[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 15.7.2005

SEC(2005) 892

COMMISSION STAFF WORKING DOCUMENT

Annex to the Communication from the Commission to the Council and the European Parliament ”ANNUAL REPORT 2005 ON THE EUROPEAN COMMUNITY’S DEVELOPMENT POLICY AND THE IMPLEMENTATION OF EXTERNAL ASSISTANCE IN 2004” {COM(2005) 292 final }

TABLE OF CONTENTS

1. Strategic Framework: Millennium Development Goals 6

1.1. Introduction 6

1.2. 2004 Annual Policy Strategy and annual programme of action priorities 8

1.3. Strategic objectives of EC Development Policy – The Millennium Development Goals 9

1.4. EC Contribution to MDG Achievement: the six focal sectors 12

1.5. Lessons learnt and way forward 25

2. Geographical focus 28

2.1. The Balkans 29

2.2. Eastern Europe and Central Asia 39

2.3. Mediterranean and Near and Middle East 50

2.4. ACP countries and OCTs 61

2.5. Asia 70

2.6. Latin America 79

3. Mainstreaming, cross-cutting issues and thematic lines 89

3.1 Introduction 89

3.2. Human Rights 91

3.3 Natural resources 94

3.4 Equality between men and women 97

3.5. Migration and Asylum 101

3.6. Drugs 102

3.7. Children 103

3.8. Partnership with NGOs and non-state actors 104

4. Feature Articles 106

4.1. Budgetary support 106

4.2. Human security 113

5. EC aid management: the efficiency and effectiveness of EC co-operation 119

5.1. Enlargement and special Task Force on Capacity Building 119

5.2. Reform of external assistance management 122

5.3. RAL ( reste à liquider ) 123

5.4. Quality improvement and developments in aid delivery modalities 124

5.5. Coherence 127

5.6. Complementarity 129

5.7. Co-ordination and harmonisation 129

5.8. Monitoring and Evaluation 135

6. EC assistance not covered by this report 141

7. Financial tables 146

1. STRATEGIC FRAMEWORK: MILLENNIUM DEVELOPMENT GOALS

1.1. INTRODUCTION

1.1.1. EU development policy – A key element of EU external relations

The article 177 of the Treaty of the European Community (EC) sets three objectives for the EC development policy: the sustainable economic and social development of the developing countries, and more particularly the most disadvantaged among them; the smooth and gradual integration of the developing countries into the world economy; and the campaign against poverty in the developing countries.

The article 177 underlines the fact that the political dimension of external relations is overarching and pivotal. On the one hand, it recalls the general governance-related aim of developing and consolidating democracy and the rule of law, and respecting human rights and fundamental freedoms. On the other hand, it emphasises the importance of the multilateral political dialogue on the world stage.

The draft EU Constitution confirms that development co-operation is an EU policy in its own right for which the Community has shared competence. It also reaffirms poverty eradication as one of the key objectives of external action that applies to all external policies and all regions. The Joint Declaration by the Council and the Commission of 10 November 2000 guides the Community in its co-operation and partnerships with all developing countries with which it has links, in accordance with the objectives defined in article 177. It also highlights the principles on which EC assistance is grounded: sustainable, equitable and participatory human and social development, promotion of Human Rights, democracy, the rule of law and good governance. The European Commission has also committed to focusing development assistance on achieving the Millennium Development Goals (MDGs), thereby giving developing countries a prominent role in EC development assistance.

The focus on the MDGs is complemented by adaptation of the Community’s relations and assistance programmes to the diverse challenges facing different regions, and the different priorities of each partner. In 2004, the EC had co-operation programmes with 160 countries in six regions.

Assistance must also be adapted to the specific relations linking the EU more closely to certain countries, or groups of countries, and to the co-operation priorities defined in that framework. A number of close partners, once perceived mainly as in development or transition, have now moved into ‘pre-accession’ mode. This means that some countries now have a different relationship with the EU, based on the perspective of future membership. Secondly, the European Neighbourhood Policy (ENP) builds a privileged partnership relationship with neighbouring countries with which the EU wishes to develop a zone of prosperity and stability and a friendly environment – a ring of friends. The ENP aims to bring them closer to the European Union and offer them a stake in the EU’s internal market, in parallel with support for dialogue and reform. Development policy considerations are inscribed within the broader policy framework established by the European Neighbourhood Policy. In parallel EU co-operation with Russia is pursued in the context of the strategic partnership established between the two.

A number of important objectives and activities – such as promoting peace and security, supporting institution building, and providing trade-related technical assistance – go beyond the strict limits of the MDGs, though they can help create the right environment for partners to reach them. The European Community has the capacity to be a powerful player in many areas of external action. It is an influential political actor on the world stage and the largest trading partner for many developing countries. To achieve all the ambitious objectives which the developing countries and the donor Community have set themselves, financial assistance is vital too. The EU as a whole – Community and Member States – provides more than half of all global official development assistance: over €34.5 billion in 2004, representing 0.36% of GNI. One-fifth of the EU’s current aid budget – €6.9 billion in 2004 – is managed by the European Commission on behalf of the Community. The geographical span of the Community’s assistance programmes is global, from the EU’s immediate neighbours to developing countries in all regions of the world.

1.1.2 EU policy and the international development agenda

In September 2000, world leaders from 189 nations agreed and signed the UN Millennium Declaration, binding them to a global project to reduce extreme poverty decisively in all its key dimensions. The Millennium Development Goals (MDGs) that derive from this Declaration provide an agenda for global action. This agenda and the outcomes of the World Social Summit, the World Summit on Sustainable Development, the Doha Development Agenda and the Monterrey Consensus are mutually supportive processes and essential ‘building blocks’ of a worldwide partnership for sustainable development.

In the Council conclusions of 26 April 2004, the General Affairs Council once again confirmed that “achieving the Millennium Development Goals is a key objective for the European Union.”

Millennium Development Goals

Goal 1: Eradicate extreme poverty and hunger

Goal 2: Achieve universal primary education

Goal 3: Promote gender equality and empower women

Goal 4: Reduce child mortality

Goal 5: Improve maternal health

Goal 6: Combat HIV/AIDS, malaria and other diseases

Goal 7: Ensure environmental sustainability

Goal 8: Develop a global partnership for development

In September 2005, the UN General Assembly will take stock of the progress made by UN Members in the implementation of this global development agenda. In preparation for this major event, the Commission presented, in October 2004, a report on the EC contribution towards achieving the MDGs[?].

The report provided information on the extent to which the EC has focused its strategies, procedures and instruments on the implementation of the Millennium Declaration and the achievement of the Millennium Development Goals. It outlines how the EC contributes to progress towards the MDGs, and lists the further actions foreseen to promote their implementation. In its conclusion the report explains that the MDGs can still be achieved but, for this to happen, a quantum leap in scale and ambition, both in terms of resources and policies, will be necessary. The report proposes that EU efforts should be focused on three strands of action between now and 2015: (1) finance for development, (2) policy coherence, (3) a focus on Africa.

1.2. 2004 Annual Policy Strategy and annual programme of action priorities

The decision on the Annual Policy Strategy (APS) sets the Commission's priorities and corresponding key initiatives for a given year. At the same time it fixes the orientations for the allocation of resources, both financial and human, in the subsequent budgetary process. Launched by a political orientation debate held amongst the College of Commissioners, the APS is adopted by the Commission and presented to the European Council and European Parliament. Recognising that “on the international level, sustainability is becoming a more important issue”, the APS 2004 integrated development issues under its third priority: ‘sustainable growth’.

The launch of a review of the Sustainable Development Strategy was selected from among the key initiatives that had been identified under the sustainable growth priority. The importance of the follow-up of the World Summit on Sustainable Development (Johannesburg, 2002), namely through the EU Water Initiative and the EU Energy Initiative, was also highlighted. The APS then called for moving the Doha negotiations towards successful completion by the end of 2004, as well as the ongoing trade negotiations with Mercosur, Canada and ASEAN. Emphasis in the APS 2004 was also on the implementation of the Cotonou agreement and the completion of the Mid-Term Review of the co-operation between the EU and the ACP countries, as well as a first reflection on its revision and a new financial protocol. Finally, the implementation of the debt initiative, the Global Health Fund and the Action Plan on Communicable Diseases and Reproductive Health were recognised as key initiatives.

In the context of the APS 2004, additional funding was accorded to support health actions in the field of AIDS, malaria, tuberculosis, reproductive health and communicable diseases in developing countries, and increased funding was reserved for the protection of tropical forests.

In addition, a number of broad-reaching activities foreseen in the Annual Policy Strategy for 2004 have brought well-targeted contributions to EU development policy, as accounted for in the relevant sections of this report. Among others:

- as a consequence of EU enlargement, a specific programme of actions has been implemented through the establishment of a special Task Force on Capacity Building, in order to enable acceding EU Member States to assume their new obligations to contribute to EU development policy (see Section 5.1.).

- as a follow-up of the Johannesburg World Summit for Sustainable Development (WSSD), EU initiatives on water and energy have been further developed, in particular through the establishment of the ACP-EU Water Facility (see Section 3.3).

- with regard to EU migration and asylum policy, significant progress has been achieved in its contribution to development through the establishment of AENEAS, a multi-annual programme of support to third countries to help them manage all aspects of migration flows more effectively (see Section 3.5).

1.3. Strategic objectives of EC Development Policy – The Millennium Development Goals

Since the year 2000, the EC policy focus on MDGs and poverty reduction has been further strengthened by several thematic communications and regulations[?], endorsed by Resolutions of the Council of Ministers and the European Parliament. Similarly, the integration of trade into development strategies has been increasingly recognized as a contributor to poverty reduction[?]. Synergies between the EC migration and development policy are also being explored, for example on migrant remittances, co-operation with the diaspora and the matching of labour needs between the EU and developing countries[?]. In the context of its work on the Information Society, the Commission has committed itself to addressing the digital divide and to exploiting the potential of Information and Communication technology (ICT) as a tool for development policies and an important means of achieving the MDGs[?].

In order to establish an explicit link between EC development policy and the MDGs and successfully measure actual progress towards the MDGs, the Commission – in close collaboration with the EU Member States and international organisations such as the World Bank, UNDP and the OECD/DAC – has identified a core set of 10 key indicators[?] drawn from the list of 48 MDG indicators. The indicators were selected by combining their relevance on the one hand and data availability, reliability and the frequency with which they were included by countries for their Poverty Reduction Strategy Papers (PRSP) monitoring on the other.

From 2003 onwards the Commission started to use the 10 key indicators to assess the performance of the countries and regions where it provides development assistance[?]. In order to focus further on the outcomes in relation to the MDGs, the Commission has also put in place indicator frameworks and established a methodology for measuring progress in health and education in the countries where these are given support by the EC. All indicators are being progressively incorporated into Country Strategy Papers (CSPs) through the annual and Mid-Term Reviews, to ensure a more systematic analysis of results achieved in terms of poverty reduction. This evolution mainly concerns EC co-operation with ACP countries.

While useful as a measuring tool, indicators do not tell the full story. MDGs are closely interrelated, and development strategies rarely target just one objective. To give just a few examples: combating HIV/AIDS (MDG 6) is impossible without addressing women’s empowerment (MDG 3) as a central concern. Progress on sustainable management of natural resources (MDG 7) and gender equality (MDG 3) has a direct impact on poverty reduction (MDG 1). Reducing the proportion of people living in extreme poverty or suffering from hunger (MDG 1) requires sustainable water use in agriculture and combating land degradation (MDG 7). Lack of access to clean water and sanitation (MDG 7) has a major impact on health, notably child mortality (MDG 4), and adds to the burden of already strained public health budgets. Lack of sanitation in school buildings is a strong disincentive among others for girls to go to school (MDG 2 and MDG 3).

The availability of data necessary to calculate these MDG indicators depends on the capacity of the national statistical services. In this respect further progress needs to be made, particularly among the least developed countries, to enhance statistics governance with a view to ensuring that data required can be adequately provided on a sustainable basis. The Commission recognises the importance and closely coordinates funding for statistical capacity building with EU member states and the international donor organisations.

Even if there has been some improvement in the last decade, MDG data availability has still shown considerable weaknesses in terms of accessibility and comparability, in particular in Sub Saharan Africa. The Commission closely coordinates funding for statistical capacity building with EU member states and the international donor organisations.

It should be underlined that many Community interventions contribute to creating a conducive climate for achieving the MDGs, which are also essential to accelerate progress towards the MDGs. For example, the EC’s decision to provide a larger share of its assistance in the form of budget support allows the financing of recurrent costs, and gives the EC a stake in discussions on government budget priorities. The fact that an important proportion of EC development co-operation is targeted at the transport sector also helps developing countries to create an indispensable infrastructure basis for economic development and effective delivery of basic services.

It is also clear that the MDGs cannot be achieved in conditions of chronic insecurity, which is often linked to government failures. The importance of assisting partner countries in addressing the root causes of conflict at the earliest possible stage has been promoted by the European Commission, in recognition of the link between governance, peace, security and development. Addressing these issues requires a holistic approach and an integrated response. As a result, conflict prevention has been made a key cross-cutting issue for Community external relations in general and for external aid and development co-operation in particular[?]. Furthermore the achievement of structural stability[?] has been included as a key objective of co-operation with partner countries, in particular through support in the area of rule of law, good governance and institution building. Moreover, preserving and ensuring continuous progress towards achieving MDGs means also integrating climate change, biodiversity loss, drought and other global environmental concerns in the strategies and addressing the vulnerability of countries and people to their impacts.

EC development policy statement 2000

The overall objective of EC development policy is the reduction and eventual eradication of poverty. Support to sustainable economic, social and environmental development, promotion of the gradual integration of developing countries in the world economy, and combating inequality are indispensable elements to achieve this objective.

EC development co-operation is concentrated on six focal sectors. These have been identified as areas in which Community action has both added value and a significant impact on poverty reduction: (a) trade and development; (b) regional integration and co-operation; (c) support for macroeconomic policies and the promotion of equitable access to social services; (d) transport; (e) food security and sustainable rural development; (f) institutional capacity building.

Three main cross-cutting themes have to be taken into consideration in all sectors and in all countries: (a) Human Rights; (b) environmental issues; (c) equality between men and women. Also conflict prevention, crisis management and good governance require specific attention in the countries concerned.

The implementation of EC development policy is steered by the ‘three Cs’: Co-ordination, Complementarity and Coherence. Furthermore the policy is based on the principles of ‘ownership’ and participation. In its allocation of resources, it gives priority to least developed and low-income countries.

1.4. EC Contribution to MDG Achievement: the six focal sectors

1.4.1. Trade and development

Increased trade is one of the most important instruments for moving towards the MDGs. During 2004 the Commission continued its efforts to achieve a development- friendly outcome of the Doha Development Agenda. By emphasising the development dimension, the WTO General Council’s decision of 1 August 2004 (outcome of the so-called “Geneva talks”) is a promising basis to continue the negotiations, which should ultimately lead to a more level playing field for all, in particular developing countries striving to integrate into the world economy. The Commission is keen to ensure that all developing countries, especially the Least Developed Countries (LDCs) and other vulnerable and small economies, derive sizeable benefits from the Doha Round. It supports in particular an effective and specific solution for cotton trade-distorting subsidies within the WTO agricultural negotiations.

The EC continued its efforts in the area of Trade-Related Assistance (TRA). In 2004 the EC was again the largest provider of such assistance with almost €700 million in new commitments. The ACP and MEDA countries account for the largest share of this support (around 25% each). About one-third of TRA is used to build capacity in trade policy formulation and implementation and two-thirds is directed more to the private sector in the form of trade promotion, market development and business support services.

In order for trade reforms and growth strategies to lead to poverty reduction, they have to be part of a wider development effort such as the process of Poverty Reduction Strategy Papers (PRSP). In collaboration with other donors and international agencies, the Commission continues its efforts to assist developing countries with a better mainstreaming of trade into the wider development strategies. Reflecting recommendations from a recent evaluation of Trade Related Assistance, comprehensive trade needs assessments will be prepared for all countries with European co-operation programmes when appropriate[?] and agreed to with the partner country in question.

1.4.2. Regional integration and co-operation

Support for regional integration is closely related to support for trade and development. The rationale for this approach is to increase the positive impact of agreements with the EU – whether negotiated on a bilateral basis, or on a regional one as foreseen among others with Mercosur, ACP, Mediterranean and the Gulf partners. The added value of a trade agreement with the EU can be significantly raised, both for the partners and the EU, when it is complemented by initiatives of regional integration, with partners moving towards a harmonised or common trade policy: South-South trade liberalisation such as under the Agadir Agreement, or regional trade facilitation measures. In addition to the economic returns from broadening markets and fostering regional complementarities, the promotion of regional trade and investment integration among partners can also induce significant positive political effects in the regions concerned on issues such as security co-operation and regional stability. Therefore many EC projects are designed to support both trade and regional integration. The EU is the main provider of assistance for regional integration and co-operation.

In the ACP zone, the work continues to implement the six Regional Indicative Programmes under the 9th EDF. Important new programmes decided on during 2004 include fisheries development in the Pacific (€3 million) and the Regional Integration Support Programme (RISP) for Eastern and Southern Africa involving COMESA (Common Market for Eastern and Southern Africa), IOC (Indian Ocean Commission), EAC (East Africa Co-operation) and IGAD (Intergovernmental Authority Development) (budget €30 million).

During 2004, the regional phase of the negotiation of Economic Partnership Agreements (EPAs) came on full stream. Negotiations were formally opened with four EPA regions: Eastern and Southern Africa in February, the Caribbean in April, the South African Development Community (SADC) in July, and the Pacific in September. For West Africa and Central Africa, negotiations had already started during the last quarter of 2003.

All six regions agreed on a ‘road map’ for the negotiations, detailing structure, priority issues and phasing. Clarifying the regional integration agenda and its link to EPAs has been defined as a first priority for technical talks in all regions. This is designed to make EPAs a powerful instrument for regional market building. Joint EU-ACP Regional Preparatory Task Forces (RPTFs) have been set up for most regions with the aim of ensuring the link between the negotiation process and the programming of development co-operation. By translating needs identified by the negotiators into concrete support programmes, the RPTFs will enhance the role of EPAs as a development tool. Several EDF-financed activities have been carried out to support the negotiating process. They are implemented at all-ACP, regional and national level to support and accompany the negotiations with analysis and capacity building.

For the Mercosur region, negotiations towards an Association Agreement continued in 2004. Two ministerial meetings took place in Guadalajara and Lisbon. However these meetings, together with several technical discussion rounds, were not sufficient to reach an agreement.

EU-Mediterranean co-operation is guided by the 1995 Barcelona Declaration and the bilateral Association Agreements. In this context, the key objective of economic co-operation with the Mediterranean partner countries is to create a Euro-Mediterranean free trade zone. Priority is being given to the underlying economic reform programmes. The Mediterranean region is also covered by the European Neighbourhood Policy, launched in 2003. This articulates with the achievements of the Barcelona Process and goes beyond a free trade zone, with the possibility for neighbouring countries to integrate gradually into the EU Internal Market. During 2004, a first series of Action Plans that identify concrete steps towards this goal were agreed between the European Commission and Morocco, Tunisia, Jordan, Israel and the Palestinian Authority. Future co-operation will focus on the implementation of the priorities identified in these Action Plans.

In 2004, the Regional Indicative Programme for EC-ASEAN co-operation[?] for the period 2005-06 was adopted. The programme focuses on supporting ASEAN's regional integration and region-to-region dialogue. The key activity is the continuation of the successful EC-ASEAN Programme for Regional Integration Support (APRIS), which is assisting ASEAN with policy preparation and raising the institutional capacity in particular of the ASEAN Secretariat. APRIS makes the EU's own experience with regional integration available to ASEAN. In 2004 a project to support the ASEAN Biodiversity Centre was decided on (budget €6 million). The EC will also support closer economic integration of the members of SAARC (South Asian Association for Regional Co-operation)[?] and measures to improve the prospects for the implementation of the agreement on a South Asian Free Trade Area.

1.4.3. Support for macro-economic policies and the promotion of equitable access to social services

The EC supports macro-economic stability and growth by providing additional resources for public expenditure of benefit to poor people, mostly within the frame of national Poverty Reduction Strategies. Budget support continued in 2004 linked to improvements in macroeconomic and public finance management and results achieved in service delivery.

1.4.3.1. Health

The European Community attaches great importance to the links between health and the achievement of the Millennium Development Goals, in particular those promoting gender equality, improving maternal health and preventing the spread of poverty-related diseases (HIV/AIDS, malaria, tuberculosis and other diseases). The EC also subscribes to the goal of the International Conference on Population and Development Programme for Action (Cairo, 1994), ensuring that “a full range of reproductive health services, including family planning, are accessible, affordable, acceptable, and convenient to all users.” The EC is promoting comprehensive maternal health programmes, including the provision of quality antenatal care, care during childbirth and post-natal care, and developing the pool of skilled birth attendants. Other priorities include the sustained supply, availability and affordability of contraception and protection from sexually transmitted diseases, including HIV/AIDS. Special emphasis is placed on access of young people in developing countries, the poorest in particular, to improved sexual and reproductive health.

The Community also intensified its efforts in 2004 in the fight against the major poverty-related diseases. A second progress report on the EC Programme for Action, presented in October 2004[?], shows that significant progress has been made in some areas, though there is still need for action. Based on this and on a broad consultation process, the EC adopted a new comprehensive policy framework to confront poverty-related diseases[?], widening the scope of application to all external action in this field and proposing areas of action at country and global level: these include enhanced human resources in the health sector; increased and sustainable funding; and links to the Cairo Agenda including for sexual and reproductive health and rights. At global level, the policy framework puts emphasis on capacity building on regulatory aspects while continuing to highlight the need for affordable and safe pharmaceutical products, and further research into new tools and interventions.

The European Commission’s country-led financing instrument has continued to be the main approach towards improved health outcomes in developing countries. At a country level, the EC supports health sector reform and healthcare delivery approaches that ensure improved access and sustainability of basic services. In 2004, EuropeAid committed €290 million and disbursed around €300 million on health interventions. The EC used three financing channels[?]: specific thematic budget lines, geographical budget lines, and EDF for ACP countries. In addition the provision of general budget support to public expenditure, as part of country poverty reduction strategy, contributes to secure public funding to social sectors: part of this fungible support eventually benefits the health sector. Tranche release partly depends on the attainment of determined health objectives. In 2004, disbursements for budget support went beyond €600 million and commitments represented about €460 million. More details on specific country supports are included within the chapters dedicated to the different regions.

As regards the thematic budget lines on sexual and reproductive health and rights, and poverty-related diseases, EuropeAid launched calls for proposals and awarded projects in 2004 for a total of €51.3 million: €17 million for reproductive health and €34.3 million for poverty-related diseases. Other allocations during the year targeted support mainly to specific global initiatives with the Global Fund to Fight AIDS, Tuberculosis and Malaria (€42 million), WHO on HIV/AIDS surveillance at country level (€2.8 million), the International Partnership for Microbicides (€0.86 million).

In addition, the EC allocated €3 million to the Global Alliance for Vaccines and Immunization (GAVI) through the budget line “Aid for poverty related diseases other than HIV/AIDS, malaria and tuberculosis in developing countries” (credits to finance pilot actions with no legal basis). This assistance is designed to help the 69 countries that have received GAVI/Vaccine Fund resources move towards financially sustainable and improved immunisation programmes.

In addition, €170 million was disbursed to the Global Fund to fight HIV/AIDS, Tuberculosis and Malaria (GFATM) in March 2004, in line with a commitment under 9th EDF programming. The EC’s total contribution to the Fund in 2004 was €212.5 million (thematic budget line + EDF), making it the second-largest contributor this year. This programming was also linked to joint efforts with the African Malaria Network initiative (AMANET, €7 million). Immunisation coverage is one of the most common indicators chosen within general budget support operations and is also related to EC support to countries’ health services. The EC also provides funds to immunisation initiatives by the WHO, the Global Polio Eradication Initiative, UNICEF, GAVI, and other organisations.

The European Commission continued its dialogue with the WHO. The support (intra ACP funds) of €25 million towards strengthening pharmaceutical policies signed in September 2003 is ongoing and a further €25 million in the priority areas under the Strategic Partnership for Development, i.e. maternal health, communicable diseases and monitoring, has been under discussion in 2004 and should result in a new partnership agreement in 2005. The dialogue with UNFPA has also kept communication at a high level, and the programmed support aimed at enhancing countries’ sustainable stocks of essential reproductive health commodities is also under discussion with the ACP Secretariat. Likewise, programming support through a UNICEF project on malaria and child health has progressed in 2004.

1.4.3.2. Education

In 2004, European Community action regarding the education component of EC development policy focused on an accelerated contribution to the Millennium Development Goals in the field of education: these aim to give all boys and girls a full primary education by 2015 and to eliminate gender disparity in primary and secondary education, preferably by 2005 and for all levels of education by 2015 at the latest. The education MDGs are part of the drive to achieve ‘Education for All’, a wider agenda set by the international community in Dakar in April 2000. The main outcomes in 2004 were an increase in EC financial allocations to education, a promotion of aid efficiency through donor co-ordination, and enhanced quality support to performance-monitoring in education.

In 2004, the Commission carried out the Mid-Term Review of the 9th European Development Fund (EDF). As a result of this process, financial allocations to education in African, Caribbean and Pacific (ACP) countries will be increased by €109 million. This includes €35 million support to Burkina Faso and Niger in the framework of the EFA Fast-Track Initiative (EFA-FTI), which aims to accelerate progress towards the education MDG of universal primary education by 2015.

In 2004, the Commission continued to be an active member of the EFA-FTI Partnership. It participated in the EFA-FTI technical meeting held in Washington in March 2004, as well as the EFA-FTI Partnership meeting held in Brasilia in November 2004, back-to-back with the EFA High-Level Group.

The Commission plays a key role in the field of donor harmonisation in the EFA-FTI Partnership. In 2003, in close collaboration with EU Member States education experts, it had elaborated 10 indicators to monitor donors’ progress at country level in harmonising and aligning their policies and procedures in the field of education. This EU initiative was welcomed by the EFA-FTI and, in 2004, an EFA-FTI working group on harmonisation was set up to co-ordinate the implementation of this indicator approach. A specific set of indicators was tried out in four countries, Burkina Faso, Ethiopia, Mozambique and Niger: country progress reports were produced and the indicator framework further refined. A synthesis paper was presented to the FTI education partnership meeting in Brasilia, November 2004, as a first analysis of the state-of-the-art of donor coordination and harmonisation in education.

The quality and consistency of performance monitoring of EC interventions in education was enhanced while respecting the principle of country ‘ownership’. The Mid-Term Review included a refinement of the performance indicators selected from the national education plans, and a reinforced policy dialogue with partner countries on targets and data for each performance indicator. As an additional support to partner countries’ monitoring systems in education, the education budget line was used to support UNESCO’s Institute of Statistics in a pilot statistical capacity-building programme in 11 countries. All these countries were either invited to participate or were already participating in the Education Fast Track initiative. The purpose of the project is to strengthen country capacity to collect, analyse, disseminate and, not least, actively use the collected information for policy planning and implementation. The Commission also views this programme as an instrument for establishing more reliable and timely information that can be used in sector dialogue with each country and for disbursements in Sector Budget Support and General Budget Support.

The ODA resources committed by EuropeAid in 2004 on education interventions amounted to €300 million. Payments reached €302 million.

1.4.4. Transport and energy

1.4.4.1. Transport

The European Community’s objective is to achieve sustainable transport policy and strategies in developing countries that maximise the contribution of transport to wider development goals, including the MDGs. Transport, almost exclusively roads, is a focal sector of the 9th EDF in 32 ACP countries (27 in Africa and five in the Caribbean) and, through the EC’s collaboration with the Sub-Saharan Africa Transport Policy Program (SSATP), efforts are underway in 13 countries to increase the coherence between transport and poverty reduction strategies. Establishing sector programmes at a country level is leading to more affordable strategies and plans that fit within the macroeconomic framework. Improved financial sustainability is being enhanced within sector programmes by 22 Sub-Saharan Africa countries setting up Road Funds dedicated to maintenance. Similarly, the more difficult objective of institutional sustainability is being tackled by the creation of semi-autonomous road agencies: so far nine are operational. Cross-cutting issues of environment, gender and HIV/AIDS are being integrated into sector programmes, but greater efforts are needed to improve safety.

The EC’s ongoing support to the transport sector contributes to the achievement of the MDGs, both through promoting economic growth and through its direct impact on the living standards of the poor.

At the macroeconomic level, improved regional and national transport infrastructures and services reduce transport costs, promote the integration of national economies into the global economy, and increase trade. Specifically in rural areas, reduced transport costs should mean lower prices for agricultural produce and consumer goods, accelerated transport of farm output to markets with higher farm gate prices, and improvements in food transport facilities to food deficit areas. Thus, transport contributes to MDG 1.

For the education and health MDGs (2, 4-6), improved transport infrastructures and services increase the incentives for teachers and health care workers to work in rural areas, as well as facilitate the distribution of medicines and vaccines.

Improved rural roads and tracks bring particular benefits, including reducing the time it takes for children to reach school (promoting higher enrolment), improving the rural population’s access to health services, and facilitating the provision of services to and in rural villages, such as the maintenance of water supply and sanitation systems and the development of ‘home-visit’ medical services.

The EC’s support for the transport sector, which is largely concentrated on the road sub-sector, is therefore considered as making an important contribution to achieving the Millennium Development Goals. However, further work is underway to ensure that EC transport sector support has an increased and more easily demonstrable impact on poverty reduction. In particular, the EC is supporting, via its financing of the Sub-Saharan Africa Transport Program (SSATP), the improved integration of transport sector strategies and poverty reduction strategies in partner countries in Africa. This initiative aims to ensure that partner countries and their donors orient their transport sector planning and expenditure to poverty reduction and pro-poor growth, rather than only to growth.

The EC is also participating in the OECD’s DAC POVNET Infrastructure for Poverty Reduction task team, which will produce a series of guiding principles at the end of 2005 for making donor infrastructure support more pro-poor.

Enhancement of air transport in the developing countries of the beneficiary regions was a specific priority in 2004. This will contribute to integration into global markets and to the development of specific economic sectors (e.g. the agricultural sector by transportation of perishable goods, and the international tourism sector). Air transport can also play an important role in assuring provision of medical care or supply of water and food of isolated regions, in particular in cases of natural catastrophes.

The ODA resources committed by EuropeAid in 2004 on transport interventions amounted to €601 million. Payments reached €546 million.

1.4.4.2. The energy c hallenges

The World Summit for Sustainable Development (WSSD) in 2002 drew fresh attention to the important role of energy in facilitating the achievement of the MDGs and poverty alleviation. Since then, rapidly increasing demand, notably from emerging countries such as China and India, tensions on world energy markets, and ongoing concerns regarding the environmental effects of world energy consumption have given special economic as well as political prominence to energy issues. In connection with climate change, the Clean Development Mechanism under the Kyoto Agreement will have a significant international impact, including its direct relevance to energy investments.

Energy co-operation can bring important mutual benefits to the EU and its partners. The Commission's energy agenda includes the development of more effective international energy relations including with developing countries, and particularly large emerging consumer countries. Partnerships to increase energy efficiency in developing countries make sense from economic and environmental as well as development perspectives. Hence, the agenda for EU energy partnerships with third countries, known as energy dialogues, in particular with big emerging economies such as China, India and Russia, normally includes energy efficiency cooperation measures and research and technological development aspects.

Nuclear safety assistance to the Commonwealth of Independent States continued during 2004 within the framework of Tacis Regulation 99/2000 and the Commission Communication 0493/2000 to the Parliament and Council. This Communication set three main priorities:

- promotion of an effective nuclear safety culture, in particular through continuous support for regulatory bodies and technical support organisations and, at the plant level, through on-site assistance, including supply of equipment;

- development and implementation of strategies for dealing with spent fuel, decommissioning and managing nuclear waste;

- contributing to international initiatives such as the G7/EU initiative on the closure of Chernobyl.

Euratom and EBRD loans were granted to Ukraine, for safety upgrades of the Khmeltnisky 2 and Rovno 4 nuclear power plants after their start up.

Other EU initiatives have concerned the Mediterranean region, where a comprehensive EU-Mediterranean policy has been established to promote market and infrastructure integration, and technical support is provided to develop EU-Maghreb and EU-Mashrek electricity and gas market integration, in addition to enhancing security of supply between Israel and the Palestinian authorities; the Balkans, for which the Energy Community Treaty will focus its strategy inter alia on the reduction of energy shortages in South-East Europe; and the Caspian and Black Sea region, for which a Ministerial Energy conference in Baku in November 2004 identified mutual interests and looked at ways to support the gradual development of energy markets, enhance energy cooperation within the region and with the EU, attract more funding for new infrastructure, and embark on energy efficiency policies and programmes.

The Commission has recognised the relevance to regional and global energy markets of untapped energy resources in a number of developing countries, which should mobilise these in order to support development. For example, as pointed out in the Short Term Action Plan drawn up by the New Partnership for Africa’s Development (NEPAD), regions like West Africa and Central Africa could increase their energy production to the benefit of the entire Continent.

Recognising the importance of improving access to energy for the poor, the European Union launched the EU Energy Initiative for poverty eradication and sustainable development (EUEI) at the Johannesburg Summit. Enhanced energy availability is crucial to economic and social development, fuelling employment levels in agriculture, SMEs and shops, and generating income. The EUEI will contribute to the achievement of all the MDGs: improved energy efficiency will, for example, encourage a more sustainable use of natural resources – woodlands and other types of biomass – and reduce environmental pollution. The EUEI is an important framework for co-operation and better synergy between the EC and the Member States, and for the dialogue with developing countries.

In response to requests from the Council and the ACP States, the Commission has proposed the establishment of a €250 million ACP-EU Energy Facility[?], conceptually similar to the already established Water Facility (see section 3.3). The objective of the Energy Facility is to boost the sustainable delivery of energy services to the poor in rural areas, to improve energy governance and capacity, and to facilitate large-scale financing. Priorities are derived from the EUEI dialogue, in particular with ACP States. Funding from the Energy Facility may also be used in parallel with existing initiatives from Member States, international organisations and financial institutions. The development of the Facility is being handled in close co-ordination with an informal advisory group of experts from the Member States, and there is also regular consultation with other relevant donors and stakeholders.

The ODA resources committed by EuropeAid in 2004 on energy interventions amounted to €82 million. Payments reached €84 million.

1.4.5. Sustainable rural development and food security

- Sustainable rural development

Over 70% of poor people live in rural areas, hence the importance of rural development in the fight against poverty and hunger. Rural development is, together with food security, one of the pillars of the Development Policy of the European Commission.

Policy-wise, the Commission provided in 2004 an important contribution towards reducing poverty: the Communication “ EU Guidelines to support land policy design and reform processes in developing countries .”[?]

Poverty reduction requires progress in the productive sectors in the countries concerned, in order to generate private income and state resources to finance social services. The Commission pursues this objective through support to the agricultural sector within numerous National Indicative Programmes; in Africa in particular, EC co-operation includes activities related to the agricultural sector in nearly all countries.

In particular, internationally traded agricultural commodities are crucial to the employment and income of millions of people in developing countries, as well as a major source of revenue and foreign exchange. In response to the serious challenges facing these sectors, in particular long-term price decline and volatility, the Commission submitted in 2004 two proposals to the Council of Ministers: “ Agricultural Commodity Chains, Dependence and Poverty – a proposal for an EU Action Plan ”[?], and “ Proposal for an EU-Africa Partnership in support of Cotton Sector Development ”[?]. The aim of these initiatives is to increase incomes and reduce the vulnerability of producers, in particular the most commodity-dependent developing countries (CDDCs). The focus of EU policy is on six priorities: reduction of commodity dependence as a priority at national and international level; coping with price decline; managing commodity risks and accessing finance; diversifying around traditional commodities; successfully integrating with the international trading system; and enhancing sustainable corporate practices and investments in CDDCs.

In April 2004, the Council endorsed the Action Plan on agricultural commodities and the proposal for an EU-Africa Cotton Partnership. There is thus a joint EU policy and action framework – agreed between the European Community and the Member States – signalling the importance that the EU attaches to agricultural commodities in the fight against poverty and demonstrating its strong commitment to supporting CDDCs in a strategic and co-ordinated fashion.

As a first step in implementation, an EU-Africa Cotton Forum was organised in Paris in July 2004. The 200 participants from the EU and the cotton-producing African countries endorsed the EU-Africa Cotton Partnership and adopted a detailed cotton action plan. Four African countries programmed EC resources for cotton sector development. The Commission and Member States jointly encouraged the countries to formulate cotton programmes.

EC initiatives in agricultural research focus on enhancing productivity and sustainability in developing countries and on contributing to better food security, quality and safety, including improved policies and delivery systems. The Community is working in close collaboration with the EU Member States through the EIARD (European Initiative for Agricultural Research for Development). In particular, EC contributions encompass regular and significant support to the CGIAR (Consultative Group on International Agricultural Research) centres and to sub-regional organisations for agricultural research and development in Africa.

In conjunction with the Directorate-General for Research, and with the support of EU Member States, the Development Directorate-General has formulated a proposal for a Technology Platform on Global Animal Health: this was officially launched on 16 December 2004 with the support of the Commissioners for Development, Research and Consumer Protection. This Platform will be included in preparations for the 7th Research Framework Programme.

The ODA resources committed by EuropeAid in 2004 on rural development interventions amounted to €178.59. Payments reached €189.49.

- Food security

The European Commission is engaged in the fight against hunger with a comprehensive and broad-based policy for sustainable development and poverty reduction at the national level. Significantly, this policy recognises that the primary responsibility lies with national governments, as well as regional organisations, and highlights the importance of good governance, conflict prevention and peace building. Greater efforts need to be deployed by governments to promote stronger roles for local communities and authorities in assuring food security, particularly through decentralisation.

In developing countries, as confirmed by the Food and Agriculture Organization’s 2004 Food Security Assessment, over 800 million people are undernourished. While in Asia, the Pacific, Latin America and the Caribbean some countries have achieved remarkable successes in reducing the food insecurity factor, the situation in Sub-Saharan Africa continues to deteriorate due to conflicts and governance problems, natural calamities, land degradation and the HIV/AIDS pandemic.

The impact of natural and man-made crises on the lack of progress towards the achievement of the first MDG has been particularly severe in 2004. Conflicts, which the FAO has identified as the most common cause of food insecurity, are often chronic and cause protracted and complex emergencies, especially in Africa. Even a short-term crisis can trigger chronic food insecurity, as assets are quickly depleted and livelihoods undermined. Violent conflict poses particular challenges because of its capacity not only to disrupt food security and livelihoods, but also to harm existing governance structures upon which recovery depends.

The policy debate on food aid was particularly intense in 2004, the year of renegotiation of the Food Aid Convention (FAC) and the beginning of the WTO negotiations in Geneva which include food and trade-related issues. Finally the decision was taken to put the FAC into abeyance pending the conclusion of the WTO round. The Commission has consistently been warning that an improper use of food aid could undermine the fight against hunger: food aid is an instrument of humanitarian assistance to be provided exclusively in grant form in situations of acute and protracted crises as a timely response to well identified and internationally recognised needs.

In 2004, the Food Aid/Food Security Budget Line (FSBL) financed programmes for €415.5 million to meet a series of challenges in some 30 particularly vulnerable countries around the globe: combating temporary food shortages, managing post-crisis situations, ensuring the link between relief, rehabilitation and development (LRRD), and addressing structural food security problems. Furthermore ECHO, the EC Directorate for humanitarian aid, provided food aid supplies through NGOs and the World Food Programme (WFP) from an annual budget of roughly €600 million.

In order to achieve the first MDG, food needs must be timelier and more properly addressed: the Commission is supporting food security information systems in various countries. In 2004, a €15 million programme called Food Security Information for Action (2004-06) was launched for FAO implementation as from early 2005. The WFP, with Community contributions, finalised an improved needs assessment methodology for emergency situations in 2004.

Particular attention is given to the role of the Food Aid/Food Security Budget Line as a bridging instrument between short-term (crisis situations) and long-term (development) needs. The scope of this bridging function includes protracted crises, rehabilitation and tackling structural food insecurity as a first step towards long-term poverty reduction. In collaboration with EuropeAid, the DG Joint Research Center (JRC) is supporting the establishment of a global crop monitoring system in the context of food security (MARS-FOOD). Currently, the information system on crop prospects covers 35 countries in East Africa, Latin America, Russia, Central Asia and the Mediterranean Basin. In 2004, support on food demand/access has been received from JRC (i.e. on Mali, Mauritania and Sudan), in particular in food supply assessment and needs assessment methodologies, food security information systems and vulnerability assessments.

Interventions are adapted to the specific context of each country and are carried out either directly in partnership with the governments of the beneficiary countries, or indirectly through NGOs or through international organisations, in particular various agencies of the United Nations system. Close attention is paid to co-ordination in order to ensure coherence and complementarity with other actions of the European Commission, and with the interventions of Member States and of other donors.

The year 2004 was characterised by the difficult situation in the Horn of Africa, and particularly by the crisis in Darfur, Sudan. The Food Security Budget Line has contributed significantly to the alleviation of some of the worst aspects of the Darfur crisis. In Sudan, €30 million from the 9th EDF B budget envelope have been earmarked for a programme that concerns not only support to food aid interventions, mainly in Darfur, but also capacity building to improve monitoring/assessment, as well as to reinforce co-ordination, particularly with the Sudanese authorities.

In 2004 the Commission, well aware of the threat that the massive desert locust invasion was posing to food security in Sahelian countries, decided to grant an amount of €23.5 million through the European Development Fund, in consultations with the five countries directly concerned with the plague: Mali, Mauritania, Niger, Senegal and Chad. An additional €2 million from the Food Security Budget Lines brought the total of the Community contribution to €25.5 million. These funds were made available to the partner countries via an agreement between the European Commission and the FAO. The Southern Africa region – Malawi, Mozambique, Zambia and Zimbabwe – continued to face critical food shortages in 2004, and the deficit was even slightly higher than 2003. Rising retail food prices have resulted in a reduced purchasing power of households and accentuated food access problems among vulnerable populations. In addition, the high level of HIV prevalence adds a further dimension to the food insecurity situation in the region. EC support is differentiated in line with the varying situations in southern African countries: food aid and agricultural rehabilitation in Zimbabwe, ‘safety nets’ in Malawi, budgetary support in Mozambique.

In Afghanistan, where 85% of the population of approximately 22 million live in rural areas, farming activities still play a key role in the household economy and in national growth and employment rates. The goals of the Commission's long-term strategy are to stimulate agricultural growth by increasing farm income, generate employment, and reduce poverty and food insecurity.

In North Korea, after several years of provision of food aid, the programme supports farm production by providing agricultural equipment.

The ODA resources committed by EuropeAid in 2004 on food security interventions amounted to €397 million. Payments reached €395 million.

The 2004 Thematic Evaluation of Food Aid Policy, Food Aid Management and Special Operations in support of Food Security shows the positive results of the implementation of these policies. The evaluation states that “the added value of the Food Security Regulation encompasses its strong focus on poverty reduction, the high flexibility between its components, its acknowledged role in the Linking Relief Rehabilitation and Development approach, the fact that it creates opportunities for multi-actor partnerships and allows for interventions at various administrative and societal levels”.

Information regarding cross-cutting issues will be found in Chapter 3.

1.4.6. Institutional Capacity Building

Institutional capacity building is at the heart of all development and co-operation programmes funded by the EC. Without strengthening the institutions that are ultimately responsible for implementing development policies and strategies at country or regional level, there can be no ‘ownership’ and sustainable impact of EC technical and financial co-operation.

Institutional strengthening and capacity building are cross-cutting themes in all sectors and areas of assistance and are fully taken into account in every programme of support, whatever aid modalities are used. With a view to reinforcing EC expertise in the field of institutional strengthening, EuropeAid has this year initiated the development of some analytical tools and training materials on capacity development. In this context, institutions and organisations are being assessed through an ‘open systems’ approach which takes into account both the environment – the outside structural factors shaping their capacities – and their internal structure, functioning and expected output.

A number of important programmes have been approved this year where institutional capacity building is a key component of EC funding.

In the ACP region only, and as an example, a programme of support to good governance has been initiated in Senegal for an amount of €33.5 million: this programme will entail institutional strengthening of the Ministry of Finance, the Department of Justice, Parliament and the Court of Auditors, as part of the Senegalese strategy of promoting good governance at all levels of the state. It will also reinforce the interface between government and civil society on good governance issues.

In a number of ACP countries, capacity-building of the National Authorising Officers (NAOs), who are responsible jointly with the Commission’s services for the sound management of EDF resources allocated to their country, has been given increased attention. A policy dialogue has been engaged at country level and in a forum organised by the ACP group in order to identify ways and means of improving the speed and quality of implementation of EDF-funded programmes. NAO offices, which are located within the Ministries of Finance in 80 % of cases, will be strengthened through EC support, enabling them to co-ordinate and monitor overall project programming, preparation and execution and to assist line ministries and implementing agencies more effectively on methodological and management issues.

At regional level, increased attention is being devoted to capacity development of sub-regional organisations. Approval was given in 2004 to important programmes in this field, for example the NEPAD capacity building programme for public administrations in Sub-Saharan Africa which features training and exchange of information on best practices in public services delivery. An amount of €30 million has been committed for a programme of institutional strengthening for COMESA, to enable the organisation to fulfil its regional integration mandate. A programme of reform and modernisation of the ACP secretariat – which has a key role to play in ensuring the smooth functioning of the ACP institutions, and in particular the ACP Ministerial Councils and the Joint Parliamentary Assembly sessions – has also been approved this year.

In the MEDA and TACIS regions, ‘twinning’ has been used as a privileged instrument to promote institutional strengthening, notably in the field of public administration reform.

In Latin America and Asia, capacity building and institutional strengthening are major components of all programmes in the focal areas of co-operation such as education sector reform, agrarian reforms and natural resources management.

1.5. Lessons learnt and way forward

1.5.1. Analysis of the 2000 Development Policy Statement (DPS)

It has now been four years since the European Commission and the Council issued a joint Statement on EC Development Policy (DPS): that was in November 2000.

This joint statement is a landmark, both by virtue of being the first document of its kind in the EC development sector and because of the variety of functions it performs. As a common development agenda for the European Community and its Member States, the DPS is a statement of intent and a basic guide around which the Commission develops its strategies and programmes. As such, it constitutes the starting point for more detailed policy work and the standard of accountability against which achievements have to be measured. This is particularly important at the European level because of the multiplicity of actors involved.

With the Commission chaired by President Barroso now in place, it is appropriate to revisit this Statement and consider the role it has played in the intervening years, particularly as much has changed during this period, both in the EU and in the wider world, to which the DPS is part of the EU response.

The main value of the DPS is that it sums up the state of the debate and the agreed basic principles at that particular point in time in an authoritative manner, and that it was a joint statement of both Council and Commission. This makes it a point of reference for various stakeholders and actors, as well as for new stakeholders involved in EU development co-operation, such as the Member States that joined in May 2004.

The DPS is clearly a particularly valuable document at the political and policy level, but it has also proved useful in the field of programming by driving the process of establishing more coherent and focused Country and Regional Strategy Papers.

The statement also builds on the Treaty and is widely recognised as being very instrumental in pushing the poverty focus of the EC co-operation to the top of the agenda and helping keep it there for the last few years.

At the time the DPS came out, EC development co-operation was suffering from a lack of focus, and the statement was one measure taken to resolve this situation. The DPS has played its part in re-establishing this credibility.

The statement has been used as a tool in policy discussions between the EU institutions and has become a regular point of reference in policy documents.

The DPS is used as a political tool in the discussions between the EC and the Member States in particular, but also with the European Parliament. On the policy level, it is cited as a primary point of reference in the majority of the policy documents produced by the European Commission in the development sector since 2000.

The statement is also used at the country and regional level. It is explicitly referred to in most of the ACP, MEDA, Asia and Latin America country strategies and projects.

There is a relatively wide range of views on how the poverty focus of the DPS has translated into coherent action, particularly in middle-income countries. There is also a feeling that the principle of concentration of aid on focal areas, which is present in the DPS, can negatively affect partner country ownership.

The lack of progress on implementing the focal areas was in part due to the fact that the needs of these had to be balanced with the priorities of the partner countries or with a growing number of other priorities set by the EU budget authorities (Council, European Parliament).

The principle of mainstreaming cross-cutting issues (gender, environment, Human Rights) has been generally accepted in the DPS, but implementation was problematic.

One of the principle bottlenecks of the DPS has been the lack of ‘ownership’ in certain Commission services, due maybe to the absence of adequate guidelines, indicators and targets for the implementation of the statement. Moreover, the DPS could have been better communicated externally in order to involve key stakeholders such as NGOs and partner country governments more effectively in its use.

Solutions designed to overcome these problems are now being examined in the process of preparing a new DPS, with earlier involvement of all External Relations Directorates-General in the drafting and with public consultation of stakeholders and partner countries.

Since the DPS was formulated, there have been some major changes in the European Union. These regard the growing importance of European foreign policy and Union enlargement.

The DPS also needs to be seen in the context of a new constitutional treaty. Development policy is recognised as a policy on its own, but also as part of a wider spectrum of external relations policies. In this respect, its links with other policy dimensions such as trade, security and migration need to be deepened.

International thinking on development policy has also evolved in the period since the DPS was issued in 2000, with the adoption of MDGs and the conclusions of the Monterrey Conference: the latter set new standards in development efforts, namely more focus on additional resources and on poverty eradication, as well as strengthened aid effectiveness through donor co-ordination and the harmonisation of policies.

It would now seem that, although the priorities remain the same, there is a need to achieve a greater degree of consensus around a single policy statement. For these reasons the Commission launched a public consultation with a view to proposing an updated DPS in 2005.

1.5.2. New financial perspectives

The European Union's co-operation and assistance policy is the result of 50 years of successive sedimentation resulting in a multiplication of assistance instruments and a fragmentation of aid management, in terms of both the programming and implementation functions – even if recent policy and structural reforms have helped to improve the coherence and consistency of the EU's co-operation and assistance policy. European Union global external assistance efforts are currently being carried out through more than 30 different legal instruments (programmes), thematic ones like Food Security, Co-financing with NGOs, the European Initiative for Democracy and Human Rights, etc., and geographical programmes like the EDF (European Development Fund), ALA (Asian and Latin America), MEDA (Financial and technical measures to accompany the reform of economic and social structures in the framework of the Euro-Mediterranean partnership), TACIS (Technical Assistance to the Community of Independent States) and CARDS (Community Assistance for Reconstruction, Development and Stabilisation) programmes. The EU also has an array of CFSP instruments (Joint Actions), as well as some separate instruments covering the external impact of internal policies. Managing these various programmes in an efficient and co-ordinated way has become an increasingly difficult task. Furthermore, this mixed and complex set of instruments jeopardises the visibility of Community co-operation.

In the framework of the new Financial Perspectives 2007-2013, the Commission therefore proposed to the Council and the European Parliament, in September 2004, a drastic simplification of instruments, driven by the need to facilitate coherence and consistency of external actions, and to achieve better and more with the resources available. The Commission proposal invokes the following principles:

- policy must lead the instruments, making the instruments more coherent and results-oriented and increasing their leverage effect and flexibility;

- overall policy coherence must be ensured, particularly through Country and Regional Strategy Papers;

- structure and procedures must be simplified, and financing instruments, legal bases, and budget lines streamlined in order to make them more efficient and effective;

- resources allocation to partner countries and regions must be output-oriented;

- dialogue and coordination with other donors and institutions must improve;

- a better dialogue has to be established with third countries.

In the proposed new architecture, three general instruments directly support European external policies: the pre-accession policy, the European Neighbourhood policy and the development policy. Three thematic instruments are designed to respond to crisis situations, whether political, humanitarian or financial, and cover all third countries.

During 2005, the Council and the European Parliament will assess the proposals and amend them according to their own views. The legislative power is expected to take a final decision in early 2006.

2. GEOGRAPHICAL FOCUS

The description and analysis of EC co-operation activities are presented in this section on a geographical basis, and have been organized around the following six regions:

- Western Balkans

- Eastern Europe and Central Asia

- Mediterranean and Middle East countries

- Africa, Caribbean and Pacific (ACP) countries and Overseas Countries and Territories (OCTs)

- Asia

- Latin America.

Each of these six geographical sub-chapters has the same structure to permit parallel reading. The general introduction on each region is followed by the programming activities and developments in 2004. Co-operation activities are reported according to the actual priorities in each region, underlining the results obtained from implementation of the principal programmes and projects. Therefore, the picture is clear even if the accent is put on different kinds of activities, reflecting the realities of EC implementation during the reporting period. Co-operation with other donors, including Member States, is an important feature of each region. The variations in information between regions mirrors the real differences in the degree of collaboration between the EC, its member States and international organisations, as well as the variations in data available from Member States about each country.

Some figures are given to illustrate the contents of this chapter but there is no overall information on the financial transactions. The reader may find exhaustive financial information in Chapter 6 (financial tables) where the general tables include 2004 disbursements, in line with the OECD’s DAC categories. Regional activity tables include all commitments made during the period covered in terms of ‘geographical’ budget lines as well as ‘thematic’ ones. Figures in the tables and graphs below include bilateral and multilateral Official Development Aid and Official Aid managed by EuropeAid.

2.1. The Balkans

2.1.1. Introduction

Economic performance in the Western Balkans in 2004 presented a mixed picture. Regional growth was estimated at around 4.5% and some countries were expected to post growth rates of at least 5%. However, growth remained relatively subdued in the former Yugoslav Republic of Macedonia and in Kosovo. Inflation eased further in 2004, down to 5.6% on average. After marked improvements in previous years, fiscal consolidation has advanced very unevenly across countries. External imbalances remain a challenge to macroeconomic stability. For the region as a whole, the merchandise trade deficit remained high in 2003-04 (some 25% of GDP). The average current account deficit is estimated at around 12% of GDP in 2004. Most of the core legislative framework of a market economy has been introduced. However, implementation of legislation is severely hampered by weak institutions, in particular the judiciary.

Politically, the region presented a mixed picture. Croatia was granted EU candidate status and the former Yugoslav Republic of Macedonia submitted its application for EU Membership. However, at the same time, some countries of the region were still not co-operating fully with the International Criminal Tribunal for the former Yugoslavia (ICTY). In March 2004 Kosovo saw the worst riots since 1999, seriously undermining efforts to create a stable, peaceful society based on the respect of all ethnic groups. In October, elections to the Kosovo Assembly were conducted peacefully but the turnout among the Serb community, at less than 1%, was insignificant.

2.1.2. Evolution of EU co-operation

The strategic objective of Community actions in the Western Balkans remains to support the Stabilisation and Association Process, notably through institution building and closer alignment with the acquis communautaire . The approach involves a mix of political dialogue, an ad hoc trade regime, extensive financial programmes covering co-operation in the field of justice and home affairs, democratic stabilisation and economic reforms. Naturally, the countries’ priorities reflect political realities and their degree of association, ranging from wanting to start accession negotiations to starting a feasibility report on the conclusion of a Stabilisation and Association Agreement.

The Stabilisation and Association Agreement between the former Yugoslav Republic of Macedonia and the EU entered into force in April 2004. Following the country’s application for EU Membership in March, President Prodi submitted the questionnaire for the preparation of the European Commission's Opinion on the application of the former Republic of Macedonia for membership of the European Union to the authorities in October 2004.

The Commission issued its positive opinion on Croatia ’s application for membership in April. It found that, even if significant efforts were still needed, Croatia fulfilled the Copenhagen criteria, and recommended that accession negotiations should be opened. Based on the opinion, the European Council awarded candidate status to the country in June. The Commission adopted a pre-accession strategy for the country in October as part of the 2004 enlargement package.

In Bosnia and Herzegovina , the EU military mission EUFOR replaced SFOR in December 2004 with the same mandate. EUFOR's mission, code-named Althea, features 7 000 troops from 33 countries, of which 22 are EU Member States. Over the year work has continued on the 16 reform priorities identified in the November 2003 Feasibility Study on concluding a Stabilisation and Association Agreement.

Following full endorsement of the EU’s ‘twin-track’ approach by political leaders of Serbia and Montenegro , the Commission announced that it would re-launch the Feasibility Report on a Stabilisation and Association Agreement with Serbia and Montenegro. The Feasibility Report will assess the country’s capacity to negotiate and implement the far-reaching political and economic obligations under a Stabilisation and Association Agreement. The ‘twin track’ approach to SAA negotiations means dealing with the two republics on policies which they conduct separately, notably trade, economic and sectoral policies, while continuing to work with the State Union where it is the competent authority, for example on international political obligations and Human Rights.

In August the European Commission opened a liaison office in Kosovo in order to ensure an even closer contact with the UN Mission in Kosovo (UNMIK) and the Provisional Institutions of Self-Government on the ground.

The Annual Reports on the Stabilisation and Association process for South-East Europe, published in March 2004, provided an assessment of the progress over the past year of Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia and Serbia and Montenegro, including Kosovo , as defined by UN Security Council Resolution 1244. The third part of these reports contained the Commission’s proposal for the first European Partnerships. These identify short and medium-term priorities which each country needs to address. Generally, the reports found that reform efforts in the economic and political fields had to be intensified and accelerated across the region. The reports were adopted by the Council in June. The Partnership with Croatia was approved in September 2004.

Substantial progress has also been achieved concerning the regional energy market and transport infrastructures. A Memorandum of Understanding on the South-East Europe Core Transport Network was signed in June 2004. In December, the 25 EU Member States and 11 countries of South-East Europe, including Turkey, agreed on the basic principles contained in a text of a treaty to establish an Energy Community which builds on the Athens Memorandum of Understanding on regional energy markets. The Energy Community will create a single regulatory space for energy. It will help reinforce security of supply, and will also help South-East European countries to address energy poverty issues with the aim of providing power supplies to all citizens at an affordable price.

The CARDS (Community Assistance for Reconstruction, Development and Stabilisation) programme remains the main instrument for EC financial assistance to the Balkans. During 2004, the Commission made a proposal to replace CARDS and the various other geographic and thematic instruments with a leaner set of harmonised and simplified instruments, starting in 2007.

2.1.3. Implementation

During 2004, the EC set annual action programmes for all countries/entities of the region: Albania, Bosnia and Herzegovina , Croatia, the former Yugoslav Republic of Macedonia, Serbia and Montenegro and Kosovo. Under the regional envelope the Neighbourhood Programme also received its first allocation. A further boost to the programme was received when, in late 2004, €48.9 million were added to the 2004 CARDS programmes for Albania, Bosnia and Herzegovina, Croatia, Kosovo and the former Yugoslav Republic of Macedonia , bringing total financial commitments to the Balkans in 2004 to €663 million. Payments reached €510 million in 2004, up from €425 million in 2003.

External aid financed on the General Commission Budget managed by EuropeAid 2000-2004 |

€ million | 2000 | 2001 | 2002 | 2003 | 2004 |

Commitment | 863 | 705 | 658 | 624 | 664 |

Payment | 677 | 845 | 619 | 425 | 510 |

In past years the trend of assistance has been away from reconstruction work towards institution-building programmes which now make up the bulk of CARDS assistance.

[pic]

[pic]

- Institution Building

Assistance in this sector aims to consolidate democracy and the rule of law in the region. Priority interventions focus on strengthening capacity to initiate and manage legislative processes, administrative reforms, improve financial management, statistics and enhance the rule of law.

In Bosnia and Herzegovina , 2004 funding was allocated to complete the State-level Indirect Tax Authority and a unified customs service, aiming to boost Bosnia and Herzegovina’s tax receipts. The establishment of a more efficient indirect tax system will generate additional revenue and reduce the level of fraud, thus protecting people from illicit activity (e.g. drug trafficking) and facilitating legitimate trade to support economic and social development. Specifically, support to the creation of the Indirect Tax Administration will be provided: this will include support for the migration from Sales Tax to an EU-compatible VAT at State level.

- Justice and Home Affairs

Justice and Home Affairs continues to be a major priority under the Stabilisation and Association Process, which is also reflected in allocations under the CARDS programme. This comprises the broad areas of justice system reform, policing and the fight against organised crime, asylum and migration. These programmes constitute an important part of the CARDS national and regional programmes.

In 2004 the EC published its Guidelines for Integrated Border Management in the Western Balkans (IBM). They define in some detail this concept, which fundamentally seeks to ensure proper in-country and international co-ordination among the various services involved in border management issues. This is to guarantee that borders are managed with maximum effectiveness and efficiency. The aim of these IBM Guidelines is to help national authorities in further improving their national strategies and action plans on border management. By following these Guidelines, partner countries will be able to ensure that policies and subsequent projects being developed are fully in line with EU standards. It will equally ensure that the approach taken is in line with the requirements needed for progressively closer association and, at a later stage, accession to the European Union. This important tool is now being used by all actors involved in the region to align national activities and by the EC and the European Agency for Reconstruction (EAR) to design significant national CARDS allocations for integrated border management.

- Economic and Social Development

EC support in this field covers a broad range of objectives such as fostering the creation and consolidation of SMEs, creating sound foundations for the development of a market economy, continuing the reconstruction and rehabilitation processes, and supporting vocational, educational and training measures.

In Serbia , a part of the 2004 programme will further finance capacity building of the Serbia Investment and Export Promotion Agency (SIEPA) as well as enterprise development through technical assistance and investment promotion. The ultimate aim is to increase the flow of foreign direct investment and thereby accelerate the transition to a market economy, underpin the European Union accession process and create long-term sustainable private-sector development.

The economic and social component of the 2004 programme for Kosovo aims to promote sustainable economic development for all of Kosovo’s communities. Support will be provided to strengthen the financial viability and development of the energy sector – a prerequisite for economic growth. The capacity of the Ministries of Environment and Agriculture to implement the necessary reforms will be further strengthened. Assistance will also be provided to restructure Kosovo’s publicly-owned companies, improve the management and competitiveness of Kosovo’s enterprises, increase the effectiveness of commercial banking services, and establish an effective food safety control system. The programme will also further assist the economic and social development and re-integration of minority communities, and the development of a sustainable returns process.

In addition, the European Commission continued to implement the Tempus programme in the CARDS region[?]. The programme implementation was guided by national priorities focusing in particular on the implementation of the Bologna process which aims at the establishment of a European higher education area. In 2004, the European Commission committed a total of € 12.5 million for university co-operation projects involving institutions from the CARDS countries.

- Environment and Natural Resources

Urgent attention has been paid to immediate environmental threats in the Balkans such as local contamination by heavy metal and other by-products from obsolete industries. Longer-term improvements are also being implemented, through the reinforcement of Ministries, in order to boost water quality, reduce air pollution and improve waste management. Support is also targeted at small banks and local authorities on how to lend, borrow and monitor the use of money for environmental projects: this will help the region secure loans from such institutions as the EBRD.

In Albania, the environment component of the 2004 programme will finance the construction of a secure hazardous waste landfill, completing the second phase of a long-term waste management project. Furthermore, an environmental monitoring system will be established, aiming to increase Albania’ s capacity to monitor, analyse and design suitable measures regarding environmental quality and to enable Albania to comply with European Environment Agency standards. The sustainable and integrated development of the Tirana-Durres region will also be supported. This should provide the principles and guidelines for sound land-use management and strengthen the planning capacities of local government to ensure sustainable economic growth compatible with environmental protection practices.

- Regional Co-operation

Regionally, the European Commission launched the CARDS Neighbourhood Programme. It promotes cross-border co-operation between the countries of the Western Balkans and their EU or candidate country neighbours. The Neighbourhood programmes cover all those regions of Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia and Serbia and Montenegro (including Kosovo ) which border the EU and candidate countries. The neighbourhood programmes mirror the much larger Interreg and Phare cross-border co-operation programmes on the EU side of the border. The CARDS Neighbourhood Programmes aim to address issues such as economic development of the border areas, the environment, communicable diseases and people-to-people contacts.

The respective EC Delegations implement the CARDS programme in Albania , Bosnia and Herzegovina and Croatia , while the European Agency for Reconstruction (EAR) manages the programmes in Serbia, Montenegro, Kosovo and in the former Yugoslav Republic of Macedonia. The CARDS regional programme is co-ordinated and implemented by the European Commission in Brussels.

The overall priority of EuropeAid’s annual management plan for 2004 was to anchor the CARDS programme in the Stabilisation and Association Process, thereby stabilising the region. This was achieved through a continued focus on institution- building programmes and regional co-operation, and on providing thematic expertise to EC Delegations in the region. The overall objective of implementing the CARDS programme in a timely and effective manner has been reached and is mirrored by the improved payment rates.

Evaluating EC Assistance

In June 2004 two independent evaluation reports were published, assessing the CARDS programme and the work of the European Agency for Reconstruction. The CARDS evaluation found that CARDS assistance has made a significant contribution to reconstruction in the Western Balkans, and that it remains relevant in the context of the goals of the Stabilisation and Association Process. The report made a number of recommendations to improve the implementation of the CARDS Regulation, addressing inter alia, instruments and management and implementation issues, affecting both the national and regional programmes. The devolved implementation models for CARDS assistance, the European Agency for Reconstruction (EAR) and the de-concentrated delegations have strengths which should be capitalised on. The EAR evaluation found that the Agency has allowed the European Commission to exercise leadership in effectively implementing programmes and projects in the Western Balkans and that it has several strengths on which the Commission should build. The Agency has, however, a weaker role in the policy process and dialogue with partners than the de-concentrated delegations in other countries of the region. While the EAR has made significant progress in quality assurance of its activities, it needs to prepare itself for the adoption of a more sector-based approach to its planning, monitoring and evaluation. Following the evaluation, the mandate of the European Agency for Reconstruction was extended until the end of 2006.

2.1.4. Assessment of the EC’s contribution towards poverty reduction and the achievement of the Millennium Development Goals

With increasing growth in the region, poverty looks set to decrease and the MDG poverty goal should be achieved. The future will show whether the resources needed to meet the education, health and environmental goals are available. Progress towards the goals of universal primary education, gender equality in general and in education makes them look achievable. The issue of the spread of HIV/AIDS to the Western Balkans and the wider Central and Eastern Europe region poses a major threat to MDG achievement and has to be tackled.

Meeting these challenges will require significant resources and major administrative and institutional reforms which are partly financed through EC assistance.

Institution building is at the core of the CARDS programme. All countries of the region benefit from heavy institution-building programmes. While these are varied and range from support for the administration of justice to reforming public procurement practices and the structural reform of ministries, they have in common the fact that they strengthen the local bodies. In other words, only raised and more efficient tax collection and customs receipts will increase the state’s budget, only a well organised ministry of environment will be able to ensure that environmental protection laws will be developed and implemented and only a reformed national health service will improve public health. These are but a few examples where CARDS institution- building assistance is playing a role in helping these countries realise the Millennium Development Goals.

The Stabilisation and Association Process includes two elements that have a direct impact on economic development in the partner countries: trade and CARDS assistance. The EC’s trade strategy with the Western Balkans is based on unprecedented and wide-ranging autonomous trade preferences, the creation of a bilateral free trade area under the Stabilisation and Association Agreements, strong support to regional trade integration, support to WTO accession and important trade-related technical assistance. Economic development also depends on enterprise and job creation. CARDS assistance has been directly used to support enterprise development, for example by supporting the development of a network of local SME support agencies through technical assistance and advisory services to these agencies in Bosnia and Herzegovina, Serbia and Kosovo. In Croatia, Serbia and Montenegro , Kosovo as well as the former Yugoslav Republic of Macedonia the EC provided technical assistance to the Ministry responsible for enterprises to help support the development and implementation of policies favourable to enterprise development and investment climate.

Sustainable development and support to environmental activities is part of the EC’s assistance throughout the region, ranging in 2004 from central institutional support to reforming for instance municipal waste management service providers. In Croatia, CARDS 2004 assistance provided support for the approximation of Croatian legislation with the environmental acquis . In Bosnia and Herzegovina , 2004 assistance is helping the country shape its environmental policy and launch a public awareness programme. In Serbia and Kosovo significant funds have been made available to address environmental issues, such as improving environmental legislation in Kosovo at all levels and supporting the treatment of hazardous waste in Serbia . In the former Yugoslav Republic of Macedonia , funds were committed to ensure that environmental legislation and enforcement measures increasingly follow EU norms and standards.

2.1.5. Co-operation with Member States and other donors

Efficient donor co-operation is at the heart of effective assistance. Throughout the Western Balkans, the EC Delegations and the European Agency for Reconstruction’s operational centres organise regular briefing meetings with EU Member States and other multilateral and bilateral donors, sometimes on a sector-specific basis. This gives both Member States and donors an opportunity to exchange relevant information, to share best practices and to improve co-ordination.

In its decision-making process on financing proposals, the Commission thoroughly analyses how to ensure consistency and complementarity, while avoiding overlap with other donors’ activities in a given country and sector.

As in previous years, in 2004, the European Commission concluded a number of contribution agreements with international organisations, where resources are pooled and activities closely co-ordinated.

The ‘twinning’ instrument is now widely used throughout the region. ‘Twinning’ supports and finances the secondment of civil servants from EU Member States to work as advisers to beneficiary institutions.

PAMECA – Supporting Police Reform in Albania

Spain’s Guardia Civil has since January 2003 been leading a CARDS-financed Police Assistance Mission of the European Commission to Albania (PAMECA), mobilising 15 police experts from eight different EU Member States. PAMECA advises the local police on modern methods of investigating and countering crime and ensuring effective co-operation with the judiciary. Boosting professionalism and improving the management of human, material and information resources were the main objectives of this two-year €6.5 million project. Following a call for proposals sent to all EU Member States, the European Commission has now awarded a €10.8 million follow-up grant for the implementation of the next Police Assistance Mission of the European Commission to Albania for the period 2005-07. PAMECA II, which will build on the achievements of its predecessor and comprise a multinational team of 16 long-term experts, will provide strategic advice and specialised technical assistance and training, including coaching and on-the-job training, to the Albanian State Police – all this in key areas such as the fight against organised crime and terrorism, integrated border management, public order and major crisis management, community policing and crime prevention. PAMECA is a prime example of how the EC and EU Member States have pooled their resources – human and financial – to provide the most professional assistance possible.

2.1.6. Overview results-oriented monitoring (ROM)

In 2004, 79 projects for a total budget of €140.1 million were monitored, producing 112 reports and showing globally good results with a marked improvement compared with the previous year[?].

€ million | 2000 | 2001 | 2002 | 2003 | 2004 |

Commitment | 449 | 426 | 432 | 504 | 504 |

Payment | 468 | 402 | 384 | 396 | 359 |

As regards the dispatching of funds per sector of co-operation in 2004, the social sectors represent, as in the previous years, the largest part of the budget with 55% of total funds. Aid to economic infrastructure reached the second position, with 29% of the external aid managed by EuropeAid in 2004, and the multisector/crosscutting issues represented 13 % of the total.

[pic]

[pic]

The overall priorities of EuropeAid’s annual management plan for 2004 were to further promote the transition to a market economy and to reinforce democracy and the rule of law in the partner states. This was achieved with significant initiatives in the areas of:

- institutional, legal and administrative reform,

- private sector and economic development,

- social consequences of transition,

- infrastructure network

- nuclear safety.

- support for institutional, legal and administrative reform

One of the key priorities for the Tacis programme is the work done in the field of institutional, legal and administrative reform, in particular to support the partner countries in meeting their obligations under the Partnership and Co-operation Agreements (PCA). In Russia, for instance, legal assistance has been provided ts the State Duma to improve its administrative performance and reinforce its modern budgeting techniques. Justice, law and security continue to grow in importance as a priority for Tacis assistance. Specific attention has been given in 2004 to the development of asylum systems, migration policies, and border management, especially in Ukraine , Azerbaijan and Central Asia . The fight against organised crime, and especially drug and human trafficking, has been addressed through the CADAP (Central Asia Drug Action Programme) and the BOMCA initiative (Border Management Initiative for Central Asia). Such programmes exist as well in the Caucasus and Moldova .

Lastly, it is important to underline Tacis involvement in the field of civil society, where a proportion of each national budget is allocated to support NGOs and professional associations through small grants.

Promoting Democracy through Social NGOs

Implemented over two years in Russia with a budget of €2 million, the project ‘Promoting Democracy through Social NGOs’ developed co-operation mechanisms between the government, municipal authorities and NGOs in the provision of social services to vulnerable groups of population. Within the framework of the project, a team of experts was active at federal and local levels, analysing the existing legislation on the provision of social services by NGOs and working on the finalisation of the Law on Social Order. Building on this finalised Law, a series of 12 projects in diverse pilot regions (cities, towns, rural areas) was implemented to establish co-operation mechanisms bringing together different organisations and beneficiaries, while flexibly taking into account the local situation. An integrated training process for all social services providers (including municipal authorities and NGOs) was developed and tested. One of the key factors for the success of the project was that each administration acted as a partner, especially at regional and local government levels, with different actors involved. The project helped administrations gain the trust of social NGOs, providing the basis for the sustainability of the initiated joint actions.

- Support to the private sector and assistance for economic development

Across the NIS region, there has been a substantial investment in assisting partner governments with the transition from centrally managed economies, through the process of privatisation, to the development of transparent and effective corporate governance. Tacis continues to concentrate about one-third of its support to the private sector and to economic development. In Russia and Ukraine , the EC has decided to emphasise its assistance t