From the editor-in-chief: 3 ways 2023 may define a new development era

For the global development community, 2022 signaled a change in trajectory. Two decades of rising global solidarity and funding had long since changed what was once depicted as a much smaller, even provincial sector of peaceniks and sandal-wearing civil engineers. Global development had become a juggernaut, written about on the front page, discussed at convenings of world leaders, and a topic for corporate boardrooms. This didn’t just drive global development to become a sector with annual spending well above $200 billion (around what the world spends on iPhones every year). It also created a heady culture — a sense that anything is possible when the right mix of forward-thinking philanthropists, social entrepreneurs, and government officials come together. That golden period may be behind us, and we may be on the cusp of a new era — or rather, a reversal to an era we thought we'd left behind. Since the turn of the century, the global development project has been defined by globalization and great power harmony; cheap money and economic growth; and progress on hunger and poverty. Now, we seem to be heading into a time of de-globalization due to deepening rifts between China, Russia, and the West; high interest rates and inflation; slower economic growth; and fast-rising, climate-driven humanitarian backsliding. Whether this new era is a rerun or the start of a more productive push for the Sustainable Development Goals depends on how three key themes play out in 2023. A new Cold War for foreign aid The Cold War of the last century was good for foreign aid funding levels, but bad for aid effectiveness. This was the era when Western aid went to prop up corrupt but Western-aligned leaders like Zaire’s Mobutu Sese Seko and white elephant projects abounded. As the divide between China, Russia, and the West grows, the Cold War-driven mentality around foreign aid is back. That was not the case in the early 2000s, when bipartisan support for foreign aid in the United States increased, driven in part on Christian values that propelled President George W. Bush to launch the largest global health program in human history, PEPFAR — the President's Emergency Plan for AIDS Relief. 2023 seems likely to be yet another consequential year for a fast-changing industry and perhaps one that signals the start of a new era. --— But today, what bipartisanship exists on Capitol Hill for foreign aid is mostly rooted in standing up to China — and, as of last year, Russia. That was the logic that created the U.S. International Development Finance Corporation in 2019 as a kind of answer to China’s Belt and Road Initiative. Similar thinking abounds in Brussels, Tokyo, and London whenever the debate shifts to aid funding levels or institutional reform. Can foreign aid be used to counter China and Russia without resorting to the worst practices of the 20th century? Much depends on key reform efforts that have evolved over the past several years and will come into starker focus this year. The most prominent is so-called localization. Can this be a way of actually delivering more development bang for the buck? Will it simply take the existing project-based approach controlled from donor capitals and change the actors, or might localization actually lead to a systems-level approach to long-term development assistance, using more pay for results accountability mechanisms, funding through government systems, cash transfers, and blended finance? The answers are contingent on whether today’s foreign policy leaders will be more forward thinking than their Cold War predecessors. It’s of course attractive to announce projects and cut ribbons on visits to foreign capitals to shore up a tenuous alliance. But might the West not gain more goodwill by actually solving sanitation, electricity, and employment deficiencies through, for example, supporting local social entrepreneurs? Look out for whether Western donors decide to compete with China mainly by offering an alternative source of funding for the same old-fashioned projects, or whether a different, more effective way of doing development work becomes the key selling point. The geopolitical divide also has implications for United Nations agencies. Increasingly they will be the only organizations capable of delivering a unified response. But will Western donors want to invest through organizations they don’t control, and where China and Russia hold significant sway? It’s worth watching how the move to U.N. resident coordinators who would head up all U.N. activities in a particular country evolves this year, and whether they gain the kind of clout to drive global cooperation originally envisioned in the U.N. reform agendas of Secretary-General António Guterres and his deputy, Amina Mohammed. The many high-level meetings at the U.N. General Assembly this year will take on particular importance because of resurgent great power competition. Can these summits create unifying momentum that counteracts the narrow foreign policy goals of today’s Cold War actors? Will Western powers actually change their foreign assistance strategies based on what comes out of these summits — for example, on universal health coverage? Key summits to watch at UNGA this year include the second UHC high-level meeting; a convening on the SDGs at this mid-point to 2030; a one-day high-level meeting on pandemic preparedness and prevention; and the U.N. high-level meeting on TB. The divided world also places new attention on one country in particular: India. It’s now home to the world’s largest population of people living in extreme poverty. Achieving the SDGs leans to no small extent on what happens there. It’s also slated to become one of the world’s largest carbon emitters as its population and economy continue to grow. India — with its long-standing alliance with Russia, a shared border with China, and a growing role as a regional power — may emerge in 2023 as a more important global development hub than ever. Western governments and businesses are beginning to invest heavily there, and Western philanthropies, NGOs, and aid agencies may well find themselves caught in this gravitational pull. A new economic backdrop We can be forgiven for getting used to cheap money. That’s been the overriding reality in high-income countries for the past two decades, and those low interest rates have helped to fuel debt-driven spending increases, including for foreign assistance. All that is reversing now as central banks and economists see the potential for long-run inflation, elevated interest rates, and slower economic growth. That’s not all. Deglobalization is expensive. Moving supply chains from China to Western-aligned countries is costly, as is creating vaccine manufacturing capabilities in the global south. There are good arguments for both, but these kinds of investments are likely inflationary and will thus extend the timeframe of higher interest rates. The same goes for decarbonization. Moving from fossil fuels to renewable energy requires massive transitions across industries. Here too the rationale is sound and the investments will have long-term benefits, but the short-term capital requirements are high and inflationary. What might this economic picture mean for global development? Some countries in the global south will benefit from an era of high commodity prices, from the minerals for making car batteries to agricultural products. Others that have fewer natural resources will suffer. As a result, in 2023 we may need a more nuanced view of the impending debt crisis for low- and middle-income countries. An era of greater fiscal austerity in high-income countries means tighter foreign assistance budgets. Aid advocates have their work cut out for them. Many countries have already pulled back their spending and others are trying to game the system by claiming that money spent supporting refugees inside their borders counts as foreign aid. A possible global recession in 2023 and slower long-term growth could hurt philanthropic foundation endowments and cause corporations to reduce their giving too. Individual donors are likely to be more cautious. All in all, 2023 may signal the start of a more challenging era for NGO fundraising, supercharging what has already become a highly competitive market for unrestricted giving. If this new era is more than a blip, eventually high-income country governments will need to pay off their high debt burdens and may be forced to raise taxes on the rich. That doesn’t seem politically likely in the U.S., but billionaires who see this writing on the wall may come off the sidelines and quickly establish foundations they control before the tax man cometh. For wealthy altruists, higher interest rates could also mean an expectation of higher rates of return from impact investments. Impact investors whose coffers are full from fundraising before interest rates began going up several months ago may not have seen changes yet. Nonetheless, especially if higher rates persist, 2023 could be a year in which raising new impact investment funds is harder than ever. Perhaps the biggest domino to fall from the new economic backdrop is the multilateral development banks. With tight foreign aid budgets, just seven years to go to achievethe SDGs, rising climate adaptation costs, and humanitarian needs exploding, the MDBs are now front and center in helping to tackle today’s litany of global crises. MDB reform efforts in the past have been modest. These are, by and large, conservative, quasi-governmental bodies whose organizational cultures prize risk aversion over innovation. But for donor governments there’s nowhere else to go nowadays. Pushing the MDBs, especially the World Bank, to become much more aggressive with their balance sheets is perhaps the most important change of the new economic reality. It’s all coming to a head by the World Bank Spring Meetings this April. Humanitarian needs swamp the system A new geopolitical Cold War and tight economic headwinds in donor countries are challenging enough to contend with on their own, but the rest of the world is not sitting still in the face of a web of other crises. As the climate rapidly changes, people are moving. That’s the underlying story from the Sahel to the U.S. southern border. A rise in conflicts — sometimes connected to climate — is only making matters worse, as Ukraine, Ethiopia, and Afghanistan vividly illustrated last year. There are now well over 100 million displaced people. The costs to support emergency aid for them are growing, especially as displaced people often cannot return home when, for example, their lands have turned irreversibly arid. All this is happening at the same time that Russia’s war in Ukraine has shocked agricultural supply chains and sent bills for staple foods up by triple-digit percentages. Costs to provide food aid are skyrocketing and that’s just part of the reason why humanitarian needs, if fully funded, would have taken up an estimated 30% of all overseas development assistance last year. Of course, those needs were not fully funded and millions remain in dire straits in places like the flood-ravaged regions of Pakistan. Global development will be squeezed in this new era. Tight budgets in donor countries will lead to flat or declining foreign assistance, while rising humanitarian needs will eat up more and more of the budget. This is already visible in the main U.N. development agencies and international NGOs that are seeing the proportion of their budgets going to humanitarian emergencies rising year after year. As floods get worse, extreme heat waves increase, and drought expands, the direction of migration is clear. With urgent humanitarian needs swamping the system, what resources will be left for long-term development? It’s possible that philanthropy in the lowest-income countries, impact investing in larger, middle-income countries, and the MDBs in both could become more important for long-term development than bilateral aid. For example, as the Bill & Melinda Gates Foundation increases its budget by 50% to around $9 billion annually by 2026, its funding for long-term development will rival most bilateral aid agencies. And that’s just one, albeit the largest, private philanthropy. Government donors will need to step up their game: It’s leverage or be leveraged in this new era. Either they will roll out new tools for systems change, including more pay-for-performance models, or they risk being the junior partners in an unequal relationship with the largest foundations and MDBs. One way government donors may build more political capital at home in this new era is to reframe long-term development work with a climate lens, especially in Europe. The confluence of the climate emergency and the war in Ukraine is supercharging the energy transition even if there’s a temporary backsliding by firing up shuttered coal plants. The slow and steady move to renewables will make a step change this year, in part due to the Biden administration’s massive new subsidies, which will mark a tipping point in climate consciousness. There’s an argument to be made that low-income countries following a traditional development model will simply burn lots more carbon on their way to economic growth. But Western bilateral agencies may find growing domestic support around the idea that they can help LMICs take a different path, one built around efficient and humane commodity extraction for the global energy transition (think battery materials and rare earth metals), manufacturing that competes with China but is built on cheap renewable energy rather than just cheap labor, and sustainable urbanization that doesn’t replicate the polluting megacities of today. What could get lost in this transition is support for the softer side of global development: peacebuilding, civil society support, democracy, media freedoms, etc. These areas are already being crowded out by urgent humanitarian needs and the pandemic. Will other large-scale philanthropies besides Open Society Foundations help to fill this breach? The new year will usher in many questions that get to the core of how global development is funded and organized — even how we describe the very nature of this work. 2023 seems likely to be yet another consequential year for a fast-changing industry and perhaps one that signals the start of a new era. Whether it heralds a golden new era for development or hearkens back to a darker time remains to be seen.