$Unique_ID{COW04097} $Pretitle{373} $Title{Federal Republic of Germany (West Germany) Economic Cooperation} $Subtitle{} $Author{German Embassy, Washington DC} $Affiliation{German Embassy, Washington DC} $Subject{countries development developing german cooperation federal third world assistance country} $Date{1988} $Log{Table 1.*0409701.tab Table 2.*0409702.tab } Country: Federal Republic of Germany (West Germany) Book: Pamphlets on Germany Author: German Embassy, Washington DC Affiliation: German Embassy, Washington DC Date: 1988 Economic Cooperation The Federal Republic of Germany attaches great importance to development cooperation with the countries of the Third World. This fact is confirmed by the scope of development assistance: The Federal Republic of Germany is one of the world's foremost donors of development assistance, working together with 130 states worldwide on an equal partnership basis. Scope of official development assistance In 1987, official development assistance provided by the Federal Republic of Germany amounted to DM 7.9 billion, or 0.39 percent of the gross national product. The average among the Western industrialized countries - this group of countries contributes the lion's share of the development assistance provided worldwide - is 0.34 percent. Approximately one third of German development assistance is provided to multilateral organizations, in particular to the World Bank Group, the Asian, African and Inter-American Development Banks, and the United Nations and its subsidiary organizations. Of the total development assistance provided by the European Community, the Federal Republic of Germany contributes just under 30 percent. Non-governmental development assistance Another significant contribution to development assistance is made by non-governmental organizations such as churches, foundations and associations. These non-governmental organizations provided approximately 1.74 billion marks in 1987. They are financed primarily by donations and, to a certain extent, by government funds as well. Recipients of German assistance More than half of German aid is granted to the poorer and poorest countries with a per capita income of less than US $400 per year. Since 1979 the Federal Republic of Germany has forgiven over DM 4.2 billion in debts owed by the poorest developing countries, the so-called LDC countries. The Federal Republic leads the rest of the world in this respect and hopes that other donor countries will follow its example. The LDC countries now receive new development assistance only in the form of - non-repayable - grants. The main recipient of German development assistance today is Africa, which receives just under 44 percent. Most of the funds designated for this continent go toward projects for rural development and food security, reflecting the conclusions the Federal Government has drawn from the African famines of past years. Following Africa are Asia, with 37 percent of development assistance, and Latin America, with 13 percent. Global economic framework conditions In recent years the interdependence between developing countries and industrialized countries has continued to grow. Economic growth and opening of markets on the part of the industrialized countries are therefore essential preconditions for development progress in the Third World. - Protectionist defense mechanisms - whether applied by industrialized countries or developing countries - impair world trade and thus harm everyone. - In the long run, neither an industrialized country nor a developing country can afford permanent subsidies. This may be seen from the EC agricultural commodities market, which has become a problem for the member states. Subsidized foodstuffs from the EC pose a threat to agricultural production in the Third World. Here Europe as well is confronted with the painful task of having to alter structures which have evolved over a period of centuries. - The decline in prices of numerous raw materials, which may be attributed equally to a rapid increase in supply and a drop in demand - a dramatic drop in some cases -, attests to the urgency of diversifying the economies of the Third World countries. - The developing countries will only then be able to reduce their debts of over DM 2,000 billion if, together with their creditors, they are able to negotiate new, affordable conditions tailored to each individual case and are able to noticeably increase their exports to the industrialized countries. - In recent years, stimulation of market forces, reduction of governmental regimentation and provision of incentives for private-sector economic initiatives have induced an upward trend again in numerous Third World countries. Thus one important condition has been met for the gradual staunching and eventual reversal of the absurd flow of capital from South to North. Development cooperation policy in practice The German contribution to development projects is made either in the form of favorable loans, grants and deliveries of material or by providing experts for a limited period of time. Cooperation is realized through joint projects and programs. This means that both the recipient country and the Federal Government make contributions in the form of funds or, respectively, personnel. The governments involved first discuss which project is to be implemented. They then conclude an agreement which forms the framework for cooperation. The third step is a joint, detailed examination of the project in the manner customary worldwide: Technical, economic, socioeconomic, sociocultural and ecological factors are examined in the process. On the basis of the intergovernmental agreement, detailed contracts are then concluded between the project sponsor in the developing country and the German implementing organization. The most important implementing organizations are the Reconstruction Loan Corporation (Kreditanstalt fur Weideraufbau - KfW) and the German Agency for Technical Cooperation (Deutsche Gesellschaft fur Technische Zusammenarbeit - GTZ). If initial training and further training of skilled manpower from developing countries are to be provided, the German Foundation for International Development (Deutsche Stiftung fur internationale Entwicklung - DSE) and the Carl Duisberg Society (Carl Duisberg Gesellschaft - CDG) implement the training programs. Promotion of entrepreneurial activity Private-sector economic cooperation is of great value to Third World countries due to the transfer of capital and enterpreneurial and technical knowledge it entails. The Federal Government therefore promotes economic commitments by German firms in developing countries. To this end the Federal Government has created a wide variety of instruments within the framework of the DEG Deutsche Finanzierungsgesellschaft fur Beteiligungen in Entwicklungslandern - German Financing Company for Investments in Developing Countries) for providing services ranging from advice concerning opportunities for cooperation in developing countries to investments, loans and insurance for investments. This promotion is directed primarily toward small and medium-sized companies. [See Table 1.: Regional distribution of pledges within the framework of financial and technical cooperation (FC + TC) with the developing countries - to the extent splitting is possible -] Services and conditions Over the years German development cooperation has created a diversified, finely-tuned set of instruments for practical applications. These instruments are continually being improved and adapted to new conditions. Financing is provided for: [See Table 2.: Movement of goods between the Federal Republic of Germany and the developing countries since 1982] - Investment projects and investment programs, such as construction of new factories - or enlargement of existing facilities - and construction of roads, ports, dams and irrigation plants. - Imports which are required to maintain or improve utilization of existing productive capacity, such as machines, equipment, spare parts, raw materials (so-called commodity aid). - Development banks, which channel German funds earmarked for loans to local firms in developing countries. - Training programs for personnel from developing countries, either here in the Federal Republic or in other countries. - Assignment of personnel and equipment of workshops, institutes, health services, consulting services, training facilities, etc. - Assignment of German experts to Third World agencies or institutions as planners, consultants or specialists. The German contribution towards the realization of projects and programs undertaken with developing countries consists either of long-term, low-interest loans or non-repayable financial contributions, depending on the type of project and the economic situation of the country involved. In the case of loans, three types of conditions are possible: - The most favorable loan conditions, similar to IDA conditions (0.75 percent interest; loan repayable in 50 years, ten years of which no repayment on the principal is required), are granted to the countries most severely affected by the raw materials crisis (MSACs). - Some relatively advanced developing countries must bear stiffer conditions: 4.5 percent interest: loan repayable in 20 years, the first five of which no repayment on the principal is required. - The following conditions are demanded of the other developing countries: Two percent interest; loan repayable in 30 years, ten years of which no payment on the principal is required. Grants are generally provided for training programs, personnel, consulting services, deliveries of materials for workshops, etc. The most important implementing institutions for development policy The Reconstruction Loan Corporation (KfW) The Reconstruction Loan Corporation in Frankfurt, the Federal Republic's nationally and internationally active development bank with roughly 800 employees, also provides loans and grants for development projects. Prior to implementation, the project is appraised on the basis of documents submitted by the developing country. The focal point of the appraisal is always the question as to what contribution the project will make to the elimination of the most serious economic and social bottlenecks in the given developing country. The Reconstruction Loan Corporation and the developing country then conclude a loan agreement or a financing agreement stating the purposes for which the German funds can be used and whether or not preconditions must still be met in the developing country in order to start up the project. The funds are then paid out according to the progress of the project. German Agency for Technical Cooperation (GTZ) When loans or grants within the framework of financial cooperation are not involved, translation of inter-governmental agreements into practice lies first and foremost in the hands of the German Agency for Technical Cooperation (GTZ) acting on behalf of the Federal Government. "Technical cooperation" means preparation and implementation of development projects and development programs in the Third World which are designed to transmit technical, economic and organizational knowledge and skills and improve the preconditions for their application. This specifically involves the appraisal, assessment and planning of the project, the selection, assignment and care of experts, and the planning, purchasing and shipping of materials. The GTZ may also take on commissions from third parties - in particular commissions from third parties from developing countries. This situation can arise above all in cooperation with oil-producing countries. The German Volunteer Service (DED) The development volunteers of the German Volunteer Service (DED) are actively involved when everyday problems in their host countries must be surmounted. They don't do this on their own. Development volunteers pledge their skills and services for several years to local organizations which seek to stimulate development in their respective countries and improve the living conditions of large segments of the population. Specialized knowledge alone, however, is not enough to render work in the Third World meaningful. An ability to fit into a strange environment and learn from others is a prerequisite for functioning successfully in a country with a different culture. Development volunteers see their work as solidarity with the people of the Third World put into practice. This solidarity continues once they have returned home: Here, too, they engage in activities promoting Third World interests. The German Financing Company for Investments in Developing Countries (DEG) Hardly any developing country wants to do without foreign private-sector investments. They augment capital, stimulate local entrepreneurial talents and transmit modern management methods. It is cheaper and more important for the developing countries to obtain capital in order to produce commodities themselves than it is to import goods. To stimulate investments by small and medium-sized companies in developing countries, the Federal Government founded the DEG (German Financing Company for Investments in Developing Countries) in 1962. The DEG is an investment institute functioning according to private-sector economic principles which is designed in particular to stimulate and promote private initiatives for direct investment. The German Foundation for International Development (DSE) In most developing countries there are many bottlenecks in the area of skilled and managerial manpower. The programs offered by the German Foundation for International Development help to eliminate these bottlenecks. The Carl Duisberg Society (CDG) The CDG develops and organizes further training programs primarily in the following areas: industry and handicraft trades, commerce and insurance, construction and transportation industries, measurements and norms, technology transfer, raw materials, energy, economics of water supply and distribution, environmental protection and communications. In recent years training has been increasingly conducted in the developing countries themselves.