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Development Co-operation Review 1999: Summary and Conclusions

Overview

The last Development Assistance Committee (DAC) review of Finland in June 1995 took place as the Finnish development co-operation programme was under the pressure of sharp expenditure cuts. The present review takes place with the economy performing well following its worst recession in post-World War II history in the early 1990s. Finland joined the European Union (EU) in 1995, signed the Maastricht Treaty, and having met the criteria, will join the European single currency area in 1999. Finland is now engaged in redesigning and building up its aid programme. A new broadly-based political consensus on the objectives and directions for the aid programme has been consummated. The Decision-in-principle includes a firm target of 0.4 per cent by the year 2000 for the ratio of Finland's official development assistance to the gross national product (the ODA/GNP ratio). Finland's 1997 ratio was 0.33 per cent. Thus, the 0.4 per cent target for 2000 requires a corresponding commitment for this item in the Finnish budget and implies a rapidly expanding aid volume in the future. In the context of a reorganisation of the Ministry for Foreign Affairs in August 1998, the aid management system has been revamped with country programming now merged into the new geographical divisions, where aid is treated alongside trade and political affairs. While the overall direction for the development co-operation programme is positive, some aspects of the new orientations raise major policy and implementation issues.
Policy framework -- development in a foreign relations perspective.

The Cabinet Decision-in-principle of September 1996 is now the main point of reference for Finnish development co-operation. Having been adopted by a broad-based Coalition Government after public discussion of the specially-commissioned Paasio Report, the Decision-in-principle could well remain the main policy document for Finnish aid for many years to come. It upholds the main objectives of an earlier strategy developed at Ministry level and approved in 1993. The key objectives of the Decision-in-principle are:

• to reduce widespread poverty in the developing countries;
• to combat global environmental threats by assisting developing countries in solving environmental problems; and
• to promote social equality, democracy and human rights in the developing countries.

These objectives, together with Finland's EU commitments and support for the international development goals and strategies captured in the OECD/DAC document, Shaping the 21st Century: The Contribution of Development Co-operation , form the backbone of the policy. The Decision-in-principle unmistakably commits Finland to the shared objectives of the EU and DAC Members and states that "Development co-operation is the mark of a civilised nation". It covers all of the key points of reference in the international strategy -- poverty, sustainable development, environment, gender equality, human rights, democracy and good governance, and effectiveness.

At the same time, a key element of the new policy is that it makes development co-operation an integral part of Finland's foreign policy and international relations. The Decision-in-principle calls for an overall strategy for Finnish relations with developing countries, bringing into better harmony the various aspects of Finland's policies towards them. Such a strategy was published by the government on 15 October, the day prior to this review, and the main outlines were presented to the Committee. The Members look forward to studying the text when it is translated.

A new concept -- flexibility -- has entered into Finnish aid policy through the Decision-in-principle. Operationally, this concept means using aid as an instrument of political influence wherever appropriate opportunities are identified to contribute to the basic development goals identified in the Decision-in-Principle. So far the ruling paradigm for Finnish bilateral aid has been the focus on long term development co-operation with a selected number of primary co-operation countries, now numbering 10 (Tanzania, Zambia, Mozambique, Namibia, Viet Nam, Kenya, Nicaragua, Nepal, Egypt, Ethiopia). The flexibility concept extends the margin of manoeuvre for policy decisions on the use of aid and thus, as one Finnish authority terms it, "extends Finland's contact surface", for example in Latin America where Finland has little profile at present.

An added reason for this extension of the geographical range of Finnish bilateral aid is the problems experienced in disbursing aid to some of the primary co-operation countries. These problems are often beyond the control of the aid programme (i.e. human rights violations, conflicts, recipient government changes or failings). The idea is that the flexibility window will provide an outlet for funds committed to primary co-operation countries but which cannot be disbursed.

The policy challenge with flexibility is that it carries the risk of generating a dispersed range of ad hoc activities which cannot be adequately appraised and monitored by the relatively small corps of Finnish aid managers. There may also be a prediliction for opportunistic "visible" projects which carry the Finnish flag rather than for the kind of joint long-term aid partnerships and programmes that are seen by the international aid community, including in the DAC, as the way in which aid-giving can most effectively contribute to development goals and build up capacities in partner countries. In other words the long-term development quality of the Finnish programme could be compromised. This risk can be averted by a carefully controlled application of the flexibility concept, by articulating clear guidelines for the selection and design of all aid projects and programmes and by ensuring that aid management systems are sufficiently resourced to maintain the quality of Finnish aid.

Aid management systems

Parallelling reorganisations undertaken in some other DAC Members in recent years, the aid delivery function is now integrated with trade and political affairs in the same geographical divisions of the Foreign Ministry. The Finnish Foreign Ministry has three ministers : a Minister for Foreign Affairs; a Minister for European Affairs and Foreign Trade; and a Minister for International Development Co-operation who is also Minister for the Environment. This has the advantage of providing close co-operation and coherence between development co-operation and the international environmental programmes supported by Finland, such as the Montreal Protocol.

Within the Foreign Ministry, the new management system relies on an Operational Steering Group comprised of the Directors-General of the Political Department, the External Economic Relations Department and the Department for International Development Co-operation, which oversees the work of four geographic divisons -- Middle East and Africa; Asia, the Americas and Oceania; Eastern Europe and Central Asia; and Europe. These four divisions now incorporate the country aid programming function previously carried out by the Department for International Development Co-operation. This Department retains responsibility for general development policy, for multilateral development affairs, evaluation and for information and non-governmental organisations (NGOs). It will thus continue to be the locus for aid policy making and for specialist support. Furthermore there continues to be an Undersecretary of State for International Development Co-operation representing the development function at the top level in the Ministry. Co-operation with neighbouring countries in Eastern Europe continues to be managed separately, under the authority of the Minister for European Affairs and Foreign Trade.

Overall, this reorganisation seems to be coherent in principle, with good prospects of positive results in practice as long as the integrating and support and control mechanisms function well. The key is to ensure that there is a close interaction between the Department for International Development Co-operation and the geographic divisions, and between the development and diplomatic/trade specialists. In some quarters there is apprehension that the kind of development professionalism built up in an earlier era will be lost, or its influence diminished. The importance of maintaining a strong core staff and sectoral advisers of development co-operation experts in the Department should be underlined. It is on this staff that the geographic divisions will be able to draw for the expertise needed to analyse and manage the implementation of solid development co-operation programmes. The Ministry has recognised the need to maintain and strengthen this specialist capacity and has lifted the strict staffing constraints of recent years to allow the recruitment of a number of additional development advisers.

A further critical issue in the new system is the interface with co-operation partners at the field level. With the new partnership approach to aid implementation with its emphasis on local ownership, participation and co-ordinated sector programmes, the challenges of aid management at the field level are more complex than ever in terms of policy dialogue and interaction with other donors. Finland's diplomatic missions in development partner countries will require staff who are capable of operating effectively in this kind of context. At present, Finland is fortunate to have a number of experienced and active ambassadors who contribute significantly to aid discussions and management at the field level. The challenge is to ensure for the future that the level of development knowledge and experience available at field level is maintained and increased, especially among diplomatic staff who have to assume complex responsibilities. This implies a serious ongoing training system within the Ministry and strong incentives, including through staff recruitment and performance appraisal criteria, to acquire adequate levels of development competence. A greater degree of delegation to the field would then be feasible in what appears to be still essentially a very centralised aid system.
The Finnish aid system, like many others, relies to a considerable extent on consultants to supervise project and programme implementation. Finland has several major consulting firms with a large range of development expertise and competence. With local participation and ownership now key elements of development practice and new needs for experts to follow sectoral policy dialogues and programmes over several years in specific country contexts, consultants must have appropriate personal skills and qualities and be clear about basic policy orientations. This suggests that Finland needs to ensure that it has a full set of well-articulated policy guidelines for all key sectors and cross-cutting issues such as gender, environment and poverty, as basic reference points for both consultants and ministry staff (see further below).

Finally, under the new management system a mechanism has been re-established to screen projects and programmes for quality and conformity with basic development policies before they are sent for ministerial approval. Such a mechanism will be a critical control point in the implementation of the flexiblity concept.

Policy guidance, sector and country strategies

The Decision-in-principle provides overarching policies to guide Finland's aid programme. The Department has adopted Guidelines for Programme Design, Monitoring and Evaluation (1997), patterned after the European Community (EC) Project Cycle Management system, which provides practical guidance for project and programme design. What is missing on the policy side is intermediate level guidance to steer interventions in key sectors related to the overall policy. Some draft sector strategies exist, though not yet for all key sectors. Completing and disseminating a complete set of guidance notes should be a priority.
Given the fact that Finland is not the major donor or even among the top five major donors in any country, elaborate country strategies may not be appropriate or necessary. However, it is important to analyse the specific contribution Finland intends to make in its country programmes and ensure that these are well analysed and co-ordinated within the country and sector frameworks of the development partner.

NGOs

There has been an important change in the role of the Finnish NGO coalition, KEPA , in the aid programme. Until recently, KEPA had been supervising an extensive volunteer programme funded from the Finnish aid budget. Following an evaluation, this programme has been phased out on the basis that the costs were high and its effectiveness difficult to determine. After considerable discussion within KEPA and with the Ministry, KEPA is now focussing on fostering capacity-building partnerships with NGOs in developing countries and on mobilising Finnish public opinion on development issues. This is a much more demanding role on both fronts and the Finnish authorities will have to be prepared for a more complex debate with NGOs on development philosophies and special topics.

Multilateral aid

Nearly half of Finland's aid is now channelled through multilateral programmes, including the EC aid programme which has taken up most of the recent increase in Finland's aid following accession to the EU in 1995. Finland is adopting an active approach to its funding and governance roles in the multilateral agencies, through careful selection of agencies and programmes and participation in policy discussions and performance reviews.
Finland currently holds an Executive Directorship at the World Bank. A support mechanism exists for working on policy positions and coordination with other members of its constituency. In the second half of 1999, Finland will hold the Presidency of the EU and in that capacity will have the responsibility and the opportunity to provide leadership in addressing issues in the EU's approach to development co-operation and the functioning of the European Commission's aid programmes.

Evaluation and effectiveness

The Decision-in-principle calls for better information on the impact of projects. As other donors are finding, this is a challenging task. The current study of this question in the DAC Working Party on Evaluation, in which Finland participates actively, is therefore of particular relevance and may help economise on the investment needed to arrive at practical methodologies.

Over the past decade, Finland's evaluation studies -- such as on export credits, aid effectiveness, ownership, and cultural factors in development -- have been valuable to the whole donor community and have clearly influenced policies. Under the new aid management system it will be more important than ever to ensure that monitoring and evaluation activities are effectively linked to aid management through focussed feedback and accountability arrangements and through staff training programmes.

Resource targets

During the 1980s, the growth in Finland's development co-operation programme was the fastest ever recorded in the DAC. ODA volume dropped abruptly in the 1991-94 period during the severe recession. Therefore, the question of making development co-operation resources predictable and stable is important. The Decision-in-principle affirms the government's goal to increase the development co-operation budget to 0.4 per cent of gross national product (GNP) by year 2000. Given the robust growth of the Finnish economy (8 per cent GNP growth in 1997) and continued projected growth, reaching that target will be a challenge but it is feasible based on Secretariat projections. The ultimate target is 0.7 per cent of GNP, in line with other Nordic countries, to be reached as economic conditions improve. Quantitative increases in assistance will be based on regular monitoring of the impact of assistance and on progress with the the practical implementation of Finland's development co-operation strategy and the Decision-in-principle itself. This policy on volume, with a clear and proximate intermediate target is welcome.

Conclusions

The Committee commended both the partnership orientation of Finland's policies, as set out in the Decision-in-principle, and the growing volume of Finnish aid. The expanding aid volume is a welcome reversal of the situation at the time of the last DAC Peer Review of Finland in 1995, when aid volume was in a deep decline. Key issues addressed in the current review were:

• long-term partnerships with a selected number of primary orientation countries should continue to be the foundation of Finnish bilateral aid;
• the flexibility concept, included in the Decision-in-principle, has the potential to extend the geographic range and strengthen the overall effectiveness of Finland's aid through greater policy coherence. However, in the application of this principle care must be taken to maintain developmental quality and avoid too much dispersion of effort:
• clear sectoral and cross-cutting policy guidance is needed as points of reference for all actors in the Finnish aid system;
• a greater degree of delegation to the field level would be desirable, with appropriate staffing, training and preparation of field offices (including consultants and local staff) to cope with the more complex management and co-ordination tasks involved in in-country development partnerships; and
• the revised screening process for project and policy proposals will be an important part of the quality control system of Finnish aid.