Written by 'Tokunboh Ishmael, Managing Partner, Alitheia IDF
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Politics, Philosophy and Economics of ODA in a time of COVID-19
In these unprecedented times, development assistance must shed the skin of its past and be adaptive. Despite a long history of Overseas Development Assistance (ODA) flowing into developing countries, ODA has failed to fulfill its ambition of developing the essential infrastructure needed to tackle the health pandemic and economic fallout from a crisis like COVID-19. With the global pandemic and economic meltdown, there’s a risk that the already meagre ODA could be reduced, as developed economies look inward to prioritize spending at home to recover the economic and human loss that many have experienced this year. This will create an epic gap in the ability of developing economies to provide an environment that enables the bottom billions to reach their full potential.
ODA's historic inefficiency has always been evident to astute observers, however, the pandemic spotlights the glaring gap and inadequate investments (or perhaps mismanagement by the ODA receivers) in the healthcare, education, finance, and energy sectors. The lockdown has even further exposed the under-funding, inefficiency, and unsustainability of key sectors of developing economies; from the exclusion of children of the digitally excluded with no opportunity for remote learning to businesses which continue to remain heavily reliant on cash transactions. In the face of this crisis, investments to boost and transform these sectors are pertinent now more than ever. As with past crises, this is a defining moment. Stretching the deficiencies of ODA further, the investment gap in critical sectors will impact our collective ability to achieve the Sustainable Development Goals (SDGs). For instance, how can we achieve SDG3 to ensure healthy lives and promote well-being for all with an inadequate and crippling health infrastructure? Or SDG 4 to ensure inclusive and quality education for all when ordinary folk cannot afford to send their children to school, talk less of providing the technological tools that COVID-19 has revealed as sine-qua-non to fully participate in modern-day learning?
COVID-19 will no doubt have long-term negative socioeconomic consequences that will further fuel inequalities and vulnerabilities. The developing world already fraught with weak healthcare systems, and other existential threats (such as disease, food security, climate change, etc.), faces the additional impact of the pandemic and subsequent reversal of limited economic development successes and reduction of ODA.
Aside from the long-term effects of the pandemic, the short-term practices and policies required to ‘flatten the curve’ of the disease are difficult to enforce in developing economies where low-income households/individuals are reliant on daily income generation to meet their basic needs. For this group, their livelihoods are key to their health and lives. The UNDP Administrator, Achim Steiner estimates that developing countries could lose US$220bn in income, noting that this pandemic could cause “a massive reversal of gains made over the last two decades, and an entire generation lost, if not in lives then in rights, opportunities and dignity.” So, already fragile economies (and households) are set to suffer a triple whammy of poor infrastructure, debilitated income, reduced official development assistance, and comatose SDGs.
Global cooperation has played a critical role in development and recovery, especially post an incident of significant proportions as COVID-19. Post-world war II interventions provided a template for ODA enabled countries to contribute and collaborate to lift up the weakest. However, years of low impact and slow progress have revealed the problems of an ODA formula based on the North-South flow of aid through NGOs and humanitarian work as the dominant narrative for poverty alleviation and economic development in the global south. A recent USAID report also points to this, noting the inadequacy of current global health funding. It suggested that new models of financing development are needed to achieve the Sustainable Development Goals (SDGs).
ODA presented as charity often results in short-lived solutions and small-scale impact. However, outcomes can be significantly improved by employing some key principles of impact investing: intentionality, sustainability, and metrics. This may serve to reduce the short-term nature and behaviour of aid money flowing into NGOs, and the seemingly tick-box nature of ODA by Development Assistance Committee (DAC) countries. With this possibility, either redesigning ODA in order to improve accountability, sustainability and scale of impact is imperative or simply doing away with it. I reccomend we consider the former and look for ways to meaningfully repurpose and redesign ODA.
AID can be repurposed and redesigned to achieve 'more bang for every buck'
ODA should be extended, repurposed and redesigned to accelerate the attainment of desired developmental goals. Investing in businesses that simultaneously deliver social and financial returns has given me a front row seat on investing in scalable and sustainable enterprises that consciously solve developmental problems. These enterprises are founded and led by entrepreneurs and management teams who maniacally attack an intractable problem and desire to build organizations that are leaders in their domain, at scale. They want to be accountable. They are intentional and consciously pursue profit with purpose. This combination of factors achieves significantly more than pure aid.
Data published by the OECD shows that between 2015 and 2017, Nigeria and Ghana received a net aid disbursement of over $40bn and $7bn, respectively with little remarkable difference in development. In comparison, during the same period, less than $7bn was allocated to impact investing transactions in the two countries ($4.7bn in Nigeria and $1.2bn in Ghana) according to a report published by the Impact Investors Foundation. Yet, this has resulted in an accelerated growth in new models of access to financial services, health and education for over tens of millions of individuals, households and businesses with targeted financial and social returns exceeding two times the value of each dollar invested.
Investing with a purpose allows for measurable economic, social and environmental returns providing sustainable and scalable solutions to the intractable problems of developing countries. With impact investing, funders and entrepreneurs collaborate with the intention of addressing market failures with home-grown solutions at scale. They analyze the sustainability of their interventions through financial lens while simultaneously tracking the impact of the money on their intent to improve and transform lives. Unlike ODA, providing a return on funds that flow from the developed to the developing world. Integrating the latter to the broader global economy in a commercial manner while meeting the latent consumer needs and desires in poorer economies. This is crucial given the complaints around aid from the citizens of donor countries and their increasing retreat to national preoccupations
This is not to completely discount AID but instead to call for greater focus on how the mechanics and dynamics of private equity and impact investing in emerging markets can be employed to solve the social challenges of these economies. Finding a balance between ODA as charity and investing with impact is the sustainable way to progress. Opening a tap for ODA to be reallocated to an investing approach will increase the odds of the attainment of the sustainable development goals.
In the wake of the COVID-19 health crisis, although it will be easier for donor countries to focus funds on the recovery of their economies, deciding not to commit to ODA due to the resulting economic downturn will impact on DAC countries whether they like it or not. The world is only as strong as the weakest healthcare system and, dare I say, economy. Thus, this is the time for ODA to double down and hold recipient countries more accountable by switching a greater proportion of funds from pure aid to a combination of charitable and investing strategies. This is not the time to retreat into self.« Back to Afri-Spective: An Inside Look at Private Equity in Africa