Latest OECD statistics highlight urgent need for more and better aid.

Added 12 Apr 2017
The latest statistics on Official Development Assistance (ODA) were released yesterday, and reported that total ODA from members of the Organisation for Economic Cooperation and Development Assistance Committee (OECD DAC) group of rich countries was US$142.6 billion in 2016, up 8.9 per cent on the previous year (after adjusting for exchange rates and inflation).

That may sound encouraging – but, taken in context, these new statistics should set alarm bells ringing for anyone committed to achieving the Sustainable Development Goals.

First, of course, it’s deeply alarming that, despite almost 50 years of promises to give 0.7 per cent of their incomes as ODA, in 2016 the OECD DAC group of rich countries’ collectively gave less than half that level – yet again. Donors that were once leaders on aid quantity, such as Sweden and the Netherlands, made heavy cutbacks, the latter letting its ODA drop below the 0.7% target for the third time since 1974. What is more, yesterday’s data suggests that the poorest countries continue to miss out, and donors fell short of commitments to increase the share of aid going to least developed countries. 

But beneath the headline-grabbing figures on aid quantity is an equally disturbing set of trends on aid quality. 

The way that the OECD defines ODA means that the figures include many costs that never actually reach poor countries – for example, some of the costs of hosting students from developing countries, or of payments to suppliers in donor countries. In 2014, the OECD calculated the share of ODA that went to developing countries or regions, after excluding unpredictable flows, or flows over which there is no discussion between the provider agency and the recipient government (a measure called Country Programmable Aid). It found that just 53 per cent of DAC members’ bilateral ODA met even these basic criteria. The development impact of that other 47 per cent has to be questionable at best, and is certainly less than the impact of ODA that goes to the country, reaches people living in poverty, and supports a coherent, nationally owned development strategy.

We don’t yet have the detailed data to know what share of ODA actually reached poor countries in 2016. But we do know that an ever-increasing share of ODA is going towards the costs of hosting refugees in donor countries: 10.8 per cent of DAC members’ ODA in 2016, up from 9.2 per cent in 2015 and 4.7 per cent in 2014. Of course, supporting refugees is imperative and something that Eurodad fully supports. But this money never reaches developing countries, and its link to the core purpose of ODA – promoting the economic development and welfare of developing countries – is tenuous. Counting such spending as aid is misleading. 

This goes to show how easily the OECD’s aid rules can have perverse consequences, diluting the impact of aid on the lives of people in the global south. Which is why Eurodad – along with a large number of civil society groups from across Europe, North America and Africa – is so concerned by recent proposals to change the rules on donor support for the private sector (so-called Private Sector Instruments).
Unless tightened up, the proposed rule changes risk further diluting aid quality – for example, by rewarding donors even when they support projects that would have happened anyway, or even when the money never even gets spent, let alone in developing countries (e.g. in the case of guarantees that are never called). 

And the more donors are rewarded for activities where the tangible costs to donors are low, the greater the temptation for them to divert resources to these activities, away from more challenging but potentially higher-impact areas of work that people in developing countries may actually value more. 

Particularly worrying is the risk that the new rules on Private Sector Instruments will open the door for donors to ‘tie’ more of their aid to their own private sector. Tied aid increases costs and misses opportunities for job creation and capacity development in developing countries – as the OECD itself has found. Past experience has shown that tying is incredibly difficult to control: even where tied aid is prohibited in principle, often the design of procurement procedures still channels aid to donor country firms in practice. In fact just last week, the OECD reported that in practice 46% of contracts by value are still going to firms in donors’ own countries, and in some countries the figure is much higher still (95% in Canada).

Eurodad is calling for the new OECD rules on Private Sector Instruments to be tightened – including strong steps to end tied aid both in principle and in practice.

Eurodad is also urging that the voices of developing countries – their governments, and their civil society organisations – be brought into all discussions on the new aid rules. After all, nobody is better placed to sound alarm bells about the need for more and better aid than people on the sharp end of poverty and inequality themselves.