Five Lenses on the Future of Global Development Dr. Homi Kharas | February 21, 2018 Institute of International and European Affairs

The “Aid Horizon” is Changing Horizon 2025 was an initial attempt to stimulate debate on the evolution of the aid architecture. Five years later – post Trump and Brexit – we consider new and shifting drivers of change. Meteors: unforeseen, dramatic forces Snowballs: trends that have gathered momentum or taken unexpected turns Our work identifies 3 meteors: The populist movement: anti-globalization, anti-foreigner, anti-aid, anti-multilateral Agenda 2030: the SDGs Increase in migration and influx of refugees And 4 snowballs: Slowing global poverty reduction Increased engagement in development Climate finance Chinese competition

Five Key Findings: Fragility is the new development frontier. The overall poverty gap is shrinking. Cooperation of middle-income countries is paramount. Western aid agencies need to forge a “competitive engagement strategy” with China in bilateral development cooperation. Private sector mobilization for development is essential but has limitations.

Five Key Findings: Fragility is the new development frontier. The overall poverty gap is shrinking. Cooperation of middle-income countries is paramount. Western aid agencies need to forge a “competitive engagement strategy” with China in bilateral development cooperation. Private sector mobilization for development is essential but has limitations.

Shift in Poverty toward Fragile States “SOTCs”: 31 countries will have extreme poverty headcount ratios of at least 20% in 2030. Poverty in Africa has risen but aid has not followed. Nigeria is home to the largest number of absolute poor. Tailored approaches that address root causes of fragility are key. **SOTC: Put differently, 4 out of 5 people living in global poverty will reside in 31 countries. MDBs are about largest/good performing countries. SDGs are about worst performing countries. “In the MDG era, large rapidly growing economies – including China, India, Indonesia, Bangladesh, and Ethiopia – drove development advances….Success during the SDG era, in contrast, depends precisely on what happens in these poorest countries.” (SOTC) GEMAP: Governance and Economic Management Assistance Program in Liberia; donors partnered with Liberia’s government, an innovative model where donors and government officials shared responsibility and oversight for improving core government functions. Similar compact-based approaches might be applicable in other SOTCs.

Policy Suggestions: Target 3 SOTCs that account for 50% of the number of poor. Fund allocations in line with global poverty shifts. Institution-building essentials: investment in modern civil registration and vital statistics systems 3 SOTCs: Nigeria, DRC, and Madagascar

Five Key Findings: Fragility is the new development frontier. The overall poverty gap is shrinking. Cooperation of middle-income countries is paramount. Western aid agencies need to forge a “competitive engagement strategy” with China in bilateral development cooperation. Private sector mobilization for development is essential but has limitations.

Lower Global Poverty Rates An estimated $45 billion (0.1% of DAC country GDP, or close to a third of DAC ODA) would fill the gap. Aid is no longer a “drop in the bucket.” Other dimensions could increase the cost: administrative fees, targeting design errors, and delivery mechanisms **In addition to Addis Agenda 1% allocation of national income

Policy Suggestions: Develop effective, scalable social safety nets. Cash-based social assistance using digital technologies (lump-sum transfers are better than livelihood projects or graduation approaches [Sulaiman et al, CGAP 2016])

Five Key Findings: Fragility is the new development frontier. The overall poverty gap is shrinking. Cooperation of middle-income countries is paramount. Western aid agencies need to forge a “competitive engagement strategy” with China in bilateral development cooperation. Private sector mobilization for development is essential but has limitations.

UMICs are Part of the Solution Reintegration of Syrian refugees in Jordan and Lebanon Countries tackling carbon emissions Innovations in scaling up sustainable infrastructure happening in Colombia, Turkey, and Brazil Softer approaches in Jordan and Lebanon may work best as they seek to reintegrate Syrian refugees.

Policy Suggestions: “Gradation, not graduation” takes into account sector, policy, and institutional frame as well as country income level Engage where regional influence and impact are substantial. Engage where innovation and learning can be helpful, including instruments to catalyze private finance. Softer approaches in Jordan and Lebanon may work best as they seek to reintegrate Syrian refugees.

Five Key Findings: Fragility is the new development frontier. The overall poverty gap is shrinking. Cooperation of middle-income countries is paramount. Western aid agencies need to forge a “competitive engagement strategy” with China in bilateral development cooperation. Private sector mobilization for development is essential but has limitations.

Competitive Engagement with China Chinese ambition is large: Belt and Road Initiative (BRI) The two largest Chinese development banks have roughly the same international assets as the sum of all western MDBs. China is setting new benchmarks in: what motivates, efficiency, and effectiveness. Two largest development banks China: Development Bank and China Ex-Im Bank ($680 billion)

Policy Suggestions: A “competitive engagement” strategy with China Track overlaps and gaps in recipient country support. Develop a collaborative approach for joint investments.

Five Key Findings: Fragility is the new development frontier. The overall poverty gap is shrinking. Cooperation of middle-income countries is paramount. Western aid agencies need to forge a “competitive engagement strategy” with China in bilateral development cooperation. Private sector mobilization for development is essential but has limitations.

Blended Finance Technology creates new possibilities in developing countries: mobile payments, block-chains, and biometric identification Increasingly, corporations are adopting the SDG narrative. Limitations: regulatory hurdles, fears of market distortions and corruption, profit models that favor “near-poor” Triple whammy: infrastructure, developing country long-term

Policy Suggestions: Create standardized documentation for infrastructure projects (SOURCE). Ensure local support and ownership. Track “mobilized” private finance (DAC).

Conclusion As the development landscape shifts so too must aid agencies and actors. Effective delivery will require navigating challenges while leveraging new possibilities. Success will depend on how development actors approach - and develop strategies for - state fragility, the shrinking poverty gap, MICs, Chinese development initiatives, and blended finance.