Smart Aid - Where ODA will still be useful

This post by Raundi Halvorson-Quevedo, a substantive reviewer for the OECD Development Co-operation Report 2013 provides a first look at Jon Lomøy’s piece for the Report. This post is part of the Wikiprogress  series on Post-2015. 

Concessional development finance is no longer the key source of finance for national development; non-concessional lending from both public and private sources has increased significantly over recent years and is now playing an important role.  Does all this mean that public concessional finance has become irrelevant, or does it still have a role to play?

The author has assessed empirical data regarding official development assistance (ODA) flows over the past decade and identified a number of trends that show how concessional finance from Development Assistance Committee members has adapted over time to emerging needs and urgent concerns – and drawn the following conclusions about where ODA will still be useful in future and how to ensure that aid will be even “smarter” in that context.

• Targeting the neediest  Providers of ODA have historically given priority to the poorest of the poor.  Since 2008, ODA to low-income countries (which today comprise 36 countries) has been around 30% of total ODA. Within this group, however, there are some countries which are not receiving enough ODA to meet their needs. The existence of under-aided countries – or “aid orphans” – results largely from donors’ uncoordinated allocation practices: one donor rarely takes into consideration how other donors allocate their ODA when making their own decisions. To address this vacuum, the OECD-DAC has developed a methodology for identifying potentially under-aided countries and monitoring assistance to them. This analytical tool will help us better target ODA, making it smarter still.

• Support to fragile states is fundamental for eradicating poverty  The past two decades have seen the rise of conflict and fragility as major global concerns, with serious implications for poverty eradication.  Between 2000 and 2010, support from DAC members to fragile states more than doubled – from USD20 billion to USD50 billion – reaching 38% of all ODA given by DAC countries. This support is fundamental for addressing global poverty: in 2010 these countries accounted for one-third of the world’s poor and by 2015 they are projected to be home to half of them, particularly in sub-Saharan Africa. Many argue that this is where the main future use of ODA should be.

• Tapping new resources   While traditional development finance, notably ODA, will continue to be important, there is now agreement that extra financing will be needed for sustained development in the majority of developing countries. The challenge for smart aid is to provide ODA in ways that will stimulate additional resources for development. Using aid to strengthen tax collection systems, for example, can capture home-grown resources for development.  ODA can also be used to encourage foreign investment, engage the private sector and encourage new innovative financing mechanisms such as guarantees, insurance facilities, “green” bond funds and advanced purchase arrangements to create incentives for private sector investment.

• A great deal more money will be needed to deal with climate change  To meet the challenges of climate change, substantial new financial resources will be required – from private investments to new forms of taxation. ODA for climate will also continue to be important, but it will need to be smart – using innovative mechanisms to attract other finance and to create the systems and capacity for monitoring and assimilating these resources in diverse developing country settings.

Raundi Halvorson-Quevedo

Can we Really End Poverty? A Debate on the Future of Poverty

Watch the debate live-stream from 7pm-8.30pm (UK time) on 5th December, here

How China’s agricultural miracle combined economic growth with poverty reduction

This post by Marie-ClaireTuzeneu, Production Manager of the Development Co-operation Report at the OECD, provides a first look on Li Xiaoyun’s piece for the OECD’s Development Co-operation Report 2013. This blog is part of the Wikiprogress series on post-2015.

How China’s agricultural miracle combined economic growth with poverty reduction

A first look at Li Xiaoyun’s chapter in the OECD’s Development Co-operation Report 2013

The world has made an important first step towards ending poverty: successfully reaching the first Millennium Development Goal and halving the proportion of people whose income was less than USD 1.25 per day in 1990. This achievement, frequently cited in this year’s Development Co-operation Report (DCR), would not have been possible without the dramatic poverty reduction that took place in China. In his chapter “What can Africa learn from China’s agricultural miracle”, Professor Li Xiaoyun (Research Center for International Development, China Agricultural University) explores the factors that contributed to this success and what possible lessons Africa could take away from the Chinese experience.

From 1978 to 2008, China’s economy grew at an average of 9.8% while its poverty incidence decreased from 63% to 10%. According to Li, this success was largely driven by growth in smallholder farming.  In fact, agricultural growth was responsible for 35% of China’s overall GDP growth and contributed four times more to poverty reduction than all of China’s manufacturing services combined. Li  attributes the large role agriculture played in its poverty reduction partially to the labour-intensive nature of agricultural work – this allowed the sector to absorb a high amount of China’s unskilled labour based in rural areas.

Based on this experience, he cautions countries against developing policies that encourage a largely rural-based population to migrate to urban areas before certain structural preconditions are met. Instead, Li argues that policies should first focus on expanding and increasing productivity within the agricultural sector. Once farmers are able to produce a surplus, this will then both help lower prices for consumers and provide raw material that will help stimulate other markets.

What specific lessons, then, could African countries draw from China’s experience? Li writes, “Given the diversity of the African continent, one of the most important lessons from China’s experience in agricultural development is the need to adapt to local and regional situations.” He emphasises the importance of carefully examining China’s experience to identify what could work in specific national contexts. With this important point in mind, Li developed a list of key general lessons, including:

• rapidly increasing productivity and total output for crops already grown by a majority of smallholder farmers through techniques such as multiple cropping, inter-cropping and double and triple harvests
• linking agricultural surplus with investment opportunities so that increasing farmer incomes also contribute to growth in other sectors
• transitioning from a crop-focused to a more diversified farming system.

Finally, he critically reflects that China’s path towards rapid economic growth and agricultural production has not been without certain negative side effects that African countries should take into account when developing their own policies and programmes. As DAC Chair Erik Solheim states within the DCR Editorial, “The challenge for Africa will be to avoid some of the negative by-products of the Chinese experience, which include environmental damage and growing inequity between rural and urban areas.”

The Chinese experience on how to reduce poverty, its potential lessons for Africa and the other topics explored in the Development Co-operation Report 2013: Ending Poverty will be discussed in a live panel debate in London on 5 December. For more information, visit the Intelligence Squared event page.

Eleven Elements for a Post-2015 Agenda

This blog by Charlotte Demuijnck, provides an overview of the OECD’s input on the Post-2015 agenda and framework. This OECD Overview paper on post-2015 is the first in a series that will outline the Organisation’s position on the global debate in the lead up to the UN General Assembly in September 2013. This post is part of the Wikiprogress Post-2015 series.

This Overview paper, Beyond theMillennium Development Goals:Towards an OECD contribution to the post-2015agenda, outlines the OECD’s involvement in the global transition beyond the MDGs. This preliminary proposal is not intended to be an exhaustive and complete list of OECD contributions but rather a reflection that will help the readers gain understanding of the OECD’s starting point in its participation in the global debate. A series of detailed papers will follow shortly.

In this paper, the OECD acknowledges that “times have changed” and the new global context is characterised by new actors, new resources, a different distribution of growth as well as growing inequalities and a changing geography of poverty.

Against this background, the OECD focuses on eleven elements to help adapt to these new realities in a meaningful and effective way. The need is emphasised for a two-level approach; unlike the MDG framework, the new development agenda should not only be aimed at the global and universal level with limited goals and targets but also at the national level with specific targets adapted to the capacities of countries.

The eleven elements include both outcomes and tools. The outcomes focus around achievements in poverty reduction, educational success, gender and sustainability.

The six tools are the “means to achieve the outcomes” and include “development enablers” such as strengthening the national statistical systems and accountability mechanisms, improving policy coherence (for instance, trade policy versus aid policy), adapting the formation and distribution of knowledge, as local, evidence-based and peer-reviewed knowledge should be of primary focus when designing and implementing reforms. Equally important is the eleventh tool, financing development.

For all these elements, the Overview paper underlines the OECD’s experience and desire to be the Best Supporting Actor in the global development debate, making it an important source of expertise. With partnerships such as PARIS21 on statistics, the New Deal for fragile states, the Knowledge Sharing Alliance for peer learning, the Busan Partnership for Effective Development Cooperation and many others, the OECD has already started to engage with the global concerns and take concrete actions. Particularly interesting is the multi-stakeholder Task Force on Tax and Development launched by the OECD in January 2010 and its “Tax Inspectors Without Borders” (TIWB) proposal.  

All in all, this Overview paper not only lists innovative and inspiring ways of supporting outcomes to reach, but also gives the tools to do so which makes it particularly engaging and an interesting read. 

Charlotte Demuijnck

See also:

The OECD’s contribution on education to the post-2015 framework: PISA for development