The new development aid donors

The new development aid donors

The world of official development assistance has been undergoing significant churn during the past decade. In the 1990s, almost 95% of all official assistance came from members of the Development Assistance Committee (DAC) of the Organization of Economic Cooperation and Development (OECD), which has traditionally comprised developed countries. In recent years, however, a steady stream of new aid providers has emerged. While China has already marked its significant presence in Africa, besides in a number of other low-income and least developed countries, the entry of South Korea in DAC earlier this year should be regarded as yet another important landmark.

The emergence of new aid donors has raised a number of very interesting issues that can have far- reaching implications for improving the level of aid effectiveness. Importantly, the South Korean government has taken a major initiative to debate these issues by setting up a multi-stakeholder forum, the Asian Cooperation Dialogue Meeting. This initiative is even more significant given that the country would be hosting, in December 2011, the Fourth High Level Forum (HLF-4) on Aid Effectiveness organized by the OECD DAC Working Party on Aid Effectiveness, a forum of donors and recipients.

Besides issues concerning the ownership and accountability of aid transactions as well as more transparent and responsible delivery of aid, HLF-4 would deliberate on the interesting dimension of south-south cooperation in the realm of aid. This dimension of HLF-4 would deal with adapting aid effectiveness principles to south-south cooperation practices and enriching aid effectiveness from south-south cooperation experiences, besides identifying complementarities between north-south and south-south cooperation.

The available evidence on development assistance between southern partners indicates that beefing up of soft infrastructure has dominated this form of cooperation. While this has mostly taken the form of capacity building programmes, initiatives that can have larger pay-offs—such as collaboration in the area of science and technology—have been few and far between. North-south cooperation is also undergoing a change with the advanced countries entering into partnerships with the emerging economies to provide development assistance to the least developed countries.

As new donors increasingly look to complement the advanced countries, a number of issues may be raised as to whether the participation of the former would indeed improve aid effectiveness. In the first instance, the nature of the engagement of the new donors with their recipients would be watched with interest, in particular whether their motivations for engagement are different from those of advanced countries, most of which were driven by overt commercial interests. This aspect becomes more relevant in view of the fact that some of the large donors from among the developing countries, including China, seem to have been clearly driven by strategic and commercial considerations in their engagement with many of their partners. In other words, the donors use development assistance to gain additional markets for their goods and services, thus raising the spectre of “tied aid".

A more fundamental issue is the prioritization of areas in which donors need to provide assistance. This issue is vitally important for the developing countries since a number of their development projects tend to fall by the wayside as commercial lenders find these projects unviable. In other words, there is evidence of “market failure".

For most developing countries, the issue on top of the pile is poverty alleviation. This has not received the necessary backing even after it was included in the Millennium Development Goals (MDGs) adopted by the United Nations in 2000. In fact, the lack of effectiveness of poverty alleviation programmes has been exposed in no uncertain terms as the number of people living in extreme poverty (i.e. those living on less than $1.25 a day) is expected to increase by 64 million as a result of the economic downturn. Importantly, the recently held Seoul summit of the Group of Twenty countries has emphasized that the problem of extreme poverty can only be addressed by ensuring consistently high levels of inclusive growth in developing countries, and low-income countries in particular. Putting their intent into practice would be a multi-year plan for development that was agreed at the end of the summit. But while the implementation of this plan has largely been left at the door of a multitude of agencies, it seems imperative that the new donors take a proactive role in identifying the projects that can deliver. By doing so, some of these donors lsuch as China and South Korea can bring to the table their own development experiences that have enabled these countries to emerge as world powers.

In terms of sectors that have longed for quality development assistance, agriculture is way ahead of any other. In many developing countries, especially in the low-income countries, agriculture is the mainstay for a very large segment of the workforce. However, opportunities available for this workforce are steadily shrinking as the sector is caught in a low-productivity trap. Addressing the institutional and infrastructural deficits that have mired the sector needs immediate attention, which is possible through assured aid commitments.

Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi

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