Article:Investing in Sustainable Development The EU at the forefront in implementing the Addis Ababa Action Agenda Flashcards
What is the article about?
It reviews progress (2015-2017) made by the EU and Member States on the Addis Agenda within the framework set by the new European Consensus on Development.
Key Findings:
2017: EU institutions and Member States have started implementing the Addis Agenda in the context of the overall 2030 Agenda aiming to meet their commitments. If current efforts are kept up, the EU should be able to meet most of its Financing for Development commitments by 2030.
2017: ODA continues to play a crucial role. The EU still the world’s largest provider of ODA, accounting for over half of the total ODA provided to developing countries.
2017: The EU’s collective ODA grew from 0.31 % of GNI in 1999 to 0.50 %
2017: Four EU Member States have already reached or exceeded the 0.7 % ODA/GNI threshold.
2017: The EU has also collectively increased its ODA to Least Developed Countries (LDCs) in absolute terms, though more work is needed to reach the 2020 target of 0.15 % of GNI.
The EU and its Member States are collectively the largest provider of public climate finance. EU public support for climate finance has almost doubled in nominal terms between 2013 and 2016.
2017: The EU and its Member States are the main provider of ODA for science, technology and innovation to developing countries (over 75 % of global ODA). Between 2009 and 2016, EU spending in this area more than doubled.
EU is the largest donor of scholarships for students from developing countries: EU spending represented almost 90 % of total ODA spending for scholarships by donor countries. Between 2014 and 2016, EU yearly in-donor country disbursements for scholarships grew by 20 %.
- the EU has created an array of innovative financial instruments with high potential. The EU and its Member States have introduced innovative sources of development funding. Innovation funding has more than doubled within a year.
- the EU has set up an innovative European Fund for Sustainable Development and: public and private investment to improve economic and social development in Africa and in the countries bordering the EU. Some Member States use special purpose vehicles similar to EU blending facilities to provide innovative financial tools to partner countries.
- Most generous provider of ODA in quantitative terms + strong emphasis on the quality of development cooperation. The EU supported development effectiveness for instance by favouring more inclusive partnerships through triangular and South-South cooperation. Joint programming and joint implementation are also effective means of implementing development cooperation partnerships. By the end of 2017, the EU and its Member States had 21 finalised joint programming documents. The EU and its Member States are also heavily engaged in joint implementation, for instance through four different Trust Funds they have set up since 2015, the largest one being the Emergency Trust Fund for stability and addressing root causes of irregular migration and displaced persons in Africa.
However, ODA is only a small part of the development funding landscape. In line with the Addis Agenda, the EU has a comprehensive and integrated approach to mobilising financing and other means of implementation, including developing good policies, from all available sources (public/private, domestic/international) and actors to support of developing countries’ sustainable development. The EU’s actions help to bring together aid, investment, remittances, trade and domestic resource mobilisation.
private sector is an important contributor to growth and job creation → so the EU has taken strong measures to promote private-sector development: including
- assistance for investment climate reforms,
- lending and venture capital facilities,
- and technical assistance to businesses.
EU Member States have specific bilateral programmes that provide credit, guarantees and technical support to micro, small and medium-sized enterprises (MSMEs) in partner countries. The EU has set up a European External Investment Plan (EIP)
EU continues to provide support and mobilise investments through blending mechanisms in all regions of EU external cooperation.
The EU and its Member States have taken steps to reduce the cost of remittances and increase their use for development.
→ 2014-2017: prices for transfers of remittances were significantly reduced in a number of EU Member States.
Trade
EU has taken measures to increase market access for developing countries, by supporting the advancement of development issues in multilateral trade negotiations, by means of unilateral trade preferences (Generalised Scheme of Preferences, including the Everything but Arms arrangement) and via bilateral and regional trade agreements with developing countries, including Economic Partnership Agreements. The EU and its Member States are also the leading provider of Aid for Trade globally.
The EU is the world’s most open market for Least Developed Countries.
EU has been scaling up its support for domestic revenue mobilisation in developing countries.
In 2015 the EU was one of the founders of the Addis Tax Initiative.
2015: EU ODA financing for domestic revenue mobilisation represented 61 % of development partners’ total disbursements under the initiative; and the European Commission adopted the ‘Collect More, Spend Better’ approach.
Budget support programmes contribute to promoting governance, public financial management and domestic resource mobilisation in partner countries.
The EU and its Member States also support initiatives on exchanging of information for tax purposes, and on anti-corruption and illicit flows.
the 2030 Agenda
a new global development framework, built around 17 Sustainable Development Goals (SDGs), covering economic, social and environmental issues: and 169 targets.
is a renewed global commitment to eradicate poverty and achieve sustainable development by 2030 worldwide, ensuring that no one is left behind. These goals build upon the Millennium Development Goals (MDGs) and upon the international efforts to promote sustainable development, through the UN Conference on Sustainable Development (Rio+20).
SDGs x MDGs
Sustainable Development Goals x Millennium Development Goals
differ in several ways:
- the new agenda is a universal one, applying to all countries.
- the SDGs address a broader and more holistic range of issues than the MDGs (inequality, climate change, sustainable cities, renewable energy, peaceful and inclusive societies, and sustainable consumption and production,…).
- the SDGs emphasise the need for broad partnerships that include all actors and make use of the full range of means of implementation, both financial and not financial.
The Addis Ababa Action Agenda (Addis Agenda)
is an integral part of the 2030 Agenda. It provides a global framework for Financing for Development by aligning policies and financial flows with economic, social and environmental priorities. With respect to the previous international agreements, the Addis Agenda sets a new paradigm for achieving the SDGs through effective use of all financial flows and non-financial means of implementation, emphasising domestic action and sound policies. It places particular emphasis on the role of domestic resources as the key to achieving sustainable development, even in Least Developed Countries (LDCs). But also calls on the private sector to contribute to sustainable development within an enhanced regulatory and financial framework.
The Addis Agenda highlights the need to unlock the full potential of all financial flows – private and public, domestic and international – and also emphasises the critical importance of good policies and non-financial means of implementation. It underlines the need to draw upon all sources of funding, technology and innovation; promote trade and debt sustainability; make best use of data; and address systemic issues. It creates a strong foundation to support the implementation of the 2030 Agenda for Sustainable Development.
The Addis Agenda builds on the outcomes of the previous conferences on Financing for Development held in Monterrey (2002) and Doha (2008).
The Addis Agenda serves as a guide for action by governments, international organisations, businesses and civil society. The Addis and the 2030 Agendas, along with other international agreements such as the Paris Climate Agreement (2015) and the Sendai Framework for Disaster Risk Reduction (2015), support a revitalised and strengthened global partnership for sustainable development to end extreme poverty and deliver sustainable development for all.
the new European Consensus on Development
a new policy framework, which builds upon the 2030 Agenda and the Addis Agenda. The new Consensus provides the framework for a common approach to development policy for EU institutions and the Member States in their cooperation with all developing countries. The new European Consensus puts particular focus on policy areas and means of implementation where the potential for meaningful change is greatest.
The new Consensus is framed around the ‘5 Ps’ of the 2030 Agenda:
People, Planet, Prosperity, Peace and Partnership.
It recognises that, to reflect the framework set out in the Addis and the 2030 Agendas, the EU and its Member States must adapt their approach to mobilise and make effective use of all means of implementation, including through innovative financing mechanisms. This requires a renewed focus on creating an enabling and conducive policy environment at all levels. This includes mobilising domestic and international public funding, stimulating the domestic and international private sector, strengthening the capacity of partner countries to deliver change, stimulating trade and investment, encouraging science, technology and innovation and addressing the challenges from and harnessing the positive effects of migration.
European (External) Investment Plan (EIP)
an initiative with three strands which aims to increase private investment and improve the business climate in non-EU countries.
Addis Tax Initiative
a multi-stakeholder partnership that aims to improve the transparency, fairness, effectiveness and efficiency of tax systems.
‘Collect More, Spend Better’ approach
which aims to support developing countries in three critical areas: i) improved domestic revenue mobilisation, ii) more effective and efficient public expenditure and iii) debt management.
The Addis Ababa Action Agenda: the means of implementation of the 2030 Agenda for Sustainable Development
2015: a special Summit of the United Nations approved the 2030 Agenda for Sustainable Development
later in 2015: The Addis Ababa Action Agenda, adopted.
2017: EU adopted a new policy framework the new European Consensus on Development
Domestic and International Private businesses and Finance (action area B)
The 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda have identified private business and finance as key areas for donor support.
This priority is reflected in the new European Consensus for Development.
The main objectives of action are to:
i) support private-sector development as well as policies to improve the regulatory environment for the private sector in partner countries,
ii) improve access to finance for micro, small and medium-sized enterprises (MSMEs) and the poor,
iii) reduce the average cost of remittance transactions to less than 3 % by 2030 (with no remittance corridor (i.e. outflow of funds from one country to another) having costs higher than 5 %), while encouraging efforts to channel remittances into productive investments;
iv) support responsible business practices and responsible management supply chains
Private-Sector Development : Most relevant SDG goals and targets for private sector
- 3: Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets
- 17 Encourage and promote effective public, public-private and civil society partnerships, building on the experience and resourcing strategies of partnerships
Private-Sector Development
The main objective is to support the private sector in partner countries, including by supporting policies intended to improve the regulatory environment for the private sector and by providing MSMEs and the poor with improved access to finance.
The Commission had already recognised a stronger role for the private sector in development in its Communication of May 2014. That recognition was confirmed in two sets of EU Council conclusions and in a European Parliament resolution adopted in 2016.
The new European Consensus on Development further stresses the importance of private-sector investment to sustainable development, in particular to inclusive and sustainable growth and job creation. Private sector also plays a critical role in the global transition to circular economy.
Private-Sector Development: Implementation
The EU and its Member States have several programmes that favour financing for the private sector in partner countries.
- 8 Member States have bilateral programmes that provide credit, guarantees and technical support to MSMEs in partner countries. Most are focused on credit and technical assistance in rural areas.
- 10 Member States have established mechanisms for knowledge sharing and exchange between their national business communities and those of partner countries.
- 8 Member States have programmes that focus on improving the business environment or offer non-financial incentives to encourage foreign direct investment in partner countries.
- the EU continues to provide support through its blending operations (‘blending’ means a combination of EU grants with loans or equity from public and private financiers). 8 programmes cover all regions of EU external cooperation and mobilise investments in infrastructure and the private sector in developing countries. The creation of the first EU facilities in 2007. New thematic initiatives – ElectriFI and AgriFI – have been set up to catalyse private resources through risk sharing between the public and private sectors. In its work on blending facilities, the Commission collaborates with European finance institutions (such as the European Investment Bank and the European Bank for Reconstruction and Development), but also with bilateral development finance institutions from Member States.
- Figure 1: EU collective assistance to the private-sector development. It has three components (support to formal sector financial intermediaries; business support services & institutions and support to informal/semi-formal financial intermediaries). Annual commitments for formal financial intermediaries trended upward during the 2007-2016 period, while assistance for informal and semi-formal intermediaries (i.e. those not subject to regulation by financial authorities) declined slightly in constant prices, possibly reflecting the difficulties of providing and measuring financing in this area.
- EU budget support operations affect the business climate through their eligibility requirements (pertaining to macroeconomic stability or public finance management) and through the related policy dialogue with the authorities.
- The impact of EU budget support in beneficiary countries can be estimated using indicators from the World Bank Group’s Doing Business index. In particular, the ‘distance-to-frontier’ score assesses the level of regulatory performance over time. It measures each country’s distance from the best performance observed across all economies in the sample. Economies’ distance to the best-performance frontier is reported on a scale from 0 to 100, where 0 represents the lowest performance and 100 the frontier. Since 2010, countries that have received (budget support) sector reform contracts related to trade and private-sector development have improved their overall business climate (Figure 6).
- Several programmes have addressed the needs of MSMEs, including financing needs.
- In South Africa, a new budget support operation was initiated in 2016. This new operation supports small and medium-sized enterprises (SMEs) to access finance, to capitalise on opportunities as suppliers to bigger companies or to the public sector.
- There are also other modalities. The EU is for example supporting the Women in Business programme, managed by the European Bank for Reconstruction and Development. The programme facilitates access to finance and know-how so that female entrepreneurs can successfully grow their businesses, thus creating more wealth and more jobs. In parallel, the programme helps local financial institutions recognise the huge potential of the women-run SME market and adapt product offerings to suit their needs. Women in Business combines dedicated financing for female entrepreneurs, delivered through partner financial institutions, with two types of technical assistance: one to help partner institutions understand the sector and develop relevant product offerings; the other to advise and mentor female entrepreneurs as they expand their businesses.
- The European Union Emergency Trust Fund for stability and addressing root causes of irregular migration has contributed substantially to the implementation of successful MSME-targeted projects in fragile contexts.
- EU Member States also have programmes supporting MSMEs. Overall, there is evidence that the business environment has improved in partner countries since 2014, reflecting in part programmes initiated before 2014. e.g. Quality certification for partner businesses
A major initiative in 2017: the EIP and its European Fund for Sustainable Development
The European Investment Plan is a three-pillar initiative that rounds out the EU’s financial instruments of external cooperation in a manner particularly relevant to private sector activities.
The first pillar is an innovative financial instrument, the European Fund for Sustainable Development (EFSD), that combines an EFSD blending activities in two regional investment platforms (Africa and European Neighbourhood), with blending operations to stimulate private investment. The EFSD Guarantee can cover specific risks in investment projects (such as commercial risks, political and country risks, currency risks, climate change and environmental risks) and thus encourage investors to participate. For example, in renewable energy projects, the EFSD Guarantee can help to alleviate short-term liquidity problems and that way encourage investors to get on board.
The EFSD is expected to leverage EU contributions and contingent liabilities of extra public and private investment to improve economic and social development in Africa and in the EU neighbourhood (east & south)
Five investment windows have been identified as crucial for creating decent and sustainable jobs in Africa and the European Neighbourhood:
Sustainable energy and connectivity – to attract investments in renewable energy, energy efficiency and transport.
Financing of micro, small and medium-sized enterprises– to improve the access of MSMEs to finance.
Sustainable agriculture, rural entrepreneurs and agribusiness – to provide better access to finance for smallholders, cooperatives and MSMEs so as to address food security issues.
Sustainable cities – to mobilise investments in sustainable urban development of municipal infrastructure, including urban mobility, water, sanitation, waste management and renewable energy services.
Digital for development – to promote investments in innovative digital solutions for local needs, financial inclusion and decent job creation.
The second pillar involves stepping up technical assistance and helping beneficiaries develop financially attractive and mature projects that can mobilise more investment, as well as supporting the third pillar.
As raising additional funding without first improving the investment climate and business environment is unlikely to succeed, the third pillar of the EIP comprises the following initiatives:
the Sustainable Business for Africa (SB4A), a platform for structured dialogue with the private sector under the EIP at country, sector and strategic levels. It helps to identify and prioritise necessary investment climate reforms and attract private investment in partner countries.
the Structural Reform Facility for the Eastern Neighbourhood, which helps the European Commission identify and formulate structural reforms to promote investments in areas agreed with partner countries in countries neighbouring the EU to the east.
sector and value chain analyses at country level to gather market intelligence and identify investment opportunities in key sectors and value chains that offer high potential.
policy and political dialogue with partner countries on governance, sector reforms and value chain upgrading.
Private Sector Development conclusion: Commitment & Effort & Progress
Remittances: Most relevant SDG goals and targets
10.c.1: Reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent by 2030
Remittances Conclusion: Commitment & Effort & Progress
Sustainable business practices: Most relevant SDG goals and targets
12.6: Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle
Sustainable business practices conclusion: Commitment & Effort
