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.

Quadruple or Quits – managing the links between the four 2015 agendas of trade, climate, SDGs, and finance for development

Talk given by Alex Evans to a UK government cross-Whitehall session on the four key multilateral processes culminating in 2015: trade, climate, Sustainable Development Goals, and finance for development. (May 2012)

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Rising incomes in the developing world do not a new age of equality make

Last week saw Oxfam’s big new report on inequality, timed to coincide with WEF in Davos, garnering a huge amount of attention in the media – even attaining a rebuttal from the American Enterprise Institute.

The report was also the subject of Tim Harford’s column in the FT’s weekend edition. Tim takes a somewhat sceptical view, observing that while “the thrust of Oxfam’s argument is that in a lot of countries, the gap between the incomes of the rich and poor is widening” – which he accepts – the report underplays the wider context: for the world as a whole, income inequality appears to be falling (“which is why it’s so baffling that Oxfam has jumped in here feet first”).

I agree with Tim that the data show incomes rising a lot for most people in developing countries from the late 1980s onwards, whereas they’ve remained stagnant for middle classes in developed countries – c.f. this superb graph from Branko Milanovic (posted here a couple of months back), which shows relative change in incomes for each percentile over the period 1988-2008.

But I have to admit I’m befuddled as to why Tim should be baffled on why Oxfam’s taking a strong position on inequality. Here are four reasons why.

First, while it’s true that many people in developing countries have been catching up in relative terms, let’s not lose sight of just how far they have to go in absolute terms. For all the focus on the travails of the ‘squeezed middle’ in the North and for all the breathless commentary about emerging economy rates of growth, China’s GDP per capita is still only $6,091 – compared to $38,514 in the UK, $41,514 in Germany, and $49,965 in the US. It’s a little early to be hailing a new global age of egalitarianism just yet.

Second, Milanovic’s graph also shows that the incomes of the very poorest didn’t rise at all over the period 1988-2008. That’s not to denigrate the real achievements of the MDG period: halving poverty seven years ahead of the MDG deadline was no small feat. But as David Steven and I noted in our paper on the ‘business as usual’ outlook on poverty to 2030 for the Post-2015 UN High Level Panel, the people still remaining in poverty will be much harder to reach than those who escaped poverty in the MDG era.

They’ll be increasingly concentrated in fragile states (or parts of them), often in the absence of a functioning government, and frequently at risk of violence or displacement. They’ll tend to be in geographically or politically marginalised communities – the places, ethnicities, or castes that are at best neglected, at worst actively discriminated against or repressed. “Getting to zero” on poverty by 2030 – the likely headline target of the post-2015 development goal framework – will be much harder than halving it by 2015.

Third, while the incomes of developing country middle classes are catching up in relative terms with developed country middle class incomes, the incomes of the global rich are powering ahead – and that’s before we even consider wealth, which is where inequalities get really spectacular.

Tim raises an eyebrow about Oxfam’s headline stat, that the richest 85 people on Earth control the same amount as the poorest half of the global population, accusing Oxfam of “sophistry” given that the poorest people have less wealth than his toddler son: he has zero wealth whereas poor people have negative wealth, i.e. their debts outweigh their assets. But, he goes on, that argument takes no account of e.g. earning potential. Which is a fair point in one sense: I and most readers of this blog have mortgages and hence negative wealth, but it’s manifestly absurd to bracket us in with people who live on less than a dollar a day.

Fair enough. But it’s still the case that the global distribution of wealth is utterly skewed. So it’s a bit of a stretch to call Oxfam, or Credit Suisse (from where Oxfam’s, and my, data comes) of “distortion” on the basis of his toddler argument – I defy anyone to come up with data showing that the global distribution of wealth between rich and poor people (as opposed to countries) is becoming more equal.

Finally, we ought also to consider the global distribution of risk, as well as income and wealth. You might reasonably expect that as emerging middle classes in developing countries have become better off, they’ve also become more secure. But not necessarily.

True, more people have escaped poverty since 2000 than ever before. Yet the members of this ‘breakout generation’, whom you can find in large numbers in any of the rapidly expanding cities of the global South, are increasingly finding themselves playing a high stakes game of snakes and ladders: while they are finding new opportunities to improve their lot, they are also encountering all kinds of new risks that could halt their progress – or push them back into poverty.

To start with, they’re particularly vulnerable to any slowdown in national growth rates – something that now appears to be happening in many emerging economies that initially proved largely immune to the effects of the financial crisis and Great Recession. They’re also much more likely to be working in insecure, informal, or low-paid employment, all of which affect young people in particular.

On top of that, they rely on urban infrastructures that risk buckling under the strain of rocketing demand: you don’t have to spend long in a city like Addis Ababa or Karachi to see how overstretched systems for providing water, sanitation, electricity, or transport are. They’re also in the front line of the impacts of growing resource scarcity, particularly in the form of price spikes or inflation in the cost of fuel and food. They’re heavily exposed to the social strains of high rates of inequality, and usually lack access to safety nets or social protection systems. And increasingly, they also face the rise of trans-boundary shocks ranging from financial and economic crises through to accelerating climate change impacts.

John Maynard Keynes on the post-2015 agenda

In the same spirit of hopeful ideas for a new year as Ben’s excellent post on inequality, herewith some musing of JM Keynes’s about “economic possibilities for our grandchildren“, penned amid the economic Armageddon of 1930.

Keynes took as his timeframe a 100 year period from when he was writing – in other words, what the world might look like 2030. As it happens, this is exactly the same question that governments and others are now looking at in the post-2015 development agenda – so it seems like an apposite moment for a reprise from a man who’s lately been vindicated on a number of other fronts…

I feel sure that with a little more experience we shall use the new-found bounty of nature quite differently from the way in which the rich use it to-day, and will map out for ourselves a plan of life quite otherwise than theirs … What work there still remains to be done will be as widely shared as possible – three hour shifts, or a fifteen-hour week …

We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession -as distinguished from the love of money as a means to the enjoyments and realities of life -will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard …

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue-that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin …

I look forward, therefore, in days not so very remote, to the greatest change which has ever occurred in the material environment of life for human beings in the aggregate. But, of course, it will all happen gradually, not as a catastrophe. Indeed, it has already begun. The course of affairs will simply be that there will be ever larger and larger classes and groups of people from whom problems of economic necessity have been practically removed.

A Global Partnership for the post-2015 Agenda

Debate about what new Goals should succeed the Millennium Development Goals after their 2015 deadline is now well underway. But there has so far been much less discussion of another key issue: a new Global Partnership to deliver them.

This is worrying – because although we won’t know the full list of new Goals for another two years, it already seems clear that we’re heading for a much more ambitious set of objectives than the Millennium Development Goals. There’s a real risk of a mismatch between the ‘what’ and the ‘how’ of post-2015, if governments agree an ambitious, universal set of Goals, but fail to commit to a credible action plan for making them happen.

Against this backdrop, I’ve just finished a Center on International Cooperation report (full pdf available here, and 8 page policy brief here) that sets out to explore both what kind of a Global Partnership is needed, and which elements of it look feasible for agreement in the current political context.

The report starts with an assessment of which countries want what from post-2015, and of what sort of goals the new Global Partnership may have to deliver, before setting out analysis and policy options of two key areas: financing, in the broadest sense, and the wider sustainable development agenda (encompassing areas like trade, migration, sustainability, technology, data, and global governance reform).

It also sets out a 10 point ‘early harvest’ plan of measures that could – at a stretch – be agreed over the next two to three years, and which have the potential to act as confidence building measures that might, with luck, start to catalyse more momentum and trust in an agenda that badly needs more of both.

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