ENSURING FRAGILE STATES ARE NOT LEFT BEHIND 2011 Report on Financial Resource Flows
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY About this report table 1. working list of fragile states
This report is part of a project to monitor resource flows in fragile 2007 2008 2009 situations, which was launched by the OECD Development Assist- Afghanistan ance Committee (DAC) in 2005. While originally focussed on of- Angola ficial development assistance (ODA), this annual report of the DAC Bangladesh International Network of Conflict and Fragility (INCAF) has evolved to include sources of development co-operation from beyond DAC Burkina Faso membership, as well as domestic revenues, peacekeeping expen- Burundi ditures, private flows (mainly foreign direct investment, trade and Cambodia remittances) and illicit outflows. Cameroon Central African Republic In recognition of the fact that aid is only one part of the equation Chad in fragile situations, and that it can be dwarfed or have its effects Comoros swept away by other flows, this report provides evidence on the Congo, Dem. Rep. main resources in fragile situations, how they interact, and what Congo, Rep. issues and countries should be of concern. Côte d'Ivoire Djibouti The 2011 report compiles and analyses the latest available data, Equatorial Guinea which is mostly from 2009 for ODA flows, and includes data on Eritrea forward spending for 2012-15. It was prepared by a team led by Ethiopia Juana de Catheu, including James Eberlein (editorial and data Gambia visualisation) and Franziska Nix (research assistant) of the OECD Secretariat, and Sumedh Rao (GSDRC, data collection). It draws on Georgia OECD-wide research, including statistics on development co-op- Guinea eration; reviews of whole-of-government donor performance; data Guinea-Bissau on aid effectiveness; regional economic outlooks; and policy work Haiti by DAC-INCAF and its members. It has benefitted from valuable Iraq comments from the INCAF Task Team on Financing and Aid Archi- Kenya tecture, including Henrik Hammargren (Sweden), Chair of the Task Kiribati Team, Kristoffer Nilaus Tarp (UN Peacebuilding Support Office), Korea, Dem. Rep. and Yasmin Ahmad, Elena Bernaldo, Olivier Bouret, Ben Dickinson, Laos Fredrik Ericsson, Masato Hayashikawa, Hanna-Mari Kilpelainen, Lebanon Stephan Massing, Erwin Van Veen, Simon Scott and Asbjorn Wee Liberia (OECD DAC Secretariat). However, any error or omission remain the Malawi authors’ responsibility. Mauritania Myanmar It builds on the factsheet Ensuring Fragile States Are Not Left Behind Nepal which was launched at the Fourth High-Level Forum on Aid (2011), Niger Effectiveness in Busan (Korea). Nigeria Pakistan Will fragile states meet the MDGs by 2015? Papua New Guinea Rwanda The international community cannot claim success in the fight Sao Tomé & Principe against global poverty, as most fragile states will simply not meet Sierra Leone the Millennium Development Goals (MDGs) by 2015, and the lack of Solomon Islands progress is most acute in fragile states (see list in Table 1). Six out Somalia of ten people living under the poverty line live in a low- or middle- Sri Lanka income fragile state, and seven out of ten school-age children in Sudan fragile states are not enrolled in primary school. A child living in Tajikistan a fragile state is twice as likely to be undernourished as a child in Timor-Leste another developing country (see Figure 2). While the poverty target Togo is within reach for more than 70% of low-income countries as a Tonga result of recent economic growth and an improvement in policies, Uganda GDP growth in fragile states was about one-fifth that of other low- Uzbekistan income countries (World Bank, 2011d). Although those low-income countries not affected by violence closed 40-70% of their MDG gap Vanuatu between 2000 and 2010, fragile states have closed only 20% of West Bank and Gaza the same gap (World Bank 2011d, 2011e). Yemen, Rep. Zimbabwe
2 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT Figure 1. Where are the fragile states?
The list of 45 countries in fragile situations used for this analysis (neither an official DAC list nor an official definition) is a compilation of two lists: the 2009 Harmonised List of Fragile Situations (World Bank, African Development Bank, Asian Development Bank) and the 2009 Fund for Peace Failed States Index (“alert” and “warning” categories). It is worth noting that not all fragile states are low-income countries: 19 of the countries considered fragile in 2009 were middle-income countries (see pages 12-13).
LOW-INCOME FRAGILE STATES (< USD 1 005) LOWER MIDDLE-INCOME FRAGILE STATES (USD 1 006 TO USD 3 975) UPPER MIDDLE-INCOME FRAGILE STATES (USD 3 976 TO USD 12 275)
Figure 2. most of the MDG DEFICIT is found in fragile states 77% 65%
... of children not in primary school ... of people without access to safe water 70% 60%
... of infant deaths ... of undernourished people
Source: Adapted from World Bank 2011a (World Bank calculations based on Gates and others 2010). Note: Current fragile and conflict-affected states account for 33 percent of the population in developing countries, and countries recovering from fragility and conflict account for an additional 14 percent of the population. Therefore, if the MDG deficit were borne evenly, these countries would account for 47 percent each of the ills described. The dark purple figures represent the percentage of the deficit for selected MDGs in fragile, conflict-affected and recovering countries. The light purple figures represent the persons afflicted in other non-OECD countries. Excluded here are Brazil, China, India and the Russian Federation, all significantly ahead of or on par with other non-OECD countries on the MDGs. Due to their size, including them in the calculations would skew any discussion involving the global population.
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 3 But there is evidence that progress towards the MDGs is still pos- The main resource flows in fragile states are domestic revenue, FDI, sible in countries that are recovering from conflict and fragility. For remittances, trade, aid and peacekeeping expenditures (see Figure example, Mozambique more than tripled its primary school com- 3). Domestic revenue and FDI dominate the resource equation, pletion rate in just eight years: from 14% in 1999 to 46% in 2007. even in countries that are highly aid dependent.1 While all of these Rwanda cut the prevalence of under-nutrition from 56% of the pop- financial flows have a different impact on development, the coher- ulation in 1997 to 40% in 2005 (World Bank WDR, 2011). The cor- ence of international policies for trade, investment, agriculture, en- relation between fragility and poor MDG performance suggests that ergy, migration and illicit transnational flows with the aid agenda is the structural causes of conflict and fragility must be addressed in of crucial importance. Adverse or incoherent policies can wipe out order to accelerate and sustain progress towards the MDGs. the benefits of millions of dollars in ODA, for example as a result of externally-stimulated brain drain and commodity price bubbles (see Box 1). A whole-of-government approach is particularly important How have financial, food and fuel in fragile states, given the acute and inter-related challenges faced crises affected resource flows? by these countries: for example, a lack of investment in security or reconciliation can derail the whole post-crisis transition. In fragile states as in all developing countries, the international community needs to look beyond aid and harness the full range The overall mix of resource flows to fragile states has changed sig- of resource flows to take advantage of their potential contributions nificantly between 2005 and 2009 (see Figure 3). Nonetheless, the to development results. For example, over the last decade, the composition of resource flows and their relative importance varies telecommunications industry has invested USD 77 billion in sub- from country to country. Saharan Africa, boosting the number of mobile subscribers from 10 million to 400 million, creating thousands of jobs, injecting cash into cities and remote communities alike, and improving the ease of 1 The top three aid-dependent countries in 2010 were Liberia (CPA-to-GNI ratio doing business across the board. of 64%), Afghanistan (59%) and the Solomon Islands (41%).
box 1. 700 700 700 700 Figure700 3. RESOURCE FLOWS IN FRAGILE STATES (2005-09) Vulnerability to boom-and-bust cycles 597.7 600 600 600 600 660000 in Angola 480.0 Note: Resource flow totals include outflows by trade. ODA is based on figures for gross disbursements. Data: OECD CRS, UN Statistics, UNCTAD, IMF, World Bank (2011). Bank World IMF, UNCTAD, Statistics, UN CRS, OECD Data: disbursements. gross for figures on based is ODA trade. by outflows include totals flow Resource Note:
500 500 500 500 550000 476.4 Angola is one of the world’s fastest growing econo- mies. It received USD 11.6 billion in FDI inflows in 421.2 2009, making Angola400 the second400 top recipient40 0of 400 440000 TRADE TRADE TRADE TRADE TRADE FDI in Africa, behind Nigeria. Angola is also the 355.5 least aid-dependent fragile state with an ODA to GNI REMITTANCES REMITTANCES REMITTANCES REMITTANCES REMITTANCES ratio of 0.2% in 2009.300 300 300 300 330000 DOMESTIC REVEDNOUME ESTIC REVEDNOUME ESTIC REVEDNOUME ESTIC REVEDNOUME ESTIC REVENUE current prices) Angola’s growth has been driven by oil wealth during FDI FDI FDI FDI FDI a period of rising2 resource00 prices.200 Other sectors200 of the 200 220000 ODA ODA ODA ODA ODA economy, notably financial services and construction, have also been growing. However, the 2008 global economic cri- USD BILLIONS ( sis and the related10 drop0 in oil revenues100 have had100 a negative 100 110000 impact on the Angolan economy, which contracted by 10.3% in 2009. In March 2009 the government indicated it would 0 cut planned budgetary0 spending by0 40%. To prevent0 future 0 0 fiscal shocks caused by volatile oil prices, it is important for Angola to further diversify its industries. Some of the promis- -100 -100 -100 -100 --100100 ing sectors that could be developed to a more significant level include agriculture, fisheries and livestock, and forestry. Cur- rently only 3% of Angola’s arable land is used. 2005 2006 2007 2008 2009 2005 2005 20062005 20062005200720062005200720062008200720062008200720092008200720092008 20092008 2009 2009 REMITTANCES 27.0 33.0 42.2 52.2 54.7 Source: UNCTAD (2011), OECD (2011f). DOM REVENUE 164.8 208.2 230.6 311.6 230.3 FDI 110.4 134.4 169.4 188.8 214.6 ODA 53.9 48.6 44.4 49.4 46.8 TRADE -0.6 -3.0 -10.2 -4.3 -66.4
4 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT GROWTH IN FRAGILE STATES DECLINING SINCE 2008
Although fragile states are largely isolated from international financial markets and were thus insulated from the initial stages of the 2008 financial crisis, the subsequent economic downturn led to a sharp fall in growth after 2008, with fuel exporters particularly hard-hit (see graph below).
Looking ahead, growth in fragile states may rebound. Growth projections for fragile states are at 6.9% in 2012. These projections are more positive than those for the overall world economy (3.3%) and the collective projection for emerging and developing countries (5.4%) (IMF, 2012). Most notably, Niger is expected to grow by 12.5% in 2012 and Angola by 10.8%. Not all fast-growing fragile states are fuel or mineral exporters: Ethiopia is expected to achieve a 5.5% growth rate in 2012, and almost 10% between 2013 and 2015. As for commodity exports, prices are expected to fall from their 2010-11 levels, but the risk of further price volatility still remains high (OECD-FAO, 2011).
At the same time, there is a risk of new or aggravated situations of fragility. The societal pressures for change that brought about the Arab Spring, the possibility of prolonged financial turmoil, continued commodity price volatility, rapid urbanisation, youth unemployment, demo- graphic pressures and environmental degradation are all factors that will challenge state stability and resilience. Between the projected negative growth in the Eurozone for 2012 (IMF 2012) and continued pushes for fiscal austerity, aid budgets are under pressure. Fragile states may therefore face not only more challenges to stability but also less international development support. 35%
30% 30%
25% ) 25%
20% 20%
15% ; IN constant usd 15%
10% 10%
5% 5%
0% growth (% CHANGE IN gdp 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009
-5% -5% Data: World Bank (2011).
-10% FUEL-EXPORTING FRAGILE STATES NON-FUEL MINERAL EXPORTERS OTHER FRAGILE STATES
2001 2%00 2OF TOTAL EXPORTS2003 2004 2005% OF TOTAL EXPORTS2006 2007 2008 2009 Angola 98.6 DR Congo 78.3 Afghanistan Nepal Iraq 98.4 Guinea 65.2 Bangladesh Niger Chad 90.8 Sierra Leone 54.3 Burundi Korea, DPR Nigeria 90.5 Papua New Guinea 54.0 Comoros Pakistan Yemen 90.1 Burkina Faso 40.7 Eritrea Sao Tome & Principe Sudan 88.5 Central African Rep. 35.8 Ethiopia Solomon Islands Congo 81.3 Georgia 33.7 Guinea Bissau Sri Lanka Timor-Leste 74.6 Somalia 33.4 Haiti Tajikistan Cameroon 49.2 Zimbabwe 26.8 Kenya Togo Myanmar 32.7 Kiribati Uganda Côte d’Ivoire 32.6 Lebanon Uzbekistan Liberia West Bank & Gaza Malawi Data: UNCTAD / World Bank (2011)
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 5 Foreign direct investment (FDI) and remittances: These fi- West Africa every year (UNODC 2009). An estimated 90% of gold nancial flows have continued to grow throughout the crisis in both exports from the Democratic Republic of the Congo (DRC) go unde- fuel-exporting and other fragile states. Remittances to fragile states clared (Global Witness, 2009). These huge outflows fuel instability, overtook ODA volumes in 2008. exacerbate poverty and limit the domestic resources available to finance development (See OECD, 2012). ODA: The percentage of bilateral ODA from DAC countries to fragile states is shrinking: from 53% in 2005 to 35% in 2009. Bilateral Peacekeeping expenditures: In 2011, ten fragile states hosted ODA from DAC countries to fragile states fell by 35.6% during the a UN peacekeeping mission, with a combined budget of nearly USD period 2005-09 (constant prices). This decline is explained by the 7 billion, of which nearly USD 1.7 billion for UNAMID (Darfur) and fact that ODA in 2005 and 2006 included exceptionally high debt USD 1.5 billion for MONUSCO (DRC). In DRC, UN peacekeeping relief, particularly for Iraq and Nigeria (see Figure 12). When debt expenditures represented half of the country’s ODA in 2009.3 relief is excluded from the equation, ODA to fragile states increased slightly over the same period (12%). It is also worth noting that ODA has been less affected by the 2008 financial crisis than other flows, Are fragile states raising such as domestic revenue and trade. Between 2008 and 2009, domestic revenues? DAC donors cut their ODA to all countries by 1.6%. In fragile states this figure was 11.2%. The fragile states that lost the most ODA Raising domestic revenues is essential to build capable states, to between 2008 and 2009 were Iraq (-72%), North Korea (-67%) encourage engaged societies and to strengthen domestic account- and Liberia (-58%). ability. Raising taxes in order to reduce aid dependency is an ex- plicit goal for several fragile states (e.g. Liberia). Many developing Domestic revenues: There was a dramatic contraction of domestic countries, including DRC, Haiti, Mozambique, Nicaragua, Rwanda revenues between 2008 and 2009, threatening cuts in education, and Sierra Leone, have implemented far-reaching administration health and social protection programmes. In Kenya, for example, do- reforms since the early 1990s. Where these reforms have enjoyed mestic revenues contracted by half in the two-year period. In Angola, success, a common factor has been sustained political commit- the economy contracted by 10.3% in 2009, in response to which the ment at the highest levels (IMF, 2011b). government indicated budgetary cuts of 40% (see Box 1). Between 2005 and 2009, domestic revenues alone represented Trade: The overall trade deficit has worsened since 2005. In 2009, half of the total resource flows in fragile states — over USD 230 40 out of 45 fragile states faced a trade deficit — all of them with billion in 2009. All but four fragile states managed to mobilise gov- a trade deficit exceeding 6% of GDP (see Figure 4). No African ernment revenue representing more than 15% of GDP in 2009 country exceeded USD 250 billion in merchandise trade in 2010. which is usually considered a reasonable target for developing For Africa, fuels and mining products constitute the main exports, countries. But compared to 2008, when 12 fragile states mobilised accounting 66% of their total merchandise exports in 2010 (WTO 35% or more of their GDP in tax revenue, only four fragile states International Trade Statistics 2011). continued to manage this level of mobilisation in 2009 (IMF 2011a) (see Table 2). In addition, fragile states suffer from illicit outflows of capital, which are estimated at USD 1.3 trillion globally, in addition to le- 2 3 Peacekeeping includes developmental and non-developmental activities, and is gal forms of capital flight. Illicit flows from the 48 least developed generally not counted as ODA, except i) the net bilateral costs to donors of car- countries (LDCs), of which 43 are affected by a recent conflict, rying out the following activities within UN-administered or UN-approved peace have increased from USD 9.7 billion in 1990 to USD 26.3 billion in operations: human rights, election monitoring, rehabilitation of demobilised 2008, a nearly three-fold increase (UNDP, 2011). For example, an soldiers and of national infrastructure, monitoring and training of administrators, including customs and police officers, advice on economic stabilisation, repa- estimated USD 2 billion in illegal narcotics trade transits through triation and demobilisation of soldiers, weapons disposal and mine removal. (Net bilateral costs means the extra costs of assigning personnel to these 2 Illicit flows are defined as “flows of money associated with tax evasion, criminal activities, net of the costs of stationing them at home, and of any compensation activity such as drug trafficking, and corruption and theft by government of- received from the UN.); and ii) similar activities conducted for developmental ficials” (Task Force on Financial Integrity and Economic Development, 2011). reasons outside UN peace operations.
box 2. Central African Republic: oda offsets reductions in other resource flows
In the Central African Republic (CAR), 2006 and early 2007 saw a worsening of the conflict between the Union of Demo- cratic Forces for Unity-led rebels and government-led forces, before a peace agreement was signed in April 2007.
Over this period, there was a significant drop in domestic revenue (27%) and FDI (32%). During the same period, ODA nearly doubled to USD 118 million. Though overall resource flows were lower in 2007 than in 2006, the rise in ODA helped compensate for the 2007 fall.
Source: OECD-DAC (2011)
6 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT TABLE 2. government revenue (2009); in % of gdp
<15% 15-25% 25-35% 35-45% >45% Myanmar 6.11 Uganda 15.10 Yemen 25.00 Uzbekistan 36.72 Solomon Islands 49.80 Bangladesh 10.50 Sudan 15.40 Papua New Guinea 27.45 Guinea 41.00 Iraq 71.73 Sri Lanka 14.53 Eritrea 15.91 Georgia 29.27 Kiribati 78.39 Pakistan 14.70 Central African Republic 16.07 Liberia 29.90 Burundi 109.16 Ethiopia 16.29 Angola 30.86 Timor-Leste 347.93 Zimbabwe 16.71 São Tomé and Príncipe 32.42 Nepal 16.78 Malawi 34.16 Haïti 17.68 Cameroon 18.38 Togo 18.47 Niger 19.11
Burkina Faso 19.36 Data: IMF (2011). Note: Data unavailable for DPR Korea, Somalia and West Bank & Gaza. Côte d'Ivoire 19.49 Sierra Leone 19.74 Nigeria 19.93 Chad 20.01 Afghanistan 20.57 Tajikistan 23.41 Kenya 23.67 Congo, Dem. Rep. of 24.32 Congo, Rep. of 24.32 Lebanon 24.35 Guinea-Bissau 24.80
Figure 4. TRADE IN FRAGILE STATES (2009) IN USD BILLIONS
-16 --1414 --1212 --1010 -8-8 -6-6 --44 --22 0 2+2 4 Cote d’Ivoire Cote d'Ivoire Myanmar Myanmar Angola Angola Nigeria Nigeria Congo, Rep Congo, Rep Sao Tome & Principe Sao Tome & Principe Solomon Islands Solomon Islands Comoros Comoros Central African Rep. Central African Rep. Sierra Leone Sierra Leone Somalia Somalia Burundi Burundi Guinea Guinea Zimbabwe Zimbabwe Papua New Guinea Papua New Guinea Togo Togo Korea, Dem. Rep. Korea, Dem. Rep. Malawi Malawi Congo, Dem. Rep. Congo, Dem. Rep. Liberia Liberia Burkina Faso Burkina Faso Tajikistan Tajikistan Chad Chad Haiti Haiti Cameroon Cameroon Niger Niger Uganda Uganda Georgia Georgia Sri Lanka Sri Lanka Yemen Yemen Nepal Nepal Sudan Sudan Kenya Kenya Ethiopia Ethiopia Bangladesh Bangladesh Lebanon Lebanon Pakistan Pakistan
Note: 2009 trade data unavailable for Afghanistan, Eritrea, Guinea-Bissau, Iraq, Kiribati, Timor-Leste, Uzbekistan, and West Bank and Gaza. Source: UNCTAD (2011), Exports and Imports of Merchandise and Services (1980-2010).
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 7 This is not the whole story: In all countries, the size of the table 3. EASE OF DOING BUSINESS AND CORRUPTION: tax base matters just as much as the overall volume of taxes FRAGILE STATES RANK AT THE BOTTOM (2009) assessed. When governments depend on a large number of taxpayers for revenue, rather than only a few (e.g. multina- tional oil and gas companies), they have incentives to promote broad prosperity and to be responsive to their citizens. The DOING BUSINESS RANKINGS CORRUPTION PERCEPTIONS rise of a middle class in many fragile states presents an op- (2009) INDEX (2009) portunity to enlarge this tax base, for example by introducing 181 Congo, Dem. Rep. 180 Somalia a value-added tax (VAT). In Africa, an estimated 60 million 180 Central African Republic 179 Afghanistan households earn over USD 3,000 annually, and this number 179 Guinea-Bissau 178 Myanmar 178 Congo, Rep. 176 Sudan is set to reach 100 million households — the current size of 177 Burundi 176 Iraq the Indian middle class — by 2015 (The Economist, 2012). 176 São Tomé and Principe 175 Chad Burundi introduced a national value-added tax (VAT) in 2009, 175 Chad 174 Uzbekistan and Sierra Leone and Liberia did the same in 2010. 174 Venezuela 168 Turkmenistan 173 Eritrea 168 Iran 172 Niger 168 Haiti What about trade and fragile states? 171 Guinea 168 Guinea 170 Timor-Leste 168 Equatorial Guinea 169 Benin 168 Burundi Trade, both formal and informal, provides thousands of jobs, 168 Angola 162 Venezuela including for women and youth. Informal trade alone provides 167 Equatorial Guinea 162 Kyrgyzstan an estimated 20-75% of total employment in most African 166 Mali 162 Guinea-Bissau countries (UNECA, 2005). In macroeconomic terms, howev- 165 Lao PDR 162 Congo, Dem. Rep. er, fragile states’ total trade deficit has worsened alarmingly 164 Cameroon 162 Congo, Rep. since 2005. The total trade deficit in fragile states reached 163 Togo 162 Angola USD 66 billion in 2009. Among the five fragile states that 162 Afghanistan 158 Tajikistan registered a trade surplus, three are fuel exporters. At the 161 Côte d’Ivoire 158 Lao PDR 160 Mauritania 158 Central African Republic extreme, Haiti has a trade deficit of 26% of GDP. 159 Tajikistan 158 Cambodia 158 Zimbabwe 154 Yemen In addition, most fragile states’ exports remain poorly diversi- 157 Liberia 154 Paraguay fied in terms of sectors. Twenty out of 45 fragile states are 156 Sierra Leone 154 Papua New Guinea natural resource-dependent (i.e. fuel or minerals represent 155 Comoros 154 Côte d’Ivoire more than 25% of exports), which makes them dependent 154 Haiti 146 Zimbabwe on boom-and-bust cycles (see Boxes 1 and 3). Both fuel and 153 Djibouti 146 Ukraine non-fuel primary commodity prices peaked in 2008 before 152 Iraq 146 Timor-Leste 151 Gabon 146 Sierra Leone hitting a five-year low in early 2009. 150 Bolivia 146 Russian Federation 149 Senegal 146 Kenya Most fragile states’ exports are also poorly diversified in 148 Burkina Faso 146 Ecuador terms of destination markets. Although exports to emerg- 147 Sudan 146 Cameroon ing markets accounted for 19% of African exports in 2009, 146 Suriname 143 Nepal growing from 8% ten years earlier (OECD-UNECA, 2011), 145 Ukraine 143 Comoros exports from African fragile states (57% of all fragile states) 144 Madagascar 143 Azerbaijan 143 Cape Verde 139 Philippines remain oriented towards OECD markets, for which projec- 142 Iran 139 Pakistan tions are sluggish. 141 Mozambique 139 Belarus 140 Philippines 139 Bangladesh 139 Rwanda 130 Uganda Are fragile states attracting FDI? 138 Uzbekistan 130 Nigeria 137 Syria 130 Nicaragua Foreign direct investment (FDI) represents a major portion 136 Ecuador 130 Mozambique of gross capital formation (total spending on investments) in 135 Cambodia 130 Mauritania 134 Malawi 130 Maldives fragile states. 133 Honduras 130 Libya 132 Algeria 130 Lebanon FDI is a source of economic development and modernisation, 131 West Bank and Gaza 130 Honduras growth and employment. But the benefits of FDI do not accrue 130 Gambia, The 126 Tanzania automatically and evenly across countries, sectors and local communities. Despite the fact that fragile states rank at the FRAGILE STATES bottom of international business climate and corruption indexes (see Table 3), FDI to fragile states grew almost fourfold from 2000 to 2009, to USD 214 billion in 2009. However, the major- ity of this FDI (57%) went to the 11 fuel-exporting fragile states (see list on page 5 and Figure 5), as well as to Lebanon (mostly in real estate) and Pakistan (communications and finance). Source: World Bank (2011), Transparency International (2011).
8 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT Figure 5. FDI IN FRAGILE STATES (2009) IN USD BILLIONS
0.0 10.0 20.0 30.0 40.0 50.0 NNigeriaigeria LeLebanonbanon SSudanudan PPakistanakistan CCongoongo AAngolangola MMyanmaryanmar GGeorgiaeorgia CôCôtete d 'd’IvoireIvoire BaBnangladeshgladesh IrIraqaq UUgandaganda SSriri L Lankaanka CaCameroonmeroon YeYemenmen EtEthiopiahiopia LLiberiaiberia UzUzbekistanbekistan CChadhad CoCongo-Kinshasango-Kinshasa KKenyaenya AfAfghanistanghanistan GuGuinea-Conakryinea-Conakry PapPapuaua Ne Neww G Guineauinea KorKorea,ea, D eDem.m. R Rep.ep. ZimZimbabwebabwe NNigeriger TaTajikistanjikistan BuBrurkinakina F Fasoaso MMalawialawi SieSierrarra L Leoneeone SSomaliaomalia HHaitiaiti SoSolomonlomon I sIslandslands EEritrearitrea CentCentralral Afr Africanican R eRepublicpublic FUEL-EXPORTING FRAGILE STATES GuGuinea-inea-BBiissaussau NNepalepal NON-FUEL MINERAL EXPORTERS São SãoTom Toméé an andd P rPríncipeíncipe TimTimor-Lesteor-Leste OTHER FRAGILE STATES BuBrurundiundi CoComorosmoros KKiribatiiribati PalestinWestian A Bdankm. &A rGazaeas 0.0 10.0 20.0 30.0 40.0 Source: UNCTAD / World Bank (2011)50.0
box 3. Aid, tax and responsible minerals in dr Congo
The Democratic Republic of Congo (DRC) is highly aid-dependent, with an ODA to GNI ratio of 22.6% in 2009 (compared to an average of 3.9% across all fragile states). DRC also depends on the international community for security, hosting the largest UN peacekeeping operation after that in Darfur, representing over 16,000 troops and a budget of USD 1.4 billion for 2011-12. However, there is potential for DRC’s aid dependency to subside over the coming years: growth projections are optimistic, and there is a unique opportunity to reform the mining sector (e.g. recent legislation and measures in response to the US Dodd-Frank Act; initiatives for the transparency of payments made by multinationals to government and for responsible sourcing of minerals).
In 2010, the economy began to recover from the global financial crisis, with GDP growth estimated at 7% (up from 2.8% in 2009). This growth was largely driven by mining, a sector boosted by increasing commodity prices and sizable investments in infrastructure. Minerals accounted for 73% of exports in 2000-06, and represent the largest source of FDI in the country.
If current efforts to sever the link between conflict and minerals (OECD 2011d) and to improve the business climate succeed, the mining sec- tor is expected to remain an engine for growth. With improved domestic revenue mobilisation, the mining sector could contribute up to USD 200 million annually (20-25% of GDP) by 2018. This would represent one-third of total tax receipts and thus contribute to improved welfare for ordinary citizens. In 2005, receipts from the mining sector amounted to only USD 27 million.
Source: ODI (2010), OECD (2011d, 2011e) and World Bank (2008, 2011).
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 9 The sources of FDI are shifting. In 2009, South-South FDI ac- • When looking at either need or performance, 12 additional counted for 14% of total FDI going to developing countries, from countries appear as potentially under-aided: Burkina 4% in 1998 (UNCTAD 2011). For example, outward FDI from India Faso, CAR, Chad, Comoros, DRC, Eritrea, Ethiopia, Guinea- to Sudan is estimated at USD 730 million annually (2001-05 aver- Bissau, Myanmar, Togo, Uganda and Zimbabwe. age), from China to Nigeria USD 131 million (2003-09) and from Brazil to Angola USD 83 million (2001-07 average) (Mlachila and Takebe, 2011). Half of aid to fragile states goes to only eight countries
Is aid going where it is needed most? Aid volumes continue to be very concentrated. Half of ODA to fragile states goes to only eight countries (see Figure 7). This concentration Fragile states receive more aid per capita than the average devel- has increased over the past decade, and aid projections (2009-12) oping country, and this has been the case since at least 2000. In confirm this trend. There is a growing risk that countries of lesser 2009, the average amount of ODA per capita to fragile states was geopolitical importance and/or that are mired in chronic crisis will USD 39, whilst the average across all developing countries was fall further behind. In 2009, nine of these countries received lower USD 17. This is generally justified by the level of need (as measured ODA levels compared to 2000 (in constant terms). A more optimal by low income and/or levels of poverty) which is higher in fragile allocation of resources across countries, taking into account both states than in non-fragile developing countries. the need and the quality of a country’s policies and institutions, is in order. However, most global resource allocation formulae are based not only on need, but also on performance. While fragile states gen- erally have higher needs, they also have weaker policies and in- To which sectors does aid go? stitutions, which constrains their ability to absorb aid and use aid strategically to deliver transformative results. Factoring in both need In fragile states, aid can play a particularly important counter-cycli- and performance, would some fragile states warrant more aid, and cal role, given that these countries are particularly vulnerable to the if so, which? external shocks that frequently occur during times of financial tur- moil. Since the onset of the financial crisis in 2008, ODA to fragile • A recent review of four resource allocation formulae shows states has helped keep children in school and health clinics open, that four countries can be considered under-aided on while building states’ ability to raise revenues, deliver basic services the basis of both need and performance (i.e. should receive and improve state-society relations (see examples from CAR in Box more ODA given high needs and ‘good enough’ governance): 2 and Kenya in Box 4). Bangladesh, Guinea, Nepal, and Niger (OECD 2012b).
Figure 6. SECTORAL ALLOCATION OF ODA TO FRAGILE STATES (2009)
SOCIAL INFRASTRUCTURE STATE BUILDING, AND SERVICES 43.7% PEACEBUILDING AND SECURITY 36% ECONOMIC INFRASTRUCTURE AND SERVICES 11.8% OTHER SOCIAL INFRASTRUCTURE AND PRODUCTION SECTORS 6.0% SERVICES 11% MULTI-SECTOR/ Total ODA EDUCATION 17% CROSS-CUTTING 3.9% USD 46.7 bn HEALTH 16%
COMMODITY AID/GENERAL (2011). System/CRS Reporting Creditor OECD Data: PROGRAMME ASSISTANCE 7.7% POPULATION POLICIES, PROGRAMMES & ACTION RELATING TO DEBT 10.6% REPRODUCTIVE HEALTH HUMANITARIAN AID 15.7% 13% OTHER ODA <0.01% WATER SUPPLY AND SANITATION 7%
10 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT Figure 7. oda from dac countries to fragile states (in usd billions)
0 1 2 3 4 5 6 Afghanistanfghanistan 6.24 EEtthiohioppiaia 3.84 PPaakiistanstan 3.48 PaleWeststinia Bnan Adk mand. A rGeaazsa 3.03 IIrraaqq 2.79 ConCgongoo, De, mDe. mR eRpe.p 2.56 CCôottee d d'I’Ivvoireoire 2.53 SSuudandan 2.35 KeKenyanya 2.01 HaHaitiiti 1.95 BanBgangladeshladesh 1.89 UgUgandaanda 1.81 NiNigeriageria 1.71 BuBruurundindi 1.56 SrSrii L aLankanka 1.23 BurBkurkinaina F aFasoso 1.12 NeNepalpal 0.98 GeGeorgiaorgia 0.96 CamCamerooneroon 0.80 CentrCentralal Afr iAfricancan Re Repp. 0.78 MMalawialawi 0.78 ZimZimbabwebabwe 0.74 LeLebanonbanon 0.69 SoSomaliamalia 0.66 ChChadad 0.61 YeYemenmen 0.60 ToTogogo 0.54 LibLiberiaeria 0.54 NiNigerger 0.49 SieSierrarra Le Leoneone 0.46 PapuPapuaa Ne wNew Gu Guineainea 0.45 TajTajikistanikistan 0.44 MyMyanmaranmar 0.36 ConCongo,go, R eRepp 0.33 AnAngolagola 0.30 GuGuineainea 0.28 UzbUzbekistanekistan 0.22 TimTimor-Lesteor-Leste 0.22 SoloSolomonmon Is lIslandsands 0.21 GuiGuinea-nea-BiBsissausau 0.17 ErEritreaitrea 0.15 KoreaKorea,, Dem Dem. Re Repp. 0.07 CoComorosmoros 0.06 SaoSao To Tomeme & and Pr iPrincipencipe 0.03 KirKiribatiibati 0.03 Data: OECD Creditor Reporting System/CRS (2011).
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 11 LOW-INCOME COUNTRIES MIDDLE-INCOME COUNTRIES
Japan France Sweden Germany Hong Kong Iceland Andorra Italy Switzerland A GROUP OF COUNTRIES HAS FALLEN BEHIND Spain Australia Singa- Israel Canada pore Norway New Zealand Finland 1 Liechten- stein 80 Puerto Malta 3 2 Netherlands Fragile states Costa Bel- Lux- Cuba Chile Rico South UK Ireland embourg Rica Korea Greece gium Austria Portugal Slovenia Denmark USA Kuwait Mexico Barbados Taiwan Albania UAE China Belize Uruguay Croatia Czech Rep. Brunei Grenada Panama Argen- Oman Vietnam Bosnia & H. Dominica tina Poland Bahrain Qatar 75 Kosovo Syria Venezuela Slovakia Ecuador Macedonia Serbia Malaysia 4 Antigua & Barbuda Sri Lanka Colo- 5 Libya Bahamas Palestinian Tunisia Bulgaria Hungary Nicaragua Armenia Algeria mbia St Kitts & N. Adm. Areas Honduras Peru Romania Estonia Saudi Arabia Jordan Brazil Latvia Seychelles Micronesia Paraguay DR Leba- Philippines Cape Maldives Tonga 6 non Verde Georgia Samoa El Jamaica Iran Mauritius Lithuania Marshall Isl. Morocco Salvador Vanuatu Palau Turkey 70 Indonesia Guatemala Azerbaijan Trinidad & Tuvalu Egypt Suriname Belarus Tobago Moldova Fiji Kyrgyzstan Uzbe- Ukraine Nepal North Iraq Thailand kistan Guyana Korea Solo- Tajikistan Paki- Mongolia mon Isl. Bhutan Russia Comoros stan Bolivia São Tomé Laos Kazakhstan 65 Bangladesh & P. Turkmenistan Nauru Yemen Togo India Kiribati Myanmar Benin Cambodia Namibia Timor- Madagascar Haiti Papua Leste Gabon New 60 Eritrea Guinea Liberia Guinea Sudan Côte d'Ivoire Ghana Mauritania Tanzania Ethiopia Gambia Senegal Djibouti 55 Kenya Botswana Uganda Malawi Congo, Rep. Burkina Faso
Niger South Africa Cameroon Burundi Rwanda Equatorial Guinea Size by population: 50 Somalia (At birth; years) in Y Mozambique Mali Chad 100 1000 Guinea-Bissau 3 10 millions ECTANC Nigeria Congo, DR Sierra Leone Angola or less XP Central African Rep. Zambia Swaziland
LIFE E Zimbabwe Afghanistan Lesotho
45 500 1 000 2 000 5 000 GDP (Per person in USD, purchasing power adjusted; log scale)
12 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT MIDDLE-INCOME COUNTRIES HIGH-INCOME COUNTRIES Japan France Sweden Germany Hong Kong Iceland Andorra Italy Switzerland Spain Australia Singa- Israel Canada pore Norway New Zealand Finland 1 Liechten- stein Puerto Malta 3 2 Netherlands Costa Bel- Lux- Cuba Chile Rico South UK Ireland embourg Rica Korea Greece gium Austria Portugal Slovenia Denmark USA Kuwait Mexico Barbados Taiwan Albania UAE China Belize Uruguay Croatia Czech Rep. Brunei Grenada Panama Argen- Oman Vietnam Bosnia & H. Dominica tina Poland Bahrain Qatar Kosovo Syria Venezuela Slovakia Ecuador Macedonia Serbia Malaysia 4 Antigua & Barbuda Sri Lanka Colo- 5 Libya Bahamas Palestinian Tunisia Bulgaria Hungary Nicaragua Armenia Algeria mbia St Kitts & N. Adm. Areas Honduras Peru Romania Estonia Saudi Arabia Jordan Brazil Latvia Seychelles Micronesia Paraguay DR Leba- Philippines Cape Maldives Tonga 6 non Verde Georgia Samoa El Jamaica Iran Mauritius Lithuania Marshall Isl. Morocco Salvador Vanuatu Palau Turkey Indonesia Guatemala Azerbaijan Trinidad & Tuvalu Egypt Suriname Belarus Tobago Moldova Fiji Kyrgyzstan Uzbe- Ukraine Nepal North Iraq Thailand kistan Guyana Korea Solo- Tajikistan Paki- Mongolia mon Isl. Bhutan Russia Comoros stan Bolivia São Tomé Laos Kazakhstan Bangladesh & P. Turkmenistan Nauru Yemen Togo India Kiribati Myanmar Benin Cambodia Namibia Timor- Madagascar Haiti Papua Leste Gabon New Eritrea Guinea Liberia Guinea Sudan Côte d'Ivoire Colour by region: Ghana Mauritania Tanzania Ethiopia Gambia Senegal Djibouti Kenya Botswana Uganda Malawi Congo, Rep. Burkina Faso
Niger South Africa Cameroon Burundi Rwanda Equatorial Guinea Size by population: Somalia Mozambique Mali Chad 100 1000 Guinea-Bissau Nigeria 3 10 millions Congo, DR Sierra Leone Angola or less Central African Rep. Zambia Swaziland : Adapted from Gapminder (2010). 1) San1) Marino; 2) Monaco; 3) Cyprus; 4) Montenegro; 5) Saint Lucia; 6) St Vincent & Grenadines Zimbabwe Afghanistan Lesotho Source
5 000 10 000 20 000 50 000
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 13 • In 2009, 44% of ODA to fragile states went to social infra- • Use of public financial management (PFM) systems is marked- structure and services (education; health; population poli- ly lower in fragile states than other developing countries (27% cies, programming and reproductive health; water and sanita- aid versus 48% average for all developing countries). This is in tion; statebuilding; peacebuilding and security). spite of fragile states having on average made more progress towards reliable PFM systems: 44% fragile states have moved • Humanitarian aid plays a particularly critical role in fragile up at least one measure on the PFM/CPIA scale since 2005, states. In 2009, humanitarian aid represented 16% of total versus 38% developing countries. ODA (see Figure 6). In Somalia this figure was as high as 69%. 31% of humanitarian aid is long-term (see OECD 2012c), • Use of local procurement systems is also lower in fragile states which might crowd out other types of assistance. Humanitar- (20% aid versus 44% for all developing countries). ian aid per capita is highest in West Bank and Gaza (USD 183), Somalia (USD 50) and Georgia (USD 32) (see Figure 9). • Joint missions and analytical work, and the provision of aid in the context of programme-based approaches, are also lesser • ODA to “peacebuilding and security” (OECD DAC Credi- in fragile states than in other developing countries. tor Reporting System/CRS code 152) and “statebuilding” (code 151) have all increased from 2005 to 2009, with the ex- • Aid is less predictable in fragile states. While this can in some ception of ODA to strengthen core public sector management cases be explained by crises and opportunities, stop-and-go systems and capacity. However, assessing whether more or aid can create damaging shocks. less aid supports peacebuilding and statebuilding goals would require going beyond the DAC CRS codes to conduct country- There are three main issues of concern with regard to aid effec- specific analyses of what activities can be considered critical tiveness in fragile states: i) volatile aid; ii) too few donors in some to peacebuilding or statebuilding. Job creation, for example, countries and too many in others; and iii) projections of aid reduc- can contribute to peacebuilding just as much as the activities tions from DAC donors. traditionally labelled as “peacebuilding”. • Fragile states experience much higher rates of volatil- ity and much lower rates of predictability than other Is ODA to fragile states effective? developing countries. Two-thirds of aid shocks between 1970 and 2006 occurred in fragile states, just where country Fragile situations are characterised by high need and limited capac- systems are the weakest and the risks of instability highest.5 ity — two reasons for aid to be more, not less, effective. However, Such volatility is estimated to shave 15% off the value of ODA. the combined monitoring survey of the Paris Declaration on Aid Ef- Recent examples include CAR, Guinea-Bissau, Haiti, Liberia fectiveness and the Principles for Good International Enlargement in and Sierra Leone (see Figure 13). Fragile States and Situations shows that the quality of aid to fragile states is generally poorer than in other developing countries (see • There are too few donors in some countries and too Figure 14, OECD 2011a and 2011b).4 In particular: many in others. Despite limited capacity, fourteen fragile states have partnerships with 30 donors or more, half of which
4 The sample of fragile states in this combined Survey is twelve countries: 5 Aid shocks can be measured as a difference of more than 15% of aid per Burundi; DRC; Central African Republic; Chad; Comoros; Guinea-Bissau; Haiti; capita from one year to another or fluctuations of aid in excess of 5% of GDP. Liberia; Sierra Leone; Somalia; Timor-Leste; Togo. South Sudan also partici- See, for example, Levin and Dollar (2005), Fielding and Mavrotas (2005), McGil- pated but was not an independent country at the time of the combined Survey. livray and Feeny (2006), Celasun and Walliser (2008) and Kharas (2008).
box 4. THE COUNTERCYCLICAL ROLE OF AID IN KENYA
Early 2008 was marked by post-election violence across Kenya. Over 1 200 people were killed and 300 000 displaced. This unrest, coupled with the effects of the financial crisis, reduced gross domestic product (GDP) growth to 1.7% in 2008. Domestic revenues contracted by half between 2008-09, threatening funding for vital social services.
However, in 2009, ODA rose in real terms by 34%, with 5.2% of sector allocable aid spent on education, 6.6% on health, 4.9% on government and civil society (which includes 1.2% of ODA on conflict peace and security), and 18.4% on humanitarian aid.
The economy recovered in 2010, but in 2011, Kenya’s economy experienced further shocks, including drought, higher food and fuel prices and electricity shortages.
Source: OECD-DAC (2011)
14 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT Figure 8. how much aid is humanitarian? Chart Title
%HUM %ODA HUMANITARIAN AID OTHER ODA SomaliaSomalia SudanSudan ChadChad ZimbabweZimbabwe Korea,Korea ,Dem. Dem. Rep.Rep. MyanmarMyanmar SriSr iLanka Lanka PWestalesti nBiankan A dandm. AGazareas Congo,Congo ,Dem. Dem. Rep.Rep. EritreaEritrea KenyaKenya PakistanPakistan CentralCentra Africanl African Rep.Rep. IraqIraq EthiopiaEthiopia GeorgiaGeorgia BBurundiurundi HaitiHaiti YemenYemen LebanonLebanon AfghanistanAfghanistan NigerNiger UgandaUganda BBangladeshangladesh NepalNepal LiberiaLiberia GuineaGuinea TajikistanTajikistan CameroonCameroon BurkinaBurkina Faso Faso Timor-LesteTimor-Leste AngolaAngola PapuaPapua New New GuineaGuinea SierraSierra LeoneLeone ComorosComoros Congo,Congo, RepRep CoteCote d’Ivoired'Ivoire
MalawiMalawi
Guinea-GuineaB-Bissauissau SolomonSolomon Islands Islands
UzbekistanUzbekistan
NigeriaNigeria
TogoTogo
: OECD DAC (2011) SaoSao Tome Tome && PrincipePrincipe
Data KiribatiKiribati
00%% 110%0% 220%0% 330%0% 40%40% 50%50% 60%60% 70%70% 80%80% 90%90% 100%100%
Figure 9. top 10 recipients of humanitarian aid per capita (2009) in usd
= USD 1 PER CAPITA
: OECD DAC (2011) Data HAITI IRAQ AFGHANISTAN LEBANON CHAD ZIMBABWE SUDAN GEORGIA SOMALIA WEST BANK $14.41 $15.76 $17.13 $17.60 $28.39 $29.06 $30.12 $32.13 $50.44 AND GAZA $180.05
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 15 are considered non-significant (see Figure 11).6 By contrast, Non-DAC donors reporting to the DAC reduced their overall ODA four fragile states are each dependent on only one donor for at by 19%, but increased their focus on fragile states (+64.9%).8 The least 50% of their aid. These are Iraq (89%), Solomon Islands most notable increase was from the United Arab Emirates, whose (81%), Papua New Guinea (68%) and Afghanistan (53%). aid was multiplied by eight over 2007-08 and by 26 over 2008- Whilst donor concentration should generally be encouraged, 09. changes in donor priorities could have a significant impact on countries dependent on exceptionally few donors (see Figure 11). Can aid be catalytic?
• Current trends and forward projections show aid re- Aid is only a modest part of the resource equation, but it can cata- ductions from DAC donors to fragile states. Looking for- lyse greater domestic revenue mobilisation, support a better in- ward, projections for 2012-15 show little change in total coun- vestment environment (e.g. through better policy, regulations and try programmable assistance (CPA), with some large increases infrastructure), foster trade and combat illicit flows out of fragile expected in Bangladesh, Nigeria and Kenya, but large falls ex- states. Donors also have a role to play by harnessing whole-of- pected in Côte d’Ivoire, Guinea and the Solomon Islands. The government efforts to reduce global average remittance costs, help largest falls in percentage terms are expected in Sao Tome stabilise commodity prices and make migration policies a force for and Principe (-13.8%), the Solomon Islands (-8.3%) and Côte development. d’Ivoire (-7.6%). Aid can play a catalytic role by helping reduce aid dependency, notably by helping countries raise domestic revenues. Although The growing role of non-DAC donors donor support on tax matters is still limited (around 0.1% of annual ODA across all developing countries), experience shows that it can USD 46.7 billion in net ODA goes to fragile states, or 37% of total be a high-return investment. Since 1990, 15 African countries have ODA. In 2009, the top three doors to fragile states were the United formed revenue authorities with donor support, including Uganda, States (USD 12 billion), the United Kingdom (USD 2.9 billion) and where tax revenue increased from 55% of government expenditure France (USD 2.25 billion). The top three in proportion of their total to 68% in 2010 (Gleenie, 2012). In El Salvador, a USD 10 million bilateral aid were Italy (48%), the United States (48%) and Australia project helped the tax department increased its revenue collection (40%) (OECD database). Furthermore, DAC donors provide most of from 2004 to 2010 by about 1.5% of GDP (USD 350 million annu- the UN peacekeeping budget and other non-ODA funds for security, ally, adjusted for cyclical factors) (USAID, 2011). statebuilding and peacebuilding. The top donors to the 2011-12 UN peacekeeping budget were the United States (27%), Japan (12%) In the area of trade, fragile states often lack the capacity (institu- and the United Kingdom (8%) (UNDPKO, 2011). tions, policies, infrastructure and access) to negotiate and imple- ment trade agreements and trade-related structural adjustment However, between 2005 and 2009, DAC donors cut their ODA to programmes; to diversify and increase exports and compete ef- all countries by 1.8% and to fragile states by 19.9%. While their fectively in global markets; and more generally to benefit from in- contribution to fragile states is shrinking, emerging bilateral donors, ternational trade. Aid that builds the trade capacity of fragile states global funds and philanthropy continue to play a growing role. can enhance growth prospects, improve the balance of payments and, in some cases, reduce commodity-export dependency. For Notably, China’s engagement in fragile states is growing on multiple example, Sierra Leone is building the productive capacity of its cash fronts: co-operation, investment, trade and technology. In Novem- crops sector as part of its Agenda for Change 2008-12 through a ber 2009, the Chinese prime minister announced a USD 10 bil- European Union-funded aid-for-trade programme. With the support lion loan package for Africa, including in agriculture, education and from the Inter-American Development Bank, Haiti introduced the health. The state-owned Export-Import Bank of China (EXIM) lent Automated System for Customs Data (ASYCUDA) customs clear- USD 67.2 billion to sub-Saharan African countries between 2001 ance system in the country, reducing customs clearance times for and 2010, compared to the World Bank’s USD 54.7 billion. Most some declarations from four days to two hours. of the Chinese loans were used for infrastructure projects (Fitch Ratings 2011).7
6 An aid relation (i.e. between an individual donor and partner country) is consid- ered “significant” in financial terms if:a) the donor provides a higher share of aid to the partner country than the donor’s overall share of global aid; and/or b) the donor is among the largest donors that cumulatively account for at least 90% of the partner country’s aid.
7 These are loans on concessional terms for countries who have signed frame- work agreements with China’s EXIM Bank. At least twenty fragile states have signed such framework agreements: Angola, Bangladesh, Cameroon, Congo 8 Non-DAC donors reporting to the DAC are: Chinese Taipei, Cyprus, Czech Rep., DR Congo, Cote d’Ivoire, Djibouti, Eritrea, Ethiopia, Kenya, Laos, Liberia, Republic, Estonia, Hungary, Iceland, Israel, Kuwait, Latvia, Liechtenstein, Lithu- Nigeria, Pakistan, Papua New Guinea, Sudan, Tajikistan, Togo, Uzbekistan, ania, Malta, Poland, Romania, Russia, Saudi Arabia, Slovak Republic, Slovenia, Yemen and Zimbabwe. Thailand, Turkey and the United Arab Emirates.
16 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT Figure 10. oda to fragile states (2009)
ODA TO FRAGILE STATES AS % OF BILATERAL AID ODA TO FRAGILE STATES IN USD BILLIONS 49.4 United States 12.44 39.3 United Kingdom 2.90 31.3 France 2.25 25.5 Germany 1.81 26.9 Japan 1.66 34.1 Canada 1.07 22.1 Spain 0.99 40.8 Australia 0.94 28.0 Norway 0.89 17.4 Netherlands 0.84 25.1 Sweden 0.76 34.0 Denmark 0.65 34.5 Belgium 0.55 56.7 Italy 0.50 26.7 Switzerland 0.47 38.9 Ireland 0.27 24.1 Finland 0.19 25.2 Korea 0.15 22.6 Austria 0.11 28.4 Portugal 0.08 29.5 New Zealand 0.07 23.3 Luxembourg 0.06
: OECD DAC (2011) 17.9 Greece 0.05 Data % 0 . 0 6 50%% 0 . 0 5 40%% 0 . 0 4 30%% 0 . 0 3 20%% 0 . 0 2 10%% 0 . 0 1 0%% 0 . 0 0- 22.00 44.00 66.00 8.00 1010.00 1212.00 14.00
Figure 11. extreme donor fragmentation, extreme donor concentration
NUMBER OF NON-SIGNIFICANT DONOR RELATIONS NUMBER OF SIGNIFICANT DONOR RELATIONS 35
30
25
20
15
10
5 . i l i .
0 . s s r s a a r a y a e a a a e e n ti n o a e n q n d n n p h e n u o n i i a i l a a i p d i ti p p a t r a o y e w d s k e a l i a g s a a n a a d a r p o a a r o e a e e g i r s a o p w p i r k e n t t e e e r t t r a s n a n e n r b o o h d n e o n e i g I R l a m o g r e c i a s e b o R i n u H m
R R i t F i s i s a a r i s T e i a d o i o a i s
e C u , a
v l
L n m r N n r a i g n A i b i r . I u e k Iraq k N . L g e - i n n K a L S s e h b B m ' o n
a i k
l a E o u Haiti I i L b o Y A a . r r t K N - Togo j e M a G
U g a Chad y e o m d a m g r issau G S
Niger m
B i n E a C a P P o Nepal b h r c n L n S
m Kenya C - n a k Sudan i i m urundi e T z e w r Eritrea M g B Yemen Liberia o Angola Guinea a t r o r a d Kiribati Nigeria C Z f Malawi D e D e & i m e e U
f Uganda
Georgia B i n e o u i C , B Ethiopia , Somalia A m T A
N Lebanon A e Pakistan S a u C B Comoros o
i n l Myanmar n Sri Lanka Tajikistan l o e g a G m a u angladesh Cameroon a r ZImbabwe o i n u r o Uzbekistan G o t S ank & Gaza Congo, Rep n o p urkina Faso B T Afghanistan Timor-Leste
K n a ti Côte d’Ivoire C Sierra Leone o B e s P a C Guinea- l e S a P Solomon Islands Congo, Dem Rep Korea, Dem. Rep. West B Papua New Guinea
Number of non-significant donor rCentral Africane Rep lations Number of significant donor relations Sao Tome andSao Principe Tome Data: OECD CRS (2011)
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 17 Aid can also play a catalytic role by “investing in investment”. In- the telecoms sector, where mobile phones make up for lack of in- vestment, domestic and foreign, creates jobs and growth, which formation and infrastructure through teletrading, telebanking and are critical to peace, as reflected in the 2011 New Deal for Engage- telemedicine. The top three countries with the highest growth rate ment in fragile states. The private sector contributes to greater of mobile penetration are all fragile states: Afghanistan, Iraq and domestic revenue mobilization, can lift some of the government’s Liberia (2009). burden in providing services, and increase legitimacy. The chal- lenges to investment are numerous: on average, fragile states rank Another example of aid with a high and measureable return to in- 144 out of 183 economies on the 2010, whereas non-fragile states vestment is in the area of stolen assets recovery. Since a large rank 78; although investments are riskier, given this poor business portion of illicit financial flows ends up in developed countries, climate, the investment rate to GDP is usually much lower than the part of the solution to stemming such flows must be focused on 30 percent rate needed for fragile states to stop falling behind and strengthening OECD financial system integrity, and the ability to start converging with the global economy (Collier, 2007); lack of detect, freeze and repatriate stolen assets back to developing coun- stable access to capital is a distinctive feature of fragile states, even try jurisdictions. Weak systems and incentives for uncovering illicit in resource rich countries. funds from developing countries have meant that only few suc- cessful cases of asset recovery have involved poor countries, but Yet there is a growing body of evidence on well-sequenced initia- present a high “yield”. In the UK, a USD 20 million project to fight tives that have delivered results at the macro-economic, enabling international bribery and money laundering has led to the freezing environment and enterprise levels. One example is the investment of USD 250 million worth of assets awaiting repatriation to develop- climate program in Liberia, which between 2008-10 generated ing countries – a worthwhile investment and innovative way of lev- USD 13 million in private sector investment, created over 20,000 eraging ODA resources which other donors may want to emulate. jobs and moved Liberia from rank 177 to 149 on the Doing Busi- ness index (World Bank, 2011). More targeted projects can also In the area of remittances, the G8 has committed to reducing the contribute notable results, such as the opening of a business reg- cost of remittance services by 5% in five years (the “5x5 objective”) istry in 1999 in Kosovo, which led to the registration of 90,000 at the 2009 summit in L’Aquila. Between 2008 and 2011, the cost businesses. At the sector level, there are opportunities for private has decreased in all G8 countries except France and Japan (World sector development that are also poverty-reducing, for example in Bank, 2011).
Figure 12. oda to fragile states (2004-09)
50,000 NET ODA (DEBT RELIEF) NET ODA (EXCLUDING DEBT RELIEF)
45,000 45
40,000
35,000 35 ) 30,000
25,000 25 current prices 20,000
15,000 15 usd billions (
10,000 Data : OECD DAC (2011) DAC : OECD
5,000 5
0 22004004 22005005 22006006 22007007 20082008 20092009
Fragiles States Total ODA Net Fragiles States ODA Tot excl.Debt
18 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT 200 Figure 13. AID VOLATILITY IN SELECTED FRAGILE STATES (2000-09)
150150 a t i p a C 100100 r e per capita p
A D O
n i
50 50 e g n h a c
%
l
a 0 0 u n annual % change in oda n A
-50-50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 : Adapted from World Bank (2011e).
Source CENTRAL AFRICAN REPUBLIC GUINEA- BISSAU HAITI LI BERIA SIERRA LEONE -100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Central African Rep. Guinea-Bissau Haiti Liberia Sierra Leone Figure 14. Aid effectiveness in 12 fragile states compared to all countries participating in the 2011 Paris Declaration Monitoring Survey
ALL COUNTRIES FRAGILE STATES 75% TARGET LEVEL
37% 1. Operational development 75% strategies 9%
2a. Reliable public financial 38% 50% management systems 44% 41% 3. Aid flows are aligned on 85% national priorities 45% 57% 4. Strengthen capacity by 50% co-ordinated support 57% 48% 5a. Use of country 55% PFM systems 27%
5b. Use of country 44% procurement systems 20% 43% 71% 7. Aid is more predictable 35%
86% 8. Aid is untied 89% 90% 45% 9. Use of common arrange- 66% ments or procedures 29% 19% 10a. Joint missions 40% 16% 43% 10b. Joint country analytic work 66% 38%
11. Results-oriented 20% 36% frameworks 0% : Adapted from OECD (2011b). 38%
Source 12. Mutual accountability 100% 8% 2009 00 2020 4040 6060 8080 100100
DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 19 ANNEX STATISTICAL digest (2009)
• CONFLICT-AFFECTED TOP THIRD MIDDLE THIRD BOTTOM THIRD
DEVELOPMENT INDICATORS RESOURCE FLOWS
TOTAL POPULATION URBAN GDP MOBILE 6 DOMESTIC 8 ODA ODA POPULATION1 UNDER 152 POPULATION3 Growth4 SUBSCRIPTIONS5 REMITTANCES REVENUE7 net fdi NET9 PER CAPITA10
Million % of total % of total %∆ 2008-09 per 100 people USD Million % of GDP USD Billion USD Billion USD
Afghanistan • 32.30 47 24.80 8.20 35.89 - 20.57 1.60 6.24 186.47 Angola • 19.60 46 58.50 2.30 43.70 - 30.86 11.58 0.30 12.91 Bangladesh 150.50 34 28.10 6.07 34.28 10.520 10.50 5.16 1.89 8.34 Burkina Faso 17.00 46 20.40 9.24 20.64 0.100 19.36 0.86 1.12 67.81 Burundi 8.60 44 11.00 3.90 10.26 0.030 109.16 0.07 1.56 68.86 Cameroon 20.00 41 58.40 2.60 38.58 0.150 18.38 4.16 0.80 33.87 Central African Rep • 4.40 42 38.90 3.30 3.89 - 16.07 0.25 0.78 56.09 Chad • 11.50 46 27.60 4.30 24.56 - 20.01 3.32 0.61 51.31 Comoros 0.80 42 28.20 2.10 13.97 - - 0.05 0.06 70.79 Congo, Dem Rep • 20.20 47 35.20 7.24 15.83 0.190 19.49 3.06 2.53 122.43 Congo, Rep 67.80 42 62.10 8.75 55.08 - 24.32 13.17 2.56 36.66 Cote d'Ivoire 4.10 41 50.10 3.01 68.97 0.020 24.32 6.20 0.33 71.79 Eritrea 5.40 43 21.60 2.20 2.77 - 15.91 0.38 0.15 28.40 Ethiopia • 84.70 44 17.60 10.14 4.99 0.260 16.29 3.92 3.84 47.05 Georgia 4.30 18 52.90 6.37 64.32 0.710 29.27 7.21 0.96 205.84 Guinea • 10.20 43 35.40 1.93 57.44 0.060 41.00 1.48 0.28 22.01 Guinea-Bissau 1.50 48 30.00 3.47 37.76 0.050 24.80 0.18 0.17 98.93 Haiti 10.10 37 49.60 -5.05 36.98 1.380 17.68 0.45 1.95 113.59 Iraq • 32.70 41 66.40 0.84 63.43 0.070 71.73 5.06 2.79 89.78 Kenya • 41.60 43 22.20 5.30 49.07 1.690 23.67 1.84 2.01 45.07 Kiribati 0.10 31 44.00 1.80 1.02 - 78.39 0.01 0.03 277.27 Korea, DPR 4.30 23 63.40 - 0.29 7.560 - 1.44 0.07 2.75 Lebanon 4.10 28 87.20 7.00 36.36 0.030 24.35 25.51 0.69 152.72 Liberia 15.40 47 61.50 5.51 21.95 - 29.90 3.71 0.54 133.74 Malawi 48.30 47 19.80 7.10 16.62 0.120 34.16 0.80 0.78 53.48 Myanmar • 30.50 26 33.90 10.42 0.94 2.990 6.11 7.52 0.36 7.50 Nepal 16.10 38 18.20 4.55 25.88 0.090 16.78 0.17 0.98 29.07 Niger 162.50 48 16.70 8.81 17.36 9.590 19.11 1.21 0.49 31.39 Nigeria • 24.50 44 49.80 7.85 47.32 - 19.93 50.11 1.71 10.74 Pakistan • 176.70 36 37.00 4.14 60.40 8.720 14.70 14.61 3.48 16.31 Papua New Guinea 7.00 40 12.50 8.00 13.43 0.010 27.45 1.45 0.45 61.71 Sao Tome & Principe 0.20 41 62.20 4.50 39.38 0.002 32.42 0.16 0.03 188.97 Sierra Leone 6.00 43 38.40 4.95 20.21 0.050 19.74 0.46 0.46 78.45 Solomon Islands 0.60 40 18.60 7.00 5.72 0.002 49.80 0.39 0.21 392.86 Somalia • 9.60 44 37.40 - 7.03 - - 0.45 0.66 72.55 Sri Lanka • 21.00 23 15.10 8.01 68.20 3.360 14.53 4.35 1.23 34.05 Sudan • 44.60 40 45.20 4.45 36.11 2.990 15.40 19.14 2.35 53.88 Tajikistan 7.00 38 26.50 3.80 72.24 1.750 23.41 0.87 0.44 60.28 Timor-Leste 1.20 45 28.10 7.42 - - 347.93 0.12 0.22 197.25 Togo 6.20 43 43.40 3.37 37.06 0.340 18.47 - 0.54 84.55 Uganda • 34.50 49 13.30 5.18 28.99 0.750 15.10 5.01 1.81 55.17 Uzbekistan 27.80 32 36.90 8.50 59.13 - 36.72 3.64 0.22 6.85 West Bank & Gaza 4.20 - 72.10 - 30.27 1.160 - -0.22 3.03 748.44 Yemen • 24.80 45 31.80 - 16.47 1.220 25.00 4.08 0.60 21.42 Zimbabwe 12.80 38 38.30 9.00 23.98 - 16.71 1.38 0.74 59.06
Note: To make this data easier to understand, the group of fragile states have been divided into terciles for each column (upper 1/3, middle 1/3, bottom 1/3). The colours used to indicate the three groups are given above.
Sources: 1World Bank (2011); 2 World Health Organisation (2010); 3United Nations WDI (2011); 4World Bank/ OECD (2011); 5World Bank/ITU (2011); 6World Bank (2011); 7IMF (2011); 8IMF (2011); 9OECD-DAC (2011); 10OECD-DAC/World Bank (2011).
20 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT References
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22 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 23 The conflict and fragility series
The DAC International Network on Conflict and Fragility works on specific development challenges in conflict-affected and fragile states, supporting peacebuilding and statebuilding processes that concentrate on promoting lessons and experi- ences from the field, setting international norms and standards, tracking global results and providing practical guidance to help improve responses. To this end, the Conflict and Fragility Series brings together both in-depth analysis and practical recommendations. Free electronic copies may be downloaded from the OECD Bookshop (www.oecd-ilibrary.org). For more information, contact the INCAF Secretariat at [email protected].
Effective Engagement in Fragile States
International Engagement in Fragile States: Can’t we do better? Conflict and Fragility International Engagement in Fragile States http://dx.doi.org/10.1787/9789264086128-en C a n ’ t w E d o b Et t Er ? Four years after DAC ministers endorsed the Principles for Good International Engagement in Fragile States and Situations, 13 countries have decided to take stock of the quality and impact of international engagement across the areas of diplomacy, development and security. The 2011 Monitoring Report synthesises main find- ings and recommendations from across these 13 countries, providing evidence from the ground of what works and what doesn’t. The report is one of the key inputs for the Fourth High-Level Forum on Aid Effectiveness (Busan) and its follow-up. PrELIMI narY VErSIon
Financing and Aid Architecture
International Support to Post-Conflict Transition: Rethinking Policy, Changing Practice http://dx.doi.org/10.1787/9789264168336-en 1.5 billion people live in countries affected by repeated cycles of violence and insecurity. These countries face tremendous challenges as they transition from conflict to peace. International support can play a crucial role in these contexts, but has so far struggled to deliver transformative results. This volume presents clear policy recommendations for better practice in order to improve the speed, flexibility, predictability and risk manage- ment of international support during post-conflict transition.
Managing Risks in Fragile and Transitional Contexts: The price of success? http://dx.doi.org/10.1787/9789264092198-en From the anarchy of Somalia to the relative stability of Nepal, fragile and transitional situations represent a broad spectrum of contexts. However, they share some common features: these are risky environments – for the people who live there, for their governments, for neighbouring countries, and for those who seek to provide assistance. International engagement in these situations presents significant risks for donors and implementing partners, but also holds the potential for substantial rewards. This publication provides the evidence to help donors understand how to balance risks and opportunities in order to protect the integrity of their institutions while delivering better results to those who need it most.
Peacebuilding, Statebuilding and Security DAC Guidelines and Reference Series
DAC Guidelines and Reference Series DAC Guidelines and Reference Series Supporting Statebuilding in Situations Supporting Statebuilding in Situations of Conflict and Fragility: Policy guidance of Confl ict and Fragility Supporting Statebuilding POLICY GUIDANCE in Situations of Conflict Functioning states are essential for reducing poverty, sustaining peace and achieving agreed development goals. Despite receiving growing international attention in recent years, fragile states and Fragility http://dx.doi.org/10.1787/9789264074989-en are falling behind other low-income countries in human development. Fragility – and its negative consequences – can destabilise entire regions and have global repercussions. Tackling the challenges associated with fragility requires a concerted international effort to support sustainable POLICY GUIDANCE statebuilding processes, based on robust state-society relations.
Supporting Statebuilding in Situations of Confl ict and Fragility: Policy Guidance presents new thinking on statebuilding and clear recommendations for better practice. It provides an internationally accepted conceptual framework for statebuilding, informed by today’s realities of confl ict-affected
and fragile situations. Building on good practices already being successfully applied on the ground, Supporting Statebuilding inSituations ofConfl ictand Fragility This publication presents new thinking on statebuilding and clear recommendations for better practice. Draw- this guidance lays out how developing and developed countries can better facilitate positive statebuilding processes and strengthen the foundations upon which capable and legitimate states are built. The recommendations in this guidance address critical areas for better international engagement from strategy development and programme design and delivery to day-to-day operations in the fi eld and at headquarters. ing from best practices from the field, it offers guidance on how donors can better facilitate positive endog- enous statebuilding processes and strengthen the foundations upon which capable, accountable and respon- sive states are built. Please cite this publication as: OECD (2011), Supporting Statebuilding in Situations of Confl ict and Fragility: Policy Guidance, DAC Guidelines and Reference Series, OECD Publishing. http://dx.doi.org/10.1787/9789264074989-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.
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