Development Co-operation Report 2014: Mobilising Resources for Sustainable Development

Contrary to popular belief, even in the midst of this global financial crisis, Overseas Development Assistance (ODA) levels now stand at an all-time high of $135 billion (2013). The key point of this report is that that the context of global poverty is changing dramatically, and a new and innovative approach to finance for development is required.

1 billion of those living in extreme poverty are now living in Middle Income countries. Until recently, ODA has been the main source of funding for development, but the trend is towards declining ODA levels to Least Developed Countries. The report notes the rapidly shifting landscape of Foreign Direct Investment (FDI), with Southern providers, and South-South funding arrangements, becoming increasingly important. South-South foreign direct investment is growing at an annual average rate of 21%, and South-South trade grew as a share of world trade from 8% in 1980 to 27% in 2010, even while North-South trade was falling.

Today, approximately 30% of outward FDI is from developing countries, and China is now the 5^th largest investor, accounting 20% of all FDI in developing countries. Turkey’s recent ODA programme recently increased by 30%, while Arab nations, Brazil and Mexico develop ambitious development programmes with their neighbours and beyond.

The report includes a number of opinion pieces by experts in their field and identifies a range of options for development funding, beyond the traditional ODA model, including:

• foreign direct investment (Chapter 5);

• South-South co-operation (Chapter 3);

• direct giving; institutional investors (such as pension funds) which, in the current low interest rate environment, are hungry for new sources of long-term returns (Chapter 6);

• developing countries’ own revenues raised through taxation, which, though often overlooked by development agencies, already yields the African continent ten times that provided in development assistance (Chapter 7);

• funds raised by philanthropic foundations (Chapter 8);

• and remittances sent home by migrants working overseas, which, like tax, yields significantly more than ODA.

• In 2012, total remittances sent home by migrant workers came to $351 billion – higher than development assistance and foreign direct investment combined (Chapter 10).

For all of this ‘innovation’, the report sees an ongoing and vital role for ODA, particularly (though by no means exclusively) for Least Developed Countries and Fragile States, and argues for a rethinking of the allocation of resources, in favour of these countries. It also calls for:

• improved co-operation and mutual reinforcement among all financial providers on efforts targeted at achieving the post-2015 Sustainable Development Goals.

• support for local and global policy reform in the areas of tax, finance, investment and trade, and coherence among domestic and international policies.

• legislation and co-operation to stem illicit international flows.

• urgent attention to the challenge of financing a stable climate and peace and security measures.

Ireland and ODA:

The report documents Ireland’s ODA performance is documented:

• $ 931 million USD of private flows at market terms in 2011.

• $822 million USD of official development assistance (ODA) in 2013 (preliminary data), which represented 0.45% of gross national income (GNI) and a 1.9% decrease in real terms from 2012. All of Ireland’s ODA (excluding administrative costs and in-donor refugee costs) was untied in 2012, and the grant element of total ODA was 100% in 2012.

• In contrast to $822 million in ODA, migrant’s remittances from Ireland to developing countries amounted to $1 billion in 2012. $148 million USD of private grants in 2012, mobilised by non-governmental organisations and foundations.

An increased emphasis on the private sector can be discerned. “Ireland’s policy for international development One World, One Future acknowledges that…it increasingly promotes private sector development in its key partner countries by placing a greater focus on an enabling environment for investment and trade, tourism and people-to-people links (Government of Ireland, 2013).”

The report notes that,

“in 2013, Ireland issued a new International Tax Strategy and Charter that places a strong emphasis on tackling international tax evasion and avoidance…Ireland is placing a greater emphasis on supporting partner countries to raise domestic revenues.”

This is worth considering in the light of the debate on Ireland’s contradictory role as a facilitator of corporate tax avoidance. Beyond Ireland, OECD proposals on Corporate tax have been criticised by Oxfam and others in The Independent Commission for the Reform of International Corporate Taxation for their lack of transparency, and failure to address the needs of developing countries.

In relation to the report’s recommendations on support for fragile states, Irish support is increasing and reached USD 227 million in 2012 (42% of total bilateral ODA). In 2012, 62% of bilateral ODA ($335 million) was allocated to least developed countries (LDCs). The share has slightly fallen since 2010, when it stood at 65%, but still Ireland ranked highest among DAC members for the share of bilateral ODA allocated to LDCs in 2012.

It’s also notable that Ireland is seen to play an agenda-setting role on gender equality and women’s empowerment and continues to strengthen its mainstreaming approaches, with $186 million of bilateral ODA supported gender equality.  In 2012, 56% of its aid had gender equality and women’s empowerment as a principal or significant objective, compared with the DAC country average of 28%. In particular, about 90% of its aid to “population and reproductive health” targets gender equality.

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Contents:

Editorial: More and better financing for development, by Erik Solheim

Chapter 1. How to better mobilise resources for sustainable development

A broader development agenda will require broader finance: where will the financing for the global Sustainable Development Goals come from?

Part I

Existing sources of financing for sustainable development

Chapter 2. Keeping ODA focused in a shifting world

There are large differences in developing countries’ needs and access to finance. While the relative importance of ODA is diminishing, this is not the case everywhere, as LDCs remain the most dependent on ODA and Middle-income countries still face many development challenges. ODA growth is slowing in those countries that need it most and it may be time to rethink the allocation of ODA, with a proposal that, “Half of all ODA should go to the least developed countries”.

Chapter 3. Growing dynamism in South-South co-operation

Chapter 4. The growing development potential of other official flows

International financial institutions are by far the largest providers of other official flows .

Chapter 5. Putting foreign direct investment to work for development

FDI to developing countries is on the rise with China accounting for a large share of both inward and outward foreign direct investment, while Africa receives the lowest share of foreign direct investment

Chapter 6. Are institutional investors the answer for long-term development financing?

Institutional investment is on the rise and the OECD suggests that policy reform could remove barriers to institutional investment and urges moves to promote long-term investment in developing country infrastructure.

Chapter 7. Tax revenues as a motor for sustainable development

Taxation plays a central role in promoting sustainable development, with developing countries taking in considerably more in tax revenue than in aid. With a 4% increase in the tax take, Africa could potentially fund its own sustainable development. The development community could do more to support tax systems.

Chapter 8. Foundations as development partners

Foundations are increasingly prominent in development co-operation

Chapter 9. The changing role of NGOs and civil society in financing sustainable development

Estimates of how much NGOs mobilise directly from the public differ. New business models are needed for the new global goals in the wake of new modes of donating.

Chapter 10. What place for remittances in the post-2015 framework?

Remittances make up a large share of developing countries’ GDP and are on the rise, but their full scale is difficult to calculate.

Part II

Mechanisms for increasing resources for sustainable development

Chapter 11. Using financial instruments to mobilise private investment for development

Opinion pieces: “ODA should be used to enhance risk sharing between the private and public sectors” “Returns for success are the best means of stimulating private investment.”

Chapter 12. Creating an environment for investment and sustainable development.

Regulations and good legal capacity can encourage investors. Good laws, and the capacity to enforce them, are fundamental.

Chapter 13. Fighting corruption and illicit financial flows

Many OECD countries are susceptible to money laundering. Progress on fighting foreign bribery is mixed and greater political will is needed for recovering illicit assets.

Chapter 14. Supporting countries in growing their tax base

Global processes are needed to address international tax matters. Supporting tax systems in fragile states is especially urgent.

Chapter 15. Innovating to finance development.

Innovative financing for development is an evolving concept and is already in action, but the potential of innovative financing is still largely untapped.

Chapter 16. Enhancing the contribution of social business to sustainable development

Social entrepreneurship is widespread and varied in developing countries and has some advantages over conventional development co-operation, but is not risk free.

Part III

Development finance post-2015 and the provision of global goods

Chapter 17. How can development co-operation address global challenges?

A global public goods approach calls for international co-operation and wide political buy-in.

Chapter 18. Finding synergies for environment and development finance

Well-financed climate change action must be central to the post-2015 goals. Careful management will be needed to make the most of environment and development synergies.

Chapter 19. Financing peace and security for sustainable development

Financing peace and security is a political challenge and we need better data to support that work.

Prevention is better than cure: funding global diplomacy and justice is a must.

Chapter 20. Backing recovery in fragile states

Least developed fragile states depend heavily on development co-operation, though remittances are also an important resource for fragile states. While foreign direct investment in fragile states is volatile, raising domestic revenue offers both potential and challenges.

Chapter 21. Supporting a fair and equal trading system

The nature of world trade is changing and there are still impediments to equitable world trade.

Aid for trade can help countries meet their development goal: the WTO Bali Agreement promises to facilitate trade.

Profiles of development co-operation providers

Trends in Development Assistance Committee members’ development co-operation: a synthesis of peer reviews, 2012-14 .

Development Assistance Committee members’ ODA performance in 2013

Profiles of Development Assistance Committee members

Trends and profiles of other providers’ development co-operation

References

Glossary