Beyond Aid (ODA)

Beyond Aid (ODA)

The current system of Overseas Development Aid (ODA) needs reform.

In a “Beyond ODA” debate at the Society for International Development on he contends against the OECD Development Assistance Committee Chair, J Brian Atwood, and CEO of FMO, Nanno Kleiterp.

” Imagine….We are at the 2015 G20 Summit, I am presenting the new Development Cooperation Policy Decisions to the Press…..

I am pleased to announce that this 2015 Summit of the G20 has brought about a unanimous vote on the future of Overseas Development Assistance. Our decision will be adopted immediately by all 20 member states, as well as by the Development Assistance Committee of the OECD. We have now finally agreed on how to get “Beyond ODA”.

To understand our decision I would like to emphasize that democratization lies at the heart of these reforms.

The leaders of the G20 have jointly decided to put the tax-payers, investors and ordinary citizens back in the driver’s seat of development. It is these private individuals and the private sector, who need to be engaged in the support of the poor. Not the civil servants, nor the politicians. Only in this way will we break the cycle of indifference and cynicism of the general public towards Aid. Change is needed, and this change has finally been approved here in 2015 at the G20 summit.

There are only FOUR changes required to get us Beyond ODA:

ONE: We have decided to reallocate 70% of all aid budget from Ministries of Development to the Ministries of Finance. The Ministries of Finance will use the full 70% of these budgets to provide tax breaks and tax rebates for any investments or donations contributed towards development projects. It is the investors or the tax-payers that will decide where to invest – they run the risk, but can also reap the reward.

TWO: We do, however, recognize the need to create focus on issues that threaten the lives of billions of people. Issues like aids, education, health, food security and climate change. These issues need an integrated approach, not a fragmented one. Working groups will encourage the formation of investment funds to finance these global issues.

There is now enough proof that investment funds can work for development. For example Grey Ghost Ventures in the US is able to operate commercially and deliver good and affordable primary education to the poor in India.

Similar investment funds will be created to resolve these global issues. They will invest in development projects. In the meantime tax-incentives for investors will be used to encourage social investors to contribute to these funds. These investors can be individuals, or pension funds, foundations or governments. Obviously these persons can be from developing countries as well. However, not a penny of ODA money will go into these funds.

In the future investors will look online and select their themes, and choose projects or investment funds of their liking. By investing they are voting for development.

< Get Dutch Voting sheet with 21 parties with some 40 candidates each >

This is not very different to how we vote here in The Netherlands. Even the 18 year olds or elderly 80 year-olds understand how to democratically choose between complex themes and issues that matter to them. This is almost identical to how we envisage that the investment funds will work.

THREE: We have decided to enforce a rigorous separation between development service providers and the funds that finance the projects. We will also “localize” decision-making. Let me explain. As of today, NGOs will no longer receive funding directly from donors. Also all NGOs will only be contracted for services by local contractors. The funding of these NGO services will be paid for by the investment funds, via the local contractors.

It is the out-dated system of combining the funding and service delivery, which has brought development into a supply-driven mode. Many NGOs had funding and delivered services. So that meant they could offer the services for free. This has distorted markets, it has caused inflation and killed off private sector initiatives.

This needs to be reversed – we need demand-driven Development. This is like the accountancy industry. It saw a separation of accountancy and advisory services after the Enron drama. So too the Development industry needs a separation of services from finance. This is the “Trias-Politica”, the separation of powers that is needed to democratize development.

FOUR: With the remaining 30% of the ODA budgets, we will create an “infrastructure” investment fund. The goal of this fund is to end any need for ODA. In other words, these are investments that will bring developing countries to financial and developmental autonomy. Not a penny of this money is directly aimed at the poor. It is there to create mechanisms that will help the poor in a lasting fashion.

Examples of eligible projects are the improvement of tax collections; legal reform; physical infrastructure, like roads, internet, and harbours. Specifically I’d like to mention two examples of projects for this “infrastructure” fund:

1. Basically anything that will encourage the growth of small and medium sized enterprises is eligible. It is these SMEs who will create the future job growth in developing countries. For example Brian Atwood created a huge guarantee fund for SMEs in 1998. This was just before he left USAID. This guarantee fund has mobilized billions of dollars in local bank finance for local entrepreneurs. In this sense he was visionary. Visionary, because today 80% of the world’s poor live in Middle Income Countries like Nigeria, Indonesia and India. These countries are also the home of the new billionaires of the world. With the right mechanisms in place (like Atwood’s Guarantee Fund) the local wealthy can finance new jobs for the local poor. Soon, no more aid will be needed here.

2. Another example is that governments need to improve their ability to collect taxes. We could, for example, finance the abolition of income taxes for millions of individuals and instead help governments to collect taxes from a handful of energy and resource extraction companies. This tax system has 3 benefits: it is simpler to collect; it encourages employment; and it has a positive environmental impact. Taxes are crucial to enable countries to finance their own public services. If these governments succeed, then the implementation costs can be reimbursed to the infrastructure fund.

We the leaders of the 20 largest economies cannot emphasize enough the importance of creating dependencies between a nation’s government and its citizens. There is nothing that creates more social stability than being mutually-dependent on each-other. In the most advanced economies, we have over time felt the democratizing effect of paying taxes. Paying taxes in developing countries, means that citizens get to have a say as to what gets done with their money. Governments, civil servants and politicians can then be held accountable for the use of that taxpayer’s money. If it is misused, tax-payers will change the way they vote.

We here at the G20 are confident that these four policy changes will help us get “Beyond ODA”. Because, at the end of the day, it is only by democratizing development for citizens and the private sector that will make our new ODA policy work. — Thank you! —

Thierry Sanders

September 25, 2012