Private Aid and the Financing of Development

Raj M. DesaiGeorgetown University and

The Brookings Institution

Development Day, Stockholm, May 11, 2015

Private Development Assistance (PDA)

• Undertaken by private actors (foundations, corporations, voluntary and non-profit organizations)

• Is focused on promotion of economic development and humanitarian needs

• Provided at concessional financial terms where commodities and loans are concerned

Some Numbers

• In FY 2014 World Bank committed $40.8 billion ($32.8 billion disbursed)

• 2014 $45 – $60 billion in total global private aid disbursed (depending on estimate)

• If the EU “private sector” were a single donor, it would be the 5th largest DAC donor

• In the US: PDA = $39 billion vs. US ODA = $30 billion (2011)

• Net ODA = ~$134 billion, but is roughly equivalent to PDA in terms of money available for use by recipients (“programmable aid”)

Origins

• NGOs historically relied on support from individual gift giving, personal donations, and child sponsorship

• Between 1980s and 2000s, NGO income came increasingly from official governmental donors using tax-based funding

• Since 2000s, diversification in funding sources

Varieties of PDA

New Funding Sources

• Private philanthropies (foundations, philanthropic ventures)• Income-generating activities (e.g. Oxfam Trading, BRAC Bank),

commissions and contracts (e.g. Technoserve), Social enterprises (e.g. the Kenyan-based Sidai)

• Community initiatives (community development foundations)• Privately administered trusts (Comic Relief, UK Big Lottery)• Web-based personal giving (Razoo, GivingWhatWeCan,

GivingWell)• Individual giving: of all the funding raised by US NGOs

– ¾ comes from individual contributions– 65% from households with incomes < $200,000/year

The New Aid Architecture

Official vs. Private FlowsConstant (2005) US$, billions

ODA vs. PDA

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Private Grants

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Private Grants*

Total PDA**

** Center for Global Prosperity* OECD – CRS *** Development Initiatives

$45b***

ODA vs. PDA

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CPA*

* OECD – CRS

US Financial Flows Compared

2004 2005 2006 2007 2008 2009 2010 20110

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ODA

PDA

Remittances

Private Capital

The “California” Consensus

Foundations

• 1980 – 2010: number of active foundations in the US grew from 20,000 to 80,000

• The number of “public benefit” foundations in 13 EU states increased from 45,000 to 95,000

• Proportion of resources contributed to international causes is still small but is growing rapidly (+70% between 2002 and 2008)

• Foundations increasingly establishing their own delivery mechanisms outside of NGO channels

The “California” Consensus (cont’d)

Philanthropy 1.0

• Small scale• Fragmentary• Crisis relief• Program-based grant

making• Largely non-profit based• Channeled through NGO• Risk averse

Philanthropy 2.0

• Scalable?• Coordinated?• “Programmable”?• Flexible architecture• Mixes non-profit + for-profit

approaches• Own delivery mechanisms• Innovative

Private Aid: Expectations

• Able to bypass public sectors in recipient countries less leakage via corruption, asset diversion, etc.

• Better able to absorb frontline knowledge• Smaller overhead and administrative costs

more “untied”• Shielded from geo-politics of aid and lending

better able to allocate aid on the basis of need

EvidenceArgument EvidenceLess corrupt NoLocal knowledge Yes. Int’l NGOs have intensely local programs run

by local staffLower overhead Yes. Estimates are ~6%, compared to:

8% (average DAC bilateral donor)18% (average multilateral)46% (UN agency)

Flexibility Yes. Humanitarian crises received PDA at a faster rate than ODA; PDA more durable (more responsive to natural disasters than conflicts)

Need-based Mixed

AllocationFactor ODA PDAPoverty/Need Yes Depends on

funding source

Country institutions Yes NoCountry strategic alliances Yes NoSovereign risk Moderate NoProject/Sector risk Moderate ModerateHumanitarian need Moderate Yes“Newsworthiness” No YesRecipient-donor social linkages Bilaterals,

weaklyYes

What Does Show Us?

DON’T CARE ABOUT:

• Sovereign or project risk• ODA performance-based allocations• Stock market in home country• Geo-strategic relationships with

home country• State fragility• News-worthiness

DO CARE ABOUT:

• Gender• Project size (diminishing)• Natural disasters• Immigrant populations

(especially refugee populations)• Asia/Latin America

• $100 million in microloans per year• Loans without interest (blend of investments and grants)• 99% of funds are re-lent (or left idle)

GlobalGiving Portal (old)

22

GlobalGiving Portal (new)

Challenges

• Coordination• Concentration of resources• Lack of data on volumes, allocations, impact• Accountability is uneven• Things PDA cannot do: e.g., infrastructure, legal &

policy reforms• Imbalance between NGOs from rich vs. poor countries• Incentives to promote “good images” rather than

achieve results?

Advocacy Incentives?

ODA vs. PDA?(with apologies to Bill Easterly)

PDA and the Post-2015 Agenda

• PDA community needs to develop its own agreements on effectiveness, commitments, targets, indicators

• Global initiative to gather, analyze, and map private aid flows and their impact

• Formal linkages between PDA & ODA institutions– “Observer” seats from PDA donors & civil society at the DAC)– Include major PDA donors in donor-steering committees– Create broader ODA-PDA groups based on technical expertise– Regular consultations with civil society in recipient countries