Reinventing foreign aid: send us your views

Official Development Assistance (ODA) has long been an important resource for development. But despite its long history and the lessons learned, its current definition, measurement and operation hinder donors from building a convincing narrative and seriously limit its effectiveness.

This very timely topic is much in need of fresh thinking.

That is why the Bill & Melinda Gates Foundation and the Global Development Network have partnered to launch the Next Horizons global essay competition designed to generate innovative ideas on the future of development assistance.

In the hope of inspiring reactions and innovative essays, let me provocatively claim that the aid system has remained trapped in a mostly solidarity-driven paradigm, in which spending more taxpayers’ money for development is dictated not by impact but by a sort of beauty contest among donors against a background of political pressure from beneficiaries to get more. The intrinsic tension between a duty of international solidarity and an imperative of effectiveness has of course been recognised, and the past decade has witnessed efforts to build aid and development effectiveness, notably through the Paris, Accra and Busan declarations. However, these policy prescriptions have paid insufficient regard to the framework of incentives directing donors’ and recipients’ behaviours.

Recognising this flaw, some critics have jumped to the conclusion that aid is wasted and that the system should be dismantled. We believe, to the contrary, that the aid system needs to be modernised and strengthened, and that a new narrative and a new measurement system are urgently needed, in line with the evolution of the world economy and of public policies, and with the emerging United Nations post-2015 development agenda.

A few themes may merit special attention. First, the current challenges of the world economy and post-2015 discussions make the dangers of working in silos clearer than ever. Yet we still see uncoordinated approaches from various actors (governments, private sector, NGOs, international organisations, foundations), or action targeted to individual sectors that ignores interaction between sectors. Food, health, infrastructures, water and energy are all deeply connected. More than ever, the role of aid should not be to “do” things through financing them, but to get them done by leveraging and catalysing other resources and energies in innovative ways. This resonates with the work of the Global Partnership for Effective Development Co-operation, which aims to connect the various players and build new forms of development partnership between governments, civil society, private sector, international organisations and foundations.

Second, relevant and contextualised knowledge is needed to identify and understand interactions and synergies, to act effectively and to address specific problems. However, the production and dissemination of knowledge is still concentrated in developed countries’ premier research centres and universities.

GDNquote1More development assistance should go towards helping local researchers, so that they can produce local knowledge with global credibility to inform the development debate and policy. This is the mission of the Global Development Network.

We must dare to leave the illusory comfort of concrete and measurable achievements and enter the murky world of people and processes – with the long term objective of empowerment. This clearly challenges the current approach to aid effectiveness, and inviting new methods of measuring results. The present essay competition is an opportunity for scholars the world over to contribute their suggestions. The debate on aid effectiveness should not be left to donors alone.

Third, notwithstanding provider countries’ repeated promises of meeting the 0.7% target for aid as a percentage of their gross national income, the years and possibly decades ahead will be those of tight budget constraints for public policies in most donor countries. This constraint should be transformed into an opportunity. New and imaginative means must found to leverage taxpayers’ money, echoing the role of aid as a catalyst already mentioned. This requires new competences for donors – understanding market failures and working out how aid can address them; and analysing and understand risk, so as to crowd-in, rather than crowd-out, the private sector, without piling-up bad risks on their balance sheets. None of this means that aid should no longer be an expression of international solidarity. But solidarity must be combined with effectiveness to make things happen that would not otherwise take place and that effectively contribute to development.

On these and other issues, we want to hear your voices and ideas to submit your 5,000 word entry in the GDN Next Horizons Essay Contest 2014 before the deadline of September 15, 2014.


JacquetbioPierre Jacquet is the President of the Global Development Network (GDN). He was formerly Chief Economist (2002-2012) and Executive Director in charge of strategy (2002-2010) of the French Development Agency (AFD). From 1995 to 2012, he was also Chairman of the Department of Economics and Social Sciences of the French Graduate Engineering School Ecole Nationale des Ponts et Chaussées. Preceding AFD, he was Deputy Director of the French Institute on International Relations (IFRI), where he was responsible for the economic program and was Chief Editor of IFRI’s quarterly review Politique Etrangère.

Why partnering with the private sector is key to inclusive growth

Over the past couple of decades, no one can deny that the Asia and the Pacific region has represented a remarkable success story. Absolute poverty levels have fallen significantly and the region is on course to achieve a number of Millennium Development Goals (MDGs).

But more than 1.6 billion people in the region continue to live on less than USD 2 a day and remain vulnerable to shocks — whether economic or environmental. The region is also confronting widening inequalities and the challenge of enabling a decent quality of life.

A strong need remains for both dedicated knowledge support and for financing to address the region’s social and infrastructure gaps, including urgent measures to address climate change.

Over the past few years, policymakers and development finance institutions (DFIs) have increasingly looked to the private sector to help meet these financing needs. In the right investment climate, the private sector can support the inclusive and environmentally sustainable growth that is at the heart of the global development agenda.

A key contribution of the private sector is in promoting economic growth, which it does through investments, knowledge transfer, and enhanced productivity. By creating new markets, fostering competition, and making investments, the private sector helps allocate resources productively and efficiently, improving prospects for economic growth. Economic growth generates resources that can be used for future investment as well as social development.

According to the World Bank, the private sector is the source of nearly 90% of the world’s jobs. So by providing direct employment, as well as finance to the sectors and geographic regions where it is most needed, the private sector promotes not just growth — it promotes inclusive growth.

The private sector also helps to boost living standards. This extends beyond extreme poverty as captured in the MDGs to areas such as the availability and quality of goods and services such as housing, infrastructure, health, and education. In this context, the private sector also plays a critical role in improving service delivery through public-private partnerships. These are particularly relevant in the case of infrastructure, as they allow for risk sharing, and are benefitting from improved institutional capacity and clearer legal and regulatory frameworks.

The private sector can also promote the adoption and/or retrofitting of environment-friendly technologies. This is valuable in the face of climate change, which can adversely impact many critical development goals such as food security, health, and water. The largest mitigation opportunities, especially for energy efficiency, remain in middle income countries.

Lastly, the private sector is a reliable source of revenue for government operations through its contributions to taxes and duties.

Given these advantages, it is not surprising that DFIs have come together relatively quickly to agree on a core set of principles that would guide support for private sector initiatives. These include commercial sustainability, promotion of high standards and additionality – that is, the extent to which a new input or action can add to already existing ones. More importantly, the private sector itself, not least due to the fall-out from the global financial crisis, has begun to reexamine its role in promoting economic growth as well as its responsibility to society. It is therefore increasingly open to engagement on these issues, particularly with DFIs.

ADBquote3

Asia and the Pacific’s financing needs are indeed daunting. We, the multilateral development banks, need to engage the private sector on all fronts to an even greater extent than we currently do, to leverage both finance and knowledge.

The Asian Development Bank (ADB) has long recognised the private sector as a key driver of change in attaining its three long-term strategic agendas of inclusive growth, environmentally sustainable growth, and regional integration. In line with our commitment to transparency, ADB publishes the annual Development Effectiveness Review, with 89 performance indicators to assess progress in implementing these priorities. The dedicated 2013 private sector operations Development Effectiveness Report was published on July 25th.

With $1.8 billion approved in 2013, our Private Sector Operations Department provides comprehensive financial assistance including loans, equity investments, guarantees, cofinancing and technical assistance. Our clients are private companies, banks and financial institutions, investment funds and state-owned enterprises. All our private sector interventions are aimed at maximising development impact. In doing so, our aim is to supplement or complement commercial finance, particularly in areas where perceived or persistent market gaps are inhibiting private investments.

What can ADB contribute to effective development co-operation with the private sector? Firstly, we are an Asian institution with a long and stable relationship with developing countries in the region. Based on the foundation of our strong infrastructure and financial sector exposure, we are increasingly entering sectors where we see promising potential for sustainable inclusive business models, such as agribusiness, education and health. Our strength lies in the synergies we derive from our sovereign operations in the core areas of policy and regulatory support.

Our private sector portfolio has more than doubled since 2006, totaling $6,219 million in 2013, comprising 155 accounts and 140 projects in 20 countries. Aligned with ADB’s core specialisations and sector priorities across individual member countries, 96% of the portfolio supports infrastructure, environment, and finance sector development.

Asia and the Pacific’s financing needs are indeed daunting. We, the multilateral development banks, need to engage the private sector on all fronts to an even greater extent than we currently do, to leverage both finance and knowledge.


VenkatachalamBio

Lakshmi Venkatachalam is the Vice-President (Private Sector and Cofinancing Operations) of Asian Development Bank since June 2010, leading ADB’s private sector initiatives and cofinancing activities. Based on the Midterm Review of its Strategy 2020, ADB’s activities in private sector development and private sector operations are targeted to reach 50% of its annual operations by 2020.

Moving forward for Egypt’s development

In less than three years Egypt has witnessed two revolutions. Masses took to the streets in January 2011 and again on 30 June, 2013, demanding a better, more democratic future. Our transitional period has not been easy, but we continue to take steady steps towards democracy. The amended Constitution was approved earlier this year, President Abdel-Fatah El-Sisi was recently sworn in as the new Egyptian President, and soon Egyptians will visit the ballot box once again to elect their new parliament. Yet, despite the positive developments witnessed after the January Revolution, it is no secret that the political instability delivered a strong blow to the economy and the development process.

Economic development in the past decades has led to Egypt’s graduation to the status of a middle-income country. Yet, like other countries that fall in the lower bracket of this middle-income group, we continue to suffer high levels of poverty, unemployment, among many other development challenges. Despite the relatively high growth rates witnessed in Egypt in the years preceding the 2011 revolution – reaching a high of 7% and an average of 5.6% from 2007 to 2010 – social indicators were steadily worsening. Unfortunately, the high levels of economic growth have not been equitable. There were and still are great disparities among the Egyptian population. The economic downturn following the 2011 revolution further complicated the economic reality and, sadly, the most vulnerable segments of society were hit the hardest.

In an effort to counter this deterioration, and in response to the main demand of the Egyptian people, social justice, the government has been actively shifting its policies towards inclusiveness since January 2011. The new Strategic Framework for Economic and Social Development 2012-2022, which guides all our planning efforts, is based on the principle of inclusiveness. The Framework itself was inclusively designed through a series of public and societal dialogues with different stakeholders, with notable participation from the private sector and civil society. It is worth highlighting that the Framework, which was designed by the Ministry of Planning in co-operation with the Japan International Cooperation Agency (JICA), also incorporates the principles of effective development co-operation. It includes clear guidelines to: firstly, set a strong Monitoring and Evaluation scheme in key ministries; secondly, improve domestic accountability; thirdly, support the engagement of the private sector and civil society as partners in development; and fourthly, reinforce Egypt’s South-South co-operation.

We are proud to continue striving to realise our development goals despite the many impediments. The challenges are huge, and the aspirations are even higher, and the Government certainly needs to work in tandem with all its development partners to succeed. We co-ordinate with our national partners from the civil society and private sector. We also work closely with the international community in order to speed up our development process.

The Egyptian Government has been an active player in the aid effectiveness dialogue, participating in Paris, Accra and Busan high-level fora. We supported the Paris Declaration, Accra Agenda, and the Busan Partnership, and we joined the international development community in Mexico in April 2014 to reaffirm our support to the Global Partnership for Effective Development Co-operation. We also took part in the Paris monitoring surveys, and more recently the Global Partnership monitoring survey. While there is more work yet to be accomplished, the surveys nevertheless showed progress in adhering to the principles of aid effectiveness. We believe that development co-operation is a two-way street, and we are working hard to improve different areas of aid management.

To consolidate its efforts on this front, the Egyptian Government, in co-operation with its development partners, drafted the Cairo Agenda for Action. The Agenda was drafted after Accra in an effort to translate aid effectiveness principles into policies. The Ministry of International Co-operation is currently pursuing the Agenda and plans to update it in light of recent developments.

For more than 40 years we have worked hand in hand with our partners in the international community to better the livelihoods of Egyptian citizens. In order to move ahead we need not only the serious engagement of all national stakeholders, but also the support of our development partners.


20140415_110302 - Copy (1)Ashraf El-Araby is former Egyptian Minister of International Cooperation. He headed the Egyptian delegation to the first High-Level Meeting of the Global Partnership for Effective Development Co-operation, which took place in Mexico City, Mexico, on 15-16 April, 2014. Dr. El-Araby is currently the Egyptian Minister of Planning, Follow-up, and Administrative Reform.