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6. Aid and Foreign Investment in a New Agreement

6.1 The ACP countries have become more dependent on EU aid (bilateral plus institutional) flows, with the EU share in total aid flows increasing from an average of 40% for the period 1983-87 to an average of 47% for the period 1988-93. Within these flows, the share of institutional aid (EDF and EIB) in total EU aid to the ACP has increased from 18% to 21%. It is therefore disturbing to note that the nominal increase in EDF 8 (1995-2000) funding was 10% less than the amount required to maintain the real value of EDF 7, despite the enlargement of the EU.
6.2 Despite a large increase in EU aid to the CEEC and NIS, there is no evidence, as yet, in terms of disbursements of aid that this aid has ‘crowded out’ aid to the ACP countries. More important factors which will make it difficult for the EU to increase aid to the ACP countries are the general budgetary pressures in the EU arising from the need to meet the requirements of the monetary union, combined with the effects of high unemployment levels, the costs of financing EU programmes (notably the CAP) and the future costs of integrating new members into the EU. It is therefore essential that existing aid flows are used as efficiently as possible.
6.3 Aid under the Lomé Conventions has too many objectives and instruments, with the result that only 43% of aid is freely available to finance programmes in the ACP countries, the remainder being pre-allocated for particular purposes. Independent researchers also point to deficiencies in the management of the EU aid programme and the fact that it is too big for the Commission’s capacity to manage it.
6.4 Pressures to increase the efficiency of aid have also eroded the principle of partnership which is fundamental to the Convention and, indeed, one of its main features.
6.5 The complexity of Lomé aid has become, in itself, a barrier to its efficient utilisation and only a very few people fully understand its provisions and opportunities.
6.6 There is therefore an urgent need to simplify both the objectives and the instruments of the Convention and to concentrate on a very limited number of objectives which are complementary to the activities of the member states (fulfilling one of the objectives of the Maastricht Treaty) and which are realistic, given the limited resources available.
6.7 The report recommends that increasing the capacity of the ACP countries to participate in the world economy should be a central objective of a new agreement. Given that trade is wholly an EU responsibility, then this is also the most obvious area in which EU aid would be complementary to that of the member countries. As we have argued, such a strategy of development would also enable the ACP countries to combine ‘growth with equity’ and so also help fulfil the poverty-oriented objectives of the Maastricht Treaty.
6.8 Simplifying and focusing the range of policy instruments also requires the ACP to evaluate the effectiveness of existing policy instruments, notably Stabex. The existing rules governing claims under Stabex are arbitrary and can lead to a perverse allocation of funds. The funds available are also inadequate for the task. The ACP must therefore carefully evaluate the cost of Stabex in terms of the alternative uses that the funds could be put to, and, if it is decided to retain Stabex, then reform it along more rational lines and in conformity with a feasible objective (e.g. disaster relief).
6.9 In order to implement an integrated and co-ordinated strategy of integrating the ACP countries more fully into the world economy, we recommend that the existing separate function of the DG8, the CDI and the EIB are combined into a joint ACP-EU organisation (which could be named the ACP-EU Productivity Centre). This Centre would have at its disposal a significant proportion of the overall financial protocol and would be responsible for all matters relevant to increasing the export capacity of the ACP countries (as discussed in Chapters 4 and 5). The governing body and members of the Centre would be drawn from both the public and private sectors of the ACP and EU.
6.10 Flows of foreign investment into the ACP countries have, in some cases, recovered from low levels but they are still generally inadequate, especially given the importance of FDI in transferring knowledge and providing access to markets.
6.11 Title III, Chapter 3, of the Convention needs to be substantially revised to signal to potential investors the willingness of ACP countries to provide guarantees of treatment to foreign investors which would reduce perceived risks. Equally, the EU could provide strong investment guarantees to EU investors in ACP countries under agreed terms.
6.12 EU technical assistance could also be obtained to improve the institutional environment affecting foreign investors.
6.13 Further areas for joint ACP-EU action could include EU private investment for privatisation programmes in ACP countries, particularly in the provision of infrastructure and financial services.