Review of the Development Co-operation Policies and Programmes of Germany

General framework and current directions

Since the 2001 DAC Peer Review, the process of change in Germany’s approach to development co-operation has gained momentum enabling it to adapt to the evolving international context regarding development policy and practice, while at the same time taking into consideration DAC recommendations. Like most other donors, Germany has committed to increase its Official Development Assistance (ODA) in support of the Millennium Development Goals (MDGs) and to improve the quality of aid in line with the 2005 Paris Declaration on Aid Effectiveness. Responding to current development challenges will require further adjustments in Germany’s aid delivery modalities that the German government is open to address.

The critical issue of implementing the poverty reduction agenda

The Programme of Action 2015 on Poverty Reduction (PA2015), which had just been adopted by Cabinet at the time of the previous DAC Peer Review, set out an ambitious agenda for development with a global perspective. Germany was among the first DAC members to adopt such a comprehensive government-wide policy statement providing a groundbreaking approach to poverty reduction, which was established as an overarching task in development co-operation and an important element in all national policies. Poverty reduction is not the only objective of German development policy which also includes peace-building and the promotion of equitable globalisation and is guided by sustainable development. The philosophy underpinning PA2015, which is based on a broad understanding of poverty reduction, is that economic growth together with governance are needed in addition to social development for making progress on the MDGs. All these objectives and themes, though in some ways complementary to PA2015, can lead to confusion over German priority objectives. The process of defining the operational implications of such a comprehensive approach was not forthcoming until 2004 when an internal monitoring and time-bound implementation plan was agreed upon.

In its efforts to fulfil international commitments, notably in the context of the MDGs, the German government has made considerable progress in adjusting its policies and approaches.  It needs to persevere in implementing them effectively and efficiently and in doing so, to enhance the focus on poverty reduction. Germany can be commended for being active a number of areas which tend to attract less funding from other donors, notably in the field of governance and environment. The challenge for Germany is to demonstrate the right balance between direct and indirect approaches to poverty reduction and the impact of its broad-based approach. Germany’s approach to poverty reduction and the MDGs is now basically linked with its strategy on harmonisation and alignment, which provides a promising basis for a more effective poverty reduction strategy.

Streamlining the institutional setting 

The German development co-operation system is multi-organisational. The Federal Ministry for Economic Co-operation and Development (BMZ) plays a central role and has been reorganised in 2003 to better integrate bilateral, multilateral and sectoral responsibilities. It relies principally on two implementing agencies: the Agency for Technical Co-operation (GTZ) and the KfW Development Bank. The full range of German organisations that rely on ODA funding is more diverse than this organisational core and includes more than 30 institutions, including other federal ministries, official agencies and organisations outside government (political foundations, church-based organisations and non-governmental organisations) as well as federal states and municipalities.

In a context of development co-operation based on the principles of partnership and ownership the German model of development co-operation may no longer be appropriate from a partner country perspective. The institutional distinction between financial and technical co-operation and within technical co-operation itself has major implications throughout the entire development co-operation process. First, the German system which relies on a wide range of organisations, instruments and approaches runs the risk of being donor-driven in designing strategies and programmes. Second, the internal co ordination needs absorb German staff time and energy away from more important strategic tasks. Finally, developing country partners are required to deal with multiple organisations and procedures, an unnecessary burden on their often limited capacity.

In recent years, BMZ has introduced a number of practical measures which better integrate the various instruments of German development co-operation with the aim of making the system function better. A conclusion of this Review is that, within the existing structure, the potential for further efficiency gains is limited. Structural changes will be needed for Germany to respond effectively to current development challenges. The modernisation of the traditionally compartmentalised German development co-operation system is not a new topic and has been frequently discussed over the years both inside and outside German development co-operation. The new government might provide a useful window of opportunity in this regard and should undertake a major reform of the overall structure of the German development co-operation system and the associated complex political, financial, administrative and cultural issues.

Recommendations

• In order to keep the poverty focus throughout its development programme, Germany is encouraged to continue adjusting its policies and approaches. There is in particular need for a systematic and consistent approach to assessing the poverty impact of Germany’s comprehensive way of addressing poverty reduction which should be built in bilateral country programmes.
• The German government is encouraged to go further in its reform efforts with a view to joining up the individual structures of German development co-operation into a more cohesive force for development change. This may include abolishing the increasingly artificial distinction between financial and technical co-operation.
• The fulfilment of international commitments will require broad-based support within the government and civil society, building on political foundations, church-based organisations and NGOs. Germany is encouraged to rethink communication to ensure a better public understanding of development issues and outcomes in general, including the rationale underlying delivery modalities that are more conducive to aid effectiveness.

Aid volume and distribution

Securing political support to fulfil commitments for increased ODA

Germany’s new government has reaffirmed in its coalition agreement the country’s long-standing commitment to the UN target of 0.7% ODA/GNI, in line with the agreement reached within the European Union (EU) in May 2005, according to which Germany’s objective is to reach 0.51% by 2010 and 0.7% by 2015. This is a welcome commitment given Germany’s overall tight fiscal situation and the need to balance the federal budget in a context of economic and social reform difficulties. Despite the cross-party support to Germany’s development co-operation and its focus on poverty reduction, it will be important for BMZ to secure the necessary political support for increasing Germany’s development co-operation budget. This may require a more forceful presentation of development co operation work and results achieved in a context of globalisation and increasing interdependency among nations.

A significant budgetary effort will be needed for Germany to fulfil its international commitment. Achieving the target of 0.51% by 2010 would imply an increase of net ODA to USD 15.5 billion, a doubling from its 2004 level of USD 7.5 billion. After a decade of decline, Germany’s ODA has grown modestly since 2000 in real terms bringing the ODA/GNI ratio from 0.27% to 0.28%. Given its tight fiscal situation, Germany intends to fulfil its longer-term commitments through not only additional budgetary resources but also debt relief and resources mobilised through new and innovative financing mechanisms. However, debt relief, which represented 9% of total gross ODA in 2004 and 18% in 2002 and 2003, is likely to decline by 2008. In addition, there is still uncertainty regarding the scope for mobilising ODA resources through innovative mechanisms.

Achieving the 0.51% target raises the double challenge of mobilising the necessary resources and the capacity to spend them effectively. An ODA growth implementation plan has yet to be defined and agreed upon by the new government. Such a plan would be needed for a better overview of the prospects of future ODA growth and for the predictability necessary to effectively programme and spend important amounts of additional resources. Such a plan should clearly state how much of the ODA growth will be funded by additional budgetary resources versus innovative financing sources. As the perspective of a rapidly expanding ODA budget raises issues of overall organisational capacity and will put growing pressure to adapt delivery modalities, the ODA growth implementation plan should also indicate how ODA will be spent, based on which allocation criteria (countries, sectors, instruments and modalities, including the multilateral-bilateral split). Finally, such a plan would also be useful in the context of global ODA scaling-up which requires better exchange of information among donors to ensure predictability of external resources for developing countries and complementarity among donor support. 

A movement in favour of poorer countries but need for greater strategic selectivity

Germany has never stated a preference in favor of specific groups of countries. Germany admits that poorest countries need donors’ full support but also considers co-operation with economically more advanced countries as vital for achieving the MDGs since 50% of the world’s poor live in China and India alone. In shaping its approach to economically more advanced countries (the “anchor countries”), most of which have access to international capital markets to finance their development needs, Germany intends to engage in strategic partnerships with these countries including the greater use of market funds in place of budgetary resources. Historically there has been a strong focus of Germany on middle-income countries, which received more than 50% of bilateral funds until the early 2000s. Least developed and other low income countries now account for more than 50% of bilateral ODA (partly due to the increasing importance of debt relief). 

To increase the strategic focus of bilateral co-operation, BMZ emphasises action in some 80 co operation countries and in each of them on a limited number of areas. Distinction is made between “priority partner countries”, where BMZ intends to focus on up to three priority areas and “partner countries”, where co-operation is limited to one priority area. The optimal number of co-operation countries remains an open question in light of Germany’s commitment to greater aid effectiveness and more efficient aid delivery modes based on a better division of labour among donors. BMZ is now reviewing a possible set of criteria to better take into account emerging challenges of aid effectiveness. In reviewing its list of co-operation countries, BMZ should also take into account the appropriate mix of countries and instruments as well as the delivery capacity required to enable Germany to contribute effectively to poverty reduction and achieving the MDGs.

Towards more effective multilateral co-operation

Germany’s multilateral ODA usually accounts for about a third of total gross ODA but was higher in 2004 (42%) due to a large contribution to the World Bank. In an increasingly globalised world, Germany attaches growing importance to multilateral co-operation. In order to better focus on the effectiveness of international agencies, BMZ intends to monitor their progress in implementing the internationally agreed upon development agenda, including the fight against poverty and the MDGs at the field level. The internal reorganisation of BMZ in 2003, which combined multilateral, bilateral and sectoral responsibilities across the ministry, has enhanced the consistency between multilateral and bilateral policy making. 

The shift towards greater focus on performance assessment has not yet been used to guide levels of financial contributions to multilateral agencies. Germany has traditionally supported the European Community (EC) and International Financial Institutions but recognises that United Nations agencies deserve greater support given the role they should play on global issues. This increased focus on multilateralism has yet to be accompanied by similar levels of strategic thinking and performance monitoring. An immediate implication for the increased multilateral focus is, therefore, the formulation of a clear multilateral strategy, and an organised approach involving Germany’s implementing agencies which more systematically tracks the performance of the multilateral institutions.

Recommendations

• Germany needs to address urgently the challenge of implementing its ODA commitments. This requires the new government to adopt an ODA growth implementation plan, focusing both on the resourcing and spending dimensions of the equation.
• Germany needs to pursue its attempt to adopt in its development policy a more strategic approach towards geographic and thematic focus that better reflects its overarching poverty reduction objective. Further thinking is needed around the balance between middle-income countries and low income countries and the determination of the appropriate mix of countries and instruments to enable Germany to contribute effectively to poverty reduction and achieving the MDGs.
• Greater emphasis on the performance of multilateral agencies could be better translated into a funding allocation policy. This may require a more adequate framework for multilateral co operation, encompassing global funds, based on a methodology that includes an assessment of effectiveness, preferably in collaboration with other donors.

Policy coherence for development

A growing political interest

The broader German interest in policy coherence originates in constitutional requirements which are actively monitored and co-ordinated by the Chancellery. Germany’s independent development ministry with cabinet status provides room for active involvement at the highest levels of government which has led to a number of specific policy coherence statements over the last five years (e.g. arms exports; crisis prevention, conflict resolution, peace building; export guarantees; sustainability strategy). BMZ is also responsible for examining the impact on development of all government legislation. In 2001 the government specifically re-affirmed its commitment to a coherent cross government approach to development with the adoption of PA2015. The PA2015 agenda did not become organisationally consolidated until 2004, when BMZ produced a “coherence agenda” that identified 14 priority goals with targeted division-level responsibilities and a sense of time frame. In part due to further encouragement from the EU and international bodies such as the DAC, policy coherence for development is becoming a top BMZ priority and now figures prominently in the BMZ management guidelines for 2005.

This growing attention to policy coherence for development has given Germany a more solid organisational foundation for it to more systematically and specifically shape its actions in Germany and within the EU, internationally and in developing countries themselves. Turning this more ambitious vision into operational reality will require additional strategic clarity and resources.

Better operationalising policy coherence: policy, capacity and monitoring

The  BMZ coherence agenda adopted in 2004 represents an initial framework for greater operational clarity in this broad area, but its current goals are set at different levels (activities, outputs or organisational change), lack a sense of priorities among actions and their inter linkages have yet to be highlighted. It should now be possible to move this action agenda from process considerations to more specific priority issues of policy coherence. This process requires extensive consultation and involvement of key partners, including parliament, the Chancellery, other ministries and targeted, influential elements of civil society.

BMZ currently has a limited capacity to identify, analyse and play an advocacy role in the policy coherence area. Few experienced development professionals currently play an active role in policy coherence. BMZ should look beyond its own organisational boundaries to supplement skill level and resources required to undertake its vision, including relationships with other bilateral efforts or that of the EC, which is currently attempting to build its own informal member network. Such efforts simultaneously enhance analytical capacity and the ability to mobilise public and political forces in favour of policy coherence.

Reference to policy coherence implementation to date has been essentially limited to the modest information on the topic contained in the biannual reports on implementation of PA2015. Now that BMZ has initiated its more operationally specific coherence agenda, a meaningful effort can similarly be initiated to track and report on Germany’s efforts to promote greater coherence, whether in Germany or in the field.

Recommendations

• A clearer and more operational BMZ policy statement on coherence for development should be framed to better focus and organise national action around specific substantive priority issues, and to promote greater political and public support.
• The organisational and resource considerations of BMZ need to be addressed as it further attempts to implement the priority accorded to policy coherence. Additionally, current efforts to work through networks on policy coherence, such as that of the EC, can be an effective approach to reinforcing German capacity. 
• In relation to the existing monitoring of PA2015, the operational definition of policy coherence afforded by the BMZ coherence agenda should lead to improved tracking and reporting of progress.

Aid management and implementation

Progress on aid effectiveness: programming and modalities

As most recently embodied in the principles of the Paris Declaration, DAC members are increasingly aware of the need to creatively rethink their own national aid systems in ways that focus on most effective delivery in the field, rather than historic or domestic considerations. Germany strongly supports this international vision and has expressed its desire to be a “champion” in this area. To date it has undertaken a number of pilot efforts to modernise its aid system, including a renewed attention to field based German co-ordination (e.g. additional BMZ staff in embassies; use of country and sector teams, including team leaders; use of one country strategy for all agencies), or more flexible use of delivery modalities that go beyond a project-based system, including programme-based approaches and budget support. Germany can now build upon these experiences. Additional suggestions contained in the main DAC Peer Review report include the further strengthening of the role for the Development Co-operation Officer under the substantive leadership of BMZ and the secondment of additional BMZ staff to the embassies, the further integration of German implementation agency operations and programmes in the field, and the review of current use of country sector strategies that could be merged into one document better aligned with partner country-led strategies.

Much of the change process described above relates to the more efficient internal functioning of the German aid system. With a more efficient and better co-ordinated local national presence, Germany will want to continue its efforts to match its system requirements with those of other partners in country. This will vary from country to country and the local country team should have leadership responsibility to determine the optimally appropriate approaches required by local realities.  

Field perspectives and their impact on headquarters 

The shift to a more organisationally decentralised and locally efficient aid approach also invites consequential re-examination of organisational relationships at the level of headquarters and the field (e.g. between BMZ and the implementing agencies; among implementation agencies; between BMZ and the Federal Foreign Office), as well as the whole gamut of domestic procedures from aid strategic planning to annual budgeting. BMZ is now promoting a network approach at all levels to encourage pragmatic teambuilding among relevant actors around topics of operational specificity. These are interim steps toward a rethinking of the entire aid system. In a longer term sense, active team building across bureaucratic boundaries can permit a gradually improved understanding of key relationships that should help to simplify procedures and mechanisms of collaboration. At the level of headquarters, as well as in the field, it would seem desirable to shape these organisational relationships against a backdrop of results.

Critical to both internal reform and the improvement of relationships to external partners is the role of German development staff. Because of the current fragmented institutional nature of the German system, the overall deployment of human resources is not seen as a “system” responsibility. Human resource planning could be both more proactive and better co-ordinated to work toward optimal resource allocation, especially in the new context of decentralisation and international donor effectiveness.

One specific field perspective of particular relevance is Germany’s traditional approach to “technical” and “financial” co-operation, for which the distinction is becoming increasingly artificial in the current environment of more joined up approaches to development co-operation. The realities of field delivery and an emphasis on results mean that distinctions between funding source or agency of delivery are less important than the impact that the aid is expected to achieve. One key operational consideration pursued by Germany over the last decade has been a deliberate conceptual shift away from narrow technical assistance to technical co-operation in support of capacity development at broader levels of the national setting. This should be pursued. Further, Germany’s considerable attention to technical co operation as a means to promote local capacity development suggests that it could play a role of conceptual leadership at the field level on issues of local capacity development.

Need to better demonstrate results and strengthen knowledge management

Germany has improved upon the effectiveness of monitoring and evaluation since the last DAC Peer Review. Each of the core organisations has made an effort to upgrade the quality of their own part of the development co operation system, especially at the level of projects. Nevertheless, at a more specific level, Germany needs to make a greater effort to build in its results monitoring and evaluation systems at the outset of its implementation planning, including possible support for building capacity of local systems or joint approaches with other donors. Most importantly, it is possible for BMZ to review the extent to which this loosely co ordinated network of performance tracking now can come together to promote collective learning and greater management effectiveness at the system level. Such an approach could be usefully informed by recent success in promoting cross agency team building and work undertaken by GTZ at the sector level which could lay the groundwork for future sector learning across agencies.

Recommendations

• In support of the Paris Declaration aid effectiveness agenda and taking account of the scaling up of its aid, Germany should enhance its efforts to integrate the operations of its implementation agencies in the field. It should intensify co operation with other donors, including the use of modalities such as budget support and forms of delegated partnership, to the extent they support country realities. Linkages with country led poverty reduction strategies should be used more systematically, with programme emphasis at the sector level.
• The current push for operational decentralisation should gain speed and, to the extent feasible, go beyond only co ordinating German aid to actively managing it under the authority of the Development Co-operation Officer. This will require a new understanding between BMZ and the Federal Foreign Office on their relationships in the field.
• BMZ, in collaboration with all technical co operation agencies, should strengthen the implementation of its policy aimed at using technical assistance in support of capacity development. It should consider playing an active leadership role in exploring these issues with other donors at the local level.
• Any forward thinking on new approaches to German development co-operation in the field must include parallel human resources planning (number, seniority, skill mix, location, support from headquarters or other sources).
• BMZ should intensify its efforts to join up the different parts of the German system to harmonise evaluation activities and promote learning and should ensure adequate resources are committed to this effect.

Humanitarian aid

Need for an integrated approach 

Germany is an important contributor to financing humanitarian action. Considering its national capacity, G7 status and expected ODA levels in relation to the 0.51% and 0.7% targets, however Germany’s potential in financing humanitarian action is not optimised. Humanitarian aid remains a small part of Germany’s development co-operation expenditure. According to DAC data “Emergency and distress relief” in 2004 totalled USD 186 million, accounting for only 2% of total German ODA compared with the DAC average of 7%. Germany is the second largest contributor to the Indian Ocean Tsunami of all DAC members with pledges of USD 634 million planned to be disbursed by 2009. There has been an important German political commitment on the additionality of these pledges. As for other donors, an ongoing challenge will be to turn pledges into disbursements while ensuring that the needs of other emergencies are not compromised. 

An assessment of the German policy framework indicates a need to synchronise, update and broaden policies to better reflect the scope of actions as required by the principles and good practices of good humanitarian donorship (GHD). There is no comprehensive policy on humanitarian aid to guide actors within the German development system. Humanitarian aid managed by the Federal Foreign Office focuses on emergency response. Detailed funding principles are not spelled out apart from what is regulated by legislation and in the 12 guiding principles. Humanitarian aid funding is always earmarked and may not be subject to any form of conditionality other than for auditing and reporting purposes. Projects are limited to short-term funding and ideally should be completed within a six month period. Funds managed by BMZ are regulated by different procedures. A budget line introduced in 2005 on “development oriented emergency and transitional aid” has increased Germany’s ability to have a broader and more flexible humanitarian response.

The German humanitarian aid system is compartmentalised. It is managed by two ministries with interdependent areas of responsibility. A detailed and rather inflexible budget system contributes further to a fragmented approach. On one side, the Federal Foreign Office holds responsibility over a strong and independent unit focused on emergency response. On the other side, BMZ operates a smaller unit with a broad and more loosely defined mandate. This divided management approach creates a disconnected structure where the sum of the parts is less than the total. The effect is to isolate parts of humanitarian operations both from each other and from other parts of the ministries in which they reside. This reduces their ability to address the complexity of contemporary emergencies and thus makes the aid less effective. It complicates synchronisation of actions both within humanitarian action and in how it relates to development co-operation. The challenge applies to all aspects of planning, operations, as well as follow-up and learning.

Whereas the strength of the present system rests in the timeliness of funding, approaches to other funding principles (flexibility, predictability) need to be further addressed. Germany should explore opportunities to use new aid modalities for humanitarian allocations, such as common humanitarian action plans and pooled funding.

Recommendations:

• Germany should develop a comprehensive humanitarian policy reflecting the GHD principles and good practices. Such a policy should reflect strategies for implementation providing guidance on civil-military relations, disaster risk reduction, environmental and social aspects.
• While increasing its ODA Germany is encouraged to increase allocations to humanitarian aid. Germany should also explore opportunities of using new humanitarian aid modalities such as pooled funding and humanitarian funds.
• In order to facilitate a broadened humanitarian approach, Germany should consider enhancing the coherence of all components of humanitarian aid (prevention and preparedness, emergency response, recovery and reconstruction) which should be facilitated within a common budget. 
• As Germany's humanitarian aid expands it should consider developing its evaluation system in this field. Germany should also consider evaluating the overall performance of its humanitarian aid system involving the Federal Foreign Office and BMZ.

The full report of the Peer Review of Germany is forthcoming.

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