Global responsibility and policy coherence 2020
Finland ninth largest provider of funding for development cooperation among EU Member States

12.4.2021 10.55
Finland ninth largest provider of funding for development cooperation among EU Member States

In 2019, Finland's development cooperation appropriations amounted to EUR 1,007 million. The annual change in the country's GNI share took an upward turn after a decline in the previous years. Finland exports global environmental technology and services, and invests significantly in innovations in areas such as the circular economy. The export of these products and services bring benefits to sustainable development at the global level. The number of participants Finland sends to civilian crisis management operations is the highest in the EU states in proportion to the size of the population, and around 40 per cent of the participants are women.

Developing countries are taken into consideration effectively in Finland's trade policy

Figure: Finland's score and ranking in the Commitment to Development index measuring trade policy and its sub-indices. (Source: Center for Global Development)

The Center for Global Development – a non-governmental organisation – uses the Commitment to Development Index (CDI) to rank 27 of the world's richest countries on their committed to improving the status of people living in the poorest countries. The part of the index that relates to trade policy was chosen as an indicator for the global responsibility basket because it is of utmost importance that developing countries participate in international trade and benefit from it. The index consists of four areas:

1.    tariffs for developing countries (weight factor 40%) 
2.    agricultural subsidies (weight factor 20%)
3.    regulations on imports and logistics (weight factor 20%)
4.    transparency of trade in services (weighting factor 20%).

Increasing the exports of developing countries and improving market access for them, especially for the least developed countries, has also been recorded in the UN's Sustainable Development Goals.

Finland’s current situation

Finland ranked sixth in the 2019 CDI measuring trade policy, after ranking ninth in 2018. The countries that placed ahead of Finland were other EU Member States as well as Australia and New Zealand. The better position of the EU Member States that rate higher than Finland in the index is mainly due to scoring higher on the openness of trade in services.

Finland’s recent development

Trade policy is an important part of Finland’s foreign policy. Finland participates actively in the implementation of the clauses on trade and sustainable development in the EU's free trade agreements, for example, by promoting exports of environmental products and by working actively to eliminate fossil fuel subsidies at the international level. Trade policy can also be used to improve market access for products from developing countries to enable these countries to better integrate into global value chains. As part of the EU's common commercial policy, Finland unilaterally grants tariff preferences to developing countries.

Finland's development trend in the index is moderately rising. Finland’s ranked the best so far in 2020. The country’s ranking had previously altered between 12th and 8th from 2003 to 2018. As a result of the EU's common commercial policy, Finland's score on tariffs in goods trade is in line with the other EU member states. In agricultural subsidies, Finland's result is better than the median when agricultural subsidies are proportioned to the value of agricultural production. Finland's national agricultural subsidies are not included in the index. Taking into account the national subsidies would weaken the score slightly, but would improve the development trend as the amount of national subsidies has decreased significantly during the period under review.
The component measuring the regulations on imports assesses not only the required import documents but also the time and costs of transporting the freight container. Here, Finland's score is better than the median.

When looking at the trade in services, Finland ranks below the median (lower value is better), but the result is poorer than in some of the reference countries. This is because of issues such as the regulations and procedures concerning immigration and the requirements for the place of residence of persons in the senior management of companies. Opening up trade in services would improve Finland's score on the index.

Other observations related to the indicator

The improvement in Finland’s ranking in 2020 may be partly due to changes in the weightings of the index. The weight of agricultural subsidies has been increased by 10 percentage points from the previous year, while the share of trade in services and the regulation and logistics of imports has been reduced by five percentage points each.

As the index is periodically changed, the indicator is only suitable for describing the development of different countries on the timeline. It rather provides a situation picture at a specific time.

Domestic consumption of materials remained unchanged in the last ten years

Figure: Imports and exports in tonnes in Finland. (Source: Statistics Finland)

In addition to value, foreign trade can be measured in quantity. Imports and exports in tonnes indicate changes in the material dependencies of the national economy. Information on import and export volumes is used to calculate domestic material consumption. It is important to be aware that with an increase in foreign trade, also a considerable part of the environmental effects caused by Finns are now created outside our national borders. On the other hand, many of the products imported to Finland are further processed into export products. Because production in Finland is on average ecologically more sustainable than in many other countries, no unambiguously negative or positive conclusions can be drawn by examining only the material flows.

Finland’s current situation

The impact of imports and exports on domestic material consumption was neutral in 2018. Finland exports global environmental technology and services, and invests significantly in innovations in areas such as the circular economy. The export of these products and services bring benefits to sustainable development at the global level.

In 2018, 60 million tonnes of foreign direct inputs were imported to Finland, going up by 4 million tonnes from the previous year. At the same time, exports of goods abroad increased by 4 million tonnes. As a result, the impact of imports and exports on domestic consumption of materials was neutral.

Although direct comparisons of country-specific material flows are challenging due to the varying nature of national economies, it can generally be said that the material flows resulting from Finland's foreign trade are significant for a small country. Overall, Finland's specialisation in sectors such as oil refining and the forest industry is reflected in extensive material flows. These material flows are further boosted by the mining industry, which has experienced strong growth in Finland in recent years and which large material masses are mobilised. Like many other countries, Finland has outsourced raw materials production and the manufacture of labour-intensive products to countries with a relative advantage or to countries with natural resources that Finland does not have.

Finland imports particularly fossil energy materials as well as metals and minerals while it exports a significant amount of renewable wood, wood processed products and biomass and biomass products. Of imported fossil energy materials, especially coal and crude oil are emphasised. A significant share of these are professed into refined products. Because a rapid reduction in the use of fossil fuels is necessary to mitigate climate change, it can be expected that the imports of fossil materials will decline.

Finland’s recent development

Foreign direct inputs imported by Finland, i.e. quantitative imports of processed and raw materials and exports of goods, grew considerably in the 1990s and early 2000s. The tonnage of foreign direct contributions has traditionally been higher than the tonnage of goods exported. In other words, Finland imports a significant amount of materials from abroad. In the last ten years, imports of foreign direct inputs have remained fairly unchanged. The exports of goods in tonnes has increased slightly just over the few past few years.

The circular economy is based on a comprehensive view of sustainability, from energy and material efficiency through the entire product life cycle to the reuse/ elimination of waste. According to the principles of the circular economy, we are in the middle of a transition in which the focus is, instead of products, on services such as sharing services and platforms, maintenance, repair (including proactive industrial maintenance), and the benefits brought by digitalisation for improving the efficiency of global production chains. The ultimate goal is a carbon-neutral circular economy.

At the concrete level, Finland also exports environmental technology and services, such as energy-efficient and material-efficient solutions globally. Finland makes significant investments in innovations, for example, in the circular economy. Exporting these products and services globally benefits sustainable development also at the global level, but measuring it is challenging and requires further development. 

Other observations related to the indicator

The material flows of many products include so-called hidden flows. The hidden flows associated with imports consist of such direct and indirect material and energy inputs made abroad in the purchasing and manufacture of imports that are not visible in the weight of the raw materials and products. For example, land use and the greenhouse gas emissions created in the country the product is exported to can be included in hidden flows. The hidden flows of imports may be manifold compared with the direct inputs. The amount of hidden flows in tonnes does not, however, as such reveal how sustainably the product or raw material has been manufactured as the production conditions may vary a lot between countries and within countries, even between individual factories.

The target of 0.7 per cent of GNI for Finland's development cooperation appropriations is a far away – but it is what we aim at

Figure: Development of Finland’s development cooperation funding and support provided to the least developed countries (LDC) included in the development funding, and climate funding. (Source: Statistics Finland)

Finland has committed to the UN and EU-set goal of appropriating 0.7 per cent of its gross national income (GNI) to development assistance as well as directing 0.2 per cent to the least developed countries. The amount of official development assistance (ODA) is then compared with the country’s GNI.

Achieving the development funding targets requires, above all, commitment beyond electoral periods, which is yet to be seen. Finland has lagged behind the other Nordic countries in terms of development funding.

Figure: The bar graph shows the share of development assistance of the gross domestic product in the DAC countries in 2019.

The Development Assistance Committee (DAC) is a committee of the Organisation for Economic Cooperation and Development (OECD), to which countries report on their development assistance internationally. The members of the Development Assistance Committee, i.e. the DAC Member States, have set the target of 0.7% of GNI.

Finland’s current situation

In 2019, Finland used EUR 1,007 million, or 0.42 per cent, of the gross national income for development assistance. In 2019, the amount of expenditure used for development assistance rose in real terms by 18.2 per cent compared to the previous year. The assistance to the least developed countries was 0.14% of GNI (2018: 0.11%). Finland ranked as the ninth largest funding provider of the EU countries with 0.42 per cent of GDP. Overall, Finland’s share is slightly above the average.

When examining the status in 2020, it is important to note that the crisis caused by the COVID-19 pandemic has brought significant additional challenges to achieving the SDGs. For example, the number of people living in extreme poverty will increase significantly in 2020. This marks the first increase in global poverty for over 20 years. Moreover, in many countries, the economic and social impacts of the outbreak will reach beyond the health crisis in terms of their scope and duration. Inequality has increased, the need for humanitarian aid has increased dramatically, gender equality has deteriorated and learning outcomes have been affected.

Finland’s recent development

Finland is committed to increasing its development assistance appropriations to 0.7 per cent of the gross national income in the long term. The target was close in 2014, when the figure was 0.59 per cent. Cuts in 2016 as part of the balancing of government finances changed the situation significantly.

With a contribution of EUR 1,007 million to development cooperation, Finland was the ninth largest donor among the EU Member States in 2019. The annual change in the country's GNI share took an upward turn in 2019 after a decline in the previous years.

Three principal reasons can be identified for the increase in the amount of expenditure and the share of GNI. Firstly, Finland's development policy investments grew in real terms by EUR 96 million from the previous year. Secondly, costs arising from the reception of refugees and asylum seekers, which are considered development cooperation (EUR 80 million) increased by approximately EUR 32 million from the previous year. Thirdly, the share of development assistance between countries and regions (EUR 140 million) increased by EUR 22 million from 2018. The actual expenditure in 2019 grew by EUR 174 million compared to 2018.

The total development cooperation expenditure of the members of the OECD Development Assistance Committee increased by 1.4%. Development aid payments increased in 18 Member States and decreased in 11 Member States.

According to the target set by the UN, 0.15-0.2 per cent of the national income should be directed to the poorest countries as aid. Finland’ funding to the least developed countries (LDC, LDC/GNI in the graph) represented 0.1 per cent of gross national income in 2019. In 2015, the share of the funding was 0.18 per cent, but it declined in the following years because of considerable cuts in appropriations. As a result of the increase in 2019, Finland remains committed to its 0.2 per target and works towards achieving it.

Like the other industrial countries, Finland has an obligation to support reporting related to the climate agreement in developing countries as well as supporting their actions to mitigate and adapt to climate change. All of Finland's development cooperation is aimed at mitigating climate change and at supporting adaptation to and preparation for climate change.

In October 2017, Finland and the International Finance Corporation IFC established a joint climate fund to support renewable and clean energy solutions and climate projects in developing countries. All in all, Finland channelled EUR 114 million to the fund for the duration of 25 years. In 2017, the first payment of the IFC’s climate fund totalled EUR 68 million and the second payment of EUR 46 million was made in 2019.

Finland actively participates in international crisis management

Figure. Finland’s involvement in international military and civilian crisis management. (Source: Ministry for Foreign Affairs)

Finland provides security and bears responsibility for maintaining international peace and security by participating in international crisis management. Crisis management is key instrument of foreign and security policy that supports conflict resolution, post-conflict stabilisation and the building of safe societies. Finland implements and promotes a comprehensive approach to crisis management. The increase in stability and security will improve living opportunities and conditions locally and will help facilitate economic and social development.

Finland’s current situation 

Finland continues active participation in international crisis management. At the moment, Finland’s participation capacity is around 400 soldiers and 120 civilian crisis management experts. The aim is to strengthen the level of participation in military crisis management with an emphasis on UN missions and Africa. The aim is to increase the number of civilian experts to 150 by 2023. Participation in crisis management varies slightly on a monthly basis due to personnel rotation in the operations. Finland is striving to increase the share of women in civilian crisis management. Currently, about 40 per cent of Finnish experts in civilian crisis management are women. The number of participants Finland sends to civilian crisis management operations is the highest in the EU states in proportion to the size of the population.

Finland’s recent development

During last ten years, which is the period under review, Finland's crisis management participation was at its highest at the beginning of the period, in 2008-2009 (around 700-750 soldiers) and at its lowest in 2011 (around 250 soldiers). Peace and security are at the core of 2030 Agenda - "there is no sustainable development without peace and there is no peace without sustainable development". Finland last confirmed its commitments on peacekeeping participation in March at the 2019 Peacekeeping Ministerial Conference.

Figure: Map of Finland’s crisis management operations. Link to interactive map. (Source: Ministry for Foreign Affairs)

Conclusion

These global basket indicators show how Finland contributes to the implementation of the Sustainable Development Goals in the world. Finland is working on a very broad scale to promote sustainable development at the global level. A recent SDG-specific report on Finland’s activities is included in Finland's voluntary country report on the implementation of the 2030 Agenda in the period 2016–2020, which was presented to the UN by Prime Minister Marin in July 2020. Finland’s report can be found on the UN website: https://sustainabledevelopment.un.org/memberstates/finland.

The indicators included in the global basket have not been changed since the previous review.

Mikael Långström, Ministry for Foreign Affairs