Select Committee on International Development Second Report



Financial Perspectives, Budgets and Resources

5. The total volume of European ODA Payments in 2000 amounted to £4.9 billion (see Table 2). This constituted 75 percent of the EC's total development assistance to both developing and transitional countries. European development assistance is financed in two ways. The European Development Fund (EDF)—which provides finance for African, Caribbean and Pacific (ACP) countries as part of the Cotonou Agreement—is a voluntary fund which all member states contribute to. It is replenished every five years and is managed by the European Commission. In 2000, the EDF provided 31 percent, or £1.5 billion of the EC's development assistance. Secondly, European development assistance is financed as part of the EC's general budget. Development assistance of £5.1 billion was financed in this way in 2000, with budgetised ODA making up £3.4 billion of this total.

Table 2: Origins and Destinations of European Development Assistance in 2000 (£ billion)

European Development Fund
General Commission Budget
Total Development Assistance
    of which
Official Development Assistance
Official Aid

Data source: European Commission Annual Report on the Implementation of the European Commission's External Assistance - situation as at 1 January 2001.

6. The amount of budgetised ODA is largely determined by the multi-annual spending ceilings which are set out in the Financial Perspective. The 2000-2006 Financial Perspective allocates around five percent of the EU's resources to External Actions (Category 4), the category of funds from which the vast majority of ODA resources are drawn. Subject to the limits set by the Financial Perspective, resource allocations within budget headings are determined on an annual basis through negotiations between the Commission, the Council, and the Parliament. In the 2002 budget, £8.3 billion is committed to External Actions, of which £3.3 billion is allocated for Pre-Accession Strategy spending. Figure 1 shows the allocations for 2002 within the External Action budget, with pre-accession funds excluded. It is not easy to state with any precision what resources are primarily intended for development. Financial perspective headings do not map neatly onto annual budget headings, and neither of these map directly onto policy areas. Most confusingly, whilst spending in relation to the Pre-Accession Strategy has had its own financial perspective heading—Category 7—since 1998, it remains part of Budget Subsection B7 External Actions, a subsection which is primarily funded from Category 4 of the financial perspective.

   7. It is possible to give some indication of resources allocated for development and other external relations goals (see Table 3). In the 2002 Preliminary Draft Budget, £1.1 billion was allocated to the "Development and relations with ACP states" policy area, with £0.9 billion or 84 percent of this coming from the External action financial perspective heading. The "External relations" policy area was allocated £3.2 billion, with 91 percent of this total resourced from the External action financial perspective heading. "Humanitarian aid" was allocated £0.7 billion, 67 percent of which came from the External action financial perspective heading. Looked at from the other angle, from a total of £4.9 billion under the External action financial perspective heading, £ 2.9 billion was earmarked for the policy area of "External relations", £0.9 billion for "Development and relations with ACP states", and £0.5 billion for "Humanitarian aid". It is highly regrettable that it is not possible to state with any precision how much of the budget for External Action is intended for development, a point we return to, and urge action on, below.[11]

Table 3: Resource Flows, from the External Action Financial Perspective Heading, and to the External relations, Development, and Humanitarian Aid Policy Areas (£ billion)

External action financial
perspective heading
External Relations
Development and relations with ACP states
Humanitarian Aid

Data source: Preliminary Draft Budget of the European Communities for the financial year 2002, Volume 0, General Introduction, p.57, Table II.2


8. Acknowledging its weaknesses and inefficiencies in the area of development assistance, the European Commission began an initial process of reform in 1998 with the establishment of the Common Service for External Relations (SCR)—the precursor to EuropeAid—to implement European aid. Following the resignation of the Santer Commission in 1999, the Commission was reorganised, with European development assistance planned and managed by a combination of the Directorate General (DG) for External Relations, DG Development, and EuropeAid. ECHO, which manages European Humanitarian Assistance, is the responsibility of the Development Commissioner, but is administratively autonomous. ECHO has in fact been affected only marginally by the reform process, but, having been highly critical of it in the past,[12] we were pleased to hear that substantial improvements have been made and that ECHO was performing well in Afghanistan and the surrounding region.[13]

9. In April 2000, the Commission issued a statement on development policy which outlined a comprehensive approach to development, focussed on poverty reduction.[14] The statement on development policy, and a subsequent joint Council and Commission statement,[15] established poverty reduction as the central objective of EC development programmes and other EC programmes in developing countries. In May 2000 an initial reform programme was outlined to improve the quality and speed of delivery of projects, ensure sound financial management, and increase the impact of European development assistance.[16] In February, and then in May 2001, the Commission produced a rolling programme of action, setting out clearly the reform programme in terms of aims, actions, expected results, an indicative timetable, and the progress made.[17]

10. As regards programming and the planning of development interventions, the key innovation has been the establishment of guidelines for the production of Country and Regional Strategy Papers. As a new approach to programming, Country Strategy Papers (CSPs) are intended to focus on poverty, to be comprehensive, to emphasise country ownership, to promote work-sharing and complementarity, to involve consultation with civil society organisations, to focus on a limited number of areas, and to incorporate a number of cross-cutting issues such as human rights, gender equality, and environmental concerns.[18] An Inter-service Quality Support Group (IQSG) is charged with reviewing the strategy papers and promoting best practice.

11. On 1 January 2001, the EuropeAid Cooperation Office was established as a single department to handle the EC's external aid, with the exception of pre-accession programmes, humanitarian activities, macro-financial aid, the Common Foreign and Security Policy, and the Rapid Reaction Facility. The intention was to rationalise the management and implementation of development assistance, by moving further away from a geographical assignment of responsibilities to DGs—the arrangement in which DG External Relations deals with non-ACP countries, and DG Development deals with ACP countries—and integrating the various stages of the project cycle.[19] DG Development and DG External Relations are now charged with the programming phase of the project cycle —policy and strategies—for ACP and non-ACP countries respectively. EuropeAid is focussed on the remaining five stages of the project cycle, right through to evaluation. EuropeAid is managed by a board comprising Chris Patten (Chairman) representing DG External Relations, Poul Nielson (Chief Executive Officer) representing DG Development, Pascal Lamy representing DG Trade, Pedro Solbes Mira representing DG Economic and Financial Affairs, and Günther Verheugen representing DG Enlargement. At the field level are the Commission's Delegations. Formally, all Delegations are responsible to DG External Relations; in practice, they are dealt with by EuropeAid. Figure 2 shows these arrangements, highlighting: firstly, the division of programming responsibilities for ACP and non-ACP countries between DG External Relations and DG Development; secondly, the split between programming and subsequent stages of the project cycle; and thirdly, EuropeAid's complex management structure and position between the DGs and the Delegations.

12. The devolution of project management towards the Commission's Delegations in partner countries—a process which is often termed deconcentration—is a further key aspect of the reform process. Echoing the principle of subsidiarity, this move is intended to give Delegations greater responsibility and authority for the implementation of EC programmes, and to allow them to work more closely with other actors at the local level. The principle is that "everything that can be better managed or decided locally, close to the field, should not be managed or decided in Brussels".[20] In addition to improving the implementation of European development assistance, EuropeAid has the task of clearing the accumulated backlog of old (pre-1995) and dormant (not resulting in payments within two years) commitments, reducing the number of budget lines to prevent further accumulation of management problems, simplifying and harmonising its contracting procedures, and improving the Commission's ability to evaluate its development assistance programmes.

11   See para. 24. Back

12   Ninth Report from the International Development Committee, Session 1999-2000, The effectiveness of EC development assistance, HC 669, para. 53. Back

13   Q256; Ev 99 Back

14   Communication from the Commission to the Council and the European Parliament on the European Community's Development Policy, 26-4-2000, COM (2000) 212 final. Back

15   Statement by the Council and Commission on the European Community's Development Policy, 10-11- 2000. Back

16   Communication to the Commission on the Reform of the Management of External Assistance, 16-5-2000. Back

17   Commission Staff Working Paper, The European Community's development policy: Programme of Action, 21-5-2001, SEC(2001) 808. Back

18   European Commission, Secretariat of the Inter-service Quality Support Group, Guidelines for the implementation of the Common Framework for Country Strategy Papers, 4-5-2001. Back

19   The project cycle has six stages. These are: programming, identification, appraisal, making the financing decision, implementation, and evaluation. Back

20   European Commission (2002) Annual Report on the Implementation of the European Commission's External Assistance, Situation as at 01.01.2001, p.16. Back

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Prepared 23 April 2002