development aid

july'08

With the gap between the richest and poorest countries continuing to increase, in 1970, the United Nations (UN) passed a resolution recommending that wealthy countries donate annually 0.7% Gross National Income (GNI) to developing countries in Official Development Assistance (ODA) in order to help the fight against poverty. And every year the club of wealthy nations, the Organisation for Economic Co-operation and Development (OECD), produces figures showing how much each rich country gives in ODA and what percentage of its GNI that figure represents.

Below is the ODA league table for 2007 (2006, 2000) which shows the aid contributions of the members of the Development Assistance Committee (DAC) of the OECD - 22 of the richest countries in the world.

WORLD 'PREMIER' LEAGUE

From the table it can be seen that total ODA in 2007 amounted to $103.7bn, a slight drop from $104.4bn in 2006. For the rest of this century the figures were $106.8bn in 2005, $79.6bn in 2004, $69.1bn in 2003, $58.3 bn in 2002, $52.3bn in 2001 and $53.1bn in 2000. (The massive increase of 34% from 2005 over 2004 came mainly as a result of debt relief grants of $14bn to Iraq and $5bn to Nigeria.) The total for all countries is slightly down on 2006 and 2005 and shows that most donors are beginning to fail to meet their stated commitments to scale up aid to meet targets set for 2010 - see below. The total for 2007 now only represents 0.28% of rich countries' combined Gross National Income against 0.31% in 2006.

Norway with 0.95% (GNI) has regained top spot in the world 'premier' league table taking over from Sweden with 0.93%. Next comes Luxembourg in third place with 0.90% followed by Denmark and The Netherlands both with 0.81%. All of the top 5 exceeded by some distance the UN recommended target figure of 0.7%. Ireland is next with 0.54% just ahead of Austria with 0.49%. With the reduction in debt forgiveness to the poorest countries in 2007 some of the next few countries like the U.K. appear with a much lower figure. On the other side Germany appears to have increased ODA quite substantially but this was mainly due to the increased value of the Euro against the US Dollar than anything else. Near the bottom of the table is Japan with a reduction of $3.5bn from 2006 which was partly due to a decrease in debt relief operations. However, disappointingly, excluding debt relief, Japanese aid has been on a downward spiral since 2000. At the very bottom are Greece and the U.S. with a paltry 0.16%.

Another way of looking at these figures could be to say that every Norwegian contributes $794 annually to the developing world in aid whilst each American only hands over $73. However, stating it this way is a little unfair to the US as private individuals there are also major ODA contributors but their substantial donations are not included in the US ODA figure.

However, Norway, Sweden, Luxembourg, Denmark and The Netherlands and are to be congratulated on continuing to more than meet their international obligations. Governments in these 5 nations, it seems, really do believe that their contributions help to make a lasting difference to the lives of people in the developing world.

Over recent years the World Bank has been monitoring aid distribution and is now encouraging countries to start to untie more of their ODA. At present only 6 DAC countries allow recipients to use their money to best advantage but still over 20% of aid is tied. Chief culprit here is the US which insists that 70% of its aid is used to purchase goods and/or services from US companies/government departments. According to the World Bank tied aid is 25% less effective than untied aid.

At the same time, in a new strategy paper put forward by the European Union, it is suggested that ODA would deliver more productive results through continuity and co-ordination of delivery. This would have several advantages - poor countries could plan ahead more confidently, there would be less waste, duplication would be avoided and, eventually, it should lead to most ODA being untied. The success of this idea, however, will depend on the ability of EU member states working together on development to ensure a coherent and effective approach. This suggestion is certainly a constructive way forward in maximising ODA but the EU could and should have been bolder.

As UK prime minister Tony Blair's Commission for Africa report in 2005 highlighted, many countries in Africa suffer from a lack of expertise not just in organisation and administration but in many technical fields as well. As a result new ideas and projects are often instigated but then when difficulties are incurred things fizzle out. This is underlined by the staggering fact that only 1 in 6 World Bank projects set up in Africa continued after funding ceased. Rich countries abound with people with a great number of skills desperately needed in Africa. As a further approach to using ODA more effectively then rich countries could send experts to work with individual governments to help implement future development plans throughout the country. This could involve helping to secure food supplies by advising on different seed varieties/ fertilisers, searching and securing sources of water, exploiting solar power, helping to improve the physical infrastructure of the country and developing telecommunications. Assistance with the provision of health and education could also be given. At the same time nationals of each country could be trained in numerous relevant skills on the job.

This co-ordination and the targeting of regular payments of ODA to responsible governments along with the promise of the provision of experts to work at length on various projects would go a long way to ensuring that development aid was used to good effect in Africa. And this combination should soon lead to fast-track advances in attacking poverty in each progressive country leading in turn to more accountable government.

On the other side of the coin though not everyone agrees that ODA is a good thing. Many people view aid as wasteful, often going to criminal, corrupt and complacent regimes and never finding its way to those who need it most. For some people like Lord Bauer, it is 'the transfer of money from poor people in rich countries to rich people in poor countries.'

However, the Meltzer Commission set up by the Clinton administration in the US concluded that foreign aid can be properly targeted to where it can be used best. To this end it recognised that aid fosters development only if officials in recipient countries willingly promote and sustain reforms. This is backed up by the World Bank in a report which concluded that an annual increase in aid of $10 bn would take an extra 25m people a year out of poverty if it was targeted at poor countries with good governments adopting sensible policies. Spread across the board, the same amount would lift only 7m people out of poverty.

This then has to be the aim of overseas aid if it is to prove effective. Tough love it may be but it is common-sense. And in this way ODA can not only help governments in developing countries to reach the UN Millennium Development Goals (MDG's) <see GLOBALISATION> but it can also act as an incentive to those countries with poorly performing economies as well as those which are recovering from conflict.

The OECD total for collective giving in 2007 only represents 0.28% GNI and is still less than half way to the 0.7% target set by the UN in 1970. This means that developing countries in 2007 lost out by $155.5bn. However, recent events have focussed more attention on overseas aid thanks mainly to African leaders being invited to annual G8 meetings, more public awareness and international aid agencies campaigning on the depth of poverty in poor countries.

The most effective steps in efforts to increase ODA were taken at a conference on Development Finance held in Monterrey in Mexico in April, 2002 when donor countries committed themselves collectively to increasing ODA contributions. And since then in a series of statements, rich countries have fleshed out these promises on ODA. Norway and Sweden pledged to aim for 1.0% GNI from 2006 onwards and Luxembourg by 2009. All DAC members of the EU have agreed to reach 0.7% GNI by 2015 with an interim promise to reach 0.51% GNI by 2010. Within this group some countries have opted for a faster approach to reach 0.7% GNI - Belgium and Finland by 2010; France and Ireland by 2012 and the UK by 2013. The EU also laid down a minimum requirement of 0.51% to be reached by all members by 2010 (EU average in 2007 was 0.38%). The newest 10 members of the EU, which are less wealthy, have agreed to aim to reach 0.17% GNI by 2010 and 0.33% by 2015. Regrettably, however, US, Japan, Australia, Canada, New Zealand and Switzerland have yet to set a timetable to reach 0.7% GNI.

According to the G8 all of these promises should translate into an extra $50bn in ODA being made available to developing countries by 2010 of which $25bn will go to Africa - thus doubling ODA to that continent in 6 years.

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*In 2006 the UK figure for official development assistance (ODA) was $12.6bn or £6.77bn. Of this figure debt relief accounted for £1.847bn most of which was given to Nigeria. The remainder (£4.923bn) was made up as follows:-

£2.562bn bilateral aid (52%)
£2.126bn multilateral aid (43%)
£0.234bn administration costs (5%)

India, Tanzania and Sudan received the largest amounts of DFID bilateral aid. 43% of bilateral aid went to countries of sub-Saharan Africa and 11% was channelled through UK civil society groups including British Red Cross, VSO and Oxfam.

The European Commission's development programme received the largest amount of DFID multilateral assistance with £0.964bn followed by the World Bank (£0.592bn) and the UN (£0.308bn)

Included in the totals for bilateral aid and multilateral aid is humanitarian aid where the largest recipients were Sudan, Democratic Rep of Congo and Indonesia.

The top 10 countries in receipt of UK Net Bilateral Aid in 2006 were (in £m) :- India 234, Tanzania 112, Sudan 110, Bangladesh 109, Pakistan 101, Afghanistan 99, Ethiopia 90, Nigeria 82, Uganda 78, Dem Rep of Congo 75.

The top 10 countries in receipt of UK Bilateral Humanitarian Assistance were (in £m) :- Sudan 84, D R Congo 52, Indonesia 19, Uganda 18, Zimbabwe 16, Pakistan 16, Kenya 13, Iraq 10, Burundi 8, Somalia 8.

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