Development aid drops for the first time in 15 years

Components of net ODA from OECD Development Assistance Committee countries

Figures just published by the OECD show that major donors’ aid to developing countries, known as Official Development Assistance or ODA, fell by nearly 3%  to 133.5 billion in 2011 compared to 2010, the first drop since 1997 when debt relief figures are not included.

This global average hides even worse news. Within total net ODA, aid for core bilateral projects and programmes (in other words, excluding debt relief grants and humanitarian aid) fell by 4.5% in real terms and by 8.9% for flows to the Least Developed Countries.

In 2011, the largest donors were the United States at $30.7 billion (a fall of 0.9%); Germany ($14.5 billion, up 5.9%); the United Kingdom ($13.7 billion, -0.8%), France ($12.9 billion, -5.6%); and Japan (10.6 billion, -10.8%).

Denmark, Luxembourg, the Netherlands, Norway and Sweden continued to exceed the United Nations’ ODA target of 0.7% of GNI.

In real terms, the largest rises in ODA was registered in Italy at 33%, while Greece showed the sharpest drop, at -39.3%.

The recession and sovereign debt crisis certainly played a large role but they don’t explain everything when you look at the national-level data. Spain’s ODA fell by almost as much as Greece’s (36%) but Portugal’s aid was down by only 2.8%. OECD Secretary-General Angel Gurría warned that “the crisis should not be used as an excuse to reduce development cooperation contributions”.

Governments are however under pressure to reduce aid spending in line other cuts, and the OECD-DAC Survey on Donors’ Forward Spending Plans for 2012 to 2015 suggests that global country programmable aid (CPA, one measure of receipts by developing countries) may rise  by 6% in real terms in 2012. However, this is mainly because of expected increases in soft loans from multilateral agencies funded from capital replenishments during 2009-2011. From 2013, global CPA is expected to stagnate, and could confirm earlier findings such as those of the 1996 Development Cooperation Report that it takes several years from the onset of a recession for the full impact to be felt on aid flows.

Apart from calls to help combat the effects of the crisis at home before spending money abroad, there is a more general criticism of aid, claiming that it has not only failed to do its job, but has held back development and helped keep corrupt regimes in power. Brenda Killen of the OECD Development Co-operation Directorate answered these arguments in the latest OECD Yearbook, and concluded that aid is needed because “in our highly interdependent world, what happens with the economy, security, climate and health of any country affects us all”.

DAC Chair Brian Atwood, a regular contributor to the Insights blog, echoed this in a statement to the press when the figures were released, saying that while he was “disappointed that some countries have failed to maintain their commitments, the overall level reflects the growing awareness that global challenges… cannot be resolved without development progress.”

Aid is a small part of financial flows to developing counties, behind investment and remittances from workers living abroad, but it is still a vital tool in the fight against poverty. Everybody would like to see its role diminish, and even disappear because it was no longer needed.

Useful links

Click here to see Annex Tables and Charts covering:

  • Net official development assistance from DAC and other OECD Members in 2011 (Preliminary data for 2011)
  • Net official development assistance from DAC Members in 2011 by volume and as a percentage of GNI (Preliminary data for 2011)
  • Components of DAC Donors’net ODA
  • Gross official development assistance in 2011 (Preliminary data for 2011)

Busan: Yes we could

We’ll start with a close-up of a woman on her knees. She seems to be scrubbing some tiles. We track back and see that in fact she’s scrubbing the tyre tracks off a forecourt. Back a bit more and we see that she and her colleagues are in front of a huge conference centre. It’s covered with banners in Korean and English announcing the Fourth High-Level Forum on Aid Effectiveness, HLF4.  There’s a metaphor there somewhere, and it’s called Busan, the host city and the world’s fifth largest port.

Busan is like a life-sized lesson for participants in the Forum. As the Korean president Lee Myung-bak reminded delegates in his speech to the conference, when he was a child, this was one of the poorest countries in the world, and Busan’s harbour was used to import food to stop people starving after the civil war. In From Poverty to Power, Oxfam’s Duncan Green makes this point too, recalling that 50 years ago Korea’s main export was wigs made from human hair.

Aid played a part in changing this, and it’s worth looking at why Korea succeed in moving from being a recipient to a member of the OECD Development Assistance Committee, the donor group that oversees Official Development Assistance (ODA).

The first lesson is that ODA has to be stable and reflect a long-term commitment. Korea could count on the US and Japan, and knew from one year to the next what funding to expect. Volatility makes programme management harder, or even impossible. I’ve heard stories from the field of health, education, and other projects that were started, were going well and then had to be stopped because promised funding suddenly dried up. The OECD says that the value of aid is reduced by 15% to 20% when it is unpredictable and volatile.

For the outsider, one of the more opaque terms of the “aid community’s” particularly opaque jargon is “ownership”. What it means is that countries receiving aid take charge of the process. Korea didn’t always agree with its partners, but the results show that it knew best what strategy corresponded to its needs and resources. It wanted non-military aid rather than the guns, tanks and planes it was being offered, and it insisted on focusing on large enterprises rather than the small and medium-sized businesses foreign development experts told it were the key to success. If Korea hadn’t decided for itself, today Samsung and Sons would no doubt have been a great little shop for the latest Japanese and American gadgets.

However, to “own” the development process a country needs to develop a whole range of skills and institutions. For instance, if it’s going to export, it needs lawyers who understand international trade rules and port managers who can get the goods onto the ships on time. This is what’s meant by “capacity building”. Countries can’t be expected to acquire all these capacities on their own, but they shouldn’t depend on outsiders either. While over 1500 foreign experts were sent to Korea between 1962 and 1971, over 5 times as many Koreans received training abroad.

Another thing about aid programmes is that the best ones become useless because they’re no longer needed. In the 1950s and 1960s, practically all of Korea’s foreign funding came from grants, but by the mid-70s, grants only represented 11% of funds, the rest being loans. The fact that Korea respected repayment conditions reassured private finance and encouraged foreign direct investment in the country.

Korea also proves that it’s possible to recover from even the most desperate situation. At the end of the 1950s this was a mainly agricultural country still suffering from a war that had killed or injured over 2.5 million civilians. If conference delegates want to see a success story, they just have to look around them. And if they want a reminder that the fruits of economic success aren’t always shared equally, they can look at those women scrubbing the ground they walk on.

Useful links

OECD work on developent cooperation

Busan High-level Forum on Aid Effectiveness: An opportunity not to be missed

Today’s post is from  Brian Atwood, chair of the OECD Development Assistance Committee. It is also published in the print edition of Das Luxemburger Wort on the occasion of Les Assises de la coopération luxembourgeoises

According to a recent UN report, $2.5 billion (approximately €1.84 billion) will be needed to respond to the devastating drought and famine that has hit the Horn of Africa. Although the international community is working hard to provide relief, funding is still short and aid is still arriving too slowly. Despite the participation of dozens upon dozens of aid and relief organizations, there is no likelihood that the situation will improve before the end of the year.

In a recent blog, my colleague Stephen Groff, Deputy Director of the OECD Development Co-operation Directorate, said: “the crisis in the Horn of Africa is indicative of development failure. Early warning systems predicted it a year ago.” Early and coordinated action could have produced countless savings—in terms both of costs and, more important, of human suffering.

We must learn from this situation, because it highlights many of the challenges we face today in an increasingly complex development landscape. Global challenges such as food insecurity, climate change and armed conflict cut across national borders and reinforce the notion that development is a truly global priority. And indeed, the number of organizations and countries working on development is greater than ever before. Yet at the same time, this burgeoning activity—and the broad range of instruments being used to promote diverse outcomes—have brought increased transaction costs, overwhelming developing nations’ capacity to cope.

In 2005, when donor and partner countries agreed on the Paris Declaration on Aid Effectiveness, they signed up to a shared set of principles designed to reduce transaction costs, among other measures to improve the quality and impact of aid. The Paris Declaration was groundbreaking not only because of these guidelines, but also because it provided a series of time-bound, action-orientated commitments and targets against which partners agreed to be measured and monitored during the following five years.

Since 2005, these aid effectiveness principles have been embraced by developing countries, civil society organizations, international organizations, and donor countries alike. We have seen the Paris Declaration principles used as the foundation for a wide range of agreements, including the Bogotá Statement on South-South Cooperation (2010) and the Dili Declaration on Fragile States (2010). They have served as global norms for best practice, raised expectation levels from all sides working in development, and helped to focus divergent interests on ambitious but measureable goals.

Ensuring value for the money we spend on aid and development can mean a lot. A recent study funded by the European Commission estimates that a more ambitious application of the Paris Declaration principles and the subsequent Accra Agenda for Action—agreed in 2008 to accelerate implementation on key targets—would have saved the EU and its member states over €5 billion. The direct benefits on the individual donor side would have included reduced administrative costs, more cost-effective sourcing of goods and services, and more predictable and useful aid flows; numerous indirect effects in recipient countries would also have been expected. What’s more, should the EU countries have found the political will to coordinate their allocations of aid to countries, this €5 billion in savings would have more than doubled.

This represents, of course, a huge lost opportunity. And while the evidence gathered in the last round of monitoring of the implementation of the Paris Declaration shows us that we are headed in the right direction, progress is modest and reforms are far too slow in coming. Stronger leadership and sustained political commitment is needed to drive changes in both donor and developing countries. All partners in development must be willing to take ownership of their development agendas and hold each other accountable as they work together toward common goals.

The upcoming Fourth High Level Forum on Aid Effectiveness (HLF-4) in Busan, Korea (29 November-1 December 2011) will offer an opportunity for the international community to renew, refresh and reshape as necessary its commitments to making aid and development work better. The Busan forum is underpinned by developing countries’ demands for effectiveness—and for ownership of their own destinies. It is designed to push the development community to act in a more rational, less fragmented, form.

This is an opportunity not to be missed. With the unprecedented number of people coming to Busan—leaders from donor and developing countries, international organizations, civil society organizations, parliaments and business—we have a chance to forge a truly inclusive and effective partnership around development.

Let’s not make this another story—like the Horn of Africa—of missed opportunity and human tragedy, or the subject of another report on what could have been saved.

Useful links

 OECD work on aid effectiveness including the Paris Declaration and the Accra Agenda

Fourth High Level Forum on Aid Effectiveness Busan, Korea, 29 November – 1 December

Aid for trade: $100 billion well spent

Click to browse Aid for Trade

Today’s post comes from Frans Lammersen of the OECD Development Co-operation Directorate

Evidence from a numerous countries, including Korea, Brazil and China, shows that openness to trade is a key ingredient for economic success and improved living standards. By connecting local producers to domestic, regional and global markets, trade helps to fight poverty and enhance the productive capacity of the whole economy. It facilitates the availability of technology, know-how and other services. It helps to make goods cheaper and more widely available. It also weakens the grip of local monopolies. 

But simply opening the economy to international trade is not enough. A trade strategy requires investment in human capital (education, health and nutrition) and rural infrastructure, provision of access to credit, and safety nets and policies to promote economic and political stability. Aid for Trade plays a key role by helping countries strengthen their productive and institutional capacity.

What does this mean in practical terms?

Some African countries, for example, have lower production costs at the factory gate than China, yet they have a very low share of value exports such as clothing. Why? Because in the fashion business, if the clothes are late getting to the shops they don’t sell. Reliable shipments are just as important as low costs.

Better transport infrastructures would help African suppliers expand their sales, as would less complicated administrative procedures. In East Africa, an aid-for-trade programme has helped cut transit times at the border from three days to three hours. The same impressive results were achieved in Central America.

On another front, international trade is governed by a complex set of rules. Countries and firms need considerable knowledge to defend their interests in international negotiations and business deals. Aid-for-trade guidance is helping countries to identify these interests, and to negotiate trade agreements and implement them. 

Aid-for-trade initiatives are also helping to improve local food standards. For developing countries hoping to export, non-tariff barriers – such as the OECD countries’ food safety standards – can be more of an obstacle than import duties and developing country food exporters often find it difficult to conform. Options such as setting up accredited laboratories and training food safety inspectors help local producers sell their products in OECD supermarkets.

Knowledge about distant markets and consumers is often scant among small- and medium-size enterprises in developing countries. By collecting and disseminating this kind of marketing information, aid-for-trade efforts are allowing local producers to become part of global value chains. 

An aid-for-trade focus also allowed a resource-poor small island like Cape Verde make significant social and economic progress, enabling it to become more competitive and graduate from its status as a least developed country.

The OECD and the WTO periodically put a spotlight on aid for trade to examine the results of the almost $100 billion that has been spent between 2006 and 2009. The joint OECD-WTO publication Aid for Trade at a Glance 2011 shows that their Aid for Trade Initiative has achieved considerable progress in a short time.

The publication points to a number of  factors that are critical to delivering the longer-term trade and development objectives: ownership at the highest political level; active engagement of the private sector and civil society; long-term donor commitment;  adequate and reliable funding; leveraging partnerships, including with providers of South–South co-operation; combining public and private investment with technical assistance; supportive macroeconomic and structural adjustment policies; and good governance.

 This is merely the start of a learning process. The OECD publication Strengthening Accountability in Aid for Trade outlines good practice in using aid to achieve trade and development results.  But the challenges of delivering aid for trade effectively are not unique.  Many more follow-up activities are needed to enhance our understanding of aid-for-trade results and their wider applicability. Knowledge-sharing should also look at how to clearly demonstrate that aid for trade is a worthwhile investment that can improve trade performance, generate economic growth and reduce poverty.

Aid for trade is part and parcel of the broader development effectiveness agenda that will be discussed at the Fourth High Level Forum on Aid Effectiveness in Busan, South Korea (29 November to 1 December 2011). Aid for trade offers an example of what can be achieved by applying the Paris Principles on Aid Effectiveness, but also of what remains to be done.

Useful links

OECD work on trade

OECD Insights: International Trade

Aid: Should the OECD hand over to the UN?

Click to find out more about 50 years of DAC work

In May, the Insights blog and The Guardian co-hosted a debate on the OECD’s role in official development assistance (ODA). Jonathan Glennie of the Overseas Development Institute argued that it was time for the OECD Development Assistance Committee (DAC) to hand over to the UN. Brian Atwood, DAC chair, replied.

In July, the ODI organised a debate in London, at the Houses of Parliament. You can listen to Jonathan Glennie and Brian Atwood , as well as His Excellency Ernest Rwamucyo, High Commissioner of Rwanda to the United Kingdom, by clicking on the links below. Daleep Mukarji, ODI Council Chair, introduced the debate.

Among other questions, the debate explored the growing role and influence of non-traditional development actors such as China, and what could be achieved at this year’s Busan conference on aid effectiveness, and beyond.

Audio downloads

Introduction and Jonathan Glennie (MP3, 18.9mb)

Brian Atwood (MP3, 16mb)

Ernest Rwamucyo (MP3, 25.1mb)

 Useful links

OECD work on aid effectiveness including the Paris Declaration and the Accra Agenda

Fourth High Level Forum on Aid Effectiveness Busan, Korea, 29 November – 1 December 2011

The road to Busan

An editor I once worked for had a golden rule for his reporters and editors: We don’t do process. By that he meant that news stories should focus on what had happened, not the tedious ins and outs of how it had happened. Not bad advice it you want to write a vivid story, and many journalists would probably subscribe to it. Indeed, it may help to explain why there’s such a gap in public awareness regarding two of the landmark development declarations of the 2000s.

The first, the Millennium Development Goals, is known worldwide. Under eight main headings, it sets down a series of anti-poverty goals to be attained by the year 2015, including a memorable pledge to cut by half the number of people living on less than a dollar a day.

The second declaration is less well known, in part, perhaps, because it’s all process. While the Millennium Development Goals are about what development should seek to achieve, the Paris Declaration on Aid Effectiveness is about the processes developing and developed countries should follow to achieve those goals. The language of the declaration and its five core principles can be a little obscure, but the message basically boils down to this: Development won’t happen sustainably unless developing countries themselves – and not donors – take the lead in setting priorities and coordinating activities.

Since it was adopted in 2005, the Paris Declaration has been widely credited with helping to reshape relations between donor and developing countries – development expert Homi Kharas describes the process that created the declaration as a “watershed”. But whether enough has really changed is a matter for debate: It’s probably fair to say that developing countries still feel their donor partners could do more.

How much more? That question, and many others, will be keenly debated at a major conference on development and aid effectiveness in November in the Korean city of Busan. The issues on the table are previewed in an article by OECD colleague Stephen Groff in the latest issue of Global Asia.

As Steve points out, this forum – the latest in a series over the past decade – “will be the first international meeting of its kind to focus on aid in the new development landscape”. That landscape is, indeed, new: Traditional donors in North America and Europe are facing squeezed budgets and rising pressure to get value for money for their aid budgets. Newer donors, like China, India and Brazil, are becoming ever more important players in development. And there’s the evolving political and social situation, in which, as the Arab Spring has shown, things can change in a heartbeat.

Busan will look back at what the Paris Declaration, and other agreements, have and have not achieved. But, as Steve points out, it will also look forward. “In Busan, there is the opportunity to build a fresh — and flexible — global development partnership that will include today’s diversity of actors and approaches,” he writes. “In these times of economic uncertainty, the world simply cannot afford anything less than effective aid and Busan is a critical milestone on the path to more effective development.”

Useful links

OECD work on aid effectiveness

Paris Declaration and Accra Agenda for Action

Development co-operation at the OECD

Peacebuilding and statebuilding come before the Millennium Development Goals

 Guest post by Donata Garrasi of the OECD’s Development Co-operation Directorate and Co-ordinator of the International Dialogue for Peacebuilding and Statebuilding

Imagine you can’t take your child to the doctor because the clinic is on the other side of a bridge it’s too dangerous to cross. Imagine you’re trying to get an education but you can’t read after sunset because there’s no light. Imagine the only people who’ll protect you from an armed gang are the members of another armed gang. Imagine you’re a government trying to deal with problems like these after a civil war or invasion that’s lasted for years and destroyed your country and you’ll easily understand why no fragile state has achieved a single Millennium Development Goal, or is likely to do so by the 2015 target date, even though these states receive over 30% of development assistance.

If the MDGs set the bar impossibly high, what should fragile states aim for? The International Dialogue on Peacebuilding and Statebuilding was created in 2008 after the Accra High Level Forum on Aid Effectiveness to devise a set of realistic peacebuilding and statebuilding objectives that address the root causes of conflict and fragility. The first Dialogue, held in Dili, Timor-Leste in April 2010, saw the formation of the g7+, “an independent and autonomous forum of fragile and conflict affected countries and regions”. At the second global meeting in Liberian capital Monrovia last week, delegates from over 40 countries, international agencies and civil society organisations had a “frank and open exchange of views” on what has worked, what hasn’t and what can be done starting now.

“The problem is, you guys don’t trust us,” Timor Leste’s finance minister Emilia Pires told the donor countries, urging them to lose their control freak attitude. But delegates from fragile states were just as harsh regarding their own responsibilities, with one Togolese speaker suggesting that citizens of donor countries would refuse to spend another penny on aid if they knew where most of the money went. There was disagreement on using the term “fragile”, with some arguing that it stigmatised countries, other that it was simply being realistic and could be useful in determining whether particular kinds of assistance should be granted. One participant claimed that fragile would be an improvement on the state his country was in at present. Olivier Kamitatu, DR Congo’s planning minister, summed up the majority feeling, and the ambitions of the Dialogue, when he said that “The g7+ is extremely useful in giving us a common voice in international discussions, but it’s a club we’d like to leave as quickly as possible”.

The “Monrovia Roadmap”, agreed on by the whole range of development partners, defines five practical objectives for peacebuilding and statebuilding. “Establish and strengthen citizen security” is one of the five. Without security and the assurance that people can go about their daily lives in safety, the rest is meaningless. But who should implement objectives, and monitor progress? If the state hasn’t functioned for years or is seen as defending special interests, then political processes have to start by building trust among groups who may be hostile to each other, including the government and civil society. Therefore the Roadmap calls on states to “Foster inclusive political settlements and conflict resolution”.

Reggae legend Peter Tosh understood another of the objectives when he sang that he didn’t want peace but “equal rights and justice”. It is vital to “Address injustices and support increasing citizen access to justice”. Unemployment is a source of tension and can fuel conflict when joining an armed group may be the most attractive job available, or the only one. The objective to “Generate employment and improve livelihoods” will require a mix of labour-intensive public and community works, increased agricultural productivity, and domestic private sector development. All this costs money, and although international partners will continue to finance some activities, the objective is to “Manage revenues and build capacity for accountable and equitable social service delivery”. It’s an ambitious set of objectives, but as Liberian President Ellen Johnson Sirleaf pointed out in her closing remarks, “The challenges are huge, but they’re not bigger than challenges we’ve faced in the past”.

Useful links

OECD work on conflict and fragility