This report presents the findings of the 2025 development co-operation peer review of Luxembourg and includes the relevant peer review recommendations approved by the Development Assistance Committee (DAC). In accordance with the peer review methodology, it does not cover all components identified in the peer review analytical framework. Instead, the report focuses on three areas of Luxembourg’s development co-operation that were selected in consultation with Luxembourg’s partners and government representatives: the extent to which Luxembourg has developed an institutional system aligned with its objectives; the country's efforts to promote private sector involvement in development; and its commitment to partner countries, including in fragile contexts. For each of these areas, the report identifies Luxembourg’s strengths as well as the challenges it faces, the factors contributing to its achievements, and the opportunities and risks that lie ahead.
OECD Development Co‑operation Peer Reviews: Luxembourg 2025
Abstract
Political and economic situation
Luxembourg has a long tradition of political stability. The Grand Duchy of Luxembourg (hereafter "Luxembourg") is a representative democracy and constitutional monarchy, with the Grand Duke as Head of State. The centre-right Christian Social People's Party (CSV) formed a coalition government with the centre-right Democratic Party (PD) after the October 2023 general election. Together, the two parties have 35 seats in the 60-seat parliament and their partnership is widely considered stable, even though the CSV was in opposition while the PD was in power (Economist Intelligence Unit, 2024[1]). The new coalition's political priorities include boosting purchasing power, increasing the housing supply and making the economy more competitive (Gouvernement du Grand-Duché de Luxembourg, 2023[2]).
Luxembourg's economy is highly developed and the country ranks among the richest in the world in terms of per capita income. Its gross domestic product (GDP) puts Luxembourg at the top of the OECD rankings, while it ranks third for gross national income (GNI), after Switzerland and Norway (OECD, 2022[3]). The country's economy is underpinned primarily by financial services, which account for around 30% of GDP, as well as by the steel industry and specialised sectors such as space exploration and resource extraction. The banking, financial services and steel sectors continue to dominate (Economist Intelligence Unit, 2024[1]). The government forecasts growth of 1.5% in 2024 and 3.0% in 2025, following a 1.1% recession in 2023 (STATEC, 2024[4]). Despite this forecast, the debt-to-GDP ratio remains relatively low, at 27% in 2024. The unemployment rate is stable at 5.9%.
Strengthening the monitoring of tax practices, particularly those of multinationals, remains a sensitive issue in Luxembourg's relations with the European Union (EU). The fight against tax evasion and the European Commission's investigations into the taxation of multinational companies continue to influence Luxembourg's relationships within the EU (OECD, 2022[3]). The country actively supports the global tax agreement embodied in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and passed the corresponding legislation in December 2023. This demonstrates the importance it places on aligning national practices with international standards, especially as the country seeks to reconcile its role as a global financial centre with its obligations under the European regulatory framework.
Institutional structure and context of development co-operation
Luxembourg's development co-operation enjoys broad political consensus and continuity, reflecting the country’s own relative political and economic stability. The 2023-2028 coalition agreement upholds the objective of devoting 1% of GNI to official development assistance (ODA) (USD 580 million in 2023; Figure 1). While it is limiting itself to a restricted number of partner countries – mainly in Africa (Table 1) – it is currently looking to potential new partner countries (Gouvernement du Grand-Duché de Luxembourg, 2023[2]). The agreement also calls for a minimum of 15% of total ODA to be devoted to humanitarian assistance (in 2023, the amount provided rose to 17% of total ODA, or 24% of bilateral ODA). Compared with previous years, it places greater emphasis on the need for partner countries to comply with the rule of law. Luxembourg's Development Co-operation Strategy (referred to as “The Road to 2030”) prioritises four themes: 1) access to high-quality basic social services; 2) the socioeconomic integration of women and young people; 3) inclusive and sustainable growth; and 4) inclusive governance (MAE, 2019[5]). The public's confidence in Luxembourg's government bodies may help bolster this political will: in 2023, 56% of Luxembourgers said they had a high or moderately high level of confidence in the national government, above the OECD average of 39% (OECD, 2024[6]).
Source: MAE (2019[5]) Stratégie générale de la coopération luxembourgeoise : en route pour 2030 https://cooperation.gouvernement.lu/content/dam/gouv_cooperation/publications/strat%C3%A9gies/strategie-generale/Strat%C3%A9gie-MAEE-FR.pdf
Luxembourg's development co-operation system consists mainly of the Ministry of Foreign and European Affairs, Defence, Co-operation and Foreign Trade (MAE); the Ministry of Finance; and Luxembourg’s development agency (LuxDev). Development co-operation is formally linked to other policy areas, notably foreign affairs and trade, and Luxembourg has a single minister for both diplomacy and trade: in November 2023, former Prime Minister Xavier Bettel became Deputy Prime Minister, Minister for Foreign Affairs and Foreign Trade, and Minister for Development Co-operation and Humanitarian Affairs. Development co-operation is supported by representatives from a wider range of portfolios on assignment in partner countries. This arrangement, with a single minister for diplomacy and trade, should facilitate better integration of economic and development strategies while strengthening diplomatic support, but it could also pose challenges in terms of co-ordination and follow-up.
The MAE's Directorate for Development Co-operation and Humanitarian Affairs is responsible for the design and implementation of development co-operation policy, while LuxDev, Luxembourg's development co-operation agency, executes around one-third of Luxembourg's bilateral ODA programmes on behalf of the state (Figure 2). It also implements the programmes of the State Climate and Energy Fund, as well as those of other Development Assistance Committee (DAC) providers. The Ministry of Finance is responsible for multilateral initiatives with international financial institutions and leads work on sustainable finance.
The Interministerial Committee for Development Co-operation (CID) meets several times a year to discuss the impact of national policies on developing countries and is an important mechanism for exchange with stakeholders. Chaired by the Director of Development Co-operation and Humanitarian Action, the CID is asked to give its opinion on the major orientations of development co-operation policy, as well as on the coherence of development policies. Every ministry is represented on the CID (sometimes by more than one person) and the remit includes subjects such as foreign trade (through the relevant directorate at the MAE) and immigration (through the relevant directorate at the Ministry of the Interior). Representatives of civil society are also included via Luxembourg’s association of non-government development organisations (Cercle de coopération des ONGD du Luxembourg), known as the Cercle.
The Ministry of the Environment, Climate and Biodiversity (MECB) manages international climate financing (Figure 2). This finance is designed to help developing countries meet the challenges of climate change and is separate from the ODA budget. MECB also chairs the Inter-departmental Commission on Sustainable Development, which co-ordinates sustainable development policies in Luxembourg. Among other things, it is responsible for drawing up the bill on the National Plan for Sustainable Development (PNDD). The committee is made up of representatives from various ministries, including the MAE, which ensures that potential impacts on developing countries are taken into account.
Note: The remaining 10% of ODA – in addition to the 82% managed by the MAE and the 10% managed by the Ministry of Finance – is mainly made up of contributions to the EU and payments made by other ministries (less than 1%). The volume of climate finance disbursed per year comes from the international component of the Climate Energy Fund under the supervision of the MECB and is based on a total budget of EUR 220 million over five years, or EUR 44 million per year.
Source: authors, based on MECB (2021[7]), International Climate Finance Strategy 2021-2025, https://environnement.public.lu/content/dam/environnement/fr/climat-energie/financement-climatique-international/stratgie-fci-2021-2025-final.pdf.
Today, Luxembourg's co-operation system is having to rethink its approach in the face of instability in a number of partner countries and territories. Table 1 provides an overview of Luxembourg's priority countries and territories.1 As a result of the political decision to scale back operations in the central Sahel (Burkina Faso, Mali and Niger), Luxembourg must now redirect 30% of the bilateral commitments currently allocated to these three countries and withdraw responsibly (Engaging in partner countries, including fragile contexts). This important transition in Luxembourg's co-operation strategy is likely to shape bilateral co-operation in the years to come, by focusing on new geographical regions and adjusting priorities to continue to respond effectively to the needs of partner countries, while managing the risks associated with instability.
Note: LDC – least developed countries, LMIC – lower middle-income countries, UMIC – upper middle-income countries. Most of Luxembourg's development co-operation activities are focused on a limited number of countries, referred to as "partner countries", with a particular priority given to LDCs. In addition, Luxembourg's co-operation activities support projects in a number of other countries or territories, known as "project countries or territories".
1. Countries or territories that are fragile and/or conflict-affected according to: OECD (2025[8]), States of Fragility 2025, OECD Publishing, Paris, https://doi.org/10.1787/81982370-en.
Source: MAE (2024[9]) "Pays à projets" [Project countries], Department for Co-operation and Humanitarian Action https://cooperation.gouvernement.lu/fr/cooperation-au-developpement/pays-a-projet.html and MAE (2024[10]) "Partner countries", Department for Co-operation and Humanitarian Action https://cooperation.gouvernement.lu/en/cooperation-au-developpement/pays-partenaires.html
Development co-operation and humanitarian assistance are central pillars of Luxembourg's foreign policy and there is broad political commitment to the 1% ODA/GNI target
Luxembourg is a generous and trustworthy technical and financial provider, providing 1% of GNI as ODA and focused on additionality. The 2023-2028 coalition government agreement upholds the target of devoting 1% of GNI to ODA, including humanitarian assistance, for the fight against extreme poverty and support for the least developed countries (Gouvernement du Grand-Duché de Luxembourg, 2023[2]). This political will is reflected in an annual debate in parliament. The MECB and the Ministry of the Economy2 manage international climate financing, which is not included in the ODA budget. The costs of hosting refugees in Luxembourg are also excluded from the ODA budget and data collection. This has the advantage of protecting ongoing development programmes and of ensuring predictability. While this principle of additionality, i.e. accounting for climate financing and refugee hosting costs outside ODA, was not included in the current government programme, it was voted in by parliament in July 2024 for the duration of the legislature until 2028, with 55 MPs voting in favour and 6 against (Chambre des Députés, 2024[11]). Separate accounting of this kind, which should not be taken for granted, sets a good example for other DAC members.
Luxembourg is one of the EU Member States that recognises that tackling poverty in developing countries should be one of the main priorities for the EU and its national government – and is in line with the priorities of The Road to 2030 strategy. According to the 2023 Special Eurobarometer on EU citizens’ views on development cooperation, 88% of the public polled in Luxembourg thought that investing in partner countries should be a priority for the EU, while 79% thought the same of their national government – a significant increase compared to figures for 2022. Some 84% also said that eradicating poverty in partner countries should be an EU priority. In the same survey, Luxembourg has the highest share of respondents who say that African countries should be the main beneficiaries of development assistance, although they also consider the Latin American, Caribbean and Asia-Pacific regions to be priorities. In terms of sectors of development co-operation, the public attaches the greatest importance to peace and security, followed by education, health and climate change (European Commission, 2023[12]).
Following Russia’s war of aggression against Ukraine, Luxembourg has stepped up its support for Ukraine in the military, security, humanitarian and development co-operation fields. The two countries signed an agreement on security co-operation and long-term support in July 2024 (President of Ukraine, 2024[13]). In addition to the humanitarian assistance provided to Ukraine by United Nations (UN) agencies, the Red Cross and humanitarian non-government organisations (NGOs), Luxembourg is also committed to development co-operation in the medium term. Ukraine is now the seventh-largest recipient country of Luxembourg's bilateral ODA (USD 11.6 million per year on average from 2022 to 2023). Through LuxDev, Luxembourg has pledged over the next five years to support the population of Kryvyi Rih – a district in south-central Ukraine and home to 80 000 internally displaced persons – to help finance micro, small and medium-sized enterprises (LuxDev, 2024[14]) as well as access to education and technical training.3
Although Luxembourg's citizens are strongly attached to and aware of global issues, international solidarity and the benefits of ODA, the country needs to persevere in raising awareness and educating its citizens about development. From 2013 to 2023, the proportion of Luxembourg's bilateral ODA for this purpose remained stable at around 1.1% (USD 4.6 million in 2023)4 (OECD, 2024[15]). According to the 2023 annual report, 15 multi-year (2022-24) framework agreements were signed with non-government development organisations (NGDOs), and 12 annual projects received grants from the MAE for raising awareness of international solidarity and promoting the Sustainable Development Goals (SDGs) in connection with Luxembourg's development co-operation (MAE, 2024[16]). However, the future of these measures is uncertain: the call for tenders for outreach programmes was postponed in 2024 and the current framework agreements extended by one year while the government reconsiders its approach. In addition, networks of communicators, such as Devcom, could help Luxembourg pool its resources for developing its awareness-raising policy and consider different approaches to targeting the most sceptical population groups.
An update of the Development Communication and Education Strategy or guidelines would be useful5 to raise public awareness of development issues effectively (MAE, 2024[17]). A 2017 evaluation of two framework co-operation agreements in this area highlights the effectiveness of activities, acknowledging that the missions and action programmes of both agreements are "in line with the [general] strategies of Luxembourg's co-operation on development education, although there is no explicitly formulated document on the subject" (MAE, 2017[18]). Given the close links between civil society organisations and the electorate, and the key role played by national NGOs in implementing awareness-raising and development education initiatives in Luxembourg,6 it would be sensible for them to continue to be associated with the relevant ministries in this respect. Indeed, despite the recommendation of the 2017 peer review (OECD, 2017[19]), there is still no strategy defining the role of the various ministries and NGOs in funding awareness-raising actions.
NGOs are key actors in Luxembourg's development co-operation, both for implementing co-operation projects and as development advocates to government and the public
The way NGOs are supported, through flexible and predictable grants, and continual dialogue, makes Luxembourg a leader among DAC members. In 2022-23, 29% of Luxembourg's bilateral assistance, or 21% of its total assistance, was directed towards civil society (OECD, 2024[20]), as laid out in The Road to 20307 (MAE, 2019[5]). Humanitarian NGOs benefit from an annual, non-earmarked envelope that they can use in humanitarian crises, while smaller development NGOs benefit from multi-annual co-financing,8 and larger organisations have framework agreements of up to EUR 3 million over five years, with 80% co-financing (MAE, 2024[17]). Luxembourg also has the option to finance local civil society directly, beyond small-scale projects. For example, 2.4% of support to NGOs goes to local organisations, such as the ENDA Santé NGO in West Africa, the Fundación Nacional para el Desarollo (FUNDE) in El Salvador and to the West Bank and Gaza Strip, as well as Afghanistan, where local NGOs deliver almost all Luxembourg's development (and humanitarian) assistance (MAE, 2024[17]). Luxembourg also funds women's rights organisations and movements, and government institutions, particularly in sub-Saharan Africa.9
The strength of Luxembourg's development co-operation lies in regular dialogue between civil society and government. Civil society and government meet in an MAE-NGO working group every two months. These discussions are an opportunity to exchange views on current issues (such as presence in the Sahel or respect for human rights in Rwanda), as well as on partnerships (e.g. extension of mandates or development awareness and education) (MAE, 2023[21]); (MAE, 2024[22]); (MAE, 2024[23]). The Cercle – the association of NGDOs in Luxembourg – participates in the Interministerial Committee chaired by the MAE, in which each ministry is represented; and in the Assises de la Coopération luxembourgeoise, an annual meeting of all those involved in development co-operation (MAE, 2024[17]).10 However, by enabling real political participation and collaboration in developing strategies and policies – for example, upstream of the approval of the Indicative Co-operation Programme (ICP) in partner countries, or in the definition of Luxembourg's priority countries – the country would send a strong signal that Luxembourg is a leader committed to strengthening ties within the civic space. This signal is in line with its commitment to strengthening respect for human rights and the rule of law, as set out in the coalition agreement. This pooling of the collective intelligence of civil society actors and the state could have a positive knock-on effect on citizens' willingness to support ODA.
Luxembourg's whole-of-government approach is reflected in specific expertise and additional financial resources for climate, energy and support to the financial sector
Luxembourg demonstrates leadership in its whole-of-government efforts, particularly in the areas of finance and private-sector engagement. As a general rule, effective and efficient whole-of-government development co-operation draws on intergovernmental expertise, enables collaboration and guarantees quality assurance, monitoring and learning (OECD, 2022[24]). Luxembourg clearly demonstrates this in the fields of finance and engagement with the private sector. For example, as a leader in responsible finance, and to raise investor awareness of the balance between financial viability and potential development impact, Luxembourg relies on three ministries,11 brought together through an Interministerial Committee on duty of care, which works to influence European directives on social taxonomy with the help of a working group (Private sector engagement for sustainable development).
Luxembourg's leaders are committed to supporting an integrated approach to development co-operation in partner countries, which requires close co-ordination.12 This formal approach was motivated by the additional resources from the Climate and Energy Fund managed by the MECB. The Interministerial Committee chaired by the MAE meets five or six times a year and recommends the broad outlines of development co-operation policy (Journal officiel du Grand-Duché de Luxembourg, 1996[25]). These meetings are an opportunity to present the ICPs. In both Senegal and Cabo Verde, Luxembourg has whole-of-government ICPs based on a more integrated country approach that aims "first and foremost to strengthen the impact of public investment on the sustainable development of its provider countries" (MAE, 2020[26]). Over and above the considerable financial resources this adds to ODA (Figure 3. ), this approach formalises technical expertise from ministries other than the MAE. For example, the Ministry of Energy and City and Regional Planning has financed and provided expertise for a technical and economic feasibility study on the production of industrial green hydrogen in Cabo Verde (LuxDev, 2020[27]). The MAE, the Ministry of the Economy (Department of Energy) and the MECB meet with LuxDev on a quarterly basis to ensure consistency (MAE, 2024[28]). This co-ordination is essential in order to establish a common results framework and a monitoring and evaluation system based primarily on partner countries' national strategies and programmes, rather than relying solely on the indicators proposed by the Luxembourg authorities.
The MAE signs the ICPs, but each programme falls under the responsibility of the relevant ministries. Compared with the situation described in the 2017 peer review, the current ICPs encompass almost all of Luxembourg's development co-operation in Cabo Verde and Senegal (covering NGOs, additional funds for micro-projects benefiting local institutions or associations, and a multilateral channel) and refer to South-South co-operation. An accompanying monitoring and evaluation project ensures consistency, using different theories of change and logical frameworks covering all co-operation activities. The 2023-27 ICP for the Lao People's Democratic Republic (Lao PDR) is also more comprehensive, highlighting the various channels although not citing other ministries or resources from the Climate and Energy Fund. Extending the whole-of-government approach to other areas, such as education and culture, is under consideration as national programmes are developed (MAE, 2024[17]).
Note: based on a 2022-23 average in constant 2022 EUR.
1Funds from the Climate Energy Fund are not recorded as ODA but as other public sector contributions.
Source: OECD (2024[29]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/3c; MAE (2020[26]), Indicative Co-operation Programme "Development - Climate - Energy" (2021-25) between the Grand Duchy of Luxembourg and the Republic of Cabo Verde https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/pays-partenaires/cabo-verde/pic/PIC-V-2021-2025-.pdf and statistical note from MAE.
Issues of policy coherence for sustainable development can be discussed within interministerial committees, but responsibility for policy coherence remains unclear
Current discussions within the two interministerial bodies focus on exchanging information rather than identifying (and resolving) potential inconsistencies. The CID, created in 1996 and chaired by the MAE, is responsible for the implementation of the SDGs in developing countries, while the Inter-departmental Commission on Sustainable Development, created in 2004 and chaired by the Ministry of the Environment, evaluates the SDGs from a national perspective. According to the Cercle, the last opinion issued by the CID dates back to 2017 and concerned the coherence of the Common Agricultural Policy with development policies. The Cercle finds it regrettable that opportunities for in-depth discussions of inconsistencies within these bodies are lacking (Cercle de Coopération, 2021[30]). A recent OECD report, Light-touch Institutional Scan, points out that interministerial working groups are regularly set up to develop new policies, for example on digital inclusion, the circular economy and the diversity charter (OECD, 2023[31]). The same study stresses, however, that the competencies of each ministry take precedence over coherence and deplores the fact that no follow-up or mitigation strategy is planned for potential inconsistencies.
Luxembourg has shown leadership and taken steps to ensure that the coherence of sustainable development policies is subject to a mandatory sustainability check (Nohaltegkeetscheck) at the initial stage of drafting legislation,13 introduced in 2023 (Gouvernement du Grand-Duché de Luxembourg, 2023[32]). The check stems directly from the Third National Plan for Sustainable Development (PNDD) developed by the Ministry of the Environment, and highlights both the direct and indirect impacts of the actions and measures taken by Luxembourg: "...particularly in the areas of international trade, climate finance and migration...[and] Respect for human rights, notably through the transparency of capital movements, on the one hand, and the responsibility of Luxembourg companies to respect human rights internally and throughout their value chains on the other, are priorities for the future" (MECB and Luxembourg Let's Make it Happen, 2021[33]). The Ministry of the Environment organises training courses for government officials on the use of the sustainability check, but public awareness of the check is limited. The various sustainability checks are not currently published, but could be included on an online dashboard for monitoring the SDGs, as provided for in the PNDD. The sustainability check is presented in Luxembourg's Voluntary National Review (Gouvernement du Grand-Duché de Luxembourg, 2022[34]). An evaluation of the sustainability check is planned for the end of 2024 (ESDN, 2024[35]) and will provide an opportunity to review how the check has brought issues of policy incoherence in relation to sustainable development to the forefront of the concerns of policymakers and legislators.14
While the sustainability check helps to identify bills that contribute to sustainable development, it is only the beginning; the next step is to address and resolve inconsistencies. The fact that ministries generally make decisions within the scope of their competencies, without being obliged to take into account the opinions of other ministries, makes a shift in approach unlikely. The Government Council, which meets weekly, can debate and decide on any inconsistencies brought to its attention by interdepartmental commissions. However, a review of press releases from the various councils in recent years reveals no mention of policy incoherence, making its role in this respect unclear (Gouvernement du Grand-Duché de Luxembourg, 2024[36]). Despite the same conclusions being drawn and recommendations being made in the 2017 peer review (OECD[19]) (Annex A), there is still no forum to debate these topics or to offer opinions, including contradictory ones where appropriate, in order to foster political debate and resolve any inconsistency issues.
Despite public support for a financial sector that respects human rights and the environment, Luxembourg is among the EU Member States with a reserved stance on this issue. As with many companies and governments, due diligence on human rights along the supply chain raises a number of policy coherence issues. In a country like Luxembourg, where the financial sector dominates the economy, driving growth and accounting for 30% of GDP (Economist Intelligence Unit, 2024[1]), its influence is considerable. The public15 and NGOs have called for the inclusion of the entire financial sector, including investment funds, in the due diligence requirements for multinationals, pointing out that during negotiations at EU level, Luxembourg had previously advocated for relaxing the corporate social responsibility (CSR) standards for the inclusion of such funds in the financial sector (Cercle de Coopération, 2023[37]). During the negotiations at EU level on the Due Diligence Directive, Luxembourg supported the position of the Council of the European Union and the inclusion of the financial sector, while arguing for clear and proportionate measures so as not to hamper the role of the sector in financing the energy and digital transition. In the end, European co-legislators decided not to include investment funds in the Due Diligence Directive, which came into force in July 2024, citing consistency with EU Directive 2022/2464 on Corporate Sustainability Reporting, which does not apply to financial products such as investment funds.
The annual partnership commissions are an opportunity for Luxembourg to dialogue with its partner countries on national strategies and to support and defend their needs with various ministries. These commissions provide an opportunity to discuss issues (trade, climate, study grants, migrant remittances, etc.) that could be subject to policy incoherence, including in areas where the EU has exclusive competence, in order to strengthen coherence between development actions and other areas. For example, the partnership commission between Luxembourg and Cabo Verde in March 2024 on the Development-Climate-Energy (DCE) ICP brought the MECB, the Ministry of the Economy, the Ministry of Culture and the Ministry of Digitalisation together with the MAE (Gouvernement du Grand-Duché de Luxembourg, 2024[38]). For more see the section on Engaging in partner countries, including fragile contexts.
Luxembourg's leadership on the gender, environment and climate nexus underscores the importance of integrating these issues coherently into all programming
Gender equality, women's empowerment and the achievement of SDG 5, as well as support for partner countries on climate action and environmental protection, are at the heart of Luxembourg's development co-operation efforts. They feature in The Road to 2030 as cross-cutting priorities, alongside human rights. They are also central elements within the framework of the coalition agreement (Gouvernement du Grand-Duché de Luxembourg, 2023[2]).16 The complementarities between the gender strategy (MAE, 2021[39]) and the environment and climate change strategy developed by Luxembourg's Directorate for Development Cooperation and Humanitarian Affairs (MAE, 2021[40]) – both drawn up in 2021 – draws attention to the fact that the impacts of climate change are not gender-neutral and that certain population groups are more exposed than others to the global environmental changes (MAE, 2021[40]).
Luxembourg was one of the first countries to promote the gender, environment and climate nexus in its strategic objectives and to integrate it at policy and institutional levels – a prerequisite for the success of this approach in partner countries. Today, this nexus approach is applied in two ways throughout the directorate's portfolio: transversally in the various sectoral programmes (Box 1), and through targeted interventions (OECD, 2023[41]). Indeed, for a number of ICPs – including Cabo Verde’s – signed before the approval of the gender, environment and climate change strategies (2021), the gender and environment nexus still features in programming. In the climate action programme in Cabo Verde, several studies examine the risks of climate change for vulnerable groups and are accompanied by a specific adaptation plan for these groups. For example, a vulnerability study for the implementation of the health sector adaptation plan was carried out in the five pilot municipalities where households are run by women, most of the men having emigrated. These are among the positive factors recognised in the gender analysis of Cabo Verde's 2021 Nationally Determined Contribution (NDC) (Gender Climate Tracker, 2021[42]). There was also a marked increase in ODA volume and percent based on a gender, environment, and climate nexus approach from 2021 to 2023 (Figure 4).
Commitments in 2022 USD constant prices
Note: Circles are not drawn to scale. “Climate” refers to climate change adaptation and/or climate change mitigation. Volumes represent activities where gender equality, environment and/or climate change are principal or significant objectives.
Source: OECD (2024[29]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/3c.
Climate change has a multiplier effect that exacerbates inequalities and environmental and socio-economic risks. In this context, it is important to observe how different groups and individuals of all kinds suffer the consequences of natural disasters or climate change, how they adapt and how they are agents of change (MAE, 2023[43]).
In 2020-21, Luxembourg drew up co-operation strategies for the environment, climate change and gender, and presented them to parliament as new guidelines for Luxembourg's development co-operation. The fact that the Directorate for Development Cooperation and Humanitarian Affairs developed its gender, environment and climate strategies in parallel has enabled a reflection on common indicators for monitoring changes in outcomes, facilitating the inclusion of the gender, environment and climate nexus in the strategic objectives of co-operation at both the political and institutional levels.
Today, this approach is reflected in two ways throughout the directorate's portfolio in the form of cross-cutting themes and new targeted activities. Luxembourg has developed tools tailored to the link between gender equality, the environment and climate, including:
Operational guidelines on gender and climate for drafting projects, combined with a non-negotiable check-list for gender and environment projects.
A guide for development NGOs for the systematic integration of the gender, environment and climate nexus. For example, key questions on gender, the environment and climate change are proposed for the four stages of the project cycle.
Sectoral nexus sheets for thematic areas such as health, education and vocational training, and water and sanitation, with plans to develop more.
According to data provided by the MAE to the OECD, these efforts are already beginning to bear fruit. The volume of commitments increased from USD 20.6 million in 2021 to USD 32.2 million in 2023 and the share of bilateral ODA commitments integrating gender as well as environment and climate increased from 6.5% in 2021 to 9.2% in 2023. A number of factors have enabled this approach to be successfully adopted to date, including:
Flexible co-operation. This nexus is a logical approach in a country like Luxembourg, given its flexible development co-operation programme and its small size, which encourages it to find synergies (OECD, 2023[41]). However, the lack of specialised staff is a risk for the future of the initiative if it is not systematised, even though LuxDev has strengthened its human resources by recruiting a gender expert.
Ongoing awareness-raising with other providers and partners. Luxembourg knows how to make its voice heard to promote the gender-environment nexus with other DAC members and within the various administrative committees of multilateral bodies. The nexus is also a priority theme in Luxembourg's bilateral co-operation with countries such as Rwanda, Benin and Costa Rica, which also benefit from additional resources from the Climate and Energy Fund.
Practical training for stakeholders. In November 2023, Luxembourg organised a mandatory internal workshop for ministry employees to review the implementation of the two strategies, present the tools and discuss recommendations relevant to each department. A workshop was also planned for NGDOs with gender and climate experts from LuxDev (MAE, 2024[17]).
Note: Luxembourg also cites handbooks, training courses and guides from other technical and financial providers, such as the United Nations, World Health Organization (WHO), the International Union for Conservation of Nature, the United Nations Framework Convention on Climate Change, the African Development Bank, the European Union, French Development Agency (AFD) and the Swiss Agency for Development and Cooperation.
Source: MAE (2023[43]), Gender and Environment / Climate Nexus https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/thmatiques-transversales/gender-environment-nexus/nexus-genre-et-environnement-climat-fr.pdf, MAE (2023[44]) Guide to DAC/OECD marking – gender and Rio markers https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/thmatiques-transversales/cad/marquage-cad-ocde-fr.pdf, MAE (2023[45]), Guide / Handbook for NGDOs: tool for systematic integration of the gender and environment/climate nexus https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/thmatiques-transversales/ngdo/2023-guide-ongd.pdf, MAE (2023[46]) Health: information sheet on the systematic integration of the gender and environment/climate nexus https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/thmatiques-transversales/health-gender-climate/fiche-sant-genre-climat-fr.pdf, MAE (2023[47]), Education and vocational training: information sheet on the systematic integration of the gender and environment/climate nexus https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/thmatiques-transversales/education-gender/fiche-education-genre-climat-fr.pdf and MAE (2023[48]), Water and sanitation: information sheet on the systematic integration of the gender and environment/climate nexus https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/thmatiques-transversales/water-gender-climate/fiche-eau-genre-climat-fr.pdf
Multilateral actors value their partnerships with Luxembourg, but the country could adopt a more joined-up approach
Luxembourg is a reliable multilateral partner, offering flexible, predictable, multi-year funding and engaging in constructive debate. Since the last peer review, the country has set up strategic partnership framework agreements with 11 multilateral organisations. It encourages other providers to increase their contributions to the regular or core budget and is ready to redirect its earmarked contributions or additional funding at the end of the year to the most urgent needs. More recently, it has been promoting a gender and environment approach with several agencies. Alongside the multilateral banks, the Global Fund, the United Nations Children's Fund (UNICEF), the Office of the United Nations High Commissioner for Refugees (UNHCR) and the United Nations Development Programme (UNDP), Luxembourg also favours partnerships with smaller agencies where it can exert a stronger influence, including with UN Women, the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), the Joint United Nations Programme on HIV and AIDS (UNAIDS) and the United Nations Population Fund (UNFPA).
Luxembourg respects the commitments made in the UN Funding Compact and adopts a “three-thirds” formula in its funding: one-third for the regular or core budget, one-third for the thematic fund and one-third for earmarked contributions. In addition to humanitarian assistance, country-specific contributions have decreased in number and increased in volume, which is good practice.17 Most contributions are allocated to Luxembourg's partner countries and territories (Institutional structure and context of development co-operation). In Cabo Verde, where it is one of the United Nations' leading providers, Luxembourg has shown political will and leadership in encouraging UN bodies (the Resident Coordinator's Office, UNDP and UN-Habitat) to work together to design a joint programme aimed at promoting local development in the 22 municipalities, thereby achieving greater territorial cohesion. It has also convinced the country's government to adopt this new approach.
A less compartmentalised approach between the co-operation provided by the MAE, the MECB and the Ministry of Finance would strengthen Luxembourg’s impact. Responsibilities are divided between the MECB, which focuses on the Green Climate Fund and various other climate funds; the Ministry of Finance, which is concerned with partnerships with multilateral banks and the International Monetary Fund (IMF); and the MAE, which is responsible for the Development Fund and UN agencies, the Global Fund and Gavi, The Vaccine Alliance. Despite the fact that the small size of the administration favours interministerial dialogue and co-ordination, the ministries do not necessarily consult each other on their multilateral co-operation. For example, closer collaboration between the MAE and the Ministry of Finance on policies and support for multilateral development banks could be fruitful in the case of climate financing or in countries benefiting from budget support. Similarly, when Luxembourg took the decision to gradually withdraw from the Sahel and had to reprogramme funds, the government could have benefited from a more concerted approach by ministries to the IMF, multilateral development banks and UN agencies. At a time when governments are encouraging the various multilateral organisations to work together, co-ordination within the same government is essential, and will also prove indispensable for private-sector participation (Private sector engagement for sustainable development). A more integrated approach would also strengthen Luxembourg's political and technical influence in partner countries.
LuxDev has a solid track record, but a more flexible business model would help it to better meet future needs
LuxDev should build on its strengths as it seeks to broaden the scope of its activities. The agency has succeeded in developing a relationship of trust with its partner countries, which constitutes its real added value and is a long-term commitment. This relationship is explicitly designed to serve the interests of the partner countries it knows well and is not intended to serve its own political and commercial interests. LuxDev succeeds in attracting and retaining top-level experts and has a solid monitoring and evaluation and quality assurance system. Today, LuxDev's operating model is primarily that of an implementation partner for the MAE and, more recently, for the Ministry of Climate. LuxDev also implements the development co-operation of a number of other bilateral providers, such as Switzerland, the Netherlands and Denmark. As its mandate expands to include implementation of the Green Climate Fund (in Cabo Verde and Viet Nam) and possibly more EU instruments, LuxDev could take the opportunity to rethink the role of its current staff and institutional structure.
Consideration is currently being given to how LuxDev can improve its efficiency and diversify its funding and resource base. In this context, the MAE and LuxDev could examine how larger mandates (programmes) could achieve greater efficiency and impact. For example, LuxDev's operating costs in 2020 amounted to EUR 11.7 million, or 10% of the funds disbursed that year (LuxDev, 2021[49]).18 These costs, previously borne in full by the MAE, will now be shared by other government entities, reflecting its varied portfolio (Renauld, 2024[50]). This recognition of LuxDev as a larger agency than the MAE reflects its positioning as a leader in dynamic, high-growth sectors that meet countries' needs. Funding implemented by LuxDev from the international component of the Climate and Energy Fund, provided by the MECB, has thus doubled since 2022 (from EUR 1.7 million in 2022 to EUR 3.6 million in 2023) (LuxDev, 2024[14]; LuxDev, 2023[51]), excluding EU funds for delegated co-operation and the Green Climate Fund. This diversification of resources will need to be accompanied by a reflection on the efficiency gains required to remain competitive.
Luxembourg does not have a development finance institution,19 but LuxDev can now be assessed under EU Pillar 6 on the implementation of financial instruments and guarantees.20 Luxembourg's current strategy is to invest in impact investment funds directly, or more recently through LuxDev, rather than creating a development finance institution. However, there could be some advantages to LuxDev having the opportunity to implement financial instruments other than grants as a bilateral agency, notably by issuing guarantees, which is not possible for the Treasury. LuxDev could benefit from being guaranteed by the European Fund for Sustainable Development Plus (EFSD+) to secure riskier investments and prove its capabilities in developing a market in fragile contexts (Garbacz, Vilalta and Moller, 2021[52]). In fact, by extending its range to include financial instruments and guarantees for the implementation of EU funds, and benefiting from the resulting leverage effect, LuxDev could establish an operating model with a broader contribution than the Luxembourg government and, no doubt, within a wider geography, beyond priority countries, to serve middle-income countries.
While LuxDev has the potential to broaden its portfolio to attract private-sector investment, such a move presents opportunity costs and would require institutional and operational reform. LuxDev has already strengthened its human capacities with the help of private sector and sustainable finance experts, as well as a legal expert on social impact funds. It has also reinforced internal corruption-reporting mechanisms21 and project control and verification mechanisms (Private sector engagement for sustainable development).22 These assets support the implementation of financial instruments and guarantees (Pillar 6).23 However, risk assessment and management will require greater financial and banking expertise than is currently available. In addition, LuxDev will need to raise awareness among its staff and new recruits about fraud prevention and high-risk procedures, such as public procurement (OECD, 2024[53]). Similarly, promoting reforms and improving economic conditions in partner countries, which are key factors in the success and sustainability of guarantees and blended finance initiatives, will inevitably require political dialogue in the countries where LuxDev operates (Lundsgaarde, 2023[54]). This would add to the already heavy workload of LuxDev offices and embassies, calling for a rethink of the resources to be devoted to other priorities.
Development co-operation is becoming more impact-oriented, but there is scope to make existing efforts more effective
Luxembourg’s new partner country strategies are based on a theory of change, comprehensive risk assessments and a common results framework. Within its partner countries, Luxembourg has worked to ensure that impact is at the heart of its co-operation programming, by organising participatory workshops with its counterparts. Each ICP now includes a theory of change and a logical framework comprising an intervention logic, a structural intervention diagram (results chain) and objectively verifiable indicators. They also include a comprehensive risk analysis and management matrix. Sectoral theories of change are part of the overall theory of change for each country and serve to link the various interventions together and illustrate their synergies and complementarities (see the Cabo Verde example in Figure 5). The objectives, intermediate indicative results and indicators are based on the partner country’s national strategy and indicators. In the case of Cabo Verde, this is the Plano Estrategico Desenvolvimento Sustentavel (PEDS – Strategic Plan for Sustainable Development) (Governo de Cabo Verde, 2022[55]).
Source: LuxDev (2022[56]) Technical and financial document: support for the DCE ICP, CVE/091.
Luxembourg’s concern to ensure relevant evaluations is illustrated by LuxDev's recent efforts to examine the "evaluability" of certain programmes and to work with research institutes and national statistical offices in partner countries. By commissioning studies to check whether programmes in several countries are ready to be evaluated, LuxDev hopes that it can better anticipate evaluation needs for improved budget calibration. In Cabo Verde, for example, the evaluability analysis of the energy transition support programme recommended making the underlying assumptions in the theory of change more explicit. A development policy impact analysis unit was set up in June 2022 with the Luxembourg Institute of Socio-Economic Research (LISER) and the Jameel Poverty Action Lab to advise the MAE and carry out randomised controlled trials of pilot projects before implementing them on a larger scale. Finally, Luxembourg's support for Senegal's National Agency for Statistics and Demography (notably to improve data collection on education, technical training and the labour market) and for the Instituto Nacional de Estatísticas (National Institute of Statistics – INE) in Cabo Verde, shows that it takes seriously the need for trusted institutes that are able to provide high-quality data to the population and the government24 (Box 2).
Luxembourg systematically evaluates all projects and programmes but could learn more general lessons by reducing the number of evaluations. As highlighted in the 2017 peer review, the requirement to conduct mid-term and end-of-term evaluations of each project, programme and ICP leaves little scope for conducting thematic evaluations or assessing tools (OECD, 2017[19]).25 However, the almost systematic predictability of evaluations could facilitate the planning of joint evaluation exercises. The fact that some mid-term or interim evaluations of ICPs are now consolidated and carried out jointly by the MAE (responsible for the strategic and planning aspects) and LuxDev (which examines the technical aspects), is good practice. While NGOs are responsible for ensuring their projects are evaluated, since 2019 the MAE has been carrying out an annual evaluation of several development NGOs with similar characteristics to encourage learning between them, help professionalise them, and identify and create synergies. This is also good practice. However, the high workload of departments handling a large number of evaluations (LuxDev has finalised 7 mid-term and 8 final evaluations in the last 12 months) means learning is relegated to second place, even though the evaluation policy encourages learning (MAE, 2016[57]). The workload also hinders thematic evaluations,26 which have the advantage of bringing together several partners and would undoubtedly promote more extensive learning.27
Luxembourg continues to support international evaluation mechanisms to measure the impact of its contributions; it could rely more on experts and research firms or centres in the South. Since 2016, Luxembourg has been participating in the Multilateral Organisation Performance Assessment Network (MOPAN) to get a clearer idea of its contribution to multilateral outcomes. This is also in response to a request from civil society groups in Luxembourg, which had highlighted the lack of information on the results achieved from Luxembourg's contributions to the core (non-earmarked) budgets of multilateral organisations. In addition to MOPAN, Luxembourg supports the DAC Network on Development Evaluation (EvalNet) and civil society evaluation networks, such as the French-speaking Countries' Evaluation Network (RFE) and the Luxembourg Society for Evaluation and Forecasting (SOLEP).28 Luxembourg is also a member of the deutschsprachigen Evaluierungsnetzwerkes [German-speaking evaluation network]. Quality reports from multilateral organisations, combined with MOPAN and other reports, should enable Luxembourg to measure its contribution to results and the impact of its various contributions more accurately. The MAE and LuxDev generally award evaluation contracts to external evaluators based on a public procurement process. Although the MAE and LuxDev are keen to involve local expertise in the evaluation teams, Luxembourg could rely more on such expertise (whether national or regional) to lead the teams, thus strengthening evaluation capacity.
LuxDev has revised its 2014 Knowledge Management Strategy to adapt to the growing complexity of co-operation projects and programmes.29 An internal evaluation in 2022 and an analysis by a consultancy firm in 2023-24 showed that good practices in knowledge management were the result of personal or ad hoc initiatives, rather than being part of a systematic effort to integrate knowledge management into core operational and management processes. Consequently, the new strategy, to be published at the end of 2024, is broken down into processes, people, networks and technology to ensure that knowledge is connected and transformed into better development outcomes. A team of 2.5 people from the knowledge management department, supported by representatives from other LuxDev departments, will facilitate the implementation of the action plan, which proposes a series of "knowledge training" sessions to systematise the expert's input, as well as a final debrief.30 Knowledge management and sharing are all the more important as the ministries responsible, such as the MECB in the case of the international Climate and Energy Fund, are not necessarily directly linked to development. The IT systems which facilitate data collection and monitoring within the government (ARIANE for LuxDev and TRON for the MAE), will also help to strengthen knowledge management (LuxDev, 2024[58]).
The Directorate for Development Cooperation and Humanitarian Affairs, in collaboration with partner countries, identifies programme priorities based on national results frameworks and performance indicators. The provision of high-quality, accessible statistical data is a prerequisite for measuring the performance of development initiatives and is systematically encouraged in its partner countries (MAE, 2019[5]).
Luxembourg is committed to supporting statistical institutes and the collection of gender-disaggregated data for the national performance indicators and results frameworks on which it relies. Luxembourg's support for the National Institute of Statistics (INE) in Cabo Verde (EUR 547 710 over two years) focuses on the production, analysis and dissemination of statistics. It ensures that indicators and national data used for monitoring, evaluating and measuring the impact of the Development-Climate-Energy Indicative Co-operation Programme are produced and updated. The mid-term evaluation of the DCE ICP, for example, will be based mainly on data from the monitoring and evaluation system for bilateral programmes. The benefits of this approach include the following:
Data from the INE's continuous multi-objective survey of the Cabo Verde labour market are used directly to design and monitor LuxDev's Employment and Employability Sector Support Programme. The 2023 data show an unemployment rate of 10.3%, including a labour under-utilisation rate of 33.6%, down slightly from 2022 (INE, 2024[59]). These data are important for LuxDev’s programme, one of whose objectives is to increase the number of sustainable jobs, especially among young people aged 13-35, 26.4% of whom are unemployed and have no education or training.
Support for the fourth national household income and expenditure survey from Luxembourg and other providers (EUR 450 000 over two years) has enabled an update of the social register of economically vulnerable families to determine how government transfers can better target families:
a new survey has been conducted to collect gender-disaggregated data on climate action. Developed through collaboration between LuxDev, the Cabo Verdean Ministry of Industry, Commerce and Energy (MICE) and the Ministry of Agriculture and the Environment (MAA), the survey collected data on key indicators to assess climate vulnerability, climate change awareness, perceptions of climate change governance, perceptions of energy microgeneration, energy expenditure and energy efficiency behaviours.
collaboration with the Cabo Verde Institute for Gender Equality and Equity (ICIEG) involves highlighting the impacts of climate change on gender-related dynamics. The ICIEG is in the process of setting up a gender observatory (with the help of the INE for data collection).
These different approaches are part of the climate action programme financed by the MECB to the tune of EUR 10.5 million over four years, and will also be used for other programmes, notably the energy transition support programme.
Sources: MAE (2019[5]), Stratégie générale de la coopération luxembourgeoise: En route pour 2030, https://cooperation.gouvernement.lu/content/dam/gouv_cooperation/publications/strat%C3%A9gies/strategie-generale/Strat%C3%A9gie-MAEE-FR.pdf ; and INE (2024[59]), Estatísticas do Mercado de Trabalho - IMC 2023 [Labour Market Statistics: Continuous multi-objective survey 2023], https://ine.cv/notas_imprensas/estatisticas-do-mercado-de-trabalho-imc-2023/
Development professionals are dedicated and motivated and Luxembourg is well placed to build sustainable capacity within partner country governments and institutions
Luxembourg has an impressive cadre of dedicated and motivated development professionals and is able to attract and retain a wide range of experience within its public administration. The Directorate for Development Cooperation is the MAE's largest department, with 54 staff. New positions in evaluation, impact finance and the digital sector have succeeded in attracting staff from the private sector and academia and are helping Luxembourg to modernise in the face of new development challenges. New recruits can benefit from the help of a mentor and the retention rate is high within both the MAE and LuxDev, which have the same remuneration scales. Non-diplomats can follow an informal career path, starting out as technical assistants at the MAE or LuxDev, or progressing to assistant administrators or young associate experts in UN agencies or the European Commission. Both the MAE and LuxDev offer a variety of training courses, including 60 hours of mandatory Hostile Environment Awareness Training (HEAT).
Embassy and LuxDev staff say they are motivated and deeply committed to Luxembourg's development co-operation, which relies heavily on locally recruited staff. In Cabo Verde, LuxDev has 54 staff – most of them technical assistants to the various ministries (Engaging in partner countries, including fragile contexts), while the embassy has 7 members of staff. Since the 2017 peer review, Luxembourg has deliberately reduced the number of expatriate staff in favour of local recruitment, after noting during the recruitment process that the academic and professional experience of national applicants was similar to that of their international counterparts. For example, out of a staff of 54, the LuxDev office in Cabo Verde has 4 expatriates, 4 technical advisors and 1 international technical expert. Staff are satisfied with the good working conditions, which include five-year contracts (which can be renewed depending on the duration of projects) and opportunities for skills development and career advancement, including in other national offices. For example, a finance officer in Niger had the opportunity to be transferred to Benin, while a purchasing manager was able to leave his post in Cabo Verde for a position in Lao PDR. Embassy and LuxDev staff make no secret of how committed they are to their work, and how proud they are of the results they are contributing to in terms of institutional and technical capacity building.
The technical experts working in the ministries and agencies of provider governments are highly valued; Luxembourg could reflect on how to develop this model for medium- and long-term sustainability. The various ministries in Cabo Verde host a team of technical experts from LuxDev to support the implementation of various climate, energy transition, water and sanitation and employment programmes. This signals Luxembourg’s strong local presence and positive partnerships. Today, it is clear that without specialised technical assistants, the various programmes would advance at a slower pace. For example, the energy transition support programme is assisted by a team of eight technical assistants/experts within the Ministry of Industry, Commerce and Energy. Their work is highly valued; if the ministry had to source the necessary technical expertise itself, it would probably be very expensive. Moreover, without this support, Cabo Verdean institutions would struggle to move the administration towards less traditional partnerships to improve the population's access to energy. Nevertheless, the substitution effect is not negligible within a small Cabo Verdean administration or in other provider countries. This will require careful consideration of how LuxDev support can evolve to strengthen national capabilities, in order to prepare the ground for an eventual withdrawal.31
Private sector engagement draws heavily on Luxembourg's financial sector expertise and there is an ambition for it to become more strategic and larger in scope
Luxembourg is keen to make better use of the skills and resources of the private sector in the context of its development co-operation. According to the coalition agreement, the government's ambitions for the period 2023-2028 emphasise the importance of making greater use of the capabilities and skills of Luxembourg's private sector, particularly its digital ecosystems and innovation (Gouvernement du Grand-Duché de Luxembourg, 2023[2]). Similarly, The Road to 2030 underlines Luxembourg's commitment to exploring ways of strengthening collaboration between the various private-sector players in its partner countries, thus transforming the private sector into a genuine investor in development rather than a mere project implementer. To this end, it is exploring opportunities for closer synergies with the Luxembourg-based investment fund industry to promote inclusive investment and innovative financing mechanisms. The government also aims to expand and strengthen partnerships with private foundations to maximise the impact of these initiatives (MAE, 2019[5]).
As part of its commitment to the private sector, Luxembourg draws on its comparative advantages in a number of key sectors. These include the country’s role as a leading international financial centre, as well as its expertise in information and communication technologies (ICT), digital data and cybersecurity (MAE, 2019[5]). In addition, Luxembourg is an active founding member of the EU's Digital for Development (D4D) Hub network, strengthening its commitment to the private sector in the digital arena (La Coopération luxembourgeoise, 2022[60]). Luxembourg has also been able to develop expertise in space and satellite technology, which has been put to good use in development, notably in the humanitarian field with the emergency.lu platform, developed in response to the co-ordination challenges posed by the earthquake in Haiti in 2010, and which became operational in January 2012 (MAE, 2024[61]). Luxembourg's expertise in these key areas has influenced its efforts on private-sector involvement and international co-operation.
Since 2016, Luxembourg has allocated an average of 8% of its bilateral ODA to private-sector development, predominantly offering support to banking and financial services. Over the period 2016-2023, banking and financial services consistently received the largest share of ODA earmarked for private-sector development (Figure 6), accounting on average for 86% of the total volume. Other areas such as business services and trade policies were also supported, albeit with lower volumes.
ODA volume for private-sector development (in million USD, constant prices) and as a percentage of total bilateral ODA
Source: OECD (2024[29]) OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/3c.
As a leader in sustainable and inclusive finance, Luxembourg is increasingly involving developing countries in its efforts (OECD, 2020[62]). Over the past few years, the government has continued to develop specific initiatives in sustainable finance and green investment through various strategic partnerships. In particular, it is capitalising on its role as the seat of the global financial sector, mobilising its comparative advantage in this field at various levels of intervention (Box 3). In 2021, the Inclusive and Innovative Finance Strategy was adopted as a mechanism dedicated to the development and co-ordination of activities in this field as part of Luxembourg's development co-operation (MAE, 2021[63]).32 This strategy is closely aligned with The Road to 2030, providing a solid basis for strengthening synergies with the Directorate for Development Cooperation and defining future directions, including recent efforts to integrate other social dimensions. These place particular emphasis on gender, as demonstrated by the launch of the Luxembourg Gender Finance Task Force in 2023 (Ministère des Finances, 2023[64]).
Achieving the SDGs requires responsible, inclusive and innovative financing. Microfinance is recognised as a key tool for their implementation, as it can offer financial services to vulnerable populations. In addition, the 2015 Addis Ababa Action Agenda on financing for development stresses the importance of inclusive finance, and especially support for microenterprises. The agenda also recognises the decisive role of the private sector in expanding financial inclusion, highlighting the need to mobilise diversified resources and foster multi-sector partnerships.
Inclusive and innovative finance is at the heart of Luxembourg's development co-operation. Drawing on its role as an international financial centre, Luxembourg has developed a proactive approach that has enabled it to establish a series of strategic partnerships, both domestically and internationally. Luxembourg has actively supported the microfinance and inclusive finance sector since the early 1990s.
Luxembourg has become a key actor in this field, thanks to this ongoing commitment. Today, the majority of investment funds operating in microfinance are based in Luxembourg, representing over 60% of assets under management worldwide. Many of these actors are hosted by the House of Microfinance in Luxembourg City, thus supporting the continuation of such co-operative ventures.
On the domestic front, Luxembourg boasts a particularly rich ecosystem, with a large number of institutions involved in inclusive and innovative finance. This ecosystem has undergone continuous evolution with the emergence of "new" players, including specialised "Houses" such as the House of Financial Technology (House of Fintech), established in 2017; and the House of Cybersecurity, which replaced a precursor institution in 2022.1 These structures were originally designed to stimulate innovation and strengthen the resilience of the Luxembourg financial sector in the face of contemporary challenges, but have gradually been mobilised internationally, including in the context of Luxembourg's development co-operation. In 2022, for example, Luxembourg sought to consolidate its commitment to the fintech sector to benefit inclusive finance by signing a partnership with the House of Fintech to expand the reach of its CATAPULT: Inclusion programme. CATAPULT is a series of acceleration programmes open to fintech start-ups in developing countries, to help them develop their business and put them in touch with key stakeholders in Luxembourg, such as microfinance institutions, investors and industry experts.
The Ministry of Finance plays a central role in co-ordinating these initiatives and partnerships, facilitating collaboration between the public sector, financial institutions, technology start-ups and universities, including in the context of development co-operation. All these efforts have consolidated Luxembourg's position as a world leader in promoting sustainable finance and technological innovation, attracting investment and supporting inclusive economic growth, while respecting the principles of sustainable development.
Note: Luxembourg-based microfinance and inclusive finance agencies and organisations include, among others, Appui au développement autonome (ADA), the European Microfinance Platform (e-MFP), the Inclusive Finance Network Luxembourg (InFiNe.lu), the Luxembourg Microfinance and Development Fund, the Microinsurance Network, the Alliance for Financial Inclusion, the Social Performance Task Force and the Luxembourg Finance Labelling Agency (LuxFLAG).
1. In 2022, Security Made in Lëtzebuerg GIE, founded in 2010, changed its name to the Luxembourg House of Cybersecurity.
Source: MAE (2021[63]), Inclusive and Innovative Finance Strategy, https://cooperation.gouvernement.lu/dam-assets/publications/strat%C3%A9gies/strategie-finance-inclusive/Inclusive-and-innovative-finance-strategy1.pdf; House of Financial Technology (2024[65]), Luxembourg's Fintech Innovation Hub, https://lhoft.com/; Luxembourg House of Cybersecurity (2024[66]), “About us”, https://lhc.lu/
Luxembourg's leadership in the field of green, social and sustainable bonds, combined with the growing expertise of its Ministry of Finance and the impetus provided by the MAE on the international stage, is a key opportunity to develop capital markets in partner countries. Successful collaborations, such as between the Luxembourg Green Exchange (LGX) and Cabo Verde's Bolsa de Valores, show that it is possible to help certain countries adopt sustainable financial practices directly (Box 4). However, the expertise of Luxembourg's private sector in digital and innovative finance does not always match the needs of its partner countries. For example, in regions such as the Sahel, which accounts for around 30% of Luxembourg's ODA, as well as in other long-standing and more stable partner countries such as Cabo Verde, needs may not match the available expertise. Although Cabo Verde's first blue bond is now listed on the LGX, it cannot be traded. However, this double listing provides the bond with greater visibility and helps boost the confidence of international investors. It will nevertheless be crucial to take more systematic account of existing challenges, such as the high debt burden, limited secondary markets and insufficient technical capacity in many countries, which will generally hamper the development of these initiatives. Luxembourg has a number of options available, including continuing to build local capacity through financial training programmes, such as those already set up by its Financial Technology Transfer Agency (ATTF); working closely with multilateral banks to offer blended financing solutions; and promoting regional financial integration to improve secondary market liquidity and attract more international investment.
Today, one of the main challenges facing sustainable finance in partner countries is the underdevelopment of capital markets, which results in a mismatch between supply – notably from banks, financial institutions and private investors – and demand from companies, governments and individuals seeking investment. To help address this challenge and raise investor awareness of the balance between financial viability and potential development impact, the government has drawn on its experience as a leader in responsible finance to develop a strategic partnership with the Luxembourg Green Exchange (LGX). Launched by the Luxembourg Stock Exchange (LuxSE) in 2016, the LGX has become a major player in sustainable bonds, offering services to developing and emerging countries to strengthen their financial sectors.
The partnership between LGX and the Directorate for Development Cooperation aims to enable entities in developing countries to issue green, social and sustainable bonds. This gives them the opportunity to finance essential projects, whether linked to the ecological transition or to social objectives, such as the development of health and education infrastructure or reducing inequalities. This support is not limited to the issuance of bonds, but also includes local capacity building through specialised training and workshops, to help local authorities evolve in international financial markets and issue sustainable financial instruments autonomously and efficiently. Recent examples include the following:
In November 2023, LGX listed the first blue bond from Cabo Verde, supporting the sustainable management of oceans and marine resources.
In March 2024, LGX listed the gender bond ProMujer, promoting the economic empowerment of women in Latin America.
As part of a bilateral programme managed by LuxDev, LGX is currently supporting initiatives to establish a green stock exchange in Kigali, Rwanda, to promote sustainable financing in East Africa.
These partnerships, originally facilitated by the Luxembourg government as part of its development co-operation work, have enabled LGX to gradually extend its influence. Authorities in developing countries now call on LGX directly for its services, demonstrating the international recognition of its expertise. In addition, LGX has strengthened its presence through strategic partnerships with international organisations such as the International Finance Corporation (IFC), UN Women, UNDP, the United Nations Economic and Social Commission for Asia and the Pacific, and the Global Green Growth Institute.
This approach demonstrates that specialised platforms such as the LGX are essential for mobilising large-scale private funding for sustainable development. Unlike more traditional inclusive finance initiatives targeting vulnerable populations, this model relies on the existence of relatively mature financial markets that are capable of supporting the creation and management of complex financial instruments. This type of collaboration helps to fill structural gaps in partner countries, while having a systemic impact on the development of long-term, sustainable financial markets.
Source: Luxembourg Stock Exchange (n.d.[67]), “The home of sustainable finance”, https://www.luxse.com/discover-lgx; INFF (2023[68]), “First Cabo Verdean blue bond listed on the Luxembourg Stock Exchange”, https://inff.org/news/first-cabo-verdean-blue-bond-listed-on-the-luxembourg-stock-exchange; and Luxembourg Stock Exchange (2024[69]), “Pro Mujer: Transforming women's lives in LatAm”, https://www.luxse.com/blog/Sustainable-Finance/pro-mujer.
As a technology hub, Luxembourg is well placed to facilitate public-private partnerships (PPPs) as part of its development co-operation, a priority included in the government coalition agreement (Gouvernement du Grand-Duché de Luxembourg, 2023[2]). The cross-cutting potential of digital technology could help Luxembourg to strengthen synergies among the various sectors in which it is already active, while preserving its strength as a technical and financial provider in its chosen fields (Figure 7). In the case of Estonia, for example, leveraging its digital expertise has facilitated private-sector involvement on a larger scale, paving the way for increased greater economic co-operation and trade with countries like Kenya (Oyetunde, 2023[70]). Luxembourg’s partner countries, such as Cabo Verde, also stress the need for further support for digitalisation, as the recent construction of a Tech Park in Praia to foster economic diversification and create new opportunities for young talent exemplified (African Development Bank Group, 2024[71]).33 Luxembourg could take advantage of these demands to strengthen synergies between digital transformation and key sectors in which it has long-standing expertise, such as healthcare, education and sustainable finance. This is for example already the case in Mongolia, where LuxDev is supporting the development of telemedicine in the fields of cardiology and cardiac surgery (LuxDev, 2022[72]). Such a transversal approach would make it possible to maintain Luxembourg's key strengths in co-operation, while opening up new avenues of collaboration in targeted sectors.
Luxembourg prioritises the development of the local private sector and should refine its approach of mobilising private players in partner countries
Luxembourg prioritises developing the local private sector over promoting its own economic interests, by adopting a pragmatic, demand-driven approach in partner countries. Initiatives such as the cybersecurity strategy in Benin (LuxDev, 2024[73]) and the strengthening of digital skills in technical and vocational education and training in Rwanda (LuxDev, 2024[74]) illustrate this tailor-made approach, in which Luxembourg's expertise is mobilised to provide added value, often in response to direct requests from partner countries. Similarly, drawing on its domestic expertise, Luxembourg plays a central role in building the capacity of financial institutions in partner countries. For example, in Cabo Verde, Appui au développement autonome (ADA), a Luxembourgish NGO and a recognised and long-standing partner, has supported initiatives to strengthen the Central Bank and professionalise the national microfinance sector by making it more transparent, while its activities in Benin focus on inclusive finance projects to improve access to financial services for marginalised populations (ADA, 2023[75]).
The focus on local capacity building encourages more sustainable integration of private players in the development of their own communities. Luxembourg's commitment to local private-sector development is reflected in its active support for locally led innovation, in line with the OECD's recommendations on the subject (OECD, 2024[76]). To this end, it plans to extend the deployment of instruments implemented by LuxDev (Figure 8), paying particular attention to systemic approaches and the development of market systems which can incentivise local players, whether public or private, to tailor solutions to the needs of populations. Its proximity to local institutions has enabled LuxDev to successfully apply this approach in a project in Viet Nam aiming to consolidate the securities market (LuxDev, 2022[77]), while evaluations are underway in Mali and Senegal to measure its impact.
Luxembourg's targeted and pragmatic approach to the EU's Global Gateway initiative34 also allows for judicious contributions to bilateral and thematic priorities. In Cabo Verde, for example, Luxembourg has stood out for its ability to act as a trusted intermediary and partner, also thanks to its reputation for neutrality and credibility. In particular, it has facilitated crucial infrastructure projects financed through the Global Gateway initiative (Box 5). By leveraging its privileged relationship with the Cabo Verdean authorities to align local priorities with European objectives, Luxembourg has ensured strategic coherence that has made it easy to implement a series of complex projects.
As a small island developing state, Cabo Verde faces major challenges in securing its energy supply while pursuing sustainable development and climate resilience objectives. To meet these challenges, and as part of the Global Gateway initiative, Luxembourg has played a central role in co-ordinating investments aimed at stimulating the country's transition to green energy, sustainable transport and digital connectivity. This ambitious project brings together contributions from the European Investment Bank (EIB), Luxembourg's Directorate for Development Cooperation and Humanitarian Affairs and the EU's Neighbourhood, Development and International Cooperation Instrument, and was signed in September 2024 by the stakeholders involved.
The first phase will focus on developing pumped storage infrastructure, enabling surplus renewable energy to be stored for redistribution at times of peak demand, thus guaranteeing optimised resource management and grid stability. To this end, the project will finance, among other things, a green energy storage facility through a EUR 29 million grant, and use a EUR 120 million loan to modernise the national energy market. The project could also attract private investment, given the sector's interest in similar initiatives in Africa. This would strengthen the dynamism of public-private partnerships, with a catalytic effect for other sustainable development projects.
This example highlights Luxembourg's ability to facilitate and co-ordinate large-scale projects, while insisting on efficiency and relevance in the local context. With thanks in particular to Luxembourg's influence with the EIB, additional investment was mobilised in Cabo Verde, significantly increasing the scale and impact of the projects supported in the country. The Global Gateway initiative, and the Team Europe approach more broadly, have thus demonstrated their potential to respond effectively to the critical energy needs of a developing country, based on close co-ordination among the various public and private players. Well-targeted interventions can not only contribute to sustainable development, they can also strengthen economic and strategic ties between international providers.
Note: the project is divided into four stages: the green energy storage facility will be accompanied by an expansion of the Cabeólica wind farm, using a EUR 2 million loan to increase renewable energy production by 13 MW. Investments in port infrastructure (EUR 145 million) and the rollout of broadband Internet are also aimed at strengthening the country's digital and commercial connectivity.
Source: Délégation de l’Union européenne au Cabo Verde (2024[78]), Global Gateway : l’Équipe Europe renforce son soutien au secteur digital, aux infrastructures portuaires et aux énergies renouvelables du Cap Vert ; https://www.eeas.europa.eu/delegations/cabo-verde/global-gateway-l%E2%80%99%C3%A9quipe-europe-renforce-son-soutien-au-secteur-digital-aux-infrastructures_en?s=134&page_lang=en ; European Commission (2023[79]), Team Europe and Cabo Verde, https://ec.europa.eu/commission/presscorner/detail/fr/ip_23_5265; and European Commission (n.d.[80]), Cabo Verde https://international-partnerships.ec.europa.eu/countries/cabo-verde_en?prefLang=fr.
Overall, Luxembourg's co-operation efforts continue to focus on supporting the most vulnerable, but now face the challenge of including the private sector more effectively. Further reflection is needed on how to facilitate greater involvement of the private sector, and in particular the local private sector of partner countries. This should ideally result in targeted approaches adapted to local context, while taking the necessary trade-offs into account. The next generation of ICPs will provide an opportunity to progress thinking on how to further formalise private-sector involvement, starting with partner countries. In some cases, this could mean closer co-operation with the Luxembourg (or European) private sector, while in others, Luxembourg could play a facilitating role in strengthening economic ties with neighbouring countries. In Kosovo, for example, various programmes will be implemented in collaboration with private players, but also with a view to diversifying bilateral relations with the country. They include a training programme to develop private training centres to support professional integration in the ICT and renewable energies sectors; and an energy transition project facilitating access to financing for renewable energies, including for innovative small and medium-sized enterprises. In Cabo Verde, on the other hand, the support that Luxembourg is already providing, particularly for technical and vocational education and training, could become a springboard for creating a more dynamic business environment. Luxembourg could also explore ways of tapping into the skills and resources of the Cabo Verdean diaspora in Luxembourg and Europe to boost economic development in Cabo Verde. This diaspora plays a crucial role in the national economy through remittances.35 Such efforts would also help support the Cabo Verdean government in implementing its national strategy, the PEDS II 2022-26, which is focuses, among other things, on its diaspora (Government of Cabo Verde, 2022[81]) and its potential for helping attract more financial and foreign direct investment to the country.
Despite the desire to move towards a more structured and deliberate approach to private sector engagement, this process is still in the consolidation phase. The ability to monitor the mobilisation of private financing volumes has only been in place for a short time, as Luxembourg only deployed specialised teams to monitor and report on funds mobilised by the private sector in 2022 (MAE, 2024[82]). Aware of the modest size of its domestic market and the relatively limited opportunities for trade with its partner countries, Luxembourg aims instead to strengthen employability and entrepreneurship at the local level, notably through greater involvement of local businesses. However, this sometimes proves difficult. Boosting private-sector involvement in development co-operation will therefore require systematically identifying sectors of common interest that align with the priorities of partner countries. It will also be important to raise awareness among Luxembourg's private players and encourage them to take greater risks, while seeking to expand partnerships with the European private sector. This applies not only to start-ups and young innovative companies, but also to large companies operating in key sectors, as well as institutional investors (MAE, 2019[5]).
Mobilising private-sector players and the greater financial resources required to involve them in development initiatives more widely remains a complex challenge. At present, Luxembourg’s private sector is generally cautious, as the national economy is not particularly oriented towards the export of goods and (non-financial) services, with most of Luxembourg companies remaining focused on the EU market rather than developing countries. Enhanced dialogue could help identify areas of mutual interest between the private sector and the development objectives of partner countries. Regular exchange of information with companies in strategic sectors would prove invaluable, both for the companies themselves and for those involved in Luxembourg's development co-operation. France has done this by organising seminars to inform its companies about the European Global Gateway initiative (OECD, 2024[83]). Building a government-wide or Europe-wide vision of private-sector engagement could also be beneficial. In the Netherlands, the government has developed a new theory of change for private-sector development with the ambition of linking trade, local job creation and climate, particularly in countries where aid and trade are combined (OECD, 2023[84]).
Corporate social responsibility needs to be balanced with economic ambitions in a framework for private partnerships
Responsible business conduct plays a central role in the private-sector partnerships financed by Luxembourg's development cooperation. Granting funds is conditional on respect for human rights and environmental criteria, thus ensuring that the results of interventions are aligned with corporate social responsibility (CSR) principles. The National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, within the Ministry of the Economy, has supported LuxDev in integrating an ambitious due diligence approach into the conceptualisation of these new instruments (La Coopération luxembourgeoise, 2022[60]). Luxembourg also signed the Joint Declaration on Living Income and Living Wages in June 2023, alongside the Netherlands, Germany and Belgium (MAE, 2023[85]).36
As Luxembourg's Directorate for Development Cooperation and Humanitarian Affairs seeks to diversify, notably through greater involvement with the private sector, it will need to ensure that economic objectives do not take precedence over its development strategy, which focuses on the most vulnerable groups. By actively exploring the risks of greenwashing, and by integrating the principles of responsibility into its various instruments and partnerships, Luxembourg is demonstrating its commitment to consistency. Fully integrating CSR issues into trade missions organised by the Chamber of Commerce could strengthen this consistency, especially as respect for human rights is the first cross-cutting principle of the government's Inclusive and Innovative Finance Strategy (MAE, 2021[63]) drawn up following extensive consultation with Luxembourg's financial industry and civil society.37 A survey of banks and asset managers in several countries, including Luxembourg, highlights human rights as a key issue linked to the fiduciary duty of financial institutions, and calls for governments to establish clear legal standards to avoid relying solely on voluntary initiatives (Luxembourg for Finance, 2020[86]).
Given its new ambitions, Luxembourg will need to develop clear and binding human rights, social and environmental impact criteria to assess business partners and their projects. It will also need to put rigorous monitoring and strict regulations in place to ensure that all players contribute effectively to poverty eradication and the promotion of human rights. In this respect, since 2022 the MAE's Directorate for Development Cooperation has been taking part in the work of the Business and Human Rights National Action Plan working group, which is responsible for implementing and monitoring the second National Action Plan of the same name (NAP 2). In 2023 it continued to be in contact with the NCP for the OECD Guidelines on Responsible Business Conduct (La Coopération luxembourgeoise, 2022[60]) (La Coopération luxembourgeoise, 2023[87]). These efforts are part of a broader drive to strengthen policy coherence for sustainable development (An institutional system that is fit for purpose).
Greater involvement of the private sector will require a review of implementation tools, as well as continued reinforcement of expertise within LuxDev and the MAE
Luxembourg currently has three instruments for collaborating with the private sector and mobilising co-financing: the Business Partnership Facility (BPF), the LuxAid Challenge Fund and the LuxAid Demonstration Fund. Of these tools, only the BPF supports economic partnerships between private Luxembourg or European companies and those in developing countries. Meanwhile, the LuxAid Challenge Fund and LuxAid Demonstration Fund specifically target start-ups in developing countries, encouraging their development and innovation at different stages of maturity to facilitate local economic growth and job creation. These two instruments were created following an internal review of available instruments and ongoing projects in 2022, with the main objective of further mobilising businesses in the South to participate in economically viable projects (La Coopération luxembourgeoise, 2022[60]).38 However, these three instruments have limited resources, with a total budget of EUR 25 million over six years (2023-28), constrained to EUR 300 000 per company over a three-year period due to the European Commission's de minimis regulation. As a result, these grant instruments struggle to mobilise substantial private sector funding compared with overall ODA resources (LuxDev, 2023[88]).39 In addition to these three instruments managed by LuxDev, ADA co-ordinates the Smallholder Safety Net Upscaling Programme (SSNUP), financed by Luxembourg, Switzerland and Liechtenstein. The SSNUP co-finances technical assistance schemes for impact investment funds to reach small-scale farmers (ADA, 2020[89]) Figure 8 provides an overview of the four instruments,40 while Figure 9 details the volumes of private financing mobilised by some of them between 2021 and 2023.
Volumes of private financing mobilised, in EUR million
Note: The leverage mechanism and the role or position of all the mobilisation projects reported correspond to simple co-financing. The amount reported in the "Amounts invested by the institution" category for the BPF and the co-financing of multiple NGO projects corresponds to the amount in the "Total public funding" category, as no other public institutions co-financed these activities in 2021-23. BPF: Business Partnership Facility; SSNUP: Smallholder Safety Net Upscaling Programme.
Source: MAE (2024[82]), Development finance statistics.
The BPF’s effectiveness is constrained by the absence of an engagement strategy and its limited anchoring in Luxembourg's development co-operation projects and programmes. While the LuxAid Challenge Fund and LuxAid Demonstration Fund are still relatively recent instruments, the BPF was created in 2016. A 2023 evaluation revealed rather mixed results (LuxDev, 2023[90]). In particular, the final evaluation report highlights the absence of a private-sector engagement strategy, which limits the instrument's effectiveness for mobilising large-scale private funding and guaranteeing high-quality projects. The evaluation also highlighted the need to anchor the BPF more firmly in the thematic and geographic priorities of Luxembourg's development co-operation, notably by concentrating efforts on sectors and countries where impact could be optimised. Without a clear strategic framework and more intensive project support, it will probably be difficult to take full advantage of the opportunities offered by this type of partnership (LuxDev, 2023[90]).
Luxembourg could consider adapting its current approaches to achieve its ambitions more effectively. For example, exploring mechanisms other than subsidies, such as conditional loans, could open up new ways of supporting private-sector development in partner countries. In this context, considering the possibility of assessing LuxDev against the EU's Pillar 6 for the implementation of financial instruments and guarantees becomes all the more relevant (An institutional system that is fit for purpose). It would also make sense to reconsider the very broad geographical scope of current instruments for engaging with the private sector, particularly in the case of the BPF. If abandoning this instrument is not an option, current reflections on its future rightly emphasise a sharper focus, combined with more comprehensive support for project leaders to encourage the transfer of technology and expertise, and a greater contribution from partners in the South to the innovation process and implementation. This would strengthen coherence between poverty reduction and economic co-operation objectives (LuxDev, 2023[90]).41
At the same time, Luxembourg should continue to capitalise on its ability to form strong multilateral partnerships to maximise its overall impact and mobilise resources more effectively. It is already achieving this with organisations such as UNHCR in relation to connectivity (UNHCR Innovation Service, 2024[91]) ; the World Food Programme (WFP) in relation to food security, where the private sector is mobilised to share risk (using catastrophe bonds as an insurance tool) (World Food Programme, 2023[92]); the International Committee of the Red Cross (ICRC) in managing humanitarian emergencies using new technologies (Comité international de la Croix-Rouge, 2022[93]); and the International Finance Corporation (IFC) (World Bank Group, 2023[94]). Given that Luxembourg provides all its ODA in the form of grants (OECD, 2024[20]), and building on the good collaboration between the MAE and the Ministry of Finance, it could also further strengthen its involvement with multilateral banks to set up innovative financial provisions. As a forerunner in promoting blended finance mechanisms,42 Luxembourg could capitalise on its expertise in this field to develop new initiatives. As part of its strategic partnerships with institutions such as the EIB and the IFC, Luxembourg has even developed specific initiatives such as the Luxembourg-EIB Climate Finance Platform (PFCL), created in 2017 (European Investment Bank, 2024[95]); and the Luxembourg-IFC Partnership Program (LIPP), created in 2018 (World Bank Group, 2023[94]), to which it is the sole contributor. This demonstrates its efforts to mobilise additional resources for the multilateral system. However, it is essential to bear in mind the principles of efficiency, particularly in the context of single-donor instruments, to ensure optimal allocation of resources and avoid duplication. It will be crucial to regularly evaluate the performance of these mechanisms to maximise the impact of the funds mobilised and ensure effective co-ordination with other donors.
Successfully diversifying co-operation efforts through greater involvement of the private sector will not only require appropriate instruments, but also enhanced specialist skills. Luxembourg has already invested in new human resources within the Ministry of Foreign Affairs and LuxDev, with a particular focus on digitalisation and impact finance. However, it is crucial to further strengthen specialist skills and staff capacity, especially in partner countries. In Cabo Verde, for example, where Luxembourg is supporting the energy transition as part of the DCE ICP, the administration is struggling to modernise. A skills shortage within its ministries is hampering the establishment of effective private partnerships and limiting the potential impact of these initiatives. Targeted capacity building in partner countries is therefore essential to enable more widescale collaboration with the private sector. To achieve this, Luxembourg will need to reflect on how to develop support via the technical experts within ministries, to ensure medium- and long-term sustainability (An institutional system that is fit for purpose). At the same time, it would probably be useful for the country to pay greater attention to strategic foresight. With its expertise and specialisation in certain sectors, Luxembourg could greatly benefit from incorporating forward planning from the outset in expanding its engagement with the private sector, as well as other key areas, in order to better direct and optimise its efforts in this area (OECD, 2018[96]). This could lead to more informed decision making and proactive risk management, ensuring that investments and partnerships are resilient and can adapt to future change.
Exploring opportunities for triangular co-operation would help Luxembourg further strengthen the private sector's involvement in its co-operation efforts. It is notable that 46% of triangular co-operation projects identified by the OECD between 2000 and 2022 involved non-state actors, such as civil society organisations, academic and research institutions, and the private sector. The private sector, whose expertise and resources give it a pivotal role in achieving environmental goals, has been engaged in 13% of triangular co-operation projects with green objectives according to the Rio Markers (OECD/IsDB, 2023[97]). Luxembourg has already built up a wealth of experience in South-South co-operation. In Thailand a partnership combined the two countries' technical expertise in the fields of rural and local development, as well as vocational and technical training and education (MAE, 2020[98]), and in El Salvador, Luxembourg contributed to the national response to the COVID-19 pandemic through a triangular co-operation project with Argentina and Colombia (La Coopération luxembourgeoise, 2020[99]), which supported the creation of the country's first university hospital. More recently still, the first triangular co-operation mission between Cabo Verde and Guinea-Bissau took place, aiming to strengthen institutional relations between the two countries in the fields of vocational training and employment (LuxDev, 2024[100]). These examples show that triangular co-operation is not limited to sharing knowledge between emerging and developed countries, but also fosters synergies with a wide range of other partners, including the private sector, opening up prospects for strategic alliances and enabling Luxembourg to diversify its co-operation mechanisms.
Bilateral co-operation is based on multi-year ICPs with each country, founded on solid, long-term partnerships
Luxembourg's bilateral co-operation is based on multi-year ICPs that are anchored in long-term partnerships, thus ensuring sustainability and lasting impact. Historically, these partnerships have been established at the initiative of NGOs in Luxembourg and the partner countries, with support from LuxDev and other EU members gradually leading to more formal collaborations. This gradual approach has enabled Luxembourg to gain a thorough understanding of the sectors, countries and regions in which it operates, ensuring that its interventions are better aligned with local priorities. A notable example of this flexibility is the degree to which national funding to each programme is adapted in response to partners’ evolving needs. For three of its six partner countries (Table 1), the current ICP will come to an end in 2025 or 2026. Luxembourg could use the preparation of a new generation of ICPs as an opportunity to better incorporate a number of strategic priorities, such as engagement with the private sector, civil society and multilateral actors, while tailoring the precise modalities to the specific context of each country (Box 6 for the case of Cabo Verde).
Luxembourg plays an important role in co-ordinating technical and financial providers in a variety of contexts. In Cabo Verde, Luxembourg is widely recognised for its informal leadership role in co-ordinating the Grupo de Apoio Orçamental (Budget Support Group), where it is responsible for meetings on employment and employability and on climate action. It shares this role in two other sectoral working groups: with Portugal on health, and with the EU on energy. This is repeated in other contexts, such as in the Lao People's Democratic Republic, where Luxembourg plays a leading role in technical and vocational education and training. Luxembourg often has significant influence in its partner countries in sectors where it excels in both the depth of its relationships and its understanding of local contexts. For example, in Cabo Verde, where it is the largest bilateral development co-operation provider (providing an average of USD 17 million in 2022-23), Luxembourg is respected for its ability to tackle sensitive issues and share strategic information with other donors. The recent decision to appoint a resident ambassador illustrates Luxembourg's commitment and closeness to this country. Due to its understanding of local political, institutional and operational dynamics, Luxembourg is often regarded as a model technical and financial provider, capable of initiating dialogue on complex issues while also serving as a point of contact for other providers. It is essential that Luxembourg continues to play this leadership role in other partner countries where appropriate, building on its reputation as a trustworthy intermediary and its ability to foster international co-operation.
As Luxembourg plans to extend its co-operation to new countries and sectors, it would be appropriate to reassess the selection criteria for partner countries versus project countries or territories. At present, the criteria between categories of countries or territories are unclear and seem to translate mainly into a stronger financial commitment to existing partner countries, with 37% of Luxembourg’s bilateral ODA going to its six partner countries. The distinction between partner countries and project countries or territories also needs to be clarified further in terms of the operational criteria for engagement, not simply budgetary considerations. This reassessment could also provide an opportunity to carry out a broader analysis of risk appetite and tolerance to geopolitical and operational risks. The changing international context, with strong instability in certain regions, is already prompting Luxembourg to review its geographic and thematic priorities, with a need to ensure that its interventions remain aligned with its strategic objectives, while maximising the impact of its development assistance. This reflection could then also inform adjustments to existing co-operation instruments (Private sector engagement for sustainable development) and modalities, to better respond to the new realities of partner countries.
Luxembourg is piloting a whole-of-government approach in Cabo Verde with the implementation of the national DCE ICP Strategy, which is closely aligned with the country's national priorities. The approach involves providing additional financial resources from the Climate and Energy Fund managed by the Luxembourg Ministry for the Environment, Climate and Biodiversity. Although this approach has probably generated higher transaction costs due to intensified interministerial co-ordination, it has enabled Cabo Verde to obtain direct access to Luxembourg’s technical experts in climate and energy policy. This has provided valuable support for its national strategy in climate negotiations.
By providing sector budget support, Luxembourg uses Cabo Verde's national systems for public financial management and procurement, which are considered robust and transparent. In this way, Luxembourg is not only contributing to the achievement of sectoral objectives, but also building the capacity of local institutions to manage resources autonomously and sustainably. This model, based on the use of national systems, testifies to Luxembourg's commitment to strengthening local governance, while improving the effectiveness of its assistance. Building on its experience and active participation in the Budget Support Group, Luxembourg could consider extending budget support, as an arrangement, to other sectors where it has a long experience of bilateral co-operation.
In planning the sixth ICP (ICP VI), the MAE, the Luxembourg Embassy, and LuxDev have the opportunity to work closely with partners in Cabo Verde to choose the most appropriate modalities for assistance. The selection should be based on clear criteria and partner analysis, and modalities could range from direct management or implementation to delegated assistance, budgeted aid, or sectoral or general budget support depending on the context.
Note: under the previous government, the whole-of-government approach also received support from the former Ministry of Energy, now the Ministry of the Economy (MECO).
Source: Interviews.
Luxembourg's focus on the most vulnerable is an asset that must be nurtured
The Road to 2030 has a strong focus on poverty reduction and support for the most disadvantaged, while affirming resolute and active engagement in fragile contexts. This commitment can be seen in the geographical distribution of Luxembourg’s ODA: 74% of its bilateral allocable assistance in 2022-23 was directed towards the least developed countries and other low-income countries. In Cabo Verde, Luxembourg is investing heavily in the supply of drinking water by installing a 100% solar-powered desalination plant on the island of Brava, which has a relatively vulnerable population neglected by other donors. It is also working to help children who are not in employment, education, or training (NEET) through the employment and employability programme, to give them access to training. In addition, it is supporting local development through UNDP and UN-Habitat (providing support for local authorities to increase their own resources and local communities to improve territorial cohesion). Luxembourg also provides multi-year support to local NGOs, particularly those working on sexual and reproductive rights and child protection (MAE, 2024[101]; MAE, 2020[26]). As part of its bilateral support for the energy transition, and with the aim of involving more women, Luxembourg has worked around the difficulty of access of two remote islands to train more women to become energy inspectors and auditors. Even in countries where it does not have a major presence, Luxembourg's interventions target the most disadvantaged. In Rwanda, for example, in partnership with the French Development Agency (AFD) and German Development Bank (KfW), Luxembourg is contributing to a joint fund for local economic development and poverty reduction in the 16 most disadvantaged districts (MAE, 2024[16]).
Smoother co-operation between embassies and LuxDev would strengthen Luxembourg's influence in partner countries
Linking its development co-operation to reform initiatives that go beyond its intervention programmes would help Luxembourg to have greater impact. Given its modest size, Luxembourg prefers to restrict itself to the sectors in its partner countries and project countries or territories where it can have the greatest impact, which is commendable. In some countries, Luxembourg could exert even greater influence if it forged closer links between its bilateral programming (LuxDev) and political dialogue with the EU or multilateral partners (embassies). For example, in the Lao People's Democratic Republic, Luxembourg has endeavoured to participate in national dialogue and to establish links with labour market information systems (in addition to its technical training initiatives in several provinces in partnership with Switzerland). This advocacy role with partner countries should also help future efforts to involve the private sector (An institutional system that is fit for purpose).
Systematically involving LuxDev in discussions about future multilateral or bilateral country programming would help create stronger synergies between Luxembourg's programming and that of multilateral partners. In 2023, the MAE drew up 12 new country-level multilateral or bilateral projects under the responsibility of the relevant embassies.43 In partner countries, the embassy is the main point of contact for the various multilateral partners. In Cabo Verde, for example, dialogue with the International Labour Organization (ILO) for the employment programme, or with UNDP and UN-Habitat for the local development programme, is led by the embassy. This is despite the fact that LuxDev is involved in implementation, is actively supporting the same bodies through the same channels as its bilateral programme, and has technical experts embedded in the Cabo Verde ministries concerned. Although there are good working relations between the embassy and LuxDev, this compartmentalisation is preventing the establishment of stronger synergies between LuxDev programming and that of the EU, UN or multilateral development banks. LuxDev's role in direct implementation of EU delegated co-operation (where there is clearly a direct line of communication) further blurs this administrative compartmentalisation. Finally, recent experience in the Sahel (see below) shows that all actors and all funding and programming channels need to be brought to the table to find sustainable future funding solutions in partner countries.
Luxembourg's different modalities and close dialogue with its partners make it possible to support them towards greater sustainability
Luxembourg has a variety of modalities it can use to support partner countries over the long term (ranging from direct management or implementation to delegated assistance, budgeted aid, or sectoral or general budget support). In many of its partner countries, Luxembourg is moving away from direct management of projects towards a sectoral approach to implementation that makes greater use of national systems. LuxDev's wish to increase its remit ( An institutional system that is fit for purpose) will undoubtedly require greater delegation to national partners, or recourse to budgeted aid. Budgeted aid is a halfway house between a project-based approach and budget support. The provision of this restricted and auditable budget support, which is not fungible with the national budget, was the subject of a recommendation in the 2017 peer review (OECD, 2017[19])) (Annex A). However, audits highlight that this modality carries a heavy administrative burden, particularly when it comes to recovering funds deemed ineligible, which raises questions about its long-term efficiency. In 2022 and 2023, Luxembourg offered sector budget support to four partner countries, equivalent to a total of USD 17.5 million – 2.3% of its bilateral ODA. Cabo Verde was top of the list, followed by Niger, Senegal and the Lao People's Democratic Republic.44 In Cabo Verde, sector budget support accounted for a record 40% of Luxembourg's bilateral ODA in 2022, before falling back to 17% in 2023, whereas sector budget support accounted for an average of only 4% of Luxembourg's overall bilateral assistance from 2013 to 2023 (Figure 10).
In USD million and as a percentage of gross bilateral assistance 2013-2023, at constant 2022 prices
Note: scales on each graph differ.
Source: OECD (2024[29])] OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/3c.
The sustained use of budgeted aid and sector budget support demonstrates Luxembourg's long-term commitment as a trusted partner. A recent evaluation of budgeted aid in Senegal revealed a number of key findings. These include the need to simplify administrative processes (e.g. abolish pre-objection notices), to strengthen national co-ordination teams in sectoral ministries, and to consolidate monitoring and evaluation, including at local authority level for the vocational training and health sectors (MAE, 2024[28]). This provides a template for equitable partnerships and local ownership, although there seems to be limited political interest in pursuing budget support within the Luxembourg administration (see the example of Benin below). Nevertheless, Senegal's fifth ICP (ICP V) includes a potential return to sector budget support (MAE, 2024[28]), which had fallen sharply in 2022 and dried up completely in 2023 (OECD, 2024[29]). Budget support is not only a recognition of progress, it can also help to develop a climate of confidence and strengthen public financial management. This has happened, for example, in Cabo Verde, where public financial management has improved markedly over the past 15 years. In 2023, an electronic public procurement platform was set up to regulate the electronic processing of public procurement procedures, which was a strong signal of the Cabo Verde government's commitment to improving efficiency and transparency (Duarte Campos et al., 2023[102]).
Bilateral co-operation is currently slowing down in the central Sahel following several coups d'état, demanding a deeper reflection on engaging in politically constrained contexts
The major co-operation efforts in the central Sahel countries where Luxembourg's co-operation has been very active (Burkina Faso, Mali and Niger) were affected by a political context that had become problematic. Although Luxembourg is not politically identified as being involved in military operations with other actors, unconstitutional regime changes and the rapid political reconfiguration of this region have forced Luxembourg, like all other DAC members, to reposition itself and review the nature of its engagement. In particular, it has diversified its intervention methods and adapted existing intervention mechanisms (Box 7). With political dialogue becoming more difficult with several partner countries in the region, Luxembourg's experience in the central Sahel should feed into a process of reflection already underway within the DAC on the challenges of engagement in these contexts.
The government announced its decision to suspend its co-operation programmes in the countries of the central Sahel, but without informing the public and stakeholders of the consequences. Several articles appeared in the press in early February 2024 (Heindrichs, 2024[103]), including in the countries concerned (Camara, 2024[104]) and even in the French-speaking Russian press (African Initiative, 2024[105]), highlighting the political dimension of this decision for DAC members and its impact on the region. Luxembourg, which has now been forced to redirect the 30% of its bilateral commitments allocated to the Sahel, should not underestimate the scale of this decision either in budgetary terms or in terms of historical commitment, especially considering that its development co-operation relations with Burkina Faso, Mali and Niger began in the 1990s (MAE, 2024[9]).
By gradually moving closer to countries such as Benin and Togo Luxembourg is now seeking partnerships that offer more promising development prospects. To retain close ties with the West African region it knows well, Luxembourg has committed EUR 60 million to Benin up until 2026, when elections and a new national development plan will enable better tailoring of the future ICP. In northern Benin, it is contributing to short-term emergency assistance provided through UNHCR, WFP and Humanity & Inclusion (the latter focusing on dismantling improvised explosives), while it concentrates its bilateral programme in the south of the country, where the risks are lower. Other activities include delegated co-operation implemented by AFD and Enabel as part of Team Europe initiatives. In Togo, there is promising potential for implementing programmes in three sectors in conjunction with the EU, France (AFD and Expertise France) and Germany (GIZ), as well as the United Nations. The use of multilateral channels will also have a greater impact in this context.
Any plans to extend efforts to other partner countries or regions must comply with the principle of maintaining engagement and working with and through partners. Some of these potential countries also display signs of great fragility.45 To better prepare for future challenges, it will be essential to fully learn from experiences in the Sahel, particularly in terms of risk management and adapting to complex, unstable environments. For the time being, Luxembourg has decided to adopt a cautious approach to risk (e.g. avoiding northern Benin), which is understandable given recent developments in certain provider regions. Thus, although the possibility of budget support for Benin has been considered, the Luxembourg authorities believe that it will take a few years before a sufficiently confident relationship can be established. However, this position overlooks the potential of budgetary support as a lever for building trust, and not only the result of an existing partnership of trust. At the same time, the risks related to this fragility need to be taken into account and managed proactively to maximise the effectiveness of co-operation. Luxembourg currently relies on risk assessments carried out by the EU and the United Nations, and it has established a memorandum of understanding with the International Crisis Group to receive in-depth risk analysis. However, these assessments are not included in the ICPs, and it remains to be clarified how these tools are practically incorporated into decision making.
The current situation shows that Luxembourg needs to define a responsible exit strategy, to be ready to withdraw responsibly from partner countries if the situation so requires. The lack of clear communication within the Luxembourg government and with NGO providers has created misunderstanding and frustration. In particular, the absence of any official, detailed communication about the termination of bilateral co-operation with Mali, Burkina Faso and Niger, which was announced only at a press briefing with Minister Xavier Bettel, created uncertainty about Luxembourg's international co-operation policy, making it difficult for non-government development organisations (NGDOs) to plan and adjust. The same applies to the lack of consultation on the search for new provider countries, which is making it impossible to draw on the expertise of Luxembourg’s civil society, as its requests for information on the terms and criteria for these partnerships remain unanswered. These uncertainties underline the need for clear, transparent and co-ordinated communication, not least to pre-empt the risk of misunderstandings or tensions with stakeholders. When it decides to exit from a country, the government could systematically hold prior consultations with all parties concerned, in order to maintain a certain degree of trust, manage expectations and facilitate transition and redirection of Luxembourg's co-operation in as collaborative a way as possible under these circumstances.
Luxembourg would benefit from a system for analysing fragility and risk at both national and project level to provide a framework for engagement and disengagement in contexts that can change rapidly. In its general development strategy, Luxembourg had envisaged the possibility of withdrawing from co-operation in partner countries, but more because of sustained economic growth in the partner country, rather than because of a stalemate in the bilateral political relationship (MAE, 2019[5]). Rapidly changing international relations require a detailed understanding of political and development dynamics in all partner countries. The risk matrix appended to the ICP, for example, considers the programmatic risks that could hinder the smooth running of a programme (human resources, technical advice and support, monitoring and evaluation system), but not those related to the various dimensions of fragility in these contexts. In addition, disengaging from a country in times of crisis can also have a political cost that needs to be considered.
Experience in the Sahel has put Luxembourg's engagement to the test but has shown that with the right co-operation mechanisms, support is still possible in a complex political and security environment
Luxembourg’s disengagement from the Sahel takes the form of non-renewal of current bilateral projects, rather than total withdrawal. Compared with Mali and Burkina Faso, a larger proportion of Luxembourg's ODA to Niger was channelled through non-government or multilateral partners (44% in 2022–23) (Figure 11). For all three countries, the largest share of ODA in 2022–23 still came from the public sector (68% for Mali, 64% for Burkina Faso and 57% for Niger) (OECD, 2024[29]). However, there are certain differences between the three countries. Luxembourg has not entirely withdrawn from Mali and Burkina Faso but has considerably scaled back its presence in these countries. In Niger, by contrast, it suspended all bilateral co-operation immediately after the military coup d'état in 2023 (RTL Today, 2023[106]; MAE, 2024[107]).
Luxembourg has been able to adapt in the central Sahel countries, for example by changing priorities and adjusting the balance between different partnerships and types of activity (Box 7). Retaining modalities such as budgeted aid or sector budget support, in conjunction with national and local authorities, has made it possible to preserve a certain level of confidence and achieve development gains beyond a project-based approach. For example, the earmarked account in Burkina Faso targets sub-national authorities, decentralised sector budget support has been set up in Mali, and pooled funds are being used in the water and education sectors in Niger. This variety of modalities demonstrates Luxembourg's flexibility to adapt to local risks and contexts. Engaging with the local private sector has also opened up avenues for sustaining people's hope and maintaining a link with the region. Mechanisms such as the LuxAid Challenge Fund have been able to support local entrepreneurship and innovation initiatives in food security and distance learning in Burkina Faso and Mali (LuxDev, 2024[108]). Finally, intensified co-operation with multilateral organisations, which have not suspended operations has played an essential role in these fragile contexts. Luxembourg's support for the Office of the High Commissioner for Human Rights in its work on inclusive governance in the Sahel is a good complement to its bilateral programming in Benin and Togo. In Niger, for example, co-operation programmes with UNFPA and the World Food Programme (WFP) (MAE, 2024[107]) have enabled Luxembourg to benefit from their expertise and local presence and to remain involved in broader collective efforts, while respecting political constraints. Similarly, through Team Europe and its humanitarian support, Luxembourg will continue to stand by the people of the Sahel countries.
Changes in Luxembourg's ODA to Burkina Faso, Mali and Niger as a result of political changes in these countries, in USD million
Source: OECD (2024[29]) OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/3c.
Strong, ongoing engagement with civil society can facilitate a more local approach to development co-operation, particularly in fragile contexts. Despite announcing the end of bilateral co-operation with Niger, Mali and Burkina Faso, Luxembourg has repeatedly reaffirmed its support for civil society in the region, and through LuxDev is exploring ways of delegating more decision-making power. This approach was welcomed by the Luxembourg Circle of development NGOs, which pointed out that international NGOs, and especially local NGOs, have built up networks of local actors, enabling them to operate in remote areas often neglected by the national administration. They play a crucial role in providing basic services and humanitarian assistance to the most vulnerable populations, for example by building emergency schools for internally displaced persons or setting up healthcare centres in isolated villages (Cercle de Coopération, 2023[109]). However, the main challenge for local NGOs lies less in their operational capacity than in their business model. Despite numerous capacity-building programmes, these organisations remain financially vulnerable, especially in countries where national funding opportunities are limited. It will therefore be essential to continue to support a more local approach to development co-operation, by providing flexible and sustainable financial support to local NGOs to make them more self-sufficient and to preserve civic space.
Maintaining engagement with the most vulnerable populations and supporting a partner country when political dialogue breaks down is a challenge that the DAC is still committed to meeting (OECD, 2023[110]). During these periods, the lack of co-operation restricts the range of development support on offer. In the early 2020s, unconstitutional changes in political regimes in the three countries of the central Sahel (Burkina Faso, Mali and Niger) led to various degrees of deterioration in political dialogue with DAC members. For Luxembourg, which had invested a significant proportion of its development and diplomatic efforts in these countries, the stakes were high.
Aware that it is legitimate to remain engaged without ignoring factors of instability, Luxembourg relocated its diplomatic services to Dakar, where a resident ambassador represents Luxembourg's interests in Burkina Faso, Mali and Niger.
Luxembourg took time to analyse the situation in conjunction with its European providers, before deciding to announce the non-renewal of bilateral co-operation in February 2024, while seizing also the opportunity to test different options for remaining engaged and continue to assess the chances of renewing bilateral co-operation, conditional on a return to constitutional order.
Ongoing operations under the various national ICPs will continue until the end of their term. In Mali, for example, ICP III had been extended to the end of 2022 but was modified following the coup d'état in 2021. In some cases, programmes financed by LuxDev and implemented either by NGOs or local partners will run until 2025.
Luxembourg has used a number of different options in response to the deterioration in the co-operation context:
Transfer of budgeted aid to civil society partners. In Burkina Faso in 2023, for example, educational continuity was ensured through civil society in areas affected by the security crisis through the support programme for the education and training sectoral plan, in partnership with the Ministry of National Education, Literacy and Promotion of National Languages (LuxDev, 2024[14]).
Delegated EU co-operation and pooling of resources. For example, in Niger in 2023, Luxembourg contributed to the common fund supporting implementation of the National System for the Prevention and Management of Food Crises (DNPGCA) (LuxDev, 2024[14]). LuxDev is also continuing to implement EU funds in Burkina Faso. Delegating to European providers, for example under Team Europe initiatives, provides a way to continue supporting priority programmes in contexts where direct action is becoming more difficult.
The private sector partnership fund remains operational through the Business Partnership Facility and LuxAid Challenge Fund, and it continues to receive requests from companies in the Sahel, particularly for food security initiatives (LuxDev, 2024[111]).
Funding for local organisations, which is still possible thanks to greater involvement of civil society.
A more regional approach to "wait and see" by establishing an embassy in Benin in September 2023 and an accredited ambassador in Togo.
Finally, humanitarian assistance remains an important component of Luxembourg's engagement in Burkina Faso, Mali and Niger.
Source: LuxDev (2024[14]), Annual Report 2023 https://luxdev.lu/files/documents/RAPANN_2023_EN_spread_light.pdf; LuxDev (2024[111]), MAE/023 Private Sector Engagement Fund, https://luxdev.lu/en/activities/project/MAE/023; OECD (2023[110]), OECD DAC High Level Meeting Communiqué 2023, https://one.oecd.org/document/DCD/DAC(2023)56/FINAL/en/pdf
Luxembourg is adapting to crises and a more unstable world
The humanitarian-development-peace nexus is highly relevant in difficult contexts (OECD, 2019[112]). In this context, the peace pillar does not refer to security actions, but rather to the objectives of peace and stability that development assistance can help to achieve (OECD, 2024[113]). Although the peace pillar was omitted from The Road to 2030 (MAE, 2019[5]) and the 2022 Humanitarian Action Strategy (MAE[114]), and despite a decline in the share of Luxembourg’s ODA going to peace (from peaks of 9% in 2016 and 2019 down to 5% in 2022 and 7% in 2023),46 Luxembourg remains a significant actor in this area and several major projects are clearly supporting ODA for peace; with an increase in volume in 2023 (Figure 12). Luxembourg provides direct support to multilateral and non-government human rights organisations, combined with legislative work in several countries (OECD, 2023[115]). This is a good approach to help create an environment in which human rights defenders are seen as contributing to a positive development trajectory.
Humanitarian assistance remains an important element of Luxembourg’s crisis response instruments. Between 2017 and 2023, Luxembourg gradually increased not only the volume (Figure 12) but also the share of humanitarian assistance in its bilateral ODA, rising from 18% to 24% (OECD, 2024[29]), well above the 15% indicated in its General Co-operation Development Strategy (MAE, 2019[5]). Luxembourg has improved its humanitarian assistance, which is now particularly flexible for its implementing partners. Although the humanitarian and development budgets remain separate, DAC members commend the flexibility in activities that can be pragmatically supported by these two budgets. For example, UNHCR's digital support for refugees does not fall neatly into a single category of "development" or "humanitarian".
Breakdown of Luxembourg's bilateral ODA between humanitarian assistance, fragile contexts and peace, 2016-22 (in USD million, constant 2022 prices)
Note : Peace ODA refers to peace-seeking sectors using the following Creditor Reporting System sector codes: 15110: Public sector policy and administrative management; 15111: Public finance management (PFM); 15112: Decentralisation and support to subnational government; 15113: anti-corruption organisations and institutions; 15130: Legal and judicial development; 15150: Democratic participation and civil society; 15152: Legislatures and political parties; 15153: Media and free flow of information; 15160: Human rights; 15170: Women's rights organisations and movements and government institutions; 15180: Ending violence against women and girls; 15190: Facilitation of orderly, safe, regular and responsible migration and mobility; 15210: Security system management and reform; 15220: Civilian peace-building, conflict prevention and resolution; 15230: Participation in international peacekeeping operations; 15240: Reintegration and SALW control; 15250: Removal of landmines and explosive remnants of war; and 15261: Child soldiers (prevention and demobilisation).
Source: OECD (2024[29]) OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/3c.
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← 1. Most of Luxembourg's co-operation activities are focused on a limited number of countries, referred to as "partner countries". Activities in these countries are governed by Indicative Co-operation Programmes (ICPs). These are multiyear bilateral co-operation programmes targeting priority sectors such as education, health and local development. Particular priority is given to least developed countries (LDCs), especially those with long-term partnerships and historical ties. In addition to partner countries, Luxembourg's co-operation activities support projects in a number of other countries or territories, known as "project countries or territories".
← 2. The Department of Energy at the Ministry of the Economy, formerly the Ministry of Energy and Spatial Development.
← 3. This EUR 36.3 million project started in April 2024 for a period of five years. For more information, see: https://proman.lu/.
← 4. This amount corresponds to co-operation modality H01 in the DAC data. This is above the average for DAC member countries, which spent 0.2% of their bilateral ODA in 2021-22 on development outreach.
← 5. The Road to 2030 strategy devotes a page to communicating results, and the latest communication strategies from the Ministry of Education, Children and Young People and the Ministry of Foreign and European Affairs, Defence, Co-operation and Foreign Trade (MAE) date from 2011 and 2012.
← 6. Recent evaluations of NGOs running development awareness-raising activities in Luxembourg highlight the role they play in schools and cultural centres – see for example https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/politique-evaluation/evaluation-ong/2021/eval2021003-rsum-cns.pdf; https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/politique-evaluation/evaluation-ong/2021/eval2021003-rsum-cns.pdf; https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/politique-evaluation/evaluation-ong/2021/eval2021003-resum-excutif-astm.pdf and https://cooperation.gouvernement.lu/dam-assets/cooperation-au-developpement/politique-evaluation/evaluation-ong/2021/eval2021003-rsum-padem.pdf. The Centre d'Information Tiers-Monde (CITIM), run by Action Solidarité Tiers-Monde, whose mandate is fully funded by the Luxembourg government, has a specialist North-South library, a space for global citizenship education, a meeting and discussion centre, and a training area. Together with the Institut de Formation de l'Éducation Nationale (National Education Training Institute), development NGOs also train teachers in global citizenship, and in 2021, the Directorate for Development Cooperation and Humanitarian Affairs co-financed 12 annual projects and 13 three-year framework agreements for a total budget of EUR 2.2 million.
← 7. See page 18: "Luxembourg will continue to channel around 20% of its ODA through NGOs and civil society actors, helping to strengthen their specific role as the voice of the most vulnerable and to promote inclusive governance, accountability and respect for human rights."
← 8. With a maximum annual amount of EUR 300 000 and 60-80% co-financing.
← 9. According to 2023 data from Luxembourg, the country has granted around USD 437 180 to women's rights organisations and movements and government institutions (sector code 15170), notably in Afghanistan, Burkina Faso, Lao PDR, Niger and Uganda.
← 10. The Interministerial Committee meets six times a year. The Assises 2024 de la Coopération Luxembourgeoise took place on 16 and 17 May 2024. The theme was "Technology and innovation in development co-operation: what are tomorrow's solutions to today's global crises and challenges?" On the second day of the event, the Cercle focused on "Strengthening gender equality and women's empowerment: the potential and limitations of technological innovation".
← 11. The Ministry of Finance, the Ministry of Foreign Affairs and the Ministry of the Environment.
← 12. This was emphasised at the Luxembourg Council of Government in September 2019.
← 13. The sustainability check tool is accompanied by guidance and documentation on the 10 fields of action. The 7th field of action focuses on halting environmental degradation and respecting natural resources, the 8th on climate change adaptation and sustainable energy, while the 9th addresses the eradication of poverty and the coherence of sustainable development policies. The evaluation indicators for the 9th field of action relate to the increase in ODA, including to the least developed countries, the reduction in public debt in terms of GDP, the increase in the amount invested in projects to support higher education, the increase in the proportion of foreign students from developing countries, and the increase in study grants.
← 14. The evaluation will also provide an opportunity to consider the administrative burden involved, and the advantages of auditing over other regulatory tools.
← 15. Eighty-six per cent of people in Luxembourg believe that Luxembourg should make the financial sector accountable to prevent the financing of companies whose activities may be linked to human rights violations and environmental damage. For more information, see: https://www.initiative-devoirdevigilance.org/post/appel-au-gouvernement-assurer-une-transposition-ambitieuse-pour-garantir-un-devoir-de-vigilance.
← 16. In 2021-22, Luxembourg committed 35.3% of its projected bilateral allocable aid to gender equality and women's empowerment as a principal or significant objective (compared with 80.5% in 2019-20). The DAC average for 2021-22 was 43.3%. This corresponds to USD 124.2 million in bilateral ODA for gender equality. The decrease seen in 2021-22 is partly explained by the low proportion of Luxembourg's humanitarian assistance which was allocated to gender equality objectives (0.3%).
← 17. According to data provided to the OECD, earmarked contributions (by project type), transiting through the multilateral channel (channel category=4xxxx), non-humanitarian (sector code≠ 72xxx, 73xxx, 74xxx) decreased in number from 2020 to 2022 (falling from 19 to 11 projects) and increased in volume (from USD 700 000 in 2020 to USD 1.1 million in 2023).
← 18. This amount was found by searching the description field of Luxembourg’s reporting to the OECD. Luxembourg does not identify administrative costs by code. Similarly, Luxembourg does not disaggregate its ODA reported to the OECD by government body or agency even though LuxDev, for example has its own agency code against which to report aid activities.
← 19. Development finance institutions have a dual mandate: to pursue development objectives and to generate returns on investment.
← 20. In 2021, the European Union's external financing mechanisms were brought closer together, so that grants, guarantees and public-private finance will come under the same legal umbrella with the adoption of the Global Europe Neighbourhood, Development and International Cooperation Instrument.
← 21. The internal whistle-blowing mechanism for Lux-Dev staff and third parties has been strengthened by the creation of a dedicated internet portal, enabling Lux-Dev staff, suppliers, providers and any other beneficiaries of the agency's activities to report fraud or integrity alerts, including acts of bribery.
← 22. In particular, Lux-Dev representatives referred to ex ante auditing during the appraisal phase, followed by ex post auditing during project implementation and completion. Where necessary, Lux-Dev may mandate the outsourced internal auditor or an external auditor to conduct further investigations or inquiries into suspected fraud. Despite its efforts, no cases of bribery of foreign public officials have been detected to date, and contractual preventive anti-bribery measures are not applied to Lux-Dev's providers and subcontractors, as highlighted by the Phase 4 report on the implementation of the OECD Anti-Bribery Convention.
← 23. This applies in particular to controls relating to tax evasion and non-cooperative countries and territories, efforts to combat money laundering and efforts to combat terrorist financing. For more information, see: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ%3AC%3A2019%3A191%3AFULL.
← 24. According to data supplied to the DAC, Luxembourg provided support for provider countries' statistical capacities of approximately USD 723 000 (constant 2022) on average per year in 2022-23.
← 25. Summaries of these evaluations are routinely published on the MAE and LuxDev websites. The government and parliament examine all of the resulting recommendations.
← 26. More recent thematic evaluations cover digital development, research and financial inclusion.
← 27. For example, the Policy and Operations Evaluation Department at the Dutch Ministry of Foreign Affairs conducts thematic evaluations. For more information, see: https://english.iob-evaluatie.nl/.
← 28. In this context, the MAE supported the organisation of the International Francophone Evaluation Forum (FIFE 2023) by the RFE and SOLEP in Luxembourg, the first FIFE in the northern hemisphere.
← 29. For example, the diversification of issues covered by LuxDev (digital, private sector engagement in innovative and impact finance), the integration of cross-cutting themes (gender, environment, climate, human rights), new provider countries, and the evolution of the general AI context mean that an update is essential.
← 30. Work has begun to recruit an expert (scheduled to start in January 2025) and this person will be responsible for supervising the communities of practice and making the phases of the project/programme cycle more receptive to learning issues.
← 31. For example, in considering how to improve its budgetary support for Cabo Verde’s health sector (Luxembourg currently has no technical experts within the Ministry of Health), it will be important for LuxDev to reflect on the possibility of complementary support in view of a possible withdrawal or reduction of technical assistance in its partner countries in the medium to long term. The manual Piloter le changement (Managing Change) written by LuxDev in collaboration with AFD and BOM, based on experiences in West Africa, provides a good starting point for this reflection.
← 32. The strategy calls for additional resources to be mobilised through public-private partnerships and innovative financing mechanisms, in addition to subsidies, to contribute to the financial inclusion of vulnerable populations and support the development of local economic opportunities.
← 33. Construction of the Tech Park was financed by an initial loan of EUR 31.6 million from the African Development Bank Group. In July 2023, the Bank granted an additional loan of EUR 14 million to make the park more resilient to climate change and more conducive to business development, bringing the total to EUR 45.59 million. The park has been operational since November 2023, but due to ongoing expansion work, the official opening is scheduled for 2025.
← 34. The Global Gateway Initiative is a European Union strategy for mobilising public and private investments in infrastructure projects like clean energy, digital connectivity, and transportation, and for helping bridge global infrastructure gaps in a sustainable and inclusive way. It aims to support developing countries by improving access to essential services, fostering economic opportunities, and strengthening local resilience, while promoting high environmental and social standards. For more information, see: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/stronger-europe-world/global-gateway_en.
← 35. According to a 2017 study by the Centre for Intercultural and Social Studies and Training (CEFIS), remittances from the Cabo Verde diaspora represented an average of 11% of GDP over 2005-10. This is the highest rate in Africa. In comparison, foreign direct investment accounted for only 4% of Cabo Verde's GDP: For more information, see: https://integratioun.lu/wp-content/uploads/2018/09/Diaspora-capverdienne-au-Luxembourg.pdf.
← 36. The declaration proposes specific actions such as promoting dialogue between consumer and producer countries on adequate minimum wages and incomes, supporting the International Labour Organization (ILO) in developing international definitions and indicators, and supporting social dialogue in developing countries.
← 37. There is no evidence that adopting mandatory due diligence legislation would encourage financial service providers to migrate to countries where such legislation is lacking. On the contrary, it could even be positive for the country, serving as a kind of national brand image like the LuxFLAG label for compliance with sustainability/ESG/impact criteria. For more information, see: https://mae.gouvernement.lu/dam-assets/directions/d1/pan-entreprises-et-droits-de-l-homme/study-potential-hr/A-study-on-potential-human-rights-due-diligence-legislation-in-Luxembourg.pdf
← 38. It should also be noted that these are three separate instruments aimed at direct collaboration with companies. They will therefore be added to the various instruments available to the Inclusive and Innovative Finance Department, which focuses on mobilising private finance through innovative financing tools and projects.
← 39. In 2023, the MAE raised USD 22.7 million from the private sector through simple co-financing. This represents an increase of 50.2% compared to 2021.
← 40. Figure 8 focuses on the instruments used centrally. LuxDev has also engaged the local private sector through numerous projects and programmes in various countries (Senegal, Mali, etc.). To date, LuxDev has used contracting tools that were not adapted to the specific nature of the private sector. A new approach to providership with the private sector has been developed and will be available to country offices from late 2024. However, the main challenge will not be to raise funds (the financial leverage effect is low), but rather to mobilise innovation and implementation capabilities.
← 41. Eligibility sectors have been dropped, so that any innovative project that can demonstrate that it contributes to the SDGs in a developing country is now eligible. However, innovative solutions based on the intelligent use of emerging technologies, which are promising for implementation in often difficult contexts, preferably Luxembourg's provider or project countries, will continue to be favoured.
← 42. Luxembourg is a pioneer in launching mixed financing mechanisms with the launch of the ABC fund with the International Fund for Agricultural Development (IFAD) and the BUILD fund with the UN Capital Development Fund (UNCDF). In addition, Luxembourg will participate as the only EU Member State (directly participating) in the European Commission's Global Green Bond Initiative, alongside development banks and multilateral banks.
← 43. According to the MAE’s annual report: "In 2023, new multi-bi projects were signed with the ILO in Cabo Verde and Rwanda, with UNDP in Ethiopia, with UNFPA in Benin, Mali, Burkina Faso and Mongolia, and with UNICEF in Syria, Jordan and Kosovo. In addition, the Directorate for Development Cooperation and Humanitarian Affairs has decided to support joint initiatives such as a programme implemented with UN Women, UNFPA and UNHCR in Brazil, and a programme implemented with UNDP and UN-Habitat in Cabo Verde.”
← 44. In both 2022 and 2023, Luxembourg's sector budget support targeted four countries. In Cabo Verde, sector budget support (USD 9.3 million over two years) focused on the global response/food crisis, as well as the employment and employability and health sectors. In Niger, sector budget support (USD 6.4 million over two years) was earmarked for water and sanitation and the global response/food crisis. In Senegal, sector budget support (USD 1.7 million in 2022) was earmarked for vocational and technical training and employability. In Lao PDR, sector budget support amounted to USD 4 072 in 2022 and funded a local development programme in the provinces of Bokeo, Bolikhamxay, Khammouane and Vientiane.
← 45. Benin and Togo are among the most fragile countries in the OECD's Fragility Framework 2022, which reviews 175 countries.
← 46. The OECD Fragility Framework tracks ODA to peace-seeking sectors using the following Creditor Reporting System sector codes: 15110: Public sector policy and administrative management; 15111: Public finance management (PFM); 15112: Decentralisation and support to subnational government; 15113: anti-corruption organisations and institutions; 15130: Legal and judicial development; 15150: Democratic participation and civil society; 15152: Legislatures and political parties; 15153: Media and free flow of information; 15160: Human rights; 15170: Women's rights organisations and movements and government institutions; 15180: Ending violence against women and girls; 15190: Facilitation of orderly, safe, regular and responsible migration and mobility; 15210: Security system management and reform; 15220: Civilian peace-building, conflict prevention and resolution; 15230: Participation in international peacekeeping operations; 15240: Reintegration and SALW control; 15250: Removal of landmines and explosive remnants of war; and 15261: Child soldiers (prevention and demobilisation).