Ask a development expert: What should international aid be used for?
Then prepare yourself to be bombarded by a list of priorities, trade-offs and competing demands — not to mention reasons why this is too simplistic a question to ask anyway, and that we need to understand the context, politics, economics, effectiveness and many other factors before even beginning to think about how to answer it.
Ask the average person on the street the same question and they might say something along the lines of “ending poverty and meeting basic needs.”
This is the simple but important question facing the global community this year, and now is the time for answers. In January 2015, we are at the beginning of a critical 12 months for development. By the end of the year we should have agreed to a global development agenda for the next 15 years and a renewed global partnership that looks to mobilize contributions from all actors and both financial and nonfinancial resources.
Achieving the outcomes that we want from the post-2015 agenda, including the means by which we reach them, will require fundamental paradigm shifts that challenge the status quo.
Now is the time to determine how best to use aid and what role this unique international public resource should play post-2015, within the mix of all other resources. There is a greater emphasis on domestically led action on development than ever before, and the private sector will be expected to contribute to achieving many of the goals set out by the agenda.
In this context, should international aid aim to support all aspects of a broader and more ambitious agenda? In which aspects of this agenda do the comparative strengths of aid lie?
Official development assistance, the aid given by countries that report to the Organization for Economic Cooperation and Development, is the main international public resource that can be dedicated to two central goals of the post-2015 agenda — ending extreme poverty and leaving no one behind. This is its comparative advantage, and so ODA should focus on the investments required to end poverty and ensure that no one is left behind. However, this demands a shift in the debate beyond which countries should be excluded or included from ODA eligibility based on average incomes, toward a focus on the poorest people in developing countries, wherever they are.
ODA accounts for only 7 percent of total international resource flows to all developing countries. Yet it can reach countries to which other resources do not flow and has the potential to be targeted at the poorest people in a way that other resources do not. Private investment, for example, is governed by the need to seek profit, and 70 percent of foreign direct investment to developing countries as a whole actually goes to just 10 countries.
Even domestic public finance has many competing demands to meet: With 83 percent of people living on less than $1.25 a day residing in countries where government resources are less than $1,500 per person, domestic public finance remains scarce — even in many countries classed as "middle" income.
So, to what extent is ODA already focusing on investments to end poverty and to leave no one behind, and what can be done to make development assistance more effective in meeting these goals?
While a much greater proportion of ODA goes to the places and investments that benefit the poorest people than other international resources, there is room for much better targeting of development assistance.
The amount of ODA given per person living in extreme poverty is lower in countries where poverty is deeper, and lower in countries where a greater number of people live in poverty. Just as strikingly, countries with fewer domestic resources also receive less ODA per person in extreme poverty. And, while 96 percent of people in extreme poverty live in countries that are either politically fragile, environmentally vulnerable or both, ODA could do much more to support countries affected by conflict or fragility in their transition to stability, and to increase resilience among the very poorest against climate change and other shocks.
The evidence shows that development cooperation agencies that target their resources most effectively toward the poorest people are those that have a clear mandate for poverty reduction:
● Development cooperation agencies that have a legal requirement to aim for poverty reduction invest more than 80 percent of their ODA in high-poverty countries.
● Agencies where poverty reduction is the number one objective (but don’t have a legal basis) invest 60 percent of their aid in high-poverty countries.
● Agencies that do not specify poverty reduction as a specific goal for their ODA spend just 31 percent in high-poverty countries.
This underscores a very important point: that a clear and focused objective is the foundation for effective targeting of development assistance.
ODA has long had the broad objective to “promote economic development and welfare.” Making the most effective use of ODA post-2015 will require establishing a clear purpose built on its comparative strengths. It also implies moving beyond criteria that simply ensure ODA is spent for eligible developing countries to incentives that ensure it benefits the poorest people within developing countries through investments across the three dimensions of sustainable development: economic, social and environmental.
To establish a strong foundation for effective ODA targeting post-2015 we should refine its objective to explicitly focus on investments that “benefit the poorest 20 percent of people in developing countries.”
This would create a strong incentive to prioritizing investments that impact the poorest people. It would ensure that there is a resource dedicated and accountable to the principle of leaving no one behind. It would underpin efforts to end extreme poverty by 2030, as well as wider poverty over the longer term, and to transition to sustainable development. It would ensure that the type of aid provided is appropriate given the context of other resources available. It would also help to motivate greater effort to meet existing commitments, such as the 0.7 percent target and 0.15 to 0.20 percent targets for total ODA and ODA to least developed countries, and help address the issue of declining funding for many of the poorest countries.
In a year of change and setting new global ambitions, now is the time for bold solutions. It is important that we let go of old principles rooted in the world of the past 15, or 50, years and establish principles and approaches fit for the world of the next 15 years and beyond.
This commentary is based on the study “Improving ODA allocation for a post-2015 world” published today by Development Initiatives and UNDESA, the U.N. Department of Economic and Social Affairs. View the full report and a summary presentation outlining the key findings of the study here.
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