Is now the right time to cut aid to some of the world’s poorest who live in middle income countries?

In this piece, CONCORD Director Olivier Consolo talks on the recent changes annnounced for EU Development policy.

In 2014, nineteen countries around the world are set to lose out on development aid from the European Union. At the same time, the EU is proposing to give a larger share of its aid to the private sector and business. Behind the plan is EU development commissioner Andris Piebalgs’ newly launched agenda for change, which seems to suggest that economic growth is the magic wand to tackle global poverty.

The EU wants to change the way it gives aid so that support is based on a country’s economic scorecard. So-called middle income countries, where economic growth is relatively high, would eventually lose out on aid. This sounds logical at first glance. But the problem is that the majority of the world’s poorest people, some 75 per cent, live in middle income countries where economic growth on average is booming the most.

Peru is just one of the countries to come off the EU’s list from 2014. Its gross domestic product growth was 7 per cent last year, which sounds quite healthy when you compare it to the dismal performance of some European economies. But take a closer look, and you will see that one in three Peruvians live below the extreme poverty line on less than $1.25 a day. Huge extraction booms have catapulted it up the economic league table.

It is a similar situation in developing countries like in Zambia in Africa, where increases in high-growth industries like mining have seen growth rocket to levels of 7 per cent a year. Yet all the while 64 per cent of people remain under the poverty line. The problem is that economic growth measures show little about inequalities and poverty levels within countries. For development and relief non-governmental organisations, the poorest people should be targeted for aid support. They should not lose out because of their nationality or for geopolitical preferences.

The EU’s foreign policy  chief, Catherine Ashton, seemed to understand this when speaking to the European  Parliament in February this year. She said: “The poorest people often are not in  the poorest countries, the poorest people can often live in countries that are  what we might describe as middle income”. This was a welcome remark, but we are  now less than two months from an EU ministers meeting on May 14 in Brussels to  decide whether they endorse the commissioner’s original plans.

The  chances are that the new slimmed down aid approach might strike them as a quick  fix budget cut in times of austerity. While we are all used to hearing about the  eurozone crisis and that public finances are strained, let’s not forget that  over 99 per cent of gross national income goes on everything else other than  development assistance. The small proportion that we do spend goes a long way.  EU aid has helped more than nine million children enroll in primary education,  and five million children have been vaccinated against measles.

Of course, aid does have its critics, not least from development organisations. And it is true that reform is needed. But the EU would be making a policy blunder if it cuts support for anti-poverty programmes in areas still in need, thinking the job had already been done. Choking off countries as they find their feet is premature.

One of the hallmarks of Piebalgs’ agenda is beefing up  support to the private sector. It is not a case of being for or against. It is a question of whether private firms, especially from Europe, need this support ahead of poor people and what kind of private sector will get funds. So far, the commissioner has not given away many details. However, he should be clear and honest right from the start about where and what kinds of businesses he wants to allocate public money to.

At the same time, the effectiveness of EU aid programmes continues to be undone by some of its own policies. EU agriculture  policy, for example, still floods developing countries with cheap subsidised exports that local farmers struggle to compete with. Trade and energy policies do not perform much better. So the new EU aid reform must work in tandem with other policy areas to be coherent with development objectives.

Looking ahead, we are now three years from the end of the United Nations millennium development goal targets of 2015. Global aims to reduce poverty are mostly unfulfilled, albeit with some welcomed successes. The BBC reported just last week that around three billion people are living in poverty on less than $2.50 a day. That is almost 50 per cent of the world population. The big question for the EU is whether now is the right time to cut development assistance to so many countries when so much help is still needed. The jury is still out on whether EU aid is changing for the better

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