Blog: Development aid: where to next?

Levels of aid spending are rising but is aid quality also improving?

This article was originally published by SPERI

Last month some 1500 people from over 130 countries gathered in Mexico City for the latest international jamboree on development aid. The so-called ‘Global Partnership for Effective Development Cooperation’ is an OECD/UNDP-led effort which aims to improve aid effectiveness by encouraging better partnerships between aid donors and aid recipients, as well as the myriad private-sector actors now involved in the international development business.

Non-governmental organisations were somewhat skeptical as to what the event would achieve (is it yet another ‘development gabfest’? asked Oxfam); governments were decidedly more upbeat. There was good news the week before the conference when the OECD announced that development aid had reached its highest level ever(in absolute terms) at almost US$135 billion.

To be fair, the Global Partnership has to confront some really tough questions. Do some countries still need development aid? Does aid really work that well? And what is ‘aid’ anyway?

Over the last decade, the developing world has dominated global economic growth. There are now 103 middle-income countries and the number (happily) continues to rise.  Last year, UNDP’s Human Development Report(the Rise of the South) reported that, for the first time in 150 years, the combined output of the developing world’s three leading economies—Brazil, China and India—is about equal to that of the G7. Although much attention has focused on the rapid economic advances made by the ‘big beasts’ of the developing world, others are also doing well; Sub-Saharan Africa has grown at, on average, 5-6% annually over the last decade.

Some developing countries have become major donors themselves and it’s become a badge of honour to open your own aid agency these days. Mexico, last week’s host nation, created AMEXCID in 2011, while Turkey’s development cooperation agency – TIKA – expanded its budget fifteen-fold between 2002 and 2012. Kazakhstan and South Africa have plans to launch aid agencies and the rise in Chinese and Brazilian aid is well-documented. Arab donors have also become more prominent and last month the UAE posted the highest aid levels of all donor countries as a percentage of gross national income (at 1.25%).

All well and good, then?  Perhaps, but it’s left many ‘old’ donors confused – will taxpayers complain that we’re sending aid to places that are sending large amounts of aid elsewhere? So much so the UK’s Department for International Development will close its aid programmes in India and South Africa from 2015. ‘It’s time to recognise India’s changing place in the world’, said Justine Greening, the UK’s International Development Secretary.

As more countries develop and expand their aid programmes, the debate as to whether any of this aid actually works has still not been laid to rest.  So, while Jeff Sachs and Bill and Melinda Gates argue aid works (look at the positive impact health-related aid has had, for example), Bill Easterly and Angus Deaton argue the opposite (aid has been ineffective and even harmful, says Deaton in his book ‘The Great Escape: Health, Wealth, and the Origins of Inequality’). For its part, the Global Partnership’s recent progress report on aid effectiveness reported mixed results on improving aid quality.

Debates over aid effectiveness often miss the fundamental point that development aid typically serves a wide range of political, commercial, cultural and moral objectives. The extent to which the former interests compare to the latter varies between donors and over time, but these factors all influence aid effectiveness. Just 10 countries swallow up almost 40% of overall aid which shows that some countries still remain more important to donors than others. ‘Technical’ fixes – such as the Global Partnership effort – can therefore only achieve so much in relation to deep-seated political problems.

And what is ‘development aid’ anyway? The reality is donors decide what it is! The OECD’s definition – called ‘Official Development Assistance, or ODA’ – is broad and open to interpretation. It allows a wide range of activities to be thrown in to the bucket and ‘counted’ as aid. And indeed over the years the number of ‘problems’ aid is expected to ‘fix’ has steadily increased.

UNDP Administrator, Helen Clark commented in Mexico last month that we need to look at the composition of aid spending before we congratulate ourselves on rising aid levels. Indeed, several NGOs have decried the phenomenon of ‘phantom aid’ over the years. In lots of cases, there is no actual transfer of resources to the recipient nation. And this criticism applies to ‘old’ and ‘new’ donors alike.

For other donors, there is no aid definition at all: they are free to define it as they please.

So what next for the global development aid effort? This is especially important as the world debates what will succeed the Millennium Development Goals when they expire in 2015. Many sense a major aid overhaul is needed, but are not sure what this means in practice.

The post-2015 development agreement currently under discussion at the UN could foster progress in a few big areas.

First, aid is currently expected to ‘do’ a lot. And the pressure to tap aid budgets to pay for global public goods (such as protecting the world’s forests and oceans) will only intensify in the post-2015 era. It’s also true that all countries benefit when the environment is better preserved, not just the recipient nation.

So, can we still call this ‘development aid’ and is the ‘donor-recipient’ paradigm still relevant? At a minimum, the post-2015 development agreement should seek to differentiate between spending on poverty reduction, climate change adaptation and mitigation and global public goods. Of course, this raises difficult questions, in turn, as to whether there should be targets for providing funds in each of these areas and which countries these targets apply to. Should all countries contribute something?

Second, who should define ‘aid’ and what can be thrown into the ‘aid’ bucket? Surely a strong case can be made that important decisions on such matters are taken in inclusive and representative forums?

We also need to allocate resources more effectively and fairly between countries and to decouple a larger share of decisions on aid from domestic politics. In practical terms, this requires a much bigger commitment to the pooling of aid resources (there has been a proliferation of multilateral funds over recent years, but most donors still prefer bilateral aid channels). Pooling resources could help to simplify an increasingly complex development financing landscape and, if done well, ensure that all countries have a voice in aid allocation decisions.

In sum, aid is at a crossroads. There are important opportunities to improve the current status-quo and the Global Partnership is a step in the right direction. But, if we are to make the most of international public finance in the post-2015 era, we can and should also be more ambitious.