The Future of Aid

Global development is a huge success story. Absolute poverty has been reduced by 1% every year since the 1990s. There is now broad support to set a historic target of eradicating extreme poverty by 2030. China alone has brought 600 million people out of poverty and India recently celebrated its third year without any cases of polio.The vast majority of East Asians and Latin Americans now belong in an emerging middle class.

However, general improvements are no consolation for those left behind. Last week I visited the Central African Republic, a place where increases in global averages mean little. Nearly one million people have fled their homes and almost the entire Muslim community have left the capital Bangui. More than 2 million people are in desperate need of live-saving assistance. The scenes of looting and pillaging are horrific.

These two contrasts reflect the future of aid. Some countries are making huge strides forward while others are falling further behind. We live in a more complex world and can no longer only speak of rich countries and poor countries, developing countries and developed countries. Think of the fact that poor Vietnam produce better education results than Spain – or indeed most OECD nations. The differences can be greater within than between the old categories. North Americans are four times as rich as Brazilians, while a Brazilian is seven times richer than a Nicaraguan and fifteen times wealthier than Haitians. Today, some 1.2 billion people continue to live in extreme poverty, defined as less than USD 1.25 per day. Around 70% of those live in middle income countries including India. That means that most poor people do not live in poor countries. On the other hand, with enormous progress in many middle income countries, those left behind could very soon be concentrated in the most fragile and week states.These two opposing trends influence how development assistance should be provided.

The huge number of poor people in middle income countries means that many people have not yet benefited from their country’s strong economic performance. Some countries, like Brazil and Ethiopia, have been able to grow without rising inequality. Effective policies for social protection, redistributive cash transfers and the provision of public education and health services has made it possible. Brazil has grown rapidly and attracted investments while lifting millions of Brazilians out of poverty. The poorest 20% saw their incomes increase seven times as fast as the top 20%. Brazil has done what was thought impossible while at the same time cutting deforestation in the Amazon by 80%.

Development assistance must become smarter to be effective in a world where many the poor live in countries whose budgets may dwarf those of many aid providers. For example, using aid to improve tax authorities in developing countries can yield enormous returns. An OECD Tax and Development Programme in Kenya raised 1290 dollars in additional taxes for every dollar spent. Guaranties and low interest loans for infrastructure projects can provide great benefits at little costs. Aid for trade initiatives can be beneficial to everyone. With good tax systems and financial control, natural resources can provide vast resources for health and education in many African nations.

At the same time, we need to emphasize peace and support the most fragile states .The latest examples of countries ripped apart from conflict are the tragic cases of South Sudan and Central African Republic. If anyone think prevention of such disasters is costly, then try conflict! Conflict is terrible because of the death and human suffering, but the economic cost is also devastating. The African Development Bank has calculated the average cost of an African civil war to 20 – 30 years worth of development. Development assistance providers can support weak states and help prevent disaster by prioritizing these countries, underpinning peace processes, supporting the priorities of the governments and using the country systems.

Spain has a long historical tradition as a generous provider of development assistance and as an important contributer to peace. Spain will hopefully soon be ready to turn the economy around and then start a gradual increase of its development spending towards the of 0, 7% of GDP target. The UK and Turkey have already shown that development aid can be increased in difficult times. The quality of aid spending also matters. The rise of the south and the enormous development successes are due to better policy choices, massive increase in private investment, more trade and the rapid increase in development assistance over the last decade. The future of aid lies in continuing and speeding up these processes. Smart aid leverages more and better private investments and assist in domestic resource mobilisation through tax. Intelligent aid prioritizes education and the protection of the environment. The future of aid is more and better. We are the first generation in human history able to eradicate absolute poverty. Let us just do it!

By Erik Solheim, Chair of OECD Development Assistance Committee