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04/12/2016

NGOs worried by ‘financialisation’ of development

Development Policy

NGOs worried by ‘financialisation’ of development

A road under construction near Zambia's Victoria Falls.

[David Brossard/Flickr]

With three major milestones just around the corner, many NGOs are urging greater caution in the use of private finance in development aid policies. EurActiv France reports

A group of NGOs expressed concern over the issue ahead of a meeting of EU foreign ministers next Monday (16 March).

Three crucial and interwoven development events will take place between July and December.

“If the outcome of the first is disappointing, there is little hope that the other two will be ambitious,” warned Grégoire Niaudet, lead advocate for Secours Catholique, a development aid group.

The first event, the third International Conference on Financing for Development, will take place in Addis Ababa, Ethiopia, in July. The second meeting, in September, will aim to agree the “Sustainable Development Goals” that will replace the United Nations’ Millennium Development Goals. Finally, the UN Climate Change Conference in Paris will take place in December 2015.

>> Read our Special Report: Climate Change: the Road to Paris

Of the multitude of issues up for discussion, the mobilisation of development funding is a top priority.

“The global context is not good. Many states are indebted and lack resources, so of course we have to find innovative funding solutions. But we should beware of over-financialisation,” Grégoire Niaudet said.

Beware

Some countries, including many in Europe, have come up with “out-of-the-box” financing solutions.

>> Read: MEP Pedro Silva Pereira: Austerity-minded countries are wary of providing more ODA

In a working document prepared in advance of the Addis Ababa conference, the United Kingdom insisted on the importance of mobilising private resources and improving access to finance for women and the poor in the developing world.

Canada has called for the increased development of public-private partnerships, which it said could represent “an essential part of the solution to the financing of development”.

On behalf of the Innovative Financing for Development group, Chili has asked the Addis Ababa conference to highlight “the wide variety of innovative financing mechanisms available, and their unbeatable value for development”.

Risk of decline in aid payments

These proposals are seen as potentially risky for several reasons.

They may let some countries off the hook regarding their commitment to dedicate 0.7% of their Gross National Income (GNI) to development assistance. Many of the signatories are still a long way off achieving it.

Increasing the role of private investors may place the focus on emerging economies rather than the least developed countries, as higher levels of consumption and economic growth would make projects in these countries more profitable.

>> Read: British aid money invested in gated communities and shopping centres

According to the OECD, development assistance to the poorest countries is in decline. It fell by 5.6% in 2013, despite a growth in the total development budget.

Coordination Sud, a body of NGOs, is campaigning for half of all development assistance to be dedicated to the least developed countries.

Financial regulation at the heart of the debate

Several NGOs have released a paper on financial issues in development. They raised concerns over the subjects that have not been addressed in the preparation of the Addis Ababa conference, particularly financial regulation.

They pointed out that the rules for separating banking and commercial activities have not always been adequately implemented or adhered to, and that the regulation of derivatives, aimed at avoiding speculation on basic foodstuffs, has still not been finalised.

The group is also uneasy with proposals to securitise debts and increase recourse to public-private partnerships in unstable developing countries, which they compared to the subprime market during the financial crisis of 2008.

Concord, an NGO, opposes the EU’s plan to make its Addis Ababa development commitments dependent on those of the other powers. In a press release, it called that “inappropriate and politically complicated” and would prefer to see a series of clear commitments with a precise timetable.

Private finance and climate

Innovative financing methods will definitely be on the agenda this year. The Green Climate Fund, which has been struggling to raise the money necessary to finance the least developed countries’ adaptation to climate change, has recently expressed its interest in using bonds and other financing tools, including crowdfunding.

Many see innovative financing methods for development as a very important issue, but fear they may create more problems than they solve.

Tax evasion of secondary importance?

Christian Reboul, of Oxfam, said “We have to realign the debate. Development assistance works by transferring taxes from the countries of the global North to those in the South. So we hope to make the question of tax evasion a central part of the debate in Addis Ababa.” 

“It is above all the vulnerable developing world that suffers when multinationals engage in corruption or tax avoidance. Everyone, including France, is saying big things about the fact that we have to fight tax evasion. Now we expect commitments and actions,” Reboul said. 

Background

The new European policy for foreign aid, the Agenda for Change, is aimed at helping the 48 least developed countries (LDC), almost all of which are in sub-Saharan Africa.

>> Read our LinksDossier: Agenda for Change: EU’s helping hand gets an overhaul

The policy concentrates on improving governance and social protection in developing countries, while supporting agricultural industries and extending access to energy with a view to stimulating economic growth.

This change in financing will conform to the commitments made by donor countries in December 2011 in Busan (Korea), where the European Union, the United States, Japan and other big donors decided to strengthen cooperation in development aid, for the benefit of poor countries.

The Agenda for Change is seen in the EU as a natural successor to the Millennium Development Goals (MDGs) - eight objectives for the fight against poverty, which conclude in 2015. 

Further Reading