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The Real Price of Development


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Money makes the world go around. As much as we might dislike this saying, we face proof of the truth behind it every day. But what do we do if, despite the money spent, the world does in fact not seem to go around as well as we would like it to. In recent years, criticism about the bottomless pit that is global development has been expressed widely. From marking it ineffective to downright counterproductive, many voices have advocated a halt to development aid spending over the years, the Zambian economist Dambisa Moyo being the most prominent among them.
Yet, the international community seems to have no ears for the message. From 13th to 16 July 2015, Addis Ababa was the stage for the Financing for Development Summit (FFD3), the first in a series of three large events to be held in 2015 that aim to shape the post-2015 development agenda (the other two being the UN Sustainable Development Goals Summit in September and the Paris Climate Summit in December). FFD3 gathered heads of state, ministers, diplomats, and development professionals to discuss how the levels of development envisioned for the coming years will be paid for.

Three main types of income flows a developing country might obtain to finance development were at the heart of the heated discussions that took place in the Ethiopian capital. These included foreign private investment, taxation, and development aid. Naturally, opinions as to which of these should be prioritized widely diverge. The fact is, however, that over the last years, an emerging middle class has created an enabling environment for taxation in many developing countries. In addition, these countries have generally received six times the sum of their aid incomes through private investment, as developing countries are becoming increasingly attractive to foreign investors.

And, not surprisingly, these developments in taxation and foreign private investment were noticed and acknowledged in Ethiopia as well. The importance of the role of the private sector in global development was once again emphasized and prioritized. Measures were taken to facilitate private foreign investment even further and to make way for increased use of public-private partnerships to provide basic services and foster economic development, all of which are set forth in the Addis Ababa Action Agenda, the document that summarizes the outcomes of the summit. Strategies mainly included the altering of public policies and regulatory frameworks and the institution of incentives to attract investment. While this private sector involvement is on the forefront of many a national development agenda, civil society generally does not prove itself a firm believer in the strategy, with Oxfam coining the- not positively connoted- term ‘privatized development’. Without proper safeguards, as warned by several NGOs, there is no guarantee that private investment will lead to social impact and shared value instead of merely yielding profits for the businesses themselves.

However, the real hot potato during the talks was always going to be the tax issue. One of the ambitious objectives set out for the summit, as initiated by the G77, a collective of developing countries, was the transformation of the UN-based tax expert group into a global tax body, commissioned to reshape the global tax system. At the moment, the OECD, an international organization with 34 of the world’s most developed nations as its members, remains the only governing body legally mandated to set tax standards and G77 representatives have repeatedly pressured the international community to establish a more equitable tax body that could set straight the current tax standards favoring large multinationals and tackle tax dodging. Not surprisingly, the majority of developed nations, represented by the OECD, oppose the initiative fiercely. They advocate for taxes to be paid in the country of headquarters and claim a new global agency will not be a panacea for everything that is wrong with the global tax system.

Although the envisioned agency did not come into being as a result of FFD3, an agreement was reached to make changes in the existing structures, including the broadening of the tax base, combating tax evasion and tying tax payment to the country of economic activity. And that might not be nearly enough, if judged by the average civil society statement published in the aftermath of the summit, such as those from Oxfam.
So what about development aid? According to the OECD, the total sum of official development assistance (ODA) spending in 2014 amounted to 135.2 billion dollars. However, this money constitutes a significant income source only for the poorest among the world’s developing countries. For developed countries, on the other hand, the 0,7% norm, which prescribes them to set aside 0,7% of their gross national income for development assistance, is among their worst kept promises. Their re-commitment to it in the Addis Agenda might therefore have to be regarded with some skepticism. However, even the ODA discussion saw an emphasis on private investment as OECD countries advocated for ‘smart ODA’ to stimulate private companies to do business in developing countries.

With the outcomes of the FFD3 in mind; is there a chance development budgets will dry up entirely in the future and the earlier mentioned critics of this type of charity get their way? Not likely. In addition to a vast civil society community, the aid recipients for which ODA still constitutes a significant source of income will continue to lobby in favor of development assistance, whether as bilateral spending on the government level or through the multitude of existing development programs. After all, cutting out ODA all together will not only eliminate what has become a small slice of the pie, but an entire industry. And even though one of the main objectives inherent to the development sector should be to make itself obsolete, a natural urge for survival might in this case cause a situation where daily reality and governing policy collide.

Written by A. Hooijer and published on 31-July-2015




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