Reforming ODA – counting the private sector

The DAC aims to promote greater private sector engagement in development by allowing ODA to be channelled through a wide range of “private sector instruments” (PSI). This means aid to invest in or give loans to private companies, or to underwrite their activities through guarantees. These proposals are arguably the biggest change to ODA rules for several decades. While civil society do support the notion that the private sector should play a strengthened role in sustainable development, and that certain ODA reforms could support this, we also believe that the current DAC proposals are flawed and risk eroding the value of ODA as a key international public resource for tackling poverty and vulnerability. For this reason, we strongly believe that the discussion taking place on 9 March should discourage taking a premature decision and reconsider the timeline to allow for consultations with southern partners including governments, CSOs and the private sector. A more considered timeline would allow for important consultation with and input from key development partners to ensure that the new measure has the appropriate incentives, safeguards and commitment to effective, sustainable development.

Below is a summary of civil societies specific concerns and recommendations for DAC members.  More detail can be found in the joint civil society paper here.

  1. The timeline for the PSI reform should be significantly extended to allow for consultation with stakeholders, and for a careful estimation of its potential impacts. Without more time, evidence and public and partner country scrutiny, the potential for mistakes and unintended consequences is significant.
  2. We are concerned about the potential for dilution of the development focus of aid and the creation of a ‘blurred line’ between commercial and development motivations on the part of the donor. Development and financial additionality should be integral components of all ODA-supported PSI: the current DAC proposals for measuring both types of additionality are not yet satisfactory.
  3. It is centrally important that a process to end tied aid – both in policy and in practice – should be conducted in parallel to the PSI reform to prevent any weakening of the development focus of ODA. Tied aid inflates costs, reduces impact, and dilutes ODA’s focus on development, yet could be further incentivised through the current PSI proposals unless safeguards are put in place. The OECD DAC will also need to significantly improve the monitoring of tied aid.
  4. The PSI reform must establish strong safeguards to ensure aid channeled through PSI complies with development effectiveness standards. Stronger requirements for transparency and accountability are needed, including specific guidelines for reporting data to the DAC Creditor Reporting System (CRS).

Read the full paper here.