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Revista Brasileira de Política Internacional

Print version ISSN 0034-7329On-line version ISSN 1983-3121

Rev. bras. polít. int. vol.63 no.2 Brasília  2020  Epub June 05, 2020

https://doi.org/10.1590/0034-7329202000202 

Article

From poverty reduction to global challenges, a new horizon for international development cooperation?

Philippe Andre Orliange1 
http://orcid.org/0000-0002-6794-2268

1Agence Française de Développement, Regional Office Brazil, Brasília, Brazil (orliangep@afd.fr)


Abstract

The adoption of the Sustainable Development Goals, The Paris Agreement on Climate Change and the Addis Ababa Action Agenda laid the foundations of a new system of international development cooperation in which middle income countries are playing an increasingly important role, National Development Banks are becoming key players although broadly consensual regulatory framework are still insufficient.

Key words: International Development Finance; National Development Banks; SDGs; Climate Change

Introduction

Since its inception after World War II, International Development Cooperation (IDC) has been closely associated with poverty reduction. Europe was the target of a collective effort of reconstruction, led by the United States, supported by the Organization for European Economic Cooperation (OEEC) – the OECD’s ancestor –, and funded by the International Bank for Reconstruction and Development (IBRD) – the World Bank’s current name. In the early 60s, newly independent countries of the South became the primary target of this fight against poverty and the concept of Overseas Development Assistance (ODA) was designed within the Organization for Economic Cooperation and Development (OECD), the successor to the OEEC, and the World Bank as the central piece of multilateral financing for development. The fight against poverty was driven by several considerations: economic, moral and humanitarian, as well as geopolitical.

Even after the fall of the Berlin Wall, poverty remained central to the agenda of IDC as defined in the United Nations endorsed Millennium Development Goals (MDG). Nevertheless, two major changes were already taking place. First, the “South” was transforming itself: poverty was receding, middle classes were emerging, the number of middle income countries was growing, and “emerging powers” were challenging a Western-run world order. Secondly, global challenges started to occupy a growing space on the international agenda: the Rio conference, in 1992, put climate change, biodiversity, and environmental issues as a whole, on the agenda.

In 2015, a new framework for international development cooperation emerged through the convergence of three processes; first, the adoption of a new roadmap for development, the Sustainable Development Goals (SDG); second, the endorsement of a collective goal to fight climate change enshrined in the Paris Agreement with Nationally Determined Contributions (NDC); third, the adoption of a new compact on financing for development, the Addis Ababa Action Agenda (AAAA).

The traditional elements of IDC – donors and recipients, aid agencies, allocations based on per capita income – have lost relevance in the wake of: 1) the emergence of actors who were at the margins of IDC, such as local governments and development banks. The latter have earned greater visibility in a context where financing needs are no longer in the range of billions of USD, but rather in trillions ( From billions to trillions: MDB contributions to financing for development 2015), and in which the emerging notion of financing for development, going beyond aid, but not yet as accurately defined and monitored as ODA is; 2) middle income countries’ increased role in the shaping this new agenda.

How far this new agenda is being translated into the action is critical to assess the reality of the changes. Evidence gained from the review of mission statements and practices of several institutions shows that this mainstreaming is occurring. Amidst a surge in skepticism about multilateralism, the agreements made in 2015 have demonstrated the multilateral system’s capacity to deliver global agreements. Climate finance is increasing. Since 2015, capital increases made at the World Bank and African Development Bank, replenishment of dedicated funds (International Development Association, Green Climate Fund, and Global Fund against HIV/AIDS), but also the increased volume of activities of the New Development Bank (NDB), have demonstrated that there was no crisis of the multilateral system for development and climate finance. Furthermore, the commitment made by National Development Banks (NDB) to allocating 1000 billion USD for SDGs and climate at the margins of the UN summit on climate, in September 2019, has shown the capacity of public finance institutions to deliver on the promises of Addis Ababa, New York and Paris.

However, a new system of IDC is not yet in place. ODA flows are disclosed and monitored through OECD-based rules. No such rules and practices exist yet for development finance as a whole. The governance of the SDGs is weak. Current reporting practices at the UN lag behind peer review mechanisms established by OECD/DAC ( Hege et al. 2019 ). The notion of ODA itself is challenged by two decades of transformation of the South. Finally, development finance is not free from geopolitical biases. The creation of a US development finance institution (USDFC), replacing the existing Overseas Private Investment Corporation (OPIC) is meant to counteract the growing role of Chinese public financial institutions. The capital increase at the World Bank approved – unexpectedly – by the Trump administration has less to do with implementing the 2030 Agenda and more with allowing the Washington-based World Bank to remain a key player at a time when the NDB and AIIB (where BRICS countries are the main shareholders) are rapidly increasing their portfolios. These contrasted dynamics are reshaping international development cooperation: an increased number of actors are serving an expanded agenda. The concepts of donors and recipients are blurred. Middle income countries receive and provide development finance. Domestic development banks have become international players. Multilateral banks are adopting different strategies. International development cooperation acts as a regulator to globalization but is also shaped by globalization. This article reviews these trends, by 1) analyzing the changes brought about in 2015 to the agenda of international development cooperation, and 2) analyzing how this novel agenda is shaping a new international development cooperation system.

2015: a turning point in the objectives and modalities of international development cooperation (IDC)

IDC emerged in the 60s, around the emblematic concept of “overseas development assistance” (ODA)

The idea of ODA draws from the experience of European reconstruction, after World War II, and was built on the basis of economic arguments, moral or humanitarian arguments, as well as geopolitical considerations ( Severino and Ray 2009 ). The economic rationale is based on the underlying understanding that underdevelopment, measured in terms of per capita income, is caused by insufficient investment. Developing countries do not have enough savings to invest, and have to rely on external sources of funding. The moral or humanitarian imperative stresses the unacceptable character of widespread poverty at a time (late 50s, early 60s) when the Western World (and the Soviet Block) was witnessing rapid economic growth and increase in GDP per capita. This dimension owes a lot to the work of the World Council of Churches (WCC). In 1958, the WCC circulated a statement introducing the idea that grants and concessional loans to developing countries should be at least 1 percent of rich countries’ national income (Führer 1996). The geopolitical dimension is a by-product of the Cold War. As both East and West had developed military alliances in the late 40s and 50s, they had to enroll newly independent States that appeared in the late 50s and early 60s with the process of decolonization. ODA became a tool to maintain existing alliances and create new ones. The respective weight given to these three factors, varies greatly among authors ( Olivié and Perez 2020 ). Severino and Ray (2009) consider the geopolitical dimension as the cornerstone of ODA. Liam Swiss recalls that “foreign aid (or development assistance) grew out of reconstruction efforts in Europe in the post second World War era to become the responsibility of all wealthy democratic states over the past sixty years” (Swiss 2019).

ODA had to be defined and measured. The definition agreed upon in 1972, and which still is valid today, states that: “ODA consists of flows to developing countries and multilateral institutions provided by official agencies, including state and local governments or by their executive agencies, each transaction of which meets the following test: a) it is administered for the promotion on the economic development and welfare of developing countries as its main objective and, b) it is concessional in character and contains a grant element of at least 25 percent (calculated at a rate of discount of 60 percent)” (Führer 1996). Following the proposal made by the WCC, the United Nations Conference on Trade and Development (UNCTAD) in 1964 endorsed the target of 1% of the national income of rich countries to be directed towards developing countries. The United Nations General Assembly (UNGA) then established that 0,7% of GDP was to be devoted to public funding, i.e. ODA, in 1970 (“Resolution 2626 (XXV) international development strategy for the second United Nations development decade.” 1978). The governance of ODA was given to the Development Assistance Committee (DAC), created within the OECD. The DAC was tasked with reviewing ODA criteria and programs and agreeing on a list of developing countries: the key elements of a “Western born” vision of IDC were in place. Since the target of 0,7% of GDP had been politically endorsed by the UN system, although “Western born,” the IDC system could claim to be somehow “universal.”

Developing countries were not party to the elaboration of the IDC system created in the 60s. There were “donors” and “recipients,” the former in the “North,” the latter in the “South.” This vision led to several reactions originating in the “South.” A Declaration on a “New Economic International Order” was approved by the UNGA, in 1974 (“Resolution 3201 (S- IV) declaration on the establishment of the new international economic order.” 1974 ) was rather confrontational. The international conference on international economic cooperation, held in Paris in 1975-1977, was an attempt to establish a “North South” dialogue ( Amuzegar 1977 ). This “dialogue” was abandoned in the early 80s, with the emergence of economic liberalism, in the US and the UK. Another reaction of the “South” was to implement its own vision of cooperation, in the form of “South-South cooperation,” with the Buenos Aires Plan of Action, endorsed by the UNGA (“ Resolution 33/134: United Nation conference on technical co-operation among developing countries.” 1978 ).

The three-pronged rationale behind ODA prevailed until the fall of the Berlin Wall

The end of the Cold War led to a significant decline in the flows of ODA.

Source: OECD, Development co-operation report 2017: data for development 2017

Figure 1 Trends in ODA 1960-2015For 1990, 1991 and 1992: total DAC excluded debt forgiveness of non-ODA claims 

However, the notion of poverty remained embodied in ODA and its relevance was clearly underlined with the adoption, of the Millennium Development Goals in 2000 (MDGs). The fight against poverty (“eradicate extreme poverty and hunger”) was MDG number 1, and it was the first stated objective of development institutions such as the World Bank or the British Department for International Development (DFID). The other MDGs focused mainly on a cluster of social issues (education, health). While in the 60s and 70s, a significant portion of ODA had been allocated to infrastructure and economic development, this trend, after the adoption of the MDGs, led to an increase in funding for social sectors, at the expense of other elements of the development agenda, such as economic infrastructure, as shown in the chart below.

Table 1 Sectoral allocation of ODA (in billions USD) 

ODA clusters 1990 2000 2010 2016
Economic infrastructure 11,1 8,4 17,5 22,0
Social infrastructure 18,4 19,6 42,4 42,8
Production 9,4 4,0 7,7 6,1
Total ODA 77,8 72,9 122,8 147,1

Source: OECD, Development co-operation report 2017: data for development 2017

The MDGs agenda was largely inspired by the development agencies themselves and endorsed politically by the UN. The Monterrey Conference on Financing for Development, held in 2002, did not radically change the “ODA paradigm.” But the role of domestic resource mobilization and the relevance of other international flows for development financing were stressed in the “Monterrey Consensus.” However, the main logic of IDC remained a North/South one, in which a key issue was the transfer of resources from the rich North to the poor South.

The transformation of the “South” brought major changes in IDC in the 2000s

Poverty reduction advanced very rapidly in the years that followed the adoption of the SDGs, changing the nature of the “South.”

Table 2 Poverty reduction in developing countries 

1990 2013 2015
% of people living with less than 1,90 USD per day 36% 11% 10%
People living in extreme poverty 1,85 bn 736 million (of which 413 million in Sub-Saharan Africa)

Source: The World Bank 2018

China represented a significant share of poverty reduction globally, but many other countries also registered significant progress in this area. As a result, the traditional equation “developing country = poor country” lost relevance. The concept of “emerging markets” and then “emerging countries” materialized alongside the traditional notion of “developing countries.” Middle income countries1 became the majority of “developing countries.” The Addis Ababa Action Agenda on financing for development has acknowledged the “specificities” of middle income countries ( Addis Ababa action agenda of the third international conference on financing for development 2015, paragraphs 8, 46, 71, etc…). A nomenclature for other groupings was progressively refined: Least Developed Countries (LDC) have been recognized as an official category by the United Nations since the 70s and there are approximately 40 of them today; small island states (mainly because of the consequences of climate change and sea level rise); landlocked developing countries. The “South” is no longer synonymous of “poor countries” nor is it homogeneous. The struggles to maintain some sort of political unity with the G77/China in the United Nations cannot hide the magnitude of these transformations and their repercussions on IDC.

Source: Tomlinson 2018

Figure 2 ODA and income groups 

ODA kept growing since 2002 ( Figure 3 ) but its relevance for many developing countries was diminishing.

Source: Tomlinson 2018

Figure 3 Trends in the Value of Real ODA, 2016 dollars, 2005 to 2017 

As globalization advanced, financial flows to developing and emerging countries tended both to increase and to diversify. The share of ODA flows for recipient countries in relation to Global National Income became smaller for middle income countries, i.e., the majority of developing countries.

Table 3 ODA as a % of GNI of several country groupings 

Fragile and conflict affected Latin America (excl. high income) Least developed countries Middle East and Northern Africa (excl. high income) South Asia Sub Saharan Africa Low Income Middle Income
5,4% 0,2% 4,6% 1,9% 0,4% 3% 9,6% 0,2%

Source: The World Bank, Net ODA received (% of GNI) 2018

Outside OECD/DAC (the “traditional donors”), the amount of providers of development finance has increased, concomitantly with the volume of resources they have provided. In 2000, disbursements were below 5 billion USD. They reached 17 billion in 2011 ( Di Diommo 2014 ). The central character of poverty as the main driver for international development cooperation was challenged when other issues – described as “global public goods” - started to emerge as key issues for the international community to consider ( Kaul et al. 2003 ). In this regard, the Rio Conference was a landmark. Rio 92 proclaimed that environment and development were twin issues, as shown in the final document of the conference, Agenda 21.

In March 2015, the World Bank’s Development Committee was presented with a report, prepared by six multilateral banks and the International Monetary Fund, titled “From billions to trillions: transforming development finance post-2015 financing for development: multilateral development finance” (World Bank 2015). The report highlighted that: “the global development landscape has changed since the MDGs were adopted in 2000. The six largest MICs now account for roughly the same share of global GDP as the six largest high-income countries. At the same time, inequality within many countries is on the rise and there is a growing gap between the richest and the poorest countries, with some of the poorest countries caught in a ‘poverty trap’” (World Bank 2015, 5). The document also stressed that financing needs for SDGs were going far beyond the existing “billions” (ODA, remittances, etc…) and were in the range of the “trillions” (World Bank 2015).

The three major conferences held in 2015 have produced a comprehensive new agenda for development

In 2015, three separate negotiation processes converged to produce a new international consensus on development. Development goals had been approved before (MDGs, in 2000). Two other conferences on development financing for development had taken place since 2000. The Paris conference of the parties was the 21st of its kind. But it was the first time since Rio 1992, that the three sets of issues were being tackled at the same time. The results of these three processes (Addis Ababa, New York, Paris) can be summarized as follows:

  • the development agenda and the climate agenda are integrated, with the fight against climate change becoming one of the SDGs and the development dimension being integrated in the Paris agreement;

  • SDGs are universal and interconnected. All countries have to implement them;

  • more financing for development and for climate is needed, beyond ODA.

The SDGs include a new set of issues (see Table 4 ), including climate change (SDG 11) which did not appear in the MDGs.

Table 4 from MDGs to SDGs 

MDG SDGs
Social cluster
Goal 1 Eradication extreme poverty Goal 1 End poverty in all of its forms
Goal 2 End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Goal 2 Achieve universal primary education Goal 4 Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Goal 3 Promote gender equality and empower women Goal 5 Achieve gender equality and empower all women and girls
Goal 4 Reduce child mortality Goal 3 Ensure healthy lives and promote well-being for all at all ages
Goal 5 Improve maternal health See goal 3
Goal 6 Combat HIV/AIDS, Malaria and other diseases See goal 3
Global goods/Environment, climate, sustainable development cluster
Goal 7 Ensure environmental sustainability Goal 6 Ensure availability and sustainable management of water and sanitation for all
Goal 7 Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 11 Make cities and human settlements inclusive, safe, resilient and sustainable
Goal 12 Ensure sustainable consumption and production patterns
Goal 13 Take urgent action to combat climate change and its impacts
Goal 14 Conserve and sustainably use the oceans, seas and marine resources for sustainable development
Goal 15 Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
Sustainable growth cluster
Goal 8 Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
Goal 9 Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
Goal 10 Reduce inequality within and among countries
Goal 16 Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
Partnership cluster
Goal 8 Develop a global partnership for development Goal 17 Strengthen the means of implementation and revitalize the global partnership for sustainable development

Source: own elaboration based on the official lists of MDGs and SDGs.

Poverty and the social sectors remain an important part of the agenda, but other issues have emerged: climate change, cities, inequalities, institutions. “While the MDGs were largely inspired by the idea of human development, with a strong emphasis on poverty eradication, the 2030 Agenda is grounded in a concept of sustainable development that views the environment, economy and society as embedded systems rather than separate pillars” ( Climate finance provided and mobilized by developed countries in 2013-17 2019). This process was not smooth. As one of the promoters of the concept of SDGs, Paula Caballero, recalls: “The SDG process had to break through another glass wall – the perennial divide between the environment and development communities. The MDGs were the backbone of the development community – a majority of bilateral and multilateral aid programs were structured around them. When the SDGs appeared on the horizon, the development community – again from all countries across the spectrum as well as the plethora of organizations that focused on MDG delivery – soundly rejected the mere idea. These divide spilled over into the negotiations, given often trenchant disagreements within delegations” (Caballero 2019).

The universal character of SDGs implies that they are interconnected and for all countries to implement “They are integrated and indivisible and balance the three dimensions of sustainable development: the economic, social and environmental,” (United Nations General Assembly 2015, preamble of the declaration of Agenda 2030). This is a fundamental change. A “pick and choose” approach to global goals is no longer possible. Prioritizing education (SDG 4), and ignoring the rest, inequalities for instance (SDG 10), runs counter to the SDGs’ logic. Similarly, a focus on infrastructure (SDG 9) cannot disregard climate change (SDG 13). The way SDGs will be implemented at the national level, by all countries, is more important than the way international development cooperation (IDC) will handle the issue of SDGs. SDGs therefore blur two traditional divides: the North/South divide on which the IDC system was based since its creation in the 60s; the divide between what is domestic and what is international.

The Paris Agreement on climate change has established a new target for collective action in response to a global challenge: limiting global warming to + 2°C. However, the way to achieve the goal is based on national targets, defined in Nationally Determined Contributions (NDC). Hence, the level of ambition and the implementation of the national policies contained in the NDCs will be crucial for the success or the failure of the agreement.

International commitments on finance have played an important role in reaching the final agreement. A goal – typical of North/South IDC – of 100 bn USD/per year of resources from developed to developing countries was established in Copenhagen in 2009. A report disclosed by OECD and a think tank, The Climate Policy Initiative, a few months prior to COP 21, showed that the overall volume of resources going to climate finance in developing countries was more or less on track with this goal.

The process leading to the Paris agreement also included commitments made by non-state actors, and accounted for in the Lima-Paris Action Agenda (LPAA). The LPAA listed commitments made by local governments, business, individuals and states, on issues critical for climate negotiations (forests, agriculture, resilience, etc.). The initiative was led by Peru and France, as chairs of COP 20 and COP 21, the UN Secretary General, and the UNFCCC Secretary General. One of the examples of the significance of these commitments made by non-state actors is the fact that “more than a third of the world’s 2000 biggest businesses have committed themselves to climate action, representing a total economic power equivalent to the combined GDP of China, Germany and Japan” ( Lima Paris Action Agenda 2015 ).

The third conference on financing for development took place in July 2015 and attracted less interest than the other two. However, its relevance for the transformation of IDC should not be underestimated. The AAAA repositioned the role of domestic resource mobilization as the central element of development finance. This is a useful reminder of realities. The different sources of financing for development mentioned in the AAAA can be summarized as follows:

Table 5 Sources of financing for development 

Domestic International
Public Taxes (States, local governments) National development banks ODA Loans Export credits Contribution to global goods: security, etc
Private Savings/Markets Commercial Banks NGOs Foundations Private loans Foreign direct investment Remittances International NGOs

The AAAA also helped focus on the issue of taxation, and in particular tax evasion which has since gained greater international attention. It acknowledged a number of specific situations among developing countries, some already singled out in previous documents (small island developing states, land locked, LDCs) but also middle income countries (overlooked in the Monterrey Declaration) ( Addis Ababa action agenda of the third international conference on financing for development , 2015).

A success of multilateralism leading to the recognition of the role of multiple actors

The three negotiations took place within the UN framework, with UN characteristics: consensus, group negotiations, universality, and equality. This did not prevent the elaboration of a new and meaningful consensus on development. It has been argued that the SDGs with the 17 goals and more than 150 indicators were unwieldy. In fact, for a set of goals and indicators reflecting the policies and aspirations of approximately 200 countries, this is a fairly successful result. As indicated above, the goals themselves are a much better reflection of global aspirations than the former MDGs. The outcome of COP21 was celebrated after the failure of Copenhagen in 2009. The 2030 Agenda and COP21 have benefitted from a wide implication of civil society groups which has contributed to their dissemination, beyond diplomatic and government circles.

Because the issues at stake in the three negotiations have a strong impact on public policies, it was critical that the negotiations themselves, as well as the documents resulting from them, referenced actors that are critical for the implementation of these policies. Two groups of actors gained increased visibility in these processes: local governments and development banks. The AAAA acknowledges the role of non-state public actors: cities and local governments, development banks ( Addis Ababa action agenda of the third international conference on financing for development 2015, para. 14, 33, 39). The role of development banks in the process leading to COP21 must also be stressed. The International Development Finance Club, a gathering of 24 national and regional development banks, created in 2011, was pivotal in the development of methodologies and practices aiming at measuring financing for climate ( Rioux 2019 ).

With a new set of issues, objectives and indicators, as well as new actors emerging and being recognized, 2015 signals the end of the “traditional IDC system” and lays down elements of a would-be new system, yet not functioning as such.

Towards a new system of international development cooperation?

New dynamics of cooperation are emerging out of the framework agreed upon in 2015

SDGs and climate are reshaping the strategy of development institutions. Because the 2030 Agenda relates primarily to domestic policies, the mainstreaming of this Agenda must take place, first and foremost, within domestic institutions. A first evidence of this mainstreaming is the integration (or lack thereof) of the 2030 Agenda, the AAAA and the Paris Agreement in the policies and mission statements of these institutions. The table below was drafted based on the websites of various institutions (mission statements, annual reports), either working exclusively at the international level (AMEXCID, DFID, DEVCO, USAID, Chinese CIDCA, Colombian APC) or with both a domestic and international focus (DBSA, BNDES, AFD).

Table 6 Mainstreaming SDGs 

References to SDGs No reference
DEVCO website “within the EC, the DG DEVCO […] plays a leading role in implementing the 2030 Agenda of the UN and its sustainable development goals (SDGs) in EU international cooperation and development.” New Development Bank website NDB (is) supporting its member countries to achieve their development aspirations, especially those articulated in the UN’s 2030 Agenda for Sustainable Development and the 2015 Paris Agreement on Climate Change. USAID website USAID is the world’s premier international development agency and a catalytic actor driving development results. USAID’s work advances U.S. national security and economic prosperity, demonstrates American generosity, and promotes a path to recipient self-reliance and resilience .
DBSA annual report 2016/2017 the DBSA is guided by a number of international, regional and local policies, accords and agreements, and subscribes to the goals and targets of the United Nations’ Transforming our World: The 2030 Agenda for Sustainable Development. DFID website DFID leads the UK’s work to end extreme poverty […] We are responsible for: -honoring the UK’s international commitments and taking action to achieve the United Nations’ Global Goals Chinese international development cooperation agency CIDCA web site The agency aims to formulate strategic guidelines, plans and policies for foreign aid, coordinate and offer advice on major foreign aid issues, advance the country’s reforms in matters involving foreign aid […]
APC Colombia (website) APC-Colombia tiene por objetivo … apoyar la canalización y ejecución de recursos, programas y proyectos de cooperación internacional, atendiendo los objetivos de política exterior y el Plan Nacional de Desarrollo . Colombia …) el primer país en formular su Plan Nacional de Desarrollo (PND) con enfoque ODS . BNDES Annual report 2018 We are the Brazilian Development Bank (BNDES), a federal public company. SUSTAINABLE DEVELOPMENT GOALS (SDG) The Agenda 2030 for Sustainable Development, adopted in 2015 by Brazil and the other member states of the United Nations (UN), is intrinsically linked to our operations. Projects related to the 17 objectives and the 169 targets included in the agenda are eligible for better financial conditions in several of our financing lines, as well as to our support with non-reimbursable resources. AMEXCID website La Agencia Mexicana de Cooperación Internacional para el Desarrollo (AMEXCID) es un órgano desconcentrado de la Secretaría de Relaciones Exteriores (SRE)… Para nosotros, cooperar es compartir lo mejor de México para enfrentar retos globales y crecer juntos … civil y gobiernos locales; para coordinar, planear y evaluar nuestros esfuerzos de Cooperación y Promoción

The reference made to SDGs by the Colombia Agency is entirely consistent with Colombia’s role in the adoption of the goals. The USAID focus on “self-reliance” expresses a lack of trust in IDC which is consistent with the position of the current US administration. The fact that the South African DBSA and the Brazilian BNDES, two development banks and both members of IDFC, are among the institutions explicitly referencing this agenda – like the French AFD – confirms the interest shown by this group of institutions. It is also worth noting that the New Development Bank (NDB) makes clear references to the 2030 Agenda and the Paris Climate Agreement.

In the case of Brazil, it would also be useful to review institutions at sub-national level to get a clearer picture of the internalization of this global agenda. Empirical evidence gained through AFD operations in Brazil since 2015, allows the following preliminary conclusions:

  • regional development banks such as the Banco Regional de Desenvolvimento do Extremo Sul (BRDE) and the Banco de Desenvolvimento do Minas Gerais (BDMG) have adopted strategies aiming at mainstreaming SDGs and climate;

  • cities and states have taken similar initiatives with notable examples such as Teresina and the State of Piaui, etc.

The role of ODA, once a central element of International development cooperation is, increasingly, being questioned

ODA is facing challenges of several kinds. The concept of ODA is intrinsically linked to the notion of developing country, as it was envisaged in the early 60s. This approach has come under criticism from different angles. With the emergence of BRICS on the world stage, the notion that China, India and Brazil remain developing countries is increasingly debated. Recently, the US conditioned its support to Brazil’s candidature to the OECD to the country giving up its status as developing country within the WTO. Per se , OECD membership does not exclude developing countries, as demonstrated by the membership of Mexico and Colombia. Brazil agreed to do so, thus causing discontent with a fellow BRICS member, India.

Drafted in the early 70s (see above, part I), its historical definition fails to reflect the challenges of the post-2015 agenda. ODA makes no reference to supporting the fight against global challenges such as climate change. Its alignment with the SDGs and the objectives of the Paris Agreement is causing debates within DAC. ODA allocations are based upon per capita income criteria. This criterion is inadequate when defining target countries in the fight against climate change. In the South, major GHC emitters are also middle income countries, some even upper middle income countries (see chart below).

Table 7 GHC emitters and middle income countries 

Countries China India Iran Indonesia Mexico Brazil South Africa Turkey Thailand
Income grouping UMIC 9470 LMIC 2020 UMIC 5470 LMIC 3840 UMIC 9180 UMIC 9140 LMIC 5720 UMIC 10380 LMIC 6610
Ranking as GHG emitters 1 3 8 11 12 13 14 15 23

(figures for 2017, per capita income in USD)

A cornerstone of the United Nations Framework Convention on Climate Change (UNFCCC) is the notion of “Common but Differentiated Responsibilities,” a concept born at the Rio Conference and enshrined in the Paris Agreement (article 2.2.), which provides the basis for a differentiated treatment of developing countries. Article 9 also states that, “developed country Parties shall provide financial resources to assist developing countries with respect to both mitigation and adaptation in continuation of their existing obligations under the convention.” However, the fact that China, a developing country, is now the main emitter of GHG causes tension between the logic of collective action, in which the burden falls upon the main emitters and the logic of “assistance” in which “rich” countries provide concessional finance to “poor” ones.

The perimeter of ODA is also questioned. The fact that security expenditures cannot be treated as ODA seems to run counter to the idea that peace is a condition of development and that development provides the basis for lasting peace. There are some exceptions, such as accounting a share of UN Peacekeeping Operations (UNPKO) as ODA. Other challenges relate to ODA itself. ODA is primarily defined a “flow” of resources. But a number of expenses included into ODA definitions are not “flows” (meaning cross-boundary flows) but in-country expenses. Expenses related to hosting refugees or receiving foreign students in public universities are identified as ODA. An increase of refugees in a given OECD DAC country is likely to result in an increase of ODA of that particular country, as shown below.

Table 8 Share of ODA allocated to refugees costs 

2014 2015
France 6% 5%
Germany 1% 19%
Sweden 25% 49%
Italy 58% 52%
UK 3% 3%

Source: OECD DAC, Development Co-operation Reports 2016 and 2017

Clearly, ODA alone cannot be the “financing response” to the SDGs. But for 30 countries (mainly LDCs and fragile countries, see above part I), it will remain an irreplaceable source of financing.

Financing for development is getting more aligned with AAAA

As the nature of the financing needs is evolving post-2015, so is the role of the different financial actors. The OECD global Outlook on financing for sustainable development, using the typology of the AAAA, sheds light on the relevance of the various components of development finance ( Global outlook on financing for sustainable development 2019: time to face the challenge , 2018).

Table 9 Sources of development finance 

Domestic finance International finance
Revenues in dev countries 4,3 trn USD Total cross border flows to dev countries 1,7 trn USD
Commercial flows incl FDI 890 bn
Remittances 466 bn
International public finance 311 bn Out of which ODA = 146 bn

Source: Global outlook on financing for sustainable development 2019: time to face the challenge 2019, chapter 2.

These figures clearly demonstrate that the alignment of domestic public financing with the SDGs and the NDCs is a top priority. The search for consistency should lead to reorienting of domestic finance ( Kharas and McArthur 2019 ). A way to ensure this could be to establish targets that guarantee consistency with the SDGs and the Paris Agreement, including spending targets. The AAAA referred to such goals by “encouraging countries to consider setting nationally appropriate spending targets for quality investments in essential public services for all, including health, education, energy, water and sanitation, consistent with national sustainable development strategies” ( Addis Ababa action agenda of the third international conference on financing for development 2015, para. 12). As it stands, this commitment is mainly aspirational. Another way is to reduce or eliminate financial flows that contradict the 2030 Agenda. A relevant example of that is the issue of fossil fuels subsidies. Domestic flows can also be increased through taxation. Abnormally low tax to GDP ratio lead to under-funded domestic policies ( Addis Ababa action agenda of the third international conference on financing for development 2015, para. 23).

But one of the most relevant changes in terms of domestic finance mobilization is the increasing relevance and role of domestic financial institutions, in particular National Development Banks. These institutions have established a club, the International Development Finance Club (IDFC), in 2011. IDFC gathers 24 national and regional development banks, from Europe, Asia, Latin America, and Africa. In September 2019, at the UN Summit on climate change, the group was able to publicly provide an indication of the level of resources it will be able to provide by 2025 to support the implementation of the Paris Agreement: “The quality and redirection of all financial flows, beyond public and private climate finance, is essential. IDFC commits to contribute to this qualitative agenda by promoting the mainstreaming of climate considerations throughout the international and national financial communities and forcefully engaging, along with all interested partners, on the alignment of all financial flows with the Paris Agreement […]. In light of the above and with a view to achieving the ambitious objectives of the Paris Agreement and foster sustainable, low carbon and resilient development, IDFC has the potential to mobilize significant financing volumes in order to help achieve these goals […] Provide more than USD 1 trillion of climate finance by 2025, including an increasing share for adaptation and resilience” ( IDFC’s Contribution to the climate action summit 2019 2019). The fact that national and regional financial institutions are able to mobilize resources in the range of the trillions, as called for in 2015 by the MDB Report (see above), is unprecedented and provides credibility to the changes called for in the AAAA.

Representing 25% of domestic public resources (1,7 bn USD), cross-border flows may complement domestic flows. Public flows – i.e., those most likely to be directed by states or state related institutions – account for 311 billion, with ODA representing roughly half this amount ( Development co-operation report 2018: joining forces to leave no one behind 2018). Since 2015, a number of financial institutions and international funds have successfully conducted capital increase and/or replenishment processes.

Table 10 Successes in financial multilateralism 

Institutions/funds Former pledge/annual lending target New pledge/annual lending target
GCF 9,3 9,78 Amount of pledges made for a four-year period
Global Fund HIV/AIDS 14,02 Amount of pledges made for a four-year period
IBRD Group 60 100 Increase in volume of annual lending
IDA 75 (IDA 18) 82 (IDA 19) Three-year replenishment
Africa Dev Bank 93 208 Capital increase

Source: own elaboration based upon websites of the different institutions and funds, Billion USD

A significant portion of the 2030 Agenda and the SDGs relate to “global public goods,” in particular climate change. The challenge is even greater since development finance and climate finance are closely interlinked. There is already a commitment in place for climate finance: 100 billion USD per year of international finance to developing countries ( Background note on the USD 100 billion goal in the context of UNFCCC process, in relation to advancing on SDG indicator 13.a.1 2015). These resources would come “from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.” Climate finance flows include ODA flows but also resources from multilateral institutions not earmarked as ODA. The report highlights the methodological complexity of the reporting but also the results, showing an increase in climate finance from 56 bn USD in 2015 to 72 bn USD in 2017 ( Climate finance provided and mobilized by developed countries in 2013-17 2019).

These figures show that in the context often described as critical for multilateralism, financial multilateralism in support of the 2030 Agenda is alive and well.

International development cooperation remains a fragmented universe

Providers of international public flows are much more diverse than providers of ODA. They include “traditional” bilateral “donors,” namely members of OECD-DAC, multilateral institutions, including those created recently (AIIB, NDB), but also regional banks providing cross border flows, like the Corporación Andina de Fomento (CAF), the Development Bank of Latin America, and bilateral providers outside the DAC circle (China, India, Brazil, and others). Cross-border flows of international public finance for development also challenges the traditional definitions of donors and recipients. A number of middle income countries continue to be recipients of ODA while, at the same time, they are themselves providers of international public finance, as shown below with the case of Turkey. Though not a DAC member, Turkey reports to OECD DAC, using DAC standards.

Table 11 Turkey, recipient and donor country (millions USD) 

2013 2014 2015 2016 2017
ODA flows to Turkey (from DAC countries) 259 694 292 848 1455
Turkish flows to recipient countries 3307 3591 3919 6487 8562

Source: OECD 2019

IDC is a fragmented universe. The number of providers of international development financing is growing. This trend is noticeable within the OECD sub-system, but also outside of it. New bilateral institutions have been created, one of the most recent is the Chinese International Development Cooperation Agency (CIDCA). Canada has established a new development finance institution (DFI). The United States Congress is considering a proposal to transform the existing Overseas Private Investment Company (OPIC), into a full-fledged development finance institution (US IDFC). Multilateral institutions have emerged outside the Bretton Woods universe, such as the Asia International Infrastructure Bank (AIIB), and the New Development Bank (NDB). Existing organizations have grown considerably, such as the “Corporación Andina de Fomento” (CAF), initially a sub-regional bank catering to Andean countries, and now working in all South American countries and known as “the Development Bank of Latin America.”

Vertical funds with a specific sectoral focus have multiplied. The most important one, in terms of financial resources, is the Global Fund against HIV/AIDS, Tuberculosis and Malaria. This is not a new trend. As a result of Rio 1992, a Global Environment Facility (GEF) was created, operated jointly by UNDP, UNEP and the World Bank. The Green Climate Fund (GCF) was established in 2010 to be the “financial arm” of the UN Framework Convention on Climate Change. Creating a specific multilateral fund is often seen by its promoters as evidence of a political priority given to the area at stake. This is clearly the case with the Global Fund on AIDS and, to a lesser extent, with the GCF. Hence, political clout is critical for the future of these funds. Global funds also raise the issue of consistency with, both domestic and multilateral policies; on domestic policies, global funds do not cater to the operational expense of the domestic system tasked with implementing projects funded by the fund(s). On multilateral policies, sectoral funds stand alongside institutions already tasked with operating in the area; in the area of health, WHO, UNAIDS, etc. In the area of climate, we find the GCF, GEF, but also UN Environment, the World Bank, etc.

A new IDC system has yet to be established

Public financing for development in a post-2015 world appears more complex than the aforementioned traditional international development cooperation (see above). A system in which donors provided funding, through agencies to fight poverty in developing countries is being replaced by:

  • a broader agenda in which poverty remains an issue, but other sets of issues (climate, inequalities) are of equal importance;

  • an increasingly diverse group of public financial institutions within which the largest players are domestic institutions, also involved in cross-border financing;

  • a “global South,” in which middle-income countries are the largest group of countries, with an active role in the elaboration of the new agenda, will be critical for the success of its implementation, in particular the Paris Agreement and is, at the same time, recipient and provider of international financing for development. The Table 12 below summarizes these changes.

Table 12 Systemic changes in IDC 

Pre-2015 Post-2015
Goals MDGs, poverty-focused SDGs, poverty and global public goods
Financing International, strong role for ODA Domestic International, through multiple channels
Targets 0,7% for ODA Billions None for domestic finance None for international public finance with the exception of climate finance Trillions
Paradigm Donors and recipients Stakeholders and shareholders
Key institutions Development agency/ministry = DFID MDB = World Bank National development banks MDBs
Clubs OECD/DAC IDFC
Monitoring DAC peer reviews (robust, but limited to ODA) SDGs reviews by the High level on sustainable development (weak)

Source: own elaboration

For these new arrangements to work as a system, several key elements are missing. Information is not transparent, making regulation more complex than for ODA. Over time, the OECD’s DAC has developed a reporting system that provides robust information on ODA flows. Beyond ODA, the situation is murkier. OECD also collects and provides information on other public flows, called “other official flows,” OOF. These mechanisms apply only to DAC members, and countries that voluntarily report their flows to the OECD. Twenty countries beyond DAC do so: OECD non DAC members (Estonia, Israel, Latvia, and Turkey), OECD accession countries (Lithuania and the Russian Federation), and non OECD members reporting detailed data to OECD (UAE, which is a DAC participant, Azerbaijan, Kazakhstan, Kuwait, and Romania) ( Development co-operation report 2017: data for development 2017).

Beyond this group of countries, information is dependent upon which countries choose to publish. Brazil on a regular basis publishes a report called “ Cooperação brasileira para o desenvolvimento internacional ” ( Development co-operation report 2018: joining forces to leave no one behind 2018). OECD also produces estimates of what non-OECD countries provide in terms of development cooperation. However, none of these estimates are comparable with the way data on ODA is published, reviewed, monitored, and submitted to peer-review processes every five years.

Among the major current challenges, in terms of reporting on public finance for development is leveraging private resources. What can really be attributed to public resources in terms of private resources mobilization? As described in the AAAA, one of the purposes of international public finance, including ODA, is to catalyze additional resources from other sources, both public and private. It can support improved tax collection, help to strengthen domestic enabling environments, and contribute to building essential public services. It can also be used to unlock additional finance through blended or pooled financing and risk mitigation, notably for infrastructure and other investments that support private sector development” ( Addis Ababa action agenda of the third international conference on financing for development 2015, para. 54). However, assessing the leverage effect of IPF raises a number of methodological issues, notably the amount of private finance which is leveraged by public finance.

The Addis Ababa Action Agenda did not produce a definition of what “international public finance” is. It acknowledged the existence of work on the “proposed measure of total official support for sustainable development (TOSSD)” by stressing that such a measurement should not “dilute commitments already made” ( Addis Ababa action agenda of the third international conference on financing for development , 2015, para. 55). Which institution should/could be tasked with this reporting? OECD has the necessary capabilities but, as shown above, major players such as China and India are unlikely to submit their data to the OECD. Could it be the UN? Certainly from the point of view of political acceptability, but what about the quality of the data? SDGs financing as a result is not adequately measured.

Overall, governance is weak. The governance of the 2030 Agenda is far more complex than, for instance, the governance of the MDGs. The same applies to the governance of the NDCs agreed upon under the Paris Agreement. There is no equivalent yet in the post-2015 system to the peer review mechanisms put in place in the OECD. In the case of ODA, DAC is to review and discuss, every five years, the ODA policies, targets and performances of its member countries. The High Level Political Forum established by the UN to review the implementation of the 2030 Agenda falls short of this. Reports are presented to the UN ECOSOC but formats differ, information is not homogenous, reviews are not critical enough, etc. ( Hege et al. 2019 ).

The set of issues referred to above also raises the question of the role of the United Nations system in the governance of IDC. The UN system has been a central element in reaching consensus in the three major processes of 2015 (see above). It is also an important player in the financing of IDC. It has been calculated that the overall spending of the UN system reached 53 billion USD in 2017, out of which 33,6 billion were destined for operational activities for development ( Financing the UN development system 2019: time for hard choices 2019). That is to say that about one fifth of ODA goes through the UN. Going beyond what is still a significant source of funding, it must be emphasized that an increasing proportion of these resources are earmarked, and therefore must be used in accordance with the guidance of donor countries.

Table 13 Amounts of ODA channeled through regional and multilateral institutions and share of earmarked resources (2017) 

Multilateral institutions World Bank group and IMF Regional Banks European Union United Nations system Other
Resources 12 bn USD 5,5 15 20,9 10,4
% earmarked 25% 71%

Source: Financing the UN development system 2019: time for hard choices 2019

Even if earmarking can be done through various modalities, it does not provide the sort of autonomy that assessed contributions do. Furthermore, the trend is clearly towards more earmarking: the share of earmarked resources in the UN was 64% in 2013 and reached 71% in 2017. This phenomenon can be observed at the level of individual agency. The World Health Organization (WHO) in spite of being a specialized agency with a scale of assessed contributions amounting to 457 million USD in 2017, received the same year 2,05 Billion USD of earmarked contributions (id, 2019). Earmarking as a policy has been explicitly endorsed by some countries. Speaking at the UNGA session, in September 2018, President Donald Trump stated: “we are working to shift more of our funding from assessed contributions to voluntary so that we can target American resources to the programs with the best record of success.”

Conclusion

The IDC framework resulting from the SDGs, the AAAA and the Paris Agreement sets out new goals, brings new players into the picture, and strikes a balance in terms of financing different from the ones that underpinned ODA. The fight against poverty remains a key justification for IDC, but it is no longer the only one. Realistically, the SDGs contemplate a broader set of issues that are crucial for the transition towards a low-carbon economy, social justice, better governance, in other words, critical to regulate globalization.

As countries analyze their respective situation vis-à-vis the SDGs they should come to the conclusion that they are all “in transition.” The same applies to climate change. The challenges faced by these transitions must be addressed through adequate domestic public policies, complemented and supported by relevant international development cooperation. The review of these domestic public policies should be an object of IDC. The OECD’s experience demonstrates the role of peer reviews – combined with peer pressure – in the design and implementation of public policies. The current design of the follow-up of the 2030 Agenda lacks this kind of instrument. As Mr Bruce Jenks, a former senior official at the United Nations Development Program (UNDP) puts it, “agreements have two routes to implementation. One is to take the form of a legally binding agreement, and the other is to institute a system of monitoring and verification that makes it possible to hold free riders to account. It appears that the option of monitoring and verification is becoming the preferred option for holding parties accountable for the allocation of responsibilities that have been agreed upon […] the function of monitoring and verification will become a core characteristics of a multilateral architecture.”

The United Nations should be pivotal in this process of monitoring and verification of the national reviews of Agenda 2030 implementation. It is probably also at the UN that there should be found a mechanism to ensure a better follow-up of international public financing for development and climate. The “total official support for sustainable development” (TOSSD) could be the tool for that. The aim of TOSSD should be to attract non DAC providers of international development finance to engage in some kind of reporting, thus making their contributions more transparent. For all its shortcomings, ODA tools and policies developed by the OECD have set standards of reporting that should emulate others.

International development cooperation is neither a subset of foreign policy nor is it the “international branch” of domestic development policies. But it is both, at the same time. The SDGs and the Paris commitments blur the line between what is domestic and what is international, and this is why IDC cannot be treated as a subset of foreign policy. This is particularly true in the field of public finance. Figures on national development banks mentioned above show that public finance for development, as a whole, is not irrelevant in terms of volume. The mantra frequently used in the global conversation about development, “ODA is too small, only private money matters” seems to ignore that category of actors. Increasing ODA by 10% generates 15 billion USD: increasing MDB financing by 10% generates 10 billion; increasing financing from IDFC members by 10% generates 150 billion. Collectively, development banks are the only group of public institutions that operates in the “trillion category,” to use the World Bank reference.

ODA will continue to be a critical source of financing, but only for a small number of countries, mainly LDC and/or fragile countries. Instead of pressing to reach 0,7% (with all the negative indirect effects attached to this endeavor), priority should be given to the quality of aid and in particular its predictability. Financing public policies requires predictability. For middle income countries, access to IDC is a counterpart to their involvement in tackling global challenges, with climate change in the first place. The SDGs, the Paris Agreement and the AAAA provide a road map for such a process. In this context, the idea of graduation is meaningless. But the idea of domestic spending targets is not (nor is it to set targets for tax to GDP ratio).

Has the emergence of new players been a “game changer”? So far not really. The governance and functioning of newly established institutions such as AIIB or NDB are not different from other financial institutions. Voting rights are based on the size of the respective shares. These institutions do mostly sovereign lending, in US dollars (and some in Chinese yuans). Their creation has however put pressure on existing institutions to increase the capital needed to expand lending. Their clients are middle-income countries, i.e., just like other development banks. They claim to be aligned with the Paris Agreement and the 2030 Agenda.

The real change seems to lie more in the growing role of national development banks. Their grouping – IDFC – offers an interesting mixture of – a few – European based institutions and a – majority – of South-based ones. They have developed a collective capacity to act together, and recently, a form of political recognition from the UN system. Their legitimacy to act internationally derives from their “domestic roots” and their size. It is a sort of “infra-state based multilateralism.” May this be where the future of IDC lies.

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1Middle income countries are defined, by the World Bank as follows “The world’s Middle Income Countries (MICs) are a diverse group by size, population, and income level. They are defined as lower middle-income economies - those with a GNI per capita between $1,006 and $3,955; and upper middle-income economies - those with a GNI per capita between $3,956 and $12,235 (2018). Middle income countries are home to 75% of the world’s population and 62% of the world’s poor. At the same time, MICs represent about one third of global GDP and are major engines of global growth.” https://www.worldbank.org/en/country/mic/overview

Received: January 25, 2020; Accepted: April 6, 2020

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