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International development cooperation
By the time the UN Conference on Financing for Development had been held in Addis Ababa in July 2015, the term "blending" was already a widely discussed topic. The conference made it clear that neither developing countries alone, nor official development assistance will be in any position to close the enormous funding gap of around USD 2.5 trillion per year that is needed to achieve the Sustainable Development Goals. This is why an agreement was reached in Addis to increasingly use development assistance funds to mobilise private funds for development finance in future - and blending is a central instrument for achieving this.
The current issue of Development in Brief explains how blending works and what the advantages and limits of the instrument are.
Blending: a useful extension of the scope of development finance instruments
The low-interest phase in the advanced economies is slowly coming to an end. The first steps have been made by the US Federal Reserve. Interest rate increases in advanced economies are raising concern that capital flows into emerging economies (DE/EE) will decrease. This concern is not entirely unjustified. We do not expect a sudden reversal of capital flows because the growth prospects of DE/EE are still too positive for the next one to two years. But the climate for capital flows into the DE/EE will presumably become rougher in the coming years nonetheless.
Interest rate reversal – a threat to capital flows to developing and emerging economies?
Many public discussions on development cooperation sooner or later indicate that corruption is a central obstacle to development and aid effectiveness. However, clear scientific evidence for this opinion hardly exists. Instead, it must be noted that some of the countries which have made the greatest progress in recent years are also considered to be particularly vulnerable to corruption.
In the current issue of Development in Brief, we summarize the current research findings on the relationship between corruption and development on the one hand, and between corruption and development assistance on the other.
What do we know about the link between corruption and development or development assistance?
There is now some movement in the debate about development economics thanks to the new book, "Beating the Odds", by the previous Chief Economist of the World Bank, Justin Lin, and his counterpart, Célestin Monga, who is still in office at the African Development Bank. After the professional discourse was very strongly shaped by microeconomic analyses of "poor economics" (randomised controlled trials) in the last several years, the authors are now presenting a draft for a new development strategy for the first time in a long time. They call it "New Structural Economics".
The current issue of Development in Brief explains the main features of New Structural Economics and summarises their added value and key criticisms.
New Structural Economics (NSE): A groundbreaking new development strategy?
Certainly since the UN conference in Addis Ababa (2015) on financing the Sustainable Development Goals (SDG), if not before, the international community has recognised that low-interest (soft) loans are an important instrument in development finance: their terms can be adapted very flexibly to the performance capacity of countries and the economic efficiency of projects, thus bridging the large gap between pure grants (for the poorest countries) and pure market funds (for very advanced countries). The reform to the OECD's Official Development Assistance (ODA) statistics, which will come into force in 2018, takes into account the increasing importance of development assistance loans.
The latest edition of Development in Brief explains what exactly will change in terms of the ODA recognition of development assistance loans from 2018.
How will development assistance loans be recognized in the OECD's ODA statistics in future?
The human rights' agenda and the global 2030 Agenda for Sustainable Development result from different political discourses but both are actually concerned with developing a dignified quality of life for individuals. When a superficial comparison is made of both agendas, large overlaps in content can be seen, which begs the questions as to how they relate to each other and what the advantage of the one or the other agenda is.
The current edition of Development in Brief analyses differences and similarities between human rights and Sustainable Development Goals (SDG) and explains to what degree the two dimensions complement each other.
China's economy plays an important role not only for many industrialised countries, but increasingly also for the development of poorer countries: China's high imports from these countries and the rise in Chinese foreign investments spur their economic development. On the other hand, emerging economies face increasing competitive pressure from Chinese exports and fluctuations in commodity prices as a result of the Chinese demand.
This issue of ”Focus on Economy“ analyses in detail the positive and the negative economic impacts of China’s economic and trade policies on the development of poorer countries.
China’s rapid rise affects other developing and emerging countries at various levels
The megatrend digitalisation has also captured most developing countries by now. Experts agree that the megatrend will be a pivotal "game-changer" for these countries. However, the direction these changes will take is extremely controversial: some see digitalisation as an opportunity to more quickly overcome major barriers to development, others primarily see the risk that poverty and inequality in these countries could be intensified instead of reduced due to national and international structural transformation.
The current issue of Development in Brief explains the main arguments of both perspectives.
Megatrend digitalisation: a pivotal "game-changer" for developing countries
At the end of the 20th century, the indebtedness of many developing countries was a key challenge for international development cooperation. The critical situation could ultimately be handled within the framework of the HIPC (heavily indebted poor countries) through consolidation policies of partners and partial debt relief. Today, however, the foreign debt of many low-income countries in sub-Saharan Africa is growing again significantly.
The current edition of Economics in Brief further discusses the causes of this trend, as well as the risks involved and refers to the needs for a sound debt management to prevent a new debt crisis.
The external debt levels of the poorest Sub-Saharan countries must be monitored closely
Globalisation is one of the dominant megatrends of our age. A revival of national internal interests has currently been observable in some significant industrial countries and this may briefly weaken this trend, but it will not be able to bring the necessity of stronger international cooperation into question in the long term.
The current edition of Development in Brief is focusing on the stable, relatively long-term dimensions of the globalisation trend. We analyse the role that developing countries have played so far in the economic, political, cultural and ecological globalisation process and which part they will presumably play in this trend in future.
Megatrend globalisation: what is the role of developing countries?
Today, China is one of the most important global players, both economically and politically. For a long time, foreign financial resources flew into China to a considerable extent, mainly in the form of direct investment. However, that trend stopped in the middle of 2014. Since then, the capital flows to and from China have reversed: China is now affected by significant capital outflows, which has led to a certain concern about the capital markets.
The current issue of the "Economics in Brief" analyzes the changes in the capital flows in detail, explains what is behind this development and answers the question as to whether this development should be worrying.
For a long time, emerging economies such as Brazil, Russia and South Africa have been admired for their impressive rise to middle income countries. However, their growth path has changed and many of them face a period of declining growth. One explanation for their current situation is linked to the so-called middle income trap thesis. In a nutshell, it states that after the successful climb to the emerging market it is difficult for a country to reach the next higher status of an industrial state.
Today’s edition of Economics in Brief explains this thesis and shows that a further economic growth of emerging economies is possible if the internal economic environment is improved accordingly.
The current weakness of many emerging markets evokes the concept of the middle income trap
Development is a highly complex process, the causal relationships of which are not yet fully understood. It is therefore difficult to make precise predictions about future developments. This is exactly where a highly topical new method in development research could help: machine learning. Instead of making predictions regarding future developments based on causal effects, machine learning looks for quantitative patterns in very large data volumes (big data) und uses them to make projections. The method is already used highly successfully for small-scale weather forecasts.
The current edition of "Development in Brief" explains the method as well as its potential benefits and also limits for development research.
The monitoring of impacts is a constant challenge in development cooperation. In order to exactly determine to what extend the intended results have been achieved, expensive and time-consuming local data collection is necessary. But now, the data situation can be significantly improved, in a manner which is both cost-effective and time-efficient – by using innovative, up-to-date information and communication technology (ICT).
The latest issue of our “development in brief” series provides an outlook on the future potentials (and limits) of ICT based methods for the monitoring of developmental impacts.
Impact monitoring: ICT-based methods create new opportunities
Since the turn of the millennium, the international discussion on impact orientation, ownership and efficient implementation in DC has led to a bunch of new instruments which can be summarized as ‘results-based approaches’. They all have in common, that the responsibility for the achievement of impacts is transferred to the partner country´s government (so called ‘hands-off’ approaches from the donors perspective) and that donors only pay for proved results.
The latest issue of our ‘Development in Brief’ series provides an overview of the origination and the design of this group of instruments and summarizes the practical experience available so far.
Results-based approaches in international development cooperation
Whenever a crisis or state of emergency breaks out, the call for employment-intensive measures (often in the form of "cash for work" programmes) usually arises. The particular appeal of these measures lies in their effectiveness on many levels: On the one hand, they have the potential to create local income very quickly and to restart economic activity that has been interrupted, thereby reducing dependence on humanitarian aid. At the same time, they can overcome the causes of structural poverty and thereby improve the mid- and long-term development outlook of the affected population (i.e. through the construction of roads or schools).
The current issue of Development in Brief provides an overview of the range of applications for this instrument and analyses the lessons learnt that should be taken into account to ensure the high expectations with regard to the effectiveness of these measures are met in practice.
Employment-intensive measures: rapid results with a double dividend
After decades of underinvestment and a dramatic power crisis afflicting much of the continent, power investment in Sub-Sahara Africa (SSA) has picked up significantly in recent years. One unintended consequence is that public utilities in the region are now running growing currency mismatches on their balance sheets, as these investments are banked on hard currency while end-user tariffs are collected in local currency (LCY). This represents a huge contingent liability, creates uncertainty and thus undermines the sustainability of power sectors in the long run. Development Finance Institutions (DFIs) need to lead the way in finding innovative solutions to increase the share of local currency financing.
Perspectives on Development Financing - Local Currency Lending
The ongoing growth in population is one of the megatrends of our era. An increasing number of people require food and drinking water, accommodation, education and living space; they seek productive work and raise C02 emissions as a result of their consumption. On the other hand, they also represent massive economic and social potential. However, there are strong regional differences and displacements.
This edition of Development in Brief presents the current trends, projections and structural demographic changes, and analyses the resultant consequences for development policy focused on the sustainability agenda.
Megatrend demography: challenges of a growing global population
The words “migration” and “flight” are often used in the same breath, but there is, at least in theory, an important distinction between the two: migrants change their place of residence voluntarily, while refugees are forced to leave their homelands (often for political reasons) to preserve their life. In contrast, the main motivating factor for international migrants is the promise of improved economic prospects abroad. But what do flows of migrants mean for the country of origin and the country of destination?
This edition of Development in Brief explores the extent and patterns of current international migration and looks into how both countries of origin and destination can benefit from (structured) international migration.
International migration: win-win solutions for countries of origin and destination
Low interest rates are good for the economy, as they stimulate credit-based investment and consumption. However, in times of rising interest rates careless borrowing can quickly lead to a growing debt burden. This can not only jeopardize the creditworthiness of individual borrowers, but also the stability of the banking system overall - especially in countries where financial systems are not fully developed, as in many developing and emerging countries.
This issue of Economics in Brief analyzes the current development of debt ratios of companies and private households in selected emerging markets, which are considered as early indicators for potential risks.
As a result of climate change, extreme weather events and natural disasters are globally on the rise, and their impacts are increasingly devastating. Due to their geographic location, developing countries are hit especially hard while at the same time they are the least prepared.
The current issue of Development in Brief presents ways to considerably reducing the extent of human suffering and material damage in the event of natural disasters by pro-active risk management systems. Furthermore, it explains the significance of new insurance products providing governments and aid organisations sufficient financial means to allow for quick and efficient support in case of disasters.
Prepared for the Expected: Insurance in Disaster Risk Management
The adoption of the Sustainable Development Goals (SDGs) has set new standards in development cooperation, along with the international Paris Agreement on climate change, which has produced highly ambitious climate objectives. Fulfilling these agreements cannot be financed with public funds alone, however. The United Nations estimates that an additional USD 2.5 trillion needs to be invested in development and the climate on an annual basis. Even if the target ODA ratio of 0.7 % is achieved in all donor countries, this alone is not enough to close the financing gap. By contrast, according to a UNEP study, banks are currently managing USD 140 trillion in private capital worldwide. To be added to this sum are USD 100 trillion in investments with institutional investors such as pension funds, and USD 173 trillion as investments in the capital market. Only when public donors simultaneously direct this private capital to development policy measures to a significant extent will the SDGs and climate objectives be within reach. Development banks like KfW can make a key contribution in this regard.
Perspectives on Development Financing - Mobilisation of private capital
Economic growth rates have been remarkably high in sub-Saharan Africa since the year 2000. This success is partly due to external factors such as favorable export prices for commodities and the influence of China. On the other hand, the sound economic policies led by the African states have paid dividends. But despite the progress made, sub-Saharan Africa continues to be faced by the most important development challenges in the world.
This edition of Focus on Economics sheds some light on the circumstances and causes of the positive development over the recent years and highlights the necessary action and reforms to be undertaken in order to eventually reduce the development gap between sub-Saharan Africa and the remaining regions of the world.
With good politics, sub-Saharan Africa can make up more lost ground
In July, the High-Level Political Forum (HLPF) was held in New York. The meeting was the first of its kind after the 2030 Agenda for Sustainable Development has been adopted. It aims to provide an annual forum for the international community to review and discuss the implementation status of the SDGs. The first meeting was a great success. Under the theme "Leaving No One Behind", more than 1500 representatives of UN member states, from science, civil society and the economy met to discuss how the SDGs can be successfully implemented in the next 15 years.
The current issue of "Development in Brief" synthesises first lessons learnt from the meeting, the significance of which were discussed at the meeting for a successful implementation of the SDGs.
First lessons learnt from the High-Level Political Forum on implementing the SDGs
Promoting gender equality is a key concern of international development cooperation. Yet in many countries there is a certain degree of tension between this objective and local traditions and values. In public perception, Islamic countries especially (but not exclusively) face criticism. In many cases, development cooperation has to blank out religious topics due to their sensitivity. In this respect, the question to what extent the unequal treatment of men and women should actually be attributed to fundamental principles of Islam faith, or other more easily addressable contextual factors is particularly relevant.
This edition of Development in Brief analyses this issue and also considers the principles and standards development cooperation may apply to differentiate between "tolerable" religion-motivated unequal treatment and unacceptable discrimination.
The challenge of how to better link humanitarian aid and long-term development cooperation was one of the important topics discussed at the UN World Humanitarian Summit (WHS), which took place in Istanbul last week. The question has been discussed by the international development community for many years under the headline "linking relief, rehabilitation and development (LRRD)".
This edition of "Development in Brief" analyzes why the issue is so important, highlights current challenges and suggests ways forward.
Transitional aid: link between humanitarian aid and long-term development cooperation
Following the adoption of the 2030 Agenda for Sustainable Development, the reduction of inequality within and among countries (SDG 10) is high on the development policy agenda at the moment.
Unlike the alleviation of poverty, for which a relatively clear definition as well as measurement concepts and concrete goals have emerged from decades of discussion, the relatively new goal of reducing inequality still displays considerable deficits with regard to its operationalisation. Questions such as the inequality of what and reduction of inequality to what point are being asked.
This edition of Development in Brief summarises the current status of the debate and indicates approaches for addressing different forms of inequality within the framework of international Development Cooperation.
SDG 10: Reducing inequalities – Concepts and approaches for development cooperation
Many developing and emerging countries have valuable natural resources. If these were used in an economically efficient manner with due consideration of appropriate labour, social and environmental standards, such resources could provide significant impetus to widespread economic and social development. In practice though, resource wealth for most people in these countries has frequently proven to be more of a curse than a blessing.
This edition of Development in Brief summarises the main reasons for this sobering report and highlights the ways how international development cooperation can help make better use of the opportunities inherent in abundant natural resources to promote sustainable development processes.
The new ODA figures are out! Every April, the OECD publishes preliminary figures for Official Development Assistance (ODA) of the previous year. This year, the report is dominated by the increase in domestic refugee spending in many European donor countries, thereby igniting once more the controversial discussion about the eligibility of these expenses from an ODA perspective. The good news is that ODA is growing in real terms even without this category.
This edition of Development in Brief summarises the main figures of the ODA Report 2015 and discusses the role of domestic refugee costs therein.
Official Development Assistance (ODA) in 2015 dominated by refugee crisis
Official development cooperation and religious organisations have an ambivalent relationship: on the one hand, locally established religious actors often have a sound knowledge of local conditions, development constraints and interdependencies and can also be important ‘agents of change’ due to their high level of acceptance. On the other hand, many of the current crises in the world have been and are being caused, contributed to or at least aggravated, by religious motives and figures.
This issue of Development in Brief analyses the potential and risks of closer cooperation between official development cooperation and religious organisations, and describes the conditions under which this can be beneficial for all parties.
Religious organisations as actors in official development cooperation
The adoption of the Sustainable Development Goals (SDGs) by the UN General Assembly in September last year was a great success. Now the time has come to implement the 2030 Agenda under the individual responsibilities of the UN Member States. But how can be ensured that political pressure and action on implementing the SDGs remains high?
The United Nations has provided various mechanisms for this purpose, including developing a system of indicators for monitoring progress as well as the establishment of a high-level annual review mechanism through regular reporting at the High-Level Political Forum. The current issue of Development Policy in Brief describes these two mechanisms and the associated challenges.
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How to ensure an ambitious implementation and monitoring of the SDGs?
The overarching aim of development cooperation is to strengthen the capacity of developing countries to make them independent from external official development assistance (ODA). However, despite many development successes, the total amount of ODA has steadily increased over the last 10 to 15 years.
In light of this, the current issue of Development in Brief addresses the question of whether the considerable rise of ODA reflects an increasing donor dependency of developing countries and briefly reflects on how to measure donor dependency at all. The analysis demonstrates and discusses some interesting trends with respect to different groups of developing countries.
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How has the dependency of LDCs on ODA developed in recent years?
The World Bank recently published its World Development Report 2016 reflecting on the increasing "digitalisation" that has also reached developing and emerging countries. Through the use of modern information and communication technologies (ICT), development processes can be accelerated (digital dividend). However, at the same time new risks emerge, in particular the risk to deepen existing inequalities between and within countries.
The current issue of Development in Brief summarizes the potential and risks of digitalisation for developing countries and emerging markets and sketches out the emerging role for development cooperation in this field.
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The digital revolution – its potential and risks for sustainable development
Global challenges such as terrorism, climate change and refugees are on the rise and call for concerted international action. The success of the last year Development- and the Climate Conferences may not hide the fact that the landscape of development finance institutions faces some problems. The classic multilateral institutions are weakened by various aspects: The strengthening of national self-interest, an increasing fragmentation by vertical programs and persistent criticism of their effectiveness. Internal reforms in World Bank and IMF seem to be too slow to meet the dynamically changing political and economic conditions.
Helmut Reisen and Jürgen Zattler describe the recent trends in the landscape of development finance institutions like the rise of new multilateral actors such as the New Development Bank of BRICS countries or the Asian Infrastructure Investment Bank (IAAB), the opportunities and risks of these trends and the options the classic multilateral institutions - in particular the World Bank - have to respond.
In Addis last year, the international community underlined its intention to provide greater support for the least developed countries (LDCs). Currently about 30 % of the official development assistance (ODA) is allocated to the LDCs, which is almost 0.1 % of the gross national income of the donor countries. In the future, this percentage is set to rise to 0.2 %. Taking into account the increased scope of subjects covered by the 2030 agenda, this commitment is all the more remarkable.
This edition of our “Development in Brief” series provides a short description of the background of this decision and of the challenges that will be created by its implementation.
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More aid for the least developed countries: The 0.2 % target for LDCs
Only in the next few days the Sustainable Development Goals (SDGs) will be adopted by the General Assembly of the United Nations. However, the debate on the SDGs is already in full swing: Last week Prof. Dirk Messner and Dr. Imme Scholz (DIE) acknowledged the paradigm shift from the primarily poverty-oriented Millennium Development Goals (MDGs) towards a comprehensive sustainability agenda 2030.
In the issue of “Views on Development” another renowned Development Researcher declares a contrary position: Prof. Stephan Klasen argues, that with regard to the eradication of extreme poverty in the world, the SDGs rather represent a step backwards than forward: The MDGs with a clear focus on poverty and a tight monitoring had been able to bundle international efforts and mobilize additional resources. But the SDGs were defined in such a broad and non-binding manner, that they will hardly develop political pressure to act. Prof. Klasen also presents his ideas on how to overcome the shortcoming of the SDGs.
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SDG - A Disservice to the World`s Poorest
"Views on Development" by Prof. Klasen
From September 25th to 27th, the United Nations will debate the new Agenda 2030 for Sustainable Development and adopt the Sustainable Development Goals (SDGs). The new Agenda differs from the previous Millennium Development Goals (MDGs) agenda in various respects: It was elaborated in an enduring participatory process; it widens the perspective from poverty reduction to sustainable development in ecological, economic and social terms; and it holds accountable developing, emerging and industrial countries alike. In the run up to the conference, the successful international consensus-building process and the initiated paradigm shift were widely appreciated, but the results were also criticized for being overloaded, insufficiently prioritized and not formally binding.
In the issue of “Views on Development” the directors of the German Development Institute in Bonn, Prof. Dr. Dirk Messner and Dr. Imme Scholz, present their personal assessment on the results of the negotiations and relate these to recommendations for the implementation of the Agenda 2030 in and by Germany.
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The 2030 Agenda – An Opportunity For Strengthening International Cooperation
“Views on Development” by Prof. Dr. Dirk Messner and Dr. Imme Scholz
Following the G7 summit in Germany with its strong focus on development and climate policy, there are three more major international conferences on the issue of development and climate finance scheduled for 2015. The first of these, the Third International Conference on Financing for Development (FfD) being held in Addis Ababa from 13 July to 16 July, is to lay the groundwork for the success of UN negotiations regarding a new, universal system of targets for sustainable development.
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Sustainable Development Finance: What Will The Conference In Addis Achieve?
A lack of opportunities to work and earn money, unhealthy housing and living conditions, low levels of education and marginalisation - the causes of poverty are numerous, and comparatively well researched. One exception at present is what we call the "psychology of poverty". This is the focus of a new branch of research looking into the mental consequences of (a) material deprivation and (b) relatively low status within society.
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What The "Psychology Of Poverty" Means For International Development Cooperation
The context in which international development co-operation takes place is changing: The Group of developing countries is changing and their needs are becoming increasingly diverse. The range of development policy instruments that are available is becoming more diversified as a result.
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Participants of a Special Side Event of the United Nations General Assembly, entitled "Universal Multidimensional Poverty Measures for the Effective Implementation of the Sustainable Development Goals", called for the creation of a new global multidimensional poverty measure - the Multidimensional Poverty Index (MPI). The goal is to be able to monitor poverty in its multiple forms and also enhance the effectiveness of measures used to eradicate it.
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