A lot of the discussion will be about nitty gritty technical issues – especially the treatment of loans. This is an important minimum requirement for the integrity of ODA and something that we at Development Initiatives spend a lot of time analysing. But, right now, we think it is time for donors to set their sights higher and to think about the bigger picture.
As the world looks to establish new global goals beyond 2015 – to build on the success of the Millennium Development Goals (MDGs), to actually end poverty and ensure that no one is left behind – we need to ensure that ODA is fit for this next fifteen years, not trapped in the thinking and approaches of the last fifty.
To achieve this, there are five things that those around the table need to have at the front of their minds. Get these right and everything else will follow.
- Aid (ODA) is, and will remain, really important up to 2030
Developing the policy, resourcing and implementation frameworks to deliver on the Sustainable Development Goals (SDGs) and end poverty within every country is primarily the responsibility of national governments. But it is clear that the first SDG – ending extreme poverty – will not be achieved, or sustained, without aid. Whilst there is plenty of room for better policies and more effective implementation of programmes to help the poorest, it is beyond argument that some children are denied education and that some women can’t access reproductive health services or care in childbirth because of sheer lack of money.
Levels of government expenditure are just too low to achieve the MDG targets, let alone the broader set of SDGs, which aim to ensure that by 2030 no one is left behind.
- Over 300 million people currently living below the extreme poverty line are in countries where total government expenditure is less than $500 per person per year.
- Even the most optimistic projections on domestic resource mobilisation show that national government resources will not be enough.
- Aid remains the single largest source of external finance for 34 countries, which are home to 150 million people living on less than $1.25 a day.
We should not be misled by talk about ODA now being only about leveraging, catalysing and investing in global public goods. ODA remains vital for the delivery of basic services and to address fundamental aspects of extreme poverty, like hunger and vulnerability to crisis.
- Intention matters. The explicit purpose of ODA should be poverty reduction
The official purpose of ODA is currently ‘economic development and welfare of developing countries’. This may have been appropriate in the 1960s when aid was the main flow to countries who were unable to access much private finance or mobilise many domestic resources; but it is not in 2014, when ODA comprises just 8% of the total international resource flow going to developing countries. Now that market finance is available for investments in energy and infrastructure, now that domestic revenues are growing fast, we need to target aid on investments that the market still isn’t making and where government and the private sector are still not providing adequate services.
That means reserving aid to ensure basic rights and needs for the poorest 20% – health, education, nutrition, water and sanitation, access to information, basic financial security and opportunity. Which is actually what the taxpayers who fund aid want and expect their money to be doing.
You might think that changing the definition of ODA would just be a cosmetic difference. But the data suggests that it could have a real impact on how aid is invested. As things stand:
- 8% of ODA is invested by donor agencies with a legal requirement to ensure the purpose of their ODA is poverty reduction; these donors spend 80% in poorer countries.
- 43% is invested by agencies where poverty reduction is their top objective; 60% of their aid goes to poorer countries.
- 30% of ODA is from agencies that either have no explicit poverty objective or where poverty is one among many; less than 30% of this aid goes to poorer countries.
A decision by DAC donors collectively that the purpose of ODA should be poverty reduction would signal a new future, a deeper commitment to the first SDG and the achievable goal of ending poverty by 2030.
- Measurement of the incomes and wellbeing of the poorest 20% of people should be the benchmark of progress
Resource allocation decisions or finance eligibility determined by national average income, let alone by arbitrary thresholds that have become icons of progress like middle income status, are simply not compatible with the geography of poverty or the concept of leaving no one behind. We need a measure that focuses on people in poverty as well as on countries. Impact on the poorest 20% should be the main metric for targeting resources on ending poverty.
Currently least developed countries (LDCs) are home to more than a third of people in the poorest 20%. The depth of poverty is also much greater in these countries – the average daily income among people in the poorest 20% living in LDCs is just $1.09. This, combined with very low government expenditure, would justify targeting more ODA on LDCs. But some LDCs are also ‘middle income countries’ and some ‘low income country’ non-LDCs have poor growth prospects. If ODA is to play to its comparative advantage, then spending in all countries has to be designed to impact people who are among the poorest 20% of the population. A metric based on country averages or country groupings is not enough. Read our data story Targeting the poorest 20%: the case of least developed countries.
The call for a Data Revolution to end poverty has been reiterated by the UN Secretary General in The Road to Dignity by 2030 published last week. This is a new opportunity to actually produce evidence on two things that have been the subject of too much rhetoric and too few facts for far too long. The data that shows what sorts of aid work best in what sorts of situations and the measure of whether ‘pro poor’ or ‘inclusive’ growth really is pro poor: are the poorest 20% of people getting their share of jobs and investment, are governments and the market are reaching them?
Of course getting the data on poverty – regular gender disaggregated statistics that cover excluded and vulnerable groups so often missed by official data collection – will require investment in strong inclusive national information systems. But this investment can be shared between government, the private sector and aid agencies, all of whom have an interest in knowing more about citizens, customers and beneficiaries.
- Visibility on all resources is a necessary condition for accountability and impact
Alongside ODA, in 2012 official, commercial and private international investments in developing countries totalled $2.1 trillion. $130 billion of that was DAC ODA, but governments also invested $11 billion in other official flows and $211 billion in peace and security. Citizen remittances were $309 billion, non-governmental organisations and foundations $44 billion, and the private sector invested $1.3 trillion.
All of this needs to be visible and transparent. Governments and citizens need to know what is being invested in their countries and anyone spending money can do it more efficiently if they know what else is being invested.
We should not get hung up on classifying what should ‘count’ as total official support for development. We just haven’t got enough information about the volumes or characteristics of funds to have a measure or a target. But if we just have visibility then people can see the whole range of resources available, governments can get more recognition for what they do and, most importantly, we can start to use the resources together to achieve faster progress. Maybe we should spend less time thinking about whether 6% or 10% of military costs should be ‘counted’ as ODA or as total official support for development, and focus more on how the remaining 90% could be harnessed more effectively to promote security (and therefore opportunity) for the poorest. This in turn will contribute to security and prosperity for all.
Earlier investments also mean that we can make fast progress on visibility. Since the Accra aid effectiveness meeting in 2008, in addition to reporting their ODA to DAC, donors (not just OECD countries, but civil service organisations, foundations and other governments) have gone the extra mile to increase transparency at country level by publishing to the International Aid Transparency Initiative (IATI). With 300 organisations and most donors, IATI provides a existing platform that can be developed to publish data on all international development finance.
DI would be the last organisation to downplay the importance of the 0.7% target. It has provided a consistent benchmark and driven real progress. But it is not a substitute for mobilising more and better resources or for a focus on the most important outcome – improvements in the lives of the poorest 20%.
We would like to see the 0.7% target adapted so it is applicable to all countries at all times as a genuine burden-sharing measure for achieving the eradication of poverty. As we approach the financing for development summit the top task is how to mobilise more and better resources and how to use them most efficiently. So let’s focus on data and a measure that can be used to drive impact on poverty from all resources – domestic and international, public and private, commercial and philanthropic. What is the impact of every investment on the poorest 20% of people? How are those people’s lives changing for better or for worse?
The vision for the future of ODA should be informed by the best of its past, its role as a true international public good and example of altruism in international politics. ODA distribution did change in response to the MDGs. To be fit for the next fifteen years it needs to change again: using the power of open and disaggregated data to target impact on people in poverty and get more value out of every dollar; making all resources visible so ODA can play to its comparative advantage and we can harness the power of other finance. Donors have the chance to signal their readiness for this future by setting the official purpose of ODA as poverty reduction and by putting the impact on the poorest 20% at the centre of their work.
12 December 2014
Later this month Development Initiatives will be publishing a report (Improving ODA allocation for a post-2015 world) commissioned by the United Nations Department of Economic and Social Affairs (UNDESA) for the Development Cooperation Forum. The study is part of a UNDESA research project, funded by DFID, on “Development cooperation in a post-2015 setting”. The views presented do not necessarily represent those of the United Nations.
Read our data story Targeting the poorest 20%: the case of least developed countries.