Bursting the Bubble

A tight budget is no excuse – what must the EU do to end global poverty?

25 October 2013 | by

Policy coherence for development

Development aid, often viewed as a discretionary activity, is in fact an obligation of the Lisbon Treaty. It implies that all the policies of the EU must be coherent with its development aid objectives or at least not be conflicting with them. Having established the so-called ‘principle of policy coherence for development’ (PCD), the EU is the only region in the world with a binding declaration to improve the impact of its policies on developing countries.

In my previous article, I presented the budgetary constraints of the development assistance provided by the EU to the developing countries of the world. However, development aid extends much further than mere financial support. Being aware of that, I would like to show how the EU’s development aid could be improved other than by becoming better funded. CONCORD, a European confederation bringing together relief and development NGOs, has recently released a report, which serves as a handy guidebook.

The EU must prevent its policies from affecting agriculture in developing countries

First of all, the report shows the link between the trends in EU policy and the weak condition of agriculture in the developing world. For instance, the 10% renewable energy goal in transport, taken on by the EU in 2009, brought about large investment in biofuels, which were mostly produced from crops grown outside the EU’s borders.

In Tanzania, a British company, Sun Biofuels, grabbed in 2006 more than 8 000 hectares of land from the local people and in return, it gave them nothing more than the promises to bring investment and jobs. Regardless to that, the local dwellers were deprived of farming land and access to wells, until the company went into administration in 2011 and left even the promise of employment unfulfilled.

The legislation, aimed at increasing the share of renewable energy in transport, not only led to the massive conversion of agricultural production from food to biofuel crops, which raised food prices in countries like Tanzania, but also failed to deliver on its initial goal, thus allowing the transport sector to stick to conventional kinds of energy production.

 

Improving policy coherence mechanisms 

The example above shows that the EU’s self-imposed obligation to take into account the impact of its policies on developing countries remains largely unfulfilled. So as to prevent negative effects of EU policies on developing countries, improvements must be made to the monitoring, assessment and evaluation of the EU legislation.

For example, out of the 177 impact assessments (IAs) of legislation relevant to developing countries between 2009 and mid-2013, only 33 IAs (19%) analyzed the impact of those laws on the development of third countries. The Impact Assessment Board of the Commission has no development experts among its members. Furthermore, the participation of NGOs is very limited.

This, according to CONCORD, should be improved in the upcoming 2013 revision of the Impact Assessment guidelines. The profile of development impact should be raised and be equal to the other analyzed factors. A development specialist should be appointed to participate in the IA Board, and the process should be more inclusive of external organizations.

 

Illicit financial flows impede the recovery of poor countries

In addition to making the legislation match the goals of the EU in development assistance, there is more that has to be done. Recent ActionAid research  reveals that almost one in every two dollars invested by large companies in the developing world is routed through tax havens. Combating them is a key action necessary to enable growth in poor regions of the world.

To show the impact of tax evasion and illicit financial flows on the lives of ordinary people, CONCORD presented Caroline Muchanga, who earns less than 4 USD as a market vendor in Zambia. Her daughters are forced to attend a low-profile school run by volunteers, because neither she nor the government can afford to finance the books and uniforms necessary in a public school.

Nevertheless, Caroline has to pay proportionally 90 times more tax than Zambia Sugar PLC (the largest Zambian sugar producer, an Associate British Foods subsidiary), whose products she also sells. In the last two years, the company paid 0.5% of its income in tax and in the preceding years, it managed to pay no income tax at all.

For the benefit of its own citizens as well as the other nations in the world, the EU must support a multilateral regime for the exchange of fiscal information. In addition, more transparency is needed so as to track and effectively fight money laundering. Only then could people like Caroline rely on their states, which would be fairer, better funded and thus, able to provide their citizens with public services such as quality education.

 

The EU’s development model must be altered to stop exploiting natural resources in developing countries 

The EU remains the world’s leading natural resources importer, which bears substantial strain on local communities across the globe. Often seen as an economic opportunity, industries such as mining or oil drilling frequently cause the deterioration of peoples’ livelihoods. Rather than making them flourish, the commodities sector often turns resource-rich regions into wastelands.

In order to reduce the risk mentioned above, in 2012 the EU set up disclosure requirements for payments made by companies from the extractive sector to governments. Works are currently underway to expand these reporting requirements to non-financial fields, such as social and environmental impacts. Transparency in this business is an essential requirement for safeguarding the interests of local communities.

Lastly comes the climate issue. Talked about over and over again, it remains the main factor affecting the developing world and its ability to grow economically. Increasing amounts of greenhouse gases (GHG) and the consequent climate volatility are leading to rising temperatures and droughts in vulnerable regions such as the Sahel in Africa.

In addition to the ongoing efforts to prevent climate change such as the “20-20-20” objective from 2009 (to reduce emissions, increase renewable energy share and energy efficiency), more ambitious goals have to be drawn, both for the next years and the post-2020 period. For instance, the goal to reduce GHG emissions by 20% turned out to be an underestimation, considering the unforeseen industrial slowdown, and should therefore be adequately raised to 30% or more.

 

A multifold solution to a complex challenge

The challenges for Europe in helping developing countries expand are more complex than they initially seem and span across many more areas than just money. Beyond finance, there is an array of factors affecting the economies of poor countries and their ability to compete globally.

The EU must become coherent and ensure that its other policies support the promises made to developing nations. It has to fight tax evasion and eradicate misconduct, which increases inequality. But most of all, the entire European growth model has to be readjusted, so as to enable more harmonious growth elsewhere in the world.

What do you think?