A first glimpse into Finland's aid cuts

Amid public discontent with the country’s sluggish economic performance, Finland’s newly elected government has decided to slash development assistance by 43 percent. Amounting to 1 billion euros ($1.1 billion) this year, the Finnish aid budget will decrease by 300 million euros in 2016. Of this, 100 million euros of grant aid will be converted into loans for companies committed to corporate social responsibility. Meanwhile, revenue from emission allowance auctions — which reached 69 million euros in 2015 — will already cease to be channeled to development cooperation. Aid cuts have been years in the making. In 2013, the former government headed by Prime Minister Alexander Stubb agreed to a reduction of development cooperation funds between 2015 and 2017. But no one expected almost half of Finland’s annual aid budget to be shelved. “Members of the new government had previously stated their intention to implement budget cuts to all sectors, so we knew that the development aid budget would be hit,” Rilli Lappalainen, secretary-general at Kehys, the Finnish national platform of Concord, said. “But what came as a surprise is how high the cuts actually are, and how quickly they will be implemented." The cuts also strike a major blow to the European Union’s reputation as a development aid provider. In a position document ahead of next month’s Financing for Development summit, the bloc re-affirmed its collective commitment to dedicate 0.7 percent of gross national income to official development assistance. But Finland’s decision highlights the EU’s inability to hold member states accountable to their promises. The impact at home ... Details of the proposed cuts have yet to be released, but the Finnish foreign ministry has warned national nongovernmental and civil society organizations to brace themselves for a 30 to 40 percent decrease in funding, as some forms of grant support — such as the average 2 million euros usually devoted to raising awareness in Finland — come to a halt. “Such drastic aid cuts mean that many NGOs, particularly small ones, will simply die,” Lappalainen told Devex. This sentiment is echoed by Katri Suomi, head of advocacy at Finn Church Aid, the country’s largest NGO. Even though her organization has recently managed to diversify its donor base, 40 percent of its resources continue to be backed by the government. “If the cuts are even close to what the Ministry of Foreign Affairs informed NGOs to be prepared for, it will for sure have a dramatic impact on our work,” she stressed. On the receiving end of a significant share of Finnish ODA — close to 10 percent, or 116 million euros, in 2014 — about 300 Finnish NGOs could be expected to tighten their belts. But while anticipated cuts will undoubtedly have adverse effects on many lifesaving development programs, one could wonder about the positive impact they might have — notably by pushing Finnish organizations to rationalize their interventions and increase collaboration. Earlier this month, an independent evaluation found government support for Finnish NGOs to be extremely fragmented, with more than 300 individual projects scattered across the globe. The authors further quoted some CSO representatives sharing that up to a third of funded projects could be axed “without much impact.” … and abroad Accounting for almost half of total ODA in 2014, Finland’s contribution to multilateral assistance has increased over the years. As a result, aid cuts could well affect a range of international actors, including U.N. Women and the U.N. Population Fund — two U.N. agencies in which Finland ranked among top donors by disbursing a total of 26.5 million euros and 51 million euros, respectively. Finnish Foreign Trade and Development Minister Lenita Toivakka has however underlined that women and girls — along with governance, water and food security — will continue to be top priorities for Finland. But whether this means lighter cuts to these sectors remains to be seen. Bilaterally, Finland has seven long-term partner countries — Ethiopia, Kenya, Mozambique, Nepal, Tanzania, Vietnam and Zambia — and five other partner countries, all of which are fragile states. While the extent to which each of these countries will suffer aid decreases also remains unknown, Niina Mäki from Kepa, the umbrella organization for Finnish CSOs, told Devex that the cuts are unlikely to spare anyone. “Finland might try to preserve the humanitarian and crisis aid a little more from the cuts, but as the overall aim is to cut a dramatic 43 percent of current development cooperation funds, it is clear that practically all partners will be affected,” the advocacy and policy officer said. It’s important to note that such cuts are in line with Finland’s growing realization of the need to pool and allocate aid resources more effectively. Despite being a modest donor, Finland currently disburses grants to an overwhelming amount of counterparts — including hundreds of NGOs, multilateral agencies and governments — thus raising questions about cost-efficiency and impact. Enter the private sector At the end of the month, the Finnish government will meet civil society members in an attempt to address their most pressing concerns. But the complete details of the budget proposal will only be made public mid-August. However, NGOs have noted that one thing is already crystal clear: The new leadership’s determination to mainstream private sector finance and engagement in Finnish development activities. “The only sector in Finnish aid that is getting additional funds — worth 100 million — is the private sector,” Mäki said. “At the same time, it seems that there are discussions to re-start aid modalities such as concessional credit schemes aimed at supporting Finnish businesses.” Against this backdrop, Finnfund — a development finance company providing risk capital for profitable Finnish business ventures in developing countries — is well-positioned to acquire a more central role in Finnish development cooperation. But to achieve its full potential, experts have noted it will need bolder capital increases. In the meantime, more and more joint public-private initiatives are likely to see the light of day. Earlier this year, Tekes — the Finnish Funding Agency for Innovation — and the Finnish foreign ministry launched a 50 million euro program aimed at helping Finnish enterprises, NGOs and research organizations develop innovations that can tackle urgent development issues and open up business opportunities for Finnish companies. And as private sector involvement in development assistance deepens, many Finnish NGOs have already decided to jump on the bandwagon. “A growing number of CSOs are cooperating with Finnish and international businesses,” Mäki explained. “And in addition to doing individual projects on the ground, more and more CSOs are seeking to have a constructive dialogue with businesses on their corporate social responsibility issues.” Do you think Finland’s drastic aid cuts will set off a domino effect within the European Union? Have your say by leaving a comment below. Check out more funding trends analyses online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.