What About Germany?

 

Germany and the Millennium Goals

At the Millennium Summit in 2000, world leaders committed themselves to the achievement of 8 Millennium Development Goals (MDGs) by 2015. Read what record Germany has on aid, trade,  debt and what the German people think.

Germany and the Global Deal

At the Millennium Summit in 2000, world leaders committed themselves to the achievement of 8 Millennium Development Goals (MDGs) by 2015.  Both rich and poor countries agreed to work towards the eradication of extreme poverty and hunger, the elimination of gender inequalities, the prevention of environmental degradation, the prevention and treatment of HIV/AIDS, and the provision of education, healthcare and clean water. Since then the MDGs have had a catalytic effect on global development, because of their simplicity, accessibility, and because progress against them is easily monitored.

The MDGs involve a Global Deal between rich and poor countries: poor countries pledged to reform policies, improve governance, and to channel resources to development objectives, as embodied by the first 7 Goals.  Rich countries, for their part, promised to deliver more effective aid, faster and deeper debt relief, and fairer trade rules. Rich country commitments are, in particular, outlined in the 8th Goal.

So how well is Germany doing in meeting its part of the Global Deal?

Germany’s record on aid

Aid volume

  • Germany, along with Austria, Greece, Italy and Spain, ranks in the bottom third of EU-15 member states on aid volume: German ODA represented only 0.28% of GNI in 2004.  This is compared with an average country effort of 0.46% of GNI in EU-15 countries.
  • In 2004, Germany provided $7.5 billion in ODA, which is less than both France and the United Kingdom.
  • In 2002, at the EU’s Barcelona Summit, Germany pledged to increase its ODA to 0.33% of GDP by 2006.
  • In May 2005, Germany joined other EU-15 countries in a commitment to increase ODA and achieve the international target of 0.7% of GNI by 2015.  The EU-15 set a minimum intermediate target of 0.51% for individual countries for 2010.  However, unlike some other EU-15 countries Germany has not announced an implementation schedule for meeting the 0.7% target.
  • Germany intends to reach the 0.7% ODA/GNI target by using a mixture of federal funds, debt relief and innovative financing, including funds raised in the capital market by Germany’s Bank for Reconstruction (KfW).  Unlike some other EU-15 countries, Germany has not announced a detailed implementation schedule for achieving the 0.7% commitment.

The announced increases in German aid are good news, as is the new government’s unconditional support for the achievement of existing targets.  What will be key in the coming months and years is to ensure that the targets are implemented despite the continuing climate of budget austerity.  The targets involve a significant budgetary and organizational challenge, particularly as debt relief – which formed 9% of total gross ODA in 2004 – will decline by 2008.  In order to plan for the challenges involved in increasing ODA, the OECD recommends that Germany draw up an ODA growth implementation plan.
Currently, Germany lags behind its European neighbors on aid volume.  This is particularly disappointing given Germany’s status as a G7 country and its aspirations for a permanent seat on the UN Security Council.  As Horst Kohler noted when he was the Managing Director of the IMF, Germany’s expenditure on ODA “is the same amount the Federal Government and the land Nord-Rhein Westfahlen spend on coal mining subsidies.  Anyone looking for causes and culprits for injustice in the world should at the very least reflect upon these numbers.”

Aid quality

  • In 2002-03, 26% of Germany’s ODA went to the least developed countries and another 21% to other low income countries.  However, more ODA went to middle income countries – some 36% – than to either of these two groups.
  • Sub-Saharan Africa is the region which receives the largest share, 30%, of German ODA.  Nevertheless, Germany’s two largest country programs were in countries which do not need external financial assistance to meet the MDGs.  The OECD has recommended that Germany take a more strategic approach towards the geographic and thematic focus of its ODA so that it can reflect the poverty reduction objective.  The new Government has announced that it will focus on 60 countries.  Africa will be a priority but some “strategic emerging economies” will also be included.
  • Germany, unlike the UK, has not yet untied aid.  In 2003, 10% of its aid to the least developed countries was still tied.
  • Finally, Germany has one of the highest shares, of non-grant aid among OECD donor countries, largely composed of ODA loans, although this share has been declining in recent years.  In addition, more than half of grant aid is spent on technical cooperation which includes (European) expatriate technical assistance.

The new German government is committed to the implementation of the goals and principles of the Millennium Declaration, the Monterrey Consensus, and the Action Plan of the Johannesburg World Summit on Sustainable Development.  This should ensure that poverty reduction remains one of the key objectives of development cooperation.  Over recent years, Germany has made considerable progress in adjusting its policies and approaches to increase poverty focus, but it still has faces ongoing challenges.  For this reason, the new government must continue with these efforts.  In particular, the OECD argues that there is a need for a systematic approach to assessing the poverty impact of German programs.

On aid effectiveness, Germany is signed up to the 2005 Paris Declaration on Aid Effectiveness, the implementation of which will require further adjustments in Germany’s aid delivery modalities.  The new Government has also affirmed its commitment to increasing aid effectiveness.  In recent years Germany has run a number of pilot efforts to modernize its aid procedures – it should now start to build upon these experiences.  This should include increased cooperation and a better division of labor with other donors, as suggested by the new government.

In addition the new government is committed to the increased integration of Germany’s technical and financial assistance.  German aid has been compartmentalized across this distinction and is split across different agencies, each with separate funding instruments, financial conditions and reporting requirements.  This means high transaction costs for developing country recipients.  While progress has been made in streamlining and integrating agencies, the OECD suggests that room for further efficiency gains within the existing structure are limited, and recommends that the new Government consider a more fundamental restructuring.

German aid delivery mechanisms do not facilitate ownership of development programs by beneficiaries.  First, German aid agencies only have a limited presence in the field.  Further, Germany has proved hesitant in relinquishing financial management of aid, either to recipient governments through budget support or sector-wide approaches, or to pool funds managed by donors.  Further, Germany needs to integrate the operations of its implementation agencies in the field, as well as increase the use of local and regional staff, particularly in technical cooperation.

    Germany’s record on debt relief
In the past, Germany has shown leadership in pushing forward the debt relief agenda, notably in 1999 at the G7 summit in Cologne chaired by Germany, where the HIPC initiative was enhanced.

In terms of German bilateral debt, Germany has yet to deliver on its promises: on a total of €6 billion in debt owed by HIPC countries, Germany has only provided debt relief on a third.

More recently, at the G8 Gleneagles summit in July 2005, Germany signed a proposal to cancel 100% of the debt stock owed to the IMF, the World Bank and the African Development Bank for eligible HIPCs.  This proposal was recently adopted by all Member States at the Annual Meetings of the World Bank and IMF.  While the proposal still only covers a limited number of countries, and would only provide limited financial benefit to them, it is a step in the process of multilateral debt cancellation which has proved particularly difficult.

Germany’s  record on trade

As part of the European Union, Germany implements the European Union’s common agricultural and trade policies.  These policies are implemented and initiated by the European Commission but heavily influenced by Member States.

The new German government has reaffirmed Germany’s commitment to a reform of EU trade and agricultural policies, notably pushing for greater coherence between the trade and development policies.  In particular, the new Government noted that it wanted to see an end to agricultural export subsidies, and an increase in access to the EU market for products from developing countries.  However, in the past, when negotiations at the EU level become difficult, Germany has proved reluctant to push other Member States towards substantial reform.

More generally speaking, the coherence of German government policies for development has become an increasing priority for the Development Ministry (BMZ) and the administration as a whole.  Nevertheless the OECD recommends that BMZ work towards a clearer and more operational policy statement on coherence for development.

Most problematic are EU agricultural policies which provide subsidies for both the production and export of agricultural commodities, which lower world prices and limit earning opportunities for farmers and rural communities in poor countries.  Support levels are slowly declining as a result of gradual reform of the common agricultural policy.  Nevertheless, in 2004, public support for producers in the EU still represented 33% of gross farm receipts – this is above the OECD average.  There is also a gradual shift towards the use of less distorting forms of producer support, notably a shift away from market price support and output-based payments, but these still form the majority of support.  In addition, the EU recently committed to eliminating export subsidies, albeit with a far-off deadline of 2013.  Nevertheless, total support to the agricultural sector costs the EU countries 1.2% of GDP.  Considering that the average EU-15 country only spends 0.46% of national income on ODA, the level of agricultural support is staggering.

Almost all exports from the least developed countries face duty and tariff-free access to the European Union market.  While there are only a few exceptions to this free market access, three products which are important agricultural products for poor countries – sugar, rice and bananas – were excluded in order to appease vested interests in the EU.

In addition, strict rules still make it difficult for goods from poor countries to gain access to the EU market.  In the textiles sector, for example, rules of origin prevent poor countries which import fabric to produce clothing from exporting this clothing to the EU.  Italy, along with Portugal, is resistant to changing this problematic policy.

For poor countries which are not among the least developed, market access can still be restricted due to high tariffs, particularly on manufactured goods where tariffs on poor country exports are often higher than equivalent tariffs on goods from rich countries.

German public opinion

Opinion polls show that the German public is not very well informed about development cooperation.  Furthermore, there is increasing skepticism about the effectiveness of aid.