International Development CommitteeWritten evidence submitted by Christian Aid

1. Introduction

1.1 Christian Aid is a Christian organisation that insists the world can and must be swiftly changed to one where everyone can live a full life, free from poverty. We work globally in 45 countries for profound change that eradicates the causes of poverty, striving to achieve equality, dignity and freedom for all, regardless of faith or nationality. We are part of a wider movement for social justice. We provide urgent, practical and effective assistance where need is great, tackling the effects of poverty as well as its root causes.

1.2 In the current world context, in which development cooperation is changing dramatically, we appreciate the need to review and adapt how UK ODA can most effectively be used. This submission sets out Christian Aid’s priority recommendations for the International Development Committee to consider in its inquiry into the future of UK development cooperation. It covers the following points:

Whether the 0.7% ODA target will be appropriate in the long term;

Whether DFID has the right mix of financial instruments and whether it should introduce new ones, including concessional loans; the balance between loans and traditional grant aid; and the role of the UK as a provider of climate finance;

Whether DFID has the right balance between bilateral and multilateral aid; and

How DFID should monitor and influence expenditure by multilateral institutions, including in countries and regions where DFID does not have bilateral programmes.

1.3 We welcome the opportunity to provide written evidence to the International Development Committee on this, and are happy to provide further written/oral evidence on any of the subjects covered in this submission via Barry Johnston, Senior UK Political Adviser (email: bjohnston@christian-aid.org).

2. The appropriateness of 0.7% ODA target in the long term

2.1 Christian Aid applauds the Government for reaching the cross-party pledge to spend 0.7% GNI for overseas aid this year and strongly believes that this level should be maintained into the future. Academic analysis suggests that a key determinant of aid impact is predictable financing. Aid at present is notoriously unpredictable, with commitments made and not met, and frequent reversals over time rather than steady flows to individual countries. The UK Government should commit to providing a consistent level of ODA, and the best way to ensure this in the short to medium term is to deliver on the cross party consensus to enshrine the 0.7% target in legislation.

2.2 A long term commitment to 0.7% ODA expenditure is morally right. It will also ensure that the UK remains an influential actor in global development and positions it as a leader among its G20 peers. The UK Government should also continue to urge its G20 counterparts to meet their development commitments.

2.3 As much as implementation of the 0.7% target is important, it is also vital that this funding remains clearly and directly focused on poverty eradication. Recent reports suggest there is pressure to broaden areas where the money can be spent to include such things as military peacekeeping missions. Christian Aid would also stress that the definition of overseas aid must not be diluted and in particular the delivery mechanism should be primarily via DFID.

2.4 In the longer term, UK development cooperation must be driven by the understanding that aid is a vital but partial response to poverty and inequality and can be undermined by other factors. Aid transforms the lives of millions of people, but alone it will never end poverty and there will never be enough aid. The falls in global aid flows in 2011 and again in 2012 demonstrate the lack of certainty for developing countries relying on aid1 while even at their highest point, aid flows were dwarfed by illicit financial flows out of developing countries.2 While vehemently defending and ensuring the impact and effectiveness of aid in the short to medium term, over a longer trajectory, the UK must develop credible and timelined strategies for assisting developing countries to graduate from aid dependency3. To achieve this requires tackling the structural causes of poverty alongside aid interventions.

2.5 It is clear that there is still a pressing need to increase resources for development, resources which may come from a number of channels including not just ODA (bilateral & multilateral) but also debt relief, growth of the domestic economy, Foreign Direct Investment (FDI) and tax revenues. However, all of these revenue sources can be undermined by capital flight and illicit financial flows. To take Nigeria as one example, it has been estimated that the amount lost through illicit financial flows in 2009 was $33.4 billion.4 This can be compared to the $16.59 billion which Nigeria received in ODA that year. In line with the recent recommendations of the IDC report on Tax in Developing Countries, Christian Aid urges the UK to invest in scaling up its work supporting developing countries to tackle tax avoidance, and other illicit financial flows.

3. Whether DFID has the right mix of financial instruments and whether it should introduce new ones, including concessional loans; the balance between loans and traditional grant aid

3.1 Christian Aid will not comment specifically on the introduction of concessional loans and their balance with grant aid, as, to date, we do not have experience either in offering loans or in analysing loaning functions. However, the experiences drawn from our programme work leads us to highlight some broad points.

3.2 The right mix of financial mix instruments must be assessed in relation to the goal itself of poverty eradication. Each instrument has its own cost benefit analysis and intended and unintended impacts. In determining the appropriate variety of instruments, the goals and drawbacks of different instruments, their complementariness and which instruments work most effectively in which developing country setting needs to be well-understood. Instruments not mentioned in the proposed list are diaspora bonds and public private finance initiatives which can be complementary to ODA, but again, where intended and unintended impacts need to be understood.

3.3 Well designed loans may be able to make a positive contribution within a broad mix of development finance instruments in some circumstances, but our experience shows that loans are not well suited to reach some of the poorest people. One of the major constraints facing poor producers is access to credit, but the very small levels of finance that they require can only very rarely be provided by institutional donors which are not able to operate at that level. At the same time, a wide range of support services for individual enterprises and poor producers to enter the value chain as well as systemic interventions on market functioning are also needed, but these are unlikely to be suitable for credit finance. The provision of finance through forms like concessional loans must not lead to policymakers overlooking the needs of the poorest who are currently hardest to reach and marginalised from financial markets.

4. The role of the UK as a provider of climate finance

4.1 On climate finance, the future development context will be shaped by an on-going environmental crisis. There is evidence that we have already put excessive pressure on many natural resources, including land, water, biodiversity and forestry. The increases in levels of climate unpredictability, constrained water resources and extreme weather are inevitable and “tilted against many of the world’s poorest regions”.5 Sustainability, resilience to climate change and fair rights over resources must underpin future development cooperation that seeks to operate within planetary boundaries.

4.2 To finance preparedness to both known and unpredictable environmental challenges, an appropriate channel of finance for developing countries is key. Large scale financing is urgently needed from developed countries, based on responsibility for emissions and capacity to pay. The continuation of the Green Climate Fund of the UNFCCC will determine how prepared developing countries are for responding to climate change. However progress in making the fund operational has been slow. The UK, one of the five G8 country’s to sit on the fund’s board, has earmarked 50% of its climate finance for adaptation, reflecting a global commitment to “balance” financing between adaptation and mitigation. However, globally, financing of adaptation is receiving less than 20% of overall climate finance—an imbalance that needs to redressed. The UK must urge other developed countries to ensure a balance in funding between mitigation and adaptation.

4.3 The source of climate finance is also of concern, particularly the fact that most donors, including the UK, are taking their climate finance from aid budgets, in contradiction of their promises made at the UNFCCC. We believe that in the future national pledges of climate finance should be additional to ODA, and the UK should take a lead to establish and deliver innovative sources of reliable large scale finance. Since climate change needs to be dealt with alongside poverty reduction, climate finance should be additional to aid budgets, not taken from them. Further, much climate finance is in the form of loans not grants, which adds to developing countries debts and fails to reflect developed countries’ historical responsibility for climate change. Undoubtedly, some of the funding for climate finance will need to come from new, innovative sources. There are a range of proposals here, including the domestic proposals for carbon taxes, re-direction of subsidies currently spent on fossil fuel extraction, the use of Special Drawing Rights (a form of international reserve currency) and a possible Financial Transaction Tax. One promising innovative financing source that could raise significant climate finance is carbon pricing for international shipping; a major and rapidly growing source of greenhouse gas emissions. The UK government has already welcomed progress towards establishing a global regime for reducing emissions from shipping, suggesting that carbon pricing could be part of the solution.

4.4 Policymakers are now exploring ways to encourage private sector finance for climate action in developing countries, ie investment in projects to reduce greenhouse gas emissions and build capacity to adapt to climate change impacts. The UK’s recently launched Climate Public Private Partnership is one such example. Using public funds to leverage private finance is also an option being considered in allocating some of the funds channelled through the new Green Climate Fund, where a Private Sector Facility is now being developed. Whatever the source and channel of climate finance, it is vital to ensure that adequate and reliable climate finance reaches the poorest and most vulnerable people, that its impacts can be clearly evaluated and monitored, and that adequate social, environmental and human rights safeguards are in place to protect recipient communities.

4.5 Christian Aid, along with other NGOs, has had a consistent call for climate finance to be delivered through country defined strategies, and that these strategies must involve civil society and affected communities in development, delivery and monitoring. There must also be clear accountability to the taxpayer for the use of any public monies. Christian Aid also believes that there should be civil society involvement in the monitoring of climate change adaptation programmes.

5. Whether DFID has the right balance between bilateral and multilateral aid

5.1 Whether aid is delivered bilaterally or multilateral models are used, Christian Aid believes that the effectiveness of the disbursing agency and how funding is used (rather than the overall level) should be the determining factor. This assumes a new importance now as DFID considers the implications of a greater number of developing countries moving into middle income classification status. DFID’s shift of bilateral funding from middle income country recipients to least development country recipients, part of a wider trend among bilateral funders, has far reaching impacts which need to be considered in assessing the mix between bilateral and multilateral aid.

5.2 Global inequality is persistent, with 20% of the population enjoying more than 70% of total income. Inequalities within countries are as important as between countries. Simplistic talk of “rich north” and “poor south” no longer makes sense. The majority of people living in poverty today are living in middle-income countries such as India, and it is in such countries that we are also seeing the greatest increase in inequality. Longstanding forms of inequality and discrimination such as those based on gender or ethnicity continue to limit the lives and opportunities of billions. Inequality has to be the primary paradigm through which we see future development cooperation and the UK’s role must take greater account of this. If DFID is no longer funding bilaterally in MICs, it is essential that multilateral models are adequately supported to address inequalities that make and keep people in poverty.

5.3 The relevance and impact of UK development aid will also depend on how it addresses governance challenges across national borders and within developed and developing countries alike. Within the context of changing power relationships at all levels and across stakeholders—state and non-state actors, private sector and civil society—UK development cooperation should seek to promote governance, transparency and accountability that work for the poor majority, rather than serving the interests of the rich minority. Again where DFID can no longer do this directly through bilateral programmes, it is important that the UK remain at the forefront of this work globally, including through multilateral funding.

5.4 Bilateral funders often have greater degrees of political leverage in the countries that they lend to, and a movement away often leads to a deficit in such political capital. It is also important to note that leverage provided through aid budgets cannot always be substituted by other leverage eg trade. At the same time there is huge importance and benefit in multilateral funders extending reach into politically sensitive regions: in many developing countries multilateral organisations, including the EU, are often seen as a relatively neutral donor as compared with individual states such as the UK where history or current strategic interests might complicate a bilateral donor-recipient relationship. We would stress that the key principle is the complementariness of both vehicles in individual country settings, rather than a fixed formula for proportionality of one form over the other.

5.5 In terms of aid harmonisation, Christian Aid would encourage greater use of basket funding and pooled funding mechanisms across different thematic programmes including civil society support mechanisms. When this is well executed and there is strong donor collaboration, there are greater synergies, economies of scale and opportunities for learning across and between the ODA community, and ultimately greater impact at programme level. We have positive examples of this including a multi-donor resilience programme in Malawi and civil society voice and accountability programmes in Sierra Leone.

5.6 Within the mix of bilateral and multilateral aid, Christian Aid strongly believes that European Commission (EC) development cooperation remains a valuable and essential component of UK development assistance, and that it is vital that the UK continues to meet its commitments here. The effectiveness of EC aid has improved substantially over the past years, in part due to the establishment of specific financial instruments for development such as the European Development Fund and the Development Cooperation Instrument.

5.7 Christian Aid sees the added value of channelling funds through the EC as comprising a number of elements. It decreases the burden on recipient countries who have one, rather than a multiplicity of bilateral, donor administrative and other requirements, providing clear potential for increased efficiency, greater coordination and focus and hence value for money. EC aid is generally committed over multi-year frameworks and disbursed according to clear performance criteria. This predictability enables the recipient country to plan with confidence, providing greater potential to maximise impact. These are also applicable to other multilateral channels, and form a strong rationale for maintaining multilateral support.

6. How DFID should monitor and influence expenditure by multilateral institutions, including in countries and regions where DFID does not have bilateral programmes

6.1 DFID should continue to support effective use of multi-lateral channels in regions where it has few bilateral ODA priorities. In the case of the EU, monitoring and influence can be applied through the appropriate Brussels based mechanisms with liaison through FCO missions and EU delegations in-country. In the case of World Bank and Regional Development Bank institutions and UN agencies, monitoring and influence should be applied through the appropriate accountability mechanisms relating to these institutions. At the same time, the UK should push for greater transparency in this area to build support for this modality. Christian Aid would also particularly note that monitoring and influence can be applied through smarter citizen and civil society accountability mechanisms at country level. Greater scrutiny of multi-lateral aid flows can be an incentive to use them more effectively.

June 2013

1 http://www.oecd.org/dac/stats/aidtopoorcountriesslipsfurtherasgovernmentstightenbudgets.htm

2 http://iffdec2011.gfintegrity.org/

3 While we have limited our comments here to long-term development cooperation, there will always be some need for humanitarian/emergency response. The relationship between the two is dealt with more in Section 7.

4 Global Financial Integrity: http://www.gfintegrity.org/storage/gfip/documents/reports/IFFDec2011/illicit_financial_flows_from_developing_countries_over_the_decade_ending_2009.pdf P.39

5 http://www.worldbank.org/en/news/feature/2012/11/18/Climate-change-report-warns-dramatically-warmer-world-this-century

Prepared 11th February 2014