Oh dear. Another unreadable European Report on Development. Good stats on finance (FFD) though.

Here I go again. Sorry. Europe is home to some of the world’s most interesting and innovative research and action on aid and ERD logodevelopment, littered with smart thinktanks, thoughtful academics, and reflective practitioners. So it would be great to create some kind of intellectual counterweight to the US-based dominance of the World Development Report and others. Why then is the European Report on Development so invariably disappointing?

Let’s start with the title of this 5th ERD: ‘Combining finance and policies to implement a transformative post-2015 development agenda’. Enough said.

After that if follows the usual ERD format, which I summarized in a post on the 2013 ERD:

‘What you get is a decent overview of progressive thinking on inequality, migration, trade, domestic resource mobilization and the role of aid. And a lot of developmental platitudes: the ‘key conclusions’ include ‘a transformative agenda is vital’, ‘national ownership is key’, ‘the children are our future!’ (OK, I made that last one up).’

Have things improved? ‘Fraid not. Here’s how the press release summarizes the ERD 2015’s key messages.

‘A key message emerging from the report is that success will be determined by the way policies and finance are used to implement a transformative post-2015 development agenda, and that a lack of funds will not be the constraining factor in achieving the objectives. Based on existing evidence and specific country experiences, the ERD 2015 shows that finance seldom reaches the intended objectives unless the right policies are in place. To implement a transformative, post-2015 development agenda needs the right combination of finance and policies.’

Yes, that’s the press release. Hold the front page – you need cash and the right policies. Who would have thought it!

ERD figsThe one section that woke me from my torpor was the number crunching on financial resources:

Finance options have changed

FFD options have changed dramatically by country income grouping, and over time. For example, consider the following financial flows (expressed in 2011 constant prices):

  • Domestic public revenues (tax and non-tax revenues) rose by 272%, from $1,484 billion (bn) in 2002 to $5,523 bn in 2011
  • International public finance (net ODA and Other Financial Flows (OOF)) rose by 114%, from $75 bn in 2002 to $161 bn in 2011
  • Private domestic finance (measured as Gross Fixed Capital Formation by the private sector, less FDI) rose by 415%, from $725 bn in 2002 to $3,734 bn in 2011
  • Private international finance (net FDI inflows, portfolio equity and bonds, commercial loans and remittances) rose by 297%, from $320 bn in 2002 to $1,269 bn in 2011.

 

Thus, since the 2002 Monterrey Consensus, in real terms (2011 dollars) developing countries have had access to an additional $0.9 tr in private international finance, $3 trillions (tr) in private domestic finance and $4 tr in public domestic revenues. Public international finance increased by just under $0.1 tr (and the total is now less than 1.5% of the total resources available). Figure 1 depicts the evolution of finance flows to developing countries.

The data shows that domestic public resources have grown rapidly and are the largest source of finance for all country income groupings. International public finance has also increased but is declining in relative importance. Domestic private finance has shown the fastest growth, but is still much lower (as a percentage of GDP) in LICs than in lower middle-income countries (LMICs) and upper middle-income countries (UMICs), with rapid transformations continuing. International private finance has been highly volatile compared to the other flows. Innovative finance is promising but is yet to take off on a large scale. These trends set the context and also present a number of key challenges that need to be addressed in the post-2015 development agenda and FPFD. For example, it is clear that there is both a need to think more about public resources ‘beyond aid’ and also to consider new approaches to ODA.

The composition of finance evolves at different levels of income

Figure 2 shows that as countries move towards higher incomes, they tend to experience: (a) declining ratios of aid-to-Gross Domestic Product (GDP); (b) increasing tax-to-GDP ratios (stabilising when countries approach LMIC levels), and within this, increasing shares of tax from incomes and profits and notably goods and services, but declining shares of international trade tax revenues; and (c) increasing private investment-to-GDP ratios.’

I had a decent exchange with the ERD team over my critique of the 2013 report (in the comments), so anyone care to leap to the report’s defence this time around, say what I’ve missed etc? I should confess that I’ve only read the 21 page executive summary (not sure they quite understand how executives work, There may be some buried gems in the full 377 page report – but in that case, why are they buried?!

Here endeth the rant.

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Comments

8 Responses to “Oh dear. Another unreadable European Report on Development. Good stats on finance (FFD) though.”
  1. Luc Lapointe

    I did not read the whole report but a good part of it…some of what is mentioned in the report is actually “doable” but other than being an interesting read…how do we turn this big report into an actionable agenda! We are currently working on some of these issues….but still an uphill battle for meaningful change or willingness to actually channel human capital and connect private aid flows to local needs and local organizations…but the financial system doesn’t actually make it easier now with increase focus on Know your Customer and Anti-Money Laundering http://www.pwc.com/gx/en/financial-services/publications/anti-money-laundering-know-your-customer-quick-reference-guide.jhtml – NGOs and the private sector have to increase due diligence on where the money comes from … everyone except Clinton Foundation … on the other side of the equation, some countries like India (and there are a few more) understand that they can limit flows of private aid unless it’s connected to their own political agenda.

    Rules around equivalency, transaction cost, currency risk (lost), to mention a few…could be addressed and would actually help in channeling new and innovative sources of financing for development.

  2. James Mackie, ERD Core Team

    Well thanks for the positive reactions Luc and Maria and thanks in particular for picking up some of the important messages we do believe are in the ERD2015 and which Duncan seems to have missed.

    ‘Policy also Matters’ may not be an innovative slogan but the whole point is that, as we go into the last few weeks of the run-up to the Addis Financing for Development conference it is crucial we remember that throwing money at a problem is not going to be an adequate solution. With the MDGs after the 2002 Monterrey FFD conference the debate focussed far too much on the potential financing gap and how to fill it with ODA. We must avoid making the same mistake this time round. Instead we need to look at all forms of finance for development and go well beyond ODA. After all it wasn’t ODA that financed most of the reduction in global poverty we have seen since 2000. We also need to back the right policies to ensure what finance is available is well used. Good policies save money and successful policies tend to attract more finance. If we had better policies to govern the international finance system and make illicit flows more transparent, it would be easier for all countries to raise domestic revenue. This may all sound like common sense but it is surprising how often people overlook real solutions that can help. The ERD brings together a lot of evidence to back up these arguments, including evidence from modelling studies and 6 country illustrations from places where transformative change has been happening. It also tries to get below the surface of treating the symptoms and rather look at a selection of the real enablers of development (e.g. governance, human capital development, trade, green energy …), how these are typically financed and what policies are needed to enable them to produce transformative change.

    The message is perhaps deceptively simple: the Addis FFD should not just be about the right financing solutions but also about the right policy solutions; the two go hand in hand and we ignore that at our peril

    So I’d encourage you to delve into the ERD a bit further, Duncan, the Executive Summary is just the tip of the iceberg and there is a lot of useful evidence in the report itself. You’ve picked up on the evidence the report brings out on how the FFD landscape has radically changed since Monterrey, but there is a lot more. Much of the point of a major report like the ERD is in all the material it pulls together that policy makers and development advocates can then use. Over to you. I hope you find it useful.

    • Duncan Green

      Thanks James, not least for your restraint! If the exec sum had been as engaging as your comment, that would have been a good start. I do think there is a serious comms problem with the ERD as currently constructed tho. If you are reduced to saying that a 21 page exec sum is ‘the tip of the iceberg’, then surely you need to take another look at how you are summarizing and communicating the contents – very few people will have the time or inclination to go further, certainly not those harassed FFD sherpas rapidly approaching the summit. We live in a fire and forget policy environment, so you can’t afford for your first shot to be a dud.

  3. Paul Engel

    I thoroughly enjoy your blogs, Duncan, and I enjoyed this one too. I think you’re right about the communication challenge. However, I am very sorry to see you missed one of the main point entirely. The call for cash AND the right policies is exactly what makes this ERD so extremely valuable. For twenty years, the entire debate was about (how much) cash was needed and how it should be spend to eliminate poverty. Without looking whether in developing countries, donor countries and internationally the right non-development policies were in place. A poverty elimination strategy at the developing country level was deemed enough. And people demanding policy coherence were only taken seriously in development circles. I truly hope this ERD has helped do away with the custom of looking away every time someone asked – many times that were you and us – whether it weren’t the economic, social, financial etc. policies that were the problem, rather than the amount of donor money.

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