Development Effectiveness: New Ideas, New Challenges Tony Addison Miguel Niño Zarazúa Danielle Resnick Ministry for Foreign Affairs Helsinki, Finland January 19, 2012
Overview of Presentation Tony Economic Growth & Aid Miguel Social Protection & Poverty Danielle Democracy & Human Rights Tony Conclusions: the Value of Knowledge Snapshot of some (but not all) UNU WIDER research Presentation is intended to open a conversation, not to provide ready made answers 2
Opportunities We live at a time of real progress economic growth, poverty reduction, technological breakthrough Violent conflict has fallen Africa is not the Africa of 30 or even 10 years ago Growth delivers more public revenue if tax institutions built That public revenue is available for investment in human development & infrastructure Resource rich countries are especially well placed if they use the revenue well We know more about what works in development than at any time previously 3
What Works Economic Growth to deliver sustained poverty reduction (e.g. Bangladesh, Uganda poverty down) BUT: chronic poverty can remain resilient even when growth is high (e.g. India) discrimination by ethnicity, gender etc. Growth can reduce the poverty of a healthy young man able to work, but not a sick mother in subsistence farming AND: growth s environmental impact must be managed AND: growth does not necessarily reduce conflict (Pakistan) Foreign Aid has a robust impact on growth (but not at all times & in all places) Aid has helped Ethiopia, Ghana, Rwanda, Mozambique, Uganda, Tanzania pull themselves out of crisis 4
Trend in SSA Export Performance Export Performance of SSA (Percentage of GDP) 1960-2009 Export to GDP (%) 20 25 30 35 1960 1970 1980 1990 2000 2010 Year Exports of goods and services (% of GDP) Fitted values
Child Malnutrition Figure 2: Malnutrition and growth in cross-country evidence 70 Under-5 malnutrition prevalence 60 50 40 30 20 10 0 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 GNI per 6 capita, PPP
Redrawing the World
Aid Policy Macro to Development Links Help countries to tighten the link between the macroeconomic framework & the longer term development strategy e.g via National Plan (Botswana good example) Think harder about structure growth but not enough structural change (new industrial policy, or learning to compete ). Role for aid in encouraging more private capital flow (e.g. via reducing risk) In principle, plenty of high return projects that could pay back the funding but be careful about excessive borrowing High return public investments still on the shelf investments often financed by high cost domestic borrowing rather than concessional aid So what is optimal blend of grant aid, concessional borrowing, commercial borrowing, FDI? Very country specific
ODA v Natural Resource Rent ODA and Natural Resource Rents in Sub Saharan Africa (Percentage of GDP from 2000-2009) ODA and Natural Resource Rent (% of GDP) 0 5 10 15 20 25 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 ODA (% of GDP) Total Natural Resource Rent (% of GDP)
Aid Policy Managing Resource Revenues Distorting impact of resource rents much to worry about often associated with institutional weakening (oil especially) whereas aid tries to improve institutions Strengthen technical assistance & policy dialogue to help countries use growing resource revenues in transparent & effective way For example enhance policy toolkit for investing resource rents in social protection & high value infrastructure & link to industrial policy ( learning to compete ) Retain budget support to countries receiving larger resource revenues when it provides entry point for dialogue on overall fiscal framework (taxing & spending) 10
Aid dependence across SSA countries 0 10 20 30 40 50 60 70 ODA (% GDP) South Africa Mauritius Gabon Nigeria Botswana Swaziland Seychelles Angola Namibia Kenya Sudan Sub-Saharan Africa (developing only) Cameroon Zimbabwe Congo, Rep. Cote d'ivoire Equatorial Guinea Guinea Togo Tanzania Madagascar Senegal Lesotho Benin Uganda Ethiopia Ghana Central African Republic Chad Gambia, The Comoros Congo, Dem. Rep. Niger Burkina Faso Mali Mauritania Sierra Leone Zambia Cape Verde Eritrea Rwanda Burundi Malawi Mozambique Guinea-Bissau Liberia ODA as Percentage of GDP SSA Countries 0 10 20 30 40 50 50 Quantile of ODA (% GDP) ODA % of GDP, (1990-2009) Average
Aid Policy Two Fragilities Fragile countries where risk is high & stubborn & macroframework weakest. Will aid become concentrated on these? Country Fragility (ii) International Monetary System weakness countries build large forex reserves to provide shock insurance reason why central banks like to use aid to add to reserves Global Fragility Aid Growth impact can t be maximized without action on: (i)conflict peace building is good economics (ii)reform of the international monetary system to raise stability & provide more global shock insurance (& movement on trade agreements) 12
Poverty and Social Protection 13
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Social Protection: a policy approach against poverty Social protection as a new paradigm in the fight against extreme poverty Moving from conventional approaches to food aid, and subsidies to regular, reliable and predictable forms of assistance It reflects an emerging consensus that eradicating poverty requires economic growth, basic service provision and social protection It reflects a shift in the conventional wisdom on the nature and causes of poverty, from poverty as a lack of income to poverty as multidimensional phenomenon. We focus on Social Transfers (ST): tax financed (and/or aid supported) policy instruments designed to address poverty and vulnerability Over 30 developing countries now with large scale social transfer programmes Pilot schemes being introduced in several countries in SSA (Kenya, Malawi, Ghana and Zambia; and at implementation in Nigeria, Liberia, Uganda, and Tanzania) More than 860 million people currently receiving income support in developing countries the most important policy instrument against extreme deprivation at present time 15
Number of Number of Country Poverty focus 2/ Social Programme Protection: title Country policy Type approaches households (in beneficiaries against (in poverty classification 1/ millions) millions) National Rural Employment Guarantee Scheme Urban DiBao Program Bantuan Tunai, Bantuan Tunai Langsung Bolsa Familia India China Income transfer plus Integrated antipoverty 48.0 240.0 22.0 110.0 Indonesia Pure income 19.1 95.5 Brazil Income transfer plus 12.5 52.3 Rural Dibao China Pure income 10.5 42.0 Prêvidencia Social Rural Brazil Pure income 7.5 37.5 Indira Gandhi National Old Age Pension Scheme Progresa Oportunidades 100 Days Employment Generation Scheme (EGP) Tekun (transfer in less developed regions for destitute households) India Pure income 15.7 31.4 Mexico Bangladesh Income transfer plus Income transfer plus 5.5 27.5 China Pure income 6.6 10.7 Beneficio de Prestaçao Continuada Brazil Pure income 2.4 10.0 Expanded Senior Citizens Act of 2010 Philippines Pure Income 2.0 10.0 National Family Benefit Scheme India Pure income 2.0 10.0 Old Age Pension South Africa Pure income 2.4 10.0 Child Support Grant South Africa Pure income 1.9 9.5 Subtotal for 15 largest programmes 161.0 711.4 Other 79 programmes 30.4 151.9 TOTAL Developing world 3/ 191.4 863.3 Lower middle income Lower middle income Lower middle income Upper middle income Lower middle income Upper middle income Lower middle income Upper middle income High High High High High Categorical High High 3.0 15.0 Low income High Lower middle income Upper middle income Lower middle income Lower middle income Upper middle income Upper middle income High High Categorical High High High 16
What makes Social Transfers so innovative? Distinctive features of Social Transfers Adopt a multidimensional approach to poverty. They link income transfers with simultaneous interventions in health, education and nutrition (supply demand connection) Focus on the poorest (principles of Social Justice). This is in clear contrast to generalised and targeted food and input subsidies that dominated past antipoverty agendas Designed to address gender inequalities Income transfers are given to mothers under the recognition that women are effective agents of social change. Follow a complex and statistically based system of identification and selection of beneficiaries. This aimed at improving policy efficacy and preventing discretionary political manipulation Have included independent impact evaluations. That has helped improve the programme s effectiveness, and strengthen their legitimacy across different political factions and constituencies. 17
What works in Social Transfers? What do we know? Education: Strong correlation with various educational outcomes. In MICs, impacts more significant on secondary education Important to support budget to increase supply side capacity quality of education Health Improvements in health care utilisation Positive change in parental behaviour towards children s preventative health care Intra household spillover effects I health status beyond the direct beneficiaries Nutrition Strong improvements in nutritional status across countries and throughout different types of programmes Poverty Effective in reducing extreme deprivation (larger impacts on poverty gap and squared poverty gap than headcount index) Effective insurance properties to protect the poor against aggregate shocks (examples Brazil, South Africa, Mexico) What we don t know? Whether more schooling and better health and nutrition for children will translate into higher economic development and social mobility in the longer term Whether enforcing conditionalities can actually increase impact in LIC not fully known their marginal costs and benefits either The optimal size of transfers to maximise impact, given decreasing marginal social returns Unknown optimal length, regularity and duration of interventions, given population, socio economic and political economy considerations at individual country level 18
Main Challenges: Affordability MIC spend less than 1% of GDP on social transfers For Low Income, aid dependant African countries: Child grant + pension + employment scheme (=UN social floor transfers): 3 5% GDP 40 % net ODA a) Universal pension/ GDP b) Child benefit/ GDP c) Employ ment scheme/ GDP Transfer package/ GDP (a+b+c) % Revenue excl grants/ GDP Transfer package/ Revenue excl. grants Net ODA/ GDP Transfer package/ net ODA Guinea 0,6 1,5 0,3 2,8 15,6 17,7 7,5 36,9 Burkina F. 1,1 2,8 0,6 5,2 13,1 39,5 12,5 41,3 Ethiopia 1,0 2,8 0,6 5,1 12,0 42,2 12,6 40,3 Tanzania 1,1 3,1 0,6 5,5 17,3 31,9 11,4 48,5 Senegal 1,1 2,0 0,5 4,1 19,6 21,1 8,0 51,7 Kenya 0,9 3,0 0,6 5,2 20,8 24,9 3,9 131,3 Cameroon 0,8 1,8 0,4 3,5 20,0 17,3 2,2 154,0 19
Financing options? Revenues from Natural resources in resource rich countries but with governance problems Renegotiation of contracts with companies involved in the exploitation of natural resources (e.g. Bolivia) Medium term fiscal policy objectives Rises in VAT earmarked for expenditures on Social Protection (?) Anti tax evasion policies Chile reduced VAT evasion rate from 20% in the 1990s to less than 10% in 2009 Room for redistribution? What marginal tax rate on the rich would be necessary to eliminate the normalised aggregate poverty gap? MTR: proportion of tax paid for each additional income unit earned at the highest income threshold 20
MTR needed to eliminate the poverty gap 21
Main Challenges: institutional capacity In MICs institutional capacity has facilitated the expansion of SP to scale Centralised approaches (e.g. Mexico) recent linkages with non banking financial Institutions. State and private sector linkages (e.g. South Africa, Brazil) Limitations in capacity to formulate, deliver, and evaluate transfer programs are a key constraint in most LICs. Strong reliance on community management and a mix of providers public, NGOs and for profit organisations (e.g. Malawi, Ethiopia and Zambia Advantages: Local elites and resources are engaged in poverty reduction. Disadvantages: Community involvement tends to reproduce and/or reinforce social disparities and power relations. 22
What can donors do? Stay aligned, build on countries own efforts Stay harmonized, joint financing mechanisms Commit long term financing Two key questions: Which aid modality? Time bound aid for permanent costs... What if not enough ownership to build on? 23
Promotion of democracy and good governance 24
Democracy Assistance Small share of total development assistance (about 7%) SSA receives most democracy assistance (3.5 billion USD in 2009) Does not offer governments carrots and sticks Little harmonization, often driven by different normative perspectives Disaggregated Democracy Assistance in Sub Saharan Africa (Millions of 2009 USD Commitments) Sources: OECD Creditor Reporting Database 25
Context Electoral Assistance 17 African countries holding elections in 2012, including Madagascar, Zimbabwe, and Guinea Bissau What works? Electoral cycle approach Joint donor trust funds managed by UNDP Exit polls Training of local/regional electoral monitors Knowledge Gaps How to reduce likelihood of electoral violence? How to increase independence of electoral commissions? 26
Party and Legislative Strengthening Context Parties and parliaments remain extremely weak in Africa What Works? Party Assistance Political Resource Centers Pro rated grants to parties Inter party dialogue Media diffusion of party/candidate views Legislative Strengthening Issue based technical assistance Parliamentary scorecards Parliamentary budget units Parliamentary donor groups/coordination offices Knowledge Gaps How to evaluate the impact of party and parliamentary assistance? How to involve senior politicians in training programs and workshops? 27
Human Rights Context Progress but also backtracking and harassment of certain groups What works? Well designed human rights commissions and ombudsperson offices Commodity/technical assistance to media, including community radio Gender based violence desks Representational quotas for excluded groups HIV/AIDS as entry point for LGBT rights; Support to LGBT CSOs Incorporate human rights safeguards into aid projects Knowledge Gaps How to improve freedom of expression in adverse political conditions? Do institutions and laws ultimately change the attitudes of governments and their citizens? 28
Broader Questions to Consider Does the growing presence of non democratic donors impact the effectiveness of democracy assistance? How can we better harness the democracy and human rights achievements of non traditional donors? How can we better integrate development and democracy assistance? 29
The Importance of Knowledge Research that delivers knowledge on what works builds a foundation for good policy (& good aid) But we need more knowledge on what could work: especially what is scalable & transferrable Can small projects become big projects? Could what works in country X work in country Y? Can our knowledge keep pace with the escalating threats? The complexity of global finance Climate change & environment Research delivers knowledge about what works but also what could work makes for better policy & better aid 30
Conclusions We have provided a taste of our thinking More at: www.wider.unu.edu Do check out ReCom at: www.wider.unu.edu/recom Do sign up for our WIDER Angle newsletter Now we would like to hear your thinking Thanks! 31