Private Development Cooperation

Private development cooperation should be understood as “activities by the private sector which aim primarily to support development, do not have profit as their primary aim (and are therefore in grant form), and involve a transfer of resources to developing countries. This includes private activities – financial and non- financial – in support of development, mainly provided by non- governmental organizations and philanthropic and grant-making organizations and individuals. It excludes all other types of private flows not primarily aiming at development, including FDI. The Draft Addis Ababa Accord welcomes the rapid growth of philanthropic giving and its flexibility and capacity for innovation and taking risks.

Experts and research

While Official Development Assistance (ODA) comprised the majority of resource flows in international development during much of the twentieth century, today private money, composed of philanthropy, remittances, and investment, significantly surpasses ODA. Additionally, with increased remittances, a more skilled labor force, open markets, and rise of communication technology, the developing world has also changed. Private actors in developing countries are taking on a larger role in the assistance process. These private flows have fundamentally transformed the way foreign aid is delivered: the private sector, with more flexibility and higher risk tolerance, is more likely to fund programs that government aid may not. This paradigm shift offers a great opportunity to reinvent official aid, allowing the aid community to better focus on results, demand-driven development, transparency, and sustainability. Her research focus on the value of private flows, the actors involved, future developments in private-sector involvement in foreign assistance, and the impact of private flows on the development landscape.

Dr. Carol Adelman is a Senior Fellow and Director of the Center for Global Prosperity (CGP) at Hudson Institute where she lectures, writes, and advises governments and media on economic growth, foreign aid, global philanthropy, and international healthcare issues. She developed and oversees the main publication of the CGP, the annual Index of Global.

Foundations and Private Actors

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‘Much attention has been paid to the consequences for traditional and (re)-emerging official donors of the shifting sands of development cooperation and global power and poverty. But what of the role of non-state actors, particularly the evolving and expanding group of international NGOs, the arrival of mega-foundations (some much bigger than state funders) on the international scene, and the unhelpfully grouped ‘private sector’, from multinational to cornershop.

‘The past 10 years have seen a big increase in private development assistance, or ‘philanthropic giving across borders’. Trusts, foundations and NGOs have become major players in the world of development finance, and now have more sway over the global development agenda.’

Such assertions have become something of a mantra in today’s development sector. But are they supported by any hard evidence? This was the starting point for research by Development Initiatives (DI) into private development assistance (PDA): to analyse how much PDA there is, who is giving it, and where it is going. We analysed data for PDA flows in chapter 7 of our Investments to End Poverty report (September 2013) Our in-depth analysis of PDA, looking at issues, trends and outlining our methodology, will be published in the coming months.

Private development assistance: a glimpse of the landscape

Under the rules of the Westphalian international system—where sovereign nation-states are the central players—states have complete authority over citizens within their territory (without legal obligation to behave in a particular fashion toward them), and are to avoid interference in the internal matters of other “juridically equal” sovereign entities. This system was in place for three centuries before being upended by post World War II innovations such as human rights law, standards of international cooperation, and cross-border humanitarian and development assistance.  But even these norms ultimately rely on sovereignty to operate since the networks of treaties, conventions, agreements, and compacts that support these norms rely on the acquiescence of states.

A new collection of essays, edited by Mark P. Lagon and Anthony Clark Arend, examine some contemporary developments in international affairs that seek to “break through the veil of state sovereignty to support individuals.”  Our contribution to this anthology argues that private development aid advances the centrality of human agency rather than state sovereignty as the analytical centerpiece of relationships between donors and recipients.  It does this in two separate but related ways:  by shortening the “long route” between donor and recipient; and by relying on peer-to-peer relationships abetted by the Internet and social media. Channeling aid through official state agencies removes the ability of individuals to make choices about resource allocation—both taxpayers and aid recipients are denied a direct role in determining the end uses to which funds are put.  Private aid, by contrast, can be applied to projects and sectors selected by the donors themselves.  Moreover, the spread of Internet platforms for private aid often enables recipients themselves to identify their own needs and funding amounts.

The Wisdom of Crowd-Funders: What Motivates Cross-Border Private Development Aid?

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The world of international development assistance is undergoing three concomitant revolutions, which concur to the emergence of a truly global policy. First, it is living through a diversification of the goals it is asked to pursue: to its traditional objective of ushering convergence between less and more developed economies have progressively been adjoined those of financing access to essential services and protecting global public goods. Secondly, faced with this new array of challenges, the world of development aid has demonstrated an impressive capacity to increase the number and diversity of its players, generating a governance conundrum for this eminently fragmented global policy. Thirdly, the instruments used by this expanding array of actors to achieve a broader range of policy objectives have themselves mushroomed, in the wake of innovations in mainstream financial markets. Yet surprisingly, this triple revolution in goals, actors and tools has not yet impacted the way we measure both the financial volumes dedicated to this emerging global policy nor the concrete impacts it aims to achieve.

The enf of ODA: Death and Rebirth of a global public policy

Sam Worthington is chief executive officer of InterAction, the largest U.S. alliance of nongovernmental international organizations, with more than 220 members and partners. Sam leads the U.S. NGO sector’s engagement at the highest levels with the UN, governments, and civil society groups around the world. He has testified before the U.S. Congress, routinely consults with the administration, speaks to boards and at universities, and is a regular contributor on numerous major national and international media outlets.

With a focus on international nonprofit organizations, Samuel A. Worthington (InterAction) and Tony Pipa (independent consultant) analyze the relationship between official aid and private development assistance, suggesting that the role of civil society must evolve as part of the international dialogue on aid effectiveness.

International NGOs and Foundations: Essential Partners in Creating an Effective Architecture for Aid

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With an emphasis on business, Jane Nelson presents in the two following paper the role of the private sector in development and proposes various ways to scale up the collaboration between these actors and official donors.

Catalyzing Development: A New Vision for Aid

The Private Sector and Aid Effectiveness: Toward New Models of Engagement »

Private development assistance (PDA) is quietly revolutionizing international development. This paper will examine this phenomenon as well as the potential benefits and drawbacks of increased private assistance in international development. Private financial flows from developed to developing countries began to eclipse official development flows in the mid-1990s. New aid commitments during the Monterrey, Gleneagles, and Doha summits steadily increased official development assistance (ODA) throughout the past decade but have been outpaced globally by private investment, private philanthropy, and remittances.
These combined private financial flows now exceed ODA from the United States. After five decades of debating why ODA has seen only limited developmental success, the increase in private financial flows is buoying optimism that new private actors, public-private partnerships, and more unrestricted funding may spur innovation, leading to new ways to better the welfare of the poor around the world

Private resources by far comprise the majority of dollars now flowing into developing countries from external sources. Overall, aggregate foreign direct investment (FDI) is more than triple overall remittances sent from family members and more than double official development assistance (ODA). Private philanthropy and other forms of charitable donations are also accelerating in growth and nearing the scale of government aid.

At the same time, there has been a far more dramatic increase in the scale of domestic resources in developing countries. In absolute amounts, the total has increased from $1.5 trillion in 2000 to more than $7 trillion in 2011.2 Developing countries not only have access to more of the world’s capital—as well as additional types of capital and financing mechanisms—they also have more of their own resources to match.

This is good news. Countries are responsible for their own economic and social development, and the mobilization of domestic resources lies at the core of this mission. As a country develops, its mix of external funding sources diversifies, with short- and long-term loans and portfolio equity

matching the scale of foreign direct investment and significantly outpacing remittances and development assistance (Figure 1). The combined scale of external investment and increased domestic resources offers great promise for stimulating the inclusive and broad-based economic growth that historically has been the surest path to reducing extreme poverty.

Tony Pipa is USAID’s Chief Strategy Officer in the Bureau for Policy, Planning and Learning (PPL). He works with the Administrator and the Agency’s senior leadership to improve Agency-wide strategic planning, coordination, and management for results, helping to identify, prioritize, and address key challenges related to U.S. development priorities.

The Financing Revolution: Implications for Ending Extreme Poverty

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