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01/10/2016

Future of French development aid agency in doubt

Development Policy

Future of French development aid agency in doubt

The AFD has funded irrigation projects in Morocco.

[Richard Allaway/Flickr]

Last summer, Paris planned to merge the French Development Agency with the public financing group Caisse des Dépôts. But the executive has changed its mind. EurActiv France reports.

Announced by President François Hollande in August 2015, the plan to bring together the French Development Agency (AFD) and the Caisse des Dépôts (CDC) has been abandoned.

French development aid reform to generate 'substantial' new funds

France hopes to boost funding for development and climate action by linking the French Development Agency with the country’s public financing body. EurActiv France reports

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The project had made substantial progress. Sold to its employees as a welcome source of flexibility that would help the agency get round strict prudential regulations and give it more financial leeway, the reform was “eagerly awaited by everyone”, according to a disappointed source from the AFD.

And this was the main aim of the project: to allow the AFD to bypass the Bâle III rules, which oblige the agency to increase its capital reserves before it can increase the amounts it can loan.

But according to Mediapart, there was no shortage of opponents to this merger, particularly from the Ministry of the Economy, which muddied the waters with a counter-proposal to bring the AFD half under the ownership of the state and half under the CDC.

After a string of difficult episodes between the Ministry of the Economy, the Caisse des Dépôts and the Ministry of Foreign Affairs, it was the CDC’s oversight committee that objected to the economic ministry’s nomination of a new AFD director-general, at the same time as the proposed reform.

The president of the oversight committee, Henri Emmanuelli, wrote to the head of state, telling him he believed this reform “pushed the CDC into taking major risks”. The appointment of Pierre Moscovici’s former head of cabinet, Rémy Rioux, to the head of the financing body was seen in a particularly poor light.

“The juxtaposition of an establishment like the CDC, placed under the special surveillance of the parliament to ensure it protects the public funds for which it is responsible, with a public institution under the guardianship of the government, in a combination that lacks the coherence of a real group, calls into question the very model of the CDC,” Henri Emmanuelli wrote in his letter.

According to Les Echos, the French executive stated that it had decided to maintain the status quo in order to keep control of official development assistance.

Questioning the loans/grants model

The priorities of French development assistance have also been a subject of recent debate. Despite a series of promises to the contrary, French aid provision is still below the European average and even falls short of its own targets, adopted in 2014.

NGOs have also criticised the growing share of loans in the French aid mix: the share of grants is one of the lowest provided by any European country. And they argue that merging the AFD and the CDC would increasingly “financialise” development aid, to the detriment of certain kinds of projects.

Aid to the least advanced countries, which is often the most urgent, cannot be provided without grants, and the cost of operations like buying vaccines or providing emergency food aid can only be covered with grants.

An agency in trouble

The reform was planned for completion in time for the adoption of the law on transparency in public life, which will be presented this Wednesday (30 March).

An internal inquiry carried out in 2015 revealed that 30% of AFD employees felt unhappy at work, largely due to an overly heavy workload.