|The Courier N° 145 - May - June 1994- Dossier : European Union: the Way forward - Country Report: Ethiopia (EC Courier, 1994, 104 p.)|
Today's commitments are tomorrow's payments
Negotiations for the LomV mid-term review are about to start and the efficiency of development aid is being questioned in many international political circles, so now is the time to take stock of financial and technical cooperation between the European union and the ACPs in 1993. Figures are available and pertinent conclusions can already be drawn.
Quantitatively speaking, the upward trend in EDF activity observed since 1989 was confirmed by a marked increase in financing decisions. But disbursements slipped, mainly because there were no Stabex payments in 1993 - a year when three Lomonventions, all at different stages of development, overlapped, Aid for structural adjustment proved to be a useful means of ACP-KU cooperation. National indicative programmes concluded in 1986-87, under the previous Convention, proceeded apace and LomV programmes, most of them fixed in 1991-92, got under way very satisfactorily. Regional cooperation dropped back, despite a good start in many places.
Qualitatively, there was a relative decline in rural development to the benefit of social and institutional support schemes Various topics - poverty alleviation, encouragement for the private sector and the protection of natural resources - appeared at the design stage of EDF programmes. Political events, in the shape of unrest and changes of priority. slowed things down as, in all probability, did project management procedures, particularly for operations in which the ACP and EU partners had to share responsibility. The Commission increased the emphasis on quality of aid and stringent evaluation of schemes and highlighted an integrated approach which would make the various cooperation instruments more consistent.
Most of the non-reimbursable aid provided under Lomomes from the European Development Fund (FDF), mainly under the headings of grants for national and regional programmes, structural adjustment programmes, Stabex and Sysmin (two systems which compensate exporting countries for sudden drops in their export earnings from commodities and mining products), emergency aid, refugee relief. interest rebates and venture capital. The EDF has ECU 10 billion for the first part of LomV (1990-95), 90% of the total funds available. The other 10% consist of loans granted by the European Investment Bank (EIB).
The EDF is fuelled directly by the Member States of the Union, but a fair percentage of ACP aid comes from the Commission budget, which covers food aid, various so-called thematic activities, research, ecology, the protection of tropical forests, post-conflict rehabilitation and NGO cofinancing.
With ECU 1 320 million-worth of disbursements in 1993, EDF operations were well down on the previous year, which was of course one of exceptional results, when ECU 1920 million were paid out Rut the 1993 figure was still near the average for 1989-91. However, if Stabex is discounted, 1993, with financial decisions worth ECU 1720 million, as compared to the ECU 1655 million of 1992, did well Stabex payments hit record levels in 1992, but were virtually nil last year.
The deceleration in EDF operations should be seen in the light of cyclical trends in the Lomonventions, in which periods of calm are followed by periods of intense activity - fluctuations which are part of a general improvement, particularly if Stabex reimbursements are discounted.
The FDF programming and implementation cycle is longer than the standard five-year Lomonvention period, so the Commission has to manage various Funds, at different stages of development, at the same time. Operations set up under the 5th EDF (LomI, 1979) and the 6th EDF (LomII, 1984) were still in the course of financing last year. LomV has now been under way for nearly four years, but is only just reaching cruising speed, and 1993 was the first year in which its EDF payments exceeded payments from the previous EDF, currently 71% spent (see Figure 1).
Figure 1: Trends in EDF annual payments, all instruments combined< 1975-1993 (ECU million)
The EDF comprises a whole series of financial instruments and the various Lomonventions provide a particular amount for each, with considerable flexibility in implementation from one year to the next. There were no Stabex transfers last year, aid for stuctural adjustment grew strongly, Sysmin payments increased noticeably and more or less normal use was made of all the other instruments. Programme aid remained stable, by and large, with the Stabex drop offset by the increase in Sysmin payments and aid for structural adjustment (see Figure 2).
There are several stages to an EDF operation, as with any other contract. Furthermore, the various Conventions overlap, with one well into disbursements and the next one still only at the decision stage - which explains the apparently paradoxical situation in 1993, when there was a surge in financing decisions alongside a decline in disbursements.
The vast majority of development cooperation programmes and projects with the ACP countries are part of national indicative programmes and regional indicative programmes, which between them account for 65% of the 6th EDF and 57% of the 7th.
Financing decisions taken for new projects were worth a total ECU 1100 million in 1993. This, at only 2% down on the previous year, was virtually stationary, but disbursements (ECU 650 million) dropped by 35%. The figures reflect a bigger increase in the number of schemes decided on or launched alongside restricted use of the funds earmarked to put them into practice. ECU 50 million was paid out from the 5th EDF (LomI), which was then closed at the end of the year, with ECU 180 million carried over to the 6th EDF. Currently all programme aid decisions and 93% of payments are for the 6th and 7th EDFs (LomII and IV).
Financing for projects in the LomII national indicative programmes, most of which were designed in 1986 and 1987, is now 95% committed and 67% paid and this is expected to continue at a good pace (around ECU 420 million p.a.) until 1996. The LomII negotiators were anxious to focus aid on a limited number of sectors and this, combined with a concern with food security in many ACP countries, led to vast integrated rural projects which turned out to be very slow to implement. Programmes which ran into trouble had to be reassessed. Most ACPs had already started on their LomII alocations (Liberia, Sudan etc., with difficult situations to cope with, were exceptions), although rates of disbursement varied widely, from 30% in Antigua, Trinidad and Tonga to 90% or more in Cote d'Ivoire, Dominica and Uganda (see Table 1).
Most of the LomV national indicative programmes were adopted in 1991 and 1992. There were seven exceptions, all for political reasons - Sudan, Zaire, Haiti and Liberia, Somalia, which had not ratified, Surinam, whose indicative programme was still to be signed, and Eritrea, the most recent member of the ACP family and scheduled to conclude its programme this year. So 7th EDF operations got off to a good start, with decisions worth ECU 1100 million in 1991 and 1992 and a further ECU 765 million in 1993. The average rate of financing decisions for the national indicative programmes was 40% (46% excluding countries which had not signed their programmes), but figures of 80% were achieved in 11 countries, including Senegal and Guinea, while Ghana only managed 19%, the Central African Republic 22% and Ethiopia 24% (see Table 2). Project/programme implementation was still in its infancy (ECU 190 million in 1993, as opposed to ECU 140 the year before).
Figure 3: Recent trends in decisions and payments
The size of the regional cooperation budget is one of the outstanding features of Lomn comparison with other cooperation agreements. Seven sub-regions are listed and there is an all-ACP budget line on top of that for the whole Group or countries in different regions.
Table 1: LomII indicative programmes
Table 2: LomV indicative programmes
Since the legal and technical side of project selection is a matter for several governments, often demanding lengthy preliminary investigation, these regional projects are bound to take far longer to get going than national cooperation schemes.
Most of the regional projects decided on in 1993 were for the 7th EDF (LomV), while the bulk of the payments were for the 6th EDF (LomII).
By the end of 1993, LomII regional projects (EIB operations not included) totalled ECU 832 million, or 83% of the Convention's ECU 1000 million allocation. The major regional schemes under LomII, currently under rapid implementation, focused on infrastructure, livestock and training. The most active regions were Southern and Eastern Africa and the least active the Indian Ocean and Central Africa. Almost all the resources earmarked for the all-ACP schemes were used up.
LomV regional cooperation programming was a slow process which was not completed until autumn 1992. By the end of 1993, decisions worth ECU 390 million (31% of the ECU 1250 million allocation) had been taken, but it was still early days as far as disbursement, at ECU 35 million (6%), was concerned. Things were well under way in the Pacific and Southern Africa, but dragged in Central Africa and the Indian Ocean.
The budget for structural adjustment support, LomV's most important innovation, was ECU 1150 million from the structural adjustment facility and ECU 685 million of it, or 80% of the aid already decided on, went to 31 countries. The other 20% came from the indicative programmes of the countries concerned. Payments of ECU 567 million were made, ECU 472 million of them from the structural adjustment facility itself. In 1993 alone, ECU 392 million-worth of new structural adjustment support decisions were taken and ECU 300 million disbursed - more than 20% of total EDF payments.
This shows just how important the new instrument is, despite the fact that its full potential is not being realised because some ACPs do not meet the conditions of eligibility or keep strictly to the programmes (see Table 4).
Table 3: Volume of regional operations, 1992 and 1993
Non-programme resources - Stabex and Sysmin
For the first time since 1975, there were no Stabex transfers to compensate for lost export earnings year. Resources were in short supply (only 43% of requirements could be covered) and the partners on the ACP-KU Council failed to come to an agreement on filling the gap with other EDF instruments, as had occurred in the past. Although 32 countries should have had transfers, only ECU 33 million, left over from the 1992 payments, was in fact paid out. In 1992, decisions were worth ECU 400 million and payments ECU 610 million. Catching up is expected to mean massive transfers in 1994, although this will be partly offset by the rising prices of some tropical products in 1993.
Since 1991, the Convention has required recipients to say what they intend to do with the Stabex funds. This probably slows down their actual use, but it does make for greater efficiency and ensures that the various Lominancial instruments are more consistent with the macroeconomic framework of the recipient country.
Sysmin activities expanded noticeably in 1993, with decisions worth ECU 64 million (7th EDF) and 86 payments, as against only ECU 11 million in 1992. The new decisions were for Namibia, the Dominican Republic and Burkina Faso and the payments mainly for Zambia, followed by Senegal, Namibia and Niger. With persistent crises in the mining sector, Sysmin is bound to go on growing, particularly since the new rules enable it to respond faster.
European Investment Bank
Under Lomthe European Investment Bank (EIB) manages the loans made from its own resources (with automatic interest rebates covered by EDF grants) and venture capital from EDF reserves. Its operations fell off in 1993. It made ECU 138.4 million-worth of new loans from its own resources and disbursed ECU 148 million, and awarded ECU 69.1 million worth of venture capital and disbursed ECU 117 million. In accordance with the new Convention guidelines, the new loans, which went to 23 of the ACP States, 15 of them in Africa, were for productive activities in industry, agri-industry and economic infrastructure, with a special focus on the private sector and SMEs. The difficult economic and financial situation in the majority of the ACPs, combined with political uncertainty, clouded EIB financing prospects, particularly when it came to loans from its own resources - despite the hope generated by the economic upturn in Southern Africa, recovery of world cocoa and coffee prices and the reform programmes which followed devaluation of the CFA franc.
Emergency aid and relief for refugees
Emergency aid payments totalled ECU 45 million in 1993 and decisions ECU 85 million. All funds provided under LomI and III and more than 50% of those under LomV had already been allocated, with Sudan, Ethiopia, Angola and Burundi the main beneficiaries. Emergency operations were run in Somalia, which had not yet ratified LomV, with the remainders of LomI and LomII, and the amounts paid over were to be recovered, in accordance with an ACP-KU Ministers' decision (1992), from the resources of the 7th EDF, once the country ratified. Emergency aid from the EDF has been managed by ECHO, the European Community Humanitarian Office, since 1992.
LomV includes an ECU 100 million allocation for aid schemes for refugees, returnees and displaced persons. New decisions were worth ECU 14 million in 1993 and ECU 22 million were paid out, in particular to Malawi, Liberia and the Horn of Africa. There was increasing emphasis on post-conflict rehabilitation programmes in, for example, Eritrea, Ethiopia and Mozambique.
Breakdown of aid by sector
Final conclusions on the sectoral breakdown of LomV aid would be premature, since a large part of the 7th EDF has yet to be committed. The spread of decisions taken so far suggests a move away from the agricultural sector to the benefit of the social sectors, particularly health and education, and the modernisation of the administration (48% for the rural sector in 1993, as against 62% under LomII), but rural development is still way in the lead. Programme aid, which appeared late in the day in LomII, was significant in 1993, having already absorbed 18% of the funds allocated, as against 5% under LomII (Figure 4).
A more detailed breakdown of the aid highlighting technical sectors rather than sectoral distribution shows transport and communications infrastructure, water supplies and drainage, the environment and institutional support in the lead. Properly speaking, the change was not in the target sectors themselves, but in the technical means used to reach those targets, a shift which served to pinpoint the support offered for the ACPs' structural adjustment process. Alongside its focal sectors of activity, LomV also has a number of across-the-board topics - poverty, the protection of natural resources, the promotion of women as development operators, encouragement for the private sector and decentralised cooperation - which crop up more frequently in EDF projects. It is difficult to see just how much is being spent on them at the moment, obviously, because any number of them may well be combined in the same project.
There is increasing emphasis on rehabilitation. The first post-conflict rehabilitation programmes (for Angola, Ethiopia and Eritrea) were launched in 1991-92 and others, featuring Mozambique (ECU 130 million) and Somalia (ECU 43 million), followed in December 1992. The concern on every occasion was to form a proper bridge between humanitarian assistance and a return to long-term development. The ideas, aims and criteria of this sort of aid were laid down in 1993 in a dialogue between the Commission, the Council, Parliament and the NGOs.
Political uncertainty and Lomonstraints
The regular increase in financing decisions and the failing off of disbursements in 1993 can only be appreciated in the light of the ACPs' political and economic situation and the particular features of ACP-KU cooperation.
The contradictions which have come to light in recent years between political trends in some ACPs and the demands of LomV (Article 5 of which clearly states that cooperation between the two parties is to be directed towards the promotion of the rights of the individual) have had direct repercussions on the rate of implementation of EDF activities. At the end of 1993, seven countries - Haiti, Liberia, Somalia, Zaire, Sudan, Togo and Equatorial Guinea - were affected, although in the last three the de jure or de facto discontinuation of aid did not apply to ongoing schemes, which were allowed to go ahead. Thousands of millions of ECU were frozen, the dosing of the Commission delegations in these countries preventing sums of up to ECU 150-200 million p.a. from being paid out in each case. On top of that, Malawi ended a long period without aid in July, Kenya had its quick-disbursing aid stopped two years previously and countries such as Burundi, Rwanda, Nigeria, Angola, Mozambique and Congo saw the provisional suspension or slowing down of their aid.
In a second group of countries, paradoxically enough, it was a cautious move towards democracy, repeated national conferences, the fighting of elections and so on which switched priorities to politics, to the detriment of development. The democratic process always involves redefining priorities and holds back project identification. LomV programming suffered a similar fate in 1990-91 and the implementation of national indicative programmes was affected, with Ethiopia's programme, for example, renegotiated twice since 1991. The average rate of indicative programme commitment in the score of countries facing problems of this sort was 26% compared to 54% elsewhere.
The advent of democracy and better management in countries such as Benin, Tanzania, Burkina Faso and Mali have already made for substantial improvements in the implementation of aid and augur well for cooperation as a whole.
Importance of the economic context
Countries eligible for structural adjustment support saw credit facilities suspended when economic difficulties forced them to drop their reform policies and only 14 of a potential 38 managed to obtain finance. ECU 160 million, 35% of the first structural adjustment facility allocation, was left outstanding and, to avoid any recurrence, selection for the second facility was much tighter.
Conventional projects and programmes have to fit in with an economic policy which will ensure long-term viability, a demand which holds up project appraisal in many cases. The same goes for project implementation when commitments on such things as administrative control and local cost coverage have not been honoured. But despite problems of this nature, 30 or so countries bravely pursued severe adjustment policies and should be congratulated.
Constraints of the project cycle
The focal themes and sectors defined by the Commission since LomV have not always matched the priorities of the ACP countries, making identification difficult and lengthening the appraisal phase, particularly of schemes with several components. The emphasis on rural development in LomII and the social sectors in LomV has also affected duration, because these are two fields in which fruit is only borne in the long term. The growing tendency to cover operating costs during the early years of project life also hampered implementation.
There are 20-30 months between the submission of a project and the financing decision and even more between the financing decision and disbursement. The bulk of the payments made in 1993 (for project aid) was for programmes approved between 1987 and 1989. A project management overhaul was clearly required. In 1992, the Commission agreed on a new method of project cycle management, which is a guide for ACPs and other developing nations, and, in 1993, it started using it.
Limited scope for acceleration
Why not simplify the management procedures and get ACP-KU cooperation under way faster? The so-called post-Fiji study, commissioned by the ACP-KU Council of Ministers in 1991, proved that it was impossible to compres some parts of the procedure without compromising transparency, fair and open competition and the sound management of EDF operations. However, the harmonisation of rules should make for speedier implementation - and the important thing is for all concerned to stick to them.
Table 4: Structural adjustement support under LomV
There is no point in thinking that disbursements can be made in only a month or two. Even the quick-disbursing instruments (Stabex, structural adjustment assistance, sectoral import programmes and emergency aid) are prone to extended deadlines because of checks and extra conditions. In most cases, management procedures are an inherent part of the Convention, which is a complex one in that it regulates cooperation with 70 countries.
Priority to the quality of aid
The most important thing about aid to the ACPs is its quality and its effect on the people, so the Commission concentrated on four interdependent points - the consistency of the various forms of aid, their flexibility, project management methods and project evaluation.
A marked interest in consistency on the part of the LomII negotiators was confirmed in the 7th EDF programming. One example of this is Stabex, which involves a framework of mutual obligations, fitting in with the national indicative programme and, where appropriate, with structural adjustment support (itself combined with indicative programme funds to help the balance of payments). Countries, such as Ethiopia, which became eligible for the structural adjustment facility after the programming phase in 1991-92, saw their national indicative programmes adjusted in the light of it. Greater synergy was encouraged between EDF grants and the ElB-managed venture capital, particularly in the case of ACP countries which gave priority to the private sector in the utilisation of Community aid. Consistency was also sought between the management of regional funds and country aid.
The aid financed by the European Commission budget has to be orchestrated with the EDF, which is fuelled by direct contributions from the Member States of the European Union. Since LomII, the Convention has included an Article on food aid. The cofinancing of development schemes with the NGOs - projects on tropical forests, environmental protection in the developing countries and democracy and human rights, for example - are discussed in the light of the priorities of the countries involved and the LomV guidelines encouraging decentralised cooperation.
Post-conflict rehabilitation is still an outstanding example of this new approach, in which the EDF (national indicative programme, Article 225, i.e. aid for refugees and returnees, Stabex and remainders) and the Commission budget (food aid, NGOs and rehabilitation in Southern Africa) were mobilised in tandem. This aim of tighter coordination of the various forms of EU aid to the ACP nations is pragmatic and will be pursued gradually. With this in mind, the Council adopted a resolution (December) proposing that useful information be gathered by monitoring existing practices in a number of test countries.
Flexibility and the integrated approach
A number of Lomnstruments have been made more flexible since 199192. The most outstanding example is Sysmin, where the very specific project approach was dropped in favour of broader aims, such as the financing of essential imports (ECU 60 million for Zambia, for example). This is also the case with the structural adjustment facility, where payments are now fixed for two years and are readjustable according to circumstances.
The Commission's new method of presentation and project cycle management (the integrated approach), in use since January 1993, is an improvement when it cames to the standardisation and clarity of project dossiers. It also brings greater transparency to the dialogue on policies and considerably reduces the problems of project appraisal and monitoring. Its advantages were rapidly apparent in the first year of application and one of the spinoffs was a closer definition of the aims and identification of the indicators for project evaluation throughout implementation. But the merits of the integrated approach will only really be felt gradually, because it only applies to new schemes adopted since 1993. The benefit will not be to make periods of appraisal and the life of projects shorter, but to improve the quality and the relevance of EDF-financed schemes.
Questions on the meaning of cooperation
Since 1992, the Commission has boosted the means of project evaluation. It had the usual programme of individual project evaluation (applied to 50 or so cases last year) and the horizontal evaluation by instrument, but it then proceeded to run two major sector evaluation procedures on rural development and transport, both of which had attracted a large number of (mainly LomI and III) schemes, some of them in the course of implementation.
The first conclusions punted to the fact that failure was in many cases caused by poor linkage between the project and the back-up measures. They revealed the limits of what were often overambitious multisectoral programmes, suggesting that smaller projects would be better. Evaluation often rats. deeper questions about development cooperation itself, about the meaning of technical assistance and, most important in an economy battling with major financial constraints, about the authorities' role in the management of development operations. A steering committee of officials in the operational services is involved in every major evaluation.
EDF utilisation also depends on the availability of Commission staff. Since 1992, management tasks have been both complicated and diversified by new machinery, including adjustment support, thoroughgoing reform of the Stabex type and the need to monitor the secondary aid-related flows, over and above the transfer of currency and equipment (counterpart funds, credit lines for SMEs, Stabex transit accounts etc.), forcing the Commission to make increasing calls on technical assistance officers, in addition to its regular staff.
The enlargement of ACP-KU cooperation to new areas means tighter coordination between the European Union and other funders. The Commission's resources (reorganisation, training, decentralisation etc.) are being stretched to the limit and there is a risk of aid growth losing its momentum and quality control becoming inadequate.
Stabex apart, EDF operations expanded satisfactorily in 1993, with more decisions to offset a falling off of payments and LomV operations accelerating to offset a slowdown of LomII.
Experience of LomI and III prompted the Commission and the other partners concerned to give priority to the quality, relevance and impact of aid. The sectoral policy already appeared in LomII, and the id" of setting projects in a consistent macro-economic framework in LomV. Greater flexibility in the utilisation of EDF instruments came with greater synergy between EDF and other aid from the Commission and the ACPs.
The pace of EDF activity still depends on the demands of sectoral distribution and the extent to which the ACPs can absorb aid, in accordance with the Convention, and all this increases the administrative load on the Commission and makes the human resources issue crucial to both the Commission and the Member States.
The mid-term review will be an opportunity to find answers to the questions outlined in this article.