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DEVELOPMENT: Money Alone is Not Enough, NGOs Warn

Stefania Bianchi

BRUSSELS, Jun 15 2005 (IPS) - The European Union’s commitment of doubling its level of aid to developing countries is "misleading" as most of the money pledged will not reach the world’s poorest people, development groups are warning.

The European Network on Debt and Development (Eurodad) and ActionAid say the European Union’s (EU) pledge last month to double the bloc’s annual development aid from 46 billion euros (55.4 billion dollars) to more than 90 billion euros (108.4 billion dollars) by 2015 must be matched with commitments to improve the quality of its aid if it is to make a real difference.

Under the proposals announced last month by the European Commission, the EU executive, the EU’s 15 older – and richer – member states will make up the bulk of the effort to reach the objective with a commitment to spend at least 0.51 percent of gross national income (GNI) on aid by 2010 and at least 0.7 percent by 2015.

The bloc’s 10 newest member states from mainly eastern Europe pledged they would strive to pay at least 0.17 percent by 2010 in order to reach a goal of 0.33 percent in 2015.

This would raise the joint average level of aid for all 25 EU member states from 0.33 percent of GNI to an average of 0.56 percent by 2010.

While Eurodad and ActionAid welcome the EU’s pledge to increase its level of aid in the coming years, the groups say the bloc and other rich countries are guilty of exaggerating the amount they spend on aid to poor countries.

The non-governmental organisations (NGOs) argue that donors are not meeting "real" aid targets because they are not held accountable for the quality or quantity of their aid..

Speaking as part of a panel debating the effect of doubling aid to Africa Tuesday (Jun. 14), Romilly Greenhill, policy officer at the Britain-based agency ActionAid said the majority of aid coming from donors such as the EU is considered to be "phantom aid" which does not reach the poor, but instead is lost in tied aid, debt write-offs counted as aid, and high transaction costs.

Referring to a recent ActionAid report ‘Real Aid: An Agenda for Making Aid Work’, Greenhill accused the world’s richest nations of "political grandstanding" as aid funds are watered down, leaving just 39 percent of aid given by donors to benefit the poor.

"At least 61 percent of all donor assistance from G7 nations is phantom aid, with real aid in 2003 accounting for just 27 billion dollars, or only 0.1 percent of combined donor income. Nearly 90 percent of all contributions coming from the United States and France are considered phantom aid," she said.

Greenhill says much of this aid – 20 percent – is spent on technical assistance which counts as consultancy and international experts’ fees, while a further 14 percent is counted as debt relief.

The groups say an agreement by G8 finance ministers Saturday (Jun. 11) to allow 18 countries to have 100 percent of debt cancelled which they owe to the International Monetary Fund, World Bank and African Development Bank is a step in the right direction but insist that such debt relief should be additional to aid.

In a paper released Tuesday to coincide with the debate, Eurodad highlights the example of France where 29 percent of official development aid (ODA) is devoted to debt relief.

"Officials admit openly that increases in France’s ODA budget are largely due to debt relief. Worse, half of this is used to cancel export-credit debt, essentially a state bailout of private companies," the group says.

Eurodad adds that much of EU aid will be swallowed up by the bloc’s commitments to the reconstruction process in Iraq.

"In 2005 and 2006, a total of 20 billion euros will go on debt cancellation to Iraq. Because this relief is counted as aid, it will falsely inflate Europe’s aid figures by 15 percent next year," the paper says.

Both Eurodad and ActionAid say the EU needs to take urgent measures to ensure that debt relief is treated and reported separately from aid and is always additional to, and not drawn from, the funds required to meet the target of allocating 0.7 percent of GNI to development assistance.

The development groups are urging the EU to deliver "better aid" to make up for the shortfall, and argue that the share of real aid is unlikely to increase unless a system of "genuine accountability, which balances the interests of donors, recipients, and the poor, can be put in place."

They add that ensuring more aid is spent in the poorest parts of the world is also key to improving the effectiveness of the EU’s ODA.

Currently, Eurodad says EU Greece is spending a mere 6 percent, Spain 13 percent and Austria 15 percent of ODA in the poorest 61 countries in the world.

For aid to be more effective, the group says EU countries need to allocate at least 70 percent of their ODA to these countries.

Uganda’s ambassador to Brussels and to the African, Caribbean and Pacific (ACP) secretariat Deo Rwabita argues that doubling aid to developing countries will lead to dependency and undermine democratisation, and is urging the EU to look at what alternatives are on offer.

Speaking as part of the panel Tuesday, Rwabita argued although Africa needs more aid, the current strategy has to change.

"Aid is like putting money into a bottomless pit, but if Africa has to benefit from aid then there has to be transparency on both the donor’s side and the recipient’s side to reproduce wealth in developing countries, otherwise it will be a vicious circle," he said.

But more than aid, Rwabita says Africa needs investment, trade and tourism.