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Development Assistance in a Multipolar World

17-04-2014

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In a rapidly changing world with new geopolitical and economic balances of power, development assistance has to adapt. The most important thing is that we are clear about the role development cooperation can play in different contexts, and that it is used most effectively to reduce poverty wherever it is found, unlocking all the available resources.  

The world has seen tremendous improvements over the past decades. Poverty has been halved since the 1990s, 600 million Chinese have been brought out of poverty and the eradication of absolute poverty by 2030 is within reach. The rise of the South is making the world multipolar in terms of power, but also in terms of development. The old bipolar distinctions between rich and poor, developed and developing, donors and recipients are becoming less and less clear. China, Mexico, Turkey and others are important providers as well as recipients of development assistance. The differences between the richest and poorest developing countries are much greater than between developed and developing. Income per person in North America is four times that of Brazil, while Brazil’s is seven times greater than income in Nicaragua and 15 times that of Haiti.

This most fascinating and promising new world formed the background for the summit of the Global Partnership for Effective Development Cooperation in Mexico City this week. The world came together to take stock of progress and to contemplate how we can use aid more effectively to eradicate poverty and underpin sustainable growth.

Getting ‘Beyond Aid’

As an increasing number of developing countries are climbing up the income ladder, aid becomes less relevant as the dominant financial resource. The ability of these countries to attract foreign investments, access private finance and mobilise domestic resources such as tax is enhanced. For example, over the period to 2030, 28 countries with a combined population of 2 billion people today would reach high income status based on projections of today’s growth forecasts, and thus cede being recipients of Official Development Assistance (ODA). These changes have important implications for how development assistance is provided.

In 1990 almost all of the world’s poor lived in very poor countries. But today, there is one billion extremely poor people living in middle income countries, including Nigeria and India. These countries have enormous development needs, but their economies can be larger than those of many aid donors and development assistance alone cannot effectively fill the gaps. What development assistance can do is to have a catalytic role to unlock more private finance and domestic resources such as taxes. Guarantees and other financial mechanisms alleviating risk can help attract the large sums needed to finance roads and bridges, ports and electricity generation. Using aid to improve tax authorities in developing countries can yield enormous returns. For example, OECD support to Kenya in the area of taxation raised more than 1,000 dollars in additional taxes for every dollar spent. Furthermore, development assistance to middle income countries will nearly always be linked to transfer of knowledge or technology.

Conflict is Both a Human and Economic Catastrophe

On the other hand, the poorest countries and those ravaged by conflict are falling behind and continue to depend on aid to provide basic health services, education and help feed people.  The most troubling development is that aid to the poorest countries decreased by 2.4% last year and the least developed and fragile states in sub-Saharan Africa lost out the most. Half of the world’s poor will be living in fragile states by 2018 and about two thirds by 2030 with today’s predictions. I recently visited the Central African Republic, a place where my speeches on the fantastic global improvements mean little. Nearly one million people have fled their homes and more than 2 million people are in desperate need of live-saving assistance. The scenes of looting and pillaging are horrific. Almost the entire Muslim community have left the capital Bangui and 60% of the city’s trade disappeared with them.

The African Development Bank has calculated that an African civil war costs on average 20 – 30 years worth of development.  Development assistance is absolutely essential to support weak states and help prevent disaster, underpin peace processes, support the priorities of the governments and strengthen the country systems. Clearer funding targets to direct sufficient amounts to these countries could be established.  A potential goal is to establish a norm that half the assistance of any given country will be targeted to the least developed nations.

The changes on the donor side are equally stark. The OECD countries are still the main donors providing more than 90 % of present aid. But China now has global reach and Arab donors are ramping up their development spending.  Others are following.

We Can All Learn from Each Other

Think about the fact that poor Vietnam produces better education results for their 15 year olds than my native Norway and indeed many other OECD countries. Mexico probably understands much better than most the kind of assistance that works in Central America. Turkey has by far the strongest presence on the ground in Somalia. Private foundations are also important, and the 3.4 billion given last year by the Gates Foundation is greater than the development budgets in many European countries.  

The Global Partnership for Effective Development Co-operation is a response to this changing and increasingly multipolar world. Mobilising the resources to end poverty and spur sustainable development is the key focus area of the Global Partnership’s work. Eradicating poverty and reducing inequalities while protecting the climate and our environment will require billions of dollars. Better coordination with China, Arab states and private donors can help unlock resources and increase aid effectiveness. There is no reason why Chinese infrastructure investments in Africa should not be complementary to OECD contributions.  Furthermore, developments assistance can better leverage private funds. Loans, guarantees and other market-based instruments make it easier for businesses to invest, create jobs, transfer technology and support growth.

The most important thing is that development assistance is used most effectively to reduce poverty wherever it is found, supports development and helps unlock all available resources.  Being clear about the role development cooperation can play in different contexts is essential for this. Development assistance will have to change, as the world is rapidly changing.

Erik Solheim is Chair of the OECD Development Assistance Committee.

The views expressed here are those of the author, and may not necessarily represent those of ECDPM.

Photo courtesy of OECD.

Videos courtesy of Development Initiatives and the OECD

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EU Development Policy and PracticeEmerging Players in AfricaOther work to address conflict and crisisPost-2015 Global Development AgendaBusan Partnership for Effective Development Co-operationOfficial Development Assistance (ODA)

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