Development cooperation in times of the financial crisis

Dawn of a new era?

Challenges of the economic crisisEBC Seminar24.05.2011

Reinhard Schmidbauer

Agenda

I. Official Development Assistance (ODA)i. Net disbursements by biggest donor countriesii. Allocation of ODA among regionsiii. Criticism

II. Remittancesi. Top 20 remittance-recipient countries

III.The Private Sectori. MNC’s and FDIii. Business at the BoPiii. Social Business

IV. Conclusion: Partnership for Development 2

Official Development AssistanceDefinition

Official Development Assistanceis defined as financial flows to developing countries, which…(1) promote economic development and welfare of developing c.(2) are concessional with at least 25% grant element(3) may be bilateral or multilateral

Millennium Development Declarationtime bound targets to address developing worlds most pressing issues 2010 target: 0.51% of GNI 2015 target: 0.70% of GNI

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Total ODA (millions of dollar)

2008 2010 2008 vs. 2010

ODA (% of GNI)

2008 2010 2008 vs. 2010

Total DAC countries 119,781 128,728 8,947 0.30 0.32 0.02

Total EU 70,974 70,150 -824 0.43 0.46 0.03

Australia 2,954 3,849 895 0.32 0.32 0

Canada 4,795 5,132 337 0.33 0.33 0

Japan 9,601 11,045 1,444 0.19 0.20 0.01

Norway 4,006 4,582 576 0.89 1.10 0.21

United States 26,437 30,154 3,717 0.19 0.21 0.02Source: OECD (2011): International Development StatisticsNote: data for 2010 are preliminary

Official Development AssistanceODA net disbursements

Almost all rich nations fail to reach the obligated target!

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Official Development AssistanceAllocation among regions

“ODA is allocated in some strange and arbitrary ways.” UN, 1994

Region ODA per capita (in U.S. $)

GNI per capita (in U.S. $)

GNI per capita ($ PPP)

ODA as share of GNI (%)

Middle East and North Africa 41 3,597 7,911 1.1

Sub-Saharan Africa 53 1,125 2,051 4.9

Latin America and Caribbean 16 7,007 10,286 0.2

East Asia and Pacific 5 3,163 6,026 0.2

South Asia 9 1,107 2,972 0.8

Europe and Central Asia 20 6,793 12,609 0.3Source: World Bank (2011): World Development Indicators

politically motivated does not reflect poor countries needs primarily serves donor countries economic interests

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Official Development AssistanceCriticism

Inflated vs. genuine aid Military support Refugee costs (incl. repatriation) Foreign students costs Debt cancellation Conditional (“tied”) aid

Effects of aid: added about 1 percentage point to annual growth subject to diminishing returns causes “Dutch disease” may strengthen autocratic regimes often subject to embezzlement

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RemittancesTop 10 recipient countries (2009/10)

Jordan

Guyana

Honduras

Samoa

Lebanon

Nepal

Moldova

Lesotho

Tonga

Tajikistan

0 5 10 15 20 25 30 35

16

17

19

22

22

23

23

25

28

35

Top 10 Remittance-Receiving Countries, 2009 (% of GDP)

Nigeria

Spain

Belgium

Bangladesh

Germany

France

Phillipines

Mexico

China

India

0 10 20 30 40 50 60

10

10.210.4

11.1

11.6

15.9

21.3

22.6

51

55

Top 10 Remittance-Receiving Countries, 2010e (US $ billions)

Source: World Bank (2011): WDI 7

The Private SectorMNC and FDI

MNC characteristics: large size worldwide operations centrally controlled by parent companies

Pros: fill savings- and investment-gaps reduce balance of payment deficits government tax revenues knowledge and technology spill-overs

Cons: repatriation of profits tax concessions by host countries crowding-out of local industries widening wage gap

“MNCs present a unique opportunity but may pose serious problems for the developing countries in which they operate (Todaro and Smith 2009).”

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Finance for DevelopmentResource Flows to Developing Countries

19901992

19941996

19982000

20022004

20062008

2010-100

0

100

200

300

400

500

600

700

FDIPortfolio InvestmentRemittancesODABi

llion

s of

US

$

Source: World Bank (2011): WDI

Resource flows to developing countries declined during the financial crisis

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The Private SectorBusiness at the Bottom of the Pyramid

“The real source of market promise is […] the billions of aspiring poor who are joining the market economy for the first time (Prahalad 2002)”.

*based on purchasing power parity in US$Source: Prahalad (2002) 10

The Private SectorSocial Entrepreneurship

Doing good by making profits?

Muhammad YunusSocial Enterprise characteristics: is primarily driven by a social mission generates a profit as a by-product allowing for

financial sustainability creates new models, products and services that

cater directly to social needs

Proof of concept:

….and many more11

Partnership for DevelopmentConcluding remarks Aid alone is unlikely to be able to address the problems of the

bottom billion and is highly overemphasised.

Remittances are an important source of finance for development due to its large size and continuity.

MNCs can play a key role in economic development by marketing the 4 billion people at the bottom of the economic pyramid.

Social Entrepreneurs simultaneously create social and economic value which allows them to sustainably solve social problems.

Alleviation of poverty requires partnerships between public private and civil society organization. 12

Development CooperationThe dawn of a new era

Thank you for your attention!

Any comments or questions?

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