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Home » Financing for Development, Sustainable Development

The European Union – A development superpower

Submitted by on 28 Sep 2015 – 09:25

European Union countries and the EU as an institution contribute to more than half of global development assistance. Erik Solheim, Chair of the OECD Development Assistance Committee (DAC) and former Norwegian Minister of Environment & International Development takes a frank and honest look at the success stories of European leadership in development cooperation and environmental protection

eric solheim 2 Europe is by far the biggest development aid provider in the world. But this is a big secret to many people. Most of the developing country presidents and ministers I meet believe that the United States or China provides most development aid. China and the US have often better access and gain more political capital in developing countries even though Europe is the biggest aid provider, trading partner and foreign direct investor.

European voters do not know about the great successes of European development co-operation. Many wrongly believe aid is decreasing. This is wrong and should be corrected. The truth is that global aid remains at record high $135 billion per year and many EU countries are increasing development assistance.

The United Kingdom, now the second biggest donor in the world, recently reached the target of 0.7 percent of national income for aid and is the only G20 country to do so. Germany increased aid more than anyone in dollar terms last year. Luxembourg and Sweden continued to give at least 1 percent of national income to development assistance. Hungary increased aid by a quarter, while Estonia increased by 20 percent. True, there are also European governments who don’t really live up to expectations. But why always dwell with the losers? The European Union should do more to share and scale up its success stories.

Domestic resource mobilization through taxation is the biggest source of finances for schools, healthcare and conditional cash disbursement schemes for the poor. Around 99 percent of all the money spent on education in developing countries comes from domestic resources. European countries generate over a third of their national economies in taxes while developing countries only achieve half of that. Using aid to help developing countries mobilize domestic resources has proven highly effective.

The OECD and UNDP recently launched Tax Inspectors without Borders

Many donors have committed to increase spending on tax for development. A pilot project in Kenya returned $1,290 in increased tax revenues for every dollar spent on reducing tax avoidance by multinational companies. European countries have some of the most effective tax systems in the world and are associated with fair taxation and good public services.

The European Union is well placed to take an international leadership role to make tax policies work better for developing countries. Foreign direct investments are five times greater than aid and European Union companies and investors are the biggest source of foreign investments in the world. Much more private investments are needed to build green energy, railroads and manufacturing plants in developing countries. Development assistance can help by reducing risk to mobilize more private investment. By blending public and private investments, the EU used $2billion in aid to mobilize around $40 billion for things like constructing electricity networks, financing major road projects and building water and sanitation infrastructure in recipient countries.

We recently launched the Sustainable Development Investment Partnership with the aim of mobilizing $100 billion in private financing over five years for infrastructure projects in developing countries using development assistance to reduce risk. Deutsche Bank was one of the founders together with the OECD, World Economic Forum and various governments and private financial institutions. But much more can be done and European companies and governments can lead the way.

Europe is also a global environmental force for good. European leadership is crucial now that the world is bringing environment and development together into 17 new sustainable development goals. European governments are pushing global climate negotiations forward. European environmental policies are some of the best in the world. A quarter of all energy used in the European Union is now green. European companies are also at the forefront of the shift to a green economy. Unilever have introduced sustainability tests for its entire supply chain and is a driving force behind conservation of the rainforests. They have pledged to eliminate deforestation from its supply chains by 2020 and encouraged and pressurized other to follow.

Over the past eighteen months, the share of global trade in palm oil by companies committed to zero deforestation commitments has grown from 5 percent to around 90 percent! Europe is home to some of the largest companies in the world and similar coalitions for action can be initiated in any industry. These are just some examples of the success of European leadership in development cooperation and environmental protection. More should be done to share the successes and inspire more. Doing more of what works and scale up European efforts for domestic resource mobilization in developing countries, private sector involvement to and environmental leadership is one way to increase the visibility and impact of European Union development assistance.