Effective aid programming in the next MFF (Part 2): Simplification and governance
In the second of a two-part brief, Philippe Van Damme outlines a vision for a more coherent, flexible and impactful EU budget for external action under the 2028-2034 MFF. He proposes a three-layered model that prioritises poverty reduction, strategic partnerships and swift crisis response – ensuring the EU remains a credible and principled global actor.
Read part one on graduation and differentiation here.
Summary
As the European Union (EU) prepares its multiannual financial framework (MFF) for 2028-2034, it aims to create a more impactful and flexible budget, particularly for external actions.
The primary objective of the EU’s development cooperation remains the reduction of poverty. This can be ensured by the consistent application of the graduation and differentiation principles, allowing for the concentration of grant-based programmable development aid in those partner countries most in need and committed to pro-poor policies. The EU’s broader external policy priorities can then be promoted through various types of public diplomacy as well as through demand-driven global facilities.
A ‘mutually beneficial partnership’ requires the integration of both those objectives in one single – further simplified and more flexible – new instrument that ensures the necessary complementarity and coherence between the various external actions. This brief proposes a three-layered approach to achieving this goal: firstly, preserving and increasing humanitarian and emergency aid as unconditional support; secondly, protecting programmable grants for fragile and reform-oriented partners; and thirdly, expanding demand-driven global facilities to advance the EU’s strategic interests through blended finance and guarantees. Increased reserves must provide the necessary capacity to respond swiftly to crises and new needs, while clear reallocation decision-making processes must guarantee the appropriate political steer and democratic accountability.
This model concentrates scarce grant funding where it is most needed and most impactful while using investment tools to build strategic partnerships. Such a rationalised structure would enhance the EU’s international credibility, ensuring the use of its limited resources preserves its image as an effective but principled global actor.
There is an increasing temptation from an EU self-interested perspective to return to tied aid, in order to protect EU companies against Chinese or other emerging country competitors when financing large Global Gateway infrastructure projects. But this would be disastrous both in terms of aid effectiveness and of EU credibility.
Introduction
In view of its next multiannual financial framework (MFF) 2028-2034, the European Commission has called for a more impactful budget, focused on performance, which requires a simpler, more flexible, yet also more accountable budget structure. This also holds true for the EU’s external action budget.
The consequent use of the graduation and differentiation principles help organise the way the EU can engage with its partners from the Global South in a more targeted and impactful way, reconciling a more interest-driven external policy with developmental priorities in mutually beneficial partnerships. The EU’s external policy priorities can be promoted through various types of public diplomacy as well as through demand-driven global facilities, blending limited grant funding with concessional and commercial loans and investments, while developmental priorities of the low-income, least developed or highly fragile partner countries can be met through continued grant-based national indicative programmes.
This assumes that the EU’s strategic interests and priorities are clearly spelled out in order to be able to translate them into a balanced set of thematic global facilities. While the Global Gateway strategy has become the dominant framework for the EU’s external actions, its strategic objectives and capacity to operationalise the EU’s interests need to be further clarified. It then becomes easier to structure the EU’s external actions in a new, consolidated NDICI 2.0 instrument, increasing the requested flexibility while at the same time enhancing its political steer, in line with the European Parliament’s request for accountability and full transparency.
How to overcome the EU’s trilemma
Since the EU’s 2016 Global Strategy, the world has dramatically changed and become more chaotic and dangerous. There haven’t been any consolidated strategic updates adopted by the EU since then, but numerous development cooperation documents have been adopted, including the NDICI regulation (2021), followed shortly afterwards by the Global Gateway strategy (2021) and the call for building sustainable international partnerships as Team Europe (2024). There have also been some updates to thematic strategies and to the regional partnerships, including, for example, the EU-AU joint vision for 2030 (2022). Commission President Ursula von der Leyen also formulated her priorities for her second mandate.
Based on the above documents, and moving beyond the aspirational objectives of the EU’s development and investment priorities, some of the EU’s main strategic short-term interests in the Global South can be distilled: peace and security concerns – including cybersecurity and strategic communication, but also energy security (and clean energy transition) – and access to critical raw materials, restrictive migration management, climate change mitigation (and adaptation). Adherence to a rules- and values-based multilateral order is another central strategic interest that distinguishes the EU from most other global players, but this requires less hardware investment and much more soft power investment through public diplomacy.
The European Fund for Sustainable Development Plus (EFSD+) is, for now, the EU’s best-known demand-driven facility. It is the main implementing tool of the Global Gateway strategy and aims at mobilising €300 billion by 2027, of which 50% is for Africa, through blending mechanisms and guarantee schemes. By mutualising risks and reducing capital costs of investments in risky environments, EFSD+ hopes to stimulate growth and enhance decent job creation, thereby contributing indirectly to the EU’s strategic interests of peace and security as well as reducing the root causes of migration to the EU. As stated in the Global Strategy, investing in African peace and development should be considered as an investment in our own security and prosperity.
The main focus of the Global Gateway strategy seems to be shifting from development to geostrategic interests. To meet wider EU concerns and objectives, it can subdivide the EFSD+ at will or create additional facilities along thematic lines. EFSD+ is already compartmentalised along the Global Gateway investment priorities (digital, climate and energy, transport, health and education, and research), but nothing prevents it from going further and, for example, to have a subdivision or to create a separate fund targeting highly fragile regions such as the Sahel as prime source of instability and migration, or socially and environmentally responsible mining of critical raw materials. But it is perfectly possible also to have facilities that do not focus on hard investments but on governance reforms. Examples include: supporting a more conducive business environment; regional integration and trade facilitation; or the further formalisation of the economy in order to widen the fiscal basis for domestic resource mobilisation; statistical capacity for informed decision-making; or for judiciary or electoral reforms and capacity-building.
Such demand-driven global facilities, accessible to the willing, should not be seen as contradictory but as complementary to the remaining programmable national envelopes for least developed countries (LDCs) and countries facing situations of fragility.
Such demand-driven global facilities, accessible to the willing, should not be seen as contradictory but as complementary to the remaining programmable national envelopes for least developed countries (LDCs) and countries facing situations of fragility, which can then focus more directly on poverty alleviation and sustainable development goals.
The national – grant-based – envelopes should stop diluting EU’s development efforts through a multiplication of cost-inefficient stand-alone projects in agriculture, social infrastructure or (green) industrialisation, substituting for government actions or market forces and therefore often unsustainable and with limited long-term impact, but focus on eliminating or correcting market distortions and other governance challenges impeding productive investments and economic diversification. This implies investing in human capital and – where possible – institutional capacity building, including the creation of a conducive business environment. The Council conclusions of 26 May already made this distinction, emphasising that investment is the engine of growth and employment creation and that official development assiatance (ODA) should not be directed towards actions that can be financed by the private sector but help create the conditions for the private sector to thrive and contribute to pro-poor sustainable development through initiatives which may not be commercially viable but that have important long-term positive political, social or economic externalities.
The priorities of the African citizens as expressed in multiple opinion surveys – job creation (and related employable education and vocational training), peace and security, with continued support for effective democratic governance and increased awareness of the impact of climate change – are perfectly compatible with the EU’s interests through this two-prong approach to the EU’s development policy and with its values, investing in human capital where it can under the principle ‘do no harm’, avoiding aid mechanisms that could indirectly legitimise or strengthen unconstitutional and repressive regimes through budget fungibility or substitution effects.
Demand-driven facilities and governance
Demand-driven facilities are the ideal answer to the differentiation challenge. They are accessible to all partner countries subject to compliance with stringent selection criteria, thereby benefiting the reform-minded countries striving to achieve an inclusive and sustainable growth path. But they also have their own problems, notably when they are driven primarily by the EU’s short-term self-interests. In such a perspective, one major concern is how to promote and protect the EU’s commercial interests and enterprises against ‘unfair’ competition by sometimes subsidised public or semi-public enterprises from other partners with lower investment standards. Another is how to ensure that the facilitated investments meet their stated development goals.
In fact, both challenges are interrelated. It is because some enterprises are less sensitive to reputational risks, neglect the developmental goals and undercut the technical quality norms and human-rights, social and environmental standards imposed on EU companies that they manage to crowd out those EU enterprises in competitive tenders.

There is, therefore, an increasing temptation from an EU self-interested perspective to return to tied aid, in order to protect EU companies against Chinese or other emerging country competitors when financing large Global Gateway infrastructure projects. But this would be disastrous both in terms of aid effectiveness and of EU credibility. Although the EU political and strategic interests do not coincide with the commercial interests of the EU enterprises, they should be able to compete on a level playing field, while partner countries should be allowed to access the best price-quality services.
To create this level playing field, the demand-driven facilities need to develop detailed selection criteria as well as strict ex ante and ex post evaluation and monitoring tools. The selection criteria have to include policy as well as corporate social responsibility conditionalities.
The Nachtigal hydroelectric dam just finished in Cameroon is a perfect example of a project that fits into the (not so new) Global Gateway philosophy. But the investment partners are reluctant to invest in a similar new dam project because of governance issues: the energy distribution network remains challenging and faces multiple leakages, while energy pricing, invoicing and collection remain problematic, undermining the financial viability of the project. In parallel with the construction of the dam, the World Bank has been working with the government on the reform of the energy sector, but the dam construction advanced far more quickly than the required reforms, compromising the future.
Similar problems, including, for example, lack of road maintenance policies and axle weight controls have hampered the EU’s commitment to road infrastructure investments in Africa over the last 30 years. Minimal sector-wide policy reforms therefore need to be in place and/or a time-bound reform path agreed before being able to access the related facilities. Currently under the EFSD+, each facility therefore needs to have an institutional capacity-building pillar to support the design and implementation of those reforms in parallel with the envisaged infrastructure investments.
Similarly, minimal human rights, social and environmental norms have to be respected. Investment projects submitted to the facilities must undergo a prior identification phase, including an inclusive consultation process and impact assessments. Where distortion of competition is suspected, tender and procurement documents can introduce specific technical criteria to ensure inclusivity in the identification and implementation phases of the projects, social and environmental sustainability and high-quality standards, including in view of future maintenance. While elaborating the selection criteria, particular attention should be given to the potential of the investments to contribute to green industrialisation, growth and decent job creation. The much-publicised Global Gateway involvement in the Lobito train corridor, for example, cannot be based on a purely extractive mining logic but must include local development opportunities.
The amount of ODA put in the blending and guarantee schemes should be proportional to its market-creating or correcting impact and avoid unduly subsidising private actors in their commercial investment endeavours. The identification phase, therefore, needs to clarify the major market distortions and failures to overcome, as well as the financial, economic and social internal returns on investment, justifying the level of concessionality required to make the investment. This will contribute to developing a more coherent methodology to calculate the additionality and multiplier effect of the ODA invested in those facilities, as requested by the European Court of Auditors. It will also limit undesired redistributive effects of concessional funding concentrated in upper-middle-income countries (UMICs) that have access to a wider variety of alternative financing sources.
The impact of aid differentiation and graduation on the aid instruments
The question is now how to translate the various strategic objectives and programming orientations for effectiveness in the EU’s development toolbox. The NDICI was a first important step in the simplification and flexibilisation of the development and international cooperation instruments. The mid-term evaluation and the preliminary documents for the next MFF, both from the European Commission and the European Parliament, ask to continue the simplification exercise, with increased flexibility to adapt to a rapidly evolving international context, counterbalanced by increased political steer.
This briefing note, therefore, propose one single consolidated cooperation and international cooperation instrument for all funds managed by the European External Action Service (EEAS) and the Commission according to harmonised decision-making processes, but keeping the non-DACable (i.e. non-ODA eligible according to the OECD Development Assistance Committee), security-related, Common Foreign and Security Policy (CFSP) activities and the European Peace Facility under a separate instrument that follows an intergovernmental logic.
Bringing all concerns under one umbrella brings more flexibility but also requires enhanced safeguards and clear criteria and decision-making processes for fund reallocations, but without legal frameworks blocking decision-making.
Figure 1: Towards a further simplification and flexibilisation of the EU’s development and international cooperation instruments
Translating the programming orientations into instruments, we can distinguish three broad chapters under the new instrument: 1) programmable national envelopes, 2) a global envelope with thematic facilities accessible upon demand of the EU’s partner countries based on pre-identified criteria, or programmed by the EU in response to various cross-border initiatives and global challenges, and 3) reserves for humanitarian needs, and rapid responses to crises and new needs (including for ‘reform and democratic dividends’ after a democratic transition). The pre-accession countries deserve an additional, dedicated envelope to support them in meeting the convergence criteria under the various accession chapters.
The programmable national envelopes would only be available for the least developed countries or countries in complex settings, facing situations of high or extreme fragility (all low-income countries except North Korea and Syria happen to also be least developed or in situations of high or severe fragility). However, all EU delegations, regardless of the level of development and fragility, should also have at their disposal a non-programmable budget for support measures which include the capacity to take initiatives in support of the national political and policy dialogue, as well as an indispensable public diplomacy budget. Similar funding must also be made available under the global envelopes for thematic or (sub)regional support measures and public diplomacy actions.
A larger share of funding will pass through global envelopes under different forms.
A first large component will consist of demand-driven facilities broadly falling under the Global Gateway strategy, combining concessional and non-concessional public and private funding for interconnecting infrastructure investments (EFSD+).
To meet more specific EU strategic interests and objectives, additional facilities can also be conceived to support partners willing to engage in climate adaptation or mitigation programmes, fighting irregular migration or facilitating the reintegration of returning migrants, promoting regional integration and trade facilitation, or pandemic and crisis preparedness for example.
Each time partner countries, individually or jointly, will have to prepare a pipeline of projects meeting the selection criteria of those thematic facilities, including commitments to strengthen an enabling institutional environment for the set objectives. This form of positive conditionalities will increase competition and peer group pressure among willing reformers.
The facilities can be integrated into a graduation logic, limiting the share of grant-funding captured by UMICs based on strict additionality criteria, but does not require geographic earmarking. The more developed and diversified an economy, the less concessional funding is required - if any - to unlock large-scale investment projects.
It will be the role of the national envelopes to help those willing countries with limited institutional capacities, in meeting the selection criteria, being institutional, regulatory or policy-oriented, and requiring thorough prior identification and impact assessments for the preparation of a bankable pipeline of projects eligible under these facilities.
A second component of the global envelopes will consist of a programmable part to contribute to global initiatives and multi-country or regional institutions and institutional initiatives in support of the goals set out for the demand-driven facilities. This includes support for regional integration processes.
A third component will consist of thematic envelopes in response to global goals but implemented through initiatives at the national level in a coordinated multi-country way or where actions through the national envelopes are not possible. More than in the past, these actions should strictly adhere to the principles of subsidiarity and complementarity and be further rationalised. They include actions in support of civil society, human rights defenders and peace and security, which cannot be covered through national envelopes in inimical contexts or where programmable national envelopes are missing.
In light of a more unpredictable and chaotic world and increasing natural and man-made disasters, the relative share of reserves should be further increased.
In light of a more unpredictable and chaotic world and increasing natural and man-made disasters, the relative share of reserves should be further increased. They can be further subdivided into broadly three sub-groups. The first sub-group is the funds dedicated to life-saving humanitarian assistance in response to natural or man-made disasters. With the phasing out of the critically important US contribution to humanitarian aid and the increased needs, this envelope should unfortunately be significantly increased. The second sub-group of reserves coincides with the existing rapid response mechanisms for crisis prevention or to respond to new needs (including for ‘reform and democratic dividends’ in situations of successful political transitions). The third sub-group is the overall ‘cushion’ which can feed the other envelopes in light of performance and evolving needs and priorities. The transfer of funds from any of these three reserve funds to another reserve fund or to the national or global envelopes should be conditioned by a clear political decision-making process, involving the European Parliament beyond an agreed relative or absolute scale.
Institutional impact
The Commission is presently discussing possible rationalisations in its worldwide network of delegations. The efficiency of project management can and must indeed be improved through more concentrated and larger-scale actions under programmable envelopes, while the digital revolution allows the re-centralisation of some back-office tasks. Similarly, the negotiation and management of the demand-driven facilities will be done centrally. But it should be clear that the preparation of bankable project pipelines under the global facilities – including in their policy and institutional dimensions – and project implementation monitoring, as well as political and policy dialogue, support measures, public diplomacy and communication activities, can only be done in a cost-efficient and effective way through expertise available on the ground on a continuous basis.
In an increasingly competitive, multipolar world, winning over the ‘hearts and minds’ of people and convincing them that the EU international cooperation and development policies effectively deliver and are mutually beneficial, are at the core of the EU’s external actions. The EU therefore has to invest more, not less, in experienced staff in the delegations, but changing profiles from technical project managers to full-fledged diplomats, expert policy advisors, monitors and communicators.
This implies that the interinstitutional arrangements between the Commission and the EEAS may have to be revised, to ensure a greater unity of action in the delegations, with a flexible use of human resources, whether originating from the Commission, the EEAS or the member states. It also implies that public diplomacy funds should be managed under the control of EEAS, which is mandated to ensure coordination and consistency of the EU’s external actions and between these and its other policies, as well as the promotion of its strategic interests and objectives (article 21 of the Treaty on the European Union). And these funds need to be managed at a decentralised level to be able to respond swiftly to emerging local needs and opportunities and to be able to customise actions to the local context. Headquarters may provide global directives and expertise and share good practices but cannot manage such funding in a centralised way.
Aid effectiveness, simplification and concentration
The required responses to the multiplication of challenges (such as security, climate change or trade relations) in an increasingly multipolar world puts enormous pressure on the budgets of the EU’s member states and ultimately also on that of the EU itself. ODA budgets do not escape those constraints and cannot be expected to increase over the next years, despite the EU’s public opinion’s continued support on ethical grounds, expecting a focus on poverty reduction and the sustainable development goals (SDGs). At the political level, (shrinking) ODA is increasingly justified on self-interested political and economic grounds. While ODA is often criticised for its inefficiencies and ineffectiveness, nobody wants a brutal cut like that operated by the US.
But whatever the perspective on ODA, the continued support for it rests on the assumption of its effectiveness. On the fundamental question of why large parts of Africa are lagging behind despite relatively huge amounts of ODA invested over the last few decades, while other countries – who had started with very similar economic conditions – took off, the answer must be clear: governance and governments committed to pro-poor development are crucial.
While aid effectiveness can be defined in different ways, the impact of ODA on sustainable growth and development depends highly on ownership and governance.
While aid effectiveness can be defined in different ways, the impact of ODA on sustainable growth and development depends highly on ownership and governance. As the well-known African blogger Ken Opalo explained recently, “it’s patently absurd to outsource goal-setting (and developmental ambitions)”, but also “you can’t help people who, for whatever reasons, aren’t interested in developing the capacity to help them”. ODA, therefore, needs radical simplification and concentration.
Simplification can be achieved notably by getting rid of distinct geographic instruments and by rationalising and ‘flexibilising’ the toolbox, bringing all funds together under one single instrument with flexible but politically controlled ‘gateways’ between the various (national, global and reserve) envelopes.
Concentration can be achieved by following through the graduation and differentiation principles. The EU should phase out programmable funding for non-fragile middle-income countries, while providing them with the opportunity to access a limited number of demand-driven global facilities aiming at promoting the EU’s external action priorities compatible with their domestic interests. The EU should also review its cooperation with least-developed and fragile countries unwilling to address the economic and political governance challenges that hamper their long-term development and concentrate their programmable grant aid on those countries ‘gambling on development’, providing them with the support required to enhance their institutional capacity to seize the economic opportunities their respective comparative advantages and the demand-driven facilities offer them. In order to avoid penalising twice the citizens victim of governments uninterested in pro-poor growth, programmable funding in these countries should be concentrated exclusively on investments in ‘human capital’, ‘gambling’ on their future and their future capacity to change governments and governance for the better, and no longer try to substitute for failed government policies in various social or productive sectors of the economy. Investing in human capital through capacity building in health and education, civil society, and exchange programmes can never ‘do harm’ and be abused.
Conclusion
The 4th International Conference on Financing for Development (FfD4) in Sevilla confirmed once more that we have to face shrinking grant-based ODA over the coming years. Funding therefore will have to be used in the most effective way possible. Rationalisation of development instruments and division of labour among donors in order to preserve economies of scale will be unavoidable. Rather than continue promoting geographic approaches, we propose a strict application of graduation and differentiation principles to ensure the concentration of grant-based programmable development aid.
We distinguish three layers of support: unconditional humanitarian and emergency aid, programmable envelopes at national and global levels, and demand-driven global facilities.
Considering the expected increase in – notably climate change induced or exacerbated – natural and man-made disasters, and the withdrawal of the USA, the global envelope earmarked for humanitarian aid, stabilisation efforts and Linking Relief, Rehabilitation and Development (LRRD) needs to be increased, as well as the global reserves to be reallocated in light of emerging needs through a well-defined political decision-making process.
Least-developed countries or countries in complex settings, facing high or severe levels of fragility but with governments willing to address their development challenges and to introduce economic and political reforms to ensure inclusive and sustainable growth, the ’transformers’, can not be penalised by the shrinking availability of grant-based ODA. Their aid allocations should be preserved, with the possibility for further ‘reform or democratic dividends’ funded from the unallocated reserves.
These programmable, grant-based envelopes at national level should be complemented by programmed funding for specific thematic or geographic commitments made at (sub)regional and global level and which are more efficiently addressed at a supranational level on the basis of the subsidiarity principle.
These programmable national and global envelopes should include funding for public diplomacy and support measures to underpin the political and policy dialogue in the EU’s partner countries. This funding is critically important to defend the rules- and values-based multilateral order in an intensifying competition for the ‘hearts and minds’ of the citizens in the EU’s partner countries. If the graduation principle is strictly applied, the 93% DACability of the existing NDICI instrument may not have to be relaxed further, but the new instrument may have to foresee the possibility to do so under strict political steer, including prior approval by the European Parliament, if further deteriorating geostrategic circumstances so require.
The third layer consists of demand-driven global facilities to promote the EU's strategic interests. These facilities will consist of a mixture of limited - catalytic - grant funding blended by more or less concessional loans and private sector investments and may benefit from investment guarantee mechanisms. They should be accessible to all countries identified by the EU as ODA-eligible. To ensure that those facilities are compatible with and complementary to the two other layers of intervention, they will be submitted to stringent governance, policy and political selection criteria. We can therefore assume that they will primarily benefit reform-minded emerging countries that will no longer access programmable funding at the national level.
For over half a century, the EU and its member states have repeated their commitment to spend 0.7% of their gross national income (GNI) on ODA. This is no longer a credible commitment. But the EU and member states also made further commitments to spend 0.2% of their GNI on LDCs, or roughly one-third of their total ODA, and to spend 20% at least of their total ODA on social inclusion and human development. These commitments should stand, which implies that the size of the demand-driven facilities and their level of concessionality should be treated as variables of adjustment after the envelopes for humanitarian aid and the ‘transformers’ have been fixed and safeguarded at levels at least equal to those under the existing budget and increased funding has been earmarked for human capital investment, broader institutional support measures and public diplomacy.
Rebranding shrinking ODA under the Global Gateway flag will not be enough to preserve the EU's international credibility. For that, a strong, more effective external action budget is required, upholding its identity as a principled global actor.
Acknowledgements
The views expressed in this note are those of the author and do not represent those of ECDPM or any other institution. Any errors or omissions remain the responsibility of the author. For comments and feedback, please contact pvdamme59@gmail.com.
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