Lorenzo Piccio :
In more ways than one, 2014 was a game changer in development business.
It was the year when the Green Climate Fund finally showed the money, when the European Union slashed aid to 16 middle-income countries, and when Western donors pumped billions in assistance to Ukraine.
What could this year bring for the development industry? Here are five of the most-pressing development business questions for 2015.
Post-2015, will ODA growth pick up again?
Nearly 15 years since the Millennium Development Goals were adopted by world leaders, progress on these eight targets has been decidedly mixed. There is little doubt, however, that the MDGs helped mobilized an unprecedented level of attention and funding from donor governments. Growth in official development assistance accelerated dramatically in the 2000s only to slow in the aftermath of the global financial crisis.
In September, world leaders are expected to sign off on the sustainable development goals, the successor to the MDGs. As donor governments’ development commitments come under the glare of the international spotlight, some aid advocates are cautiously optimistic that ODA growth will pick up again, just as it did after the adoption of the MDGs. At the same, there’s little expectation that the recent ODA modernization effort at the Development Assistance Committee of the Organization for Economic Cooperation and Development will inflate or dilute ODA figures.
“It’s fully anticipated that the finalization and adoption of the post-2015 development agenda will see renewed financial commitments from donor governments,” Tony Baker, Education for All campaign manager for the Results Educational Fund, told Devex recently.
Despite the prospect of a rebound in ODA growth, foreign aid does seem likely to claim a smaller share of the global development financing pie amid the influx of funding from private donors and domestic revenue sources. All eyes will be on Addis Ababa, Ethiopia, in July when the international development community hammers out a framework for financing the SDGs at the International Conference on Financing for Development.
Will the SDGs channel more ODA toward health systems?
Strikingly, global health funding has accounted for an outsized share of ODA in the decade and a half since the adoption of the MDGs. The MDGs are considered instrumental to the creation in 2002 of the Global Fund to Fight AIDS to Fight AIDS, Tuberculosis and Malaria, the largest financier of programs to fight AIDS, tuberculosis and malaria worldwide.
Few dispute that the emergence of the Global Fund, as well as the U.S. President’s Emergency Plan for AIDS Relief not long after, helped turned the tide against the “Big 3” communicable diseases. At the same time, health experts point out that the MDGs’ disease-focused approach to global health have skewed both external and domestic funding away from horizontal programs that strengthen health systems.
In 2011, health sector support represented just 4 percent of development assistance for health worldwide.
In stark contrast to the MDGs, the latest SDG proposal from the U.N. working group on the SDGs explicitly calls for investments in the building blocks of health systems, including health workforce and access to essential medicines. Despite criticism that the 17 SDGs and 169 targets recommended by the working group are far too many to be realistic and achievable, U.N. Secretary-General Ban Ki-moon has given his backing to the proposal, which still needs a green light from world leaders.
Even if health systems stay put in the SDGs, it is far from a foregone conclusion that ODA will follow. Studies have shown that donor priorities haven’t necessarily lined up with the MDGs. Health experts hope that in the aftermath of the Ebola outbreak, which has exposed the weaknesses of health systems across West Africa, donor governments will act differently this time around.
Will the Asian Infrastructure Investment Bank get up and running?
One of the big development finance stories of 2014 was the flurry of buzz and activity surrounding the launch of the China-led Asian Infrastructure Investment Bank. Seen as a rival to the Asian Development Bank, the bank is expected to have an initial startup capital of $50 billion designed to address infrastructure needs across Asia. By comparison, in 2013, ADB approved $12.6 billion in infrastructure financing for the Asia-Pacific region. All but three of the 24 prospective founding members of AIIB are ADB members.
Just this past weekend, the Chinese Ministry of Finance confirmed that the AIIB is still on track to become operational by the end of the year. While Beijing seems determined to keep to its ambitious launch timetable for AIIB, by most accounts, the bank still has a lot of work to do to build its operational, staffing and governance structure. According to the Chinese Ministry of Finance, the bank’s founding members should complete negotiations over the bank’s charter and regulations before June.
Whether the AIIB is indeed up and running before the end of the year will almost certainly be seen as a litmus test not just of China’s donor ambitions, but of its fellow emerging donors as well. Few doubt that emerging donors like the BRIC economies can do business directly with partner countries, but do they really have enough clout to shake up the multilateral financing landscape?
For one, any postponement in the launch of the AIIB will likely sow further doubts about the viability of the New Development Bank, the BRICS-led bank, which after some delay now plans to make its first loan in 2016. The same can be said of long-floated proposals for the India-led South Asian Development Bank and a Venezuela-led Banco del Sur.
Will USAID meets its 30 percent local spending target?
The end of the current U.S. fiscal year in September marks the deadline for the U.S. Agency for International Development’s ambitious target of channeling 30 percent of its funding to local organizations – a key pillar of the Obama administration’s USAID Forward reform agenda.
In fiscal 2013, USAID channeled 18 percent of its funding through local organizations in fiscal 2013, up from 10 percent in fiscal 2010. Yet while USAID may seem a long way off from its 30 percent local spending target, the cyclical nature of USAID’s appropriations means the agency will have at least an outside chance of meeting its goal.
Some aid advocates in Washington have expressed concern that USAID could move the goal posts on the 30 percent target by making the switch to a more inclusive definition of local spending, which would count cash transfers to governments and certain trust funds. USAID has changed the goal posts once before when it decided to include Afghanistan and Pakistan in its tally in 2013, skewing USAID’s progress toward the 30 percent target.
USAID Administrator Rajiv Shah has announced plans to step down next month, which means the agency will have to make its final push for the 30 percent local spending target without USAID Forward’s chief architect. Whether USAID meets or at least comes close to its 30 percent target will almost certainly be interpreted as a key test of the post-Shah USAID’s commitment to go local. Strikingly, congressional scrutiny of that commitment has largely died down since the early days of USAID Forward – which may be indicative of the fact that the reforms aren’t nearly as divisive or controversial as they used to be.
Will the next UK government stay the course on the 0.7 percent ODA-to-GNI target?
In both Canberra and Ottawa, conservative governments have over the past two years taken the ax to their foreign aid programs. Since taking office nearly five years ago, the United Kingdom’s conservative-led government has taken the U.K. aid program in just the opposite direction.
Not long after taking office, the Cameron administration ring-fenced the U.K. Department for International Development’s budget – even as it imposed sweeping spending cuts to other departments. Against the backdrop of a tenuous economic recovery, U.K. aid spending didn’t just remain flat, however, it actually rose steadily in the years since. In April of last year, the Cameron administration announced that it had finally met the country’s long-stated commitment to spend 0.7 percent of its gross national income on ODA.
As the United Kingdom gears up for a general election in May, there’s cautious optimism that the United Kingdom’s commitment to the 0.7 percent target – which enjoys broad cross-party support – will remain intact regardless of the composition of the next government. Polls currently place Cameron’s Conservative Party as the slight underdog to the opposition Labour Party. Just last month, the House of Commons voted 146-6 in favor of a proposal that would enshrine the target into law – at least until a future government moves to repeal it.
At the same time, the United Kingdom’s achievement of the 0.7 percent target has intensified the sentiment on the far right – including among conservative backbenchers – that U.K. taxpayer money is better spent at home.
While unlikely to make it into government, the ascendant Euroskeptic party, the U.K. Independence Party, has called for a staggering 85 percent cut to foreign aid. Strikingly, U.K. foreign secretary Philip Hammond has called the law to enshrine the 0.7 percent target “bizarre” – a telltale sign perhaps that even U.K. politicians closer to the center feel the need to protect their right flank from UKIP.
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Lorenzo is a Devex senior analyst based in Manila. Our resident budget cruncher, Lorenzo spearheads Devex’s in-depth reporting and analysis on global development finance and policy.
