Review of the development co-operation policies and programmes of Finland
> See also Aid at a Glance
> Finland (2007), Full Report (pdf, 100 pages)
Overall framework and new orientations
The 2007 peer review shows Finland to be a committed development co-operation actor that works closely with the EU, the Nordic and other like-minded countries and generally adheres to international best practice. Finland has clearly defined priorities confirmed in the new development policy with an increased focus on environment and climate change, crisis prevention and support for peace processes. It is also a keen proponent of policy coherence for development; it is making some progress in concentrating its aid and is committed to the aid effectiveness agenda including being a strong supporter of country ownership, alignment, harmonisation, division of labour and joint donor efforts. It has an active policy on multilateral development agencies. Finland still faces some challenges, including making progress towards its 0.7% ODA/GNI commitment, making sure its policy coherence for development and aid effectiveness policies bring real results, and ensuring that the Ministry of Foreign Affairs’ development policy-related activities are properly resourced and efficiently organised.
A modest sized, committed development actor
Finland has a long-standing tradition and commitment to development co-operation. In 1961 the state Full Reportdevelopment co-operation office was established within the Ministry of Foreign Affairs (MFA). In 1970 Finland signalled its strong support for development co-operation through its commitment to the goal of allocating 0.7% of gross national income to development, although achieved it only once, in 1991. The current level is 0.40% (2006).
Finland’s foreign policy objectives are outlined in the 2005 publication Finland’s Interest: Global Responsibility: A Strategy for the Ministry of Foreign Affairs. These objectives comprise being influential and successful and helping to generate security in the international arena, as well as a commitment to a fair world – which includes “improving the quality of development co-operation and strengthening partnerships that favour sustainable development”.
Policy on development co-operation has been guided by the 2004 Government Resolution on Development Policy which contains priorities such as the Millennium Development Goals (MDGs), poverty reduction, policy coherence, sustainable development, country ownership, predictability and transparency. In late 2007, the government released a new policy statement maintaining the 2004 policy’s over-arching goal of poverty reduction and commitment to the MDGs, while also prioritising sustainable economic, social and ecological development and adding a timetable for reaching 0.7% ODA/GNI. The policy also emphasises rural and regional development, initiatives for innovative funding mechanisms and aid effectiveness, the division of labour, and an increased focus on environment, climate change, crisis prevention and supporting peace processes. In implementing the new policy, Finland needs a prudent approach for establishing clear and coherent objectives. It should ensure clear criteria for the selection of partner countries and include sufficient flexibility to react according to changing circumstances at the field level.
Following the last peer review in 2003, Finland has made progress on most of the findings and recommendations. Particularly noteworthy are the government’s commitment to strengthen policy coherence for development and the promotion of the aid-for-trade agenda (both also prominent topics of Finland’s EU agenda), the explicit commitment to poverty reduction, the reduction of the number of long-term partner countries, and the efforts to improve aid effectiveness.
Making full use of the European Union and collaboration with the Nordics and other like-minded donors
Finland’s close collaboration with its European partners is an important factor in its development co-operation policy. The government both engages actively in the EU, and with Nordic and like-minded countries to promote its policy priorities, and draws on the work of these groups to develop its own approaches and implement its activities, a judicious tactic for a small donor and EU Member State. Finland took over the presidency of the EU in the second half of 2006. Despite being a huge strategic and administrative challenge for small Member States, Finland was perceived by most commentators to have acquitted itself well in promoting development policies. In particular, the Finnish Presidency focused on and made progress in four main areas: i) securing agreement on the development co-operation instrument; ii) contributing to the initial work leading to the EU’s Code of Conduct on the Division of Labour; iii) advancing the aid-for-trade agenda through the first ever joint trade and development Council meeting; and iv) increasing the priority given to policy coherence for development.
Good public awareness results, but a strategy is required
The level of public support for development in Finland is on a par with other EU Member States with 89% of Finnish people saying they think development co-operation is important but only 8% are familiar with the MDGs. However, Finland does not have a strategy for public awareness. A commitment to a multi-annual communication strategy is included in the new 2007 development policy. Producing a strategy and implementing it will be an important step in raising awareness and securing the necessary support for the scaling up of aid envisaged for the years to come. Furthermore, the Unit for Development Communication would benefit from better communication and information within the MFA. The unit could also profit from doing more on identifying and targeting specific groups such as parliament, media, local authorities, opinion leaders and youth groups.
The Committee noted that the new development policy (2007) maintains the over-arching goal of poverty reduction and commitment to the MDGs. In implementing it, Finland should maintain a focus on aid effectiveness, environment and climate change, and conflict prevention and fragile states, while promoting selected new policy initiatives.
The DAC commends Finland for using the EU to take forward certain policy priorities such as the work on the division of labour. As a modest sized donor, Finland should continue to lean towards the EU and Nordic Plus groups and support joint initiatives (such as shared analysis and joint ventures) in order to reduce duplication of activities and transaction costs across donors.
Based on the mandate in the new 2007 development policy, the MFA should produce, and implement, a multi-annual public awareness strategy.
Promoting policy coherence for development
Positive steps taken to put structures in place, but continued practical progress is required
Policy coherence has had a higher profile in Finland’s development co-operation system since the 2003 DAC peer review. Most notably, the new Government’s 2007 Programme contains an explicit commitment to policy coherence for development. On a more practical level, Finland has made progress on establishing formal organisational structures for tackling policy coherence for development. In the MFA the main focal point is the Unit for Sectoral Policy within the Department for Development Policy. The Development Policy Steering Group (director-general level) can be a forum for discussing policy coherence for development, but this appears to occur on an ad hoc basis. The MFA has also recently created an advisor post tasked solely for policy coherence for development – a positive step. Across government, there are thematic working groups on various policy coherence for development issues, but they tend to vary considerably in their mandate, working methods, activity and ultimately, success. In reality, trade, security and migration have been the subject areas where Finland has put most emphasis.
There have been two other important institutional developments since the previous peer review. Firstly, in 2003 Finland introduced the position of Minister for Foreign Trade and Development in the MFA, a positive step to ensure greater coherence in tackling these two important, and at times conflicting, policy areas. Secondly, in the same year, a Development Policy Committee, comprised of parliamentarians, academics and expert civil servants was created . The Committee focused in particular on policy coherence for development, and has produced helpful advice and recommendations that have generally been acted upon.
The government places great emphasis on its internal EU coordination mechanism which is used to formulate agreed positions across ministries for working with, and influencing, the EU, and suggests that this mechanism de facto deals with policy coherence for development. But this apparatus is not designed specifically for policy coherence for development nor can it guarantee that all development issues are taken on board in all subject areas to the same degree. Finland also acknowledges different levels of progress in different policy areas. For some topics, such as environment, taking account of developing country concerns is already routine, whereas in other policy areas (such as agriculture) inter-ministerial dialogue hardly takes place concerning the development perspective.
The general declaration in the Government’s Programme, and the more concrete commitment to policy coherence for development made in the new development policy should be translated into clear mandates for bodies dealing with policy co-ordination between ministries.
Finland’s focus on the EU to further policy coherence is well-judged. Nevertheless, this should not divert attention from improving domestic policy coherence and finding practical solutions.The second, recently formed, Development Policy Committee should continue to have a mandate to initiate proposals and promote thinking on policy coherence for development.
The government should make full use of the annual reporting procedure on policy coherence for development to Parliament to enable it to monitor how policy coherence for development is promoted, and measure results in achieving coherence.
Aid volume and distribution
Finland’s ODA budget is increasing but the 0.7% target has been deferred
In 2006, Finland’s net ODA amounted to USD 834 million, representing 0.40% of its GNI and placing it eleventh amongst DAC member countries. Finland’s ODA doubled in real terms between 1994 and 2004 and the ODA/GNI ratio has been increasing, albeit slowly, since 2000. Growth is likely to continue thanks to an 11% increase in the ODA budget for 2007, which will bring the ODA/GNI ratio to 0.43%.
Finland has committed to meet the 0.7% ODI/GNI ratio by 2015 (the EU Member States’ timetable), which will require significant budgetary effort; it should be noted that the target date has changed from the previous commitment to reach 0.7% by 2010. Based on current projections of economic growth, the budget framework would enable Finland to attain an ODA/GNI ratio of 0.51% in 2010 and thereby comply with the EU mid-term target. Unlike during the previous administration, the 0.7% target is not explicitly stated in the budget framework document . However, the new development policy paper re-confirms Finland’s commitment to the EU targets. The MFA needs to prepare a concrete plan for scaling up as recommended in the 2003 DAC peer review and also by the parliament, and to ensure the target is met even if GNI growth turns out to be faster than anticipated under the current budget plan to 2011. Moreover, it should strive to make use of the momentum created by the recent debate to ensure the plan also covers the large increases of roughly 10% per year required between 2011 and 2015.
Finland disburses 40-45% of its gross ODA through multilaterals, based on multi-year funding commitments and with over 90% of this funding in the form of core contributions. Finland has developed policy papers outlining principles and priorities for its multilateral co-operation but like other donors, it would like objective assessments of multilateral agencies’ effectiveness to inform its allocation decisions and policy dialogue. Scaling up aid is likely to provide scope for increased funding to multilaterals, and this may enable Finland to increase its influence on the policies of the multilaterals by concentrating additional funding on selected multilaterals.
Efforts to concentrate on fewer countries and sectors risk being diluted by other policy priorities
Finland is commended for acting on the advice of the previous peer review and successfully reducing the number of long-term partner countries from 11 to 8 and also for adopting clear and appropriate transition strategies where necessary. However, bilateral ODA gross disbursements to these eight countries fell from 40% in 1999-2000 to 28% in 2004-05 (partly, but not exclusively, due to high levels of Iraq debt relief), and the total number of recipient countries increased from 90 in 1999-2000 to 102 in 2004-05, largely due to NGO projects having a wider geographical spread. Finland’s aid to Least Developed Countries (LDCs) as a percentage of total ODA fell from 49% in 2003 to 32% in 2005 and aid to sub-Saharan Africa fell from 44% in 2003 to 28% in 2005. While the budget proposal for 2008 forecasts the share of aid to LDCs to rise back up to 48% and the share to sub-Saharan Africa will increase to 57%, it remains to be seen whether these levels can be reached if allocations continue to be made from other budget lines and/or exceptional allocations to countries recovering from crisis.
Finland has done better on sector concentration. In its long-term partner countries, Finland’s objective is to focus aid on three sectors at most (in addition to providing general budget support). Concentration has increased in all countries. Between 2000 and 2005, over three-quarters of total aid (excluding debt relief and humanitarian aid) was allocated to the selected priority sectors in five of the eight countries. In two of the three other countries, priority sectors received over half of total aid.
Cross cutting issues remain a priority
Finland has identified gender equality, environment and vulnerable groups as three key horizontal issues, as well as highlighting HIV/AIDS, good governance and information, communication and technology as other broad based topics of importance. Internal policy papers on gender (2003), environment (2007), disability (2003), HIV/AIDS (2004), information, communication and technology (2005) have been produced to help mainstream cross-cutting concerns into project and programme interventions. However, these cross-cutting issues are not yet fully mainstreamed. Finland also gives support to NGOs to directly address these issues.
The Committee welcomes Finland’s renewed commitment to reaching the EU agreed targets of 0.51% by 2010 and 0.7% ODA/GNI by 2015 at the latest as stated in the new development policy. Current plans for reaching the targets are based on relatively conservative estimates of growth. Therefore the commitment should remain firm even if economic growth is greater than predicted. Finland would benefit from a plan for reaching the target in 2015, to be updated along with economic forecasts.
Finland is encouraged to retain its earlier 60% target of bilateral funding to long-term partners. It should monitor the share of bilateral country and regional co-operation in order to avoid a decrease and hence de facto fragmentation.
Finland is encouraged to continue its policy of providing core contributions to multilateral organisations. Contributions to multilaterals should be a key consideration in the strategy for scaling up. The policy on multilaterals should be based on performance and used in policy dialogue and to inform decisions on funding allocations.
Although Finland has policies on cross-cutting issues and guidelines on their implementation, there is still a need to ensure these guidelines are systematically applied in the dialogue with partners on projects and programmes.
Aid management and implementation
Getting the organisation right and reducing centralisation
The MFA has characteristics of a matrix system. It has 12 departments, 9 of which are considered to handle some aid. It is questionable whether the nine departments have sufficient expertise to deal with development co-operation, and ensuring clear communication and the consistent implementation of policy and procedures is a challenge. There is also a risk of duplication of activities (for example between the Department for Development Policy and the Department for Global Affairs) and transaction costs in terms of time and effort when co-ordinating across many units in different departments appear to be high.
Decision-making is highly centralised and appears administratively burdensome. Projects and programmes have to be submitted by the project officer to management and/or the Quality Assurance Board for guidance and agreement a considerable number of times during the project management process, and every project above EUR 200 000 must be approved by the minister. This low threshold and high level of internal accountability may also cause delays and difficulties when Finland is participating in joint programmes and budget support. The MFA needs to consider greater decentralisation to empower embassies to decide how to implement the country programmes within an agreed framework laid out by headquarters.
Increasing accountability and increasing staff skill levels
To increase accountability, Finland introduced performance based budgeting in the early 1990s. The development co-operation budget proposal outlines “operational performance targets” and specifies the indicators for monitoring budget execution. A “financial status report” describing how well performance targets have been met is submitted to parliament at the same time as the budget proposal. It is unclear how the current system of performance targets is being used by managers to improve Finland’s development co-operation impact or whether proper channels for feedback exist. In Vietnam, the embassy went a step further and outlined a results reporting system using 40 indicators monitoring the country strategy. However, the Vietnam experiment could be followed up and applied broadly in a simplified and more realistic way.
A second accountability issue is the position of the audit and evaluation function within the MFA. The MFA should consider the State Auditors’ advice that the Unit for Evaluation and Internal Audit, currently located within the Department for Development Policy, should be placed in an independent position, to guarantee no conflict of interest. The MFA should also consider whether the development co operation internal audit function should sit within the central unit for internal audit rather than in its present position.
Staff capacity and skills have increased since the previous DAC peer review through the recruitment of technical experts at headquarters and locally contracted experts in the embassies. However, a significant share of development co-operation work is still performed by diplomatic Foreign Service officials with limited development co-operation experience or training.
Committed to the aid effectiveness agenda
Finland is committed to the aid effectiveness agenda and the MFA includes progress on aid effectiveness in its Annual Statements to Government, but needs to ensure that it fulfils its pledge to update its current 2004 Harmonisation Action Plan this year to include Paris Declaration commitments. Within the MFA, aid effectiveness is a priority, has a strong profile and staff awareness appears to be high. The MFA emphasises that its country programmes are based on partner country national poverty reduction strategies and are discussed every two to three years in high-level bilateral consultations. Although not a formal country strategy process, it is an intensive and highly co-operative approach supportive of country ownership. However, Finland could make greater use of national public financial management and procurement systems.
Finland actively pursues increased co-ordination and harmonisation, and as a member of the Nordic Plus group it has been involved in progressing ways of working together, helping to develop a number of operational tools including guides on joint financing arrangements, joint procurement policy and delegated co-operation. Finland has begun participating in delegated co-operation arrangements such as with Norway in Sudan, while it generally seems to maintain an emphasis on visibility for Finland’s contributions. Within the EU, Finland should be commended for contributing to the initial work during its presidency which led to the EU Code of Conduct on the Division of Labour.
The untying of aid, and concessional credits
Finland fully complies with DAC requirements to untie all aid to LDCs. However, contrary to the recommendation of the 2003 peer review, Finland decided to continue its concessional credit scheme (a form of financing which is particularly relevant to middle-income countries and that is tied). It considers concessional credits to be a way to involve the Finnish business sector in development co-operation, and a useful instrument for middle-income countries where Finland’s grant-based aid is being gradually phased out. A new policy on concessional credits was approved in 2005 and Finland’s use of concessional credits is in line with OECD rules, but a system of ex-post evaluation of the developmental impact of these credits should be put in place.
The reorganisation of the development co-operation structure in the MFA should ensure clear lines of accountability, reduce the high transaction costs and clarify the policy and implementation functions among and within departments. Finland should delegate more decision-making to embassies, for project approval and results reporting. The MFA should build upon and simplify earlier efforts to develop results-based management systems.
It will be important to ensure that human resources are adequate to manage the programme effectively as Finland increases its aid: any staff reductions need to be considered in this context.
The MFA should create and implement a human resources policy for the development co operation function which should focus on increasing development co-operation skills through recruiting experts and strengthening the training for the diplomatic, non-development specialist, cadre, and to ensure that technical experts receive systematic training on MFA regulations, and practices and are fully integrated into MFA structures.
The Unit for Evaluation and Internal audit should be moved out of the Department for Development Policy in order to ensure strict independence.
The MFA is commended for initiating the work on the EU Code of Conduct on the Division of Labour and is encouraged to remain at the forefront of practical implementation of the code. The MFA should strengthen its participation in joint working arrangements, and delegated co-operation, seeking practical progress when possible. Finland should update its aid effectiveness action plan.
Room for greater clarity on capacity development
Finland shares the general donor community and DAC view that capacity development is essential for successful development. However, the concept of capacity development receives little explicit attention and the term appears only sparingly in MFA strategic and policy documents or guidance notes. In most of Finland’s interventions capacity building is an important implicit objective but there is no specific strategic approach to the issue.
Increasing attention on fragile states, conflict prevention and security system reform
Finland is engaged in over 20 fragile states (receiving one fifth of its net ODA) for the most part through support to multilateral organisations, multi-donor programmes and international non-governmental organisations, and is currently planning to put a new emphasis on crisis prevention and support for peace processes. Finland is directly engaged in some fragile and conflict-affected countries, such as Iraq, Afghanistan, Sri Lanka, and Sudan. However, Finland does not have an explicit policy for fragile situations.
Security system reform is a new area for Finland, and some progress has been made with Finland adhering to the EU concepts for security sector reform 2005-06 and DAC Guidelines on Security System Reform 2005. Finland could work with, and learn from, other donors who have a track record in this area, continue channelling assistance through multilaterals and multi-donor trust funds, and consider delegated co-operation arrangements.
The MFA’s programme guidelines provide some useful advice on capacity development, but there is room for further direction on how to implement the advice, including how to conduct analysis, align support with partner country objectives and strategies, and implement activities to develop capacity. The MFA should consider how to make more systematic use of lessons from capacity development successes and failures, and how to enhance and prioritise capacity development in the guidelines by making use of the OECD’s reference documents.
Finland could develop an explicit policy for engagement in fragile situations, including a more comprehensive inter-ministerial approach. Finland should work with other donors to identify opportunities for strategic partnerships and under-aided sectors or regions where Finland has specific expertise while also continue channelling assistance through multilateral institutions and multi-donor trust funds.
In April 2007, the government published revised guidelines for humanitarian assistance that are based on the Good Humanitarian Donorship initiative. The Humanitarian Aid Unit is located in the Global Affairs Department and the share of humanitarian aid is normally between 10-15% of the overall development co-operation budget.
Seventy percent of Finland’s humanitarian aid budget is allocated to on-going crises at the beginning of the year and the remaining 30% is allocated towards the end of the year, unless required for unforeseen emergencies. For acute crises the Humanitarian Aid Unit can get additional funding from unspent funds from the development co-operation budget or, in exceptional cases like the South-East Asian tsunami, parliament can allocate extra-budgetary resources. The unit can respond quickly to UN flash appeals by obtaining the minister’s authorisation verbally. However, a 2005 evaluation of Finnish humanitarian assistance found the decision-making process for “non-natural disasters” complex and potentially cumbersome and slow, and recommended that the procedure be “accelerated and simplified”.
Key characteristics of the Finnish humanitarian aid programme is that it is disbursed largely through multilateral channels, a fairly small number of organisations, and pooled funds such as the Central Emergency Response Fund. The concentration of funding on a small number of large humanitarian aid organisations is pragmatic and efficient given the size of the Humanitarian Aid Unit, and providing core funding and a low level of earmarking is seen as good practice. Also, the new humanitarian aid guidelines place great emphasis on the importance of linking emergency response with rehabilitation and development activities.
Finland does not undertake field assessments of humanitarian aid partners and has had limited involvement in jointly funded evaluations. The 2007 humanitarian aid guidelines highlight the inadequate monitoring of the effectiveness of aid delivery; hence the unit has recruited a special monitoring and evaluation advisor.
The Committee commends Finland for channelling its humanitarian aid through a limited number of multilateral and international organisations, and encourages it to continue this pragmatic approach. The MFA should streamline current decision-making procedures for humanitarian aid to reduce delays in acute emergencies. It should establish how crisis prevention, disaster preparedness and recovery activities will be funded and how the linkage will be co-ordinated between the humanitarian and geographical departments.
In order to obtain more direct feedback from Finland’s humanitarian operations, it may be helpful for the government to participate more in joint evaluations and field visits with other donors.
Finland: DAC Peer Review, full report (2007)
Finland (2003), DAC Peer Review
List of Peer Reviews of DAC Members