Reignited Discussions about Increased Aid Conditionality

Global democracy is on the decline. The ongoing COVID-19 pandemic has exacerbated the already stagnating state of democratic conditions in a plethora of developing and emerging countries that are recipients of European Union external aid. Over the past year, we have witnessed a marked increase in the curtailing of parliamentary oversight and pressure on political opposition, censorship and intimidation of independent media, challenges for electoral integrity, and targeted disinformation campaigns. In light of this, the debate on the effectiveness of using EU external funds to tackle democratic backsliding is regaining momentum.

With several major policy developments relevant to EU funding and their implications for democratic policy reform, it is not surprising that the debate on conditionality has been reignited. In March 2021, following years of inter-institutional negotiations, the text for the Neighbourhood, Development, and International Cooperation Instrument – Global Europe (NDICI-Global Europe) was formally endorsed. Encompassing virtually all world regions and totalling 79.5 billion euros for the period 2021 to 2027, this instrument combines several former EU funding schemes under one global roof. It serves as the EU’s funding architecture for long-term developmental challenges while also being intended to reinforce other key thematic aspects of EU external policy, including democracy and human rights. The negotiations on NDICI signalled a critical juncture for the EU to reflect on the long-term political goals of its external action. By deciding how to allocate the available funds and balance their geographic and thematic allocation, each earmarking decision harboured a risk of trade-offs in other areas.

Furthermore, the recent approval of a European Parliament report that advocates making EU development aid conditional upon recipient collaboration on migration management has attracted much attention. The decision marked a shift in the Parliament’s position on development policy and was met with great controversy. While the report’s initiators argued that linking development aid and migration management will enhance the effectiveness of development, its opponents criticised that making migration cooperation the core of EU decision-making on funding allocation leads to ineffective and untransparent development practices. The debate triggered by the Parliament’s decision suggests that policy considerations, political convictions, and normative arguments have an important role to play when discussing conditionality.

At the same time, the EU introduced a new internal sanctions mechanism called the “rule of law conditionality”. Under this new scheme, EU budget payments to member states’ governments can be cut or frozen if the European Commission establishes a legal breach. This attempt to protect EU resources from funding democratic backsliding within the Union has been positively received among most policy circles in Brussels. It has, however, led some commentators to conclude that the EU’s internal efforts to condition funds should be used as an incentive to rethink the conditionality of external development aid funds.

Solidifying Democracy through Political Conditions

With Official Development Assistance (ODA) amounting to 75.2 billion euros in 2019, the EU, together with its member states, represents the largest aid donor in the world. The overarching objective of European development policy is “the reduction and, in the long term, the eradication of poverty”. All major EU development policy documents convey that sustainable development is only possible through democratisation. Democracy is one of the EU’s founding values, pursued by all of the Union’s external policies, as well as a strategic interest. The EU often exploits political conditionality as a means to use its development funding for promoting democratic reform in recipient countries. It is a set of universal norms and values guided by the concepts of democracy, human rights, and good governance. The allocation of funds, therefore, depends on a recipient regime’s degree of plural democracy. When a recipient displays deepening authoritarianism, practices human rights violations, or shows other signs of democratic regression, the donor can use punitive sanctions in the form of full or partial withdrawal of aid assistance. Conversely, in the case of positive conditionality, the donor rewards the recipient when progress towards democratic reform is made. This “more for more” principle is applied in relations with EU neighbouring countries in the framework of the European Neighbourhood Policy. In both scenarios, the recipients’ willingness to undergo political reform becomes a decisive variable in how much capital is allocated to them. In this respect, the EU approach fundamentally differs from other development actors – most notably China – whose financial support is not conditional upon democratic conditions for recipient countries. The option for partner regimes to cooperate with aid providers indifferent to democratic and human rights developments considerably weakens the EU’s ability to exert pressure on democratic reforms through aid funding.

The EU engages in political conditionality practices with the assumption that aid is more effective in democracies than in autocracies. Enhancing democracy in a recipient country has a positive impact on economic development, as well as more inclusive education and health care systems. By default, policymakers in democratic settings must engage in inclusive political competition to win majorities if they are to stay in power. Their economic incentives must therefore be geared towards providing public goods to all citizens, while authoritarian leaders usually only need to secure the support of a small group of elites. The EU thus assumes that under democratic settings, development aid is more likely to reach the neediest target groups.

Yet, the legitimacy of political conditionality to achieve meaningful and lasting democratisation in recipient countries is often subject to scrutiny. The general assumption is that attempts at exogenous reform can only have an ostensible impact on the democratic opening of authoritarian and semi-authoritarian regimes. In some cases, the suspension of funds may even contribute to further destabilisation and hence thwart wider EU development ambitions. Although the recipient governments might agree to certain political conditions, they are not incentivised to initiate drastic institutional and administrative reforms. So long as a (semi-)authoritarian government perceives the path towards democracy as an external agenda, political conditionality cannot trigger a change of heart. Postponing or suspending funds introduces further complexity, as it may be interpreted as an intervention in the internal affairs of another sovereign state. That is why the suspension of funds is the EU’s last resort, and the formulation of conditions in official documents is often nebulous so as to leave room for interpretation in its implementation.

Budget Support as the Aid Modality of Choice

Budget support remains an important tool for EU global development cooperation with the aim of increasing recipient countries’ ownership in development policies and reforms. Through direct financial transfers to the recipients’ national treasuries, the objective of this aid modality is to better harmonise development assistance and increasingly align it with the priorities of recipients. It is, thus, intended to promote recipient ownership while increasing the efficiency and effectiveness of development cooperation. Budget support is based on policy dialogue, performance assessments, and capacity building intended to initiate reform progress in line with the Sustainable Development Goals (SDGs). It currently accounts for around 40 per cent of national cooperation programmes with partner countries worldwide. To qualify for direct payments, a recipient country has to present a credible strategy for national development or sector reform, maintain a stable macroeconomic outlook, demonstrate progress in public finance management and domestic revenue mobilisation, and allow for budget transparency and oversight. Democracy, human rights, and the rule of law are considered essential pillars, too. With 215 contracts implemented in 89 countries or regions and a total of 1.6 billion euros of budget support paid out in 2019, this type of development assistance continues to provide the EU with high added value. When a recipient country breaches its commitments to these “fundamental values”, the EU has several options. It can suspend or adjust available tranches to the respective government, reallocate funds to sector programmes or channel them to non-governmental target groups instead. An immediate suspension of budget support regarding deteriorating levels of democracy is still another option.

Fig. 1: Geographical Distribution of EU Budget Support in 2019 (in Per Cent)

Although the grounds for such decision-making are often criticised as ambiguous, the selectivity indicates priorities that vary across relationships with different countries. A closer look at why the EU provides budget support to governments with seemingly little interest in democratisation efforts reveals a focus on other foreign policy goals, including security and stability, migration, and economic policy. While foreign policy interests are highly specific in the country context and therefore need to be flexible, we can observe an overall prioritisation of security issues in EU foreign policy. This suggests a credibility issue: while the EU tries to incentivise norms and values through political conditionality, it undermines and discredits its position through contradictory application.

Fig. 2: Recipients of EU Budget Support in 2019 (in Per Cent)

The Case of Ethiopia’s Tigray Conflict

In January 2021, EU High Representative Josep Borrell announced that in light of the ongoing violent conflict in the Ethiopian region of Tigray, EU budget support would be postponed due to humanitarian aid operators having a lack of access to the region. He further voiced concerns about reported “ethnic-targeted violence, killings, massive looting, rapes, forceful returns of refugees and possible war crimes.” Since the order for a military offensive on the country’s northern region by the Ethiopian Prime Minister Abiy Ahmed on 4 November 2020, the conflict has given rise to gross atrocities and a humanitarian crisis that displaced over two million people. The Ethiopian government said that the regional ruling party, Tigray People’s Liberation Front (TPLF), had attacked a government military base in an attempt to steal weapons and artillery. The notion underlying the conflict is a struggle for power and clashing visions on Ethiopia’s political future. As part of the ethnic federalist ruling coalition (Ethiopian People’s Revolutionary Democratic Front, EPRDF), TPLF has dominated Ethiopian politics since the early 1990s. In 2019, the coalition of four parties was remodelled into a single party, the Prosperity Party, under Prime Minister Abiy Ahmed. It incorporated three out of the four ethnic-based parties, with TPLF being the only one not to join the coalition and openly criticising its formation. This sparked tensions between Tigray regional authorities and the ruling party in Addis Ababa. When the highly anticipated general elections planned for 29 August 2020 were postponed due to the COVID-19 pandemic, TPLF held regional elections in Tigray in defiance of the government’s decision to delay. Prime Minister Abiy Ahmed described the offensive on Tigray as “defensive operations to restore law and order in the Tigray Region”, in reaction to a perceived undermining of his administration.

The EU has never openly questioned the Ethiopian government’s intervention in Tigray itself, but rather its consequences for Ethiopian civilians’ humanitarian situation. The EU takes a diplomatic approach to the escalating conflict, seeking to maximise consultations with Ethiopian authorities in cooperation with partners from the G7 group of countries and the UN. In addition, Finnish Foreign Minister Pekka Haavisto was appointed as Special Envoy. He has been mandated by the EU’s High Representative to convey four principal EU requests; namely to cease hostilities, to grant humanitarian access to everyone in need in all areas, to carry out investigations on human rights abuses, and to immediately withdraw Eritrean troops currently fighting in Ethiopia. On the basis of Haavisto’s report, the EU’s 27 foreign ministers will decide on how to proceed in engaging with Ethiopia. The currently postponed budget support is likely to be resumed once the EU believes that the four above requests have been fulfilled.

Although the EU openly condemned the violence, budget support was merely postponed rather than suspended. To understand the hesitation about deploying more drastic foreign policy tools, we need to consider three main focal areas of EU-Ethiopia relations.

Ethiopia’s Geostrategic Position and Regionalisation of the Conflict

Ethiopia is the second-most populous nation in Africa. Its location at the Horn of Africa and proximity to several conflict-ridden Eastern African countries and the Arabian Peninsula give the country a special geostrategic significance as a security ally. The region is also prone to extremist influence from neighbouring sub-regions due to the fragility of surrounding states, including weak governments and economies, poor governance, and numerous internal and cross-border conflicts. With the persisting conflict in Tigray, the EU fears a spill-over effect to neighbouring countries, such as Eritrea and Sudan, which would threaten the entire region’s stability. Ethiopia, the second largest refugee-hosting nation in Africa, is increasingly becoming a source of migration itself, with thousands fleeing the surging violence.

Maintaining the Momentum of Abiy Ahmed’s Reform Agenda

When Prime Minister Abiy Ahmed took office in 2018, he openly criticised his predecessors’ track record on governance and democracy and even declared to pursue a “multiparty democracy supported by strong institutions that respect human rights and rule of law”. His reform agenda included releasing political prisoners, legalising forbidden opposition parties, introducing full gender parity at cabinet level, and appointing a former dissident as chairperson of the Electoral Commission. His landmark achievement was initiating peace talks with northern neighbour Eritrea, effectively ending two decades of hostility and winning him the Nobel Peace Prize in 2019. Notwithstanding the violent conflict in Tigray, the EU remains positive that it has found a cooperation partner with an equal interest in opening the country to democracy. In over 40 years of bilateral relations, the EU has experienced little enthusiasm for democratisation from previous Ethiopian administrations. Within donor circles, Ethiopian government officials are known to be explicit and to directly communicate their red lines for international engagement. Even though there are no clear roadmap and concrete policy recommendations, the EU remains hopeful that Abiy Ahmed’s reform agenda will revamp domestic and regional dynamics. In order to maintain the relationship with the Prime Minister, who is set to win the postponed election, the EU will not risk offending his government by suspending development funding. Still, relations are strained after the EU cancelled its Electoral Observation Mission due to disagreements with the Ethiopian authorities on the terms of deployment.

Showcasing Effective Poverty Reduction

Despite being one of the poorest and most heavily dependent countries on food and aid support in the region, Ethiopia is also the fastest-growing economy in East Africa. Before the COVID-19 pandemic shook global economies, Ethiopia recorded a strong and broad-based growth averaging 9.4 per cent a year. This, in turn, had a positive impact on poverty reduction in both urban and rural areas. Should Ethiopia achieve its aim to secure lower-middle-income status by 2025, the EU could use it as a showcase for successful poverty reduction and argue for the effectiveness of its development strategies in the country. Since the ultimate goal of EU development aid is long-term poverty reduction, continued cooperation with Ethiopia is necessary even in times of crisis.

While Ethiopia has attracted significant foreign policy attention, we should not forget that the country’s democratic track record has continued to fall short of the mark despite high levels of EU development funding in recent decades. The EU+ group’s annual disbursement of one billion euros of ODA constitutes almost one-quarter of total external aid to Ethiopia and has occasionally accounted for up to ten per cent of the country’s annual federal budget. Given these volumes of financial aid, the lack of more substantive EU engagement on issues of democratisation and human rights in recent years stands in contrast to its declared core values. After citizens took to the streets in 2005, contesting the result of the general elections, the government imposed a ban for demonstration and freedom of assembly and a harsh crackdown on opposition leaders, activists, and domestic protestors. Condemning the violence, the EU suspended its budget support to the government in December 2005 for one year. Meanwhile, the ruling EPRDF coalition won 99.6 per cent of parliamentary seats in 2010 and 100 per cent in 2015. Irrespective of Ethiopia’s democratic record, budget support has continued and has even increased despite Ethiopia’s reservation towards cooperating with donors on governance reforms.

Ethiopia’s complex political, socio-economic, governance, and development challenges put the EU’s diplomatic approach on reacting to violence and human rights abuses to the test. While the Union wants to ensure that its development funding does not contribute to subsidising warfare, it also wants to prevent jeopardising future partnership-based cooperation; ultimately leading to a loss of ability to exert influence in Ethiopia. That is why democracy promotion cannot be identified as a priority. Current decisions on funding allocation, including the recent decision to allocate new humanitarian aid funding of 53.7 million euros, tend to follow the logic of greater security and stability concerns as outlined above. If the EU wants to implement a coherent foreign policy, it must clearly communicate its differing views on engagement with various partners and exert pressure for political reform more strategically.

Political Conditionality as a Means to an End

For a normative actor like the EU that engages in budget support with numerous (semi-)authoritarian states around the world, political conditionality remains an important policy tool to retain leverage. It can be used to underline values and priorities when engaging with development partners as well as to prove to domestic audiences that development funding serves its purpose. It is necessary and legitimate for politicians and citizens to raise questions about the use of European development aid funding in third countries, especially when serious human rights abuses take place.

Political conditionality, however, can at most be a means to an end. The rekindled debate on more conditionality in European development policy is, at its core, about development effectiveness – and about the prioritisation of foreign policy goals. In this context, political conditionality should not be exploited as an instrument of political paternalism but rather as a trigger for constructive cooperation focused on country-specific challenges and shortcomings. Meaningful democratic reforms cannot simply be imposed on recipient governments. Instead, they are a result of long-term processes generated by a tailored mix of political and financial instruments carefully developed in collaboration between the donor and recipient. Current debates around political conditionality often erroneously equate aid with development.

Whereas the EU is determined to maintain budget support as an important component of its development cooperation, it must carefully consider how the criteria for financial support are communicated. The lack of official reporting on the underlying reasons for past disbursement behaviour has sent contradictory signals. It is therefore imperative for the EU to structure realistic and long-term political development trajectories for recipient countries with clear indicators for joint priorities. If it is to prove the credibility of its values-based foreign policy agenda, the EU should follow these trajectories with more determination. The EU can encourage reform through well-communicated incentives of political conditionality. When making use of political conditionality, the EU also needs to carefully assess whether recipient governments lack the political willingness or ability to engage in democratic reform. Creating a democracy that is nothing more than an empty shell must be avoided at all costs. To effectively implement democratic reforms, it will also be crucial for the EU to increasingly engage with other actors in a country, including civil society and youth. Such engagement could not only better inform the EU about social, economic, and political contexts but also raise public awareness of the advantages associated with democratic reforms.

The current crisis in Ethiopia highlights the EU’s determination to continue its path of diplomacy with a focus on protecting civilians and granting humanitarian access. Finding a solution to the violence requires an approach that takes account of the various visions on legitimacy and of an inclusive process for negotiating a common vision of the country’s political future. The EU’s political support in close cooperation with its member states, as well as other international and multilateral actors, will be critical for achieving progress towards a long-term political solution.

Carolin Löprich is Programme Manager for Democracy and Sustainable Development at the Konrad-Adenauer-Stiftung’s Multinational Development Policy Dialogue office in Brussels.