EN Official Journal of the European Union C 255/124

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions on “Supporting developing countries in coping with the crisis”’

COM(2009) 160 final

(2010/C 255/23)

Rapporteur: Mr JAHIER

On 28 April 2009 the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions on Supporting developing countries in coping with the crisis

COM (2009) 160 final.

The Section for External Relations, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 19 November 2009. The rapporteur was Mr Jahier.

At its 458th plenary session, held on 16 and 17 December (meeting of 16 December), the European Economic and Social Committee adopted the following opinion by 151 votes to five with eight abstentions.

1. Conclusions and recommendations

1.1 Now that the international economic and financial crisis seems less likely to become systemic, the EESC considers it vital that we do not neglect the serious impact it is having in many developing countries, threatening the results achieved over past decades and coming on top of the consequences of the energy and food crisis; all this could aggravate existing conflicts and political instability.

It is now up to the international community to take all the requisite steps and decisions in order to help the poorest countries tackle this crisis for which they bear no responsibility.

1.2 The EESC appreciates the Commission Communication as the first framework decision adopted by the international community; it remains the most positive and complete among those which have emerged. It offers numerous proposals, also looking ahead to the medium term, and these should be appropriately developed.

The EESC notes that the two main limitations of the Communication lie in the failure to schedule additional resources and the fact that the impact of the decisions regarding the crisis will be short-lived (e.g. the frontloading of aid commitments).

1.3 The EESC welcomes the results of the most recent international summits (1), in particular the well-structured proposals concerning the poorer countries, the confirmation of the intention to boost the quantity and quality of aid, and the renewed drive for reform. However, this remains seriously inadequate for tackling such key issues as:

— the urgent need for more funds and the use of new instruments for financing development;

— reform of the aid system;

— the link between fiscal governance and development.

1.4 First and foremost, as noted by Commission President Barroso, it is vital to honour all the commitments which have been made in recent years. The EESC calls on the Commission to remind Member States of the need to respect their schedules for increasing aid appropriations; these have so far never really been revised, even though some Member States have effectively disowned them by deciding to cut appropriations.

The EESC believes that significant extra appropriations are urgently needed, as called for in all the main international forums, to channel new aid and investment into the poorer countries. The EESC also supports the proposal to earmark at least 0,7 % of the sums mobilised by the international community for tackling the crisis, currently estimated at around USD 7 000 billion.

1.5 The EESC considers that the double impact of the energy and food crises makes it necessary to adopt more precise priorities for new investment, as part of a sustained commitment to the Millennium Development Goals (MDG).

It is in the interest of both Europe and the poorer countries to make agriculture and food security a strategic priority, alongside investment in the urgent needs brought by climate change, and to launch a new round of strong investment in the poorer countries, with a view to ensuring long-term sustainable development.

1.6 The EESC calls on the new Commission to play a leading role internationally regarding the commitment to radically reform the development aid and investment system, grasping the challenges of the new millennium such as green growth and migration and launching a new drive to make the aid system as a whole more effective, transparent and efficient.

1.7 The EESC believes that the EU should not retreat from its moves to recognise and support non-state actors (NSA), particularly those representing the private sector, trade unions, farmers, women's organisations and consumers. This is a key part of the European approach.

The EESC deplores the Communication's failure to make any reference to their role in tackling the crisis, particularly as civil society is one of the few international players to have shown its ability to mobilise additional resources. In many of the poorer countries, the crisis is hitting the private sector particularly hard and hampering the activity of the social partners and civil society organisations. These bodies are vital to ensure sustainable forms of development in the long term.

1.8 Alongside respect for the commitments made in terms of official development assistance (ODA), the EESC supports the creation and adoption of new, innovative development funding mechanisms, such as a Tobin tax. It is especially important to recognise the key role of migrants’ remittances by implementing the G8 decision to halve remittance transfer costs and devising strategies to protect migrant workers more effectively during the crisis.

1.9 The EESC thinks that all the measures to open markets should be continued, by relaunching the Doha negotiations, supporting regional integration processes (2), and strengthening mechanisms for financing trade, with special attention to the needs of the poorest countries regarding fair trade. FDI should also be relaunched, not least by leveraging innovative funding lines from the IMF and the World Bank, starting with a new issue of IMF special drawing rights and the establishment of an appropriate Vulnerability Fund by the World Bank.

1.10 Lastly, the EESC considers it vital that absolute priority at world level be given to the fight against corruption and tax fraud (avoidance and evasion), with a view to gleaning major new resources for development schemes. The EESC urges the Commission to address this issue forthwith and to draw up appropriate proposals.

2. Introduction

2.1 At the start of the international financial crisis, analysts were sure that the developing countries, especially the poorest, would not be affected. As the months went by, the possible effects on developing countries became clearer, particularly in view of the anticipated contraction of the world economy. It was only in April 2009, with the G20 summit in London and the IMF and World Bank meetings, that it became clear the crisis was starting to be felt in the main developing countries; this could push a further 100 million people into poverty, adding to the 160 million who have already fallen below the absolute poverty threshold following the energy and food crisis of 2007/2008.

2.2 The estimates are worrying. On 19 June the FAO published the key points of a forthcoming report on food insecurity in the world which indicates that in 2009 the number of people going hungry is set to exceed the billion mark for the first time. This is an overall rise of 11 %, and will trigger a major humanitarian crisis that could cancel out the successes of the 1980s and 1990s. On 22 June the World Bank drastically revised downward all its estimates, predicting a 3 % contraction of the world economy in 2009, with world trade falling by 10 % and a collapse of international private capital flows from USD 1 trillion in 2007 and USD 707 billion in 2008 to USD 363 billion in 2009. Overall growth in the developing countries is now estimated at just over 1 %. However, if China and India are excluded, GDP in developing countries is predicted to fall by 1,6 %. Africa will be particularly hard hit, with growth in 2009 forecast to be 66 % down on the 2007 figure. The ILO estimates that 50 million people could lose their jobs in 2009 and that the number of workers facing poverty could reach 200 million.

2.3 The financial and economic crisis has four major effects: a) a drop in the overall volume of trade, with plummeting export earnings; the developing countries face a financing gap estimated at between USD 270 and 700 billion (3); b) a drop in private investment flows, particularly to middle-income countries and those where major structural investment is under way; c) a sharp drop in emigrants’ remittances, which in some African developing countries can account for 30 % of GDP and which in 2006 alone totalled USD 270 billion, i.e. more than double all development aid; d) a drop in official development assistance (ODA) from many bilateral donors in 2009 and 2010. The latter two effects, coming on top of the preceding crises in food and energy prices, are felt particularly in Africa, where these flows are often vital both for state budgets and for the very survival of local communities and households.

2.4 The consequences of these successive and interconnected problems – which clearly affect the various countries and areas in very different ways – include:

— a slowdown in growth or severe shrinkage of local economies;

— a sharp rise in unemployment, poverty and hunger, especially in urban areas, with serious consequences for the most vulnerable groups, especially women and minors;

— a drop in tax revenue, with serious budgetary consequences: African countries in particular have seen major fiscal adjustment over the last decade;

— resultant risks to public investment plans, especially for maintenance and infrastructure;

— greater problems regarding access to goods and services for large swathes of the population in tandem with a reduction in already fragile welfare systems;

— a drop in earnings from tourism;

— increasing difficulty of gaining access to credit and investment, particularly for the private sector;

— a serious impact on the ability to achieve the Millennium Development Goals (MDG), already seriously jeopardised for at least the last two years after the progress made between 2000 and 2005;

— the danger of not having sufficient means to tackle the effects of climate change.

2.5 The picture becomes even more worrying when one considers the possible consequences for the political stability and internal and external security of several parts of the world. A 2008 study by the British Government estimated that in 2010 half of the world’s poorest people could be living in countries that are experiencing virtually permanent conflict.

2.6 Lastly, the crisis could trigger further migration both within individual countries and at regional level, and to the richer countries. As well as aggravating existing tensions, particularly on the EU's borders, all this could generate a further worrying loss of vital human resources for many of the poorer countries.

3. The Commission's response

3.1 The European Commission was the first body to take concrete decisions in the context of a commitment made towards the G20 in London, summed up by President Barroso in the following clear terms: ‘the recession must not, cannot, will not be used as an excuse for going back on our aid promises’.

3.2 The Commission's Communication provides one of the most positive framework decisions proposed thus far by the international community to help the poorer countries tackle the crisis. As well as stressing the need to honour existing aid commitments and to leverage new resources for development (such as the ambitious but perhaps a little unrealistic proposal that every euro spent on aid should leverage five euro in non-ODA), the Communication underlines the importance of disbursing aid more quickly or frontloading it – a unique example among donors – and adopting more flexible mechanisms; it thus asks the EIB to devise counter-cyclical instruments, particularly for infrastructure and the financial sector. The Commission also undertakes to speed up budget support and, in exceptional cases, to consider macroeconomic assistance for European Neighbourhood Policy (ENP) countries.

3.3 The Communication notes that ‘aid ineffectiveness’ is very costly, and that substantial reform of the whole ODA system is needed. For its part, the Commission calls on Member States to promote common coordinated approaches to tackle the crisis. At the same time the EU, as the world’s largest donor, should push for reform of the international aid system.

3.4 The Communication dwells at some length on measures to cushion the social and employment aspect by means of support mechanisms for social spending and the building of national and regional infrastructure. Particular attention is paid to the Mediterranean and Africa, not least in terms of funding. The Commission also renews its commitment to revitalise agriculture and invest in green growth through innovative financing to tackle climate change and support for the transfer of environmentally sustainable technologies.

3.5 Lastly, the Communication proposes measures to support the international trade system by making Aid for Trade (AfT) programmes more effective and increasing export credits. It also recommends promoting a discussion on sovereign debt restructuring mechanisms, with measures to strengthen tax governance at international, regional and domestic level.

3.6 The Council endorsed the main recommendations set out in the Communication, stressing the importance of Member States honouring their commitments and encouraging ‘Member States, the Commission and the European Investment Bank (EIB) to take coordinated action (…) on the basis of joint country impact analyses of the crisis, in cooperation with international institutions and partner countries, with a view to identifying the most vulnerable and less resilient countries and population groups’ (4).

3.7 However, the most obvious shortcoming in the set of decisions taken by the EU is the fact that the only additional funding scheduled is the EUR 100 million per year assigned to the EU-Africa fiduciary fund for infrastructure.

4. ODA under threat

4.1 According to figures from the OECD’s Development Assistance Committee (DAC), in 2008 official development aid reached its highest ever level, rising by 10 % in real terms to just under USD 120 billion, or 0.30 % of OECD members’ GNI. Bilateral programmes have also risen in the last year after falling sharply in 2006-2008.

4.2 The total contribution of EU members stood at EUR 49 billion in 2008, a EUR 4 bn increase on the 2007 figure and representing 0,40 % of GNI. It is worth noting that at the time of the Monterrey Consensus, in 2002, the Commission set itself an interim target of 0,39 % by 2006. We are still a long way from the goal of allocating 0,20 % of GNI to the least developed countries; today only USD 20 billion are earmarked for Africa, compared with the 2010 target of USD 50 bn.

4.3 There are serious reservations about the EU's ability to secure the further increases, estimated at an additional EUR 20 bn, that are needed in order to reach the target of 0,56 % of GNI in 2010. In its AidWatch 2008 report, the CONCORD European NGO platform anticipated a drop in aid of USD 27 bn in the two years 2009-2010. It also considers that the EU figures should be revised because they include expenditure which should not come under ODA: USD 5 bn of foreign debt cancellation, 2 bn for scholarships and 1 bn for refugee-related costs. By excluding these figures, CONCORD arrives at a figure of just 0,34 % of GNI for 2008, well below the 2010 target of 0,56 %.

4.4 The World Bank's 2009 Global Monitoring Report agrees that despite the rise in 2008 and the commitments already made by some leading donors, the prospect of achieving the Gleneagles targets (USD 130 bn per year by 2010) is totally unrealistic in the present situation.

4.5 There is a growing feeling that new resources are needed which far exceed the Gleneagles commitments. The UNDP stresses that it is not just a matter of honouring commitments already made but also of substantially increasing budget allocations, for example by earmarking at least 0,7 % of all the finances released to prop up the banks and relaunch the economy (estimated at around USD 7 000 bn) to help the developing countries attain the Millennium Development Goals and relaunch direct, long-term investment and expenditure in the poorer countries. As World Bank President Zoellick himself has said several times since the start of the crisis, much more needs to be done to help the poorest countries tackle the devastating effects of a crisis that is not of their making. Recent World Bank estimates put the overall financing gap for developing countries at between USD 350 bn and USD 635 bn. These figures are light-years away from the sums that the international community has so far been able to mobilise, not only as ODA but also in the form of other assistance and loans.

4.6 Moreover, if we exclude the intentions voiced by the EU, the OECD report shows that the crisis is tending to widen the gap between commitments and disbursements by the vast majority of bilateral donors, and often also to cause further delays or postponement of payments. Aid from non-DAC countries is rising but its total still does not significantly affect overall trends. Total aid from non-DAC countries which notified their figures to the OECD stood at USD 5.6 bn in 2007.

4.7 Although the data available are limited, private donor trends appear positive: USD 18.6 bn for 2007, up 25 % on the 2006 figure. Domestic data within the USA, not notified to the OECD, estimate flows from private donors at USD 37 bn in 2007, while many of the main foundations, such as the Gates Foundation, have announced increases of up to 20 % for 2009.

5. Aid effectiveness and the fight against corruption

5.1 In times of crisis it becomes vitally important to make aid more effective. The economic damage caused by the unpredictability of aid, its fragmentary nature and the lack of coordination between donors are only too clear. The Commission estimates that aid volatility can increase costs by between 15 and 20 %; full application of the aid effectiveness agenda could thus save around EUR 5-7 bn per year. The provisions of the 2005 Paris Declaration and the 2008 Accra Agenda for Action must be implemented as a matter of urgency, bearing in mind the decisions already taken by the EU which could really make a difference: division of labour between Member States and the Commission; better use of country systems; predictability of aid and greater accountability for results, including less use of conditionality (5).

5.2 The OECD notes that insufficient headway is being made on improving the quality of aid. Throughout the world, 225 bilateral agencies and 242 multilateral agencies fund hundreds of thousands of activities each year. By way of example, there are over 90 health funds worldwide, and the WHO has to report to some 4 600 donors and provide donors with around 1 400 reports per year. The government of a developing country has on average to receive and respond to around 200 official donor missions per year, plus several hundred missions by private donors. Furthermore, the OECD’s latest monitoring survey shows that on average only 45 % of aid is delivered on schedule.

5.3 Faster progress is therefore needed in order to achieve international targets. The governments of the EU's 27 Member States must show the requisite political will by:

— transparent use of the 12 indicators listed in the Paris Declaration;

— applying the EU codes of conduct;

— improving consistency between policies, and particularly between trade and development policies;

— resolute investment in the overall reform of the international aid system, exploiting the potential of non-state actors and launching a new multilateral round.

5.4 As part of this approach, consideration also has to be given to the huge amount of resources which in many developing countries are eaten up by corruption and illegal capital exports, with particular reference to investment linked to the exploitation of raw materials and major infrastructure schemes. It is an established fact that a significant proportion of aid is wiped out by corruption: this has devastating effects on the local population and damages the confidence of tax-payers in donor countries. According to Transparency International’s 2008 global corruption report, corruption now costs USD 50 bn, equivalent to almost half the total volume of global ODA and to the investment needed to achieve targets for drinking water and sanitation. A distinct improvement in governance, particularly as regards aid traceability and more explicit conditionality for payments, is vital in all the EU's commitments and at multilateral level. It is regrettable, to say the least, that the Communication has nothing to say about this.

6. The role of private actors and civil society

6.1 The importance of the role of non-state actors (NSA) – which the Cotonou agreement defines as the ‘private sector, economic and social partners, including trade unions, civil society in all its forms’ (Article 6) – is now widely recognised. It is strange that the Communication makes no reference to their role in tackling the crisis, not least as they are the only international players showing themselves capable of mobilising additional resources. In many poor countries the crisis is hitting the private sector particularly hard and hampering the activity of the social partners and civil society organisations. These bodies are vital to ensure sustainable forms of development in the long term.

6.2 On 18 May 2009 the EC Court of Auditors issued its special report on the Commission's management of non-state actors’ involvement in EC development cooperation (6). While warmly appreciating the increasing investment of Community funds via NSA (7), the Court makes three main criticisms:

— non-state actors are insufficiently involved in the development cooperation process and their role is often limited to carrying out projects or supplying services. They tend to be consulted once only and too late;

— there is insufficient capacity development activity, and it tends to focus on communication and participation systems which in practice exclude most small or medium and non-urban organisations;

— there are numerous shortcomings in monitoring and implementation of procedures, which many organisations often find over-complicated and opaque and which sometimes do not provide adequate information about the progress of schemes and their final impact.

6.3 The problems highlighted by the Court lead us to reiterate what the EESC has been saying for years about the need to channel investment towards non-state actors, by tailoring procedures to involve them more effectively and by doubling to 20 % the volume of aid channelled directly to NSAs, as advocated in an earlier EESC opinion (8).

7. Towards a revision of aid and new funding instruments

7.1 There is now a clear need for wide-ranging reform of the international financial institutions, starting with the World Bank and the IMF. The June UN conference was unambiguous about this: the international financial institutions need to be clearly oriented towards development and must be reformed in order to ‘reflect current realities and enhance the perspective and voice and participation of (…) developing countries’ (9).

It is something of a paradox that, faced with the crisis, 82 % of IMF loans have gone to countries in Europe and only 1,6 % to African countries; and a scant USD 20 billion of the USD 1 100 bn decided by the London G20 on 2 April 2009 has gone to the poorest countries.

7.2 The EU must take steps to secure a drastic revision of these relative percentages, first and foremost by giving more serious practical attention to the World Bank's proposal to set up a specific new Vulnerability Fund, designed principally to finance food security, social protection and human development, inter alia by establishing a specific common framework spanning the World Bank and the UN special agencies. The EU should also press for the issue of new IMF special drawing rights, for at least USD 250 bn, specifically earmarked to provide liquidity for development funding.

7.3 The EU must also play a leading role to ensure that trade financing and the early relaunch of the Doha negotiations give central importance to the needs of developing countries and provide specific support and safeguard measures for the poorest countries and for food security.

7.4 The EESC has long believed that it is necessary to work with alacrity to promote and extend new development finance instruments. It is regrettable that little progress has been made hitherto. The scope of the most recent initiatives and decisions should be extended: the International Finance and Facility Fund (IFF) for Immunisation, of November 2006, to fund vaccinations in the poorer countries; the Advanced Market Commitment from the same period; and the Aquila G8's initiative to halve within five years the transfer costs of migrants’ remittances to their countries of origin, which could increase them by USD 13-15 bn per year. The EESC supports the proposal to finally start discussions on the application of a voluntary tax of 0,005 % on international financial transactions (Tobin tax), launched by the French and German governments at the recent G20 summit in Pittsburgh. These new financing mechanisms, which must be strictly additional to existing ODA commitments, should be more clearly tied to achievement of the individual Millennium Development Goals, and to the urgent needs brought by climate change and the costs which the poorer countries will have to bear over the coming years.

7.5 The issue of reforming the international aid system, which the Commission rightly raises in point 11 of its proposal, is extremely urgent, and the EU can play a real leadership role here, at least for the following points:

— the introduction of an international early-warning system to monitor in future years the impact of the crisis on people's living conditions and development prospects, in order to steer assistance and investment;

— the development of a proper accountability system to monitor progress and measure the effectiveness of its intervention, as decided at the G8 summit;

— more solid investment in the stabilisation of conflict areas, in institution-building and crisis management, strengthening local and regional planning and intervention capacity, increasing universal social-protection systems, and scheduling appropriate investment to tackle the new challenges of food security and climate change;

— strengthening and extending access to microcredit, to support business initiatives which would not otherwise secure financing from the banks.

7.6 Treating food security and green growth as two long-term strategic investment goals can provide an important guiding thread for launching a new aid and investment system, made even more important by the crisis. It can also bring about a more coordinated involvement of resources and competences from emerging countries and provide a practical opportunity for economic partnership between the EU and OECD countries.

7.7 Two further specific points regarding the EU:

— a careful assessment is needed of the development in recent years of budgetary aid mechanisms, which should be more specifically directed at sectoral commitments such as health, decent work, education and training, infrastructure, social services and green growth, as advocated by the European Parliament (10);

— the distribution of remits among the new commissioners should be reviewed, in particular by giving the Development Commissioner direct control over EuropeAid, which is now assigned to the External Relations Commissioner.

7.8 In the development field above all others, it is clear that the EU must increasingly show itself able to speak with one voice and adopt a more united and coordinated front together with its Member States. It needs to do this both to be effective in the new international conditions which emerge from the crisis and to play a more effective role and deploy its existing resources and competences more effectively. Today more than ever before, given the changing positions of the players on the international stage, the development of the poorest countries and of Africa in particular is of strategic interest for Europe's own future development (11).

7.9 The crisis has made greater international cooperation to fight corruption and tax evasion into an accepted fact, particularly as regards action against tax havens. According to the United Nations Office on Drugs and Crime (UNODC), the proceeds of criminal activity and tax evasion today account for between USD 1 000 bn and 1 600 bn of illicit cross-border flows, and half of these come from developing or transitional economies. Of this USD 500-800 bn, just 3 % stems from corruption, 30 % from criminal activities and 67 % from tax evasion. In other words, tax evasion costs developing countries between USD 300 bn and 500 bn. Of this, 285 bn is due to the informal sector and 160 bn to tax avoidance by many transnational companies operating in these countries (12). The EESC thinks that a firm change of direction is urgently needed here, and today this seems more of a realistic prospect. It could free up unanticipated resources for development aid and investment while also favouring the development of more robust, fairer tax systems in many poor countries; this is vital for institution-building and for any healthy long-term development prospects.

Brussels, 16 December 2009. The President of the European Economic and Social Committee Mario SEPI

(1) In particular the UN Summit of June 2009 and the Aquila G8 of July 2009.

(2) See the EESC opinion on the Commission Communication on Regional integration for development in ACP countries, OJ C 317, 23.12.2009, p. 126, rapporteur: Mr Dantin, co-rapporteur: Mr Jahier.

(3) World Bank 2009 and African Development Bank March 2009. The figures quoted represent the lowest and highest current evaluations.

(4) Conclusions of the External Relations Council, 18 May 2009.

(5) COM(2009) 160 final and Council conclusions of 22 July 2008.

(6) The Court’s definition of non-state actors in this report only covers civil society organisations and excludes the private sector.

(7) According to EuropeAid, the value of contracts concluded with NSAs in 2006 and 2007 can be estimated at EUR 836,43 million and 915,26 million (excluding humanitarian aid, which is managed by ECHO). This is equivalent to 10 % of EU aid to developing countries. Around 50 % of ECHO funding goes to NGOs (approximately EUR 353 million in 2007).

(8) Florio opinion OJ C 234, 2003, Civil society and development policy.

(9) See the Outcome of the UN conference on the world financial and economic crisis, June 2009.

(10) Draft resolution of the DEVE committee, September 2009.

(11) See the opinion on Relations between the EU, Africa and China (OJ C 318, 2009, rapporteur: Mr Jahier) and the opinion on the External dimension of the Lisbon strategy (OJ C 128, 2010, rapporteur: Mr Jahier).

(12) See the CIDSE study of November 2008.