Negative outlook for development cooperation

Added 11 Apr 2013

By Jeroen Kwakkenbos

The latest figures from the Organisation for Economic Co-operation and Development (OECD) on donor official development assistance (ODA) have been released. For the most part, the Development Assistance Committee figures do not make for very positive reading.

The majority of donors, particularly the largest by volume, have reduced their contributions to development assistance by $ 5.4 billion – from $ 133.7 billion to $ 128.3 billion between 2011 and 2012. In the European Union, the share of combined gross national income (GNI) to ODA fell from 0.44% to 0.42%, representing an overall drop of 7.3% in total ODA compared to 2011.

The poorest countries are hit particularly hard, with bilateral support to Least Developed Countries dropping by 12.8% or $ 26 billion. The OECD, the European Commission and civil society groups are calling for donors to meet their international commitments, which they have publicly reaffirmed time and time again

Aid effectiveness still an issue

Very little recent data on the effectiveness of development cooperation exists, as no comprehensive monitoring has been conducted since the Paris Monitoring Survey 2011. However, data on contract awards does exist and reveals a bleak picture.   

The OECD 2012 report on untying aid notes that many countries have officially untied aid, but the “very high shares of procurement that continue to go to enterprises in donor countries raises concerns about how untied some of that aid really is”. So, while aid may be untied de jure, it may not be untied de facto. The figures on contract awards unveil that much aid flows to donor country businesses rather than contributing to local economic development in recipient countries.

Incorporating private finance through leveraging and Public Private Partnerships (PPPs) has become commonplace in discussions surrounding aid effectiveness, particularly in terms of how to ‘crowd in’ investment in a manner that is pro-development. As Eurodad has pointed out, these types of financial flows are problematic for a variety of reasons, ranging from whether they are fit for purpose to measuring impact. Furthermore it is unclear whether they would provide real development additionality or would detract financing from gaps in the public sector. Further problems are related to transparency, accountability and the fact that the majority of the beneficiaries of these flows are firms based in OECD countries and tax havens.

Aid figures still inflated 

Not all the gains were positive. Austria saw an increase of 6.1%, primarily due to debt relief in sub-Saharan Africa. However, while debt relief is positive, civil society groups such as ActionAid and Aidwatch have argued for some time now that it should be additional and should not be counted towards ODA. Furthermore, as Aidwatch has repeatedly pointed out, the reported figures should not be taken at face value as they are inflated by other means such as including student and refugee costs. According to AidWatch, “[a]t least € 7.35 billion (14%) of EU aid was inflated aid in 2011”.

Several donors have expressed an interest in opening the ODA definition to include a variety of other financial flows outlined in a European Centre for Development Policy Management paper commissioned by the German and Dutch governments. This initiative was further spelled out in an OECD DAC discussion paper prepared before the high-level meeting held in London on December 4-5 in 2012. This paper notes that “the ODA concept may need to be re-examined in the light of two somewhat opposing critiques: first, that it is too broad, allowing the inclusion of items that do not involve cross-border transfers of resources and budgetary effort; second, that it is not broad enough, omitting or undercounting some official and effective efforts in favour of development.”

While DAC members have agreed not to open the ODA definition before 2015, a workplan is being developed that will explore new ways of incorporating cross-border flows such as climate finance and peacekeeping. There is also further pressure to represent ‘ODA neutral flows’ from Development Finance Institutions and other investment tools that focus on concessional lending rather than grants.

Overall, the DAC presents a mixed picture, which is mainly negative. Within Europe, most of the gains made in good faith were small compared to overall losses. Though the proportion of aid in government budgets is tiny, the economic crisis is frequently stated as a key reason for aid cuts. However, examples such as those of the UK show that it is possible to scale up ODA in difficult times when the right political priorities are set. Instead, many donors are looking for ways to increase their figures without scaling up commitments. Civil society watchdogs will have to keep a close eye on the discussions surrounding ODA to ensure that donors meet their commitments fairly and not by including dodgy financial flows that may or may not have a positive development impact.

tags: Aid, EU, ODA, PPP