Finding the middle ground: Is the EU changing its engagement with middle-income countries?

In one of his humorous talks, the Swedish statistician Hans Rosling shows us a beautifully designed data story on the emergence of ‘the middle’: people out of extreme poverty who however still live below acceptable standards. Across two centuries, we progressed from a poverty-ridden world to one with a big gap between the rich West and the rest. Today, a continuum exists instead where many countries have reached middle-income status. The middle-income category is large with 109 countries included. Their development challenges are diverse and many still to be met, although some more advanced middle-income countries (MICs) gained political and economic clout.

The EU party line is that traditional development cooperation will not do the trick to deal with these changes. The question of what the alternative offer is slipped into the control rooms, for example during the last EU informal foreign affairs ministerial meeting in Tallinn, Estonia.

Timing is excellent to define the new offer. Informal negotiations on the future EU budget and its instruments have started. Brexit might mean fewer resources, but the budget opens space for change. In May 2018, the European Commission will present its proposals.

The EU needs to define its strategy and tools

 

Strategically targeted grant aid can make a difference, but the menu ought to be more extensive. Options are numerous: a scaled-up Partnership Instrument, a foreign policy tool with limited funds but good ability to match the EU’s and its partners’ interests, going beyond a donor-beneficiary logic; blended finance and guarantees, for example under the European External Investment Plan; technical cooperation and political dialogue; twinning and the Technical Assistance and Information Exchange instrument, which develop capacities in public administrations in the neighbourhood; and the EU-South Africa policy dialogues model.

Minds should focus on the strategy too: what the EU wants from different MICs and what they want from the EU. This is clearer for the neighbourhood, but less so for African, Caribbean and Pacific (ACP) countries and so-called EU strategic partners, third countries with a supposedly privileged relationship with the EU. The Sustainable Development Goals, the Paris Agreement, the European Consensus on Development and the Global Strategy should drive EU foreign and development policy. But how to go about them in practice? The EU does not have a specific policy or working arrangements for MICs. Should it?

Unavoidable matchmaking

 

Figuring out how to go about existing and future relationships and how to work together will take some time on both sides. They have many interests in common, but priorities or ways of working do not automatically match. The hard work will be to translate into practice the tailored country-led approach and the equal partnerships endorsed in the European Consensus on Development.

MICs are both EU allies and competitors. They are necessary partners in climate change, global financial stability and a safer world. They are markets for EU products and competitors to European enterprises. Despite all the warm words on the complementarity between North-South and South-South cooperation, competition is a reality as well. Increasingly, the EU wants to further its interests and values beyond the neighbourhood.

European policymakers underline that MICs can mobilise domestic resources and access international financial markets. They are technologically more advanced than other developing countries and have national capacities to build upon. Some more advanced MICs overtook the poorest European countries in the latest Human Development Index ranking. European politicians find difficult to justify aid to those countries after years of austerity and rising inequality in the EU.

MICs put their national development challenges first. The wish lists of the different constituencies go from better institutions to increased productivity, from empowered minorities to infrastructure. Demands include fairer trade and access to EU markets and technology, increased sustainable investments and more democratic global leadership – from the UN Security Council to international taxation.

Current EU policy leaves some gaps

 

In 2011, differentiation, a policy aiming to focus the EU’s aid on the poorest and most fragile contexts, tightened the EU purse strings for MICs. As a result, some countries in Latin America and Asia suffered bilateral aid cuts or became ineligible.

Differentiation affected the ACP countries less, but a post-Cotonou agreement could change this. The neighbourhood and accession countries are exceptions. The EU does not apply differentiation to them as its interests in the region are high. Gaps go beyond financial support through aid and include deeper engagement in trade, taxation, global governance and global public goods.

The EU and middle-income countries: looking for a push in the right direction

 

The middle-income cut-off is quite arbitrary and some developing countries feel victims of their own success. Some are projected to be the largest economies in the world, but others are fragile or least developed countries. These are structurally unequal countries whose true stories are poorly told by national averages. Deep pockets of poverty, vulnerability and exclusion hide behind staggering accumulation of wealth. Of the 20 most unequal countries in the world, all but four are middle-income based on the latest Gini index data. Extreme poverty decreased more than the global average in MICs (-68% versus -57% from 1990 to 2013). But as growth slows down, social progress will be harder or even reversed.

MICs themselves are primarily responsible for their development and share common yet differentiated global responsibilities. EU development actors and those in other policy areas have a lot to offer to and benefit from renewed relationships with their multiple counterparts in those countries.

The world has changed, but not enough. Mr. Rosling recognised that trends don’t always continue. At some point you need to push in the right direction. Is the EU’s engagement with MICs about to change? Maybe not tomorrow, but a new trend is coming.

ECDPM plans to work further on this topic in the coming months – stay tuned.

The views expressed here are those of the author and not necessarily those of ECDPM.