Top development finance stories of 2014

Health workers in an Ebola treatment center run by Médecins Sans Frontières. The largest contributions to the Ebola response include $1.3 billion from the European Union, $737 million from the United States and $500 million from the World Bank. Photo by: Kenzo Tribouillard / EU

Back in January, we posed several critical questions for development business in 2014. Would the new conservative government in Australia keep its pre-election commitment to further boost aid spending? How far would the European Union go in slashing aid to middle-income countries? Would U.S. President Barack Obama’s ambitious aid reform agenda really stick?

Devex reporters and analysts have been digging not just into these pressing questions, but also examining how donors have responded to the many unexpected and often complex development challenges that have emerged over the past year.

Here’s a recap of the 10 biggest development finance stories of 2014.

10. Donors step up aid to Ukraine but pull back from Russia.

In a bid to shore up the fledgling government in Kiev, Western donors have pumped billions in foreign aid to Ukraine, including $15.5 billion from the European Union and $1 billion from the United States. The war in eastern Ukraine is costing the Ukraine government $5 million a day, putting further strain on the country’s finances. At the same time, Western donors have also been scaling back much of their remaining engagement in Russia — a move intended to have just the opposite effect on the Russian government over its alleged destabilization efforts in eastern Ukraine.

9. EU slashes aid to 16 middle-income countries.

Even as Brussels largely protected its 2014-2020 aid budget, in March, the European Union approved its aid differentiation policy, which effectively discontinues bilateral assistance to 16 upper-middle-income countries including, three of the BRIC economies: China, India and Brazil. Under pressure from EU lawmakers, Brussels did exempt five countries from the policy: South Africa, Cuba, Ecuador, Peru and Colombia. Keen to focus its aid spending on poorer countries, the EU is only the latest donor to pull back on its aid engagement in higher-income countries. The United Kingdom previously announced plans to ax its bilateral programs in India and South Africa by 2015.

8. Power Africa’s mixed early returns.

In August, the World Bank, Sweden and private donors pledged billions in additional contributions for the U.S. government-led Power Africa initiative. But a Devex analysis later found that the U.S. Export-Import Bank, the U.S. government’s financing cornerstone for Power Africa, has only signed deals worth $50 million — well below the agency’s $5 billion Power Africa financing target through 2018. Nonetheless, Power Africa has achieved more than 25 percent of its initial 10,000-megawatt power generation goal in large part due to deals that had been in the works for several years.

7. United Kingdom meets 0.7 ODA-to-GNI target.

The United Kingdom announced in April that it had finally met its long-stated goal of spending 0.7 percent of gross national income on official development assistance. The second-largest bilateral donor, the United Kingdom was one of only six countries to meet the target in 2013. Strikingly, the United Kingdom’s achievement comes at a time when it is under a conservative-led government — a testament to the U.K. aid program’s broad base of political support ahead of general elections next year. Just this month, lawmakers overwhelmingly voted to enshrine the 0.7 percent commitment into law, overcoming objections from U.K. Foreign Secretary Philip Hammond.

6. Despite fiscal pressures, emerging donors still rising.

Keen to bolster their global standing, emerging donors including the BRIC economies have continued to step up their aid spending despite slowing growth at home. Case in point: India’s new prime minister, Narendra Modi, hiked aid spending to $1.6 billion in 2014-15 — a 34 percent jump over last year’s levels. In April, the United Arab Emirates was named the most generous aid donor in the world after 2013 figures revealed that it had spent 1.25 percent of its gross national income on ODA. Amid a current of political unease at home, Turkey and Russia have also been determined to press on with their donor ambitions even as Moscow seems more eager to focus its aid spending closer to home.

5. USAID more than halfway toward local spending target.

As Rajiv Shah concludes his tenure as administrator of the U.S. Agency for International Development, he leaves behind an agency that has transformed the way it does business. In April, USAID reported that it was more than halfway toward its target of channeling 30 percent of its spending to local organizations by 2015. But a Devex analysis later revealed that USAID still has much work to broaden its local partner base: The agency’s 20 top local partners accounted for 43 percent of its local spending in 2013. At the same time, we found that some USAID missions are also much further along on localization than others. In fact, 52 of 79 USAID missions are currently below halfway USAID’s 30 percent local spending target.

4. Abbott government takes the ax to Australian aid.

Since taking office in September 2013, the conservative Abbott government has ushered in a dramatic change of course for Australia’s once steadily expanding foreign aid program. On Monday, the conservative Abbott government announced that Canberra’s aid spending would be slashed by 3.7 billion Australian dollars ($3 billion) over the next three years — the third time that it has taken the ax to its aid budget. In a bid to sharpen Australian aid’s focus on the Indo-Pacific region, the Abbott government has also begun to phase out its assistance to Latin America and will now only maintain a modest aid presence in sub-Saharan Africa.

3. Green Climate Fund shows the money.

Designed to channel a significant share of climate finance from developed countries, the Green Climate Fund has been dogged by the question of “where’s the money?” since it was first proposed at COP15 in Copenhagen five years ago. Late this year, however, donor contributions, including $3 billion from the United States and $1.5 billion from Japan, rushed into GCF shortly after its operating structure was finalized. Even Australia pitched in at the last minute with an AU$200 million contribution — bringing total pledges to the fund to $10.1 billion. Committed to a 50:50 balance between its mitigation and adaptation activities, the fund is expected to review its first funding proposals in the second half of next year.

2. Emergence of BRICS’ New Development Bank and AIIB.

Citing developed country obligations, the BRICS economies have thus far refrained from pitching into GCF. They have, however, thrown their weight behind two multilateral development banks which emerged this year, the BRICS-led New Development Bank and the China-led Asian Infrastructure Investment Bank. Poised to shake up the multilateral financing landscape, the New Development Bank and AIIB are expected to each have initial capital of $50 billion when they become operational over the next two years. Keen to draw a contrast with more established MDBs, both banks have given little indication that they intend to adopt the rigorous social and environmental safeguards that are currently the subject of fierce debate at the World Bank.

1. The global response to Ebola.

Stung by criticism that the international community had responded far too slowly and too timidly to the Ebola outbreak in West Africa, donors across the board — including emerging donors and private corporations — ramped up their financial support for the Ebola response in the third quarter of this year. The largest contributions to the Ebola response include 1 billion euros ($1.3 billion) from the European Union, $737 million from the United States and $500 million from the World Bank. Amid tentative signs that the Ebola outbreak in West Africa is easing, donors have begun to outline economic recovery plans for the region. Ebola’s economic cost to the three hardest-hit countries — Guinea, Sierra Leone and Liberia — is estimated to exceed $2 billion.

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About the author

  • Piccio

    Lorenzo Piccio

    Lorenzo is a contributing analyst for Devex. Previously Devex's senior analyst for development finance in Manila, he is currently an MA candidate in international economics and international development at the Johns Hopkins School of Advanced International Studies in Washington. Lorenzo holds a bachelor's degree in government and social studies from Wesleyan University.