Where will the money come from for sustainable development?

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Yesterday I attended the presentation of the OECD Development Co-operation Report 2014: “Mobilising Resources for Sustainable Development“. The report can be seen as positioning itself as a key reference for the UN Financing for Development Conference in Addis Ababa next year and is well worth a read.

It is unashamedly optimistic, arguing that “there is plenty of money in the world that could be used for development”, and that what we need to do is to mobilise these resources and ensure there is the right political environment for them to be used well. There is a certain inevitability that much of the debate around the report will focus on where the money will come from, but that would be to miss some of the more transformative elements.

I will look briefly at where the money for development will come from, but then turn to the more important questions of what the money should be used for, and what else needs to be done to ensure the increased resources make a difference.

1.  Where will the money come from?

The report outlines the various forms of development finance, arguing that: a) Official Development Assistance (ODA) will have a relatively small role (ODA was $135bn in 2012 – a record – but only 28% of official and private flows from the OECD DAC countries), b) domestic resources will become increasingly more important (e.g. remittances – $351bn in 2012, as well as an increased tax base).

There are various mentions of “potential” sources of finance, but a healthy note of scepticism needs to be sounded here as the resources either don’t yet exist (as in the case of “innovative financing” where the graph shows that current levels are at $1.9bn with a “potential” three hundred-fold increase to $635bn!); are sitting in funds with no particular development focus (e.g. the massive $83.2 trillion in institutional investor assets); or they have largely gone to wealthier countries, such as the case of Foreign Direct Investment. This doesn’t mean they aren’t potential sources of finance, just that they need to materialise to contribute to sustainable development.

2. What should the money be used for?

The report makes the case for “strategic” and “Smart” ODA, arguing that ODA has a unique role to play in:

  • Fragile and least developed countries that can’t get access to other sources of finance
  • Making investment attractive by sharing risk
  • Enable countries to raise and manage their own domestic resources (e.g. through strengthening tax capabilities, tackling corruption)
  • Promoting policy reforms to create a positive investment environment

While the debate about the unique role of ODA and what it should be targeted on is important to have, particularly in the climate when the results agenda often seems to focus more on outputs than impact, it needs to be in the broader context of  what we are mobilising all of the different forms of finance for?

Is development finance going towards a low carbon energy transition? Will it focus on leaving no-one behind and tackling inequality in countries? Will it go towards meeting the new Sustainable Development Goals? Will it stimulate growth that is inclusive in that it is linked to jobs and livelihoods of the poorest sections of the population?

Without this focus, the financing for development debate becomes largely theoretical and about numbers that most of us find it hard to imagine. Without the same focus of poverty alleviation and sustainable development the debate centres simply on mobilising resources and not about mobilising resources for sustainable development. The difference is enormous.

3.  What else needs to be done to support sustainable development?

Within the optimism of the report, there is also a healthy dose of reality in placing financing for development challenges in the context of other global challenges, recognising that poverty reduction and sustainable development increasingly depend on making progress on what the authors call “issues without passports”.

These issues include: environmental and climate challenges (see recent CAFOD report on links between poverty and climate vulnerability); unfair trade terms for many lower income countries as the WTO negotiations remain stalled; effects of war and conflict.

This focus is welcome and a useful reminder that whatever is discussed next year in the UN Financing for Development Conference in Addis Ababa needs to linked to political action to make progress on wider issues such as reaching a Climate Agreement in Paris in December 2015 and  a WTO Agreement that facilitates beneficial trade terms for poorer countries.

Within these wider challenges there are some very obvious and very clear quick wins that could both unlock the potential resources and promote development that is sustainable.

  • Eliminating fossil fuels subsidies could release an estimated $50bn that could be used for development and be part of an energy transition to a low carbon economy.
  • Fighting money laundering and tax evasion by stepping up action on tax havens, due diligence on politically exposed persons and improving asset recovery could help stem the illicit financial flows that were ten times greater than the amount of ODA received in Africa.

These “issues without passports” need to be given as much political priority as debates over the amount of money that will be pledged by different governments, businesses and other actors next year. Otherwise governments, businesses and other actors could be taking away with their right hand what they have given with their left.

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