What is aid – and who decides? Time to give developing countries a seat at the table!

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Norway has had a broad political consensus to give 1% of what we earn as a country as development assistance. In 2020 that amounted to about 4 billion USD. Totally, the OECD countries gave about 150 billion USD, or about 0.3% of their total GDP.  

But what is aid? To count you need a common definition of aid (or ODA as it is technically called). Historically, the Development Assistance Committee (DAC) of the OECD has been responsible for this common definition. DAC is the group of 30 OECD donor countries. Based on detailed reporting from each of the member countries the OECD/DAC prepares the international aid statistics. The OECD/DAC member countries decide, through a consensus-based negotiation process, what should count as aid. These negotiations have at times been difficult, and changes are cumbersome, as consensus is needed. Each year there are also discussions between the OECD and individual member countries about their reporting, and sometimes reporting is adjusted through these discussions.  

Is this so difficult? In practice it has turned out to be more challenging than one could perhaps intuitively imagine. Three sets of criteria have to be fulfilled for an activity to count as ODA: 

Firstly: It has to go to a poor country. Annually the DAC publishes a list of countries that qualify to receive aid. Over time countries have graduated from this list as they have become richer (above the WB threshold for high-income countries), and Korea has over time moved from the recipient list to become a DAC member. This is in itself a fairly technical exercise, but it has been argued that the income measure is too narrow, and that for example small island states in the Pacific, heavily exposed to climate risks, should qualify to receive aid even if they have passed the income threshold.       

Another area of contention has been how to include resources spent in the donor country, including administrative costs, communication and the most controversial one, expenses for refugees from developing countries living in the donor country. During the 2015 refugee crises this became a hotly debated issue, as an increased share of aid went to refugees in European countries. In today’s system donors can report costs of upkeep, but not of integration, for the first year. This rule is open to interpretations, and countries’ practice differ. 

Lately, a third topic has received increased attention: how do we deal with activities that are for the benefit of the world, including the donor countries. A current example is support to vaccine development. OECD has developed a system of assessing the developing countries’ share of the benefits and allowing the reporting of this share as aid. Norway has objected to a proposal that only half of the support to the vaccine alliance CEPI should count as aid. As global problems become more intense and dominating, this topic will become more urgent, and a broader debate on how to deal with it is needed. 

Secondly, the purpose must be developmental: The most controversial topic has been how to draw the borderline towards military expenses. As the costs of the UN, NATO and individual country military activities in developing countries are very substantial, and as the distinction between altruism and self-interest can be difficult, this is both an important and challenging topic. Here DAC has developed – through tough negotiations – a detailed system for identifying the small civilian part of the costs that can be reported as aid. About 1/10th of the UN peace-keeping operations in developing countries can for example be reported as aid.  

Another topic has been areas where the self-interest of the donor is predominant, for example in spreading the language and culture of the donor country. To use a Norwegian example: to make Ibsen better known in developing countries is not aid, but to use The Doll’s House to encourage a debate on women’s liberation could qualify as aid. 

Thirdly: there must be an element of grant (concessionally). Norway and some other countries give most of their aid as grants, but concessional loans are an important part of global aid both from some donor countries (Japan, France, Germany all have major loan programs) and from the multilateral development banks. The question of what to include and how technically to include it in ODA calculations have caused complex debates, both politically and technically. What interest reductions, and/or grace period is needed for a loan to qualify as aid? And how do one count them, as “outgoing” aid when the loans are disbursed and “incoming” aid when the loans are repaid, or is it just the element of subsidy that is included? And if so how, how do you estimate the subsidy, or the grant element? Similar – and technically even more complex – questions arise when aid-funded instruments are used to reduce risk of commercial investments. Is a guarantee only aid when it is activated, or should taking the risk by providing the guarantee be rewarded? And if so, how do you estimate the grant element? 

Brought together, all these decisions have substantial implications for what is included in the aid statistics. In countries that dedicate a percentage of their GDP to aid (typically 0.7 or 1), the pressure to include borderline activities in the aid budget can be a forceful driver. In countries that want to show that their aid efforts are increasing, there can be a temptation to look for easy ways of doing so. But disagreements about what to count as aid can also reflect deeper disagreements on loans versus grants, on the values and risks of private sector engagement or on the role aid should play in countries in conflict.   

These discussions take place among the donors only, in the DAC and in its statistical branch, the Working Party on Statistics. The bigger questions are typically settled when DAC meet at political level. Overall, the donors have managed their role as the custodians of the aid concept in an acceptable manner, but hey have also at times drawn the boundaries, and clarified the concepts, in a manner that is quite generous to themselves.  

However, one can also argue that in 2021 it is an anachronism, and a left over from the 20th century, that the donors continue to reserve the right to define what counts as aid to themselves, without giving those who receive aid a voice in the debate. There are therefore very good arguments for developing a governance model for aid statistics where donors, recipients and possibly other major actors participate. 

What could such alternatives be? 

One option would be to transfer the definition power and the statistical responsibility – because the two ought to be together – to the UN. For Norway and other Nordic countries, who tend to see the UN as the most legitimate global institution, this could be a natural position to take. The UN does not today have the necessary competence and capacity to perform this role. Competence and capacity can be built, but naturally at a cost, and it would take some time. One could also argue that the “comparative advantage” of the UN is more as a global political actor, not in the balancing of technical capacity and politics involved here, and through that in balancing the role of the member states and the secretariat.  

An alternative would be to reform the way this work is organized at the OECD. OECD has the competence and technical capacity today, and I would also claim that balancing of technical work and politics, and member states and secretariat, takes a different form at the OECD. In other areas OECD has shown the capacity for innovative institutional solutions to overcome the limitations set by its membership. It is a paradox that while OECD has succeeded in establishing more inclusive mechanisms in other areas, the power to define aid has remained with the donors. In an area like international taxation and transparency, the OECD has established a Global Forum and in the process of revising the global tax system an Inclusive Mechanism, both with broad participation also from developing countries. 

It is indeed difficult to justify that this should not also be the case for aid.  

Why do not Norway, and the other Nordic countries, as progressive donors committed to broad multilateral cooperation, take the lead in a reform that secures the developing countries a seat at the table when one decides what should count as aid. 

Av jlomoy

Former DIrector General, Norad. 40 years of engagement and experience from international development cooperation, as researcher, aid worker, diplomat and senior manager. Worked in Norway, Zambia, Tanzania and at OECD in Paris.

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