Voices & Views

Partnering with Emerging Donors

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The balance of international aid is shifting, with emerging donors contributing a growing proportion of the international development budget. The surge in investment needs careful handling to avoid gaps and overlaps, and to keep poverty reduction and lowering inequality at the heart of aid. Collaborative projects between the EU, emerging donors and beneficiary countries could be the way forward, according to a European Commission report, ‘The European Union, Africa and New Donors’. 

Understanding the two donor groups’ different styles, reporting methods and reception in beneficiary countries is the first step towards better coordination.

“The importance of emerging donors has been increasing in recent years, and we wanted to understand better how they operate, what their impact is, and how they interact with traditional donors and partner countries,” says Jose A. Becerra, Policy Officer in DEVCO’s International Cooperation and Dialogue unit. 

The ‘new’ donors - Brazil, China, India, Kuwait, Saudi Arabia, Turkey and the United Arab Emirates – committed close to €80bn of official development assistance (ODA) and other official flows to Africa from 2003-12. China alone committed €11bn of development finance to Africa in 2012, dwarfing the €4bn of ODA from EU institutions. 

Official Development Assistance, or ODA, is funding provided by official agencies to promote economic development and welfare in developing countries. In the OECD’s definition, it must contain a grant element of at least 25%. Since 1972, the traditional donors have reported their aid spending to the OECD’s Development Assistance Committee (DAC).

 “Apart from the Arab donors which report to the DAC, most emerging donors do not follow DAC transparency rules, they don’t publish much data,” says Becerra. In order to make comparisons, “the report singles out the flows from emerging donors which are most similar to ODA,” known as concessional financing. These are loans offered on more generous terms than market loans, for example with lower interest rates or grace periods on repayment.

 

“The report gave us an opportunity to hear how governments and stakeholders in partner countries perceive assistance from different donors,” says Becerra.

Emerging donors, particularly China, have one main advantage over their traditional counterparts: speed. “Some [African countries] said, ‘While we are waiting to have the decision of a traditional donor to start a certain project, the Chinese have already finished the project,’” recalls Becerra.

 

 

Another attraction of funds from emerging donors is the perception of equality. “They are on an equal footing, with no history of colonial exploitation, and no policy conditions attached to the loans,” says Axel Dreher, Professor of Economics at Heidelberg University and author of the report. While traditional donors have in the past made loans provisional on the recipient country reducing its budget deficit or creating an independent central bank, emerging donors' approach is different.

“Emerging donors look less at the variables which traditional donors take into account, such as low GDP or targeting aid to the Millennium Development Goals,” says Becerra. India stands out among emerging donors for granting significantly more aid to countries with greater need, supporting programmes to reduce undernourishment in schools, improve access to water and sanitation and increase literacy. “But in general, emerging donors’ aid is more commercially-oriented,” says Becerra. “And if aid is less need-oriented, it may have less impact on poverty reduction.”

In addition, emerging donors’ funds are frequently ‘tied’ to services or goods bought from the donor country. 85% of loans from India’s Exim Bank are linked to the purchase of Indian goods and services, and China’s Exim Bank insists that at least 50% of all procurement should come from China. 

Insisting on ‘tied’ aid can increase the costs of a development project by 15-30%, according to the OECD. Recipient countries are unable to seek the cheapest materials or laborers, and local firms are prevented from bidding for contracts. Foreign workers brought in by the donor country often return home upon a project’s completion without imparting knowledge or skills to local workers. Traditional donors reporting to the DAC had significantly reduced tied aid to 14% of total aid by 2012. 

 
Triangular cooperation
 
Dreher advocates more collaboration between emerging and traditional donors, and suggests that combining the strengths of the two groups would achieve the best results. “We think it is legitimate to treat their approaches as equally important, and think about which concepts work best in which particular recipient country situations.” 
 
“Dialogue is important, but there should also be more triangular cooperation projects - joint ventures between the European Union, one of the emerging donors, and a partner country in Africa,” says Andreas Fuchs, researcher at Heidelberg University and contributor to the report. 
 
Triangular operations are already practiced by two-thirds of DAC member states, though projects tend to be small in scale, according to researcher Guido Ashoff. The benefits are much-touted: the resources, risk-assessments and expertise of traditional donors come together with the linguistic and cultural similarities of emerging donors to make aid more efficient and cost-effective. 
 
“The cultural and historical background of emerging donors can help our engagement with partners, for example teaming up with Arab donors in north Africa in the fields of education and Islamic finance; or in infrastructure, traditional donors can bring in technology which reduces costs and mitigates environmental side-effects,” says Becerra.
 
“However, triangular cooperation has costs, derived from the fact you have to coordinate more,” says Becerra. The preliminary work of agreeing common standards and procedures for delivering projects is magnified with three rather than two actors involved, as is the harmonizing of approaches and practices. “If you want it to be useful, you have to engage in conversations on effectiveness and coordination.” 
 


The European Commission uses a Joint Programming strategy to synchronize the efforts of multiple EU donors working in a single country, replacing several bilateral strategies and planning cycles with a single plan. No sector should have more than five active donors involved, advise the EU guidelines, and no donor should work in more than three sectors. Non-EU development partners are involved wherever possible, to help reduce fragmentation, lower transaction costs and make projects more predictable.
 
EuroSociAL, a European Commission programme in Latin America, provides a model for coordination between the EU, emerging donors and partner countries. With 80 participating institutions in Latin America and Europe, the programme facilitates knowledge sharing across the region. Successful ventures can be scaled up across countries. For example, Chile has helped Uruguay with a taxpayer assistance handbook; Uruguay supports Costa Rica’s policy for homeless people, and Costa Rica is advising Honduras on assistance for the disabled, among other projects.  
 

Significantly, the traditional donors are moving towards a facilitating role, and local governments are encouraged to take the lead, supported by emerging donors.

“Deeper knowledge of emerging donors comes at an important moment,” says Becerra. “We are currently revising the Cotonou Agreement,” the framework for the EU’s development partnership with 79 African, Caribbean and Pacific countries, which ends in 2020. “Emerging donors are shaping the international agenda. Better understanding can help us bring them into the equation for further discussions.” 
 

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Group on Development Policy

Policy Forum on Development

Capacity Development & Technical Cooperation

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This collaborative piece was drafted with input from Jose Becerra
 from DEVCO, with support from the capacity4dev.eu Coordination Team

Disclaimer

This information is provided in the interests of knowledge sharing and capacity development and should not be interpreted as the official view of the European Commission, or any other organisation.

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