By Bodo Ellmers
The Symposium of the United Nations Development Cooperation Forum (DCF) took place last week, where discussion focused on how to improve the impact of development assistance and how to use aid to mobilise other potential sources of development finance such as domestic tax income or foreign direct investment. The issues of capital flight, private finance, and the future of the UNDCF were also discussed.
150 participants from governments, international organisations and civil society gathered in Luxemburg at the meeting.
The Symposium took place just one month after the OECD Development Assistance Committee published new research showing that all but one of the aid effectiveness commitments made in Paris and Accra were missed in the 2010 deadline.
The UN Deputy Secretary General Asha-Rose Migiro stressed in her opening remarks that “development commitments made should be development commitments kept;”- there is no going back on the fight against poverty and other Internationally Agreed Development Goals. Official Development Assistance (ODA) remains an important source of development finance in itself, she said, but also a catalyser for other sources of finance.
Addressing outflows from developing countries as well as aid inflows
It is not a secret that every developing country’s aspiration is to graduate from aid dependence. In his keynote speech, the Liberian Finance Minister Augustine Ngafuan stressed that, despite its current need of help from donors, Liberia aims to graduate from aid dependence by 2030, when domestic resources and foreign investment should have replaced aid. “Only through increasing the capacity of the Liberian economy will our country we be able to reduce dependency on large aid flows”, he highlighted.
Estimates for Foreign Direct Investment (FDI) inflows in the next decade are to the tune of US$ 10 billion. However, this will be highly concentrated in the extractive sector. He emphasised that Liberia was the first country rated compliant with the principles of the Extractive Industries Transparency Initiative (EITI) and remains committed to its principles, aimed at enhancing much-needed transparency in the sector and ensuring that rights of local communities affected by oil exploration are respected. Tax revenue from the oil sector is supposed to pay for public investment and social services in future.
The fact that Luxemburg, the host country of the UN Symposium, is at the same time one of the world’s most generous donors and, as a major tax haven, one of the world’s black holes of development finance, triggered some critical questions about rich countries’ approaches to policy coherence.
Domestic resource mobilisation: Still a long way to go
Discussions around domestic resource mobilisation identified that there is still a long way to go for developing countries. As a share of GDP, these countries only raise half as much tax as OECD countries. Some of the reasons are - besides weak institutions and a large informal sector – a culture of tax exemptions, transfer mispricing by transnational corporations, illicit capital flight, and reduced tariff income resulting from trade liberalisation. Moreover, many developing countries have “regressive tax systems which lets the elites escape from their responsibilities,” one speaker stressed. Many tax systems are not yet fit for funding development, let alone promoting social equity.
Leveraging private finance: More risks than benefits?
Using aid to leverage private finance to invest in developing countries has become a new mantra in development debates. In Luxembourg, it gave a place to an intense discussion on whether this strategy posed more risks than opportunities and whether aid monies should be used for this purpose.
Speaking at the opening panel, Eurodad’s director Nuria Molina made a strong call to governments to use scarce aid resources wisely for poverty eradication. In particular “blended” financing instruments that mix grants and loans should be handled with care as they may push poor countries into debt distress and outdo the progress towards debt sustainability made over the past decade.
Bodo Ellmers from Eurodad added that countries’ competition for private investment should not lead to a race to the bottom: The DCF should consider promoting global agreements on minimal tax rates for transnational corporations and the global application of decent work standards. There is also some evidence that donor countries favour their home country firms in Public-Private Partnerships (PPP) funded with ODA. OECD representatives reminded the Forum that untying aid commitments cover PPPs too.
Towards a stronger UN in the development architecture
The Symposium’s main aim was to prepare the 2012 High-Level Meeting of the Development Cooperation Forum. How DCF debates will be translated into policy-making, and eventually real change on the ground remains somewhat vague and unclear. For the time being, UN ECOSOC President Lazarous Kapambwe identified five roles for the DCF:
- Keep aid commitments under review.
- Look at various aspects of development cooperation from the angle of the MDGs.
- Look at the factors undermining the impact of aid such as the cost of policy incoherence.
- Realise the UN global partnership for development.
- Spearhead the most innovative reflection on development cooperation, analyze best practice and build trust
Some stakeholders want to go further: Brazil recently called on the UN General Assembly to provide the DCF with the mandate to meet annually, and to produce negotiated outcomes rather than just chair’s summaries of the debates.
Only 2012 will tell what the future holds for UN DCF.
