EU blending: lessons learnt, or just lip service?

Added 17 Dec 2014
On 12 December, the European Council released its Conclusions on a stronger role of the private sector in development cooperation. Unsurprisingly, there is a heavy focus on the use of financing instruments and mechanisms that use public resources and institutions to ‘leverage’ additional private lending and investment, particularly on ‘blending’ as a tool of development cooperation. (Blending is the use of aid money to subsidise or support public or private sector projects.) However, the Council claims that efforts will be made to improve the development impact of blending operations “on the basis of lessons learnt”. But what will this mean in practice? 

Since 2007, the European Commission (EC) has set up eight regional blending facilities to link European aid grants with loans from public finance institutions or commercial loans and investments from the private sector. These facilities cover all the regions where the EC has development cooperation programmes (i.e. Africa, Latin America and the Caribbean, Europe’s neighbourhood region and Asia). 

Between 2007 and 2013, the facilities only received €2.1 billion, but the EC has indicated that it wants to extend the use of blending. This will involve a considerable amount of aid in the next couple of years. A significantly larger part of this aid will also be used to leverage private finance and to increase support to private companies. 

This scaling up, and the shift towards the private sector in particular, raises several concerns. During the period 2007-2013, the practice of blending has been disappointing. For those who read our report on EU blending last year, A Dangerous Blend?, or the mid-term evaluation of the Neighbourhood Investment Facility (one of the eight blending facilities), this should come as no surprise. 

But the criticism keeps on piling up.

Even the European Union’s very own Court of Auditors concludes that for the period 2007-2013 “the potential benefits of blending were not fully realised due to Commission management shortcomings”. In its report published in mid-October, entitled The effectiveness of blending regional investment facility grants with financial institution loans to support EU external policies, the Court finds that “the need for a grant to enable the loan to be contracted was demonstrated for only half of the projects examined”. It adds that “there were indications that the investments would also have been made without the grant”. The report also claims that “(…) the Commission’s review of grant applications was based on incomplete information and has not focused enough on the added value of grants”. 

Therefore, the Court calls on the Commission to “ensure that the allocation of EU grants is based on a documented assessment of the added value resulting from the grants in terms of achieving EU development, neighbourhood and enlargement objectives”. According to the Court, the EC should also “disburse funding only when the funds are actually needed by the beneficiary” and “improve its monitoring of the EU grant implementation”.

The European Parliament remains sceptical as well. In its report on “the EU and the global development framework after 2015”, the Parliament “calls for the EU to evaluate blending mechanisms in order to ensure they are transparent and accountable and have a clear sustainable development impact”. 

Unfortunately, the EC rejects many of the Court of Auditors’ findings, claiming that a lot of these suggested reforms have already been adopted by the EU Platform for Blending in External Cooperation. Yet it fails to back up any of these claims with concrete evidence. 

For example, the EC makes explicit that it “does not share the analysis of the Court on the demonstration of the need for grant support to enable the loan” as it considers that “justification for the financing was clear in all cases”. According to the EC, the “added value of the grant is always assessed and this assessment has been strengthened over time, in particular, in the context of the work undertaken by the EU Platform [for Blending in External Cooperation]”. In addition, the EC claims that “all relevant stakeholders are adequately involved” and “sufficient and complete information is available during the decision-making process”. It also claims that “a results measurement framework has already been included in the application form”. 

This begs the question: what will it take for the EC to finally learn its lessons?

Today (17 December), the policy group of the EU Blending Platform, which includes EU member states, the EC and financial institutions (with the European Parliament sitting as an observer), will review this year’s work and the future of the platform. This is a crucial opportunity for EU governments to take on board the Court of Auditors’ findings and recommendations. It is also a chance to call for an immediate halt to any further aid money being channelled through European-level blending mechanisms until there is a full and independent, Southern-led review of their effectiveness, focusing on their development impacts and the financial and development added value. In general, the EC and financial institutions involved should comply with the guidelines of responsible finance, as outlined in our Responsible Finance Charter

Read Eurodad’s policy brief on the role of the private sector in Europe’s development cooperation here