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Political Risk and the ODA Definition

18 December 2013
by Guest author

TrocaireToday’s post is by Dr Lorna Gold, Head of Policy and Advocacy, Trócaire, the Irish Catholic Agency for World Development and the Irish member of CIDSE and Caritas Internationalis. It is followed by a reply from Erik Solheim, Chair of the OECD Development Assistance Committee, the body that oversees ODA.

Official Development Assistance (ODA) as we know it would appear to be rapidly going out of fashion. Just over ten years ago there was a massive push on to deliver the MDGs and to increase aid levels dramatically to meet those goals. Only three years ago donors gave $136.7 billion in ODA, amounting to 0.32% of their collective Gross National Income. Just three years later, as discussions around the Post-2105 development framework are progressing, aid is falling and many major donors and institutions are now talking as if ODA is history – the future is now to be found in other types of finance.

The complex challenges the world is now facing, it is argued, require a radically different financing model – one which requires a comprehensive approach to financing, embracing all sources of public and private finance available to developing countries. ODA represents a very small percentage of overall financial resources available, amounting to a mere 2.7% of all public and private financial resources available to developing countries in 2010.

The merits of this comprehensive financing discussion are obvious. Civil society has been at the forefront of such a debate for more than a decade through calls for debt cancellation, fair trade and tax justice. It provides a space to discuss the unfair nature of the global financial system and the need to stem illicit flows through money laundering, tax evasion, reforming institutional mechanisms to bring forth information, recovery of stolen assets and so on. As the focus shifts to the domestic tax base, moreover, such a debate means that the inter-connected nature of global investment finance incentivises rich countries to address commensurate measures. For example, a large part of the agenda around domestic resource mobilisation requires the EU to put in place full country-by-country reporting requirements on public record along the lines of the requirements for the banking industry and beyond those for extractive and timber companies.

Whilst this debate is welcome, we cannot afford to lose sight of the ongoing importance of ODA as a key means of addressing extreme poverty. ODA may well represent a very small proportion of overall financial resources available to developing countries, but it still accounts for the largest proportion of public international finance available (58%). Moreover, ODA remains a critical source of funding for the Low Income Countries, many of which are fragile states, amounting to 10% of their GDP. It is a critical financial flow for the most vulnerable countries which are unable to readily generate alternative financial flows.

The timing of the emerging discussions around the redefinition of ODA within the OECD-DAC is particularly concerning. Whilst there are certainly technical merits to tidying up the concept and modernising it, one needs to step back and ask whom the move to change the definition is designed to benefit and what the risks are of opening such a debate up at this global juncture?

The main beneficiaries, so far as I can see, are the growing number of OECD donors who are failing to meet their 0.7% commitment to ODA through enabling them to save face. It may come as a surprise that the vast majority of EU citizens actually want their governments to meet their ODA commitments! Despite austerity measures which have led to severe cut backs on domestic public spending, support for ODA on the whole has remained consistently high between 2007 and 2012, with 83% in favour.  The same governments, however, are facing massive fiscal problems and very unlikely to keep their promise on reaching the UN target without significant sacrifices. There is potentially a political prize to be gained by widening the DAC criteria on technical grounds. It would enable donors to meet the 0.7% target with virtually zero additional finance.

Opening the debate around the definition of ODA, however, entails a number of serious risks at this political juncture. First and foremost, the move to change criteria amongst donor countries will do nothing to engender trust in already fractious multi-lateral processes.  On the contrary, it will only serve to undermine them further. The repeated failure to honour promises on ODA in the context of the Financing for Development process – but now trying to change the goalposts behind closed doors – will be seen as a cynical move on the part of the OECD donors. A debate about redefining criteria is inappropriate until all donors are meeting their current commitment to 0.7% as currently defined.

Secondly, opening the discussion at this point, where vested interests are so dominant, risks undermining the integrity of ODA as a set of financial instruments which have poverty eradication as their primary objective. Certainly ODA is not perfect, but it has specific characteristics which reflect its principal goal in addressing poverty through durable development impacts which go beyond financial transfers. The most disadvantaged LICs who rely on ODA and have limited access to other funding streams would be most at risk of any change.

Thirdly, the broadening of the DAC criteria could significantly undermine public support for development cooperation within OECD countries. ODA is by and large regarded as something which has credibility. In Ireland, this has been a hard won fight which risks being undermined if the criteria are changed to allow for the inclusion of non-poverty related expenditure.

Finally, and perhaps most importantly, engaging in a divisive debate about criteria is a distraction. It diverts energy from the real issues of finding additional sources of finance, potentially creating a false illusion that more is being done on the basis of creative accounting.

There are valid arguments for discussing all the elements of international finance which need to be harnessed in the context of a comprehensive financing framework to meet the post-2015 framework. The imperative to find new sources of finance and address systemic issues, however, should not be used as a means for OECD donors to shirk their responsibility to their ODA commitments. The attempts to change the definition of ODA must be avoided if the critical multilateral processes over the next two years are to have a future.

REPLY FROM ERIK SOLHEIM

Lorna, I could not agree with you more! Development assistance has been a great historical success. It has contributed to the fantastic development success of the last decades, bringing 1 % of humanity out of extreme poverty every year since 1990.

ODA works well and there is no point trying to fix what is not broken. We need more ODA, not less. We should promote the examples of nations who are in the lead. UK reaching 0,7 % this year. Sweden stable at 1 % over many years. Turkey with the biggest increase in development spending in the OECD.

The most important thing is that ODA promotes poverty reduction in the countries that need it the most, and reflect the spirit of the 0.7% target made by donor countries. It may very well be that the definition needs a tidying up.

In this spirit a debate is not dangerous, it is necessary. We may possibly decide to set stricter targets for ODA reaching the least developed countries. We may be better in using ODA catalytically in increasing other sources of development resources. Domestic resource mobilization through taxes can be helped by initiatives like Tax for development.

More importantly, we are working on modernising the way in which we measure and monitor wider development flows than ODA. Everyone acknowledge the importance of private sector flows as well as peace keeping. All development efforts should somehow be accounted for, acknowledged and encouraged. They should be added to ODA, not replace ODA.

We know that designing development programmes to fit the ODA definition can lead to poor outcomes, particularly when it comes to maximising the flow of finance. We must have a system that allows for innovation and the maximisation of funds and that does much better at leveraging additional money out of the private sector. One way to do this is to have broader, transparent measures of development finance from the perspectives of both what effort the donor is making and what the benefit is to the recipient. These would be new measures, separate to ODA.

The DAC will be working on these through 2014 and once we have a more substantive idea of what they look like, we can have a look at whether we need to tidy up ODA.

The rise of the south is probably the most important development in the world over the last couple of decades. It has transformed the power, the politics, the economics, the development.  One result is an increase in south-South cooperation which has changed the world of development finance. We have to have open doors and consult with all relevant partners.  We are working with the UN to produce measures that are not just for DAC donors, but that can support the post-2015 targets.

My view is that the OECD has an a lot to offer in terms of providing robust statistical systems and has an obligation to support the wider international community by making them available. Beyond this, I and many members of the DAC and its Secretariat are out on the road talking with providers of South-South cooperation, China, the Arab donor community, partner countries, civil society and private sector about this project.

We’re also heavily involved in the Global Partnership for Effective Development Co-operation. This forum and the high level meeting in Mexico will be crucial in making the international development system more effective. We’re also working with an Expert Reference Group and sharing our work and many papers on line. Nothing will be behind closed doors!

I will be happy to continue the dialogue – in Dublin or in Paris. Thanks again for your blog!

Erik Solheim

 

One Response leave one →
  1. Luc Lapointe permalink
    December 18, 2013

    Dear Lorna/Erik,

    Very good article…It’s very interesting to see what is currently happening with ODA and “aid” delivery in general. I was giving a course here in Colombia about the story of ODA..going back to August 1958 when the church groups came together to lobby what is now the OECD to have rich countries commit to 1%- Well we all know the story…the definition or what is considered ODA has changed many times and several of the items that are considered “ODA” never really reach the countries that would have benefited from what is reported.

    ODA plays an important role there is no doubt about it…is it always strategic!? that’s another question. I am currently in South America (not excluding that I have been to most other Latin American countries, Africa, and Asia).

    I have been working for the past 3 years on what would be considered Private Development Assistance (PDA). How do we get municipal government and national government to understand how PDA complements ODA and local/national strategies. Needless to tell you that there is little awareness or data about these flows. The discussion is still one or the other.

    It’s incredible to see local capacities that exist to address lots of the needs. Institutional philanthropy is now getting a lot of interest from all fronts but the one that seems to be more effective is the individual philanthropy but it’s not part of the discussion. Yes we can all celebrate the Gates and Clinton of this world but I have seen here is a philanthropy that would be better described as “solidarity” -it’s effective and punctual but receives little attention. There are so many efforts that just needs to be connected instead of having outside philanthropy create new programs.

    Corporations in both world realize that they can also also be part of the solution but little exist to connect both world. The focus of mapping and data collection / reporting is still at the “high level” without building local capacity to not only map what is being done (the past) but what is needed (present/future). We had a discussion this past September in NY about the increasing presence of Global Corporate Volunteering programs…(sending professionals around the world to share their skills and knowledge with local organizations). At this event …some of the largest corporations mentioned that sometime it’s a combination of cash/donations and volunteering – but this table focuses only on volunteering. Where would their philanthropic activities fit?

    When it comes to volunteering, we have seen an incredible amount of public announcement and one of them came from Ireland’s minister of cooperation. What is the role of individuals in development …how does one inform the other? How strategic is it? or could be. Hillary Clinton launched the Diaspora Alliance a few years ago…let’s just imagine what would it look like if everyone would take on the challenge and go abroad to do something.. who would inform who? about what? how strategic would it be.

    At the local level…there is incredible efforts that could be described as Domestic Resources Mobilization (DRM)…how do they receive information about the other international efforts so that all efforts are leveraged?

    We hope to be able to present a good proposal for the upcoming HLF in Mexico where the agenda does speak about DRM and the private sector.

    Increasing private flows of aid further complicates the potential to make “aid” effective. The financial leakages associated with the transaction cost and currency fluctuations are humongous. Simply addressing this “problems” would generate millions of dollar without finding new source of funding.

    I think that we have an incredible opportunity to present a model that would break the silo approach to aid delivery. The technology exist to empower communities to collect data.. maps their needs and opportunities – it would be great to have all the partners at the table (including the OECD an church group) to work together and increase the potential to go from hyper-individual to hyper-collective. Colombia is definitely a great place to demonstrate a working model.

    As we continue to lobby local governments and various actors…we continue hoping to have all stakeholders at the table to demonstrate that “aid” delivery is not one OR the other — but should one WITH the other.

    Saludos cordiales….Luc Lapointe
    CEO & Founder, Keen TO
    http://www.keento.org (soon to be launched)

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