EU development cooperation in middle-income countries?

The state of play of the negotiations

Mikaela Gavas

9 May 2013

m.gavas@odi.org.uk

Introduction

1. Differentiation and its rationalea. Five overlapping objectivesb. Levels of differentiation

2. EU institutional approaches to differentiation in the DCIa. What aid allocation criteria?b. How to apply the criteria?c. Cutting or phasing out?

3. Differentiation and the EDF4. Member State approaches to differentiation5. Milestones in the negotiations

EU policy on differentiation and

its rationale

Five overlapping objectives

Levels of differentiation

1. Differentiated eligibility to development assistance (i.e. ‘graduation’)

2. Differentiated volumes of development assistance

3. Differentiated mix of policies and instruments

Eligibility and volume of development assistance

Based on: need, performance, capacity, commitment & potential EU impact

Level 1: Criteria for eligibility for grant-based bilateral aid: – UMICs according to the OECD-DAC– More than a 1% share of global GDP – Other factors also considered (Human Development Index, Economic

Vulnerability Index, aid dependency, economic growth levels and foreign direct investment)

Level 2: Criteria for levels/volumes of development assistance (TBD)

Differentiated mix of policies and instruments

Differentiated development partnerships funded through thematic envelopes and the Partnership Instrument:

– Loans (esp. blending of loans and grants)– Technical cooperation – Support for trilateral cooperation

Adapted from Altenburg and Koch, DIE, 2011

Grant and subsidy-based aid

Myanmar

Less concessionary: blended finance, still ODA, but less through aid agencies

India China

OECD-type cooperation: peer learning, institutional twinning, fully co-financed

Korea

EU institutional approaches to

differentiation in the DCI

What aid allocation criteria?

9

How should the criteria be applied?

10

Should aid be cut or phased out?

11

Differentiation and the EDF

A different approach for the EDF

‘…what we intend to propose is strong differentiation according to the level of income. But for the Caribbean I have a bit of a soft spot because the countries are vulnerable to two major challenges: climate change and natural disasters. It is the same with the Pacific…They are vulnerable economies that in a way deserve some attention even if the income per capita is there’ (Commissioner Piebalgs)

•Differentiated eligibility will not be applied (level 1)•But, there will be increased differentiation of aid volumes and instruments (levels 2 and 3) •Should the same criteria be used?

13

21 UMICs in the EDF:

Differentiation and the EDF: potential implications

• Less than 1% of the EDF’s poor live in the EDF-21 countries

• But, 17 out of the 21 score high on the Environmental Vulnerability Index

Differentiation and the EDF: potential implications

Transition from 9th to 10th EDF

Member State approaches to differentiation

4 groups of Member States

17

Clear criteria with no exceptio

ns

Clear criteria with no exceptio

ns

Clear criteria

with flexibility

to include

or exclude countrie

s

Clear criteria

with flexibility

to include

or exclude countrie

s

Clear criteria

with specified exception

s

Clear criteria

with specified exception

s

Sceptical of

criteria and country list

Sceptical of

criteria and country list

Milestones in the negotiations

MFF:•February 2013 – European Council agreement on the figures for the MFF (2014-2020)•March 2013 – European Parliament rejects European Council agreement•April 2013 – European Commission proposal for allocating funds across the instruments for external action•May 2013 – Council, Parliament and Commission agree to restart negotiations on the future EU budgetDCI:•June 2012 – Council’s Partial General Agreement on the DCI•September 2012 - European Parliament’s negotiating position on the DCI EDF:•December 2011 - European Commission proposal for the 11th EDF•March 2013 – European Parliament own initiative report on the 11th EDF