3. Germany’s financing for development

Starting in 2010, Germany progressively increased its official development assistance (ODA), and it became the second largest DAC provider country in 2016. In 2020, Germany’s ODA increased by 13.7% over the previous year to reach USD 28.4 billion on a grant equivalent basis1, or 0.73% of gross national income (GNI). Germany was one of only six DAC countries that exceeded the international ODA to GNI target. Germany had reached the 0.7% target in 2016. In the same year, there was a 21% increase in net ODA – the biggest increase in its ODA budget since 2010 – even after excluding in-donor refugee costs. Since 2016, Germany’s ODA has reached over USD 20 billion annually. ODA is likely to exceed USD 20 billion in 2021 as well.

Germany has demonstrated global solidarity and backed its commitment to sustainable development, increasing ODA for special initiatives in response to the refugee crisis and more recently to the effects of COVID-19 in partner countries. BMZ’s four special initiatives have resulted in notable increases of German ODA for the areas of general environmental protection; disaster risk reduction; conflict, peace and security including support in situations of forced displacement; small and medium-sized enterprise (SME) development, employment creation, technical and vocational education and training (TVET); and energy conservation. Responding to the effects of COVID-19 on developing countries, the Federal Ministry for Economic Cooperation and Development (BMZ) reallocated funds that could not be spent and secured EUR 3.1 billion in new funding for 2020-21 (Box 3.1). Within Germany’s gross ODA (on a cash-flow basis) in 2019 (USD 26.5 billion), 83% of ODA was provided in the form of grants and 17% in the form of loans. The share of bilateral ODA to fragile contexts (24.1%) was below the DAC average in 2019 (Chapter 7A).

Germany provided 0.11% of GNI as ODA to LDCs in 2019, which includes both bilateral and multilateral channels, and is below the 0.15% target. The volume of bilateral ODA to LDCs has increased since 2015 although not at the same rate as overall bilateral ODA. The top five recipient countries of Germany’s ODA in 2018-19, in descending order, were India and China (in both instances, the volume is attributed to high imputed student costs) followed by Syrian Arab Republic, Indonesia, and Iraq. None of these five are LDCs, and only two LDCs (Afghanistan and Yemen) figure in the top 20 recipients of German development co-operation. The implementation of BMZ 2030 (Chapter 2) will result in eight fewer priority partner countries in the LDC category (Federal Government, 2020[1]), meaning that Germany will have to increase its efforts to maintain the current LDC spend; the annual programming process will be one way to monitor this (Chapter 2). The highest share of gross bilateral ODA allocated by income (44%) was directed to lower middle-income countries in 2019, 33% went to upper middle-income countries, and 23% went to LDCs and other low-income countries.2

In 2018-19, 23% of gross bilateral ODA was disbursed as concessional loans; 77% was provided in the form of grants, with technical co-operation accounting for 16% of the grant total. Since 2015, the share of grant disbursements has increased compared to the share of loan disbursements. In 2018-19, over 90% of loans were extended to middle-income countries. About one-quarter (26%) of loans allocated by region went to governments on the African continent and almost half (47%) to Asia. The volume of technical co-operation has increased, as has the share of grants for technical co-operation: USD 2.8 billion in 2019 (16%), compared to USD 1.7 billion, or 14% of bilateral grants in 2015.3 Recent trends confirm that middle-income countries benefit more than low-income countries from Germany’s technical co-operation, reflecting their particular needs for technical rather than financial co-operation.4 Germany uses GIZ, its government-owned federal enterprise, as the de facto channel for most technical co-operation, but in specific instances also uses the Federal Institute for Geosciences and Natural Resources or the National Metrology Institute. As a result, Germany tends to rely less on multilateral partners to implement earmarked contributions in partner countries, except in extremely fragile contexts (Chapter 7A).

Germany has improved the timeliness of its data submission to the OECD and adheres to DAC recommendations. Germany provides good quality reporting to DAC and Creditor Reporting System databases and provided a very timely submission in 2020 (on 2019 data). Germany adheres to the DAC recommendation on untying relating to LDCs and non-LDC heavily indebted poor countries (100%); however, reporting of ex ante notifications of Germany’s untied aid offers was incomplete in 2017 and 2018. Based on what it reports, only 21% of the total value of ODA contracts were awarded to German companies. Germany’s overall untying score has steadily improved, reaching 84% in 2019 (OECD, 2020[2]). Germany complied with the DAC recommendation on terms and conditions of aid with an overall grant element of bilateral ODA commitments to LDCs in 2017-18, when it had close to a 100% grant element.

Germany’s ODA increase has been predominantly bilateral, with the share of gross bilateral ODA out of total ODA increasing to 79% (USD 18.5 billion) in 2019 from 62% in 2010 (Figure 3.1). The increase corresponds to the growth in bilateral aid earmarked and channelled through multilateral organisations over the same period. It follows, then, that the share of direct bilateral support has stayed about the same since 2010, at just over 60%, and that Germany has relied on the multilateral development system to implement its increase in bilateral ODA, much of it humanitarian assistance (Chapter 7B).

Germany’s development co-operation is more concentrated in Africa than in any other region, but the Middle East as a region benefited from the highest percentage increase in ODA since 2010. Germany’s ODA to the Middle East amounted to USD 2.9 billion in 2019 (compared to USD 463 million in 2010),5 with the highest volume of support going to Iraq and Syria. Since 2017, however, the African continent has seen the highest percentage increase in German development co-operation of any region. As a group, the six reform countries6 included in the BMZ 2030 country list, all in Africa, have benefited from an increase of 40% in gross ODA in the years 2015-19; in 2018-19, they together received 16% of Germany’s gross bilateral ODA disbursements allocated to specific countries. In 2019, 36% of bilateral ODA went to Africa and 26% to Asia, 19% to the Middle East, 11% to Latin America, and 8% to Europe.

Country programmable aid is slightly below the DAC average due to still-considerable in-donor refugee costs, humanitarian aid and imputed student costs. In 2019, country programmable aid7 was USD 9.2 billion, or 42% of Germany’s gross bilateral ODA, compared to a DAC country average of 49%. Starting in 2018, Germany substantially increased its support of partner governments’ policy reforms, with disbursements characterised as budget support reaching USD 360 million, or 2% of gross bilateral ODA, in 2019 and typically provided in the form of basket funding and policy-based loans (Chapter 5). The share of ODA related to in-donor refugee costs was 11%, or USD 3.1 billion, in 2019, less than half as much as reported in 2016 and 2017. The share of humanitarian aid has doubled to 10.2% of sector-allocable ODA since 2015, while the volume of humanitarian ODA has almost tripled to USD 2.5 billion in disbursements. Imputed student costs, or the official costs of foreign students studying in Germany, are counted as ODA and have increased by 50% since 2015 to reach USD 1.5 billion in 2019; the top five countries of origin of students in 2018-19 were China, India, Syria, Iran and Turkey.8 Core and earmarked support to non-governmental organisations constituted USD 1.7 billion, or 8% of gross bilateral ODA in 2019 compared to a total DAC average of 15% in 2019.

Most of Germany’s bilateral ODA is for social infrastructure and services. (see 2021 Development Co-operation Report profiles for more information).

Germany extends loans in line with its comparative advantage domestically to address climate change and energy generation and efficiency, including through investments in the sectors of water and sanitation and integrated urban development.9 KfW provides loans or grants depending on the per capita income of client countries; however, it can adapt depending on the concessionality needs of a specific sector or project and the expected profitability of financed projects. In Tunisia, for example, grants are provided for environmental protection, gender equality, and direct poverty-related activities (Annex C). KfW will also start to extend loans in national currencies in addition to the euro to protect the borrower from foreign exchange risk. Promotional loans, such as some of the policy-based loans, are 100% funded by KfW on the capital market backed by a guarantee of the German government. Sector or development loans such as those for the water sector in Tunisia (Annex C) are reduced-interest rate loans that, in addition to the guarantee of the German government, have an interest rate subsidy with grants from budget funds.

Germany could extend its strong political leadership and know-how on climate and the environment to women’s empowerment and gender equality. In 2018-19, Germany committed 42% of its bilateral allocable aid (USD 8.2 billion) to gender equality and women’s empowerment, equal to the DAC average of 45% in 2018-19, of which only 2% had gender as a principal objective.10 There is an opportunity to consider how the quality criteria might be more consistently applied throughout Germany’s programming, in particular in the productive sectors. In this vein, KfW is learning from similar institutions’ financing for gender equality (Chapter 2). In 2018-19, Germany committed 49% of its bilateral allocable aid (USD 9.6 billion) in support of the environment and climate change, with an important share to its principal objectives. For climate change alone, it reported that 20% was related to mitigation, 13% to adaptation, and 9% to both adaptation and mitigation in this period. Indeed, Germany has put resources behind its leadership on climate change, spending 50% of climate financing in Africa, half of it on adaptation.

In 2019, Germany provided 21% (USD 5.6 billion) of its gross ODA as multilateral ODA and another 18% (USD 3.8 billion) in earmarked funding, and it is making efforts to be more predictable. Germany has increased core funding to multilateral organisations while maintaining an important volume of earmarked, and increasingly programmatic (as opposed to project-type), funding for humanitarian, governance and social sectors (Figure 3.2). Committing core funding for more than one year (outside of replenishments) remains a challenge for Germany because of the budget law. However, earmarked funding from special initiatives and using KfW as a channel make multi-year earmarked commitments possible. In 2019 and 2020, Germany was one of the top contributors to the Special Purpose Trust Fund for a reinforced UN development system. With the implementation of BMZ 2030, Germany is likely to rely even more on multilateral partners in countries where it plans to phase out bilateral development co-operation.

The EU is by far Germany’s largest partner, primarily through assessed contributions to the budget (USD 2.3 billion in 2019), where it pushes to adopt a development angle. In addition, it provides USD 1.1 billion in support to the European Development Fund. Germany has been a strong promoter of Team Europe even before its 2020 EU Council presidency and has advocated for strengthening joint programming and joint implementation; however, translating this at country level and joining the dots of its African and special initiatives and those of the European Union remain works in progress. In addition, GIZ and KfW implement delegated co-operation from the European Commission (as well as other development partners).11

Germany has demonstrated leadership backed by substantial financial resources to new multilateral institutions and earmarked funding to priority areas in partner countries. It invested strongly in the Asian Infrastructure Investment Bank and the Green Climate Fund. Germany’s earmarked funding is overwhelmingly country-specific and in areas of particular focus — notably climate change/environment, resilience and crisis prevention but also digitalisation and social protection. Humanitarian assistance accounted for 44% of earmarked funding in 2018-19, and 10% was in the form of loans for the water, energy and financial sectors. Germany is providing more voluntary core contributions to UN funds and programmes and regularly reviewing the balance between core and earmarked funding to UN funds and programmes in light of commitments made in the UN Funding Compact. In line with these promises, it could be more predictable by committing funds for more than one year.

The average annual amount of private finance mobilised from DEG, KfW and BMZ in 2017-19 was USD 720.9 million. Germany mobilises private finance via KfW and the KfW subsidiary, DEG, using credit lines, direct investment in companies and project finance special purpose vehicles, shares in collective investment vehicles and syndicated loans. Middle-income countries benefit the most from Germany’s country-allocable private mobilisation.

Germany continuously expands its wide array of financing instruments (guarantees, bonds, debt swaps, risk capital, blended finance, direct investment and insurance). For example, Germany supports the multi-stakeholder fund TCX, or Currency Exchange Fund, hedging local currencies. It also supports the African Local Currency Bond Fund, which enables micro-finance institutions and local banks to expand their lending in local currency. Germany is an international leader in the provision of insurance products, including on climate and credit risk. The German government uses KfW's long-standing experience with the issuance of green bonds — the value of its current green bond portfolio is EUR 2 billion — in co-operation with developing countries (DEG, 2020[6])

DEG finances long-term investments of private companies in developing and emerging market countries. As a development finance institution, DEG also offers advisory services to companies and institutions promoting private sector co-operation in partner countries. In addition to DEG, BMZ and the Federal Ministry for Environment, Nature Conservation and Nuclear Safety (BMU) also extend equity via KfW. BMZ extends equity for formal sector financial intermediaries such as the SME investment fund in Tunisia; BMU does so to a facility for renewable energy and energy efficiency in Africa. In 2018-19, DEG provided USD 821.9 million in ODA equity and USD 2.5 billion in non-concessional, non-ODA loans to the private sector (Table 3.1). The largest loans, in descending order of loan value, went to private sector entities in Thailand, Serbia, Georgia, Paraguay, Kenya, Guinea, Tunisia, and Iraq. At the time of writing, DEG was opening an office in Bogotá, but its presence or outreach both in Rwanda and Tunisia, which is a priority partner and a reform country where private sector investment is central to Germany’s support, seemed more limited during the field visits. DEG uses its Development Effectiveness Rating (DERa) to assess the development contributions of its financing, including via decent jobs, local income, market and sector development, environmental stewardship, and community benefits (Chapter 6).

Germany’s new development investment fund in Africa with focus on Compact with Africa countries is getting off the ground with the aim to enhance private sector investment and foreign trade promotion. The initiative does not, however, seem to have a clear link to EU or African Development Bank instruments that might have enabled it to leverage existing efforts. The fund and its different components were also not yet very visible in Rwanda, and multilateral and bilateral partners were not fully acquainted with the initiative. In Tunisia, the new Business Desk of the German Tunisian Chamber of Industry and Commerce in Tunis was funded through AfricaConnect, one of the three pillars of the new fund. The desk will facilitate investments from German and European SMEs that promote employment in Tunisia. Through its public-private partnership programme, develoPPP.de, BMZ supports 26 corporate initiatives to improve working and environmental conditions in the textile supply chain (Chapters 1 and 5).

Germany is the driving force behind the International Tax Compact (housed in GIZ) and acts as the secretariat for the Addis Tax Initiative and Network of Tax Organisations. Together with the Bill & Melinda Gates Foundation, Germany has set up a domestic resources mobilisation (DRM) innovation fund that provides successful applicants EUR 100 000 to adapt or test solutions that tackle DRM in Africa.12 BMZ supports the Africa Academy for Tax and Financial Crime Investigation and the German revenue authority has provided experts for Tax Inspectors without Borders. In 2019, Germany committed USD 119.3 million of bilateral ODA to the mobilisation of domestic resources in developing countries, amounting to 0.6% of bilateral allocable aid ; it is unclear whether it will have doubled its 2015 commitments by 2020 as required in the Addis Tax Initiative declaration (Addis Tax Initiative, 2015[7]). Through its technical and financial co-operation for decentralisation and good governance in Rwanda, for example, Germany works to mobilise taxes at the local level (Annex C), but it could be more proactive in making this a priority topic for policy dialogue in its middle-income partner countries (Lingnau and Schnatz, 2020[8]). In contrast, Germany continues to seek tax exemptions on its ODA-funded goods and services in partner countries.

Since 2020, KfW DEG has reported semi-aggregates on ODA equity and other official flows by recipient country, financial instrument and sector. However, these records are missing project titles and descriptions that would allow users and key stakeholders to match this information with projects listed on DEG’s own website.

In 2020, Germany became an observer of the TOSSD task force. To date, it does not report TOSSD data to the OECD.

Germany reports on private finance mobilised by BMZ, BMF and KfW through its regular Creditor Reporting System reporting. In addition, KfW DEG, one of the largest European development finance institutions, has been sharing data on the amounts mobilised from the private sector through its climate-relevant activities. While this reporting is greatly appreciated by the Secretariat, the absence of data from KFW DEG on private mobilisation beyond climate introduces a data gap for Germany (estimated as significant, yet difficult to quantify).

References

[7] Addis Tax Initiative (2015), Financing for Development Conference: The Addis Tax Initiative – Declaration, https://www.addistaxinitiative.net/sites/default/files/resources/ATI-Declaration-EN.pdf (accessed on 25 February 2021).

[6] DEG (2020), How DEG Customers Contribute to the Global Sustainable Development Goals: Development Report 2019, Deutsche Investitions- und Entwicklungsgesellschaft (DEG), Cologne, https://www.deginvest.de/DEG-Documents-in-English/About-us/What-is-our-impact/Development_Report_2019_web.pdf (accessed on 8 February 2021).

[1] Federal Government (2020), Memorandum for the DAC peer review of Germany 2020/2021 (unpublished).

[8] Lingnau, H. and J. Schnatz (2020), “Why taxation matters”, D+C Development and Cooperation, Bonn, https://www.dandc.eu/en/article/conventional-oda-has-often-proved-counterproductive-there-are-alternative-approaches (accessed on 8 February 2021).

[4] OECD (2021), Creditor Reporting System (database), https://stats.oecd.org/index.aspx?DataSetCode=CRS1.

[3] OECD (2021), Total flows by donor (ODA+OOF+Private) [DAC1] (database), https://stats.oecd.org/Index.aspx?DataSetCode=TABLE1.

[2] OECD (2020), 2020 Report on the DAC Recommendation on Untying ODA, OECD Publishing, Paris, https://one.oecd.org/document/DCD/DAC(2020)54/FINAL/en/pdf (accessed on 6 January 2021).

[5] OECD (2020), Development Co-operation Report 2020: Learning from Crises, Building Resilience, OECD Publishing, Paris, https://dx.doi.org/10.1787/f6d42aa5-en.

Notes

← 1. Under the cash flow methodology used in the past, its net ODA was USD 28.9 billion in 2020.

← 2. Note that 42% of gross bilateral ODA was unallocated by income group.

← 3. The technical co-operation (TC) figures include both narrow and broad TC provided by Germany. Technical co-operation is an approach of the BMZ and does not comprise ODA invested by other federal ministries. For details, see https://www.bmz.de/en/ministry/approaches/bilateral_development_cooperation/approaches/technical_cooperation/index.html.

← 4. Germany has a relatively high share of technical co-operation — 36% in 2018-19 — that is not allocated by country but rather for regional programmes.

← 5. Amounts are in constant USD 2018 prices.

← 6. The reform countries in BMZ 2030 are Côte d’Ivoire, Ethiopia, Ghana, Morocco, Senegal and Tunisia.

← 7. Country programmable aid for bilateral donors is defined through exclusions — that is, by subtracting from total gross bilateral ODA all activities that are inherently unpredictable by nature (humanitarian aid and debt relief); entail no cross-border flows (administrative costs, imputed student costs, promotion of development awareness, and costs related to research and refugees in donor countries); or do not form part of co-operation agreements between governments (food aid, aid from local governments, core funding to NGOs, ODA equity investments, aid through secondary agencies and aid which is not allocable by country or region).

← 8. As per the Draft Revised Statistical Reporting Directives for DAC Statistics, the imputed costs to be reported are those borne by the official sector and include expenditures by central and state governments, net of fees paid by the students. The costs are calculated as the percentage of official expenditure on education that corresponds to the percentage of the student body that is accounted for by students from developing countries. The calculation should in principle cover both secondary and tertiary students. See DCD/DAC/STAT(2018)9.

← 9. KfW disbursed USD 4 billion in ODA loans on average over 2018-19. The largest projects in 2019 were budget support to Egypt and Jordan; energy efficiency and renewable (Brazil, India, Mexico); in India, power grid and a metro transit system in Nagpur; investment partnership in Tunisia; in Peru, public transport in Lima; urban waste management in South Africa; credit line for climate change in Turkey; energy sector reform in Georgia; SME financing for the West African Development Bank; and TVET development in Guangxi, China.

← 10. In comparison, in 2017-18, total DAC support to gender equality and women’s empowerment as a principal objective was 4% of aid screened.

← 11. Delegated co-operation arrangements are commissioned separately from German government commissioned projects and would normally be reported and funded by the European Commission and other development partners.

← 12. Examples of funded projects include the Madagascar e-Hetra payment platform, development of the TaxonApp in Zambia and a module to improve taxpayer interface in Cameroon.

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