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The EC Financing Framework for Development Co-operation

These Guidelines apply in particular to EC development co-operation as administered by Directorates-General IB and VIII but most aspects are also relevant to DGIA and other EU institutions such as the European Investment Bank. The funding mechanisms relevant to programmes and projects can be divided into three categories: European Development Fund (EDF) grants administered by the Commission; Budget Lines; and EDF subsidised loans through the European Investment Bank. The box provides a breakdown of EC development co-operation according to funding instrument and region for the period 1991–1995.

European Development Fund

The European Development Fund is the principal EC funding instrument for the 70 ACP states, many of which are among the poorest in the world. The EDF has been in operation for 40 years and is a unique partnership between the EU member states and the ACP countries and a major mechanism of North-South co-operation. The Lomé Convention forms its basis.

Finance for the EDF is provided directly by the EU member countries and not from the EC Budget. The EDF is mainly administered by DGVIII with a small sum allocated to the EIB (see below). The Fund is replenished every five years following EU-ACP negotiations. In 1995, agreement was reached on EDF8 with a slight increase in the total contribution from EU member countries from ECU12,000 million (1991–95) to ECU 14,625 million (1996–2000). The EDF accounts for approximately 41% of the total EC development co-operation budget. Half of this is for project assistance; the remainder covers programme co-operation as shown in the box opposite

The level and utilisation of allocations to each recipient country is based on individual agreements called National Indicative Programmes (NIP) between the EC and the country concerned. In the present NIPs, water-related investments are considered important to a majority of ACP states. A significant portion of the EDF funds, 9% of EDF8, are allocated to regional co-operation and this is given special coverage in Title XII of the Lomé Convention; support is given to recipient countries in this context under Regional Indicative Programmes (RIP). Natural resources management through regional co-operation is specifically mentioned and this is particularly pertinent for transboundary river problems.

Budget Lines

These are allocations of funds written into the EU budget targeted at specific types of activities or locations and covered by a legal framework such as a Council Regulation, a decision of the European Council, General Conditions or Community budget allocations. Each budget line is allocated a sum for disbursal, in the form of grants over a specific time frame. There are no Budget Lines specific to water resources but several
budget lines provide funding for water. These Guidelines provide a strategic basis for support to water resources within the budget lines. All DGIB funding is through budget lines; there is no equivalent to the EDF for non-ACP countries. There have been many budget lines for the Mediterranean region. The most important are B7-4051 for the Maghreb and Mashreq countries and B7-4080 for horizontal co-operation between non-state actors and the EU. The latter provides a mechanism, under the new Mediterranean policy to provide support to local authorities and water agencies other than central government. For example, the MEDURB programme covers support for co-operation between local authorities in the EU and Mediterranean countries to improve urban management including water-related issues. The two most important budget lines for the ALA region are B7-300 (Financial and Technical Assistance to Developing Countries of Asia – previously B7-3000), and B7-310 (Financial & Technical Assistance to Developing Countries of Latin America – previously B7-3010).

DGVIII also provides funds via budget lines. One of these is B7-6000 which is designed for the provision of grants to NGOs working at the community level to build up community capacities for managing and financing their own development schemes. The EC partnership with NGOs is reviewed below.

Another budget line – which also indicates the importance attached in DGVIII to the need to reach out into grassroots communities and improve participatory frameworks – is budget line B7-5077: Decentralised Cooperation with Developing Countries. Although the level of funding for this budget line is modest, it is innovative and has interesting potential in relation to the international consensus related to water, given its stress on user participation in service delivery. For this reason it is described more fully below.

Another budget line pertinent to water resources is B7-6200 whose designated purpose is for environmental activity in developing countries. This budget line is jointly managed by DGIB and DGVIII and is used to promote policy development and the implementation of pilot projects. The funds available are relatively small as the activities it supports are intended to complement or help facilitate projects funded under the much larger EDF or other budget lines.

Apart from DGIA, DGIB and DGVIII, other Directorates-General have budget lines that include funding for water-related activities. The most important is DGXII (Science Research and Development) where a proportion of the funds is allocated for collaborative research between European and developing country researchers. There are budget lines in other Directorates-General such as DGXI (Environment) and DGIII (Industry) that have direct relevance to water but not necessarily to development co-operation.

Decentralised Co-operation

Decentralised Co-operation (DC) is a funding instrument designed to enable the EC to contribute to the development process outside the conventional development co-operation frameworks. DC emerged in the 1980s as a result of several interconnected phenomena. Increased enthusiasm for democracy and human rights had brought fresh insights into the role of civil society and its representatives in the development process. More attention was therefore being paid to the role of nongovernmental and community groups as organised expressions of civil society, and to their potential role in participatory development designed to achieve lasting social and economic benefits among low-income groups. At the same time, ways were being sought to reduce the role of formal state institutions in the management of services and increase the emphasis on good governance and subsidiarity.

In DC activities, the central government facilitates but does not have a direct involvement in the programme or project. DC funds are channelled directly to NGOs and organisations outside the formal governmental apparatus, and to local public authorities. However, DC cannot work effectively unless central government is fully committed and supportive. Local government institutions, co-operatives, NGOs, companies and business interests, both in the North and South, which are capable of contributing to the social and economic growth of developing countries can all be involved.

There are four strategic principles on which DC should be based:

  • A wide range of players should be included in the development activities in such a way that they participate in the decision making and management process at each stage of the activity
  • A programmatic approach should be adopted aiming at implementing a coherent set of complementary actions;
  • A support process should be established for capacity building and control of local development initiatives by decentralised actors;
  • A redefinition of the roles is needed of the different actors to permit the transition in the role of the state towards the facilitation of a process and an enabling environment
  • .

DC is therefore primarily designed to enhance the role of civil society in the development process. It also enables resources to be spent in such a way as to help popular institutions in partner countries become more autonomous. The use of DC aims to achieve the following: (1) Ensure collaboration at different levels of the various economic and social players and agents; (2) Encourage the active participation of direct beneficiaries in decision-making and at all stages of programmes which concern them; (3) Foster equitable and sustainable social and economic development through participation; (4) Involve a wide range of both Northern and Southern NGOs in co-operation programmes and thus spread the impact of EU activities; and (5) Incorporate the local dimension in development activity, with increasing attention to decentralisation and regionalisation. The EC has had considerable success with this innovative funding source but it is important that unrealistic demands are not be placed upon the agents, and that DC itself not be regarded as a panacea.

DC uses flexible forms of administrative and financial management. It is thus adaptable to the existing capacities of partner organisations and their financial or technical limitations. At its core is a strong commitment to participation, not as a peripheral activity whereby communities contribute to programmes in the form of free labour or one-off levies, but as a built-in programme design and management feature. Full participation, which the partner group or agent is expected to engender, applies to the whole ‘project cycle’ from the initial idea through identification, planning, preparation, implementation and evaluation. The quality and degree of participation at each level will determine how ‘decentralised’ the management of the project actually is in practice. The formal concept of DC was first introduced in articles 20 to 22 of the fourth Lomé Convention. These articles concern the objectives and principles of co-operation, the objectives and orientations of the Convention in the main co-operation fields, the agents of co-operation and their eligibility for funding. Likewise, DC is included in Council Regulation 443/92 relative to economic co-operation with Asia and Latin America. A specific DC budget line has been introduced, and a special unit established within the EC to provide a clear incentive for DC and to draw in local authorities, universities and NGOs. The budget is small; it supports micro-projects and preparatory projects to strengthen appropriate organisations in developing countries and in Europe, and to create North-South and South-South partnerships and networks.

DC is applicable in all EC’s target regions for development cooperation. Regional and country differences mean that there are different DC priorities and emphases in different settings, reflecting the level of development, the range and effectiveness of existing social and economic structures, the relative importance of the public and private sector, and their social and political systems. DC can be applied in numerous situations, either as a component of a larger programme, as support to nascent local authorities to reinforce capability and promote local governance or simply as a mode of implementation of targeted actions such as basic water supply and sanitation services.

In the preparation phase of a DC activity, the central issue is not the actions to be undertaken but the identity of the agents involved, their roles and their responsibilities. Identifying the key institutions (institution mapping) is therefore very important. Partnership should not be limited to recognised organisations, which means that partner organisations will be at varying levels of competence, experience, capacity and structuring. Care is needed to ensure adequate technical support is available, as often the enthusiasm of local agents is not matched by professionalism, leading to inappropriate or poorly designed technical solutions.

DC relies less on regulations and specific procedures and more on a process which entails dialogue, consultation with and participation of the agents. Because of the variety of partnership organisations and their own varying capacities and agendas, DC requires flexibility and cannot be applied within a rigid formula. For this reason, a rigid application of PCM procedures is difficult to achieve in DC. An approach is needed which allows for readjustments during the different phases of the cycle and more delegation of power to the operator during implementation. An EC manual on Decentralised Co-operation is presently under preparation.

Review of EC partnerships with NGOs

Apart from the specific interventions under the Decentralised Cooperation budget lines, the EC attach importance to their work with NGOs. Co-operation with development NGOs started in 1976 and applies to the co-financing of development actions in developing countries and to public awareness actions in Europe. The corresponding Budget Line (B7-6000) has increased from ECU 2.5m in 1976 to ECU 200m in 1997, excluding NGO activities in food and humanitarian aid and special programmes.

NGO activities are particularly important in the provision of basic water supply and sanitation services (BWSS). Between 1990 and 1997, the EC funded 655 BWSS projects in 42 ACP countries through NGOs. In West Africa, NGO projects represent about 40% of the total EC investment in BWSS projects. A wide diversity of NGO projects are supported either directly for infrastructure or equipment (wells, boreholes, water supply networks and sanitation facilities) or for other activities such as education, health or awareness raising. As NGOs tend to work at the grassroots level with the local populations, their involvement in water-related projects have many advantages over projects carried out without NGO involvement. In particular, participation by the local population in infrastructure construction is increased, resulting in more motivation for equipment maintenance and sustainability. An NGO can also create a more stable environment leading to further projects and continuity in development and monitoring.

NGOs often rely on beneficiaries and local community organisations for execution of work. This participatory form of development must be well managed and selection of the NGO is important; they should have adequate experience in BWSS and be apolitical. Traditionally NGO activities result from user demand; their projects may remain unrecognised in formal planning procedures and there may be little or no co-ordination with government or with other local projects. It is therefore necessary to ensure that policy conflict does not occur; for example official efforts to encourage beneficiaries to pay for their water supply may be in vain if an NGO provides services without payment requirements (or vice versa).

Experience has shown that a partnership between NGOs, local authorities and technical experts provides the best platform for providing services of adequate technical quality, safe water of adequate quantity and infrastructure that is appropriate and sustainable. In particular, NGOs have proven their ability to obtain local acceptance of paying for water services, both for maintenance and the eventual replacement of equipment. In West Africa, this has come about as a result of insuring that there is a high return from the collected funds. Experience has also shown that capacity building takes time, and a long-term commitment to training beyond the project cycle period often proves necessary. An assessment of the NGO capacity before and after the financing stage is needed to ensure adequate human, financial and technical means to undertake projects. Knowledge of the growing difficulty of water management in rural areas is more important than the volume of finance or the number of employees. As part of an evaluation of rural water supply and sanitation projects in West Africa, the importance of NGO cofinanced BWSS projects was highlighted. A specific evaluation of NGO cofinanced projects has therefore been undertaken.

Further References: EU-ACP Co-operation in 1995. EC, 1995. EC-ACP Lomé Convention ACP–EU Courier, No. 155, January–February 1996. Challenges and options for a new partnership. Green Paper on relations between the European Union and the ACP Countries on the eve of the 21st century. EC, 1997. Guidelines for the negotiation of new co-operation agreements with the African, Caribbean and Pacific (ACP) countries, Communication to the Council and European Parliament, 1997. Evaluation Globale des Projets d’Hydraulique Villageoise en Afrique de l’Ouest, Hydro R&D, 1997.

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