The SID World Congress starts Friday, July 29, in Washington, DC. It’s an opportunity for the global development community to take stock at a time of incredible progress and challenges ahead. In this “new normal” for international development, there are some hard truths the development community needs to accept.
One very hard truth is that the 10-year “bull market” of official development assistance for international development is over. Led by both Democratic and Republican administrations, foreign assistance more than tripled from 2000 to 2010. We should expect global reductions in ODA by as much as 25 percent in the OECD countries and in the United States over the short term. We will not see growth in OECD foreign assistance for the next five years and possibly as long as the next 10 years.
Reduced support globally for ODA of up to 40 percent from recent record levels in dollar terms. We should expect the United States and many other countries to reduce foreign assistance budgets between 10 percent and 25 percent. Many smaller countries in Western Europe that have entered the development space are going to retreat even more radically or even exit the foreign assistance space — Spain, Portugal, Greece, Italy and Ireland. In addition, some foreign assistance programs in Europe are tied to the size of national economies – national economies that are shrinking, such as the Netherlands. Also expect more creative accounting of what is included in foreign assistance (e.g. troops in complex situations such as Afghanistan, or investments in national language promotion programs such as French language promotion) and watch for the return of tied aid.
Foreign aid “winners” and “losers.” The development community is made up of sectoral and regional factions. The last 10 years have papered over competition within the sector for development dollars. There are going to be winners and losers. “Winners” are those that will see cuts but less-than-average cuts. “Winners” will include geostrategically important states (Afghanistan etc.), Arab Spring countries, lower-income African states with good government, parts of the global health sector as well as agriculture and food security.
Foreign assistance “losers” will see greater-than-average cuts. Latin America, Eastern Europe and the former Soviet Union, climate change (except for adaptation and energy efficiency projects) and family planning will all be under higher-than-average pressure.
Expect ODA to be an even smaller shareholder in the “business of development” and plan for more public-private partnerships. In the 1970s, 70 percent of resources from the United States to the developing world was ODA and 30 percent was a form of foreign direct investment, private charity, remittances, scholarships and faith-based giving. Today, those numbers have reversed with something close to 15 percent of resources from the United States to the developing world in the form of ODA and 85 percent as some form of private economic engagement.
In the new normal, ODA will be an even smaller share of a very atomized economic engagement landscape. With shrinking ODA and flat to slow growth in private philanthropy, ongoing private investment and remittances growing to the developing world, plan on an increased focus on public-private partnerships.
In the new normal, expect an increased political arms race in the sector. At least in the United States, be prepared for political competition for ODA dollars, including increased use of lobbying and earmarks.
Be prepared to argue for development effectiveness and be prepared to talk about measurement and evaluation in new, more detailed ways. Reduced dollars means greater competition for those dollars. Whoever has both the political clout and the best “story” to tell about how to spend aid dollars is going to “win.”
With coming budget cuts, expect increased use of large “instruments” in the U.S. context. Large budget cuts will reduce the number of people available to manage a larger number of smaller activities within the U.S. system. Consortia and increased demands from the political process for accountability are going to push for new levels of accountability, often through contracts and strict cooperative agreements.
For those organizations that can, diversifying away from ODA will be necessary for survival. Global NGOs are best prepared to diversify away from ODA dollars with their tax-exempt status and their unique brands. Over the last 20 years in the United States, the more successful global NGOs have gone from 70 percent of resources depending on the U.S. government to between 20 percent and 30 percent of their overall funding. NGOs that can’t or won’t make this funding mix change to a more private set of funders do so at their own peril.
Not all is bleak for the sector. The development community is in the process of finishing transitions in its thinking about a number of areas that offer big opportunities in the next 10 years to expand human prosperity and human freedom. We’ll be talking about those transitions and the big opportunities at the World Congress.
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