Finland (2003), DAC Peer Review

Main Findings and Recommendations

I. New developments, overall strategy, and the public

1. Significant changes can be seen in Finland's development co-operation since the previous Peer Review of 1998. New white papers [Policy on Relations with Developing Countries (1998), Operationalisation of Development Policy Objectives (2001)] and an Implementation Plan have been issued, clarifying the objectives, priorities, instruments, and country selection in Finnish aid. The Ministry of Foreign Affairs (MFA) has been reorganised several times, including the consolidation of trade, aid, political affairs, and culture into geographical departments to enhance internal synergies. The new government, appointed in April 2003, has eliminated the formerly separate ministerial posts for aid and trade and created a combined post of Minister for External Trade and Development Co-operation.

2. Recent evolution of Finnish co-operation includes policies to shift from "flexibility" in the programme to more concentration in long-term partner countries, sectors, programmes, and international organisations to enhance effectiveness. As for the goals of Finnish co-operation, poverty reduction is now widely understood to be the overarching objective, although it is still listed together with: prevention of global environmental threats; equality, democracy, and human rights; global security; and increased economic interaction. Finland is committed to supporting national poverty reduction strategies of partner countries. At the same time, the Millennium Development Goals (MDGs) are included in the Implementation Plan for the 2001 white paper, but are not mentioned in any white papers themselves. As a way of enhancing poverty reduction, Finland is fully committed to and making gradual progress on the new aid modalities, such as basket funding and budget support, as well as harmonisation of procedures.

3. The public is generally supportive of and knowledgeable about Finnish co-operation. MFA is carrying out creative activities through collaboration with the National Board of Education, organising campaigns, financing innovative publications, and exploring opportunities to use the European Union (EU) information offices within Finland. At the same time, officials see that there are challenges to inform the public about the new aid modalities as well as policy coherence for development. Furthermore, a recent survey showed that, compared to some domestic issues, development co-operation rated a relatively low priority, as in some other DAC countries.

Recommendations

Poverty reduction as the overarching objective in Finnish co-operation and targeting the MDGs could be clearly articulated in the next white paper.
Finland could consider the preparation of a strategy for public education, which might be useful in further enhancing understanding and support for Finnish co-operation.

II. Aid volume and allocations

4. In 2001, Finland's total net overseas development assistance (ODA) recorded USD 389 million and ranked 17th among the 22 DAC member countries. The ODA/GNI ratio was 0.32%, placing it ninth on this measure. This is a significant reduction from the peak of 0.80% in 1991, owing to the economic crisis partly due to the collapse of trade with the former Soviet Union. In 2002, a Special Committee was appointed to examine the level and quality of Finland's development aid. It recommended to the new government a specific disbursement schedule and restoring the United Nation (UN) target of 0.7% ODA/GNI ratio by 2010. Finland attaches great importance in keeping up with other Nordic countries on this measure. The new government has committed to reach an ODA : GNI ratio of 0.45% by 2007, on the way to the 0.7% target by 2010, taking into account domestic economic developments. Given the generally favourable economic situation in Finland, an ODA increase over the next several years would appear both feasible and appropriate.

5. Finland's proportion of multilateral aid in total ODA has been consistently higher than the Total DAC average. The preference for the choice of UN organisations is clear, but in view of the likely increases in multilateral funding - as part of overall ODA growth - Finland needs a better strategy on multilateral assistance. Like other DAC members, Finland provides various multi bi funding transfers towards the United Nations (UN) and international financial institutions (IFIs), amounting to about 6% of the core funding.

6. Concerning instruments in bilateral aid, Finland now provides essentially all grants in its programme. Within these grants, a relatively large variance from the Total DAC average in 2001 was "emergency and distress relief", mostly due to the increasing costs of refugees for the first year of stay in Finland. In terms of technical assistance (TA), which was less than Total DAC average, Finland has untied it to all ODA countries. Finland has started to use modalities such as budget support and basket funding, but the amounts are still small. Approximately 14% of Finland's bilateral aid in 2001 was ODA to and channelled through non-governmental organisations (NGOs). In terms of sectors, there is a clear trend towards a less economic infrastructure type support and an increase in Social Infrastructures and Services. Finland explains that since becoming more focused on poverty reduction, it started to consider the social sectors to be the most effective channel to target poverty.

7. Although there is no policy regarding focusing on a specific region or an income group, in reality, of the allocable bilateral ODA, Finland places a relatively strong focus on Africa (46%) and least developed countries (43%). At the same time, there have been criticisms regarding the increasing dispersion of aid across too many countries. Finland now plans to concentrate on about ten long-term partner countries, namely Egypt, Ethiopia, Kenya, Mozambique, Namibia, Nepal, Nicaragua, Peru, Tanzania, Vietnam, and Zambia. The plan includes reassessing Kenya, Nicaragua, and Zambia, and phasing out middle income countries such as Egypt, Namibia and Peru. Finland is not usually a major donor to its top recipient countries, and therefore greater selectivity may enable more cumulative impact, enhanced effectiveness, and increased ability to influence other donors and partners in policy dialogue and co-ordination.

Recommendations

Finland is encouraged to increase ODA to reach 0.7% ODA/GNI ratio by 2010, along an agreed commitment path.
If ODA is to increase rapidly, allocation plans within multilateral and bilateral aid would be necessary. In particular, a clearer strategy on multilateral aid would be useful, complemented by specific strategies for target organisations.
Finland could focus on about ten long-term partner countries, in order to have cumulative impact and enhanced ability to influence other donors and the partner country.

III. Policy coherence

8. The OECD and its Members recognise that sustainably reducing poverty in developing countries will require mutually supportive and coherent policies across a wide range of economic, social and environmental issues beyond development co-operation. The DAC has agreed to elevate policy coherence for development as a general concern in overall government policies and to develop the necessary means for promoting it across administrations and within international forums. To achieve policy coherence, there should be a vision, policy, political will, organizational structure and analytical capacities related to policy coherence. In the case of Finland, there seems to be a vision and some organisational structures, but clear policy, political will, and analytical capacity could be further enhanced.

9. Regarding the EU, policy coherence includes the position a Member country holds in the framework of the European Community (EC) and, if possible, the influence it could exercise, such as on the Common Agriculture Policy (CAP). The CAP creates unfair competition in markets of developing countries where agriculture provides livelihoods for the majority of the rural poor. In signing the Doha Declaration, Finland confirmed its support for pro-development reform on agriculture and has also declared that it would like to see a different CAP. Finland believes that the CAP needs to be reformed in order to reduce its negative effects on developing countries. The Committee encourages Finland to actively support this objective. In 2001, subsidies to agriculture in Finland amounted to EUR 1.7 billion, of which 58% was financed by the government and 42% through the CAP. Among all EU Members, Finland's share of national assistance to agriculture is the highest. Although Finland's market itself may not be so large for developing countries, the potential impact of free agricultural trade by EU and other OECD Members can be enormous, and Finland could contribute to expediting the process.

10. Finland has a concessional credit scheme whose objective is both commercial and developmental. The scheme has been the subject of criticism by civil society and development experts. The 1998 white paper stated that interest subsidies paid in the guise of development co-operation distort international competition and that Finland's policy will be to seek an end to these concessional credits. Yet the scheme still exists and there seems to be an intention to increase. In 2001, the ODA component was EUR 14 million, representing 4% of total ODA. These subsidies have kept China among the top 10 recipients of Finnish aid over the last decade though it is not identified as a long-term partner country. Finland has recently carried out a comprehensive evaluation of the concessional credit scheme, but the effectiveness of the scheme in terms of poverty reduction is unclear. Finland could reassess the development value, untying aspects, administrative cost and trade-off of maintaining such a scheme as the future of the programme is considered.

11. Finland is one of the few countries that has issued a comprehensive guideline on anti-corruption in development co-operation. It has also taken important steps to prevent and fight corruption in developing countries in the context of policy coherence. Like most DAC Members, Finland has enacted laws to ensure the implementation of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. It has modified its penal code so that the offence of bribing a public official be extended to cover the bribery of foreign public officials. Transparency International ranks Finland as one of the least corrupt countries in the world. It could be interesting to learn how Finland prevents Finnish companies from getting involved in corruption with developing country officials.

Recommendations

Finland could enhance its efforts to achieve policy coherence for development, particularly by establishing a clear policy and improving analytical capacity to deal with pertinent issues.
As an EU Member, Finland could play an important role in achieving better policy coherence in the EC, particularly concerning the CAP.
As the 1998 white paper states, Finland could consider phasing out its concessional credit scheme whose effectiveness in supporting poverty reduction is unclear.

IV. Aid management and implementation

12. There are three parts in MFA that deal with aid. The Department for Development Policy is the only MFA department which deals primarily with aid issues. In 2003, a new Department for Global Affairs was established to handle the emerging issues of globalisation. The geographical departments, which were created through the reforms in the 1990s, consolidate trade, aid, political affairs and culture to ensure internal synergies. The new structure is considered positive in enhancing the interrelation between development co-operation and other areas. At the same time, it presents challenges, as the system of the Ministry is driven by a logic that does not clearly prioritise poverty reduction. For example, when there is a conflict between trade and aid, it is not certain that aid considerations are given appropriate weight. Therefore, a stronger commitment and leadership within MFA might be necessary to mainstream poverty reduction. Furthermore, while the MFA has been assigned additional tasks with the EU accession and increasing global co-operation, budget cuts have resulted in a shortage of human resources for development co-operation. If ODA volume is to be substantially increased, additional staff would be essential to preserve the quality and effectiveness of the aid programme.

13. Regarding the evaluation system in development co-operation, there is some difficulty in taking action on evaluation results and recommendations or using them as a basis for decision-making. The follow-up of evaluations by the Executive Board of the Department for Development Policy implies that action is in the hands of those who were responsible for the outcomes, instead of an independent body or a higher office with more authority. The Executive Board also does not have jurisdiction over the geographical departments that have a major role to play in the strategic orientation of Finnish development co-operation. Therefore, there could be further rethinking by MFA regarding the institutional appropriateness of the reporting, follow-up and learning system of evaluations.

14. In the field, there is considerable effort by Finland to support national poverty reduction strategies and ownership by the partner countries. Other donors consider Finland to be a reliable partner. Finland's technical assistance is not free-standing, but is an integrated part of Finnish projects or programmes. The role of Finnish technical assistance is to facilitate and increase ownership by counterpart institutions, including decision-making processes by communities and districts, instead of substituting their functions and activities. At the same time, Finland does not develop comprehensive country strategy documents. Having a clear country strategy is important for accountability, transparency and monitoring purposes.

15. Finland will gradually participate in the new aid modalities, especially budget support and basket funding, although it has yet to develop guidelines. With these modalities, unless special attention is given to corruption and the capacity needs of the partner country, there is a risk of eroding public support for aid. Finland also sees that, with better co-ordination, the transaction costs could be reduced for partner countries, whilst conversely its own administrative costs might increase. In fact, in most of Finland's field missions, the shortage of aid personnel is affecting the quality of aid delivery and the capacity for donor co-ordination and co-operation. The system of recruiting mostly generalist diplomatic staff may also be making the workload heavier for those who are involved in the more technical aspects. Understaffing is exacerbated by the dispersion of co-operation sectors in a partner country as well as the large number of co-operation countries for Finland's ODA volume. There is also a perception among embassy aid staff of having insufficient delegation of authority. Therefore, reconsidering the optimal number of partner countries and co-operating sectors, as well as augmenting field capacity with more local expertise, may partially help in resolving the challenge of understaffing and insufficient delegation of authority.

Recommendations

Attention should be given to augmenting staff capacity both in terms of numbers and development expertise, in view of prospective substantial ODA growth and the increased attention to aid quality and effectiveness.
In particular, staff capacity in embassies could be enhanced by limiting co-operating countries and sectors, augmenting with local expertise, and increasing delegation of authority.
There is further scope to improve the independence and jurisdiction of the evaluation system as well as the follow-up and systematic learning mechanisms.
Finland could develop country strategies so as to provide a framework for its ODA programme and its dialogue with the partner countries.

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Peer reviews of DAC members

Finland (2003), DAC Peer Review