Development finance in the post 2015 context


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Geert Laporte
The Next Chapter of Development Cooperation: Challenges and Choices, EDCF Development Finance Seminar, Seoul 6 May 2013

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Development finance in the post 2015 context

  1. 1. The Next Chapter of Development Cooperation:Challenges and Choices, EDCF DevelopmentFinance Seminar, Seoul 6 May 2013Geert LAPORTE, Deputy-Director, ECDPMDevelopment Finance in thePost-2015 Context
  2. 2. 1. ECDPM and the European Report onDevelopment2. The changing development context3. What has been achieved with MDGs?4. Post 2015: beyond MDGs and beyond aid5. How to finance development Post 2015?6. Mobilising different types of developmentfinance7. Concluding remarks: key messages for a newvision on development Post 2015STRUCTURE OF PRESENTATIONECDPM Page 2
  3. 3. Independent foundation working on EU-Africarelations for more than 25 years:1. Non-partisan facilitation of dialogue2. Practical and policy relevant analysis3. Linking key players in the EU, Africa, BRICS,through networks and partnerships4. Capacity building in Africa to bring morebalance in the partnership5. ERD + participation in European and AfricanconsultationsECDPMPage 3
  4. 4. European Report onDevelopment 2013Post -2015: Global Action for anInclusive and Sustainable Future
  5. 5. WHY A EUROPEAN REPORT ON DEVELOPMENT?• Widespread interest in establishing Post 2015 globaldevelopment framework• EU (as largest donor) aims to play key role in debate onnew global agenda (initiator DG Development EC)• ERD: independent contribution based on research andconsultations by ECDPM, ODI, DIE• 4 country studies with local partners: Cote d’Ivoire,Rwanda, Nepal and Peru• Focus on drivers of global partnership on development:“money goods, people”• This presentation: Personal perspectives based on ERDand other Post 2015 reflections (e.g. Africa)5/30/2013 5
  6. 6. 1. Major global challenges: climate change, food security,management of natural resources, fragility and conflict,terrorism, migration etc.2. Global financial and economic crisis, particularly affecting EU3. Declining aid budgets (ODA) but increasing needs forfinancial resources to tackle development and globalchallenges (e.g climate change adaptation and mitigation)4. New players in development (BRICS, G-20, private sector,development foundations,…)5. A more political vision of development: Busan: “…it isessential to examine the inter-dependence and coherence ofall public policies – not just development policies…”THE CHANGING DEVELOPMENT CONTEXTECDPM Page 6
  7. 7. • MDGs: encouraging international action around alimited set of goals• MDGs: significant progress on several targets (MDGs 1-6 poverty reduction, health and education targets)• Global partnership for development (MDG 8) lesssuccessful• MDGs associated with aid, donor agendas and donor-recipient relations• Fragile states have done least wellWHAT HAS BEEN ACHIEVED WITH MDGs?ECDPM Page 7
  8. 8. 1. Tackle root causes of poverty and inequality in a moreinclusive and sustainable manner2. Focus on transformative agenda for development :economic, social and environmental structural change3. National ownership is crucial to succeed4. Development effectiveness not just aid effectiveness(extend action to areas important to development:trade, migration, climate, financial regulation = PCD)5. Involve new players (South-South cooperation)OVERALL: need for a more political and economicgovernance vision of development Post 2015 + bolderglobal collective action!POST 2015: BROADENING THE VISION ONDEVELOPMENT BEYOND MDGs AND BEYOND AIDECDPM Page 8
  9. 9. • Decreasing ODA since 2011 - ‘surpassed ’ by other (private) financialflows to developing countriesODA: $130 billionRemittances: $450 billionForeign Direct Investment (FDI): 1500 $ billion (FDI in Africa: + 27%between 2010 and 2011)Africa: 400 billion $ export revenue from gas, oil, mining, etc (2012)• Increasing focus in the development debate on policy coherence fordevelopment ("development friendliness" of non-aid policies), South-South cooperation, on the developing countrys policies (domesticresource mobilisation, taxation,…) and less on the quality andeffectiveness of aid.• Challenge: increase overall domestic and external development financeand make it more effectiveHOW TO FINANCE AMBITIOUS DEVELOPMENTAGENDA POST 2015?ECDPM Page 9
  10. 10. • Volume: how high is the level of resourcesthat can be raised?• Predictability: how sensitive are the financialflows to fluctuations?• Policy space: how much room for manoeuvredoes the financial flow give?• Development focus: to what extent do thedifferent financial flows contribute todevelopment?MOBILISING DEVELOPMENT FINANCE: WHAT ISKEY FOR DEVELOPING COUNTRIES?ECDPM Page 10
  11. 11. • Private financial flows have overtakenofficial aid since 2000• ODA is now less than 10% for alldeveloping countries (but still veryimportant for LICs)• Private financial flows are selective andare concentrated in a few resource-richcountries (only 3% reaches LICs!)THE REDUCED WEIGHT OF AID AS SOURCE OFDEVELOPMENT FINANCEECDPM Page 11
  12. 12. • Foreign Direct investment (FDI)• South-South Cooperation (SSC)• Remittances• Domestic resource mobilisation throughtaxation• Innovative financing for development• New roles for ODADIVERSIFYING TYPES OF DEVELOPMENTFINANCE (private and public)ECDPM Page 12
  13. 13. • FDI moves to places with highest returns• Potential indirect development benefits: physicalinfrastructure, local skills development, transfer oftechnology,…• Increasing role of BRICS, filling the void left by OECDinvestors because of financial crisis and risk aversion• Drawbacks BRICS (Chinese) investment: support toundemocratic leadership, lack of job creation, drain onnatural resources,…• African LICs with high dependence of few commodities andfew natural resources do not benefit (enough)• Need to direct FDI to productivity & diversification economyFOREIGN DIRECT INVESTMENTECDPM Page 13
  14. 14. • Emerging economies: US$ 15 billion in aid (US$50billion by 2025)- creation of aid agencies in BRICS• Other non-ODA components of SSC: loans, grants,investments, trade and technical cooperation• SSC focus on infrastructure and productive sectors(complementing traditional donors who focus onsocial sectors)• SSC = seemingly less interference & conditionalitiesthan ODA… but also strongly motivated byeconomic and political considerations (extraction ofnatural resources)SOUTH-SOUTH COOPERATION (SSC)ECDPM Page 14
  15. 15. • Migrants from “South” to “North” + 85%in past two decades• Important source of developmentfinance (3 x total ODA)• Increases far higher in MICs (with highnumber of citizens living abroad) than inLICsREMITTANCESECDPM Page 15
  16. 16. • Taxation: key in the Post 2015 debate because of hugepotential for development finance• Tax performance has improved in past 20 years• Equitable tax system can generate better governance andstate-society relations (ownership)• Taxation= substantial policy space for developing countrybecause less interference, less volatility and lessdependence on external players/donors• Problems of political commitment and capacity to levy taxes,+ narrow tax basis (heavy reliance on receipts from naturalresources)• Does ODA reduce the incentives for governments to raisetaxes?DOMESTIC RESOURCE MOBILISATION (taxation)ECDPM Page 16
  17. 17. • Mobilise capital through public-privatepartnerships (blending as a mix of grants andnon-grant sources)• International solidarity levies (e.g. taxes onair tickets)• Taxes on financial transactions (Tobin tax)• Fight against illicit capital flightINNOVATIVE FINANCING FOR DEVELOPMENTECDPM Page 17
  18. 18. • In volume much smaller than other flows(but still primary source of revenue for LICs)• Increasing pressure for results in a context ofdeclining budgets• For some, ODA did create addiction anddependence (“free money does not provideincentives for reform”)• For others still a major catalytic role (e.g.increase public sector revenue & knowledgetransfer on taxation)IS THERE STILL A ROLE FOR AID (ODA)?ECDPM Page 18
  19. 19. 1. Ambitious Post 2015 agenda requires global action andmajor increases in development finance.2. Need for differentiated mix of approaches: developmentfinance should target the poorest in the most marginalisedand vulnerable economies3. Ownership and responsibilities of developing countries iskey: less reliance on ODA, more focus on domesticresource mobilisation+ increase of “non-ODA” flows4. ODA could be a trigger IF redirected towards strategicreform (e.g. the basic capacities to generate and re-distribute own revenues- to date less than 1%!)5. Wealthy countries: invest in improving “developmentfriendliness” of policies (PCD)CONCLUDING REMARKS: KEY MESSAGES FOR ANEW VISION ON DEVELOPMENTECDP Page 19
  20. 20. Thank you!www.ecdpm.orgGeert Laportegl@ecdpm.orgPage 20