Second in a two-part series. Part 1 can be viewed here

At the end of last week, we blogged about three distinguished aid insiders; grave concerns over proposals for recording support to the private sector as Official Development Assistance (ODA). Today we turn our attention from the conference halls of the Organisation for Economic Cooperation and Development’s Development Assistance Committee (DAC), to the marginalised communities who are ultimately affected by the DAC's decisions.

Marginalised people counting the cost: the Lake Turkana Wind Power project

The Lake Turkana Wind Power project in Kenya illustrates some of the many risks that aid subsidies to the private sector (known as private sector instruments or PSI) pose for people experiencing extreme inequalities.

Reported to be the largest private investment in Kenya's history, the project involved building 365 turbines and other infrastructure on grazing lands used by indigenous pastoralists. Much of the project's financing came from official sources in the global north, including some ODA.¹

Local and international civil society groups have raised serious red flags about land grabbing and inadequate consultation with local indigenous peoples – and about a lack of accountability.

The World Bank withdrew from the project citing concerns that the terms of the deal would leave the Kenyan people footing too big a bill – and that was even before Kenyans were hit with heavy extra costs due to delays following the bankruptcy of one contractor. Meanwhile, much of the financial return from the project looks set to flow to companies in the global north, including Vestas, Siemens and Google. While indigenous peoples’ lands and livelihoods came under threat, and people across Kenya shouldered heavy costs, the companies involved are positioned to profit. 

                                            

A raft of unresolved risks, little proven benefit

Sadly, the risks exposed by this project are only the tip of the iceberg. Based on detailed analysis of the proposals tabled at the DAC, and evidence from other damaging PSI projects, our civil society coalition has long been flagging a catalogue of risks that need urgent attention, including that:

• ODA will be diverted from other activities of greater importance to people experiencing extreme poverty and inequalities
• Basic rights may be jeopardised by the commercialisation of social sectors
• Significant sums of ODA may be invested without any clear added value. A recent OECD report on one key type of PSI found that as yet ‘little reliable evidence has been produced linking initial … efforts with proven development results’.
• There will be an increase in tied aid
• Subsidised companies may dodge their taxes
• An increase in PSI lending will exacerbate emerging debt crises in the global south
• Core development effectiveness principles such as local ownership of development priorities, transparency and accountability; human rights obligations; and environmental commitments will be overlooked. 

Putting politics before people

As the guardian of ODA standards, the DAC has a unique responsibility to tackle these risks in the rules that it sets for PSIs. But – despite over four years of negotiations – its provisional reporting arrangements released last month fall far short. 

It’s true that any kind of agreement on reporting – minimal as it may be – is significant, given that at least one major player was threatening to torpedo the process right up until the last minute. The agreement sends a signal that DAC donors still value an aid system based on collective rules, which is critical in a context where multilateralism is under threat.

But this agreement came at the heaviest of prices. While the interests of a few powerful governments held sway, the interests of people on the receiving end of ODA were all too often sacrificed, under increasingly diluted proposals which are completely silent on most of the key risks associated with PSI, or else undermined by vagueness. 

Where next?

Getting out of the current impasse won’t be easy. But, with the credibility and impact of ODA at stake, the status quo just isn’t a long-term option. We urgently call for four key steps from DAC members: 

1. Implement the provisional reporting arrangements as rigorously as possible. Donors that opt out of any voluntary provisions should be called out for putting ODA in jeopardy.
2. Don’t let the weaknesses in the provisional reporting arrangements become an excuse for a race to the bottom on standards at national level. Rather, the vacuum in detailed rules from the DAC makes it more vital than ever for principled national aid agencies and development finance institutions to strengthen their own safeguards over their PSI activities. The recommendations in our latest civil society position would be a good place to start – and we particularly emphasise the prevention of ODA diversion, and the importance of upholding human rights obligations and putting in place strong accountability mechanisms. 
3. Don’t drop the ball on the PSI issue: don’t let the provisional reporting arrangements become permanent by default. The reform can only be successful if all parties – including countries in the global south and civil society organisations – are consulted throughout the process. 
4. Use this opportunity to take a step back and reimagine what the ODA system might look like if it was squarely aligned to the principles of maximising development impact for the very poorest and most marginalised people to leave no-one behind, of avoiding harm, and of concessionality being non-negotiable. The answer might make uncomfortable reading for finance ministries eager to get the biggest ODA bang from their PSI bucks. But for millions of people like the communities around Lake Turkana, whose voices are rarely heard in the DAC’s negotiations, such a rethink cannot come a moment too soon. 

¹ Source: analysis of activity level data in the OECD DAC Creditor Reporting System database and local civil society analysis.