Private
finance
Debt
Tax
justice
Aid
Financial
architecture

CSOs, policy-makers and the private sector meet to discuss the future of aid

Added 29 Nov 2012

On 15 November Eurodad, CNCD-11.11.11 and Oxfam International organised the public seminar “The future of aid and development effectiveness.” The seminar brought together civil society groups, experts, EU decision-makers, parliamentarians and private sector representatives to debate the role of the private sector in the post-Busan agenda. The event was also an opportunity to publicly launch the latest Eurodad report: “Hitting the Target? Evaluating the Effectiveness of Results-based Approaches to Aid.” After a fruitful discussion, participants called on relevant stakeholders to be accountable for previous commitments on the aid effectiveness agenda.

The Fourth High-Level Forum on Aid Effectiveness held in Busan in late 2011 reaffirmed the commitments made in Paris and Accra, and resulted in the new Global Partnership for Effective Development Cooperation, which includes new actors such as emerging donors and the private sector. As participants stated during the seminar, Busan did not result in agreement on a clear framework to monitor aid effectiveness commitments and progress so far has been very slow, particularly regarding the work of the building block on public-private cooperation for development.

Donors are increasingly using ODA to leverage private finance for investments. This trend partly responds to the needs of Micro, Small and Medium sized Enterprises (MSMEs) in developing countries. However, there are serious concerns that the focus on the private sector is also being driven by the need to fill the financing gaps created by shrinking aid budgets. In any case, the new emphasis on the private sector as a “development partner and actor” poses some key questions that should be addressed. During the seminar, participants discussed some of them, such as the type of private sector actors donors should work with, the impacts and modalities that work best for development and the type of engagement with the private sector in the context of the aid effectiveness agenda.

The challenges of development cooperation

MEP Charles Goerens (ALDE), rapporteur on the Agenda for Change, framed the discussion by introducing the Parliament’s position on the issue. The European Parliament has recently challenged the focus of the European Commission (EC) Agenda for Change on the private sector in a specific resolution that calls on the Commission to put the emphasis on “poverty reduction and the fight against inequality”. According to the Parliament, “exclusive attention to economic growth and excessive confidence in the effects of automatic redistribution of development in the private sector could lead to unbalanced, non-inclusive growth without having a real impact on poverty reduction”.

As the European Union remains the world’s largest aid donor, Goerens stressed the need for increasing aid quality and its real development impact. Despite recent changes, participants also highlighted the catalytic role that ODA can (and should) play in promoting sustainable development and increasing domestic resource mobilisation, particularly in low-income countries where ODA can account for as much as 10 per cent of GDP.

Another challenge addressed during the seminar was how to reach the private sector actors that have a greater development impact and which are the right tools to do this. Regarding the former, developing countries’ domestic enterprises are a key target in order to ensure that development finance is used effectively. SMEs and in particular young SMEs play an essential role in development, as job creators and social stabilisers, as well as sources of innovation. Regarding the latter, Eurodad highlighted the important role that smart public procurement can play in creating business opportunities for the private sector. Eurodad research shows that public procurement accounts for about 18 per cent of global GDP and in some developing countries can account for 70 per cent of public expenditures. As it was mentioned in seminar, “procurement is where the money is and determines where the money ends up,” thus, if well targeted procurement is an effective development policy tool.

However, donors and recipient countries’ ineffective practices continue to constrain the full potential of aid to deliver development outcomes. Participants agreed that it is essential to monitor progress towards commitments on a rolling basis. In June this year at the meeting of the Working Party on Aid Effectiveness (WP-EFF) a relevant set of indicators was endorsed and the use of recipient countries’ procurement systems is now seen as a crucial indicator. Despite progress having been made, the list has yet to be completed and there is concern about what the exact content of some key indicators will be, such as the indicator on the engagement and contribution of the private sector to development.

Aid effectiveness and results-based approaches

More public and political pressure on budget allocations, coupled with the genuine need to improve aid effectiveness to fill the development gap, have combined to provide the impetus for a renewed focus on results. However, results-based approaches are the subject of much debate among development practitioners. For some, it is a way to ensure that aid is effective; others regard it as quick win and a donor driven agenda for times of crisis that could reverse all the progress made towards programmatic aid modalities.

During the seminar Eurodad launched its latest report in a round-table discussion with civil society groups, Oxfam Germany and Action Aid, and representatives from the European Commission (EC). Based on the main findings of the report, participants discussed some encouraging signs, but also some grey areas such as design, sustainability, funding predictability and long term development impact compared to other aid modalities.

Although the EC is one of the donors that according to Eurodad perform better on the implementation of results-based approaches, the EC representatives agreed on the point that they should be cautious when using results-based approaches. The increasing pressure on aid budgets and the calls for greater accountability in the use of aid funds should not be translated into modalities that undermine the aid effectiveness principles. In order to prevent this from happening, the aid effectiveness agenda should serve as a reference framework to ensure that new aid modalities are an improvement over existing ones.