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

Ending chronic poverty: Breaking down a policy no-man’s land

This post by Marie-Claire Tuzeneu, Production Manager of the Development Co-operation Report at the OECD, provides a first look at Andrew Shepherd’s piece for the OECD Development Co-operation Report 2013.

The previous two blog posts on the Development Co-operation Report (DCR) 2013 – which discussed key points from Andy Sumner and Li Xiaoyun’s chapters – focused on what is needed to help people get out of extreme poverty (defined as an income of USD 1.25 per day). In his chapter “How do we get to zero on poverty – and stay there?”, Andrew Shepherd (Chronic Poverty Advisory Network, Overseas Development Institute) emphasises the importance of also developing policies to support those that have escaped extreme poverty and are just above the poverty line, thereby ensuring that that they don’t fall back into extreme poverty. To achieve this, he calls for a post-2015 framework that directly addresses and includes targets for ending chronic poverty.

Who are the chronically poor? Within his chapter, Shepherd defines chronic poverty as “extreme poverty experienced over many years, a lifetime, or perpetuated from generation to generation”. Chronic poverty is often multidimensional in nature and, therefore, cannot be fully captured by measures of income poverty alone. Using a measure combining income and consumption, the 2008-09 Chronic Poverty Report estimated that there are currently between 320 and 443 million chronically poor people.

What policies could help end chronic poverty? The local context – as well as related economic, societal, political or institutional factors - plays an important role in whether or not a household is able to escape extreme poverty over the long term. These factors may create barriers that make it more difficult to end chronic poverty. These barriers cannot be removed through “Business as usual” policies and programmes. Shepherd calls for a root-and-branch re-orientation and reprioritisation of policies and programmes under the following four categories:

1.   Social protection: Solid systems of social protection must be backed by national political commitment. For example, employment guarantees must be extended to jobs within the informal economy so that all employment is an avenue out of poverty, not just a survival option.
2.  Growth that reaches the poorest: Within the agricultural sector, policies should focus not only on crop productivity, but also on building the asset bases of poor farmer households. Policies and programmes must be put in place that help increase access to electricity by reducing the upfront costs for families to connect to electrical grids.
3.    Human development for the hard to reach: For this category, policies in a wide variety of areas – ranging from health to gender equality – must be revisited. Taking the example of education, current development programmes, which focus on increasing attendance rates for primary education, should be expanded to also include pre-school and post-primary education.
4.   Transformative social change: Regardless of the specific model chosen to support the chronically poor, a country must have “far-sighted political leadership with a strong nation-building plan” in order for its programmes and policies to be effective.

What targets and goals should be included in the post-2015 framework? Shepherd calls for a post-2015 framework that focuses on eradicating extreme poverty, arguing that “If the factors keeping people poor over long periods of time (or in chronic poverty) are not explicitly addressed, there is no chance of getting to or near zero.” To that end, the post-2015 goals and targets should not just focus on USD 1.25 per day income poverty, but should also look at the poverty lines just above that threshold. Under the current system, those households that have escaped USD 1.25 per day income poverty and are living on USD 2 or USD 4 per day fall within a “policy no-man’s land”. If programmes and policies are not also developed to support those just above the extreme poverty line, they risk falling back into extreme poverty. To address these concerns, Shepherd would propose a series of three targets that are illustrated in the figure below. While this specific set of targets only addresses income poverty, it could also be adapted and applied to the other dimensions of poverty.

Ending chronic poverty and other topics explored in the Development Co-operation Report 2013: Ending Poverty will be discussed in a live panel debate, which will be held in London on 5 December and will be viewable via live-streaming. For more information, visit the Intelligence Squared event page or follow the discussion on Twitter using #povertydebate.

A dynamic post-2015 goal: Eradicate extreme poverty

Note: Target 1 should be combined with Target 2 for each country, since some countries need to do more of 1 and less of 2, and vice versa.

Source: This figure is taken from Chapter 4 of the DCR, “How do we get to zero on poverty – and stay there?”, by Andrew Shepherd.

- Marie-Claire Tuzeneu

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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.

The New Geography of Poverty - OECD Development Cooperation Report 2013

This post by Valentin Lang, Policy Analyst at the OECD provides a first look on Andy Sumner’s piece for the OECD’s Development Cooperation Report 2013. This blog is part of the Wikiprogress series on post-2015.

A critical time for the future of global development has begun. In September, the international community gathered at the United Nations General Assembly in New York to launch the final phase of the international process that will lead to a new global development framework for post2015. The development community has started vigorous work on new approaches to end poverty. A much awaited publication in this regard is the OECD’s Development Cooperation Report 2013: Ending Poverty, the subject of a live panel debate in London on 5 December 2013. 

In his contribution to the report, Andy Sumner, Co-Director of King’s International Development Institute, shows that the global patterns of poverty have changed fundamentally over the past few years. He argues that we won’t be successful in tackling this new pattern of poverty with our current approach to international development. The world economy has changed and so has poverty. The next development framework has to account for this and has to initiate new forms of development cooperation. According to Sumner, a “new bottom billion” lives in middle-income countries. Whereas in 1990, most extremely poor persons lived in a low-income country, today more than 70% of them live in middle-income countries. In the next few years, some of these countries could even develop into high-income countries if they meet IMF growth forecasts.

In short, we see the geography of poverty shifting radically

This new world of poverty consists primarily of countries whose gross national income per capita gives them middle income status but whose “nothing magically happens when a country crosses an arbitrary line into a new classification based on per capita income” population comprises large numbers of extremely poor. Apparently, mere economic growth does not guarantee progress in poverty reduction. Today, the poverty problem is inextricably linked to the inequality problem.

Sumner draws some important conclusions from these remarkable findings. He argues that if we want to eradicate poverty in the future, the traditional approach of “development aid” that flows from OECD countries to the least developed countries is by far not enough. Development cooperation has to realise that. Development cooperation with countries whose populations suffer from poverty should therefore not be less intense only because of their middle-income status – but it should be different:

Development cooperation with middle-income countries can draw on a wider range of resources and policy options than low-income countries. Middle-income countries have a larger tax base and have more domestic resources available for work in poverty reduction. The credit ratings of middle-income countries allow them to borrow capital from financial markets. Therefore, development cooperation can and must take new forms beyond ODA.

For instance, Sumner points to the possibility that providers of development cooperation could shift from grants to concessional loans and to the co-financing of global and regional initiatives. Knowledge sharing and joint policy-related research will also have to become more important. Another central challenge for providers of development cooperation is to focus more on policy coherence for development. They must better co-ordinate development and non-development policies and ensure that the latter do not undermine the former.

At the same time, a focus on inequality has to be a key feature of future development cooperation. Combating global poverty means combating inequality inside countries. Mere economic growth will not suffice. It must be inclusive and must be connected to socio-economic policies that tackle inequalities: “Growth with redistribution is the way forward.” Sumner’s analysis, thus, points to the fact that it seems inevitable to address inequalities in the post-2015 development framework.

The new geography of poverty requires new policies to fight it and Andy Sumner’s contribution to the OECD’s Development Cooperation Report 2013 leads the way ahead.