The first question to ask is why we need official development assistance (ODA) at all. In its 2005 report focusing on development finance, the UN’s Department for Economic and Social Affairs (DESA) answers the question as follows:
The architects of the post-war international economic system had recog- nized the need for official financing to counteract the insufficiency of private capital flows and, since the 1960s, there has been an increasing perception of the need to support developing countries, an issue that became embedded in the politics of decolonization and the cold war. The surge of private financing to developing countries beginning in the 1970s and the end of the cold war generated an increasing realization that the era of official development financing had passed. However, the vagar- ies of private capital flows during the 1980s and, again, since the 1997 Asian crisis, in addition to the increasing marginalization of the poorest
countries from the world economy, have led to a renewed focus on the critical role of official development finance.
(UN, 2005: 109) Indeed, the aim of directly transferring funds from developed to develop- ing countries (i.e. redistributing wealth internationally) has been a central concern of the UN and its various bodies since 1950. In resolution 400 (V) of November 1950, the General Assembly of the United Nations noted that the domestic financial resources of the developing world, even in combin- ation with private flows of capital (which were very small at that time in any event), were insufficient to act as a catalyst for the high and sustained rates of economic growth needed.1
In 1952, the General Assembly called on the Economic and Social Council to establish a capital fund, which would provide long-term low-interest loans and grants to developing countries and, in 1954, resolution 823 (IX) instructed the International Bank for Reconstruction and Development (i.e. the World Bank) to create the International Finance Corporation.
Recognising the need to augment the official flows emanating from the UN and its agencies, the World Council of Churches proposed in 1958 that developed countries commit themselves to earmarking 1% of GDP as aid for developing countries, a figure accepted by the UN as being compatible with its development goals, and which was confirmed at the inaugural meeting of the United Nations Committee on Trade and Development (UNCTAD) in 1964. Subsequently, the figure was reduced to 0.7% of GDP, on the assumption that the remaining 0.3% could be made up with private sector flows.
At the start of the 1960s, the proportion of GNP which OECD2 member
Figure 6.1 Net ODA to developing countries, 1980–2005.
Source: OECD DAC Database.
countries devoted to aid averaged 0.53%. Whilst the UN then called on developed countries to raise this figure substantially, however, the opposite actually occurred: from 1966 to 1969 the figure fell to 0.39%; by 1970–1973 the proportion of GNP devoted to ODA was lower still at 0.32%. By the early 1980s, the figure was broadly unchanged at 0.35%, but by the end of the 1990s it had fallen to an all-time low, so that the proportion of developed countries GNP devoted to ODA was only 0.21% (UN, 2005).
The Monterrey Consensus of 2002 sought to stop and reverse this decline, and called on all developed countries to set a specific target for reaching the 0.7% figure. A number of countries have now made this pledge, and ODA flows as a proportion of GNP have started to rise, albeit slowly.
The largest single source of ODA is the European Union, which contrib- utes more than half of the global figure. A few EU countries have met the 0.7% target (Denmark, Luxembourg, the Netherlands, Norway and Sweden), whilst the remainder have now committed to reach the target by 2015. Trad- itionally, the Scandinavian countries have been both supportive (in terms of relative and absolute financing) and engaged (in terms of actively participat- ing in, and sometime shaping, debates on international development from the donor perspective). Box 6.1 figures the history and record of the Swedish Development Agency (SIDA) in this regard.
Box 6.1 The Swedish International Development Authority (SIDA) Sweden is one of the few countries in the world to have surpassed the UN target of 0.7% of GDP devoted to international development. Today, SIDA is one of the world’s most prominent national development agen- cies, both in terms of the level of its interventions and its place at the centre of many debates surrounding issues of international development.
Origins
As was true of many European countries – and not only the colonial powers – Sweden’s first experience of ‘development’ came through the work of its Christian missionaries in the nineteenth century. The first Swedish missionaries went to Ethiopia in 1860 seeking converts but also started schools and provided medical assistance. No formal bodies were established until the post-Second World War era. In 1952 the first governmental department was formed – the ‘Central Committee for Swedish Cooperation’. Intervention was rather ad hoc at first, focusing on countries with which Sweden had historic links, and there was no central ‘philosophy’ guiding the work. This was to change after 1962, when a bill passed through the Swedish Parliament establishing that the goal of Sweden’s development efforts should be to ‘improve the living standards of poor people’ – this remains intact today.
Evolution of development ‘philosophy’
In 1965 the Swedish International Development Authority (SIDA) was established. Initially its programmes were focused on Ethiopia, India, Kenya, Pakistan, Tanzania and Tunisia, countries where there had been Swedish Christian missions and where the English-speaking nature of the former British colonies ‘suited Sweden culturally’.
During the 1970s, development assistance was the concept. The first development assistance was very much a question of building schools, hospitals, power plants and factories. At the same time there was a growing realisation that it was not simply a matter of transferring Western European models to other countries and cul- tures. The expression assistance on the recipient’s terms started to be heard.
(SIDA, 2008) Although in the 1980s it was still common to talk of ‘donor countries’
and ‘recipient countries’, the 1990s saw a shift in SIDA – shared with some of the other development agencies – towards ‘cooperation’.
‘Development’ was increasingly seen not as something which is done to a country, but something that is done with a country. This found an echo in the Bretton Woods Institutions’ call for developing countries to have ‘ownership’ of structural adjustment programmes, for example, and is more broadly related to the growing realisation that
‘the voices of the poor’ needed to be central to the development discourse.
In the 1990s, people started to speak about development cooper- ation and partner countries. These terms express equality, as well as a long-term perspective that is far from the development assistance perspective of the early years. In the increasingly globalised society we live in today, we have expanded the concept and now we talk about a policy for global development.
(ibid.) Policy
In 1978 the goal of raising living standards was augmented with four further objectives – economic growth; economic and social equality;
economic and political independence; democratic development – and in 1980 the focus shifted towards rural development so as to target the poorest sections of developing countries. SIDA also progressively stepped up its work with NGOs and grassroots organisations in developing countries from this point on.
Along with the other major bilateral agencies SIDA was an active
participant in the structural adjustment reforms pushed by the IMF and World Bank from the 1980s onwards.
Most recently, in 1998 SIDA introduced a further goal to its devel- opment cooperation to encourage the sustainable use of natural resources and protection of the environment. Today SIDA has a staff of 900, of whom 190 work in programmes or missions in the developing world.
Figure 6.1 above shows the trend in overall ODA flows from 1980 to 2005.
As we can see, there was an upward trend from the mid-1980s, followed by a decline in the 1990s and a return to a rising trend from 2002 onwards.
However, although rising, the level of total ODA in 2005 was US$82 billion, which in real terms is only marginally higher than that which existed in 1990.
As shown in Figure 6.2, however, much of the recent growth in ODA has been in the areas of debt relief, emergency aid and technical assistance.
‘Other ODA’ in the figure refers to those aid flows that are directed through central governments’ budgets – there has been no growth in this area. As we have seen in previous chapters, however, administrative deficiencies within government departments – not least due to poorly paid, trained and motivated staff working in inappropriate surroundings – are a key drag on the effectiveness of policy reforms in the financial sector, and therefore an obstacle to spurring economic growth and poverty reduction. Funds for technical cooperation obviously have a role to play here, but do nothing to address large shortfalls in fiscal budgets, for example. Furthermore, whilst
Figure 6.2 Composition of ODA to all developing countries, 1990–2005.
Source: OECD DAC Database.
debt relief is important it is not a source of additional revenues, and ODA targeted at disaster relief is, by definition, not developmental in nature.
As well as the type of ODA, and its overall scale, a third crucial issue is its destination. In 1990, at the UN Conference on the Least Developed Countries, developed countries agreed that, within the 0.7% ODA target, 0.15–0.20%
would be earmarked specifically for the poorest countries. Whilst some coun- tries have honoured this commitment, the actual proportion of ODA going to the poorest developing countries fell to around half this level in the 1990s.
As with total ODA flows, this trend has been partially offset since the Monterrey Consensus in 2002, as shown in Figure 6.3 below.
Despite this increase, however, it is clear from the figure above that the bulk of the increase in ODA has been in areas of debt relief, technical assistance and emergency support, as well as in peace-building initiatives. Again, it is not that these aspects of ODA are unimportant. Far from it, particularly in the poorest developing countries. However, it is equally true that direct assist- ance channelled through central government budgets has a crucial role to play, and that ODA of this form was only marginally higher in 2004 than had been the case in 1990.
Today, a vital reason why it is particularly important to (a) increase overall ODA flows, (b) increase the proportion of ODA to central government budgets, and (c) increase the proportion of ODA going to the poorest devel- oping countries, is that governments throughout the developing world are striving to meet the UN’s Millennium Development Goals by 2015. Without substantial progress on points (a), (b) and (c) it is now widely understood that this will simply not be possible.
Figure 6.3 Composition of ODA to least developed countries, 1990–2005.
Source: OECD DAC Database.
In the next section we explore these issues in more detail.