Summary
The EU has moved swiftly to unlock Covid-19 blocked development expenditures for redeployment to meeting immediate health crisis and longer term structural economic needs. To date the EU framework for effectively supporting a recovery in trade and production in ACP countries is still under development, with ACP farmers organisations and agri-food sector associations urgently needing to initiate a dialogue with the local EU delegate to assist in defining the approach to be adopted by the EU locally in supporting the restoration of production and trade in the face of the ongoing Covid-19 pandemic. There is a need to ensure EU action in support of economic recovery focuses on the specific needs of farmers and agri-food sector enterprises, given the potentially serious food and livelihood security issues raised by the ongoing pandemic.
In the face of the Covid-19 pandemic the EU has moved swiftly to free up financial resources to support programmes aimed at addressing immediate health and humanitarian needs as well the ‘longer term and structural impact on societies and economies in partner countries’. This has seen the mobilisation of ‘more than €15.6 billion from existing external action resources’, with this including ‘€5.2 billion in loans from the European Investment Bank’, the mobilisation and deployment of which ‘will be accelerated’. These resources are aimed at providing financing for ‘both short and medium to long-term actions, which would include the use of budgetary guarantees serving to mobilise additional private resources’ (1).
From this overall amount some €2.06 billion is being re-deployed within programmes focussed on sub-Saharan Africa, with an additional €1.42 billion in guarantees from the European Fund for Sustainable Development (EFSD)for Africa and countries neighbouring the EU (1).
Some €291 million has been mobilised from existing ACP instruments for re-deployment in the ACP countries from which the original funding was drawn. Of this €25 million has been drawn from the EDF reserve to finance WHO interventions in response to the Covid-19 pandemic (1).
Overall, these funds are ‘drawn from programmes that cannot be implemented as planned due to the pandemic’. This ‘redirection of funds within and between ongoing programmes will be undertaken within current country allocations.’ The EC has highlighted how at this stage ‘no reallocations from one country to another are foreseen’, although this situation could be reviewed depending on the adequacy of the available resources mobilised in response to specific crisis situations (1).
The funding mobilised is divided across three areas:
- €12.28 billion to address the economic and social consequences.
- €2.8 billion to support research, health, and water systems in partner countries and
- €502 million for the urgent, short-term emergency response (1).
The EU has committed itself to using funds for guarantees to ‘to help small businesses with liquidity and working capital’. The EU already has in place mechanisms to ‘combine an EU grant with loans or other forms of financing from public and private sources’ (the EU External Investment Plan), with these mechanisms now being re-orientated to addressing Covid-19 response needs (1).
The EU is also supporting mechanisms to provide debt relief, giving the growing need for public financing of emergency programmes, including through supporting IMF and World Bank initiatives, as part of an effective global response (1).
However, concerns have been expressed over the request driven nature of the existing debt relief initiatives, the application for which can carry serious implications for future access to private capital markets. As The Economist has pointed out many Africa governments are reluctant to request a suspension of debt-service repayments for the remainder of 2020 under the G20 initiative since doing so could lead them to be treated as defaulters by private creditors, which would then restrict their ability to borrow commercially. The Economist points out how, while ‘stopping payments for a while would free up funds to fight the coronavirus…after the crisis they will need cash from investors’ (2).
Against this background there have been calls for unilateral action by the G20 to suspend repayments until the end of the year, as well as calls from Vera Songwe of the UN Economic Commission for Africa for the creation of a ‘new body which would borrow cheaply and then lead money to governments’ (2).
In terms of food availability the EC acknowledges the situation of fragile food systems will be exacerbated by the Covid-19 pandemic and hence the need to extend effective support to these countries, including addressing specific problems (e.g. the locust plague in East Africa). The EC also acknowledges ‘the drop in global demand and commodities prices, coupled with increasing restrictions and reduced incomes will have tremendous social and economic costs.’ Against this background the EC is proposing to closely monitor developments in each partner country through its Delegations in order to ensure the EU’s response is ‘context specific and adapted to the local needs’ (1).
In some countries such as Sierra Leone the EC is supporting ‘cash transfer…to protect the income of the most vulnerable populations’ and is providing support to the agriculture sector to boost production, with these programmes being implemented through the World Bank
In terms of support for specific Caribbean initiatives the EU has provided €8 million to the Caribbean Public Health Agency CARPHA ‘to cover urgent needs, including protection material, test reagents, lab material, amongst others’ and has provided funding for 29 intensive care unit ventilators in Jamaica.
| Comment and Analysis While the EC has identified €2.06 billion for redeployment from programmes in Sub-Saharan Africa, it is unclear from the EU figures published on 8th April how much of the €1.22 billion reallocated within programmes in the Asia/Pacific region and the €918 million allocated to Latin America and the Caribbean is destined for ACP countries in these regions. This vagueness is consistent with the EC’s move away from country and region-specific programming towards more global allocations which allows the EC considerable discretion in the final deployment of committed funds. This being noted the EC has committed, for the moment, to making sure re-deployed funds stay in the country to which they were initially allocated. This situation however seems likely to change, given the EC’s long-standing policy thrust towards more globally defined programmes, which leave greater room for EC discretionary spending. This has clear implications for the co-managed development assistance programming approach which has been a progressively eroding cornerstone of ACP-EU cooperation since 1975. The EU’s strong focus on channelling emergency funding through the responsible UN agencies only reinforces this trend. At one level this focus on UN agencies can be seen as unfortunate since working through UN agencies can involve higher overhead costs and undermine efforts to build locally rooted capacities. However, it does serve to raise the profile of the EU internationally and reinforce the multilateral system when it is being challenged by the absence of political leadership in the USA. While the EC places considerable emphasis on the specific immediate health related interventions it is engaged in across ACP countries, most notably in Africa, it is unclear to what extent the EC has a clear framework for effectively responding to the trade and production consequences of both the pandemic itself and the public measures taken to curb the pandemic. The fact the EU is seeking to use its country delegations to design targeted context specific interventions in response to the crisis, strongly suggests a need for ACP farmers organisations and agri-food sector associations to initiate a dialogue with the local EU delegate on their priority needs for support and the favoured mechanisms for the delivery of that support, taking into account EU administrative constraints. In terms of the Caribbean ACP region which has generally been less directly affected by the spread of the pandemic than Africa, Europe the US and Asia, one of the major economic consequences of the pandemic has been the virtual closure of the tourism sector. This has serious implications for local agri-food sector supply chains which serve the tourism sector. Here discussion over the ‘air bridges’ or ‘travel corridors’ approach to the reopening of passenger services could carry considerable potential, for an early targeted re-start of dedicated package tourism, particularly in the all-inclusive resort sector, where incoming tourists can be restricted to their resorts and regular testing of employees can create a ‘tourism bubble’ (see epamonitoring.net companion article ‘What Future Air Passenger Flight Based Cargo Services?’, 16 June 2020).
This needs to be seen in the context of the experience of previous crisis situations (e.g. post 9/11), which suggests the Caribbean tourism sector could take a considerable amount of time to recover from the consequences of the Covid-19 pandemic. This is a question not only of a recovery in international tourism flights and cruise line services to the region (with fears being expressed it could take from 2 to 4 years for the former to return to pre-Covid-19 levels), but more fundamentally a question of the extent of the ‘travel fear factor’, which, as a result of the pandemic, could become deep rooted. Against this background, in a Caribbean context the deployment of EU assistance in support of measures targeted at reopening the Caribbean tourism sector via the proposed ‘travel corridors’ approach could prove an extremely effective use of funds, given the broader local economic linkages the tourism sector has. |
Sources:
(1) EC, ‘Global EU response to the coronavirus pandemic’, 8 April 2020
https://ec.europa.eu/commission/presscorner/detail/en/QANDA_20_606
(2) The Economist, ‘African governments face a wall of debt repayments’, 6 June 2020
https://www.economist.com/middle-east-and-africa/2020/06/06/african-governments-face-a-wall-of-debt-repayments