DAF: DEVELOPMENT ASSISTANCE FUND

Spain has an Official Development Assistance (ODA), which includes all the contributions of resources made to the most financially disadvantaged countries. The ODA is in the framework of the OECD (Organization for Economic Co-operation and Development). This is an international organization currently made up of 30 countries, including Spain, aimed at promoting sustainable economic growth and supporting the development of disadvantaged economies.

One of the main financial instruments of the ODA is the Development Assistance Fund (DAF). DAF credits (created in 1976) are a fund without legal status, granted by the Spanish state, aimed at combining the development of the target countries with support for raising the international profile of Spanish companies. This facilitates the entry of our companies into unfamiliar markets, offering financing in highly advantageous conditions compared to those existing on the conventional financial markets. This aspect means the fund is similar to a concession.
DAF credits operate mainly in countries with low average income (based on the OECD classification). In recent years, the  most active flow of DAF credits has  been to : Algeria, China, Ecuador, Egypt, Philippines, Honduras, Indonesia, Iran, Morocco, Namibia, Nicaragua, Palestine, Turkey, Tunisia and Vietnam.

DAF credits are aimed at sectors where the development of a project is not viable from a commercial point of view. It therefore concentrates its activities on sectors such as education, renewable energies, the environment, health and transport.

Further limitations apply to the granting of a DAF credit:

  • Although these loans can finance 100% of the operation, in most cases mixed credits are used, where the DAF loan covers around 50% of the export contract.
  • In consortium operations with other countries, the financial conditions of these must be similar to the Spanish conditions.
  • The life cycle of the investment must be at least equal to the loan repayment period.
  • The level of solvency of the beneficiary company will be taken into account.
  • Compliance with the OECD requirements, in the case of loans of a commercial nature that have a certain degree of freedom or financial subsidy.

DAF credits can be classified according to their commercial nature or as financial aid that is not linked to commercial projects; depending on the part of the export project financed, as single credits (for the total amount) or associated or mixed credits (for only one part of the operation); or taking into account the number of projects financed, in which case we distinguish between individual or specific credits ( for  single projects) and lines of credit (for a series of projects).

The responsibility for managing this support for Spanish companies is in the hands of the Ministry of Industry, Tourism and Trade, and more specifically the Directorate General for Trade and Investment (which is responsible for analysing the translations) of the Secretary of State for Tourism and Trade.

The  Inter-Ministerial Commission for Development Aid therefore plays a decisive role in this process, as it is not only responsible for administering the fund, but is also responsible for:

  • Monitoring the Agreements and Protocols subscribed to by Spain with the borrower countries.
  • The development of the methodology for granting the loans.
  • Presenting the Annual DAF Action Plan to the Council of Ministers.
  • Approving the annual accounts of the Fund.

In principle, these are inter-governmental loans, meaning they are granted by the Spanish State after an application is made by another foreign State. However, the application can be made directly by an exporter wishing to include this type of advantageous financial condition in its commercial offer. In this case, the exporter will apply for a loan to be granted by writing to the General Directorate of  Commercial Politics  and Investment, which will analyse the proposal and decide whether or not to give its approval. If it is accepted, the phase for processing the granting of the DAF loan will begin. This involves the authorities of the borrower country, and ends with the signing of a financial agreement between the Institute of Official Credit and the financial agency designated by the beneficiary country.

In quantitative terms, it should be noted that the amount approved by the Inter-Ministerial Commission of the DAF (CIFAD) during 2006, was considerably higher than the amount for the previous financial year. This was firstly due to  a major increase in the approval ceiling, which, in accordance with the provisions of Law 30/2005, of 20 December, on General State Budgets for 2006, amounted to a total 1,000 million euros; also, the Foreign Debt Management Law increased the grant to the fund by 528 million euros, meaning the maximum limit for approvals stood at 1,528 million euros.

The geographical distribution of the DAF was as follows:

  • Asia was the main recipient of the DAF, with 213 million euros in 2006, representing a considerable increase over  the amount for 2005 (135 million euros).
  • America was one of the other beneficiary areas in 2006, seeing a substantial increase in contributions in comparison to 2005 (9 million euros), amounting to  180 million euros.
  • Africa’s status remained relatively unchanged in comparison with 2005, receiving 178 million euros as opposed to 159 million in the previous year.
  • Lastly, Europe saw the greatest reduction in the distribution of these credits. In 2006 it was granted 83 million euros, as opposed to 173 million in 2005.
This  geographical distribution may be broken down by countries which, when analysed, shows a greater dispersion of the credit loans, although this does not include their  concentration in countries such as Algeria and China, which are both of major interest to Spain’s commercial policy. These countries received 14.48% and 10.60% of the funds, respectively. Nevertheless,  the highest percentage, 16.32%  was received by Bosnia-Herzegovina

By sectors, the most important was transportation (33%), followed by infrastructure and health (13.8 % and 10.5 %), and to a lesser degree services, and electricity (a sector that has seen a drop in levels of participation), education (which has seen a substantial increase) and finally, shipping and telecommunications (although these are the least important in relative terms, they have increased their participation in the fund in absolute terms with regard to the year 2005).