, each country needs to find its individual balance between these priorities in domestic implementation for delivering the best compound return on all fronts. However, the tendency for different policy areas to ‘compete’ for resources contributes to aid fragmentation and less development effectiveness. This can be observed in the overlap of financing sources through which the various challenges can be met, with all parties vying for more domestic resources and international finance, increased private sector engagement and use of innovative mechanisms. Therefore, there is scope for finding synergies between all these policies.
In this light, the tendency to set boundaries between policy areas and instruments can prove counterproductive. While in theory locking in expenditure on specific policies, the artificial categories will restrict the policy space of countries to target resources according to what brings best results in the national context. While there are early signs of an emerging international consensus that a joined-up approach is needed to tackle global challenges, this will need further analytical work and a cross-cutting approach to avoid undermining policy goals.
Action: The EU and its Member States should support an integrated approach to development financing, including monitoring its various elements, possibly in the context of the discussions on a post-2015 development framework, and should establish a common EU position on this.
6. Making EU Actions more effective: Busan Implementation at Country Level
In responding to the outcomes of the Busan High Level Forum on Aid Effectiveness, the EU should focus on country-level implementation of aid and development effectiveness commitments, in particular through supporting partner country capacity and leadership to set priorities and achieve results. The EU has in place a broad spectrum of guidance for this purpose: the EU Common Position for Busan, the Operational Framework on Aid Effectiveness and the EU Code of Conduct on Complementarity and Division of Labour. These remain valid; however, some key issues should be prioritised for collective EU action at the country level in line with Busan outcomes and the Council Conclusions on the Agenda for Change.
6.1. Country-Level Results Frameworks
Focus on results was identified in Busan as a major priority. The Busan outcome document states that all development partners should rely to the maximum extent possible on country-led and country-level results frameworks as a common tool to monitor outputs and outcomes drawn from the development goals of partner countries.
Considerable work is still required in establishing and using country-level results frameworks. While acknowledging partner countries’ lead, the EU should play an active role in this process in coordination with existing initiatives. EU collective action should follow the approach for mutual accountability frameworks as set out in the EU Operational Framework, namely EU Delegations initiating discussions to support existing frameworks and develop new ones together with Member States, partner countries and other stakeholders.
6.2. Mutual Accountability Frameworks
Country-level mutual accountability frameworks are key tools with which to foster the implementation of aid and development effectiveness commitments on the ground. These are also likely to be instrumental in any future monitoring within the Global Partnership for Effective Development Cooperation.
The full potential of mutual accountability frameworks is yet to be tapped, thus collective EU support to strengthen or establish these frameworks is timely. This support should be provided under partner country leadership and in coordination with other processes and actors, and giving consideration to the expected supporting role of UNDP country offices. The EU should place particular emphasis on how to address in these frameworks the partner countries’ priorities in relation to Busan, including the use of country systems and capacity development.
6.3. Reduced Fragmentation
Development partners committed themselves in Busan to increased use of country-led coordination arrangements to reduce fragmentation. Collective EU action on the ground is of particular value as the Fast Track Initiative on Complementarity and Division of Labour has built EU experience in this area and should be pursued, preparing the ground for further joint programming.
Donor mapping is one of the activities that can enhance in-country division of labour. In line with Busan priorities, the EU and its Member States should expand country-level mapping to cover the support they give to climate action based on Fast Track Initiative methodology and building on the OECD Rio Marker system. It would complement the EU’s and Member States’ potential measures to support national strategies for climate action and promote the integration of climate risks into development strategies.
Action: Collective EU action to strengthen country-level implementation of aid and development effectiveness commitments based on the EU Operational Framework through i) supporting country-level results and mutual accountability frameworks, and ii) continued division of labour activities, including mapping of EU support for climate action at the country level, leading to conducive environments for joint programming.
7. Conclusions
The next three years will see important developments. The EU will need to deliver on its commitments and prepare a common and coherent approach also on the means for reaching any new goals. Even with the changing global context, the EU has to remain focused on the essential objective: providing the best support it can to developing countries in mobilising all available resources for development.
[1] International Conference on Financing for Development.
[2] Usually expressed as tax-to-GDP ratio.
[3] COM(2011) 637 final,
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0637:FIN:EN:PDF
[4] http://www.imf.org/external/pp/longres.aspx?id=4611
[5] See: EU 2011 Report on Policy Coherence for Development (PCD), SEC(2011) 1627 final.
[6] COM(2012)22 final of 27 January 2012, http://ec.europa.eu/trade/wider-agenda/development/
[7] Migration and Development Brief No 17, World Bank, Migration and Remittances unit, December 2011.
[8] Eurostat Statistic Focus 4/2012.
[9] ‘Innovation With Impact: Financing 21st Century Development’, Report by Bill Gates to G20 leaders, Cannes Summit, November 2011.
[10] COM(2011) 743.
[11] SEC(2011) 1353.
[12] 9417/12
[13] 9372/12; http://register.consilium.europa.eu/pdf/en/12/st09/st09372.en12.pdf
[14] 10029/12, http://register.consilium.europa.eu/pdf/en/12/st10/st10029.en12.pdf
[15] e.g. OECD (2011), Tackling Climate Change and Growing the Economy. http://www.oecd.org/dataoecd/28/18/44287948.pdf
[16] http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/12/375&format=HTML&aged=0&language=en&guiLanguage=en
[17] http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/300&format=PDF&aged=0&language=EN&guiLanguage=fr
[18] http://ec.europa.eu/europeaid/what/development-policies/documents/agenda_for_change_en.pdf
[19] http://ec.europa.eu/enterprise/policies/sustainable-business/files/csr/new-csr/act_en.pdf
[20] http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/intm/126548.pdf