Ghosts, groundhogs and finance

Fragile states and financing for development (or getting to ‘how’ not just ‘how much’)

So this is my first blog for International Alert. In fact it’s my first blog ever. What have I chosen to focus on? Well, finance. An issue that, while I know it is important, I’ve traditionally avoided, like tax returns, paying electricity bills and maths generally. But this is different. This is financing for development (FfD). This is also about fragility, conflict and peacebuilding – and admittedly a little about Bono.

So I’m lying there at 1am still not over my jetlag from the Annual World Bank meetings. I’m listening to U2’s ‘One’ for a bit of inspiration – like I got from the presentation at the World Bank meetings from the campaign of the same name. Founded by Bono, the international campaigning organisation One is centred, among other things, on the financing of the Sustainable Development Goals (SDGs). The inspiration was not, however, about what the campaign was saying but what it wasn’t.

Indeed, I’m reminded of a second U2 song – ‘Stuck in a moment’ – which is where I fear the financing for development debate seems to be headed. That moment was ten years ago when Bono, Bobby-G and many thousands of people across the globe united to make the case for meeting the rhetoric of the Millennium Development Goals (MDGs) with a lot of cold hard cash. It was an important moment.

But things change. And currently the ‘more aid’ mantra is all sounding a little groundhog day. So what is different? For some developing countries, Official Development Assistance (ODA) from donors is now dwarfed by other sources of domestic and international finance, while emerging donors are on the scene in a big way – more than ever before. The biggest shift in the global financing environment, however, is where financing will be delivered to alleviate poverty.

Smart people at the Organisation for Economic Co-operation and Development (OECD) and Brookings tell us that by next year, 50% of the world’s population experiencing extreme poverty – about 1.5 billion people – will be living in fragile and conflict-affected situations (FCAS). By 2030 that share is likely to grow to nearly 75%.

Why is it critical to acknowledge this context and bring it into the FfD discussion? For starters, these are environments that are more challenging than traditional developing countries and require a different approach. The way we deliver finance, the ‘how’ will be as important as the ‘how much’, the overall quantum, if we actually want to reduce poverty.

We know that conflict not only stalls development but reverses it. Yemen was on track to meet the maternal mortality MDG until the increase in violence during the Arab Spring. The 2011 World Development Report says a child in a fragile or conflict-affected state is twice as likely as a child in another developing country to be undernourished and nearly three times as likely to be out of primary school. It also says the average cost of a civil war is equivalent to more than 30 years of GDP growth, meaning far less domestic resources available to promote development – which the OECD in its Review of finance mobilisation in fragile states tells us is very difficult to do in the first place in FCAS.

So it is no coincidence that the worst performing states against the MDGs were fragile or conflict-affected. The World Bank’s analysis of the 2013 Global Monitoring Report says that the majority of MDGs will not be met in fragile countries by 2015 and six of the seven states who will not meet any of the MDGs at all are fragile or conflict-affected. So if these states couldn’t meet the MDGs, what are the chances of them meeting the SDGs if we don’t do something different? Less than ‘One’, probably closer to ‘Zero’.

The way the SDGs are shaping up indicates that the way development is defined and promoted may be changing. That will help. But the way development is financed also matters. The way we deliver finance can be a force for stability, but it can also have negative, albeit unintended, consequences unless we take a conflict-sensitive approach to finance. This applies irrespective of the source of finance – traditional donor, emerging donor, multilateral, private international or domestic financial institutions. Indeed, large influxes of money can actually be counterproductive, reinforcing grievances over things such as corruption and inequality, unless carefully adapted to the political, security and development context. The ‘how’ is critical.

The Overseas Development Institute has highlighted the challenge of ‘absorptive capacity’, noting that in Timor-Leste, the official poverty rate actually increased despite $8 billion of aid being pumped into the country over an eight-year period. It points to an OECD study that says highly fragile states are able to effectively manage only approximately one-third of the aid that they receive. This is not to say that we should not increase aid to FCAS. At a minimum, it’s needed to offset the currently declining flows to such states, which could lead to what some describe as ‘aid orphans’ – states considered too difficult to deal with or not giving ‘value for money’. No. It is how we deliver, sequence and adapt finance that counts.

More than just making our finance conflict-sensitive, to achieve sustainable development gains we have to talk about committing resources to actively promoting peace. Peacebuilding looks at the drivers of conflict and seeks to address them. It also identifies opportunities for peace – the positives in a society that are often already happening before development or humanitarian aid arrived. This is how we tackle the legacy of conflict that has held back a number of states. We need to ensure that their future development is not compromised, but nourished. This notion underlies the proposed SDG 16.

So there are really, really good reasons why we need to adapt our financing approach when it comes to fragile states.

To be fair, One is not alone in its assumption that more money is the answer. Much of the discussion from multilaterals and donors is also focused on scaling up, albeit nuanced with alternate sources of financing beyond ODA. Nevertheless, there needs to be a paradigm shift. So what can we do practically?

Firstly, acknowledge fragile and conflict-affected states as central in our global dialogue, member state negotiations and civil society advocacy. Institutions such as the UN and World Bank can make it a pillar of their engagement on FfD as the OECD Development Assistance Committee (DAC) has done in its 2014 Development Report, ‘Mobilising resources for sustainable development’.

Secondly, look at what we’ve already got. We are not wandering in the wilderness when it comes to financing for FCAS. We have the OECD DAC Principles for Good International Engagement in Fragile States and Situations, the more recent PSGs and volumes of international thinking accrued over the last ten years.

Thirdly, and most importantly, we can integrate reference to FCAS financing into the outcomes documents of the Addis Ababa FfD conference in July next year and reflect it in the language and commitments made at the 2015 World Summit. Champions like the World Bank’s Betty Bigombe, Senior Director for Fragility, Conflict and Violence, and the UK’s Department for International Development, who understand the importance of adapting the way we finance in FCAS, can help us in this effort.

In sum, what I’m suggesting is not new. But it is necessary that we tackle the ghosts of finance past if we want to ensure that no one gets left behind the second time around. So in 2015, if I were to choose to add ‘One’ word to the discourse, it would be ‘how’ not just ‘how much’.