The European Union plans to tighten the rules for beneficiaries of its budget support fund, placing governance at the centre of a programme that has been pivotal to infrastructure financing in countries like Kenya.

Under the proposed rules governance will get a higher weighting when countries are being assessed for financing from the European Development Fund (EDF), signalling that political stability and the fight against corruption might become the deciding factors.

Stringent levels

The move is expected to place developing nations with governance challenges in the spotlight as the EU's conditions for development assistance rise to the stringent levels only common with the US. It comes six weeks after US President Barrack Obama struck three African nations -- Guinea, Madagascar, and Niger -- out of the list of countries that enjoy free access to the US market under the Africa Growth and Opportunity Act (Agoa) for political instability and bad governance.

Kenya has been a major beneficiary of the EDF, especially for its infrastructure that has featured regularly among the leading obstacles to doing business in the country.

The European Commission has this year set aside about 23 billion euros for the 10th tranche of EDF assistance to developing countries.

Though allocations to the kitty have steadily risen over the years, a section of EU member countries have been stinging in their criticism of the vetting process, which they claim has largely ignored political and governance issues in recipient nations.

"In this respect, the Council notes that improvements can be made by taking a more structured and formalised approach to assessing budget support eligibility, in line with the Cotonou Agreement, and is in the process of refining its guidance on budget support to reinforce its approach," the EU said in a statement.

Under the Agoa terms, countries qualify if they are identified as having established or are making progress towards setting up market-based economies; the rule of law and political pluralism, and eliminating barriers to US trade and investment.

Eligibility for Agoa is further hinged on protection of intellectual property, the fight against corruption, poverty reduction, increasing availability of health care and educational opportunities, protection of human and workers' rights, and elimination of child labour practices.

President Obama said Guinea, Madagascar and Niger had failed to clear the hurdle because of political threats to democratic governance.

Good governance

It is not clear how far the EU plans to go in its demand for good governance given that differences over EDF allocation have partly been blamed for the failure by the East African Community to conclude new economic partnerships (EPAs) with Europe.

The EAC has demanded that the EU puts on the table a better development assistance package before it signs the new EPA.

Tanzania and Uganda have particularly demanded appropriate provisions for development assistance arguing that under new reciprocal trade arrangements being sought by the EU, EAC member states stand to lose significant revenues because some of the tariffs currently charged on European imports will drop significantly or be eliminated altogether.

Only last year, the EU made major concessions on the use of the EDF when it agreed to merge programmes under the kitty with those of countries in single regional trading blocs to make them more effective.

This was seen as part of a strategy to win the support of countries negotiating the EPAs by ensuring transformation in the implementation of projects and programmes under the EDF.

In a declaration between the EC and its development partners under the auspices of the inter-regional coordination committee (IRCC), new ventures under the EDF will have to support existing cooperation programmes that have direct impact on the ongoing integration processes.

"Regional organisations will intensify the development and harmonisation of their aid for trade strategies, ensure coherence and alignment at national and regional levels to cover the wider aid for trade agenda," the pact reached in December 2009 reads in part.