Source: EURLEX
Language: en
Format: md

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COMMISSION OF THE EUROPEAN COMMUN! i StTj

Brussels, 20.1 1.1996
COM(96) 570 final

#### **GREEN PAPER**

**on relations between the** European Union
**and the ACP countries on the** eve of the 21st cemtui

**Challenges and options** **for a** **new partnership**

(presented by the Commission)

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COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 20.11.1996
COM(96) 570 final

#### **GREEN PAPER**

**on relations between** **the** **European Union**
**and the ACP countries** **on** **the** **eve of** **the 21st century**

**Challenges and options** **for a** **new partnership**

(presented by the Commission)

**The world** is **in the throes** of **far-reaching changes.** The collapse of the Iron Curtain
and the end of the East-West conflict brought about a drastic upheaval in international
relations and the world economy, opening the door to closer cooperation on the basis of
common values and principles but also leading to a recasting of geo-strategic interests and
new, less tangible forms of risk. Economically speaking, the spread of the market
economy and the demise of exclusive or privileged ties have altered the terms of supply
and demand on international markets. The conclusion of the Uruguay Round trade
negotiations created a new multilateral context which is speeding up a **globalization** of
the economy driven by technological change and the **liberalization** of economic policies
that started in the 1980s. Interdependence is growing and extends beyond the economic
and financial to the social and environmental spheres. At the same time, the margin for
manoeuvre in national policies has narrowed and new fault lines are being opened up by
the effects of social exclusion, by the fragmentation of the social fabric in both
industrialized and developing or transitional countries, by widening inequalities and by
the marginalization of the poorest countries. These fault lines are destabilizing and lie
behind the upsurge in extremism in its nationalist or fundamentalist guises.

**This new international environment has prompted the European Union to redefine**
**its political and security interests** and give fresh impetus to the political dimension of
the European integration process. The Treaty on European Union has given an
institutional basis to the framing of a common foreign and security policy (CFSP), a
policy which is as yet insufficiently developed to further properly the common interests
of the Member States; its machinery is currently being discussed as part of the
Intergovernmental Conference (IGC). But the Treaty has also provided an institutional
basis for European development cooperation policy.

The European Union itself will be in the process of radical change at the time it embarks
on a new relationship with the ACP countries.

It has a full programme of work in the years ahead as it readies itself to face the
challenges of the 21st century: fine-tuning of the internal market and the prospect of a
single currency, revision of the Treaty and other institutional reforms being discussed by
the IGC, conclusion of a new medium-term financial agreement and the prospect of
enlargement to embrace the associated countries of Central and Eastern Europe, the Baltic
States and Cyprus and Malta.

The European Union's external relations have also been marked by new initiatives
concerning developing countries and economies in transition. It has concluded association
agreements with most European countries of the former East bloc, which are now
applying for membership.

At the same time, it is supporting the process of economic and political change in the
republics of the former Soviet Union and has concluded trade agreements with several
of them.

Relations with non-member Mediterranean countries are now covered by a new,
long-term multilateral framework for partnership between 27 countries, which go hand
in hand with closer bilateral relations and cover three sets of provisions: political and
security, economic and financial (chiefly the gradual setting up of a free-trade area) and
social, cultural and human.

The European Union has also decided to strengthen its links with Latin America as part
of a three-pronged strategy involving closer political dialogue between the two regions,
encouragement of free trade combine with institutional support for the regional integration
process, and technical and financial cooperation focusing on a number of priority fields.

Its new strategy in its relations with Asian countries is aimed at strengthening Europe's
economic presence in this region, enhancing mutual understanding and developing a new
political approach.

**These new policies are the Union's response to the political and economic changes**
**under way on the international scene and reflect the fact that the Union's external**
**relations are not only global in scope but tailored to specific circumstances.**

The Lomé Convention has provided the framework for trade and aid between the EU and
the ACP countries, now numbering 70, since 1975. But Community development policy
goes back to 1957 and has gone through a number of decisive phases since then. After
the initial years, during which the aim was to establish ties with the Community's
overseas countries and territories, cooperation continued under the Yaounde Conventions
and remained focused on French-speaking black Africa until the middle of the 1970s.
After its Community's first enlargement, which took place in a markedly changing world
economy, the European Community started to extend the geographical scope of its
cooperation policy by opening the first Lomé Convention to other ACP countries and
forging association and cooperation ties with other regions of the developing world.

The Lomé Convention has been overhauled every five years to adjust it to economic and
political developments, add new cooperation instruments and set fresh priorities. The last
revision took place in 1995. [1 ]

The EU has also gradually built up other, non-Lomé instruments for aiding the
developing countries in the form of specific budget headings (for desertification control,
AIDS, etc.) or components of other Community policies that can also contribute to
development policy (scientific policy under the framework research and development

The first three Conventions were concluded for a period of five years. The fourth
covers the period from March 1990 to February 2000 and includes a financial
protocol concluded for five years. At the same time as the negotiations for the
second financial protocol a mid-term review of the Convention was carried out.
The text of the fourth Lomé Convention as revised by the agreements signed in
Mauritius on 4 November 1995 was published in the ACP-EU Courier, No 154
of January-February 1996.

programme (FRDP) is one such). The ACP countries are also eligible for these forms
of aid.

New general guidelines have been drawn up for EU policies in a number of sectors or
fields of cooperation as a result of the work under way since 1992 "on the outlook for
cooperation in the run up to the year 2000" [2] to implement the new Treaty provisions on
European development policy. [3 ]

**On the threshold of the 21st century the future shape of the EU's relations with the**
**ACP countries needs to be examined in depth. With the current Convention due to**
**expire in February 2000, which is not far distant, and the two parties' contractual**
**obligation to start negotiations at the latest 18 months beforehand, plus the need to**
**establish against the background of the tighter disciplines of the WTO a trade**
**cooperation framework fully in line with the new** **multilateral** **rules, we have an ideal**
**opportunity to go ahead with this reappraisal and embark on a wide-ranging debate**
**on the future of relations between the EU and the ACP states.**

**Not only does the new global landscape alter the EU's objective interests and those**
**of its developing partners, it also involves increased responsibilities for a player of**
**the EU's size.** These responsibilities are first and foremost political in nature: the EU
must actively support the moves towards more openness that started when the cold war
came to an end in the second half of the 1980s and in particular help anchor the
democratization process, which is still precarious in many ACP countries. **These**
**responsibilities are also of an economic nature:** the EU must complement the effects
of globalization by making the necessary adjustments within the Union to improve job.
prospects and reverse trends towards exclusion by playing an active role in international
economic cooperation, helping frame and enforce multilateral rules and easing the
gradual integration of developing countries into the world economy. Another aspect of
globalization are the changes resulting from progress towards an information society; this
is a new economic factor that is opening up extraordinary prospects in areas such as
trade, education and health but also threatening to marginalize still further countries that
are not locked into international information networks.

**For the European Community - faced with the difficult task of adjusting its**
**economic and social systems and having to frame its political action to fit a** **multi-**
**rather than bipolar world and prepare for eastward enlargement - there is now a**
**new dimension to development cooperation, particularly with the ACP countries, viz**
**how can we take on a global role without responsible strategies for the different**
**regions of the developing world, notably those worst hit by poverty and**
**marginalization?**

**The EU's efforts to reduce poverty and inequalities in development around the world**
**are also closely linked to the quest for peace and stability, the need for better**

SEC(92) 915, 15 May 1992, and Council Declaration of November 1992.
Articles 130u to 130y of the Treaty.

**in**

**management of global** interdependence and risks, **and** promotion of a kind of world
**development that** is more compatible with European political and social values.

The EU's development policy offers Europe a gateway to regions with enormous
development potential which are now starting to bestir themselves.

**As the 21st century dawns, relations between the EU and the ACP countries should**
**be put on new footing to take account not only of changed political and economic**
**conditions for development but also of changed attitudes in Europe.** The colonial and
post-colonial period are behind us and a more politically open international environment
enables us to lay down the responsibilities of each partner less ambiguously.

In view of the patchy achievements of ACP-EU cooperation and a degree of scepticism
about the scope for developing the ACP countries against the background of tight budgets
in donor countries and an inward-looking tendency borne of social difficulties in Europe,
partners on both sides are now seeking to place more emphasis on the effectiveness of
cooperation and to review their priorities with an eye to better reflecting the concerns of
European and ACP societies.

Community aid is of major importance for many ACP countries and has unquestionably
helped to improve living standards. It has often been a testing ground for new ideas and
universally acknowledged expertise has been built up in certain areas. But like any form
of aid it has had failings, which a critical analysis of the results of ACP-EU cooperation
has identified at three levels.

1. The general framework within which development operations are carried out: it has
to be admitted that the principle of partnership has lost its substance and been only partly
put into practice. Aid dependency, coping with short-term needs and managing crisis
situations have increasingly coloured political relations between the two sides. Dialogue
on economic and social policies has proved difficult to put into practice with countries
with little institutional capacity and ineffectual public administration with the result that
partnership is limited to day-to-day resource management.

2. EU-commissioned evaluation reports on cooperation policies have generally concluded
that financial and technical cooperation matches Community objectives and the needs of
the recipient countries and that effectiveness is relatively high, **notably as regards**
**infrastructure and social projects.** **However, the state of the institutions and**
**economic policy in the recipient country have often been major constraints,** making
Community aid less effective in raising living standards and the level of development.

The impact of trade preferences has been disappointing by and large. Preferential
arrangements, especially the protocols on specific products, have certainly contributed
significantly to the commercial success of some countries [4] which managed to respond
with appropriate diversification policies. **But the bulk of ACP countries have lacked**
**the economic policies and the domestic conditions needed for developing trade.**

Examples are Côte d'Ivoire, Jamaica, Mauritius and Zimbabwe.

**IV**

Furthermore, three new factors now have to be taken into consideration in designing a
new trade regime: (i) the Marrakesh agreements and tougher dispute settlement
procedures could put the future of differentiated, non-reciprocal preferences schemes in
doubt; (ii) the speeding-up of liberalization at multilateral and inter-regional levels; (iii)
the growing importance in international trade talks of new issues, such as the
environment, competition policies, investment codes, technical and health standards and
compliance with basic social rights. These developments affect the relative value of tariff
preferences.

3. Where financial and technical cooperation is concerned, the fact that some financial
resources are granted automatically (the proportion has now been cut) and the EU's
tendency, in common with other donors, to take the initiative away from its weaker
partners, have not encouraged ACP governments to display the genuine political
commitment expected of them. There has been a drift towards **a tendency for**
**development instruments to dictate policy rather than the other way round.** A lack
of flexibility has meant that our cooperation does not adjust easily to a rapidly changing
political and economic scene and is slow to produce new political initiatives reflecting the
concerns of society in Europe and the ACP countries and the desire to make aid more
effective in the long term.

In a rapidly changing global and regional environment, the ACP countries have to face
up to many challenges: halting their economic marginalization and integrating into
international trade, implementing the domestic, political, economic and social changes
needed to build a democratic society and a market economy, and creating the conditions
for sustainable development and poverty alleviation in a context of still high population
growth.

**The widening gap between developing** **countries** **in general, and within the ACP**
**group in particular, is undoubtedly** **a** **crucial factor.** Political and economic transition
has gone further in some countries than in others and the EU's efforts will be gauged in
terms of its ability to ease the constraints on the development of the ACP countries while
supporting the factors of change emerging in a growing number of countries. Above all,
in more political terms, they will be judged by whether policy for the ACP countries,
especially sub-Saharan Africa regains a strong sense of purpose. **The negative** image
**that many have of a continent that has lost its way does not reflect the real Africa.**
Africa is not all of a pattern. The unprecedented political developments and the recent
improvement in growth performance in some countries, [5] stemming chiefly from better
management of economic policy and the implementation of structural reforms, are
promising signs.

Côte d'Ivoire, Uganda and Benin spring to mind.

In the light of a decline in the general acceptance of the very principle of development
aid in a global environment beset with risks and new opportunities, the European Union
and its ACP partners must strive to make their cooperation more successful. **This will**
**entail identifying the ACP-EU cooperation achievements that** are worth preserving,
**making further progress in refining and implementing recent guidelines and**
**initiatives, and determining which of the various possible options for future reform**
**are most consistent with mutual objectives and undertakings.**

**The** difficulties of putting "partnership" into practice should not call into question the
value of this form mutual political commitment. **The** circumstances **and** huge
**challenges facing many ACP countries are good reason to preserve the strengths and**
**qualities of the present relationship,** in particular the predictability and contractual
**nature of** the aid. **But this political commitment must be made more explicit and**
**more effective.**

Are the European Union and its ACP partners ready to do this?

**On the EU side, the political dialogue with the ACP countries must be part and**
**parcel of its common foreign policy.** A more relaxed framework for dialogue where
issues of good governance, democracy and human rights, and the consolidation and
maintenance of the rule of law can be broached, along with the development of a genuine
**European** conflict prevention and resolution policy, would seem to be preconditions for
**a more** effective European policy. **On the ACP side, commitment to push through**
**institutional reforms and conduct economic, social and environmental policies**
**reflecting the major undertakings made at the** **Rio,** **Vienna, Cairo, Copenhagen,**
**Beijing, Istanbul and Rome international** **conferences,** **[6]** **must be the foundation of the**
**new partnership.** The EU's aid activities, in common with those of other donors, can
**have** major political repercussions for these countries; their relevance depends on a range
of conditions, notably political conditions. The parties' respective responsibilities in the
context of these activities must be expressed in political terms.

If **a** mutual political commitment is made on this basis, the principal subjects of the
**proposed** dialogue (such as domestic security issues, migration, the fight against drug
trafficking, etc.) and most appropriate geographical configuration (global dialogue or
**dialogue** tailored to groups of countries) must be established.

**North-South relations are part of the external face of the European Union and the**
**special relations between the EU and the ACP countries fall within this wider**
**relationship.** The link between the politics and aid and with multilateral commercial
**policy** is an application of the general principle of consistency in external action.
Strengthening the Union's capability for external action is one of the key subjects
**broached** in the Intergovernmental Conference (IGC). In its opinion on the IGC, the
Commission argued in favour of bringing together "the various strands comprising foreign
relations in a single effective whole, with structures and procedures designed to enhance

Earth Summit, Human Rights Conference, Population, Social Development,
Women, Habitat II, World Food Summit.

**VI**

consistency and continuity". [7] Each strand should, however, retain its distinctive features.
Community development cooperation policy, in particular, must retain sufficient
autonomy to pursue its own objectives, which require a long-term view and continuity of
action. This linkage does, however, entail greater selectivity in Community aid with
a view to improving its effectiveness and this would lead to changes in the actual
implementation of cooperation.

A number of new principles would facilitate this process.

First, the principle of differentiation: not all ÀCP countries can at present engage in
political and economic partnership with the European Union on the same basis. Policies
and methods of cooperation have to be suitably tailored for reasons of efficiency.

Second, European and **ACP** partners must strive to reconcile two requirements:
(i) ultimate responsibility for reforms and development policies must be shouldered by
the recipient countries; (ii) the EU, however, must be able to account to the citizens of
Europe for the use made of the aid it gives. In this case, **the only alternative to**
**traditional forms of aid is to step up the policy dialogue,** improve local capacity for
policy-making **and planning, and** refocus **Community** monitoring of aid on results
**and** progress **rather than the means deployed.** The implementation of sectoral policies
that will put resources to better use and more coordination between donors is part and
parcel of this process.

**The** EU **and the ACP countries must set themselves the target of developing new**
**forms of cooperation:** the EU is unique in being able to put forward an array of
instruments and promote scientific, economic and technological cooperation. New forms
of partnership could be promoted in innovative fields such as new technologies; pilot
projects would be a way of stimulating information flows between individual communities
(research on the Internet) and providing practical opportunities for cooperation (in
telecommunications services, for instance).

Finally, in a similar vein, **more active participation in development by**
**non-governmental players (private sector and other** representatives of civil society)
could be envisaged, either in the form of a dialogue on cooperation priorities or in the
shape of direct access to some of the funding.

**The ACP group is in reality neither a political group nor** an economic entity. It
grew up for essentially historic reasons and exists only in the framework of relations with
the European Union.

COM(96)90, Commission Opinion "Reinforcing political union and preparing for
enlargement".

vn

**Will it remain a relevant partner for the Union in the future?** In other words, should
the present framework for relations between the seventy ACP states and the EU be
maintained?

The answer certainly lies partly with the ACP countries themselves, which must adopt
their position on the matter on the basis of their common interests and their desire to
develop a negotiating capacity as a political or economic group on the international stage
outside their relationship with the EU.

**For the** **EU the** **choice is above all a political one, taking account of the way in which**
**cooperation with the ACP countries meshes with the totality of the EU's relations**
**with developing** **countries.**

Other factors should also be taken into account.

**The geographical coverage of the cooperation agreement might be changed to take**
**on board factors such** **as** **the diversity within the ACP group, the need for**
**differentiation of cooperation objectives and priorities and, possibly, trade regimes,**
**plus the prospect of reduced aid requirements for certain countries and graduation.**
Changing the non-reciprocal preference arrangements which are different from those of
other developing countries could become unavoidable and involve different trade
arrangements tailored to the type of economy concerned.

The importance that the EU attaches to the cooperation and regional integration process
for economic as well as political reasons will also influence the shape of a new accord.

**There are four possible options:**

**1.** **the status quo,** with **a** few adjustments. The principle of an overall agreement
with all the ACP countries could be maintained, but with different arrangements
and priorities;

2. **an overall agreement supplemented by bilateral agreements.** Differentiation
would be taken a step further and the overall agreement would contain only
undertakings of a very general nature;

3. **splitting up the** **Lomé** **Convention into regional agreements.** An agreement
with sub-Saharan Africa that embraced South Africa would clearly be meaningful
for Europe. Where the progress of regional cooperation allowed, subregional
agreements could also be envisaged. There are a number of options in the
Caribbean, notably the idea of an enlarged cooperation arrangement for the whole
of the Caribbean area leading ultimately to integration of cooperation with these
countries into the framework of relations with Latin America. In the Pacific
region, enlargement of the framework of cooperation to other island states would
increase the effectiveness of European policy, especially as regards trade with the
APEC countries. [8 ]

Asia Pacific Economic Cooperation.

viii

a specific **agreement for the** least developed of the ACP countries, possibly
open to other LLDCS. This option, which does not exclude elements of the other
three options, would recognize the LLDCs' special circumstances and offer the
possibility of policies better suited to their problems and needs, in the case of
trade especially. But in terms of political and financial cooperation it seems an
inappropriate solution. Another consideration is that a regional approach has
always been adopted in relations with the ACP countries. The global perspective
of European development cooperation is not what it was in 1957 or 1975: the EU
now has cooperation links with a large number of countries and is present in ail
regions of the world.

The general discussion about the consistency of European policies as they affect the
developing countries has in recent years led to a number of initiatives to assess the effects
of Community policies other than development cooperation on development objectives and
to strengthen coordination between the Community and Member States and other donors
in order to improve the effectiveness of cooperation overall.

Even if the current situation is often deemed unsatisfactory, **consistency** - **in the strict**
**sense of the term, i.e. taking into account the external effects of the other policies,**
**cannot be the subject of an international undertaking by the Community.**
Consistency is a matter for political appraisal in the face of sometimes conflicting
objectives.

**The lack of coordination could, on the other hand, be remedied not only by actively**
**continuing the EU's efforts to improve coordination of policies, operations and**
**participation in international forums but also by making specific new undertakings**
**when the time comes to renew the ACP-EU agreement.** There are two possible
options here:

the Union could set itself the objective of formulating an overall European
strategy for the ACP countries which would commit both Member States in their
national operations and the Community. A framework of common understanding
would facilitate efforts to achieve greater complementarity, a principle laid down
in the Treaty, and would gradually boost operational effectiveness across the
board;

it could also propose to its partners putting inplace machinery to provide
information, monitoring and coordination services for Member States' and
Community development activities and policies. The Union would thereby
commit itself to providing the means for better coordination.

Stepped-up European coordination could also underpin efforts to improve coordination
within the whole donor community and within the multilateral system in the framework
of inter-institutional rapprochement decided at the recent G7 summit, which singled out
Africa for particular attention.

**IX**

The Union has adopted new policy guidelines in recent years that deal with new topics
or redefine the objectives pursued in the various sectors or areas of cooperation. [9] These
guidelines are likely to remain relevant in the year 2000 even if experience gained in the
interval leads to adjustments or the development of certain facets.

But over and above this "acquis", the EU and its ACP partners can now consider setting
themselves new priorities, taking into account the overall objectives of Community
development cooperation policy enshrined in the Treaty, past successes and failures, and
the ACP countries' handicaps and potential for future development. **ACP-EU**
**cooperation policy can be reformulated under three broad headings: (i) economy,**
**society and the environment; (ii) institutions; (iii) trade and investment.**

Distinguishing between these three areas in Community support should not of course lead
to a compartmentalized approach. On the contrary, **the different components should**
**be mutually reinforcing;** for instance, the necessary improvement in the competitiveness
of the ACP economies is to be achieved by a combination of external and internal policy
measures. Likewise, job creation and social progress are intertwined with private-sector
development and improvements in the workings of government.

Yet the European Union cannot - indeed must not - do everything. Greater differentiation
between the ACP countries should rather prompt it to adopt a cooperation policy tailored
to circumstances and to act in fields that may differ from one country to the next.

An aid strategy centred on enhancing the competitiveness of the ACP economies and
developing the private sector and trade should comprise a package of measures aimed at
ensuring the continuation of the reforms undertaken by these countries and boosting their
credibility. The first such action should certainly involve support for the establishment
of a stable, non-inflationary and growth-generating macroeconomic framework.

Among the various possible options, the following areas could be looked at in greater
depth:

**a more systematic approach to the causes of low investment in most ACP**
**countries.** The EU could play a positive role by supporting administrative and
institutional reforms that would encourage the mobilization of private investment,
i.e. framing of competition policies, development of capital markets,

See the texts and resolutions on gender issues (COM(95) 423), health (COM(94)
77), education (COM(94) 399), food security (COM(94) 165), the fight against
poverty (COM(93) 518), support for structural adjustment (COM(94) 447), the
environment (June 1992 report on the Rio Conference and follow-up to
Agenda 21, COM(96 569) and the link between emergency aid, rehabilitation and
development (COM(96) 153).

modernization of business and property law, consumer protection, education,
training and development of industrial cooperation;

support, tailored to local circumstances, for restructuring of public enterprises
**and privatization** in the wider context of the changing role of the state in the

economy;

**greater support for an opening-up to international trade and for regional**
**integration.** Such an overall strategy should support both capacity building (at
regional and national levels and provide aid towards the costs of transition.

seeking partnerships between EU and ACP countries that would mobilize
private-sector resources for the **development of infrastructure, especially**
**telecommunications** infrastructure, and their operation in economically viable
conditions;

aid for building up scientific and technical skills;

**macroeconomic and monetary cooperation;**

support to help reduce levels of **external debt,** although the Community itself
accounts for very little of the ACP countries' debt because its aid is highly
concessional.

There are strong arguments for focusing cooperation with the ACP countries on poverty
reduction. This objective already features prominently in current cooperation policy but
in future the European Union and its ACP partners should look at ways of enhancing the
impact of Community cooperation on poverty.

The principle of a multi-pronged approach involving a wide range of operations should
be retained, but a more strategic approach could be adopted for each of the partners by
acting on two fronts.

First, the EU could support packages of reforms and initiatives designed to promote
equitable and job-creating growth, improve access for all to productive resources, notably
through education and vocational training.

Second, it could adopt a more comprehensive sectoral approach based on in-depth
dialogue on policies with significant social impact and on aid directed towards the
financing of current expenditure in the social sectors.

The effort put into achieving social development objectives could also be one of the
criteria taken into account for the granting of Community aid, assuming that the option
of greater selectiveness linked to an assessment of good governance is taken up.

**xi**

A clearly defined strategy would help translate into practice the principles of sustainable
development. In addition to continuing the current efforts in the form of impact studies
and specific positive measures, a new policy in this field would focus on certain
priorities: **the link between poverty and deterioration of the environment, the**
**internalization of environmental costs, capacity development and** a **participatory**
**approach.** [10 ]

The EU could play a constructive role here by encouraging and supporting ACP
governments, in the context of a policy dialogue, to develop their own capacity to assess
and manage environmental problems.

There are particular issues, such as the quantity and quality of water supplies,
deterioration of the soil as a result of population pressures, the destruction of forests and
the problems of cities, which merit close attention.

The institutional aspects of cooperation need developing because of administrative
dysfunctionality and governance problems in many countires and because the rule of law
needs to be restored or consolidated to bring about the conditions for development and
a reduction in inequality and poverty.

But the EU must also think carefully about the impact of such action. **Stronger political**
**relations between the EU and ACP countries** are integral to any action to support the
building of a country's institutional and administrative capacities. As the process is
essentially a political one, this type of reform affects power structures and inevitably
encounters stiff resistance.

**Is the EU ready to adopt a more strategic approach to its support for the necessary**
**political and social transition?**

Aside from its political dimension, support for institution building also has a more
technical side. From that point of view, the European Union is relatively well-placed to
offer its services because, given the diversity of social and political organization in the
Member States, it has no one model to "sell", because it has know-how gained from
building the Community and because partnership is an appropriate framework for this
type of cooperation.

**EU action could be focused on themes connected with its main areas of cooperation**
**where it could offer "added value" compared with other donors.** These themes
include: promoting observance of human rights, support for regional organizations,
improving capacity for economic- and social-policy analysis and formulation/preparation
of reforms, budget management, improving the workings of the legal system, competition

**10** The Protocol on the sustainable management of forest resources, which was added
to the fourth Lomé Convention during the mid-term review, is a step in this
direction.

**Xll**

rules, investor protection, education and training, environmental protection, consumer
policy and developing the institutions of civil society.

The Union could also look at the development of local capacity as one of the criteria
determining the choice of arrangements for implementing financial and technical
cooperation.

In most ACP countries the economic and institutional environment has not usually been
propitious to the development of a competitive private sector, the growth of investment
or diversification of production, and so **they have not been able to take advantage of**
**all the opportunities offered by the special preferences granted under the** **Lomé**
**Convention.** ACP exports to the EU have been no exception to those countries'
generally poor trade performance and their share of the EU market has declined
appreciably, dropping from 6.7 % in 1976 to 2.8 % in 1994. Although the situation varies
markedly from one country or region to another, the European market still accounts on
average for more than 40% of ACP sales.

For the future, there are various options involving one or more trade regimes. They
should be assessed in terms of their implications for ACP-EU relations and whether they
can help the ACP countries diversity their external economic relations and avoid the risk
of growing marginalization.

**There are four main options:**

**1.** **the status quo.** The present contractual system of non-reciprocal preferences,
specific to ACP's, could be supplemented by cooperation activities in trade-related
fields (standards and certification, the environment, competition, intellectual
property rights, etc.).

2. **application of the Community's generalized scheme** of **preferences (GSP)** on
a bilateral or multilateral basis. This would entail removing trade from the
cooperation agreement, and therefore from the negotiations, as the GSP is a
matter for unilateral (or perhaps, one day, multilateral) policy.

3. **uniform reciprocity.** After a transitional period, all ACP countries would extend
reciprocity to the EU in line with WTO rules. As in the first option, cooperation
could also be developed in new areas.

**4.** **differentiated reciprocity.** Reciprocal preference arrangements could be
envisaged between the EU and different groups of countries or between the EU
and individual countries. This option could besupplemented by cooperation in
new fields on the WTO agenda.

These options are not mutually exclusive and could be combined in various ways so that
the arrangements can be adjusted to the level of development of the countries concerned
and their willingness to strengthen relations.

xiu

Before choosing one or other of these options, we must make a detailed analysis of the
potential impact on both the EU and the ACP countries.

Proposals on this have already been under consideration since adoption of the fourth
Lomé Convention. International agreements are being negotiated and the Commission
is pushing for progress in the WTO context. Negotiations are also under way in the
OECD with a view to a Multilateral Agreement on Investment.

In the meantime, cooperation at subregional level or by groups of countries would
significantly streamline negotiations, which at present take place only at bilateral level.
Such an initiative would give a significant stimulus to private investment.

The move towards a more "responsible" partnership, demands for greater effectiveness
and recognition of the significant differences in levels of development reached by
different ACP countries all point to the need for a radical review of the arrangements for
implementing Community aid to ACP countries.

**A fresh look at aid instruments**

The Lomé Convention today provides for a wide range of instruments designed to achieve
specific objectives and subject to different, sometimes complicated, management
procedures. Their simultaneous use in the same country makes EU policy less than
transparent. We should ask ourselves whether the EU should not switch to offering
overall financial packages, perhaps retaining the distinction between crisis situations and
long-term operations and between public- and private-sector operations.

**Greater selectiveness**

The allocation of programmable aid resources is already much less automatic since the
mid-term review of Lomé IV and a new performance criterion has been introduced,
meaning that the amounts of aid allocated to a country are adjusted in relation to the
effort made by the government in its sectoral and macroeconomic policies. This reflects
the EU's concern to achieve greater effectiveness. It also corresponds to a new notion
of partnership based on reciprocal undertakings and the view that external aid should
support domestic reform efforts. The EU should therefore be inclined to continue along
this road. At the same time, the advantages of programming in terms of predictability
of external financial flows for the ACP countries and the fact that it builds on approved
frameworks of country strategy should prompt it to maintain a multiannual programming
system. **In determining country allocations, the EU should decide to what extent it**
**wishes to supplement the needs criterion - based essentially on development**
**indicators - with performance and management criteria. It should** **also** **consider**
**whether to make its country policy more flexible** by adopting for example a system of
rolling programmes.

xiv

**Project aid** or **direct budget aid**

The evaluation of Community instruments has produced a number of operational
conclusions: the advantages of a more sectoral approach and support for reforms already acted on under Lomé IV - and of focusing on improvement of the institutional
framework and local capacity to devise economic and social policies integrated into a
long-term strategy. **This raises the question as to whether the EU should gradually**
**abandon the project approach once and for all and instead try to create the right**
**conditions for giving support in the form of direct budget aid for the states**
**concerned and sectoral aid.**

Any such development should certainly go hand in hand with a reform of conditionality
to be coordinated with the whole donor community. Consensus needs to be reached on
a small set of essential criteria to avoid a continuation of the recent proliferation of often
very specific conditions. If conditionality is to have a real impact on a country's policies,
it must be both realistic (i.e. takes account of political and institutional as well as
economic and social factors), comprehensive (the product of an assessment of all the
government's macroeconomic and sectoral policies) and rigorous. The Commission
hasamme for Africa (SPA), the aim being to find a new approach that best accommodates
long-term development objectives and short-term imperatives, while encouraging
recipients to internalize reforms.

**Towards new management arrangements**

**Joint management as practised hithertoo with** **Lomé** **has revealed its limitations.**

It has hampered the effective management of disbursements andhas discouraged the
internalization of reforms or development programmes by their beneficiaries. It should
therefore be overhauled. **What are the alternatives that will ensure both sound**

**management of resources and the assumption of responsibility by the recipients, a**
_**sine qua non**_ **for more effective aid?** One possibility is a differentiated, progressive
approach that would enable us to find the most appropriate management method on a
case-by-case basis, using criteria such as quality of policy dialogue, progress in
implementation, the relative shares of Community aid vis-à-vis the national resources and
the existence of machinery to coordinate external aid in the recipient country.

The Commission reiterates its recommendation that the European Development Fund
(EDF) be incorporated in the Community budget. [11] "Budgetization" would give true
Community status to the aid managed by the Commission and make for beneficial
synergies between different EU policies. Similarly, EIB lending to ACP countries could
then be subjected to the same procedures as used for its operations in other non-member
countries, especially in respect the replenishment of the guarantee fund for external
operations.

Budgetization of the EDF, which has been repeatedly proposed by the
Commission, is not broached as such in this Green Paper. This issue will be
discussed at the same time as the financing of a future partnership. See on this
subject "Report on arrangements and possibilities for budgetizing the European
Development Fund" (SEC(94) 640 final).

xv

_WÊÊfëm_

_**PART I A WORLD IN TURMOIL**_

**CHAPTER I. GLOBAL CHANGES AFFECTING ACP-EU RELATIONS pp 1-8**

A. The international context and its consequences for the ACP countries and Europe
B. The external action of the Union and development cooperation policy
C. The Union's development role

**CHAPTER** **H.** **THE EXPERIENCE OF ACP-EU COOPERATION pp 9-20**

A. Relations between the Union and the ACP countries: their origins and subsequent
development
B. Successes and failures of cooperation under the Lomé Convention
C. Implications for future partnership

**CHAPTER HI.** **SOCIO-ECONOMIC CHANGE IN ACP STATES: LIMITING**
**FACTORS AND POTENTIAL pp 21-36**

A. The vicissitudes of economic policy in a deeply uncertain climate
B. Anticipating risks and exploiting potential
C. Implications for the future partnership

_**PART TWO: A BLUEPRINT FOR ACP-EU**_

_**RELATIONS AS THE 21st CENTURY APPROACHES**_

**CHAPTER IV.** **TOWARDS A NEW PARTNERSHIP pp 37-47**

A. The place of the ACP-EU partnership in the European Union's external policy
B. Revitalizing the ACP-EU partnership by strengthening its political dimension
C. Opening up the framework of ACP-EU cooperation
D. The geographical cover of cooperation agreements: options
E. The European partners and coordination: options

**CHAPTER V.** **OPTIONS FOR A NEW EU COOPERATION POLICY WITH**
**THE** **ACP STATES pp 48-68**

A. The socio-economic dimension

B. The institutional dimension

C. Trade and investment

**CHAPTER VI.** **OPTIONS FOR A NEW PRACTICE IN THE FIELD OF**
**FINANCIAL AND TECHNICAL COOPERATION pp 69-76**

A. A single source of funds or multiple smaller sources?
B. Should aid be granted according to need or according to merit?
C. Types of aid

_**AO>**_

D. Co-management, EU-only management or autonomous management by recipients
themselves?

**FOLLOW-UP TO THE GREEN PAPER** p 77

Box 1. Definition of the evaluation criteria applied by the European Commission
p. 13a
Box 2. Developing countries: social indicators by region p. 22a
Box 3. ACP trade strategies p. 31a
Box 4. The Caribbean - prospects for regional integration p. 32a
Box 5. Discussion of the trade options p. 65a.

**TABLES AND GRAPHS**

_**Chapter I**_

_**PART I A WORLD IN TURMOIL**_

CHAPTER I. GLOBAL CHANGES AFFECTING ACP-EU RELATIONS

A. The international context and its consequences for the ACP countries and
Europe

Unprecedented changes have occurred on the international scene since the beginning of
ACP-EU cooperation, the scale of which is illustrated by:

1. Economic globalization and interdependence

The growth of trade, the unification of capital markets and the globalization of production
and distribution networks represent both opportunities and new risks for Europe and the
ACP states.

The emergence of new motors of development in Asia and Latin America - itself a factor
of globalization - modifies both the geography of international growth and the direction
of private capital flows. Many countries which in 1960 were included among the world's
less developed states, often with large populations, now have greatly reduced poverty and
significantly improved human development indicators.

The new economic constraints are forcing all states and societies to adjust by
implementing radical reforms. EU countries must make their economies more competitive,
reform their social systems, and tackle the problem of declining social cohesion. High
unemployment, rising poverty and social exclusion are a major concern and may lead to
both countries and individuals to turn in on themselves. Budgetary constraints, linked
ultimately to the pressure of an ageing population on social security systems, do not make
the task of reform any easier.

The ACP states are only marginal players in global trade (2%) and international
investment flows (less than 1%). They must integrate more fully into global trade,
diversify their production base and their export outlets. As in other regions, regional
synergies and cooperation, both economic and political, would contribute to this process.

Action on a national scale appears increasingly inadequate as the growing interdependence
between the social and economic systems of various regions, the appearance of new
systemic environmental dangers, migration, terrorism, drugs, and international organized
crime, call into question the notion of national sovereignty. Global regulation is
progressing very slowly; it seems likely that the parallel trends apparent today - a stronger
multilateralism and regionalism - will continue.

2. The ever faster spread of technological innovation

The information society is a spectacular aspect of globalization, which could accelerate
change, reduce technological gaps and open new roads to development. Conversely, the

_**AC**_

_Chapter I_

lack of basic infrastructure in the poorest countries, the concentration of production of
new technologies in certain industrialized countries and the possibility of a culturallymotivated rejection of these technologies risk widening the gap between poorer and richer
countries and increasing social inequality.

Europe is striving to be ultra-competitive in high-technology sectors. ACP countries must
create the right conditions for technology transfers and adapt new technologies to their
own needs. These two aims are complementary, as the notion of what constitutes
"advanced technology" is constantly evolving. The most advanced technologies can now
be used to solve problems in developing countries without a prior transition period.

Technology plays a crucial role in the quest for sustainable development. However, the
cost of protecting the environment may, in the short term, be in conflict with the aim of
increasing the competitiveness of ACP countries. It is imperative to reach international
agreement on clean technology and how to share the costs of environmental protection
between industrialized and developing countries.

3. Uneven demographic trends

The world population is growing at an unprecedented rate: from 2 billion people in 1930,
it reached 4 billion in 1975 and is close to 6 billion today. According to recent
projections, the figure will be near 8 billion in the year 2020. Should the entire world
population attain the standard of living and levels of consumption of industrialized
countries today (including certain newly industrialized countries), pressure on the
environment would become intolerable. Moreover, population growth is accompanied by
an increase in urbanization, especially in poorer countries.

The imbalance between the populations of the North and South will be reflected in the
balance of power in the multilateral system, especially if accompanied by economic
performance, as exemplified by Asia's new prominence.

While the global rate of population growth is expected to fall, sub-Saharan Africa is a
notable exception. This region still has very strong population growth (2.9% annually),
which is not easily compatible with the aims of sustainable development. Rising
urbanization is putting acute pressure on infrastructure and social services, especially
education. Getting to grips with urban development and managing the local environment
will increasingly be a prerequisite of political stability in Africa.

Massive inter-African migration is a factor promoting economic integration. However
these movements are often uncontrolled and may also become an important cause of
political risk and instability.

North-South migrationary pressures, especially between Africa and Europe, are likely to
rise considerably; this prospect underlines the relevance of development.

4. The end of the Cold War and the emergence of a multipolar world.

Economics plays an ever greater role in external relations, while the end of East-West
rivalry has rendered ideology-based support obsolete and given middle-sized nations more
influence and a degree of autonomy in foreign affairs. The direct responsibility of states

*** .**

_Chapter I_

for their internal and external security has been reestablished in both North and South.

The new geopolitical reality is taking shape as the coexistence of regional entities. Asia,
in particular, has become an economic player of the first order and is expected to
reinforce its political presence on the international scene in the years to come.

While the European Union is engaged in an important phase of stepping up the process
of integration, it is also transforming its identity. On the one hand, the events that led to
its founding are receding into the past; on the other, it is preparing to deal with the
fundamental questions posed by its eastward expansion, which will make the Union more
diverse and will call for special efforts to ensure the acceptance of its values of peace,
solidarity and cooperation.

In this new context, both for internal reasons and in order to respond to external demands,
the European Union will affirm its political standing by adopting a more effective, more
global common foreign policy. North-South relations will be one of the first strands of
this policy: Europe can thus affïrm its identity in adding a new dimension to the special
relationship between the Union and ACP countries. The end of the Cold War will give
a new strategic and security dimension to development cooperation. At the same time,
Europe will be shouldering new tasks which will increase its economic responsibilities in
fields other than development. Development policy and multilateral trade policy should
be consistent and seen as two facets of the Union's external identity.

**B.** **The external action of the Union and development cooperation policy**

1. Development cooperation: a cornerstone of coherent external policy

The Union's external policy has three main components:

the common commercial policy, based on uniform principles, especially with
regard to the conclusion of tariff and trade agreements and measures to protect
trade: the Union has adopted a broadly liberal overall policy centred on
compliance with multilateral obligations, the building of a better-managed
multilateral system, and on the active pursuit of wider access to external markets; [1 ]

systematic cooperation and joint actions in foreign policy, centred on the aims of
peace and security, consolidation of democracy and the rule of law, and human
rights and fundamental freedoms;

development cooperation: support for sustainable economic and social
development of the developing countries, especially the most disadvantaged among
them, their smooth and gradual integration into the world economy and the
campaign against poverty. According to the terms of the Treaty, Community

See Commission Communication on "A Market Access Strategy for the European
Union (COM (96) 53).

_Chapter I_

policy in this area should contribute to the general objective of developing and
consolidating democracy and the rule of law, and that of respecting human rights
and fundamental freedoms;

A number of other Union policies are closely linked to external affairs, especially
environment, agriculture and fisheries, science and research, the information society and
the harmonization of standards for the internal market.

In all these fields, the Union pursues aims which respond to specific concerns.

Development cooperation makes a large contribution to the coherence of the Union's
external actions in that its aims ultimately complement the Union's political and
economic objectives:

the aim of development is to achieve sustainable economic progress and social
equilibrium - aims that underlay the setting-up of the European Union.

development should help solve global problems (environment, population,
epidemic diseases, trafficking) by making it possible for developing countries to
help manage these problems;

development cooperation, specifically the role Europe plays in poorer countries,
enhances Europe's image around the world. Europe cannot be accused of
commercialism at a time when market shares in emerging economies are hotly
contested. In practice, European producers will benefit in the medium or long term
from increased prosperity in partner countries with fast-growing populations.
Another factor to take into account is that ACP-EU relations embrace four

continents, thanks to which European economies are well-placed vis-à-vis
emerging regional blocks in sub-Saharan Africa, Latin America, Asia and the
Pacific;

the political aspects of development (democracy, human rights, fundamental
liberties, rule of law), its social benefits (better living conditions, preventing the
disintegration of the social fabric), and its environmental concerns (conflicts and
food deficits due to water shortages and soil degradation) meet some of the
security concerns of the EU (risk of armed conflict, spread of nuclear weapons,
terrorism, migration). Moreover, regional and global economic integration, which
the Union supports, contributes significantly to stabilization.

Development cooperation is an important part of the Union's external policy.
Nevertheless, it must retain enough autonomy to meet the Union's own long-term needs,
which require continuity. Cooperation may contribute to the aims of foreign policy but
must not be ruled by them. The explicit ties between various strands of external policy
are governed by the principle of consistency.

2. Development aid: loss of legitimacy and the demand for efficiency

_Chapter I_

**During the** **1980s** **various factors contributed to a general feeling of disillusionment with**
**the actual results of development aid: the budgetary constraints of donor countries; rising**
**unemployment and the worsening of social problems in industrialized countries, with the**
**consequent tendency to turn inwards; the perception that, in comparison to trade and**
**investment, aid had played a marginal role in the economic success of certain Asian and**
**Latin American countries; finally, the evidence that despite certain remarkable results,**
**such as improved health, education and access to drinking water, many countries in**
**sub-Saharan Africa, recipients of substantial aid and cooperation resources, had fallen**
**behind and remained on the margins of global economic and technological development.**

**This negative reaction to cooperation has been further exacerbated by rising violence, the**
**spread of fratricidal wars, the bankruptcy of many African states in recent years, the**
**perception that corruption was endemic and aid was being siphoned off by powerful**
**elites.** **Repeated crises have increased substantially the number of humanitarian operations,**
**which divert resources from development budgets; these interventions have also led to**
**a certain confusion between emergency aid and more long-term aid, and between**
**humanitarian and socio-economic needs.**

**Faced with the downward pressure on development** **aid** **budgets, but also aware of the**
**extent of extreme poverty and the threat it represents in terms of instability and potential**
**conflicts, today's partners in cooperation have no alternative but to reexamine the criteria**
**governing the allocation and management of aid in order to achieve a better and more**
**efficient use of available funds.**

**Apart** **from** **the need to improve results, development thinking itself has moved on. Global**
**economic changes (liberalization, technological progress, emerging economies) and the**
**lessons from the success stories of Asia, Latin America, or Africa, have radically**
**modified the philosophy of development. This is especially true of perceptions about the**
**role of the state and relations between public and private actors.**

**Another factor contributing to the overhaul of cooperation is the end of the Cold War:**
**the new political openness has allowed the emergence of** **a** **wide consensus on the**
**principles of democracy** **and** **the market economy. International political dialogue has**
**become deeper and richer** **by** **"incorporating the experiences of new participants. Since**
**1990,** **the great international conferences on the environment, human rights, population,**
**social development, the role of women, and food security have demonstrated that very**
**dissimilar** **countries** **can agree on common values and principles concerning essential**
**issues for development.**

**These** **processes** **have already led to important changes in the concepts of** **aid** **and its role**
**in development, which have been partly incorporated in the ACP-EU cooperation policy.**
**These changes fall within four main categories:**

**an enhanced political dimension (resolution of 28 November** **1991** **and revised**
**Article 5 of** **Lomé** **IV: human rights, democratic principles, rule of law and good**
**governance);**

_Chapter_ _I_

stronger ties between relief, rehabilitation and development aid; [: ]

the formulation of new approaches concerning the role of aid and a redefinition
of the parties' respective roles: emphasis is placed on the policy environment,
local capacity building, the role of civil society, and on new ways of including
other agents of development, especially in the private sector;

a change in priorities, by reducing intervention in productive sectors and
integrating relatively new themes:

(i) new ways of supporting social development (budget aid and securing social
expenses), taking into account more systematically the impact of cooperation on
poorer groups and greater emphasis on the role of women, demographic issues,
education and training;

(ii) actions in favour of environmental protection, the management of natural
resources, and sustainable development: they involve environmental impact studies
in all projects as well as financing for specific environmental programmes and
projects;

(iii) the creation of an instrument for structural adjustment support at
macroeconomic and sectoral levels;

(iv) institutional reforms, development of administrative capacity, building civil
society, development of a more participatory approach, and decentralized cooperation;

(v) a new conception of the economic role of the state, policies to foster private
sector development, and support for trade development.

These changes are expected to increase the effectiveness of development policies.
However, it is too early to assess their real impact.

**C.** **The** **Union's development** **role**

As a force for stability, a model of cooperation and regional integration, a leading trading
power and the largest single source of official development assistance, the Union has a
major role to play in the development of less fortunate regions.

The Union can contribute in five main ways:

Through its active participation in the multilateral system, in the fields of security,
trade and investment, economic and monetary cooperation, the Union's actions
have an appreciable impact in the developing countries. The Union's longstanding concern to see the less developed countries integrated into international
trade is now a key consideration in its dealings with the ACP countries.
In view of the general principle that Community action should be consistent and
sustained, the Union is duty-bound to ensure that the developing countries are able

COM (96) 153 of 30 April 1996 "on linking relief, rehabilitation and
development".

_Chapter I_

to benefit from the process of European integration. Access to the single market,
soon to be completed by the move to a single currency, and the prospect of
enlargement, which brings with it a risk of deflection of trade and investment as
well as new trading opportunities, are key aspects of any European policy towards
other regions.
The Union stands out among multilateral institutions involved in development
issues (the World Bank, IMF, regional development banks, etc.) because it alone
is a political entity. The Union has the political clout needed to back an equitable
and sustainable development model consonant with its own fundamental principles
and the socio-cultural values underpinning its vision of society. The importance
it attaches to human rights, social values, education and training and the
preservation of the environment combine with its firsthand experience of
underpinning the liberalization of trade with carefully designed structural policies,
and its efforts in the field of regional cooperation and integration to make it a
unique force in the development field.
The Union must make full use of its capacity to mobilize enough aid resources to
achieve critical mass and engage in aid policies pursuing long-term objectives.
Compared with other donors - now that US aid budgets have been slashed - the
Union is a major source of official development assistance: with the volume of
international aid in sharp decline since the early 1990s, the share of the total
accounted for by the Union (Community and Member States) is increasing all the
time (53% in 1995).
Lastly, by continuing its internal coordination efforts in application of the
principle of complementarity between the Community's development policy and
the Member States' bilateral policies, [3] the Union can give a fillip to coordination
efforts by the international donor community in various forums (the UN, OECD,
G7 initiatives to strengthen coordination between the multilateral institutions, the
Special Programme for Africa, consultative groups, round tables, etc.). Greater
coordination in respect both of global initiatives and individual recipient countries
is now crucial to improving the effectiveness and efficiency of aid policies.

The renewed momentum recently given to the European project must, at least in part, be
ascribed to Europeans' efforts to deal with the major changes in world affairs described
in this opening chapter. Still far from over, this acceleration serves two objectives: to
enhance Europeans' capacity for action within a political union and to show democratic
solidarity with the countries of central and eastern Europe. To endorse these two
objectives, which are central to the present Intergovernmental Conference (IGC), is to

See the Council's conclusion of 25 May 1993, the resolution of 2 December 1993
on procedures for coordination between the Community and the Member States,
and the various resolutions since adopted with a view to strengthening
coordination between the Community and the Member States in different areas of
development policy (poverty, health, food security, education, AIDS, equality of
the sexes etc.). See also the Commission's final report on the pilot scheme to
strengthen operational coordination between the Community and its Member
States (COM(95)700), on which the Council adopted conclusions on
28 May 1996.

_Chapter I_

recognize, in a way, the need in future for a European development policy: Europe cannot
claim to be a player on the world stage without a responsible strategy towards the
different regions of the South, and in particular those most at risk of poverty and
marginalization. It cannot pride itself on its solidarity with Eastern Europe's fledgling
democracies without confirming a partnership with countries feeling their way towards
a just society founded on fundamental human rights.

_Chapter II_

**CHAPTER II. THE EXPERIENCE OF ACP-EU COOPERATION**

**A.** **Relations between the Union and the ACP countries: their origins and**
**subsequent development**

1. The evolution in Europe's political relationship with the developing world

Community development aid policy has its roots in the association of the overseas
countries and territories in 1957, the result of a compromise between Member States
advocating a global approach to development and those arguing for a special relationship
with Africa.

Association was designed as a broad strategy encompassing both trade arrangements and
development aid.

The fact that many countries gained their independence after the first five years of the
association arrangements laid down in the Treaty did not bring any fundamental change
in the thinking behind cooperation. The Member States, moved by solidarity and a wish
to assume their responsibilities as much as by a concern to defend their economic and
geopolitical interests in the age of the Cold War, and the newly independent countries,
which wanted to go on receiving trade preferences and funding for development projects,
decided to continue their cooperation in the framework of the two successive Yaounde
Conventions (1963-69 and 1969-74), which were a natural follow-up to association.
During the 1957-74 period of Euro-African relations, the lion's share of Community aid
went to the French-speaking countries of sub-Saharan Africa.

In the mid-1970s the international situation, the desire of several Member States to
develop a global aid policy and the accession of the United Kingdom combined to bring
about a radical shift in Community aid policy. European anxiety at the first oil crisis, i.e.
a fear of raw material shortages and a desire to hold on to valued overseas markets,
united with geostrategic interests and a residual sense of responsibility for the colonial
past to produce the first partnership agreement between the Community and the ACP
countries.

Signed in 1975, the first Lomé Convention was open to the African members of the
Commonwealth, some Caribbean and Pacific countries, and other countries of sub-Saharan
Africa wishing to take part in these first group-to-group negotiations. There were 46
ACP countries in all.

Meanwhile, Europe was embarking on cooperation with other regions of the world. The
latter half of the 1970s saw the conclusion of the first agreements on trade, financial and
technical cooperation with Mediterranean non-member countries along with the emergence
of a policy on aid to the developing countries of Asia and Latin America, a policy that
_\_ has been developing steadily and becoming increasingly structured ever since. _,_

The growing importance of food aid, most of it for countries outside sub-Saharan Africa,
has been a further reflection of the globalization of Community aid policy since the
1970s.

_Chapter II_

Successive changes within a framework unaltered since 1975

The first Lomé Convention was at the time a unique example of international cooperation.
The principle of partnership has been at the very heart of the Conventions that have
bound the Community and the ACP countries since 1975. It reflects an approach to
cooperation based on reciprocal commitments in pursuit of shared objectives. Principles
such as collective negotiations (between the two groups of countries and covering several
aspects of cooperation), the dialogue with individual ACP countries made possible by the
joint institutions and the contractual and predictable nature of the funding provided have
become the foundation of European aid policy under the Lomé Conventions.

Successive Conventions have enabled the partners to adapt aid objectives and instruments
without ever questioning the overall framework or the strategy pursued. These
adjustments have nevertheless provided an opportunity to draw practical lessons from the
successes and failures of the past, and to incorporate, at least partly, the intervening
changes in development thinking. Aid policy under Lomé has evolved to reflect:

the changing perception of the state's role: Once considered the only force able
to raise the capital necessary for economic development, its role is now seen as
being to establish and maintain a legal and administrative framework guaranteeing
fundamental rights and freedoms, to provide essential social services and to foster
the development of private enterprise. The nature of the Convention has not,
however, changed: the state remains practically the only partner in the aid context,
apart, since 1976, the cofinancing with NGOs and a limited number of
decentralized cooperation schemes under Lomé IV.

the shift away from an approach to industrialization based on import substitution
to one geared to export-led growth.

Since the Pisani Memorandum, there has been an increasing emphasis on policy dialogue,
with a shift from aid focused mainly on project financing to technical and financial
assistance for sectoral policies.

The innovations that have given the Lomé Convention its pioneering character include the
system for offsetting losses of export earnings introduced in the 1970s and, more recently,
1990's negotiated approach to structural adjustment. Regardless of their future relevance,
both instruments were applications of the latest in development thinking at the time. With
the end of the conflict between East and West, the Convention was also one of the first
cooperation agreements to acquire an explicitly political dimension in the shape of the
human rights clause, which, since 1995, has been extended to encompass the application
of democratic principles, the rule of law and good governance.

The alterations made to conditionality in the revised fourth Lomé Convention and the
principle of two-tranche programming, which limits the automatic nature of programmable
aid allocations, also reflect a major change in the Community's approach to aid policy.

10

_Chapter_ _II_

The need to review the overall framework

As the 21st century nears, the Union must redesign its aid policy towards the ACP
countries from scratch, not only as a result of changes in the economic and political
conditions governing development or rapid development in other regions of the world but
because Europe's motives are no longer the same. The colonial and post-colonial age is
over, and a more open international political climate means that the partners' respective
responsibilities can be defined less ambiguously. It is in this context that a critical
examination of past cooperation can offer constructive guidance for future policy.

**B.** **Successes and failures of** cooperation **under the** Lomé **Convention**

1. Patchy results

While aid is a major source of income for many ACP countries, it is difficult to
determine its impact and effectiveness in terms of improvements to a country's economic
and social conditions. Trends in these conditions are the result of a wide range of
exogenous and endogenous factors, chief among them being the country's own economic
and social policies, which aid can influence but not ultimately supplant.

Some studies suggest that the aid allocated by the donor community to ACP countries has
probably had a beneficial but limited effect on growth, investment and the improvement
of health indicators, and that this effect has varied appreciably from country to country
according to the initial situation and economic policy conditions. [4] Aid has been markedly
more effective in those countries that started out with the least capital and human
resources, and in countries that have embarked on stabilization policies and structural
adjustment programmes.

Community aid accounts for a major share of all the aid received by the ACP countries
since the 1960s. The Community is today one of the ACP countries' three main sources
of aid, [5] and offers these countries the most generous system of trade preferences. The
Lomé Convention has undoubtedly been a unique framework for cooperation between two
groups of countries. Its main advantages lie in the fact that it has been a testbed for
development aid, that it has provided a negotiated framework for the drafting of a corpus
of shared principles and objectives, and that it has mobilized considerable - and almost
entirely concessional - funding, without which many practical schemes could not have
been carried out. The predictable nature of European aid - part of a long-term partnership

- encouraged the governments of the recipient countries to embark on long-term
transformations.

"Effectiveness of Overseas Aid Flows", P. Mosley and J. Hudson, 1996. This
study, which covers a sample of 29 ACP countries accounting for 80% of the
group's total population, analyses the impact of international aid over a period of
thirty years.
In sub-Saharan Africa Community aid currently accounts for about 10% of aid
from the OECD area. When aid from the Member States is counted, the Union
accounts for over 60% of total aid to the region.

11

_Chapter II_

Twenty years' experience, however, shows the Convention to be an ambitious but
sometimes unrealistic framework based on assumptions about the ACP countries'
institutional and political capacities that have not been fulfilled. Thus, the respect for
national sovereignty that once took the form of an almost boundless trust in the recipient
governments is evolving into an approach guided by considerations of efficiency. The
automatic granting of a great proportion of financial resources has undermined the
political dimension of Community aid: it has not been conducive to frank discussion of
the way in which resources are used. Conditionality in its present form and the policy
of substitution that all donors tend to pursue appear difficult to reconcile with the real
political commitment expected of the ACP governments, a commitment which would
enable them to assimilate reforms and sectoral strategies and assume political
responsibility for them in the face of growing public demands for transparency and
participation.

Any assessment of the experience of Community aid must hinge on a number of key
questions concerning the main difficulties encountered by the principle of partnership, the
effectiveness of financial and technical cooperation and the countries that have benefited
most, and the impact of trade preferences.

The answers to these questions are neither obvious nor unequivocal. They combine
political and economic aspects with the practical administration of aid.

2. The partnership experience

The principle of partnership enshrined in the Lomé Convention has diminished in
substance and has not been fully realized. It has tended to be restricted to the institutional
side of cooperation and the joint administration of aid resources.

At political, level, the relationship between the two partners has been increasingly
dominated by the dependence on aid, the needs of the moment and crisis management.

Economic and sectoral policy dialogue has proved difficult with partner countries that
have weak institutions and in many cases inefficient administrations. The practice of
conditionality has diminished the responsibility of the recipient governments, since the
conditions imposed (linked to the criteria applied by the IMF/World Bank) have
sometimes been too specific, too numerous or too rigid. In its eagerness to improve the
efficiency of aid operations, the Community has tended to take the place of its weaker
partner, adopting a more interventionist role that is hard to reconcile with the recognized
need to encourage the recipient countries to take charge of their own development
process. In an age of increasing political and economic liberalization, non-governmental
organizations, representatives of the private sector and other segments of civil society
have, for their part, expressed growing interest in direct participation in a partnership
from which, with the exception of the NGOs, they have felt excluded.

In the practical management of aid, the structure of instruments and the procedures for
the joint administration of resources have not always had the flexibility required to make
sure that aid operations accurately reflect political priorities.

12

_Chapter II_

3. The evaluation of aid policies

Since 1990, in the wake of the measures adopted by the Council on the evaluation of the
Union's aid instruments and programmes, [6] a series of studies have been launched
concerning projects, sectors, recipient countries or specific instruments. These evaluations
cover the whole of Community aid policy, not just cooperation with the ACP countries.
They have served to identify practical measures to improve the efficiency and
effectiveness of Community aid and to remedy a number of weaknesses. [7 ]

The overall evaluation of the European Union's development aid policies and instruments
launched by the Council in June 1995 is still under way. A number of points can,
however, be made on the basis of the sectoral or geographical studies available.

When considering the conclusions of evaluations, a distinction should be drawn between
improvements and adjustments that can be made within the present framework and those
that call into question the framework or its underlying principles, reflecting the Lomé
Convention's shortcomings as an aid instrument. Only the latter are of relevance to this
Green Paper.

One conclusion that emerges from most of the evaluations is that the **institutional and**
**economic policy situation** in the recipient countries has often been a major constraint,
reducing the impact of aid operations. Even though a great number of projects financed
by the Union have proved apposite and effective, which is the case of the majority of
infrastructure projects and social schemes, they have not automatically led to
improvements in the country's development indicators. Without incentive policies,
dynamic sectoral institutions and sufficient funding to cover operating and maintenance
costs, the viability of the results of aid remains precarious. This fact, which concerns all
the donors, is reflected by a tendency for international aid to focus on the countries that
seem best able to use it effectively, which at the moment are those undergoing structural
adjustment.

The **geographical breakdown** of Community aid, like that of the other donors, reflects
this concern about the way resources are used: resources are directed away from countries
in which political conditions fall short of basic requirements and towards countries
undergoing structural adjustment. At the same time a criterion based on an assessment
of relative need is applied when allocating programmable resources: over and above the
general priority accorded to the least-developed countries, priority is accorded to the
poorest countries (according to indicators such as per capita income, life expectancy and
literacy rates), to island or landlocked countries But the overall country breakdown of

See Council Resolutions of May 1989, May 1990 and May 1992, the declaration
of 24 November 1994, and the document adopted on 1 June 1995 laying down the
procedures and organization for the evaluation of the European Union's
development instruments and programmes.
Measures adopted to this end include the use of the logical framework for
examining projects and the negotiation of frameworks of mutual obligations for
the use of Stabex funds.

13

**Box 1. Definition of the evaluation criteria applied by the European Commission** **[1 ]**

N.B.: These criteria correspond broadly to the criteria defined by the OECD's Development
Assistance Committee when drafting its "Principles for effective aid". The distinctive feature
of the Commission's approach is to put the stress on the whole the context of the
programme, its development over time and the consequences for the conduct of the aid
programme. The criterion of pertinence, for example, takes account of government policies,
operations by other donors, etc. Effectiveness is measured not only in relation to the
anticipated results and the situation of the beneficiaries, but also to any unexpected results.
Efficiency is not just a question of cost/benefit analysis but also a function of the
organizational, management and monitoring framework. Lastly, the criterion of impact
covers qualitative as well as quantitative aspects too.

Pertinence

**The pertinence of a programme or aid measure stems from the relationship between**
**the problems to be solved and the objectives of the programme.** It therefore includes
elements of the wider physical and political context (macroeconomic and sectoral policies)
and more specific factors (diagnosis of the problem, project beneficiaries and parties
involved). The (explicit and implicit) policies of all those involved in implementation
(governments, EU, other donors and interest groups) are taken into consideration.

Efficiency

**Efficiency concerns the relationship between the activities carried out and the results**
**obtained.** The Commission takes the following factors into account: (i) a cost-benefit and/or
cost-effectiveness analysis **of** the project, principally in the form of comparative analyses of
different projects pursuing the same objectives, plus an analysis of the adequacy of the
budgetary resources allocated; (ii) an analysis of the project's overall and specific
organizational framework (prograrnming of activities, timetable, financial management,
technical assistance, etc.); (iii) an assessment of the methods used in the operation (degree of
involvement of beneficiaries, priority given to training, etc.); (iv) an assessment of
monitoring carried out by the government or by the Commission.

The above criteria are consistent with the terminology used for the "logical
framework" as defined in the "Project Cycle Management" manual, published by
the Commission in 1993.

_**A3QL**_

Effectiveness

**Effectiveness concerns the relationship between the results obtained and the specific**
**objective(s) of the project,** i.e. to what extent the results of the programme are those desired
and how much they have helped to meet the specific objectives or could do in future. It also
identifies the real beneficiaries of the programme.

Impact

**The evaluation of the impact of a programme concerns the relationship between the**
**specific and overall objectives of development,** at two levels: (i) the contribution of the
programme in question to the overall objectives assigned to it, and (ii) its contribution to the
general objectives laid down by the Treaty on European Union regarding poverty alleviation,
sustainable social and economic development and integration into the world economy.

Sustainability/reproducibiUtv

**Sustainability concerns the extent to which the results obtained can be sustained on**
**completion of the aid programme.** Sustainability is assessed in terms of economic and
financial aspects, socio-cultural integration, local institutional capacity, appropriateness of the
technology chosen, etc.

_**Mb**_

_Chapter II_

Community aid only partly mirrors these priorities. The methods used to calculate
payments under instruments such as Stabex and Sysmin, which have their own specific
allocation criteria, distort the overall targeting of aid.

Another factor to be borne in mind is that lack of pertinence and inefficiency are
sometimes a product of disagreement about the political priorities. The ACP countries
have often proved unable to establish consistent **sectoral policies,** and the Community has
tended to rely excessively on technical assistance consultants to determine the procedures
for the implementation of its aid operations. Moreover, in certain fields, e.g. the
environment, the ACP countries and the Member States may have very different concerns
and priorities. Policies in other sectors have often been drawn up according to approaches
laid down by the donors, and in particular the World Bank. In yet others, however,
among them health, which has attracted a growing proportion of Community aid under
successive Conventions, the Community has exercised increasing leadership: through
institutional and technical support, the Community has emphasized the development of
national health systems, with an emphasis on primary healthcare and access to essential
drugs.

The Union has also demonstrated that it can carry through major changes in direction, as
in the case of the recently adopted **food aid reforms.** These reforms, which are a
response both to growing problems of food security in sub-Saharan Africa and to the
relative inefficiency and adverse side-effects of the instrument used, mark a shift away
from a culture of assistance to one of development by supporting food security policies
in a number of priority countries.

For certain new objectives, e.g. the **development of the private sector,** which has
acquired increasing importance under the fourth Lomé Convention, Community aid is still
not as strategic as it should be, relying as it does on a body of instruments and operations
that lack the requisite consistency and complementarity. Projects fostering investment and
competitiveness through targeted support to firms remain few and far between, and those
there are need to mesh better with schemes to improve the institutional and economic
policy environment. In some, fields, such as support for regional cooperation and the
development of regional trade or for programmes to promote exchanges between firms,
the Community's backing is proving particularly apposite and effective.

4. The evaluation of financial and technical aid instruments

The efficiency and impact of Community aid are often undermined by the difficulties of
maintaining consistency between instruments which, even if they interact in closely
related areas, are governed by different criteria. Some recent Community measures born
of the results of the evaluations have, however, been designed to limit such drawbacks.
The reform of the food aid system, for example, should generate synergies with EDF
operations by placing a policy of food security in the wider context of efforts to alleviate
poverty.

14

_Chapter II_

(a) **Project aid**

The impact and efficiency of project aid, which now accounts for an appreciably smaller
share of overall funding, vary considerably from one sector to another. An evaluation of
335 projects started in the 1980s, for example, puts the efficiency rate of transport
projects at 70%, compared with only 30% for agriculture and rural development projects.
A number of inherent weaknesses in the instrument have, however, been identified:

Project aid tends to underestimate the importance of the macroeconomic
framework in ensuring a satisfactory impact in terms of improved living
conditions and a project's long-term viability.
It is inappropriate - and therefore ineffective - where there is no clear sectoral
policy. Indeed action of this kind can sometimes delay the reforms necessary by
masking the underlying constraints.
A widespread failure of governments and/or beneficiaries to internalize over
development projects also reduces their effectiveness, especially where
accompanying measures prove inadequate.
As with any other form of intervention, inadequate coordination between donors
appreciably reduces the overall effectiveness of aid projects.

**(b)** **Structural adjustment support**

The Community has become a major player in this field, providing the countries
concerned with 10-30% of their total adjustment aid. The Community differs from most
other donors, however, in that all this aid is provided in the form of grants.

Evaluations underline the relevance of this instrument, which enables the Community to
provide effective support for stabilization programmes and pursue broader objectives than
the more conventional programmes agreed by the governments with the IMF/World Bank:
besides macroeconomic stabilization and the conditions for the development of the private
sector, the priority accorded to priority sectors, and in particular education and health, is
highlighted by the targeting of counterpart funds.

There is, however, room for improving the impact of what is potentially one of the most
effective instruments, notably through:

a deeper policy dialogue, the scope of which could be substantially increased by
improved coordination within the Union;
greater consistency between structural or sectoral adjustment support and the use
of other instruments, which need to be better integrated into the overall strategic
framework negotiated;
support for budget programming and management in the recipient countries;
the clarification of conditions and the improvement of monitoring procedures and,
in the event of breaches, the practical repercussions thereof.

5. Commodities: the Stabex and Svsmin compensation systems

15

_Chapter II_

While the need to provide special support for restructuring in some sectors is not
necessarily in question, a series of factors render these two instruments ill-suited to the
present context:

There has been a considerable change in the thinking that lay behind the
development of this kind of aid, particularly concerning the role of the state in
setting producer prices for commodities;
The criteria governing eligibility, which depends on fluctuations in export
earnings, and the initially automatic nature of payments have been much criticised
because they can delay reforms.
Sysmin and Stabex resources are best used for the purposes of diversification in
the course of macroeconomic and sectoral reform. Their increasing use to
promote reform in sectors recording losses of earnings places these instruments in
the same sphere as the structural adjustment facility.

The introduction of frameworks of mutual obligations (FMOs) under Lomé IV marks a
considerable improvement, since it imposes a systematic effort to use resources as
effectively as possible. The slowness of disbursement remains a major handicap,
however, and one that must be remedied.

6. The impact of trade preferences

Three key principles underpin the Lomé trade preferences: (i) stability: preferences are
granted for long periods, i.e. the fourth Lomé Convention is a 10-year agreement
(1990-2000); (ii) contractualitv: preferences are jointly agreed, they cannot be modified
unilaterally by the EU, and (iii) non-reciprocity: the ACP countries are not obliged to
extend reciprocal preferences to EU exports.

Stability and contractuality are key elements of the Lomé trade preferences, since they
provide a degree of security of access for ACP countries' exports to EU markets
unmatched by any other existing non-reciprocal preferential arrangements such as the GSP
schemes, thus reducing the inherent risks for economic operators in investing in exportoriented activities.

The Lomé trade preferences have provided, and still provide, important value to the ACP
group in the sense of increasing the profitability to ACP exporters of sales on the EU
market. Beyond the general offer of complete duty-free access for manufactures and
processed products, and in particular the exemption from MFA disciplines of the
preferences granted for textiles and clothing, individual ACP countries have benefited
from the generous prices and guaranteed access for specific quantities within the Lomé
commodity protocols (bananas, sugar, beef and veal, and rum) as well as from relatively
liberal rules of origin. Revenue from the protocols accounts for a significant share of
eligible countries' incomes.

The value of the Lomé trade preferences has, however, declined, and stands to suffer
further erosion, as a result of multilateral liberalization (with the implementation of the
Uruguay Round agreement), pre-accession arrangements with the Central and Eastern
European countries, and the surge in EU-centred, regional trade arrangements.

16

_Chapter II_

Furthermore, as regards impact, in general the Lomé trade preferences have not been
sufficient to enhance export growth and increase diversification. A simple glance at the
statistics (see tables) seems to confirm this assessment. ACP countries' export
performance and their performance in attracting foreign direct investment (FDI)
deteriorated during the period in which they most enjoyed those preferences.

During the course of the Lomé Conventions the ACP countries failed to increase or even
maintain market share in the EU, while less preferred exporters were able to raise their
market share. The EU market remained relatively important for the ACP countries, which
still depend on the EU for about 40% of their export earnings. Dependency on trade with
Europe varies among ACP regions, being higher for Africa (46%) than for the Caribbean
and the Pacific (18% and 23%, respectively).

In comparison with developing countries as a whole, the ACP countries have also
recorded a much more modest overall trade performance during the last decade. Neither
have they managed to diversify exports significantly and most still rely on a few primary
products. [8] FDI to African ACP countries doubled as a percentage of GDP between the
mid-1980s and the early 1990s, to 1.2%. However, compared with other developing
countries, Africa's share of FDI dropped from 6% to 4% of all FDI to all developing
countries excluding China. Furthermore, most FDI to Africa is concentrated on the
oil-producing countries.

However, individual success stories of export growth and diversification exist. Several
exports that have enjoyed a relatively large preferential margin in terms of tariff
preferences or exemption from quotas have expanded. A few countries, in particular those
making the fullest use of preferences, have been able to attract significant amounts of
FDI. Those ACP countries which have managed to diversify their exports into
non-traditional products or benefited from the Protocols, such as Mauritius, Botswana,
Côte d'Ivoire, Jamaica, and Zimbabwe, have gained from the Lomé preferences.

The reasons for ACP countries' poor overall export and growth performance, despite the
breadth and depth of the Lomé preferences, are varied. Lack of critical factors such as
infrastructure, shortage of entrepreneurship, low levels of physical and human capital, low
levels of savings and investment and undeveloped financial sectors, on the supply side,
have limited the benefits that could be derived from the preferences. High dependency
on a few basic commodities subject to high price fluctuations and substantial deterioration
in the terms of trade are important explanatory factors as well.

Furthermore, it is now widely believed that beyond political stability, which is a
fundamental precondition for growth, and initial endowments, sound policies play a major
role in influencing exports and growth. Macroeconomic stability, realistic and stable
exchange rates, good institutions and good governance, and efficient resource allocation
policies, in particular stable and credible import and taxation regimes, as well as reduced
trade protection, which allow a transparent transmission of world price signals to domestic
producers, are significant determinants of competitiveness and hence of export

8 ACP States still derive over 80% of their total export earnings from commodities.

17

_Chapter II_

performance. These supply-side factors are now considered much more important than
trade preferences in achieving high rates of export and economic growth.

ACP States as a group, and many sub-Saharan African countries in particular, have failed
to meet those preconditions for achieving export-led growth. Being weak, because of poor
initial endowments, they have also failed in respect of the policy-mix adopted, or, when
they have adopted the right one, they have been weak on implementation, and have
frequently reversed their policies. As a consequence, sub-Saharan African countries'
economic policies and policy reforms have suffered from very low credibility in the eyes
of economic operators, domestic as well as foreign. This has undermined and blunted not
only the supply response to trade preferences, but also to any prospective policy reform.

Finally, the legal battles fought by the EU and the ACP countries in the GATT following
the setting-up of the single market for bananas led the European Community in 1994 to
seek a "waiver" for the trade package of the Lomé Convention after a panel (non adopted
by the GATT Council) found the Lomé Convention inconsistent in respect of the GATT
due to non-reciprocity (which excludes the Convention from being considered a free trade
agreement), and to discrimination vis-à-vis other LDCs, which means it is not covered by
the enabling clause allowing GSP schemes.

The fact that the waiver only extends until the end of the present Convention, that it must
be reviewed annually and that issues linked to the banana trade arrangements applied by
the EU are still not solved, has undermined the principles underpinning the Lomé trade
preferences, in particular those of non-reciprocity and stability. The security attached to
those preferences has been accordingly reduced.

C. **Implications for future partnership**

The main conclusion to be drawn from this critique of past policy is that the need to
achieve results is becoming the driving force of Community development cooperation
policy. Major reviews are under way in a number of areas, taking on board the results of
evaluations aimed at improving the efficiency and impact of Community aid. The claim
that Community development aid is peculiarly inefficient appears to be quite unfounded;
no objective comparative study supports it. All aid donors are confronted with the need
to review operations regularly and seek ways of maximizing the impact of their
programmes. An evaluation of key factors limiting the effectiveness of ACP-EU
cooperation under the Lomé Convention should enable us to pinpoint factors contributing
to greater success. The following questions will need to be addressed:

the foundations of future partnership. The attempt to turn the Lomé Convention
commitment to partnership into an everyday reality impinged upon its general
effectiveness, with the result that the EU tended to adopt unilateral, interventionist
approaches that were not conducive to ACP internalization of development policies or to
each side accepting its own responsibilities. The tendency to step in to assume the
development partner's responsibilities may be quite understandable in transitional phases,
but it is no guarantee of efficiency, nor is it a viable proposition in the long term. It is
a vicious circle, which needs to be broken by making a renewed commitment to
partnership - viewed this time as an objective to be achieved rather than a ground rule.

18

_Chapter II_

This will require a new policy foundation and more effective dialogue, backed by a
commitment by ACP governments to reform. It will also require greater flexibility in
implementation;

the EU's priorities and resource allocation criteria. If no clear priorities can be
discerned from the breakdown of resource allocation by country over the last few decades,
it is largely because the various instruments created have all added their own specific
goals to the list. In its mid-term review of the fourth Lomé Convention, the EU
committed itself to two priorities: focusing on the poorest countries, in accordance with
the Treaty, and creating conditions for more efficient resource utilization. The new
partnership must address these priorities, and ways of putting them into practice;

aid conditionality and selectiveness. The problem of Community resource
allocation criteria leads us on to the conditions attached to aid programmes. The effect
of "conditionality" is to give more weight to performance-related criteria in resource
allocation, but a consistent, universal approach to the issue has yet to be defined. There
should, no doubt, be some scope for discretion in applying conditionality, in order to
leave more to the initiative of recipient countries and emphasize their responsibilities. The
way in which the Community addresses these issues will ultimately determine the degree
to which Community aid is selective;

   - capacity building. The evaluations concluded that it was vital to systematically
identify any limitations in the recipient countries' institutions or economic policies which
might make a development project less likely to succeed, and consider ways of
overcoming them. That being so, the EU should surely consider giving higher priority to
improving ACP States' institutions and their ability to conceive, implement and sustain
economic and sectoral policies over a period of time. It should certainly consider building
up their forecasting and planning capacity, although it raises political as well as strictly
institutional issues;

a new trade chapter. While the trade preferences enshrined in the Lomé
Convention have a significant value, not only in terms of concrete concessions but also
as regards the basic principles underpinning the trade partnership between both parties(non-reciprocity, stability and contractuality), it is widely considered that, in general, the
impact of the Lomé trade preferences has not been sufficient to enhance growth and
increase diversification.

Some of the trends and features of the new global context, such as multilateral and
regional liberalization, will have to be taken into account - in particular the need to
comply with WTO rules.

More weight will need to be given to structural features of trade development, conditions
for product diversification, and the creation of favourable conditions for export growth.
Trade preferences are not sufficient in themselves to promote growth and diversification,
although they provide opportunities that may tempt businesses and other economic players
to develop particular product lines as part of a particular strategy. A broader approach to
trade cooperation, linked to operations to support structural adjustment and the private
sector, and reflecting ACP countries' need to create political and institutional conditions

19

_Chapter II_

conducive to foreign investment, should help improve their ability to take advantage of
trade preferences and, moreover, to diversify their external economic relations;

rethinking aid and aid instruments. The impact of Community aid is less than the
sum of its parts because of the way the Community has accumulated aid instruments, each
one with its own rationale. Adopting a thematic approach and refocusing Community
assistance on sectoral policies and agreed reforms should help make aid more efficient
and increase its impact on economic and social conditions in ACP countries. Project aid
should only be maintained within a specific institutional and policy framework, to tackle
clearly identified, specific problems, where a transfer of know-how is needed. It should
therefore improve targeting and speed up agreed reforms across the board or on a sectoral
basis;

the need for coordination. All the evaluations agree on one point: better liaison
between donors, especially as regards policy dialogue, would improve the impact of many
development operations.

**20**

_Chapter III_

CHAPTER IK. SOCIO-ECONOMIC CHANGE IN ACP STATES: LIMITING

FACTORS AND **POTENTIAL**

A. The vicissitudes **of economic** policy **in** a deeply uncertain climate

1. Socio-economic performance: uneven, but generally disappointing

In the last two years, the economic situation has improved appreciably in a growing
number of ACP countries. This - as yet fragile - recovery may yet prove lasting, with
knock-on effects on other countries, provided that they continue to improve their
economic policies.

Over the long run, however, the performance of ACP countries as a whole has been
disappointing and generally inferior to that of other developing countries, particularly in
**sub-Saharan Africa,** the region with the greatest problems at present. There is no
shortage of indicators to support this assertion:

Per capita GDP in sub-Saharan Africa grew by an average of only 0.4% a year
between 1960 and 1992, compared with 2.3% for developing countries as a whole. This
figure reflects both markedly lower economic growth (3.3%) and higher population
growth (2.9%). The gap between per capita GDP in sub-Saharan Africa and that of other
countries has since widened to 1:4, and on current trends is likely to widen further to 1:6
within 15 years.

.The region's low growth makes its continuing poverty problems all the more
worrying; it scores extremely badly on income, health, nutrition, education and access to
drinking water. On the most commonly used measure of poverty, per capita
income/consumption, the World Bank estimates that 1 300 million people live below the
poverty line, of whom 515 million are in southern Asia and 220 million in sub-Saharan
Africa. [9] Poverty is particularly widespread in sub-Saharan Africa, where the average
income of the poor is 15% below than the poverty line. Despite important recent advances
in assessing social development (by the UNDP and the World Bank in particular), it is
difficult to grasp the reality of such poverty and in particular to assess the dynamics of
it, given the lack of reliable long-term data series for many countries. Available estimates
suggest that between 1987 and 1993, the incidence of poverty remained fairly steady at
39% of the population; there were marked improvements in some countries, such as
Nigeria, Ghana, Tanzania and Ethiopia, while in others the situation worsened, sometimes
dramatically so.

Education and training standards improved from a very low starting point in the
early 1960s, although adult illiteracy is still over 40% and attendance rates are markedly
lower than in other developing countries (36% of those aged 6 to 23, compared with 47%
for all developing countries in 1990).

World Bank definition, 1996. For the purposes of international comparison, the
poverty line was set at USD 1 per person per day (at 1985 purchasing power
parities), converted into national currency on the basis of revised PPPs.

21

_Chapter III_

Life expectancy has certainly improved (from 40 in 1960 to 51 in 1993) and infant
mortality has declined (from 167 to 97 per thousand live births), but this is less
impressive than comparable figures for other developing regions. The percentage of the
population denied access to health services is still large - over 40% - compared with an
average of 20% for developing countries generally.

Sub-Saharan Africa has the fastest-growing population in the world. If present
trends continue - and there is no sign of any levelling-off - it is set to double between
1992 and 2017. Rapid urbanization increasingly threatens living standards and complicates
infrastructure management - schools are overcrowded, health services overburdened,
water supplies inadequate and below standard, and electricity supplies erratic. The United
Nations Fund for Population Activities (UNFPA) forecasts a rise in the percentage of
Africans living in cities of over 5 million inhabitants from 8% in 1994 to almost 20% by
2015.

Food production is chronically inadequate and likely to remain so. Per capita food
production has fallen by 5% over the last 15 years. With population rising fast, it is
difficult to see how the food deficit will be filled, especially in the poorer countries,
although there is substantial scope for improving agricultural yields in the region. At
present, such countries are heavily dependent on food imports and therefore on export
earnings - and food aid.

Economic and social development is increasingly hampered by environmental
damage. The poor are worst hit by deforestation and soil exhaustion, while water and air
pollution problems are becoming increasingly acute in overpopulated areas.

Exports are still geared to primary exploitation of natural resources. Sub-Saharan
Africa began to lose its market share internationally in the 1970s and continued to do so
throughout the 1980s, up to 1993. This part of the world has attracted little FDI, with a
few exceptions, [10] and so far has failed to benefit from rising investment in developing
countries. In 1995, for example, it captured a meagre USD 2 billion out of a total of
USD 90 billion in investment in developing countries. Whereas FDI is becoming a major
source of external finance for many developing countries, it represents only 10% of such
funds in sub-Saharan Africa. Altogether, the region is of marginal importance in the
world economy at the moment, accounting for only 2% of international trade and less
than 1% of FDI.

Major macroeconomic disequilibria persist, notably a highly inadequate rate of
savings which, allied to low growth, has allowed external debt to expand to unmanageable
proportions in some countries. Sub-Saharan Africa is the most heavily indebted region in
the world, at 270% of export earnings and 75% of GNP, and is chronically in arrears.

10 FDI in sub-Saharan Africa is still concentrated in the petroleum and mineral
sectors and tourism, in a limited number of countries (Nigeria, Angola, Zambia,
Namibia, Côte d'Ivoire, and Swaziland). In the Caribbean, by contrast, foreign
investment has increased sharply since the early 1990s.

**22**

_**Box**_ **`2.`** _**Developing**_ _**countries:**_ _**social**_ _**indicators**_ _**by**_ _**region**_

```
1994

direct

investment

as % of

GNP

    1.9

        M

    2.8

    1.6

```

```
Illiteracy
rate age
15+ (%)

   51

   46

   24

   54

   15

```

```
  GNP per capita
(USD) (% change
       per annum)

```

```
1994 ODA as

% of GNP

   12.4

    1.6

    0.8

    1.4

    0.3

```

```
Infant
mortalityrate (per
thousand)

    93

    53

    35

    84

    43

```

```
Export
growth
1990-94

    0.9

    1.1

    14.4

    8.5

       M

```

```
-0.7

-2.5

 6.4

2.7

 0.0

```

```
Sub
Saharan

Africa

Middle

East &

North
Africa

East Asia

```

_Sc_ `Pacific`

```
South Asia

Latin
America &
Caribbean

```

```
Population
(millions)

   559

   262

  1 714

  1 194

   466

```

```
 520

     M

 820

 310

2 950

```

```
Sources: World Bank/ "Social Indicators of Development", World Development Report 1996
      UNCTAD, World Investment Report 1996

```

x _[ Chapter III ]_

The overall picture masks a wide variety of conditions, however, and, as in other
developing regions, the gap between African countries is widening.

In 1994 income per capita averaged USD 460 in sub-Saharan Africa," ranging from
USD 80 or 90 in Rwanda and Mozambique to USD 600 in Côte d'Ivoire and Senegal,
and around USD 3000 in Botswana and Mauritius.

Moreover, forecasts indicate a growing divergence between countries capable of
implementing credible development policies and others locked in a vicious circle of
violence and poverty. Countries covered by the Special Programme for Africa [12] have
achieved encouraging growth rates in recent years; GDP growth was around 1.5 points
higher than in other sub-Saharan African countries on average from 1994 to 1996 (at
median rates). Faster growth was matched by improved exports and increased investment,
which is now running at almost 20% of GDP. The growth of private sector investment,
in particular, illustrates the marked improvement in the economic climate of those
countries. Another encouraging sign is that this improved performance has been more or
less steady since structural adjustment programmes were introduced in 1987.

Most Caribbean countries, with the exception of Guyana, Suriname and Haiti (one of the
world's poorest countries, with an average per capita income of USD 230), figure in the
intermediate income bracket. Some, like Trinidad & Tobago, are better off (at around
USD 3 740 per capita), while Barbados is among the region's elite. [13] On the whole,
however, GNP growth has been poor (even if one excludes Haiti), averaging 1% since
1990, and there is considerable poverty. Social indicators nonetheless show the
Caribbean's health and education performance to be better than that of sub-Saharan Africa
even where incomes are similar, reflecting advances achieved in recent decades by
focusing on basic needs. In the last few years, however, that progress has been
jeopardized by pressure to curb spending, particularly social expenditure, with a view to
macroeconomic stabilization and structural adjustment.

Improved economic policies led to a rise in FDI from the early 1980s onwards in almost
all but the poorest Caribbean countries; however, conditions are still far from conducive
to private-sector diversification. The region is still heavily dependent on a few agricultural
products (bananas, sugar and rice, mainly), and mineral products, for its exports. Since
most Caribbean countries are islands, the climate and weather conditions also influence
their economies, and considerably increase the per capita cost of social and economic
investment and infrastructure.

The eight Pacific ACP States form a relatively heterogeneous group in both economic and
cultural terms. The largest, Papua New Guinea (PNG), with some 5 million inhabitants,

11 World Bank, Atlas method; includes South Africa (average: USD 3040).
12 The Special Programme for Africa (SPA), open to heavily indebted low-income
countries committed to a World Bank structural adjustment programme, currently
covers some 30 countries, which account for around 45% of the GDP of subSaharan Africa and some 57%» of its population.
13 The Bahamas (USD 11 500) is of course quite exceptional.

**23**

_Chapter III_

accounts for 70% of the group's total population, while the smallest, Tuvalu, has only
9 000. There is likewise a wide range in income, from USD 710 per capita in Kiribati to
USD 2 130 in Fiji. As islands, with very small-scale economies, the eight countries are
highly vulnerable to external influences: they are heavily dependent on trade and
vulnerable to natural disasters such as cyclones.

Given the growing diversity of economic and social conditions found in the ACP States,
it is tempting to subdivide them into different categories. On current performance, one
can, in fact, distinguish between:

(1) countries in political or economic crisis, such as Somalia, Liberia, Sudan, Zaire,
Rwanda and Burundi;

(2) countries which have embarked upon reform, but have not yet begun to see
results in terms of faster growth, and which are stagnating; this applies to most of
sub-Saharan Africa;

(3) emerging economies which, over the last few years (since 1992-93), have shown
themselves capable of reform, and whose growth prospects are now improving
(e.g. the Côte d'Ivoire-Ghana-Mali-Burkina Faso axis, Uganda, and Namibia). In
the Caribbean, Jamaica, Trinidad & Tobago, and the Dominican Republic have
stepped up the pace of reform with a view to acceding to the North American
Free Trade Agreement. In the Pacific, PNG has, since 1989, participated in the
APEC-led (Asia Pacific Economic Cooperation) liberalization process. The ACP
countries also count a few exceptional "success stories", such as Botswana et
Mauritius.

While this classification is useful for analytical purposes, its development policy
implications are extremely limited in practice. The categories are subject to change; a
good number of African countries have been and will be subject to abrupt changes of
fortune. Countries which once performed quite well have experienced major reversals Rwanda is a case in point, as is Nigeria, where political upheaval halted reforms. On the
other hand, some countries which had been in recession for a long time are now
advertisements for successful reform: Ghana and Uganda, for example.

Categorizing aid recipients is, therefore, no substitute for a thorough analysis of the
problems that African countries are likely to face now and in the future.

2. Causes of low growth in sub-Saharan Africa

Several factors contribute to sub-Saharan Africa's poor per capita growth performance.
Among the economic factors are its relatively low investment, rapid population growth,
and failure to improve industrial/agricultural productivity, which in turn is partly
explained by economic policy failures. Africa has unquestionably suffered poor economic
management: large budget deficits, overvalued currencies, excessive market regulation,
market distortions caused by protectionism and poor public sector management, all of
which has tended to discourage the private sector. This is not to deny that external factors
have played their part in its poor economic performance; ACP States are particularly

**24**

_Chapter III_

vulnerable to fluctuations in commodity markets, international monetary conditions and
debt servicing obligations.

If we take this analysis a step further and seek to pinpoint key factors that have either
reduced the effectiveness of African development policies over a long period or suggest
that, compared with other regions, African countries have opted for policies less
conducive to growth, we find that they fall into two groups: those relating to structural
disadvantages and those arising from the high-risk environment. If it is more difficult to
implement an effective economic policy in Africa, if adjustment and reforms seem harder
to achieve there than elsewhere, it is because, of initial handicaps and the fact that Africa
is prone to more risk factors.

Among the handicaps which have dogged sub-Saharan Africa since independence,
exerting a lasting influence on development conditions, two in particular have ensured that
development needs outstrip the state's ability to respond: firstly, the level of education
is particularly low, even when considered relative to per capita GNP and, secondly,
population has been rising faster than anywhere else in the developing world.

Another factor is the relative lack of entrepreneurial spirit, which accounts for the weak
response to the introduction of incentive-based policies following decades of
interventionism.

Sub-Saharan Africa is also less predictable than any other region. Its climate, for example,
brings great variations in agricultural output, which is still of major social and economic
importance. Growth is also hampered by fluctuations in export earnings, in government
aid payments and in external finance, which in turn lead to great variations in import
levels and, except in the CFA states and a few other countries, to internal monetary
instability.

There is a high degree of political, as well as economic instability, which adversely
affects investment conditions and economic activity in general. Government's ability to
do its job is limited by the lack of transparency in public affairs, the _rentier_ mentality and
the clientelism practised by ruling elites. Bad governance jeopardizes social development
efforts, which demand policy continuity and long-term vision, and partly explains the
delayed impact of structural adjustment, since it encourages investors to adopt a "waitand-see" policy.

25

_Chapter HI_

**3.** **Political instability and the dysfunctional state**

**In recent years a number of** **ACP** **States have been characterized by political instability,**
**weak government institutions incapable of implementing development policies, rising**
**crime, organized violence and the spread of a new kind of armed conflict, with**
**humanitarian, social,** **economic** **and environmental** **consequences.** **[14 ]**

**The causes can be traced back, in part, to the colonial legacy of strong central planning**
**and government** **intervention,** **and the creation of borders with no social rationale.**

**They can also be traced to the authoritarian leanings of the political regimes in power**
**during the first two or three decades of independence, backed by Cold War alliances, and**
**their frequent use of power for short-term private gain. Public services that do not work**
**properly, swollen parastatal organizations, declining infrastructure, and problems raising**
**revenue are the more obvious symptoms of the dysfunctional state.**

**Continuing economic recession, triggered in the early** **1980s** **by falling commodity prices,**
**rising petrol prices and international financial problems, has shrunk state revenues and**
**real wages and altered the structure of incomes and the distribution of wealth; this has led**
**to a rise in informal economic activity and contributed to a boom in fraud and trafficking,**
**which** **is becoming linked to international networks.**

**As a result, over the last** **15** **years, three new factors have helped to weaken government**
**structures and contributed to social breakdown:**

**(1)** **The first attempts at adjustment and economic reforms introduced in the early**
**1980s threw** **up** **some unexpected problems. For example, early operations geared**
**to slimming down the public sector and cutting budget deficits, reduced public**
**service effectiveness and eroded not only the economic and social foundations of**
**the state but its political authority and legitimacy. In general, external aid for**
**economic reform had serious, unpredicted, political consequences. Only later did**
**the IMF and World Bank in particular - along with the EU in its adjustment**
**support policy introduced from 1990 - stress the need to make government**
**institutions work better, with a view to maximising the impact of adjustment**
**programmes. A more all-embracing view of the state's role in a new economic**
**climate gradually developed.**

**(2)** **The end of the Cold War and the fall of the Berlin Wall in** **1989** **prompted**
**industrialized countries to rethink their geo strategic interests and changed their**
**attitude to the ACP States, in two key respects. Firstly, many developing countries**
**discovered that they could no longer rely on unconditional financial assistance;**
**secondly, the international community began to take a firmer line about upholding**
**human rights and democratic principles. The resulting strategy of "political**

**14** **Six countries are currently caught up in civil wars; with 60 million inhabitants**
**altogether, they account for around** **11%** **of the total population of sub-Saharan**
**Africa.**

**26**

_Chapter HI_

conditionality",- imposed in addition to economic strings, was probably too
formalistic, and its impact insufficient to secure political stability or significant
advances in the rule of law. In some cases, the international community's backing
for "democratization" resulted in token representation and sham institutions.

(3) The transition to democracy in ACP States was started up in tandem with the end
of the Cold War, and proved particularly difficult. Democratization has not been
matched by equal advances in the rule of law. Particularly in sub-Saharan Africa,
it is also clear that there is a lack of models of political and social organization
appropriate for current conditions: the style of government derives from the way
African societies operate, with the group prevailing over the individual. The
general interest often gives way to the particular interests of the group in power,
which does not share or accept the principle of relinquishing it; in such conditions,
it is difficult for the state to assume the role of promoting economic and social
progress in an increasingly competitive world economy and upholding democratic
principles recognized by the international community. The fact that elections in
a number of countries have returned former ruling elites to power testifies to the
difficulty of carrying through economic and fiscal reform, which often entails a
short-term social cost that may disappoint the voters. It is a situation quite
different from that of post-war Europe, where the need for democratic reform
went hand in hand with social progress and the introduction of highly advanced
social welfare schemes.

There are nonetheless some encouraging signs: scheduled elections, increasing press
freedom, and the setting-up of consultative bodies giving a voice to the private sector,
grassroots communities, women's organizations, NGOs, etc. have created space for debate
and paved the way to more transparent governance. The pressure for change is reflected
in ACP societies' increasing demands for a style of participatory development that takes
account of individual needs.

By no means every country shares the same political problems, but the problems are
there, and they lend credence to a widespread unease which is not confined to the
countries with the worst problems but which tends, at least in sub-Saharan Africa, to
weaken confidence in the continent as a whole. It is that lack of confidence which is

largely responsible for the record of slow, erratic investment, particularly foreign
investment, in Africa, and which tends to undermine the legitimacy of development aid.

**B.** **Anticipating risks and exploiting potential**

1. Basic conditions for development and economic reform

The problems - in some cases severe - caused by political and social destabilization and
the persistent difficulties besetting the implementation of economic growth policies,
despite fifteen years of adjustment and assistance from the international financial
institutions, are the two main dilemmas confronting sub-Saharan Africa today.

A number of countries lack the mimmum criteria for peace and proper economic
management. A mere 30% of the sub-Saharan population is living in countries which 

**27 .**

_Chapter HI_

only just - satisfy these criteria. This figure excludes countries in the throes of civil war
and those which, through economic mismanagement, lack the basic prerequisites for
development. [15 ]

Six interdependent factors provide the yardstick by which future development prospects
may be gauged:

(i) Peace and security, minimum conditions for development
Civil war has exacted a heavy toll in the ACP countries, with little prospect of
improvement in the medium-term. [16] Apart from their devastating direct effects in the
countries concerned, these conflicts also have a "domino effect" in the sense that their
repercussions, in particular the loss of confidence by economic operators, are felt
throughout the region.

Despite this bleak outlook, there is still some cause for optimism: in countries with only
a minimum of social stability, economic growth, although low in relation to their
potential, has still generated an increase in income per capita. [17 ]

15 These prerequisites are: a minimum degree of social cohesion (the absence of civil
war); a mimmum of macro-economic stability (in terms of inflation, budget
balance, balance of payments and debt management); minimum conditions for an
efficient allocation of resources, contingent, upon the trading and exchange-rate
system, the financial sector, the factor and product markets, the running of
parastatals and public expenditure patterns. Minimum thresholds have been
established for all of these criteria. These three categories form a hierarchy: there
cannot be macro-economic stability without a minimum of social stability; where
there is a reasonable degree of social stability but not even a minimum of
macroeconomic stability, the question of allocation of resources does not arise.

16 A recent study (P. Collier, CSAE Oxford University, 1995) estimates for example
that GDP in Mozambique, Ethiopia and Uganda is around 40% lower than it
would have been in the absence of civil war.

17 The eight countries analysed during the period 1993-95 (Cape Verde, Ethiopia,
Gambia, Ghana, Guinea-Bissau, Mauritania, Uganda and Zambia) satisfy the basic
criteria defined above in terms of social cohesion and minimum economic policies
and experienced average economic growth of just over 6% per annum during these
three years. The list of countries which satisfy these criteria obviously varies
according to the time period under consideration; thus the countries of the franc
zone, for instance, whose macro-economic situation has improved since
devaluation in 1994, were not included on this occasion but could well feature in
a future analysis.

**28**

_Chapter HI_

(ii) Necessary economic and institutional reforms
The rate of investment in many countries is still too low. Of all the factors which
influence investment decisions, the evaluation of "risk" (political instability and
unpredictable economic and trade policies) is often the most decisive at this stage.

The implementation of economic reforms in an increasing number of countries since the
end of the 1980s has helped reduce the risk factor. As in other regions of the world, these
reforms - usually undertaken in the context of a macro-economic stabilization effort - go
beyond the problem of short-term adjustment and embrace a whole series of economic
policies and institutional changes. Apart from restoring a stable macro-economic
framework, the reforms are intended, overall, to improve economic competitiveness
through a more realistic exchange-rate policy, more efficient markets, trade liberalization
and opening up to foreign investment. The reform of the public sector is based on a
"back-to-basics" approach, with the emphasis on the provision of essential services and
basic infrastructure.

Institutional reforms take longer and are more difficult to implement than liberalization
policies; they concern the development and modernization of the financial system, tax
reforms, public expenditure management, the improvement of the legal and regulatory
framework, the reform of public enterprises and privatization.

These observations, which concern mainly sub-Saharan Africa, are also valid for the
Caribbean countries, which are facing similar problems, albeit on a different scale. The
reforms introduced in some of these countries in recent years to facilitate the development
of the private sector and improve export potential still have a long way to go. Matters
such as trade liberalization, the improvement of the regulatory framework, the
development of the financial system, the functioning of the labour market and the need
to create room for manoeuvre in social policy are thus set to dominate the economic
policy agenda of the region for some time to come.

Tangible results are already discernible in certain areas. While it is difficult to identify
the precise reasons for the improvement in economic growth, particularly in countries
covered by the Special Programme of Assistance for Africa, it is clear that financial
support from the international community has played a vital role in helping ensure the
continuity of economic policies and reforms. [18 ]

(iii) Democratization and economic liberalization
The dual process of economic and political transition (switch to a market economy and
a pluralist system) brings with it both synergies and special problems: synergies in the
sense that the reforms may give rise to broad public debate between Government and civil
society, in particular representatives of the private sector, thereby prpviding the
Government with a credible mandate; problems in so far as the implementation of
stabilization policies in tandem with liberalization will be hampered temporarily by the
emergence of democracy. This happens mainly when progress is slow and modest,

18 For the countries of the SPA, this support represented over 40% of the value of
their imports of goods and services (net of interest).

29

_Chapter III_

delaying the benefits derived from improved supply conditions and prolonging the period
of socio-economic austerity. In these circumstances, electoral support and a mandate for
reform is more difficult to maintain, jeopardizing the continuity of economic policies.

(iv) Issues relating to the social transformation
While there may be a consensus on minimum economic reform, structural reforms whose implications are more pervasive and distributive effects more subtle - are more
controversial and meet with greater resistance. In sub-Saharan Africa, this resistance is
provided by the dominant groups and is rooted in one of the cornerstones of the African
ethos, i.e. the repudiation of the "each man for himself mentality. However, the
mechanisms of group solidarity have failed to ensure equitable distribution of the fruits
of economic activity. The result is a predatory mentality and a very selective form of
solidarity to the benefit of a privileged minority close to those in power. This form of
social organization has led fund donors to keep their economic policy prescriptions within
bounds as it is so difficult to predict the impact and viability of reforms that go beyond
a basic common minimum.

Furthermore, the entire international community is faced with the problem of reconciling
the major political commitments entered into at Rio, Cairo, Copenhagen and Beijing in
support of sustainable development based on human needs with the reality of economic
development in an increasingly competitive international environment.

(v) Reducing poverty
The recent improvement in economic growth has undoubtedly helped halt or check the
spread of poverty in some countries, but has not reduced it. This would require, _inter alia,_
more sustained economic growth. The World Bank estimates that, given the economic
structures and population growth rates in sub-Saharan Africa, an increase in GDP of 5%
per annum would still not suffice to stabilize the numbers living below the poverty
threshold; of those countries in the region with over a million inhabitants, only six have
recorded sufficient growth rates in the last ten years to reverse the trend.

A great deal also needs to be done to improve the impact of growth on poverty: access
to basic social services should be widened significantly and, in some countries, access to
productive resources (education, training, land ownership, capital and credit, etc.) could
be greatly improved: entire population groups are practically excluded from the formal
sector of the economy. Women are particularly vulnerable and an improvement of their
socio-economic situation would act as an effective lever in curbing poverty. While the
informal sector is often very dynamic, it does not generally contribute much in terms of
a lasting improvement in people's living conditions. Finally, any form of economic
transition inevitably alters the relative positions of different sections of the population;
the existing social systems, based for the most part on group solidarity but also on
dependency relations, stand in the way of an effective response to these problems.

(vi) Integration into the world economy
The integration of the ACP countries into the world trade arena hinges on the success of
domestic economic policies and on enhanced economic competitiveness and access to
foreign markets.

**30**

_Chapter III_

While globalization has reduced trade barriers and the cost of engaging in international
trade, access to international markets is becoming more complex and dependent on other
non-tariff barrier trade-related considerations. In the market access equation, the level of
tariffs plays an increasingly reduced role and other aspects such as competition policies,
technical, sanitary and phytosanitary standards, subsidies, anti-dumping and countervailing
policies, environmental and social regulations, intellectual property laws, investment
codes, etc, have come increasingly to the fore as major determinants of market access.

Thus, although multilateral liberalization following the Uruguay Round agreement
achieved considerable success, it remains true that many of the trade-related areas
mentioned above are still insufficiently regulated by the WTO, allowing potentially
uncompetitive behaviour by multinational corporations and trading nations, which may
constitute effective barriers impairing access to international markets. The development
of multilaterally agreed disciplines in those new trade-related areas as well as the
consolidation of the credibility of the dispute settlement rules in enforcing the new
agreements on TBT and other non-tariff barriers, constitutes unfinished business which
will fill the agenda of the WTO for the years to come.

Multilateral liberalization following the Uruguay Round agreement has not slowed down
the surge in interest in regionalism initiated in late 1980s. Trading nations, industrial and
developing ones alike, seem to see an added value in going, at a more limited
geographical scope, beyond the "acquis" of the Uruguay Round which is deemed not yet
to have met the accrued demand for freer trade and more certainty and harmonization in
the new trade-related areas.

North-South trading arrangements, beyond the normal static trade creation and diversion
effects, increase the policy credibility of the participating LDCs and have the potential
to lead to higher domestic and foreign investment, enhanced pro-competitive effects,
improved access to technology and, last but not least, a degree of protection on policy
developments in trade-related areas.

But multilateral liberalization and the growing trend towards regionalism alter the
economic opportunities for the LDCs. On the one hand, those that benefit from nonreciprocal preferential treatment under the GSP or other preferential regimes like Lomé,
see the value of their preferences being eroded. Furthermore, LDCs which may be
excluded from regional blocs, are likely to face shifts in trade and investment to their
detriment. On the other hand, multilateral and regional liberalization, in so far as the latter
can be expected to spur the lowering of tariff barriers not only among the partners but
also vis-à-vis the rest of world, should improve the market opportunities for the LDCs.

Developing countries lagging in growth and integration are confronted with the need to
reverse those negative trends and must make difficult decisions regarding how much and
how fast to liberalize and, in particular, choose the best strategy of integration into the
world economy: Should they follow the multilateral way, or would unilateral liberalization
be the best way to go? Should they alternatively engage in regionalism (South-South
and/or North-South)? Should they follow some combination of the above options?

31

Box 3. ACP trade strategies

A major objective for the ACP countries as they look ahead to the first part of the next
century is to ensure optimum integration into the global economy. That is, integration
that rninimizes the risk of marginalisation, reversing the current trends in this direction,
and maximizes the opportunities that the global environment offers to participate
profitably in the international markets for goods, capital, services and labour.

The ACP may consider several integration strategies, depending on their specific
situations and conditions, as more suitable models or paths for integration into the global

economy:

aVNon-reciprocitv. Insist on preserving the current differentiated (relative to other
LDCs), non-reciprocal, contractual, preferential treatment from the EU, requesting an
enlargement of market access and a softening of procedures and rules seen as
constraining the development of exports.

bVMultilateralism. Disregard any differentiated preferential treatment received;
rationalize, reduce and bind tariff rates under the GATT. Push for more trade
liberalisation at the multilateral level, focusing on products and sectors of interest to all
LDCs. Make full use of new WTO disciplines to defend trade interests.

cVUnilateral liberalisation. Proceed with autonomous trade liberalisation, not bound in
GATT, within the framework of structural adjustment programmes (autonomous or
supported by the Bretton Woods Institutions). Maintain all trade policy flexibility
allowed under the GATT, in terms of commitments and timetables.

dVSouth-South reciprocity. Broaden and deepen the processes of regional economic
integration under way. Possibly look beyond neighbouring ACP countries in search of
the most "natural" (in terms of trade flows and complementarities) geographical

coverage.

eVNorth-South reciprocity Join regional integration arrangements involving developed as
well as developing economies in order to achieve the dynamic advantages of anchoring
their own economies firmly into any of the major trading blocs, thus counteracting any
deflection of trade and investment which might benefit or already have benefited other
LDCs (Caribbean in NAFTA or the FTAA).

Of course, these options are not mutually exclusive. Many combinations can be thought
of. It is from these options (open to the ACP themselves) that the EU must select when
determining its own options in respect of the trade arrangements that it may wish to
agree with its partners.

_**3/1**_ _**K.**_

_Chapter HI_

2. Promising results: a possible turning point?

The recent improvement in economic growth in sub-Saharan Africa (3.5% to 4% for the
region as a whole in 1995 and 7% for the 31 countries of the SPA) is undoubtedly due
in part to short-term factors such as the increase in raw materials prices on the
international markets. But it is also encouraging as it concerns a large number of countries
and can also be attributed to better socio-economic management and the adoption of
reforms which are starting to bear fruit, primarily in the form of a rise in the volume of
exports.

The emergence of post-apartheid South Africa is without a doubt one of the most obvious
auspicious developments. The development prospects of this country are contingent on
its ability to reduce the causes of social tension and to improve the employment situation,
but the potential for growth is considerable and the promising developments in terms of
foreign investment and trade relations should reverberate throughout the entire region
thanks to the economic knock-on effects and an improvement in the domestic situation
of the other countries in the region.

The countries of the franc zone in West Africa are also helping to improve the continent's
overall image. The 1994 devaluation had beneficial effects, particularly in countries which
were also implementing an adjustment and reform policy. The process of regional
economic integration in West Africa has also improved the economic outlook for the
region and could prove to be a decisive turning point for economic development by
boosting trade and improving competitiveness and also by anchoring stability-oriented
macro-economic policies, thereby increasing their credibility and in turn helping to attract
domestic and foreign investment.

In East Africa, too, a number of countries such as Kenya, Tanzania and Uganda have seen
their situation improve considerably over the past two years. These three countries have
also recently embarked on a process of cooperation and regional integration which at
present covers transport, communications and payments.

A number of Caribbean countries have also achieved significant progress in stabilizing
their economies and were able to take advantage of the more favourable external
environment in the 1980s to implement tax and monetary reforms and engage in trade
liberalization as part of a process of cooperation and regional integration, which should
eventually lead to their integration into the economy of the Western hemisphere (see
Box 4).

The medium-term prospects of all of these countries still depend ultimately on the results
of their economic policies. Structural handicaps, however, are still a major source of
weakness. In the absence of the new investment required to enable these countries to
diversify their exports, the terms of trade will continue to be at the mercy of fluctuating
raw materials prices, which can thwart the reform process at any moment, jeopardizing
any gains achieved through the adjustment programme.

Provided there are no major external crises and assuming that raw materials prices fall
very gradually in the coming years against a background of social disintegration and

**32**

Box 4. The Caribbean - prospects for regional integration

The broadest geographical definition of the Caribbean area takes in a group of 37 countries
and territories in the Antilles archipelago and on the coast of the Latin American
subcontinent. They are: the 15 independent ACP countries in the Caribbean proper, two
Dutch territories and five UK territories (classed as _OCT),_ three French overseas departments
(DOM), two US territories, Cuba and nine independent Spanish-speaking countries on the
Central and South American coast (the Central American Common Market countries, plus
Mexico, Venezuela and Colombia). Most have joined the recently formed Association of
Caribbean States, an emerging economic area with a total population of around 205 million.

The features and geography of the Caribbean set it apart from the other ACP regions. Its
economic future will inevitably involve a gradual integration into the whole American
region, but balanced by continuing close and solidly-based ties with Europe. The Caribbean
countries are anxious to keep such a balance and seek alternative trade alliances in order to
preserve both national sovereignty and the region's identity in the face of the economic,
cultural and technological might of the United States. But whatever the case the trade
liberalization strategy adopted in the Western hemisphere and the principle of trade
reciprocity within NAFTA [1] will force a faster pace of change than in Africa.

Prospects of free trade agreements and greater economic cooperation in the West are making
a regional economic integration strategy increasingly attractive. The main aim of integration
would be to provide an economic and trade framework that would offer step-by-step
liberalization and prepare the region's economic operators for competition. At the same time
the Caribbean countries are having to assess the impact that the new international
environment is having on the political and economic viability of the small island states,
which constitute the majority.

Pursuit of greater integration has long been the region's central concern. The first steps date
back to the abortive attempt at a Federation of the West Indies in the late 1950s/early 1960s.
Over the last ten years structural changes in the world economy have prompted responses
that reflect the concentric circles of regional and subregional integration, ranging from the
small monetary union of the Organization of East Caribbean States (OECS) to the
CARICOM common market and the recently formed and even bigger Association of
Caribbean States (ACS). [2] Regional structures have a variable geometry with tendency
towards enlargement rather than deepening of the integration process. [3 ]

1 North American Free Trade Area.
2 Caricom was set up in 1973, the OECS in 1981 and the ACS and 1995.
3 ACP-EU cooperation with the Caribbean covers the member countries of
CARIFORUM, a coordination body set up in 1991 for the two new signatories to
the Lomé Convention (Haiti and the Dominican Republic and the long-standing
ACP partners in Caricom: Antigua & Barbuda, the Bahamas, Barbados, Dominica,
Grenada, Guyana, St Lucia, St Kitts & Nevis, St Vincent & the Grenadines,
Suriname, Trinidad & Tobago. The total population of this group is 21.5 million.

**32*-**

The results of these efforts have been patchy because of the greater complexity and
multiplication of the challenges facing the Caribbean countries, namely:

consolidating democracy, managing political transition in Haiti and anchoring Cuba
in the new regional and international environment;

avoiding marginalization as new regional blocks emerge;

achieving sustainable development, in particular: development of human resources
and involvement of civil society and the private sector in the development process;
conservation of natural resources and the environment and disaster prevention;
dealing with socio-economic and cultural threats (above all drugs) and controlling
migratory flows;

managing economic transition, i.e. preparing the Caribbean economies for the era of
services and new technologies and the move away from trade protection (bananas,
sugar, rice, etc.) to open, competitive trade; economic adjustment and cushioning of
the negative social side-effects;

the continuation of the presence of the Caribbean's traditional partners: Europe, the
US and Canada;

One possible strategy for the region is to promote a realistic and open form of regional
integration, the scope of which is under discussion.

_**il>**_

_Chapter HI_

varying degrees of political destabilization in many of the countries in the region, the
World Bank's medium-term projections put annual growth for the whole of sub-Saharan
Africa (including South Africa) at 3.8% per annum for the next ten years (1996-2005).
This result, which is based on the assumption that the current reforms continue at a steady
rate, would be a considerable improvement on the previous ten years (1.7% per annum
between 1986 and 1995) and would engender a modest rise in income per capita (+0.9%
per annum). It would not, however, be sufficient to bring about a significant reduction
in poverty in many of these countries; this remains a major challenge for individual
governments and all those involved in development cooperation.

The world economic outlook bodes well for the ACP countries on a number of counts:
a sustained upswing in world trade (more than 6% per annum according to World Bank
forecasts), an international trading system based on the conclusions of the Uruguay Round
and the work of the WTO, major development opportunities in the service sector, in
particular tourism, the emergence of new burgeoning markets in East Asia, Latin America
and possibly also in Eastern Europe, will provide the ACP countries with an opportunity
to diversify their economic and trade relations. The EU proposal on improving access for
the poorest countries to industrialized countries' markets, approved at the recent G7
summit, should also enhance their economic prospects.

**C.** **Implications for the future partnership**

Development conditions have changed radically in terms of socio-political developments
within the ACP countries themselves and changes in the international political and
economic arena.

The analysis of the constraints and opportunities facing the ACP countries provides an
important yardstick for planning future cooperation, based on a better targeted and more
efficient approach in support of these countries' adjustment and development policies. The
following factors in particular should be taken into account:

- support for adjustment policies. In much of sub-Saharan Africa, the problems identified
in the 1960s will still exist in the year 2000: poorly integrated economic fabric,
insufficient infrastructure and forms of social and political organization which hamper
economic development. Despite the structural handicaps affecting most of the countries
in the region, there are a few success stories which prove that an improvement in living
standards is possible and that such success is largely contingent upon the reintegration of
these countries into the world trade arena. The main challenges confronting the ACP
countries are: (i) to improve their internal political and economic management to create
conditions more conducive to the development of the private sector and attract foreign
investment and (ii) to expand external economic relations to take account of growth in
the world economy. The poorest countries will, however, continue to require foreign aid
for a long time to come to help them finance investment and provide basic services;

- the importance of credibility and good governance. The reforms planned will only
succeed if they gain credibility. The political and institutional aspects of the reform
programme should dovetail with the economic aspects. The future partnership will fit into

**33**

_Chapter HI_

a long transition process which will transform not only the economic organization of the
country but also society itself;

- the need for increasing attention to be paid to the environmental aspects of sustainable
development. The focus should be primarily on capacity strengthening and the
environmental capacities of the ACP States themselves, but attention also needs to be paid
to engaging in dialogue with our partners on the consequences they are likely to suffer
as a result of global environmental trends and their role in combating unwelcome
changes;

- the need to adopt differentiated approaches. The role, content and methods of
cooperation cannot be the same in a country in the throes of economic and social
disintegration as in one implementing an economic and institutional reform programme.
Conflict prevention and the rebuilding of the State and efficient institutions should figure
among the major cooperation objectives. In countries with a minimum of social cohesion,
cooperation can help diminish the risks and sources of instability which stand in the way
of investment and growth. Trade arrangements can play an important role here in so far
as they allow or impede shifts in policy. The arrangements for granting external aid and,
in particular, support for reforms may serve as an incentive to recipient countries to
implement necessary policy changes and assure the continuity of the reform programme.
Other forms of cooperation could also be considered in an effort to quell the sources of
instability, particularly in the monetary field;

- trade arrangements established in accordance with specific criteria and objectives. The
new EU/ACP trade arrangements after the year 2000 should be assessed in relation to
their ability to meet the challenges, the constraints and the problems the ACP countries
must confront. It should:

    - achieve respect for the relevant WTO rules so as to provide the necessary
security and stability on market access terms.

    - promote fuller and more active participation of the ACP countries, individually
or collectively, in the WTO.

    - preserve and, if possible, expand the current level of access to European Union
markets, by relaxing constraining rules and procedures and securing, as much as
possible, the benefits provided through the commodity protocols.

    - mitigate the trade and investment shift to the detriment of the ACP countries,
resulting from EU-centred regionalism.

    - provide an international anchor of enhanced credibility, certainty and stability
for the trading and regulatory framework (import and export regimes) of the ACP
countries as preconditions for better performance on exports and attracting foreign
direct investment, and ultimately higher growth.

**34**

_Chapter HI_

    - encourage competition, better resource allocation and competitiveness within the
ACP economies in order to improve supply response to world market price
incentives and to new market access opportunities.

    - promote actively, and provide the conditions for facilitating the success of
regional integration processes among ACP partners.

    - help the ACP countries cope with the increase in national and international
regulations on new trade-related areas which may give rise to new obstacles to
market access.

    - allow the different ACP regions to join in different (overlapping) trading
arrangements more convenient to their development needs while providing a
counterweight to the pull they would experience from new regional blocs.

    - take account of the differentiation among ACP countries in respect of their level
of integration into the global economy, their level of development and their
perceived needs.

- the importance of making progress in managing the external debt. This is important for
a number of countries, which need to normalize relations with their creditors in order to
restore a sufficient degree of financial credibility and gain renewed access to capital
markets;

- the advantages of a cooperation policy which encompasses the whole of the sub-Saharan
African region. Cooperation which is open to all countries in the region, possibly in
varying forms, can have positive knock-on effects, improving the image of the continent
as a whole. This factor should be borne in mind when a decision is taken on the

geographical scope of the new cooperation agreement(s).

- the particular difficulties of the Caribbean ACP countries and their trade strategies in
a rapidly developing regional framework. The diversification of trade and economic
activities hinges mainly on the prospects for regional integration, access to the North
American market (NAFTA) and participation in the mooted free trade area encompassing
the whole of the western hemisphere (FTAA). This transition is, however, far from
certain and the move from an economy which is traditionally dependent on the primary
sector, and which benefits from specific trade preferences to an open, competitive
environment will not be at all easy.

- problems peculiar to the small island economies of the Pacific. These countries have
every interest in gearing themselves to the booming economies of the "Pacific Rim", with
the support of Australia and New Zealand. Problems relating to transport and
communications, on the one hand, and the environment and preservation of natural
resources as the main economic resource, on the other, will require particular attention.

35

_Chapter HI_

The analyses expounded in the first part of this green paper show that future cooperation
between the EU and the ACP countries must be seen against a radically changed
international backdrop. Also, the European Union is set to undergo far-reaching changes
and the various ACP countries will move in widely divergent socio-economic and
political directions. In the face of a loss of legitimacy for the very principle of
development aid, compounded by budget constraints and a European social crisis, the
lessons learned from past successes and failures should help improve the effectiveness and
impact of future cooperation.

The main task facing the EU counties is to avoid the temptation to go it alone and
develop basic solidarity. To that end, it should endeavour "do better" next time and to
improve the prospects for successful cooperation with the ACP countries. A number of
recent Community initiatives reflect this desire and an effort should be made to identify
which aspects of a multi-faceted policy should be retained and which discarded. The
Union has a number of options to consider as it takes its decisions on the long-term
development of cooperation policy.

36

_Chapter IV_

_**PART TWO: A BLUEPRINT FOR**_ _ACP-EU_

_**RELATIONS AS THE 21st CENTURY APPROACHES**_

**CHAPTER IV.** **TOWARDS A** NEW **PARTNERSHIP**

On the threshold of the 21st century, the European Union and the ACP States must lay
the foundations of a new partnership with a view to:

the need to meet Europeans' concerns by making long-term political choices;
the absolute necessity to strengthen the political dimension of ACP-EU relations
in order to give them new impetus;
the need to open up the cooperation framework in order to offer a European
response better geared **to** the current needs of the ACP States, their private sectors
and civil societies;
a possible reorganization of the geographical framework of the cooperation
agreement;
a greater emphasis on consistency at European level.

**A.** **The place of the ACP-EU partnership in the European** Union's **external**
**policy**

The European Union plays **a** leading role on the international scene. It is the biggest
trading partner (the EU accounts for 20% of world trade [19] and a third of its imports come
from the developing countries) and it is called on to play a significant part in international
forums, particularly the WTO, and, at Member State level, in the IMF and the World
Bank. In the political arena, the European Union is endeavouring to step up its capacity
for action. For a long time the European Union has also been the main source of
development aid and its contribution to international aid has increased in recent years,
particularly in the light of the United States' major scaling-down in this area;

The European Union has the means to help close the development gap: it is up to it to
implement an active and consistent development policy to this end. ACP-EU relations are
part of the international community's overall strategy **to reduce poverty in the world.**

**In addition to the basic motivations for a European development policy, which are**
**an integral part of the European Union's identity, Europe has objective interests.**
These are of particular importance when it comes to the ACP States and among these, the
countries of sub-Saharan Africa.

The relative failure of Africa's development clearly generates a certain amount of
scepticism about the effectiveness of international and, above all, European cooperation,
and indeed about the real possibilities of developing the continent.

19 Not counting intra-EU trade.

37

_Chapter IV_

But the long-term nature of the choices to be made raises issues concerning the grounds
and stakes of new cooperation links between the EU and the ACP States which are of
vital importance to Europe and its people. The European Union, in the current and
foreseeable international context, has an interest in promoting:

peace and stability, by preventing the development or persistence of areas of
instability in the world. The tendency for the marginalization of entire
communities and its corollary, the political destabilization and disintegration of
entire countries, must be stopped. Cooperation can and must contribute to the
preservation and development of the rule of law in all countries, and work to
maintain a satisfactory degree of social cohesion;

more effective international cooperation to manage global threats. Europeans are
increasingly concerned about the growth in migratory pressure, which is basically
the result of development gaps and requires a thought-out political response. The
spread of terrorism, the problem of preventing illicit trafficking, the limitation of
pandemics are also important areas which cannot be tackled and controlled by the
EU on a unilateral basis. The European Union must endeavour to get as many
countries as possible to shoulder their responsibilities and participate in the
management of global interdependencies and problems;

solidarity. The fight against absolute poverty and for respect for democracy, civil
and political rights as well as economic, social and cultural rights, calls for a
cooperative approach which oversteps national frontiers;

economic development and mutual interest. The European Union can help
countries which are currently outside the international economic system to develop
internal capacities and secure the basic conditions for sustainable development; it
can monitor the development process in the more advanced countries, step up the
pace of economic and social development and encourage their smooth integration
in the world economy. Tomorrow the ACP States might enjoy significant
economic growth so it would very short-sighted to reduce the weight of Europe's
influence there;

the social and environmental aspects of development. It is very much in the
European Union's interest to encourage a form of development (i) guaranteeing
social progress, respect for human rights and above all fundamental social rights;
and (ii) focusing on the problems of destruction of the environment and natural
resources. In the absence of a policy deliberately targeted at social development
and environmental protection objectives, the constraints and also the opportunities
of the new international economic environment may give rise to a form of
development which is incompatible with European political and social values. It
comes down to ensuring consistency between the objectives pursued within the
European Union and the influence that it can bring to bear on the form of
development in certain regions of the world.

38

_Chapter IV_

B. Revitalizing the ACP-EU partnership by strengthening its political dimension

ACP-EU relations are so long-standing and pioneering that they have created an entire
"culture" which must be safeguarded. This culture is largely based on the existence of a
special partnership between each ACP country and the European Union. In view of the
new international backdrop, this partnership should be strengthened rather than weakened
by increasing its value as a mutual political commitment.

The partnership pursued under the Lomé Convention has come up against a number of
difficulties, which are described in Chapter II.B. Indeed it has proved hard to put initial
intentions, based on the principle of equal partners, into practice since the institutional
weakness of the recipient countries, their dependence on aid, a growing conditionality and
the Community's tendency, like other donors, to take the place of their faltering partners,
a tendency prompted by a growing concern for effectiveness, have seriously undermined
the principle of partnership.

Partnership is undoubtedly still the ideal form for cooperation relations and any future
agreement between the EU and the ACP States must endeavour to restore it. This implies
a fundamental overhaul of cooperation procedures and a careful weighing up of the
options in order to reconcile on the one hand the need to adopt differentiated approaches,
ensure a sufficient degree of flexibility, apply conditionality for incentive purposes and
exercise some selectivity, with on the other hand, something more akin to an objective
which consists of conducting an adult, responsible, effective and predictable partnership.

The enormous challenges which some ACP States face are reason enough for preserving
the specific qualities of the cooperation relationship, in particular its predictability and its
contractual nature. But from now on a more explicit and real mutual political commitment
must be added to this "contract".

The revitalization of the partnership therefore calls for a reinforcement of its political
dimension in two respects:

the foundations of a political dimension were laid with the introduction in Lomé
IV and in the revised Convention of a clause on respect for human rights, together
with a provision allowing for suspension of the Convention in the event of
infringement. This clause also refers to democratic principles, consolidation of the
rule of law and good governance. The Convention provides for a consultation
procedure if one of these obligations is not met. [20] This approach follows the
general framework of Community policy in the field of human rights and
fundamental freedoms, which constitutes an essential element of the dialogue with
the various partners on which the partnership with third countries is based. [21] From
a formal point of view, the current provisions appear quite comprehensive.
However, practical implementation of this political component raises a number of

20 Except in the case of special urgency.
21 COM(95)567 "The European Union and the external dimension of human rights
policy: from Rome to Maastricht and beyond".

39

_**Chapter IV**_

questions about the criteria to be applied and the consequences that a political
judgement would have on the management of cooperation - apart from extreme
cases giving rise to the suspension of European cooperation;

in the context of an upsurge of organized violence and an increase in armed
conflicts in sub-Saharan Africa, with all their humanitarian, social, economic and
environmental repercussions and the challenges which they pose to any
development policy, the Commission has drawn up a proposal designed to develop
a European conflict prevention and settlement policy. [22] Issues such as the
introduction of preventive diplomacy, arrangements for broader political
cooperation and ongoing political analysis all need to be tackled. The Commission
has proposed a comprehensive strategy, allowing for coordinated intervention at
political and development cooperation level. The final objective is to ensure
"structural stability", an idea which embraces the objectives of sustainable
economic and social development, democracy and human rights, establishment of
viable political structures and a capacity to manage change without resorting to
violence.

It should be possible to develop a stronger political relationship between the EU and the
ACP States in these two areas, either globally with all these countries or separately with
sub-regional blocs or other groups of countries.

**Strengthening the political dimension has wide-ranging implications.** **Are the**
**partners ready for this and all its consequences?**

There are three aspects to this:

1. A mutual political commitment at the basis of a new partnership

As far as the EU is concerned, political dialogue with the ACP States will have its place
in the common external policy. The many wars being waged in sub-Saharan Africa are
both a cause and a consequence of the lack of development. They are as much a matter
for political as socioeconomic analysis.

As far as the ACP States are concerned, the necessary changes and reforms will not be
made without a radical transformation of political and social structures. EU support
measures for economic policies and institutional reforms may have major political
repercussions on these countries. Experience of past cooperation has furthermore shown
that this support is appropriate only when certain conditions - primarily political - are

met.

Strengthening the political dialogue is now a condition of increased effectiveness of
ACP-EU cooperation: a stronger political relationship which allows essential issues such
as good governance, democratization and human rights to be tackled in a less formalistic,

22 See SEC(96)332 "The European Union and the issue of conflicts in Africa: peacebuilding, conflict prevention and beyond".

**40**

_Chapter IV_

franker and hence more efficient manner now seems to be absolutely necessary if Europe
wishes to give its cooperation policy a greater chance of success.

2. The arrangements for political dialogue

These arrangements concern the geographical configuration of the political dialogue: it
could be conducted on a multilateral or a bilateral basis or by subregional groups. This
links up with the issues raised in Chapter IV D.

They also concern the priorities of the dialogue: questions of national security, the
problems of migration, the fight against illicit trafficking etc.

They also concern the level of this dialogue (ministerial meetings and technical working
parties) depending on the degree of cooperation sought.

3. The links between the political and the cooperation components

Although in the long term they are complementary, the objectives of the CFSP and those
of development cooperation follow radically different time scales. Any subordination of
cooperation policy to foreign policy measures could jeopardize development objectives,
which are medium and long-term and hence require continuity of action. It is in
compliance with the general principle of consistency of the European Union's external
activities that the link between these two components must be ensured.

More specifically, strengthening the political dimension of relations will mean considering
various possible procedures designed to:

increase the selectiveness of aid in accordance not only with countries' needs but
also their institutional and political choices;
adjust the practical details of cooperation so that they facilitate reforms by these
countries.

These two issues will be dealt with in greater detail in Chapter VI.

**C.** **Opening up the framework** of ACP-EU **cooperation**

The cooperation framework must henceforth do more to help the ACP States to open their
markets to develop trade with the EU, of course, but also with other partners.

In the light of past experience and in view of the constraints and prospects in the ACP
States, it seems that the European Union can facilitate this opening-up by altering the
framework of cooperation in four ways:

differentiation: The situation varies so much from one ACP State to another that
there must be scope for adjustment in the European Union's cooperation. Not all
ACP States are at present capable of embarking on a standard political and
economic partnership with the EU. Effective partnership can result only from
mutual interests, common objectives and priorities and reciprocal rights and duties

**41**

_Chapter IV_

which are strictly adhered to. For reasons of effectiveness, differentiated
cooperation policies and procedures have become essential.

stepping up the policy dialogue: The European and ACP partners must examine
ways of reconciling two requirements: the responsibility of the recipient countries
and the requirement to account for the use of cooperation resources to European
citizens. Policy dialogue must be based on a dual acknowledgement: (1)
development cooperation can be effective only if it is based on a process of
change decided and actually implemented by the authorities of the country in
question; (2) the EU can commit itself to supporting only economic and social
organization models which contribute to the objectives of its cooperation policy
and which comply with the political and social values which it means to promote.
These priorities and objectives formulated by the EU are not incompatible with
the aspirations of the ACP peoples, nor with the formulation of development
strategies proper to the ACP States. However, an agreement on priority reforms
and the acceptance of the necessary socio-political changes is possible only if the
Euro-ACP dialogue on economic and social policies is stepped up and the local
capacity for analysis and implementation of development policies is improved.

A more effective dialogue would mean that Community monitoring could be
focused on the results of cooperation and on the progress achieved sector by
sector, rather than on the means deployed. Such an approach would have to be
gradual, it would take time and resources. Yet it appears to be the only
alternative to traditional aid operations which would be effective in the long term.

Cooperation which could be expanded and stepped up in other fields: The final
objective that the European and ACP partners must set themselves is to reduce
dependence on aid and develop other forms of cooperation. In fields such as
science and technology, education and training, industrial and economic
cooperation, it is a question of identifying mutual interests and encouraging the
exchange of experience. The EU is in a unique position here to propose a wide
range of cooperation fields and instruments. Cooperation will also have to be
continued in traditional areas, particularly in the cultural sphere, where the EU is
already very active. Such an extension cannot, however, hide the fact that the
poorest countries will still need foreign aid for a long time to come and that the
lion's share of funding will therefore have to go to them.

more active participation by non-governmental bodies in cooperation relations, the
private sector and other representatives of civil society (academic circles,
cooperatives, development NGOs and environment NGOs, consumer associations,
etc). Such participation, which is intended to complement rather than supplant
official partners, should be envisaged at two levels:
(i) developing an effective dialogue with social and economic partners on
cooperation priorities, particularly in the areas which concern them
directly;
(ii) involving the parties concerned in the implementation of certain
cooperation operations, which would mean that there would be fewer

**42**

_Chapter IV_

intermediaries and programmes could be better targeted, more effective
and more relevant.

These different aspects of the partnership, the need to improve the way it is really run by
partners whose responsibilities are by nature very different, therefore call for a
fundamental review of the way instruments and tools are designed and used.

**D.** **The geographical cover of cooperation agreements: options**

The "ACP group" is strictly speaking neither a political nor an economic entity. It was
established in the framework of relations with the European Union for essentially
historical reasons. Today, the members of the ACP group have development interests and
opportunities which diverge widely because of their very different income levels and
living standards, their economic structures and trade strategies and their relative appeal
for foreign investment.

**In this context, is the ACP group still an appropriate partner for the European**
**Union? In other words, should the unique structure currently governing relations**
**with the seventy ACP States be maintained, broken up or extended?**

This question should be examined in the light of four considerations.

(1) It will be partly up to the ACP States themselves to take a position on this. Their
choice will basically depend on their willingness to step up their own intra-ACP dialogue
structures, define their common objectives and interests in multilateral forums and vis-àvis their various partners, and improve their negotiating skills as a political or economic
group on the international scene, outside their relations with the EU.

(2) An acknowledgement of the diversity of situations within the ACP group and a
willingness to make future cooperation more suited to meet varying needs could mean
changing the form that a cooperation agreement might take. In addition, as far as trade
provisions are concerned, the system of non-reciprocal discriminatory preferences
currently granted to all the ACP countries may have to be changed to ensure its
compatibility with WTO rules. These preferences would then be renewable only for the
LLDCs (UN list of the least-developed countries) whereas new arrangements would be
examined for the other ACP States. These questions are dealt with in greater detail in
Chapter V. This necessary differentiation in cooperation strategies does not, however,
necessarily mean abandoning the ACP concept since it could be applied only to certain
aspects of relations (obviously trade, but also possibly the nature of financial and
technical cooperation instruments or the volume of aid). But this differentiation could
also be more radical and give rise to separate agreements. Differentiation, which is
already a feature of cooperation under the revised Lomé IV to varying degrees, depending
on the instrument, will in any case have to be spelt out more clearly.

(3) The objectives of the European Union, its view of development and the role of
cooperation, will shape not only the content of the new agreement or agreements but also
their geographic configuration. The creation of political and economic areas which go
beyond national boundaries has been recognized as a necessary step for Europe and is so

**43**

_Chapter IV_

for the ACP States as well. The path of regional cooperation and integration seems
advisable not only because of the generally inadequate economic size of many ACP
countries but also because such an option can encourage political leaders to adopt a more
strategic approach to developing their economies. It is also likely to speed up the
socio-economic transformations which are needed to develop a market economy and do
away with clientelist structures often organized on a national basis.

(4) Another aspect, which could lead to the principle of graduation, is the idea that while
cooperation relations must be constantly established and strengthened, dependence on
foreign aid must be gradually reduced as progress is made in mobilizing internal resources
and improving a country's credibility in terms of private foreign investment.

**In the light of these considerations, four options are possible:**

(1) The status quo with some changes: a global agreement, differentiated procedures.
A first option would be to maintain the principle of a global ACP-EU agreement but with
different procedures depending on how the recipient countries' level of development
evolves. The common basis would determine the essential features (objectives, principles,
institutional provisions, duration of the agreement etc) and would cover certain areas of
relations (political dialogue, security matters, terms of access to financial and technical
cooperation). The trade provisions would, on the other hand, be differentiated, as would
the priorities and arrangements for the management of financial and technical cooperation.

(2) Global agreement supplemented by bilateral agreements. A global agreement
containing general undertakings, supplemented by bilateral agreements negotiated on a
country-by-country basis - or possibly by groups of countries in the case of sub-Saharan
Africa - would no doubt make it possible to tailor EU operations more closely to
circumstances.

(3) Break-up of Lomé IV into regional agreements. A third option would be to replace
the Convention with a set of regional agreements. This approach would be entirely
consistent with the general direction taken by the EU in recent years in its external
relations, based on differentiated strategies by regions or subregions. Within the ACP
area, sub-Saharan Africa is clearly a significant region for Europe. In certain subregions,
the headway made in regional cooperation is such that subregional agreements could be
considered.

The Caribbean countries are already organized at different regional and sub-regional
levels. The long-term aim of the EU could be to incorporate cooperation with these
countries in the framework of the relations it has developed with Latin America. The
European Union could also propose extending cooperation to all the countries of the
Caribbean basin. The Association of Caribbean States, as yet a fledgling but extensive
organization covering 37 countries of the Caribbean basin, could provide a suitable
framework. The very different levels of development within this region, the vulnerability
inherent in island states and the fragmentation of their economies, and specific problems
connected with drugs, the environment, migratory flows and democratic changes (Haiti
and Cuba) are, however, all reasons for a special approach, in terms of both foreign

**44**

_Chapter IV_

policy and security - the EU has a physical and strategic presence in the area [23] - and
development cooperation.

The ACP States of the Pacific are all members of regional organizations which are
relatively well-developed at economic and political level, as well as technical level.
Effective cooperation with this region of the world would mean extending the framework
of cooperation to other island states in the Pacific. In this extended framework, the
Community's interests lie in two specific areas: preservation of the environment and of
the region's considerable natural resources and trade promotion, especially with the APEC
countries. [24 ]

(4) LLDC Agreement. A last option would be to establish a cooperation agreement
with the least developed countries (LLDC) which could possibly be opened up to
non-ACP LLDCs, and to consider other types of agreement with non-LLDCs. In formal
terms of institutional provisions, a willingness to take account of the level of development
and needs of each country in determining the type of cooperation, can work only if a
distinction is drawn between LLDCs and non-LLDCs. A more detailed consideration of

the situation of each country could, as is already partly the case now, take place in the
course of financial and technical cooperation.

While this option might offer some advantages at trade level, it appears entirely unsuitable
as far as political dialogue and other areas of cooperation are concerned (support for
socioeconomic policies, scientific cooperation, environment, etc).

**E.** **The European partners and coordination: options**

From the outset EU relations with the ACP States have been driven by a desire for a
global approach, to the extent that the main instruments of Community action - trade
policy and aid - have been incorporated in a single institutional framework. Provisions
on respect for human rights, the rule of law, good governance and the principle of a
political dialogue, have been in the cooperation agreement since 1990.

An integrated approach has the advantage of encouraging consistent use of the various aid
and dialogue instruments involved. None the less the scope of European cooperation has
been hampered by three factors resulting from the EU's own action: (i) the consequences
for the ACP states, which were not systematically anticipated, of Community or Member
State policies other than development cooperation; (ii) the loss of efficiency and the
difficulties encountered by the aid recipient countries as a result of inadequate
coordination between the Member States and between the Member States and the

Community; (iii) the lack, which is increasingly felt in the current international context,

23 French Departments of America (DOM); British and Dutch OCT.
24 The Asia Pacific Economic Cooperation Council has eighteen members: Australia,
Brunei Darussalam, Canada, Chile, People's Republic of China, Hong Kong,
Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New
Guinea, Philippines, Singapore, Taiwan, Thailand and the United States.

45

_Chapter IV_

of a common stance and a common stance approach to the ACP States on the part of the
countries of Europe.

**To what extent can the EU improve the consistency - in the broad sense - of its**
**action vis-à-vis the ACP countries?**

It is clear that strengthening the political dimension of the partnership, referred to under
point B above, is a key area in the discussion on consistency in the broad sense. Apart
from this fundamental dimension there are two other aspects: (i) the consistency of other
Community - and national - policies with development objectives; (ii) the
complementarity and coordination of the Community's and the Member States'
development policies. These two aspects were underscored in the 1992 Commission
communication; [25] none the less, the effects of measures taken by the EU since then
remain limited and there is still a lack of coordination and consistency.

**Consistency** in the strict sense, that is the external effects of policies other than
development cooperation, can in any case never become an international commitment on
the part of the Community. Because of the sometimes conflicting interests between
internal and external concerns, or in the context of relations with other countries with
possibly competing interests, consistency remains a matter of political judgement. The
Treaty on the European Union answers these concerns by imposing the principle of
consistency, particularly with regard to its external activities (Article C of the Treaty) and
explicitly with regard to development cooperation (Article 130v). This issue has been
raised on several occasions by the Commission and the Council and a case-by-case
approach has been adopted here. [26 ]

With regard to **coordination** of the European partners, howevei, there are several options
for improving the situation. Besides the coordination efforts referred to in Chapter I.C,
which must be pursued at operational and sectoral policy levels and in international
organizations, the European Union could contemplate:

either framing a global European strategy in relation to the ACP States which
would commit both the Member States in their national activities and the

Community. It would no longer be a question of taking a more "Communitybased" approach to development cooperation but rather of aligning strategies. The
search for greater complementarity between the various national and European
interventions, a principle enshrined in the Treaty, would be facilitated by a
common reference framework;

or incorporating in the new cooperation agreement(s) an information, monitoring
and coordination system in the Member States' and the Community's key areas

25 SEC(92)915 of 15 May 1992 "Development cooperation policy in the run-up to
2000" and the November 1992 Council declaration on the same subject.
26 See the conclusions of the Development Councils of 25 November 1994 and 20
December 1995.

46

_Chapter IV_

of intervention. It would take the form of a commitment by the EU to improved
coordination.

The aim of these two options would not be to standardize European cooperation policies,
whose existence and diversity in terms of experience are a reflection of pluralism. The
aim would be both to improve the impact and effectiveness of European development
operations and achieve critical mass and also to assume the corresponding political
responsibility more explicitly.

Improved European coordination will promote coordination efforts undertaken by all
donors, and also within the multilateral system in the context of the interinstitutional
rapprochement agreed at the recent G-7 Summit, giving particular attention to Africa, on
the basis of the United Nations Initiative for Africa announced this March.

**47**

_Chapter V_

CHAPTER V. OPTIONS FOR A NEW EU COOPERATION POLICY WITH

THE ACP STATES

The year 2000 deadline does not herald a rethink on all the components of cooperation
policy implemented thus far. Indeed, many of the policy guidelines developed over the
years, particularly those adopted more recently, require both consolidation and, in certain
cases, further development. Cooperation policy is constantly evolving and new approaches
are gradually being introduced in a number of areas. Their significance should be
recognized.

In line with these recent guidelines and in view of the overall objectives enshrined in the
Treaty for Community development cooperation policy, the experience of the Lomé
Convention and the analysis of the ACP states' handicaps and potential, cooperation
between the EU and the ACP states in future must involve supporting their efforts to
achieve the political, economic and social conditions for sustainable development.
Improvements to the competitiveness of ACP economies, which are essential to boosting
employment and raising the overall standard of living, can be fostered by a variety of
measures both in the field of foreign policy - promoting the development and
diversification of economic and trade relations - and domestic policy - to improve supply
capacity. Given the above, the EU's cooperation policy with the ACP countries could be
restructured around three core areas.

- the social and economic dimension Poverty alleviation is at the heart of many of the
EU's financial cooperation initiatives. Several of the ACP states are counted among the
w [r] orld's poorest and, if the conditions that lead to stagnation and marginalization are to
be overcome, a range of sectoral and general policies is required. A variety of options can
be considered to extend the EU's scope for action so as to foster economic growth and
investment, promote private sector and social development and reduce poverty;

- the institutional dimension and the public sector The way in which a state performs its
duties and the factors of good governance, policy and economic management are often
crucial to ensuring the conditions of development in many ACP countries. In addition to
their intrinsic political dimension, which would justify stepping up ACP-EU political
dialogue as mentioned in Chapter IV.B, such problems also entail significant "technical"
aspects which need to be addressed in the cooperation framework. A broad consensus
exists on the need to support institutional reform and build capacity as part of any
cooperation policy and there is no doubt that the EU is already active in that respect.
However, it might consider stepping up support for reform of the institutional and legal
framework and improving public service capacity: indeed the latter is an area that is likely
to exert a considerable influence as, in many ACP countries, it is directly implicated in
the management of much of the aid and often determines both its impact and viability;

- trade and investment The Lomé trade arrangement, with its focus on tariff and quota
preferences, has been insufficient for the ACP countries, in contrast with the much better
performance of the LDC group, to preserve, least so to improve, their participation in the
world markets of goods, services and capital. Tariff advantages are, thus, neither a
sufficient nor a necessary condition for good export and growth performance. Supply-side
factors, in particular good governance and sound macro and microeconomic policies,

48

_Chapter V_

notably stable, secure and efficient internal trade and investment policies, are determinant
factors, more so than unilateral tariff preferences, in achieving high rates of export and
economic growth. It is vital, in the light of the limited impact of the "Lomé preferences",
the likely erosion of preferential margins and the need to adopt measures compatible with
the new WTO rules, to study carefully the various options facing the EU and the ACP
states when deciding the new trade arrangements. The goal is to enable the ACP countries
to be more involved in international trade and economic relations and to help them reap
greater benefit from the development opportunities such relations can offer and avert the
threat of increasing marginalization.

An _acquis communautaire_ exists to a varying extent in respect of each of the abovementioned core areas for cooperation. The following sections give an overview of the
acquis, referring to the Council texts deemed most important in the areas concerned.
However, further options should also be considered either for necessary institutional
reasons - as in the case of the trade measures - or for purposes of enhancing,
strengthening and ultimately increasing the effectiveness of the EU's involvement in line
with the goals it is pursuing through its development cooperation policy.

A. The socio-economic dimension

The analysis set out in Chapters I and III has underlined how the conditions of economic
and social development are undergoing a complete sea-change both at international level
and within the ACP countries, where the call for democratization and greater private
sector and civil society, involvement is being made with increasing stridency. Now
committed to the market economy and opening up trade, most ACP countries are
endeavouring to create conditions more conducive to the development of the private
sector and recognize the beneficial effects of foreign investment. Some have undertaken
economic reforms to that effect with varying degrees of success. However, private
investors are still reticent and only a few countries and sectors have registered significant
foreign investment. Nevertheless, prospects for growth have improved in many countries
though without any significant reduction in the incidence of poverty. One of the main
conclusions was the importance of making reform policy more credible so as to bring the
expected positive results earlier while reducing the element of risk and instability inherent
in the economic environment. The essential institutional and economic reforms must go
hand in hand with a profound transformation in the workings of society, which inevitably
implies long and gradual processes.

The ACP countries need to accelerate their economic growth. However, the leeway for
improving the impact of growth on the reduction of poverty is large too. Maximum
participation in the economy, access to productive resources (land, capital and credit,
training, information) and basic social services (education, health, nutrition, drinking
water), improving the social and economic situation of women and young people - these
are just some of the essential and complementary elements which make up any strategy
to alleviate poverty and which belong first and foremost to domestic economic and social
policy. The role of cooperation is to encourage the necessary political change and to
support endeavour by means of technical and financial assistance. Measures to alleviate
poverty cannot really be effective or have a lasting impact without the commitment and
clear willingness of the recipient country.

49

_Chapter V_

The concept of sustainable development and the pivotal nature of social and human
development have been extensively debated on the international scene in recent years. At
the major international conferences of Rio, Cairo, Copenhagen, Beijing and Rome, [27] a
large number of countries adopted common values and principles and identified priority
objectives. Thus the broad strategic outline and the main guidelines of economic and
social policy have been sketched out. Meanwhile, Europe clearly has its own benchmarks: the EU's cooperation relations reflect its concept of economic and social
development, which is itself the product of the diversity of Member States' experience.
It only remains for the EU therefore to find the most effective means to encourage
implementation of these strategies and adherence with the principles stated.

The discussion of the socio-economic situation in the ACP countries has also highlighted
increasing differences between them. The idea of a cooperation policy tailored to
circumstances merits consideration by the EU, allowing countries or groups of countries,
as they proceed gradually along the path of stabilization and reform, to progress from a
policy based on support for the reform process to a wider relationship embracing new
areas of cooperation and different forms of partnership, similar to what the EU has
proposed in other developing regions (more advanced economic cooperation, scientific
and technical cooperation, etc.).

The options for support of socioeconomic development must therefore be assessed in that
perspective: not only do different strategic priorities need to be adopted for each country,
but the areas of cooperation can differ from one country to the next.

The options can be grouped together under two priority themes geared to the same
objective, i.e. preventing marginalization: integrating the ACP states into the world
economic system and integrating the poor into economic and social life.

**1.** **Stimulating economic growth through competitiveness and private-sector**
**development**

Many of the EU's current cooperation policies are angled towards promoting faster
growth and higher private investment in ACP countries, with a wider integration through
trade and investment into the world economy. These include financial and technical
support for structural adjustment reforms, sectoral support in infrastructure, agriculture,
industry, services and human resource development, and direct support for the private
sector through the promotion of enterprise development, investments, trade development
and the financial and technical support provided by the EIB and CDI. A vigorous private
sector is essential if living standards and opportunities are to be continuously and
sustainably improved.

**The issue for the EU, given the modest rates of growth achieved in many partner**
**countries in the past, is what more it can do to promote faster economic growth,**

27 Earth Summit, World Conference on Population, World Summit for Social
Development, World Conference on Women and the World Food Summit.

50

_Chapter V_

**increased competitiveness of ACP enterprises, better export performance and higher**
**levels of private investment, and what new policies and approaches it might adopt.**

There are several options for making future assistance more effective:

(a) More systematic and comprehensive support for private sector development

The expected positive response of the private sector to economic reforms has been weak and
slow in a number of countries, particularly in sub-Saharan Africa. The reforms have often
failed to inspire confidence, and to produce the expected results, and consequently to reduce
to reasonable levels the costs and risks facing investors. Experience in recent years shows
that countries which demonstrate a credible commitment to sound economic policies and
reforms and which present a transparently fair and favourable environment for enterprise are
also successful in attracting investment, creating jobs and innovative firms, raising their export
earnings and achieving sustained economic growth. The tasks ahead are, therefore: (i) to
convince the public authorities and the private sector that reforms are genuine and permanent,
and that there will be stable and predictable economic policies; (ii) to tackle the policies and
institutions which are still the causes of high costs, low productivity and uncompetitiveness;
(iii) to strengthen financial systems and institutions so the private sector can invest more and
has better access to financial services; (iv) to develop economic infrastructure and (v) to build
private-sector capacity to manage businesses, train employees, develop and market products,
and achieve efficiency gains.

In assisting in these tasks the EU has a number of options for developing its own action:

- _**Confidence Building**_ The EU can insist that economic reforms it supports as well as
the assistance it supplies to promote the productive sectors of the economy are designed in
the knowledge that they will serve the overall development purposes of ACP countries and
in particular those of the private sector. After consultation with the population they need to
be properly explained to key non-governmental stakeholders.

It can provide resources to help partner governments streamline their relations with the private
sector, to improve lines of communications with it, to consult with it about its policy
intentions, and to listen to its grievances and policy proposals. Some ACP countries already
have government-private sector consultative fora which play a valuable role in confidence
building, so long as they are adequately resourced. In this context, the strengthening of
professional organizations and chambers of commerce is crucial, so as to perform properly
their advocacy role and provide useful services to enterprises.

 - _**Policy and Institutional Environment**_ The EU can assist partner governments with
further administrative and institutional reforms - including reforms in tax administration - and
reinforce the rule of law and the administration of justice as they affect businesses. It can
help governments to identify those regulatory and administrative practices which are nugatory
and which cause delays, inhibit investment and employment creation, and add unnecessarily
to the costs and risks of carrying on normal business.

It can make a more vigorous technical contribution to planning and implementing the
privatization of public enterprises (see sub-section under point b, below), and join partner

51

_Chapter V_

governments in the search for imaginative and sustainable solutions to infrastructural
deficiencies which hinder the private sector.

It can support the introduction of policies, rules and practices governing competition,
consumer protection [28] and the regulation of monopolies, research and information, technology
transfers, which complement economic reforms and privatization.

- _**Financial Systems and Institutions**_ The EU can do more to support local capital
markets and to improve enterprises' access to financial services. It can provide technical
advisory services and financial support for the restructuring of weak financial institutions and
for the strengthening of the legal and regulatory framework in which new, soundly-based,
financial services can be established to serve the needs of business, small enterprise, farmers
and savers. Particular attention must be given to issues like (i) strengthening domestic capital
formation, (ii) supporting diversification of financial institutions and services and (iii) the
improvement of payment systems and networks.

- _**Private Sector Resources and Capabilities**_ The EDF directly supports private
enterprise through national indicative programmes, through enterprise and trade development
and through the action of the European Investment Bank (EIB) and the Centre for the
Development of Industry (CDI). The CDI has recently up-dated its portfolio of instruments
in the light of the positive experience of the European Community Investment Partners (ECIP)
scheme operating in the ALA and Mediterranean countries and in South Africa.

Financial and technical support to micro-, small and medium-sized enterprises and industrial
craft undertakings comes through the EU's country programmes in the form of credit lines,
guarantee funds, advisory services, training and technological assistance. These programmes
have proved their worth and should probably be allowed to develop further (in particular by
means of appropriate funding). The EIB also has been a major player in providing loans and
risk capital. The EU also supports larger enterprises through its industrial investment and trade
development actions.

The Commission, in collaboration with the CDI, could enlarge the scope of its assistance by
financing consultancy and advisory services - both local and external - for use, on a cost-sharing
basis, by indigenous entrepreneurs seeking to develop their businesses. It could also do more to
increase the capabilities of local business and professional associations to provide capacity-building
services to their members.

The EIB also provides loans and risk capital, subsidised from EDF resources, to larger private
sector projects in infrastructure, industry, mining and commercial agriculture. A share of its
resources are on-lent through local financial intermediaries to private small and medium-size
enterprises.

28 Discussions are under way in the Commission on the role of consumer policy in
the framework of development policy (COM(95)519 "Priorities for consumer
policy").

52

_Chapter V_

One option for increasing support to formal enterprises would be to direct more EDF resources
to the Commission and the EIB, in line with the role of both institutions and to satisfy the growing
demands of private operations in ACP countries. In addition, EDF funds could also be made
competitively available to other EU-based development finance institutions (e.g. the EDFI
institutions), some of which are actively engaged in developing innovative financial services for
the private sector in ACP countries. The longer term goal, however, must be to encourage the
growth of local and regional capital markets, and for the larger and better established enterprises
in ACP countries to finance their development from the market sources, and not from official
credits. In this context, the development of local savings and its channelling to productive
investments is crucial.

The CDI has been the main instrument in the Lomé Convention for providing technical advisory
services to the SMI sector - especially in project preparation and appraisal, and in arranging
financing and partnerships. It has local antennas in many ACP markets, and is well placed to play
a brokerage role between new and expanding enterprises on the one hand, and financial,
technological and managerial know-how on the other.

A promising option for the future would be for the Commission, as part of a policy of increasing
the provision of demand-led, new technologies and advisory services for the private sector in ACP
countries, to encourage the CDI, along with other potential service providers in the EU and partner
countries, to expand its capabilities to assist enterprises on a cost-sharing basis.

_**Investment Promotion**_ The Lomé Convention has long recognised the importance of
foreign direct investment for the growth and competitiveness of ACP economies. The Commission
provides technical assistance in elaborating investment codes and investment protection laws and
regulations, and for governments' investment promotion initiatives. It has sponsored sectoral
investment and partnership forums to acquaint potential external investors with opportunities and
to promote partnerships. These activities are a useful complement to reforms and confidencebuilding measures which improve the enabling environment for private sector development.

Efforts to provide an attractive "shop window" for investment opportunities in countries which
offer a satisfactory policy and institutional environment for investors should doubtless continue.
Options for action on investment protection are further considered in Section C of this chapter.

In proceeding with this agenda the EU would have to be sensitive, empirical, and pragmatic about
what the real priorities and the felt needs of stakeholders are, country-by-country. It should be
selective and carefully targeted in its choice of programme. In its approach to private sector
development the EU should nevertheless be coherent and well coordinated with other actors - local
and external - who are pursuing the same objectives. Where private sector development and
support for greater competitiveness feature prominently in its cooperation strategies it should, in
collaboration with other stakeholders, seek to elaborate private sector development strategies which
lend a sense of purpose to individual programmes and projects.

Possible changes in the instruments of cooperation to support an enlarged and refocused policy for
encouraging the private sector are discussed in Chapter VI. A below. One approach is to consider,
in suitable cases, earmarking a portion of programmable country assistance for the support of
private sector development - both through actions to ameliorate the policy and institutional

53

_Chapter V_

environment and through measures of direct support for enterprises. The private sector could be
invited to participate in defining priorities for the use of this envelope of resources.

(b) Supporting public-enterprise restructuring and privatization programmes

Privatization is often one component of the reform measures designed to relaunch investment,
create a more competitive environment and build more flexible and diverse economic structures.
However, privatization is not a solution _per se_ and it should be possible to adopt a case-by-case
approach. The programmes are often complex and difficult to carry out, demanding substantial
analytical and admimstrative capabilities. Technical assistance, in particular in the evaluation of
the various options (restructuring, reform of the economic apparatus, etc.) and backup for any
social plans required, may provide one possible solution.

With its ability to mobilize the expertise developed by Member States and exploit the experience
it has gained across the globe, the EU is well placed to support privatization programmes.
Consideration could be given to developing this type of aid in countries where privatization would
clearly help attract new private investors and contribute to gains in competitiveness.

(c) Continuing and stepping up support for regional integration

Since the first Lomé Convention, the Community has supported various forms of regional
cooperation. In terms of funding, the focal areas have been: transport and communication
infrastructure, environment, animal disease control and training. Progressively support has been
unified under the general objective of strengthening economic integration. The underlying view
is that for the ACP countries regional economic integration is an indispensable step towards their
successful integration into the world economy. At the same time the EU has been drawing
attention to the negative effects of formulating and implementing economic reform programmes
in a purely national context. By now the need to take into account the "regional dimension of
adjustment" is generally recognised.

Over the past few years the EU has actively supported several regional organizations, particularly
the newly created UEMOA (West Africa) and the newly transformed and enlarged SADC
(Southern Africa). Together with three other co-sponsors (African Development Bank, IMF and
World Bank), the EU is supporting the Cross-Border Initiative in Eastern and Southern Africa and
the Indian Ocean, in which 14 countries are actively participating.

Two important aspects of the CBI should be stressed: involvement of the private sector and
coherence of the national and regional policy agenda.

Through its regional indicative programmes the EU supports infrastructural, environmental, health
and other initiatives which are of interest to more than one country and which are best conceived
and implemented on a regional basis.

In order to improve past performance it is necessary to put support for regional economic
integration into a coherent strategy. Taking into account the EU's recent experience, such a
strategy should have the following basic components:

54

_Chapter V_

1. capacity building (including technical assistance, training and endogenous research) on the
subject of regional economic integration both at the level of regional institutions and national
governments;
2. assistance to the private sector to facilitate restracturing in the larger regional and world
market. This would also include improvements in the financial sector to facilitate and secure
payments;
3. support for governments committed to implementing regional integration to cope with
transitional effects on budgetary resources (balance of payments or budgetary support,
complementary to and fully consistent with national economic adjustment support).

The instruments that are presently available are well suited to supporting such a coherent strategy.

There is another novel way for the EU to promote regional economic integration that needs to be
further explored, i.e. through its trade policy. The EU is presentiy involved in negotiations to
achieve a Free Trade Area (FTA) with several (groupings of) developing countries. Because of
the influence of the EU in trade matters, the provisions of such FT As will affect the integration
of developing countries into the world economy. There is an opportunity to use these provisions
in a way that fosters more regional economic coherence of the developing countries. According
to the Commission and Council conclusions of June 1995 on Free Trade Areas, these arrangements
should comply with the relevant WTO provisions, and take into account the implications for the
Union's common policies and for its main trading partners.

(d) stepping up trade development support measures

Trade development is a specific arm of a more comprehensive policy which focuses on
competitiveness and private sector development. In addition to the instruments peculiar to trade
and investment regimes, which will be discussed below in Section C, there is also a wide range
of cooperation initiatives to assist trade development. This dimension was introduced into the
Lomé Convention when it was revised in 1995 and the EU undertook to develop this area of
cooperation around a variety of support programmes: integrated trade development programmes
at national or regional level, multiannual support programmes for trade organizations involving
both ACP and European operators, programmes to assist enterprises in specific sectors and
programmes to support the development of irifrastructure and trade-related services (transport and
communications, financial and other intermediaries, chambers of commerce, etc.).

Given the fact that the new challenges posed by globalization and competitive forces will create
changes in the basic parameters of international trade the EU ought therefore to strengthen and
intensify its commitments to supporting ACP States in their efforts to capture the potential benefits
arising from new trade opportunities.

Increased emphasis should be placed on targeting of the private sector with concentration on that
support being client-driven and participatory. Priority should be given to the creation of
international partnership networks, investment promotion, and development of support service
industries and institutions.

Greater emphasis should be given to strengthening mechanisms for the enhancement of networks
between European and ACP private sectors.

55

_Chapter V_

Furthermore in recognition of the revolution in global information technology that will be a feature
of the next millennium the EU should intensify its support to ACP States in gaining access to the
hard- and software associated with it and in facilitating its optimum utilization.

(e) supporting the development of scientific and technical expertise as a strategic component
of sustainable development

The rapid development of more and more complex technologies, notably in the health, food and
communications fields, and the widening scientific and technological gulf between the majority
of ACP states and the industrial world should justify special attention to this area by the EU.
Although this dimension features in the Lomé Convention, it has not as yet given rise to any
coherent or sustainable plan of action.

In view of the Community's experience, the EU is in a good position to build up scientific and
technological partnerships involving government R&D institutes and private enterprises in the
sectors concerned from both hemispheres. Such initiatives should be founded on dialogue with the
ACP countries on the R&D issue, in particular on a regional basis, with the aim of encouraging
them to upgrade their regulatory frameworks (intellectual property rights, movement of goods and
persons, investment code, etc.) and helping them to provide the budgetary backup required for a
policy to develop research/industry partnerships.

(f) helping the ACP states prepare for ongoing developments in the information field

Progress towards the information society concerns not only advanced or emerging economies but
also those economies and societies which are, or wish to be, open to the outside world. As the
participants at the recent conference in Midrand recognized, these changes must form part of a
shared vision of the future associating the industrialized and developing worlds. In the conclusions
of its Chair, the Conference also highlighted national responsibility and the unique role to be
played by the private sector. [29 ]

The initial stage depends on improvements to telecommunications services which, together, with
water and electricity, are used by every branch of the economy.

This field is an especially attractive one for the private sector in view of its potential for growth
(all ACP countries are under-equipped) and the recent emergence of new technologies which
provide a more flexible response to the requirements of countries like the ACP group, e.g. satellite
transmissions, mobile and stationary cellular telephones. The European experience of transition is
sufficiently rich and varied to offer tailor-made aid tailored to countries that so wish.

There is also the development of new services, such as the Internet, which is already accessible
in many countries and represents a genuine opportunity for its users, researchers, university
students or entrepreneurs to participate in networks exchanging information worldwide.

29 The Information Society and Development Conference (ISAD) was held in May
of this year at the initiative of President Nelson Mandela, G7 members and a
number of developing and industrialized countries.

56

_Chapter V_

At a subsequent stage telematics applications, e.g. in fields such as health, education, research
networks as well as electronic trading, may help solve certain problems in ACP countries. These
initiatives will be all the more effective for pilot projects to prepare those concerned and involve
them in decisions on the content and use of applications.

Community models, of which the home shopping experiment is a good example, can thus take the
place of the largely individualized applications developed in advanced economies.

(g) monetary cooperation

In many ACP countries political and economic instability is a major impediment to increasing
investment and accelerating growth. A stable monetary and financial background is a prerequisite
of an economic policy designed to achieve balanced and sustainable growth. This implies not only
the existence of effective and independent institutions, the implementation of a monetary and
exchange policy geared to stability and sustainable budgetary policies but also an extension of the
banking system's role in the distribution of savings.

Europe could support the ACP countries' efforts to modernize and adapt in these areas. The
priority goals would be consolidation of institutions and modernization of procedures for managing
monetary and budgetary policy, development of the banking system, establishment of current
convertibiUty and the progressive liberalization of the movement of capital taking account of the
degree of development and macroeconomic stability achieved. The Union should continue to
encourage regional cooperation in macroeconomic and monetary policy.

Monetary Union and the introduction of the euro will open up new opportunities for ACP
countries, especially those for whom the EU is the principal trading partner. The credibility and
effectiveness of their monetary policies would be increased if they decided to gear their exchange
policies to a stable currency, taking account of the need to maintain the competitiveness of their
economies. Selecting a single external reference standard would also contribute to more stable
bilateral exchange rates between these countries. This would not only assist in economic and trade
relations between them but also in the implementation of regional integration projects.

These various elements will help lay the foundations for a gradual stepping-up of cooperation in
the macroeconomic and monetary field between the EU and the ACP states.

(h) EU support initiative to ease the foreign debt burden

In the light of the enormity of the foreign debt problem facing many ACP countries, it is hard for
the Community to turn a blind eye to international initiatives in this area. Community financial
cooperation, which almost exclusively takes the form of grants, does not have the effect of
increasing debt. Nevertheless, the Community could act both as creditor and donor by developing
support mechanisms and instruments to ease the burden of debt holding back ACP countries in
their pursuit of adjustment and reform programmes.

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_Chapter V_

2. Boosting employment and support for social policies in the framework of poverty
alleviation measures

The EU has strong grounds for focusing its ACP cooperation effort on the goal of poverty
alleviation: not only would this give priority to a problem which is assuming alarming proportions
in many ACP countries and resulting in a series of interdependencies having an adverse effect on
Europe in terms of migratory pressure and various security-related issues, but it would also put into
practice the external aspect of one of the founding principles of the Union - social progress - a
recurring theme in the Treaty and in the Protocol on Social Policy, [30] which appears in various
forms (employment, education and training, equality for women, etc.) in Community policies.

Poverty alleviation is already a priority theme of the current cooperation policy and has been
further developed in recent years by some new guidelines:

- in the implementation of structural adjustment support in the ACP countries and in the use of
counterpart funds, priority is given to expenditure in social sectors;

- a resolution on measures to combat poverty adopted in 1993 laid down a series of principles to
take greater account of that objective in the Union's cooperation policies. The adopted approach
highlights the need to include the objective of poverty alleviation in all domestic policies conducted
in developing countries and in all cooperation activities and also includes the possibility of
measures targeted at poor sections of the population;

- the accent on the role of women is a key factor in any strategy to alleviate poverty. By taking
a wider look at the issue of the contribution of women, the resolution on this subject adopted in
November 1995 is to a large extent complementary to the 1993 resolution on poverty;

- Community action in the social sectors makes a substantial contribution in this direction, in
particular since the adoption of the recent resolutions on health and on education and training,
which give the clearest priority to basic health care and to primary education and training, thereby
benefiting the poorest communities more;

- the recent changes in food aid and in particular the stress put on food security aid and the
problem of access to foodstuffs (e.g. by preserving local food traditions and produce) constitute
another important element of action against poverty;

- the areas in question (health, education, food security and women and development) are also
priority areas for stepping up coordination between the Member States and the Community both
at operational level and in policy-making;

- another important factor in the poverty issue is the preservation of the environment both in rural
areas (problems of soil degradation, sustainable exploitation of natural resources) and in towns
where acute problems of sanitation and infrastructure are being more frequently encountered

30 The Protocol on Social Policy refers to the implementation of the 1989 social
charter on the basis of the _acquis communautaire._

58

_Chapter V_

against a backdrop of sharply increasing urbanization in the ACP countries. The extent to which
poverty and the environment are linked was widely acknowledged at the Earth Summit.

Environmental concerns are increasingly permeating Community cooperation policies through the
systematic use of impact studies and specially tailored programmes;

- finally, a range of other cooperation measures exists to help alleviate poverty: action in the rural
development sector, vocational training, micro-projects and measures to assist the development of
private enterprise, often helpful in promoting job creation, cofinancing through NGOs, support for
population policy or even consumer policy. [31 ]

**These policy guidelines must clearly be retained and confirmed. In future, however, the EU**
**and its ACP partners must decide to what extent and how the impact of Community**
**cooperation on poverty alleviation could be improved.**

In view of the diverse nature of poverty in the ACP states, it is absolutely essential to maintain a
broad approach involving a vast array of measures. Nevertheless, the EU could propose a more
strategic approach to its partners in two areas:

(a) access to productive resources, employment and human resource development The pace of job
creation depends on a set of conditions which can be directly or indirectly influenced by a wide
range of measures or general or sectoral policies. The EU can support such policies through:

- aid to improve capacity to analyse and formulate policies to promote productive employment;

- support for reforms designed to improve access to productive resources, notably in the fields of
education and vocational training, access to credit, home and land ownership. This type of aid
could exert a considerable influence by helping to improve living conditions through better access
to revenue-generating activities;

- support for labour market policies designed to build-up an able, mobile and motivated workforce;

(b) support for social policies Already committed on a wide scale to cooperation activities in the
social sectors, the EU is endeavouring to increase the impact of the aid it provides by a more
comprehensive sectoral approach, gradually abandoning the project-based approach. This trend
could be intensified by means of:

- in-depth and continuous dialogue on social policy with a view to formulating a broad strategy
and priorities and studying the links - often complementary, but occasionally conflicting - between
the economic and the social objectives;

- financial aid geared in particular to the financing of current expenditure in the above sectors in
close association with macroeconomic dialogue and structural adjustment processes.

31 Developing countries are especially concerned by issues such as movements of
dangerous or hazardous goods, product safety, use of medicinal products, etc.

59

_Chapter V_

The ongoing debate in the international community about the 20/20 concept [32] has highlighted the
interest of mutual undertakings between beneficiaries and donors to promote social development.
While recognizing the relevance of the principle of mutual undertakings, the EU prefers a more
comprehensive and detailed approach on account of the nature of its policies.

Under the future ACP-EU partnership, assuming that aid is more selective and linked to assessment
of "good governance", one criterion could be how much effort is invested in social and other
policies designed to improve access to productive resources and boost employment.

**3.** **Integrating protection of the environment in the development process**

One of the central insights provided by the theory and practice of sustainable development is that
effective environmental action cannot be conceived as an afterthought to unchanged social and
economic policies. Rather environmental concerns must be integrated into the design,
implementation and evaluation of all policies, programs and projects.

While the Community has a long-standing array of policy declarations on environmental
management, it still lacks a clear strategy and a sense of purpose to make it operationally viable.
Looking at growing consensus emerging from the Rio process, there appear to be 4 priorities for
development cooperation:

- meeting needs and alleviating poverty. While the cause and effect relationship between poverty
and environmental degradation are complex, both poverty and pollution can be seen as the result
of social and economic forces that tend to externalize human and environmental costs into current
and future generations.

- harnessing market forces to reflect environmental costs and benefits. Agenda 21 is rooted in the
recognition that markets need to progressively internalize social and environmental costs, so that
prices 'tell the ecological truth'.

integrating,environment objectives in overall policy formulation and in management systems, so
that environmental protection becomes and integral part of the development process and not an
isolated objective. This requires strengthening environmental capacities and taking a participatory
approach.

- 'greening' the investment portfolio, by assessing environmental impact through the project cycle
and by financing priority investments in environmental conservation and pollution abatement.

Certain topics merit special attention:

32 The "20/20" concept was first propounded by the UNDP in its 1994 report on
human development. The Action Programme produced by the World Summit on
Social Development (Copenhagen, March 1995) also refers to it. It advocates
mutual undertakings between beneficiaries and donors based on the principle of
spending a minimum of 20% of domestic budgetary and foreign aid resources on
the basic social sectors.

60

_Chapter V_

- for many ACP countries the problem of the quantity and quality of water resources is reaching
critical proportions in both urban and rural areas. The relationship between water, population
pressure and soil degradation is assuming crucial importance;

- deforestation is becoming a major problem in numerous countries with repercussions not only
at local level but globally too insofar as it affects biodiversity;

- ACP island states are particularly exposed to the potential dangers linked to climate change,
especially the increasing frequency of violent storms. In sub-Saharan Africa too, there is the danger
from the worsening drought problem;

- support is required to build up the ACP countries' capacity in environmental policy, both as
regards formulation and implementation, especially in relation to the follow-up of international
conventions that have been ratified or are in the pipeline.

**B.** **The institutional dimension**

Chapter Ill's analysis of socio-economic and political developments in the ACP countries
highlights the shortcomings of the state and the seriousness of problems of governance. These
problems are hindering development in a number of countries, delaying structural adjustment
programmes (or preventing them from being completed) and aggravating instability and the "trust
gap" which jeopardizes investment and the legitimacy of development aid. This analysis has also
demonstrated the need to restore or bolster the rule of law in order to create the basic preconditions
for development and reducing inequality and poverty. The Fourth Lomé Convention, as revised
in 1995, recognises these factors as fundamental.

The European Union has so far not come up with a firm policy regarding government and legal
reform, improving capacity to analyse and formulate development policy or strengthening those
institutions active in civil society which are capable of counterbalancing the authorities.
Community action to back institutions and good governance has focused on encouraging
democratic elections, providing technical assistance to help with development projects and
programmes and providing targeted financial assistance to help with or offset the effects of some
reforms. However, recent years have seen greater focus on the institutional backdrop as a whole
rather than the agency or institution responsible for a particular project. Structural-adjustment and
sectoral-policy support have encouraged this change in focus, which has enabled the Community
to be more active in improving the policy environment (in individual sectors and in general). This
approach is destined to become more common, especially as evaluation studies have shown that
institutional matters will have to be considered as a matter of course and in greater depth if
Community cooperation is to be made more efficient.

Are there not grounds for going beyond such detail changes, however, which are, after all,
perfectly compatible with current policy. In the new international economic and political climate,
the state is becoming a structure which is seen as responsible for laying the groundwork for
sustainable and equitable development. Under these circumstances, should there not be a rethink
of this dimension of ACP-EU relations, and **should the EU itself not be giving more strategic**
**backing to the political and social transition which is needed?**

**61**

_Chapter V_

Change in a country's institutions is basically a political process. No reform can succeed unless
it has support on the ground, and there will always be many obstacles (because it affects the power
structure and will inevitably meet with resistance). Institutional development consequently has two
complementary sides: a political side and a more "technical" side.

**In this situation, should the EU play a more active role in institutional development and**
**become involved in the dialogue with other donors on such matters? And how can it set**
**about playing such a role?**

1. There are compelling reasons for the EU to step up its activities in this area, give them
greater priority and indeed make them a major plank of its relations with the ACP countries:

The ACP countries themselves are now having to redefine their concept of the functions
of the state and improve the way the state fulfils those functions. The aim is to serve the
general interest. The political motivation behind the EU's activity in this area has no
overtones of national interest: the EU has no prototype to force on other countries, and the
Member States organize their own social and political systems in a variety of different

ways.

The fact that respect for human rights and fundamental freedoms and the application of
democratic principles are deemed essential by the Union. Because there have been
problems with the current policies for backing democratization (see Chapter III), a less
formalistic and more constructive approach needs to be adopted.

The efficiency and impact of Community aid are closely related to these institutional
questions. Most Community aid in the economic and social fields would be improved by
more decisive action on institutional development. As evaluation studies have shown, the
impact and viability of Community aid programmes are often adversely affected by too
little account being taken of the limitations and obstacles connected with the institutional
setting. If the EU backs economic reform, it should in its own interest and in the interests
of efficiency, tackle the related institutional matters. If adjustment policies are to succeed
in the ACP countries, there must be a predictable legal framework, transparent decisionmaking and administrative and budgetary management procedures, and good public
services.

The partnership that the EU is seeking to develop with the ACP countries is an appropriate setting
in which to tackle institutional development issues because it allows the countries involved to take
primary responsibility for reform and allows the EU to provide technical, financial and policy
support on the basis of reciprocal medium-term commitments.

Furthermore, the experience of reform which the Union has gained from the process of European
integration gives it a special know-how.

2. From the points of view of content and procedure, there are three complementary lines of
action which could be contemplated to further the EU's capacity- and institution-building efforts:

The EU could re-examine ways of mobilizing local and Community expertise for transfers
of know-how between Europe and the ACP countries. The establishment of a specialist

62

_Chapter V_

network for analysis and technical assistance would provide ongoing support over
sufficiently long periods of time and build up genuine experience and know-how.

The EU could specialize in particular fields, depending on the "added value" it was able
to contribute relative to other donors (bilateral or multilateral). A number of fields may be
identified within the EU's main spheres of action:

(a) promoting respect for human rights;

(b) assistance for regional organizations;

(c) restructuring of public services (in consultation with those immediately involved),
improving capacity to analyse and formulate economic and social policy, preparing reform,
helping to decentralise the civil service;

(d) managing budgets (in conjunction with support for structural adjustment);

(e) developing certain capabilities needed to cope with the operation of a market economy
(business law, consumer-protection law and consumer associations, investor protection,
preservation of the environment, competition rules, etc.);

(f) decentralized cooperation, as a way of adding to (not supplanting) assistance for the public
sector, in order to improve interaction between the public and private sectors and to bring
what the EU does closer to those active in civil society;

(g) strengthening parliamentary institutions to promote policy transparency and sound
management of public affairs.

The EU could use new aid practices to try and reduce negative effects on local
capacity-building.

The advantages of using more local expertise have already been recognized in the Lomé
Convention, but more fundamental changes need to be contemplated. In certain situations, and for
**a** limited time, some substitutions will probably be inevitable, but a clear political signal backing
**a** change of approach and a reduction of the adverse effects of aid on local institutional and
administrative capacity-building will probably give rise to a number of changes (simplification of
procedures, reduction of the range of instruments and abandoning of the project-based approach).
This would constitute a strategy realignment because local capacity-building is destined to become
**one** of the main influences on the choice of practical arrangements for aid. The different options
**in this** connection are discussed in Chapter VI.

**C.** **Trade and investment**

**Suitable** integration of the ACP group into the global economy, and in particular the definition of
**its** proper place in the evolving external economic relations network of the EU, as a major
dimension of their integration into the world economy, constitutes the challenge for new ACP-EU
**relations** post-2000, relations. Failure to devise an appropriate framework may result in the

63

_Chapter V_

breaking up of the ACP group, the drifting away of some ACP regions and countries from the
present link with the EU, and further marginalization of the poorest ACP countries.

Trade arrangements.

Many options are possible for a future ACP-EU trade relationship after the year 2000. These
options should, in theory, allow the ACP countries to accommodate their preferred integration
strategies. These options should also be reviewed in respect of the dimensions of the partnership
principle underpinning the ACP-EU trade relationship:

(i) Single trade arrangement versus multiple trade arrangements
(ii) Differentiated versus generalized
(iii) Reciprocal versus non reciprocal
(iv) Contractual (providing long-term security, bilateral or multilateral) versus unilateral (at EU
political discretion).

As the principle of partnership carries a major political value for the ACP countries as well as for
EU members, the different options considered would have to be assessed in the light of thenimpact on that principle: Would they undermine it or reinvigorate it? Would they narrow it down
or broaden it? These are important political considerations to take into account when assessing
the different options; the technical constraints relating in particular to the negotiation of free trade
should also be considered (see Box 5 for a discussion of the trade options).

The menu which could be offered for consideration of the ACP countries could be composed of
the following items:

(i) _"Status_ _quo"._ Preservation of the current non-reciprocal, differentiated (in respect of other
LDCs), contractual, uniform scheme focusing on strict market access terms. An "enhanced
status quo" variant could involve improvements in market access, together with relaxation
of rules and procedures, agreements on trade-related matters (standards, environment,
competition policy, intellectual property, etc) and an agreement on services. Another
variant would restrict this option only to the least advanced ACP countries, proposing to
the more advanced group any of the options below according to their wishes or
capabilities. Finally, an element of reciprocity could be introduced into this option by
requiring all ACP countries to submit and bind a tariff schedule offer to the GATT.

(ii) "Integration into the GSP". This option consists in removing the trade package from the
Lomé Convention, which will be reduced to an aid package. The least-developed ACP
(LLDC-ACP) countries would be grouped with the least developed non-ACP countries,
while the more advanced ACP countries would graduate into the normal scheme. To avoid
too drastic a loss of preferences for the LLDC-ACP, the general preferences granted to the
least-developed countries could be upgraded to reach parity with the level of Lomé
horizontal preferences. Being a unilateral policy of the EU, the concessions granted would
not be the object of negotiation with the ACP countries. Nothing could be asked from
them in exchange. Alternatively, the EU-LLDC preferential arrangement could be
embedded into a multilateral (possibly GATT-bound) preferential arrangement for LLDCs.

64

_Chapter V_

(iii) "Uniform reciprocity". Require all ACP countries to extend reciprocity (consistent with
WTO rules), after a common transitional period, to EU exports. As a variant, allow for
different transitional periods for the LLDC-ACP countries on one side, and for the more
advanced ACP countries on the other. As an enhanced variant, this option could also
involve agreements on trade-related areas, and an agreement on services. It would also
entail full integration of the ACP countries into the WTO framework.

(iv) "Differentiated reciprocity". Variable geometry reciprocity (consistent with WTO rules)
with the EU on one side, and with homogenous regional groups of ACP countries, or with
single ACP countries on the other side, on the model of North-South regional trading
arrangements. As an enhanced variant, this option would also involve agreements on trade
related areas and an agreement on services, and full integration into the WTO framework.
Another variant would envisage regional trade arrangements between the EU, on one side,
and a regional integration area made up of ACP and non-ACP countries.

Finally, two additional options combining the four options reviewed above may also be considered:

(v) "Differentiation under a single framework". This option would encompass options (i), to
(iv) as items of a single menu for the EU and the ACP to choose from, depending on
levels of development, perceived needs and the will of the ACP to deepen the relationship,
political conditions and the level of reciprocity the ACP were willing to grant to the EU.
It would maintain, for all ACP countries, the contractual character of the present
relationship but might require major modifications to certain horizontal preferences of the
current relationship (commodity protocols and agricultural preferences), notably as regards
country eligibility.

This option would contemplate a set of trading arrangements organised in four tiers:

(a) Region-to-Region FT As. along the model of option (iv);

(b) Bilateral FT A, same as option (iv) but with willing single ACP countries which are
outside any regional integration process and are large and capable enough (examples:
Nigeria, Zaire), and provided that political conditions are right;

(c) Non-reciprocal preferences, maintained for the least-developed ACP countries
(established unilaterally or within a multilateral framework), those whose per-capita income
lies below an internationally recognised level, and are outside any regional integration
process falling under option a) above;

(d) Graduation into GSP. in respect of the horizontal, non-reciprocal preferences, dealing
with those ACP countries not willing to come under options (a) or (b), but showing a level
of development which would make them ineligible for option (c); "graduate" ACP
countries could, perhaps, maintain the preferences under the commodity protocol, but only
for a transitional period (a waiver could be required in this case).

Within this framework, the ACP countries would be able, in agreement with the EU, to
select the trade option that best fitted the integration strategy chosen and their needs and
capabilities. However, issues of trade and investment diversion effects among groups of

65

**Box 5. Discussion of the trade options**

**The** _**"status**_ _**quo"**_ **option,** **which has the advantage of already being a known quantity,**
**maintains the** **integrity** **and contractuality** **characteristics of the present trade**
**arrangement,** **thus providing long-term security (up to a certain point, see below), and**
**because of the preservation of its differentiated features (relative to other** **LDCs)** **will**
**still convey the message that the ACP trade relationship is still at the top of the EU**
**pyramid of trade privileges. It also has the specific advantage** **that,** **with regard to a**
**number of agricultural commodities which are both sensitive within the Union market**
**and of major - indeed decisive - importance to several of the ACP countries, it enables**
**the Union to offer access provisions subject to precise** **limitations.** **These limitations**
**provide a clear planning framework for the ACP and enable the quantities concerned to**
**be absorbed by the Union's agricultural market. This option could also provide breathing**
**space for the common agricultural policy to evolve under the impulse of the next stage**
**of the WTO and enlargement of the Union.**

**The shortcomings of this option are that:**

**-Being** **differentiated,** **it will continue to require a WTO waiver which needs to**
**be reviewed every year. As a result, the security of the preferences, one of the**
**main assets of the** **Lomé** **trade package, will be severely undermined.**

**- Because of the diminished security of the preferences, it will also be unable to**
**help attract significant levels of FDI and to counteract the diversion effect that**
**other** **EU-led** **regional trading arrangements may have on European FDI.**

**-It will not give the necessary security and credibility to the trading (import and**
**export) and regulatory regimes of** **the** **ACP countries, in order to reduce the level**
**of risk and thus make** **the ACP countries more attractive as investment**

**locations.**

**-It will not provide any additional impetus to the regional** **integration** **processes**
**under way among ACP countries.**

**-It will prevent any ACP country or group of countries from joining regional**
**trading arrangements involving other developed economies, as it would be**
**politically and economically unacceptable for the EU to be discriminated against**
**in ACP markets relative to other developed economies.**

**In any case,** **this** **option should be supplemented by the requirement that the ACP**
**countries submit and bind a tariff schedule under the** **GATT;** **this could be instrumental**
**in mustering support for an article XXV.5 waiver.**

**65** **« .**

The second option,"integration into the GSP". will have as major advantage, seen from
the EU point of view, of harmonizing the non-reciprocal preferential trade policy of the
EU and bringing full conformity with WTO rules. It will create a level playing field, in
respect of access to the EU market, for all LDCs other than those engaged in regional
trade arrangements with the EU. It will also allow some ACP countries or groups of
countries to engage in regionalism with other developed economies (Caribbean within
NAFTA, or FTAA, Pacific-ACP in respect of APEC). On the minus side, this option
will:

-Permanently dismantle the Lomé package in several respects. It will treat
different types of ACP countries differently according to their level of
development It will also uncouple the aid from the trade policies which are now
integrated into the Lomé Convention.

-Reduce drastically, at least for the more advanced ACP countries, the
preferential margin received under the Lomé package, since the preferences on
agricultural products will have to be aligned to GSP levels and the commodity
protocols could no longer be provided. Under this option, the continuation of the
Sugar Protocol could pose certain problems, not least problems of a legal nature.

-Reduce security in respect of the market access terms previously enjoyed,
although the reduced level of preferences, while at the discretion of a change in
policy by the EU or submitted to the graduation mechanism of the GSP, will be
unchallengeable under the WTO. The more advanced ACP countries will find it
more difficult to attract FDI under this option. However, the multilateral GSP
option for LLDC (ACP and non ACP), bound in the GATT, would achieve a
high level of security.

-Provide no additional pull on FDI, nor would it provide a counterweight to the
trade and investment deflection effects resulting from EU-led regionalism
involving other LDCs.

-Be neutral in respect of the viability of South-South regional integration
processes under way. Give no additional protection to the surge in EU
regulations on trade related areas.

Finally, this option will fundamentally weaken the principle of partnership
embodied in the Lomé Convention, which would be reduced to its political,
institutional and aid dimensions.

The third option, "uniform reciprocity" (within the meaning of article XXIV of the
GATT), would conform to WTO rules. It would fundamentally reinforce the principle of
partnership, as it would make more equal the contract between both parties, and would
make it of indefinite duration (at least where the trade part of the Convention is
concerned).

_**b**_ _**[h ]**_

-It will maintain, even enhance, the security and predictability of the preferences,
and by opening and "locking in" the import regime of the ACP countries it will
lend credibility to their trade policies in the eyes of domestic and foreign
investors. As a consequence an enhanced pull on FDI can be expected, as well
as a further impulse from domestic investors.

-It will also level the playing field in respect of other LDCs engaging in FTA
agreements with the EU and allow certain ACP countries to join regional trading
arrangements with other developed economies and get a fair share of the benefits
of regional economic dynamics.

-On the minus side, by imposing a uniform, horizontal framework, this option
will not address the existing marked differences among ACP countries in terms
of levels of integration and development, as well as in terms of both the need
and the ability to engage en free trade negotiations with the EU.

Feasibility is certainly the main problem: How could all ACP countries agree on a single
"plan" and "schedule" (as required by article XXIV.5.(c)) for the formation of a
ACP-EU FTA which takes into account their trading patterns, their differing needs for
industrial restructuring, for changes in fiscal policy which could be required to
accompany the dismantling of tariffs, etc ?. It would be impossible for a single
framework to accommodate the needs and the conditions of all ACP countries.

Furthermore, many ACP countries lack the human skills and the administrative
capability to engage in free trade negotiations with the EU.

"Differentiated reciprocity", would carry all the benefits of the previous option while
allowing for the different levels of integration and development, as well as for the needs,
conditions, abilities and willingness of the different groups of ACP countries. For each
ACP region, a "plan" and a "schedule" for free trade with the EU which best fitted its
particular needs and abilities, could be defined. This option would give a major impetus
to the regional integration processes under way among ACP countries.

-A major casualty of this option would be the loss of the integrity of the
relationship and the fragmentation of the partnership principle (which however
would be reinvigorated within each agreement). Furthermore, since this approach
must build on existing regional integration processes among ACP countries
(UEMOA, SADC, CARICOM, etc), those ACP countries not party to, or
unwilling to join, any of those processes would have to enter into single FTA
negotiations with the EU. This option could also accommodate FT As involving
the EU on one side and ACP and non-ACP countries which constitute "natural"

regional areas on the other.

é î C

-The option will also involve the demise of the commodity protocols and the
agricultural preferential scheme. The negotiation of preferences under these
particular instruments would give rise to certain problems.

-Feasibility is also a major problem with this option, since it can not be expected
that all ACP countries, or all _AC?_ regional integration groupings, meet the
conditions (political, commercial, administrative and other), are capable of, or are
willing to enter into, FTA negotiations with the EU. Furthermore, if the
arrangements negotiated do not fully meet the requirements of article XXIV, a
derogation (art. XXIV. 10) would have to be requested. If too many arrangements
of this type were to be considered, the management of the derogations in the
WTO could constitute a major problem for the EU. Under this option, and
according to the Commission and Council conclusions of June 1995 on Free
Trade Areas, these agreements should comply with the relevant WTO provisions
and take into account the implications for the Union's common policies and
main trading partners.

_**i$d**_

_Chapter V_

ACP countries will be unavoidable as the pattern of preferences and the pull on FDI will
vary for each group according to the option selected.

This framework option would preserve the integrity of the existing Lomé Convention but would
allow for reciprocity, differentiation and graduation considerations to be added as additional basic
dimensions of the partnership principle. They would work as inside dynamic elements pulling
individual ACP countries from a given stage of the relationship into higher stages, as their
individual conditions, and their wishes, allowed. In respect of WTO compatibility, this single
framework would most likely have to be joined by a request for an Article XXIV. 10 derogation
(i.e. derogation in respect of the minimum compatibility conditions for FT As).

(vi) "Differentiation leading to a variety of arrangements". In this scheme the alternatives (i)
to (iv) lead naturally to a variety of trading arrangements, possibly coexisting with a single
aid package. The integrity of the Lomé Convention is obviously the first casualty of this
approach. Contractuality and security, and certainly the strength and scope of the
partnership principle, will vary between arrangements, and the current level of preferences
will likely be eroded for some groups of ACP countries or enhanced for other groups
according to the option chosen.

This multiple framework will be quite incompatible with the preservation of the benefits
provided under the commodity protocols as well as with the horizontal scheme of
agricultural preferences. Issues of unequal treatment and of deflection of trade and
investment between groups of ACP countries will become even more serious than under
the single framework option above.

The advantages and disadvantages associated with each option, as discussed throughout this
note, will accordingly apply to the group of ACP countries covered by each. In respect of
compatibility with the WTO, an Article XXV.5 waiver would have to be requested for the
non-preferential scheme for the least advanced ACP countries. This may be easier to
obtain.

Whichever option chosen, it should be remembered that the EU has embarked on harmonizing the
rules of origin used in preferential trade arrangements. [33 ]

Investment Protection and Promotion

Under the provisions of the fourth Lomé Convention, ACP countries have undertaken to accord
fair and equitable treatment to private investors, to create and maintain a predictable and secure
investment climate, to improve the business environment, and to foster a legal, administrative and
incentive framework conducive to the emergence and development of dynamic private sector
enterprises (Article 258(c) to (g)). Countries have striven, individually, to implement these

33 A decision to harmonize the rules of origin was taken by the Heads of State and
Government at the Essen European Council in 1994. This was because the
existence of disparate rules was impeding trade relations between the EU and nonmember countries, while a single set of origin provisions would help to ease and
expand trade.

66

_Chapter V_

objectives, but not always with the desired result of a revival of private sector investment.
Investors still hesitate. The business environment and the policy and institutional context do not
yet always inspire sufficient confidence.

Countries will continue, domestically, to implement confidence-building measures. However the
transparency and predictability of these measures can be enhanced if they are seen to be related
to a common, well-understood and intemationally-accepted framework of rights and obligations.
In 1992 the EU proposed for the consideration of ACP countries a set of Investment Protection
Principles, covering, _inter alia,_ national treatment, the most favoured nation principle, fair and
equitable treatment, the full protection of law, compensation for expropriation and remittance of
earnings and capital. The draft Principles gave textual effect to the objectives of the Convention.
They have not, however, been widely discussed or implemented. Since 1992 there have been
extensive discussions in the OECD on the proposed Multilateral Agreement on Investment which
sets out a more ambitious and comprehensive framework for the protection of investors.

The issue of investment protection standards has now been taken up in the WTO where
negotiations on principles acceptable to a wider spectrum of countries are soon to commence. If
these negotiations lead to agreement on transparent and enforceable principles, investors and capital
markets are likely to be attracted by the lower risk of investing in countries which agree to abide
by them.

An option for ACP countries wishing to accelerate the revival of investor confidence would be to
adopt and apply an internationally recognised standard of investor protection having the force of
law. The EU would naturally be open to requests for assistance in building capacity for introducing
this in those countries which chose to adopt it. The larger the number of ACP countries which
feel able to subscribe to the standard, the greater the confidence of international investors in the
ACP countries as a group will be, and the more the ACP countries will feel that they are a group.

Options for ACP countries wishing to revive investor confidence through more credible investment
protection are to:

a. Pursue current policies of concluding bilateral investment protection agreements with
countries of the EU and the home countries of other foreign investors. These agreements
cover the basics of compensation for expropriation, but are otherwise limited in scope,
offering little redress against discriminatory or discretionary decisions by host country
governments. They have not been conspicuously successful in attracting new investment,
particularly in Africa.

b. Enter into regional investment protection arrangements. One example to follow might be
the UEMOA, whose members are introducing a common investment code, common trade
law and common investment protection standards. With regional arrangements it should
be relatively easy to police compatibility with rules and undertakings, and judicial redress
should be relatively accessible for aggrieved investors. Successful regional arrangements
might be extendable to other interested ACP states, thus creating an acknowledged ACP
standard of practice.

c. Subscribe to an internationally recognised standard of investor protection - based perhaps
on principles agreed in the WTO. The advantage for ACPs of adopting international

67

_Chapter_ _V_

norms of investment protection lies in their greater visibility and familiarity to
investors,and thus in their greater confidence-building effect.

However, as there is at present no internationally agreed model, the most advantageous option for
ACP countries, in the interim, is likely to be to collaborate - with EU support- in regional
arrangements which satisfy the basic principles outlined above. In their longer term interest the
EU and ACP countries should simultaneously work together towards agreement on a wider
international standard.

68

_Chapter VI_

**CHAPTER VI.** **OPTIONS FOR A NEW PRACTICE IN THE** **FI^LD** **OF**

**FINANCIAL AND TECHNICAL COOPERATION**

There are three considerations which militate in favour of a fundamental revision of the practical
methods of providing financial and technical assistance: (i) the move towards a partnership based
on reciprocal rights and obligations and a more explicit allocation of the partners' responsibilities,
(ii) the need to alter Community assistance to take more account of the fact that some ACP
countries have reached a substantially more advanced stage of development than others and (iii)
the need to reconcile the predictability of accumulated aid practice with the requirement for bettertailored and more efficient aid.

These aims mean that a new thinking will have to be developed in connection with aid
instruments, that the nature **of support** activities will have to be changed, and that a new way of
managing resources **will** have **to be promoted. In** addition, the Commission is recommending, as
it has done in the past and as **the** European Parliament has long been urging, that the European
Development Fund (EDF) be incorporated into the budget [34] to help rationalize the Community's
activities outside its borders and to improve their cohesion and transparency.

**A.** **A single source of funds or multiple smaller sources?**

One of the most common criticisms levelled at assistance under the Lomé Convention has been

the large number of instruments which have been set up over the years and adapted as one
negotiating exercise succeeded the next Cooperation with the ACP countries is now overburdened
with instruments which are tailored to predetermined uses and are increasingly difficult to run in
a coherent way.

Drawing up strategy papers for each country doubtless reduces the risks of lack of cohesion, but
the use of a multiplicity of instruments which all have different purposes, procedures and methods
of operation inevitably makes the EU's policy for each individual country less transparent. Despite
the substantial effort the Community has put into information, the complexity of the system often
impedes access to the various financing and technical assistance facilities, particularly for those
active in civil society.

EDF instruments and the range of specially-targeted budget headings also tend to make the
implementation of policy guidelines rather rigid. As the situation currently stands, it is impossible
to reorient or adapt aid policy within a reasonable space of time, but this is just what is
increasingly called for. This is because economic and political circumstances can change fast, and
we have to be able to react to new concerns connected with policy initiatives, respond to public
opinion in the ACP countries or in Europe, or give effect to the findings of evaluations in the
interests of increasing the efficiency and impact of cooperation.

**Under these circumstances, is there any justification for keeping a range of special**
**instruments, or should there be a radical change of direction focusing on the setting of**

34 See _inter alia_ the Report on Arrangements and Possibilities for Budgetizing the
European Development Fund ( SEC(94)640 final ).

69

_Chapter VI_

**overall aUocations of funds allowing aid to be administered in** a **more** **flexible** way which can
**cope with needs which are more and more changing and divergent?**

There are three possible options:

(1) Maintaining the current division of allocations
Though this is an option, it carries all the disadvantages described above and will not
encourage relations between donor and recipients to move in a direction of independence
and responsibility.

(2) Gathering all aid operations under the umbrella of a single source of funds
This would provide a maximum of flexibility in the organization and subsequent
development of financial assistance.

(3) Creating two or three separate allocations
These would group together activities of the same nature:

One allocation would be set aside to fund long-term assistance for the public
sector. This indicative overall allocation would be used (depending on needs and
on the outcome of an assessment of the most appropriate action) to support sectoral
policies or institutional reform, to provide budget assistance or to fund more oneoff activities;
A second allocation would be used for resources to cope with emergencies, which
by their very nature are not foreseeable, and for all very short-term measures.
A third allocation might be needed for direct assistance to non-governmental
agents, the private sector, associations, consumer organizations, NGOs, etc. such
operations need different administrative arrangements (though EU eligibility criteria
must always be adhered to).

The clear distinction between short-term and long-term operations would help to make Community
action more visible by preventing the confusion which can be caused by instruments like Stabex
and the food-aid arrangements, which both have an "emergency" component and a component
providing assistance with more long-term aims.

A move in this direction would make Community aid policy more flexible, cohesive and
transparent. The ability to alter and adapt aid policy for. a given country or group of countries is
also, however, connected with programming arrangements. These are dealt with in Chapter VLB.

**B.** **Should aid be granted according to need or according to merit?**

Resources for programmable aid are currently according to the needs of each country relative to
the needs of others, human development indicators, the size of the country, geographical
considerations (such as the country being an island or being landlocked). Resources for
non-programmable aid (support for structural adjustment programmes, arrangements to make up
for loss of export earnings, etc.) are governed by separate criteria.

The automatic nature of the allocation of programmable resources has already been substantially
modified (this was done during the mid-term review of the Lomé Convention). Allocation is now
in two tranches. The first is 70% of programmable resources and is intended to allow the

_4_

**70**

_Chapter VI_

allocation of resources to be reviewed in the light of the degree to which the recipient countries'
undertakings (especially as regards sectoral policy) have been adhered to, the general consistency
of the government's development policy, plus any unforeseen outside events.

The new system of allocation by tranches thus introduces a new qualitative criterion by which the
aid for each country can be adjusted according to its government's general and sectoral policy
performance. This development translates into action the EU's greater requirements for efficiency
and a new concept of partnership based on reciprocal undertakings, foreign aid being used to back
domestic reform.

The EU should continue to act along these lines. However, the fact that programming over several
years has the advantage of giving developing countries a predictable flow of outside financing and
of requiring at least a basic level of strategy framework means that there are grounds for keeping
a system of multiannual programming. A number of options, which will have to reconcile
flexibility and predictability, efficiency and responsibility, should therefore be considered.

**Two questions arise: what should determine how programmable resources are allocated**
**among the ACP countries? How can programming be reworked to restore flexibility to aid**
**policy?**

The growing gap between different categories of ACP country (between the poorest and those
which have more resources to devote to development, and between those which are still in the grip
of serious political and social problems and those which have embarked on economic and social
reform and progress) makes this issue all the more important.

Combine incentives and development indicators

The substantial importance attached to the conduct of domestic policy and the incentive-based
approach which the EU is seeking to promote through its aid policy suggest that the concept of
"need" (which dictates remedial action) be supplemented by the concept of "good management",
which would take account of how the state and local authorities assumed their responsibilities. This
would mean that performance criteria for political and economic life would come into play
alongside social and economic indicators and levels of poverty. This option would entail
establishing "governance" criteria which were accepted by the partners. As in the case of
conditionality (dealt with in section C below), it seems preferable to have an assessment of general
policy rather than very specific criteria, and historical, political and institutional considerations
should not be divorced from social and economic considerations. Whatever the criteria, they should
be able to be agreed by the parties in advance in order to prevent arbitrariness.

This option would inevitably make aid more selective. It would enable the EU to focus its efforts
on the poorest countries and the countries where the impact of its operations is likely to be the
greatest.

71

_Chapter VI_

Introduce ongoing programming

Introducing incentive-based criteria for granting aid would bring a chcnge in the contractual nature
of ACP-EU relations. There would be no point in adopting performance criteria while keeping
five-year fixed allocations: standards of governance can change very rapidly (i.e. improve or
deteriorate). This option would also be more compatible with a financing arrangement which
differed from the EDF (in which the Member States establish their contributions in advance).
Budget arrangements which allowed multiannual programming of expenditure in tandem with
greater flexibility would undoubtedly be more appropriate.

However, predictability of flows could be preserved by adopting ongoing prograrriming covering
three, four or five years with regular (yearly, for instance) reviews. This method has been adopted
for the Euro-Med partnership, for example. It reconciles the goals of predictability and flexibility
against the background of a "contract" between donor and recipient which centres on a requirement
for efficiency.

C. Types of **aid**

The critical appraisal in Chapter II of cooperation past and present is based mainly on the findings
of recent evaluations and throws up a number of operational pointers. It highlights the value of
increasing the sectoral emphasis and support for reform, of formulating long-term strategies to
improve institutional frameworks and local capacity to devise economic and social policies, and
of restricting project aid to very specific, reform-linked operations.

Given the intention of sharing out responsibilities more equitably, encouraging ACP governments
to implement sustainable development policies, reduce instability and define their own development
strategies, the best way forward might be to channel Community aid in a lump sum to national
budgets instead of financing sets of individual projects. This could of course only be done if
economic and social performance criteria were used to decide how much aid should be given and
only those countries with a proven ability to manage resources would be eligible.

The evaluations also suggest that the Stabex and Sysmin systems need to be abolished or at least
amended. The idea of compensation itself is not being challenged since there are good reasons why
special aid packages should be available to keep macroeconomic management on track and reduce
the risks faced by some exporters, particularly those in the agricultural sector. Stabex and Sysmin
are also increasingly being used to support economic and institutional reform in the affected
sectors. However, the automatic triggering of these types of instrument is making them less
relevant.

Recent developments in the world economy have increased the supply of investible resources
seeking profitable placement in developing countries, and have increased the number of developing
countries offering good investment opportunities to investors. Successful developing countries
receive their external financing and external professional and technical support essentially on
market terms. It seems reasonable for the EC to wish, post Lomé, to concentrate its grants on
assisting countries which are poorest and least favourably placed to attract foreign direct and
portfolio investment. The EU could therefore think about a new instrument to make it easier for
ACP countries to gain access to capital markets.

**72**

_Chapter VI_

The whole issue of the type of aid to be provided by the EU prompts a number of questions:

**Should support for** macroeconomic reform and sectoral policies be stepped up?
**Should project** **aid** **be phased out** in favour of **direct** budget aid?
**Should the EU carry on with** its export earnings compensation mechanisms?
**What type of** **conditionally** **should the** EU envisage?
**Should the EU think about new** ways of **facilitating** ACP access **to** private capital, be **it** in
**the form of direct investment, project financing or government loans?**

- Towards direct budget aid.
The EU could think about a switch to direct budgetary aid for ACP countries. This would work
well with the structural adjustment support facility, which still plays a big part in improving the
budget planning and management in the countries concerned.

In this case, the disparate macToeconomic support instruments could be combined into a single
package of direct budget aid linked to an appropriate macroeconomic framework. There are two
arguments for this:

- it would be a sign of a mature relationship between the EU and ACP countries, based on trust
in which responsibility for managing development resources lay with national authorities;

- unlike project aid, budget aid does not knock the allocation of expenditure out of kilter.

Flawed budgetary management and opaque spending decisions constitute the main barriers to any
move towards budget assistance and mean some minimum attendant conditions would have to be
imposed. The switch would therefore be seen as a process, marking a stage in the development of
local capacities and providing an opportunity for much more effective cooperation.

- From support for structural adjustment to support for sectoral policies.
As explained earlier, the EU-backed reforms under way in the ACP countries are a long-term
process, especially the institutional reforms. In a rapidly changing world that demands the constant
reworking and reappraisal of economic policies and social systems, adjustment itself becomes a
permanent process in every country. Within the process, however, different stages can be singled
out, in particular the move from an initial phase of structural reforms concerned with the general
running of the economy and public sector to a complementary stage centred on more specific
sectoral aspects.

As reforms progress, the EU will have to be able to redirect its aid towards sectoral and
institutional support if it is to respond appropriately to the priorities of the moment.

Community support for reforms could therefore be tailored to whatever stage of structural
adjustment a particular country is at. This means that within a given set of conditions, direct
budget aid could be explicitly targeted towards reforms in specific sectors.

- Retaining compensation for export earnings
In order to compensate for sharp drops in export earnings, the EU could consider giving extra
support for individual sectors on top of the total aid package for the country in question.
Depending on whether the export difficulties were structural or cyclical, the extra funding could
be allocated as sectoral support or macroeconomic assistance.

**73**

_Chapter VI_

- Reforming conditionality
Conditionality is another vital issue in any discussion on the type of aid to be given. Explicitly or
implicitly, every cooperation programme has some form of conditionality. It implies a certain
degree of aid selectivity and is designed to encourage recipient countries to modify their policies
or carry out certain reforms. The conditions imposed may concern the kinds of results that are
expected or the means to be targeted at an objective. Given the experimental nature of many
reforms, particularly those of an institutional type, an approach based on a searching appraisal of
the overall impact of a government's policies seems far preferable to just imposing highly specific
conditions.

As part of the Special Programme for Africa, the Commission has presented other donors with
new proposals for structural adjustment conditions. This new approach would aim to:

- encourage recipient countries to internalize reforms;

- apply realistic conditions which take due account of the political and administrative context;

- make a full assessment of what has been achieved in terms of sustainable development rather
than making do with à partial appraisal of a few specific indicators. Such an assessment should
be carried out in conjunction with all other donors.

This comprehensive coordinated approach should also prevent any "stop and go" in aid payments.

It would also avoid the drawbacks of current practice and change the donor-recipient relationship
into more of a partnership based on reciprocal undertakings designed to achieve long-term goals.

- Access to capital for investment

At present Lomé uses a variety of «instruments to help countries find the capital necessary for
investment: EDF grants, venture capital also funded by the EDF and some lending from the own
resources of the European Investment Bank.

With a view to increasing availability of sources of finance at the prime market rate for
investment, in particular infrastructure, a first option would be greater access to EIB lending. As
part of the proposed budgétisation of the EDF, EIB lending to ACP countries could then be subject
to the same modalities that apply to lending in other third countries (in particular with respect to
provisioning of the Guarantee Fund for external actions).

A further option to be explored could be to adapt present instruments to encourage greater access
to private sources of finance. For example, partial guarantees (possibly via the EIB) are an
instrument already used with some success by several multilateral agencies in mobilizing long-term
market finance to cover part or all of the political and/or commercial risk.

The application of these options as part of post-Lomé cooperation requires further study and
consultation. Most of the better-off ACP countries have already established some track-record for
sovereign credit-worthiness and would probably see little advantage in external guarantees for their
sovereign borrowing. On the other hand they may find the idea of guarantees, eg for privatelyfinanced large infrastructure projects, very attractive because of the many contractual risks which
continue to inhibit the market financing of such projects and because of the importance of
infrastructure in sustaining economic expansion.

**74**

_Chapter VI_

Providing guarantees or market-financed lending through the EIB could be advantageous both for
both the creditworthy, or nearly creditworthy, countries and for the poorer ACP countries. The
former should receive more external financing from the markets, and their credit ratings should,
over time improve - giving them access to more and cheaper financing in future. Less well-off
countries might expect to receive a higher share of available EDF grants as better-off countries'
need for official financing reduces.

**D.** **Co-management,** **EU-only** **management or autonomous management by recipients**
**themselves?**

The current Lomé system whereby commitment decisions on cooperation activities and expenditure
monitoring are both jointly managed has shown its limits. In practical terms, the frequent to-ing
and fro-ing between national and chief (i.e. Community) authorizing officers is time-consuming
and so makes aid less effective. The system also makes it difficult to co-finance operations with
other donors.

In operational terms, co-management does little to encourage recipients to take responsibility for
the development programmes and reforms supported by the EU even though all Community
evaluation studies have concluded that this is vital if aid is to be effective. The gradual shift away
from irifrastructure-based aid towards support for socio-economic policies and institutional reform
makes it all the more necessary.

**Joint aid management therefore has to be reviewed. What alternatives would provide the**
**reliable system needed for managing Community aid while encouraging recipients to take**
**more responsibility, itself a prerequisite for more effective cooperation?**

A phased and individualized approach should be adopted in which the degree of responsibility for
administrative and financial management of the aid grows as good governance improves in the
recipient state.

The aim would be to give beneficiaries steadily more responsibility for managing programmes,
justifying and monitoring expenditure and assessing the economic and social impact of assistance.
The best way of doing this would be through direct budget aid.

In countries where institutional and administrative conditions would rule out this approach in the
short-term, the EU would take sole management responsibility but would simultaneously help
strengthen the local skills needed to take over responsibility. It would be best not to set up specific
units but to work.within existing local structures.

Here too, the type of management appropriate in each case would be decided on the basis of a
number of criteria and would depend upon the quality of ACP-EU dialogue, the willingness of
recipient countries to match additional Community funds with a contribution of their own and the
existence of units or machinery for coordinating foreign aid.

This issue, like many other aspects of ACP-EU relations raised in this Green Paper, will have to
be addressed through a case-by-case approach tailored to individual countries or groups of
countries. The chosen system will have to be seen as evolutionary, with management tasks
gradually passing into the hands of all ACP beneficiary countries as administration gets better.

**75**

_**Chapter VI**_

Generally speaking, any potential changes in the way resources are managed should aim to redirect
day-to-day consultation and dialogue on cooperation towards substantive issues, and the conditions
which affect the impact of programmes and determine the contribution they make to sustainable
development in the country concerned. This is one area in which both EU and ACP partners can
demonstrate their sense of responsibility to their respective electorates.

76

_FOLLOW-UP_

**FOLLOW-UP TO THE GREEN PAPER**

The Green Paper is one stage in the consultation process launched by the Commission on the
future of ACP-EU relations and in the related debate between all those bodies involved in
development It aims to raise awareness of the need for an effective EU cooperation policy towards
ACP countries and sets out the main issues on which the Union will have to decide before starting
negotiations with the ACP. The Paper does not claim to be authoritative or exhaustive, it simply
outlines a number of different ways forward.

In publishing the Paper, the Commission is inviting all those concerned to examine the options and
arguments presented and to give their reactions and suggestions. The Commission will continue
to stimulate the debate through meetings and seminars. Feedback can also be sent in writing to the
Directorate General for Development

In accordance with the institutional provisions, the Commission will formulate detailed proposals
for renewing the framework for ACP-EU relations during the second half of next year.

**77**

_**Green Paper on EU-ACP Relations**_

_**Annex**_

_**Tables**_ **-** _**Graphs**_

_**Resource Flows**_ _**to all**_ _**ACP Countries**_

_**Resource Flows from**_ _**EU**_ _**to ACP Countries**_

_**OECD Countries ODA 1990-95**_

_**ODA**_ _**as**_ _**Share ofGNP**_ _**1995**_

_**European Development Fund : Breakdown**_ _**of**_ _**Aid**_ _**by**_ _**Instrument**_

_**EÙ'-**_ _**Developing Country Trade 1976-1994**_

_**ACP Countries'Exports**_ _**to**_ _**the**_ _**US,**_ _**Japan and the EU**_

_**Developing**_ _**Countries'**_ _**Performance**_ _**and**_ _**Prospects**_

_**Economic Performance**_ _**of**_ _**Special Programme**_ _**for**_ _**Africa (SPA) Countries**_

_**~?ï**_

**EXTERNAL RESOURCE FLOWS** **TO ALL ACP** **COUNTRIES**

**Net** **flows** **from** **all** **sources US$ million current prices**

**1983** **1984** **1985** **1986** **1987** **1988** **1989** **1990** **1991** **1992** **1993**

**ODA** **8306** **8647** **9579** **11505** **13353** **14968** **15941** **IB** **808** **18275** **19561** **17639**
**Other Official** **1972** **2644** **1583** **2156** **2988** **2169** **2370** **3068** **1604** **1620** **1126**

**Private Flows** **net** **2983** **-247** **-259** **1006** **779** **436** **2059** **-1057** **339** **1094** **1439**
**Total** **13261** **11044** **10903** **14567** **17120** **17573** **20370** **20819** **20218** **22275** **20204**

**«mix»:** **OECD-DAC**

**25000** _**-\**_

**20000** **4—•**

**^ 15000 -I**

**P**

**g loooo H**

**5000 4**

**0 I** **^ à**

**C** **I**

**-5000** **-**

**-•-ODA**

**»** **Other Official**

**•*—Private Hows** **net**

**Total**

**Years**

**RESOURCE FLOWS FROM EU TO ACP COUNTRIES**

**NetFtawj US** **J million in current prices**

**1983** **1984** **1** **1985** **|** **1986** **1987** **1988** **15*89** **1990** **1991** **1992** **1993**

**ODA**

**BU** **Member Countries** **2653** **2812** **2869** **4289** **5184** **5906** **5951** **7387** **6555** **7081** **6449**
**EU** **Institutions** **591** **700** **657** **854** **915** **1462** **1458** **1655** **1713** **2432** **1671**
_**TolalEUODA**_ _**3244**_ _**3512**_ _**3526**_ _**5143**_ _**6099**_ _**7368**_ _**7409**_ _**9042**_ _**8268**_ _**9513**_ _**8120 \**_

**Othe Official Flore** **(OOF)**
**EU** **Member Countries** **752** **1375** **606** **643** **LB63** **1252** **1290** **1352** **789** **743** **314**
**EU** **Institutions** **56** **23** **43** **51** **40** **23** **45** **44** **188** **-48**
_**Total EU**_ _**OOF**_ _**808**_ _**1398**_ _**649**_ _**894**_ _**1903**_ _**1250**_ _**1313**_ _**1397**_ _**833**_ _**931**_ _**266**_

**Net** **Private Fluwi**

_**Net**_ _**Private Flows from**_ _**EU**_ _**2522**_ **1** _**356**_ _**400**_ _**•143**_ _**-899**_ _**-729**_ _**1091**_ _**•1275**_ _**116**_ _**599**_ _**1619**_ **|**

**Total Flows**

**EU** **Member Countries** **5926** **4543** **3875** **4989** **6147** **6428** **8332** **7463** **7460** **8423** **8382**

**EU Institutions** **647** **723** **700** **906** **955** **1460** **1481** **1700** **1757** **2620** **1623**
_**Total**_ _**EU**_ _**6573**_ _**5266**_ _**4575**_ _**5895**_ _**7102**_ _**7888**_ _**9813**_ _**9163**_ _**9217**_ _**11043**_ _**10005**_

**source:** **OECD-DAC**

**—•-TolalEUODA**

**-•—Total** **EU OOF**

**—•*—Private Flews from** **EU**

**—**—Totaf Flows from** **EU**

**1993**

Official Development Assistance (ODA) disbursements of DAC countries 1990-1995

{Net dtsborsenicnu at current prices and exchange r*t«s in millions of US lollarf)

**Total ODA**

**1991**

**1.050**

**543**

**831**

**2.604**

**1.200**

**930**

**7.386**

**6.890**

**72**

**3.347**

**10.945**

**42**

**1517**

**100**

**1.178**

**213**

**1.262**

**2.116**

**863**

**3.184**

**9.407**

**56.680**

_**26.944**_

**Total ODA**

**1992**

**1.011**

**531**

**840**

**2.515**

**1.392**

**644**

**X.162**

**6.963**

**70**

**4.122**

**11.119**

**38**

**2.742**

**97**

**1.226**

**302**

**1.518**

**2.45.3**

**1.139**

**3.153**

**10.813**

**60.850**

_**29.302**_

Total ODA

1993

953

544

810

2.373

1.340

355

7.915

6.954

81

3.043

11.259

50

2.525

98

1.014

248

1.304

1.769

793

2.920

10.123

56.471

_27.190_

TbUl ODA

1994

1.091

655

726

2550

1.446

290

8.466

6.818

109

2.705

13.239

59

2.517

110

1.137

308

1.305

1.819

982

3.197

9.927

59.156

_27.656_

Total ODA

1995

1.136

747

1.033

2.113

1.628

387

8.439

7.481

143

1.521

14.354

u.c.

3.321

123

1.247

269

1.309

1.887

1.084

3.185

7.3Û3

58.710

_31.411_

1995 ODA

asa%of

Total DAC

1.9%

1.3%

1.8%

3.6%

2.8%

0.7%

14.4%

12.7%

0,2%

2.6%

24,4%

5,7%

0,2%

2,1%

0,5%

2,2%

3.2%

1.8%

5,4%

12,4%

100,0%

_53,5%_

Country

Australia

Austria

Belgium

Canada.

Denmark

Finland

France

Germany

Ireland

Italy

Japan

Luxemburg

Netherlands

Nov» Zealand

Norway

Portugal

Spain

Sweden

Switzerland

United Kingdom

United States

TOTAL DAC

_Mem»:_

_EUco*uuriea_ _[M ]_

**Total ODA**

**1990**

**955**

**394**

**889**

**2.470**

**1.171**

**844**

**6.874**

**6J2Û**

**57**

**3.395**

**9.054**

**25**

_**2.526**_

**95**

**1.205**

**148**

**965**

**1.998**

**750**

**2.630**

**10.194**

**S2.9S1**

_**25.000**_

_-ofwkickEC_ _[0 ]_

_-ofwkickEC_ _[0 ]_ _**3.02t**_ _**3.818**_ _**4.461**_ _3.948_ _4.825_ _5.501_ _9,4%_

**source: OCDE - DAC**

_**4.461**_

_**3.02t**_

_**3.818**_

_3.948_

_4.825_

_5.501_

**(1)** **• Total** **of the** **EU countries at** **end** **1994** **(excluding** **Austria,** **Finland** **and** **Sweden),** **excluding Greece who u nol yd a m<** :mher ofthe DAC.

**(2) -** **i.e.** **thai portion of** **EU** **Member** **States'** **total ODA chanoUcd** **through** **die** **Commission** **(EDF** _**&**_ **General** **Community** **Bi** jdget), included above.

_**%t**_

**DAC** **Members'** **ODA Disbursements**

**USS Million, current prices**

**1992**

**10.813**

**11.119**

_**29.302**_

**9.616**

**6O8S0**

**1991**

**9.407**

**10.945**

_**26.944**_

**9.384**

**56.6*0**

**1993**

**10.123**

**11.259**

**27.J90**

**7.899**

**56471**

**1994**

**9.927**

**13.239**

_**27.656**_

**8.334**

**59.156**

**1995**

**7.303**

**14.354**

_**31.350**_

**5.703**

**58.710**

**1995** **ODA**

**as share** **of**

**DAC toul**

**(%)**

**12%**

**24%**

**53%**

**10%**

**100%**

**United States**

**Japan**

**EU** **member States**

**Other** **DAC** **countries**

**TOTAL**

**1990**

**10.194**

**9.054**

_**23.000**_

**8.713**

**52.961**

_**4.461**_

**•of which EC** _**3.028**_ _**3.816**_ _**4.461**_ _**3.948**_ _**4.825**_ _**5.501**_ **9%**

**•** **Community aid is included** **in** **member** **states'** **aid;** **Greeee is** **not** **a.** **DAC** **member.**

**•of which EC**

_**3.028**_

_**3.816**_

_**3.948**_

_**4.825**_

_**5.501**_

**35.000**

**30.000** **H—**

**25.000**

**3** **20.000**

**|** **15.000**

**10.000**

**5.000**

**1990** **1991** **1992** **Years** **1993** **1994** **1995**

source: OECD-DAC

**•United**

**Sûtes**

**•Japan**

**• EU** **member]**
**states**

**Other DAC**

**countries**

**•"of** **which**
**EC**

_**1%**_

**ODA** **as %** **of** **GNP** **in 1995**

**(source** **OECD-DAQ**

**EU Member States**

**TOTAL DAC**

**0,00%** **0,10%** **0,20%** **0,30%** **0,40%** **0.50%** **0,60%** **0,70%** **0,80%** **0,90%** **1,00%**

_**&**_

**Annual Shares** **of** **Aid** **by** **Instrument**

**(Decisions:** **all** **EDF)**

**1994**

**1041,94**

**222,35**
**214,43**

**53,85**
**249,98**

**25,61**
**57,25**
**.615J2**

**2480,53**

**1995**

**828,58**

**145,50**
**256,82**

**35,53**
**33,68**

**4.40**

**84,49**

**131,09**

**1520,09**

**MECU**

**Programmed** **aid**
**Structural Adjustment**
**Risk capital**

**Interest** **rebates**

**Emergency** **aid**
**Aid** **to** **refugees**
**Sysmin**

**Stabex**

**T O T A L**

**1993**

**1014,39**

**378,00**

**53,65**
**21,51**
**83,15**
**29,30**
**50,03**

**1,17**
**1631,20**

**Percentage** **of** **decisions**
**by** **instrument** **in 1995**

**Emergency** **aid**

**refugees**

**3%**

**Intercala rebatea**

**2%**

**Riak.** **capital**

**17%**

**Structural Adjustment**

**10%**

**Programmed aid**

**55%**

**The European Development Fund (EDF)** **is** **the principal financial instrument of the Lome Convention,**
**providing grants** **to** **the** **70** **ACP countries party to the Convention. EDF resources come from ad hoc**

**contributions from member countries and** **do** **not** **form paît** **of** **the Union Budget**
**A new EDF** **is** **established** **to** **finance each** **new** **Convention, for example EDF** **6** **for Lome III** **and** **EDF** **7 for the**
**first five years of Lome IV. EDF** **8** **has just been established and will finance cooperation over the final**
**quinquennium of Lome IV.** **Its'rcsources** **will** **be** **committed to meeting priority needs**
**arising within the objectives** **of** **human resource** **development,** **food security, infrastructure** **development,** **industria**

**investment** **etc.**

_**source: European**_ _**Commission**_ **-** _**Infofinance**_ _**.1995**_

**^**

**EU - Developing Country Trade - 1976-1994 ( ECUs billion)**

**Imports into the EU** **1976** **1980** **1985** **1990** **1992** **1994**
**ACP** **10,5** **19,4** **26.8** **21,9** **18,0** **18,61**
**Asia** **6,7** **16** **26** **50,9** **66.4** **84.3**
**Latin America** **8,3** **13.7** **25.8** **25,7** **24,8** **27,6**
**Mediteranean** **9,6** **16.4** **32,3** **29,8** **30,3** **30,8|**
**AULDCs** **70,7** **114,3** **128,9** **143,8** **145,6** **160,71**
**All non** **EC** **157,7** **269,9** **399,7** **461.5** **487,6** **540**

**Exports from EU** **1976** **1980** **1985** **1990** **1992** **1994**
**ACP** _2A_ **15.7** _HA_ **16,6** **17,0** **14,9|**
**Asia** **7,5** **13,1** **29,4** **41** **47,1** **70,51**
**Latin America** **7,7** **12** _Ihl_ **15,6** **20,4** **29,61**
**Mediterranean** **12,3** **19,8** **29,8** **28,5** **28,6** **33,11**
**AULDCs** **550,9** **83,4** **121,7** **134,2** **153,1** **18MI**
**All non** **EC.** **141,3** **221,1** **380,8** **415** **a** **3** **436,1** **539**
**World** **292,9** **475,1** **811.8** **1076,6** **1137,8**

**Share of Imports** **from**
**1976** **1980** **1985** **1990** **1992** **1994**
**outside RUr%)**

**ACP** ixZ **7.2** **6,7** **4.7** **3,7** _**2$**_
**Asia** **4,2** JL2 **6,5** **11** **13,6** **13,1**
**Latin America** **A3** **5,1** **6.5** **5,6** **5,1** **5.4**
#### Mediteranean 6,1 ii 11 6,5 6,2 6.1

**AULDCs** **44^8** **42,4** **34,7** **31,2** **29,9** **34.2|**
**AU non** **EC** **100** **100** **100** **100** **100** **100**

**source:** **EUROSTAT - ODI - March 1996**

##### **g£**

A C P Countries' Exports to t h e US, J a p a n a n d the E U

**ACF** **Ex** **ports In million $** **US**

US «s V. of

world

37,54

10,71

0,00

0,15

5,07

3.69

0,17

0,41

0,19

23,26

25,19

4,24

0,03

0,23

2,36

21,60

0,55

7.13

14,15

0,11

3,64

0,00

0,62

4,45

11.42

0,36

7,60

1,35

3,84

1.04

25,80

3,49

0,95

1.12

0,79

13,26

1,35

2,09

0,00

2,01

1.18

5,73

10,86

. 2,92

World

average
1990-92

3873,30

109,70

345,00

171,00
119,00

2075,00

12,30

133,70

95,70

29,00

. 1314,00

3525,30

59,00

41,30

342,30

2700,70

198,70

1228.30

687.30

30,30

1387,30

68,30

1178,70

783,00

413,00

317,70

1267,00

552,70

391,70

263,00

14190,00

122,00

14,30

717,70

94,30

292,00

131,30

444,00
365,70

465,00

289,00

197,00

1767,00

1300,70

Countries

ANGOLA

BENIN

BOTSWANA

BURKINA FASO

BURUNDI

CAMEROUN

CAPE VERDE

CENTR.AFR.REP.

CHAD

COMOROS

CONGO

COTE D'IVOIRE

DJIBOUTI

EQUAT. GUINEA

ERITHREA*

ETHIOPIA

O E C D

average

1990-92

3466.14

77,11

199,19

61,18

73.99

1708,58

7,24

113,43

76,67

27,73

1280,67

2293.10

5,36

41,13

213,85

2229,50

173,41

908,31

582,40

7.86

830.62

27.52

1151,92

311,30

355,34

108,26

. 1198,65

444,78

148,78

237,18

12280,55

87,51

4,40

433,56

57,18

280,75

32,42

195,49

195,07

272,63

145,28

177,13

1558,71

768.65

EU as "/. of

world

32,54

49,43

28,58

31,55

48,00

74,38

54,37

82,17

68,00

64,22

59.80

55,71

8,06

99,05

37,90

44,76

60,88

52,57

55,23

24,66

47,40

35,03

52,97

26,74

47,29

29,21

79,29

53,55

23,55

79,85

39,26

57,20

27,20

55,55

58,75

73,21

21,68

30.89

41,21

46,36

33,58
75,00

63,76

27,95

### **_u_**

GABON

GAMBIA

GHANA

GUINEA

GUINEA BISSAU

KENYA

LESOTHO

LIBERIA

MADAGASCAR

MALAWI

MALI

MAURITIUS

MAURITANIA

MOZAMBIQUE

NAMIBIA**

NIGER

NIGERIA

RWANDA

SAO TOME and PRINCIPE

SENEGAL

SEYCHELLES

SIERRA LEONE

SOMALIA

SUDAN

SWAZILAND

TANZANIA

TOGO

UGANDA

ZAIRE

ZAMBIA

**US** **average**

**1990-92**

**1453,92**

**11.75**

**0.00**

**0,26**

**6,03**
**76,59**

**0,02**
**0,55**

**0** **f** **18**

**6,75**

**330,98**

**149,52**

**0,02**
**0,10**

**8,09**

**583,35**

**50,48**

**0,00**

**7.30**

**34** **f** **85**

**47,17**

**1,16**
**96,26**

**7,46**

**15,04**

**V** **[4 ]**

**3661,32**

**4,26**

**0,14**
**8,07**

**0,75"**
**38,72**

**1,77**
**9,29**

**0,00**

**9,33**
**3,40**
**11,29**

**191,87**

**37,94**

**L** **1** **T** **08**
**87,64**
**97,28**

**1** **•** **0,03**

**Japan**

**average**
**1990-92**

**20.89**

**0,93**
**5,96**
**5,76**

**2,26**

**10,57**

**0,39**
**0,14**
**9,05**

**0.37**

**2,04**

**26,05**

**0,05**
**0,01**

**47,71**
**117,98**

**47,77**
**68,40**

**3,23**

**0,14**
**20,09**

**0,08**

**16,26**

**33,61**
**64,89**

**4,63**

**3,25**

**132.41**

**18.21**

**0,16**
**8,56**

**1,00**

**0,02**
**12,39**

**0,45**

**2.51**

**.0,23**

**31,23**

**5.77**

**25,39**

**0,73**
**4,56**

**78,18**

**338,06**

**EU** **average**

**1990-92**

**1260,30**

**54,23**

**98,61**

**53.95**

**57.12**

**1543,48**

**.6,69**

**109,86**

**65,08**

**18,62**

**785,72**
**1963,90**

**4.76**

**40,91**

**129,72**

**1208,74**

**120,96**

**645,71**
**379,61**

**7.47**

**657,62**

**23,93**

**624,42**
**209,36**

**195,33**

**92,79**

**1004,63**

**295,99**

**92,25**

**210,02**

**5571,01**

**69,79**

**3,89**

**398,71**

**55,40**

**213,77**

**28,47**
**137,16**

**150,69**
**215,57**

**97,06**
**H7,76**

**1126,72**

**363,55**

8,49

0,00

4,33

19,00

Countries

ZIMBABWE

AFRICA

ANTIGUA

BAHAMAS

BARBADOS

BELIZE

DOMINICA

DOMINICAN REP.

GRENADA

GUYANA

HAITI

JAMAICA

ST KTTTS& NEVIS***

ST VINCENT

ST. LUCIA

SURINAME***

TRINIDAD & TOBAGO

CARIBBEAN

FUI

KIRIBATI***

PAPUA NEW GUINEA

SOLOMON ISLANDS

TONGA

TUVALU***

US average

1990-92

**69,43**

**7124,18**

**3,48**

**365,13**

**21.28**

**36,74**

**3,64**

**1488,05**

**5,51**
**71,31**

**135.94**

**420,71**

**4,12**

**17,73**

**610,04**

**3183,68**

**41,51**

**35,75**

**0.52**

**3,33**

Japan av.
1990-92

**144.48**

**1316,85**

**0.32**

**17,26**

**0,86**

**1,44**
**1,99**
**18,51**

**1,05**
**16,27**

**1,83**

**16,36**

**7,17**

**0,08**

**25,26**

**108,40**

**34,91**

**358,08**

**45,41**

**10,78**

US *.< % of

world

4,30]

15,58

13.03

35,18

14,26

27,89

3,27

61,53

14.23

21,67

43,61

28,12

3,44

12,06

32,06

38,73

10,46

2,60
0,56

16.41

**5,09**

**2,49**

**454,27**
**1879,52**

EU as % of

world

36,32

46,21

39,04

23,05

29.49

37.56

43,31

7,54

31,30

46,02

11,30

21,93

59,56

70,42

11,48

18,18

34,80

19,82

22,70

3,43

53,15

. 8,10

EU average

1990-92

**586,93**
**21128,26**

**10,42**
**239,29**

**44,03**
**49,46**

**48,21**
**182,43**

**12,11**
**151,42**

**35,21**

**328,09**

**71,47**
**103,52**

**218,52**

**1494,18**

**138,16**

**272.64**

**21,18**

**0,70**

**15,04**

**1,19**
**447,72**
**23070,16**

VANUATU

WESTERN SAMOA

PACIFIC

TOTAL ACP

**2,40**

**0,00**

**83,51**
**10391,37**

OECD

average
1990-92

912,16

35762,69

17,54

988,17

88.10

111,17

57,23

2328,53

22,69

265,86

301,46

1249,83

92,98

131,28

1250,64

6905,48

318,83

798,22

69,00

19,09

25.08

18,24

1230,22

43898,39

World

average
1990-92

1616,00

45719,30

26,70

1038,00

149,30

131,70

111,30

2418,30

38,70

329,00

311,70

1496,30

120,00

147,00

1903,00

8221,00

397,00

1375,30

93,30

20,30

28,30

14,70

1914,20

55854,50

PACIFIC **83,51** **454,27** **447,72** 1230,22 1914,20 4,33 23,27
TOTAL ACP **10391,37** **1879,52** **23070,16** 43898,39 55854,50 19,00 41,00

**source;** **EUROSTAT -** **ODI -** **March** **1996**

***** **Eritrea** **has** **become** **the** **70th** **ACP** **Country** **in Oct. 1993,** **following independence**
****** **Namibia** **has** **become** **the** **69th** **ACP** **Country** **in Dec.** **1990,** **following independence**

******* **Not** **available**

###### **_%î_**

**Developing** **Counlries** **Performance and Prospects**

**Real GDP Growth**

**Developing Countries***

**East Asia**

**South Asia**

**Sub-Saharan** **Africa**

Latin America & Caribbean

Middle East **and** North Africa

- Excl Eastern Europe and F SU

Source: World Bank: Global Economic Prospects

**Forecasts**

**1986-95** **1991-94** 1995(est.) **1996-97** **1996-2005**

**4,2** 5,0 **4,9** **5,1** **5,4**

**8,2**
**5,5**
**3.7**

**2.6**
**3,2**

**7.9**

**5.4**
**3,8**
**3,8**
**2.9**

**8.1**

**5.1**

**1,8**
**2,4**

**1.1**

**9,4**

**3.9**
**0,7**
**3.6**
**2,4**

**9.2**
5,5
**3.8**
**0,9**
2.5

**o4**

**SPA** **Countries*** **Performance**

**Annual Growth (%)**

**GDP** **weighted average**

**median**

**Exports**

**Imports**

**Savings and Investment as** _**%**_ **of GDP**

**Saving**

**Investment**
**of** **which** **private investment**

**SPA-1 21 countries**

**SPA 2 27 countries**

**SPA-3 31 countries**
**Source:** **World Bank - SPA Phase Four May** **1996,**

**SPA-1**

**1988-90**

**5,2**
**3.8**

**4.3**

**2.5**

**3.7**

**19.3**

**SPA-2**

**1991-93**

**3,5**
**1.6**

**0,6**

**-2.3**

_**2^2**_

**18,8**
**9,2**

**SPA-3**

**1994-96**

**5.1**

**4,1**

**6.8**

**12,5**

**5,9**

**19,8**
**10,6**

ISSN 0254-1475

###### COM(96) 570 final

# **DOCUMENTS**

###### EN 11

Catalogue number : CB-CO-96-604-EN-C

ISBN 92-78-11793-5

**Office for Official Publications of the** European Communities

**L-2985** **Luxembourg**

ISSN 0254-1475

###### COM(96) 570 final

## DOCUMENTS

EN 11

Catalogue number : CB-CO-96-604-EN-C

ISBN 92-78-11793-5

Office for Official Publications of the European Communities

L-2985 Luxembourg