OECD DAC Chair Erik Solheim replies on ODA to least developed countries

A couple of days ago, I argued in a post here that while it was welcome that aid flows had reached a new all-time high in 2013, it was bad news that aid was continuing to fall to Least Developed Countries (LDCs). These are, after all, the economies that need aid most, given that – unlike middle income countries –  they remain highly dependent on aid (9.7% of their GDP compared to 0.3% of middle income countries’), and much less able to finance their development from other sources like foreign direct investment, remittances, or domestic resources like savings or tax revenue.

With the debate about post-2015 development objectives increasingly focused less on the goals themselves than on the resources that will enable their delivery – “means of implementation”, in UN-speak – I wrapped up the post by repeating a call I’d made in a report last year on a post-2015 Global Partnership for Development, echoing a recommendation made by the UN High-level Panel on the Post-2015 Agenda (itself based on a long-standing UN target):

With the post-2015 agenda now about to move into the home straight, this is the year when donors need to set out a clear timetable for making good on their long-standing promise to give at least 0.15% of their gross national income (GNI) to least developed countries – and ideally go beyond it to 0.20%. And the OECD DAC’s High Level Meeting this December is the right moment to do it.

On which note, I also sent a tweet to the Chair of the OECD DAC, Norway’s Erik Solheim, to put the idea to him: here’s what he came back with.

This is a fair point. If we unpack Solheim’s example of the United States, they only give 0.19% of GNI to aid in total, and 0.07% of GNI to LDCs (here’s the data). So for them to spend 0.15% of GNI on LDCs, as I’m proposing, would be a drastic shift, involving spending more than three quarters of their total aid budget on LDCs.

But Solheim also had another idea:

This is a pretty interesting idea. To stick with our example of the US, this approach would clearly be much less scary in that it would involve much less upheaval in aid allocations. But at the same time, given that the OECD as a whole spent 0.30% of its GNI on aid in 2013, the net result of what Solheim’s proposing would be that LDCs would receive… 0.15% of OECD GNI, the same proportion that I was calling for to start with.

And here’s the really key point: given that the OECD’s analysis of 2013 aid spending suggested that “aid levels could increase again in 2014 and stabilise thereafter”, the implication is that if donors were to commit to spending half their aid on LDCs, then the percentage of GNI could quickly rise to more than 0.15%.

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Surprise! Aid flows are at a new all time high

So here’s a big surprise. Until last year, global aid flows were declining in the wake of the financial crisis – a trend that was widely expected to continue. But here’s what emerged when the OECD’s 2013 aid statistics came out last month:

Development aid rose by 6.1% in real terms in 2013 to reach the highest level ever recorded, despite continued pressure on budgets in OECD countries since the global economic crisis. Donors provided a total of USD 134.8 billion in net official development assistance (ODA), marking a rebound after two years of falling volumes, as a number of governments stepped up their spending on foreign aid.

An annual survey of donor spending plans by the OECD Development Assistance Committee (DAC) indicated that aid levels could increase again in 2014 and stabilise thereafter.

Admittedly, there are two important qualifiers here. One is that while aid may be at an all-time high in absolute terms, that’s not true for the arguably more important measure of aid as a proportion of donor countries’ gross national income: in 2013 they gave 0.30% of GNI, as compared to 0.32% in 2010 (and way lower, of course, than the 0.7% target).

The other point, flagged up by OECD Secretary-General Angel Gurria in his comments on this year’s statistics, is that the trend of falling aid to the neediest countries, especially in Sub-Saharan Africa (which saw a 4% real terms decrease against 2012), is still happening and appears likely to continue in the future. The new aid stats also show that donor countries only gave 0.09% of their GNI to least developed countries in 2012 – as compared to 0.10% the year before.

Donor countries have got to sort this out. While middle income countries now have access to a huge range of sources of finance for development – foreign direct investment, remittances, commercial debt, portfolio equity, and a vast increase in domestic resources from tax revenue and savings – that doesn’t hold true for low income countries, who are still highly reliant on aid. With the post-2015 agenda now about to move into the home straight, this is the year when donors need to set out a clear timetable for making good on their long-standing promise to give at least 0.15% of their GNI to least developed countries – and ideally go beyond it to 0.20%. And the OECD DAC’s High Level Meeting this December is the right moment to do it.

The WTO Bali package’s thin offerings on development

So thank goodness that the WTO managed to agree something in Bali. Yet another multilateral failure, after Copenhagen, Rio, and so on would have been beyond disastrous, especially as we line up for final approach towards the two big 2015 deadlines on successors for the Millennium Development Goals and climate action beyond 2020.

But blimey, it was a pretty thin outcome. While almost all the media coverage focused on trade facilitation (the bit that global companies wanted) and food security (the bit that India was holding out about), the part of the so-called “small package” agreed in Bali that arguably mattered most was the third basket of issues: those on development.

One of the elements of that basket was duty-free / quota-free market access for least developed countries. Right now, about 80% of LDC exports enjoy DFQF access. Back at the 2005 WTO Ministerial in Hong Kong, developed countries promised to up that level to 97%. Bali would have been a perfect moment for developed countries to set out a concrete timetable for making good on that nearly decade-old promise. So did they? Nope. Instead, developed countries “shall seek to improve” DFQF coverage. Well, great.

Or what about cotton, where West African LDC producers have long faced an iniquitously unfair trade regime that protects cotton growers in the US and elsewhere? You almost couldn’t make it up: “we regret that we are yet to deliver” on promises made at Hong Kong in 2005, “but agree on the importance of pursuing progress” and “agree to hold a dedicated discussion” on it every couple of years.

This is lame. Let’s hope that the timing of the next WTO Ministerial – probably in 2015 – implies a more pro-development outcome.

How to defuse the twin climate finance / post-2015 finance for development timebombs (updated)

Whether it’s at the climate summit currently underway in Warsaw (from where I’m writing this post) or at two key meetings happening in NYC next month on the post-2015 agenda, financing is one of the issues furrowing most brows.

Right now, progress in both places is stalled. Promises of $100 billion a year by 2020 under the Green Climate Fund are starting to look like a bad joke – especially to the least developed countries (LDCs) who most urgently need help to adapt to climate impacts.

Aid flows, meanwhile, have actually been declining for the last two yeas, rather than rising towards the 0.7% target. And they’re falling fastest for LDCs: while bilateral aid as a whole fell by 4% last year, it fell by 12.8% for them.

Nor does it look likely that rich countries are about to put big new pledges of cash on the table any time soon, what with weak growth, high unemployment, and fiscal pressures – despite the crucial 2015 deadlines on both climate and development. Yet if they fail to do so, it could toxify the dynamics on both issues – and contribute to an outcome where the climate and development ‘tribes’ perceive themselves to be fighting over the same pot of cash rather than working together on a shared agenda.

Is there any way to defuse this ticking timebomb? Well, there might be. Continue reading

Emerging economies’ dangerous game on the post-2015 development agenda

The internal dynamics of the G77 group of developing countries are shifting rapidly on both climate change and the post-2015 international development agenda, as the interests of least developed countries increasingly diverge from those of emerging economies – with pretty far-reaching implications.

Least developed countries (LDCs) are continuing to prioritise adaptation financing in the climate context, but they’re increasingly also focused on the need for higher levels of ambition on the mitigation side of the equation – not just from developed countries, but also from emerging economies, given the proportion of global emissions that they now account for. This has already contributed to a sharp decline in G77 cohesion in the UNFCCC process.

In the development context, meanwhile, different LDCs have different priorities. Most of them continue to regard ODA levels as their key priority – ideally increasing them towards 0.7, and at a minimum stemming the real terms decline seen over the last couple of years. But this is not true of all countries: for governments such as Bangladesh, Zambia, and Malawi, ODA is arguably less important than a successful conclusion to the Doha trade round, together with opportunities in investment, migration, and remittances.  Still, across both development and climate, it is clear that equity remains a key lens through which LDCs view the world.

The key emerging economies, meanwhile – China, Brazil, India, and South Africa – are among the principal demandeurs for a pledge-and-review based approach in the climate context, hence the tensions with LDCs, as well as small island states, over levels of ambition. (Admittedly, some emerging economies – and especially China – are pursuing much more ambitious strategies at national level than their scepticism of global monitoring, reporting, and verification might suggest; but the fact remains that their and others’ voluntary pledges under the Copenhagen Accord imply long term warming of 3.6 – 5.3 degrees Celsius, rather than the globally agreed target of 2 degrees.)

But while it is clear that emerging economies regard global climate policy as a matter of fundamental national interest, it is by no means obvious that the same applies with the post-2015 development agenda. Emerging economies are less reliant than ever on ODA levels, and while many of them are now becoming aid donors in their own right, they show little interest in multilateral coordination of their efforts with those of OECD donors.

This potential lack of emerging economy interest in the post-2015 agenda creates a significant political risk. With emerging economies’ interests increasingly diverging from those of LDCs in the climate context (as well as on several trade issues), they have every reason to try to direct LDCs’ political and moral suasion towards developed countries, and away from themselves.

This in turn gives them a powerful incentive to play up a ‘North versus South’ narrative in the post-2015 context, and to aim for the idea of common but differentiated responsibilities to be as central a concept in development as it already is in climate – something that is now happening rapidly in post-2015 debates in New York, where the tone of discussions is becoming increasingly polarised.

The risk of such an approach, of course, is that it could lead to the post-2015 agenda becoming seriously bogged down amid a mood of mutual recrimination. But it is not clear that this would come at a significant opportunity cost to emerging economies, given that there appears to be little that they want from the agenda. On the other hand, as noted, it might help to ease LDC pressure on them to shift positions on climate or trade. Cynical? Sure – though no more so than the US’s earnest talk about food security while continuing to keep ethanol mandates in place, or EU farm support policy. And smart, too – at least in terms of narrow self-interest.