Japan's Official Development Assistance White Paper 2007
Next PageMain Text > Part I JAPAN'S OFFICIAL DEVELOPMENT ASSISTANCE IN ITS TRANSITION PERIOD > Chapter 2 International Aid Trends and Japan's Efforts > Section 1. Trends in International Aid
Section 1. Trends in International Aid
1. The Changing Aid Architecture
(1) Establishment of the Results-oriented Approach
After peaking at US$60.5 billion in 1992, ODA from Japan and other developed countries followed a downward trend for nearly 10 years, falling to US$52.4 billion in 2001. However, ODA has turned upward again since 2001. It is thought that there are multiple reasons behind this trend, such as the changes in the state of the world situation that resulted from the terrorist attacks in the United States on September 11, 2001.
During this period, the prominent progress that characterized the changes in the global development assistance were the introduction of the Poverty Reduction Strategy Papers (PRSP) at the Annual Meeting of the World Bank and International Monetary Fund held in September 1999, and the announcement of MDGs in the UN Secretary General's Report in September 2001. Having provided aid continuously for many years, many developed countries had succumbed to aid fatigue, stemming from the sense that tangible results of aid had not been achieved. Amidst this mood of disappointment, the MDGs have contributed to an increased awareness on and the motivation for providing aid by presenting common, measurable, international development goals that seek poverty reduction, a theme that could be shared by all. The PRSP has been positioned as the basic, country-focused strategy for achieving the MDGs, enabling the governments of developing countries to prepare medium-term plans for poverty reduction premised on a certain amount of aid funds and based on close dialogue between them and developed countries and international organizations.
One of the important contributions brought by the MDGs is that they spurred on a results-oriented approach in development assistance. Up until then, the yardstick used for assessment of development assistance had generally been "input," such as the total amount of aid provided or its percentage of GDP. Few people, if not experts, had argued then for an emphasis on the results of assistance, for example, the extent to which income increased or the degree of improvement in literacy in a recipient country. But now the MDGs have clarified the goals of aid, by focusing on the results of assistance and establishing simple indicators of results. These include: "halve, by 2015, the proportion of people who suffer from hunger"; and "ensure, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling." The MDGs have firmly established the results-oriented approach in the international aid community.1
(2) Rise of New Donors
Since 2001, the amount of aid provided throughout the world has turned upward. One reason for this is the sharp increase in aid provided by countries or agencies that are not traditional aid providers like DAC members. In the 1960s, an average of 12 donor countries and agencies were active per recipient country, but between 2001 and 2005, the number increased to 33. At present, there are around 230 international organizations, funds and programs in existence, and particularly in health sector, there are more than 100 donors active in international assistance including donor countries, international organizations, NGOs and private-sector foundations, counting the main donors alone. Thus, one of the key characteristics of the aid architecture in recent years has been the increase in activity by new donors, and the increasing diversity and complexity of the aid landscape.
What has attracted attention in recent years has been the increase in aid provided by global programs, foundations and funds that provide international assistance in specific areas of development. These include the Global Alliance for Vaccines and Immunization (GAVI), and the International AIDS Vaccine Initiative (IAVI), as well as the Global Fund to Fight AIDS, Tuberculosis, and Malaria established in January 2002. As of October 2007, the Global Fund has authorized the provision of grant aid of up to US$8.6 billion to finance more than 450 projects in 136 countries, specializing in measures against the three major infectious diseases (AIDS, tuberculosis and malaria). At the international level, the Global Fund currently accounts for 21% of international commitments for HIV/AIDS, 67% for against tuberculosis, and 64% for malaria.
In addition, assistance provided by private foundations has been growing, with the importance of the role of foundations increasing accordingly. An example is the Bill & Melinda Gates Foundation established by Bill Gates, the co-founder of Microsoft Corporation. In addition to Gates' own fortune, this foundation has received a pledge of US$30 billion from Warren E. Buffet, CEO of the investment firm, Berkshire Hathaway Inc. Due to an infusion of funds from the private sector, the Gates Foundation has become a significant aid donor providing assistance of US$1.6 billion annually, particularly in the fields of healthcare and education (including poverty relief and other projects in the United States).
Another important development has been the rise of new donor countries, particularly the BRICs (Brazil, Russia, India and China), whose growing influence has become a new characteristic of development assistance in recent years. Although clear statistical information of these new donor countries is not yet available, one example would be China, which provides the second largest amount of bilateral assistance to Laos, as described in the 2004 assistance report of the Government of Laos. China also attracted international attention when it pledged at the Third Forum on China-Africa Cooperation held in 2006 to increase, by 2009, the scale of its assistance to African countries to twice that provided in 2006, and to establish the China-Africa Development Fund of US$5 billion in order to assist investment activities by Chinese companies towards Africa.
The attention of the international community on those new donor countries is increasing; the role played by emerging economies in African development was affirmed at the 2007 G8 Heiligendamm Summit and it was agreed to enhance involvement of these economies as responsible stakeholders. It was also agreed to conduct high-level dialogues in the two-year period up to 2009 to address development issues in the Heiligendamm Process between the G8 countries and five major emerging economies (Brazil, China, India, Mexico and South Africa).
However, while emergence of these new donor countries has brought the benefits of increased development resources, it also has the downside of placing an excessive burden on the governments of developing countries by imposing the different procedures and conditionalities of these donors on recipient countries. For example, it has been reported that in Tanzania in the mid-1990s over 2,000 projects were being conducted by more than 40 donor countries and agencies without coordination among them. In consequence, an excessive burden was placed on the Government of Tanzania; officials were swamped with work with donors, resulting in overall inefficiency in the provision of assistance. Thus, it can be argued that the increased complexity of the aid architecture has brought about new problems.
Another problem that emerged was that some foundations and funds provided a specific form of assistance in specific sectors which is not aligned with the priority sectors of the recipient countries or with the development strategy of each sector. As a result, there was no consistency with the assistance from donors which provide assistance based on country-specific development strategies.
Chart I-8. Changes in ODA Disbursements from DAC Countries to Developing Countries and Multilateral Organizations
2. Trends in Assistance in Recent Years
Thus, amidst the changing aid architecture (including the growing emphasis on results and the increase in and diversification of donors) there is an urgent need for donors to respond to these changes and improve their methods of implementing assistance. To deal with these changing conditions, the following new efforts have been set in motion.
(1) Scaling-up Aid: Strengthening Efforts for Increasing Aid Resources
While the MDGs have been established as the common objectives for the international community in their effort to achieve development and eradicate poverty by 2015, the UN and the World Bank announced an estimate showing that in order to achieve the MDGs, it will be necessary to double ODA to US$100 billion annually. To cover shortage of development resources, the International Conference on Financing for Development was held in Monterrey, Mexico in March 2002, where donor countries and agencies were called on to make new pledges for medium- and long-term assistance. There were calls for increased development assistance aimed at achieving the MDGs also in various other international fora such as the 2005 G8 Gleneagles Summit. One trend that has emerged in recent years is the strengthening of international efforts for scale-up aid, and as a result the total amount of ODA provided by DAC member countries doubled in five years from US$52.4 billion in 2001 to a record high of US$106.8 billion in 2005.
However, it has been recognized that the shortage in aid resources needed to overcome the enormous development issues faced by developing countries cannot be covered solely by efforts to increase regular ODA budgets. Study has begun on methods of increasing development funds through efforts that reach beyond the framework of traditional development assistance. One such international effort has been the introduction of new mechanisms for raising aid resources, particularly in the healthcare sector. Some examples of these moves called "innovative financing mechanism" are given below.
● Air Ticket Solidarity Levy
The levying of a new tax, known as the air ticket solidarity levy, has been advocated, principally by France, for the purpose of securing a stable supply of development funds for the medium to long term, and is being introduced. It has been estimated that by introducing this system, aid funds amounting to approximately €210 million could be raised in France annually. According to UNITAID, the organization that administers the air ticket solidarity levy fund, eight countries (including France, Chile, Côte d'Ivoire, and the Republic of Korea) are already implementing this solidarity levy. In addition, 15 other countries, including Brazil, are in the process of implementation. As Japan is currently working to reduce fiscal expenditures including ODA, having the Japanese public accept new taxes such as the air ticket solidarity levy seems difficult, and consequently the government takes a cautious stance toward introducing this tax.
● International Finance Facility for Immunization (IFFIm)
The International Finance Facility for Immunization is a scheme for raising development funds by frontloading ODA through the issue of bonds secured against pledges for long-term contributions of funds by donor countries. In November 2005, the United Kingdom launched IFFIm as an International Finance Facility (IFF) pilot project and issued the first package of bonds. Through the IFFIm, the UK plans to raise US$4 billion in the next 10 years, using this income for vaccine development and promotion of immunization through the Global Alliance for Vaccines and Immunization (GAVI).
One issue concerning the IFF initiative is overcoming problems such as the sharp reduction in ODA that will occur after 2015 as a result of raising funds by frontloading ODA, and the duplication of activities between IFF and international organizations. Because of this, while the UK (the proposing country), France and Italy have indicated their support for this facility, others within the G8 including Japan, the United States and Canada have been more cautious.
(2) Rethinking Aid Allocation: Emphasis on Africa
Every developing country faces a large variety of challenges, and wide-ranging development assistance has been provided tailored to their respective circumstances. However, through the MDGs, the common international development objectives (principally poverty reduction) have been established, and each country now has PRSP in line with these objectives. Therefore, in order to achieve these objectives, there have been efforts to select specific countries or sectors in order to concentrate aid allocation into them. As a result, one trend that has emerged in recent years is the growing awareness of, and increasing debate among, donors concerning country and sectoral priorities in the allocation of aid resources.
Especially prominent are the initiatives that have been established to strengthen assistance to Africa. Out of the world's 50 least developed countries (LDCs), 34 are in Africa and have suffered from stagnant economies for many years. Consequently, the level of per-capita income, which in the 1960s was equal to the Republic of Korea and Malaysia, currently stands even lower than at that time. Approximately 40% of the population of sub-Saharan Africa lives on less than one dollar a day, in other words, in a state of extreme poverty, and moreover with infectious diseases epidemic such as HIV/AIDS and malaria, poverty in Africa is grave. Due to these circumstances, there is increasing concern that achievement of the MDGs in Africa will be difficult. For these and other reasons, there is a global trend to allocate assistance on a priority basis to Africa, and more and more collaborative efforts are put in place. At the 2000 G8 Kyushu-Okinawa Summit hosted by Japan, the leaders of major African countries were invited for the first time, creating an opportunity for dialogue between G8 and African countries. Furthermore, at the 2005 G8 Gleneagles Summit, the prospect of an increase in the amount of development assistance provided to Africa was confirmed, and there has been agreement to provide stronger support to Africa. At these summits, Japan indicated its intention to double its ODA to Africa over a three-year period and to continue to support Africa's self-help efforts. As a result of these efforts, assistance to sub-Saharan Africa has sharply increased, rising from US$849.91 million in 2001 to US$2,544.54 million in 2006.
(3) Improving the Quality of Assistance: Efforts Aimed at Improving the Aid Effectiveness
In order to achieve the common development challenges such as the MDGs and country-based PRSP, it is necessary not only to increase the amount of aid but also to provide more effective aid by improving the quality of assistance. The effective use of aid by recipient countries themselves, based on an awareness of their ownership, is the most fundamental factor. But because the number of donors has increased, an excessive burden has been placed on recipient countries. To the greatest extent possible, donors must provide aid in a coordinated manner in line with the priorities of recipient countries' development strategies and thereby reduce the burden on recipient countries. Awareness concerning the need to improve aid effectiveness, including awareness of the above points, has been increasing, and in Rome in February 2003 and in Paris in March 2005, high-level forums on improving the aid effectiveness were organized, assembling ministerial-level participants of donor countries, agencies, and recipient countries. In the Paris Declaration on Aid Effectiveness adopted at the 2005 Paris High-Level Forum (the Paris Declaration),2 56 commitments to be honored by donors and recipient countries were agreed concerning efforts necessary for improving the quality of aid. The Paris Declaration is currently widely recognized as the standard of development assistance for improving aid effectiveness, and its implementation is moving forward at the international level.
In order to improve the effectiveness of aid and to respond to the new aid architecture, it is necessary that the practices of donors be reevaluated and new issues be addressed in order. For example, the Paris Declaration requires: that donors increase assistance through a sector-wide approach implemented within a common framework of sector-specific strategies, implementation and monitoring among donors; that assistance forecasts over multiple years be presented in order to increase the predictability of aid; and that, when implementing aid, the budget, procurement, and auditing systems of recipient countries be used. Up until now, Japan has had difficulties meeting all of these requirements through its existing aid system, and with differing conditions existing within each country, it is not always possible to apply the same principles to all countries. Nevertheless, Japan has contributed to international efforts aimed at enhancing aid effectiveness, by improving methods of implementing assistance to respond to the new global environment surrounding development assistance.
3. Issues Involving Efforts to Improve Aid Effectiveness and Japan's Response
(1) Harmonization and the Visibility of Aid
In order to meet development challenges such as those established by the MDGs, donor countries and agencies are required to set common objectives and strategies, and work jointly to achieve them. This new form of aid collaboration inevitably creates the dilemma to ensure the visibility of aid while at the same time engaging in collaboration. Meanwhile, through such aid collaboration, joint assistance for improving various administrative institutions for the purpose of establishing national development strategies and for practicing these strategies is often provided. By cooperating in such assistance, a far greater impact on development can be provided than by one donor country alone. Participating in joint work to support basic national institution-building while sharing with recipient countries and other donors the experience and approach of the donor, and then reflecting this in the nation-building efforts of recipient countries is becoming a new method of displaying the donor country's presence. In Africa, where aid collaboration is extensive and where the amount of aid provided by Japan is relatively small, participation in aid collaboration is especially important for enhancing the visibility of Japanese aid and for Japan's presence, and for this reason Japan must actively seek further aid collaboration.
(2) Significance of General Budget Support
Japan's ODA up to now has mainly been focusing on project-type assistance in which targeted results are to be achieved in a certain period of time in line with project plans. Financial cooperation for development of infrastructure, such as roads and bridges, and technical cooperation for prevention of infectious diseases are examples of such assistance. This project-type cooperation places emphasis on the self-help efforts of the recipient country and is provided based on a premise that after completion of projects, recipient countries will secure budgets to operate and maintain results of projects. This is based on Japan's principles of development assistance, which require that after provision of aid, recipient countries should develop through self-help efforts without becoming dependent on assistance.
In recent years, public expenditure reviews by the World Bank and other researches have indicated that the poorer countries are, the more limited their budget revenue is, and that it is difficult for such developing countries to secure the immediate funds necessary for their own development efforts, and that support is necessary to the general budget. Such assistance is necessary because if recipient countries are unable to cover current expenses through self-help efforts after implementation of projects, it may not reap the full benefits of development. An example of such a situation would be assistance for school construction provided in order to expand educational opportunities, where, after the completion of project, schools would need funds for hiring teachers, paying salaries, and distributing textbooks. For this reason, there has been an increase, particularly in sub-Saharan Africa, in recipient countries that require assistance in the form of budget support,3 which can be used for initial project investment as well as later current expenses, so as to support development plans. In response to these circumstances, international organizations and donor countries (particularly the UK and Nordic countries) are actively providing budget support, and regard it as the main form of their assistance.
Many recipient countries, particularly in sub-Saharan Africa, are requesting that Japan provide budget support. In order to provide aid tailored to conditions in recipient countries more effectively, Japan intends to offer budget support when necessary based on Japan's assistance principles, whereby it supports the self-help efforts of recipient countries. Up until now, Japan has provided budget support to Indonesia, Viet Nam, Cambodia, Laos and Tanzania. In FY2007, Japan will introduce a new instrument of grant aid for supporting poverty reduction strategies, which provide budget support when developing countries implement projects aimed at poverty reduction in line with their PRSP.4
(3) Respect for the Ownership of Recipient Countries and Accountability to Japanese Citizens
In order to improve the effectiveness of assistance, it is essential that recipient countries establish development plans as an active and responsible participant and devote effort to their implementation and capacity development of personnel and institutions to carry out such plans. From this perspective, using the public finance and procurement systems of the recipient country when implementing assistance has become one of the objectives of international efforts as it will strengthen those institutions and promote the independence of the recipient country. The use of the recipient country's institutions is also effective in that it reduces the burden when accepting aid. It has thus become the subject of regular monitoring under the Paris Declaration as an indicator to be fulfilled by donor countries and agencies.
On the other hand, when the institutions of recipient countries manage aid funds, the necessary procedures required by the administrative and auditing systems of the donor country may not be fully satisfied. In addition, if the capacity of the institutions and personnel of the recipient country are inadequate, aid funds will not be executed and managed appropriately, and the accountability of the donor country to its citizens may not be completely satisfied. Thus, in carrying out international measures for improving the effectiveness of assistance, Japan faces the difficult dilemma posed by its accountability to Japanese citizens. Japan's assistance has been implemented based on the condition that financing will be executed appropriately and that its accountability to citizens will be fulfilled, but regardless of the risk, there are many donor countries and agencies which respect the ownership of recipient countries and believe that assistance should be provided using the systems of the recipient countries. There are differing views, due to the values and aid principles of each country, as to what are the necessary measures that should be taken to in order to improve the effectiveness of assistance. For Japan, working to improve aid effectiveness in collaboration with countries with these different principles may not necessarily be a simple matter. Nevertheless, it is the obligation of responsible donor countries to work towards improving aid effectiveness, and it will also serve to increase Japan's presence in the aid community as well as in recipient countries.
In this respect, Japan is making efforts for implementation of the Paris Declaration. At the 2005 Paris High-Level Forum, Japan voluntarily announced Japan's Action Plan for Implementing the Paris Declaration (Action Plan) and has devoted efforts to implementing more effective assistance based on this plan. For example, one of the objectives of the plan is to provide support in coordination with the various countries in accordance with the development programs established by developing countries in sectors in which Japan has comparative advantages. Up to now, Japan has participated in such efforts in 20 countries and in 41 sectors. Additionally, in order to improve organizational efficiency and reduce transaction costs, the new JICA, which will be inaugurated in 2008 by merging JICA and the Japanese ODA loan function of JBIC, will implement the three aid instruments — technical assistance, loan aid and grant aid — in an integrated manner. As a result, synergy between the aid instruments will be strengthened at the project formulation and implementation stage and streamlining of procedures will be promoted. These measures promise to lead to more effective assistance based on the international standards laid down by the Paris Declaration.
Box 2. Follow-up on the Paris Declaration on Aid Effectiveness