Donors to Russia: Who's in and who's out?

Following the collapse of the former Soviet Union, Western donors pumped billions of dollars in aid money to Russia — part and parcel of their efforts to prop up their former Cold War rival’s fragile transition to a free market economy. Between 1995 and 2004, foreign assistance to Russia averaged $1.3 billion, making the country one of the biggest aid recipients in the world. In the 2000s, however, aid flows to Russia began to fall dramatically just as the once superpower, buoyed by rising oil and gas revenues, regained some measure of political and economic clout. The Russian government’s increasingly dismissive posture toward the West and creeping authoritarian tendencies under President Vladimir Putin only hastened the donor exit. In the case of the U.S. Agency for International Development, the pullback from Russia wasn’t even voluntary. The Russian government expelled the agency, which was a major funder of democracy and human rights groups, a little over two years ago. “I think the Russian government is definitely interested in enhancing Russia’s sovereignty and the moment that at any program operating in Russia starts to feel like a liability in terms of Russia’s image — that it’s in control — that’s when that program is probably in danger of being discontinued,” explained Patty Gray, a professor from the National University of Ireland who has studied Russia’s international cooperation extensively. For the dwindling number of donors that have chosen to stay put in Russia, Moscow’s alleged destabilization efforts in eastern Ukraine and its annexation of Crimea could very well be the last straw. In response to what they consider to be the Russian government’s aggressive actions, Western governments have imposed a broad range of political and economic sanctions on Moscow. Development cooperation with Russia has not been exempt from this sanctions regime. In fact, at the behest of Western governments, two of the largest multilateral donors to Russia have put any new assistance off the table for the foreseeable future. Another major donor, meanwhile, is believed to be considering a suspension of its bilateral program in Russia on a case-to-case basis. Below, Devex analyzes the programs, strategies and approaches of major Western donors to Russia. Are there any donors staying put? Which donors seem to be moving in the opposite direction and which ones have already left? Interestingly, we found that several major donors have recently provided support to rebuild Moscow’s capacity as an aid donor — a once promising effort to engage Russia as a global development partner. Two of these donors have since left the country. IN European Commission In July, EU leaders urged the European Commission to consider the suspension of EU bilateral and regional cooperation programs in Russia on a case-to-case basis — part of Brussels’ efforts to sanction Moscow over its alleged destabilization efforts in Ukraine. For now, however, Russia remains eligible for financing through the 954.8 million euro ($1.2 billion) partnership instrument of the 2014-2020 EU aid budget. The European Commission’s main financing instrument for cooperation with emerging economies, the partnership instrument is expected to support the implementation of the EU-Russia Partnership for Modernization, which focuses on trade facilitation and judicial reform. EU official development assistance to Russia has been declining over the past decade — a trend that now seems likely to accelerate. EU aid experts anticipate that the Partnership Instrument, which is a new financing instrument, will provide blended finance and loans, but very little, if any, ODA. The Commission’s previous aid budget, from 2007 to 2013, had set aside roughly 30 million euros in yearly ODA to Russia, less than half the average annual allocation to Russia in the years prior. World Bank Committed to Russia through 2016 under its country partnership strategy, the World Bank prioritizes cooperation in the following focus areas: promoting economic growth, strengthening skills and social services, deepening Russia’s global role as a donor, and improving governance and transparency. Russian cooperation experts Devex spoke to singled out the World Bank as a Western donor that has managed to cultivate a strong and likely enduring relationship with the Russian government. In 2014, the World Bank has committed $111 million in funding for Russia, up from $60 million in 2013. Of this amount, $60 million has been committed to the Hydrometeorological Services Modernization Project, while $50 million has been set aside for the Public Finance Management Technical Assistance Project. The World Bank’s commitment to advance Russia’s donor ambitions is unique across the multilateral lender’s global portfolio. Last year, the bank introduced a new curriculum on ODA for Russian universities, part of a multiyear effort to build Russia’s donor capacity called the “Russia as a Donor Initiative,” which the U.K. Department for International Development funded between 2008 and 2011. Swedish International Development Cooperation Agency Since announcing that it intends to phase out its development cooperation with Russia back in 2007, Sweden seems to have quietly backtracked on those plans. The Swedish International Development Cooperation Agency has nonetheless scaled back its Russia program and sharpened its focus on environmental protection in the Baltic Sea region and democracy and human rights in northwest Russia and the north Caucasus. In 2013, Sida disbursed 63.4 million Swedish kronor ($8.6 million) in grant money to Russia. In March of this year, Sida allocated 30 million Swedish kronor to replenish a trust fund for environmental protection in the Baltic Sea region. At the same time, Sida has also expressed reservations over the Russian government’s 2012 law requiring foreign-funded nongovernmental organizations to register as “foreign agents.” Sida concedes that the law has been a roadblock to its democracy and human rights strategy in Russia. A number of its NGO partners have been subjected to inspections as a result of the law. ON HOLD European Investment Bank In July, European Investment Bank President Werner Hoyer told Reuters that the bank would no longer sign off on new financing operations in Russia. In 2013, EIB approved more than 1 billion euros in financing for Russia. The bank had anticipated that its lending in Russia would have approached similar levels in the coming years. A senior EIB official confirmed to Devex that the bank will continue to support its existing portfolio in Russia and also maintain a physical presence in the country. EIB had opened a new representative office in Moscow only last year. The bank’s largest transaction in Russia in 2013 was a 300 million euro credit line to finance Sberbank of Russia’s loans to small and midsize businesses. The EIB’s decision to freeze financing to Russia came at the request of the European Council, the body comprising EU heads of state and government — part of the Council’s efforts to sanction Russia. Owned and controlled by the 28 EU member states, EIB will continue to act in full compliance with European Council directives, according to the senior EIB official. European Bank for Reconstruction and Development Also prompted by a request from the European Council, the European Bank for Reconstruction and Development froze new financing for projects in Russia in July. The decision followed a vote by the bank’s board of directors, which includes a representative from Russia who unsurprisingly objected to the move. Back in late 2012, the board had approved a new strategy for Russia, which aimed to refocus the bank’s activities in the country on addressing longer-term and systemic challenges facing the Russian economy. Since EBRD was founded more than two decades ago, Russia has traditionally been the largest recipient of financing from the bank. In the first six months of this year, nearly a fifth of EBRD’s investments were in Russia. Like EIB, EBRD has pledged that it will continue to support its current portfolio of 792 projects in Russia, and also maintain a physical presence in the country. Of EBRD’s current Russia portfolio valued at 8.1 billion euros, 45 percent is in industry, commerce and agribusiness, while 22 percent is in the financial sector. OUT U.K. Department for International Development Shortly after taking office in 2010, the Cameron government announced plans to discontinue the U.K. Department for International Development’s bilateral assistance to select middle-income countries. Russia was one of the first to go — DfID’s last project in the country ended in June 2012. DfID’s pullout from Russia did not, however, begin under the current U.K. government. Squeezed by the Blair government’s aid cutbacks in middle-income countries, DfID closed its Russia office back in 2007. Since then, DfID had maintained a residual presence in Russia to support a small number of projects, including the “Russia as a Donor Initiative,” which has been implemented by the World Bank. In 2010-11, DfID Russia’s bilateral program stood at only 1.3 million pounds ($ 2 million), well below its 25 million pound budget at the beginning of the decade. U.S. Agency for International Development Alleging USAID interference in Russia’s internal affairs, the Russian government expelled the agency in September 2012. At the time, USAID’s mission in Russia had directed the bulk of its $50 million budget to promote democracy and human rights — the underlying reason, some analysts say, for Moscow’s decision to boot them out. The Russian government’s expulsion of USAID later prompted several U.S-funded implementers, including IREX and Partners in Health, to either scale back or wind down their programs in Russia. Even before its departure from Russia, USAID had already been scaling back its aid program in the country. Back in 2001, U.S. assistance to Russia stood at $868.3 million, the vast majority of which was in the form of security assistance. As in the case of World Bank and DfID, USAID had also been recently supporting Russian efforts to rebuild the country’s donor capacity, particularly in the health sector through the Strategic Health Partnership Initiative. Global Fund to Fight AIDS, Tuberculosis and Malaria A net donor to the Global Fund since 2010, Russia is nearing the end of its multiyear transition from a recipient to donor to the Global Fund to Fight AIDS, Tuberculosis and Malaria — a shift Moscow had initiated back in 2006. Russia is expected to receive its final grants from the fund by the end of this year. Since 2002, the Global Fund has signed off on more than $382 million in contributions to Russia, the vast majority of which has helped finance the country’s response to HIV and AIDS. Some health advocates warn that the Russian government’s refusal to fund certain treatment methods, which had been previously financed by the Global Fund, could jeopardize Russia’s response to its fast-growing HIV epidemic. Check back Monday for our in-depth analysis of Russian evolving and emerging foreign aid program — exclusive for Devex Executive Members. Check out more practical business and development advice online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.