By Hilary Jeune, Oxfam’s EU policy advisor
When European development ministers meet on Tuesday (26 May) to decide how the EU will approach overseas aid for the next 15 years, they may find themselves surrounded by smoke and mirrors. Various myths swirl around how European countries can best fund international development – or how they can limit funding it.
But what stories are being told? And what affect could they have on Europe’s approach to July’s Financing for Development Conference in Addis Ababa? These are the main fables development ministers must ignore:
Myth One: Less people are living in poverty now, so we don’t need to spend more money
Big steps have certainly been taken since 2000 to halve the number of people across the globe living in extreme poverty, and the progress made should be commended. However, this is by no means a sign that the job is done.
Many studies suggest that if a business-as-usual approach to overseas aid is maintained, hundreds of millions of people will still be scraping by on less than €1.25 a day for the next 15 years. Many more could fall back into poverty as a result of increasing climate change-related disasters and skyrocketing inequality. The international community has made headway in the fight against global poverty, but plenty still needs to be done.
Myth Two: Poorer countries can finance themselves through taxation, and so don’t need as much aid
Progress has been made by poorer states in mobilizing resources themselves. Developing countries have raised more revenues from tax over the past 15 years but this still remains far below what European countries collect and most importantly, far below their potential.
While these improvements are encouraging, developing countries still lose nearly $1 trillion annually through illicit financial flows. The European Network on Debt and Development estimates that for every $1 developing countries gain, $2 seeps over their borders. Rather than cutting aid because of increased growth in some developing countries, aid should instead be used to help these countries build the capacity to negotiate fair tax deals with developing countries, participate in international tax forums and strengthen domestic tax-collecting ability.
Myth Three: The private sector can fill the gaps in current overseas aid spending
Donors are actively promoting the use of overseas aid to directly help private companies leverage investment for development finance. The private sector does have a role to play in improving the lives of people in poverty, and private finance is needed to fill the financing gap for the new sustainable development goals. But governments need to take a more balanced approach to relying on private resources, and ask some important questions before dishing out an increased amount of scarce funding to the private sector.
Overseas aid has the advantage of targeting the poorest and most marginalized people in society, whereas private financing is only effective when targeting profitable sections of a population. There is a lack of evidence that these approaches to aid have actually helped developing countries raise their own funding and resulted in genuine improvements on the ground. The agenda also ignores the risk that these financing approaches pose to the fragile public finances of developing countries.
Myth Four: Emerging countries are donating more, so we don’t need to spend as much
Recently, both emerging economies – such as Brazil, China, Indonesia and South Africa – and philanthropic foundations have become increasingly large contributors of development assistance. This pattern has led some to suggest that European aid is not as significant as it once was.
However, the numbers tell a different story. The roughly $16 billion of funding exchanged between developing countries in 2011 only equaled an eighth of overseas aid from OECD nations, and only reached this proportion due to a stagnation of aid donations from rich countries rather than increased funding from unconventional sources. Research also suggests that aid from foundations and philanthropic investors has yet to have a major impact on the ground.
Instead of letting the quality and quantity of overseas aid be dictated by half-truths and hearsay, EU development ministers must instead truly recognize the catalytic potential of overseas aid to transform the lives of the world’s poorest people. European countries must recommit to spending 0.7 percent of gross national income on overseas aid by 2020, and develop clear timetables on how they will achieve this. Half of this aid must go the world’s least developed countries if the EU is truly serious about improving the lives of the world’s poorest – particularly in Africa but also across the rest of the globe.