NON-EDITED. 182 Aid for Trade

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1 ANNEX 7 Aid modalities AND PARTNERSHIPS NON-EDITED Bilateral Cooperation Finland uses programme-based cooperation in its main partner countries in sectors relevant to AfT such as forestry, water, environment and rural development (MFA 2008, 21). There are three approaches to this form of cooperation, namely Sector- Wide Approach programmes (SWAp), and general and sector budget support. Sector wide programmes are negotiated between Finland and the main partner countries to identify priority areas for the partner country that also fall within Finland s area of expertise. This bilateral process of agreeing on sectors as well as appropriations takes place every four years. The partner country s institutions are used in implementation to the extent possible, and a successful example of this is the MFA support to Zambian private sector development being channelled through the Zambian government s PSDRP programme. Overall, the focus areas are determined by the prevailing development policy programme (the current one will be renewed after a change of government in June 2011), and some changes are likely to take place. Project cooperation also remains an important form of bilateral assistance for the MFA. The process entails identifying projects early in the project cycle, and ideally involves MFA advisors at this stage. The project is subsequently passed through the Quality Assurance Group before approval. Programme cooperation can be supplemented with projects, and according to the 2007 Development Policy, projects are to be applied where recipient management systems are not conducive to programmebased cooperation, and they are particularly suited to the utilisation of Finnish expertise. Projects are often designed and implemented by Finnish consultants, and project funding can usefully provide gap funding for larger programmes, or complement the funding from other donors. However, local ownership tends to be lower in projects than in programmes, and issues of sustainability need to be addressed already in the design phase. Although embassies are to some extent involved in the monitoring of the projects, the main responsibility is with the implementing partner, and the embassy may not have access to monitoring information. Evaluations are carried out by external consultants through standard evaluation procedures. Local Cooperation Funds (LCF) are used by Finnish embassies as a tool to strengthen productive capacity or for promoting local entrepreneurship. These also enable support for institutional strengthening of local chambers of commerce (Ruotsalainen 2011). The funds are administered and monitored by the embassies, and it is usually intended that projects last for one year. The embassies are expected to prepare an LCF strategy (of 3-5 years) that is in line with the broad objectives of Finland s development cooperation. Furthermore, an annual operation plan for the use of the funds is prepared by the embassies, which is part of the performance agreement between the ministry and the embassy (ibid). A manual on good practices has been produced along with the updated norm, Coordinator s Manual - Recommended Good Practices that contains information on best practices as well as recommendations for 182 Aid for Trade

2 the efficient monitoring and administration of the LCFs (ibid). Combining local cooperation funds with other instruments, such as Finnpartnership, can be a useful way to enhance the effectiveness of projects (MFA 2009). Approximately a quarter of Finland s bilateral development cooperation and around 13% of all development cooperation is channelled through Finnish NGOs. (Ruotsalainen 2011). NGOs in Finnish development assistance complements other forms of cooperation on bilateral, multilateral and EU levels, and NGOs add value in their direct contact with the grass roots and their work in strengthening civil society in developing countries. In 2009, the amount disbursed to a total of 200 NGOs was around 83,7 M EUR. Although funds to NGOs are not specifically earmarked to AfT work, there are a number of ongoing projects with strong links to AfT. Around 60-70% of these funds are channelled through 11 main partner organisations, and the majority of NGO projects are undertaken in Africa, particularly in the main partner countries. Half of all Finnish aid to NGOs is channelled through the Partnership Agreement Scheme (PAS). Other NGO arrangements include support to three Finnish NGO foundations, which disburse funds to civil society in developing countries, and LCF grants from Finnish embassies. The Finnish strategy involves contracting NGOs to deliver services, using the embassies and NGO organisations as intermediaries in the transactions, in the expectation that capacity building will occur as a result of the NGOs being required to manage the contracts and implement contracted activities. Administered by Finnfund, Finnpartnership was established in 2006 to provide a channel for cooperation between the Finnish business sector and companies in developing countries. The modalities include support to the costs of: the initial phase projects, identifying business partners, planning and financial advice, as well as mentoring services. In 2009 and 2010 Finnpartnership received 110 applications and granted funding totalling 4,2 m EUR (Finnpartnerhsip, no date). Finnpartnership is increasingly focusing its support on developing countries, and project beneficiaries are required to report on the results of their projects annually up to two years after the termination of the project. Between 2006 and 2010 the majority of applications were for projects in China (90 projects), followed by India (63 projects) and Viet Nam (57 projects). Approximately 23% of projects were undertaken in Africa during that period. In 2010, 46% of support was given to projects in LDCs and low-income countries (ibid). After the introduction of the new LCF guidelines (see section on LCF above), which now include a private sector component, the embassies are encouraged to think about linkages between LCF funded projects and the business partnership programme of Finnfund, which have thus far been infrequent. Concessional credits are commercial export credits that are subsidized through concessional interest rates funded from Finland s official development aid. Decisions to grant concessional credits are made by the MFA and risks related to credit are borne by Finnvera Ltd. (von Weissenberg 2011). The 2007 Development Policy Programme emphasises that concessional credits should focus particularly on environmental and infrastructure-related investments that are prioritized in national develop- Aid for Trade 183

3 ment plans. One of the requirements for the contracts is that a minimum domestic interest (previously content) of the contract is 50%. The average share of concessional credit commitments in Finnish ODA between was 4.5%. Between , the energy sector accounted for 40.8% of the concessional credits grants, followed by health, whereas agriculture accounted for 12.6.% (ibid.). Finnfund (Finnish Fund for Industrial Cooperation Ltd.) is a Finnish development finance institute that offers long-term risk capital to profitable projects in developing countries and countries in transition outside the EU. The focus is on funding private sector projects that include Finnish value added (MFA 2008, 17). Although the development objective of the projects funded by Finnfund is clear, there are at present no tools for assessing its development impact. Finnfund is however currently in the process of developing these tools. In 2008, Finland launched the Institutional Cooperation Instrument (ICI) to strengthen cooperation and capacity building efforts between institutions in general, and between universities and research institutes in partner countries in particular. The project duration must be at least 12 months, and the maximum budget is set to 0,5 M EUR. In the case of a Finnish organization submitting a proposal, the respective MFA advisor will be asked to comment on it, and the financing decision is made by the minister based on the recommendations of the Quality Assurance Board and the submission by the regional department of the MFA (MFA 2010). The ICI instrument in the context of AfT is used particularly in the mining sector, as well as in forestry, where Finnish institutions implement projects (e.g. databases, information gathering through use of new technologies, etc.). Multilateral Agencies and EU Cooperation In 2009, around 40% of Finland s development cooperation was channelled through multilateral organisations (Ruotsalainen 2011). According to OECD imputation, this translates to around USD 50,9 M in 2009, down from USD 78,1 M in 2007 (OECD 2011), which is above the EU target of increasing multilateral assistance to trade and development related agencies to 10 M Eur by The AfT portfolio contains contributions to nearly 20 international and multilateral organizations, with the value of the contributions ranging from Eur (to the International Organisation for Standardization) to 14,4 M Eur (to the World Bank s InfoDEV programme). In addition to the financial contributions, Finland is actively participating in the work programmes of many of the organisations its funding. 184 Aid for Trade

4 Stakeholders and partnerships Introduction This section provides an analysis of the interaction between various stakeholders involved in the AfT field and that have different motivations, interests, perceptions and perspectives, and operate at domestic, local and international levels. We start by analyzing the relationship between the stakeholders in Finland, both within and outside the Ministry for Foreign Affairs. We then turn to look at the multilateral organizations, keeping the focus on the interaction of the MFA with the organizations. Finally, we analyse the interaction in the country level, including the embassy staff, other donors and the partner country actors. Finnish stakeholders The AfT Action Plan notes that close collaboration is needed in the implementation of the plan between the ministry, the private sector, civil society and other stakeholders (AfT Action Plan). The key stakeholders in AfT within the MFA are the Department for Development Policy (KEO) and the Department for External Economic Relations (KPO). KEO is in charge of promoting the AfT initiative within the ministry, and particularly to the regional departments. KEO also represents Finland in EU and the OECD s AfT working groups. In addition to the development policy dimensions of AfT, KEO is charged with the following the development policy, planning and monitoring of development cooperation, development financing institutions, and overseeing and monitoring the operations of Finnfund and Finnpartnership and concessional credits. (Ruotsalainen 2011). KPO is charged with the EC trade policy, issues related to market access, trade barriers and trade defence, trade and development issues more broadly, as well as international trade policy agreements. KPO also represents Finland in EU, WTO and OECD s AfT working groups. (ibid). KEO and KPO jointly coordinate the Aid for Trade -working group within the Ministry. The working group supports the implementation of Aid for Trade, and acts as a discussion forum for AfT related issues. Development and implementation of AfT work is the responsibility of the regional departments within MFA, including the Department for Africa and the Middle East (ALI) and the embassies, but especially in the regional programmes, the different regional departments are working closely together. The Ministry of Employment and the Economy (MEE) is one of the main actors outside of MFA involved in the implementation of the Action Plan. On a concrete level, MEE has been involved in organising business seminars. Other key actors include the Finnish private sector, universities as well as NGOs. The Development Policy Committee is an advisory body for development policy appointed by the Government. It monitors and evaluates actions taken, as well as key decisions in the various sectors of policy that influence the situation in developing countries. The DPC is Aid for Trade 185

5 tasked with the promotion of coherence of Finnish policy coherence and ensures that the UN Millennium Development Goals are supported by the development policy. Bilateral partnerships At the country level, Finland s AfT is channeled through different types of partnership. The main aid modalities are discussed in the previous section. The focus of Finland s AfT is on its eight long-term partner countries (Ethiopia, Kenya, Mozambique, Nepal, Nicaragua Tanzania, Vietnam and Zambia). Cooperation with these countries is based on multi-annual cooperation plans, and at the beginning of each new programming period a comprehensive review of all its key partner countries is undertaken. The choice of partner country is based on the following criteria: the country s need for assistance (e.g. its poverty level and the state of its environment; support already received (e.g. action by other donors and the level of development funding, joint programming processes, the role of multilateral actors and the EU); the country s political situation and ownership (e.g. the human rights situation, its own commitment to address development challenges, and the role of civil society); the added value that can be offered to it by Finland, and its administrative capacity for cooperation; and the status of Finland s own policy priorities in the country s development plans. (Caldecott J et al. 2010). Finland is also actively partnering with both Finnish and partner countries research institutions and universities to implement projects and programmes using the ICI instrument. MFA is also partnering some core Finnish NGOs (including KEPA, the Service Centre for Development Cooperation) to train and inform the NGOs working on development cooperation related issues. Multilateral partnerships Global and financial partnerships At the international level the main actors involved in AfT include the OECD, WTO and the EU. Finland is working in close cooperation with multilateral organizations and institutions, and in general prefers to be involved in their work programme rather than simply funding certain activities. Finland provides core funding to a number of international organizations working on AfT related issues, including International Trade Centre (ITC), UNCTAD (e.g. Virtual Institute, ICT and development and investments and entrepreneurship). 186 Aid for Trade

6 The collaboration with these organizations is normally based on multi-year financing, or in some cases (e.g. World Bank s InfoDEV programme) on supporting selected programmes within the multilateral organization. In addition to supporting AfT by funding international organisations programmes, Finland participates actively in the international AfT fora, and is working closely with the key international actors, including the EU (particularly during Finland s EU presidency in 2006) and the OECD. Regional Partnerships Regional partnerships classified (at least partly) as AfT include the Energy and Environment Partnership (currently in the Mekong, Southern and East Africa and Central America) as well as the partnerships on ICT and innovation (in Southern Africa and Viet Nam). In addition to cooperating with the local actors, including governments, regional economic communities and the private sector, Finland has been able to mobilize other donors, too, and Austria, the EU, Nordic Development Fund and the Development Bank for Southern Africa have joined the partnership. The newly established Wider Europe Initiative, a Framework Programme for the Eastern Europe, the South Caucasus and Central Asia regions combines central elements to Finnish AfT, including trade and development, information society development, and energy and the environment. References Caldecott J, Halonen M, Sørensen S E, Dugersuren S, Tommila P & Pathan A 2010 Evaluation of the Sustainability Dimension in Addressing Poverty Reduction: Synthesis of Evaluations. Evaluation report 2010:4. Ministry for Foreign Affairs of Finland, Kopijyvä Oy, Jyväskylä, 138 p. ISBN (printed). MFA 2008 Finland s Aid for Trade Action Plan ( ). Ministry for Foreign Affairs of Finland, Erweko painotuote Oy, Helsinki, 22 p. MFA 2010 Institutional Cooperation Instrument ICI. Manual and Recommended Best Practices. April 2010 Revised version 5. Ministry for Foreign Affairs, Finland. Accessed at 030A-48EB-B3DA-1A9A9D12CB88} Ruotsalainen A 2011 Preliminary study on Aid for Trade (AfT) in Finland s Development Cooperation. Helsinki: Ministry for Foreign Affairs of Finland. OECD 2011a Aid for Trade at a Glance: Showing Results. Chapter 4: Implementing Aid for Trade. Aid for Trade COM/DCD/TAD(2011)3/CHAP4. Joint Meeting of the Development Assistance Committee and the Working Party of the Trade Committee. Paris: OECD. Aid for Trade 187