1. Denmark has frequently been recognised within the Development Assistance Committee (DAC) for the generosity of its aid and for its innovations in such leading development co-operation policy and management areas as partnership, poverty reduction, sector approaches and evaluation. Its operational focus on a small number of priority countries and a substantive concentration on a maximum of four sectors per country make Denmark's bilateral programmes among the more strategically framed in the DAC. This is matched on the multilateral side by an active engagement with a small number of priority institutions. Despite its relatively small economic size, it was the ninth largest DAC donor in 2001, with net Official Development Assistance (ODA) of USD 1.6 billion. This represented 1.03% of its Gross National Income (GNI), the highest ODA/GNI ratio among the DAC's 22 members and significantly above the average country effort of 0.40%. According to preliminary data, Denmark maintained that position in 2002. It has been the most generous donor within the DAC since 1995.
2. Denmark is proud of the heritage of leadership that it has provided within the international donor community over the last four decades, and has enjoyed consistent public and political support for its development co-operation. However, the 2003 Peer Review took place against the backdrop of a marked shift in the priority accorded to development co-operation by the new coalition government formed after the elections in November 2001. With a political programme that sought to reduce the size of the Danish bureaucracy and to improve its efficiency, the government implemented some of the most significant reforms in development co-operation seen in Denmark for more than a decade. Some major elements of these reforms and the manner in which they were introduced are perceived by some key stakeholders to represent a discontinuity in the Danish aid tradition and a lessening of the strong political priority hitherto given to development co-operation. The Government's position is that the basic objectives remain the same, that Danish aid volume will stay firmly above 0.7% of GNI, and that the reforms are aimed at promoting greater efficiency and focusing of aid, in a manner that is adapted to the evolving international development agenda. In the context of a second wave of broader reforms by the new Government, the future direction of Danish aid is now being discussed within the coalition government. If, as is to be hoped, this leads to a five-year strategy (2004 2008) and budget proposal later this year, then the reform process might be seen to have laid the foundation for a new political consensus on Danish aid volumes and policies.
1.1. Maintaining the momentum of development co-operation leadership
3. Major reforms in Danish development co-operation enacted in early 2002 included a 10% reduction in the volume of ODA, with reductions in funding for Danish NGOs and some international organisations, a reduction in the number of priority countries from 18 to 15, abolition of several advisory committees, and selected reshaping of development co-operation structures, including the merger of the posts of Minister for Development Co-operation and that of Foreign Affairs. This last reform re-establishes the ministerial arrangement of the 1980s. While this is not seen by the Government as a significant change in policy, some key development partners believe that it indicates a lessening Cabinet focus on development and has reduced the opportunities for the public at large, including some key development partners such as the NGOs and the "development press", to engage in dialogue with the Government. For some partners, this has fed a perception that Danish development co-operation now belongs to a "closed" group within the Ministry of Foreign Affairs. The Government, on the contrary, considers that the debate has been considerably broadened.
4. Past Danish leadership in development issues is to a large extent due to the 80% of the Danish public that has vocally supported the importance of development co-operation. Much of that public support is still intact today, although it would appear that the issues of greatest concern may now be different, with a special focus on aid efficiency. Because Danish aid is highly concentrated within the South Group of the Ministry of Foreign Affairs, it will be critical to future public support for the Danish authorities to continue to actively cultivate and engage with organised structures of public outreach and awareness. The commitment to attaining the Millennium Development Goals (MDGs) should be an important element of this effort.
1.2. Active multilateralism: Taking the next steps
5. Concerning the multilateral institutions supported by Denmark, the policy of "active multilateralism" advocated by Danida seems well suited to the efficiency objectives of the current government. However, as noted already in the 1999 DAC Peer Review, this approach is less effective when a Danish initiative alone. Collaborative partnerships with other donors are now actively being sought. At the level of the recipient countries, active multilateralism also could be beneficial. Peer Review observations in Tanzania suggest that Danish active multilateralism principles could be used as the starting point for collaborative donor partnerships in favour of greater complementarity and co-ordination of bilateral and multilateral agendas in the field.
Recommendations
a) In order to maintain its position of leadership in the development co-operation arena, Denmark is encouraged to keep development issues high on the government political agenda and seek out new approaches to maintain and extend broad involvement and support. These could include mechanisms to intensify research and the sharing of policy level issues with the Minister or Parliament, or the attribution of more responsibilities in policy and strategy to a group with broad political credibility, such as the independent Board for International Development Co-operation.
b) Danida leadership should continue to seek out regular and structured opportunities to engage the Danish public and institutions of civil society in a dialogue on development co-operation issues. The Danida Communications Strategy currently under design will be one important part of that response, and should be shaped collaboratively with the audience that it seeks to serve.
c) The DAC welcomes Denmark's current efforts to form coalitions with other donors on issues concerning the performance of multilateral institutions, so as to better co-ordinate the perspectives of all donors in this context. At the level of the field, the active multilateralism approach could be used creatively to promote improved linkages between bilateral and multilateral agencies across all donors.
1.3. Holding the line on funding levels
6. Since 1992, the Danish government has set ODA budgets on the basis of 1% of GNI. Subsequently, it decided to provide a further 0.5% of GNI via MIFRESTA (The Environment, Peace and Stability Facility) of which a large part would have qualified as ODA. Under the policies of the previous Government, Danish ODA potentially could have risen to as much as 1.5% of GNI, although there was some doubt as to whether such a level would have been tenable. In 2002, the new Government announced that it would no longer use a fixed percentage approach, reduced the size of the development co-operation budget by 10% and abolished the special additional 0.5% window. Best estimates suggest that Denmark's ODA/GNI ratio could be in the 0.8% to 0.9% range over the next few years, considerably below previous expectations but still a strong performance among DAC Member Countries.
Recommendations
d) In the spirit of the Monterrey Consensus, the DAC encourages Denmark to make every effort to maintain its current level of ODA volume.
1.4. Maintaining geographical and sector focus
7. Political pressures also have grown in recent years to use Danish ODA in ways which promote domestically inspired priorities. At the sector level, special one-off budget supplements recently have been attributed to regional programmes for gender and refugees, neither of which were priority sectors in the local partnership agreements. Further, these funds are inherently not sustainable given their short-term character and they also divert the attention of local Embassy staff from the implementation of its Country Strategy portfolio.
8. At the same time, growing political sensitivity concerning good governance and human rights recently led Denmark to withdraw unilaterally from three priority countries (Zimbabwe, Malawi, Eritrea) with which long-term partnership agreements had been established. While conditions in these countries had clearly deteriorated to a point where donors generally are revising their degree of engagement, the abrupt withdrawal by Denmark raised the question of its commitment to the longer-term partnership concept.
9. While such references to public concerns are understandable, they do raise the danger of Denmark straying from its efficient policy of a sustained focus on priority countries, sectors and partnership agreements.
Recommendations
e) The DAC encourages Denmark to pursue past efforts to avoid geographic dispersion and to maintain its strategic vision in allocating funds to priority countries and sectors.
2.1. Broadening Danish capacity to support policy coherence for development
10. The OECD and its members recognise that sustainably reducing poverty in developing countries and attaining the MDGs will require mutually supportive and coherent policies across a wide range of economic, social and environmental issues. As with other DAC members, enhancing Danish policy coherence for development can be a major challenge because the specific issues commonly involve both domestic interest groups and government agencies with primary interests and responsibilities other than that of reducing global poverty. Denmark is supportive of actions within international fora, including the European Union, that promote policy coherence for development while moving towards greater coherence in its own national policies, such as on aid untying. The positive attitudes and active development co-operation roles of the major Danish industry and farmers associations are a major asset in this respect.
11. The challenges and complexities associated with making policies coherent across government and within the European Union highlight the importance of DAC members being well organised to address policy coherence issues. In the Danish context, the merger of Danida into the Ministry of Foreign Affairs in 1991 was an important step towards greater policy coherence. Coherence in Danish European Union policy is assured through an elaborate co-ordination mechanism involving government agencies and civil society, also encompassing the private sector. The reform process should enable Danida to reinforce its capacity to work in the policy coherence area. This could include increasing interaction with extra governmental structures (e.g. Parliament or civil society).
Recommendations
f) As the leading advocate for development issues within the Danish system, Danida needs to play a stronger leadership role among Danish institutions in analysing and promoting the developmental coherence of policy decisions.
2.2. Untying of aid
12. The Danish government fully recognises the developmental advantages of untying aid. Denmark has supported recent initiatives within the OECD and the European Union to enhance the effectiveness of development co operation programmes by further untying aid. At the same time, it has taken care in the context of the DAC Recommendation on Untying Aid to the Least-Developed Countries (LDCs) to ensure that its strong ODA/GNI performance, high levels of aid to LDCs, and its already comparatively high share of untied aid would be taken into account. In Denmark's view, further untying of Danish ODA should be matched with greater efforts by other donors, for example by an increase in their ODA levels, in particular for LDCs, or by untying other components of their aid programmes beyond formal requirements.
13. Denmark announced in February 2003 that it will adopt the European Commission's recommendation to open up, by January 2004, its aid-funded procurement to firms from other European Union member states. This announcement represented a significant positive shift in policy from a previous informal system that was used to ensure Danish source procurement at minimally acceptable levels. Meanwhile, the Danish industry association, which was previously a strong force behind the Danish policy on aid tying, now takes the position that its fundamental interests lie rather in promoting developing country industry associations, thus helping to lay the basis for future demand for Danish products.
14. Denmark's decision to untie its aid to all developing countries in line with the recommendation of the European Commission shows an accentuation of Danish untying efforts. However, the "Recommendation on Untying ODA to the Least Developed Countries", adopted by DAC members in 2001, also requires Denmark to open up procurement to firms from countries that are not members of the European Union for certain categories of aid to the least developed countries. Denmark is one of five DAC members that have not yet fully implemented the Recommendation.
Recommendations
g) Denmark's announcement on untying aid with respect to procurement in other European Union member states provides a solid basis for further untying Danish ODA. Denmark now is invited to revisit its approach to the implementation of the OECD Untying Recommendation and to fully comply with it.
3.1. Learning from the Danish experience
15. Because of its longstanding interest in new, more effective approaches to development co operation, Danida has been in the forefront of addressing and applying best practices of some of the leading development approaches, such as sector based approaches, when to use or not to use budget support modalities, and the use of private sector approaches to development, including those supporting pro-poor growth. The DAC and its system of working groups and networks would benefit considerably from well documented feedback on the results of the Danish experience in these areas.
Recommendations
h) The DAC encourages Danida to continue to periodically reassess and summarise its extensive experience with modalities and areas of special developmental significance so as to share it systematically with the other Members of the DAC and to promote a common donor understanding of issues and best practice approaches.
3.2. Empowering the field
16. In a major decentralisation initiative, Danida is accompanying Poverty Reduction Strategies (PRS) and other forms of decentralised co-ordination of aid management with a deepening of its own decentralised structures of decision-making and administration. It currently anticipates that implementation of these decentralised management principles will be completed by September 2003. The Ministry of Foreign Affairs believes that these measures will strengthen the competence and decision-making role of its embassies and reduce the level of administrative redundancy experienced in the current system.
17. While Denmark's partners in the field applaud the intent of this new management initiative, they are quick to point out a number of potential issues in decentralisation that already may merit closer Danida scrutiny, including the need to consider increasing the ambassadorial delegation to authorise funds beyond the current DKK 3 million (USD 400 000) level. Numerous field-headquarters relationships will need to be sorted out over time, including the specific operational roles of both Embassy and headquarters officials and a priority awareness of the critical staffing and budget needs of the new system.
3.3. Redeploying and training personnel and the role of the technical advisors
18. Critical to the success of decentralisation is the redeployment of staff from Copenhagen to the field in the context of a zero sum administrative budget. New posts will be created in the programme countries and an estimated 30 professional positions in headquarters will be eliminated. Authorities will be moved to the field from country desks and technical support offices. Handbooks and other guidance will be rewritten and training programmes will be put in place to accommodate the new requirements of decentralisation.
3.4. Instigating quality assurance
19. The system that currently is being set up to monitor and facilitate these types of management approaches includes a new Quality Assurance Unit, the specific responsibilities for which are now being developed. This Unit will be responsible for corporate-level monitoring of bilateral and multilateral development assistance and will not be encumbered with line administrative responsibilities. Organisationally, it will be located at a crossroads between the individual decentralised field missions that vitally expect its continuous support and constructive feedback, and the political and administrative leadership of Danish development co-operation, who will require it to play an independent and even controlling role to ensure system efficiency and responsiveness.
Recommendations
i) Danida is encouraged to instigate regular, organised and high-level tracking of its new system of decentralised development co-operation, at least in the initial years of operation. It will be important for headquarters to actively demonstrate its support for the staff and budget resources necessary to make decentralisation work effectively.
3.5. Finding realistic approaches to results-based management
20. Public sector reform in many industrialised countries has caused the donor community to increasingly focus on performance issues, including the establishment of systems of results-based management for their individual programmes of development co-operation. Despite as much as a decade of experience in setting up this approach, the various DAC Member systems in place have encountered numerous methodological, measurement and reporting problems and have not yet convinced the sceptics. Few successes have been registered to date in allocating budget resources using results-based systems.
21. Danida recently launched its programme for performance management in 2003 with the intent to improve the quality of its aid, improve its management, promote continuous learning and to increase accountability and measurement. Field observations during the Peer Review raised a range of substantive country-level issues in the current Danish proposal (e.g. methodological difficulties, staff and recipient country capacities, choice of indicators) that will require the focussed attention of Danida leadership. The Danish experience will provide useful information for all donors and should be seen as an important "learning laboratory" of interest to all and which could ultimately permit donors to identify internationally acceptable norms in this difficult area.
Recommendations
j) Danida is encouraged to maintain close collaboration with other DAC Members who are seeking to implement similarly important systems of results-based management.
Main Findings and Recommendations