Conflict and Fragility: Resource Flows to Fragile and Conflict-Affected States

Conflict and Fragility Resource Flows to Fragile and Conflict-Affected States Conflict and Fragility Resource Flows ...

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Conflict and Fragility

Resource Flows to Fragile and Conflict-Affected States


Resource Flows to Fragile and Conflict-Affected States

This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries.

Please cite this publication as: OECD (2010), Resource Flows to Fragile and Conflict-Affected States, OECD Publishing. http://dx.doi.org/10.1787/9789264092198-en

ISBN 978-92-64-09219-8 (PDF)

Series/Periodical: Conflict and Fragility ISSN 2074-3637 (online)

Photo credits: Cover © Franco Bosetti/Dreamstime.com

Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.

© OECD 2010 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected].

Foreword – 3

Foreword The deadline for meeting targets set by the Millennium Development Goals is now only five years away. During the first decade of the new millennium, this collaborative effort by the world’s countries has created progress in development in many areas and many nations. However, one group of countries is being left behind. About 43 countries – or about one third of all developing countries – can be considered as fragile states, and most of them are off-track meeting these goals. So, what do we know about development effectiveness in these fragile states? What should we know? This report tells the important story behind the numbers. The challenges for the women, men, girls and boys in these countries are interconnected: poverty and violence feeding each other; lack of employment and social inclusion; state fragility, insufficient security and basic social services for citizens; demographic pressures and environmental degradation. These situations do not develop in isolation. Local and national development is affected by and influences regional and global trends. Furthermore, as this report underlines, these vulnerable countries have not been spared the negative effects of the financial crisis. An analysis of resources flowing in, and out of, fragile states – aid, peacekeeping expenditures, foreign direct investment, remittances and trade – is essential to place these different dimensions into context: What is the relative importance of aid compared to other flows? What are their respective developmental impacts? Are there correlations between these different flows? An analysis of aid flows is needed to monitor whether resource allocation can be improved: Is aid concentrated on a handful of “donor darlings” at the expense of “aid orphans? Can we say that some countries are under-aided, and in relation to what? How volatile is aid and can predictability be improved? Resource Flows to Fragile and Conflict-Affected States 2010 addresses some of these questions by providing policy makers and country offices with data on the levels, timing and composition of aid and other resource flows to fragile states. The 2010 Annual Report, in particular, highlights the current fallout facing fragile states in the wake of the economic crisis. Policy relevant data is key for informed decision making. It is now time to put the spotlight on the consequences of this data, ensuring adequate efforts to improve fragile states’ steady progress towards the Millennium Development Goals. It is a collective responsibility.

Henrik Hammargren Director – Department for Human Security Swedish International Development Cooperation Agency (Sida)

Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

Acknowledgments – 5

Acknowledgements This annual report was prepared by Development Initiatives and the Secretariat of the OECD DAC International Network on Conflict and Fragility (INCAF). The work was undertaken by a team, including Juana de Catheu (INCAF, co-ordination of the report), Daniel Coppard (Development Initiatives), Sarah Cramer (INCAF), Tasneem Mowjee (Development Initiatives) Rachel Scott (Development Initiatives), Rob Tew (Development Initiatives), Maria Zandt (INCAF) and Asma Zubari (Development Initiatives). The team would like to thank members of the INCAF Task Team on Financing and Aid Architecture which provided comments on earlier drafts, and particularly Henrik Hammargren (Chair of the Task Team), Elisabet Hedin (Sweden), Pierre Ewenczyk (International Monetary Fund), Christian Lotz (United Nations Development Program) and Duncan Burrell (World Bank) – as well as Yasmin Ahmad, Emily Bosch, Ben Dickinson, Frederik Ericsson, Aimée Nichols, Andrew Rogerson, Kimberly Smith, Suzanne Steensen, Andrzej Suchodolski, and Alexandra Trzeciak-Duval (OECD). The team would also like to thank Isabel Huber for her editorial assistance and Peter Vogelpoel for formatting the publication.


Table of contents – 7

Table of contents

Abbreviations �� 13 Executive summary�� 15 Introduction. Why fragile states matter�� 19 Bibliography �� 23 Part I. The impact of the global financial crisis on fragile states and the response Chapter 1. Impacts of the crisis�� 27 Direct impact on fragile states: variations across countries�� 28 Secondary impacts on economic and human development �� 33 Implications for fragility, security and political stability�� 34 Bibliography �� 36 Chapter 2. Responses to the global crisis �� 39 Current responses�� 40 Looking forward�� 42 Bibliography �� 45 Part II. Aid flows to fragile states: disappointing projections in times of need Chapter 3. Trends in official development assistance �� 49 Official development assistance flows to fragile states �� 50 Bibliography �� 62 Chapter 4. Aid effectiveness�� 63 Managing and spending aid resources, volatility and predictability �� 64 Bibliography �� 69 Chapter 5. OECD DAC member presence, concentration and fragmentation�� 71 A challenge for fragile states�� 72 Country-level fragmentation and concentration�� 72 Sector fragmentation�� 75 Bibliography �� 80 Chapter 6. ODA and non-ODA funds for security, statebuilding and peacekeeping�� 81


8 – Table of contents ODA funds for security, peacebuilding and statebuilding�� 82 Non-ODA for security-related activities�� 84 Combining ODA and non-ODA funds to address security needs �� 89 Sequencing of aid to post-conflict countries �� 91 Challenges to providing aid to post-conflict countries�� 96 Bibliography �� 99 Part III. The need for a whole-of-government response Chapter 7. South-South co-operation, trade, investment and finance��103 A changing landscape�� 104 The wider context: developments in South-South investment, trade and finance�� 104 Growing volumes of development co-operation beyond the DAC membership group �� 106 Looking forward�� 107 Assistance to fragile states�� 107 Development partners providing humanitarian assistance beyond the DAC�� 108 Bibliography ��113 Chapter 8. Global funds and foundations��115 Global funds ��116 Bibliography �� 124 Chapter 9. Private resource flows�� 125 Foreign direct investment�� 126 Exports and imports �� 129 Remittances��131 Illicit flows �� 134 Bibliography ��141 Chapter 10. Domestic revenue��145 Trends in domestic revenues�� 146 Bibliography ��151 Annex A. Methodology��153 Gaps and constraints��153 Related initiatives��155 Annex B. Statistical annex��157 Annex C. Background ��189 Figures Figure 0.1 Fragile states most off-track in relation to MDGs �� 19 Figure 1.1 Remittances to African fragile states have been hit particularly hard�� 29 Figure 1.2 Remittances to Pakistan have varied depending on the source�� 30 Figure 1.3 Economic growth is falling in the majority of African fragile states…�� 32 Figure 1.4 …and the majority of fragile states outside of Africa �� 32 Figure 3.1 Net OECD DAC ODA (excluding debt relief) to fragile states, 1990 to 2008�� 51 Figure 3.2 Highly concentrated aid to fragile states in 2008, by country �� 52 Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Figure 3.3 Growth in aid is also highly polarised among fragile states �� 52 Figure 3.4 Aid per capita in fragile states, 2008 �� 54 Figure 3.5 Top development partners of fragile states, 2008�� 55 Figure 3.6 CPA as a proportion of aid to fragile states and all developing countries, 2004-08 �� 55 Figure 3.7 Declining debt relief, 2004-08�� 56 Figure 3.8 Bilateral and multilateral aid to fragile states, 2004-08�� 56 Figure 3.9 The significant role of multilateral agencies in delivering aid in conflict‑affected states, 2008�� 57 Figure 3.10 Grants constitute the largest component of bilateral aid to fragile states, and have been increasing proportionately �� 58 Figure 3.11 Changes in CPA for fragile states, 2009-11 �� 58 Figure 3.12 Percentage change in CPA, 2008-11�� 59 Figure 3.13 CPA as a proportion of GNI for fragile states, 2008 and 2011�� 60 Figure 4.1 Development partner aid failing to meet needs in Timor-Leste, 1995-2008 �� 64 Figure 4.2 Guinea and aid volatility, 1990-2008�� 67 Figure 4.3 Aid effectiveness in fragile states, 2008�� 67 Figure 5.1 Concentration ratios for fragile states, 2008�� 74 Figure 5.2 Concentration ratios for bilateral and multilateral development partners among fragile states, 2008 �� 75 Figure 6.1 Security-related activities, 2004-08�� 83 Figure 6.2 Peacebuilding and statebuilding-related activities, 2004-08�� 83 Figure 6.3 Top 20 financial contributors to UN peacekeeping, 2008-09 �� 85 Figure 6.4 Funding from EC to peacekeeping operations, 2004-09�� 86 Figure 6.5 Top 10 troop-contributing countries to UN peacekeeping operations�� 87 Figure 6.6 Top 10 troop-contributing countries to NATO peacekeeping operations �� 87 Figure 6.7 OSCE’s unified budget, 2006-08�� 88 Figure 6.8 Humanitarian and development aid and peacekeeping expenditure: Burundi�� 92 Figure 6.9 Humanitarian and development aid and peacekeeping expenditure: Democratic Republic of Congo (DRC), 2001-08�� 92 Figure 6.10 Humanitarian and development aid and peacekeeping expenditure: Côte d’Ivoire, 2000‑08 �� 93 Figure 6.11 Humanitarian and development aid and peacekeeping expenditure: Eritrea�� 93 Figure 6.12 Humanitarian and development aid and peacekeeping expenditure: Haiti, 2000-08�� 94 Figure 6.13 Humanitarian and development aid and peacekeeping expenditure: Liberia, 2000-08�� 94 Figure 6.14 Humanitarian and development aid and peacekeeping expenditure: Sierra Leone, 2000-08��95 Figure 6.15 Humanitarian and development aid and peacekeeping expenditure: Sudan, 2000-08 �� 95 Figure 6.16 Humanitarian and development aid and peacekeeping expenditure: Timor-Leste, 2000-08�� 96 Figure 6.17 Long, medium and short-term humanitarian assistance, 1995-2007 (all OECD DAC development partners)�� 97 Figure 7.1 Total ODA from development partners beyond the DAC, 2001-08�� 106 Figure 7.2 ODA to fragile states from development partners beyond the DAC, 2001-08�� 108 Figure 7.3 Top fragile state recipients of ODA from development partners beyond the DAC, 2004-08�� 108 Figure 7.4 Total number of development partners beyond the DAC reporting to the FTS, 2006-08 �� 109 Figure 7.5 Contrasting delivery channels used by OECD DAC members and other development partners, 2008�� 109 Figure 7.6 Development partners beyond the DAC providing humanitarian assistance to fragile states, 2008��111 Figure 8.1 FTI developing country partners with endorsed education sector plans��118 Figure 8.2 International grants by private voluntary agencies as reported to the OECD�� 120 Figure 8.3 Private giving by the US compared with other countries, 2008�� 120 Figure 8.4 United States foundation grants to fragile states, 2005-08 ��121 Figure 9.1 Comparison of FDI, remittances and aid to fragile states, 2000-08* �� 126 Figure 9.2 Trends in FDI to fragile states and other developing economies, 2003-08 �� 127 Figure 9.3 FDI trends in African and non-African fragile states, 2000-08�� 128 Figure 9.4 FDI volatility in fragile states, 2000-08�� 129 Figure 9.5 Change in export share in GDP in fragile states, 2005 and 2008 �� 130 Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

10 – Table of contents Figure 9.6 Change in import share in GDP in fragile states, 2005 and 2008 �� 130 Figure 9.7 Fragile states’ increasing share in developing country remittances, 2003-08��132 Figure 9.8 Annual growth rates in remittances to African fragile states, 2003-08��132 Figure 9.9 Remittances to fragile states as a proportion of GDP, 2000-08��133 Figure 9.10 Remittances as a percentage of GDP in fragile states, 2008��133 Figure 9.11 Tax revenue loss to developing countries due to trade mispricing, 2002-06��135 Figure 9.12 Opium poppy cultivation in the major cultivating countries, 1994-2008�� 136 Figure 9.13 Corruption index for fragile states, 2008��137 Figure 9.14 Lost forestry taxes (using ITTO production data), 2003-06�� 138 Figure 10.1 Aid and domestic revenue in Africa��149 Figure 10.2 Barriers to business entry are high in fragile states��149 Tables Table 3.1 Aid orphans�� 54 Table 4.1 Large net ODA shortfalls, 1970-2006�� 66 Table 6.1 Peacekeeping expenditure by UNDPKO, 2000-08 (USD million) �� 85 Table 6.2 Internal pooled funds combining ODA and non-ODA financing �� 90 Table 6.3 Global funds for peacebuilding and statebuilding�� 90 Table 7.1 Top development partners (beyond the DAC) providing bilateral humanitarian assistance to fragile states, 2008��110 Table 7.2 Top 10 partner countries receiving humanitarian assistance from development partners beyond the DAC, 2008 ��110 Table 8.1 Top fragile state receiving resources from the Global Fund, 2004-08��116 Table 8.2 Actual and projected disbursements of FTI Catalytic Fund to fragile states (USD)��117 Table 8.3 Top 5 fragile state receiving US foundation grants, 2005-08 (2007 prices)�� 122 Table 9.1 Top 5 fragile states receiving FDI, 2008 �� 127 Table 9.2 Most FDI-dependent fragile states, 2008�� 127 Table 9.3 Fragile states with the largest negative trade gap in 2007��131 Table 9.4 Fragile states with the largest positive trade gap in 2007��131 Table 10.1 Government revenues for fragile states in 2008 (% of GDP)�� 146 Table A.1 Fragile states�� 154 Table B.1 Core macroeconomic and social indicators for fragile states��157 Table B.2 Categories of fragile states�� 160 Table B.3 OECD DAC ODA excluding debt relief (USD million, 2007 constant prices) ��161 Table B.4 European Union priority countries (fragile states)��162 Table B.5 OECD DAC development partners providing ODA to fragile states (ranked), 2007-08 (USD 2007 prices, million)�� 164 Table B.6 Country programmable aid, 2004-08��165 Table B.7 Country programmable aid projections, 2008-11 (USD 2008 prices) ��167 Table B.8 Progress on the Paris indicators for selected fragile states, 2008��168 Table B.9 Measure of aid concentration for development partners (based on disbursements of CPA in 2008)��169 Table B.10 Measure of aid concentration for partner countries (based on disbursements of CPA in 2008)��171 Table B.11 Troop-contributing countries by mission��174 Table B.12 Internal pooled funds combining ODA and non-ODA financing ��179 Table B.13 Global funds for peacebuilding and statebuilding��181 Table B.14 GEF and CDM climate change funds to fragile states (total USD, thousand)��182 Table B.15 United States foundation grants to fragile states, 2005-08 (2007 prices) �� 184 Table B.16 Inward FDI to fragile states, 2000-08 (USD million) ��186 Table B.17 Exports and imports by fragile states��187 Table B.18 Government revenues in fragile states, 2005-10 (% GDP)��188



Boxes Box 0.1 Working definitions of fragile states �� 20 Box 1.1 Remittances remain resilient relative to other types of flows during the current crisis �� 30 Box 1.2 Social unrest from the 2008 food price crisis�� 34 Box 2.1 How should Tajikistan respond to the economic downturn?�� 40 Box 3.1 ODA going to Haiti, 2008�� 51 Box 3.2 ODA levels to Afghanistan, 2000-08�� 53 Box 4.1 Aid volatility undermines planning�� 65 Box 5.1 OECD DAC components of concentration�� 72 Box 5.2 Concentration levels in Iraq and the Solomon Islands�� 74 Box 5.3 Sector fragmentation in Ethiopia�� 77 Box 5.4 Sector fragmentation in Somalia �� 78 Box 6.1 Definitions of terms�� 82 Box 6.2 The Good Humanitarian Donorship (GHD) principles and the Principles for Good International Engagement in Fragile States and Situations (FSPs) �� 91 Box 6.3 Country-level pooled funds �� 97 Box 7.1 China, investment and value for money in Africa�� 105 Box 9.1 West Africa – the new hub for drug trafficking?�� 136 Box 9.2 Corruption in Indonesia’s Timber Industry �� 138 Box 10.1 An African-led initiative to build more effective tax systems��147 Box 10.2 A comparison of the effect of aid on revenue in three countries in sub-Saharan Africa��148


Abbreviations – 13

Abbreviations AAA Accra Agenda for Action AMIS African Union Mission in Sudan AMISEC African Union Mission for providing security for elections in Comoros AMISOM African Union Mission in Somalia APF Africa Peace Facility ATAF African Tax Administration Forum AU African Union BRIC

Brazil, Russia, India, China

CAR Central African Republic CDM Clean Development Mechanism CIFP Country Indicators for Foreign Policy CPA Country programmable aid CPI Corruption Perceptions Index CPIA Country Policy and Institutional Assessment DAC Development Assistance Committee DFID Department for International Development (UK) DPKO Department of Peacekeeping Operations DRC Democratic Republic of Congo EDF European Development Fund EFA Education for All EC European Commission EU European Union FDI

Foreign direct investment

FTI

Fast Track Initiative

FOMUC

Force multinationale en Centrafrique

FSP

Fragile States Principles

GDP Gross domestic product GEF Global Environment Facility GFATM Global Fund to Fight AIDS, Tuberculosis and Malaria Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

14 – Abbreviations GFRP Global Food Crisis Response Programme GHD Good Humanitarian Donorship GNI Gross national income GNP Gross national product HIPC

Highly indebted poor country

IDA International Development Association IMF International Monetary Fund ISAF International Security Assistance Force LDCF Least Developed Country Fund MCA

Millennium Challenge Account

MDG

Millennium Development Goal

MDTF

Multi-donor trust fund

NAPA National Adaption Plans of Action NATO North Atlantic Treaty Organization NGO Non-governmental organisation OECD Organisation for Economic Co-operation and Development OSCE Organization for Security and Co-operation in Europe PBA

Programme-based approaches

PBC

Peacebuilding Commission

PBF

Peacebuilding Fund

PFM

Public financial management

PRSP

Poverty Reduction Strategy Paper

PRT

Provincial Reconstruction Team

SDR Special Drawing Rights SWAps Sector-wide approaches UA Unit of account UN United Nations UNCTAD United Nations Conference on Trade and Development UNDPKO United Nations Department for Peacekeeping Operations UNFCCC United Nations Framework Convention on Climate Change UNICEF United Nations Children Fund UNODC United Nations Office on Drugs and Crime UNRWA United Nations Relief and Works Agency for Palestine Refugees in the Near East WFP World Food Programme


Executive Summary – 15

Executive summary Fragile states have drawn increasing attention in recent years. This report presents salient facts on aid flows to fragile states; the impact of the triple food, fuel and financial crisis on fragile states; and the need for a whole-of-government response. As the fifth annual report of its kind, Resource Flows to Fragile and Conflict-Affected States 2010 serves as a tool to better monitor the levels, timing and composition of resource flows to fragile states. A full summary report of the key findings presented in this publication – entitled “Ensuring Fragile States Are Not Left Behind” – was released in February 2010 in advance of the full publication.

The global crisis: New vulnerabilities and risks Fragile states are the most off-track to meet the Millennium Development Goals (MDGs) by 2015, representing 75% of the MDG deficit. Before the financial crisis hit, fragile states already lacked the institutional strength to adequately respond to both financial and environmental shocks. The current crisis risks reversing progress achieved by some post-conflict states, while further entrenching insecurity in others. This could spell a return to, or intensification of, civil strife or conflict in some fragile states – with potential spill-over effects. Riots across a number of fragile states in Africa (e.g. Cameroon, Côte d’Ivoire and Burkina Faso), and Asia (Pakistan, Afghanistan) in early 2008 in response to rising food prices demonstrated the potential for social unrest. The predictions that fragile states would not suffer much from the current crisis are proving wrong. Fragile state economies are more integrated into the world economy than previously thought, although with wide variations from country to country. Overall, fragile states are currently bearing the cumulative effects of three consecutive and inter-related shocks: food, fuel and the secondary effects of the financial crisis. A contraction of private flows and growth, and falling government revenues are putting core spending at risk, compounded by pressure on official development assistance (ODA). This creates new risks of vulnerability and instability. Current commitments must be upheld and adapted to the needs of fragile states. Financial commitments from development partners are more vital than ever as domestic resource flows begin to dwindle. Falling domestic revenues in developing countries are projected to put USD 11.6 billion (or 1.1% of GDP) of core spending at risk – threatening cuts in education, health, operations and maintenance of critical public expenditure and social protection. Fragile states are estimated to account for 58% of this total – some USD 6.7 billion. This constitutes 20% of ODA flows (net of debt relief), and may have significant consequences for social indicators, poverty and wider security in the absence of additional assistance.


16 – Executive Summary

Aid flows: Disappointing projections in times of heightened need Aid projections are overall disappointing in times of heightened need. Although ODA to fragile states has increased in real terms by 7.4% in 2008 to USD 34.6 billion, it remains highly concentrated, with more than half of ODA for the 43 fragile states benefiting just six countries (Afghanistan, Ethiopia, Iraq, West Bank and Gaza, Sudan, and Uganda). Twenty-two of the 43 fragile states considered in this report will experience a fall in country programmable aid (CPA) over 2009-11, with a particularly poor outlook for those in sub-Saharan Africa. While there has not been a wholesale retraction of aid, Ireland, Italy, the Netherlands and Sweden already announced cuts in 2009. Even if aid commitments were met, falling economic growth will reduce the value of commitments that are linked to gross domestic product (GDP). Evidence from past crises suggests that the longer crises last, the more significant the negative implications for development assistance. However, there have been positive trends in international support to peace and security, which has risen sharply since 2004. Peacekeeping expenditures are at a historic high, reaching USD 7.1 billion in 2008. ODA-related security activities have also witnessed a considerable increase over the 2007-08 period, rising from USD 947 million to USD 1.5 billion, an increase of 61%. Bilateral development partners provided the bulk of this funding for ODA-related security activities (87%). Much of this support is based on the assumption of a linear transition out of conflict, involving a gradual increase in development assistance as humanitarian and peacekeeping expenditures decline. However, data shows that this scenario is the exception rather than the rule. About 50% of humanitarian aid is long-term (more than eight years) and goes to large countries experiencing patterns of cyclical violence: Sudan, Iraq, Democratic Republic of Congo, and Afghanistan.

The need for an improved international response There is a need to maintain aid levels and meet aid pledges, but also to improve the quality of international support to fragile states at different levels. Whole-of-government response: Recognising that fragile states are a whole-of-government concern, international support to peacebuilding, security and statebuilding must be maintained over years and involve all relevant government agencies. Domestic revenue mobilisation and the fight against illicit flows should be a priority. Finally, there is a need for more flexible aid architecture and financing modalities. Approaches to transition: Development partners provide significant amounts of humanitarian and development aid to transition financing in conflict-affected states. However, there is evidence that the transition between these instruments could be improved, and that development partners should focus less on the instruments and approaches available within particular managerial structures, and more on the actual objectives that they are trying to support. Pooling mechanisms, in particular, are useful tools to encourage more holistic and effective approaches to transition situations. Recognising these benefits, there has been a dramatic increase in the use of pools. However, more needs to be done to manage trade-offs between quick delivery and longer-term sustainability, to avoid fragmentation of instruments, and to better co-ordinate across humanitarian, development and defence budget lines. South-South co-operation, trade, investment and finance: Arab, Eastern European, and South-based partners are a growing source of co-operation. With substantial increases Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

Executive Summary – 17

in recent years, reported aid from increasingly active international partners totalled USD 9 billion in 2008 (10% of global ODA), more than half of which from Arab development partners. Aid from emerging development partners is commonly linked to broader trade and investment relationships, which are growing rapidly. South-South trade now accounts for more than 26% of global trade, the majority of which is intra-regional. Trade between China and Africa, for example, has grown ten-fold over the last decade, making China the third largest of Africa’s trading partners. Private resource flows: Private resource flows – such as remittances, foreign direct investment (FDI), and export earnings – are increasingly important for the economies of fragile states. Remittances and FDI, for example, each provide more resources to fragile states than official development assistance (ODA) net of debt relief. Conversely, illicit flows impede economic growth and development, as well as political stability, democracy, and sustainable peace. Net transfers to developing countries are actually negative once transnational illicit flows (tax evasion, criminal activity, bribery, etc.) are taken into account. Domestic revenue: Fragile states face endemic problems raising government revenues, despite the fact that they have improved collection rates in recent years. Lower economic growth is having a dramatic impact on government revenues, which are drawn primarily from trade taxes. Twenty-one of the 32 fragile states for which we have data are expected to see a fall in government revenues as a percentage of GDP in 2009. This will double the number of fragile states that collect government revenues of less than 15% of GDP – considered the minimum to cover basic state functions – to 14 in 2009. Improvements in 2010 are expected, but will only result in a return to 2006 levels.


Introduction: Why fragile states matter – 19

Introduction Why fragile states matter “One billion of the world’s six billion people live in fragile states, and one third of all people survive on less than USD 1 per day. Of all the children in the world who die before reaching their fifth birthday, half were born in these countries. Of all the women whose deaths are related to pregnancy or childbirth, one in three dies in these countries” (OECD, 2007a).

The convergence of two key themes – development and security – has driven the international development community to prioritise more effective engagement in fragile states (Box 0.1.). Firstly, there is growing concern with poor development performance in many states, often associated with poor governance, which is severely undermining achievement of the Millennium Development Goals (MDGs). Secondly, there has been increased emphasis on peacebuilding and security in international debates, together with the associated recognition of the interconnectedness of underdevelopment, poverty and security. The disturbing socio-economic indicators cited in the Organisation for Economic Co-operation and Development’s (OECD) “Principles for Good Engagement in Fragile States” have changed very little in the last two years.1 Fragile states are the most off-track in relation to the MDGs (Figure 0.1.). Extreme poverty is widespread. People in Figure 0.1. Fragile states most off-track in relation to MDGs Middle-income countries

Low-income countries

Fragile states

MDG 1.A: Extreme poverty MDG 1.C: Hunger MDG 2: Primary education MDG 3: Gender parity at school MDG 4: Child mortality MDG 5.A: Maternal mortality MDG 7.C: Access to safe water MDG 7.C: Access to sanitation

-60

-40

-40

0

20

40

60 80 100 Progress toward Goal by 2006, %

Source: IMF and World Bank (2008), Global Monitoring Report 2008: MDGs and the Environment, International Monetary Fund and World Bank, Washington, DC. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

20 – Introduction: Why fragile states matter fragile states are less likely to go to school or receive health care. Such countries represent half of all children not in school, and witness exponentially higher rates of malaria and HIV/AIDS infection (DFID, 2009). Poor performance is reflected further in the economic sector, with low rates of economic growth. Fragile states are thus highly vulnerable to shocks. This vulnerability risks spilling over into violence, as witnessed by the 2008 food price crisis, where more than 20 countries experienced disorder. As this report demonstrates, fragile states have been hit hard by the economic crisis. Other processes, such as climate change, will only increase pressure on water, land, food and the institutions that govern them, generating new tensions that will be felt within and beyond national borders. The nature of conflicts is changing, with many conflicts becoming more entrenched. More than half of current conflicts have continued for more than 20 years (DFID, 2009). The impact of such instability can spread well beyond national borders, as seen in Afghanistan and the Democratic Republic of Congo. Sharing a border with a neighbouring fragile state is estimated to reduce a country’s economic growth by 0.4% annually (Collier and Chauvet, 2004). Box 0.1. Working definitions of fragile states While a firm consensus on what exactly constitutes a “fragile” state or situation has not yet been reached, shared common elements include: weak institutions and governance systems and a fundamental lack of leadership and state capacity and/or political will to fulfil essential state functions, especially in terms of providing basic services to the poor. Conflict may commonly exacerbate such problems, but countries that are not necessarily characterised by endemic violence may also be considered fragile (Rocha Menocal et al., 2008) OECD DAC: States are fragile when governments and state structures lack capacity – or in some cases, political will – to deliver public safety and security, good governance and poverty reduction to their citizens (OECD, 2007b). World Bank: Fragile countries are characterised by very weak policies, institutions and governance. Aid does not work well in these environments because governments lack the capacity or inclination to use finance effectively for poverty reduction. AusAID: Fragile states are countries that face particularly grave poverty and development challenges and are at high risk of further decline – or even failure. Government and state structures lack the capacity (or, in some cases, the political will) to provide public safety and security, good governance and economic growth for their citizens. UK Department for International Development (DFID): In fragile states, governments cannot or will not deliver core functions – such as security, schools or clinics – to the majority of their people. Countries range from those affected or emerging from conflict to those with strong governments that are not committed to poverty reduction and where human rights are routinely abused. Some suffer from a prolonged crisis or see development reversed. United States Agency for International Development (USAID): There are two categories of fragile states: vulnerable and in crisis. The former are those states unable or unwilling to adequately assure the provision of security and basic services to significant portions of their populations and where the legitimacy of the government is in question; this includes states that are failing or recovering from crisis. The latter are those states where the central government does not exert effective control over its own territory or is unable or unwilling to assure the provision of vital services to significant parts of its territory, where legitimacy of the government is weak or nonexistent, and where violent conflict is a reality or a great risk. Source: Pavanello, S. and J. Darcy (2008), Improving the Provision of Basic Services for the Poor in Fragile Environments: International Literature Review Synthesis Paper, report prepared for AusAID by Overseas Development Institute, London.



Concerns with regional and global instability have found strong resonance beyond the aid community. The US 2000 National Security Strategy concluded that the US was threatened less by conquering states than by the failing ones, leading to the establishment of an office directly responsible for weak states. Similar trends have emerged in the UK, Canada, France and Germany, whereas the UN established a peacebuilding commission in response to concerns that weak and failing states presented a serious threat to the international community.2 The multi-faceted nature of state fragility presents development partners3 with complex problems and a range of policy, technical and political objectives that may be hard to reconcile. Difficult choices, inherent policy tensions and high levels of uncertainty inevitably characterise the engagement of development partners in fragile states. Such complexity means that no single approach or paradigm will work. Recognition of fragility as a deeply political phenomenon in particular has led to new initiatives focusing on political settlement as the basis of development. While the sources and drivers of fragility remain only partially understood, considerable progress has been made in mapping complexity. With the exception of several successful turn-arounds, the overall performance of international development assistance to date has not always been encouraging. Aid has been often been criticised as insufficient, untimely and uncoordinated.4 The emphasis of OECD DAC members on rewarding countries with relatively effective governments and macroeconomic policies has resulted in further neglect. Fragile states have received an estimated 43% less aid than would have been appropriate given the extent of their poverty (Levin and Dollar, 2005). For example, under the US Millennium Challenge Account (MCA) targeting good performance, not one fragile state has signed a compact and only five meet eligibility criteria for the Threshold Programme.5 This 2010 report identifies 43 fragile and conflict-affected states for analysis. This list is a compilation of three lists: the World Bank’s CPIA 2008 list; the Brookings Index of State Weakness in the Developing World 2008; and the Carleton University Country Indicators for Foreign Policy (CIFP) 2008 index. See methodology for more details (Annex A).


22 – Introduction: Why fragile states matter

Notes 1. See, for example, DFID’s 2009 White Paper, drawing on 2009 data, using a USD 1.25 poverty line, to find identical statistics. 2. Economic rationalisation has also been a (lesser) driver. DFID’s 2005 paper on fragile states (DFID, 2005), for example, emphasises that it is much more cost effective to prevent states from falling into conflict or collapse than to respond once they have failed. Savings can be as much as four-fold. 3.

“Development partner” is the term this publication uses for a provider of development cooperation, traditionally referred to as a donor. In place of recipient, the term “partner country” is used.

4. See, for example, the Executive Summary of the Fragile States Principles Monitoring Survey (OECD, 2010) at www.oecd.org/fsprinciples and the Dili Declaration (2010) at www.pbsbdialogue.org. 5.

For countries that do not qualify for MCA compact funding, but have demonstrated a strong commitment to improving their performance on the eligibility criteria, the MCC has designed a threshold programme. This provides limited assistance to those countries that just miss certain indicators to help them address those specific hurdles to full qualification.



Bibliography Collier, P. and L. Chauvet (2004), “Presentation to the DAC Learning and Advisory Process on Difficult Partnerships”, OECD, Paris, 5 November 2004. DFID (Department for International Development) (2005), “Why we Need to Work More Effectively in Fragile States”, DFID, London. DFID (2009), Eliminating World Poverty: Building Our Common Future, report on the DFID Conference on the Future of International Development, DFID, London. IMF (International Monetary Fund) and World Bank (2008), Global Monitoring Report 2008: MDGs and the Environment, IMF and World Bank, Washington, DC. Levin, V. and D. Dollar (2005), “The Forgotten States: Aid Volumes and Volatility in Difficult Partnership Countries (1992-2002)”, paper prepared for DAC Learning and Advisory Process on Difficult Partnerships, OECD, Paris. OECD (2007a), “Ensuring Fragile States Are Not Left Behind”, OECD, Paris. OECD (2007b), “Principles for Good International Engagement in Fragile States”, OECD, Paris. Pavanello, S. and J. Darcy (2008), “Improving the Provision of Basic Services for the Poor in Fragile Environments”, International Literature Review Synthesis Paper, report prepared for AusAID by Overseas Development Institute, London. Rocha Menocal, A., T. Othieno and A. Evans (2008), “The World Bank in Fragile Situations”, Issues Paper, ODI, London.


Part I. The impact of the global financial crisis on fragile states and the response – 25

Part I The impact of the global financial crisis on fragile states and the response


1. Impacts of the crisis – 27

Chapter 1 Impacts of the crisis

Fragile states are suffering from the cumulative effects of three consecutive and inter-related shocks – the food price crisis, escalating oil prices, and the global financial crisis – proving that their economies are more integrated into the world economy than previously thought. While largely insulated from the first wave of fallout, fragile state economies were hit particularly hard by the secondary effects of the financial crisis. Meanwhile, the crisis has affected development assistance, with unfulfilled aid commitments and a depreciation in value caused by exchange rate movements, in addition to its impact on remittances, trade and foreign direct investment. This chapter examines the primary and secondary effects of the financial crisis on fragile state economies and the implications for fragility, security and political stability.


28 – 1. Impacts of the crisis

Direct impact on fragile states: variations across countries There is general agreement that developing countries, including fragile states, have all been negatively affected by the global financial crisis.1 How they have been affected differs, based mostly on their geographical profile, the openness of their markets, their trade patterns, and their reliance on remittances from economic migrants.

Official development assistance (ODA) Even before the financial crisis, the gap between aid commitments and delivery was large. Global ODA2 was USD 15 billion short of expected ODA in 2008 if development partners had been increasing aid at a constant rate since 2004 to meet their 2010 commitments. Preliminary findings of the latest OECD DAC survey on aid allocation policies suggest an almost USD 20 billion shortfall in the country programmable aid (CPA) required to meet 2010 targeted increases.3 More than half of this shortfall is in sub-Saharan Africa which accounts for 28 of the 43 listed fragile states. 2009 CPA is now expected to increase by a marginal 2% to USD 28 billion. This is reduced to just 0.5% if Afghanistan and Iraq are excluded. More than half (22) of all fragile states considered by this report will experience a fall in CPA, 15 of which will be in sub-Saharan Africa. CPA to Liberia, for example, may fall by USD 307 million and Ethiopia by USD 314 million (a 52% decline). African fragile states will actually experience a net fall of USD 368 million. So far there is no evidence of a wholesale aid pull-out. However, there have been some recent worrying signs. Preliminary data on ODA in 2009 show continuing growth in spite of the financial crisis: total net ODA from OECD DAC members rose 0.7% in real terms, but the rise was 6.8% once debt relief is excluded (OECD statistics, April 2010). This includes an increase of 5.1% of ODA to Sub-Saharan Africa in real terms. However, this falls short of Gleneagles commitments4 and 11 (out of 23 OECD DAC members5) have seen their net ODA drop in 2009. According to preliminary OECD DAC figures (OECD statistics, April 2010), net Irish aid actually fell by 18.9% in 2009 due to budgetary pressure. Italy, already off track to meet its commitments, cut aid in 2009 by some 31.1% (net ODA), with little prospect for recovery in 2010 other than increases in debt relief (ONE, 2009, 2010). Several European development partners have announced that as their GNI has decreased, their aid budgets – tied to GNI figures – will also be cut. Since 2007, for example, the value of 2010 commitments of EU members has fallen by some USD 8.6 billion on account of revised GNI projections.6 Further, assessments of previous slowdowns suggest that while aid is resilient to mild crises, the more severe and protracted a crisis becomes, the greater the negative impact on aid. The direct effect of falling aid will be compounded by indirect effects of exchange rate movements due to the appreciation of the dollar against many currencies. Aggregated across all development partners, this could depress current values of aid by as much as USD 8 billion (almost half from the Euro zone), although technical co-operation and humanitarian assistance, being less sensitive to currency movements, will be less affected. Accounting for these, USD 3 billion to USD 5 billion could be wiped from 2009 ODA (World Bank, 2009a). Outside official development assistance, the economic crisis is likely to have a significant impact on the ability of private foundations to make new, additional commitments.7 Corporate losses and erosion of foundations’ assets and their incomes will be felt across the United States, Europe and beyond. The Hewlett Foundation, for example, intended to cut funding by 5-7% in 2008 (World Bank, 2009b). Philanthropic organisations may also increasingly focus on domestic concerns. By contrast, some foundations Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


have stated they will maintain or even increase international funds. The Gates Foundation, for example, announced an additional USD 500 million for 2009, from USD 3.3 billion to USD 3.8 billion. This is despite a 20% decline in the Foundation’s assets in 2008. Similarly, the MacArthur Foundation has also stated it will maintain levels of international giving.

Remittances The impact on remittances became evident in the last quarter of 2008, and continued into 2009. At the time of writing a 6% retraction was forecast for remittances to developing countries, with weak growth in 2010 and 2011 (Ratha and Mohapatra, 2009; Ratha, Mohapatra and Silwal, 2009a, 2009b). Such recovery, however, depends on three factors: (i) that the economic crisis is not deeper and more prolonged than projected; (ii) that exchange rates do not weaken the value of remittances; and (iii) that protectionist policies and immigration controls are not heightened as a response to the crisis in destination countries. Countries and regions vary in their exposure, determined in part by the destination profile of migrants. • Remittances to Eastern European and Central Asian countries are forecast to be hit severely owing to deepening recession and anti-immigration sentiment in Europe and Russia. In countries such as Tajikistan, where remittances constitute a large proportion of GDP (50%), flows have shrunk by over 30% in the first half of 2009. • Sub-Saharan Africa’s dependence on remittances from the United States and Europe has already been felt in 2008, with growth rates of remittances to African fragile states falling from 58% to 7% over the previous year (Figure 1.1.). Absolute volumes to the region are projected to fall by 3% in 2009. • In contrast, remittance flows to South and East Asia, such as to Pakistan and Nepal, have continued to enjoy both positive and accelerated growth through 2008 and 2009, held up both by remittances from Gulf countries and increased motivations for investment of remittances due to falling local asset prices and depreciation Figure 1.1. Remittances to African fragile states have been hit particularly hard 70% 60% 50% 40% 2007

30%

2008

20% 10% 0% All developing countries

Fragile States

SSA Fragile States Non-SSA Fragile States

Source: Ratha, D., S. Mohapatra and A. Silwal (2009a), “Outlook for Remittance Flows 2009-2011”, Migration and Development Brief, No. 10, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

30 – 1. Impacts of the crisis of local currency. Nepal’s remittance growth rate actually increased in 2008 (from 17% to 22%). The pattern of Pakistan’s remittances demonstrates the impact of the source country. Here, remittances from the US have declined dramatically while growth from Gulf States has remained positive (Figure 1.2.). However, the decline in remittances to developing countries is projected to be far less than that of other sources of private flows (Box 1.1.). Net private capital inflows to developing countries fell by around 40% to USD 707 billion between 2007 and 2008 (World Bank, 2009b). Remittances will therefore become even more important for external financing for many developing countries. Figure 1.2. Remittances to Pakistan have varied depending on the source Year-on-year growth Pakistan Year-on-year growth (%)* (%)* 60 From GCC

40 20 0 From US

Ja

n 0 Fe 8 b 0 M 8 ar 0 Ap 8 r0 M 8 ay 0 Ju 8 n 0 Ju 8 l0 Au 8 g 0 Se 8 p 0 Oc 8 t0 No 8 v 0 De 8 c0 Ja 8 n 0 Fe 9 b 0 M 9 ar 0 Ap 9 r0 M 9 ay 0 Ju 9 n 09

-20

*(Growth of 3-month moving average) Source: Ratha, D., S. Mohapatra and A. Silwal (2009a), “Outlook for Remittance Flows 2009-2011”, Migration and Development Brief, No. 10, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC.

Box 1.1. Remittances remain resilient relative to other types of flows during the current crisis Remittances are likely to remain more resilient compared to many other types of resource flows such as foreign direct investment, private debt and equity flows, which are expected to decline or, in the case of portfolio flows, perhaps become negative in 2009 as foreign investors pull out of emerging markets. There are several reasons: •

Remittances are sent by the cumulated flows of migrants over the years, not only by the new migrants of the last year or two. This makes remittances persistent over time. While the crisis may temporarily inhibit new migration, current migrant numbers remain unaffected.

•

Contrary to belief, remittances may even be counter-cyclical. Remittances are a small part of migrants’ incomes, and migrants continue to send remittances when hit by income shocks.

•

The duration of migration has increased due to a rise in anti-immigration sentiments and tighter border controls (e.g. US and Europe). Those staying back are likely to continue to send remittances.

•

Returning migrants are likely to take back accumulated savings. Also the “safe haven” factor or “homebias” can cause remittances for investment purposes to return home during an economic down turn in the host country.

•

Several high-income OECD remittance source countries are likely to undertake large fiscal stimulus packages in response to the financial crisis. This increase in public expenditure, if directed to public infrastructure projects, will increase demand for both native and migrant workers.

Source: Ratha and Mohapatra, 2009; Ratha, Mohapatra and Silwal, 2009a, 2009b.



Trade The global crisis has created both winners and losers amongst the fragile states in terms of trade. Countries which export a limited range of products to a few markets have been most affected by the global downturn in trade. This affects the majority of fragile states, which have narrow export portfolios. These problems have been compounded by exchange rate volatility and declining consumer spending power around the world. • The number of fragile states with a positive trade gap (i.e. exports greater than imports) has remained relatively constant over the period 2005-08, with approximately one-third of fragile states having a trade surplus. However, IMF projections suggest that five countries which recorded a higher level of exports than imports in 2008 will see that position reversed in 2009.8 By the end of 2009 at least 26 fragile states may be facing a negative trade gap (Annex B). • Falling commodity prices – which plunged by 38% in the second half of 2008 and continued to be extremely volatile in 2009 (World Bank, 2009e) – have also had severe consequences for a number of fragile states. In the Democratic Republic of Congo, for example, about 350 000 jobs in the mining sector have been lost in the Katanga Province as a result of a drop in demand for copper (ADBG, 2009). Prices for commodities such as copper and oil have declined dramatically over the last year, and this has particularly hurt the Republic of Congo, Guinea and Nigeria, where oil forms over half of all revenue (World Bank, 2009e). Commodity prices are unlikely to recover in the short-term (IMF, 2009a). • Declining commodity prices have also had some benefits in net oil-importing states such as Burundi, Uganda and Rwanda, relieving pressure (if only temporarily) on rising fuel and food prices. Cocoa and gold prices have not declined, helping countries such as Côte d’Ivoire. • Services have been affected. Kenya’s tourist trade has suffered twice, with a 34.7% drop in visitors in 2008 in the aftermath of post-election violence.9 Prospects for recovery are limited as rich-country tourists stay home. Djibouti’s tourism industry may follow a similar trend.

Foreign direct investment In 2008, global net private capital inflows fell for the first time since 2003 from USD 1.2 trillion to USD 707 billion, and were projected to fall further to USD 363 billion in 2009 (World Bank, 2009b). Investment in fragile states ran counter to this overall trend with FDI flows increasing by one-third compared to 2007 (UNCTAD, 2009). However, there is divergence between investment flows to African fragile states and to fragile states in other regions. Investment in African fragile states has grown by almost 44% since 2007, whereas FDI to non-African fragile states, which have shown markedly slower growth since the beginning of the decade, has declined by 8.6% (see Chapter 9). However, early 2009 data suggest that FDI to Africa as a whole is likely to decline in 2009, and as investors become more risk averse, the future outlook for fragile states is uncertain. The slowdown in the global economy has also been accompanied by falling global commodity prices. This is likely to affect several fragile states in Africa, where many new natural resource exploration and exploitation projects that were started in response to the surge in global commodity prices may be postponed or cancelled (UNCTAD, 2009). Against these Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

32 – 1. Impacts of the crisis trends, evidence suggests that China’s state enterprises are currently exploiting opportunities to purchase newly cheap assets in Africa, particularly in the energy sector (IDS, 2009b). Fragile states with high levels of dependence on foreign financing, including Kenya, Nigeria and Uganda, are seeing a tightening across their banking sector. This is also affecting the operations of foreign banks in their local economies, and reducing the availability of private credit (IMF, March 2009b). However, exporters in Kenya are reporting that it is exchange rate volatility, not access to credit, that is most affecting their businesses (IDS, 2009b). On a more macro level, governments are having difficulty raising capital. Bond issues have been put on hold in Uganda and Kenya (ODI, 2009g). Costs of borrowing and servicing debt have escalated following currency depreciation against the dollar. Borrowing conditions have, in general, become more arduous. These constraints have severely restricted the overall capacity of fragile state governments to react to the financial crisis. Figure 1.3. Economic growth is falling in the majority of African fragile states… 25 2007

2008

2009

15 10 5

Zimbabwe

Uganda

Togo

Sudan

Sierra Leone

Rwanda

Nigeria

Niger

Liberia

Kenya

Guinea-Bissau

Guinea

Gambia, The

Ethiopia

Eritrea

Equatorial Guinea

Djibouti

Côte d'Ivoire

Congo, Republic of

Comoros

Chad

-20

São Tomé and Príncipe

-15

Congo, Democratic Republic of

-10

Central African Republic

Burundi

-5

Cameroon

0 Angola

GDP (% change on previous year)

20

Figure 1.4. …and the majority of fragile states outside of Africa 20 2008

2009

15

10

5

Yemen, Republic of

Tonga

Timor-Leste, Dem. Rep. of

Tajikistan

Solomon Islands

Papua New Guinea

Pakistan

Nepal

Kiribati

Iraq

Myanmar

-5

Haiti

0 Afghanistan, Rep. of.

GDP (% change on previous year)

2007

Source: IMF (2009), World Economic Outlook Database, IMF, Washington, DC. www.imf.org/external/pubs/ft/weo/2009/02/ index.htm. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Secondary impacts on economic and human development Economic growth Falls in per capita GDP growth are projected for 28 fragile states in 2009, with many others experiencing near stagnation (Figures 1.3. and 1.4.).10 This is consistent with regional trends between 2008 and 2009: the growth rates of developing countries in Asia fell from 7.6% to 6.2% and sub-Saharan Africa witnessed dramatic declines – from 5.5% to 1.3%.11 Among the fragile states group, only Equatorial Guinea will see a negative growth rate in 2009.

Domestic revenue and spending Lower economic growth will also affect the tax base in fragile states, further weakening government capacity to deal with the crisis: • Although fragile states have improved their rates of revenue collection over recent years, this trend is set to reverse in 2009. Of the 32 fragile states for which data on estimated revenues for 2009 are available, 21 of these are expected to see a fall in government revenues as a percentage of GDP. This fall in rates of revenue collection will cause an increase in the number of fragile states which collect government revenues of less than 15% of GDP. There was a steady fall in the number of fragile states in this category – from 12 to 7 between 2006 and 2008. This is set to rise to 14 in 2009. • The financial crisis in developing countries is projected to put USD 11.6 billion (or 1.1% of GDP) of core spending at risk, threatening cuts in education, health, operations and maintenance of critical public expenditure and social protection (World Bank, 2009d). Fragile states are estimated to account for 58% of this total. This equates to USD 6.7 billion, some 20% of 2008 aid flows (net of debt relief), and may have significant consequences for social indicators, poverty and wider security in the absence of additional assistance. • However, a return to growth in revenues is predicted for most fragile states in 2010, with 22 out of 32 states seeing a rise in revenue as a percentage of GDP during that year.

Employment and poverty Poverty could increase significantly in a number of fragile states, especially those in sub-Saharan Africa: • Globally, the World Bank estimates that the crisis will add 90 million people to the 2010 poverty headcount (World Bank, 2009b). Previous financial crises have always increased poverty numbers and led to higher rates of malnutrition, schooling dropouts, and infant mortality (IDS, 2009b). • Progress towards the MDGs in fragile states, which is already poor, is likely to be significantly eroded by the fallout from the financial crisis. The possibility of any fragile state achieving the MDGs is now distant. As it is, the World Bank and IMF note that fragile states have made the least progress towards the MDGs overall, and that “the financial crisis threatens serious further setbacks and greatly increases the urgency for action” (World Bank 2009a). • Impacts will be felt along gender lines. The 2009 MDG Report notes that “the global financial crisis is creating new hurdles to women’s employment” and that Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

34 – 1. Impacts of the crisis the crisis is now “hitting female-dominated industries and services and may affect women more profoundly over the long-term” (UN, 2009). • There is the further threat that food prices will again spiral dangerously upwards once the global economy returns to normal. Poor households in fragile states are still hurting from the fuel and price shocks and do not have the reserves necessary to support their families through this period of crisis. Many are no longer able to depend on traditional social safety nets, there is often no formal social security system, and regular remittances from the family diaspora in many countries are less reliable. Any future shocks – for example from climate related disasters, a renewed food price crisis or a return to conflict – will only worsen their situation.

Implications for fragility, security and political stability Warnings of negative spillover effects from the cumulative food price, oil price and now financial crises are common. Fragile states, with weak institutions and limited means to build or consolidate peace, are especially ripe for social unrest. The World Bank warns that lower growth and high unemployment rates in fragile states, particularly amongst young people, can have a destabilising effect and precipitate conflict (World Bank, 2009c). Economic hardship can also lead to the opening up of racial and religious divisions, and can also cause an increase in organised crime and corruption. Violence, social unrest and crime may turn a fragile state into a failed one. A general increase in criminality, the escalation of trafficking of people and drugs, and a potential increase in the likelihood of terrorist acts, will have serious knock-on effects for wider international security (Othieno, 2009). Even the acts of small gangs of economically disadvantaged people, such as the piracy off the East African coast, can have a major effect on global trade. For fragile states, many of which are emerging from protracted conflict, the effects of the financial crisis can negate hard-earned gains in post conflict reconstruction. At worst, they could undermine global security. As the IMF states, “Without additional donor support, poverty reduction and economic development in Africa could be set back by several years and political stability might even be endangered in some countries”.12

Box 1.2. Social unrest from the 2008 food price crisis Escalating food prices and related social tensions led to major rioting in both stable and fragile states across the world in the first quarter of 2008. Food riots in Cameroon in February 2008 led to 24 deaths and over 1 600 arrests. Twelve people were injured in food riots in Côte d’Ivoire. In Senegal, a broadcaster covering the riots in the capital was taken off the air. Rioters in Burkina Faso burnt government buildings and looted stores in three main cities. Tanks were deployed to areas of southern Yemen, where protests had spanned five days and led to the burning of public buildings. Nearly two dozen people were injured from strong-arm police measures to disperse thousands of food price protesters in Dhaka, Bangladesh. Five people died in riots in Haiti. Similar scenes also played out in Afghanistan, Bangladesh, Egypt, Ethiopia, India, Indonesia, Mexico, Morocco, the Philippines, and Pakistan.



Notes 1. Including analysis by the World Bank, the IMF, UNCTAD, the Institute for Development Studies, and the Overseas Development Institute, see below. 2. Global ODA figures in this report include statistics from OECD DAC members and 19 development partners from beyond the DAC which voluntarily report their contributions to the DAC. These include: Chinese Taipei, Cyprus, Czech Republic*, Estonia, Hungary*, Iceland*, Israel, Kuwait, Latvia, Liechtenstein, Lithuania, Poland*, Romania, Saudi Arabia, Slovak Republic*, Slovenia, Thailand, Turkey, United Arab Emirates. (* OECD members) Statement by Turkey regarding Cyprus: “The information in this document with reference to ‘Cyprus’ relates to the southern part of the island. There is no single authority representing both Turkish and Greek Cypriot people on the island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall reserve its position concerning the ‘Cyprus issue’.” Statement by all the European Union Member States of the OECD and the European Commission regarding Cyprus: “The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.” 3. OECD (2009), 2009 DAC Report on Aid Predictability, Survey on Donors’ Forward Spending Plans 2009-2011, OECD, Paris, available online: www.oecd.org/dataoecd/46/19/43161677.pdf. 4. These commitments include: to increase aid to Africa by USD 25 billion per year by 2010; to increase aid to all developing countries by USD 50 billion per year by 2010; to cancel 100% of debts for eligible Heavily Indebted Poor Countries (HIPCs) to the International Monetary Fund (IMF), the World Bank and the African Development Fund (ADF). In addition, each G8 country made specific aid commitments, for example promising to increase the ODA/gross national income (GNI) ratio. 5. Korea became the 24th OECD DAC member in January 2010. 6.

2008 prices. Based on OECD Economic Outlook projections December 2007 and November 2009.

7. U.S. private foundations provided USD 6.2 billion in international contributions in 2008 (Foundation Center, 2010). 8. Cameroon, Chad, Iraq, Nigeria and Sudan. 9. Kenya Tourist Board official figures. 10. Afghanistan, Central African Republic, Chad, Comoros, Côte d’Ivoire, Haiti, the Republic of Congo, Kenya, Myanmar, Tonga, Togo, Yemen and Zimbabwe are projected to see GDP growth rates consistent with, or greater than 2008 (IMF (2009), World Economic Outlook Database, IMF, Washington, DC.). 11. IMF (2009), World Economic Outlook Database, IMF, Washington, DC. 12.

Ms. Antoinette Monsio Sayeh, Director of the IMF’s African Department, speaking about the IMF press release Outlook for Sub-Saharan Africa Highlights Impact of Global Financial Crisis, April 24, 2009, www.imf.org/external/np/sec/pr/2009/pr09141.htm.


36 – 1. Impacts of the crisis

Bibliography ABDG (African Development Bank Group) (2009), “Ministerial Round Table Discussions, Panel 1: The Global Financial Crisis and Fragile States in Africa”, the 2009 African Development Bank Annual Meetings, Ministerial Round Table Discussions and High Level Seminars, ADBG, Dakar. Bakrania, S. and B. Lucas (2009), The Impact of the Financial Crisis on Conflict and State Fragility in Sub-Saharan Africa, Governance and Social Development Resource Centre, University of Birmingham, Birmingham. Foundation Center (2010), “The Global Role of U.S. Foundations”, Foundation Center, New York. IDS (Institute of Development Studies) (2009a), “China and the Global Financial Crisis: Implications for Low Income Countries”, IDS In Focus Policy Briefing, Issue 7.6, IDS, University of Sussex, Brighton. IDS (2009b), “The Global Financial Crisis, Developing Countries and Policy Responses”, IDS In Focus Policy Briefing, Issue 7.1, IDS, University of Sussex, Brighton. IDS (2009c), “From Crisis Management to Institutional Reform”, IDS in Focus Policy Briefing, Issue 7.9, IDS, University of Sussex, Brighton. IDS (2009d), “Will The Global Financial Crisis Change The Development Paradigm?” IDS In Focus Policy Briefing, Issue 7.10, IDS, University of Sussex, Brighton. IMF (International Monetary Fund) (2009a), The Implications of the Global Financial Crisis for Low Income Countries, IMF, Washington, DC. IMF (2009b), Regional Economic Outlook: Sub-Saharan Africa – Weathering the Storm, IMF, Washington, DC. ODI (Overseas Development Institute) (2009a), Beyond the Numbers: Using Aid to Combat the Crisis in Poor Countries Requires More Than Just Cash, ODI, London, www.blogs. odi.org.uk/blogs/main/comments/7085.aspx. ODI (2009b), A Development Charter for the G-20, Background Paper, ODI, London. ODI (2009c), “The Global Financial Crisis and Remittances: What Past Evidence Suggests”, ODI Working Paper, No. 303, ODI, London. ODI (2009d), “The Global Financial Crisis and Developing Countries: Synthesis of the Findings of 10 Country Case Studies”, ODI Working Paper, No. 306, ODI, London. ODI (2009e), “The Global Financial Crisis and Sub-Saharan Africa: The Effects of Slowing Private Capital Inflows on Growth”, ODI Working Paper, No. 304, ODI, London. ODI (2009f), “The Global Financial Crisis: Poverty and Social Protection”, Briefing Paper, No. 51, ODI, London. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


ODI (2009g), “The Global Financial Crisis and Developing Countries: Taking Stock, Taking Action”, Briefing Paper, No. 54, ODI, London. ODI (2009h), “The Effects of the Global Financial Crisis: What Developing Country Experts Are Saying”, ODI, London, www.blogs.odi.org.uk/blogs/main/ archive/2009/09/23/global_ financial_crisis_monitoring.aspx. ODI (2009i), Spending Their Way Out of Crisis: Should International Transfers Fund fiscal stimulus packages in poor countries?, ODI, London. ONE (2009), The Data Report 2009: Monitoring the G8 Promise to Africa, ONE, London, www.one.org/international/datareport2009/. ONE (2010), The Data Report 2010: Monitoring the G8 Promise to Africa, ONE, London, www.one.org/report/2010/en/downloads. Othieno, T. (2009), “The Global Financial Crisis: Risks for Fragile States in Africa”, ODI Opinion Paper, No. 130, Overseas Development Institute, London. Ratha, D. and S. Mohapatra (2009), “Revised Outlook for Remittance Flows 20092011”, Migration and Development Brief, No. 9, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC. Ratha, D., S. Mohapatra and A. Silwal (2009a), “Outlook for Remittance Flows 20092011”, Migration and Development Brief, No. 10, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC. Ratha, D., S. Mohapatra and A. Silwal (2009b), “Migration and Remittance Trends 2009”, Migration and Development Brief, No. 11, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC. Paczynska, A. (2009), “Global Financial Crisis, Fragile States and Post-Conflict Reconstruction”, paper presented at the annual meeting of the ISA – ABRI Joint International Meeting, Pontifical Catholic University, Rio de Janeiro, 22 July 2009. Transparency International (2008), 2008 Corruption Perceptions Index, Transparency International, Berlin, www.transparency.org/news_room/in_ focus/2008/cpi2008/ cpi_2008_table. UN (United Nations) (2009), Millennium Development Goals Report 2009, UN, New York. WFP (World Food Programme) (2009), “Effects of the Financial Crisis on Vulnerable Households: Findings from Five Case Studies”, WFP, Rome. World Bank (2009a), Global Monitoring Report 2009: A Development Emergency, World Bank, Washington, DC. World Bank (2009b), Global Development Finance: Charting a Global Recovery, World Bank, Washington, DC. World Bank (2009c), Impact of the Global Financial and Economic Crisis on Fragile and Conflict-Affected Countries, World Bank, Washington, DC. World Bank (2009d), Protecting Progress: The Challenge Facing Low-Income Countries In The Global Recession, World Bank, Washington, DC. World Bank (2009e), Swimming Against The Tide: How Developing Countries Are Coping With The Global Crisis, World Bank, Washington, DC.


38 – 1. Impacts of the crisis World Bank (2009f), How Should Fiscal Policy Respond to the Economic Crisis in the Low Income Commonwealth of Independent States? Some pointers from Tajikistan, World Bank, Washington, DC. World Bank (2009g), “Outlook for Remittance Flows 2009-2011: Remittances expected to fall by 7-10 percent in 2009”, Migration and Development Brief, No. 10, World Bank, Washington, DC.


2. Responses to the global crisis – 39

Chapter 2 Responses to the global crisis

Fragile states have little fiscal room to maneuver in response to the crisis. Facing significant gaps in core spending, they have had to make tough decisions about where to prioritise already scarce resources. Aid plays a vital role in meeting short-term needs and addressing long-term systemic vulnerability in most fragile states, and a possible decrease in aid levels will put additional pressure on them as they try to weather the financial crisis. This chapter outlines both domestic and international responses to the crisis, and provides recommendations for effective aid delivery, given the present context.


40 – 2. Responses to the global crisis

Current responses Domestic economic policy The majority of fragile states have very little fiscal room for manoeuvre in responding to the crisis. Commodity exporters, such as Nigeria, have been able to expand fiscal deficits, afforded through the accumulated surpluses gained from earlier high commodity prices. However, many fragile states require external concessional financing from the international community to ease their macroeconomic policies, as they have limited access even to short-term borrowing, while additional non-concessional debt is widely considered a high-risk option given the uncertain duration and ultimate impact of the crisis.

Domestic social policy Facing such tight fiscal constraints, fragile states have had to make tough decisions about where to prioritise scarce resources (Box 2.1, example of Tajikistan). USD 11.6 billion of core spending is currently under threat, 58% within fragile states (World Bank, 2009b). Much of this financing gap will require supplemental support from external sources if further cuts to key social sectors are to be avoided. Early evidence suggests that formal social protection systems, in the few fragile states where they existed, have suffered greatly from the effects of the financial crisis. Kenya and Uganda are now unable to provide the social safety nets that they were already having problems funding. Nigeria has reduced social sector expenditure in order to promote macroeconomic sustainability (ODI, 2009).

Box 2.1. How should Tajikistan respond to the economic downturn? Tajikistan’s economy has been hit hard by a drop off in remittances from its constructiondependant diaspora in Russia. It lacks international reserves, has limited access to external finance and is carrying a large deficit; all these severely constrain fiscal space. However, Tajikistan is an open economy and is a net fuel importer. Consultants working with the Tajik government to determine the optimal response to the crisis have proposed the following path: •

Cutting government budget expenditure will not only endanger social protection programmes but will also have a general recessionary effect, and thus should be avoided.

•

A lack of fiscal space to increase borrowing means turning to external donors to contribute budget support.

•

Donor funds should be used to improve the reach of social protection programmes and to finance urgent infrastructure rehabilitation, providing jobs for returning migrants.

•

Attention should be paid to ensure the scaled up social protection programmes can be sustained once international support scales down.

Source: Brownbridge and Canagarajah, 2009.



International responses While many fragile states are struggling to meet financing needs, having limited or run-down reserves, and falling private flows, the international community has responded with a range of initiatives and commitments: • Assistance from bilateral development partners has largely been channelled to support multilateral finance mechanisms and G-20 initiatives. In April 2009 the G-20 endorsed expansion of IMF’s lending capacity from USD 250 billion to USD 750 billion, to be initially funded through bilateral loans from member countries. The IMF has responded to the crisis by scaling up concessional financing to USD 17 billion over five years, including up to USD 8 billion in 2009 and 2010 – exceeding calls made by the G-20. Disbursements to fragile states in the first 11 months of 2009 reached approximately USD 1.36 billion, double 2008 levels. Commitments exceeded USD 1.6 billion over the period. While all relief has been provided as loans, interest on existing loans has been cancelled until the end of 2011, in addition to the approval of a series of reforms for increased flexibility, reduced conditionality and more rapid assistance.1 Such reforms should improve fragile and post-conflict states’ access to financing. The IMF has also accommodated larger fiscal deficits in many low-income countries. • The IMF has estimated that low-income countries need about USD 50 billion in additional external financing for 2009 and 2010 (IMF, 2009). Of this, the IMF would provide about one third from the SDR allocation and the bump-up in concessional lending. The G-20 has called on the IMF to undertake special drawing rights (SDRs) allocations of USD 250 billion.2 SDRs aim to provide immediate additional liquidity by supplementing foreign exchange reserves. This became effective in August 2009, with a further special SDR allocation of approximately USD 34 billion made to members in September. USD 20 billion of these allocations benefited low income countries (LICs), of which approximately half – or 4% of the total – benefited fragile states. SDR allocations are made in proportion to existing IMF quotas, broadly based on members’ relative size in the global economy. Allocations, therefore, are not necessarily made according to need and there are concerns that such resources would be directed toward high-income emerging markets and middle-income states (World Bank, 2009c). • The G-20 further called on multilateral development banks to increase lending of at least USD 100 billion, including to low income countries. Backed by G-20 bilateral contributions, they also called for the World Bank to provide credits for trade finance, and USD 50 billion for social protection, trade and safeguarding development in low income countries. As of April 2009, the World Bank estimates that USD 88 billion has been raised for this purpose. However, USD 73 billion of this is in the form of development policy loans destined for emerging market economies, and thus out of the reach of many fragile states.3 • Robert Zoellick, the President of the World Bank, further proposed that 0.7% of each developed country stimulus package be pledged to a special Global Vulnerability Fund to assist developing countries weather the crisis.4 Little, however, has been committed. In the absence of immediate support for a proposed vulnerability fund, the World Bank has responded through its own existing resources and facilities. This has largely been through the Bank’s Vulnerability Financing Facility Framework, comprising the Global Food Crisis Response Program (GFRP), the International Development Association Fast Track Facility, and the Rapid Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

42 – 2. Responses to the global crisis Social Response Fund. Complementary and co-ordinated initiatives include the Infrastructure Recovery Assets Platform (INFRA) and the International Finance Corporation’s International Crisis Facility (ICF) plan. • Such initiatives are benefiting a number of fragile states. For example, as of December 2009, USD 235 million (20%) of the GFRP’s USD 1.2 billion had been allocated to members of the fragile state group.5 However, much of the World Bank’s funding consists of reallocations from existing instruments, namely the International Development Association (IDA) and the International Bank of Reconstruction and Development (IBRD) (Woods, 2009). Both are governed by rules that determine funding eligibility. IBRD lending is restricted by limited risk taking, while IDA disbursements are based on performance rather than need.6 Such an allocation system, therefore, is not a facility that can easily distribute resources based on the impact of the crisis. Further, given that Country Policy and Institutional Assessments (CPIA) are based on past performance, these are not necessarily an appropriate tool for fragile states whose ability to manage resources has recently improved.

Looking forward The impact of the financial crisis has been greater than first anticipated, and threatens to reverse gains in poverty reduction, human development and security. The World Bank notes that despite recent progress achieved through significant social and economic effort, fragile states such as Liberia and Sierra Leone risk slipping back into conflict in the absence of additional external assistance. It has been recognised that the costs of acting in fragile states may be considerably lower than the costs of inaction (DFID, 2005). Similarly, the investment needed to respond to the economic crisis now will be lower than the expensive humanitarian interventions and considerably longer-term development interventions required if the cumulative effects of recent crises tip fragile states back into conflict and heightened human insecurity. However, aid to fragile states has yet to be scaled up in proportion to the crisis. While many fragile states have benefitted from debt relief under the enhanced Highly Indebted Poor Country (HIPC) initiative, and further relief is still in the pipeline, debt relief does not help countries with lower levels of debt. Additional resources beyond current aid commitments are required to bridge the fiscal gaps facing many fragile states. Such assistance will be necessary to protect core spending, particularly in social sectors, to ensure that the temporary crisis does not deteriorate into a permanent retreat from progress. Additional, co-ordinated efforts will also be necessary to enhance agricultural growth and food security. Pledges made at the G-8 summit in L’Aquila demonstrated strong signals of intent, and now need to be backed up by clarity over how they will be met, and by rapid implementation. The international community must be sensitive to the needs of fragile states. First, it is important to ensure fragile states do not miss out on international support in the aftermath of the global financial crisis. There are a number of fragile states that, despite suffering from the effects of the global economic crisis, are likely to prove ineligible for IDA support under the present eligibility criteria.7 Furthermore, the group of fragile states include several “aid orphans” (see Chapter 3). The need for a stimulus package or vulnerability fund for fragile states has seen prominence, including the World Bank call for all developed nations to set aside 0.7% of their domestic stimulus packages for a Global Vulnerability Fund (see text above). This could deliver potentially significant resources for fragile states. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Second, as well as targeting immediate priorities, development partners must pay heightened attention to improving the capacity of fragile states to manage aid. A major cash inflow, if not managed correctly, could promote domestic inflation – further harming the purchasing power of poor people. Such considerations should not limit the flow of resources; instead they should guide the selection and focus of appropriate financing mechanisms and associated institutional support. Third, any response to the impact of the global crisis should include mitigating probable future risks, such as a return to food price hikes or climate related disasters. Fourth, while ensuring sufficient aid-led financing to prevent severe hardship and the erosion of hard-earned progress towards development targets, the very small proportion of aid that is currently dedicated to improvements in tax administration in fragile states highlighted in the Pretoria Communiqué (see Chapter 7) must be re-examined. The business climate is weakest in fragile states and improving it significantly should be a priority. Fifth, the lessons of effective aid delivery must be remembered, and realistically achievable goals in the short-term must be recognised. Extending existing social safety net systems is likely to be more effective than attempting to implement new structures. And rehabilitating existing infrastructure, or completing existing construction projects, is likely to generate better and quicker results and employment than embarking on the extensive planning needed for new programmes. In addition, any rapid scaling up of aid must not be at the expense of future commitments, or work done now risks being unsustainable. Support must be tailored. Fragile states vary significantly in both how and why they have suffered from these crises, and in the resources and political capital available to fund mitigation measures: all recovery aid programmes need to be co-ordinated and transparent and meet the real priority needs of each fragile state. Some fragile states, for example Kiribati, Nigeria, Timor-Leste and Angola, have sovereign wealth funds that could be used to support recovery efforts. Others, such as Uganda, Kenya, Burundi, Rwanda and Pakistan, have strong state institutions which can be used to develop and implement recovery policy measures. Economic make-up also differs between the fragile states – some are highly commodity-export driven, others are dependent on remittances. And fragile states vary enormously in their capacity to rapidly expand government spending programmes, be they on social protection, infrastructure, or other measures to counter economic downturn.

Domestic policy Fragile states can – depending on their individual profiles – make policy changes to support recovery from the financial crisis. • Those states with sovereign wealth funds could, for example, reposition a portion of their investments in home-grown businesses and essential infrastructure. • Moves to widen the tax base should be pursued wherever practical, including increasing the proportion of tax revenues from low-distortion sales taxes (such as VAT) and reducing the reliance on cross-border trade tariffs. However it is recognised that broadening the tax base in economies which are highly dependent on agriculture will ultimately require greater monetisation of rural subsistence economies which could prove to be a long and difficult process. • A greater emphasis on tackling corruption in fragile states would yield both economic and societal benefits. Reduced corruption within fragile states will increase


44 – 2. Responses to the global crisis the perceived legitimacy of state institutions in the eyes of the public and thus also enhance the perceived legitimacy of taxes levied by the state. • Fragile states can also implement programmes to reduce red tape and support home-grown entrepreneurship and job-creation schemes. Steps could also be taken to diversify their economic base away from narrow export portfolios or reliance on commodity exports – thereby reducing the risk of transport costs and world market price fluctuations leading to future economic hardship. A key measure would be to reduce the time and expense involved in setting up new businesses. Such businesses could then be expected to contribute positively to both economic growth and government revenue. The World Association of Investment Promotion Agencies (WAIPA) calls for countries – including fragile states – to look at innovative ways to attract FDI (WAIPA, 2009). It suggests measures such as opening the regulatory framework for FDI, and providing better access to up-to-date and actionable investment information. These actions will be especially necessary for fragile states emerging from years of conflict or turmoil to counter negative perceptions and risk-averse behaviour of international investors.

Notes 1.

Most notably through the establishment of the Rapid Credit Facility.

2.

The Global Plan for Recovery and Reform, London G-20 Communiqué, 2 April 2009.

3. This includes loans provided by the Asian Development Bank, African Development Bank, Inter American Development Bank and the World Bank Group. The latter constitutes USD 65 billion of lending, of which USD 60 billion is attributed to IBRD (World Bank, 2009a). 4. World Bank Press release, 30 January 2009. 5. World Bank Global Food Crisis Response Program Project Status, 17 December 2009, www. worldbank.org/foodcrisis/pdf/GFRPProjectStatus.pdf. 6. Country Policy and Institutional Assessments (CPIA), together with population and per capita income considerations, largely determine IDA allocations. 7. Somalia, Sudan, Zimbabwe and Myanmar are currently not receiving IDA allocations as they are in arrears, while Equatorial Guinea is an IBRD country and thus no longer receives IDA allocations.



Bibliography Brownbridge, M. and S. Canagarajah (2009), How Should Fiscal Policy Respond to the Economic Crisis in the Low Income Commonwealth of Independent States? Some pointers from Tajikistan, World Bank, Washington, DC. DFID (Department for International Development) (2005), Why We Need to Work More Effectively in Fragile States, DFID, London. DFID (2009), “Eliminating World Poverty: Building Our Common Future”, report on the DFID Conference on the Future of International Development, DFID, London. IDS (Institute of Development Studies) (2009a), “From Crisis Management to Institutional Reform”, IDS in Focus Policy Briefing, No. 7.9, IDS, University of Sussex, Brighton. IDS (2009b), “Will The Global Financial Crisis Change The Development Paradigm?”, IDS In Focus Policy Briefing, No. 7.10, IDS, University of Sussex, Brighton. IMF (2009), “The Implications of the Global Financial Crisis for Low-Income Countries – An update”, IMF, Washington, DC. Kibaara, B. (2008), The Impact of the Financial Crisis on Developing Countries, Tegemeo Institute of Agricultural Policy and Development, Egerton University, Kenya. ODI (Overseas Development Institute) (2009), “The Global Financial Crisis: Poverty and social protection”, Briefing Paper, No. 51, ODI, London. WAIPA (World Association of Investment Promotion Agencies) (2009), “Over 70% of IPAs May Be Missing Out on FDI Projects Knocking on their Doors”, WAIPA Newsletter, Issue 5. Woods, N. (2009), “The International Response to the Global Crisis and the Reform of the International Financing Aid Architecture”, Briefing Paper, European Parliament, Brussels. World Bank (2009a), Global Development Finance: Charting a Global Recovery, World Bank, Washington, DC. World Bank (2009b) Protecting Progress: The Challenge Facing Low-Income Countries in the Global Recession, World Bank, Washington, DC. World Bank (2009c), Global Monitoring Report 2009: A Development Emergency, World Bank, Washington, DC. World Bank (2009d), Swimming Against The Tide: How Developing Countries are Coping with the Global Crisis, World Bank, Washington, DC.


Part II. Aid flows to fragile states: disappointing projections in times of need – 47

Part II Aid flows to fragile states: disappointing projections in times of need


3. Trends in official development assistance – 49

Chapter 3 Trends in official development assistance

Official development assistance (ODA) reached a high of USD 111.2 billion in 2008, of which USD 34.6 billion went to fragile states. However, ODA to fragile states remains concentrated amongst a few predictable partner countries: 51% of aid benefited just six countries (Afghanistan, Ethiopia, Iraq, West Bank and Gaza, Sudan, and Uganda) in 2008. This chapter examines the current state of ODA to fragile states with specific data on its concentration and distribution, aid orphans, aid composition and delivery channels. This chapter also provides aid projections for country programmable aid for 2009-11.


50 – 3. Trends in official development assistance

Official development assistance flows to fragile states In 2008, USD 34.6 billion in ODA went to fragile states, 31% of total ODA (excluding debt relief).1 2008 witnessed significant increases in global ODA, growing by 13.5% over 2007 levels to USD 111.2 billion. Increases in ODA to fragile states were less than the global trend: ODA to fragile states increased by 7.4% to USD 34.6 billion. Of the total increases in global ODA, 18% went to fragile states (Figure 3.1.). Haiti provides an example of the increasing importance of ODA levels and in particular humanitarian assistance (Box 3.1.). Aid to fragile states remains concentrated among a few partner countries. In 2008 51.1% of ODA for the 43 fragile states benefited just 6 countries: Afghanistan (13.5%), Ethiopia (9.5%), Iraq (9.4%), West Bank and Gaza (7.3%), Sudan (6.6%) and Uganda (4.7%) (Figure 3.2.). Further, Afghanistan and Iraq account for 34% of the total increase in ODA in real terms to fragile states between 2000 and 2008, with an additional 14% to Pakistan and Ethiopia combined (Box 3.2. for more detail on Afghanistan). Over this period, aid to Iraq and Afghanistan increased by 1 804% and 1 957% respectively. Conversely, ten fragile states2 saw lower ODA levels in 2008 than in 2000 in real terms (Figure 3.3.). Fragile states as a collective group receive less aid per capita than their poverty levels justify. One study estimates that fragile states have received an estimated 43% less aid than would have been appropriate given the extent of poverty (Levin and Dollar, 2005).1 Of course most aid allocations models also take into account state performance, proxied by CPIA or similar ratings, but using historical policy and institutional ratings to predict future performance can be problematic, particularly in countries in turnaround situations. Average aid per capita for fragile states is USD 36 (current prices). Again, however, there is significant variation. As might be expected, island states with small populations receive a much higher level of aid per capita than the average (e.g. Solomon Islands, USD 435; Tonga, USD 242; and Kiribati, USD 276). Middle East and Central Asian countries also receive higher levels (West Bank and Gaza, USD 668; Iraq, USD 105; Afghanistan, USD 159), reflecting the influence of global political climates on the development partners’ priorities (Figure 3.4.).

Aid orphans The Accra Agenda for Action (AAA) pledges: “We will work to address the issue of countries that receive insufficient aid. However, there are lively debates about what constitutes insufficient aid. “There is no single agreed definition of aid orphans because underlying approaches differ. To pinpoint where aid is insufficient and by how much requires selecting one of several normative benchmarks for apportioning aid across countries, against which actual aid can be tallied. Options range from simply assuming equal per capita aid to all low-income countries, to increasingly sophisticated formulae using alternative indicators of need and of ability to use aid, weighted appropriately.” (OECD, 2009c). One recent study identifies insufficient aid according to certain benchmarks (Utz, 2009).3 According to the study, among the 61 low income countries for which data were available, 37 receive insufficient aid according to at least one of the benchmarks used. Of these, 18 are fragile states, although clearly not all fragile states are under-aided (Table 3.1.). A further study considers the division of labour among 15 European Union (EU) development partners (Mürle, 2007). All EU development partners have focused their aid on a limited number of priority partner countries,4 with many distinguishing between core Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Figure 3.1. Net OECD DAC ODA (excluding debt relief) to fragile states, 1990 to 2008

USD billion (2007 constant prices)

120 100 80 Non-fragile states 60 Fragile states 40 20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: OECD DAC online database, accessed November 2009.

Box 3.1. ODA going to Haiti, 2008 ODA to Haiti increased by 36% between 2007 and 2008. This is much higher than both the global and fragile states increases in ODA between 2007 and 2008, which were 13.5% and 7.4% respectively. ODA in Haiti has increased substantially since 2002. Between 2002 and 2008, total ODA increased by 312%, with sharp rises in both development and humanitarian aid. ODA is expected to increase further over 2009-11. The International Donors’ Conference “Towards a New Future for Haiti” in New York, 1 April 2010, yielded more than USD 9 billion for Haiti’s reconstruction and to support essential social services, governance and broad-based sustainable development, and to defend against natural disasters. Of this amount, more than USD 5 billion was pledged for 2010 and 2011. Humanitarian aid as a proportion of total ODA increased from 0.2% in 2002 to over 20% in 2008 with 2004 onwards signifying the increased importance of humanitarian aid. In 2008 the absolute and relative proportions of humanitarian aid were at their highest levels since 2002. This is most likely explained by several hurricanes that affected the country in 2008 and assistance following food riots in April 2008.

USD million (2007 constant prices)

1 000 900 800 700

Development ODA

600 500

Humanitarian ODA

400 300

Total ODA

200 100 2000

2001

2002

2003

2004

2005



2006

2007

2008

52 – 3. Trends in official development assistance Figure 3.2. Highly concentrated aid to fragile states in 2008, by country Afghanistan Ethiopia Iraq West Bank and Gaza Sudan Uganda Congo, Dem. Rep. Pakistan Kenya Nigeria Rwanda Haiti Fragile states average Somalia Nepal Liberia Zimbabwe Cote d'Ivoire Niger Myanmar Cameroon Burundi Chad Sierra Leone Yemen Papua New Guinea Angola Tajikistan Timor-Leste Central African Rep. Solomon Islands Korea, Dem. Rep. Togo Guinea Congo, Rep. Eritrea Guinea-Bissau Djibouti Gambia Sao Tome & Principe Equatorial Guinea Comoros Kiribati Tonga

4648 3292 3192 2562 2277 1651 1592 1450 1355 1206 927 906 805 750 706 658 609 604 602 517 511 505 415 368 312 305 305 277 275 235 220 218 217 168 141 136 131 111 89 46 37 34 27 25

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

USD million (current prices)


Figure 3.3. Growth in aid is also highly polarised among fragile states 700%

500% 400% 300%

1 012%

1 804%

1 957% Afghanistan

100%

Iraq

200%

Sudan

Growth in ODA, 2000-2008 (%)

600%

0%

Liberia

Nigeria

Congo, Dem. Rep.

Somalia

Myanmar (Burma)

Burundi

Ethiopia

Haiti

West Bank and Gaza

Fragile states average

Zimbabwe

Congo. Rep.


Togo

Pakistan

Chad

Niger

Kenya

Rwanda

Solomon Islands

Tajikistan

Korea, Democratic Rep

Nepal

Uganda

Cote d'Ivoire

Gambia

Sierra Leone

Djibouti

Comoros

Kiribati

Cameroon

Guinea-Bissau

Tonga

Equatorial Guinea

Yemen, Rep.

Guinea

Sao Tome and Principe

Timor-Leste

Papua New Guinea

Eritrea

Angola

-100%

Source: OECD DAC online database, accessed November 2009. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


priority countries and other countries they co-operate with. France, the UK and Germany have the highest number of fragile states as priority partner countries in absolute terms (Table B.4.). The Pacific fragile states are absent from all priority lists of EU development partners. There is wide variation for African fragile states. For example, Ethiopia, Kenya, Rwanda and Uganda are priority partner countries for several of the EU development partners, whilst for Central African Republic, Comoros, Djibouti and Togo, France is the only development partner which considers these to be priority partner countries. The UN Peacebuilding Commission (PBC), which was established in 2006, and the UN Peacebuilding Fund tend to take into consideration the lack of funding in the countries benefiting from its support (currently 16 countries) and prioritise several aid orphans over countries with large ODA flows. One of the reasons these countries fail is that while their neighbours have a multitude relationships with development partners, they have only a limited number of development partners which count them as priority countries. Of the fragile states the PBC currently supports, most are considered a core priority country by only one of the EU15 development partners.

Box 3.2. ODA levels to Afghanistan, 2000-08 Since 2000, ODA levels to Afghanistan have been steadily increasing both in volume and proportionate terms. Between 2000 and 2008 ODA rose from USD 135 million to USD 4.6 billion (current prices), equivalent to a 21-fold increase in real terms. Afghanistan’s total ODA in 2000 made up just 1.8% of the total ODA going to the fragile states group. By 2008 this proportion had increased to 13.5%. Similarly Afghanistan’s total ODA made up only 0.3% of total ODA going to all developing countries. By 2008 this proportion had increased to 4.2%, reflecting the importance of the changing global political climate over this period. The United States is by far the biggest development partner providing co-operation in Afghanistan, contributing to over 46% of Afghanistan’s total ODA in 2008 (bilateral aid alone). Bilateral ODA from the United States to Afghanistan had increased by 70 942%. This has been responsible for 48% of the total increase in ODA going to Afghanistan between 2000 and 2008. These large increases in ODA levels have meant that whilst aid to Afghanistan was USD 6 per capita in 2000, this increased to USD 159 in 2008 (current prices). Afghanistan benefitted from the largest amount of aid of all the fragile states (and of all developing partner countries) in 2008, overtaking Iraq which had received the largest amount of ODA between 2003 and 2007.

USD billion (2007 constant prices)

35 30 25 All other fragile states 20 15 Afghanistan 10 5 2000

2001

2002

2003

2004

2005



2006

2007

2008


668

700

435

600 500 400 300 200 100

8 9 9 11 14 17 17 25 25 27 27 29 34 35 36 37 39 41 41 41 47 49 52 53 53 54 55 57 63 66 83 84 93 95 108 131 159 173 242 251 276 284

USD per capita (current prices)

Figure 3.4. Aid per capita in fragile states, 2008

Nigeria Pakistan Korea, Democratic Rep Myanmar (Burma) Yemen, Rep. Angola Guinea Nepal Congo, Dem. Rep. Cameroon Eritrea Cote d'Ivoire Togo Kenya Fragile states average Chad Congo. Rep. Tajikistan Ethiopia Niger Papua New Guinea Zimbabwe Uganda Central African Republic Comoros Gambia Sudan Equatorial Guinea Burundi Sierra Leone Guinea-Bissau Somalia Haiti Rwanda Iraq Djibouti Afghanistan Liberia Tonga Timor-Leste Kiribati Sao Tome and Principe Solomon Islands West Bank and Gaza

-

Source: OECD DAC online database, accessed November 2009; World Bank World Development Indicators (WDI) database, accessed November 2009.

Total

Programmebased approaches (PBA)

Povertyefficiency

Average development partner behavior

OECD methodology

Equality (per capita terms)

Country

Equality (GDP terms)

Table 3.1. Aid orphans

Togo

*

*

*

*

4

Guinea

*

*

*

*

4

Niger

*

*

*

Nepal

*

*

*

3

*

*

*

3

*

*

3

Ethiopia Comoros Congo, Republic of

* *

*

Gambia

*

Kenya

3 2

*


*

Guinea-Bissau

*

*

2

*

2

*

2

*

Chad

2 *

Congo, Democratic Republic

1

*

Burundi

1 *

Tajikistan

1 *

Pakistan

1

*

Côte d’Ivoire Total

* *

*

Uganda

3

1

* 1

7

1 8

6

12

5

Source: Adapted from Utz, R. (2009), Will Countries that Receive Insufficient Aid Please Stand Up, Concessional Finance and Global Partnerships Research Program on the International Aid Architecture, World Bank, Washington, DC. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


In 2008 the main development partners in terms of volumes of ODA to fragile states were the United States, the United Kingdom and Germany (following the same pattern as 2007) (Figure 3.5.).5 Development partners that gave most ODA to fragile states as a proportion of their total aid were the United States (42%), Australia (37%) and Ireland (35%) (Table B.5.).

Aid composition to fragile states In 2008 total CPA6 as a proportion of total OECD DAC aid (bilateral and multilateral) to fragile states reached 58%, the same as the developing country average (58%).7 Proportions in 2008 are slightly lower than in 2007, when CPA was reported as being the second highest since monitoring began in 2004 (Figure 3.6.). Figure 3.5. Top development partners of fragile states, 2008 12 000

USD million (2007 prices)

10 000 Multilateral ODA

8 000 6 000 4 000

Bilateral ODA

2 000

Luxembourg

New Zealand

Greece

Portugal

Austria

Finland

Switzerland

Ireland

Denmark

Belgium

Australia

Norway

Sweden

Spain

Italy

Netherlands

Canada

Japan

France

Germany

United Kingdom

United States

-


Figure 3.6. CPA as a proportion of aid to fragile states and all developing countries, 2004-08 Fragile states

All developing countries

70% 60% 50% 40% 30% 20% 10% 0% 2004

2005

2006


2007

2008

56 – 3. Trends in official development assistance Fifteen fragile states received more than 80% of total gross ODA in the form of CPA in 2008. The majority of states with low CPA proportions are in sub-Saharan Africa: Republic of Congo (24%); Gambia (26%); Somalia (22%); Sudan (36%); Liberia (38%) and Zimbabwe (39%) (Table B.6.). However, this is not necessarily a disadvantage as funds appropriate for many fragile contexts (such as humanitarian assistance and other key roles played by multilateral organisations) may fall outside CPA. The proportional increase in CPA overall from 2007 onwards is partly due to declines in the high levels of debt relief in 2005 and 2006. Debt relief constituted 17% of total gross ODA to fragile states in 2008, considerably higher than the 6% for developing countries in general. There is, however, considerable variation in the group. States experiencing current conflict (Afghanistan, Somalia, West Bank and Gaza) have very low levels Figure 3.7. Declining debt relief, 2004-08 60 000


50 000 Humanitarian aid 40 000 Country programmable aid

30 000

20 000

Debt relief

10 000

2004

2005

2006

2007

2008


Figure 3.8. Bilateral and multilateral aid to fragile states, 2004-08 100% 90% 80% 70% 60%

Multilateral aid

50% 40%

Bilateral aid

30% 20% 10% 0% 2004

2005

2006

2007

2008



of debt relief. High debt relief in 2008 is dominated by Iraq (USD 6.6 billion), Republic of Congo (USD 363 million) and Liberia (USD 555 million). Conversely, more than half the fragile states group (25) received debt relief of USD 2 million or less in 2008. Humanitarian assistance to fragile states in 2008 constituted 15% of gross ODA, almost four times the average for non-fragile countries (4%) (Figure 3.7). In absolute terms more humanitarian assistance was delivered to fragile states (USD 7.2 billion – current prices) than all other developing countries combined (USD 4 billion). Humanitarian aid to fragile states between 2000 and 2008 grew from USD 1 billion to USD 6.9 billion, or 333% in real terms.

Channels of delivery Development assistance can flow through many different agencies and organisations. In 2008, 67% of aid to fragile states was bilateral and 33% multilateral. By comparison, bilateral aid constituted 70% of assistance to non-fragile states in 2008 (Figure 3.8.). In 2008, 44.1% of all assistance to fragile states (bilateral and multilateral) was delivered via the public sector of development partners, 18.5% through multilateral agencies and 11.5% via NGOs and civil society.8 Such proportions reflect the figures for aid to developing countries more generally. However, there is variation within the fragile states group. Considerably more ODA (29.4%) was channelled through multilateral agencies in countries facing on-going conflict (Afghanistan, Somalia and West Bank and Gaza), with 40.6% via the public sector (Figure 3.9.).

Concessionality: grants versus loans The total grant element of gross bilateral ODA to this group has been steadily rising since 2000, from approximately 90% to almost 100%. In 2008 bilateral grants constituted 98% of gross disbursements to fragile states. This is consistent with calls for loan disbursements to such countries to be minimised. By contrast the grant element of ODA to non-fragile states has remained approximately 80% over the period (Figure 3.10.).9 Figure 3.9. The significant role of multilateral agencies in delivering aid in conflict‑affected states, 2008

Fragile states, 2008

On-going conflict states, 2008 5.7%

17.9%

13.0%

8.1%

44.1%

40.6% 29.4%

18.5% 11.5%

11.3%

Public sector

NGOs and civil society

To be defined

Multilateral organisations

Other

Public private partnerships

Source: OECD-CRS online database, accessed 2009. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

58 – 3. Trends in official development assistance Similarly, multilateral grants constituted 71% of gross disbursements to fragile states in 2008, having risen from just under 50% in 2000; by contrast the grant element of ODA to non-fragile states has risen less rapidly from 48% in 2000 to 58% in 2008.

ODA projections The impacts of the financial crisis are starting to filter through into development partners’ aid budgeting. The second (2009) OECD survey of donor forward spending plans for 2009-11 presents fairly modest increases in CPA at a time of heightened need.10 Figure 3.10. Grants constitute the largest component of bilateral aid to fragile states, and have been increasing proportionately

% of gross disbursements

100% 95% Fragile states

90% 85%

Non-fragile states

80% 75%

08 20

07 20

06

20

20

05

04 20

03 20

02 20

20

20

00

01

70%


Figure 3.11. Changes in CPA for fragile states, 2009-11 5 000

Change in CPA from previous year (USD million, 2008 prices)

4 500 4 000 3 500

2009

3 000 2 500

2010

2 000

2011

1 500 1 000 500 0 -500

CPA global

Fragile states

African fragile states

Non-African fragile states

Source: OECD (2009), 2009 DAC Report on Aid Predictability: Survey on Donors’ Forward Spending Plans 2000-2011, OECD, Paris. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Global CPA is projected to increase by 4% in 2009 to USD 84 billion (2008 prices). Regional disparities, however, are severe, with sub-Saharan Africa witnessing an overall decline of 3% in 2009. The group of fragile states will see an aggregate increase of 2% in CPA levels in 2009, to USD 28 billion. However, Afghanistan and Iraq inflate this volume: when removed from consideration, the increase falls to only 0.5%.11 Of more concern, 22 fragile states – more than half of the group and including 15 in Africa – will see a fall in CPA in real terms in 2009 (Table B.7.). Ethiopia, for example, will see CPA fall by USD 314 million during a time of considerable need; aid to Liberia is projected to fall by 52%, some USD 307 million. 2009 increases will therefore be marginal at best, with sub-Saharan countries affected the most (Figure 3.11.). CPA is projected to pick up again in 2010, but will fall far short of commitments made at Gleneagles (World Bank, 2009). Over the medium-term (2008-11) 24 of the 43 fragile states are expected to see increases in CPA, with a particular scaling up in the Republic of Congo (115%) and Angola (103%). CPA to Nigeria will increase by some USD 768 million. However, 17 fragile states will see a decline in real terms over the period. Togo is projected to fall by 47% and Liberia by 43% – a fall of USD 253 million over 2008 levels (Figure 3.12.). The 2009 survey (OECD, 2009a) projects that aid dependency (CPA/GNI) will fall in 26 of the 36 fragile states for which data are available between 2008 and 2011 (Figure 3.13.). Liberia, Solomon Islands, Burundi, Afghanistan and Guinea-Bissau will see the greatest declines. Countries witnessing increases are largely concentrated in subSaharan Africa (Angola, Equatorial Guinea, Kenya, Democratic Republic of Congo (DRC) and Republic of Congo). However, such increases will be marginal. In contrast to development assistance, humanitarian aid is less affected by declines in development partner GNI. Given that fragile states receive the largest levels of humanitarian funding, this modality will assume a greater importance proportionally for these countries over the coming years. Projections of weak CPA growth come at a time when fragile states are particularly vulnerable to the fallout of the economic crisis (see Part III). Shrinking export Figure 3.12. Percentage change in CPA, 2008-11 140% 120% 100% 80% 60% 40% 20% 0% -20% -40% Cote d'Ivoire Liberia Togo

Tajikistan Comoros West Bank and Gaza Solomon Islands

Guinea-Bissau Central African Republic Chad

Kiribati Cameroon Burundi Guinea

Korea, Democratic Rep Niger Afghanistan

Djibouti Tonga

Papua New Guinea Pakistan Sierra Leone Myanmar (Burma)

Yemen, Rep. Timor-Leste Eritrea

Nepal Uganda Zimbabwe Iraq

Gambia Haiti Ethiopia Rwanda

Kenya Congo, Dem. Rep. Sudan Somalia

Congo. Rep. Angola Equatorial Guinea Nigeria Sao Tome and Principe

-60%


60 – 3. Trends in official development assistance markets, low commodity prices, falling remittances and declining growth rates are limiting partner country spending. The World Bank estimates USD 11.6 billion of core spending to be at risk due to the crisis.12 Sub-Saharan Africa accounts for over two-thirds of this risk, with fragile states – including those in Africa and those emerging from conflict – making up 58% of the total (World Bank, 2009). This equates to USD 6.8 billion of core spending to fragile states, the equivalent of 20% of the 2008 ODA received by these countries. While aid plays a vital role in filling this development gap, development partners are not on track to meet their Gleneagles and subsequent commitments. Only one-third of the USD 28.3 billion (2008 prices) increase promised to sub-Saharan Africa had been delivered by 2008. Preliminary figures suggest that OECD DAC members delivered an additional USD 2.1 billion in 2009 to sub-Saharan Africa, while 2010 projections suggest that at least 40% of the total 2004-10 promised increase for 2010 will remain unfunded (ONE, 2009, 2010).

Figure 3.13. CPA as a proportion of GNI for fragile states, 2008 and 2011 60 107 50

CPA/ GNI (%)

40 30 20 10

Eq u

An go at Pak la or ia ista lG n ui ne a Ye Nig m eri en a ,R ep Co Sud . ng an o Ca . Re m p Co er . te oo d' n Iv oi re Ch ad Gu Pa in pu a N K ea ew en Gu ya Ta inea jik ist an Ne Co pa m l o Dj ros ib o Ug uti an Co da ng o, N De ige m r .R Ce ep nt ra To . lA ng fri a ca n Tog Re o pu bl Er ic itr ea H Et aiti hi op Ga ia Si er mb ra ia Ti Leo m or ne -L e Rw ste an Gu K da in irib ea at Af -Bis i gh sa an u ist So lo Bu an m ru on nd Isl i an d Lib s er ia

0

2008

2011

Source: OECD (2009), 2009 DAC Report on Aid Predictability: Survey on Donors’ Forward Spending Plans 2000-2011, OECD, Paris.



Notes 1. Debt relief is excluded because for the majority of fragile states it does not release additional funding as the debt is unlikely to have been serviced. As part of a recovery package, debt relief is a significant gesture as well as an enabling factor for access to other finance. However, from the perspective of the partner country, it is different from other ODA flows. 2. Angola, Equatorial Guinea, Eritrea, Guinea, Guinea-Bissau, Papua New Guinea, São Tomé and Principe, Timor-Leste, Tonga and Yemen. 3. These benchmarks are (i) equality (GDP terms), (ii) equality (per capita terms), (iii) OECD methodology, (iv) average donor behaviour, (v) poverty efficiency and (vi) programme-based approaches (PBA). Twenty-one of these countries receive insufficient funding according to at least one benchmark; nine countries receive insufficient funding according to at least two benchmarks; five countries receive insufficient funding according to at least three benchmarks; and two countries receive insufficient funding according to at least four benchmarks. Utz also finds that aid orphans are statistically as likely to be non-fragile states as fragile (Utz, 2009; Table 3.1). 4. The United States, the European Union and Japan do not operate on the concept of priority countries as such and so the analysis has focused on the European Union donors. 5. ODA includes both bilateral and imputed multilateral values. 6. CPA is defined through exclusion, by subtracting from total gross ODA aid that is (i) unpredictable by nature (humanitarian aid and debt relief); (ii) entails no cross-border flows (administrative costs, imputed student costs, promotion of development awareness, and research and refugees in donor countries); (iii) does not form part of co-operation agreements between governments (food aid and aid from local governments); or (iv) is not country programmable by the donor (core funding of NGOs). CPA data in this report are given on a gross disbursement (actual and planned) basis. 7. As a percentage of gross disbursements. 8. Given that a large proportion of aid channel data remain unreported (“to be defined”), conclusions from this analysis should be treated with a degree of caution. 9. Where loans are made, they are often at higher concessional terms for countries with the lowest per capita incomes. The majority of fragile states fall under the category of low income countries (i.e. those with an average per capita GNI of USD 975 or less). 10. The data do not reflect commitments to future aid levels, but projected CPA disbursements to partner countries. The 2009 survey considered 41 bilateral and multilateral donors. There was an 85% response rate with 35 donors responding. OECD (2009), 2009 DAC Report on Aid Predictability, Survey on Donors’ Forward Spending Plans 2009-2011, OECD, Paris, available online: www.oecd.org/dataoecd/46/19/43161677.pdf. 11. These projections are based on USD 2008 constant prices and therefore reflect real term changes. 12. Core spending differs from country to country but typically includes education and health spending, operations and maintenance of critical public expenditure and social protection.



Bibliography Levin, V. and D. Dollar (2005), “The Forgotten States: Aid Volumes and Volatility in Difficult Partnership Countries (1992-2002)”, paper prepared for DAC Learning and Advisory Process on Difficult Partnerships, OECD, Paris. Mürle, H. (2007), “Towards a Division of Labour in European Development Co-operation: Operational options”, Discussion Paper, No. 6, German Development Institute, Bonn. OECD (2009a), 2009 DAC Report on Aid Predictability: Survey on Donors’ Forward Spending Plans 2009-2011, OECD, Paris. OECD (2009b), Division of Labour: Addressing Global Fragmentation and Concentration, draft version. OECD (2009c), Aid Orphans: Whose Responsibility?, OECD, Paris. ONE (2009), The Data Report 2009: Monitoring the G8 Promise to Africa, ONE, London, www.one.org/international/datareport2009/. ONE (2010), The Data Report 2010: Monitoring the G8 Promise to Africa, ONE, London, www.one.org/report/2010/en/downloads/. Utz, R. (2009), Will Countries That Receive Insufficient Aid Please Stand Up, Concessional Finance and Global Partnerships Research Program on the International Aid Architecture, World Bank, Washington, DC. World Bank (2009), Global Development Finance: Charting a Global Recovery, World Bank, Washington, DC.


4. Aid effectiveness – 63

Chapter 4 Aid effectiveness

The OECD DAC surveys of the Paris Declaration and Accra Agenda for Action indicate that fragile states fare worst in terms of aid effectiveness. Despite their vulnerability and institutional weaknesses, fragile states face more aid volatility than other developing countries. Moreover, the use of national public financial management (PFM) and programme-based approaches (PBA) in fragile states is considerably lower than in non-fragile states. This chapter explores the challenges of managing and spending aid in fragile states, and examines aid volatility and predictability. Special attention is given to several key indicators of aid effectiveness: alignment with country systems, timeliness of aid, and programme-based approaches.


64 – 4. Aid effectiveness

Managing and spending aid resources, volatility and predictability Aid effectiveness has been driven by the Paris Declaration (OECD, 2008a) and Accra High Level Forum on Aid Effectiveness, and monitored in increasing detail through the OECD DAC surveys on monitoring the Paris Declaration and the Fragile States Principles (OECD, 2007 and www.oecd.org/fsprinciples). The overarching findings suggest that fragile states experience worse quality of aid than other developing countries. This is of considerable concern given the overwhelming evidence that fragile states are more vulnerable to the consequences of poor aid quality.

Managing and spending aid Analysis of the extent to which fragile states can allocate and manage development co-operation resources is limited, but it is clear that there is wide variation between contexts.1 Issues surrounding this debate are summarised in the OECD 2008 Annual Report on Resource Flows to Fragile and Conflict-Affected States. One study (McGillivray and Feeny, 2006a and 2006b) has found that most fragile states continue to be under-funded – they are able to manage a much higher volume of assistance than is currently provided. However, “highly” fragile states (those in the bottom CPIA quintile) are identified as only being able to manage one-third of the aid they received effectively. Timeliness and sequencing of aid is a critical factor for fragile states emerging from conflict. When considering the distinct economic circumstances of post-conflict states, evidence suggests that the potential for growth and recovery is particularly high during the fourth and seventh year after peace. The need, for example, for infrastructural redevelopment occurs precisely when domestic revenue collection is low, rendering aid particularly productive and necessary (Collier and Hoeffler, 2002). Such evidence aligns with the more general principle of good engagement in fragile states to both act fast, and, equally important, to stay engaged long enough to give success a chance (OECD, 2007). In practice, development partner aid is commonly not synchronised to the needs of post-conflict states. Development partners typically disburse substantial volumes immediately after conflict cessation when the capacity to manage such volumes is low. Disbursements then typically decline over the subsequent two to nine years, when capacity Figure 4.1. Development partner aid failing to meet needs in Timor-Leste, 1995-2008 450


400 350

End of civil war Development aid

300 250

Humanitarian aid

200 7th year of peace

4th year of peace

150 100

Total net ODA (excluding debt relief )

50 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008



has developed and need is greater (Elbadawi et al., 2007). Timor-Leste provides an appropriate example (Figure 4.1.) whereby humanitarian aid, development aid and peace-related expenditures all dropped four years after the end of conflict only to resume after the 2006 crisis, before falling again in 2008.

Volatility and unpredictability Despite their vulnerability and institutional weaknesses, fragile states face more severe aid volatility – significant fluctuations in the volume of ODA year on year – more than twice as high according to one estimate – than other developing countries (Levin and Dollar, 2005). Furthermore, aid volatility to fragile states has increased since 1990 and is most severe for post-conflict states (McGillivray and Feeny, 2006a, 2006b). Aid volatility is particularly damaging to fragile states on account of their limited capacity to manage aid flows. As they are often dependent on external assistance to balance budgets, volatility puts a disproportionate strain on budgetary policy, with wider implications for the macroeconomy.2 With external aid often more volatile than partner government domestic revenue (Bulíř and Hamann, 2001), their ability to plan and manage budgets sustainably is severely undermined, forcing conservative budgeting practices (Box 4.1.). Not only do fragile states experience greater aid volatility, they also face higher relative costs as a consequence of aid volatility. Fragile states incur a loss of approximately 2.5% of their GDP value, compared to an average of 2%.3 Regionally, sub-Saharan African and Pacific Island states are much more sensitive to aid volatility, while highly aid-dependent countries incur losses almost as high as 7% of GDP. This is due to low levels of GDP and high aid dependency. Globally, aid volatility is estimated to reduce the value of aid by as much as 15% of the total, or around USD 16 billion annually at current aid levels (Kharas, 2008). Unpredictability of aid – the difference between aid promised and aid given as percentage of GDP – is higher for sub-Saharan Africa than any other region, and higher for fragile states than for other developing countries (Celasun and Walliser, 2008). Aid shocks – when the difference in aid per capita between two years is greater than 15% of per capita income – occur more often in fragile states: between 1970 and 2006, 65% of aid shock episodes affected fragile states (Kharas, 2008). Some fragile states

Box 4.1. Aid volatility undermines planning Aid volatility has strong repercussions for the budgeting practices of partner countries, confining them to conservative budgeting practices for domestic projects dedicated to poverty alleviation. Uganda’s Ministry of Finance, for example, discounts development partner aid projections when preparing its domestic budget. The discount factor was set to 35%, corresponding to the average level by which disbursements fell short of development partner commitments in preceding years. This raises the question of the validity of government budgeting documents in providing a realistic picture of actual aid inflows and, therefore, effective budget planning and implementation. Government budget estimates of aid often differ wildly from the actual aid disbursed by development partners for the government sector. Afghanistan, for example, was found to overestimate the aid flows coming into the country by USD 1.1 billion in 2000, while Nigeria underestimated the aid flows by USD 577 million – making effective and co-ordinated planning by partner country governments more difficult. Source: European Commission (2009); OECD (2008a).


66 – 4. Aid effectiveness have witnessed multiple occurrences over the period – Guinea Bissau has experienced eight shocks with shortfalls as high as 47.5% of GDP; São Tomé and Principe experienced ten shocks resulting in aid delivered falling short of aid promised by up to 125% of GDP (Table 4.1.). The majority of major aid shortfalls have taken place in sub-Saharan Africa, commonly in countries with small economies. Guinea is a good example of a country which has experienced multiple episodes of aid volatility year on year (Figure 4.2.).

Use of country systems, aid predictability and co-ordinated technical co-operation Alignment with country systems, timeliness of aid, harmonisation and programme-based approaches (PBA)4 are key indicators of aid effectiveness developed through the Paris and Accra processes. The Paris Declaration monitoring survey (2008a) shows that use of national public financial management (PFM) in fragile states (36%) is considerably lower than for non-fragile states (52%). Similar patterns are seen with public procurement mechanisms and co-ordinated technical assistance (See Figure 4.3. and Table B.8. for country-level monitoring data). Alignment and use of country systems, however, are not necessarily appropriate for fragile contexts where institutions are either under-developed or non-inclusive. However, one would expect this to improve over time as development partners continue to build governance capacity. This progress will be particularly important to monitor in post-conflict states, which, as a group, score considerably lower than the fragile states average.5 The extent to which aid disbursement is on schedule and is recorded by governments varies widely, but is lower for fragile states as a whole (59%) than for other partner countries (65%). Progress has been slow, and both are below the Paris target of 71%. Large Table 4.1. Large net ODA shortfalls, 1970-2006 Two-year difference % GDP Partner country São Tomé and Principe

Shortfall count

Maximum shortfall

Average shortfall

10

-125.6

-35.7


1

-78.6

-78.6

Liberia

4

-49.8

-35.3

Rwanda

2

-49.2

-37.9

Guinea Bissau

8

-47.5

-28.5

Timor-Leste

2

-45.7

-40.0

Kiribati

8

-42.6

-25.5

Burundi

2

-35.8

-33.9

Solomon Islands

4

-31.8

-23.8

Chad

1

-31.1

-31.1

Gambia

3

-25.4

-19.6


1

-15.9

-15.9

Sierra Leone

1

-15.3

-15.3

72

-125.6

-28.8

Large events total

Source: Kharas, H. (2008), “Measuring the Cost of Aid Volatility”, Wolfensohn Center for Development Working Paper, No. 3, Brookings Institution, Washington, DC. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


disparities for low-income countries are of particular concern (e.g. Chad and Liberia), as they threaten to undermine implementation and longer-term sustainability. Only 39% of aid to fragile states constitutes PBA, which is considerably lower than the 65% Paris target, and lower than other partner countries (47%). There is also considerable variation between the post-conflict sub-category of countries6 (36%) that consistently perform less well than the fragile states average, and it will be particularly important to monitor country-level progress for this sub-set of countries.

Figure 4.2. Guinea and aid volatility, 1990-2008


700 600 500

Development ODA

400 Humanitarian ODA

300

Total ODA

200 100

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

-


PFM Systems

Procurement

65% 47%

39%

50%

62%

54%

36%

Fragile states Paris 2010 Target

10% 0%

Post-conflict countries Non-fragile states

17%

17%

20%

28%

40% 30%

65%

36%

50%

47%

60%

51%

52%

61%

70%

59%

80%

71%

80%

90%

80%

Figure 4.3. Aid effectiveness in fragile states, 2008

Disbursements on schedule and recorded by government

Coordinated technical assistance


Source: OECD (2008a), 2008 Survey on Monitoring the Paris Declaration, Better Aid Series, OECD, Paris.


68 – 4. Aid effectiveness

Notes 1. Analysis of the literature suggests that the negative return on aid sets in when aid level inflows reach anywhere between 15 and 45% of GDP (McGillivray and Feeny, 2006a). The threshold (measured as ODA as a percentage of GDP) for highly fragile states is argued to be 13.9%, compared to 38.3% of other fragile states. By comparison, The Independent Evaluation Office (2007) estimates that aid-receiving countries in sub-Saharan African countries spend between 30 and 80% of aid (McGillivray and Feeny, 2006a, 2006b). 2. These include indicators such as inflation and exchange rates. Fiscal policy is also adversely affected by high aid volatility. 3. This loss is the “deadweight” loss as a percentage of GDP. Deadweight loss is defined as a deficiency due to an inefficient allocation of resources. 4. A range of aid modalities can be characterised as PBA. For example, direct budget support (including general and sector budget support) is typically likely to respond to the attributes of a PBA. Similarly, project aid that is delivered in the context of a Sector-Wide Approach, or that is pooled through a basket fund or through a pooled arrangement for technical assistance can respond to the required attributes. 5.

For the purpose of analysis, post-conflict states are defined as having a peace agreement, monitored elections and no major return to conflict. These states include Angola, Burundi, Democratic Republic of Congo, Republic of Congo, Côte d’Ivoire, Haiti, Iraq, Liberia, Sierra Leone and Timor-Leste. Those in bold are countries for which data on the 2008 DAC Survey Monitoring the Paris Declarations indicators are available.

6. The post-conflict sub-category in this instance is based on data from partner country data from the OECD Survey on Monitoring the Paris Declaration: Burundi, Democratic Republic of Congo, Côte d’Ivoire, Haiti, Liberia and Sierra Leone (OECD, 2008a).



Bibliography Bulíř, A. and A. J. Hamann (2001), “How Volatile and Unpredictable Are Aid Flows and What Are the Policy Implications?” IMF Working Paper, No. 167, IMF, Washington, DC. Bulíř, A. and A. J. Hamann (2003), “Aid Volatility: An Empirical Assessment”, IMF Staff Paper, Vol. 50, No. 1, IMF, Washington, DC. Celasun, O and J. Walliser (2008), “Predictability of Aid: Do Fickle Donors Undermine Economic Development?” Economic Policy, Vol. 23, No. 55. Collier, P. and A. Hoeffler (2002), “Aid Policy and Growth in Post-Conflict Societies”, World Bank Policy Research Working Paper, No. 2902, World Bank, Washington, DC. Elbadawi, I., L. Kaltani, and K. Schmidt-Hebbel (2007). “Post-Conflict Aid, Real Exchange Rate Adjustment, and Catch-up Growth”, paper presented at the World Bank Conference on Post-Conflict Transitions, Washington, DC, 1 May 2007. European Commission (2009), Aid Effectiveness Agenda: Benefits of a European Approach, Project No. 2008/170204, Version 1, European Commission, Brussels. Fielding, D. and G. Mavrotas (2005), “The Volatility of Aid”, WIDER Working Paper, No. 06, United Nations University – World Institute for Development Economics Research, Helsinki. Gupta, S. (2008), “Enhancing Effective Utilization of Aid in Fragile States”, WIDER Working Paper, No. 2008/07, United Nations University – World Institute for Development Economics Research, Helsinki. Kharas, H. (2008), “Measuring the Cost of Aid Volatility”, Wolfensohn Center for Development Working Paper, No. 3, Brookings Institution, Washington, DC. Knack, S. and N. Eubank (2009), “Aid and Trust in Country Systems”, Policy Research Working Paper, No. 5005, World Bank Development Research Group, World Bank, Washington, DC. Levin, V. and D. Dollar (2005), “The Forgotten States: Aid Volumes and Volatility in Difficult Partnership Countries 1992-2002”, paper prepared for DAC Learning and Advisory Process on Difficult Partnerships, OECD, Paris. McGillivray, M. and S. Feeny (2006a), “Aid Allocation and Fragile States”, WIDER Discussion Paper, No. 1, United Nations University – World Institute for Development Economics Research, Helsinki. McGillivray, M. and S. Feeny (2006b), “Aid Allocation to Fragile States: Absorptive Capacity and Volatility”, United Nations University – World Institute for Development Economics Research, Helsinki. OECD (2007), Principles for Good International Engagement in Fragile States and Situations, OECD, Paris. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

70 – 4. Aid effectiveness OECD (2008a), 2008 Survey on Monitoring the Paris Declaration: Making Aid more effective by 2010, Better Aid Series, OECD, Paris. OECD (2008b), Scaling Up: Aid Fragmentation, Aid Allocation and Aid Predictability – Report of 2008 Survey of Aid Allocation Policies and Forward Spending Plans, OECD, Paris. OECD (2009), 2009 DAC Report on Aid Predictability: Survey on Donors’ Forward Spending Plans 20092011, OECD, Paris. Utz, R. (2009), Will Countries That Receive Insufficient Aid Please Stand Up, Concessional Finance and Global Partnerships Research Program on the International Aid Architecture, World Bank, Washington, DC. World Bank (2009), Global Monitoring Report 2009: A Development Emergency, World Bank, Washington, DC.


5. OECD DAC member presence, concentration and fragmentation – 71

Chapter 5 OECD DAC member presence, concentration and fragmentation

Aid has become more fragmented since the 1970s as the number of development partners increased. Between 2004 and 2008, 80 of 151 developing countries experienced increased aid fragmentation with a rising number of development partners contributing small amounts of aid with only little impact. Fragile states are particularly vulnerable to the negative effects of fragmentation, given their severe capacity constraints. With concentration ratios significantly lower than the average 61% for all partner countries, the most extreme cases of high fragmentation are Iraq (12%), the Solomon Islands (22%), Pakistan (41%) and Afghanistan (42%). This chapter analyses the challenges of aid fragmentation for fragile states, distinguishing between country-level and sector fragmentation.


72 – 5. OECD DAC member presence, concentration and fragmentation

A challenge for fragile states The number of actors providing international development assistance is burgeoning. In 2005 the OECD reported that on a global scale there were more than 60 000 active aid projects with 85% of these costing less than USD 1 million. In addition to the 23 OECD DAC members, the number of other development partners has increased from 27 to 59 since 2001.1 There are a reported 233 multilateral agencies, and between 6 000 and 30 000 national NGOs active in developing countries. The growing importance of private foundations should also not be overlooked. In the United States alone, there are estimated to be 75 000 foundations (Foundation Center, 2010). Since the 1970s, increased development partner proliferation has increased aid fragmentation (“too little aid from too many donors”). The challenges and inefficiencies this creates are well known – excessive demands on staff of partner country governments, poor development partner co-ordination and limited integration into national programming – and all limit the effectiveness of aid.2 Fragile states are particularly vulnerable to aid fragmentation. Already suffering from severe capacity constraints, the presence of a large number of development partners and actors, often working in an uncoordinated way and across a range of sectors, places a relatively higher transaction cost on these states than on others. Conversely, access to only a limited number of international actors leaves states vulnerable to sudden changes in the priorities and policies of development partners.3

Country-level fragmentation and concentration With its inclusion in the Accra Agenda for Action, the effective division of labour features highly on the aid effectiveness agenda. In December 2009, the OECD Report on Division of Labour provided a comparative definition to assess the level of concentration from both partner country and development partner perspectives based on certain categories (OECD, 2009b) (Box 5.1.). Box 5.1. OECD DAC components of concentration Category A – “concentrated”: Aid is concentrated if a development partner provides more than its global share of core aid to a given partner country but where Category C does not apply. This means the development partner considers the partner country a priority but where the development partner does not constitute a significant proportion of the assistance going to the partner country. For example, Austria provided 0.9% of the total core aid going to Uganda in 2008 (USD 11.4 million). Austria’s share of global country programmable aid (CPA) in 2008 was 0.1%, meaning that its share to Uganda was higher than its global share. However, Austria was not among the top development partners that cumulatively represent 90% of total core aid to Uganda, i.e. in terms of volume, Austria is not a significant development partner for Uganda. Therefore, Austria’s aid to Uganda fits under Category A and is “concentrated”. Other development partners that provided a share of CPA to Uganda which fell under Category A were Belgium, Global Alliance for Vaccines and Immunisation (GAVI), International Fund for Agricultural Development (IFAD), Nordic Development Fund, UNDP and United Nations Population Fund (UNFPA). Category B – “concentrated and significant”: Aid is concentrated and significant if a development partner contributes more than its average global share and also qualifies among the top development partners that cumulatively represent 90% of country core aid (Category A and C both apply). This means the partner country



Box 5.1. OECD DAC components of concentration (continued) is a targeted partner country, and the development partner contributes a significant proportion of core aid to that partner country. For example, the United States provided 20.3% of total core aid to Uganda in 2008 (USD 263.2 million). The United States’ share of global CPA in 2008 was 16.7%, thus Uganda received a higher share than average. Furthermore, the United States was also among the top development partners that cumulatively represented 90% of total core aid to Uganda (it was Uganda’s largest development partner). Therefore, United States’ aid to Uganda fit under Category B – concentrated and significant. Other development partners which provided a share of CPA to Uganda and that fell under Category B were Denmark, EU institutions, Ireland, Netherlands, Norway, Sweden, AfDB, IDA and UNICEF. Category C – “significant”: Aid is significant alone if a development partner is among the largest development partners that together account for at least 90% of a given partner country’s aid but where Category A does not apply. This demonstrates that the development partner’s contribution is significant from the partner country’s perspective, but the partner country is a lower priority from the development partner’s perspective. For example, Japan provided 2.7% of total core aid to Uganda in 2008 (USD 35.6 million), lower than Japan’s global share CPA (10.7%). Japan’s ODA, therefore, is not concentrated in Uganda. However, Japan was among the top development partners that cumulatively represented 90% of total core aid to Uganda (it was Uganda’s 11th largest development partner). Therefore Japan’s aid to Uganda fits under Category C and is “important”. Other development partners which provided a share of CPA to Uganda and that fell under Category C were Germany and the UK. Category D – “not significant”: Aid is not significant if it does not fit any of the categories mentioned. This signifies that the relationship is not important for either partner country or development partner, and is thus an indicator of fragmentation. For example, Canada provided 1.1% of the total core aid to Uganda in 2008 – USD 14.8 million – almost half of Canada’s share of global share of CPA (2.1%). Nor was Canada among the top development partners that cumulatively represented 90% of total core aid to Uganda. Therefore, Canada’s aid to Uganda fits under Category D and is “not significant”. Other development partners which provided a share of CPA to Uganda which fell under Category D were Australia, Finland, France, Italy, Korea, Arab agencies, Global Environment Facility (GEF), Global Fund, The United Nations Joint Programme on HIV/AIDS (UNAIDS) and United Nations Technical Assistance UNTA. Source: OECD (2009b)

Between 2004 and 2008, 80 of 151 developing countries witnessed increased aid fragmentation, through a net increase of “non-significant” partnerships over the period (OECD, 2009b). 4 The process of aid concentration is defined as a decrease in the number of non-significant partnerships so that those falling under Categories A, B or C would form the majority for any given partner country.5 Concentration ratios in turn are the number of significant partnerships as a proportion of the total number of relationships that a development partner or partner country has. Ideally, therefore, this would mean that insignificant, Category D partnerships would decrease. Globally, the concentration ratios for all 151 partner countries receiving aid is 61%, meaning that 39% of total development partner-partner country relationships are not significant, i.e. falling under Category D. One-third of the fragile states group have concentration levels below 61%, indicating greater levels of fragmentation. Of this group almost half are sub-Saharan African fragile states. However, the most extreme cases are Iraq (12%), Solomon Islands (22%), Pakistan (41%) and Afghanistan (42%) (Box 5.2., Figure 5.1. and Table B.10.). Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Iraq Soloman Islands Pakistan Afghanistan Papua New Guinea Nigeria West Bank and Gaza Congo, Democratic Rep. Haiti Cote d'Ivoire Guinea-Bissau Liberia Sudan Eritrea Global Average Chad Kiribati Rwanda Ethiopia Uganda Togo Cameroon Djibouti Nepal Tonga Somalia Congo, Republic Korea, Democratic Rep. Angola Sierra Leone Central African Republic Timor Leste Kenya Guinea Yemen, Republic Gambia Sao Tome and Principe Burundi Niger Zimbabwe Comoros Myanmar Tajikistan Equatorial Guinea

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

12% 22% 41% 42% 45% 48% 48% 50% 52% 54% 55% 57% 58% 61% 61% 62% 63% 63% 63% 65% 65% 67% 67% 67% 67% 68% 71% 71% 71% 72% 72% 73% 74% 75% 77% 81% 81% 81% 81% 81% 82% 82% 84% 90%

Figure 5.1. Concentration ratios for fragile states, 2008

Source: OECD (2009b), Division of Labour: Addressing Global Fragmentation and Concentration, OECD, Paris.

Box 5.2. Concentration levels in Iraq and the Solomon Islands Iraq In 2008, Iraq’s core aid came from 25 development partners. Of these 25, just 3 partnerships were deemed “significant”. Iraq’s partnership with the United States was “concentrated and significant” (Category B), with the United States providing 86% of Iraq’s total core aid. This was above the United States’ average global share of CPA and the United States was among the top development partners that cumulatively provided 90% of core aid to Iraq. Iraq’s partnerships with Italy and the UK were “significant” with both development partners being among the top development partners that cumulatively provided 90% of core aid to Iraq. The remaining 22 development partners contributing aid to Iraq were not significant, meaning that its concentration index was the lowest for all fragile states, standing at 12%. The Solomon Islands In 2008, nine countries provided the Solomon Islands with its core aid. Of these, just two partnerships were deemed “significant”. The Solomon Islands’ partnerships with Australia and New Zealand were “concentrated and significant” with both development partners contributing aid to the Solomon Islands at levels above their global share of CPA and both qualifying among the top development partners that cumulatively provided 90% of core aid to the Solomon Islands. Australia provided 82% of all CPA to the Solomon Islands. The remaining seven partners providing aid to the Solomon Islands were not significant, meaning that its concentration index stood at just 22%. Iraq and the Solomon Islands illustrate how, despite one main development partner (the United States and Australia respectively) providing a significant proportion of core aid (in both cases well above 80%), a country can still have a poor concentration index score. This is because the majority of their partnerships, aside from these core development partners, are insignificant. This means that partner countries can have high rates of fragmentation even if their aid is highly dependent on a limited number of development partners for the majority of their core aid. Source: OECD (2009b)



The average concentration ratio for bilateral development partners for all partner countries is 58%; the equivalent for fragile states alone is 54%. Amongst bilateral development partners, those that score most favourably, in terms of the number of significant partnerships they have when just considering fragile states, are the EU institutions, the UK and Austria (Figure 5.2.). Conversely, when limiting this analysis to just multilateral development partners, fragile states on average fare much better in terms of the number of significant partnerships than the developing country average (78% versus 65%) (Table B.10.).

Sector fragmentation Development partners working in partner countries often spread their activities across a variety of sectors (“sector fragmentation”). The European Union (EU) Code of Conduct on Complementarity and Division of Labour in Development Policy has set, as a guiding principle, that EU development partners should focus their assistance in any country on only three sectors to avoid sector fragmentation. Figure 5.2. Concentration ratios for bilateral and multilateral development partners among fragile states, 2008 100% 100% 100% 100%

UNRWA IDB Sp.Fund EBRD CarDB UNAIDS IMF (SAF, ESAF, PRGF) UNDP IDA AfDF UNICEF UNFPA Nordic Dev. Fund GAVI Multilateral average Global fund IFAD AsDF Arab agencies UNTA GEF

90% 88% 87% 83% 83% 83% 83% 80% 78% 78% 75% 73% 67% 63% 60% 56% 91%

EU Institutions United Kingdom Austria United States Germany New Zealand Sweden Japan Bilateral average France Portugal Netherlands Spain Belgium Norway Australia Greece Canada Ireland Switzerland Italy Finland Luxembourg Denmark Korea

80% 80% 74% 71% 70% 61% 61% 54% 52% 50% 50% 47% 45% 45% 44% 40% 40% 39% 38% 37% 36% 36% 30% 21% 0%

20%

40%

60%

80%

100%

120%

% of significant partnerships

Source: OECD (2009b), Division of Labour: Addressing Global Fragmentation and Concentration, OECD, Paris. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

76 – 5. OECD DAC member presence, concentration and fragmentation Recent evidence shows that certain sectors are subject to extreme development partner proliferation, whilst others suffer from a dearth of development partners (European Commission, 2009).6 Mirroring global aid trends, sectors like government, civil society and social sectors are typically crowded (four to seven EU development partners on average), while less attention is paid to the productive sectors. Engagement by a large number of development partners at the sector level particularly threatens the viability of programme-based approaches such as sector-wide approaches (SWAps), negotiations for which can be complex.7 Ethiopia and Somalia illustrate some of the challenges faced by fragile states in managing sector-level programming (Box 5.3. and 5.4.).



Box 5.3. Sector fragmentation in Ethiopia Ethiopia is a significant partner in development assistance. In 2008 it was the largest African beneficiary of net ODA (excluding debt relief) and the third largest globally after Iraq and Afghanistan. Levels of ODA have witnessed a steady rise since 2000. With 35 development partners, Ethiopia hosts a larger number of development partners than the global and fragile state average. Of these 35 development partners, 15 provided 90% or more of CPA in 2008 (USD 1 867 million, 2007 prices). The remaining 20 provided just under 10% (USD 175 million, 2007 prices). The International Development Association (IDA), the European Commission and the United States were the top three development partners, providing 51% of total CPA to Ethiopia. The provision of aid to Ethiopia is thus extremely fragmented. The concentration index is 63% (Table B.10.). Ethiopia also has a high number of development partners present in each of the sectors, potentially increasing transaction costs and threatening the viability of sector-wide pooled funding arrangements such as SWAps. Education, for example, has a total of 17 development partners. Health has 21 development partners, of which 12 contribute 10% or less of health sector aid. Similarly, population policies and reproductive health hosts a large number of development partners – 17 in total. The sectors with the lowest concentration ratios are: economic infrastructure, other social infrastructure, population policies and reproductive health, and agriculture.

Total no. of development partners

No. of dev. partners in Category A or C

No. of dev. Partners in Category B

No. of dev. Partners in Category D

% of CPA from dev. partner 1



Concentration ratio (broad definition): (A+B+C)/(A+B+C+D)

Concentration ratio (narrow definition): (B)/(A+B+C+D)

Education

242.11

17

8

7

2

IDA (35.0)

UK (28.4)

Netherlands (11.9)

88%

41%

Health

272.25

21

8

5

8

IDA (27.7)

GAVI (20.0)

Global Fund (16.1)

62%

24%

Population policies and reproductive health

424.74

17

4

3

10

United States (47.6)

Global Fund (40.2)

Netherlands (3.8)

41%

18%

Water supply and sanitation

205.94

14

4

5

5

IDA (35.2)

UK (23.8)

EC (11.4)

64%

36%

Other social infrastructure

178.08

14

1

4

9

EC (50.9)

IDA (33.2)

UNICEF (4.7)

36%

29%

Economic Infrastructure

530.66

16

0

3

13

IDA (42.5)

EC (37.2)

AfDf (14.6)

19%

19%

Agriculture

211.37

14

3

5

6

IDA (76.0)

IFAD (6.0)

Germany (3.6)

57%

36%

Other production sectors

23.98

8

3

3

2

Germany (46.8)

EC (21.0)

IDA (19.9)

75%

38%

Environment

10.85

7

3

4

0

Norway (59.3)

Spain (12.8)

Germany (9.0)

100%

57%

3.43

1

0

1

0

UK (100)

-

-

100%

100%

229.97

20

9

6

5

AfDF (34.8)

IDA (16.9)

EC (8.5)

75%

30%

49.26

19

7

10

2

89%

53%

Sector

Core aid (avg, 200608), USD constant 2007 prices

Of the 12 sectors, 5 have 17 or more development partners contributing some CPA to the sector (i.e. close to 50% of total development partners contributing aid to Ethiopia). Whilst having a large number of development partners does not necessarily always mean greater fragmentation (e.g. the case of education), it does pose a challenge, making it harder to achieve a clear division of labour between development partners (OECD statistics).

General budget support Government and civil society Multi sector

Ireland (28.8) Germany (20.5) UNICEF (16.5)



Box 5.4. Sector fragmentation in Somalia Somalia experienced large aid fluctuations in the early 1990s. Aid levels dropped significantly following a UN peacekeeping withdrawal in 1995, but have increased more steadily since 2000. Aid plays an important role. While ODA volumes are less than the fragile state average, aid per capita (USD 81) is higher. Of Somalia’s 22 development partners in 2008, 10 provided 90% or more of CPA (USD 142.9 million, 2007 prices). The remaining 12 provided just under 10% (USD 15.3 million, 2007 prices). The UK, United States and Italy were the top three development partners, contributing 40% of CPA. The provision of aid to Somalia is reasonably concentrated; the concentration index is 68% (Table B.10.). Levels of concentration across sectors, however, are fairly high because of comparatively low numbers of development partners in each sector. The education, health, population polices and reproductive health, and government and civil society sectors have the highest levels of fragmentation (especially when considering the narrow definition of concentration). The high levels of concentration in other sectors, however, are due to either an overall lack of development partner engagement or the dominance of a few development partners. For example, environment has just one development partner contributing CPA to the sector. The productive sectors are concentrated amongst a handful of development partners. Agriculture, for instance, has a total of just two development partners. Overall, agriculture received just 2% of total sectoral CPA. By contrast education and health received 17% and 16% respectively. Unlike Ethiopia, Somalia suffers from the neglect of certain sectors, rather than a pervasive overpopulation of development partners. Therefore, the problem of sectoral fragmentation is less pervasive in Somalia whilst the problem of under-funded sectors is the more pressing issue.

Total no. of development partners

No. of dev. partners in Category A or C

No. of dev. partners in Category B

No. of dev. partners in Category D






Education

26.24

9

5

3

1

EC (50.9)

UK (19.0)


89%

33%

Health

24.27

9

6

2

1

Global Fund (47.5)

UK (23.9)

United States (6.6)

89%

22%

Population policies and reproductive health

8.24

6

2

3

1

Global Fund (60.3)

UNFPA (20.8)

UNAIDS (6.0)

83%

50%

Water supply and sanitation

2.50

4

0

4

0

UNICEF (35.8)

100%

100%

Other social infrastructure

4.56

5

1

4

0


UNICEF (24.4)

Spain (17.0)

100%

80%

Economic infrastructure

7.71

2

1

1

0

EC (92.5)

UNDP (7.5)

-

100%

50%

Agriculture

3.86

2

1

1

0

EC (93.2)

Italy (6.8)

-

100%

50%

Other production sectors

2.06

1

0

1

0

UK (100)

-

-

100%

100%

Environment

0.37

1

0

1

0

IMF (100)

-

-

100%

100%

General budget support

0.00

0

0

0

0

-

-

-

-

-

Government and civil society

62.27

13

5

5

3

EC (30.1)


UK (16.7)

77%

38%

Multi sector

13.92

6

3

3

0

UNICEF (39.3)

UNDP (30.0)

Italy (17.8)

100%

50%

Sector

Core aid (average 2006-08), USD constant 2007 prices

Source: Adapted from OECD (2009b), Division of Labour: Addressing Global Fragmentation and Concentration, OECD Publications, Paris. (Working draft – Nov 2009).

United States Canada (17.1) (35.8)



Notes 1. The number of OECD DAC members increased to 24 when Korea joined the DAC membership group in January 2010. 2.

Mürle (2007) suggests that the presence of more than five donors in a developing country is sufficient to undermine aid effectiveness.

3.

However, a number of relatively successful partner countries (such as Botswana, Republic of Korea and Taiwan) have historically been characterised by the presence of a single or dominant development partner (European Commission, 2009).

4.

37 countries experienced an increase of between 1 and 2 donors accounting for a nonsignificant relationship, whereas 37 countries experienced an increase of more than 2 donors accounting for a non-significant relationship.

5. The concentration ratio is derived by adding up all partnerships falling under Categories A, B and C divided by the total number of partnerships. 6.

For the 151 DAC partner countries, there is an average of 3.6 EU development partners per sector (European Commission, 2009).

7. Kizilbash Agha and Williamson (2008) note that the processes involved in SWAps are complex and involve much time dedicated to dialogue. They conclude that it is easier for governments to deal with a single dominant donor than to co-ordinate a large number. In Mozambique, for example, it took more than seven years of negotiations amongst the government and donors to reach the implementation phase for an agriculture SWAp (Acharya et al., 2006).



Bibliography Acharya, A., A. de Lima and M. Moore (2006), “Proliferation and Fragmentation: Transaction Costs and the Value of Aid”, Journal of Development Studies, Vol. 42, No. 1. European Commission (2009), Aid Effectiveness Agenda: Benefits of a European Approach, Project No. 2008/170204, Version 1, European Commission. Foundation Center (2010), “The Global Role of U.S. Foundations”, Foundation Center, New York. Foundation Center (2008), “International Grantmaking IV: An Update on U.S. Foundation Trends”, Foundation Center, New York. Kharas, H. (2007), “Trends and Issues in Development Aid”, Wolfensohn Center for Development Working Paper, No. 1, Brookings Institution, Washington, DC. Kizilbash Agha, Z. and T. Williamson (2008), “Common Funds for Sector Support: Building Blocks or Stumbling Blocks?”, Briefing Paper, No. 36, Overseas Development Institute, London. Knack, S. (2008), Donor Fragmentation and Aid Effectiveness, World Bank Development Research Group, World Bank, Washington, DC. Knack, S. and N. Eubank (2009), “Aid and Trust in Country Systems”, Policy Research Working Paper, No. 5005, World Bank Development Research Group, World Bank, Washington, DC. Mürle, H. (2007), “Towards a Division of Labour in European Development Co-operation: Operational options”, Discussion Paper, No. 6, German Development Institute, Bonn. OECD (2009a), 2009 DAC Report on Aid Predictability: Survey on Donors’ Forward Spending Plans 2009-2011, OECD, Paris. OECD (2009b), Division of Labour: Addressing Global Fragmentation and Concentration, OECD, Paris, draft version.


6. ODA and non-ODA funds for security, statebuilding and peacekeeping – 81

Chapter 6 ODA and non-ODA funds for security, statebuilding and peacekeeping

Official development assistance (ODA) for peace and security-related activities reached a record high of USD 1.5 billion in 2008. Non-ODA funding, which primarily includes peacekeeping operations by the UN, the African Union and NATO, totalled USD 7.1 billion in the same year. While traditional development partners provide funding, personnel for UN and African Union peacekeeping operations come overwhelmingly from developing countries – including some fragile states. All peacekeeping operations are overstretched, which has resulted in a growing use of private security/military companies for substantial contracts in places like Afghanistan and Iraq. This chapter examines funding for a range of support activities that are critical in conflict-affected and post-conflict fragile states.


82 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping Many of the terms used to describe the activities covered in this chapter are used interchangeably or have overlapping meanings. Box 6.1. provides brief definitions of the key terms used here. Box 6.1. Definitions of terms Conflict prevention: Actions, policies and procedures undertaken in particularly vulnerable places and times in order to avoid the threat or use of armed force and related forms of coercion by states or groups as the way to settle the political disputes … [Conflict prevention] can occur at two points in a typical conflict’s life history: (a) when there has not been a violent conflict in recent years, and before significant signals of violence [make] possible [the] escalation to sustained violent conflict … and (b) when there has been a recent violent conflict but peace is being restored (Schmid, A.P., 1998). Peacebuilding: Political, military, humanitarian and developmental interventions aiming to consolidate peaceful relations and strengthen viable political, socio-economic and cultural institutions capable of mediating conflict (Soges S.p.A, 2008). Key peacebuilding priorities: Establishing security, building confidence in a political process, delivering initial peace dividends and expanding core national capacity (UN General Assembly, 2009). Statebuilding: An endogenous process to enhance capacity, institutions and legitimacy of the state, driven by state-society relations. Positive statebuilding processes involve reciprocal relations between a state that delivers services for its people and social and political groups that engage constructively with their state (OECD, 2008). Stabilisation: Support to countries emerging from violent conflict in: •

preventing or reducing violence;

•

protecting people and key institutions;

•

promoting political processes which lead to greater stability; and

•

preparing for longer-term, non-violent politics and development.

Source: UK Stabilisation Unit website, www.stabilisationunit.gov.uk (2009).

ODA funds for security, peacebuilding and statebuilding Figure 6.1. shows funding for security-related activities from 2004 to 2008 that qualify as ODA. These include: • security system management and reform, • civilian peacebuilding, conflict prevention and conflict resolution, • post-conflict peacebuilding, • land mine clearance, • assistance programmes for child soldiers, and • small arms and light weapons control. Given the growing focus on security as a necessary precondition for longer-term sustainable development (DFID, 2009; Netherlands Ministry of Foreign Affairs, 2008) and Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


the recognition that security issues are usually the top priority of conflict-affected communities, it is not surprising that funding for security-related activities increased to a record high of USD 1.5 billion in 2008, after a slight drop between 2006 and 2007. The largest amount of funding has gone to peacebuilding and to conflict prevention and resolution activities. Support for security system management and reform, which is crucial in post-conflict countries, declined from USD 211 million in 2006 to USD 95 million in 2007 before increasing significantly to USD 543 million (2007 constant prices). Development partner governments have shown growing interest in how to undertake effective peacebuilding and statebuilding activities in fragile states. Figure 6.2. shows ODA from OECD DAC members for relevant activities such as elections, human rights, strengthening civil society and government administration to post-conflict countries Figure 6.1. Security-related activities, 2004-08


1 800 1 526

1 600

Child soldiers (prevention and demobilisation) Land mine clearance

1 400 1 128

1 200

966

1 000

Reintegration and law control

947

Post-conflict peacebuilding (UN)

800 482

600

Civilian peacebuilding, conflict prevention and resolution

400

Security system management and reform

200 -

Total 2004

2005

2006

2007

2008

Source: OECD-CRS online database (2009).

Figure 6.2. Peacebuilding and statebuilding-related activities, 2004-08 6 000

5 534

Monetary Institutions


5 000

Women’s equality organisations and institutions

4 519 4 202 3 726

4 000

Free flow of information Human rights

2 945

Elections

3 000 Strengthening civil society 2 000

Government administration

1 000

Legal and judicial development Public sector financial management

0 2004

2005

2006

2007

Source: OECD-CRS online database, accessed 2009. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

2008

Economic and development policy/planning

84 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping and fragile states.1 The graph shows that funding rose very sharply in 2005 before dropping significantly in 2006, but this was due to substantial funding to Iraq (USD 2.8 billion). This dropped down to USD 887 million in 2006. Total funding for transition activities2 increased again in 2007 (to USD 4.5 billion), before decreasing by just over USD 300 million in 2008 (2007 constant prices).

Non-ODA for security-related activities Although ODA for security-related, peacebuilding and statebuilding activities has been increasing substantially in recent years, it constitutes only part of the financial flows for such activities. Funding to peacekeeping operations does not qualify as ODA (with the exception of 6% of UNDPKO’s annual budget, which development partners can count as multilateral ODA) but can represent a large portion of financial flows into fragile states (e.g. UN peacekeeping in Sudan amounts to the equivalent of 102% of total ODA to Sudan over 2000-08). Non-ODA funding for peacekeeping operations has increased significantly in recent years. Peacekeeping operations can be a critical way to ensure security in conflict-affected and post-conflict situations and secure political space for a political settlement. Main peacekeeping actors include the UN Department of Peacekeeping Operations (UNDPKO), the African Union, the European Union, the North Atlantic Treaty Organization (NATO) and the Organization for Security and Co-operation in Europe (OSCE): • The UN’s peacekeeping budget for 2008-09 is USD 7.1 billion. Of this, USD 6.67 bil lion is non-ODA eligible.3 • The European Commission (EC) provided USD 20 million (EUR 13.9 million) in 2008 to African Union (AU)-led peacekeeping operations. Besides support to AU-related missions, the EU has its own peacekeeping, stabilisation and observation missions, such as Artémis in the DRC district of Ituri in 2003 and EUFOR Chad-CAR in 2007-09. • NATO expenditure on peacekeeping operations in Kosovo and Afghanistan (October 2007-September 2008) was USD 44.1 million and USD 360.9 million respectively (CIC, 2009). These totalled almost USD 7.1 billion and represented 21% of ODA to fragile states in 2008. • The Organization for Security and Co-operation in Europe (OSCE) had a budget of USD 185 million in 2006, of which 72% for field operations.

UN peacekeeping UN peacekeeping operations are at a historic high with around 116 000 personnel serving on 18 peace operations on 4 continents. This represents an eight-fold increase in UN peacekeepers since 1999. UNDPKO’s approved peacekeeping budget for the period from 1 July 2008 to 30 June 2009 was approximately USD 7.1 billion (UNDPKO, 2009). This budget is funded through assessed contributions from UN member states. Figure 6.3. shows the top 20 contributors to the budget in 2008-09, by percentage. This shows that the United States and Japan are by far the largest development partners (contributing 26% and 20% respectively). Just five development partners finance almost 70% of UNDPKO’s budget. Table 6.1. shows how much UNDPKO has spent on each peacekeeping operation from 2000-08. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Figure 6.3. Top 20 financial contributors to UN peacekeeping, 2008-09 30

Percentage (%)

25 20 15 10 5

Greece

Denmark

Norway

Austria

Sweden

Belgium

Russia

Switzerland

Australia

Netherlands

Republic of Korea

Spain

Canada

China

Italy

France

UK

Germany

Japan

USA

0

Source: UNDPKO (2009), United Nations Peacekeeping Fact sheet, DPI/2429/Rev.4, UNDPKO, New York.

Table 6.1. Peacekeeping expenditure by UNDPKO, 2000-08 (USD million)

2000

2001

2002

Burundi

2003

2004

2005

2006

40

304

239

118

Central African Republic & Chad Côte d’Ivoire DRC

246

389

480

382

450

471

475

79%

1 085

1 116

1 191

75%

48

56

1 276

1 500

40

Eritrea

164

185

210

184

Georgia

24

25

29

30

361

360

330

548 46

50

521

618

Sierra Leone

40

40

40

46

180

156

126

113

100

73%

31

31

32

35

35

4%

35

377

480

484

535

575

63%

316

294

234

210

220

198

741

707

676

688

604

92%

714

689

69%

56 603

449

Sudan Timor-Leste Western Sahara Total

528

454

288

46%

1 055

39

Liberia

6%

301

337

34

Lebanon

32 182

901

35

Kosovo

% of ODA 2008

83

Darfur (Sudan)

Haiti

2008

636

Cyprus Disengagement Observer Force (Syrian Golan)

2007

196

265

86

24

7%

219

801

990

846

821

102%

82

2

147

153

173

63%

46

41

41

42

45

46

44

48

48

1 971

2 156

2 020

2 599

3 832

4 259

4 402

6 485

6 868

Source: CIC (2009), Annual Review of Global Peace Operations 2009, CIC, New York University, New York.


6%

86 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping

European Union and African Union There is growing pressure on the African Union to develop its capacity to lead and man peacekeeping missions on the continent.4 However, it has limited resources for this so in 2003 the EC established the Africa Peace Facility (APF) to support peacekeeping operations led by the AU. This is financed by contributions from the European Development Fund (EDF).5 Figure 6.4. (based on actual payments in each year) shows funding from the EC to three AU-related peacekeeping operations: • African Union Mission in Sudan (AMIS), which received the largest amount of APF funding until 2008. AMIS was replaced by the hybrid UN-African Union Mission in Darfur in December 2007. • AMISEC (the African Union mission providing security for elections in Comoros in 2006). • African Union Mission in Somalia (AMISOM).

Figure 6.4. Funding from EC to peacekeeping operations, 2004-09

EUR million (current prices)

90 80 70 60 50

Capacity Building

40

AMISOM

30

AMISEC FOMUC/MICOPAX

20

AMIS

10 0

2004

2005

2006

2007

2008

2009

Source: Africa-EU Strategic Partnership (2009).

When considering resources for peacekeeping operations, human resources are also critical. Table B.11. in Annex B shows the number of personnel (troops, military observers and police) provided by all countries to UN peacekeeping operations as well as the two current NATO operations in Kosovo and Afghanistan in 2008. Figures 6.5. and 6.6. provide a summary of the top ten contributors to UN and NATO missions. • Developing countries provide most of the personnel for UN peacekeeping operations, of which the largest contributors are Pakistan, Bangladesh and India. DPKO pays USD 1 404 per peacekeeper per month to troop-contributing countries. This is more likely to be adequate reimbursement for costs incurred for developing countries than for developed countries that have higher military costs.6 • Unsurprisingly, the top nine contributors to NATO peacekeeping operations are NATO member states, with the United States and UK the largest contributors. Australia, the tenth largest contributor, is the exception, but this is due to its participation in the Afghanistan mission.



• Table B.11. shows that the countries contributing troops to NATO missions also provide troops to UN missions, but the numbers vary from a modest 315 and 328 from the United States and UK respectively to more significant contributions of 2 522 and 2 492 personnel from France and Italy respectively (which makes them the tenth and eleventh largest contributors to UN missions). Despite the substantial contribution of troops by developing countries to UN peacekeeping missions, these operations are overstretched.7 In 2008, the UN had authorised 113 049 personnel for peacekeeping operations but was able to deploy only 92 027 (including civilian staff), leaving a shortfall of around 21 000 personnel (SIPRI, 2009). Developed countries are finding themselves stretched thin due to their commitments in Afghanistan and Iraq. This may have led to the upward trend in the use of private security or military companies. The distinction between the two lies mainly in the nature of the services that they offer. Private security companies provide commercial Figure 6.5. Top 10 troop-contributing countries to UN peacekeeping operations Pakistan Bangladesh India Nigeria Nepal Ghana Jordan Rwanda Uruguay France 0

2 000

4 000 6 000 8 000 Number of Personnel

10 000

12 000

Source: CIC (2009), Annual Review of Global Peace Operations 2009, CIC, New York University, New York.

Figure 6.6. Top 10 troop-contributing countries to NATO peacekeeping operations Australia Poland Turkey Netherlands Canada France Italy Germany UK USA 0

5 000

10 000 15 000 Number of personnel

Source: NATO (2009), www.nato.int. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

20 000

25 000

88 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping (mainly non-lethal) services such as security guards, logistics, mine clearance, risk assessment and intelligence services. Private military companies provide services more directly related to military activities such as operational capabilities (special forces advisors, command and control, communications and intelligence), training of military staff and provision of military equipment (Goddard, 2001; Hull, 2008).

The OSCE The OSCE is primarily an instrument for early warning, conflict prevention, crisis management and post-conflict rehabilitation in its area. It comprises 56 participating states from Europe, Central Asia and North America. It has 19 missions or field operations in South-Eastern Europe, Eastern Europe, the Caucasus and Central Asia. The OSCE deals with three dimensions of security – the politico-military, the economic and environmental, and the human dimension. Its activities in the politico-military dimension include arms control; border management; combating terrorism; conflict prevention; military reform and policing. Figure 6.7. shows the OSCE’s unified budget from 2006 to 2008. In 2006, the OSCE’s original budget was EUR 163 million, but extra-budgetary contributions for additional activities amounted to approximately EUR 25 million, increasing the budget to EUR 185 million. Seventy-two percent of this 2006 budget was spent on field operations. Figure 6.7. OSCE’s unified budget, 2006-08

EUR million (current prices)

190 185 180 175 170 165 160 155 150

2006

2007

2008

Source: OSCE, www.osce.org, accessed November 2009.

Private security companies and private military companies Since the early 1990s, there has been a surge in the modern private military industry. Three factors have contributed to this – the end of the Cold War (which meant that Western powers downsized national armies even as global instability led to a demand for more troops); changes to the nature of warfare that blurred the lines between soldiers and civilians (because conflicts occurred within, rather than between states, and involved non-professional forces including warlords and child soldiers); and a general trend toward privatisation and outsourcing of government functions (Singer, 2005). The United States has made extensive use of private security/military companies (PS/ MCs). The US Department of Defense has used PS/MCs substantially to support its operations in Iraq and Afghanistan. It is estimated that between 1994 and 2002 it entered into USD 300 billion worth of contracts with private security companies and by 2007 the Logistics Civilian Augmentation Program (LOGCAP) was worth up to USD 150 billion (Singer 2003, Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


2008a). In 2008, Singer (2008a) estimates that the United States had around 180 000 private military contractors in Iraq. The vast majority of these contractors carry out military support functions such as building and operating military bases, maintaining and repairing military equipment and vehicles, and moving large convoys of supplies. However, some of them are undertaking key military functions. For example, in June 2003, the United States awarded Vinnell Corporation a USD 48 million contract (sub-contracted out to five companies, including SAIC and MPRI) to train new Iraq Army battalions. Although this proved unsuccessful, in April 2008 the Pentagon sought private contractors to help train and advise Iraq army units (Singer, 2008b). On 11 September 2009, the Department of State’s African Bureau announced that it had granted a USD 1.5 billion contract for its African Peacekeeping (AFRICAP) programme to four companies – Protection Strategies Inc. (PSI), DynCorp International, AECOM and Pacific Architects and Engineers (PAE). The contractors are expected to “undertake a wide range of diverse projects, including setting up operational bases to support peacekeeping operations in hostile environments, military training and providing a range of technical assistance and equipment for African militaries and peace support operations.” (Bennett, 2009). Under a contract worth more than USD 100 million, European troops used a Ukrainian firm to transport them to Afghanistan. African governments have also turned to PS/MCs such as Executive Outcomes and its successor organisation Sandline International, though they are have been controversial and accused of securing mining interests in mineral-rich areas of Angola and Sierra Leone and breaking the UN arms embargo in Sierra Leone by supplying arms to the government in 1998. UN peacekeeping missions rely on them for logistics and other types of support (including demining operations). Examples include UN and ECOWAS’s use of Inter national Charter Incorporated (ICI) to support peacekeeping operations by transporting troops and supplies into and within Liberia, Sierra Leone and Nigeria; UN-mandated International Force in East Timor (INTERFET) using Defence Systems Ltd to provide both logistical and intelligence support for national contingencies and DynCorp to supply helicopter transport and satellite network communications; and the UN’s use of a private firm to provide intelligence on UNITA’s guns-for-gems trade in Angola (Bures, 2008).

Combining ODA and non-ODA funds to address security needs Since it is difficult to finance many security-related activities with ODA, some governments have found it useful to establish internal pooled funds that combine ODA and non-ODA money. These funds are also a way to bring together different government departments to take a whole-of-government approach to fragile states and chronic crises. Table 6.2. lists these internal pooled funds and their level of funding in 2008. Table B.12. provides more details on the start date, objectives and management of these instruments. Development partners have been supporting pooled funds managed by multilateral organisations as one way of dealing with the complexity of operating in fragile states, transferring risks, reducing transaction costs and increasing flexibility. Table 6.3. summarises the main global funds while Table B.13. in Annex B contains further details of start dates, objectives and management. In addition to the global funds, there are several country-level multi-donor trust funds (MDTF) managed either by the World Bank or the UN. In 2009, development partners commissioned a review of the Peacebuilding Fund (PBF) (Ball and van Beijnum, 2009). The main lessons learned from the PBF’s experience in Burundi are relevant for funding to post-conflict countries more generally: Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

90 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping 1. There is a trade-off between speed and peacebuilding effectiveness and, rather than focusing on spending money rapidly, or even in the earliest phases of the postconflict period, the PBF should aim to build capacity early on in the process: capacity to identify a clearer set of priorities and capacity to plan, thereby increasing the chances that PBF programming will promote peacebuilding outcomes. 2. Managers of the PBF and grant recipients need to think about the sustainability of funding from the beginning. In Burundi there was little effort to use the PBF to catalyse funding at the early stages. It was only as PBF-funded projects were ending that the government began to consider follow-on funding. The government then looked to development partners to contribute this funding while development partners expected the government to begin supporting initiatives started with PBF funding. 3. The initial assumption – that the PBF could be implemented with a “light footprint” at country level using existing UN resources without dedicated staff – proved to be incorrect. If PBF resources are to be used to maximum effect, “the importance of adequate capacity at field level cannot be overstated.” Table 6.2. Internal pooled funds combining ODA and non-ODA financing Fund name

2008 funding*

Global Peace and Security Fund (Canada)

Budget of CAD 235 million for fiscal year 2007-08

Instrument for Stability (EC)

EUR 136.9 million

Peace Facility for Africa (EC)

EUR 13.9 million paid in 2008

Stabilisation Fund (Netherlands)

EUR 90 million

Stabilisation Aid Fund (UK)

GBP 62 million in financial year 2008-09

Conflict Prevention Pool (UK)

GBP 71.6million in financial year 2008-09.

* Due to different financial years, the budget/expenditure listed does not cover comparable periods of time. Since the data was obtained directly from the development partners, they are in the original currency. Source: Development Initiatives (2009).

Table 6.3. Global funds for peacebuilding and statebuilding Fund name

2008 funding

Peacebuilding Fund (UN)

Total income of USD 98.1 million, of which USD 41.1 million transferred to implementing agencies

State and Peacebuilding Fund (World Bank)

Grants approved totalled USD 31.6 million

Fragile States Facility (African Development Bank)

Resource envelope of UA 511.4 million

Source: Ball and van Beijnum (2009), World Bank website on State- and Peacebuilding Fund, http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/STRATEGIES/EXTLICUS/0,,content MDK:21836102~pagePK:64171531~piPK:64171507~theSitePK:511778,00.html; AfDB Fragile States Facility website (www.afdb.org/en/topics-sectors/initiatives-partnerships/fragile-states-facility/ fragile-states-facility-digest/.



Sequencing of aid to post-conflict countries An overview of ODA and peacekeeping trends in several fragile states show there is a significant increase in peacekeeping expenditure once an operation is established. However, humanitarian and development aid can be far more erratic and there is no single pattern to aid flows to post-conflict countries. Figures 6.8. to 6.16. compare ODA (separated into humanitarian and development aid) to nine post-conflict countries with UN peacekeeping expenditure from 2000-08.8 The charts include key dates related to the conflict or peace processes to put funding levels into context. Development assistance can be particularly volatile, as the examples of Côte d’Ivoire, DRC, Eritrea and Sierra Leone demonstrate. Nevertheless, there is some evidence to suggest that the following factors are likely to ensure more timely and adequate funding to post-conflict countries (OECD, 2010): • a credible and prioritised assessment of needs, • a strategic plan behind which development partners can align, • leadership, whether national or international, • development partner confidence in peace processes and national government, • instruments that make it easier for development partners to reduce risks and administrative burdens, and • political will on the part of development partner governments.

Box 6.2. The Good Humanitarian Donorship (GHD) principles and the Principles for Good International Engagement in Fragile States and Situations (FSPs) In 2003, development partners committed themselves to the principles of GHD, and in 2007 to the OECD Principles for Good International Engagement in Fragile States and Situations – also referred to as the Fragile States Principles (FSPs). Both sets of principles are relevant for fragile states and may be applied to different parts of the same country. For example, in Sudan development partners are operating according to the GHD principles in Darfur and the FSPs in Southern Sudan. The FSPs were created to complement the Paris principles in contexts where development partners are unable to adopt a state-to-state approach because the state lacks legitimacy, capacity and/or will. One of the key differences between the GHD and FSP principles is the emphasis on the role of the affected state. Statebuilding is a central tenet of the FSPs and, like the Paris Declaration, they strive towards alignment, harmonisation and accountability. However, the FSPs lack mutual commitments on results. The GHD principles make very limited reference to the role of the affected state. Instead, they are guided by international humanitarian law and designed to safeguard humanitarian principles. This gives rise to potential tension between the two sets of principles. In fragile situations, emergency needs usually continue alongside the need for statebuilding and peacebuilding activities. This means balancing the principles of neutrality and impartiality with the need to make inherently political choices about building the capacity of certain sets of actors and engaging with former combatants on security sector reform. Based on Development Initiatives (2009).


92 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping Figures 6.8. to 6.16 summarise trends in ODA flows excluding humanitarian aid, humanitarian aid and peacekeeping expenditures (UNDPKO). Burundi has been unusual in receiving both substantial humanitarian aid and budget support at the same time. This was due to limited aid absorption capacity. Nevertheless, development aid levels have risen steadily since 2003 while humanitarian aid held steady between 2003 and 2006, before beginning to decline in 2006. Burundi was a pilot country for the Peacebuilding Fund, receiving USD 32 million in December 2006. Peacekeeping expenditure peaked in 2004, during the deployment of the UN mission in Burundi. The DRC has experienced some volatility in development assistance, with a peak in 2002 followed by a very sharp drop. A second peak in 2005 was probably due to support for national elections, but this was followed by another decline. Humanitarian and peacekeeping expenditures have shown more steady increases since 2002. This is largely due to the continuing violence and conflict in the east. Due to intensifying security challenges (including attacks by the Lord’s Resistance Army since December 2008), the UN Mission in the Democratic Republic of Congo (MONUC), has continued to expand, and Figure 6.8. Humanitarian and development aid and peacekeeping expenditure: Burundi 550

Constitution and Elections


500 450

UN Peacebuilding Fund Support

400 350 300

Arusha Accords

250 200 150 100

ONUB Operations

50 2000

2001

2002 Humanitarian aid

2003

2004 Peacekeeping

2005

2006

2007

2008

Development aid

Source: OECD DAC online database, accessed November 2009; CIC (2009), Annual Review of Global Peace Operations 2009, CIC, New York University, New York.

USD million ( current prices)

Figure 6.9. Humanitarian and development aid and peacekeeping expenditure: Democratic Republic of Congo (DRC), 2001-08 1 200 1 100 1 000 900 800 700 600 500 400 300 200 100 -

Common Humanitarian Fund

Peace Agreement signed

2000

2001

2002

Humanitarian aid

Elections

2003

2004 Peacekeeping

2005

2006

2007

2008

Development aid

Source: OECD DAC online database, accessed November 2009; CIC (2009), Annual Review of Global Peace Operations 2009, CIC, New York University, New York. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


peacekeeping expenditure has outstripped development aid since 2006. This trend will reverse with UN Security Council resolution 1925 (May 2010) authorising a troop withdrawal and the transformation of MONUC into an UN Organization Stabilization Mission in the Democratic Republic of the Congo (MONUSCO). Côte d’Ivoire is an example of a country with stop-start development engagement. Development aid declined sharply at the time of an attempted coup in 2001 before rising very sharply and then dropping again by over USD 300 million. Until 2005, the country received very low levels of development aid – approximately the same as humanitarian aid. As a result, peacekeeping expenditure was by far the largest of the three resource flows between 2003 and 2008. Development partners seem to be engaging with development aid again, though it will be interesting to see whether the extremely large increase between 2007 and 2008 is sustained in the next few years. With the exception of a peak in development aid in 2001 and a couple of peaks in humanitarian aid in 2003 and 2005, Eritrea has been a country with declining aid and peacekeeping expenditure. This situation will probably not be helped by Eritrea’s withdrawal from the East African regional body, the Inter-Governmental Authority on Development (IGAD), in 2007. Figure 6.10. Humanitarian and development aid and peacekeeping expenditure: Côte d’Ivoire, 2000-08 550 USD million (current prices)

500 450 400 350

Attempted coup

300 250 200 150 100 50 -

2000

2001

2002

2003

Humanitarian aid

2004

2005

Peacekeeping

2006

2007

2008

Development aid


Figure 6.11. Humanitarian and development aid and peacekeeping expenditure: Eritrea


300 250 200

Peace Deal

150 100 50 -

2000

2001


2003

2004 Peacekeeping

2005

2006

2007

2008

Development aid


94 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping International engagement in Haiti has increased substantially since 2003, with very sharp rises in both development aid and peacekeeping expenditure. Humanitarian aid remained fairly steady between 2004 and 2006, decreased in 2007 then rose very sharply in 2008. This was probably due to several hurricanes that affected the country in 2008 and assistance following food riots in April 2008. Liberia received extremely low levels of development aid between 2000 and 2003. In 2004, international development partners pledged over USD 500 million in reconstruction aid. This clearly did not materialise immediately, but there was an incredibly sharp increase in development aid between 2006 and 2007. This remained stable in 2008. Humanitarian aid has been declining since 2004. Peacekeeping expenditure remains the largest of the three resource flows to the country. Sierra Leone has experienced uneven levels of development aid with a number of peaks and troughs though these have not been as sharp as in other fragile states. Humanitarian aid has been declining since elections in 2002. Peacekeeping expenditure declined sharply from Figure 6.12. Humanitarian and development aid and peacekeeping expenditure: Haiti, 2000-08


700 600 500 400 300 200 100 0

2000

2001


2003

2004 Peacekeeping

2005

2006

2007

2008

Development aid


Figure 6.13. Humanitarian and development aid and peacekeeping expenditure: Liberia, 2000-08 USD million (current prices)

800 700 600 500 400 300 200 100 0

2000

2001

2002 2003 Humanitarian aid

2004 Peacekeeping

2005 2006 Development aid

2007

2008



2003 and the UN peacekeeping mission in Sierra Leone (UNAMSIL) withdrew at the end of 2005. It was replaced by the UN Integrated Office in Sierra Leone, UNIOSL. Sudan is unusual in receiving higher levels of humanitarian aid than development aid, and this is largely due to the Darfur crisis. It is also unusual in having two separate peacekeeping missions – UNMIS in Southern Sudan and the hybrid UN-African Union mission in Darfur, UNAMID. UNAMID expenditure outstripped humanitarian aid in 2007 and continued to increase in 2008. UNMIS expenditure was higher than development aid levels between 2005 and 2007, but development aid increased slightly in 2008. Timor-Leste experienced declining development aid levels after it gained independence and established a new government in 2002. However, after intense civil unrest in 2006, development aid rose by over USD 50 million. Peacekeeping expenditure also dropped very sharply from 2000 onwards. It ceased in 2005, but rose again in response to civil unrest in 2006. Humanitarian aid declined even before Timor-Leste gained independence and has remained at very low levels, despite a slight increase in 2006. Figure 6.14. Humanitarian and development aid and peacekeeping expenditure: Sierra Leone, 2000-08


600 500 400 300 200 100 -

2000

2001

2002 Peacekeeping

2003


2005

2006 Development aid

2007

2008


Figure 6.15. Humanitarian and development aid and peacekeeping expenditure: Sudan, 2000-08


1600 1400

Darfur Crisis

1200 1000 800 600 400 200 0

2000

2001

Humanitarian aid

2002

2003

2004

Peacekeeping (UNMIS)

2005

2006

Peacekeeping (UNAMID)

2007

2008

Development aid


96 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping Figure 6.16. Humanitarian and development aid and peacekeeping expenditure: Timor-Leste, 2000-08


600 500 400 300 200 100 0

2000

2001

2002 Peacekeeping

2003


2005

2006

2007

2008

Development aid

Source: OECD DAC online database, accessed November 2009; OECD DAC online database; CIC (2009), Annual Review of Global Peace Operations 2009, CIC, New York University, New York.

Challenges to providing aid to post-conflict countries Most official aid is organised around the two concepts: “humanitarian” and “development”. When a conflict ends, there is in theory a shift from humanitarian aid – which largely bypasses the state during the conflict phase – to support for statebuilding. Therefore, the post-conflict period is conceptualised as requiring a shift in paradigm from mainly humanitarian to mainly development aid. However, in reality most humanitarian aid is long-term, i.e. provided to the same countries for over eight years (Figure 6.17.). In 2003 and 2004, long-term humanitarian assistance accounted for more than 75% of the total, falling to around 50% in the last three years. This long-term humanitarian aid is concentrated on a small number of major sustained crises – Sudan, Iraq, Ethiopia, DRC and Afghanistan – accounting for between 40% and 80% of total ODA allocated to the country. Humanitarian aid can be long-term in different ways. Development partners may contribute humanitarian aid year after year to those affected by long-term displacement, as in Darfur, or to those affected by recurrent natural disasters, as in Ethiopia. In both cases, they are using a short-term instrument to address long-term vulnerability and poverty. Development partners tend to use humanitarian aid to assist chronic crises because it is more flexible than development aid. The latter often has to comply with more detailed requirements, such as for procurement and reporting, and is focused on working with governments and state ownership. This makes it more difficult to use in risky environments with weak or unstable state structures. The international community often uses humanitarian aid to cover longer-term recovery activities because it is usually the major form of aid to fragile states. In Sudan and the DRC, the UN Humanitarian Co-ordinators have used country-level pooled funds, the Common Humanitarian Funds, to finance recovery activities in the annual humanitarian appeal. But the short time horizon for humanitarian aid means that it is not ideal for financing longer-term recovery (Box 6.3.). Therefore, development partners need to recognise that the post-conflict period can be a lengthy phase during which a country may slide in and out of violence so they need to provide flexible support from a range of different instruments. This would be a first step in addressing the challenges they face in providing adequate and appropriate funding. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


USD million (constant 2007 prices)

Figure 6.17. Long, medium and short-term humanitarian assistance, 1995-2007 (all OECD DAC development partners) 14 000 12 000 10 000 Unspecified by country

8 000

Long-term (more than 8 years)

6 000

Medium-term (3-8 years)

4 000

Short-term (3 years or less)

2 000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: OECD DAC online database, accessed 2009.

Box 6.3. Country-level pooled funds Development partners have found country-level pooled funds to be a useful way to finance humanitarian, recovery and reconstruction activities. Such funds can reduce transaction costs for partner country governments and development partners, and also enable development partners to share the risk of funding in fragile contexts. Multi-donor trust funds (MDTFs) managed by the World Bank or the UN are the most common pooled funds in post-conflict countries. Examples of MDTFs include Afghanistan, Iraq, Sudan and Timor-Leste. These funds may be very large: •

The Afghanistan Reconstruction Trust Fund had paid-in contributions of USD 3.04 billion (current prices) as of April 2009;

•

The UN and World Bank Iraq Trust Funds have received a combined total of USD 1.8 billion (current prices) to date; and

•

The two World Bank-administered MDTFs in Sudan (National and South) had received USD 784.8 million (current prices) from development partners as of 30 June 2009.

Experience with MDTFs in Afghanistan, Southern Sudan and Timor-Leste all demonstrate that there is a trade-off between quick delivery and the slower route of establishing funding mechanisms that work with the nascent government and build capacity. Development partners need to bear this in mind when deciding how to channel their funds in post-conflict situations. This suggests that development partners should use a mix of instruments, but this raises questions about development partner capacity to manage and engage with a range of instruments/channels. Development partners already find it a challenge to engage robustly in the governing bodies of MDTFs. It also makes co-ordination between different funding instruments a significant challenge, as demonstrated in Southern Sudan (OECD DAC, 2010). A recent survey of development partner policies in post-conflict situations shows that development partners face a range of challenges with providing timely and flexible development funding to countries emerging from conflict (OECD DAC, 2010). In the absence of appropriate development funding, the UN Humanitarian Coordinators (HCs) in the Central African Republic, DRC and Sudan have used pooled humanitarian funds – the Common Humanitarian Funds (CHFs) – to finance recovery activities included in the annual humanitarian appeal. In most of the DRC, emergency needs reflect decades of poor investment in infrastructure and basic public services. The Humanitarian Action Plan explicitly recognises the need for recovery/rehabilitation activities in order to reduce the need for humanitarian aid to these areas. The HC has allocated CHF funding to post-conflict parts of the DRC, but it has proven difficult to spend the money due to the lack of NGOs operating in these areas. CHF funding has a 6 or 12-month limit on it, which does not make it worthwhile for NGOs to set up offices and start recovery programmes that need to run for 2-3 years. It is not clear whether this restrictive time limit is due to development partner rules and regulations for their humanitarian funding or the fact that the humanitarian system plans on an annual basis, even though it is addressing long-term needs.


98 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping

Notes 1. This is reflected in the development of OECD DAC guidance on statebuilding in fragile situations and preventing violent conflict. The CRS codes used are 15110: Economic and Development policy/planning, 15120: Public sector financial management, 15130: Legal and judicial development, 15140: Government administration, 15150: Strengthening civil society, 15161: Elections, 15162: Human rights, 15163: Free flow of information, 15164: Women’s equality organisations and institutions and 24020: Monetary institutions. 2. Transition in this context refers to the transition of countries out of conflict towards sustainable development, greater national ownership and an increased state capacity. Traditionally falling between “humanitarian” and “development” categories, transition activities includes recovery, reconstruction, security-related and peacebuilding activities. 3. According to the DAC STAT reporting directives, 6% of official contributions to the United Nations Department for Peacekeeping Operations (UNDPKO) can be counted as multilateral ODA by donor governments. 4. Contributions to African Union peacekeeping by other donors are not reported in any systematic way, even to the AU, so it has not been possible to assess the extent of other funding to these operations. The UN may provide funding to African Union operations as well. For example, the UN’s peacekeeping budget for 2009-10 includes a contribution of USD 138.8 million to AMISOM from 1 July-31 December 2009. 5. This means that governments contributing to the EDF report their funding to the DAC as ODA though activities financed by the APF are not ODA-eligible. This is because the APF represents a very small percentage of the EDF. 6. This comprises USD 1 028 for pay and allowances; USD 303 supplementary pay for specialists; USD 68 for personal clothing, gear and equipment; and USD 5 for personal weaponry: www.un.org/Depts/dpko/dpko/faq/q10.htm. 7. See UN Press Release of 23 January 2009 “With Operations Overstretched, United Nations Must Find Innovative Ways to Tackle Modern Peacekeeping Challenges, Security Council told during Thematic Debate” at www.un.org/News/Press/docs/2009/sc9583.doc.htm. 8. The post-conflict countries in this section have been selected to meet the following criteria: a peace agreement, free and fair elections, no resumption of large-scale violence, and presence of a UN peacekeeping mission.



Bibliography Abbaszadeh, N. et al. (2008), Provincial Reconstruction Teams: Lessons and Recommendations, Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, www.princeton.edu/research/pwreports_ f07/wws591b.pdf. Africa-EU Strategic Partnership (2009), The African Peace Facility, Africa-EU Strategic Partnership, www.africa-eu-partnership.org/pdf/apf _ final_version.ppt. African Development Bank (2009), African Development Report 2008/09: Conflict Resolution, Peace and Reconstruction in Africa, Oxford University Press, Oxford, www.afdb.org/en/knowledge/publications/african-development-report-20082009/. Ball, N. and M. van Beijnum (2009), Review of the Peacebuilding Fund, United Nations Peacebuilding Fund, UN, New York. Bennett, J.R. (2009), “Outsourcing Africa”, ISN Security Watch, www.isn.ethz.ch/isn/Current-Affairs/Security-Watch/Detail?id=108451%26lng=en. Bennett, J. et al. (2009), Country Programme Evaluation Afghanistan, Evaluation Report EV 696, UK Department for International Development, London. Bures, O. (2008), “Private Military Companies: A Second Best Peacekeeping Option?”, paper presented at the Annual Meeting of the ISA’s 49th Annual Convention, “Bridging Multiple Divides”, San Francisco, 26-29 March 2008, www.allacademic.com//meta/p_ mla_apa_research_citation/2/5/2/9/3/pages252936/p252936-1.php. CIC (Center on International Cooperation) (2009), Annual Review of Global Peace Operations 2009, CIC, New York University, New York. Development Initiatives (2009) Mapping of Transition Financing Procedures and Mechanisms: Revised Draft Report, Commissioned by Sida and DFID on behalf of the INCAF Task Team on Financing and Aid Architecture. DFID (Department for International Development) (2009), Eliminating World Poverty: Building our common future, report on the DFID Conference on the Future of International Development, DFID, London. Goddard, S. (2001), The Private Military Company: A Legitimate International Entity Within Modern Conflict, thesis presented to the Faculty of the U.S. Army Command and General Staff College for a Master of Military Art and Science degree, Fort Leavenworth, www.ssrnetwork.net/topic_guides/pmcs.php. Hull, C. (2008), What Future for Privatized Peacekeeping? Prospects and realities in the UN debate, FOI Swedish Defence Research Agency, Stockholm, www.foa.se/upload/ projects/Africa/Privatized%20Peacekeeping%202540.pdf.


100 – 6. ODA and non-ODA funds for security, statebuilding and peacekeeping Netherlands Ministry of Foreign Affairs (2008), Security and Development in Fragile States: The Netherlands’ Strategy 2008-2011, Netherlands Ministry of Foreign Affairs, the Hague. OECD DAC (2008) Statebuilding in Situations of Fragility: Initial findings, OECD, Paris. OECD DAC (2010), Transition Financing: Building a better response, OECD, Paris. Schmid, A. P. (1998), Thesaurus and Glossary of Early Warning and Conflict Prevention Terms, Abridged Version, FEWER Secretariat, London, www.Reliefweb.Int/Rw/Lib.Nsf/ Db900sid/Lgel-5erdq8/$File/Fewer-Glossary-Ma98.Pdf?Openelement. Singer, P. (2003), Peacekeepers, Inc, 21st Century Defense Initiative, Wolfensohn Center for Development, Brookings Institution, Washington, DC, www.brookings.edu/ articles/2003/06usmilitary_singer.aspx. Singer, P. (2005), Outsourcing War: Understanding the Private Military Industry, 21st Century Defense Initiative, Wolfensohn Center for Development, Brookings Institution, Washington, DC, www.brookings.edu/articles/2005/0301usdepartmentofdefense_singer.aspx. Singer, P. (2008a), Outsourcing the Fight, 21st Century Defense Initiative, Wolfensohn Center for Development, Brookings Institution, Washington, DC, www.brookings.edu/ opinions/2008/0605_military_contractors_singer.aspx. Singer, P. (2008b), Lessons Not Learned: Contracting Out Iraqi Army Advising, 21st Century Defense Initiative, Wolfensohn Center for Development, Brookings Institution, Washington, DC, www.brookings.edu/opinions/2008/0512_iraq_singer.aspx. SIPRI (Stockholm International Peace Research Institute) (2009), SIPRI Yearbook 2009: Armaments, Disarmament and International Security, SPIRI, Solna, Sweden, www. sipri.org/yearbook. Soges S.p.A. (2008), Mapping Of Donors, Actors, Financial Instruments and Assessment Tools in Situations of Fragility, support study in view of the follow-up to the 2007 Commission Communication, Council Conclusions and EP Resolution on Situations of Fragility, European Commission, Brussels. UNDPKO (UN Department of Peacekeeping Operations) (2009), United Nations Peacekeeping Fact sheet, Factsheet reference DPI/2429/Rev.4, UNDPKO with Department of Public Information, www.un.org/Depts/dpko/factsheet.pdf. UN General Assembly (2009) Report of the Secretary-General on peacebuilding in the immediate aftermath of conflict, Document reference no. A/63/881–S/2009/304, UN, New York.


Part III. the need for a whole-of-government response – 101

Part III The need for a whole-of-government response


7. South-South co-operation, trade, investment and finance – 103

Chapter 7 South-South co-operation, trade, investment and finance

More and more middle-income and developing countries are themselves becoming development partners. Although these emerging donors do not necessarily adhere to traditional aid effectiveness standards, they can be held to similarly high standards through meaningful engagement. Emerging donors, providers of South-South Co-operation, and Arab development partners make up 10% of all official development assistance (ODA) and often play a key role in OECD DAC-neglected areas. With substantial increases in recent years, reported aid from these actors totalled USD 9 billion in 2008, more than half of which from Arab development partners. This chapter examines actors beyond the DAC and their impact on fragile states through trade, investment, finance and humanitarian assistance.


104 – 7. South-South co-operation, trade, investment and finance

A changing landscape The past decade has witnessed a gradual shift in the dynamics of international development co-operation, with additional actors, particularly from growing economies in the South. Many are not “new” development partners. Arab countries’ foreign aid constituted an estimated 13.5% of all aid between 1974 and 1994 (Villanger, 2007), while China has had an African programme since the 1950s. However, in the last two decades the number of providers of South-South co-operation has grown, with several developing countries taking steps to establish fully-fledged development co-operation agencies with more comprehensive development programmes (ECOSOC, 2008). This resurgence of activity beyond the DAC membership group is providing new options for low income countries, increasing the range of both the type of aid available and actors to accept it from. Some OECD DAC members have expressed concern that these new actors may undermine jointly-agreed commitments on aid effectiveness: assistance beyond the DAC membership group typically focuses on technical or production-based projects rather than social programming; aid is relatively less conditional with higher levels of tying; it may fail to consider governance and environmental issues, and may potentially free-ride on debt relief initiatives by providing easy access to loans at lower rates of concessionality.1 Such concerns have been countered by highlighting, for example, that OECD DAC member efforts to untie aid have only been recent, and that increased “competition” is healthy given the failure of a number of OECD DAC countries to meet their own aid commitments. There is no clear evidence that China is re-indebting highly indebted poor countries (HIPCs). However, their absence (and that of other Asian development partners) from current multilateral debt relief discussions poses more serious challenges to the fostering of shared principles. Similarly, while governance and environmental concerns are valid, the established donor community is most successful in disseminating standards when it closely engages with emerging actors (Woods, 2008). Increased activity beyond the DAC membership group and the greater need for cooperation have added to calls for reform of international aid architecture. Poor incentives, driven by under-representation non-DAC members in the Bretton Woods institutions and on the OECD DAC governance bodies, are one reason for limited engagement with OECD DAC members and the principles of the Paris Declaration. Early initiatives to address poor engagement, such as the UN Financing for Development Process, high level fora on Aid Effectiveness and the G-20, have largely focused on aid delivery issues rather than reform (Hammand and Morton, 2009). Consequently, more ambitious efforts, such as the redesign of the Working Party on Aid Effectiveness and the newly established Development Cooperation Forum (2008), will have a vital role to play in efforts to democratise aid governance.

The wider context: developments in South-South investment, trade and finance Consideration of rapidly growing South-South economic activity is important when assessing the role of development co-operation from beyond the DAC. Energy security enlarged trading opportunities and new economic partnerships are common priorities for emerging donors. Their development co-operation policies are often characterised by a more co-ordinated all-of-government approach than OECD DAC members, with assistance linked to trade and investment policy. Contrary to standard concerns, recent evidence suggests that such tied assistance does not necessarily mean detrimental policy Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


and performance. Rather, intensified trade between China and Africa, for example, has sometimes resulted in higher growth rates, better terms of trade, increased exports and higher public revenues (Woods, 2008) (Box 7.1.). While China itself receives a significant amounts of aid, particularly humanitarian assistance, it is still able to play an important role in other developing and fragile states.

Box 7.1. China, investment and value for money in Africa In contrast to traditional aid, China’s development assistance in Africa is directly related to trade and investment policy. China is now Africa’s third most important trading partner after the US and France, growing by 700% during the 1990s. Built largely on increasing oil imports from Sudan and other countries, trade doubled again to USD 18.5 billion between 2002 and 2003, and reached USD 56 billion by 2006. Estimates suggest that it has increased tenfold over the last decade, placing current trade at over USD 100 billion. Foreign direct investment (FDI) is also significant, accounting for USD 900 million of the continent’s USD 15 billion of FDI in 2004. The nature of such “tied” assistance, however, does not necessarily equate with overpriced or substandard goods and services as is often argued. Many programme countries have indicated that goods and services provided are of appropriate quality and are better priced and thus better value for money than those from northern counterparts. Uganda, for example, has indicated that China implements projects expeditiously and at lower cost (in part due to the basic living conditions of workers and cheap labour), completes them on time or ahead of schedule with quality that, on occasion, has been better than that of OECD DAC members. One study of Chinese construction and infrastructure projects in four African countries – Angola, Sierra Leone, Tanzania and Zambia (Stellenbosch University, 2007)– illustrated how access to less expensive financing, lower labour costs, higher productivity, cheaper procurement of materials and the transfer of more appropriate technology has, in many cases, made this possible. Financing costs: China regularly commissions state-owned enterprises to execute infrastructure projects financed by development assistance and selects private sector companies to implement the different aspects through a tendering process conducted in China. Winning a tender for a government-endorsed project enables a company to access low-cost capital from national banks to pay for start-up costs and hire Chinese subcontractors. This provides Chinese ventures with a competitive advantage not usually available to northern companies implementing infrastructure projects financed by Northern development partners. Labour costs: Contrary to perceptions that Chinese projects employ mainly Chinese labour, the Stellenbosch University study notes that “with few exceptions, locals accounted for 85-95% of the total workforce of the Chinese construction companies surveyed”, predominantly as unskilled casual labour. Employment of local managerial and administrative staff was more common in countries with a longer-term Chinese presence (e.g. Tanzania and Zambia), than in Angola and Sierra Leone where activities were more recent. Overall lower labour costs provide Chinese companies with a competitive advantage. Procurement of materials: While Chinese procurement is viewed as substantially tied, local procurement was found to occur when there are cost advantages. For example, In Tanzania bulk materials such as steel and cement are purchased locally, while in Angola, Chinese cement is imported at considerable competitive advantage despite local availability. Overall Chinese construction costs in Angola are estimated to be about a quarter of those of European firms. Technology transfer: Chinese technology is viewed “as most appropriate for Africa”. Because it is more labour intensive, African companies and workers can emulate it better than the more capital-intensive and specialised equipment of northern firms. Further, in another study (ECOSOC, 2008), Rwanda noted that Arab bilateral and multilateral contributors were willing to address capacity development and technology transfer issues when negotiating loans, whereas not all OECD DAC members agree to consider this aspect, despite declarations of intent. In addition, Rwanda has discovered that the Republic of Korea has a comparative advantage when it comes to the provision of capacity building for information and communications technologies. Sources: ECOSOC (2008), Trends in South-South and Triangular Development Cooperation, Background Study for the Development Cooperation Forum, ECOSOC, New York; Centre for Chinese Studies, Stellenbosch University (2007), China’s Engagement in Africa: Preliminary Scoping of African Case Studies, Stellenbosch University, Stellenbosch.


106 – 7. South-South co-operation, trade, investment and finance South-South trade now accounts for more than 26% of global trade, the majority of it intra-regional. Regional and bilateral trade agreements have quadrupled since 1990, and now number more than 200. South-South foreign direct investment (FDI) tripled from USD 14 billion in 1995 to USD 47 billion by 2000 (Chahoud, 2008; ECOSOC, 2008). Concentrated in infrastructure services and extractive industries, such FDI may have less pronounced linkages with broader development. However, the regional nature of investment at a time when northern FDI has waned has been important for less-developed neighbouring countries.

Growing volumes of development co-operation beyond the DAC membership group An assessment of Southern ODA conservatively estimates 2006 levels to be between USD 9.5 billion and USD 12.1 billion, representing 7.8% to 9.8% of total flows (ECOSOC, 2008).2 An additional USD 800 million reported by EU members beyond the DAC membership group (Commission of the European Communities, 2009) means that approximately 10% of ODA is attributable to development partners beyond the DAC. Aid from these development partners increased between 2001 and 2007. Preliminary data further indicate large increases into 2008. However, with the absence of data on some major development partners, recorded increases are assumed to be considerably more modest than actual totals.3 ODA from those voluntarily reporting to the OECD DAC increased by 63% from 2007 to USD 9 billion in 2008 (2007 constant prices).4 This represents a real increase of 107% over 2004 levels. Over 60% of ODA in 2008 came from Arab development partners (USD 5.7 billion), representing a more than doubling of 2007 ODA from the group. ODA from OECD reporters beyond the DAC membership group has grown by over 63% since 2004, reaching USD 2.4 billion in 2008. Most significant among these is the Republic of Korea and Turkey, disbursing in excess of USD 600 million each (Figure 7.1.).5 These data do not include figures from the BRICs (Brazil, Russia, India and China). Co-operation from Brazil, Russia and India is estimated at USD 437 million, USD 210 million and USD 610 million respectively (OECD, 2010).6 Official figures for China are not available, though estimations vary considerably – from a total of USD 1.4 billion in 2007 Figure 7.1. Total ODA from development partners beyond the DAC, 2001-08 (based on data from countries that voluntarily report to the OECD DAC) 10 000 Other donors


9 000

Arab countries

1042

OECD non-DAC

8 000 7 000 6 000

861

5 000

190

141

587

3730

3365

2350

4 000 3 000 2 000

138

1 000

1008 702

687

854

1459

2001

2002

2003

2004

0

880

730

5650

2669

2618

2208

2145

2059

2385

2005

2006

2007

2008

1502




to as much as USD 8.1 billion projected by the World Bank for the three largest recipients in Africa (Angola, Mozambique and Nigeria) (Kragelund, 2008; Brautigam, 2007).7 Trends of engagement from beyond the DAC with multilateral organisations and agencies vary. The World Food Programme (WFP), for example, has seen a significant increase in engagement from beyond the DAC. Between 2001 and 2008, the number of contributors beyond the DAC more than doubled from 27 to 59, together with an increased share of total contributions from 2.6% (USD 1.8 billion) to 12.7% (USD 4 billion). Conversely, while the number of non-DAC contributors to IDA has remained roughly consistent over the last three replenishment rounds (44 to 45), their proportion of total contributions has declined dramatically from 25% to 8.3%. Engagement with other major agencies has remained relatively consistent, with small increases in numbers and/or proportional contributions witnessed by UNRWA (The United Nations Relief and Works Agency for Palestine Refugees in the Near East), UNICEF and the African Development Fund.8

Looking forward If recent large pledges by Southern contributors materialise, development assistance flows may grow to around USD 15 billion by 2010 (ECOSOC, 2008). China’s 2007-09 Beijing Action Plan outlines a doubling of African development assistance between 2006 and 2009, together with USD 3 billion of preferential loans and USD 2 billion of preferential export buyer’s credit (Kragelund, 2008). The Republic of Korea has indicated a doubling of flows (excluding assistance to the Democratic People’s Republic of Korea) by 2010, with a further trebling by 2015. South Africa plans to become a contributor, with ODA targets for programme countries of between 0.2-0.5% of GNI. The Islamic Development Bank has indicated a considerable expansion of its programme, as well as USD 2 billion for its new poverty fund (ECOSOC, 2008), while new EU accession countries remain committed to providing 0.33% of GNI as ODA by 2015.

Assistance to fragile states Analysis of disbursements by providers of South-South co-operation reporting to the OECD DAC suggests that bilateral aid to fragile states is small, but it increased by some 68% between 2004 and 2008 to USD 626 million.9 Early peaks in 2002 (Figure 7.2.) are attributable to significant Arab aid volumes to the West Bank, with a small peak in 2005 driven by large Turkish volumes to Pakistan. Discounting this year, fragile states accounted for 6%-10% of all aid from this group between 2003 and 2008, with Korea (to Iraq) and Turkey (to Pakistan and Afghanistan), being the principal development partners. Sudan is the largest fragile state/partner country receiving aid from Arab states. Such patterns thus reflect the regional nature of assistance that characterises much aid from development partners beyond the DAC. Given the dominance of these development partners within the group, aid is also concentrated within a few fragile states, with Iraq, Afghanistan, Pakistan and Sudan receiving almost 74% of aid to fragile states between 2004 and 2008 (Figure 7.3.). Such figures, however, fail to capture aid from other large development partners such as China and India. Disaggregated data is largely unavailable, although limited evidence suggests that their contribution to fragile states is significant. For example, unpublished World Bank data suggest that the vast majority of Chinese new financing commitments for African infrastructure have gone to fragile states, namely Angola (40%), Nigeria (24%), Ethiopia (15%) and Sudan (12%) (Woods, 2008). Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

108 – 7. South-South co-operation, trade, investment and finance Figure 7.2. ODA to fragile states from development partners beyond the DAC, 2001-08 (based on data from countries that voluntarily report to the OECD DAC)


10 000 9 000

Other recipients

Other developing countries

Fragile states ODA

1127

8 000 7 000 6 000

782

5 000 732

4 000 3 000 2 000 1 000 0

7324

601

1040

3705

3423

2781

270 2003

372 2004

620

578

485

626

2005

2006

2007

2008

1878 449 715 684

1997

2001

2002

855

385

4315

4218


Figure 7.3. Top fragile state recipients of ODA from development partners beyond the DAC, 2004-08 (based on data from countries that voluntarily report to the OECD DAC)


800 681 600

521 400

400

401

370

172

200

136

0 Iraq

Afghanistan

Sudan

Pakistan

Ethiopia

Palestinian Adm Areas

Other


Development partners providing humanitarian assistance beyond the DAC Development partners beyond the DAC membership group have been providing humanitarian assistance for decades. Further, the scale of humanitarian funding and the number of development partners is rapidly increasing. Over 70 development partners beyond the DAC responded to the tsunami crisis in 2004, and the number of such partners reporting humanitarian assistance to UN Office for the Coordination of Humanitarian Affairs’ Financial Tracking Service (FTS) has consistently increased from 58 in 2006 to almost 100 in 2008 (Figure 7.4.). Such growth presents significant opportunities, both in volumes of assistance, and in challenging perceptions of who provides assistance to the developing world. However, as with development assistance, it also presents significant challenges to the way in which the international humanitarian system is financed and co-ordinated.



Figure 7.4. Total number of development partners beyond the DAC reporting to the FTS, 2006-08 120 98

100 80

69

59

60 40 20 0

2006

2007

2008

Source: Development Initiatives (2009), Global Humanitarian Assistance 2009, Development Initiatives, Wells, UK.

In 2008, development partners beyond the DAC provided just over USD 1 billion to FTS-reported humanitarian assistance. This represents 10.6% of the total, the highest level since 2000, and almost double the 2000-08 annual average (5.8%). China (USD 125 million) and Yemen (USD 105 million) were the partner countries that received the most assistance. Bilateral humanitarian assistance accounted for USD 477 million, of which USD 308 million (65%) went to fragile states. As a proportion of total humanitarian assistance provided countries beyond the DAC, 28.5% went directly to fragile states, accounting for 4% of all humanitarian assistance received by the group.10 Approximately half of all assistance beyond the DAC is channelled through UN multilateral agencies. However, the vast majority of assistance (97.5% in 2008) is channelled outside the UN consolidated appeal process that reflects strategic priorities and response according to need. Conversely, development partners beyond the DAC are playing an important role in financing appeals that are neglected by OECD DAC members, such as the 2008 Yemen flash floods (Figure 7.5.). In addition to UN agencies, almost 30% of humanitarian assistance from beyond the DAC was channelled directly through partner country governments, a significantly higher proportion than for the OECD DAC (Figure 7.5.). Figure 7.5. Contrasting delivery channels used by OECD DAC members and other development partners, 2008 Combined/ undefined; 6.8%

Non-UN multilateral 7.4%

Government 29.0%

CERF 0.5% UN multilateral 53.0%

Pooled funding/ CHFs; 3.5%

Red Cross NGOs 9.5% 0.5% Combined/ undefined 0.1% Pooled funding/ CHFs 0.0%

NGOs; 21.2% UN multilateral; 50.1%

Red Cross; 8.1% Government; 4.1% Non-UN multilateral; 0.3% CERF; 5.9%

Source: OECD-CRS database, accessed November 2009. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

110 – 7. South-South co-operation, trade, investment and finance In 2008, Gulf States provided a majority of reported humanitarian assistance from development partners beyond the DAC, accounting for 60% of all bilateral assistance to fragile states from the group (Table 7.1.). Saudi Arabia was the largest development partner beyond the DAC in 2008, reporting over USD 700 million in humanitarian assistance to the FTS (making it the third largest bilateral development partner in humanitarian assistance after the United States and the EC).11 China aside, five fragile states top the list of the largest beneficiaries of bilateral humanitarian assistance beyond the DAC (Table 7.2.). These five (Yemen, Palestine/ OCT, Myanmar, Sudan, Tajikistan) account for over 56% of all bilateral humanitarian assistance from beyond the DAC. While the proportion of total humanitarian assistance from development partners beyond the DAC is relatively small, they often provide the Table 7.1. Top development partners (beyond the DAC) providing bilateral humanitarian assistance to fragile states, 2008

Top 5 development partners Remaining development partners

USD million

%

280

90.9%

28

9.1%

Total

308

Saudi Arabia

149

48%

Kuwait

86

28%

Republic of Korea

21

7%

United Arab Emirates

16

5%

8

2%

Russian Federation

Source: Development Initiatives (2009), Global Humanitarian Assistance 2009.

Table 7.2. Top 10 partner countries receiving humanitarian assistance from development partners beyond the DAC, 2008 USD million

%

China

125

26.2%

Yemen

105

22.1%

Palestinian territory, occupied

87

18.3%

Myanmar

35

7.3%

Sudan

24

5.1%

Tajikistan

17

3.6%

Korea, Democratic People’s Republic of

16

3.3%

Georgia

8

1.7%

Jordan

8

1.7%

Syrian Arab Republic Other partner countries Total top partner countries Total

5

1.1%

46

9.6%

477

1 080

Source: FTS Database, accessed 2009; Development Initiatives (2009), Global Humanitarian Assistance 2009. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


majority of funding to their priority countries. Among the top three fragile states receiving humanitarian assistance in 2008, for example, development partners beyond the DAC provided around 88% of all bilateral assistance to Yemen, with 20% and 9% of assistance to Palestine and Myanmar respectively, compared to just 6% of all bilateral assistance (Figure 7.6.). Figure 7.6. Development partners beyond the DAC providing humanitarian assistance to fragile states, 2008 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

88%

Proportion of bilateral humanitarian assistance from non-DAC development partners

20% 6%

9%

Total bilateral

Myanmar

Palestine

Yemen

Source: FTS Database, accessed 2009; Development Initiatives (2009), Global Humanitarian Assistance 2009, Development Initiatives, Wells, UK.


112 – 7. South-South co-operation, trade, investment and finance

Notes 1.

For a donor-by-donor assessment of aid characteristics and estimated volumes, see Kragelund (2008) and ECOSOC (2008).

2. Total aid is based on final 2006 DAC data and includes an estimated USD 6.3 billion via global funds and private foundations. 3. The challenges faced by assessments of development partners beyond the DAC are substantial and well known: (i) there is no internationally-agreed definition of development assistance or the concessionality of loan finance; and (ii) unclear reporting and the absence of transparency characterise many Southern countries international assistance. A limited number of countries report to the DAC (see below), but with the exception of the Coordination Secretariat of Arab National and Regional Development Institutions, no Southern institution currently co-ordinates the compiling, processing and dissemination of development co-operation data. 4. The 19 development partners beyond the DAC that voluntarily report contributions to the OECD DAC include: Chinese Taipei, Cyprus, Czech Republic*, Estonia, Hungary*, Iceland*, Israel, Kuwait, Latvia, Liechtenstein, Lithuania, Poland*, Romania, Saudi Arabia, Slovak Republic*, Slovenia, Thailand, Turkey, United Arab Emirates. (* OECD members) At the request of Turkey, the following statement is included: “The information in this document with reference to ‘Cyprus’ relates to the southern part of the island. There is no single authority representing both Turkish and Greek Cypriot people on the island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall reserve its position concerning the ‘Cyprus issue’.” 5. The Republic of Korea became an official DAC member in January 2010. 6.

Brazil (2007), India (2008-09 fiscal year), Russia (2007)

7. Other ranges are equally divergent. The China Statistical Yearbook 2005 calculates that 2004 aid reached USD 731 million in 2004 (Glosny, 2006), while the EU estimates that it reaches USD 5 billion a year (Altenburg and Weikert, 2006, cited in Kragelund, 2008). Such a range is no doubt caused by reports confusing investment and other external flows with aid as defined by the OECD DAC. 8.

Based on assessment of various annual reports of multilateral agencies.

9. DAC-reported aid does not reflect assistance provided by several major emerging non-DAC development partners, such as China and India. Based on ECOSOC figures, detailed above, such ODA accounts for around 50% of total non-DAC aid. Further, DAC-reported aid from these countries is not verified, so must be treated with caution. 10. While a large proportion of non-DAC country assistance went to fragile states, a large contribution to the WFP by Saudi Arabia in 2008 means that the proportion of total assistance going to these countries is considerably smaller. 11.

Bilateral humanitarian assistance from the US and EC in 2008 was USD 4.3 billion and USD 1.7 billion respectively.



Bibliography Brautigam, D. (2007), “China’s Foreign Aid in Africa: What do we know?”, paper prepared for the Conference on China in Africa: Geopolitical and Geo-Economic Considerations, John F Kennedy School, Harvard University, Cambridge, 31 May-2 June 2007. Centre for Chinese Studies, Stellenbosch University (2007), China’s Engagement in Africa: Preliminary Scoping of African Case Studies, report prepared for The Rockefeller Foundation, Stellenbosch University, Stellenbosch. Chahoud, T. (2008), “Southern Non-DAC actors in Development Cooperation”, German Development Institute Briefing Paper, No. 13. Development Initiatives (2009), Global Humanitarian Assistance 2009, Development Initiatives, Wells, UK. EC (Commission of the European Communities) (2009), “Where Does the EU go from Doha? Annual progress report 2009 on financing for development”, Commission Staff Working Paper, EC, Brussels. ECOSOC (United Nations Economic and Social Council) (2008), Trends in South-South and Triangular Development Cooperation, background study for the Development Cooperation Forum, ECOSOC, New York. Glosny, M. A. (2006) China’s Foreign Aid Policy: Lifting States out of Poverty or Leaving Them to the Dictators. Freeman Report. Center for Strategic and International Studies, Washington, DC. Hammand, L. and B. Morton (2009), “Non-DAC Donors and Reform of the International Aid Architecture”, Issues Brief, Development Cooperation Series, The North-South Institute, Canada. Kragelund, P. (2008), “The Return of Non-DAC Donors to Africa: New Prospects for African Development?”, Development Policy Review, Vol. 26, No. 5. OECD (2010), Development Co-operation Report 2010, OECD, Paris. Villanger, E. (2007), “Arab Foreign Aid: Disbursement Patterns, Aid Policies and Motives”, Forum for Development Studies, Vol. 34, No. 2. Woods, N. (2008), “Whose Aid? Whose Influence? China, Emerging Donors and the Silent Revolution in Development Assistance”, International Affairs, Vol. 84, No. 6.


8. Global funds and foundations – 115

Chapter 8 Global funds and foundations

Flows from global funds and private foundations represent important potential resources for fragile states, as official development assistance alone is not sufficient to meet the Millennium Development Goals. While global funds have the potential to provide predictable financing to government-led approaches, potential dangers include distorting national planning and chains of accountability, increasing transaction costs, and creating separate planning, financing and delivery channels. This chapter highlights three sector areas of funding: health (Global Fund to Fight AIDS, Tuberculosis and Malaria), education (Education for All Fast-Track Initiative) and climate change.


116 – 8. Global funds and foundations

Global funds Global funds are increasingly used to mobilise technical and financial resources at the international level to support a specific sector.1 While global funds have the potential to provide predictable financing to government-led approaches, potential dangers have also been highlighted, including distorting national planning and chains of accountability, increasing transaction costs, and creating separate planning, financing and delivery channels (World Bank, 2004; Leader and Colenso, 2005; Pavanello and Darcy, 2008). This chapter highlights three sector areas of funding: health (Global Fund to Fight AIDS, Tuberculosis and Malaria), education (Education for All Fast-Track Initiative) and climate change.

The Global Fund to Fight AIDS, Tuberculosis and Malaria The Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) supports large-scale prevention, treatment and care programs against the three diseases. To date, the Global Fund has committed USD 18.4 billion in 140 countries.2 Almost one-third of these countries (39) are fragile states. As of the end December 2008, the Global Fund had spent a total of USD 2.6 billion on projects in fragile states, representing over 36% of the USD 7.2 billion total disbursements. Similar proportions (38% or USD 879 million) were maintained in 2008, which saw disbursements to fragile states increase by 13% over 2007. In aggregate, Ethiopia has been the largest recipient of the Global Fund (USD 560 million, almost 8% of all disbursements), with Rwanda (USD 224 million), Nigeria (USD 182 million) and Democratic Republic of Congo (USD 169 million) featuring in the top ten (Table 8.1.). These four countries account for 42% of all fund disbursements to fragile states. The Global Fund has contributed to all fragile state countries except Kiribati and Tonga. As yet, no funds have gone to North Korea or the Solomon Islands, but funds have been approved for these locations. Table 8.1. Top fragile state receiving resources from the Global Fund, 2004-08 USD million

2004

2005

2006

2007

2008

Total

Ethiopia

…

77.9

130.6

161.7

190.1

560.3

Rwanda

21.0

30.0

52.3

37.4

83.6

181.6

Nigeria

9.2

21.1

41.2

39.6

70.5

181.6

DR C

8.9

37.8

25.0

27.8

69.3

168.8

Kenya

28.1

0.0

55.7

28.2

48.1

160.1

Total

67.2

166.8

282.9

284.7

3461.6

1295.1

Source: The Global Fund Grant Portfolio, http://portfolio.theglobalfund.org/?lang=en, accessed November 2009.

The Education for All Fast-Track Initiative The Fast-Track Initiative (FTI) catalytic fund is a multi-donor trust fund managed by the World Bank to provide transitional financial assistance to FTI countries whose education sector plans have been endorsed by development partners, but which have difficulty mobilising additional external funding at the country level due to a relatively limited development partner presence. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Funding to fragile states increased from USD 89.7 million to USD 127.8 million between 2007 and 2008, and is projected to rise again to USD 162.8 million in 2009. This represents an 81% increase over the two-year period. Kenya and Rwanda are the largest beneficiaries to date (USD 100 million and USD 70 million respectively). However, the increase in 2009 is largely attributable to new funds being received by five countries, namely the Central African Republic, Chad, Ethiopia, Guinea and Sierra Leone. Fifteen of the 30 partner countries (or projected partner countries) receiving funds are fragile states, constituting 58% of total disbursements to date. The FTI has been criticised for stringent endorsement criteria, requiring Poverty Reduction Strategy Papers (PRSPs) and an approved education plan. Government institutions in many poor countries are often too weak and underfunded to fulfil them. Unable to satisfy the mutual commitments principle of the FTI, they are excluded from any possibility of endorsement, and, in most cases, have no alternative source of funding for the sector (ONE, 2008). FTI itself has identified this as a concern, and a significant growth of fragile states coverage is projected over the next two years. A special window has been established to assist fragile and conflict affected states reach an interim status for FTI endorsement and funding while they develop a full education sector plan. Operational guidelines as to how best to assist these countries are currently being developed together with a funding mechanism, expected in early 2010.3 Table 8.2. Actual and projected disbursements of FTI Catalytic Fund to fragile states (USD) Total disbursements between Kenya Rwanda Cameroon

Annual disbursements 2009

Total

Projected

2004-06

2007

2008

2004-09

2009

2010

24.2

48.4

48.4

121.0

13.0

57.0

70.0

11.3

11.2

22.5

12.4

12.4

Yemen

20.0

20.0

10.0

Gambia

8.0

5.4

13.4

Niger

9.0

4.0

13.0

8.0

Tajikistan

3.1

6.0

3.1

12.2

2.1

2.1

Timor-Leste

1.5

2.6

4.1

8.2

5.0

Djibouti

3.0

3.0

6.0

São Tomé and Principe

0.2

0.2

0.6

1.6


0

0

0

0

8.6

11.3

Chad

0

0

0

0

2.0

Ethiopia

0

0

0

0

70.0

Guinea

0

0

0

0

39.3

39.3

Sierra Leone

0

0

0

0

4.6

4.6

Fragile state total

68.8

89.7

127.8

0.2

286.5

162.8

71.3

% of grand total

54%

71%

60%

1%

58%

44%

23%

128.4

125.6

213.9

23.4

491.3

371

306

Catalytic Fund Total

Source: Fast Track Initiative, www.educationfasttrack.org/financing/catalytic-fund, accessed November 2009.


118 – 8. Global funds and foundations In 2009, 19 of the 29 endorsed countries were fragile states, with an additional 12 set to join by 2011 (Figure 8.1). Twelve other fragile states and territories remain uncovered.4 Figure 8.1. FTI developing country partners with endorsed education sector plans 18

Other developing countries Fragile states

16 14

Fragile states remaining

12 10 8 6 4 2 0 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Fast Track Initiative, www.educationfasttrack.org/financing/catalytic-fund, accessed November 2009.

Climate change funds With developing countries on the front line of climate change, increased attention has been placed on funds that both encourage low carbon development and assist vulnerable states to adapt to the consequences of climate change. Funds are currently far below estimated needs, and, with the exception of the Least Developed Country Fund (LDCF), fragile states are failing to capture these flows. Further, there is a near absence of investment in disaster risk reduction and a dearth of mechanisms for climate change mitigation in fragile states. Given the recognition of the “threat-multiplying” consequences of climate change, both in terms of livelihood vulnerability and political stability, such poor funding is of grave concern. Annex B provides more detail of funding to fragile states.

Market-based funds and the Clean Development Mechanism The Clean Development Mechanism (CDM) allows developed countries with a Kyoto emissions target to invest in development projects that abate emissions in developing countries. Such funds are seen as a potentially valuable source of investment for host countries as carbon markets have grown exponentially over recent years, reaching some USD 60 billion in 2007, of which USD 7.4 billion was captured by the CDM. However, of the 1 894 projects to date under the CDM, only 13 have been in fragile states. Seven states have benefited in total, representing just 1.9% of all CDM activity.5 Of these, Nigeria is by far the largest recipient. Low representation is partly due to the assumed small gains in emission reductions available in such countries, as well as perceptions of investment risk – although the World Bank, among others, has suggested that there are large potential gains for clean energy development in Africa (APF, 2008). Other factors linked to the CDM mechanism itself hinder access by poorer countries. For example, application for CDM approval has been criticised as being too complicated and involving high transaction costs. Lack of finance by low income countries has been identified as a key handicap to the development of small-scale CDM projects. This is partly being addressed by new Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


more flexible procedures, although there is scope for further streamlining. A second major inhibiting factor is the restriction of rural development-based projects to afforestation only. Agriculture, the mainstay of many low income countries, is thus disqualified, while protection of forest, central to any climate change policy, is also excluded. Engagement in carbon markets, particularly by African states, would be greatly increased if the carbon storage and emission reduction roles of these sectors were fully recognised.

Global Environment Facility-managed climate funds Multilateral mechanisms for adaptation have been developed under a range of initiatives, particularly by the World Bank and the UN. Two UN Framework Convention on Climate Change (UNFCCC) funds, held under the auspices of the Global Environment Facility (GEF), focus on the needs of developing countries: 1. The Least Developed Country Fund (LDCF) initially provided resources for low income countries to develop National Adaptation Plans of Action (NAPAs), which are a range of priority projects to respond to urgent adaptation needs. Fortyfive per cent of funding under this scheme has, to date, gone to fragile states.6 Of the 43 fragile states, 27 have received funding for the development of NAPAs, of which approximately half have received further funding for projects. Actual volumes however, remain small, with grants disbursed to fragile states totalling USD 112 million to date – an average of USD 4 million per country. 2. The Special Climate Change Fund, operational since 2005, was created to address longer-term adaptation needs of developing countries. Disbursements to date have been low at USD 91 million in all. Of this funding, only 5% has benefited fragile states, including Pakistan (USD 2.6 million), Ethiopia (USD 1 million) and Zimbabwe (USD 1 million). By contrast, climate change components of the GEF’s Trust Fund have disbursed significantly larger volumes of grants – USD 2.6 billion to date. Again however, only a small fraction has benefited fragile states (4.2% or USD 110 million) due to the fund’s focus on mitigation activities and initially complicated application procedures.

Private development partners While comprehensive data are missing, trends indicate that large and growing resources from private voluntary giving are financing international development, even through the early period of the financial crisis. International private grants reported to the OECD grew by 19% between 2006 and 2007, and 24% over 2007-08 to USD 22.9 billion – outpacing ODA (Figure 8.2.).7 This was largely driven by a significant increase from the US (38%). Representing over 70% of all private giving, the US is the primary source of such finance, outgiving the whole of the EU by some margin (Figure 8.3.). Such figures do not capture all private giving. France, Spain and Norway do not report their private giving to the OECD, but it is estimated to be a combined USD 1.6 billion for 2007 (World Bank, 2009). Nor do the figures include corporate giving. The Hudson Institute estimates that total private international giving from the US alone was USD 36.9 billion in 2007, three times the volumes reported to the OECD DAC (Hudson Institute, 2009). With USD 4.1 billion estimated for the UK, disparities with OECD data is even greater.8


120 – 8. Global funds and foundations Foundations are the most dynamic sources of private funding. There were an estimated 75 000 private foundations in the US, contributing about USD 6.2 billion in 2008 (Foundation Center, 2010). Education and health are key areas of interest. Most of these foundations conduct their work through global, sector or thematic funds, with a few foundations running offices in developing countries (Sulla, 2008). The Bill and Melinda Gates Foundation has driven much of the trend in US giving, with international grants larger than those of the next 14 largest foundations combined (World Bank, 2009). Giving increased from USD 2 billion to USD 2.6 billion between 2006 and 2007, accounting for most of the growth in US foundation funding over the period. Discounting debt relief, this represents approximately 2.6% of OECD DAC ODA, and was larger than ODA disbursements of 10 OECD DAC members in the same year. Figure 8.2. International grants by private voluntary agencies as reported to the OECD


25 000

20 000

15 000

10 000

5 000

0 2000

2001

2002

2003

2004

2005

2006

2007

2008


Figure 8.3. Private giving by the US compared with other countries, 2008 18 000

16 747


16 000 14 000 12 000 10 000 8 000 6 000 3 308

4 000 2 000 0

United States

Total EU members

1 518

1 445

Germany

Canada

642

495

Australia

United Kingdom



Substantial funding from this Foundation to developing countries targets health, with education and relief also increasing. US corporate giving is also on the rise, contributing an estimated USD 2.3 billion in both 2006 and 2007 each year, although two-thirds of this was in the form of goods and services rather than finance (World Bank, 2009).9 Data on European and Asian foundations are far less complete, although trends suggest foundation giving here is also increasing. In Europe, the number of private foundations increased by 54% between 2001 and 2005, amounting to an estimated USD 607 million in 2005 (Marten and Witte, 2008). Australian contributions alone are thought to stand in the region of USD 250 million annually, with contributions from Japanese sources reaching some USD 50 million a year [ibid.]).

Foundation giving to fragile states Aggregate data on the partner countries receiving giving is only available for US foundations.10 Private grants to fragile states have recently declined both in real terms, and as a proportion of total giving.11 Total international private giving in 2008 was 59% higher than in 2005, with private giving to developing countries 57% higher than in 2005 (see Annex B for country details). However, between 2007 and 2008 private giving to developing countries in general fell by 21% between (2007 prices)12 and private giving to fragile states fell even more, by some 70%, over the same period (Figure 8.4.). As a result, 2008 levels of private giving to fragile states are 3% lower than in 2005. As a proportion of global private giving, grants to fragile states thus fell from 17% to only 5% over 2005-08 (from 31% to 12% of all private giving to developing countries). Although the numbers of individual grants disbursed, gradually increased from 442 in 2005 to 491 in 2008, the number of fragile states supported remained consistent between 2005 and 2008 period at around 25. Grants are highly concentrated, with Kenya accounting for USD 533 million, some 68% of all fragile state receipts between 2005 Figure 8.4. United States foundation grants to fragile states, 2005-08 1 000 800

334

300

600

245

200

400 100

0

104

2005

101

2006 grants

2007

2008

200 0

number of grants

Source: The Foundation Center; http://fconline.foundationcenter.org/maps/, accessed 15 November 2009. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

No. of grants


400

122 – 8. Global funds and foundations and 2008. The top five partner countries over the period accounted for 93% (Table 8.3.). Conversely, seven fragile states (Comoros, Equatorial Guinea, Guinea-Bissau, Kiribati, North Korea, Solomon Islands and Timor-Leste) failed to benefit from any funding over the period. Table 8.3. Top 5 fragile state receiving US foundation grants, 2005-08 (2007 prices) Total 2005-08

Grants USD

Kenya

533 049 940

515

Nigeria

78 790 485

334

Uganda

50 346 608

319

Zimbabwe

33 250 472

107

Ethiopia

31 274 893

98

784 450 518

2 171

Fragile states total

No. grants

Source: The Foundation Center, ibid.



Notes 1. Global funds are defined as “partnerships and related initiatives whose benefits are intended to cut across more than one region of the world and in which the partners: (a) reach explicit agreement on objectives; (b) agree to establish a new (formal or informal) organization; (c) generate new products or services; and (d) contribute dedicated resources to the program” (World Bank Independent Evaluation Group). 2. www.theglobalfund.org. 3. See www.educationfasttrack.org/themes/fragile-states/. 4. Afghanistan, Angola, Republic of Congo, Eritrea, Iraq, Kiribati, Myanmar, North Korea, Somalia, Equatorial Guinea, Zimbabwe, West Bank and Gaza. 5. States include Côte d’Ivoire, Kenya, Nepal, Nigeria, Pakistan, Papua New Guinea and Uganda. Calculated from http://cdm.unfccc.int/Statistics/, accessed November 2009. 6. Calculated from www.gefonline.org, accessed November 2009. 7. There are no comprehensive measures of disbursement made by private foundations for development purposes, and procedures used to collect data on activities at different donor institutions differs across time and countries. These, and data disbursement issues, make data comparison and collation extremely problematic. 8. Estimates include giving from foundations, corporations, educational institutions, religious organisations and other private and voluntary organisations. The Hudson Institute further estimates that a 67% increase in private giving in donor countries (excluding the US) from 2006-07 is largely due to better measurement of donations and inclusion of more comprehensive data, rather than a genuine increase in donations. (Hudson Institute, 2009). 9.

By contrast, The Hudson Institute (2009) estimates US corporate giving to international development assistance in 2007 at USD 6.8 billion, up 24% over 2006 levels.

10. See The Foundation Center: http://fconline.foundationcenter.org/. 11. Country-level data are only available for US foundations. However, given that such foundations account for the vast majority of private giving, figures may reflect volumes more widely. 12. Total US foundation international grants, however, actually increased by 5% over the same period, reflecting a possible reprioritisation among foundations.


124 – 8. Global funds and foundations

Bibliography APF (Africa Partnership Forum) (2008), Climate Challenges to Africa: A Call for Action, APF, Paris. Foundation Center (2008) International Grantmaking IV: An Update on U.S. Foundation Trends, Foundation Center, New York. Hudson Institute (2009), The Index of Global Philanthropy and Remittances, Centre for Global Prosperity, Hudson Institute, New York. Leader, N. and P. Colenso (2005) “Aid Instruments in Fragile States”, Poverty Reduction in Difficult Environments Team Working Paper, No. 5, Department for International Development, London. Marten, R. and J. M. Witte (2008) “Transforming Development? The Role of Philanthropic Foundations in International Development Cooperation”, Research Paper Series, No. 10, Global Public Policy Institute, Berlin. ONE (2008), The Data Report 2008: Monitoring the G8 Promise to Africa, ONE, London, www.one.org/report/2010/en/. Pavanello, S. and J. Darcy (2008), “Improving the Provision of Basic Services for the Poor in Fragile Environments”, International Literature Review Synthesis Paper, Humanitarian Policy Group, ODI, London. Sulla, O. (2008), “Philanthropic Foundations and Multilateral Institutions Like the World Bank: Increased Opportunities for Collaboration and ACP Agriculture”, presentation to Brussels Rural Development Briefing Session 6, New Drivers in ACP Rural Development, Brussels. World Bank (2004), World Development Report: Making Services Work for the Poor, World Bank, Washington, DC. World Bank (2009), Global Monitoring Report 2009: A Development Emergency, World Bank, Washington, DC.


9. Private resource flows – 125

Chapter 9 Private resource flows

Private resource flows – such as remittances, foreign direct investment (FDI), and export earnings – are increasingly important for the economies of fragile states. Remittances and FDI, for example, each provide more resources to fragile states than official development assistance, net of debt relief. On the other hand, illicit flows such as tax evasion, criminal activity and bribery, impede economic growth and development, political stability, democracy and sustainable peace. Net transfers to developing countries are actually negative once transnational illicit flows are taken into account. This chapter examines foreign direct investment to fragile states, remittances, trade and illicit flows.


126 – 9. Private resource flows Figure 9.1. summarises the relative importance of foreign direct investment (FDI), remittances and ODA flows to fragile states. Figure 9.1. Comparison of FDI, remittances and aid to fragile states, 2000-08* USD million (current prices)

40 000 35 000

Remittance inflows

30 000

ODA (net debt relief )

25 000

FDI

20 000 15 000 10 000 5 000 0

2000

2001

2002

2003

2004

2005

2006

2007

2008

* For comparative purposes, the figure only includes data for the 29 fragile states for which remittance data is available. Sources: OECD DAC online database; World Bank Development Indicators database; World Bank Migration and Development data; IMF Regional Economic Outlook (various, 2009); UNCTAD (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York.

Foreign direct investment Trends Taken as a whole, FDI to the group of fragile states has grown significantly over the past few years. In 2008 total FDI to the group stood at USD 55.7 billion, an increase of 272% since 2003 and a more than tenfold increase since 2000. The growth rate, since 2003, is slightly higher on average than for other developing economies, which have seen a 234% increase over the same period. However, fragile states still only receive a small proportion of the FDI flowing into developing economies overall (Figure 9.2.). Growth in FDI has also been highly uneven over recent years, and this volatility is more pronounced in the group of fragile states than in other developing economies. These increases in FDI are, to a large extent, driven by investment in natural resource production. The nine oil-producing nations in the list of fragile states1 accounted for 79% of the increase in FDI to the group in the years 2003-08. In fact 69% of this increase went to just two oil-producing states: Angola and Nigeria. That the presence, or potential presence, of exploitable natural resources is a major determinant of FDI levels is further reinforced by the fact that four out of five of the biggest beneficiaries of FDI among fragile states are oil-producing nations. There is a similar relationship between an economy’s natural resource production and the level of dependency on FDI (measured by FDI as a percentage of GDP). The top five most FDI dependent nations among the fragile states include the oil-producing nations of DRC and Angola as well as Guinea, which is heavily dependent on bauxite mining, and São Tomé and Principe where significant oil exploration is being undertaken. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Figure 9.2. Trends in FDI to fragile states and other developing economies, 2003-08 700

1 FDI to other developing economies 0.9

FDI to fragile states 600

Annual % change to other developing economies 0.8

Annual % change to fragile states

0.7

0.6

400

0.5 300

0.4

Annual % change in FDI inflows

USD billion (current prices)

500

0.3

200

0.2 100 0.1

0

0 2003

2004

2005

2006

2007

2008

Sources: UNCTAD (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York; UNCTAD Foreign Direct Investment database, www.unctad.org/Templates/Page.asp?intItemID=1923.

Table 9.1. Top 5 fragile states receiving FDI, 2008

Table 9.2. Most FDI-dependent fragile states, 2008

Country

FDI in 2008 (USD million)

FDI in 2008 (as % of GDP)

Nigeria*

20 279

Guinea

31.4%

Angola*

15 548

DRC*

25.2%

Pakistan

5 438

Djibouti

24.4%

DRC*

2 622

Angola*

21.7%

Sudan*

2 601


18.9%

*Oil-producing nation. Sources: UNCTAD (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York; UNCTAD Foreign Direct Investment database, www.unctad.org/Templates/ Page.asp?intItemID=1923.

*Oil-producing nation. Sources: UNCTAD (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York; UNCTAD Foreign Direct Investment database, www.unctad.org/Templates/ Page.asp?intItemID=1923.


128 – 9. Private resource flows Of these five countries, both DRC and Djibouti have maintained FDI levels at more than 20% of GDP in each of the three years between 2006 and 2008. In 2008, total FDI flows for all economies fell for the first time since 2003 as a result of the global financial crisis (UNCTAD, 2009). Investment in fragile states ran counter to this overall trend with FDI flows to fragile states increasing by one-third compared to 2007. However, the data show a divergence between investment flows to African fragile states and flows to fragile states in other regions. In 2008, FDI to African fragile states grew by almost 44%, whereas FDI to non-African fragile states declined by 8.6%. In fact, FDI to non-African fragile states has shown markedly slower growth than to African fragile states since the beginning of the decade (Figure 9.3.). Preliminary data on FDI inflows and merger and acquisition activity for a number of countries in the first quarter of 2009 suggest that FDI to Africa as a whole has declined sharply, by 36% in 2009, echoing an overall fall in FDI to developing countries by 34% over the same period (AfDB-OECD, 2010). The slowdown in the global economy was accompanied by falling demand for commodities, which has in turn reduced capital investment in commodity-related sectors. This is likely to affect several fragile states in Africa, where many new natural resource exploration and exploitation projects that had been started in response to the surge in global commodity prices may be postponed or cancelled (UNCTAD, 2009). As for cross-border mergers and acquisitions, they fell in Africa by 73% to USD 5.7 billion, echoing a global fall of 66% (AfDB-OECD, 2010). Figure 9.3. FDI trends in African and non-African fragile states, 2000-08 60

50

USD billion (current prices)

FDI to African fragile states FDI to non-African fragile states 40

30

20

10

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

Sources: UNCTAD (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York; UNCTAD Foreign Direct Investment database, www.unctad.org/Templates/ Page.asp?intItemID=1923.



Volatility of FDI Although FDI to the group of fragile states as a whole has grown every year this decade, this aggregation masks the significant volatility of FDI flows at the level of individual countries. Figure 9.4. shows how FDI has changed in four countries compared with 2000 as a baseline. This marked volatility is typical of most fragile states; many countries experience very large fluctuations in FDI levels from year to year. For example, FDI to Equatorial Guinea fell by USD 437 million between 2007 and 2008, reducing FDI as a percentage of GDP from 17% to 8.9%. Figure 9.4. FDI volatility in fragile states, 2000-08 900 Cameroon

800

Ethiopia

Tonga

Chad

Foreign direct investment (FDI in 2000

700 600 500 400 300 200 100 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

-100 -200

Sources: UNCTAD (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York; UNCTAD Foreign Direct Investment database, www.unctad.org/Templates/ Page.asp?intItemID=1923.

Exports and imports For many fragile states, the growth of imports2 has somewhat outstripped the growth of exports in the years since 2005. In approximately two-thirds of fragile states, exports fell as a percentage of GDP between 2005 and 2008 (Figure 9.5.). Imports rose in more than half the fragile states over the same period (Figure 9.6.). Despite this imbalance between the growth rates of imports and exports, the number of fragile states with a positive trade gap (i.e. exports greater than imports) stayed relatively constant between 2005 and 2008, with approximately one-third of fragile states having a trade surplus. However, according to recent IMF projections, the trade position of several fragile states is set to worsen during the current global economic crisis. Projections suggest that five countries which recorded a higher level of exports than imports in 2008 will see that position reversed in 2009.3 Thus of the nine fragile states that recorded a trade surplus in 2008, five are expected to record a trade deficit in 2009 (Annex B).


130 – 9. Private resource flows Following on from the “two gap model”4 of Chenery and Strout (1996) a number of studies suggest that aid is particularly effective in situations where the partner country has a negative trade gap or is otherwise suffering from adverse terms of trade.5 There is some evidence that, among the group of fragile states, the largest beneficiaries of aid (measured as percentage of GDP)6 are also those with the greatest negative trade gap. In fact, of the five fragile states with the largest negative trade gap in 2007, three were among Figure 9.5. Change in export share in GDP in fragile states, 2005 and 2008 14 Number of fragile states (n=32)

12 10 8 6 4 2 0 More than -10% -10% to -5%

-5% to -1%

-1% to 1%

1% to 5%

5% to 10%

More than 10%

Change in export % of GDP between 2005-2008 Sources: IMF (2009a), Regional Economic Outlook – Sub-Saharan Africa, IMF, Washington, DC; IMF (2009b), Regional Economic Outlook – Middle-East and Central Asia, IMF, Washington, DC; IMF (2009c), Regional Economic Outlook – Asia and Pacific, IMF, Washington, DC.

Figure 9.6. Change in import share in GDP in fragile states, 2005 and 2008

Number of fragile states (n=32)

8 7 6 5 4 3 2 1 0

More than -10% -10% to -5%

-5% to -1%

-1% to 1%

1% to 5%

5% to 10%

More than 10%

Change in import % of GDP between 2005-2008 Sources: IMF (2009a), Regional Economic Outlook – Sub-Saharan Africa, IMF, Washington, DC; IMF (2009b), Regional Economic Outlook – Middle-East and Central Asia, IMF, Washington, DC; IMF (2009c), Regional Economic Outlook – Asia and Pacific, IMF, Washington, DC. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


the top five partner countries receiving aid in that year and four were among the top ten (Table 9.3). Furthermore, of the five fragile states with the largest positive trade gap, four of them were among the five partner countries receiving the lowest levels of aid among the group of fragile states (Table 9.4). Table 9.3. Fragile states with the largest negative trade gap in 2007

Country

Exports minus imports in 2007 (% of GDP)

Liberia*

-162.5

Table 9.4. Fragile states with the largest positive trade gap in 2007

Country

Exports minus imports in 2007 (% of GDP)

Equatorial Guinea*

51.6

Afghanistan*

-66.0

Angola*

31.0

São Tomé & Principe*

-57.3

Iraq

13.6

Tajikistan

-48.6

Nigeria*

10.0

Burundi*

-39.7

Côte d’Ivoire*

5.9

* Among top 5 partner countries receiving aid.

* Among bottom 5 partner countries receiving aid.

Sources: IMF (2009a), Regional Economic Outlook – SubSaharan Africa, IMF, Washington, DC; IMF (2009b), Regional Economic Outlook – Middle-East and Central Asia, IMF, Washington, DC; IMF (2009c), Regional Economic Outlook – Asia and Pacific, IMF, Washington, DC.

Sources: IMF (2009a), Regional Economic Outlook – SubSaharan Africa, IMF, Washington, DC; IMF (2009b), Regional Economic Outlook – Middle-East and Central Asia, IMF, Washington, DC; IMF (2009c), Regional Economic Outlook – Asia and Pacific, IMF, Washington, DC.

Remittances Trends Global remittances have become increasingly significant over the past decade, outstripping FDI and development assistance combined. Intra-regional South-South remittances are also significant.7 Official remittances to developing countries rose to USD 338 billion in 2008, a 19% nominal increase over 2007 (USD 285 billion) and a fourfold increase over 2000 levels (USD 83.5 billion) (Ratha and Mohapatra, 2009; Ratha, Mohapatra and Silwal, 2009a, 2009b). While information is not available for a number of fragile states, available data indicate that remittances to the group of fragile states more than quadrupled from USD 7.1 billion to over USD 31 billion between 2000 and 2008 respectively. While an increased use of formal transfer mechanisms in some regions (e.g. South America) may inflate these figures, official records continue to be a considerable underestimation of total remittances (UNDP, 2009). Recent estimates, for example, suggest that 73% of remittance flows to sub-Saharan Africa are through unofficial channels (UNECA/OECD, 2008). The bulk of flows do not go to fragile or low income countries. Between 2000 and 2008, fragile states accounted for approximately 9% of all remittances to developing countries, although they constitute 18% of the developing country population.8 However, with the exception of 2008, annual growth rates of remittances to these states have marginally outperformed the global average (Figure 9.7). Sub-Saharan Africa has benefited from one of the highest growth rates (second only to Europe/Central Asia), quadrupling volumes between 2000 and 2008 in nominal terms. This is reflected in Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

132 – 9. Private resource flows flows to fragile states: those in sub-Saharan Africa have witnessed growth rates of 370% compared to 232% in other fragile states over the period.9 However, with approximately three quarters of remittances to sub-Saharan Africa coming from the US and Europe (UNDP, 2009), the region has been badly affected by the economic downturn. Figure 9.7. Fragile states’ increasing share in developing country remittances, 2003-08

USD bilion (current prices)

40%

Remittances to other developing countries Remittances to fragile states Annual % growth to fragile states Annual % growth to developing countries

300 250

35% 30% 25%

200

20%

150

15%

100

10%

50 0

5% 2003

2004

2005

2006

2007

2008(e)

0%

Annual % growth of remittance flows

350

Source: World Bank Migration and Remittances data, http://worldbank.org/prospects/migrationandremittances, accessed November 2009.

Remittance inflows annual growth rate

Figure 9.8. Annual growth rates in remittances to African fragile states, 2003-08 70% 60% 50% 40% 30% 20% 10% 0% 2003

2004

2005

SSA fragile states

2006

2007

2008

Non-SSA fragile states

Source: World Bank migration and remittances data, http://worldbank.org/prospects/migrationandremittances, accessed November 2009.

Significance of remittances for fragile states While volumes of remittance flows to fragile states are small in comparison to larger economies such as India, China and Mexico, they are significant as a proportion of GDP. In aggregate, for countries where data are available, remittances as a proportion of GDP in 2008 were double for fragile states (4%) than for developing countries in general (1.9%). This proportion has also been increasing over time (Figure 9.9.). For some fragile states, remittances are particularly significant. Tajikistan and Tonga, for example, are among the largest beneficiaries of all developing countries with remittances exceeding one-third of GDP in 2008 (Tajikistan reaching almost 50%), with Nepal (22%) and Haiti (18%) also benefiting considerably. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Over the last eight years remittances have consistently outpaced ODA to fragile states, and have also exceeded levels of foreign direct investment in six of those eight years. The comparatively lower volatility of remittances provides an additional macroeconomic benefit, although still subject to cyclical fluctuations (see text below) (Buch, Kuckulenz and Le Manchec, 2002). This role has been recognised by a number of fragile states: Guinea-Bissau, São Tomé and Principe and Timor-Leste have emphasised the positive developmental impacts of international migration in their PRSPs, with the role of remittances highlighted in the development strategies of Ethiopia, Nepal, DRC, Liberia and Pakistan (Luthria, 2009; Black and Sward, 2009). While the role of remittances in sustaining livelihoods is well documented,10 the positive investment effects of remittances are complex and far from automatic. Local institutions structure the relationship between remittances and growth. Excessively high transaction costs in sub-Saharan Africa – up to 25% of the sum – are linked to widespread government practices of restricting the institutions able to offer remittance transfers. Payout locations are thus few, distant and dominated by a handful of transfer companies.

Remittances as % GDP

Figure 9.9. Remittances to fragile states as a proportion of GDP, 2000-08 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2000

2001

2002

2003

2004

2005

All developing countries

2006

2007 2008(e)

Fragile states

Sources: WDI Indicators, http://data.worldbank.org/; World Bank migration and remittances data (ibid.).

Figure 9.10. Remittances as a percentage of GDP in fragile states, 2008 Number of fragile states (n=300)

16 14 12 10 8 6 4 2 0

10%

Remittances as % GDP in 2008

Sources: WDI Indicators, World Bank Migration and Remittances data (ibid.). Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

134 – 9. Private resource flows By expanding the types of viable institutions to include post offices and microfinance institutions, payout points would more than double, dramatically increasing access and lowering transaction costs (IFAD, 2009). The emerging role of mobile phones in remittances may also be of relevance in fragile states. Evidence for the impact of remittances on long-term economic growth is mixed. Poor political and economic conditions in source countries can deter transfers (Massey et al., 1998). Growth is ultimately determined by local institutional structures (UNDP, 2009), structures typically absent or underdeveloped in fragile states.

Outlook Impacts of the economic downturn on remittances became evident in the last quarter of 2008, and continued into 2009. At the time of writing, forecasts of remittances to developing countries for 2009 were revised to a retraction of 6.1%, with recovery to shallow growth in 2010 and 2011 (Ratha and Mohaptra, 2009; Ratha, Mohapatra and Silwal, 2009a, 2009b). Exposure, however, varies. Countries in Central Asia (e.g. Tajikistan) that are dependent on European and Russian remittances will be hit harder, as will the subSaharan African region with its dependence on the United States and Europe. Conversely, South Asian countries such as Nepal and Pakistan are projected to see continued growth, at least in the short-term, in remittances from Gulf countries. Importantly, given that the numbers of migrants have been relatively unaffected by the crisis, the predicted decline in remittances to developing countries is projected to be far less than that of other sources of private flows (see Chapter 1, Box 1.1.). Net private capital inflows to developing countries fell from USD 1.2 trillion to USD 707 billion between 2007 and 2008, and are projected to fall to USD 363 billion in 2009 (World Bank, 2009). Remittances will therefore become even more important for external financing for many developing countries.

Illicit flows Illicit flows are widely considered an impediment not only to economic growth and development, but also to political stability, democracy, and sustainable peace. Illicit cross-border flows – flows of money associated with (i) tax evasion, (ii) criminal activity such as drug trafficking, and (iii) corruption and theft by government officials – represent a huge net outflow of capital from developing countries. This limits the domestic resources available to finance development, leads to instability and exacerbates poverty. Illicit flows account for over USD 1 trillion, or more than ODA and FDI combined, every year. Approximately half of all such illicit flows originate from developing and transitional economies,11 with latest estimates putting the value between USD 858 billion to USD 1.06 trillion in 2006, growing at an average rate of 18.2% a year (Kar and CartwrightSmith, 2008).12 Net transfers to developing and transition countries are therefore negative – by USD 700 billion according to one UN estimate (UN, 2008) – and continue to decline. Measured against the flow of ODA in 2006, poor countries in aggregate are losing close to USD 10 dollars for every USD 1 dollar they receive in aid (Kar and Cartwright-Smith, 2008).



Tax evasion Tax evasion – through mispricing practices – accounts for 60-65% of all illicit flows and costs the developing world USD 160 billion annually (Baker, 2005; Christian Aid, 2008b).13 Illegal capital flight from developing countries represents 6 to 8.7% of their GDP, while as a comparison tax revenues for the poorest countries amounts to about 13% of GDP. Of this, transfer pricing and false invoicing result in USD 122 billion of lost taxes each year (Christian Aid, 2009).14 These lost revenues are greater than current global aid levels (USD 114.5 billion in 2008) and several times higher than World Bank estimates of costs to achieve the MDGs – an additional USD 40 to 60 billion a year. Losses from developing country wealth being held offshore by private individuals is also significant – an estimated USD 64-124 billion (Oxfam, 2009). A majority of the 72 tax havens that currently exist around the world are housed in Western financial institutions that cater to clients from both developing and developed countries (Africa Partnership Forum, 2009). Capital flight – “an outflow of capital that is not part of normal commercial transactions from a country where capital is relatively scarce” (Epstein, 2005) can be motivated by tax evasion or legitimate risk management motives. It is most severe in sub-Saharan Africa, which has a larger share of its private wealth held abroad than any other region. Should the continent be able to attract this capital back, domestic private capital would rise by over two-thirds of its current value. Fragile states constitute half of the top ten low-income countries that lose tax revenue from bilateral trade mispricing15 to the EU and the US.16 These five fragile states accounted for 76% and 63% of all fragile states’ losses in taxes for exports going to the US and EU respectively in 2008 (Christian Aid, 2009). Figure 9.11. Tax revenue loss to developing countries due to trade mispricing, 2002-06 145 000 135 000

USD million

125 000 115 000 105 000

Non-normalised

95 000

Normalised

85 000 75 000 65 000 55 000 2002

2003

2004

2005

2006

Source: Hollingshead, Ann (2010), “The Implied Tax Revenue Loss from Trade Mispricing”, Global Financial Integrity, Washington, DC.

Criminal activity The United Nations Office on Drugs and Crime (UNODC) estimates that the amount of money laundered globally in one year is 2-5% of global GDP, or between USD 800 billion and USD 2 trillion (current prices) (UNODC, 2009d). In the Democratic Republic of Congo (DRC), 90% of total gold exports are estimated to go undeclared (Global Witness, 2009). Similarly, the drug economy in Afghanistan in 2006 was still responsible for almost 50% of the nation’s entire gross national product (GNP) (van Ham Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

136 – 9. Private resource flows and Kamminga, 2006). More recently, the 2009 Afghan Opium Survey found that the number of poppy-free provinces has increased from 18 to 20, accompanied by a decline in production (UNODC, 2009b). In contrast, Myanmar’s opium cultivation has increased by 50% since 2006, making the country the second largest producer of opium after Afghanistan. More than 1 million people are now involved in poppy growing (UNODC, 2009c) (Figure 9.12. and Box 9.1.).

Corruption and theft by government officials Corruption – the abuse of entrusted authority (public or private) for illegitimate private gain – and illicit flows are highly correlated (Le and Rishi, 2006). Given that fragile states constitute the majority of the worst performing countries in the 2008 Corruption Perceptions Index (CPI),17 illicit flows are also expected to be a concern for this group of countries (Figure 9.13.).

Figure 9.12. Opium poppy cultivation in the major cultivating countries, 1994-2008 300 000

Hectares

250 000 200 000 150 000 100 000 50 000 0

94

95

96

97

98

Afghanistan

99

00

01

Myanmar

02

03

04

05

06

07

08

Lao PDR

Source: UNODC (2009a), World Drug Report 2009, UNODC, New York.

Box 9.1. West Africa – the new hub for drug trafficking? West Africa has become one of the major transit zones for narcotics, although local production and consumption is low. The United Nations Office on Drugs and Crimes (UNODC) estimates that 50 tonnes of South American drugs with an annual value of about USD 2 billion (EUR 1.35 billion) transit through West Africa each year; 98% is then re-exported to Europe. The amount of cocaine transiting through West Africa increased from 273kg in 2001 to 14.5 tonnes in 2007 (Kirschke, 2008). Since money laundering is a crucial part of the success of cash-intensive drug trafficking, West Africa is also highly vulnerable to money-laundering activities due to the anonymity and ubiquity of cash in Western African countries. Burkina Faso recently tabled the issue at a United Nations Security Council Meeting, emphasising that these activities might be a genuine threat to security in the region. Source: UNODC (2009a).



According to Transparency International, corrupt money associated with bribes received by public officials from developing and transition countries can be conservatively estimated at USD 20 billion to USD 40 billion per year, equivalent to 20%-40% of flows of ODA (Transparency International, 2009). In Africa, corruption is estimated to cut down GDP by 25% (Africa Union, 2004, cited in Smith, Pieth and Jorge, 2007). “The loot-seeking elites that control parts of Africa illicitly send capital out of the region to the tune of USD 20 to USD 28 billion per year, which roughly equals the amount of ODA going to the region” (Collier, 2008). Zaire’s Mobutu Sese Seko has stolen an estimated USD 5 billion over the period 1965-1968 (equivalent to an average of 1.8% of GDP annually) and Nigeria’s Sani Abacha has stolen between USD 2-5 billion over 1993-98 (UNODC, 2007). As part of an international effort to recover stolen assets, Nigeria recovered USD 500 million from Switzerland in 2005 and USD 149 million from Jersey (UNODC, 2007). The UK authorities agreed in July 2006 to return USD 1.9 million allegedly stolen by Diepreye Alamieyeseigha, governor of the oil-rich Bayelsa State, to Nigeria. DRC estimates that Swiss banks still hold USD 7.9 billion allegedly stolen by Mobutu. CHF 8 million (approximately USD 7 million) have been frozen in Switzerland since Mobutu’s move into exile in 1997, and a procedure is still underway for DRC’s recovery of the funds. Outside Africa, Indonesia’s General Suharto stole an estimated USD 15-35 billion between 1967 and 1998 Figure 9.13. Corruption index for fragile states, 2008 Kiribati Rwanda Djbouti Solomon Islands Niger Togo São Tomé and Príncipe Nigeria Nepal Uganda Ethiopia Pakistan Eritrea Comoros Tonga Liberia Yemen Cameroon Timor-Leste Kenya Papua New Guinea Tajikistan Côte d’Ivoire Central African Republic Sierra Leone Guinea-Bissau Gambia Congo, Republic Burundi Angola Zimbabwe Equatorial Guinea Congo, Democratic Republic Sudan Guinea Chad Afghanistan Haiti Myanmar Iraq Somalia

0.0

0.5

1.0

1.5

2.0

2.5

Source: Transparency International (2008), 2008 Corruption Perceptions Index, Transparency International, Berlin. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

3.0

138 – 9. Private resource flows and Haiti’s Jean-Claude Duvalier stole USD 300-800 million between 1971 and 1986. Duvalier’s assets in Switzerland were frozen in 2002 but the recovery process is still ongoing. More recently, Saddam Hussein made an estimated USD 4.4 billion from kickbacks during the seven years of the Oil for Food programme (US General Accounting Office, 2004).

Box 9.2. Corruption in Indonesia’s Timber Industry Indonesia’s government loses USD 2 billion annually due to corruption in the nation’s timber industry. A report by Human Rights Watch report (2009) found that more than half of all Indonesian timber was logged illegally between 2003 and 2006. In addition to not paying taxes, the timber industry – worth USD 6.6 billion in 2007 – benefits from unreported subsidies and “transfer pricing”, a tax evasion scam used by exporters. Providing context for these figures, the World Bank estimates that this USD 2 billion annual loss would enable the country to supply 100 million of its poorest citizens with a basic health care package for nearly two years. Despite recent steps by President Susilo Bambang Yudhoyono to combat corruption, significant resistance remains from some high-level officials, and corruption within the country’s law enforcement and judiciary system ensure that those who profit from the illegal industry are rarely held accountable. Figure 9.14. Lost forestry taxes (using ITTO production data), 2003-06

USD billion

2.5 2.0

Revenue lost to transfer pricing

1.5

Revenue lost to illegal logging

1.0

Revenue lost to unacknowledged subsidy

0.5

Actually assessed taxes

0.0 2003

2004

2005

2006

Source: Human Rights Watch (2009), “Wild Money: The Human Rights Consequences of Illegal Logging and Corruption in Indonesia’s Forestry Sector”, Human Rights Watch, New York.



Notes 1. Angola, Cameroon, Chad, DRC, Equatorial Guinea, Iraq, Nigeria, Sudan and Yemen. 2.

Measured as a percentage of GDP.

3. Cameroon, Chad, Iraq, Nigeria and Sudan. 4. This model suggests that growth will be constrained by a lack of foreign exchange in countries that have a negative trade gap. It has been widely used to suggest that aid is especially helpful in such countries as a means of compensating for this deficit. 5.

For example, Chauvet and Guillaumont (2004); Collier and Dehn (2001).

6. ODA net of debt relief, measured as a percentage of GDP. 7. See, for example, OECD (2009), African Economic Outlook. 8.

32% if China and India are excluded.

9.

Further, based on available data, growth rates of remittance inflows to sub-Saharan African fragile states have eclipsed overall regional remittance growth rates since 2006.

10.

For a recent overview, see Yang (2009). Remittances are used for both consumption and investment purposes such as health, education and business entrepreneurship (Adams and Richards, 2005; Cox, Edwards and Ureta, 2003; Yang, 2008). Evidence is emerging regarding the role of remittances in both ex-ante and ex-post disaster risk reduction (Mohapatra et al., 2009). Even where migration has been driven by conflict, such as Guinea-Bissau and Tajikistan, remittances have helped war-affected communities (UNDP, 2008).

11.

For example, countries of Central and Eastern Europe and the Former Soviet Union.

12. This represents an increase over previous estimates of USD 500-800 million (Baker, 2005). 13.

30-35% is attributed to criminal activities and 3% is due to bribery and theft by government officials (Baker, 2005).

14. A transfer price is the price paid for an exchange of goods and services between affiliates of the same transnational company (TNC). Deals between related TNC affiliates account for 60% of global trade. Falsified invoicing in its most common form is when those TNCs in the developing world importing goods will inflate the price they report as having to pay foreign suppliers in order to report lower profits and hence pay lower tax. It is estimated that around 60% of trade transactions in Africa are mispriced by an average of more than 11% (Oxfam, 2008). 15. Trade mispricing is a mixture of transfer pricing (see previous note) as well as where goods and commodities are exported at knockdown prices from the country where they are produced to depress profits artificially and avoid tax. The company buying is then able to sell them on at their true market value and split the difference between the artificial and true price with the original seller. Another component is goods from the industrialised world being sold to developing countries at hugely inflated prices to enable the company that is the ‘buyer’ to shift large amounts of capital abroad while reducing the company profit margin and minimising its tax liability (Christian Aid, 2009)


140 – 9. Private resource flows 16. In 2007 the top 10 lost tax revenue low-income countries were: Nigeria, Pakistan, Vietnam, Bangladesh, Côte d’Ivoire, Ghana, Kenya, Cambodia, Chad and Senegal (fragile states in bold). 17. The Transparency International CPI index rated 180 countries in 2008 with each country scoring from a scale of 0 (most corrupt) to 10 (least corrupt). Fragile states (of which scores were available for 41) had an average corruption score of 2.1 (Transparency International, 2008).



Bibliography Adams, J. and H. Richards (2005), “Remittances, Household Expenditure and Investment in Guatemala”, Policy Research Working Paper, No. 3532, World Bank, Washington, DC. African Development Bank and OECD (2010), African Economic Outlook 2010, OECD, Paris. Africa Partnership Forum (2009), “Peace and Security: Drug Trafficking, Piracy and Money Laundering – The International Dimension of Organised Crime”, Discussion Paper prepared for 12th Meeting of the Africa Partnership Forum, Africa Partnership Forum, Rome. Baker, R. (2005), Capitalism’s Achilles Heel: Dirty Money and How to Renew the FreeMarket System, John Wiley and Sons Ltd, Chichester. Black, R. and J. Sward (2009), “Migration, Poverty Reduction Strategies and Human Development”, Human Development Research Paper, No. 38, Human Development Report Office, UNDP, New York. Boucher, A.J., W.J. Durch, M.Midyette, S. Rose and J. Terry (2007), “Mapping and Fighting Corruption in War-Torn States: Report from the Project on Rule of Law in Post-Conflict Settings”, Stimson Center Report, No. 61, Henry L. Stimson Center, Washington, DC. Buch, C., M. Kuckulenz and M. Le Manchec (2002), “Worker Remittances and Capital Flows”, Working Paper, No. 1130, Kiel Institute for World Economics, Kiel. Chauvet, L. and P. Guillaumont (2004), Aid and Growth Revisited: Policy, Economic Vulnerability and Political Instability, World Bank, Washington, DC. Chenery, H.B and A.M. Strout (1996), “Foreign Assistance and Economic Development”, The American Economic Review, Vol. 56, No. 4. Christian Aid (2008a), Stripping the Riches, Christian Aid, London. Christian Aid (2008b), Death and Taxes: The True Toll of Tax Dodging, Christian Aid, London. Christian Aid (2009), False Profits: Robbing the Poor to Keep the Rich Tax-Free, Christian Aid, London. Collier, P. (2008), “A Chance to Crack Down on Africa’s Loot-Seeking Elites”, The Guardian, 7 October 2008. Collier, P. and J. Dehn (2001), Aid, Stocks, and Growth, World Bank, Washington, DC. Collier, P., A. Hoeffler and C. Pattilo (2001), “Capital Flight as a Portfolio Choice”, World Bank Economic Review, Vol. 15, No.1.


142 – 9. Private resource flows Cox Edwards, A. and M. Ureta (2003), “International Migration Remittances, and Schooling: Evidence from El Salvador”, Journal of Development Economics, Vol. 72, No. 2. Epstein, Gerald A. (ed.) (2005), Capital Flight and Capital Controls in Developing Countries, Edward Elgar, Cheltenham. Global Witness (2009), “Faced with a Gun, What Can You Do?: War and the Militarisation of Mining in Eastern Congo”, A Global Witness Report, Global Witness, London. Ham, P. van and J. Kamminga (2006), “Poppies for Peace: Reforming Afghanistan’s Opium Industry”, The Washington Quarterly, Vol. 30, No. 1. Hollingshead, Ann (2010), “The Implied Tax Revenue Loss from Trade Mispricing”, Global Financial Integrity, Washington, DC. IFAD (International Fund for Agricultural Development) (2009), Sending Money Home to Africa: Remittance Markets, Enabling Environment and Prospects, IFAD, Rome. IMF (International Monetary Fund) (2009a), Regional Economic Outlook – Sub-Saharan Africa, IMF, Washington, DC. IMF (2009b), Regional Economic Outlook – Middle East and Central Asia, IMF, Washington, DC. IMF (2009c), Regional Economic Outlook – Asia and Pacific, IMF, Washington, DC. Kar, D. and D. Cartwright-Smith (2008), Illicit Financial Flows from Developing Countries: 2002-2006, Global Financial Integrity, Washington, DC. Kirschke, Joseph (2008), “The Coke Coast: Organised Crime and Extremism in West Africa”, World Politics Review. Le, Q.V. and M. Rishi (2006), “Corruption and Capital Flight: An Empirical Assessment”, International Economic Journal, Vol. 20, No. 4. Luthria, M. (2009), “The Importance of Migration to Small Fragile Economies”, Human Development Research Paper, No. 55, Human Development Report Office, UNDP, New York. Massey, D. S., J. Arango, G. Hugo, A. Kouaouci, A. Pellegrino and J. E. Taylor (1998), Worlds in Motion: Understanding International Migration at the End of the Millennium, Oxford University Press, New York. Mohapatra, S., Joseph, G. and D. Ratha (2009), “Remittances and Natural Disasters. Ex-post Response and Contribution to Ex-Ante Preparedness”, Policy Research Working Paper, No. 4972, World Bank, Washington, DC. OECD (2009), African Economic Outlook, OECD, Paris Oxfam (2009), Tax Haven Crackdown Could Deliver $120bn a Year to Fight Poverty, Oxfam International press release, www.oxfam.org/en/pressroom/pressrelease/2009-03-13/ tax-haven-could-deliver-120bn-year-fight-poverty. Pieth, M. (ed.) (2008), Recovering Stolen Assets, Basel Institute on Governance, Basel. Ratha, D. and S. Mohapatra (2009), “Revised Outlook for Remittance Flows 2009-2011”, Migration and Development Briefs, No. 9, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC.



Ratha, D., S. Mohapatra and A. Silwal (2009a), “Outlook for Remittance Flows 20092011”, Migration and Development Briefs, No. 10, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC. Ratha, D., S. Mohapatra and A. Silwal (2009b), “Migration and Remittance Trends 2009”, Migration and Development Briefs, No. 11, Migration and Remittances Team, Development Prospects Group, World Bank, Washington, DC. Smith, J., Pieth, M. and G. Jorge (2007), “The Recovery of Stolen Assets: A Fundamental Principle of the UN Convention against Corruption”, U4 Anti-Corruption Resource Centre Brief, No. 2002:2, U4 Anti-Corruption Resource Centre, Bergen. Transparency International (2008), 2008 Corruption Perceptions Index, Transparency International, Berlin, www.transparency.org/news_room/in_ focus/2008/cpi2008/ cpi_2008_table. Transparency International (2009), 2009 Global Corruption Report: Corruption and the Private Sector, Transparency International, Berlin. UN (United Nations) (2008), World Economic Situations and Prospects 2008, UN, New York. UNCTAD (United Nations Conference on Trade and Development) (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York. UNDP (United Nations Development Programme) (2008), Crisis Prevention and Recovery Report 2008: Post-Conflict Economic Recovery, Enabling Local Ingenuity, UNDP, New York. UNDP (2009), Human Development Report 2009: Overcoming Barriers: Human Mobility and Development, UNDP, New York. UNECA (United Nations Economic Commission for Africa)/OECD (2008), Development Finance in Africa: From Monterrey to Doha, UNECA, Doha. UNODC (United Nations Office on Drugs and Crime) (2007), “Stolen Asset Recovery Initiative (StAR): Challenges, Opportunities and Action Plan”, United Nations, Vienna; World Bank, Washington, DC. UNODC (2009a), World Drug Report 2009, UNODC, New York, www.unodc.org/documents/wdr/WDR_2009/Executive_summary_LO-RES.pdf. UNODC (2009b) Afghan Opium Survey 2009, UNODC, New York, www.unodc.org/unodc. en/drugs/afghan-opium-survey.html. UNODC (2009c) Myanmar: UN Reports Worrisome Rise in Opium Cultivation, UNODC, New York, www.un.org/apps/news/story.asp?NewsID=33236&Cr=unodc&Cr1=. UNODC (2009d), Money Laundering and Globalization, UNODC, New York, www.unodc. org/unodc/en/money-laundering/globalization.html. US General Accounting Office (GAO) (2004), “Recovering Iraq’s Assets, Preliminary Observations on U.S. Efforts and Challenges”, testimony presented before the Subcommittee on Oversight and Investigations, Committee on Financial Services, House of Representatives, Document reference no. GAO-04-579T, GAO, Washington, DC. Vestergaard, J. and M. Højland (2009), Combating Illicit Financial Flows from Poor Countries. Estimating the Possible Gains, Danish Institute for International Studies, Copenhagen.


144 – 9. Private resource flows Yang (2008), “International Migration, Remittances, and Household Investment: Evidence from Philippine Migrants’ Exchange Rate Shocks”, The Economic Journal, Vol. 118, No. 528. Yang (2009), “International Migration and Human Development”, Human Development Research Paper, No. 29, Human Development Report Office, UNDP, New York. World Bank (2009), Global Development Finance: Charting a Global Recovery, World Bank, Washington, DC.


10. Domestic revenue – 145

Chapter 10 Domestic revenue

Although external resources are important for development financing, adequate domestic resources are essential for sustaining development processes and strengthening state-society relations in the long run. A revenue collection rate of 15% of GDP is considered the minimum needed to cover basic state functions. Eight fragile states currently fall short of this threshold, and the financial crisis is expected to erode much of the progress that has been made, leaving significant spending gaps in many fragile state budgets. This chapter analyses trends in domestic revenues in fragile states, with particular attention to low levels of government revenue drawn from narrow tax bases. This chapter also examines the affect of foreign aid and corruption on revenue performance.


146 – 10. Domestic revenue

Trends in domestic revenues There has been a gradual improvement in the revenue-raising capability of developing nations overall over the past few years. African Monitor (2009) notes that average government revenue in sub-Saharan Africa rose from 20.8% of GDP in 2003 to 24.7% in 2008. This trend of a gradual rise in the rate of revenue-to-GDP has been mirrored in developed economies, with average government revenues in OECD member states rising from 29.9% in 2003 to 33% in 2008. Fragile states have also experienced similar growth, albeit from a much lower base; over the same period government revenues in African fragile states rose from 13.8% of GDP to 17.7%. At the level of individual countries it is clear that, with a few exceptions, fragile states are characterised by lower-than-average levels of government revenues (Table 10.1.). For example, in 2008, 21 of the 28 African fragile states recorded government revenues of less than the average for sub-Saharan Africa. Afghanistan, Ethiopia and Pakistan are of particular note. Among the fragile states they are some of the poorest revenue collectors, yet receive some of the highest levels of development assistance. There is thus considerable scope for enhancing revenue collection efforts and there are signs that some fragile states are taking steps to address the perceived weakness of their tax administration (Box 10.1.). For example, 14 African states (7 of which are fragile states) have set up autonomous revenue authorities to make tax administration more efficient and effective (Fjeldstad and Moore, 2008).1 Table 10.1. Government revenues for fragile states in 2008 (% of GDP) Less than 15%

15% to 25%

25% to 35%

35% to 45%

More than 45%

Zimbabwe

6.0 Guinea

15.5 Chad

27.4 Yemen

36.5 Angola

47.6

Afghanistan

6.9 Rwanda

15.6 Liberia

28.6 Equatorial Guinea

36.8 Congo, Rep. of

51.3

36.8 Iraq

78.6

Haiti

10.0 São Tomé and Príncipe

16.6 Djibouti

28.8 Solomon Islands*

Timor-Leste

10.0 Guinea-Bissau

16.8 Tonga**

31.9 Papua New Guinea* 37.3


10.5 Togo

17.1

Kiribati

43.0

Sierra Leone

11.4 Gambia, The

18.4

Ethiopia

12.5 Niger

18.4

Nepal

12.8 Congo, Dem. Rep. of

18.5

Uganda

13.0 Nigeria

18.6

Comoros

13.1 Côte d’Ivoire

18.9

Pakistan

14.6 Burundi

19.1

Cameroon

20.4

Tajikistan

20.5

Sudan

21.3

Kenya

22.0

Eritrea

23.2

All data for 2008 except (*) data for 2007 and (**) data for 2006

fuel commodity exportersa

non-fuel primary commodity exporters

Note: a. Countries are classified as fuel or non-fuel commodity exporters if commodities constitute more than 50% of their exports (IMF, 2008). Sources: IMF(2009a), Regional Economic Outlook – Sub-Saharan Africa, IMF, Washington, DC; IMF (2009b), Regional Economic Outlook – Middle-East and Central Asia, IMF, Washington, DC; IMF (2009c), Regional Economic Outlook – Asia and Pacific, IMF, Washington, DC; IMF (2008), 2008 World Economic Outlook, IMF, Washington, DC. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


The tax base in many fragile states is very narrow, with taxes on trade being the dominant source of revenue (World Bank Country Policy and Institutional Assessments, 2008). However, along with other developing countries, some fragile states have taken steps to broaden their tax base to include taxes on consumption which are, in general, considered to produce less market distortion than trade taxes. Imports and exports can also be important sources of revenue as they take place at identifiable locations and, thus, should be relatively easy to measure and tax.2 However, the effect of trade liberalisation on revenue mobilisation may be ambiguous. If this liberalisation occurs primarily through reductions in tariffs then this could be expected to reduce tariff revenue. On the other hand, revenue may increase provided trade liberalisation occurs through subsidisation of tariffs for quotas, eliminations of exemptions, reduction in tariff peaks and improvement in customs procedure (Keen and Simone, 2004). Bird, Martinez-Vazquez and Torgler (2004) found that the openness of an economy is not associated with improved revenue performance and note that lower tariff rates associated with trade liberalisation policies may have weakened the previously strong relationship between trade and revenue collection. The quantity of external debt may also affect revenue performance, but this effect will depend on the government’s policy response to the level of indebtedness. To generate the necessary foreign exchange to service the debt, a country may choose to reduce imports, thus reducing import taxes. Alternatively, the country may choose to increase import tariffs or other taxes with a view to generating a primary budget surplus to service the debt.

Box 10.1. An African-led initiative to build more effective tax systems The International Conference on Taxation, Statebuilding and Capacity Development in Africa took place in Pretoria in August 2008. The concluding Pretoria Communiqué reaffirmed the importance of domestic revenue in the development process and committed the participants to the creation of an African Tax Administration Forum (ATAF) as a vehicle for an Africa-wide drive to improve revenue performance. Of the 29 African nations participating that signed the Pretoria Communiqué, 13 are in the group of fragile states.* ATAF aims to foster the development of more effective tax systems which can: •

Mobilise the domestic tax base as a key mechanism for developing countries to escape aid or single resource dependency.

•

Reinforce government legitimacy through promoting accountability of governments to tax-paying citizens, effective state administration and good public financial management.

•

Promote economic growth, reduce extreme inequalities, and thereby significantly improve the lives of citizens.

•

Achieve a fairer sharing of the costs and benefits of globalisation

The Pretoria Communiqué did, however, voice some concern that member nations are not putting enough resources into strengthening tax administration. For example, the communiqué stated that, of the USD 7.1 billion of bilateral aid for government administration, economic policy and public sector financial management, only 1.7% of this sum was directed at tax-related assistance. * Angola, Cameroon, Chad, Congo, D.R. Congo, The Gambia, Kenya, Nigeria, Rwanda, Sierra Leone, Sudan, Uganda and Zimbabwe. Sources: IMF (2009a); IMF (2009b); IMF (2009c), CIA World Fact Book 2009, www.cia.gov/library/publications/the-worldfactbook/, accessed November 2009.


148 – 10. Domestic revenue Foreign aid has been identified by many observers as a factor that may affect revenue performance. However, a review of the literature shows that there is wide disagreement over what effect aid actually has on revenues.3 It appears likely that there is no single systemic effect of aid on revenue performance. Rather it appears that aid may have a different effect on revenues in different states over different time periods and that this effect may depend on a number of variables. One significant factor appears to be the composition of aid, i.e. whether aid is given in support of the general budget or, if it is earmarked for specific projects, what sectors it is targeted towards. Further support for the proposition that the composition of aid may have an effect on revenue performance comes from Gupta et al. (2004) who found that concessional loans are associated with higher domestic revenue mobilisation, while grants have the opposite effect. The different effects on revenue performance that aid can produce in different states are highlighted in Box 10.2. Certainly a simple assessment of the overall level of aid received by a country does not appear to be a significant predictor of revenue performance. Analysis carried out by the United Nations Economic Commission for Africa (UNECA) which compared aid/ GDP ratios of countries in sub-Saharan Africa to government revenues as a percentage of GDP showed no systemic relationship between these two variables (Figure 10.1.). Institutional factors such as corruption, overall quality of governance and business entry regulations, are also important in determining revenue performance (Bird et al., 2004). A more legitimate and responsive state is found to be a precondition of improving

Box 10.2. A comparison of the effect of aid on revenue in three countries in sub-Saharan Africa Fagernas and Roberts (2004) studied the effect of aid on a number of economic variables in Malawi, Uganda and Zambia. This provides a good example of how aid can have a different effect on revenue collection from one country to another. Their findings are summarised below: Impact of aid on Development budget Malawi

Uganda

Zambia

Recurrent budget Domestic revenue

Domestic borrowing

Grants

++

--

+

--

Foreign loans

+

?

+

--

ODA

++

--

+

--

Grants

++

+

+

..

Foreign loans

++

++

+

..

ODA

++

++

+

..

Grants

++

+

--

+

Foreign loans

+

+

--

..

ODA

++

+

--

+

++ strongly positive -- strongly negative + moderately positive - moderately negative .. insignificant ? ambiguous

Although Fagernas and Roberts note that further analysis is needed for a fuller understanding of the contribution of external financing to public expenditure policy, they do point out that the greater availability of budget support in Malawi and Uganda has increased the share of funds allocated to general administrative functions of government. Source: Fagernas, S. and J. Roberts (2004).



revenue performance in developing countries. Of the specific variables mentioned by Bird et al., the regulation of entry into business (measured by time taken and cost of set-up) was shown to have a significant negative effect on revenue performance (Figure 10.2). This factor can be measured using the data from the Ease of Doing Business Index created by the World Bank. The latest data show that setting up a business in the group of fragile states takes somewhat longer and is considerably more costly than the average (World Figure 10.1. Aid and domestic revenue in Africa 50

Domestic revenue/GDP ratio (%)

45 40 35 30 25 20 15 10 5 0

0

5

10

15

20

25

30

35

40

45

50

AID/DGP ratio (%)

Source: UNECA/OECD (2009), “Mutual Review of Development Effectiveness in Africa 2009”, Focus Issue 12, OECD Publications, Paris.

Figure 10.2. Barriers to business entry are high in fragile states 140 Fragile states average

Global average

120

100

80

60

40

20

0 No. of Procedures

Time (days)

Source: IBRD / World Bank: Doing Business (2009). Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

Cost (% of income per capita)

150 – 10. Domestic revenue Bank, 2009). Comparing fragile states to non-fragile states in the same region yields similar results. For example starting a business in a fragile state in sub-Saharan Africa takes 24% more time and costs 50% more, on average, than for sub-Saharan Africa as a whole. Corruption is a particular concern for fragile states wishing to improve their revenue collection. Corruption can reduce government revenues both by directly reducing the amount of revenue that reaches the government and by reducing the legitimacy of government institutions in the view of the populace, thereby undermining their willingness to pay tax. According to the 2008 CPI, which ranks countries on their perceived level of corruption, 29 of the bottom 50 nations were in the group of fragile states (including all of the eleven lowest-ranked nations). A CPI score of three or less out of ten is indicative of “rampant corruption” and, of the 41 fragile states surveyed, 40 fell into this category and the only exception (Kiribati) scored 3.1 (Transparency International, 2008; and see Chapter 9).

Notes 1. The seven fragile states are: Uganda, Kenya, Rwanda, Zimbabwe, Ethiopia, Sierra Leone and The Gambia. 2. See, for example Leuthold (1991) in sub-Saharan Africa, and Ghura (1998), who concludes that the tax ratio rises with income and degree of openness. 3.

Pack and Pack (1990) found that foreign aid had a positive effect on domestic revenues in Indonesia, while Franco-Rodriguez, McGillivray and Morrissey (1998) found a negative relationship in Pakistan. McGillivray and Ahmed (1999) found that aid depressed tax revenues in the Philippines between 1960 and 1992. The results from the Cashel-Cordo and Craig (1990) study suggest that aid has had a positive impact on revenue mobilisation among African countries and a negative impact on non-African countries. Heller (1975) found a negative effect of aid on revenue for 11 African countries.



Bibliography African Monitor (2009), Development Support Monitor 2009: Africa in Our Hands, African Monitor, Cape Town. Bird, R. M., J. Martinez-Vazquez, and B. Torgler (2004), “Societal Institutions and Tax Effort in Developing Countries”, International Studies Program Working Paper, No. 0406, Georgia State University, Atlanta. Cashell-Cordo, P. and S. Craig (1990), “The Public Sector Impact of International Resource Transfers”, Journal of Development Economics, Vol. 32, No. 1. United Nations Economic Commission for Africa (UNECA)/OECD (2009), “The Mutual Review of Development Effectiveness in Africa: Promise and Performance”, Focus Issue 12, OECD, Paris. Fjeldstad, O. And M. Moore (2008), “Revenue Authorities and State Capacity in Anglophone Africa”, CMI Working Paper, No. 1. Fagernas, S. and J. Roberts (2004), Fiscal Impact of Aid: A Survey of Issues and Synthesis of Country Studies, Malawi, Uganda and Zambia, Economic and Statistic Analysis Unit, Overseas Development Institute, London. Franco-Rodriguez, S., M. McGillivray and O. Morrissey (1998), “Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid”, World Development, Vol. 26, No. 7. Ghura, D. (1998), “Tax Revenue in Sub Saharan Africa: Effects of Economic Policies and Corruption”, Working Paper, No. 135, IMF, Washington, DC. Gupta, A.S. (2007), “Determinants of Tax Revenue Efforts in Developing Countries”, Working Paper, No. 184, IMF, Washington, DC. Gupta, S., B. Clements, A. Pivovarsky and E. Tiongson (2004), “Foreign Aid and Revenue Response: Does the Composition of Aid Matter?”, in S. Gupta, B. Clements and G. Inchauste (eds.), Helping Countries Develop: The Role of Fiscal Policy, International Monetary Fund, Washington, DC. Heller, P. S. (1975), “A Model of Public Fiscal Behaviour in Developing Countries: Aid, investment and taxation”, American Economic Review, Vol. 65, No.3. IMF (International Monetary Fund) (2008), Global Economic Outlook. Housing and the Business Cycle, IMF, Washington, DC. IMF (2009a), Regional Economic Outlook – Sub-Saharan Africa, IMF, Washington, DC. IMF (2009b), Regional Economic Outlook – Middle East and Central Asia, IMF, Washington, DC. IMF (2009b), Regional Economic Outlook – Asia and Pacific, IMF, Washington, DC.


152 – 10. Domestic revenue Keen, M., and A. Simone (2004), “Tax Policy in Developing Countries: Some Lessons from the 1990s and Some Challenges Ahead”, in S. Gupta, B. Clements and G. Inchauste (eds.), Helping Countries Develop: The Role of Fiscal Policy, IMF, Washington, DC. Leuthold, J.H. (1991), “Tax Shares in Developing Countries: A Panel Study”, Journal of Development Economics, Vol. 35. McGillivray, M. and Ahmed, A. (1999), “Aid, Adjustment and Public Sector Fiscal Behaviour in the Philippines”, Journal of the Asia-Pacific Economy, Vol. 4. Pack, H. and Pack, J.R. (1990), “Is Foreign Aid Fungible? The Case of Indonesia”, Economic Journal, Vol. 100. Tanzi, V. (1992), “Structural Factors and Tax Revenue in Developing Countries: A Decade of Evidence”, in I. Goldin and A. L. Winters (eds), Open Economies: Structural Adjustment and Agriculture, Cambridge University Press, Cambridge. Transparency International (2008), 2008 Corruption Perceptions Index, Transparency International, Berlin, www.transparency.org/news_room/in_ focus/2008/cpi2008/ cpi_2008_table. UNCTAD (United Nations Conference on Trade and Development) (2009), World Investment Report: Transnational Corporations, Agricultural Production and Development, UNCTAD, New York. UNECA (United Nations Economic Commission for Africa) and OECD (2009), “Mutual Review of Development Effectiveness in Africa 2009”, Focus Issue 12, OECD, Paris. World Bank (2009), Doing Business 2010: Reforming through Difficult Times. World Bank, Washington, DC.


Annex A. Methodology – 153

Annex A Methodology This report is the outcome of desk-based research. The quantitative analysis draws on databases held by the OECD DAC (www.oecd.org/dac/stats/idsonline) together with those held by multilateral institutions such as the World Bank, IMF and United Nations agencies. Further qualitative analysis, including policy debates in the international aid architecture, has been gained from bilateral and multilateral member reports, academic literature and personal communication with staff of development partner agencies. The list of fragile and conflict-affected states used for this 2010 report is a compilation of three lists: the World Bank’s CPIA 2008 list; the Brookings Index of State Weakness in the Developing World 2008; and the Carleton University Country Indicators for Foreign Policy (CIFP) 2008 index. The full set of countries is taken from the Brookings and CIFP lists. States with a CPIA rating of 3.2 or less, plus unrated countries/territories and countries that have been moving in and out of the 3.2 or less bracket are defined as the list of countries under consideration from the World Bank index. By contrast, earlier reports (2005, 2006 and 2007) were limited to the CPIA indexlinked list. The addition of the two recent indices reflects the OECD DAC definition of fragility and conflict (consideration of both the capacity and legitimacy of the state, and inclusion of the security dimension) and aims to make the list more robust and consistent with the OECD DAC’s policy focus. The 2009 list of fragile states is presented in Table A.1. (see Annex B for individual lists). There are 43 in total, representing a decline from last year’s number of 48. Five countries have graduated from fragile status since last year: Cambodia, Laos, Mauritania, Vanuatu and Uzbekistan, while there are no new fragile countries. Countries in bold and italics are those that are common to all three lists. Of the 43 countries, 26 are low-income countries, 16 are lower-middle income and 1 is high income (World Bank, 2009).1 In parts of the analysis, a distinction is made between fragile states facing ongoing conflict and post-conflict states emerging out of violence. The latter group is defined by states witnessing a cessation of conflict, the signing of a peace agreement, and the running of elections. See Table B.2. for lists of countries in the two groups.

Gaps and constraints There are a number of issues, data gaps, and constraints with regard to monitoring resource flows to fragile and conflict-affected states. Critical data gaps hindering a more complete understanding of the volume of resource flows to individual countries include:


154 – Annex A. Methodology • Data gaps in development partner agency provision of forward estimates of resource flows to individual countries; • Data gaps in resource flows from countries beyond the DAC, some of which are major development partners for fragile states; and • Data gaps in non-official resource flows (for instance through NGOs or private members/philanthropic foundations). Each database holds only incomplete macroeconomic data for certain fragile states, and compilation of data across databases is hindered by significant divergence of volumes of resources flows between databases for any one country. This monitoring exercise is undertaken in the context of other initiatives required to maximise the effectiveness of resource flows in achieving development goals. They include global aid allocation decisions, i.e. the criteria by which total aid should be allocated between countries receiving aid, and the process by which development partners ensure that these criteria are met through co-ordination of their aid policies and the co-ordination of approaches and responses by development partners at the individual country level (where feasible and appropriate with the national government), which can address more detailed issues about aid modalities and constraints on aid effectiveness and absorptive capacity, as well as the Paris Declaration agenda on improving harmonisation. Table A.1. Fragile states (Countries in bold type common to all three fragile states lists: World Bank’s CPIA 2008 list; the Brookings Index of State Weakness in the Developing World 2008; and the Carleton University Country Indicators for Foreign Policy (CIFP) 2008 index.) Low-income countries Afghanistan

Guinea

Rwanda

Burundi

Guinea-Bissau

Somalia


Haiti

Sierra Leone

Chad

Kenya

Tajikistan

Comoros

Liberia

Togo


Myanmar

Uganda

Eritrea

Nepal

Yemen, Republic of

Ethiopia

Niger

Zimbabwe

Gambia

North Korea

26 countries

Middle-income countries Angola

Kiribati

Sudan

Cameroon

Nigeria

Timor-Leste

Congo, Republic of

Pakistan

Tonga

Côte d’Ivoire

Papua New Guinea

West Bank and Gaza

Djibouti


Iraq

Solomon Islands

16 Countries

High-income countries Equatorial Guinea

1 Country Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

Annex A. Methodology – 155

There have been new developments in the literature attempting to draw empirical conclusions about the effectiveness of aid in fragile states, and in particular aid absorptive capacity. It is not yet possible to identify a firm, empirically-grounded consensus on some of the most critical questions for determining whether or not a particular country is or is not under-aided. This suggests the need for caution in interpreting the findings of the monitoring exercise as having any specific direct conclusions for aid levels, without much more detailed country-level analysis. If possible, this exercise should be complemented with selected country case studies on aid absorption issues. The monitoring exercise is focused on providing a regular reporting and monitoring mechanism on resource flows to fragile states, and can only modestly contribute to addressing these wider issues and concerns.

Related initiatives A number of initiatives related to this exercise need to be mentioned. These include work on: • Development partners’ forward spending plans – The OECD DAC 2008 and 2009 Surveys on Aid Allocations Policies and Indicative Forward Spending Plans collects information on development partners forward spending plans to their partner countries. They also present descriptive information on each development partner’s aid allocation mechanism. Results from the surveys are presented and used in the analysis. • Concentration and fragmentation of aid – This focuses on a better division of labour among development partners, in response to concerns about the concentration and fragmentation of aid. It examines the issue of having too many development partners in some countries and sectors and too few in others, and how to improve the division of labour among development partners. The analysis focuses in particular on country programmable aid (CPA) and the number of development partners present in partner countries. It also considers development partner contributions to specific sectors as a background for discussion on scaling up aid, including scenarios for future aid flows that will present a range of possible financing paths. • Volatility and predictability of aid – Volatility of aid is a statistical measure describing past flows. Predictability is about expectations for the future, in the short-term (within the financial year), medium-term (three to five years) and long-term (more than five years). The underlying assumption of this work is that improving the predictability of aid will help to better manage the volatility of aid, and is a response to the scaling up of aid and associated need for partner countries to plan their budgets over the medium-term. While the majority of resources come from domestic revenue, aid accounts for a high share of public finance in many countries. Hence the focus will be on how to improve development partner policies on sharing information about future aid levels with their major partner countries (OECD DAC, 2007).2 • Development partners beyond the DAC – The OECD is the “platform” for the Heiligendamm Process at the request of the G-8. This was an outcome of the G-8 Summit in June 2007, where leaders reached agreement with Brazil, China, India, Mexico and South Africa on a two-year structured dialogue on four topics: Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010

156 – Annex A. Methodology innovation and intellectual property rights, investment, climate change, and development co-operation (particularly in Africa). In May 2007 the OECD Ministerial Council Meeting decided to commence negotiations for membership with Chile, Estonia, Israel, Russia and Slovenia, and negotiations to enhance relations with a view to possible membership with Brazil, China, India, Indonesia and South Africa. The redesign of the Working Party on Aid Effectiveness and the newly established Development Cooperation Forum are also playing key roles in engaging with development partners beyond the DAC and leading efforts to democratise aid governance.

Notes 1. Low income countries are defined as those with a GNI of USD 975 or less, lower middle income countries are defined as those with a GNI of between USD 976 and USD 3 855 and high income countries are defined as those countries with a GNI of USD 11 906 or more. 2. OECD (2007), “Methodology for the DCA 2007 Survey of Aid Allocation Policies and Indicative Spending Plans (DCD/RD(2007)5/RD1)”, Paris: Organisation for Economic Cooperation and Development.



Annex B Statistical annex Table B.1. Core macroeconomic and social indicators for fragile states

Combined gross enrolment ratio in education (%), 2007

Education index, 2007 2

Life expectancy at birth, 2008

Percentage of population with access to water (2008 or nearest year)

Expenditure on health as a % of total government expenditure, 2007

Expenditure on education as a % of Total government expenditure, 2007

12.06

15.7

7.11

159

..

28.00

50.10

0.35

44

22

4.40

..

70.2

83.38

0.2

31.30

17

3 447

67.40

65.30

0.67

47

51

5.00

..

Aid per capita (2008), USD, current prices

..

54.3

Average GDP over 2000-08, USD billion, current prices

..

18.02

Population below USD 2.00 a day (%), 2000-07

29.24

143


181

Angola

Afghanistan Burundi

174

8.07

81.3

93.4

1.10

3.2

0.78

63

135

59.30

49.00

0.56

50

71

2.30

17.70

Cameroon

153

18.90

32.8

57.7

23.24

1.6

15.37

27

1 153

67.90

52.30

0.63

51

70

8.60

17.00


179

4.42

62.4

81.9

2.00

2.4

1.31

53

408

48.6

28.60

0.42

47

66

10.90

..

Chad

175

11.07

61.9

83.3

8.39

1.6

4.43

37

535

31.80

36.50

0.33

49

48

9.50

10.10

Comoros

139

0.64

46.1

65.0

0.53

1.0

0.35

53

751

75.10

46.40

0.66

65

85

8.00

24.10

Congo, Dem. Rep.

176

64.21

59.2

79.5

11.59

2.7

7.20

25

153

67.20

48.20

0.61

48

46

7.20

..

Congo. Rep.

136

3.62

54.1

74.4

10.77

7.4

5.50

39

1 973

81.10

58.60

0.74

54

71

4.00

8.10

Côte d’Ivoire

163

20.59

23.3

46.8

23.51

3.7

15.43

29

984

48.70

37.50

0.45

57

81

4.10

21.50

Annex B. Statistical annex – 157

Adult literacy rate (% ages 15 and above), 2007

SOCIAL EXPENDITURE

GNI per capita (USD), 2008, current prices

SOCIAL INDICATORS

Projected growth rate of GDP (%), 2008-09

MACROECONOMIC INDICATORS

Gross domestic product (GDP), 2008, USD billion, current prices

POVERTY

Population (million), 2008

Human Development Index, 2009 1

0.70

131

1128

..

25.50

0.55

55


5.1


0.98

SOCIAL EXPENDITURE Percentage of population with access to water (2008 or nearest year)


41.2



18.8



0.85



155



SOCIAL INDICATORS




POVERTY



Djibouti

92

13.40

22.40


Equatorial Guinea

118

0.66

..

..

18.53

-5.4

6.92

57

14980

87.00

62.00

0.79

50

43

7.00

4.00

Eritrea

165

5.00

..

..

1.48

0.3

1.03

27

299

64.20

33.30

0.54

59

60

4.20

..

Ethiopia

171

80.71

39

77.5

25.66

7.5

12.65

41

282

35.90

49.00

0.40

55

42

10.60

23.30

Gambia

168

1.66

34.3

56.7

0.81

3.6

0.49

54

393

..

46.80

0.44

56

86

8.70

8.90

Guinea

170

9.83

70.1

87.2

4.54

0.0

3.45

17

429

29.50

49.30

0.36

58

70

4.70

25.60

Guinea-Bissau

173

1.58

48.8

77.9

0.46

1.9

0.30

83

245

64.60

36.60

0.55

48

57

4.00

..

Haiti

149

9.78

54.9

72.1

6.95

2.0

4.42

93

661

62.10

..

0.59

61

58

29.80

..

Iraq

..

29.61

..

..

90.91

4.3

51.94

108

..

74.10

60.50

0.70

68

77

3.40

..

Kenya

147

38.53

19.7

39.9

30.24

2.5

18.69

35

767

73.60

59.60

0.69

54

57

6.10

17.90

Kiribati

..

0.10

..

..

0.14

1.5

0.10

276

1 995

..

75.80

..

61

65

13.00

..

Korea, Democratic Rep.

..

23.86

..

..

..

..

..

..

..

67

100

6.00

..

..

..

9

Liberia

169

3.79

83.7

94.8

0.84

4.9

0.57

173

167

55.50

57.60

0.56

58

64

16.40

..

Myanmar (Burma)

138

49.19

..

..

27.18

4.3

12.94

11

..

89.90

56.30

0.79

62

80

1.80

18.10

Nepal

144

28.58

55.1

77.6

12.70

4.0

8.07

25

404

56.50

60.80

0.58

67

89

9.20

14.90

Niger

182

14.67

65.9

85.6

5.38

1.0

3.08

41

329

28.70

27.20

0.28

51

42

10.60

17.60

Nigeria

158

151.32

64.4

83.9

214.40

2.9

104.78

8

1 161

72.00

53.00

0.66

48

47

3.50

..

Pakistan

141

166.04

22.6

60.3

167.64

2.0

105.49

9

981

54.20

39.30

0.49

67

90

1.30

11.20

Papua New Guinea

148

6.45

35.8

57.4

..

3.9

..

47

1 009

57.80

40.70

0.52

61

40

7.30

..

Rwanda

167

9.72

76.6

90.3

4.46

5.3

2.43

95

407

64.90

52.20

0.61

50

65

27.30

19.00

158 – Annex B. Statistical annex

Table B.1. Core macroeconomic and social indicators for fragile states (continued)







Percentage of population with access to water (2008 or nearest year)



87.90

68.10

0.81

66

86

12.20

..

0.16

..

..

0.18

Sierra Leone

180

5.56

53.4

76.1

1.96

4.0

1.19

66

Solomon Islands

135

0.51

..

..

0.47

0.4

0.31

435



1 020


284

131

Somalia

SOCIAL EXPENDITURE

0.11


4.0

SOCIAL INDICATORS




POVERTY




Table B.1. Core macroeconomic and social indicators for fragile states (continued)

321

38.10

44.60

1 180

76.60

49.70

0.40

48

53

7.80

..

0.68

66

70

12.60

..

..

8.95

..

..

..

..

..

84

..

..

..

..

50

29

4.20

..

Sudan

150

41.35

..

..

57.91

4.0

27.60

55

1 125

60.90

39.90

0.54

58

70

6.30

..

Tajikistan

127

6.84

21.5

50.8

5.14

2.0

2.32

41

596

99.60

70.90

0.90

67

67

5.50

18.20

Timor-Leste

162

1.10

52.9

77.5

0.50

7.2

0.33

251

2 464

50.10

63.20

0.55

61

62

16.40

..

Togo

159

6.46

38.7

69.3

2.89

2.4

1.94

34

404

53.20

53.90

0.53

63

59

6.90

13.60

Tonga

99

0.10

..

..

0.26

2.6

0.19

242

2 561

99.20

78.00

0.92

72

100

11.10

13.50

Uganda

157

31.66

51.5

75.6

14.53

7.0

8.71

52

419

73.60

62.30

0.70

53

64

10.00

18.30

110

3.84

..

..

..

..

..

668

..

93.80

78.30

0.89

73

89

..

..

140

23.05

17.5

46.6

27.15

4.2

15.61

14

950

58.90

54.40

0.57

63

66

5.60

32.80

..

12.46

..

..

..

3.7

11.16

49

..

91.20

54.40

0.79

44

81

8.90

..

Zimbabwe

Sources: World Bank World Development Indicators dataset; IMF (2009), World Economic Outlook Database, IMF, Washington, DC.; Human Development Index Notes: 1. The Human Development Index has been taken from the 2009 Human Development Report (UNDP, 2009). Countries ranked 1-38 were “very high human development”, 39-83 high human development”, 84-158 “low human development”. 2. Calculated by combining the adult literacy ratio and gross enrolment ratios (0=low ranking, 1=high ranking).


West Bank and Gaza Yemen, Rep.

160 – Annex B. Statistical annex Table B.2. Categories of fragile states Post conflict

Ongoing conflict

Other

Multi-category

Angola

Afghanistan

Cameroon


Burundi

Somalia

Chad

Pakistan


West Bank and Gaza

Comoros

Sudan

Congo, Republic of

Djibouti

Uganda

Côte d’Ivoire

Equatorial Guinea

Haiti

Eritrea

Iraq

Ethiopia

Liberia

Gambia

Sierra Leone

Guinea

Timor-Leste

Guinea-Bissau Kenya Kiribati Korea, Democratic Republic of Myanmar Nepal Niger Nigeria Papua New Guinea Rwanda São Tomé and Principe Solomon Islands Tajikistan Togo Tonga Yemen Zimbabwe

10

3

26

4



Table B.3. OECD DAC ODA excluding debt relief (USD million, 2007 constant prices)

2000

2001

2002

2003

2004

2005

2006

2007

2008

Afghanistan

217.60

679.81

1 825.39

1 922.02

2 387.25

2 950.55

3 058.48

3 786.02

4 476.97

Angola

449.01

448.16

591.40

610.37

512.57

461.97

60.47

227.93

287.60

Burundi

143.20

231.17

256.40

287.29

358.54

397.05

434.51

468.61

475.31

Cameroon

445.01

392.21

510.83

316.93

396.96

235.85

437.81

530.41

478.99

Central African Rep. Chad Comoros Congo, Dem. Rep.

95.96

110.65

81.81

63.23

125.29

97.88

138.27

171.54

222.54

195.08

283.10

332.05

296.95

375.69

416.75

301.29

346.21

389.68

29.90

40.91

40.80

30.76

30.06

25.65

33.02

43.65

32.04

269.49

378.14

1 495.82

729.83

1 192.54

1 414.52

1 276.97

1 119.29

1 525.94

Congo. Rep.

49.22

109.67

78.48

83.37

128.12

28.82

- 23.50

108.96

131.36

Côte d’Ivoire

444.84

252.39

508.40

101.96

111.04

93.44

245.63

160.43

570.13

87.61

89.14

109.51

94.65

74.99

83.44

124.11

112.31

104.01

Djibouti

37.97

25.62

32.45

24.62

54.34

42.29

29.09

31.02

34.77

Eritrea

Equatorial Guinea

250.78

436.01

311.04

390.50

309.03

387.51

138.21

154.51

128.22

Ethiopia

980.16

1 566.01

1 730.78

1 898.29

1 885.55

2 040.13

1 942.12

2 527.45

3 161.71

Gambia

67.67

70.77

81.65

71.61

61.89

65.87

72.02

70.18

85.27

Guinea

199.04

364.18

318.02

294.96

265.52

193.93

160.17

215.19

158.82

Guinea-Bissau

124.70

87.89

86.02

99.09

87.76

74.21

81.43

121.67

121.38

Haiti

282.21

237.50

209.61

258.21

300.82

495.39

604.94

634.03

863.94

Iraq

163.76

202.45

167.79

2 586.90

4 800.16

8 417.32

5 562.89

4 232.88

3 118.40

Kenya

700.82

666.59

539.17

650.60

693.08

802.16

940.74

1 291.07

1 301.98

Kiribati

24.11

20.54

29.61

24.60

19.69

29.47

28.73

26.66

25.08

118.50

194.35

358.88

161.46

172.12

92.21

57.72

99.79

210.32

96.93

56.17

70.58

134.91

243.08

247.01

278.39

684.67

626.10

Myanmar (Burma)

107.66

123.31

124.99

137.82

133.37

148.60

141.07

193.37

496.36

Nepal

496.69

542.52

442.24

566.60

475.78

458.91

546.43

596.60

675.42

Niger

299.90

374.89

425.69

424.57

442.74

554.87

536.45

538.36

565.90

Korea, Democratic Rep. Liberia

Nigeria

242.19

261.93

360.27

381.41

660.56

869.95

627.00

1 191.83

1 156.88

Pakistan

655.87

2 344.18

2 557.98

482.84

1 520.60

1 620.91

2 200.65

2 199.07

1 412.57

Papua New Guinea

449.95

372.18

374.45

335.13

344.61

318.26

317.00

324.06

299.11

Rwanda

488.49

439.74

519.50

420.19

559.52

634.73

552.30

720.58

889.29

53.14

51.85

35.76

38.59

38.33

36.58

21.58

26.06

42.55 358.70

São Tomé and Principe Sierra Leone

280.19

511.29

506.60

381.40

423.34

379.62

330.61

345.10

Solomon Islands

115.84

109.66

47.99

100.98

153.43

230.47

232.12

248.55

211.95

Somalia

163.88

217.94

218.34

227.78

234.89

268.89

422.13

380.36

719.47

Sudan

196.68

273.58

404.68

771.54

1 114.92

1 971.15

2 104.32

1 997.36

2 187.47

Tajikistan

172.21

235.07

210.10

174.12

265.68

262.45

253.04

212.37

263.69

Timor-Leste

387.47

339.00

346.63

230.91

190.42

204.65

229.46

276.88

259.67

97.84

62.51

70.01

59.61

73.42

91.58

85.66

121.06

205.25

Togo Tonga

26.89

28.34

34.02

33.46

22.70

34.07

23.81

30.69

24.23

1 131.78

1 225.32

1 014.58

1 252.80

1 391.49

1 323.00

1 613.35

1 731.96

1 569.19

776.72

958.78

1 230.44

1 193.90

1 250.63

1 231.07

1 546.97

1 850.48

2 428.35

Yemen, Rep.

361.09

448.05

309.66

279.39

279.17

218.13

302.67

240.37

297.15

Zimbabwe

242.74

254.06

278.89

240.11

218.72

418.02

305.18

475.86

591.23

12 220.79

16 117.63

19 279.31

18 866.26

24 380.41

30 369.33

28 375.31

30 865.45

33 184.99

Uganda West Bank and Gaza

Total


This table demonstrates which fragile states are core priority countries (CPC) or other priority countries (OPC) for 15 EU development partners.

Fragile states

8

UK

18

Sweden

83

Spain

54

Portugal

8

Netherlands

Ireland

28

Luxembourg

Greece

18

Italy

Germany

9

France

No. of fragile state partner countries Afghanistan

Finland

29

Denmark

Total partner countries (per development partner)

Belgium

Austria

EU-15 development partners

10

36

6

54

28

68

6

9

3

30

19

6

5

10

4

9

4

13

7

25

Total No. priority development partners (per fragile state)

OPC

CPC

CPC

OPC

OPC

CPC

OPC

7

CPC

CPC

CPC

OPC

4

Angola

Burundi

OPC

CPC

CPC

OPC

CPC

OPC

6

CPC

CPC

OPC

3

Cameroon



CPC

1

Chad

CPC

OPC

2

Comoros

CPC

1


CPC

CPC

CPC

3

Congo, Republic

CPC

OPC

2

Côte d’Ivoire

CPC

OPC

OPC

3

Djibouti

CPC

1

Equatorial Guinea

CPC

OPC

2

Eritrea

OPC

CPC

OPC

CPC

CPC

CPC

OPC

7

Ethiopia

CPC

CPC

CPC

CPC

CPC

CPC

CPC

CPC

OPC

CPC

CPC

11

Gambia

CPC

OPC

2

Guinea

CPC

OPC

2

Guinea-Bissau

CPC

CPC

OPC

3

Haiti

CPC

CPC

2

Iraq

OPC

CPC

CPC

OPC

OPC

5

Kenya

OPC

CPC

CPC

CPC

CPC

CPC

OPC

CPC

CPC

9

Kiribati

0

Korea, Democratic Rep

0


Table B.4. European Union priority countries (fragile states)

Ireland

18

8

UK

Greece

83

Sweden

Germany

54

Spain

France

8

Portugal

Finland

28

Netherlands

Denmark

18

Luxembourg

Belgium

29

Italy

Austria

EU-15 development partners

10

36

6

54

28

68

9

6

9

3

30

19

6

5

10

4

9

4

13

7

25

Total No. priority development partners (per fragile state)

Liberia

CPC

OPC

2

Myanmar

OPC

1

Total partner countries (per development partner) No. of fragile state partner countries Fragile states


Table B.4. European Union priority countries (fragile states) (continued)

Nepal

OPC

CPC

CPC

CPC

OPC

5

Niger

CPC

CPC

OPC

CPC

OPC

5

Nigeria

OPC

CPC

OPC

CPC

4

Pakistan

OPC

CPC

OPC

CPC

4

Papua New Guinea Rwanda

0

OPC

CPC

CPC

CPC

CPC

OPC

CPC

CPC

CPC

9


CPC

OPC

CPC

OPC

4

Sierra Leone

CPC

CPC

2

Solomon Islands

0

Somalia

CPC

OPC

2

Sudan

OPC

CPC

CPC

CPC

OPC

CPC

6

Tajikistan

OPC

CPC

OPC

3

Timor-Leste

OPC

CPC

CPC

OPC

OPC

5

CPC

1

0

Uganda

CPC

CPC

CPC

CPC

CPC

CPC

CPC

CPC

CPC

CPC

10

West Bank and Gaza

CPC

CPC

OPC

CPC

CPC

CPC

OPC

CPC

OPC

CPC

CPC

OPC

12

Yemen, Republic Zimbabwe % of fragile states out of partner country total (per development partner)

CPC

CPC

CPC

OPC

4

OPC

CPC

OPC

CPC

4

31%

33%

32%

38%

56%

23%

33%

63%

40%

25%

67%

24%

25%

37%

Source: Mürle, H. (2007), “Towards a Division of Labour in European Development Co-operation: Operational options”, Discussion Paper, No. 6, German Development Institute, Bonn.


Togo Tonga

2007

Bilateral ODA Multilateral ODA to to fragile states fragile states 878.05

2008 Total ODA to fragile states

Total ODA

% of total ODA to fragile states

9 923

21 683

46%

Total ODA to fragile states

Total ODA

% of total ODA to fragile states

623

10 864

26 041

42%

Bilateral ODA Multilateral ODA to to fragile states fragile states

United States

9 045.13

United States

10 240

UK

2 196.20

1 427.36

3 624

9 778

37%

UK

2 500

1 331

3 830

11 727

33%

Germany

1 100.87

1 450.83

2 552

9 423

27%

Germany

1 292

1 322

2 613

10 637

25%

France

874.47

1 087.95

1 962

8 347

24%

France

677

1 122

1 799

9 174

20%

Japan

856.31

496.18

1 352

6 078

22%

Japan

828

760

1 588

6 957

23%


Canada

991.77

350.91

1 343

4 065

33%

Canada

918

430

1 349

4 506

30%

Netherlands

643.90

495.43

1 139

5 832

20%

Netherlands

790

459

1 249

6 407

19%

Sweden

546.37

512.02

1 058

4 265

25%

Italy

409

834

1 243

3 627

34%

Norway

736.25

313.15

1 049

3 667

29%

Spain

603

540

1 143

5 990

19%

Spain

414.83

532.50

947

4 897

19%

Sweden

655

458

1 113

4 510

25%

Italy

229.22

652.92

882

3 401

26%

Norway

783

260

1 044

3 596

29%

Australia

738.33

139.73

878

2 377

37%

Australia

879

76

955

2 589

37%

Denmark

419.08

292.97

712

2 439

29%

Belgium

414

290

704

2 125

33%

Belgium

300.02

231.95

532

1 766

30%

Denmark

397

265

663

2 485

27%

Ireland

314.58

117.13

432

1 192

36%

Ireland

330

115

445

1 272

35%

Switzerland

194.10

170.82

365

1 621

23%

Switzerland

189

154

343

1 725

20%

Finland

144.38

140.23

285

981

29%

Finland

148

139

287

1 070

27%

Austria

42.04

170.11

212

884

24%

Austria

73

137

210

907

23%

Portugal

110.17

62.64

173

470

37%

Portugal

103

68

170

575

30%

Greece

34.71

77.61

112

501

22%

Greece

36

96

133

645

21%

New Zealand

64.91

25.51

90

320

28%

New Zealand

80

23

103

357

29%

Luxembourg

51.06

32.69

84

376

22%

Luxembourg

52

33

85

388

22%

29 707

94 361

31%

TOTAL

22 397

9 535

31 932

107 310

30%

TOTAL

20 049

9 659



Table B.5. OECD DAC development partners providing ODA to fragile states (ranked), 2007-08 (USD 2007 prices, million)


Table B.6. Country programmable aid, 2004-08

Afghanistan

Country programmable aid (USD million, 2007 constant prices)

gross disbursement (USD million, 2007 constant prices)

OECD DAC bilateral and multilateral development partners


CPA as a proportion of total gross disbursements

2004

2005

2006

2007

2008

2004

2005

2006

2007

2008

2004 2005 2006 2007 2008

1 863.94

2 538.39

2 684.03

3 398.90

3 592.69

2 388.47

2 951.73

3 062.66

3 848.27

4 492.69

78% 86% 88% 88% 80%

Angola

244.40

318.46

249.15

316.51

287.91

1 357.51

471.64

326.48

359.40

345.11

18% 68% 76% 88% 83%

Burundi

245.45

243.89

292.88

360.77

364.32

491.53

445.08

481.58

501.40

521.84

50% 55% 61% 72% 70%

Cameroon

425.49

324.26

490.30

551.70

481.41

1 135.04

737.87

3 625.37

2 092.23

1 075.55

37% 44% 14% 26% 45%


110.03

87.89

173.20

156.74

150.31

137.22

111.69

208.94

232.10

268.38

80% 79% 83% 68% 56%

Chad

278.38

308.82

228.16

190.56

228.69

420.38

469.87

354.58

398.76

483.95

66% 66% 64% 48% 47%

23.77

19.78

24.22

36.25

26.09

35.54

31.44

38.11

50.14

41.11

67% 63% 64% 72% 63%

Congo, Democratic Rep.

896.84

1 099.64

860.22

749.12

1 108.25

2 194.66

1 989.62

2 249.44

1 362.87

1 708.79

41% 55% 38% 55% 65%

Comoros Congo, Republic

140.04

115.23

121.41

94.64

125.70

188.92

1 775.33

469.50

150.83

526.15

74% 6% 26% 63% 24%

Côte d’Ivoire

161.41

106.86

212.47

181.80

610.59

407.46

263.98

386.07

312.64

773.55

40% 40% 55% 58% 79%

Djibouti

58.95

63.08

96.35

98.22

88.88

79.83

88.75

134.27

121.36

112.82

74% 71% 72% 81% 79%

Equatorial Guinea

55.76

41.18

32.52

32.53

32.59

60.53

49.68

38.01

36.44

38.36

92% 83% 86% 89% 85%

Eritrea Ethiopia

168.70

196.60

96.45

124.82

93.39

313.82

391.69

144.05

156.44

133.19

54% 50% 67% 80% 70%

1 382.79

1 281.65

1 552.60

2 095.83

2 037.74

2 114.70

2 236.23

6 246.85

2 549.34

3 193.20

65% 57% 25% 82% 64%

Gambia

78.03

73.15

76.70

95.32

77.40

85.51

80.16

86.88

116.43

299.10

91% 91% 88% 82% 26%

Guinea

238.89

195.94

190.76

211.94

225.88

397.51

298.60

263.53

299.64

463.48

60% 66% 72% 71% 49%

Guinea-Bissau

66.82

83.06

111.32

107.95

100.84

87.31

104.94

134.43

132.45

84% 77% 79% 83% 82%

124.04

408.96

506.97

572.02

646.16

369.73

533.45

664.36

762.05

900.98

34% 77% 76% 75% 72%

Iraq

3 851.14

7 769.28

5 156.85

3 929.33

1 790.04

4 914.55

23 336.97

9 229.11

9 120.55

9 412.25

78% 33% 56% 43% 19%

Kenya

685.16

810.95

812.29

1 276.03

1 166.97

900.00

983.68

1 166.04

1 550.70

1 534.33

76% 82% 70% 82% 76%

Kiribati

19.64

29.12

27.15

26.55

25.14

19.77

29.78

29.06

26.98

25.41

99% 98% 93% 98% 99%


31.37

29.87

22.89

49.92

93.49

175.15

94.18

60.60

104.20

212.84

18% 32% 38% 48% 44%

Liberia

79.57

103.08

132.19

601.81

582.59

255.10

250.98

278.39

738.94

1 521.28

31% 41% 47% 81% 38%

Myanmar

93.88

109.42

104.49

136.33

160.24

141.36

155.90

151.14

199.89

503.07

66% 70% 69% 68% 32%

Nepal

494.06

469.87

561.08

626.79

685.97

548.36

566.91

660.21

705.62

883.55

90% 83% 85% 89% 78%

Niger

415.21

446.17

442.20

457.85

468.45

700.01

637.73

1 931.52

559.36

585.73

59% 70% 23% 82% 80%

Nigeria

663.17

883.16

1 111.72

1 264.02

1 315.53

704.25

7 384.04

13 187.65

2 046.92

1 417.01

94% 12% 8% 62% 93%


84.73

Haiti

Country programmable aid (USD million, 2007 constant prices)

gross disbursement (USD million, 2007 constant prices)



CPA as a proportion of total gross disbursements

2004

2005

2006

2007

2008

2004

2005

2006

2007

1 849.33

1 675.41

2 292.00

2 414.90

1 776.08

2 018.53

2 095.87

2 755.78

2 693.06

1 964.27 92% 80% 83% 90% 90%

Papua New Guinea

379.66

345.32

350.76

359.14

394.24

386.54

358.11

359.82

363.07

400.29 98% 96% 97% 99% 98%

Rwanda

493.29

572.20

560.01

664.29

840.77

600.11

704.59

1 969.65

727.96

898.19 82% 81% 28% 91% 94%

Pakistan


2008

2004 2005 2006 2007 2008

38.69

36.09

29.82

32.20

36.60

44.02

41.46

34.71

120.60

60.65 88% 87% 86% 27% 60%

Sierra Leone

337.88

321.43

294.71

288.49

318.59

484.00

408.37

571.68

1 115.65

361.56 70% 79% 52% 26% 88%

Solomon Islands

148.11

224.44

232.46

245.29

212.10

156.00

233.45

234.51

251.19

220.06 95% 96% 99% 98% 96%

72.62

74.83

112.46

115.86

158.14

237.67

270.14

423.31

381.48

720.13 31% 28% 27% 30% 22%

Somalia


Sudan

243.20

537.11

719.66

702.37

792.29

1 145.86

1 991.20

2 118.46

2 013.11

2 195.42 21% 27% 34% 35% 36%

Tajikistan

220.01

222.34

212.03

191.48

265.10

281.34

280.52

367.44

218.44

302.64 78% 79% 58% 88% 88%

Timor-Leste

181.57

193.25

202.10

233.34

232.87

190.42

204.65

229.46

276.88

259.67 95% 94% 88% 84% 90%

Togo

73.42

79.50

78.09

103.68

308.82

101.67

112.17

109.35

136.11

438.42 72% 71% 71% 76% 70%

Tonga

25.41

35.47

24.86

32.62

24.88

25.69

37.23

26.26

33.86

25.50 99% 95% 95% 96% 98%

1 248.88

1 168.88

1 389.86

1 479.25

1 296.15

1 579.62

1 459.02

5 386.30

1 767.93

1 624.86 79% 80% 26% 84% 80%

659.58

1 041.57

1 158.82

1 428.03

2 086.57

1 251.01

1 233.31

1 548.91

1 850.88

2 431.63 53% 84% 75% 77% 86%

Uganda West Bank and Gaza Yemen, Republic

290.11

347.29

358.38

330.97

348.38

376.65

467.76

412.10

372.24

428.19 77% 74% 87% 89% 81%

Zimbabwe

155.90

180.85

174.89

273.74

231.69

249.17

430.35

316.03

478.02

594.50 63% 42% 55% 57% 39%

TOTAL FRAGILE STATES

19 332.46

25 197.48

24 533.21

26 643.25

25 897.63

29 766.05

56 782.49

62 443.11

41 338.41

44 532.15

65% 44% 39% 64% 58%

TOTAL FRAGILE STATES (EXCLUDING AFGHANISTAN AND IRAQ)

13 617.38

14 889.81

16 692.33

19 315.02

20 514.90

22 463.03

30 493.79

50 151.34

28 369.59

30 627.21

61% 49% 33% 68% 67%

ALL DEVELOPING COUNTRIES

65 849.53

70 851.87

72 664.14

76 104.38

76 214.37

104 074.36

131 488.66

170 259.76

123 412.36

131 934.05

63% 54% 43% 62% 58%



Table B.6. Country programmable aid, 2004-08 (continued)


Table B.7. Country programmable aid projections, 2008-11 (USD 2008 prices) Afghanistan

CPA actual CPA planned 2008 2009 2010 2011 2008 USD million 3527 3563 3497 3393

Change 2008-11 USD million % -134 -4

CPA/ GNI 2010 2011 % 37.3 31.6 28.4

2008

CPA per capita 2008 2010 2011 2008 USD million 125 118 111

Angola

381

480

646

772

391

103

1.1

1.7

1.9

23

36

Burundi

386

323

343

343

-43

-11

42.7

35.3

34.1

49

41

41

Cameroon

567

483

522

535

-32

-6

2.9

2.6

2.6

29

26

26


193

144

156

160

-33

-17

12.4

9.4

9.3

44

35

35

Chad

251

220

212

200

-51

-20

4

3.2

2.9

26

21

19

31

26

27

24

-7

-23

7.2

6.2

5.3

47

39

34

1021

1229

1324

1380

359

35

10.9

13

12.5

16

20

20 61

Comoros Congo, Dem. Rep.

42

Congo. Rep.

112

90

96

242

130

116

2.7

1.9

4.4

31

25

Côte d’Ivoire

621

499

453

417

-204

-33

3.8

2.5

2.2

30

21

18

Djibouti

99

93

98

99

0

0

9.3

8.2

7.8

126

118

117

Equatorial Guinea

37

43

55

65

28

76

1.2

1.9

2.1

30

42

48

Eritrea

106

122

124

115

9

8

13.5

14.8

13

21

23

21

Ethiopia

2502

2188

2530

2814

312

12

13.9

12.6

13.1

32

30

33

Gambia

91

100

104

104

13

14

16.4

17.1

16.1

56

61

59

Guinea

241

206

219

205

-36

-15

4.9

4.1

3.7

23

20

18

Guinea-Bissau

109

79

86

91

-18

-17

33.8

25.5

25.6

62

47

48

Haiti

625

615

692

703

78

12

13.6

14.4

14.2

71

76

77

Iraq

3069

3385

3508

3360

291

9

-

-

-

102

111

105

Kenya

1184

1356

1513

1614

430

36

5.3

6.3

6.4

34

41

43

Kiribati

39

33

35

37

-2

-5

29.3

26.3

27.6

385

346

372

Korea, Democratic Rep. Liberia

95

95

94

93

-2

-2

-

-

-

586

279

313

333

-253

-43

106.6

49.3

47.5

-

-

-

4

4

4

149

73

75

Myanmar (Burma)

169

167

173

177

8

5

3

3

3

Nepal

667

647

721

748

81

12

7

7.1

7

24

26

26

Niger

468

492

470

451

-17

-4

10.7

10

9.1

34

32

30 13

Nigeria

1250

1533

1818

2018

768

61

1.2

1.7

1.8

8

12

Pakistan

1760

2683

2059

1851

91

5

1.1

1.2

1.1

11

12

11

Papua New Guinea

389

396

410

410

21

5

5.4

5.4

5.2

63

63

62

Rwanda

770

744

833

865

95

12

22.9

22.2

21.9

80

83

85 366


42

46

54

62

20

48

-

-

-

263

326

Sierra Leone

293

295

324

307

14

5

16.9

16.7

14.8

50

52

48

Solomon Islands

237

235

177

171

-66

-28

46.9

33.2

31.3

454

321

310

Somalia

175

175

194

204

29

17

-

-

-

19

21

21

Sudan

909

962

1015

1077

168

18

2.2

2.3

2.3

24

25

26

Tajikistan

228

193

184

179

-49

-21

6.8

5.3

4.9

35

28

27

Timor-Leste

216

234

253

236

20

9

20.7

20.6

18

203

229

209

Togo

308

122

154

162

-146

-47

12

5.6

5.7

47

22

23

Tonga

29

31

29

29

0

0

10.9

10.6

10.2

284

282

Uganda

1432

1470

1569

1602

170

12

10.2

10.1

9.7

45

46

45

West Bank and Gaza

1655

1229

1226

1252

-403

-24

-

-

-

391

278

278

Yemen, Rep.

373

388

477

408

35

9

1.8

2.1

1.7

16

20

16

Zimbabwe

284

282

300

313

29

10

-

-

-

23

24

24


168 – Annex B. Statistical annex Table B.8. Progress on the Paris indicators for selected fragile states, 2008 Disbursements on schedule and recorded Co-ordinated by government technical assistance

Public financial management systems

Procurement

Afghanistan

48%

18%

70%

54%

40%

Burundi

33%

35%

44%

56%

36%

Cameroon

53%

63%

51%

30%

40%

Central African Rep.

24%

10%

45%

37%

34%

Chad

1%

11%

0%

64%

1%

Congo, Dem. Rep.

0%

1%

20%

38%

21%


Côte d’Ivoire

0%

9%

67%

31%

3%

Ethiopia

47%

41%

73%

67%

66%

Haiti

46%

31%

67%

65%

61%

Kenya

54%

37%

47%

64%

30%

Liberia

32%

0%

0%

35%

21%

Nepal

68%

56%

47%

15%

23%

Niger

26%

37%

78%

50%

49%

Nigeria

0%

0%

7%

71%

4%

Papua New Guinea

16%

21%

19%

25%

42%

Rwanda

42%

43%

67%

84%

38%

Sierra Leone

20%

38%

30%

22%

27%

Sudan

3%

0%

52%

53%

19%

Togo

4%

15%

14%

29%

39%

Uganda

57%

37%

74%

58%

66%

Yemen

5%

44%

33%

46%

21%

Post Conflict Countries

17%

17%

61%

47%

36%

Fragile Countries

36%

28%

59%

54%

39%

Non-fragile States

52%

51%

65%

62%

47%

Paris 2010 Target

80%

80%

71%

50%

65%

Source: OECD (2008), Better Aid: 2008 Survey on Monitoring the Paris Declaration: Making Aid more effective by 2010, OECD, Paris.



Table B.9. Measure of aid concentration for development partners (based on disbursements of CPA in 2008) ALL PARTNER COUNTRIES


Ranking of development partners (broad definition)





No. of Category D partners

16

0

7

9

44%

13

44%

3

41%

37%

Austria

10

8

0

2

80%

2

0%

19

82%

7%

Belgium

20

3

6

11

45%

11

30%

9

49%

22%

Canada

35

5

9

21

40%

14

26%

12

39%

28%

Denmark

23

1

6

16

30%

20

26%

11

37%

32%

EU institutions

43

25

14

4

91%

1

33%

7

89%

42%

Finland

22

7

1

14

36%

18

5%

17

43%

8%

No. of Category A or Category C partners

Australia

Total partner countries

No. of Category B partners

FRAGILE STATES

BILATERAL DEVELOPMENT PARTNERS

France

33

6

11

16

52%

8

33%

6

56%

39%

Germany

34

15

9

10

71%

4

26%

10

82%

47%

Greece

10

4

0

6

40%

14

0%

19

63%

6%

Ireland

18

3

4

11

39%

15

22%

14

40%

24%

Italy

30

4

7

19

37%

17

23%

13

44%

24%

Japan

38

20

3

15

61%

7

8%

16

72%

29%

Korea

24

4

1

19

21%

21

4%

18

47%

22%

Luxembourg

14

5

0

9

36%

19

0%

19

48%

18%

Netherlands

20

2

8

10

50%

9

40%

5

60%

52%

New Zealand

10

3

4

3

70%

5

40%

5

72%

34%

Norway

29

0

13

16

45%

12

45%

2

39%

34%

Portugal

10

1

4

5

50%

9

40%

5

58%

37%

Spain

30

2

12

16

47%

10

40%

5

59%

50%

Sweden

23

3

11

9

61%

6

48%

1

59%

47%

Switzerland

21

4

4

13

38%

16

19%

15

51%

29%

UK

30

11

13

6

80%

2

43%

4

48%

27%

United States

39

17

12

10

74%

3

31%

8

79%

36%

Total bilateral

582

153

159

270

54%

27%

58%

33%


170 – Annex B. Statistical annex Table B.9. Measure of aid concentration for development partners (based on disbursements of CPA in 2008) (continued) ALL PARTNER COUNTRIES


23

0

19

4

83%

6

83%

2

84%

84%

Arab Agencies






No. of Category D partners

AfDF

Total partner countries

No. of Category B partners

No. of Category A or Category C partners

FRAGILE STATES

MULTILATERAL DEVELOPMENT PARTNERS

30

4

15

11

63%

13

50%

6

58%

38%

AsDF

9

2

4

3

67%

12

44%

7

62%

46%

CarDB

1

1

0

0

100%

1

0%

12

100%

71%

EBRD

1

1

0

0

100%

1

0%

12

94%

0%

GAVI

36

14

14

8

78%

9

39%

9

50%

20%

GEF

9

5

0

4

56%

15

0%

61%

25%

Global Fund

36

5

22

9

75%

10

61%

4

62%

50%

IDA

35

11

18

6

83%

5

51%

5

90%

54%

1

0

1

0

100%

1

100%

1

96%

64%

IFAD

26

8

11

7

73%

11

42%

8

59%

26%

IMF (SAF, ESAF, PRGF)

16

2

12

2

88%

3

75%

3

87%

77%

IDB Sp.Fund

Montreal Protocol

0

0

0

0

-

-

-

-

62%

15%

Nordic Dev.Fund

5

4

0

1

80%

8

0%

12

73%

0%

UNAIDS

30

27

0

3

90%

2

0%

12

72%

1%

UNDP

39

26

8

5

87%

4

21%

10

60%

12%

UNFPA

40

30

3

7

83%

7

8%

11

62%

7%

UNICEF

40

13

20

7

83%

7

50%

6

46%

22%

UNRWA

1

0

1

0

100%

1

100%

1

100%

100%

43

26

0

17

60%

14

0%

12

68%

0%

421

179

148

94

78%

35%

65%

26%

UNTA Total multilateral

Source: Adapted from OECD 2009 Report on Division of Labour: Addressing Global Fragmentation and Concentration (Working draft – November 2009).



No. of Category A or C dev. partners

No. of Category B dev. partners

No. of Category D dev. partners

Concentration ratio (broad definition): (A+B+C)/ (A+B+C+D)


7

19

42%

21%

Korea (9.4)

35%

12

8

8

71%

29%

Belgium (10.7)

43%

11

11

5

81%

41%

AfDF (11.0)

59%

10

8

9

67%

30%

Global Fund (12.0)

48%

6

7

5

72%

39%

42% EU institutions France (10.3) (40.9)

Germany (9.5)

61%

6

10

10

62%

38%

45% EU institutions France (26.8) (33.8)

IMF (12.8)

73%

5

4

2

82%

36%

EU institutions (12.3)

UK (12.0)

49%

5

10

15

50%

33%

IDA (14.3)

Spain (11.7)

58%

8

9

7

71%

38%

80%

10

3

11

54%

13%

AfDF (9.8)

62%

7

5

6

67%

28%

Global Fund (21.6)

Sweden (16.2)

73%

5

4

1

90%

40%

Global Fund (15.6)

AfDF (8.5)

57%

6

8

9

61%

35%

EU institutions United States (15.2) (10.2)

51%

12

10

13

63%

29%

AfDF (14.7)


42%

9

8

4

81%

38%


IMF (11.7)

43%

8

10

6

75%

42%

Portugal (15.3)

IDA (15.0)

70%

5

7

10

55%

32%

63%

8

6

13

52%

22%

11

33%


Angola

28

14

50%

United States EU institutions (12.1) (13.4)

Burundi

27

15

56%

Cameroon

27

10

37%


18

9

Chad

26

11

Comoros

11

5


30

12

40%

Congo, Republic

24

11

46% EU institutions (32.2)

Côte d’Ivoire

24

7

29%

IDA (54.8)

Djibouti

18

8

44%

France (41.4)

IDA (10.3)

Equatorial Guinea

10

5

50%

Spain (35.6)

Eritrea

23

11

48%

IDA (33.3)

Ethiopia

35

15

43%

IDA (25.6)

Gambia

21

11

52%

Arab Agencies (15.5)

Guinea

24

12

50%

IDA (16.5)

Guinea-Bissau

22

8


Haiti

27

9

33%

IDA (17.1)

% of CPA from second development partner

33

% of CPA from top development partner

Afghanistan

UK (8.8)


France (35.1) EU institutions (13.0)


IDA (24.9)

IMF (14.6)

% of CPA from third development partner

7

% of dev. partners providing 90% or more of CPA

66%

No. of dev. partners providing 90% or more of CPA

Germany (6.3)

Number of development partners

Top three development partners

Table B.10. Measure of aid concentration for partner countries (based on disbursements of CPA in 2008)


United States Canada (19.5) IDB Special (26.7) Fund (16.8)













Iraq

25

2

8%


UK (4.7)

Italy (2.4)

93%

2

1

22

12%

4%

Kenya

34

15

44%


IDA (15.4)

UK(6.4)

48%

14

11

9

74%

32%

Kiribati

8

4

50%

Australia (31.0)

81%

1

4

3

63%

50%


13

5

38%


IFAD (2.3)

Switzerland (2.2)

87%

5

5

3

77%

38%

Liberia

23

9

39%

IMF (55.3)


Germany (4.5)

73%

9

4

10

57%

17%

Myanmar

22

13

59%

Japan (16.1)

UK (12.7)


40%

8

10

4

82%

45%

Nepal

30

13

43%

AsDf (17.8)

UK (14.6)

IDA (14.0)

46%

11

9

10

67%

30%

Niger

27

16


IDA (12.6)

France (10.2)

49%

8

14

5

81%

52%

Nigeria

25

9

36%


IDA (25.5)

UK (15.6)

68%

5

7

13

48%

28%

Pakistan

29

9

31%

AsDF (33.7)


UK (14.9)

65%

8

4

17

41%

14%

Papua New Guinea

20

5

25%

Australia (77.5)

87%

7

2

11

45%

10%

Rwanda

32

13

41%

IDA (15.8)

UK (12.7)


40%

12

8

12

63%

25%


16

9

56%

Portugal (33.7)

IDA (22.9)


67%

5

8

3

81%

50%

Sierra Leone

25

12

48%

UK (31.1)

IDA (15.2)


58%

10

8

7

72%

32%

Solomon Islands

9

2

22%

Australia (81.8)

New Zealand (9.8)

Japan (4.0)

96%

0

2

7

22%

22%

Somalia

22

10

45%

UK (20.2)

United States (9.8)

Italy (9.7)

40%

7

8

7

68%

36%

Sudan

31

14

45%


UK (13.5)

Netherlands (11.1)

46%

7

11

13

58%

35%

Tajikistan

25

14

56%

AsDF (19.5)


IDA (11.1)

50%

13

8

4

84%

32%



Table B.10. Measure of aid concentration for partner countries (based on disbursements of CPA in 2008) (continued)

Japan (27.1) EU institutions (22.9)

EU institutions New Zealand (5.9) (4.0)















Table B.10. Measure of aid concentration for partner countries (based on disbursements of CPA in 2008) (continued)

Timor-Leste

22

11

50%

Australia (28.8)

Portugal (15.4)


55%

10

6

6

73%

27%

Togo

20

7

35%

IDA (50.7)

IMF (15.2)


77%

9

4

7

65%

20%

Tonga

9

5

56%

Australia (44.7)

New Zealand (25.6)

Japan (13.4)

84%

2

4

3

67%

44%

Uganda

31

13

42%

IDA (13.3)

50%

10

10

11

65%

32%

West Bank and Gaza

29

10


UNRWA (22.6)


69%

8

6

15

48%

21%

Yemen, Rep.

22

11

50%

IDA (37.5)

Germany (14.1)

UK (9.6)

61%

10

7

5

77%

32%

Zimbabwe

27

14

52%

UK (31.0)

59%

11

11

5

81%

41%

Lower income countries

495

468

511

65%

32%

Lower middle income countries

300

279

485

54%

26%

Upper middle income countries

175

182

204

64%

32%

GLOBAL

970

929

1200

61%

30%



Source: Adapted from “2009 Report on Division of Labour: Addressing Global Fragmentation and Concentration”, working draft, November 2009.


GRAND TOTAL

NATO total

UN total

3

NATO ISAF (Principal Troop Contributors)

NATO KFOR (Principal Troop Contributors)

UNTSO

UNOMIG

UNMIT

UNOCI

UNMIS

UNMIL

UNMIK

UNMEE

UNFICYP

UNIFIL

UNDOF

UNAMID

UNAMI

MONUC

MINURSO

MINUSTAH

MINURCAT

Troop-contributing country Albania

3

3

Algeria

6

1

7

0

7

Argentina

3

562

3

300

11

2

3

3

5

892

0

892

Armenia

0


Australia

2

4

15

25

54

12

Austria

2

383

5

2

19

2

7

630

2 424 1 602

196

2 980

7

2

Azerbaijan

Bangladesh

2

8

1 607

235

4

149

Belgium

7

485

4

1 080

0

112

1 080

1 192

420

630

1 050

0

0

9 214

0

9 214

498

0

498

Benin

27

40

799

3

6

486

1 361

0

1 361

Bolivia

1

217

207

1

1

1

4

18

3

453

0

453

Bosnia & Herzegovina

5

2

11

6

24

0

24

Botswana

8

5

13

0

13

Brazil

3

10

1 216

2

2

3

27

10

7

1 278

0

1 278

Bulgaria

49

49

0

49

Burkina Faso

16

15

42

8

6

87

0

87

Burundi

10

9

14

33

0

33

Cambodia

143

143

0

143

Cameroon

11

7

16

70

58

162

0

162

Canada

83

10

5

2

1

38

5

7

8

2 500

159

2 500

2 659


7

11

9

27

0

27

Chad

1

6

20

27

0

27

Chile

511

1

4

516

0

516

China

13

145

234

323

343

2

18

578

476

23

8

4

2 167

0

2 167


Table B.11. Troop-contributing countries by mission

Cyprus

2

Czech Republic

3

1

18

8

7

473

Denmark

2

3

18

2

10

5

10

Djibouti

2

51

GRAND TOTAL

3

NATO total

2

158

0

158

149

0

149

UN total

5


5


4

UNTSO

14

UNOMIG

2

UNOCI

1

UNMIT

7

UNMIS

95

UNMIL

UNMIK

UNMEE

UNIFIL

65

4

UNFICYP

55

7

UNDOF

MONUC

UNAMID

MINUSTAH

38

UNAMI

MINURSO

Côte d’Ivoire Croatia

MINURCAT

Troop-contributing country


Table B.11. Troop-contributing countries by mission (continued)

2

0

2

37

473

510

50

942

992

53

0

53

DRC

2

20

22

0

22

Ecuador

2

67

4

20

2

95

0

95

Egypt

13

27

24

22

780

12

851

22

5

1 756

0

1 756

El Salvador

9

4

3

8

46

35

9

11

3

128

0

128

Estonia

2

2

2

379

1 804

15

2

2 200

0

2 200

223

12

15

2

252

0

252

37

416

453

2 730

2 522

4 682

7 204

1

0

1

0

17

Finland

1

9

5

5

2

2

13

416

France

18

14

61

15

2

2 177

1

32

2

194

3

3

1 952

FYR of Macedonia

1

Gabon

1

11

5

17

386

0

386

0

0

Gambia

2

310

2

20

18

31

3

Georgia

Germany

5

234

1

121

6

44

13

2 249

3 310

424

5 559

5 983

Ghana

4

18

485

485

880

4

31

755

18

552

2

3 234

0

3 234 833

Greece

1

192

1

2

3

4

630

203

630

Grenada

3

3

0

3

Guinea

3

4

78

24

6

1

116

0

116


Ethiopia Fiji

GRAND TOTAL

5

246

0

246

6

0

6

112

0

112

2

0

2

UNAMI

UN total

NATO total



UNTSO

8

UNOMIG

UNOCI

UNMIT

1

UNMIS

2

UNMIL

UNMIK

UNMEE

2

UNIFIL

UNFICYP

110

UNDOF

118

UNAMID

MONUC

6

MINURSO

MINURCAT

MINUSTAH

Troop-contributing country Guatemala Honduras Hungary

6

84

4

11

7

Iceland

2

India

4 696

187

7

897

159

89

124

2704

13

7

8833

0

8833

Indonesia

191

16

870

3

19

4

1103

0

1103

Ireland

3

4

19

7

4

2

11

50

240

290


Israel

1

1

0

1

Italy

5

4

1

1

4

2420

43

7

2161

2350

2485

4511

6996

Jamaica

11

1

4

16

0

16

Japan

29

29

0

29

Jordan

6

1 062

92

40

14

75

270

48

21

1 452

7

3087

0

3087

Kazakhstan

0

0

0

Kenya

2

21

85

21

14

23

845

1011

0

1011

33

0

33

0

0 11

Kyrgyzstan

3

1

9

8

10

2

Latvia

Libya

9

2

11

0

Lithuania

6

2

8

0

Luxembourg

1

1

Madagascar

12

1

3

13

7

36

0

36

134

24

4

10

6

178

0

178

Malaysia

32

17

58

370

1

10

14

210

712

0

712

Mali

8

46

24

15

4

5

102

0

102

Malawi

8 1

Mauritania

14

14

0

14

Moldova

3

2

4

1

10

0

10

Mongolia

3

2

1

250

2

1

259

0

259



Montenegro

2

Morocco

835

724

GRAND TOTAL

NATO total

UN total



UNTSO

UNOMIG

UNOCI

UNMIT

UNMIS

UNMIL

UNMIK

UNMEE

UNIFIL

UNFICYP

UNDOF

UNAMID

UNAMI

MONUC

MINUSTAH

MINURSO

MINURCAT

Troop-contributing country



2

0

2

1559

0

1559

Mozambique

2

1

3

0

3

Namibia

1

2

10

10

13

2

38

0

38

3705

0

3705

1770

51

1770

1821

Nepal

2

2

68

868

2

7

304

69

85

4

1

3

Netherlands

2

7

30

12

New Zealand

1

1

3

25

8

Niger Nigeria

1 234 1 056

38

38

12

71

73

31

3

433

623

0

623

3

8

128

23

3147

1

21

1 843

45

53

8

1

5281

0

5281

10

29

1

3 420 1 589

181

1 270

10

Norway

6

5

1

10

Pakistan

2

8

250

3 641

92

2

128

Paraguay

3

31

11

1

4

8

12

64

0

64

10

10593

0

10593

68

0

68

Peru

205

4

2

4

18

3

236

0

236

Philippines

169

42

26

199

23

152

7

3

621

0

621

981

1130

2111

353

0

353

1

1

3

347

488

1

123

6

2

2

7

6

146

2

199

1130

Qatar

3

3

0

3

Republic of Korea

367

2

8

6

7

390

0

390

265

0

265

284

0

284

Romania

21

25

5

181

3

14

7

7

2

Russia

15

7

31

3

38

14

149

5

11

7

4

10

278

3

2968

0

2968

8

6

24

0

24 1918

Rwanda

11

11

2655

Samoa

10

Senegal

26

146

741

624

3

1

377

1918

0

Serbia

5

6

10

3

24

0

24

Sierra Leone

20

1

21

0

21


Poland Portugal

3

Slovenia

14

South Africa

1 173

759

6

3

1

Spain

2

36

6

1139

2

16

9

1

636

Sri Lanka

3

972

4

1

8

25

55

Sweden

11

7

3

10

16

15

4

5

7


Switzerland

3

5

2

6

10

Tanzania

29

75

2

17

3

GRAND TOTAL

NATO total

23

UN total


UNOCI

UNMIL


UNTSO

UNOMIG

UNMIK

196

UNIFIL

UNMIT

UNMIS

UNMEE

UNFICYP

UNDOF

UNAMID

UNAMI

MONUC

MINUSTAH

MINURSO

MINURCAT

Troop-contributing country Singapore Slovakia

23

0

23

199

0

199

23

0

23

1934

0

1934

1211

636

1847

1068

0

1068

78

0

78

26

0

26

126

0

126

Thailand

8

12

13

33

0

33

Togo

6

8

9

3

331

357

0

357

Turkey

59

1

5

506

136

26

36

13

6

5

544

800

793

1344

2137

Tunisia

497

Uganda

2

92

4

10

511

0

511

4

18

19

7

5

147

0

147

547

0

547

8330

327

8330

8657

Ukraine

13

1

186

319

20

2

6

UK

6

1

2

260

2

45

3

3

5

United States

50

1

4

214

28

11

2

4

314

22,092

22406

Uruguay

6

1 149

1 371

38

4

2

3

7

3

2583

0

2583

Vanuatu

14

14

0

14

1,492

20600

Yemen

16

6

1

7

44

8

31

21

16

3

153

0

153

Zambia

2

19

92

3

10

8

368

19

2

523

0

523

Zimbabwe

2

24

33

47

48

2

156

0

156

271

225

10,667 1043

915

12543

TOTAL

8879 18,434 233

308

1939 12,708 9933

1575

9153

150

154

14,759

50,719

89,130

Source: Center on International Cooperation (2009), Annual Review of Global Peace Operations 2009, Center on International Cooperation, New York.

65,478 154,608




Table B.12. Internal pooled funds combining ODA and non-ODA financing Start date

Objectives

Management

2008 Funding

Global Peace and Security Fund (GPSF) (Canada)

May 2005

• • • • • •

Within the Department of Foreign Affairs and International Trade (DFAIT), the Stabilization and Reconstruction Task Force (START) manages the GPSF

Budget of CAD 235 million for fiscal year 2007-08

Instrument for Stability (EC)

1. In a situation of crisis or emerging crisis, to contribute to stability By Regulation (EC) by providing an effective response to help preserve, establish or N°1717/2006 of the re-establish the conditions essential to the proper implementation of European Parliament and the Council of 15 November the Community’s development and co-operation policies; 2006. Operational in 2007 2. In the context of stable conditions for the implementation of Community co-operation policies in third countries, to help build capacity both to address specific global and trans-regional threats having a destabilising effect and to ensure preparedness to address pre- and post-crisis situations.

Directorate A of the DirectorateGeneral for External Relations (DG RELEX) of the European Commission. DG RELEX programmes “Assistance in the context of stable conditions for cooperation” but EuropeAid Co-operation Office (DG AIDCO) manages these.

EUR 136.9 million (compared to EUR 100 million in 2007)

Peace Facility for Africa (EC)

By Decision No 3/2003 of the ACP-EC Council of Ministers of 11 December 2003 on the use of resources from the longterm development envelope of the ninth EDF for the creation of a Peace Facility for Africa. Operational in May 2004

Aims to support the African Union and sub-regional organisations by financing costs incurred by African countries deploying their peacekeeping forces in one or more other African countries as well as capacity building for the emerging security structure of the African Union (AU). Can cover the cost of carrying troops, soldiers’ living expenses, development of capabilities etc. but not military and arms expenditure.

DG DEV and African Union

EUR 13.9 million paid in 2008. APF initial allocation in 2006: EUR 250 million. Three replenishments under the 9th EDF: EUR 50 million (2006) EUR 45 million (2007) EUR 55 million (2008). + contribution of EUR 39.2 million from eight EU Member States (2007). From the 10th EDF, the EC has committed EUR 300 million to the APF for 2008-10.

Stabilisation Fund (Netherlands)

2004

To provide rapid and flexible support for activities that are required to promote peace, security and development in countries and regions where violent conflicts are threatening to erupt or have already erupted. The fund will link up with ongoing formal peace processes as far as possible, in order to support and strengthen them.

Commission with staff from different departments of Ministry of Foreign Affairs and Ministry of Defence. But only Peacebuilding and Stability unit and Security Policy department (MFA) have budgetary control

EUR 90 million

Enable Stabilization and Reconstruction Task Force (START) to: Support peace processes and mediation efforts Develop transitional justice and reconciliation initiatives Build peace enforcement and peace operations capabilities Promote civilian protection strategies in humanitarian contexts Reduce the impact of landmines, small arms and light weapons.


Fund name

Fund name

Start date

Objectives

Management

Stabilisation Aid Fund (UK)

2007

To assist with “civil effect”: stabilisation and reconstruction spending in volatile or hostile operational theatres/ areas where the security situation does not allow for traditionally funded programmes.

Stabilisation Unit (comprising GBP 62 million Ministry of Defence, DFID, and Foreign and Commonwealth Office staff members)

To enhance the effectiveness of the UK’s contribution to conflict prevention. It is intended to deliver long-term conflict prevention, through regional programmes focused where the UK can have its biggest impact, and through thematic programmes that deal with crosscutting conflict prevention issues.

Run jointly by the Foreign & Commonwealth Office (FCO), Ministry of Defence (MOD) and DFID.

Conflict Prevention Pool Current single fund (UK) established on 1 April 2008. In 2001, set up as two Conflict Prevention Pools – Global and Africa

Sources: Information from various government websites of development partners, accessed November 2009.

2008 Funding

GBP 71.6 million in financial year 2008-09.


Table B.12. Internal pooled funds combining ODA and non-ODA financing (continued)



Table B.13. Global funds for peacebuilding and statebuilding Fund name

Start date

Objectives

Management

2008 Funding

Peacebuilding Fund (UN)

Launched on 11 October 2006

Focuses on providing support during the very early stages of a peacebuilding process, as well as addressing any gaps in the process, in four main areas: • Activities in support of the implementation of peace agreements; • Activities in support of efforts by the country to build and strengthen capacities which promote coexistence and the peaceful resolution of conflict; • Establishment or re-establishment of essential administrative services and related human and technical capacities; and • Critical interventions designed to respond to imminent threats to the peacebuilding process.

The Peacebuilding Support Office (PBSO) within the UN Secretariat provides overall direction and guidance on the programme management and monitors operations. UNDP’s Multi-Donor Trust Fund (MDTF) Office is the Administrative Agent, responsible for overall financial management.

Total income of USD 98 130 590, of which USD 41 150 043 transferred to implementing agencies

State and Peacebuilding Fund (World Bank)

Approved by the Bank’s Board of Directors in April 2008. The SPF replaces the Post-Conflict Fund (PCF) and the LICUS Trust Fund (LICUS TF) which have been operational since 1998 and 2004, respectively. These two funds are scheduled to close on 31 December 2011.

To support measures to improve governance and institutional performance in countries emerging from, in, or at risk of sliding into, crisis or arrears. To support the reconstruction and development of countries prone to, in, or emerging from conflict.

The Fragile and ConflictAffected Countries Group in the Operational Policy and Country Services Vice Presidency of the World Bank.

Grants approved by the SPF, PCF and LICUS TF in 2008 totalled USD 31.6 million

To provide a more integrated financing framework for eligible fragile states. Specifically, to strengthen capacity and accountability in economic and financial governance, including the management of natural resources.

Fragile States Unit within the Resource envelope African Development Bank. of UA 511.4 million, Established in July 2008. comprising UA 408.4 million allocated from the ADF-XI replenishment and a carryover of UA 102.9 million from the Post Conflict Country Facility (PCCF).

Fragile States Facility March 2008. Replaces the (African Development Post-Conflict Enhancement Factor (PCEF) that was Bank) introduced in 2002 and terminated at the end of 2007. This enabled fragile states to receive resources additional to their Performance Based Allocation.

Sources: Information from various government websites of development partners, accessed November 2009.


182 – Annex B. Statistical annex Table B.14. GEF and CDM climate change funds to fragile states (total USD, thousand)

Least Developed Country Fund (LDCF) Fragile states Uganda

NAPA funded Y

Total Grants

Special Climate Change Fund (SCCF)

GEF Trust Fund (climate change)

Total

Total Grants

Total Grants

Total Grants

31983

32183

19069

21696

11059

11059

200

Pakistan

2627

Nigeria Sudan

Y

3200

6265

9465

Rwanda

Y

3355

4830

8185

7380

7380

5243

6438

Kenya Ethiopia

Y

200

995

Yemen, Rep.

Y

4700

1125

5825

Kiribati

Y

3200

1800

5000

Sierra Leone

Y

2845

2067

4912

Liberia

Y

3100

1758

4858

Guinea-Bissau

Y

4200

346

4546

Niger

Y

3700

446

4146

Haiti

Y

35699

440

36139

Comoros

Y

3600

410

4010


Y

3450

350

3800

Congo, Dem. Rep.

Y

3200

419

3619

Eritrea

Y

3200

304

3504

Guinea

Y

202.97

2446

2648.97

Djibouti

Y

2200

310

2510

Togo

Y

200

2256

2456

Chad

Y

200

1959

2159

Gambia

Y

198

1896

2094

1392

1392

190

1173

Côte d’Ivoire

1122

1122

North Korea

879

879

Tajikistan Zimbabwe

983

Burundi

Y

200

419

619

Nepal

Y

200

410

610


Y

200

350

550

Congo. Rep.

445

445

Papua New Guinea

438

438

Tonga

425

425



Table B.14. GEF and CDM climate change funds to fragile states (total USD, thousand) (continued)

Least Developed Country Fund (LDCF) Fragile states

NAPA funded

Total Grants

Special Climate Change Fund (SCCF)

GEF Trust Fund (climate change)

Total

Total Grants

Total Grants

Total Grants

265

265

Cameroon Afghanistan

Y

200

200

Angola

Y

200

200

Solomon Islands

Y

200

200

Timor-Leste

Y

200

200

Equatorial Guinea Iraq Myanmar (Burma) Somalia West Bank and Gaza Fragile states total

82250

4605

110496

197351

Fund grants total

111860

91196

2600000

2803056

Fragile states %

74%

5.0%

4.2%

7%

Source: GEF, LDCF and SCCF: http://gefonline.org/; CDM: http://cdm.unfccc.int/Statistics/index.html, accessed November 2009.


2005

2006

2007

2008

2009 (current prices)

Total (2005-08)

Grants USD

No. grants

Grants USD

No. grants

Grants USD

No. grants

Grants USD

No. grants

Grants USD

No. grants

Grants USD

No. grants

Kenya

48 601 718

128

178 498 967

171

262 319 525

109

43 629 730

107

19 008 790

52

533 049 940

515

Nigeria

13 454 384

73

22 419 986

122

25 933 924

70

16 982 192

69

12 211 171

23

78 790 485

334

Uganda

10 920 012

73

13 377 787

120

8 462 113

67

17 586 696

59

4 708 550

17

50 346 608

319

990 175

7

33 250 472

107

31 274 893

98

14 370 608

192

14 323 714

76

7 578 774

69

Zimbabwe

8 759 130

19

11 773 607

43

10 192 928

25

2 524 806

20

Ethiopia

8 759 130

19

8 474 925

30

9 968 970

38

4 071 868

11


West Bank and Gaza

3 018 099

18

1 946 594

38

2 900 000

15

6 505 915

121

Pakistan

1 598 488

10

1 874 805

30

7 309 282

18

3 541 140

18

5 700 000

Nepal

2 036 682

17

928 646

28

1 952 067

8

2 661 380

16

Papua New Guinea

2 814 080

5

183 819

5

259 900

2

397 071

6

3 654 870

18

Rwanda

1 119 663

8

206 925

12

308 000

5

1 066 137

3

2 700 725

28

Gambia, The

694 303

3

577 952

3

570 000

2

0

Tajikistan

357 780

4

708 551

13

741 625

13

0

Haiti

627 016

33

477 395

31

404 160

20

179 421

Cameroon

160 769

7

853 881

32

247 269

5

329 299

Côte d’Ivoire

241 284

5

361 940

8

607 002

7

Sierra Leone

344 189

4

335 620

12

233 481

6

1 025 000

395 000

21 4

1

1 842 255

8

1 807 956

30

15

1 687 992

99

12

1 591 218

56

9 781

1

1 220 006

21

239 636

1

1 152 926

23

Liberia

0

115 529

8

55 000

2

832 071

9

1 002 600

19

Guinea

130 275

4

533 773

11

134 000

2

100 085

2

898 132

19

Sudan

167 481

3

244 350

3

209 600

3

117 373

1

738 804

10

1

556 308

13

514 656

4

Afghanistan

0

111 964

6

415 000

6

29 343

Angola

0

17 458

1

497 198

3

0

302 267

8

70 000

4

46 656

9 405

2

23 500

3

0

100 340

1

116 737

3

65 533

3

Niger Myanmar Congo, Dem. Rep.

0 292 561

1

8 480

2

92 936

12

Congo, Rep.

42 400

1

104 266

13

Somalia

47 700

1

Iraq Togo Yemen, Rep.

0 8 480 0

1

46 211

1

69 831

10

102 623

14

37 996

5

90 000 10 000

1 1

1

358 000 32 820

1 2

418 923

13

325 466

6

318 494

18

212 200

17

24 453

2

208 364

5

115 739

3

185 570

13

30 198

2

151 302

18

29 343

3

67 339

8


Table B.15. United States foundation grants to fragile states, 2005-08 (2007 prices)


Table B.15. United States foundation grants to fragile states, 2005-08 (2007 prices) (continued) 2005 Eritrea

Grants USD 21 200

São Tomé and Principe Chad

21 200

1

Grants USD 20 538

1

Tonga

No. grants 1

Grants USD 15 000

2008 No. grants

0

No. grants

Grants USD

No. grants

0 48 905

1

Total (2005-08) Grants USD

No. grants

56 739

3

48 905

1

10 269

1

0

31 469

2

5

0

28 754

5

0 1

Grants USD

1

2009 (current prices)

28 754

0 12 706

2007

0

0

Djibouti

Total fragile states

No. grants

0

Burundi Central African Republic

2006

19 562

1

3 594

1

19 562 0

1

16 301

2

7 188

1

0

7 188

1

104 259 210

442

244 860 351

801

334 029 884

437

101 301 073

491

44 429 506

128

784 450 518

2 171

% all grants to fragile states

9%

8%

12%

12%

17%

8%

5%

12%

8%

11%

10%

10%

% all developing country grants to fragile states

19%

13%

27%

16%

31%

12%

12%

16%

13%

13%

20%

13%

Source: http://fconline.foundationcenter.org/maps/, accessed on 15 November 2009.


186 – Annex B. Statistical annex Table B.16. Inward FDI to fragile states, 2000-08 (USD million) Afghanistan Angola Burundi

2000

2001

2002

2003

2004

2005

2006

2007

2008

0.17

0.68

50.00

57.80

186.90

271.00

238.00

243.00

300.00

878.62

2145.47

3133.46

5685.00

5606.41

6794.20

9063.67

9795.81

15547.74

11.68

0.00

0.00

-0.01

0.04

0.58

0.03

0.50

0.50

158.80

73.29

601.75

383.00

319.34

224.66

309.00

284.33

259.71

0.84

5.18

5.60

22.20

28.58

32.42

34.62

56.75

121.11

115.17

459.87

924.12

712.66

466.79

-99.34

655.97

717.55

833.62

0.09

1.15

0.43

0.79

0.67

0.56

0.58

7.52

8.06

Congo

162.08

71.35

130.56

321.40

-13.06

513.59

1919.33

1816.11

2621.68

Côte d’Ivoire

234.70

272.68

212.58

165.39

282.98

311.92

318.86

426.78

352.52

23.35

82.00

117.00

158.00

9.92

-76.03

-107.72

720.00

1000.00

3.29

3.35

3.50

14.22

38.54

59.04

163.59

195.35

234.00

Cameroon Central African Republic Chad Comoros

Dem. Rep. of the Congo Djibouti

111.38

940.74

323.39

1443.57

1650.62

1873.10

1655.76

1726.50

1289.62

Eritrea

Equatorial Guinea

27.88

12.10

20.00

22.00

-7.87

-1.04

0.45

-0.11

-0.23

Ethiopia

134.64

349.40

255.00

465.00

545.10

265.11

545.26

221.99

92.67

Gambia

43.52

35.48

42.83

14.90

49.10

44.69

71.22

76.46

62.54

Guinea

9.94

1.68

30.00

82.80

97.90

105.00

125.00

385.90

1349.59

0.70

0.40

3.55

4.01

1.68

8.69

17.74

18.51

14.98

Haiti

Guinea-Bissau

13.25

4.40

5.70

13.80

5.90

26.00

160.00

74.50

29.80

Iraq

-3.14

-6.45

-1.59

-0.02

300.00

515.30

383.00

485.10

488.00

Kenya

110.90

5.30

27.63

81.74

46.06

21.28

50.73

728.01

95.58

Kiribati

17.60

15.10

14.50

16.40

18.80

0.76

12.93

-8.28

1.95

Korea, Dem. People’s Rep. of Liberia Myanmar

3.42

-3.83

-16.39

158.22

196.89

50.24

-104.62

66.73

43.80

20.80

8.30

2.80

372.22

75.36

82.81

107.85

131.78

143.82

208.00

192.00

191.40

291.23

251.00

235.80

427.79

257.69

283.45

Nepal

-0.48

20.85

-5.95

14.78

-0.42

2.44

-6.55

5.89

1.00

Niger

8.44

22.90

2.40

11.47

19.71

30.29

50.54

129.04

146.94

1309.67

1277.42

2040.18

2171.39

2127.09

4978.26

13956.49

12453.74

20278.50

Nigeria Occupied Palestinian territory Pakistan Papua New Guinea

62.00

19.20

9.40

18.00

48.90

46.50

18.60

28.30

29.21

309.00

383.00

823.00

534.00

1118.00

2201.00

4273.00

5590.00

5438.00

99.20

64.31

18.32

101.38

25.74

33.53

-6.87

95.85

-30.41

Rwanda

8.10

18.50

1.50

2.60

10.90

14.30

15.50

67.17

103.35


3.80

3.00

3.60

3.40

3.50

15.67

37.51

35.31

32.50

38.88

9.84

10.41

8.62

61.15

83.18

58.62

94.49

29.60

Solomon Islands

Sierra Leone

1.36

-9.31

-4.00

-1.80

5.68

18.58

34.10

66.70

75.51

Somalia

0.27

0.04

0.14

-0.85

-4.79

24.00

96.00

141.00

87.00

392.21

574.00

713.18

1349.19

1511.07

2304.64

3541.36

2436.34

2600.50

23.54

9.50

36.07

31.65

272.03

54.48

338.63

359.90

375.80

Sudan Tajikistan Timor-Leste

_

4.72

2.93

0.06

0.48

0.28

0.34

Togo

41.47

63.58

53.36

33.73

59.36

76.99

77.34

49.16

67.83

Tonga

4.80

1.11

-0.33

3.28

4.60

16.85

10.08

28.11

5.72

180.81

151.50

184.65

202.19

295.42

379.81

644.26

733.03

787.38

6.40

135.50

101.70

5.50

143.60

-302.10

1121.00

917.30

463.00

23.20

3.80

25.90

3.80

8.70

102.80

40.00

68.90

51.60

Uganda Yemen Zimbabwe

_

_

Source: UNCTAD Foreign Direct Investment database, accessed November 2009. Resource Flows to Fragile and Conflict-Affected States 2010 – © OECD 2010


Table B.17. Exports and imports by fragile states 2008

2009 (estimate)

Exports (% of GDP)

Imports (% of GDP)

Exports minus Imports (% of GDP)

Exports (% of GDP)

Imports (% of GDP)

Exports minus Imports (% of GDP)

Afghanistan

20.5

80.3

-59.8

18.8

73.7

-54.9

Angola

78.6

42.2

36.4

45.3

37.9

7.4

Burundi

10.1

45.9

-35.8

7.0

31.8

-24.8

Cameroon

35.0

33.6

1.4

22.9

29.2

-6.3


10.8

22.1

-11.3

9.1

20.0

-10.9

Chad

54.7

49.3

5.4

39.0

51.1

-12.1

Comoros

12.9

44.6

-31.7

13.0

43.1

-30.1


61.3

76.4

-15.1

31.9

61.5

-29.6

Congo, Republic of

83.9

66.8

17.1

78.4

76.0

2.4

Côte d’Ivoire

46.5

38.8

7.7

41.7

33.8

7.9

Djibouti

40.0

80.0

-40.0

45.5

64.6

-18.2

Equatorial Guinea

78.3

32.1

46.2

74.1

41.6

32.5

Eritrea

7.3

31.8

-24.5

7.7

26.7

-19.0

Ethiopia

11.9

32.3

-20.4

9.6

26.6

-17.0

Gambia

27.7

46.7

-19.0

29.5

51.6

-22.1

Guinea

32.4

42.6

-10.2

28.9

30.9

-2.0

Guinea-Bissau

29.8

49.8

-20.0

29.4

51.3

-21.9

Iraq

69.4

54.6

14.8

54.2

79.0

-24.8

Kenya

27.2

40.1

-12.9

24.6

34.5

-9.9

Liberia

92.4

233.9

-141.5

76.3

237.9

-161.6

Niger

18.5

33.7

-15.2

17.1

42.1

-25.0

Nigeria

38.8

29.1

9.7

28.0

33.5

-5.5

Pakistan

14.6

27.5

-12.9

13.8

22.9

-9.1

Rwanda

13.2

31.1

-17.9

10.0

26.9

-16.9


12.3

73.9

-61.6

9.7

85.4

-75.7

Sierra Leone

17.0

27.8

-10.8

15.9

23.4

-7.5

Sudan

22.4

21.6

0.9

13.8

17.5

3.7

Tajikistan

17.6

72.5

-54.9

13.0

60.9

-47.8

Togo

23.5

41.0

-17.5

21.5

37.6

-16.1

Uganda

21.7

31.8

-10.1

20.0

32.4

-12.4

Yemen

36.1

40.9

-4.8

24.4

29.8

-5.3

Source: IMF Regional Economic Outlooks (various).


188 – Annex B. Statistical annex Table B.18. Government revenues in fragile states, 2005-10 (% GDP) Country Afghanistan

2005

2006

2007

2008

2009

2010

6.4

7.5

6.9

6.9

7.7

8.2

Angola

40.4

46.4

46.7

47.6

35

35.4

Burundi

20.0

18.9

18.6

19.1

19.4

19.5

Cameroon

17.6

19.3

18.8

20.4

17.7

16.5

8.2

9.5

10.3

10.5

11.6

12.2

9.4

16.9

22.8

27.4

13.2

17.0

15.7

13.6

12.7

13.1

13.0

13.3

Central African Republic Chad Comoros Congo. Dem. Republic of

11.3

12.9

14.8

18.5

16.5

16.4

Congo, Republic of

38.6

44.3

42.7

51.3

29.6

42.5

Côte d’Ivoire

17.0

18.4

19.2

18.9

18.9

19.4

Djibouti

30.9

31.1

30.2

28.8

28.8

28.1

Equatorial Guinea

34.7

40.8

38.3

36.8

29.3

31.4

Eritrea

25.9

23.0

22.8

23.2

23.1

25.6

Ethiopia

14.6

14.8

12.8

12.5

12.5

12.5

Gambia, The

19.7

21.2

21.4

18.4

21.9

21.4

Guinea

14.5

14.4

14.3

15.5

15.3

15.7

Guinea-Bissau

17.6

19.0

14.6

16.8

14.1

14.8

Iraq

79.4

68.2

71.5

78.6

64.6

65.1

Kenya

21.2

21.1

22.2

22.0

21.5

21.1

Liberia

15.0

16.7

23.6

28.6

33.0

33.0

Niger

10.6

13.0

15.2

18.4

12.2

12.3

Nigeria

24.8

21.2

16.0

18.6

11.4

13.9

Pakistan

13.8

14.1

15.0

14.6

14.1

14.4

Rwanda

13.5

13.1

13.6

15.6

13.1

13.7

São Tomé and Príncipe

64.0

20.9

40.1

16.6

18.6

30.2

Sierra Leone

11.9

11.8

10.8

11.4

12.2

13.2

Sudan

23.0

20.5

20.0

21.3

14.7

17.0

Tajikistan

19.3

18.9

20.5

20.5

17.5

17.5

Togo

15.7

16.9

17.0

17.1

16.9

17.6

Uganda

12.2

12.5

12.6

13.0

12.4

12.3

Yemen

34.5

38.2

32.8

36.5

26.2

26.9

Zimbabwe

23.6

14.3

6.0

-

-

-

Source: IMF Regional Economic Outlooks (various, 2009).


annex C. Background – 189

Annex C Background The purpose of the Resource Flows to Fragile and Conflict-Affected States 2010 is to provide policy makers and country offices with a tool to better monitor the levels, timing and composition of resource flows to fragile states. Improved transparency of the volumes and characteristics of resource flows will assist those involved in international co-operation, both in the field and at headquarters, to identify and address obstacles to more effective resource allocation to fragile states. The findings from the monitoring work to date (2005-10) have exposed aspects of international marginalisation. The 2010 report in particular highlights the current fallout facing fragile states in the wake of the economic crisis. This should be fed into existing development partner, partner country and regionallevel meetings in the course of 2010-11, highlighting both the urgent and long-term needs of this group of countries. The implications for international stability, poverty and human security resulting from state fragility set the background. Performance of aid, the growing recognition of the importance of other non-aid flows and the options and challenges they offer frame this series of reports. The January 2005 Senior Level Forum on Development Effectiveness in Fragile States recommended the regular monitoring of resource flows to fragile states, resulting in the approval of the OECD Development Assistance Committee (DAC) Secretariat proposal for a yearly report on monitoring Resource Flows to Fragile and Conflict-Affected States in December 2005 (OECD, 2008). The 2007 High Level Meeting requested that the OECD DAC undertake further analysis on the amount of non-ODA eligible financing spent on peacebuilding, conflict prevention and security activities, and draw on best practices for such spending.

Previous annual reports The first 2005 report1 analysed a group of 35 fragile states.2 It looked in particular at: (i) the need for and levels of aid; (ii) governance indicators; (iii) volatility of aid flows; and (iv) international presence and attention. The 2006 report was expanded to cover all International Development Association (IDA) eligible countries, in addition to the bottom two quintiles of the Country Policy and Institutional Assessment (CPIA) index. This allowed comparisons between fragile and non-fragile countries, and was presented to the OECD DAC and the Senior Level Meeting for information.3 The 2007 report was expanded to include illustrative data from a broad range of international actors; data on non-official flows through non-governmental organisations (NGOs); and non-ODA flows such as peacekeeping and other security-related expenditures of development partners. It concluded that increased aid was highly concentrated on a few fragile states, comprising large levels of debt relief. It also emphasised the role of other flows, necessitating enhanced co-operation and a shared objective of statebuilding. This was further highlighted in last year’s 2008 report,4 drawing additional attention to areas where whole-of-government approaches are appropriate, and calling for increased country-level analysis.


190 – annex C. Background

Notes 1.

www.oecd.org/dac/fragilestates/resource.

2. The 35 countries analysed were those in the bottom two quintiles of the World Bank’s CPIA in 2003 in addition to unrated countries such as Afghanistan, Liberia, Myanmar, Somalia and Timor-Leste. 3. In addition, the 2006 report uses the 2005 CPIA results, which were in the public domain for the first time and which are more relevant as a measure of institutional performance than the World Bank Aggregate Governance Indicators dataset used in the 2005 report. 4. All previous reports were published in the year following the title. Thus the 2008 report was published in 2009. Titling convention has now been changed, so that this year’s report is titled 2010. It covers data for 2008, as well as certain data and projections for 2009 aid and beyond.


ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where governments work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Commission takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members.


Resource Flows to Fragile and Conflict-Affected States Fragile states lag far behind meeting the Millennium Development Goals (MDGs) by 2015, representing 75% of the MDG deficit. Fragile states already lacked the institutional strength to adequately respond to both financial and environmental shocks. The effects of three consecutive and inter-related shocks – food, fuel and the secondary effects of the financial crisis – risk reversing progress achieved by some post-conflict states, and further entrenching insecurity in others. Although official development assistance to fragile states is growing in real terms, it is increasingly concentrated, and half of fragile states face the prospects of declining aid. There is a need to maintain aid levels and meet aid pledges, but also to improve the quality of support to fragile states. This report serves as a tool to better monitor the levels, timing and composition of resource flows to fragile states, and presents salient facts on aid flows to fragile states, the impact on fragile states of the three crises and the need for a whole-of-government response.

Please cite this publication as: OECD (2010), Resource Flows to Fragile and Conflict-Affected States, OECD Publishing. http://dx.doi.org/10.1787/9789264092198-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.

43 2010 16 1 E

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