Laporte, G. 2013. Development Finance in the Post-2015 Context. (ECDPM Presentation).
Presentation made by Geert Laporte on 6 May 2013 in Seoul during EDCF Development Finance Seminar.
1. Development finance in the post 2015 context.
The Next Chapter of Development Cooperation:Challenges and Choices, EDCF Development
Finance Seminar, Seoul 6 May 2013
Geert LAPORTE, Deputy-Director, ECDPM
2. STRUCTURE OF PRESENTATION
1. ECDPM and the European Report onDevelopment
2. The changing development context
3. What has been achieved with MDGs?
4. Post 2015: beyond MDGs and beyond aid
5. How to finance development Post 2015?
6. Mobilising different types of development finance
7. Concluding remarks: key messages for a newvision on development Post 2015
Independent foundation working on EU-Africa relations for more than 25 years:
1. Non-partisan facilitation of dialogue
2. Practical and policy relevant analysis
3. Linking key players in the EU, Africa, BRICS,through networks and partnerships
4. Capacity building in Africa to bring morebalance in the partnership
5. ERD + participation in European and African consultations
4. European Report onDevelopment 2013 Post -2015: Global Action for anInclusive and Sustainable Future
5. WHY A EUROPEAN REPORT ON DEVELOPMENT?
• Widespread interest in establishing Post 2015 globaldevelopment framework
• EU (as largest donor) aims to play key role in debate onnew global agenda (initiator DG Development EC)
• ERD: independent contribution based on research andconsultations by ECDPM, ODI, DIE
• 4 country studies with local partners: Cote d’Ivoire,Rwanda, Nepal and Peru
• Focus on drivers of global partnership on development:“money goods, people”
• This presentation: Personal perspectives based on ERDand other Post 2015 reflections (e.g. Africa)5/30/2013 5
6. THE CHANGING DEVELOPMENT CONTEXT
1. Major global challenges: climate change, food security,management of natural resources, fragility and conflict,terrorism, migration etc.
2. Global financial and economic crisis, particularly affecting EU
3. Declining aid budgets (ODA) but increasing needs for financial resources to tackle development and global challenges (e.g climate change adaptation and mitigation)
4. New players in development (BRICS, G-20, private sector,development foundations,…)
5. A more political vision of development: Busan: “…it is essential to examine the inter-dependence and coherence of all public policies – not just development policies…”
7. WHAT HAS BEEN ACHIEVED WITH MDGs?
• MDGs: encouraging international action around a limited set of goals
• MDGs: significant progress on several targets (MDGs 1-6 poverty reduction, health and education targets)
• Global partnership for development (MDG 8) lesssuccessful
• MDGs associated with aid, donor agendas and donor-recipient relations
• Fragile states have done least well
8. POST 2015: BROADENING THE VISION ON DEVELOPMENT BEYOND MDGs AND BEYOND AID
1. Tackle root causes of poverty and inequality in a more inclusive and sustainable manner
2. Focus on transformative agenda for development :economic, social and environmental structural change
3. National ownership is crucial to succeed
4. Development effectiveness not just aid effectiveness(extend action to areas important to development:trade, migration, climate, financial regulation = PCD)
5. Involve new players (South-South cooperation)
OVERALL: need for a more political and economic governance vision of development Post 2015 + bolder global collective action!
9. HOW TO FINANCE AMBITIOUS DEVELOPMENTAGENDA POST 2015?
• Decreasing ODA since 2011 – ‘surpassed ’ by other (private) financialflows to developing countries
– ODA: $130 billion
– Remittances: $450 billion
– Foreign Direct Investment (FDI): 1500 $ billion (FDI in Africa: + 27%between 2010 and 2011)
– Africa: 400 billion $ export revenue from gas, oil, mining, etc (2012)
• Increasing focus in the development debate on policy coherence for development (“development friendliness” of non-aid policies), South-South cooperation, on the developing country’s policies (domestic resource mobilisation, taxation,…) and less on the quality and effectiveness of aid.
• Challenge: increase overall domestic and external development financeand make it more effective
10. MOBILISING DEVELOPMENT FINANCE: WHAT ISKEY FOR DEVELOPING COUNTRIES?
• Volume: how high is the level of resources that can be raised?• Predictability: how sensitive are the financial flows to fluctuations?
• Policy space: how much room for manoeuvre does the financial flow give?
• Development focus: to what extent do the different financial flows contribute to development?
11. THE REDUCED WEIGHT OF AID AS SOURCE OF DEVELOPMENT FINANCE
• Private financial flows have overtaken official aid since 2000
• ODA is now less than 10% for all developing countries (but still very important for LICs)
• Private financial flows are selective andare concentrated in a few resource-richcountries (only 3% reaches LICs!)
12. DIVERSIFYING TYPES OF DEVELOPMEN TFINANCE (private and public)
• Foreign Direct investment (FDI)• South-South Cooperation (SSC)
• Domestic resource mobilisation throughtaxation
• Innovative financing for development
• New roles for ODA
13. FOREIGN DIRECT INVESTMENT
• FDI moves to places with highest returns
• Potential indirect development benefits: physical infrastructure, local skills development, transfer of technology,…
• Increasing role of BRICS, filling the void left by OECD investors because of financial crisis and risk aversion
• Drawbacks BRICS (Chinese) investment: support to undemocratic leadership, lack of job creation, drain on natural resources,…
• African LICs with high dependence of few commodities and few natural resources do not benefit (enough)
• Need to direct FDI to productivity & diversification economy
14.SOUTH-SOUTH COOPERATION (SSC)
• Emerging economies: US$ 15 billion in aid (US$50billion by 2025)- creation of aid agencies in BRICS
• Other non-ODA components of SSC: loans, grants,investments, trade and technical cooperation
• SSC focus on infrastructure and productive sectors(complementing traditional donors who focus on social sectors)
• SSC = seemingly less interference & conditionalities than ODA… but also strongly motivated by economic and political considerations (extraction of natural resources)
• Migrants from “South” to “North” + 85%in past two decades
• Important source of development finance (3 x total ODA)
• Increases far higher in MICs (with high number of citizens living abroad) than inLICs
16. DOMESTIC RESOURCE MOBILISATION (taxation)
• Taxation: key in the Post 2015 debate because of huge potential for development finance
• Tax performance has improved in past 20 years
• Equitable tax system can generate better governance and state-society relations (ownership)
• Taxation= substantial policy space for developing country because less interference, less volatility and less dependence on external players/donors
• Problems of political commitment and capacity to levy taxes,+ narrow tax basis (heavy reliance on receipts from natural resources)
• Does ODA reduce the incentives for governments to raise taxes?
17. INNOVATIVE FINANCING FOR DEVELOPMENT
• Mobilise capital through public-private partnerships (blending as a mix of grants and non-grant sources)
• International solidarity levies (e.g. taxes on air tickets)
• Taxes on financial transactions (Tobin tax)
• Fight against illicit capital flight
18.IS THERE STILL A ROLE FOR AID (ODA)?
• In volume much smaller than other flows(but still primary source of revenue for LICs)
• Increasing pressure for results in a context of declining budgets
• For some, ODA did create addiction and dependence (“free money does not provide incentives for reform”)
• For others still a major catalytic role (e.g.increase public sector revenue & knowledge transfer on taxation)
19. CONCLUDING REMARKS: KEY MESSAGES FOR ANEW VISION ON DEVELOPMENT
1. Ambitious Post 2015 agenda requires global action and major increases in development finance.
2. Need for differentiated mix of approaches: development finance should target the poorest in the most marginalised and vulnerable economies
3. Ownership and responsibilities of developing countries is key: less reliance on ODA, more focus on domestic resource mobilisation+ increase of “non-ODA” flows
4. ODA could be a trigger. IF redirected towards strategic reform (e.g. the basic capacities to generate and re-distribute own revenues- to date less than 1%!)
5. Wealthy countries: invest in improving “development friendliness” of policies (PCD)
20. Thank you!