This document discusses challenges for development cooperation in times of economic crisis. It covers four main topics: 1) Official development assistance has declined for most donor countries despite targets. Funding is disproportionately allocated across regions. Criticism of ODA includes that it is politically motivated and does not reflect recipient needs. 2) Remittances are a major source of funding for developing countries, with the top recipients being India, China, Mexico, the Philippines, and more. 3) Foreign direct investment and multinational corporations can fill investment gaps but also have drawbacks like profit repatriation that impacts host countries. 4) Social enterprises that generate profit to sustain social missions show promise in simultaneously creating

1. Challenges of the economic crisis
EBC Seminar
24.05.2011
Reinhard Schmidbauer
Development cooperation
in times of the financial crisis
Dawn of a new era?

2. Agenda
I. Official Development Assistance (ODA)
i. Net disbursements by biggest donor countries
ii. Allocation of ODA among regions
iii. Criticism
II. Remittances
i. Top 20 remittance-recipient countries
III.The Private Sector
i. MNC’s and FDI
ii. Business at the BoP
iii. Social Business
IV. Conclusion: Partnership for Development 2

3. Official Development Assistance
Definition
Official Development Assistance
is defined as financial flows to developing countries, which…
(1) promote economic development and welfare of developing c.
(2) are concessional with at least 25% grant element
(3) may be bilateral or multilateral
Millennium Development Declaration
time bound targets to address developing worlds most pressing issues
 2010 target: 0.51% of GNI
 2015 target: 0.70% of GNI
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4. Official Development Assistance
ODA net disbursements
Almost all rich nations fail to reach the obligated target!
Total ODA ODA
(millions of dollar) (% of GNI)
2008 2010 2008 vs. 2010 2008 2010 2008 vs. 2010
Total DAC countries 119,781 128,728 8,947 0.30 0.32 0.02
Total EU 70,974 70,150 -824 0.43 0.46 0.03
Australia 2,954 3,849 895 0.32 0.32 0
Canada 4,795 5,132 337 0.33 0.33 0
Japan 9,601 11,045 1,444 0.19 0.20 0.01
Norway 4,006 4,582 576 0.89 1.10 0.21
United States 26,437 30,154 3,717 0.19 0.21 0.02
Source: OECD (2011): International Development Statistics
Note: data for 2010 are preliminary 4

5. Official Development Assistance
Allocation among regions
“ODA is allocated in some strange and arbitrary ways.”
UN, 1994
 politically motivated
 does not reflect poor countries needs
 primarily serves donor countries economic interests
ODA per capita GNI per capita GNI per capita ODA as share
Region
(in U.S. $) (in U.S. $) ($ PPP) of GNI (%)
Middle East and North Africa 41 3,597 7,911 1.1
Sub-Saharan Africa 53 1,125 2,051 4.9
Latin America and Caribbean 16 7,007 10,286 0.2
East Asia and Pacific 5 3,163 6,026 0.2
South Asia 9 1,107 2,972 0.8
Europe and Central Asia 20 6,793 12,609 0.3
Source: World Bank (2011): World Development Indicators 5

6. Official Development Assistance
Criticism
Inflated vs. genuine aid
 Military support
 Refugee costs (incl. repatriation)
 Foreign students costs
 Debt cancellation
 Conditional (“tied”) aid
Effects of aid:
 added about 1 percentage point to annual growth
 subject to diminishing returns
 causes “Dutch disease”
 may strengthen autocratic regimes
 often subject to embezzlement
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7. Remittances
Top 10 recipient countries (2009/10)
Top 10 Remittance-Receiving Top 10 Remittance-Receiving
Countries, 2009 (% of GDP) Countries, 2010e (US $ billions)
Tajikistan 35 India 55
Tonga 28 China 51
Lesotho 25 Mexico 22.6
Moldova 23 Phillipines 21.3
Nepal 23 France 15.9
Lebanon 22 Germany 11.6
Samoa 22 Bangladesh 11.1
Honduras 19 Belgium 10.4
Guyana 17 Spain 10.2
Jordan 16 Nigeria 10
0 10 20 30 40 0 20 40 60
Source: World Bank (2011): WDI 7

8. The Private Sector
MNC and FDI
“MNCs present a unique opportunity but may pose serious
problems for the developing countries in which they operate
(Todaro and Smith 2009).”
MNC characteristics:
 large size
 worldwide operations
 centrally controlled by parent companies
Pros: Cons:
 fill savings- and investment-gaps  repatriation of profits
 reduce balance of payment deficits  tax concessions by host countries
 government tax revenues  crowding-out of local industries
 knowledge and technology spill-overs  widening wage gap
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9. Finance for Development
Resource Flows to Developing Countries
Resource flows to developing countries declined
during the financial crisis
700
600
500
Billions of US $
400
FDI
300
Portfolio Investment
200
Remittances
100
ODA
0
-100 Source: World Bank (2011): WDI
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10. The Private Sector
Business at the Bottom of the Pyramid
“The real source of market promise is […] the billions of aspiring
poor who are joining the market economy for the first time
(Prahalad 2002)”.
*based on purchasing power parity in US$
Source: Prahalad (2002) 10

11. The Private Sector
Social Entrepreneurship
Doing good by making profits?
Social Enterprise characteristics:
Muhammad Yunus
 is primarily driven by a social mission
 generates a profit as a by-product allowing for
financial sustainability
 creates new models, products and services that
cater directly to social needs
Proof of concept:
….and many more
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12. Partnership for Development
Concluding remarks
 Aid alone is unlikely to be able to address the problems of the
bottom billion and is highly overemphasised.
 Remittances are an important source of finance for development
due to its large size and continuity.
 MNCs can play a key role in economic development by marketing
the 4 billion people at the bottom of the economic pyramid.
 Social Entrepreneurs simultaneously create social and economic
value which allows them to sustainably solve social problems.
 Alleviation of poverty requires partnerships between public
private and civil society organization. 12

13. Development Cooperation
The dawn of a new era
Thank you for your attention!
Any comments or questions?
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