TABLE OF CONTENTS

1........... DELIVERING ON COMMITMENTS.......................................................................... 6

1.1........ Policy development and priorities.................................................................................... 7

1.1.1..... Progress on the MDGs................................................................................................... 7

1.1.2..... Policy developments....................................................................................................... 9

1.1.3..... Focus on poverty.......................................................................................................... 12

1.2........ Making cooperation work better................................................................................... 14

1.2.1..... European Consensus on Development and the future of EU development policy............. 14

1.2.2..... Mainstreaming of cross-cutting issues............................................................................ 15

1.2.3..... Coherence between development and other policies...................................................... 18

1.2.4..... Aid effectiveness and co-financing................................................................................. 20

1.3........ Working with partners in a changing environment........................................................... 22

1.3.1..... Cooperation with the donor community......................................................................... 22

1.3.2..... Cooperation with international organisations.................................................................. 22

1.3.3..... Cooperation with non-state actors and local authorities.................................................. 24

1.4........ Outlook for 2011......................................................................................................... 24

2........... IMPLEMENTATION: GEOGRAPHIC OVERVIEW................................................. 27

2.1........ European Neighbourhood and the Middle East.............................................................. 28

2.1.1..... The European Neighbourhood and Partnership Instrument............................................. 28

2.1.1.1.. Introduction.................................................................................................................. 28

2.1.1.2.. Aid effectiveness and donor coordination...................................................................... 30

2.1.1.3.. Working towards the MDGs......................................................................................... 31

2.1.1.4.. Implementation............................................................................................................. 32

2.1.1.5.. Monitoring.................................................................................................................... 39

2.1.1.6.. Outlook........................................................................................................................ 41

2.1.2..... Middle East.................................................................................................................. 44

2.1.2.1.. Introduction.................................................................................................................. 44

2.1.2.2.. Aid effectiveness and donor coordination...................................................................... 45

2.1.2.3.. Working towards the MDGs......................................................................................... 46

2.1.2.4.. Implementation and results............................................................................................ 46

2.1.2.5.. Outlook........................................................................................................................ 48

2.2........ The ACP region and Overseas Countries and Territories (OCTs).................................. 48

2.2.1..... Sub- Saharan Africa..................................................................................................... 49

2.2.1.1.. Introduction.................................................................................................................. 49

2.2.1.2.. Aid effectiveness and donor coordination...................................................................... 50

2.2.1.3.. Working towards the MDGs......................................................................................... 52

2.2.1.4.. Implementation and results............................................................................................ 54

2.2.1.5.. Monitoring.................................................................................................................... 57

2.2.1.6.. Outlook........................................................................................................................ 59

2.2.1.7.. Introduction.................................................................................................................. 60

2.2.1.8.. Aid effectiveness and donor coordination...................................................................... 60

2.2.1.9.. Working towards the MDGs......................................................................................... 61

2.2.1.10................................................................................................. Implementation and results 61

2.2.1.11............................................................................................................................. Outlook 63

2.2.2..... Caribbean.................................................................................................................... 63

2.2.2.1.. Introduction.................................................................................................................. 63

2.2.2.2.. Aid effectiveness and donor coordination...................................................................... 64

2.2.2.3.. Working towards the MDGs......................................................................................... 65

2.2.2.4.. Implementation and results............................................................................................ 66

2.2.2.5.. Monitoring.................................................................................................................... 68

2.2.2.6.. 0utlook......................................................................................................................... 69

2.2.3..... Pacific.......................................................................................................................... 70

2.2.3.1.. Introduction.................................................................................................................. 70

2.2.3.2.. Aid effectiveness and donor coordination...................................................................... 71

2.2.3.3.. Working towards the MDGs......................................................................................... 72

2.2.3.4.. Implementation and results............................................................................................ 73

2.2.3.5.. Monitoring.................................................................................................................... 76

2.2.3.6.. Outlook........................................................................................................................ 77

2.2.4..... All ACP Programmes................................................................................................... 77

2.2.5..... Overseas Countries and Territories (OCTs).................................................................. 84

2.2.5.1.. Introduction.................................................................................................................. 84

2.2.5.2.. Implementation and results............................................................................................ 85

2.3........ Asia and Central Asia................................................................................................... 86

2.3.1..... Asia............................................................................................................................. 86

2.3.1.1.. Introduction.................................................................................................................. 86

2.3.1.2.. Aid effectiveness and donor coordination...................................................................... 87

2.3.1.3.. Working towards the MDGs......................................................................................... 88

2.3.1.4.. Implementation and results............................................................................................ 89

2.3.1.5.. Monitoring.................................................................................................................... 94

2.3.1.6.. Outlook........................................................................................................................ 95

2.3.2..... Central Asia................................................................................................................. 96

2.3.2.1.. Introduction.................................................................................................................. 96

2.3.2.2.. Aid effectiveness and donor coordination...................................................................... 97

2.3.3..... Working towards the MDGs......................................................................................... 97

2.3.3.1.. Implementation and results............................................................................................ 99

2.3.3.2.. Monitoring.................................................................................................................. 102

2.3.3.3.. Outlook...................................................................................................................... 103

2.4........ Latin America............................................................................................................. 104

2.4.1.1.. Introduction................................................................................................................ 104

2.4.1.2.. Aid effectiveness and donor coordination.................................................................... 105

2.4.1.3.. Working towards the MDGs....................................................................................... 106

2.4.1.4.. Implementation and results.......................................................................................... 107

2.4.1.5.. Monitoring.................................................................................................................. 110

2.4.1.6.. Outlook...................................................................................................................... 112

3........... IMPLEMENTATION: THEMATIC OVERVIEW.................................................... 114

3.1........ Thematic programmes................................................................................................. 115

3.1.1..... Investing in people...................................................................................................... 115

3.1.2..... Non-State actors and local authorities in development................................................. 117

3.1.3..... Migration and asylum.................................................................................................. 119

3.1.4..... Environment and sustainable management of natural resources including energy............ 120

3.1.5..... Food security............................................................................................................. 123

3.2........ Democracy and Human Rights.................................................................................... 125

3.3........ Stability...................................................................................................................... 134

3.3.1..... Crisis response and preparedness............................................................................... 134

3.3.2..... Global and regional trans-border challenges................................................................. 135

3.4........ Nuclear Safety............................................................................................................ 139

3.5........ Humanitarian assistance.............................................................................................. 142

3.5.1..... Introduction................................................................................................................ 142

3.5.2..... Implementation of humanitarian aid.............................................................................. 142

3.5.3..... Humanitarian assistance policy.................................................................................... 144

3.5.4..... Disaster preparedness................................................................................................. 145

3.5.5..... Civil protection........................................................................................................... 145

3.6........ Macro-financial assistance.......................................................................................... 145

4........... MANAGING AID FOR RESULTS.......................................................................... 146

4.1........ Monitoring and evaluating projects.............................................................................. 146

4.1.1..... Results-oriented monitoring......................................................................................... 147

4.1.2..... Evaluations................................................................................................................. 154

4.1.3..... Integrating lessons from monitoring and evaluation....................................................... 159

4.2........ Toward better aid delivery.......................................................................................... 160

4.2.1..... Developments in aid delivery modalities and channels................................................... 160

4.2.2..... Budget support........................................................................................................... 162

4.2.3..... Blending of grants and loans........................................................................................ 164

4.3........ Progress in aid management........................................................................................ 166

4.3.1..... Progress on qualitative issues in aid management.......................................................... 166

4.3.2..... Simplification of procedures........................................................................................ 167

4.3.3..... Cooperation with international organisations and other donors...................................... 168

4.4........ Visibility and communication....................................................................................... 170

5........... FINANCIAL ANNEXES.......................................................................................... 171

5.1........ Introduction to financial tables..................................................................................... 171

5.2........ Financial tables........................................................................................................... 173

Introduction

All developments described in this 2011 Annual Report reflect the situation as of 31 December 2010. The Report does not cover the significant changes that occurred in 2011 following the political developments notably in the Southern Mediterranean region and in other areas of the world.

The year 2010 was a crucial one for the world economy. Recovery from the global economic and financial crisis has been fragile and uneven. This reflects the asymmetric recovery paths, plus the different timing and intensity of fiscal consolidation and structural reforms adopted by the countries most affected. Uncertainties about the sustainability of long-term growth are another source of concern. In 2010, advanced countries (the United States, Japan and Europe) returned to modest growth. The more dynamic emerging and transition economies in eastern Europe, Asia and Latin America (Russia, China, India, Brazil) have proved more resilient to the crisis. Despite some positive signs, most low-income countries continued to experience major socio-economic constraints in 2010 as a result of the persistent negative impact of the crisis and the volatility of world commodity, energy and food prices. Many developing countries are finding it harder to adjust their economies, to exploit new trade and economic opportunities and to meet the Millennium Development Goals (MDGs).

In 2009-2010, unemployment and poverty levels increased, affecting another 120-150 million people worldwide. Young people and school-leavers have been particularly hard hit by the downturn and the current slow recovery, which creates few jobs and leads to migratory flows and the development of the informal or “black” economy. National social safety nets are overstretched, while programmes to reduce fiscal deficits are being implemented by cutting social, health and education budgets. Income inequality also increased, calling into question current pro-poor and redistributive public policies in both advanced and developing countries.

In 2010, the European Union took important decisions on development policy, always with a bearing on the MDGs. The European Commission finalised a green paper on inclusive growth and sustainable development[1], a green paper on direct budgetary support[2] and a Communication on Africa-Europe 2020[3]. Furthermore, the EU launched a reflection in September 2011 on EU strategic partnerships with emerging economies and on the role of Europe in the world. The mid-term review of the Country Strategy Papers suggested ways to meet new needs and challenges in EU planning. During the year, the EU plan of action on gender equality and women's empowerment in development (2010-2015) provided the Commission, the European External Action Service (EEAS) and Member States with a tool to reinforce EU coordination on gender equality in development cooperation.

Progress on global development also means tackling the impact of climate change and protecting the environment. At conferences in Nagoya (Japan) and Cancun (Mexico), the EU worked with developing partners on new international regimes for biodiversity and climate change, with forests a core theme in both. On these occasions, the EU provided detailed information on its financial support for biodiversity and climate change.

In terms of institutional developments, 2010 was the first year of the Barroso II Commission and saw the creation of the EEAS under Catherine Ashton, High Representative of the Union for Foreign Affairs and Security Policy and Vice-President of the Commission. These Lisbon Treaty reforms together with the availability of adequate financial resources and tools will reinforce the EU’s status as main international actor and supporter of global development.

INSTITUTIONAL CHANGES AT EU LEVEL

The Lisbon Treaty contained big changes for EU foreign policy, including overseas development. It established two new posts: the President of the European Council, who will cooperate with the current rotating Council Presidency, and the High Representative for Foreign Affairs & Security Policy/Vice President of the Commission (HR/VP). The President of the European Council ensures the external representation of the Union on issues concerning the Common Foreign and Security Policy (CFSP), without prejudice to the role of the High Representative. The HR/VP is tasked to ensure the consistency and coordination of the Union’s external action and to be responsible within the Commission for its external relations responsibilities and, as HR, to chair the Foreign Affairs Council and to conduct the CFSP. The European Commission ensures the EU's external representation on all issues other than the CFSP. These institutional innovations should improve the framing of development and foreign policies and ensuring a more effective EU external voice and representation in international fora, including the G8 and G20.

The European External Action Service has been created, as of 1 January 2011, under the authority of the HR/VP. It combines human resources from the Commission, the Council and the national diplomatic services of Member States. The role of the EEAS is to assist the High Representative in fullfilling her various mandates as well as the President of the European Council, the President of the Commission and the Commission in the exercise of their external relations functions. Besides its headquarters in Brussels, the EEAS also includes EU Delegations around the world.

The Lisbon Treaty has increased the scope for Member States to cooperate with third countries using a more flexible approach (known as enhanced cooperation or ‘variable geometry’). The Lisbon Treaty also allows for more cooperation on security and defence. It has also raised the co-decision capacity of the European Parliament, which will improve Parliament's relations with the Council and the Commission and EU institutions' accountability to citizens. It will also strengthen the legitimacy of European actions in areas including overseas development and external relations, making EU foreign policy more focused and coherent, with more flexibility and better coordination. The Treaty foresees a unified EU external representation in international fora as a longer-term objective.

The Lisbon Treaty puts fighting poverty and helping countries attain the MDGs at the core of European external and development policies.

Achieving the desired degree of coherence will require better coordination through permanent dialogue and communication with Member States. In development terms, this means a focus on key issues like increasing the volume of Official Development Assistance (ODA), aid predictability and aid delivery synchronisation, as well as joint programming, better international coordination, greater aid effectiveness and an efficient division of labour among donors. It should also mean more synergies between grants and loans, and more coherent EU policy dialogues with third countries and international financial institutions.

EU enhanced cooperation among Member States will contribute to better management of European development assistance and more effective external policies.

1. DELIVERING ON COMMITMENTS

The EU annual policy objectives for 2010 included a proposal for an EU action plan in the run up to the 2015 MDG Summit and work to ensure aid efficiency, accountability and consistent synergies between development policy and policies such as migration, security, climate action and energy, food security, access to health-care and education.

1.1. Policy development and priorities 1.1.1. Progress on the MDGs

In 2000, leaders of 189 countries committed their nations to a new global partnership, focused on eight Millennium Development Goals (MDGs) to reduce extreme poverty with a deadline of 2015 for achieving a series of targets: (1) eradicating extreme poverty and hunger, (2) achieving universal primary education, (3) promoting gender equality and empowering women, (4) reducing child mortality rates, (5) improving maternal health, (6) combating HIV/AIDS, malaria, and other diseases, (7) ensuring environmental sustainability and (8) developing a global partnership for development.

Five years from the 2015 deadline, 2010 was a key year for the MDGs. On 20-22 September, the UN High-Level Plenary Meeting on the MDGs assessed progress and called for redoubled political and financial commitments to faster progress on all MDGs.

Examples of EU contributions since 2005 to reaching the Millennium Development Goals

Assisting 24 million people with social transfers related to food security (MDG1)

Enrolling nine million children in primary education (MDG2)

Connecting 31 million households to better drinking water (MDG7)

Constructing or maintaining 36 000 km of road (MDG8)

Progress has varied significantly between MDGs and between regions, countries and population groups. Progress has been good on reducing global poverty and on other goals such as universal primary education, gender equality in primary education and access to water. However, 1.4 billion people still live in extreme poverty and several MDGs are seriously off-track. This is particularly the case for improving maternal health where almost no progress was made, while prospects for access to sanitation are bleak. Sub-Saharan Africa in particular has fallen behind on all MDGs.

In April 2010, the Commission issued a set of concrete proposals for EU action to help developing countries achieve the MDGs by 2015. The Communication "A 12-point EU action plan in support of the Millennium Development Goals"[4] proposed a comprehensive approach that addresses the policy and financial dimensions. It sought to focus first on those countries most off-track and most in need, particularly those in situations of fragility. It was accompanied by five staff working papers which analysed progress on the MDGs, financing for development, aid effectiveness, aid for trade, and a 2010-2013 policy coherence work programme.

The Commission also made a series of policy proposals on food security[5], global health[6] and tax and development[7]. It published other thematic papers on education[8] and on gender[9] which all fed into the Commission comprehensive approach to the MDGs (for more information and references, see 1.1.2).

The Council Conclusions on 14 June[10] gave the EU an ambitious common position ahead of the UN MDG Summit. The EU position included actions to increase ownership by developing countries of the development process. It also highlighted aid efforts, improving the impact of policies, mobilising more and predictable financing for development, and using development resources more effectively.

The EU took an active part in the process right up to the outcome document adopted at the UN. It engaged in dialogue with key international partners, particularly the African, Caribbean and Pacific (ACP) countries with whom a joint political declaration on the MDGs was adopted in June. This demonstrated the shared commitment to reach the MDGs and the convergence of views on ways to accelerate progress.

The European Commission also announced, at the UN Summit a €1 billion MDG Initiative to spur the policy dialogue on MDGs with ACP countries and to support those furthest off-track.

Overall, MDG commitments were made by both developing and developed countries, creating a new momentum. On average, developing country governments raise about ten times more revenue from domestic sources than they obtain in ODA. The potential, therefore, for mobilising more domestic resources is considerable in most developing countries. There is scope for helping developing countries to improve their capacity to raise more revenue. The Commission's efforts in this field will be strengthened by its Communication on tax and development and ongoing work on budget support.

Follow up of the 12-point action plan

The EU has started to implement the 12-point action plan to support the Millennium Development Goals. Given that it cannot do everything everywhere, the plan focuses on off-track countries, including those in situations of conflict and fragility.

On Official Development Assistance, all donors need to contribute to the common goal on the basis of fair global and internal EU burden-sharing. The Commission has worked to share information by updating EU donor profiles. It is also preparing its ODA report to the European Council. As part of this process, an EU report on financing for development is being drafted and will contribute to Council discussions later in 2011.

Every euro set aside for development has to be used effectively. One priority is mutual accountability. In October 2010, the Commission published a Communication on mutual accountability and transparency[11] based on joint work with Member States at technical seminars. Another Communication on the progressive synchronisation of EU and national aid programming cycles is planned for the second half of 2011.

Mobilising the domestic resources of partner countries is crucial for development and for establishing relations of confidence and trust between citizens and their governments. This is why the Commission is working on a partnership with the African Tax Administration Forum through regular contacts at expert level. To promote revenue transparency and domestic accountability, it supports the activities of the Extractive Industry Transparency Initiative (EITI).

The EU is committed to supporting the expansion of the private sector in partner countries. In November 2010, the Commission concluded a study on the role of the private sector in development. In the same month it took part in the EU-Africa Business Forum in Tripoli.

Actions in other policy areas not directly linked to overseas development can have an impact on developing countries and development goals. The EU is leading the way in what is termed policy coherence for development (PCD). In October 2010, the Commission worked with the OECD to promote PCD at international level. The EU’s current PCD work programme 2010-2013 includes consultations on a Communication on the future of trade policy, and an impact assessment of the reform of the EU’s agriculture and fisheries policies.

1.1.2. Policy developments

Attention in 2010 focused on core MDG areas such as health, education and gender equality. Policy documents were adopted in each field and were part of the EU contribution to the UN's MDG high-level event in September 2010.

Health

An open consultation on global health issues, and an intensive debate with EU Delegations, Member States' experts and stakeholders led to a Communication on the EU role in global health[12] in March, followed by Council conclusions. This new EU policy framework addresses health challenges in developing countries in a number of ways:

· enhanced governance at global and national levels;

· fairer distribution of EU health aid through focused support for countries in greatest need;

· the application of aid effectiveness principles;

· stronger national health systems and a health-for-all approach at country level;

· ensuring coherence between the objectives of global health and other policies, such as trade and financing, migration, peace-keeping and security, food security and climate change.

This Communication also responds to the findings and recommendations of a 2008 report by the EU Court of Auditors on EU support for health in sub-Saharan Africa.

The EU policy on global health was presented to the World Health Assembly, and discussed at the Brussels conference on global health in June. It contributed to EU inputs on global health in the G8, in the UN global strategy for women and children's health, at the replenishment conference of the global fund to fight AIDS, tuberculosis and malaria, as well as at the UN MDG summit. The year ended with a roundtable at the annual European Development Days event which discussed concrete opportunities to advance the EU commitments on global health. These included more use of health sector budget support, synergies with global actors such as the US in the framework of the EU-US dialogue on development policy, and engagement with Brazil and other emerging and developing economies to discuss a global health framework at the 2011 World Health Assembly.

Education

The February 2010 staff working document on more and better education in developing countries[13] emphasised the importance of good-quality basic education as a foundation for further learning, the balanced development of the whole sector and the creation of appropriate links to other sectors. It focused on the need for strengthening EU joint work, increasing EU financial support, broadening the financing base for education, and concentrating action on countries with the greatest need.

The Education for All (EFA) – Fast Track Initiative (FTI), where the Commission is a board member, contributed actively to reforms to reinforce the country focus, to cater better for the needs of fragile states and to improve decision-making, mutual accountability and FTI fund management. Teaching issues were a special focus for the Commission through the international task-force of teachers for EFA, a voluntary global alliance of EFA partners working together to address teacher needs in terms of policies, capacities and financing. The Commission co-chairs the task-force with Indonesia and is its main funder. Work by the task-force helped strengthen cooperation with UNESCO, a task-force member and host to its secretariat.

The Commission was actively involved in the Task-Force for Innovative Financing for Education, led by France. The Commission also reinforced contacts with the Association for the Development of Education in Africa to promote policy dialogue in education between donors and African partners. A successful side event at the EU-Africa summit of November 2010 launched EU support for the Nyerere Programme, an intra-African mobility programme for students and academic staff, prepared in collaboration with the African Union.

The Commission supported the initiative of the G20 development working group to draw up a multi-year action plan for development. The human development pillar of this plan will concentrate on employment-related skills and the creation of internationally comparable skills indicators and enhanced national employable skills strategies.

Gender

The goal of equality between women and men and the promotion of women's rights are of fundamental importance for the EU. However, despite substantial progress over the last few decades, women and girls still make up the large majority of the world's poorest. They are under-represented in governments and decision-making bodies, have fewer opportunities within the labour and financial markets. Sexual and reproductive health and rights are still neglected or denied in many countries and gender-based violence remains a widespread global phenomenon.

In June 2010, the Commission and Member States adopted the EU action plan on gender equality and women's empowerment in development (2010-2015)[14]. Through a series of activities and through policy dialogue, this action plan aims to accelerate the achievement of the MDGs and to improve the EU's work to advance gender equality in developing countries.

The action plan also aims to reinforce EU coordination with partner countries regarding gender equality policies to increase their impact on the ground. For example, it intends to place gender equality issues systematically on the agenda of political and development policy dialogue with partner countries and to prioritise in-country civil society participation, capacity building and advocacy.

Food security

Developing countries account for 98% of undernourished people with an average level of undernourishment of 16%. This is down from 18% in 2009, but still well above the MDG1 target of 10%. Food insecurity gravely affects human development, social and political stability and progress towards the MDGs.

In March 2010, the European Commission adopted two new EU policy frameworks to help developing countries address the issue of food security, in both emergency[15] and long-term situations[16]. The objectives are to ensure progress toward achieving Millennium Development Goal related to the elimination of poverty and hunger (MDG 1), and to maximise the effectiveness of humanitarian support in crises where food insecurity threatens lives. Food security implies food availability, access to food and the quality of food. The Commission promotes an environmentally friendly and sustainable agricultural model, adapted to the reality of developing countries and markets, and able to make food available, accessible and of adequate nutritional quality. It therefore concentrates on enhancing the productivity of smallholder farmers and the resilience of rural communities, supporting governance improvements for food security, and strengthening assistance mechanisms for extremely vulnerable population groups.

In November, the Commission launched a public debate (via a Green Paper) on how the EU can best support developing countries' efforts to speed up progress towards the MDGs. The Green Paper identified agriculture and food security as possible priority areas.

Throughout 2010, the EU worked closely on food security with a number of actors, including the three Rome-based UN agencies (the FAO, the International Fund for Agricultural Development, and the World Food Programme) and the US, under the EU-US development policy dialogue. The EU also contributed to further promoting food security governance at the global level by contributing to the reform of the committee on world food security and by supporting the implementation of the food security agenda in the context of the G8 and G20 (in particular the L'Aquila food security initiative).

In December 2010, following its Mid-Term Review, the Food Security Thematic Programme was updated and a new Multiannual Indicative Programme for 2011-2013 was adopted with an overall budget of €750 million (see chapter 3).

Culture

The year 2010 was important for recognising culture as an essential component of development policy. Following the Brussels international colloquium "Culture and Creativity as Vectors for Development" in April 2009, the Spanish EU presidency and the Commission co-organised a major event in Gerona (4-6 May 2010). There, ministers and high-level officials from EU, ACP, Latin American and Mediterranean countries met with professionals and cultural institutes to translate the Brussels achievements into an action agenda. The Gerona conclusions highlight the urgent need to incorporate the cultural dimension into the MDG process (and all anti-poverty initiatives), as well the importance of taking concrete steps to improve donor coordination, create practical tools to raise awareness and adopt an integrated EU strategy.

The European debate was rapidly taken up at international level, thanks mainly to close and effective cooperation with UNESCO. One result of this cooperation was a statement on the importance of the cultural dimension in development cooperation in the outcome document of the MDG summit in September 2010 and the subsequent adoption of a UN resolution on culture and development, opening the way for a high-level event before the end of the MDG process.

Coordination between EU institutions, Member States and international organisations advanced through the dialogue with the European Union National Institutes for Culture (EUNIC). A debate was launched with the European Parliament about the role of culture in EU external relations and potential staffing implications for coordinating the EU effort on cultural cooperation and diplomacy on the ground.

1.1.3. Focus on poverty

As a result of the global financial crisis, it will take years to restore jobs, cut fiscal deficits and reduce foreign debt. Some MDG goals may be compromised unless there is more decisive progress. According to the UNDP and World Bank, many countries will not be able to meet the MDG objectives by 2015, especially the poverty-related indicators.

An established positive correlation exists between economic growth, reforms, political stability/good governance, and effective poverty alleviation strategies. The developing world has sought to pursue these targets throughout 2010. The ongoing rapid growth in China, India, Brazil, and other emerging economies has been impressive. Yet new challenges need to be addressed such as environmental degradation, climate change, food security and energy efficiency. These factors will impact on GDP and incomes per capita in coming years.

All EU partners in eastern Europe and the Caucasus which are covered by the European Neighbourhood and Partnership Instrument (ENPI) are now classified as middle-income countries (MICs). While poverty in the region has been reduced, social inequality and exclusion are still increasing at country and regional levels. Regional needs remain significant. The Republic of Moldova[17], although now reclassified as a low-middle income country, remains the poorest country in Europe. Mediterranean countries covered by the ENPI also have to cope with poverty (all of them, apart from Israel, belong to the MIC category). Because of the existence of informal as well as formal redistributive channels, more budgetary and fiscal discipline is needed. Most Mediterranean countries were trying to introduce reforms during 2010, but at a high social cost.

In this difficult context, EU assistance through the ENPI focuses on job creation, improving the investment climate, good governance, developing social infrastructures and support for administrative, economic and social reforms. The most difficult social situation remains that of the occupied Palestinian territory where, despite humanitarian assistance, the socio-economic indicators did not improve in 2010, leaving more than 30% of the Palestinian population still living in poverty.

There has been an impressive reduction of absolute poverty in Asia, led by China, India and most countries of southeast Asia. However, poverty is still widespread in India and other countries like Afghanistan, Bangladesh, Cambodia, Laos, Myanmar/Burma, Nepal, North Korea, Pakistan, Papua New Guinea and Timor-Leste. Economic growth has led to considerable income and regional disparities, including inequalities between rural and urban populations. Development levels in southeast Asian MICs vary greatly. In these areas, EU cooperation through the Development Cooperation Instrument (DCI) focuses on capacity building, social infrastructures, energy efficiency, land management, climate change, food security, environmental protection and trade integration. All these actions have spill-over effects on poverty alleviation strategies at regional and country level.

Central Asian transition countries enjoyed significant growth rates over the past decade but have been considerably affected by the recent crisis. They felt the impact of weaker markets for their commodity exports. The worst-affected were Kyrgyzstan and Tajikistan – poor countries hit by lost remittances from citizens working abroad – and Kazakhstan, faced with a banking crisis. Turkmenistan and Uzbekistan were less affected and benefited from the fiscal income and external surpluses generated by gas and oil exports. Overall, in the region growth rates fell, poverty levels roses and the urban/rural divide widened. To help meet these challenges, EU assistance focuses on raising living standards, developing the social sector and providing a social safety net. It also seeks to improve the rule of law and public governance.

Progress in economic and social reform during the 1990s and early 2000s ensured prolonged economic growth for Latin America. Poverty levels in the region fell significantly. However, an average of 40% of the Latin American population still lives in poverty and income inequality remains. EU programmes under the DCI support the fight against poverty by promoting social cohesion and supporting regional integration. More recently, the EU policy dialogue broadened to include economic competitiveness, trade, migration, environment/energy/climate change, governance, and sustainable development. This is particularly the case for countries like Argentina, Brazil, Chile, Mexico and Uruguay, among the upper MICs.

The EU has changed its approach to development policy, making it more innovative. It considers innovative financing mechanisms so as to guarantee sustainable growth and inclusive, “smart” development. Boosting entrepreneurship, enhancing good governance, developing social infrastructures and supporting the private sector have become the main drivers of EU developmental programming. This influences poverty reduction very positively. The Commission intends to expand further innovative financing in external action so as to optimise the leverage potential of the EU budget.

Developed and developing countries will need to act more quickly to reach the MDGs in five years' time. Now the question is how to ensure that the development policy of the EU and its member states has the greatest possible impact in attaining its objectives. At a time when the credibility of aid is under pressure, demonstrating this increased impact is more important than ever for maintaining political and public support for development assistance.

1.2. Making cooperation work better 1.2.1. European Consensus on Development and the future of EU development policy

The European Consensus on Development[18], which marks a milestone in the history of EU development cooperation, expresses the will of the European Union and its Member States to make a decisive contribution to poverty eradication and the Millennium Development Goals. It sets out for the first time a common EU vision on development based on more aid, better aid, improved policy coherence and a focus on Africa.

In 2010, the EU undertook several major policy initiatives to further implement its common vision on development. In April, the Commission issued a comprehensive set of proposals on EU action to help developing countries achieve the MDGs by 2015 (see section 1.1.1).

After its fourth College to College meeting with the African Union Commission, the European Commission adopted in June 2010 a communication on future EU-Africa relations in the lead-up to the third EU-Africa summit in Tripoli in November. On that occasion, leaders from both continents confirmed their commitment to the Africa-EU Joint Strategy by adopting the second action plan (2011-2013) covering its eight thematic partnerships and underlining their will to strengthen cooperation on global challenges.

The Commission launched several consultation initiatives in 2010 to generate a broad reflection on the future of EU development policy, in the light of the challenges and opportunities in a fast-moving international context and of the EU’s new institutional framework. Consultations launched at the end of 2010, included a Green Paper on EU development policy in support of inclusive growth and sustainable development (see section 1.2.2) and one on the future of budget support. The latter aimed to draw lessons from more than a decade of providing budget support and invited views and evidence on both the opportunities of this tool and the ways to improve its quality, value for money and impact (see Chapter 4).

The future of EU development policy

The Green Paper "EU development policy in support of inclusive growth and sustainable development" explored ways in which EU development policy could be a catalyst for building developing countries' own capacities to generate inclusive and sustainable growth and mobilise their economic, natural and human resources in support of poverty reduction strategies. It considered the possible development of partnerships for inclusive growth involving the public and private sectors and looked at climate change and energy policies as possible drivers of sustainable development as well as the role of agriculture in achieving food security and boosting growth.

The results of this consultation will feed into the Commission's policy proposals during the course of 2011, including a Communication on modernising European development policy.

The Commission services also launched a public consultation on the future of financial instruments for external relations. The objective was to gather ideas and opinions on a wide range of issues such as the added value of EU financial intervention in some areas, the options for new forms of cooperation and delivery mechanisms with partner countries, as well as the efficiency, impact and visibility of EU external cooperation.

The results of these consultations will contribute to the debate over whether the European Consensus or EU development policy in general needs updating in order to reflect better new development realities which have emerged since its adoption in 2005.

As for policy research, the second edition of the European Report on Development (ERD) was issued in December 2010. Drawn up under the lead of the European University Institute with extensive input from European and African researchers, it focused on social protection as a key tool to reduce poverty and vulnerability and to stimulate inclusive development and pro-poor growth in Sub-Saharan Africa, The ERD 2010 also made a number of policy recommendations on how the EU could enhance and improve its support in that region[19].

1.2.2. Mainstreaming of cross-cutting issues

The Commission is committed to mainstreaming certain cross-cutting issues in all its activities as agreed in the European Consensus on Development. These are the promotion of human rights, democracy, good governance, and the rights of children and indigenous peoples, gender equality, environmental sustainability and combating HIV/AIDS.

Democratic governance

Governance is at the core of the EU’s development strategies and is a recurrent subject in policy dialogue with partner countries. The EU has adopted a broad approach to governance, putting the emphasis on the state's ability to serve the citizens. Participation, inclusion, transparency, accountability and anti-corruption are essential components of the EU's approach.

Governance is crucial for a sound investment climate, good public finance management, reducing corruption, improving revenue collection for development, and strengthening institutions which improve domestic accountability and contribute to political stability. Governance is also essential for sector development and efficient service delivery. While recognising that improving democratic governance is an internal process in each country, the Commission is determined to address democratic governance both as a specific policy area and as a cross-cutting issue. It has made progress in addressing governance at sector level through initiatives like communication and awareness raising, sector-specific support and guidance, and the pilot applications of the approach presented in the Commission's reference document on "Analysing and Addressing Governance in Sector Operations"[20].

Anti-corruption

To fight corruption effectively, the Commission depends on communication and the flow of information to its own operational staff and close cooperation with other donors and stakeholders. A set of initiatives is being implemented to develop operational tools and support for field work. The Commission is part of a joint initiative with Transparency International, the UNDP and other stakeholders to make more efficient use of existing corruption assessment and measurement tools, through the development of a web-based gateway. The Commission cooperates with the Anti-Corruption Thematic Group at the World Bank, the UN Office of Drugs and Crime (UNODC) and the US State Department in a new initiative to reduce and prevent corruption by strengthening the institutional and operational capacities of national anti-corruption authorities.

The European Commission is a member of the anti-corruption team of the OECD/DAC. The team focuses on: (i) joint guidance for implementing the UN Convention Against Corruption, (ii) integrating anti-money laundering in development assistance and monitoring the Accra Agenda for Action commitments on asset recovery, and (iii) identifying ways to deal with international drivers of corruption at country level.

Moreover, the Commission is party to a memorandum of understanding with other donors and the International Organisation of Supreme Audit Institutions (INTOSAI) to develop capacities of Supreme Audit Institutions in aid recipient countries.

Several working relationships with civil society organisations are also in place for supporting citizens in the daily challenges posed by corruption, notably through legal advice and seeking to achieve systemic changes.

Children’s rights

The first draft for most items in the "Comprehensive toolkit to address child rights in European development cooperation and external relations" came from UNICEF. The toolkit sets out to support the work of partner countries, delegations and other relevant actors and stakeholders.

In 2010, 17 projects addressing the participation of children were shortlisted from a call for proposals (out of 866 concept notes received). Another call for proposals on child labour generated a total of 661 responses. These projects will address the issue of providing positive incentives for the sale of products made without using child labour.

Gender

Gender equality and women’s empowerment is one of the five principles of EU's development policy. EU activities include capacity-building in developing countries, support for women's organisations and disseminating information on gender equality through guidelines, best practices and greater awareness.

In June 2010, the Commission and Member States adopted the EU action plan on gender equality and women's empowerment in development (2010-2015)[21] which aims to improve the EU's work to advance gender equality in developing countries.

Under the action plan, gender equality is systematically included in political and policy dialogues with partner countries to raise awareness and encourage change. It also proposes training on gender equality for staff in the EEAS and relevant Commission services, including all Heads of EU Delegations. The action plan also intends to make sure that gender equality issues are part of the annual and multi-annual planning process and to apply internationally accepted standards such as the "OECD Gender Equality Policy Marker", to track aid devoted to this issue.

The EU also continued to raise gender equality and women’s rights in political and human rights-related dialogues with partner countries. These initiatives are now framed in a coherent and coordinated way in the EU guidelines on violence against women and girls and combating all forms of discrimination against them.

The EU maintained its effort to protect women in conflict and post-conflict situations, and to enlist women’s full participation in conflict-prevention, peace-building and reconstruction processes. It implemented the EU comprehensive approach to UN Security Council Resolutions 1325 and 1820 on women, peace and security. Indicators were adopted by the EU Council in July to track implementation across member states and institutions as well as among Common Security and Defence Policy (CSDP) missions.

On the tenth anniversary of UNSCR 1325, the EU and the Belgian Council Presidency organised a high-level event in September on ensuring women’s participation in peace and security.

Building gender capacity, developing methodological tools and improving coordination and collaboration with the main actors on gender issues are priorities. Online courses were available for EU staff, governments, donors and representatives of multilateral and civil society organisations.. The role of ‘gender focal person’ has been created in practically all EU delegations, whose tasks include the mainstreaming, supporting and monitoring of all activities concerning gender equality and women's empowerment.

Environment, including climate change

In 2010, the Commission and the Member States produced the first draft of an environment integration strategy which will be submitted for public consultation in early 2011. The results will be incorporated into an ambitious EU wide strategy, to be presented to the EU Council by late 2011.

The Commission continued earlier work on the application of the "Guidelines on the Integration of Environment and Climate Change in Development Cooperation"[22] to address environment and climate change as cross-cutting issues. Efforts were made to promote harmonised approaches between development partners on how to integrate environment and climate change mitigation and adaptation in development programmes. Several internal ex-post studies were conducted to assess the integration of environment and climate change in development cooperation, and to evaluate the efficiency and the effectiveness of the tools and methods used (environmental integration indicators study, and strategic environmental assessment review). In collaboration with member states, the Commission has developed a methodological tool to help assess, establish and implement a programme-based approach in the environment and natural resources sector. Finally, it also carried out a study on environmental fiscal reform with a view to promoting the concept of green taxation and budgeting.

An intensive programme of staff training and information seminars on environment and climate change mainstreaming, carried out in Brussels and in partner countries, were attended by more than 400 participants in 2010.

The Commission also started mainstreaming climate change in all EU regional investment facilities through the creation of specific Climate Change Windows in each facility, allowing more informed investments in, and tracking of, climate change-related projects funded by the EU, the EIB and other European finance institutions through these facilities. They cover both public and private investments in strategic areas like transport, energy, environment, water, sanitation and forests.

Culture

Both the international seminar in Gerona, Spain (May), and the UN summit on the MDGs (September) stressed the cross-cutting and horizontal nature of the cultural dimension of development. No effective aid programme is possible without proper consideration of the cultural dimension, whatever the sector. A case in point is the cooperation strategy for the reconstruction and development of Haiti, where cultural implications are to be taken into account within all sectors.

1.2.3. Coherence between development and other policies

The European Union is a major global actor. Its policies have therefore a major potential impact on developing societies and economies. The Lisbon Treaty requires the European Union to take into account in all its policies of the objectives of development cooperation.

Better coherence of development policies means identifying possible joint efforts by the EU and its developing country partners, providing benefits for both. The Commission applies this principle in the Communication "Tax and Development - Cooperating with Developing Countries on Promoting Good Governance in Tax Matters"[23]. The proposals include helping developing countries committed to the principles of good governance in tax matters to enhance their regulatory and administrative capacities in tax matters, and identifying tax mechanisms, and more transparent accounting practices for multinational enterprises, notably in the mining sector.

Another approach is the relaxation[24] of rules of origin for countries benefitting from the EU’s general system of preferences (GSP), which grants privileged access to the EU market for exports from developing countries. While easing the rules will help all GSP beneficiaries, it is particularly important for the least developed countries (LDCs), which qualify for additional concessions. For them, the new rules of origin in the textile and clothing sector no longer require individual LDC to both spin the yarn and weave the cloth.

Another important initiative in this areas is the comprehensive study launched by the Commission to assess the impact of EU production, consumption and trade in both food and non-food commodities on deforestation and forest degradation. The objective of this study is to identify the policy reforms needed at EU and national level.

In some instances, EU policies have to bear in mind the legitimate interests of EU citizens, as when setting animal and plant health norms which may cause difficulties for exports from developing countries.Creating greater coherence between EU policies and development objectives may mean helping developing partners to adjust export capacities to new norms, where necessary and feasible.

The EU also supported, through the Seventh Framework Programme for Research and Development (FP7), cooperation between researchers in Europe and developing countries. Since the start of FP7 in 2007 €356 million has been granted to researchers in developing countries to participate in collaborative projects with European researchers.

These are examples of how the EU is bringing about greater coherence between non-developmental policies and development objectives. To take account of these objectives in a systematic manner, the EU has put in place mechanisms to guide EU decision-makers and to monitor progress in policy areas with potential impact on development objectives.

The Commission issued a work programme on policy coherence for development for the period 2010-2013[25] in April. It covers five broad areas:

· trade and finance - to raise the chances of developing countries to obtain maximum benefit from their integration into the world economy;

· food security - to support an environment where developing countries can mobilise their own resources, particularly in fishing and agriculture;

· climate change - to help developing countries to adapt to climate change and reduce CO2 emissions while preserving environmental balance and biodiversity;

· migration - to bring about better coordination between migration and development by reducing the risk of "brain drain", by making migrants’ remittances cheaper and safer, or by facilitating circular migration;

· security - to give more consideration to links between security and socio-economic development when planning and implementing security operations.

The PCD work programme is conceived as a tool for all EU institutions and Member States, to guide their decision-making across the broad range of decisions that affect developing countries' opportunities. The Commission, for its part, will focus its PCD work on the initiatives identified in the work programme. Through interservice consultations and impact assessments (including trade sustainability assessments) it will ensure that development objectives are taken into account and reconciled with other EU objectives.

As in 2007[26] and 2009[27], the Commission will issue a comprehensive report in autumn 2011 on progress towards greater coherence of its policies with development objectives.

Although a global player, the EU is not the only one whose actions significantly affect developing countries. Efforts by the EU alone to bring more coherence to its policies would not be effective and sustainable without efforts by other major developed countries or emerging economies. The EU supported the UN General Assembly Resolution "Keeping the promise: united to achieve the Millennium Development Goals" of 22 September 2010 which called for increased efforts at all levels to enhance policy coherence for development[28]. The EU also supports efforts by the OECD to spread the concept and best practice of policy coherence for development beyond OECD members, and welcomes the determination of G20 members to pursue development- oriented policies.

1.2.4. Aid effectiveness and co-financing

The EU worked hard in 2010 to meet its commitments to implement the internationally agreed aid effectiveness agenda. With the next UN high-level forum scheduled for the end of 2011 in Busan, South Korea, the EU focused on outputs at three levels:

(1) At international level, with the working party on aid effectiveness (WP-Eff) of the OECD development assistance committee (DAC) to develop the approach and deliverables for Busan. The European Commission contributed to the outputs for increasing aid effectiveness at country level, e.g. on use of country systems, division of labour among donors, technical cooperation, aid transparency and accountability, and monitoring the Paris Declaration[29]. To reach this objective, the Commission provided active support to the OECD-WP-Eff co-chairs during the "focus country missions". The objective was to support a limited number of volunteer countries (Ecuador, Ghana, Indonesia, Mali) to accelerate the commitments.

(2) At EU level, with the 27 Member States and the Commission to implement the operational framework on aid effectiveness[30], adopted in 2009. The EU added new chapters to this framework on cross-country division of labour and on mutual accountability and transparency. The consolidated operational framework is a unique set of commitments to strengthen the implementation of aid effectiveness principles going beyond the commitments of the Accra Agenda for Action. It was agreed that the EU and its Member States will further explore the possibility of using the Transparent AID (TR-AID) system. TR-AID is an EU donors' coordination tool developed by the European Commission with the primary objective of facilitating the sharing of aid funding data amongst EU donors.

The EU is responding to calls by partner countries and non-state actors to make its aid delivery more transparent and accessible in line with agreed standards. To gather evidence on aid effectiveness, the Commission launched a number of studies whose results will be available in 2011 and 2012. There is also work in progress to create a database containing information on aid by all EU Member States, designed to improve the division of labour.

Aid effectiveness is an essential tool for achieving the MDGs. To speed up production of joint EU country strategy papers and multiannual programmes, the Commission is preparing a proposal to synchronise EU and national programming cycles at partner country level and based on partner countries' strategies and their programming cycles.

The Commission coordinates positions on aid effectiveness both with member states and between the EU and international partners like OECD/DAC, UN and G8. This will be of particular importance in 2011 as the EU prepares its position for Busan.

The EU and the US are committed to work together to strengthen aid effectiveness at the global and partner country level. The Joint Statement at the EU-US summit of November 2010 identifies in-country division of labour, transparency and accountability as areas where the EU and the US will develop a common work plan. The aim is to start implementing the action plan in selected partner countries before the end of 2011.

(3) At Commission level, 2010 was the year for meeting priority targets on aid effectiveness. The Commission adopted an operational document proposing ten high-impact actions for 2010[31] which addresses three main aid effectiveness priorities: division of labour, use of country systems, enhanced technical cooperation. This document which outlined responsibilities across the Commission lists a set of actions with strict deadlines to demonstrate concrete and measurable results. First lessons can already be drawn from this exercise:

· Division of labour among donors to reduce aid fragmentation is a strategic tool to implement the aid effectiveness agenda. But it is still a slow process with no real political steer. The current attention given at Commission level to specific country cases seeks to remedy the situation.

· The Commission has analysed country-by-country the four points related to the use of country systems as the first option for channelling bilateral assistance. These are: internal constraints, scope for increasing budget support, scope for increasing decentralised management, and reasons for not using country systems. Based on this analysis, the Commission’s performance is on target, with 50% of government-to-government support being provided through country systems.

· Action to reinforce capacity building and make technical cooperation more effective has been widely mainstreamed at EU headquarters and at Delegation level. Monitoring and tracking tools for quality criteria are starting to deliver satisfactory results.

For more information, see chapter 4.

1.3. Working with partners in a changing environment 1.3.1. Cooperation with the donor community

The Commission continued to strengthen its cooperation with traditional donors and new emerging partners. The main achievements under the EU-US Development Dialogue in 2010 were an agreement on joint roadmaps for cooperation on food security, climate change and the MDGs as well as the selection of pilot countries for food security and climate change. The 2010 EU-US Summit gave the dialogue an additional mandate in the field of aid effectiveness. In April the first annual policy dialogue with Japan on development was held.

The Commission participated actively in the development-related work of the G8 during 2010. This included drawing up the first G8 accountability report to monitor development related commitments since 2005. At the G8 Muskoka summit in June, the Commission pledged an additional €50 million for the mother-and-child health initiative. At the Seoul summit in November, G20 leaders endorsed the Seoul Development Consensus for Shared Growth, which gives development a new growth-oriented approach. G20 members agreed a multiyear action plan to address key bottlenecks to growth, particularly in low-income countries. This is the first ever joint initiative on development to involve emerging and advanced economies. The EU strongly supports the G20 agenda which will help developing countries build the capacity to achieve and maximise their growth potential.

New donor countries – such as China, Russia, Brazil and some Arab states – have joined the donor community, bringing additional resources, as well as new approaches and values. The Commission funded a China-DAC study group on infrastructure in September, bringing together Chinese, African and DAC experts and officials to discuss development policy.

Engagement with the private sector is also being seen as increasingly important for development outcomes.

1.3.2. Cooperation with international organisations

United Nations

Throughout 2010, the Commission continued its contacts, cooperation and dialogue with the UN and its agencies, funds and programmes. This cooperation has developed into a mutually beneficial partnership with individual UN bodies and the UN system as a whole as part of an international policy agenda.The Commission has continued to project EU policy priorities and values in its dealings with the UN. This goes hand in hand with the Commission’s increased presence and input in policy-making and debates at UN institutional fora, conferences and conventions. The Commission supports UN efforts to promote system-wide coherence and to increase UN effectiveness, including in its country-level operations.

In 2010, the Commission represented the EU, in the work of the main bodies of the UN, including the General Assembly and the UN Economic and Social Council.

The successful Millennium Development Goals summit in September was the key UN event in 2010. It produced a new commitment on the part of many government leaders to the MDGs and how they can be achieved.

For the first time in a General Assembly plenary, the EU was represented by the Commission President , who announced the EU MDG initiative allocating €1 billion in support of MDGs.

OECD

Close cooperation with the OECD on development issues continued throughout 2010. While the Commission benefits from the OECD’s analytical and statistical work on development, it tries to make sure that EU priorities and values are appropriately reflected in the OECD’s work. In 2010, the Commission helped draw up the new mandate of the Development Assistance Committee and the definition of development goals within the OECD. At the DAC senior level meeting, the Commission pushed for the implementation of the aid effectiveness agenda, modernisation of development financing and progress on the MDGs.

International financial institutions

Cooperation between the European Commission and the international financial institutions (IFIs), namely, the World Bank (WB), the International Monetary Fund and regional development banks continued to operate well in 2010.

WB and IMF

The Development Commissioner attended the spring and annual meetings of the WB and IMF in Washington in April and October 2010. He addressed the joint WB/IMF Development Committee on the main agenda items: a) the resilience of developing countries to the economic crisis and the role of the WB, b) the International Development Association's role in assisting developing countries and its focus on results, and c) progress on WB governance reform.

In 2010, the reform of IFI governance and capital increases for the WB and the African Development Bank (AfDB) remained the object of international attention. During the negotiations, the EU supported a bigger say for developing and transition countries in the IFIs and supported efforts to ensure the multilateral development banks are sufficiently capitalised.

The Commission encouraged and participated in regular coordination meetings among the European representatives of the member states on the boards of the IFIs and encouraged the adoption of common European statements.

European Investment Bank (EIB)

In the past, the EU has guaranteed EIB financing outside the EU under the so-called EIB external mandate which defines maximum guaranteed amounts and policy objectives. Following a mid-term review, the Commission submitted a legislative proposal[32] in 2010 to revise the mandate for the remainder of the current financing period to 2013. The main features of the proposal are to extend the financing mandate in favour of climate change projects with an additional €2 billion and to develop EIB regional operational guidelines to better reflect EU regional strategies in the implementation of EIB activities.

Regional Development Banks (The African Development Bank)

The tripartite partnership on Africa between the World Bank, the African Development Bank and the European Commission was jointly and comprehensively reviewed in 2010. The review recommended a shift towards a high-level policy dialogue, with a flexible agenda to respond to changing priorities. Implementing review findings begun and will continue in 2011.

The Commission maintained strong bilateral ties with the AfDB, including regular meetings at senior management level. The Commission also continued to fund the production and distribution of the AfDB's annual publication, the African Economic Outlook[33], through cooperation at high-level launch events, as with the Belgian EU Presidency in July.

1.3.3. Cooperation with non-state actors and local authorities

Non-state actors (NSAs) and local authorities (LAs) remain essential partners in EU development and external policy. Cooperation in 2010 continued on the definition of development strategies and their role as implementers of development policy actions.

Besides the regular in-country consultations, at EU delegation level on geographic and thematic operations, a substantial dialogue with NSAs and LAs took place at headquarters level on several key policy issues. These included aid effectiveness, policy coherence for development, financing for development, the future of European development policy.

The Commission also launched a structured dialogue in March on the place of NSAs and LAs in EU external and development policy. This exercise, which will end in May 2011, seeks a common understanding on the strategic role of NSAs and LAs and the effectiveness of their involvement[34].

Implementing the strategy defined in the Commission’s 2008 Communication on local authorities as actors for development[35] continued with, for example, the release of the atlas of decentralised cooperation in July[36]. Preparatory meetings were held ahead of the next ‘Assizes of decentralised cooperation’ scheduled for March 2011 and work continued on the portal of decentralised cooperation that should be operational during the first quarter of 2011.

The EEAS will become part of channels of communication with NGOs and other relevant civil society actors in the field of development. These will be particularly relevant regarding EU relations with emerging economies in Asia and Latin America, and EU efforts to stabilise fragile states, support inclusive, sustainable growth and achieve the MDGs.

1.4. Outlook for 2011

In the main, a lot has been done towards achieving the MDGs by the 2015 deadline. However, there are significant regional differences, with Asia out in front and Sub-Saharan Africa lagging behind on many indicators. Some MDGs – notably child mortality and maternal health – are seriously off-track. The pace must accelerate if all MDGs are to be reached in 2015.

New challenges are complicating an already difficult situation. The economic crisis and earlier spikes in food and fuel prices have hit developing countries hard. Climate change and energy, plus political and security issues are also impacting on their ability to reach the MDGs. Furthermore, citizens and politicians in the EU and other donor countries question the rationale for more development aid at a time when domestic austerity measures are beginning to bite. Together, these additional challenges have created a new context for EU development policy in 2011 and beyond.

Alongside the new challenges, the creation, as of 1 January 2011, of the European External Action Service and the merger of the former Commission Directorates-General for Development and EuropeAid into a single Directorate-General for Development and Cooperation – EuropeAid offers opportunities for more policy coherence, particularly at the point where development, security and foreign policy converge, and between policy-making and implementation

The public consultation on EU development policy ends in January 2011. The results will form part of the input for a Communication on modernising EU development policy to be issued in late 2011. It will outline the framework for EU development policy until 2020. During 2011, the Commission will also present its proposals for the EU’s multiannual financial framework for the period 2014-2020. The legislative proposals for the financial instruments for external action will be presented towards the end of 2011.Moreover, the Commission is exploring the possibility to create an EU Platform for external Cooperation and Development designed to foster EU coherence, effectiveness, efficiency and visibility in external financing, by combining respective strengths of the Commission, the EIB and other Bilateral and Multilateral Finance Institutions.

Several other Communications will be published later in 2011. A Communication on EU budget support will propose an EU vision of a support that more effectively and efficiently contributes to the development objectives of partner countries. A Communication on enhancing growth and investment in developing countries will define the enabling framework and the financial tool-box to address the main barriers to business competitiveness and new investment, notably through inclusive and sustainable joint ventures involving public and private actors.

The Commission will also issue the EU development finance accountability report in the spring of 2011. This report will present EU progress on the international financing for development agenda and identify ways to get the EU back on-track to reach its 2015 targets for ODA. It will also cover tax governance and EU fast-start climate finance for developing countries. The EU played a facilitating role at the 16th Conference of the Parties to the UN framework convention on climate change in Cancun. The Cancun event adopted a balanced package of decisions – the "Cancun Agreements". They represent another important step towards building a comprehensive and legally-binding framework for climate action for the period post-2012, when the current Kyoto climate protocol expires. 2011 will concentrate on the follow-up to the Cancun conference. This includes the further implementation of the EU commitment to provide €2.4 billion of fast-start funding for developing countries. This money will support adaptation and mitigation to climate change, as well as capacity building and transfer of technology. In line with Cancun, adaptation will be prioritised for the most vulnerable developing countries, especially the LDCs and small island developing states (SIDS).

The Commission will continue its intensive climate outreach activities at bilateral and regional level. It will also further implement the dialogue and support components of the Global Climate Change Alliance. These dialogue and outreach activities will contribute to a common vision between developing countries and the EU for achieving a sound climate agreement at the Durban (South Africa) climate conference at the end of 2011. Following Cancun, the EU will implement the agreement on reducing emissions from deforestation and degradation (REDD+). This includes sustainable management of forests, improving forest governance and enhancement of forest carbon stocks. The Commission will also continue to implement the EU's disaster risk reduction strategy.

The EU will further assess its fair share in the long-term climate funding commitment to developing countries of $100 billion per year by 2020. The Commission played a constructive and lead role alongside the member states at the 10th Conference of the Parties to the UN convention on biological diversity in Nagoya. The Commission will in 2011 start implementing the Nagoya agreements on biological diversity (including access and benefit sharing of genetic resources) and continue work on the EU's environmen­tal integration strategy.

Policy coherence for development will be a major undertaking for the Commission in 2011, with the continued implementation of the PCD work programme 2010-2013 and the publication of the third EU report on coherence. This will examine coherence between development aid and other EU policies in five broad areas (see section 1.2.4). The policies concerned include trade, agriculture, fisheries, energy, environment, immigration and transparency of international financial flows.

The third edition of the European Report on Development (ERD) will focus on the complex development challenge of sustainable management of natural resources. The Report will be issued by the end of 2011.

Following-up recent key events will be important, notably the UN MDG summit of September 2010 and the third Africa-EU summit in Tripoli in November. Implementation will begin of the joint Africa-EU strategy’s second action plan (2011-2013), which was adopted in Tripoli. Building on the progress of the past three years, joint efforts will be made to deliver swiftly concrete results on the eight thematic areas of the action plan, as well as to strengthen the political relationship.

Two key international development events will take place in 2011. The fourth high-level forum on aid effectiveness (HLF4) will take place in Busan, South Korea from 29 November to 1 December. The performance of donors and partner countries in implementing the effectiveness agenda will be assessed against the commitments contained in the Paris Declaration and the Accra Agenda for Action. The forum will also decide on future options for raising aid effectiveness. Busan will be a multi-stakeholder event bringing together up to 2000 participants from 150 countries. It is important that the EU and its Member States maintain an ambitious agenda for HLF4. They will prepare a common EU position.

The fourth UN conference on the least developed countries takes place in Istanbul in May 2011. The EU common position will emphasise EU contributions, highlight LDC responsibilities and call for supporting action from emerging economies. The EU input will be based on three priorities: ensuring a favourable environment, achieving inclusive and sustainable growth, and tackling vulnerability.

The EU will continue to strengthen its cooperation with traditional and emerging donors. It will in particular continue building its engagement with the US via the EU-US development dialogue. The main challenge for 2011 will be to achieve concrete results in the fields of food security and climate change in selected pilot countries. There will be an annual ministerial meeting of the EU-US development dialogue and a second development policy dialogue with Japan.

The EU will increasingly support the role of the emerging economies in providing development assistance, including South-South and triangular cooperation. In particular, the Commission will make efforts to turn the work programme on trilateral cooperation agreed with Brazil and mainly Portuguese-speaking African partners into concrete projects in 2011. The Commission will participate actively in the follow-up activities of the G20 summit in Seoul via the development working group, including on the wider agenda of growth with resilience and to further promote cooperation on development with China and Africa.

2. IMPLEMENTATION: GEOGRAPHIC OVERVIEW

This chapter presents the EU's external assistance in the main geographic regions.

The geographic instruments are:

· the European Neighbourhood and Partnership Instrument (ENPI),

· the European Development Fund (EDF),

· the Development Cooperation Instrument (DCI),

The European Development Fund is the main source of financing for EU assistance to Sub-Saharan Africa (except South Africa), the Caribbean and the Pacific regions (ACP). The EDF is separate from the EU budget, which finances external assistance to other geographic areas and the thematic aid programmes.

This report does not cover the Common Foreign and Security Policy (CFSP)[37] or the Instrument for Pre-Accession (IPA)[38]. A short section of this report is dedicated to humanitarian assistance[39].

Some figures and data are used to illustrate this chapter but detailed financial information can be found in the Annexes.

2.1. European Neighbourhood and the Middle East 2.1.1. The European Neighbourhood and Partnership Instrument 2.1.1.1. Introduction

The European Neighbourhood Policy (ENP) offers 16 of the EU’s southern and eastern neighbours[40] closer political association, enhanced trade and economic inte­gration, greater mobility and assistance in secto­ral reforms. The aim of the ENP, as set out in its strategic documents,[41] is to build, together a prosperous, secure and stable neighbourhood on the basis of shared values and common interests.

A Commission Communication taking stock of the European Neighbourhood Policy[42] and the fourth set of ENP progress reports were presented in May 2010. They noted significant progress in several key areas, particularly in the economic field, but not enough on democratic reforms and human rights, as already stressed in previous reports. The reports demonstrated the clear benefits that the EU brings to its neighbours. For five years, the EU has been delivering more trade, more aid, more people-to-people contacts and far deeper cooperation with its neighbours on the whole range of economic, political and sectoral reforms. The partnership has advanced significantly in areas like transport, energy, environment and climate change, research, health and education. ENP funding increased by 32% in the current financing period (2007-2013) and will reach over €2 billion annually by 2013.

In July 2010, the EU Council invited the High Representative and the Commission to review the future implementation of the ENP. A series of consultations have since taken place with member states, partner countries, the European Parliament, academic experts and civil society organisations. This reflection will provide guidance for a strategic review of the ENP in 2011.

While the EU has already concluded Association Agreements or Partnership and Cooperation Agreements with most (13 out of 16) ENP countries. In October 2010, the EU invited Syria to sign an association agreement. Four rounds of negotiations on a framework agreement with Libya were held and the Commission decided to open an office in Libya in 2010, the last ENP partner where it did not have such a presence. As regards Belarus, the EU reaffirmed its readiness to deepen bilateral relations, depending on progress towards respect by Belarus for the principles of democracy, human rights and the rule of law. Negotiations on an Association Agreement with Ukraine continued, expanding more recently to include the creation of a Deep and Comprehensive Free Trade Area. Negotiations on an Association Agreement were launched with Armenia, Azerbaijan,, Moldova and Georgia.

The EU and most ENP partners continued to implement jointly agreed bilateral ENP Action Plans or – in the case of Ukraine – the association agenda, with objectives including political and security issues, trade and economic matters, environmental concerns, integration of transport and energy networks, scientific and cultural cooperation, people-to-people contacts etc.

Relations between the EU and Russia are based on the wide-ranging strategic partnership, distinct from the ENP. The seventh round of negotiations with Russia on a new bilateral agreement was concluded in December. Cooperation and dialogue with Russia were also taken forward in the context of the four so-called Common Spaces.

The four dimensions of EU-Russia cooperation[43]:

1. The Common Economic space, covering economic issues and the environment;

2. The Common space of freedom, security and justice;

3. The Common space of external security, including crisis management and nuclear non-proliferation;

4. The Common space of research and education, including cultural aspects.

An intensive dialogue on drugs was maintained with Russia in 2010 through regular contacts and meetings. In parallel, negotiations were launched on an agreement with Russia on drug precursors (chemicals used to manufacture drugs).

Besides reinforcing bilateral relations through the ENP, the EU also actively promotes regional and multilateral cooperation through initiatives such as the Union for the Mediterranean, the Eastern Partnership, the Black Sea Synergy, and the Northern Dimension.

In the southern neighbourhood, the first Summit at heads of state/government level took place with Morocco in March in Granada (Spain), in the context of implementing its “Advanced Status” with the EU. Efforts to reinforce the institutional capacity of the Union for the Mediterranean (UfM) eventually led to the full establishment of the UfM Secretariat in Barcelona, including legal statutes, annual work plan, staff regulations and operational budget. A planned UfM summit was postponed twice: first in June and then in November. UfM sectoral ministerial meetings did take place in 2010, dealing with water, tourism, trade, labour, employment, economic and financial affairs.

As regards the eastern partners, work took place to launch preparatory activities for comprehensive institution building (CIB) actions. CIB seeks to strengthen a limited number of core institutions which are central in preparing for and implementing future association agreements including deep and comprehensive free trade areas. CIB also includes visa liberalisation as a long-term goal. A budget of €173 million has been set aside for the six partner countries, through their 2011-2013 national indicative programmes. The four thematic platforms of the Eastern Partnership have set up panels on integrated border management, the fight against corruption, public administrative reform, environment and climate change, trade and SMEs.

Black Sea Synergy continued to develop. Its major achievement was the launching of the first Black Sea sector partnership, on the environment.

The Northern Dimension is a framework for cooperation between the EU, Iceland, Norway and Russia. The EU contributed to its development with the launch of the partnership on transport and logistics plus the creation of a new partnership on culture.

The EU cooperation agenda with all ENP coun­tries and Russia is funded through the European Neighbourhood and Partnership Instrument. The ENPI supports a wide range of cooper­ation activities through 15 country programmes, three multi-country programmes[44], and its cross-border cooperation component[45]. It also provides the bulk of EU financial support to the Palestinian Authority.

The Neighbourhood Investment Facility (NIF), financed under the ENPI inter-regional programme, remained fully active in 2010. During 2008-2010, the NIF supported 35 projects in transport, environment, and energy as well as social and private sectors with NIF grants totalling €260 million. This helped to mobilise €9.4 billion of investment from international financial institutions.

2.1.1.2. Aid effectiveness and donor coordination

Efforts towards greater aid effectiveness, including better donor coordination, intensified in 2010 as EU Delegations drove the pace of work, consolidating their leadership of the aid effectiveness agenda on the donor side. The Delegations consolidated their pro-active role in promoting the division of labour and burden-sharing among donors, while seeking more partner government ownership and leadership of the aid process. Good progress is reported from Moldova, which was chosen as one of the pilots for the EU Fast Track Initiative on the division of labour and where a newly-created EU donor coordination network should bring positive results.

Work to strengthen partner government ownership of EU aid programmes pushed ahead. Efforts to implement the EU's backbone strategy for technical cooperation also helped to improve partner government ownership. In Ukraine, a new framework for government-donor working groups was agreed, based on the priorities of the ENP association agenda. This also contributed to a closer alignment of donor support for government priorities and helped donors to coordinate their positions on a wide range of policy issues like public procurement and the provision of international experts.

In many ENPI partner countries, the EU Delegations ensured progress on the aid effectiveness agenda by setting up and running donor-government working groups as in Georgia and Egypt. In Egypt, the government went on to establish a mutual accountability mechanism with the donor community. The EU Delegation to Egypt coordinates EU donors in this process through a task force on aid effectiveness. In the occupied Palestinian territory, 12 EU sector strategies have been developed in cooperation with the Palestinian Authority under a specific EU-led donor group, where the EU Delegation acts as secretariat and facilitator. This marks significant progress on the division of labour and will facilitate joint or coordinated programming in the future.

Emphasis on sector budget support helped the EU to align its aid to partners' sectoral strategies. This meant that more than 50% of aid to all ENPI countries in 2010 was channelled through country systems in line with the Paris Declaration and the Accra Agenda for Action. Furthermore closer coordination among EU donors resulted in several joint programmes co-financed by the EU and its Member States in the ENPI region. This helped cut transaction costs for both partner countries and donors. This was the case in Morocco where joint programmes in several areas such as education, health and water treatment were financed. Moreover these joint programmes made it possible to delegate the implementation to member state agencies (like GIZ of Germany for a water programme in Jordan). Similarly, some EU Member States have transferred funds to the Commission to implement. This is the case in the occupied Palestinian territory for instance where considerable EU Member State funds are channelled through the PEGASE mechanism which supports the running costs of the Palestinian Authority.

2.1.1.3. Working towards the MDGs

In 2010 a large part of ENPI resources were devoted to the social sector with many programmes aimed directly or indirectly to eradicate extreme poverty and hunger.

Examples of efforts at poverty reduction (MDG1) include a programme to support economic recovery in Lebanon and one on poverty alleviation through local development in Jordan. Programmes contributed towards MDG1 in Georgia by providing immediate relief and housing to internally displaced persons and in Moldova by giving special support to the most vulnerable people in order to cope with the effects of increased energy prices.

According to the UN's MDG Monitor[46], MDG goals in the areas of universal primary education (MDG2), reduction of child mortality (MDG4) and improvement of maternal health (MDG5) are very likely to be achieved by 2015 in the EU's southern neighbourhood region. Continuous progress towards achieving the MDGs can also be observed in the eastern neighbourhood region, where MDG1 and MDG2 have already been achieved.

With the successful implementation of education programmes in Algeria, Egypt, Jordan and Morocco plus health-reform programmes in Algeria, Egypt and Syria, these MDG goals remain key targets of EU support in the ENPI south region. As for HIV/AIDS (MDG6), examples of cooperation include a programme to develop a national HIV/AIDS strategy in Libya. EU support to the health sector in Moldova has also started reversing the global incidence of tuberculosis by 21% and of HIV by 13%. In the occupied Palestinian territory, disbursements are made through the Pegase mechanism to vulnerable Palestinian families, targeting particularly maternal health (MDG5).

The EU also works to meet the goal of ensuring environmental sustainability (MDG7) with the successful implementation of programmes to improve drinking water, waste water management and sanitation in Algeria, Egypt, Jordan, Morocco, the occupied Palestinian territory and Syria. It also implements programmes aimed at energy efficiency and renewable energies in Jordan, Tunisia and Ukraine. Gender equality (MDG3) remains a key challenge in the EU's southern neighbourhood region. The EU has been active mainly through the regional programme on gender equality and civil society. In the eastern neighbours, EU support has brought progress and chances are high of achieving this goal by 2015.

Towards a Mediterranean solar plan

In October 2010, a three-year project financed by the EU started: "Paving the Way for the Mediterranean Solar Plan (MSP)". The project aims to improve the conditions for an increased use of renewable energy, in particular solar energy, across all the Southern Mediterranean Partner Countries. The focus is on combining renewable energy with energy efficiency and savings. The project aims to harmonise the legislative and regulatory frameworks, strengthen institutional capacity, improve knowledge transfer and capacity building in renewable energy technologies, and improve the business climate. It will support and coordinate activities among various stakeholders, targeting for example ministries in charge of energy, finance, and social affairs, industry, the research community, and Interna