Aid Effectiveness

Commission study on aid effectiveness

The European Union is the largest aid donor, with more than a half of global aid to developing countries coming from the EU.
In 2008, the EU provided €49 billion Euros in Official Development Assistance (ODA): approximately 60% of all global aid.
A Commission study of the potential costs of ineffective aid and potential benefits in terms of savings has estimated that efficiency gains of up to € 3 - 6 billion per year could be made as the EU implements the Accra agenda.

More assistance could be released by making it cheaper to deliver aid. The study was not an audit of waste in existing projects, but rather looked at how economies of scale could be achieved by implementing agreed efficiency principles.

Cutting transaction costs related to fragmented, donor-driven aid systems is frequently one of the main arguments for making aid more effective. But there have few if any attempts to systematically identify and quantify these costs. A better understanding of these issues could constitute a powerful incentive to move forward the aid-effectiveness agenda and make more resources available to cut poverty.

Overall there are two main areas where concerted EU action would have a major impact: improved conditions for aid predictability and a better division of labour. By fully implementing international commitments taken in Paris (2005) and Accra (2008) and using tools agreed at EU level (The Code of Conduct on Division of Labour, the Division of Labour Tool-kit and forthcoming under the Swedish Presidency the "Operational Framework"), the EU could make development work better for the developing countries and trigger similar undertakings by other donors ahead of the next global forum on aid effectiveness in Seoul in 2011.

The main findings of the study are:

an overall lack of management information systems to properly account for the costs or benefits or using different aid modalities
increased consolidation of programmes and projects, use of joint financing arrangements, delegated cooperation and agreed division of labour could result in savings of between €200-500 million per year
with an average cost (staff time and consultants) for design, formulation, appraisal and approval of a new project estimated at somewhere between €90,000 and 140,000, the total costs to the EU donors of preparing the 22 000 new projects approved in 2007 would be between €1.9-3 billion per year
problem of donor proliferation: 41% of all sectors in recipient countries had recorded disbursements from more than three EU donors in 2007
problem of fragmentation of aid : EU member states and the Commission together accounted for 40–50,000 aid activities or projects in 2007; improvements in this context can be achieved through more division of labour
increased predictability of future total EU bilateral aid commitments could increase the value of EU country programmable aid by between €2-4 billion per year
at present around ten percent of EU aid is still tied meaning it has to be spent back in the donor country. Costs to the EU aid programme from remaining tied aid may be estimated at €500 million per year

Read the report (October 2009).

Aid Effectiveness

The EU provides over half of worldwide aid for development. It has committed to increasing this amount and ensuring it is efficient and effective.

The EU and its member countries share responsibility for development aid and pursue complementary policies. This involves the following:

Cooperation within the EU

Together, the EU and its member countries:

respond to developing countries' priorities, at national and regional level
encourage them to lead their own development and support a broad donor-wide engagement in national standardisation agendas
establish flexible roadmaps setting out how EU countries can contribute to developing countries' standardisation plans and efforts.

These efforts apply to donors as well:

joint multiannual programming - based on developing countries' poverty reduction strategies and budget support
common implementation mechanisms - including shared analysis, joint donor-wide missions and co-financing arrangements.

The EU also capitalises on the experience of its new member countries (in areas such as transition management) and helps them play a more prominent role as donors.

Cooperation with developing countries

The EU takes a lead role in implementing the Paris declaration commitments on improving aid delivery. It has also committed to:

provide all capacity-building assistance through coordinated programmes, increasingly through multi-donor arrangements
channel 50% of government-to-government assistance through country systems, including by increasing the aid we provide through budget support or sector-wide approaches
avoid setting up any new project implementation units
reduce by 50% the number of uncoordinated missions.

To avoid duplication of efforts and maximise the impact and effectiveness of global aid, the EU implements this agenda in close cooperation with developing countries, other bilateral development partners and multilateral players (UN, international financial institutions, etc.).

The EU also promotes a stronger voice for developing countries in international institutions.

In 2008, a forum on aid effectiveness held in Ghana brought together international bodies to discuss how to improve aid – leading to the Accra agenda for action.

The EU has followed up with its own Working paper - Accra agenda for action (2009).

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