The EU is falling behind on its own pledge to help the world’s poorest nations trade their way out of poverty, the European Court of Auditors warned in a new report. Brussels promised to direct 25% of its Aid for Trade funding to the least developed countries by 2030. But instead of moving closer to that goal, spending has slipped in the opposite direction. Despite the backslide, the European Commission has never examined why.
“It is very unlikely that the EU will meet its 25% funding target by 2030. The reasons for this will need to be thoroughly examined”, Bettina Jakokbsen of the European Court of Auditors (ECA) said.
In the period between 2010 and 2015, the proportion of grants and concessional loans allocated by the EU to world’s least developed countries (LDCs) was at 18%. In 2022, this decreased to 12%. Overall, LDCS received €17.2 billion between 2017 and 2022, compared to the total of that countries received in the same period.
The auditors also criticised the Commission’s weak monitoring of trade support programmes. Because of this, the ECA cannot not adequately asses how effective these measures have been in achieving their central aim: lifting people out of poverty.
You might be interested
The problem is not new. EU development aid more broadly has been drifting away from the poorest nations. Under the EU’s Global Gateway initiative, Europe’s answer to China’s Belt and Road, aid has been tied to projects that serve EU priorities such as securing clean energy or curbing migration. These types of projects are typically more viable in middle-income countries, which means less aid ends up reaching the least developed countries.
Barriers for LDCs
Forty-four countries are currently classified as LDCS, home to 880 million people. Yet, they account for just 1% of global exports.
While cross-border trade can be a powerful engine for growth and poverty reduction, LDCs face entrenched obstacles such as weak business environments, poor infrastructure, and limited access to affordable financing. According to Global Trade Review (GTR), the global shortfall in trade finance, the gap between what businesses require and what banks and other institutions are willing to provide, remains at US$2.5 trillion.
The ECA report highlights this reluctance with an example from Malawi, where banks avoid engaging in Aid for Trade schemes “because they do not want to take risks with clients not exporting and not working with foreign currencies.” In contrast, middle-income countries present lower risks, making them more attractive destinations for private investors.
Today’s geopolitical climate may well further accelerate the trend of Aid for Trade funding flowing to middle-income countries. With the EU’s reliance on traditional partners such as the United States and China under strain, Brussels is turning to new trading markets. Deepening alliances with partners like India and Mercosur-countries, many of which are middle-income, are therefore likely to attract greater shares of Aid for Trade funds —at the expense of the least developed countries.
OECD calls for “Aid for Trade 2.0”
This week, the OECD also published a report on the future of Aid for Trade. It warns that the Aid for Trade initiative, founded in 2005, risks becoming irrelevant unless it adapts. Once a tool for development, it has become deeply entangled in geopolitics and must now operate with that reality in mind, the report argues. While Aid for Trade has delivered results over the past decades, the OECD stresses that it needs to evolve to remain relevant.
The organisation is therefor calling for a reimagined “Aid for Trade 2.0” that addresses climate change, bridges digital divides, and reduces inequality. Stronger support for trade policies and institutions, the ICT sector and digital trade, intra-regional trade, and sustainable and responsibly produced goods will be necessary. In 2023, only 2.5% of Aid for Trade disbursements went to ICT, underscoring the vast potential for scaling up. The OECD argues that, if strengthened, Aid for Trade could play a stabilising role by giving countries the tools to diversify their economies and withstand external shocks.
What’s Next
The Commission has accepted the ECA’s recommendations, including improving monitoring and strengthening coordination with partner countries, with a timeline to integrate these changes by the end of 2026. However, whether the EU will take meaningful action to get back on track toward its 2030 target remains uncertain.
