COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS FINANCIAL ANALYSIS OF THE 6TH, 7TH AND 8TH EUROPEAN DEVELOPMENT FUNDS - 2000

TABLE OF CONTENTS

1. Introduction

2. General trends

3. Development cooperation

4. Sectoral breakdown

5. Debt and support for structural adjustment

5.1. Debt

5.2. Structural adjustment facility

6. Stabex and Sysmin

6.1. Stabex

6.2. Sysmin special financing facility

7. Other areas of cooperation

7.1. Rural Development

7.2. Agriculture

7.3. Sustainable development and environment

7.4. Risk capital

8. Old or dormant commitments

1. Introduction

After years of intense discussion following publication of the Commission Green Paper on relations between the European Union and the ACP countries in 1996, negotiation of the new ACP-EU partnership agreement was completed in 2000 and it was signed in Cotonou on 23 June. The Cotonou Agreement provides the ACP countries with financial resources totalling EUR25 billion over the period 2000-2007. The 9th EDF has been allocated EUR13.5 billion while EUR9.9 billion represents the balance outstanding from previous EDFs and EUR1.7 billion comes from the EIB's own resources. The Agreement will enter into force once it has been ratified by all the Member States and at least two thirds of the ACP countries. However, in accordance with the Decision of the ACP-EC Council of Ministers of 27 July 2000 regarding transitional measures valid from 2 August 2000, most of the provisions of the Cotonou Agreement entered into force early, with the exception of the financial resources of 9th EDF. The ratification procedure is under way.

2. General trends

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The upswing in EDF activities has continued in 2000: EUR3 757 million in decisions representing the highest level ever reached for the EDF and most of the performing countries running out of resources by the end of the year. Also contributing to this achievement is the decision taken on the debt-relief initiative for heavily indebted countries: HIPC-Initiative - EUR1 000 million.

These results represent 85% of the initially projected amount (EUR4 250 million), but correspond to the figures presented by Commissioner Nielson at the Development Council's meeting in November 2000. It should be noted as well that those countries that still have resources are often facing difficulties in preparing sound projects.

With payments standing at EUR1 548 million, the implementation of the EDF in 2000 represents an increase of 21% over 1999, but is well below the forecast presented in September 2000 (EUR2 025 million): an implementation rate of 76% of the forecast.

The results regarding the assigned funds, the translation of decisions into contracts, are particularly positive and represent an increase of 70% over 1999.

A part of the lower than expected implementation rate for the payments in 2000 may be attributed to the low level of the assigned funds in 1999. But payments, corresponding to the implementation of contracts, should increase substantially in 2001, taking into account the high level of assigned funds in 2000.

More specifically, commitments under national and regional programmes advanced significantly in 2000, with respectively EUR1 211 million and EUR432 million in decisions, EUR604 million and EUR221 million in assigned funds. This confirms the general trend in EDF activities. Given the deferred cycles of decisions, commitments and payments in a five-year programming cycle, payments were significantly lower than commitments in 2000. This should reverse during 2001 and 2002, when financing decisions taken in 1999 and 2000 will lead to increased implementation.

The domestic situation in the recipient countries constitutes, as always, an important factor in the fulfilment of the forecasts; these have been negatively affected by the situation in Côte d'Ivoire, Togo, Fiji, Haiti, Liberia and the Great Lakes region.

3. Development cooperation

Continuing the same exercise as in 1999 [1], the Commission conducted a mid-term review in 2000 of development cooperation with 35 countries [2]. The review was based on a number of predetermined performance criteria and on macro-economic, sectoral and budget management criteria. This cooperation was deemed satisfactory or less satisfactory but making progress in 22 countries, which were able to receive the whole of the second tranche for their indicative programmes. Eight countries failed to meet the criteria and were therefore unable to obtain the second tranche. The remaining five countries which had not met all the criteria received part of the second tranche for their indicative programmes.

[1] In 1999, there were mid-term reviews of eight countries, for which it was decided to grant the whole of the second tranche for the National Indicative Programme.

[2] 35 decisions by the EDF Committee in 2000. Cooperation was suspended with ten countries, 17 small countries received the whole amount of the NIP in a single tranche and one country did not sign its NIP until 2001.

In 2000, seventeen ACP countries and one region received additional resources (third tranche) for national and regional indicative programmes under the 8th EDF. A total of EUR125.6 million was allocated to countries which had registered a sound performance in terms of the absorption of appropriations and quality of implementation and which had committed all or virtually all of their initial allocation under the 8th EDF.

4. Sectoral breakdown

The sectoral breakdown shown in the figure below combines the figures for the 6th, 7th and 8th EDFs.

Over 27% of commitments in 2000 were for debt-related projects, following the decision by the ACP-EC Council of Ministers to allocate EUR1 000 million in exceptional assistance for the heavily indebted ACP countries [3].

[3] OJ L 103 (April 2000).

Commitments for infrastructures and social and economic services fell sharply compared with 1999, but still accounted for a quarter of the projects.

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(1) Education, health, population, water distribution and treatment, infrastructures and social services such as housing and employment

(2) Transport and storage, communications, energy, banks and financial services

(3) Agriculture, industry, trade and tourism

(4) Multisectoral aid, environment, biological diversity, rural and urban development

(5) Structural adjustment, aid in the form of products (budget support, import subsidies), government and civil society

(6) Projects relating to debt

(7) Food aid, emergency aid and aid for refugees

(8) Administrative costs

(9) Unspecified sectors, awareness of development issues

Activities during the year 2000

REGIONAL INTEGRATION

The objective of the Commission's regional support is to promote sustainable social and economic development through enhanced cooperation and integration, especially trade and market integration. The Commission works with a variety of regional organisations representing the ACP countries.

In West Africa, reinforcement of the process of integration and regional cooperation through the eight-member Union Economique et Monétaire Ouest-Africaine (UEMOA) and the larger Economic Community of West African States (ECOWAS) should lead to new possibilities for growth. The PARI 2 programme (Programme Régionale d'Appui à l'Intégration) is a second support programme for the UEMOA and amounts to EUR65 million. It was signed in March 2000 and is focused on capacity building in the national administrations to implement reforms, support to the UEMOA and to other institutions.

For the Central African Region, with its Communauté Economique et Monétaire (CEMAC) and the Communauté Economique des Etats de l 'Afrique centrale (CEEAC), EDF support in the past has been limited for political and economic reasons. However, it was decided in principle to provide technical assistance to CEMAC to enable it to work on regional and commercial integration. It is hoped therefore that progress may now be made.

In Eastern and Southern Africa, COMESA (Common Market for East and Southern Africa) is the biggest regional player, with its 20 members, the launching of a free trade area in October 2000 and the objective of a customs union by 2004. It has an active and generally successful programme of promotion of regional integration through trade development. Not surprisingly, therefore, the Commission has a large and varied programme of support for COMESA amounting to EUR46.7 million. (See annex for details.) The Commission also provides technical support to IGAD (the InterGovernmental Authority on Development) and to the East African Community, with which COMESA cooperates.

In Southern Africa, the current SADC (Southern Africa Development Community) programme includes a statistical project and preparation of a new capacity building project with five components: regional integration, implementation of the trade and transport protocols, setting up a SADC tribunal, information and communication technology/management information systems and statistics. Assistance to the legal sector to develop rules for the SADC Tribunal has been completed and the report produced will serve as the basis for setting up this Tribunal, which will be a first in trade integration in Africa.

For the island regions, cooperation continued through CARIFORUM (ACP Forum of Caribbean States), CARICOM (Caribbean Community), the Indian Ocean Commission and the South Pacific Forum Secretariat. A "Strategic Planning in Public Services" project of EUR1.3 million began in 1999 to improve the ability of national CARIFORUM public services to formulate and manage their policies. It has started well, with operational links established with Haiti and the Dominican Republic. A EUR4 million Caribbean Regional Anti-Money-Laundering Programme, based in Trinidad, became fully operational in 2000 and provides assistance to most CARIFORUM countries.

Lastly, for the PALOP countries (Pays Africaines Langue Officielle Portugaise - (Angola, Cape Verde, Guinea Bissau, Mozambique and São Tomé & Principe), work in the year 2000 in the institutional field consisted of preparing programmes of legal, administrative and statistical support.

In 2000, regional funds set aside for Intra-ACP Cooperation were mainly used for training and providing information on the Cotonou Agreement and on adaptation to the requirements of the World Trade Organisation. Thus, six seminars were held in different countries across the ACP world in order to inform partners of the implications of the Cotonou Agreement and to assist with the programming of future EDF support; eight training seminars on adapting to the new trade rules were also organised and two meetings of Trade Ministers, including one in Gabon in November 2000. Funds were also granted towards various other conferences, ranging from EXPO 2000 in Hanover to a seminar on the Internet in Mali. In the immediate future, work will continue on the adaptation of ACP countries trade systems to the global market and on training in use of the new technologies - two elements of vital importance for ACP countries.

INSTITUTIONAL SUPPORT

In most ACP countries, technical assistance to the National Authorising Officer is being provided by the Commission to help them with the management of EDF and other donor funds and to train the national staff to take over these activities themselves in the future.

The following are some interesting examples of the types of institutional project that the Commission is supporting.

In Burkina Faso, the Commission is playing a major role in supporting the Government in its programme of legal reforms, through carrying out a detailed study of the needs, which led to the decision not only to continue support to these reforms but also to set up a fund to support, as appropriate, representative political institutions, the electoral system, civil society (in particular, human rights and the media) and the participation of women in public affairs. This EUR16 million programme is just starting.

In Mali, in 2000, the Commission began a wide-ranging programme in support of decentralisation by the Government to 682 communes, with the objective of improving the services provided by the communes to the very poor. The programme aims to help the communes deliver the public services that are legally their responsibility. A network of advice centres is being set up to assist the communes, as well as a national fund for investment in the communes. The programme is due to last five years and amounts to EUR39 million. This programme is complemented by another which will specifically focus on filling the gap (the continuum) between emergency and longer-term development aid in the northern areas of Mali, where the Tuaregs had been the beneficiaries of emergency aid that is now stopping.

One important landmark in EU relations with Africa was the signing and provisional application of the Trade Development and Cooperation Agreement with South Africa from 1 January 2000. A minimum of EUR360 million is due to be committed over the years 2000-2002, including support to democratisation, protection of human rights and sound public management as one priority.

In Malawi, an EUR8.5 million project for the "Promotion of the Rule of Law and Justice" is providing training and technical resources to institutions such as the Ministry of Justice, the Judiciary, the Law Faculty, the Law Commission and the Prisons Service, as well as ancillary institutions such as the Anti-Corruption Bureau, the National Compensation Tribunal and the National Archives. It was one of the first Commission programmes with an ACP country in the area of legal reform and, not surprisingly, a complex one. The programme is being adapted as it progresses to take account of lessons learnt and it could prove a helpful model for future projects in the legal sector.

In Haiti, despite a difficult political situation, a EUR4.44 million project started in 1999 in support of governance in the education sector and is due to last three years. It has already largely achieved its objectives of restructuring the Education Ministry, making management improvements and carrying out work on decentralisation. The Government made a contribution to this project of EUR240 000 and the private sector participated since they are heavily involved in the provision of education.

Future Perspectives

With the Cotonou Agreement as the basis for the Commission's development work, will continue with and expand its activities in the areas of regional integration and institutional support in the ACP countries. Increasing emphasis will be placed on these issues in the context of other programmes, such as support to a sector where good governance is essential and trade development programmes. However, such reforms and changes are far-reaching; they take time and a large amount of effort by all concerned. Furthermore, the results cannot be seen overnight. However, with time and the will to achieve, the strengthening of regional groupings in the ACP countries should better enable them to play a larger role in the global economy, whilst within ACP countries themselves, improvements in governance should be to the benefit of whole populations and thereby help bring greater prosperity.

5. Debt and support for structural adjustment

5.1. Debt

As in the Lomé Convention, ACP-EC cooperation under the Cotonou Agreement recognises the seriousness of the problem of international debt and its repercussions on economic growth (Article 66). The HIPC [4] initiative totalling EUR1 billion was launched in response to this concern.

[4] Heavily indebted poor countries.

In July 2000, an initial tranche of EUR250 million, the contribution to the HIPC Trust Fund, was released to the African Development Bank. At the same time, the Commission made an initial payment of EUR100 million to the Trust Fund opened at the EIB for relief to ACP HIPC in respect of debts to the Community.

5.2. Structural adjustment facility

Volume

In 2000, financing decisions in support of structural adjustment programmes (all sources - SA and NIP) totalled EUR570 million, allocated to 19 ACP countries. Of this total, EUR460 million came from the structural adjustment facility; the remainder was covered by the indicative programmes. At the end of 2000, payments thus came to EUR179 million, of which EUR147 million was for structural adjustment.

Type

In 2000 the Commission presented a communication to Council and Parliament on Community support for economic reform programmes and structural adjustment. In its resolution of 18 May 2000, the Council welcomed the balanced assessment made by the Commission, highlighting both the positive results and the limits to Community action. It encouraged the Commission, on the basis of its proposals, to continue implementing the new approach that was gradually developed this year for certain ACP countries.

Under this approach, the Community's macro-economic assistance takes the form of support for the Poverty Reduction Strategy Papers (PRSPs), with close attention given to the results of poverty reduction policies and the quality of budget management. The support programmes are targeted less on given areas of expenditure, but take account of the improvement in the management of public finances and the fight against corruption. The Commission therefore focuses on improving social services, the sound management of public finances, strengthening the country's supervisory capacities, consulting civil society, developing instruments to assess the quality of budgetary management (public spending reviews, audits) and on adjusting aid according to the results obtained, without however penalising the poorest countries. The impact of these activities on the population is gauged by appropriate indicators. This approach is generally shared by the international aid community. The Commission realises that these are ambitious policies. This is a long-term operation that requires close collaboration with the BWI and complementarity and coherence with the Member States' operations.

6. Stabex and Sysmin

These instruments from the Lomé Convention have not been taken over in the Cotonou Agreement. They have been replaced by indicative financial allocations to mitigate the harmful effects of erratic export earnings. These instruments were therefore applied for the last time in 2000.

6.1. Stabex

The Commission adopted the following transfer decisions in 2000:

- On 24 July 2000, 21 ACP countries received 29 transfers for the 1999 year of application; after consultations under Articles 202 and 203 of the Convention the total amount of eligible transfers came to almost EUR236 million.

- On 27 December 2000, three ACP countries received three transfers for the 1998 year of application and two ACP countries received two transfers for the 1999 year of application; after consultations under Articles 202 and 203 of the Convention the total amount of these transfers came to almost EUR67 million.

- On the same date, the Commission took a decision on the volume of the unexpended balances arising under the second Financial Protocol (Article 195 point (a) of the Convention) to be earmarked for 27 ACP countries, a total of almost EUR71 million.

On 26 September 2000 the ACP-EC Committee of Ambassadors decided to set up a reserve to finance, before 31 December 2000, Stabex transfer decisions for the 1998 and 1999 years of application (EUR168 million) and to repay the balances under the second Financial Protocol (EUR72 million under Article 195a of the Lomé Convention). On 31 December 2000, the funds remaining in the reserve [5] were to be transferred to the general reserve for the 8th EDF to be set up in accordance with ACP-EC Council of Ministers Decision No 1/2000 of 27 July 2000.

[5] 1998 and 1999 years of application: EUR101 016 649 = (168 000 000 - 66 983 351) reimbursement of remaining transfers: EUR1 308 512 = (72 000 000 - 70 691 488).

6.2. Sysmin special financing facility

The year's efforts were concentrated on the surveys to identify the countries eligible form the amounts available under the transitional measures.

ACP-EC Committee of Ambassadors Decision No 3/2000 of 26 September 2000 fixed the balance of the Sysmin facility at almost EUR411 million. According to ACP-EC Council of Ministers Decision No 1/2000 of 27 July 2000, this sum is to be used to support programmes which will be identified after examination of Sysmin requests submitted before 1 August 2000, but for which decisions could not be taken before 31 December 2000.

The Commission had received sixteen Sysmin requests from the ACP countries by that date. Two countries (Zambia and Guyana) were officially recognised as eligible under Sysmin and financing proposals were presented to the EDF Committee for a decision, while two others (Guinea and Togo) were not considered eligible. Eligibility and projects are still being examined for the other twelve requests (Botswana, Dominican Republic, Gabon, Ghana, Mauritania, Namibia, Niger, PNG, Senegal, Sierra Leone, Suriname and Zimbabwe). One overseas territory (New Caledonia) has also submitted a Sysmin request under the 8th EDF. The volume of finance committed for deciding on eligibility and examining the programmes proposed is EUR1.63 million.

In 2000, the Commission took financing decisions totalling EUR92.5 million (12.5 for Guyana and 80 for Zambia). A list of thirteen recipients (Botswana, Dominican Republic, Gabon, Ghana, Guyana, Mauritania, Namibia, Niger, PNG, Senegal, Sierra Leone, Suriname and Zambia) has been drawn up with their indicative allocations for implementing the measures resulting from the ongoing examinations. Zimbabwe has not been entered on this list and a separate decision will be taken at a later date.

7. Other areas of cooperation

7.1. Rural Development

Volume

In 2000 all the projects and programmes committed for "rural development" (including microproject programmes) totalled EUR130 million, divided between the 7th (45%) and 8th EDF (54%). This figure should be compared with the average of EUR73 million over the period 1996-2000 and confirms the upward trend in allocations since 1998. The microproject programmes (51% of total allocations to rural development) are largely responsible for this increase and for keeping the average volume of projects around EUR4 million. However, with 3.5% of total commitments over the period 1996-2000, rural development as such still accounts for a marginal share of EDF allocations.

The increase of financial allocations for rural development over five years also shows that these programmes normally require longer preparation than the average, probably because of their complexity.

Type

In 2000 the Commission put the finishing touches to its new policy and strategy for rural development. This policy, which is the result of intensive consultations between departments and with the Member States, refocuses the objectives of rural development on fighting the poverty which undeniably predominates in rural areas. By providing a consistent framework for Community assistance and its instruments, it should ultimately lead to an increase in the appropriation and thus in effectiveness and impact.

7.2. Agriculture

Volume

EDF allocations to agriculture came to EUR177 million in 2000 (4.7% of the total), virtually all of it (99%) from the resources of the 8th EDF. Although this is 43% lower than in 1999 when wide-ranging programmes were committed for agricultural research and animal health, commitments are still well above the average for 1996-2000. Most operations are in the research and crops subsectors, which account for 33% and 34% of allocations respectively.

Thanks to the major programmes of support for agricultural research, the increase in the average volume of projects which began in 1999 was confirmed in 2000, when it came to EUR4.3 million. However, the average for 1996-2000 is still around EUR2.5 million. In 2000, 5% of EDF resources were allocated to agriculture, i.e. 6.35% of all allocations between 1996 and 2000.

Type

In 2000 the finishing touches were put to the strategy papers for agriculture, livestock and fisheries. A similar initiative was launched to draw up a Community policy in support of agricultural research.

In addition, in late 2000, the first steps were taken towards the presentation of a Commission communication to the Council in 2001 on the refocusing of development policy in the fisheries sector on the objective of poverty reduction.

These initiatives setting out clear strategic priorities for Community operations are intended to improve the relevance and refocus the objectives for more effective measures to combat poverty.

Although allocations to agriculture from EDF funds are higher than the average over the period 1996-2000, closer examination gives cause for concern as there has been a drastic decline in the financing of national agricultural development programmes. After the wave of restructuring in the national institutions responsible for agriculture in the nineties, it is important that the 9th EDF should revive Community support, backed by more effective institutions, in order to refocus Community cooperation on rural poverty.

7.3. Sustainable development and environment

In 2000 the concept of sustainable development was further integrated into policies and programmes in several ways. As an overarching initiative, the Commission undertook an extensive preparatory process for an EC strategy for integrating environment into EC Development Cooperation. A communication, outlining elements of such a strategy, was adopted on 18 May 2000. A follow-up document, with a comprehensive strategy, was under preparation for presentation to the Development Council in 2001.

In 2000, a total of EUR147 million, or 4% of the overall total commitment of EUR3.8 billion from the 6th, 7th and 8th EDF, was committed for 34 (out of 726) projects with a primary environmental focus, with payments totalling EUR5.2 million. This is a slight increase over the 3% commitment proportion for primary environmental projects under the 7th EDF over the period 1990-1995. For projects with a high environmental risk (major transport, irrigation, waste treatment, etc), environmental impact assessments (EIA) were carried out on a regular basis.

Work continued on the draft Environment Integration Manual. This manual, which is expected to be finalised in 2001, will be an important tool for integration of the environment into activities funded from the EDF and other financial instruments.

Finally, it is to be noted that in the Cotonou partnership agreement attention is given to environmental aspects through Article 32 on Environment and natural resources. This article specifies that cooperation on environmental protection and sustainable utilisation and management of natural resources shall aim at, among others, mainstreaming environmental sustainability into all aspects of development cooperation.

7.4. Risk capital

Volume

Commitments from EDF resources (risk capital) for ACP countries increased in 2000 to EUR207.2 million; an additional EUR8 million came from Sysmin resources. Nineteen projects received assistance from risk capital alone (EUR165.2 million) and seven others from a combination of loans from own resources and from risk capital (EUR105 million).

Payments from risk capital under the two Lomé IV protocols also increased to EUR142.8 million at the end of 2000.

More than half the operations financed are in the private sector. Industry and services, communications infrastructure and energy all received aid. Twenty-one ACP countries were involved and there were four regional operations.

Assessment

Financing met with difficulties in 2000 because of the political situation of countries facing or recovering from armed conflict or political crises and of other countries with a fragile business climate or a persistent failure to meet payment deadlines.

Implementation of a number of projects was delayed by the slowness of sectoral and regulatory reform, the complex procedures for financing projects, in particular the increasing consideration of environmental aspects, or the privatisation process.

8. Old or dormant commitments

Under the EDF, the problem of closing commitments is systematically monitored by means of a regular exchange of information with the delegations to investigate the causes and also by means of the introduction of a reporting system for anomalies noted in the system of accounts. The use of additional temporary staff to make up the backlog (open commitments dating back more than five years) meant that an investigation could start in 2000 into the measures to be taken to close old commitments; this operation should be completed at the end of this year. Pre-1995 commitments totalling EUR280 million were closed, reducing commitments outstanding from this period from EUR901 million to EUR621 million.