Developing development: Six ways to rethink European foreign aid

This week, officials from around the world are meeting in Seville for a landmark event in the development policy calendar: the 4th International Conference on Financing for Development. The previous conference, held in 2015 in Addis Ababa, set the direction for the last decade of international cooperation aimed at fighting poverty and improving living standards. This year’s event takes place in a very different context. Western countries are sharply cutting their development spending, progress on development goals has slowed, efforts to limit climate change are far off agreed targets and efforts to mobilise large sums of private finance for the developing world have failed.

The Seville conference will not produce a radical new vision to shape the next decade of international development cooperation. But if it does no more than recommit participants to an agenda that is already falling short, it will be a missed opportunity. To make it a success, European countries, along with other leading donors, must define a new approach to development that is focused and innovative enough to respond to a changing global order and to their own financial constraints.

A lot can change in a decade

The Addis Ababa conference ended with an ambitious agenda. Countries committed to scaling up official development assistance (ODA) and making debt more sustainable. They also placed a new emphasis on domestic resource mobilisation within developing countries, on bringing in the private sector as a development partner, and on trade as an engine of development. The vision was summarised in the World Bank-coined slogan “from billions to trillions”: funding from public sources could be leveraged to draw in many times the amount with investment from other sources.

A decade later, the high hopes of this agenda have not been met. In the last few years, the covid-19 pandemic, a series of wars and the worsening impacts of climate change have all set back the pace of development. Progress towards meeting the UN sustainable development goals has fallen significantly short of what is required. ODA provided by the advanced countries of the OECD increased, particularly following the pandemic, but is now falling rapidly. US president Donald Trump has enacted massive cuts in American development assistance and his proposed budget for next year would reduce it to the lowest level in eight decades. As they shift spending to defence, European countries are also slashing their development budgets. Meanwhile external debt levels of developing countries have increased from $7.5tn in 2015 to $11.4tn in 2023. Fifty-four developing countries spend more than 10% of revenue on interest payments, squeezing out spending on their development and climate needs.

On top of this, the private sector has failed to deliver large financial flows to the developing world. For reasons ranging from risk aversion to a shortage of attractive projects, funds and companies have proved reluctant to scale up investment. In recent years, private financial flows to developing countries have even turned negative, with private creditors taking more money out of developing countries between 2022 and 2024 in interest payments than they provided in new financing. The goal of domestic resource mobilisation has also proved elusive. Tax revenues as a percentage of GDP have declined since 2015 in low- and middle-income countries and a global tax deal agreed at the OECD in 2021is being scaled back in the face of  heightened US opposition. Finally, the goal of promoting development through trade is imperilled by rising protectionism in America and elsewhere.

Some tough-minded new thinking is therefore necessary to re-evaluate how development can best be advanced in this challenging context. However, despite its statement that “this is a time of profound transformation”, the declaration that will be issued in Seville largely reaffirms the existing agenda. The recommitment to existing goals is already something of an achievement given the US sought to water them down in several key areas before ultimately withdrawing from negotiations. In the run-up to the conference, the EU also released a statement on development finance that echoes these familiar calls, including the need for a more inclusive international financial architecture, scaling up ODA, implementing fairer and more effective tax arrangements, and mobilising private finance towards development.

Aid in the time of turmoil

In fairness, there are no easy solutions to the problems facing global development. At a time of heightened global tension, it would be unrealistic to expect this conference’s declaration to establish significant and enforceable new commitments. America’s turn against multilateral cooperation makes some institutional changes harder to achieve, particularly reforms to bring greater inclusion to the international financial institutions where Washington holds a veto.

To maintain their credibility as development partners, Europeans will need to take some concrete steps to move beyond the status quo

Nevertheless, European countries should want to continue promoting sustainable development. This will not only contribute to the improvement of people’s lives but also promote stability and prosperity that will benefit Europe over the long term. Moreover, amid geopolitical competition, Europe will gain from improving its relations with developing countries in the global south. To maintain their credibility as development partners, Europeans will need to take some concrete steps to move beyond the status quo.

To do this, they could draw on one of the innovations of the Seville conference: the Sevilla Platform for Action. It aims to promote initiatives by coalitions of countries and other stakeholders to take the objectives of the conference forward in specific areas. Working with coalitions of like-minded countries has become an increasingly favoured way to try and make progress on global challenges at a time when geopolitical tensions are making collective agreements harder to reach. In designing the initiatives these coalitions could focus on, European policymakers should be guided by the following six principles:

• Prioritise a better solution to global debt. This is at the top of developing countries’ priorities. If the EU is to continue resisting the push from the global south for a UN Convention on Debt, it should at least move beyond the G20 Common Framework on debt treatment and find ways to improve restructuring and make developing countries’ debt more sustainable.
• View development goals as long-term. To maintain and ultimately increase their support for development, European countries need a clear vision of what they want to achieve. They have recently moved towards trying to align development cooperation with their broader strategic interests. This rationale could provide the foundation for a robust commitment towards supporting the economic transformation and climate transitions of developing partner countries—but only if strategic interests are interpreted in a long-term and integrated way, rather than in terms of short-term transactionalism.
• Take a more comprehensive approach to industrial transformation. The failure of the “billions to trillions” agenda suggests that the focus on leveraging investment into specific projects is too narrow, and that donors need to consider the wider sectoral and political economy ecosystems in which projects take shape. This could require more selective and coordinated interventions that address supply chains, the business environment, skills and other factors alongside specific projects to be backed through public-private partnerships.
• Innovate and prioritise. Rather than doing less across the board, Europeans should do more to ensure limited funding is directed to important areas and used in ways that maximise results. They should focus efforts on innovative initiatives that could produce new funding streams, such as imposing levies on carbon-emitting forms of global transport such as shipping or aviation.
• Improve coordination. With fewer resources available, the efforts of international donors need to be as coordinated as possible. EU countries should work between themselves, with other donors such as the UK and Japan, with international financial institutions such as the World Bank, and even US bodies such as the International Development Finance Corporation.
• Address left-behind countries. The turn towards a strategic idea of development, a growing focus on mitigating climate change, and the prioritisation of infrastructure projects in initiatives like the EU’s Global Gateway all risk tilting development resources away from the world’s poorest countries. Since these countries are least likely to offer opportunities for private finance, it is essential that ODA remains available to address their needs, both for reasons of solidarity that retain widespread support among EU populations and to prevent social breakdown and instability.