31 Jan 2014

Through Thick and Thin: Making EU aid to Egypt more effective in a turbulent political climate

By: Isabel Bucknall and Alex Odlum

As demonstrated by the Muslim Brotherhood’s widespread boycott of this month’s constitutional referendum and the ensuing post-poll violence, it is clear that deep-seated political tensions are unlikely to recede swiftly in Egypt. The road to democracy will continue to be long and hard, and donor assistance efforts will have to endure through thick and thin if they are to have any impact. To date, the EU’s assistance strategy has been unable to handle Egypt’s tumultuous political realities. If the EU is to offer effective assistance to support Egypt’s democratic progress, it must significantly change its strategy.

EU aid to Egypt channeled through the European Neighbourhood Partnership (ENP) is manifestly ineffective in its current format. Tying EU assistance to Egyptian progress on governance standards has proven too rigid. Setting such conditions is incompatible with a turbulent political atmosphere. Substantial reform is urgently required to scrap conditionality as the overarching rationale of the ENP, replacing it with a more selective, trade-based approach that supports Egyptian development amidst and despite political chaos.

In 2007, the EU launched a €1 billion European Neighbourhood Partnership programme to support Egypt’s political and economic development. It has proven futile. A European Court of Auditors report published last year found that funds intended to back Egyptian government reform in democracy, human rights, good governance and justice were either ineffectively spent, or not disbursed at all. Of €17 million allocated to the Promotion and Protection of Human Rights and Civil Society between 2007-2010, for example, only 1.8 million was spent. As conditions remained unmet, funds failed to leave EU coffers and projects were perpetually grounded. The result? Negligible, if any, EU impact on Egyptian democratic progress.

Conditionality, even when based on partnership and negotiated standards, inevitably results in impassable deadlocks in unstable political environments. Devolving ownership by setting conditions that tie in with a country’s own development agenda are the key to making conditionality work. But when that development agenda, and indeed the government itself, are changing at a rapid rate – Egypt has had four different heads of state and 2 constitutional referenda since January 2011– previously set conditions are unlikely to be fulfilled by rival politicians.

Of course, such chaos may have been difficult to foresee before 2011. Yet, rather than brace for a long and divisive struggle for power, EU policy hastened to deepen its commitment to conditions that had been agreed with a government just toppled by sheer popular force. Thus far, EU calls of “more for more” have been drowned out by the retreat of democratic progress and descent into political instability.

Scrapping conditionality and reframing the ENP around selectivity must be the first step of reform. This approach would allow Egyptians to regain ownership, with the Government designing and implementing their own targets for good governance prior to receiving full aid funding. Seed-funding and technical assistance would be essential to kick-start the process and provide the Egyptian government with initial momentum. This model would allow Egypt to signal its own strong commitments to reform, stimulating more donor and private investment, in turn producing a further incentive for the government to push forward on social, political and economic reform.

A move from conditionality to selectivity drastically cuts EU funding outlays for governance support to Egypt. As little as €10 million over 2 years would be required, according to baseline figures of the Millennium Challenge Corporation (MCC), an independent US government aid agency who works using the selectivity model. It would be false, however, to equate a renewed emphasis on efficiency and effectiveness in development aid disbursements, with abandoning Egypt altogether. Selectivity can only succeed if it is matched by a parallel commitment to economic support through deeper cooperation on free trade.

Current bilateral trade arrangements between the EU and Egypt stem from 2004 ENP agreements limiting manufacturing and agricultural tariffs. To foster tangible impact through trade, the EU must substantially deepen its commitments to Egypt and the surrounding region. Talks that began in 2012 on a Deep and Comprehensive Free Trade Area encompassing Tunisia, Jordan, and Morocco need to be urgently revived.

A DCFTA trade package should comprehensively eliminate agricultural and manufacturing tariffs and all other barriers to trade. Technical assistance should also be lent to Egypt to align regulations with EU standards to the furthest extent possible without jeopardizing Egypt’s trade compatibility with other global partners. Finally, the DCFTA should relax rules of origin restrictions on goods assembled in Egypt and other Southern Mediterranean countries, allowing benefits to accrue in advance of final product transformations. Smooth flows of component trade between producers in Egypt and high-end assembly plants in Europe boast great potential for mutual benefit and should be encouraged, rather than inhibited by arbitrary origin rules.

Agreement on a DCFTA will profit both Egypt and the EU, not only economically, but also politically. Given that dire socio-economic malaise contributed to protestors demand for Mubarak’s overthrow in 2011, political tensions are likely to soften if economic growth can be boosted through trade and translated into visible improvement to livelihoods.

2014 holds a host of democratic opportunities and challenges for Egypt. Momentum for reform should rightly be driven from within. The EU must also strike the balance of being a responsible neighbor, and treating Egypt as an equal partner, listening to and accepting the realities of the Egyptians’ self-determined struggle for freedom and prosperity. Implementing an assistance approach that combines selectivity and free-trade is a legitimate response to the socio-economic and political demands of Egypt: “Bread, Freedom and Social Justice”.

Isabel Bucknall and Alex Odlum are Master’s of Public Policy candidates at the Hertie School of Governance in Berlin.