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Germany is one of the largest donors of developmental aid, having ranked in the second and fourth places in overall donations in recent years.  Germany’s contribution, however, ranks below twelve other countries when measured in terms of a percentage of its Gross National Income (GNI).  In 2010, Germany contributed 0.38% of its GNI, yet Germany promises that by 2015 it will meet the 0.7 percent goal that European countries have stipulated.

Germany is engaged in bilateral development cooperation with about fifty countries; among these are poor yet well-governed countries, fragile states that are troubled by conflicts, and some emerging economies that still qualify for aid.  Germany aims to make its aid an effective tool for lasting improvements in the partner countries.

German bilateral aid focuses on good governance, education, rural development, climate control, sustainable development, and a strengthening of the private sector.  To enhance these goals, the German Federal Ministry for Economic Cooperation and Development reviews cooperation agreements for effectiveness and partner countries are reviewed for compliance with standards of good government.  Germany is reluctant to grant budget support to countries that have not proven their ability to use it wisely.

Germany donates its largest multilateral aid contribution to the European Union but is also a sizable contributor to institutions of the United Nations and the World Bank.  In international efforts, Germany often takes a leadership role on the linking of climate control to developmental cooperation.

I.  Introduction

A.  Official Development Assistance Figures

For the year 2010, Germany reported net distributions of US$12,723 million in official development assistance (ODA) to the Development Cooperation Directorate (DCD-DAC) of the Organisation for Economic Co-operation and Development (OECD).[1]  For 2009, Germany reported US$12,079 million, and for 2008, it reported US$13,981 million. [2]  In 2008, Germany was the second largest donor of net ODA, exceeded only by the United States.[3]  In 2009 and 2010, Germany placed fourth among net ODA donors, after the United States, Great Britain, and France.[4]

Germany ranked lower, however, when comparing percentages of Gross National Income (GNI)[5] that were disbursed as ODA.  During the period 2008 through 2010, Germany ranked in thirteenth place, having contributed 0.38% of GNI in 2008 and 2010, and 0.35% in 2009.[6]  These percentages placed Germany below many European countries, among them several Scandinavian countries and the Netherlands, which had already exceeded the 0.7% of GNI that European countries are expected to meet by 2015.[7]  Nevertheless, Germany is hopeful that the goal will be met by 2015, albeit with reliance on private-public partnerships and innovative financing methods to supplement the contribution from tax revenues.[8]

period 2008 through 2010, Germany disbursed 60 to 65% of its net ODA in the form of bilateral assistance.[9]  Of the remaining 35 to 40% of ODA that Germany disbursed multilaterally, close to 60% consisted of contributions to institutions of the European Union (EU), and another 25% to World Bank institutions, with the bulk going to the International Development Association (IDA), the World Bank’s fund for the poorest countries.[10]  Germany’s overall multilateral contribution during this period made it the largest donor of multilateral aid worldwide.[11]

B.  Private Contribution Figures

Germany has many nongovernmental organizations (NGOs) and philanthropic foundations that provide aid to developing countries.[12]  For the year 2010, the German Statistical Office reported a total of €1,105 million (about US$1,461 million) in nongovernmental developmental aid.   Thirty-one percent of this private aid went to Africa, 27% to Asia, and 28% to the Americas.[13]  The Statistical Office compiles these figures on the basis of voluntary reports of the donors.  Only aid that lives up to international standards is included.  Disbursements that private parties channel through governmental organizations are not captured as private aid but are included in the ODA report to DCD-DAC.[14]

C.  Snapshot of Foreign Aid Activity

Germany began giving assistance to the developing world in the 1950s,[15] after Germany itself had been the recipient of massive aid in the form of the Marshall Plan.[16]  Germany’s commitment to foreign aid is rooted in historic, political, economic, ecological, and moral considerations.  Of these, the moral argument—the desire to help those in need—is the most prevalent justification in the eyes of the German population.[17]

From a historical perspective, Germany feels some responsibility to provide aid to its former colonies, particularly to the country of Namibia,[18] where German forces committed genocide in the first decade of the twentieth century.[19]  Aside from this historic motive, Germany currently does not have any specific foreign policy consideration in its developmental aid program.[20]  In Germany, as elsewhere, foreign aid’s potential to enhance stability, deter terrorism, and reduce migratory movements is appreciated.[21]  To promote these goals, Germany encourages the political participation of the populations of partner countries in both local and national matters.  In addition, German developmental policy aims to strengthen civil society, improve laws, and make governments more accountable in the partner countries.[22]

From an economic perspective, Germany adheres to the belief that economic development is essential to overall sustainable development[23] and therefore promotes the development of the private sector in partner countries.[24]  Germany has in the past concentrated on cooperating with countries that show some prospect for improvement.  This has led the OECD Peer Review of 2005 to suggest that Germany did not focus enough on the least developed countries and recommended giving more aid to sub-Saharan Africa.[25]  It appears that Germany heeded these admonitions and increased its involvement in sub-Saharan Africa,[26] sending it about 26% of German bilateral ODA in 2009.[27]

Germany is engaged in development cooperation with over fifty partner countries.  Included among these are poor yet well-governed, developing countries; fragile states that are troubled by conflict; and some emerging economies that still qualify for aid.[28]  In choosing partner countries, Germany considers whether German cooperation would be useful from a global perspective and whether the government in the potential partner country is willing to reform.  Other criteria are the poverty of the country and any historical or political links to Germany.[29]

Bilateral assistance is given in the form of financial aid, technical cooperation, and/or personal consultation.  Germany refers to its developmental aid as “developmental cooperation,” thus stressing the partnership aspect of the relationship.  Germany feels strongly that developmental cooperation should have lasting effects in the partner country,[30] as envisioned by the Paris Declaration.[31]

German cooperation projects focus on good governance, education, health, rural development, climate protection, environmental protection, resource management, and encouragement of business and the private sector.[32]  Germany devotes considerable resources to projects that have a favorable effect on climate control.[33]  In addition, Germany has taken the lead in international efforts that link development aid with climate control and other environmental issues.[34] 

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II.  Legal Framework

A.  Regulation of ODAs

1.  Overview

In Germany, the granting of ODA is a matter of policy formulated by the executive branch of government.[35]  Some experts have decried the lack of a statutory basis for developmental aid, yet have conceded that the existing parliamentary oversight of the executive branch is sufficient to meet constitutional requirements.[36] 

German policy on developmental cooperation professes to be based on adherence to the principles of

• the United Nations Millennium Goals of 2000,[37]
• the Monterrey Consensus of the International Conference on Financing for Development,[38]
• the Paris Declaration of 2005,[39] and
• the Accra Agenda for Action of 2008.[40]

Germany, however, is not entirely in agreement with the preference for budget support over other modalities of aid that is expressed or implied in the Paris Declaration[41] and the Accra Agenda.[42]  Germany favors a more differentiated approach to minimize the risks inherent in budgetary assistance.[43]

German policy on developmental aid was most recently formulated in the coalition agreement of October 26, 2009, of the parties forming the government during the seventeenth legislative period.[44]  These principles stress

• applying minimum standards regarding the rule of law and the observance of human rights;
• sustaining the fight against hunger and structural deficiencies in the spirit of the UN Millennium Goals;
• strengthening good governance, self-determination, and self-help capabilities through strengthening civil society; and
• harnessing business and industry to foster sustainable economic development.[45]

German policy on developmental aid appears to be supported by a broad consensus of the political powers.[46]  Nevertheless, criticism has often been expressed from both the right and the left.  Whereas some domestic critics find German developmental policy inefficient and its implementation wasteful,[47] humanitarian aid organizations deplore the recent German emphasis on cooperation with the private sector.[48]

2.  Implementing Agencies

The Federal Ministry for Economic Cooperation and Development (Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung, BMZ) shapes developmental policy for approval by the Federal Cabinet.[49]  The BMZ also decides on the bilateral developmental projects that will be undertaken.  These, however, are implemented by government-owned corporations that act on a private law basis, although subordinated to the BMZ.[50] 

The BMZ is not the only federal ministry that makes and implements policy on developmental cooperation.  The Federal Ministry of Finance is instrumental in the budget process (see discussion, infra).  Other ministries are involved through consultations and oversight.[51]  Among these is the Federal Ministry for Environment, Nature Conservation, and Nuclear Safety[52] on projects and issues relating to the environment.  The Federal Foreign Office (Auswärtiges Amt) administers humanitarian aid.[53]  Even the Federal Ministry of Defense cooperates at times with civilian developmental aid organizations when the participation of the military is needed for a project that provides humanitarian and developmental aid.[54]

The BMZ is staffed by about 600 civil servants.  About fifty of these serve in the field, on a rotating basis, either in partner countries or with international organizations.[55]  The BMZ is structured into four directorates.  One of these is in charge of administrative tasks and cooperation with NGOs, private companies, the German states and municipalities, and other contributors to developmental aid.  The other three directorates specialize in geographic areas.  In addition, the BMZ has a special auditing and evaluation unit, and a Scholarly Council (Wissenschaftlicher Beirat beim BMZ) that advises the BMZ on policy issues and publishes many of its findings.[56]

Developmental aid is implemented by government-owned companies that provide either technical or financial assistance.  These, in turn, have contractual relationships with the relevant organizations in the partner countries.  The BMZ supervises the aid work of the German implementing companies.[57]

Recently, Germany reformed its implementing organizations for technical cooperation by merging three companies into one: the newly created German Company for Technical Cooperation (Deutsche Gesellschaft für internationale Zusammenarbeit, GIZ).[58]  The GIZ commenced operations on January 1, 2011.  Through the merger, Germany hopes to streamline operations, avoid duplication, and increase efficiency and transparency.[59]

GIZ works not only for the BMZ but also on behalf of other German ministries, and cooperates with German states and municipalities as well as with public and private sector clients in Germany and abroad.  It appears that compared to the former companies, GIZ functions more like a business and puts more emphasis on involving the private sector, both in Germany and in the partner countries.[60]

The implementing company for financial assistance is KfW Development Finance (KfW Entwicklungsbank), one of the banks in the government-owned KfW bank group.[61]  Financial cooperation with private parties in the partner countries is carried out by the German Investment and Development Company.[62]

In addition to these major players in developmental cooperation, there are many other actors.  There are some highly specialized agencies along with development programs of states and municipalities.  Moreover, much partnering occurs between the governmental agencies and private organizations.[63]

3.  Restrictions – Tied Aid

Germany has not entirely lived up to the recommendations on untying aid that were made by the OECD/DAC and the Accra Action Plan.[64]  Especially with respect to technical cooperation, Germany often insists on the use of German equipment.[65]  Moreover, the federal budget often specifies that technical assistance is to be provided directly by German services.[66]  According to some critics, German equipment is costly, even though there is general agreement on its high quality.  In 2008, 41% of German technical assistance was provided in the form of tied aid.[67]  Germany, however, has promised reform.[68]

4.  Discretionary Aid

Expenditures for developmental cooperation are authorized through the annual budget.[69]  It appears that, from a budgetary point of view, these expenditures are generally discretionary.  Budgetary law provides that appropriations enable an agency to disburse funds and to incur obligations, without requiring that the appropriated funds be spent.[70]  Instead, the law requires that appropriated funds be used economically, in accordance with budgetary principles.[71]  To provide flexibility, the annual budget allows for the transfer of some unused funds to other designated appropriations.[72]  Generally, it appears, however, that the authorized funds have been expended in recent years.[73]

The budget process takes into consideration that agencies incur obligations or adopt plans that need to be funded over several years and spells out what funds will be allocated over the required period.  Such multiyear appropriations are particularly common for developmental aid.[74]  The appropriation for contributions to international organizations often spans several years.[75]  For some appropriations, however, the budget explains that the Federal Cabinet may decide to withhold promised contributions if other contributor countries are not living up to their obligations.[76]

In the appropriations for both financial and technical bilateral aid the budget often spells out that contributions must be made in accordance with specified guidelines.  For measures that do not fall within the framework of these guidelines, individual approval by parliamentary committees is often required.[77]  Specific parliamentary approval is also required for each grant of budget support and engagement in a silent partnership.[78]

5.  Oversight

The developmental policy of the Federal Cabinet and the work of the BMZ are subject to parliamentary oversight exercised in various ways, including committee hearings, reports of the executive branch of government, and the parliamentary right of questioning the Federal Cabinet on any issue.[79]  In the Federal Diet (Deutscher Bundestag), the representative chamber of the bicameral federal legislature, the Committee on Economic Cooperation and Development (Ausschuss für wirtschaftliche Zusammenarbeit und Entwicklung), is primarily responsible for overseeing developmental policy and its implementation.[80]

As with all governmental spending, the implementation of developmental cooperation policy is subject to the scrutiny of the Federal Court of Audit,[81] an independent quasi-judicial body charged with examining the efficient administration of public funds.[82]  The Federal Court of Audit monitors all governmental spending through spot-checks.  In addition, the Court may study problems in depth and make recommendations to the legislative and executive branches of government. 

Within the BMZ, an internal but independent unit continuously monitors German developmental policy and implementation for effectiveness.[83]  This subdivision of the BMZ provides the guidelines for internal and external evaluations in observance of the criteria provided by OECD/DAC.  The German implementing organizations carry out the evaluations for their spheres of operation, and these evaluations involve a great deal of monitoring of the participating organizations and companies in the partner countries.[84] 

In addition, the BMZ has a program of evaluations.  These focus periodically on specific topics and also provide biannual reviews of relations with individual partner countries.[85]  In addition to its own evaluations, the BMZ also relies on external appraisers.[86]  Evaluations are made public.[87]  They serve to inform the German people on how effective aid has been.  The published evaluation reports range from a description of German aid to a specific country (such as a report on aid to Burkina Faso in 2006)[88] to an evaluation in 2007 on how effectively the Paris Declaration had been implemented by Germany at that time.[89]

In March 2009, the BMZ published an updated operational plan for its implementation of the Paris Declaration and the Accra Action Plan[90] in which Germany reiterated its commitment to monitoring and evaluating aid effectiveness.  German implementation of these international instruments focuses on accountability, both domestically and at the level of the partner countries, and envisions the development of international accountability mechanisms.

6.  Policy Considerations of the Partner Countries

The German system of developmental cooperation seems sufficiently flexible to adjust to acceptable legal or political requirements in a partner country while at the same time being well-equipped to identify and reject policies of a partner country that are at odds with German principles.  Germany designs most of its cooperation projects individually, in negotiations with the partner country.  Moreover, every second year, the BMZ meets with each partner country and addresses any lingering concerns on issues such as good governance or human rights.  The overall plan for assistance for the partner country is then agreed upon, and details are then further negotiated between the German implementing organizations and the involved organizations of the partner country.[91]  Under this detailed approach, Germany appears to have control over any objectionable policies or wasteful procedures of the partner country with respect to how German aid will be used, and is able to identify and reject them.

This German attention to detailed supervision may explain why Germany is somewhat skeptical about budget support.[92]  In 2009, only 9% of German ODA fell into this category, and the conditions that Germany imposes for this type of aid specify a high degree of democratization in the recipient country.  Germany is apprehensive that this type of general aid may foster corruption and encourage centralization in countries that lack a stable political climate and do not practice a reasonable degree of transparency.[93]  The German Federal Court of Audit reviewed this type of aid in 2008 and recommended that it be given only to countries with which Germany is already cooperating and that have a reasonable level of good governance.[94]

Germany has given much thought to advancing democratization and encouraging the participation of recipient countries’ populations in decision-making processes.  To achieve these goals, Germany encourages the recipient countries to enact and enforce laws that give the population substantive rights of participation safeguarded by procedural rules.  In addition, Germany encourages governments that function and are transparent.  Germany is well aware of the complexity and difficulty of the task and the need for a varied and flexible approach that involves nongovernmental actors in addition to governmental aid.[95] 

B.  Regulation of Private Contributions

1.  Taxation

German law exempts nonprofit corporations, associations, and foundations from corporate income tax liability[96] and allows individuals and corporations to deduct up to 20% of their annual income for qualifying nonprofit purposes.[97]  Alternatively, corporations and individual business owners can elect to be limited in their qualifying nonprofit spending by an amount that equals 0.04% of the sum of their annual turnover plus the total of wages paid.[98]  In addition, individual taxpayers may deduct up to €1 million (about US$1.28 million) over a one- to ten-year period if they donate funds toward the establishment of a charitable foundation.[99]

Developmental cooperation qualifies as a tax-favored nonprofit purpose[100] provided that it lives up to the general criteria for beneficial tax treatment of charitable purposes.  These require that the benevolent activities that a German developmental aid organization carries out abroad serve to enhance the image of Germany[101] and that the donor organization is not subversive or extremist and does not engage in such conduct.[102]  EU law appears to require that donations to charitable organizations located in other EU member states also qualify for the German tax exemptions.[103]

Until 2007, the law clearly indicated that tax-exempt nonprofit organizations had to be located in Germany to enjoy tax-exempt status and for donors to qualify for tax deductions.  Changes in the law in 2007 and 2009 have opened the possibility of a tax deduction for donations to nonprofit organizations located abroad, as long as they benefit either German residents or Germany’s image.[104]  This new rule, however, is controversial; the tax authority is challenging its constitutionality and its application is uncertain.[105]

2.  Subsidies and Cooperation with Government

Germany has many NGOs that provide developmental assistance.[106]  Among them are medical associations and other providers of health services, associations assisting a particular country, and religious communities that operate schools and hospitals (see section IV.B, below for the differentiation between the religious and nonreligious activities of religious communities).  These organizations may obtain subsidies for developmental aid projects and also engage in cooperative projects with the BMZ.[107]  Under either of these circumstances, the private donor organizations are bound by any governing guidelines and directives that the BMZ may have issued.[108]

Political foundations also partner with government developmental aid organizations and are eligible for subsidies.[109]  Political foundations are civic associations that have a close relationship with a political party.  In developing countries, they provide civic education and encourage democratization.[110]  Despite their relationship with a particular political party, political foundations may be recipients of governmental subsidies for their work in civic education, as long as certain safeguards are met that guarantee their independence from the political party.[111]

German NGOs may also request assistance from the EU’s developmental aid office.[112]  Such cooperation is governed by EU policies, as expressed in EU Regulation 1905/2006.[113]

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III.  Foreign Aid Appropriations Process

Federal developmental aid is appropriated in the course of the annual budgetary process of the Federation.  Each Ministry prepares a budget for its sphere of competence, and the Federal Ministry of Finance reviews the ministerial budgets and compiles them into one draft budget.[114]  After the Federal Cabinet approves the draft budget, it is submitted to both chambers of the bicameral federal legislature.

The Federal Council, the Chamber representing the states, notifies the Federal Diet of any comments it may have.  In the Federal Diet, the Budget Committee reviews the draft budget.[115]  After the Federal Diet approves the draft budget,[116] the Federal Council is asked for its consent.  Disagreements are resolved through a conciliation committee.  After the Parliament approves the budget, the Federal President signs and promulgates it as a federal law.[117]

Although the budget generally lists annual expenditures, the law permits the inclusion of expenditures for future years to cover long-term obligations.[118]  The appropriations for developmental aid frequently employ such commitment plans.[119]  These may span periods of three to five years or may be open-ended. 

Commitment plans are used for obligating developmental funds to the EU[120] and to international organizations.  These plans may include reservations allowing the Federal Cabinet to block funds if other contributor countries do not live up to their obligations.[121]  They may also require the consent of parliamentary committees to unblock funds.[122]

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IV.  Other Types of ‘Aid’

A.  Emergency Aid

The federal budget contains an allocation for emergency aid to be granted in conflicts, catastrophes, and crises.  This allocation serves to finance food, infrastructure, water, sewage services, social services, housing, transportation, encouragement of self-help, and assistance for refugees.[123]  The BMZ administers this appropriation.  It may act on its own or make contributions through the UN Central Emergency Response Fund.  To the extent that cash grants are given, guidelines must be observed.[124]

In addition, Germany provides humanitarian assistance through the Federal Foreign Office.[125]  The appropriation for this assistance allocates funds for catastrophes and also for human rights efforts, and to help other countries become more democratic.[126]

B.  Religious Ministries

In Germany, the largest nongovernmental foreign aid donors are religious ministries, particularly the Roman Catholic Church and the Evangelical Church in Germany.[127]  Germany, however, does not categorize religious activities as developmental aid.  According to German statistical guidelines, expenditures incurred to propagate or observe a faith or religious belief, build churches or sanctuaries, and train clergy cannot be included in the statistics for private foreign aid contributions.[128]  Only to the extent that religious communities provide developmental aid or humanitarian assistance may the expenditures incurred by such activities be reported to the Federal Statistical Office as private foreign aid.[129] 

Moreover, the budget appropriation for subsidizing developmental aid provided by religious ministries clearly specifies that religious activities are not subsidized in this context, and that BMZ guidelines must be observed for expenditures and commitments.[130]  The subsidization of church-sponsored developmental aid is not surprising in Germany, given the fact that domestically, partnerships between the government and religious communities are not unusual in matters relating to education, health, and social services.[131]

C.  Scholarships for Foreign Students

The German states grant scholarships for higher education to students from developing countries.[132]  This type of aid is included in ODA in the German report to OECD/DAC.[133]  In fact, the educational expenditures of the states for students from developing countries constitute a substantial contribution to German ODA.  In 2006 such aid amounted to 9% of German ODA for the year.[134]

D.  Remittances

Germany is aware of the importance of remittances sent home by foreign workers to developing countries.[135]  To make such money transfers less expensive, GIZ maintains a website that lists the costs of transfers and describes the terms of doing business offered by banks and transfer services.[136] 

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Prepared by Edith Palmer, Chief
Foreign, Comparative and International Law Division II
Global Legal Research Center
November 2011

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Last Updated: 12/30/2020