Review of the Development Co-operation Policies and Programmes of Denmark
> See also Denmark's Aid-at-a-Glance
Overall framework and new orientations
Denmark is one of the DAC members which has consistently exceeded the United Nations’ (UN) target of 0.7% of gross national income (GNI) allocated to official development assistance (ODA). Since the last peer review, Denmark has secured political consensus for maintaining ODA at a minimum of 0.8% of GNI. The key strengths of Denmark’s development co-operation system are its legal basis, strategic framework, institutional system and emphasis on quality assurance. These assets derive from the long-standing support for development assistance, reaffirmed in 2003 by the current government, and backed up by real improvements in the system. These strengths ensure Denmark is in a good position to address the challenges facing the donor community in pursuing the Millenium Development Goals (MDGs) and in implementing the aid effectiveness agenda.
Danish development co-operation benefits from a solid legal basis. The 1971 Act on International Development Co-operation is its political foundation and the Danish Parliament’s statement, Partnership 2000, confirms poverty reduction as its overarching objective.
Since 2003, the government has increased the political priority of development policy, epitomised by the active engagement of the Prime Minister and the appointment of a Minister for Development Co-operation with responsibility for developing and implementing Denmark’s development co-operation policy. A history of minority governments illustrates the consensual style that characterises the Danish political environment. This consensus-seeking approach contributes to the broad support for development co-operation. The Ministry of Foreign Affairs (MFA) maintains an open dialogue with various constituencies, which strengthens its support base. A stronger emphasis has been placed on the Minister’s annual presentation to parliament of the government’s priorities for Danish development assistance, which reinforces political ownership of the aid programme. Furthermore, the MFA facilitates visits by members of parliament to partner countries so they can better understand the need for aid and the realities of delivering it. This has helped secure the political consensus for ODA volume, and to ensure a widely- shared belief in the aid effectiveness agenda.
Denmark has a strong strategic framework for development co-operation, in which reducing poverty and achieving the MDGs are the overarching objectives. Over the last few years, the emphasis has been on the challenges and opportunities of globalisation and its impact on poverty reduction strategies. At the same time, development policy is increasingly seen as an integral part of Danish foreign policy. In particular, the potential role of development assistance in promoting global security and stability is highlighted in the 2006 statement on development co-operation, Commitment to Development. This outlines the strong Danish profile in reconstruction and conflict management, and puts special emphasis on the role of development to help resolve conflicts in Africa.
Since 2003, Denmark has also developed a strong policy framework based on seven priority themes and three cross-cutting issues (gender equality, environmental sustainability, and human rights, democracy and governance). Like other DAC members, Denmark struggles to mainstream these cross-cutting issues, but is strengthening its approach in this regard.Denmark is also at the forefront of providing guidance for capacity development, considered to be a key element in its development assistance programme. Denmark is encouraged to continue to share the lessons learned in these areas with the donor community and to play an active role in the DAC debate on capacity development approaches.
The final key feature of Denmark’s development co-operation is its integrated institutional system within the MFA at headquarters and in partner countries. Since 2003 this has beencomplemented by decentralising the bilateral aid programme from headquarters to 16 key partner countries (the “programme countries”), a key step in implementing the aid effectiveness agenda. In 2005, the Danish programme was also decentralised to four multilateral missions. This process has been accompanied by a strengthened approach to quality assurance, supported by a new results-based system and an emphasis on knowledge management.
Challenges at the policy level
The Minister’s annual presentation of priorities to parliament tends to add a number of new initiatives to the programme, which may fall within Danish thematic priorities. This further complicates Danida’s* policy framework and makes budgeting and programming a challenge. It also places an additional burden on embassies, which have limited ability to track impact. It is therefore important to ensure that the priorities presented annually reinforce Denmark’s existing policy directions. This is the case in 2007, with good governance, women’s rights and HIV/AIDS set as key priorities.
While Denmark’s strong consensus-based culture brings a flexible, pragmatic approach, it may inhibit innovative thinking and risk-taking. Denmark tends to be cautious about taking risks, in particular regarding financial management issues. This may lead to insufficient scope for learning, experimentation and initiative, both for the recipient country and Danida, thereby weakening the ability to improve performance and implement the ownership and alignment principles. It may also lead to Denmark favouring relatively stable and well-performing countries over more risky environments, although, to its credit, Denmark did retain Nepal despite its shift from stability to conflict. Denmark should consider how it can balance the short-term need to demonstrate results inter alia to shore up public and political support with the need to take risks, engage in difficult environments and meet its commitments to aid effectiveness. As with other donors, Denmark should also endeavour to ensure that its accountability to parliament does not substitute for, but rather contributes to, strengthening domestic accountability in recipient countries.
Public information is a high priority for the MFA and the minister is actively involved. The most recent communication strategy (2003-2006) focused on the MDGs and has successfully increased public knowledge of, and interest in, development assistance. However, Danida will need to strengthen efforts to use innovative communication approaches to raise public awareness of complex development issues and of new ways of delivering aid. It should continue striving to increase openness in its dealing with the media. Public funding for development education through NGOs is decreasing and NGOs with whom the Ministry has a framework agreement are now required to co finance their activities. Against this background, the Ministry should maintain, through regular consultations, the close links it has established with NGOs.
Promoting policy coherence for development
Denmark is aware that globalisation reduces the traditional division between domestic and foreign policies, as highlighted by the MFA 2006 report, Diplomacy in a boundless world. From this perspective, development co operation contributes, along with trade, investment, environment, security and good governance, to Denmark’s foreign policy goals of ensuring a more peaceful and just world, with development and economic growth for all.
Trade, security and development are all within the MFA’s remit. The ministry has made substantial achievements in promoting coherence between these areas, notably in pushing through EU sugar reforms and in peace-building initiatives. Mechanisms for promoting better policy coherence, especially in these areas, have evolved organically to deal with real concerns. At all levels (political, official, and public), the Danish approach to building support on specific issues has been inclusive and consensual.
Apart from the impressive institutional mechanisms in place to handle EU matters, this conducive environment has not been formally translated into a legal or institutional framework that would require different stakeholders to consider the broader development impacts of policy change. In particular, attention should be given to mechanisms that go beyond theforeign affairs remit. A strengthened analytical capacity will be crucial to allow the political debate to be well grounded and to enable Danida to inform the political agenda. To achieve this, the MFA could draw on a wide variety of sources, including information received from the embassies.
Aid volume and distribution
With aid volume steadily increasing in real terms since 2003 and an ODA/GNI ratio secured at 0.8%, Denmark is one of the most generous DAC donors. In 2005, Denmark’s net ODA was USD 2.11 billion, representing 0.81% of its GNI. This ratio was the fifth highest in the DAC, and Denmark came 12th out of 22 DAC members for the volume of ODA granted. According to preliminary figures, Denmark will remain in the same position in 2006, with an ODA volume of USD 2.23 billion and an ODA/GNI ratio of 0.80%.
Denmark has recently shifted from a disbursement-based budget to a commitment-based budget. In order to reach the 0.8% target, Denmark will need to maintain flexibility within budget lines so that overall disbursement levels effectively match overall commitment levels. Assuming continued economic growth in Denmark, the country will also need to ensure that the additional resources are used effectively to fund new or extended development co-operation programmes.
Denmark’s bilateral programme has accounted for approximately 65% of Danish ODA in recent years. It is strategically shaped around 16 “programme countries”, each of which benefits from a long-term partnership. There is a strong focus on Africa and the least developed countries (LDCs). Denmark’s flexibility and speedy response makes it well-suited to working in fragile states; it should consider further engagement with such countries, which are often less on track to meet the MDGs. To this end, Denmark should develop a strategic entry and exit approach, something of a challenge for all DAC countries. The criteria set by parliament for selecting “programme countries”, which clearly favour stable and well-performing countries, could also be reconsidered.
Within each programme country long-term support is targeted to a small number of sectors, enabling Denmark to develop a real comparative advantage. Despite pressure to earmark funds for reasons of political visibility, it is commendable that Denmark has so far avoided setting input targets for its development programme. Denmark is encouraged to continue to be flexible in allowing each recipient country to identify the appropriate mix of sectors supported, taking into account national priorities and other donors’ involvement.
Denmark is a key contributor to many UN agencies, and is also able to provide rapid and flexible support when needed. Denmark is actively promoting joint donor performance assessments of multilateral organisations and has already conducted innovative joint investigations in this area. Denmark has also been able to develop synergies between its bilateral aid programme and aid provided through multilateral organisations. It could build further on its decentralised system, set up in 2005, to reinforce its strategic approach to multilateral organisations; this could include reviewing whether it should engage with fewer organisations than the 38 international organisations it currently supports.
Aid management and implementation
An effective institutional system
Combining a decentralised but highly integrated system within MFA headquarters and in the field has proved effective. The locus of leadership for all development policy and strategy, both bilateral and multilateral, lies within the MFA, where the Minister for Development Co operation has final responsibility for all matters relating to Danish assistance within a framework approved by the Danish Parliament. At the same time, since 2003 broad responsibility for designing and delivering the aid programme has been devolved to Danish embassies in programme countries. In 2005, decentralisation was also extended to four Danish missions to multilateral organisations. Decentralisation has been a positive move for a number of reasons, including enabling i) a quicker response to development needs; ii) flexibility for aligning programmes with partner country priorities; and iii) harmonisation with other donors. The Danish institutional system also ensures coherence, facilitates communication and allows Denmark to develop efficient synergies between the bilateral and multilateral channels. While the decentralisation process has reached an appropriate balance between the respective responsibilities of Copenhagen and the embassies, the role of the Regional Departments at headquarters still needs to be clarified. Denmark is invited to evaluate the decentralisation exercise; such an evaluation would not only benefit DAC members engaged in a similar process, but also those considering decentralisation, including new donors.
The Board for International Development Co operation (Danida Board) provides the minister with independent professional and technical advice on strategies, action plans and activities related to development co operation. This set-up adds continuity and stability to Denmark’s development policy; it results in strong involvement and deep knowledge on the part of the various stakeholders, and also heightens public trust in the process. It is important, however, to maintain clarity over the board’s advisory role in order to prevent confusion over roles and lines of responsibilities.
Developing a quality assurance approach
Decentralisation has been accompanied by a strengthened approach to quality assurance, marked by clear management guidelines and formats for programming and performance feedback. Denmark also makes good use of modern communication tools to maintain strong links within the system (videoconferencing) and to develop learning (innovative approach to e-learning).
Danida is shifting toward a results-based management system with a new results monitoring scheme introduced in 2003. This scheme does not aim to attribute overall improvements in a country to Danish inputs, but enables Denmark to track progress against stated objectives and expected results. However, Denmark could consider further rationalising this reporting system, as it involves many different tools and may be time consuming given embassies’ staffing constraints. Danida should consider how it can effectively integrate this results-based system with its commitment-based budget, in order to closely link country-specific performance reviews to allocation of resources.
Danida has set up an efficient knowledge management system. It also benefits from an effective Evaluation Department whose role in developing evaluation methods is recognised within the wider donor community. Knowledge management and evaluation are both key assets for Danida. Denmark could make better use of these tools by being more systematic in the management of its various sources of information, and in giving the Evaluation Department more weight within the organisation.
Implementing the aid effectiveness agenda
Denmark is highly committed to the aid effectiveness agenda, which benefits from wide political support. In addition to the 2003 decentralisation process which aimed to create a supportive framework, Denmark has adopted a pragmatic and incremental approach to implementing the Paris Declaration commitments. Visible results include i) a significant reduction in the provision of technical assistance along with a renewed approach to capacity development; ii) a shift away from projects to long-term sector programmes (which accounted for 60% of Danish bilateral assistance to programme countries in 2005); iii) an avoidance of setting input targets; iv) active engagement in donor co-ordination and joint approaches; and v) considerable progress on aid untying. In 2006, a detailed review of harmonisation and alignment of Danish bilateral assistance to programme countries was completed by the National Audit Office, which gave further impetus to implementing the aid effectiveness agenda. Even though Denmark already actively promotes the implementation of the aid effectiveness agenda in partner countries, there is still scope for progress. This was also reflected in the 2006 Survey on Monitoring the Paris Declaration. One particular challenge will be to achieve progress on the target to reduce the number of Project Implementation Units (PIU).
Denmark should continue to improve its country strategy process to ensure there is enough flexibility to fully align the aid programme with partner countries’ priorities. To this end, Denmark should also review experience with its new commitment-based budgeting, which aims to increase aid predictability, in order to ensure it remains flexible enough to reallocate funds when new priorities arise, and is consistent with the need to focus on results rather than inputs. Aid consultations should increasingly be conducted in the context of joint donor approaches. The bilateral consultations held every second year could focus on overall political, foreign policy relations, subject to recipient countries expressing a similar preference.
Denmark should review its ten criteria for General Budget Support (GBS) with reference to accountability relations, particularly in the light of the principle of mutual accountability. There may also be room to improve programme-based approaches; Denmark still retains a small number of free-standing bilateral projects in its sector approach. The use of country public financial management systems could also be improved; Denmark’s strict application of financial management standards should translate into capacity building and should avoid setting up separate funding arrangements and parallel implementation structures. It is crucial to consolidate the emerging trend for Danish technical assistance to be aligned and armonised with other donors and to build capacity. Too great a focus on financial control risks undermining ownership. Finally, Denmark is invited to implement its plan to look at aid effectiveness in performance reviews and evaluation; this would help systematise the aid effectiveness approach across embassies.
There has been substantial progress with aid untying since the last Peer Review. Denmark has untied all aid as of November 2006 with the exception of its Mixed Credit Programme. Food aid will be untied from 2008 onwards. This goes beyond the DAC Recommendation for aid untying. There have also been several positive changes to procurement policy in line with the Paris Declaration on aid effectiveness. However, Denmark’s Mixed Credit Programme remains tied to companies registered in Denmark and this is not in accordance with the 2001 DAC Recommendation on untying ODA to the LDCs** . The programme has an annual budget of EUR 40 million (3% of the Danish aid programme) and operates in a number of LDCs with increasing commitments, accounting for 71% of the mixed credit scheme in 2006. Denmark is encouraged to undertake an analysis of whether the development results achieved by the use of the tied mixed credit scheme as well as the public support benefits could be achieved through the use of other instruments. This could allow Denmark to reconsider its exception in light of the Paris Declaration on aid effectiveness and in light of the improved overall performance of DAC Members in effort-sharing, as suggested by the 2007 OECD/DAC High Level Meeting.
Improving aid efficiency
In the coming years, Danida will face a resource constraint: in common with other Danish public administrations, it reduced its administrative costs by 25% between 2001 and 2004. This decreasing trend in administrative resources raises the question of how far Danida can reduce its resources without negatively affecting quality and its ability to adapt to new aid modalities. Denmark has been able so far to maintain the quality of its programme despite reduced human resources, but it will need to maintain the right skills-mix and ensure it is well equipped to deliver the programme in line with the aid effectiveness principles. In this respect, Denmark should consider how to create incentives for aid effectiveness in terms of organisation, staff commitment and budget allocations.
Harmonisation and alignment are seen as ways to address the resource constraints, but embassies are not yet benefitting from reduced transaction costs. For example, whilst there are numerous joint programmes, Denmark only occasionally delegates programme management to another donor. The option of delegating part of the programme to external implementation units needs to be assessed against efficiency criteria, whilst increasing the Danish score on parallel PIUs. Finally, the decentralisation process means that Denmark is relying more on local staff for implementing the programme. In order to continue the move towards devolving higher responsibilities to local staff, it will need to consider how to offer them a better career structure.
Denmark is regarded as an effective, lean humanitarian aid donor and has an established reputation for its work in both crisis response and policy engagement. Humanitarian assistance receives a high priority with the Danish ODA system, as seen in its policy framework and levels of funding. It is regarded as one of the leaders of the Good Humanitarian Donorship initiative (GHD) and plays an important part in international policy debates. However, Denmark needs to consider whether staffing of the humanitarian department is sufficient to engage consistently on policy issues.
Denmark’s humanitarian aid is based on a clear strategic approach. It is strongly committed to GHD, including acting as current co-chair of the initiative, and places a particular focus on ways to make GHD operational at field level. The lessons from this effort should be shared with other donors.
Denmark has traditionally placed a significant emphasis on multilateral funding channels, making core contributions to humanitarian agencies and ensuring light levels of earmarking. In 2005, 55% of its humanitarian funding was un-earmarked contributions to the UN system, and its continued contributions to the UN’s Central Emergency Response Fund demonstrate its commitment to GHD. Denmark is a leader in a number of funding and partnership approaches which are consistent with GHD and which should be shared with other DAC donors. These include for example the 25% of its humanitarian funding which is a multi-year commitment to framework agreements with major humanitarian agencies. The Humanitarian Department should learn from the development approaches to such frameworks to ensure that the new commitment-based budgeting arrangements do not undermine this approach.
Decentralisation has had an impact on the humanitarian programme in making co-ordination of multilateral activities more complex; roles and responsibilities between Copenhagen and multilateral posts need to be clarified in some cases. It would also be valuable for embassies in crisis-affected countries to have the capacity to play a greater role in monitoring and reporting on humanitarian issues and projects, through dedicated time for appropriately trained staff.
The Humanitarian Contact Group is an informal, technical group bringing together Danish NGOs and government officials. It is perceived to have influence within the Ministry of Foreign Affairs and is valuable to NGOs and officials from other ministries as a way of sharing information and analysis. It would be useful to publish terms of reference for the group and lessons learned from the way it functions.
* Danida is the brand name commonly used to refer to the development activities of the MFA.
**Denmark’s view is that this exception to the Recommendation is covered by the remarks made at the time of its adoption, which stated that Denmark’s possible underperformance in applying the Recommendation is to be assessed against its overall performance on the effort sharing matrix.