Financing for Development: What to expect from UN Addis Ababa summit

Success of global climate pact and new development goals hangs on four-day finance meet in Ethiopia

New finance streams are required for projects to help the poor deal with climate change, such as drought-resistant crops (Pic: Flickr/CIMMYT)

New finance streams are required for projects to help the poor deal with climate change, such as drought-resistant crops
(Pic: Flickr/CIMMYT)

By Leo Barasi in Addis Ababa

Who will foot the bill to end poverty and tackle climate change?

That’s the big question as the third Financing for Development Conference opens in Addis Ababa on Monday, with an ambitious agenda to agree funding for global efforts against poverty and hunger.

While foreign aid can partly meet these ambitions, aid alone will not be sufficient and conference delegates are seeking other ways to increase the finance available to support development.

But after months of negotiations and with just four days until the conference finishes, details of how development will be financed remain unclear, and observers have warned that failure could imperil action to end poverty and achieve sustainable development.

“We need some good announcements to put down momentum, but that’s not underway yet”, Alex Evans, a Senior Fellow at New York University’s Centre on International Cooperation, told RTCC.

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The Addis conference follows two previous international meetings that determined the finance available to tackle global poverty since 2002.

This week’s meeting will establish the level and nature of finance for the next 15 years, ahead of further international conferences later this year on development and climate change.

A meeting in New York in September is expected to agree to a collection of Sustainable Development Goals (SDGs), which will identify targets for international development up to 2030.

Despite progress in reducing global poverty, 836 million people still live on less than $1.25 a day, according to the UN.

The last of this year’s major conferences, the UN’s COP21 summit in Paris in December, is seen as a deadline for governments to agree to a new deal to address climate change.

Aid budgets

Foreign aid has long been considered a key tool for achieving international development goals and the first Financing for Development conference, in Monterrey in 2002, urged rich countries to spend 0.7% of their GNP on aid

Aid will again be discussed at this week’s conference, with an expected call for the preservation of the 0.7% target and demands for a greater proportion of that aid to be spent on helping the world’s poorest countries.

Such support would be needed if developing countries are to introduce social safety nets – programmes to provide basic services and protection from hunger and disasters – to cover their entire populations.

The World Bank estimates that 773 million people still lack these basic protections, while the Overseas Development Institute calculates that filling this gap will require an additional $84bn in foreign aid each year

But observers have expressed concern that international governments have failed to meet their long-standing commitments to provide 0.7% of aid, and that the draft agreement at this week’s conference does little to indicate this will change.

Hilary Jeune, an advisor at Oxfam, told RTCC: “ODA [official development assistance] is needed to support governments to provide public services but we keep getting these recommitments without getting the cash.”

However, the new SDGs have a wider scope than the Millennium Development Goals (MDGs), which expire this year, and meeting their 169 targets will require more financing than is available from foreign aid.

According to the UN, achieving the new Goals will demand financing of over $10 trillion, while official foreign aid currently amounts to around $160 billion a year.

To meet the gap between the funding needed to meet the SDGs, and the finance available from foreign aid, this week’s conference is aiming to reach agreements on other major sources of finance.

Funding to address climate change is likely to feature in the discussions, with the conference expected to emphasise existing commitments to providing $100 billion in climate finance a year by 2020.

The UN-backed Sustainable Energy for All network will also publish proposals later today for increasing investment to provide universal access to affordable energy: a proposed target of the SDGs.

But while a deal reached in Addis may mention options for addressing climate change, such as a carbon tax and reforms to fossil fuel subsidies, it is unlikely that any significant new agreement will be reached in this area.

Tax reform

The most significant progress this week is likely to be reached in tax reform: recent analysis has suggested that developing countries are losing $212 billion a year as a result of tax avoidance by multinational companies.

One of the key announcements at the conference will be the launch on Wednesday of a new agreement, labelled the ‘Addis Tax Initiative’, between several wealthier countries, including the US and UK, and a number of developing countries.

Global negotiations on international tax reform have been deadlocked as developing countries, particularly the wealthier emerging economies, believe the current draft Addis agreement does not go far enough and have called for the creation of a new UN-based tax body.

“At the moment, the OECD are deciding the rules, and the rules are detrimental to developing countries. Developing countries need to be sitting around the table to discuss illicit financial flows and tax evasion”, said Jeune.

“The US has explicitly said they don’t want anything intergovernmental and most developed countries think there are enough processes. But those who are excluded want a seat at the table,” she added.

Professor Joseph Stiglitz, a Nobel laureate in economics, told an Addis side event ahead of the conference on Sunday that failure to reach an agreement would harm developing countries:

“It’s bad enough that developed countries haven’t lived up to their commitments on ODA and on climate change… They haven’t made a commitment to make sure developing countries are getting the tax revenue from the economic activities that happen in their countries.

“Their irresponsibility [has] been harming developing countries.”

A compromise currently being considered is for an existing tax committee at the UN to be upgraded, and its membership reviewed.

A further area of focus for the conference will be on facilitating increased private investment in developing countries, both from external and internal sources.

Last week, the world’s multilateral development banks and the IMF announced they would provide $400 billion in development finance over the next three years: an increase on the $127 billion provided in 2015.

However, the potential for increases in private finance in development has led to some concerns about projects that combine private and public funds.

“Private finance has a role to play, but we need to manage the rules. There need to be mechanisms and criteria when public money is spent [with private finance] to make sure the money is spent on sustainable development and marginalised people”, said Jeune.

“We’ve been looking at past projects to see how the money is spent. The donors often lose control down the supply chain and the money has been used for land-grabbing and human rights abuses”, she added.

New York and Paris

Another source of disagreement in the negotiations has been the inclusion of the term “common but differentiated responsibilities” in the draft agreement.

The term is used in climate change negotiations and has been associated with the concept of some countries’ historical responsibilities for greenhouse gas emissions.

Some developed countries are concerned that the use of the term in an agreement in Addis would signify that those countries also have responsibility for differences in levels of development: an implication that rich countries want to avoid.

There are fears that, if the Addis conference makes little progress in securing new funds for development, this year’s poverty and climate conferences in New York and Paris could be undermined.

“The SDGs are holistic in a way the MDGs weren’t but we’re not seeing a delivery agenda that’s commensurate with that”, said Evans.

He said that the most significant progress at Addis was likely to come from announcements made by groups of countries, rather than from the main negotiations, but warned that such progress was not guaranteed.

“We could have a big shift in higher-income countries’ domestic policies – technology, intellectual property rights, how they handle migration and remittances: all kind of things about how a country impacts the world”, he added.

“This week will be a good start – but if we’re serious about goals as serious as the SDGs we need to get beyond a good start and get into actions pretty quickly.”

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