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ENSURING FRAGILE STATES ARE NOT LEFT BEHIND

2011 Report on Financial Resource Flows

DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY

2 FINANCIAL RESOURCES FLOWS IN FRAGILE AND CONFLICT-AFFECTED STATES: 2011 REPORT

About this report

This report is part of a project to monitor resource flows in fragile situations, which was launched by the OECD Development Assist-ance Committee (DAC) in 2005. While originally focussed on of-ficial development assistance (ODA), this annual report of the DAC International Network of Conflict and Fragility (INCAF) has evolved to include sources of development co-operation from beyond DAC membership, as well as domestic revenues, peacekeeping expen-ditures, private flows (mainly foreign direct investment, trade and remittances) and illicit outflows.

In recognition of the fact that aid is only one part of the equation in fragile situations, and that it can be dwarfed or have its effects swept away by other flows, this report provides evidence on the main resources in fragile situations, how they interact, and what issues and countries should be of concern.

The 2011 report compiles and analyses the latest available data, which is mostly from 2009 for ODA flows, and includes data on forward spending for 2012-15. It was prepared by a team led by Juana de Catheu, including James Eberlein (editorial and data visualisation) and Franziska Nix (research assistant) of the OECD Secretariat, and Sumedh Rao (GSDRC, data collection). It draws on OECD-wide research, including statistics on development co-op-eration; reviews of whole-of-government donor performance; data on aid effectiveness; regional economic outlooks; and policy work by DAC-INCAF and its members. It has benefitted from valuable comments from the INCAF Task Team on Financing and Aid Archi-tecture, including Henrik Hammargren (Sweden), Chair of the Task Team, Kristoffer Nilaus Tarp (UN Peacebuilding Support Office), and Yasmin Ahmad, Elena Bernaldo, Olivier Bouret, Ben Dickinson, Fredrik Ericsson, Masato Hayashikawa, Hanna-Mari Kilpelainen, Stephan Massing, Erwin Van Veen, Simon Scott and Asbjorn Wee (OECD DAC Secretariat). However, any error or omission remain the authors’ responsibility.

It builds on the factsheet Ensuring Fragile States Are Not Left Behind (2011), which was launched at the Fourth High-Level Forum on Aid Effectiveness in Busan (Korea).

Will fragile states meet the MDGs by 2015?

The international community cannot claim success in the fight against global poverty, as most fragile states will simply not meet the Millennium Development Goals (MDGs) by 2015, and the lack of progress is most acute in fragile states (see list in Table 1). Six out of ten people living under the poverty line live in a low- or middle-income fragile state, and seven out of ten school-age children in fragile states are not enrolled in primary school. A child living in a fragile state is twice as likely to be undernourished as a child in another developing country (see Figure 2). While the poverty target is within reach for more than 70% of low-income countries as a result of recent economic growth and an improvement in policies, GDP growth in fragile states was about one-fifth that of other low-income countries (World Bank, 2011d). Although those low-income countries not affected by violence closed 40-70% of their MDG gap between 2000 and 2010, fragile states have closed only 20% of the same gap (World Bank 2011d, 2011e).

2007 2008 2009AfghanistanAngolaBangladeshBurkina FasoBurundiCambodiaCameroonCentral African RepublicChadComorosCongo, Dem. Rep.Congo, Rep.Côte d'IvoireDjiboutiEquatorial GuineaEritreaEthiopiaGambiaGeorgiaGuineaGuinea-BissauHaitiIraqKenyaKiribatiKorea, Dem. Rep.LaosLebanonLiberiaMalawiMauritaniaMyanmarNepalNigerNigeriaPakistanPapua New GuineaRwandaSao Tomé & PrincipeSierra LeoneSolomon IslandsSomaliaSri LankaSudanTajikistanTimor-LesteTogoTongaUgandaUzbekistanVanuatuWest Bank and GazaYemen, Rep.Zimbabwe

TAbLE 1. wORkING LIST OF FRAGILE STATES

DAC INTERNATIONAL NETWORK ON CONFLICT AND FRAGILITY (INCAF) 3

LOW-INCOME FRAGILE STATES (< USD 1 005) LOWER MIDDLE-INCOME FRAGILE STATES (USD 1 006 TO USD 3 975) UPPER MIDDLE-INCOME FRAGILE STATES (USD 3 976 TO USD 12 275)

The list of 45 countries in fragile situations used for this analysis (neither an official DAC list nor an official definition) is a compilation of two lists: the 2009 Harmonised List of Fragile Situations (World Bank, African Development Bank, Asian Development Bank) and the 2009 Fund for Peace Failed States Index (“alert” and “warning” categories). It is worth noting that not all fragile states are low-income countries: 19 of the countries considered fragile in 2009 were middle-income countries (see pages 12-13).

FIGURE 1. wHERE ARE THE FRAGILE STATES?

FIGURE 2. mOST OF THE mDG DEFICIT IS FOUND IN FRAGILE STATES

Source: Adapted from World Bank 2011a (World Bank calculations based on Gates and others 2010). Note: Current fragile and conflict-affected states account for 33 percent of the population in developing countries, and countries recovering from fragility and conflict account for an additional 14 percent of the population. Therefore, if the MDG deficit were borne evenly, these countries would account for 47 percent each of the ills described. The dark purple figures represent the percentage of the deficit for selected MDGs in fragile, conflict-affected and recovering countries. The light purple figures represent the persons afflicted in other non-OECD countries. Excluded here are Brazil, China, India and the Russian Federation, all significantly ahead of or on par with other non-OECD countries on the MDGs. Due to their size, including them in the calculations would skew any discussion involving the global population.

... of infant deaths

70%... of undernourished people

60%... of children not in primary school

77%... of people without access to safe water

65%


BOx 1. VULNERABILITy TO BOOm-AND-BUST CyCLES IN ANGOLA

Angola is one of the world’s fastest growing econo-mies. It received USD 11.6 billion in FDI inflows in 2009, making Angola the second top recipient of FDI in Africa, behind Nigeria. Angola is also the least aid-dependent fragile state with an ODA to GNI ratio of 0.2% in 2009.

Angola’s growth has been driven by oil wealth during a period of rising resource prices. Other sectors of the economy, notably financial services and construction, have also been growing. However, the 2008 global economic cri-sis and the related drop in oil revenues have had a negative impact on the Angolan economy, which contracted by 10.3% in 2009. In March 2009 the government indicated it would cut planned budgetary spending by 40%. To prevent future fiscal shocks caused by volatile oil prices, it is important for Angola to further diversify its industries. Some of the promis-ing sectors that could be developed to a more significant level include agriculture, fisheries and livestock, and forestry. Cur-rently only 3% of Angola’s arable land is used.

Source: UNCTAD (2011), OECD (2011f).

But there is evidence that progress towards the MDGs is still pos-sible in countries that are recovering from conflict and fragility. For example, Mozambique more than tripled its primary school com-pletion rate in just eight years: from 14% in 1999 to 46% in 2007. Rwanda cut the prevalence of under-nutrition from 56% of the pop-ulation in 1997 to 40% in 2005 (World Bank WDR, 2011). The cor-relation between fragility and poor MDG performance suggests that the structural causes of conflict and fragility must be addressed in order to accelerate and sustain progress towards the MDGs.

How have financial, food and fuel crises affected resource flows?

In fragile states as in all developing countries, the international community needs to look beyond aid and harness the full range of resource flows to take advantage of their potential contributions to development results. For example, over the last decade, the telecommunications industry has invested USD 77 billion in sub-Saharan Africa, boosting the number of mobile subscribers from 10 million to 400 million, creating thousands of jobs, injecting cash into cities and remote communities alike, and improving the ease of doing business across the board.

The main resource flows in fragile states are domestic revenue, FDI, remittances, trade, aid and peacekeeping expenditures (see Figure 3). Domestic revenue and FDI dominate the resource equation, even in countries that are highly aid dependent.1 While all of these financial flows have a different impact on development, the coher-ence of international policies for trade, investment, agriculture, en-ergy, migration and illicit transnational flows with the aid agenda is of crucial importance. Adverse or incoherent policies can wipe out the benefits of millions of dollars in ODA, for example as a result of externally-stimulated brain drain and commodity price bubbles (see Box 1). A whole-of-government approach is particularly important in fragile states, given the acute and inter-related challenges faced by these countries: for example, a lack of investment in security or reconciliation can derail the whole post-crisis transition.

The overall mix of resource flows to fragile states has changed sig-nificantly between 2005 and 2009 (see Figure 3). Nonetheless, the composition of resource flows and their relative importance varies from country to country.

1 The top three aid-dependent countries in 2010 were Liberia (CPA-to-GNI ratio of 64%), Afghanistan (59%) and the Solomon Islands (41%).

-100

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009

TRADE

REMITTANCES

DOMESTIC REVENUE

FDI

ODA

-100

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009

TRADE

REMITTANCES

DOMESTIC REVENUE

FDI

ODA

-100

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009

TRADE

REMITTANCES

DOMESTIC REVENUE

FDI

ODA

-100

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009

TRADE

REMITTANCES

DOMESTIC REVENUE

FDI

ODA

-100

0

100

200

300

400

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600

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2005 2006 2007 2008 2009

TRADE

REMITTANCES

DOMESTIC REVENUE

FDI

ODA

600

500

400

300

200

100

0

-100

2005 2006 2007 2008 2009

REMITTANCES 27.0 33.0 42.2 52.2 54.7

DOM REVENUE 164.8 208.2 230.6 311.6 230.3

FDI 110.4 134.4 169.4 188.8 214.6

ODA 53.9 48.6 44.4 49.4 46.8

TRADE -0.6 -3.0 -10.2 -4.3 -66.4

FIGURE 3. RESOURCE FLOwS IN FRAGILE STATES (2005-09)

355.5

421.2

476.4

597.7

480.0

USD

BILL

IONS

(cur

rent

pric

es)

Note: Resource flow

totals include outflows by trade. O

DA is based on figures for gross disbursements. Data: O

ECD CRS, UN Statistics, UNCTAD, IM

F, World Bank (2011).


-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

2001 2002 2003 2004 2005 2006 2007 2008 2009

2001 2002 2003 2004 2005 2006 2007 2008 2009

30%

25%

20%

15%

10%

5%

0%

-5%

GROW

TH (%

CHA

NGE

IN G

DP; I

N CO

NSTA

NT

USD)

FUEL-EXPORTING FRAGILE STATES

% OF TOTAL EXPORTS

Angola 98.6

Iraq 98.4

Chad 90.8

Nigeria 90.5

Yemen 90.1

Sudan 88.5

Congo 81.3

Timor-Leste 74.6

Cameroon 49.2

Myanmar 32.7

Côte d’Ivoire 32.6

NON-FUEL MINERAL EXPORTERS

% OF TOTAL EXPORTS

DR Congo 78.3

Guinea 65.2

Sierra Leone 54.3

Papua New Guinea 54.0

Burkina Faso 40.7

Central African Rep. 35.8

Georgia 33.7

Somalia 33.4

Zimbabwe 26.8

OTHER FRAGILE STATES

Afghanistan Nepal

Bangladesh Niger

Burundi Korea, DPR

Comoros Pakistan

Eritrea Sao Tome & Principe

Ethiopia Solomon Islands

Guinea Bissau Sri Lanka

Haiti Tajikistan

Kenya Togo

Kiribati Uganda

Lebanon Uzbekistan

Liberia West Bank & Gaza

Malawi

GROwTH IN FRAGILE STATES DECLINING SINCE 2008

Although fragile states are largely isolated from international financial markets and were thus insulated from the initial stages of the 2008 financial crisis, the subsequent economic downturn led to a sharp fall in growth after 2008, with fuel exporters particularly hard-hit (see graph below).

Looking ahead, growth in fragile states may rebound. Growth projections for fragile states are at 6.9% in 2012. These projections are more positive than those for the overall world economy (3.3%) and the collective projection for emerging and developing countries (5.4%) (IMF, 2012). Most notably, Niger is expected to grow by 12.5% in 2012 and Angola by 10.8%. Not all fast-growing fragile states are fuel or mineral exporters: Ethiopia is expected to achieve a 5.5% growth rate in 2012, and almost 10% between 2013 and 2015. As for commodity exports, prices are expected to fall from their 2010-11 levels, but the risk of further price volatility still remains high (OECD-FAO, 2011).

At the same time, there is a risk of new or aggravated situations of fragility. The societal pressures for change that brought about the Arab Spring, the possibility of prolonged financial turmoil, continued commodity price volatility, rapid urbanisation, youth unemployment, demo-graphic pressures and environmental degradation are all factors that will challenge state stability and resilience. Between the projected negative growth in the Eurozone for 2012 (IMF 2012) and continued pushes for fiscal austerity, aid budgets are under pressure. Fragile states may therefore face not only more challenges to stability but also less international development support.

Data

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ank

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1).

Data

: UN

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orld

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BOX 2. CENTRAL AFRICAN REpUBLIC: ODA OFFSETS REDUCTIONS IN OTHER RESOURCE FLOwS

In the Central African Republic (CAR), 2006 and early 2007 saw a worsening of the conflict between the Union of Demo-cratic Forces for Unity-led rebels and government-led forces, before a peace agreement was signed in April 2007.

Over this period, there was a significant drop in domestic revenue (27%) and FDI (32%). During the same period, ODA nearly doubled to USD 118 million. Though overall resource flows were lower in 2007 than in 2006, the rise in ODA helped compensate for the 2007 fall.

Source: OECD-DAC (2011)

Foreign direct investment (FDI) and remittances: These fi-nancial flows have continued to grow throughout the crisis in both fuel-exporting and other fragile states. Remittances to fragile states overtook ODA volumes in 2008.

ODA: The percentage of bilateral ODA from DAC countries to fragile states is shrinking: from 53% in 2005 to 35% in 2009. Bilateral ODA from DAC countries to fragile states fell by 35.6% during the period 2005-09 (constant prices). This decline is explained by the fact that ODA in 2005 and 2006 included exceptionally high debt relief, particularly for Iraq and Nigeria (see Figure 12). When debt relief is excluded from the equation, ODA to fragile states increased slightly over the same period (12%). It is also worth noting that ODA has been less affected by the 2008 financial crisis than other flows, such as domestic revenue and trade. Between 2008 and 2009, DAC donors cut their ODA to all countries by 1.6%. In fragile states this figure was 11.2%. The fragile states that lost the most ODA between 2008 and 2009 were Iraq (-72%), North Korea (-67%) and Liberia (-58%).

Domestic revenues: There was a dramatic contraction of domestic revenues between 2008 and 2009, threatening cuts in education, health and social protection programmes. In Kenya, for example, do-mestic revenues contracted by half in the two-year period. In Angola, the economy contracted by 10.3% in 2009, in response to which the government indicated budgetary cuts of 40% (see Box 1).

Trade: The overall trade deficit has worsened since 2005. In 2009, 40 out of 45 fragile states faced a trade deficit — all of them with a trade deficit exceeding 6% of GDP (see Figure 4). No African country exceeded USD 250 billion in merchandise trade in 2010. For Africa, fuels and mining products constitute the main exports, accounting 66% of their total merchandise exports in 2010 (WTO International Trade Statistics 2011).

In addition, fragile states suffer from illicit outflows of capital, which are estimated at USD 1.3 trillion globally, in addition to le-gal forms of capital flight.2 Illicit flows from the 48 least developed countries (LDCs), of which 43 are affected by a recent conflict, have increased from USD 9.7 billion in 1990 to USD 26.3 billion in 2008, a nearly three-fold increase (UNDP, 2011). For example, an estimated USD 2 billion in illegal narcotics trade transits through

2 Illicit flows are defined as “flows of money associated with tax evasion, criminal activity such as drug trafficking, and corruption and theft by government of-ficials” (Task Force on Financial Integrity and Economic Development, 2011).

West Africa every year (UNODC 2009). An estimated 90% of gold exports from the Democratic Republic of the Congo (DRC) go unde-clared (Global Witness, 2009). These huge outflows fuel instability, exacerbate poverty and limit the domestic resources available to finance development (See OECD, 2012).

peacekeeping expenditures: In 2011, ten fragile states hosted a UN peacekeeping mission, with a combined budget of nearly USD 7 billion, of which nearly USD 1.7 billion for UNAMID (Darfur) and USD 1.5 billion for MONUSCO (DRC). In DRC, UN peacekeeping expenditures represented half of the country’s ODA in 2009.3

Are fragile states raising domestic revenues?

Raising domestic revenues is essential to build capable states, to encourage engaged societies and to strengthen domestic account-ability. Raising taxes in order to reduce aid dependency is an ex-plicit goal for several fragile states (e.g. Liberia). Many developing countries, including DRC, Haiti, Mozambique, Nicaragua, Rwanda and Sierra Leone, have implemented far-reaching administration reforms since the early 1990s. Where these reforms have enjoyed success, a common factor has been sustained political commit-ment at the highest levels (IMF, 2011b).

Between 2005 and 2009, domestic revenues alone represented half of the total resource flows in fragile states — over USD 230 billion in 2009. All but four fragile states managed to mobilise gov-ernment revenue representing more than 15% of GDP in 2009 which is usually considered a reasonable target for developing countries. But compared to 2008, when 12 fragile states mobilised 35% or more of their GDP in tax revenue, only four fragile states continued to manage this level of mobilisation in 2009 (IMF 2011a) (see Table 2).

3 Peacekeeping includes developmental and non-developmental activities, and is generally not counted as ODA, except i) the net bilateral costs to donors of car-rying out the following activities within UN-administered or UN-approved peace operations: human rights, election monitoring, rehabilitation of demobilised soldiers and of national infrastructure, monitoring and training of administrators, including customs and police officers, advice on economic stabilisation, repa-triation and demobilisation of soldiers, weapons disposal and mine removal. (Net bilateral costs means the extra costs of assigning personnel to these activities, net of the costs of stationing them at home, and of any compensation received from the UN.); and ii) similar activities conducted for developmental reasons outside UN peace operations.


-16 -14 -12 -10 -8 -6 -4 -2 0 2 4

Cote d'IvoireMyanmarAngolaNigeriaCongo, RepSao Tome & PrincipeSolomon IslandsComorosCentral African Rep.Sierra LeoneSomaliaBurundiGuineaZimbabwePapua New GuineaTogoKorea, Dem. Rep.MalawiCongo, Dem. Rep.LiberiaBurkina FasoTajikistanChadHaitiCameroonNigerUgandaGeorgiaSri LankaYemenNepalSudanKenyaEthiopiaBangladeshLebanonPakistan

Sao Tome & PrincipeSolomon IslandsComorosCentral African Rep.Sierra LeoneSomaliaburundiGuineaZimbabwePapua New GuineaTogoKorea, Dem. Rep.MalawiCongo, Dem. Rep.Liberiaburkina FasoTajikistanChadHaitiCameroonNigerUgandaGeorgiaSri LankaYemenNepalSudanKenyaEthiopiabangladeshLebanonPakistan

Cote d’IvoireMyanmar

AngolaNigeria

Congo, Rep

FIGURE 4. TRADE IN FRAGILE STATES (2009) IN USD BILLIONS

-14 -12 -10 -8 -6 -4 -2 0 +2

<15% 15-25% 25-35% 35-45% >45%

Myanmar 6.11 Uganda 15.10 Yemen 25.00 Uzbekistan 36.72 Solomon Islands 49.80

bangladesh 10.50 Sudan 15.40 Papua New Guinea 27.45 Guinea 41.00 Iraq 71.73

Sri Lanka 14.53 Eritrea 15.91 Georgia 29.27 Kiribati 78.39

Pakistan 14.70 Central African Republic 16.07 Liberia 29.90 burundi 109.16

Ethiopia 16.29 Angola 30.86 Timor-Leste 347.93

Zimbabwe 16.71 São Tomé and Príncipe 32.42

Nepal 16.78 Malawi 34.16

Haïti 17.68

Cameroon 18.38

Togo 18.47

Niger 19.11

burkina Faso 19.36

Côte d'Ivoire 19.49

Sierra Leone 19.74

Nigeria 19.93

Chad 20.01

Afghanistan 20.57

Tajikistan 23.41

Kenya 23.67

Congo, Dem. Rep. of 24.32

Congo, Rep. of 24.32

Lebanon 24.35

Guinea-bissau 24.80

TAbLE 2. GOVERNmENT REVENUE (2009); IN % OF GDp

Note: 2009 trade data unavailable for Afghanistan, Eritrea, Guinea-Bissau, Iraq, Kiribati, Timor-Leste, Uzbekistan, and West Bank and Gaza. Source: UNCTAD (2011), Exports and Imports of Merchandise and Services (1980-2010).

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This is not the whole story: In all countries, the size of the tax base matters just as much as the overall volume of taxes assessed. When governments depend on a large number of taxpayers for revenue, rather than only a few (e.g. multina-tional oil and gas companies), they have incentives to promote broad prosperity and to be responsive to their citizens. The rise of a middle class in many fragile states presents an op-portunity to enlarge this tax base, for example by introducing a value-added tax (VAT). In Africa, an estimated 60 million households earn over USD 3,000 annually, and this number is set to reach 100 million households — the current size of the Indian middle class — by 2015 (The Economist, 2012). Burundi introduced a national value-added tax (VAT) in 2009, and Sierra Leone and Liberia did the same in 2010.

What about trade and fragile states?

Trade, both formal and informal, provides thousands of jobs, including for women and youth. Informal trade alone provides an estimated 20-75% of total employment in most African countries (UNECA, 2005). In macroeconomic terms, howev-er, fragile states’ total trade deficit has worsened alarmingly since 2005. The total trade deficit in fragile states reached USD 66 billion in 2009. Among the five fragile states that registered a trade surplus, three are fuel exporters. At the extreme, Haiti has a trade deficit of 26% of GDP.

In addition, most fragile states’ exports remain poorly diversi-fied in terms of sectors. Twenty out of 45 fragile states are natural resource-dependent (i.e. fuel or minerals represent more than 25% of exports), which makes them dependent on boom-and-bust cycles (see Boxes 1 and 3). Both fuel and non-fuel primary commodity prices peaked in 2008 before hitting a five-year low in early 2009.

Most fragile states’ exports are also poorly diversified in terms of destination markets. Although exports to emerg-ing markets accounted for 19% of African exports in 2009, growing from 8% ten years earlier (OECD-UNECA, 2011), exports from African fragile states (57% of all fragile states) remain oriented towards OECD markets, for which projec-tions are sluggish.

Are fragile states attracting FDI?

Foreign direct investment (FDI) represents a major portion of gross capital formation (total spending on investments) in fragile states.

FDI is a source of economic development and modernisation, growth and employment. But the benefits of FDI do not accrue automatically and evenly across countries, sectors and local communities. Despite the fact that fragile states rank at the bottom of international business climate and corruption indexes (see Table 3), FDI to fragile states grew almost fourfold from 2000 to 2009, to USD 214 billion in 2009. However, the major-ity of this FDI (57%) went to the 11 fuel-exporting fragile states (see list on page 5 and Figure 5), as well as to Lebanon (mostly in real estate) and Pakistan (communications and finance).

DOING BUSINESS RANkINGS (2009)

181 Congo, Dem. Rep.

180 Central African Republic

179 Guinea-Bissau

178 Congo, Rep.

177 Burundi

176 São Tomé and Principe

175 Chad

174 Venezuela

173 Eritrea

172 Niger

171 Guinea

170 Timor-Leste

169 Benin

168 Angola

167 Equatorial Guinea

166 Mali

165 Lao PDR

164 Cameroon

163 Togo

162 Afghanistan

161 Côte d’Ivoire

160 Mauritania

159 Tajikistan

158 Zimbabwe

157 Liberia

156 Sierra Leone

155 Comoros

154 Haiti

153 Djibouti

152 Iraq

151 Gabon

150 Bolivia

149 Senegal

148 Burkina Faso

147 Sudan

146 Suriname

145 Ukraine

144 Madagascar

143 Cape Verde

142 Iran

141 Mozambique

140 Philippines

139 Rwanda

138 Uzbekistan

137 Syria

136 Ecuador

135 Cambodia

134 Malawi

133 Honduras

132 Algeria

131 West Bank and Gaza

130 Gambia, The

CORRUpTION pERCEpTIONS INDEx (2009)

180 Somalia

179 Afghanistan

178 Myanmar

176 Sudan

176 Iraq

175 Chad

174 Uzbekistan

168 Turkmenistan

168 Iran

168 Haiti

168 Guinea

168 Equatorial Guinea

168 Burundi

162 Venezuela

162 Kyrgyzstan

162 Guinea-Bissau

162 Congo, Dem. Rep.

162 Congo, Rep.

162 Angola

158 Tajikistan

158 Lao PDR

158 Central African Republic

158 Cambodia

154 Yemen

154 Paraguay

154 Papua New Guinea

154 Côte d’Ivoire

146 Zimbabwe

146 Ukraine

146 Timor-Leste

146 Sierra Leone

146 Russian Federation

146 Kenya

146 Ecuador

146 Cameroon

143 Nepal

143 Comoros

143 Azerbaijan

139 Philippines

139 Pakistan

139 Belarus

139 Bangladesh

130 Uganda

130 Nigeria

130 Nicaragua

130 Mozambique

130 Mauritania

130 Maldives

130 Libya

130 Lebanon

130 Honduras

126 Tanzania

TAbLE 3. EASE OF DOING BUSINESS AND CORRUpTION: FRAGILE STATES RANk AT THE BOTTOm (2009)

FRAGILE STATES

Source: World Bank (2011), Transparency International (2011).


0.0 10.0 20.0 30.0 40.0 50.0

NigeriaLebanon

SudanPakistan

CongoAngola

MyanmarGeorgia

Côte d'IvoireBangladesh

IraqUganda

Sri LankaCameroon

YemenEthiopia

LiberiaUzbekistan

ChadCongo-Kinshasa

KenyaAfghanistan

Guinea-ConakryPapua New Guinea

Korea, Dem. Rep.Zimbabwe

NigerTajikistan

Burkina FasoMalawi

Sierra LeoneSomalia

HaitiSolomon Islands

EritreaCentral African Republic

Guinea-BissauNepal

São Tomé and PríncipeTimor-Leste

BurundiComoros

KiribatiPalestinian Adm. Areas

NigeriaLebanon

SudanPakistan

CongoAngola

MyanmarGeorgia

Côte d’Ivoirebangladesh

IraqUganda

Sri LankaCameroon

YemenEthiopiaLiberia

UzbekistanChad

Congo-KinshasaKenya

AfghanistanGuinea-Conakry

Papua New GuineaKorea, Dem. Rep.

ZimbabweNiger

Tajikistanburkina Faso

MalawiSierra Leone

SomaliaHaiti

Solomon IslandsEritrea

Central African RepublicGuinea-bissau

NepalSão Tomé and Príncipe

Timor-Lesteburundi

ComorosKiribati

West bank & Gaza

FIGURE 5. FDI IN FRAGILE STATES (2009) IN USD BILLIONS

0.0 10.0 20.0 30.0 40.0 50.0

FUEL-EXPORTING FRAGILE STATES

NON-FUEL MINERAL EXPORTERS

OTHER FRAGILE STATES

BOX 3. AID, TAx AND RESpONSIBLE mINERALS IN DR CONGO

The Democratic Republic of Congo (DRC) is highly aid-dependent, with an ODA to GNI ratio of 22.6% in 2009 (compared to an average of 3.9% across all fragile states). DRC also depends on the international community for security, hosting the largest UN peacekeeping operation after that in Darfur, representing over 16,000 troops and a budget of USD 1.4 billion for 2011-12. However, there is potential for DRC’s aid dependency to subside over the coming years: growth projections are optimistic, and there is a unique opportunity to reform the mining sector (e.g. recent legislation and measures in response to the US Dodd-Frank Act; initiatives for the transparency of payments made by multinationals to government and for responsible sourcing of minerals).

In 2010, the economy began to recover from the global financial crisis, with GDP growth estimated at 7% (up from 2.8% in 2009). This growth was largely driven by mining, a sector boosted by increasing commodity prices and sizable investments in infrastructure. Minerals accounted for 73% of exports in 2000-06, and represent the largest source of FDI in the country.

If current efforts to sever the link between conflict and minerals (OECD 2011d) and to improve the business climate succeed, the mining sec-tor is expected to remain an engine for growth. With improved domestic revenue mobilisation, the mining sector could contribute up to USD 200 million annually (20-25% of GDP) by 2018. This would represent one-third of total tax receipts and thus contribute to improved welfare for ordinary citizens. In 2005, receipts from the mining sector amounted to only USD 27 million.

Source: ODI (2010), OECD (2011d, 2011e) and World Bank (2008, 2011).

Source: UNCTAD / World Bank (2011)


The sources of FDI are shifting. In 2009, South-South FDI ac-counted for 14% of total FDI going to developing countries, from 4% in 1998 (UNCTAD 2011). For example, outward FDI from India to Sudan is estimated at USD 730 million annually (2001-05 aver-age), from China to Nigeria USD 131 million (2003-09) and from Brazil to Angola USD 83 million (2001-07 average) (Mlachila and Takebe, 2011).

Is aid going where it is needed most?

Fragile states receive more aid per capita than the average devel-oping country, and this has been the case since at least 2000. In 2009, the average amount of ODA per capita to fragile states was USD 39, whilst the average across all developing countries was USD 17. This is generally justified by the level of need (as measured by low income and/or levels of poverty) which is higher in fragile states than in non-fragile developing countries.

However, most global resource allocation formulae are based not only on need, but also on performance. While fragile states gen-erally have higher needs, they also have weaker policies and in-stitutions, which constrains their ability to absorb aid and use aid strategically to deliver transformative results. Factoring in both need and performance, would some fragile states warrant more aid, and if so, which?

A recent review of four resource allocation formulae shows •that four countries can be considered under-aided on the basis of both need and performance (i.e. should receive more ODA given high needs and ‘good enough’ governance): Bangladesh, Guinea, Nepal, and Niger (OECD 2012b).

When looking at • either need or performance, 12 additional countries appear as potentially under-aided: Burkina Faso, CAR, Chad, Comoros, DRC, Eritrea, Ethiopia, Guinea-Bissau, Myanmar, Togo, Uganda and Zimbabwe.

Half of aid to fragile states goes to only eight countries

Aid volumes continue to be very concentrated. Half of ODA to fragile states goes to only eight countries (see Figure 7). This concentration has increased over the past decade, and aid projections (2009-12) confirm this trend. There is a growing risk that countries of lesser geopolitical importance and/or that are mired in chronic crisis will fall further behind. In 2009, nine of these countries received lower ODA levels compared to 2000 (in constant terms). A more optimal allocation of resources across countries, taking into account both the need and the quality of a country’s policies and institutions, is in order.

To which sectors does aid go?

In fragile states, aid can play a particularly important counter-cycli-cal role, given that these countries are particularly vulnerable to the external shocks that frequently occur during times of financial tur-moil. Since the onset of the financial crisis in 2008, ODA to fragile states has helped keep children in school and health clinics open, while building states’ ability to raise revenues, deliver basic services and improve state-society relations (see examples from CAR in Box 2 and Kenya in Box 4).

STATEbUILDING, PEACEbUILDING AND SECURITY 36%

OTHER SOCIAL INFRASTRUCTURE AND SERVICES 11%

EDUCATION 17%

HEALTH 16%

POPULATION POLICIES, PROGRAMMES & REPRODUCTIVE HEALTH 13%

WATER SUPPLY AND SANITATION 7%

SOCIAL INFRASTRUCTURE AND SERVICES 43.7%

ECONOMIC INFRASTRUCTURE AND SERVICES 11.8%

PRODUCTION SECTORS 6.0%

MULTI-SECTOR/ CROSS-CUTTING 3.9%

COMMODITY AID/GENERAL PROGRAMME ASSISTANCE 7.7%

ACTION RELATING TO DEbT 10.6%

HUMANITARIAN AID 15.7%

OTHER ODA <0.01%

Total ODA

USD 46.7 bn

FIGURE 6. SECTORAL ALLOCATION OF ODA TO FRAGILE STATES (2009)

Data: OECD Creditor Reporting System

/CRS (2011).


FIGURE 7. ODA FROm DAC COUNTRIES TO FRAGILE STATES (IN USD BILLIONS)

AFGHANISTAN

ETHIOpIA

pAkISTAN

wEST BANk AND GAzA

IRAq

CONGO, DEm REp

CôTE D’IVOIRE

SUDAN

Kenya

Haiti

bangladesh

Uganda

Nigeria

burundi

Sri Lanka

burkina Faso

Nepal

Georgia

Cameroon

Central African Rep

Malawi

Zimbabwe

Lebanon

Somalia

Chad

Yemen

Togo

Liberia

Niger

Sierra Leone

Papua New Guinea

Tajikistan

Myanmar

Congo, Rep

Angola

Guinea

Uzbekistan

Timor-Leste

Solomon Islands

Guinea-bissau

Eritrea

Korea, Dem Rep

Comoros

Sao Tome and Principe

Kiribati

0 1 2 3 4 5 6

AfghanistanEthiopiaPakistan

Palestinian Adm. AreasIraq

Congo, Dem. Rep.Cote d'Ivoire

SudanKenya

HaitiBangladesh

UgandaNigeria

BurundiSri Lanka

Burkina FasoNepal

GeorgiaCameroon

Central African Rep.Malawi

ZimbabweLebanonSomalia

ChadYemen

TogoLiberia

NigerSierra Leone

Papua New GuineaTajikistanMyanmar

Congo, RepAngolaGuinea

UzbekistanTimor-Leste

Solomon IslandsGuinea-Bissau

EritreaKorea, Dem. Rep.

ComorosSao Tome & Principe

Kiribati

6.24

3.84

3.48

3.03

2.79

2.56

2.53

2.35

2.01

1.95

1.89

1.81

1.71

1.56

1.23

1.12

0.98

0.96

0.80

0.78

0.78

0.74

0.69

0.66

0.61

0.60

0.54

0.54

0.49

0.46

0.45

0.44

0.36

0.33

0.30

0.28

0.22

0.22

0.21

0.17

0.15

0.07

0.06

0.03

0.03

Data

: OEC

D Cr

edito

r Rep

ortin

g Sy

stem

/CRS

(201

1).


500 1 000 2 000 5 000

80

75

70

65

60

55

50

45

LOW-INCOME COUNTRIES MIDDLE-INCOME COUNTRIES

China

India

USA

Indonesia

Brazil

Paki-stan

Bangladesh

Russia

Nigeria

Japan

Mexico

Philippines

Vietnam

Germany

Egypt

Ethiopia

TurkeyIran

Congo, DR

France

UK

Italy

South Korea

Myanmar

Ukraine

Colo- mbia

South Africa

Sudan

Argen- tina

Spain

Tanzania

Poland

Kenya

Morocco

Algeria

Canada

Thailand

Afghanistan

Uganda

Nepal

Peru

Uzbe-kistan Iraq

Saudi Arabia

VenezuelaMalaysia

NorthKorea

Ghana

Taiwan

Yemen

Romania

Australia

Sri Lanka

Mozambique

Madagascar

Syria

Côte d'Ivoire

Cameroon

NetherlandsChile

Kazakhstan

Burkina Faso

Cambodia

Ecuador

Malawi

Niger

Guatemala

Angola

Senegal

Zimbabwe

Mali

Zambia

CubaGreecePortugal

Chad

Bel-gium

Tunisia

Belarus

Czech Rep.

Guinea

Serbia

Hungary

DR

Somalia

Bolivia

Rwanda

Sweden

Haiti

Burundi

Benin

Austria

Azerbaijan

Tajikistan

Honduras

Switzerland

Bulgaria

El Salvador

Hong KongAndorra

Paraguay

Laos

Israel

Sierra Leone

Jordan

Libya

Papua New

Guinea

Togo

Nicaragua

Denmark

Slovakia

Kyrgyzstan

Finland

Turkmenistan

Eritrea

Norway

Georgia

Singa-pore

Bosnia & H.

Moldova

Croatia

Central African Rep.

Costa Rica

Ireland

New Zealand

Leba-non

Puerto Rico

Congo, Rep.

Albania

Lithuania

Uruguay

Mauritania

Liberia

OmanPanama

Armenia

Mongolia

Jamaica

UAEKuwait

Kosovo

Bhutan

Latvia

Namibia

Macedonia

Slovenia

Lesotho

GambiaBotswana

Guinea-Bissau

Gabon

Estonia

Mauritius

Swaziland

Timor-Leste

Trinidad &Tobago

Fiji

Qatar

Guyana

Comoros

Bahrain

Solo-mon Isl.

Equatorial Guinea

Djibouti

Lux-embourg

Suriname

Cape Verde

Malta

Brunei

Bahamas

Iceland

Belize

Barbados

Vanuatu

São Tomé & P.

SamoaTonga

Kiribati

Micronesia

Grenada

Seychelles

Antigua & Barbuda

Dominica

Marshall Isl.Palau

Nauru

Tuvalu

St Kitts & N.

Maldives

Liechten-stein

3

6

54

21

Size by population:

1000millions

100103

or less

Palestinian Adm. Areas

L

IFE

ExpE

CTAN

Cy (A

t birt

h; in

yea

rs)

GDp (Per person in USD, purchasing power adjusted; log scale)

A GROUp OF COUNTRIES HAS FALLEN BEHIND

Fragile states


5 000 10 000 20 000 50 000

MIDDLE-INCOME COUNTRIES HIGH-INCOME COUNTRIES

China

India

USA

Indonesia

Brazil

Paki-stan

Bangladesh

Russia

Nigeria

Japan

Mexico

Philippines

Vietnam

Germany

Egypt

Ethiopia

TurkeyIran

Congo, DR

France

UK

Italy

South Korea

Myanmar

Ukraine

Colo- mbia

South Africa

Sudan

Argen- tina

Spain

Tanzania

Poland

Kenya

Morocco

Algeria

Canada

Thailand

Afghanistan

Uganda

Nepal

Peru

Uzbe-kistan Iraq

Saudi Arabia

VenezuelaMalaysia

NorthKorea

Ghana

Taiwan

Yemen

Romania

Australia

Sri Lanka

Mozambique

Madagascar

Syria

Côte d'Ivoire

Cameroon

NetherlandsChile

Kazakhstan

Burkina Faso

Cambodia

Ecuador

Malawi

Niger

Guatemala

Angola

Senegal

Zimbabwe

Mali

Zambia

CubaGreecePortugal

Chad

Bel-gium

Tunisia

Belarus

Czech Rep.

Guinea

Serbia

Hungary

DR

Somalia

Bolivia

Rwanda

Sweden

Haiti

Burundi

Benin

Austria

Azerbaijan

Tajikistan

Honduras

Switzerland

Bulgaria

El Salvador

Hong KongAndorra

Paraguay

Laos

Israel

Sierra Leone

Jordan

Libya

Papua New

Guinea

Togo

Nicaragua

Denmark

Slovakia

Kyrgyzstan

Finland

Turkmenistan

Eritrea

Norway

Georgia

Singa-pore

Bosnia & H.

Moldova

Croatia


Costa Rica

Ireland

New Zealand

Leba-non

Puerto Rico

Congo, Rep.

Albania

Lithuania

Uruguay

Mauritania

Liberia

OmanPanama

Armenia

Mongolia

Jamaica

UAEKuwait

Kosovo

Bhutan

Latvia

Namibia

Macedonia

Slovenia

Lesotho

GambiaBotswana

Guinea-Bissau

Gabon

Estonia

Mauritius

Swaziland

Timor-Leste

Trinidad &Tobago

Fiji

Qatar

Guyana

Comoros

Bahrain

Solo-mon Isl.

Equatorial Guinea

Djibouti

Lux-embourg

Suriname

Cape Verde

Malta

Brunei

Bahamas

Iceland

Belize

Barbados

Vanuatu

São Tomé & P.

SamoaTonga

Kiribati

Micronesia

Grenada

Seychelles

Antigua & Barbuda

Dominica

Marshall Isl.Palau

Nauru

Tuvalu

St Kitts & N.

Maldives

Liechten-stein

3

6

54

21

Size by population:

1000millions

100103

or less


Colour by region:

1) S

an M

arin

o; 2

) Mon

aco;

3) C

ypru

s; 4

) Mon

tene

gro;

5) S

aint

Luc

ia; 6

) St V

ince

nt &

Gre

nadi

nes

Sour

ce: A

dapt

ed fr

om G

apm

inde

r (20

10).


BOX 4. THE COUNTERCyCLICAL ROLE OF AID IN kENyA

Early 2008 was marked by post-election violence across Kenya. Over 1 200 people were killed and 300 000 displaced. This unrest, coupled with the effects of the financial crisis, reduced gross domestic product (GDP) growth to 1.7% in 2008. Domestic revenues contracted by half between 2008-09, threatening funding for vital social services.

However, in 2009, ODA rose in real terms by 34%, with 5.2% of sector allocable aid spent on education, 6.6% on health, 4.9% on government and civil society (which includes 1.2% of ODA on conflict peace and security), and 18.4% on humanitarian aid.

The economy recovered in 2010, but in 2011, Kenya’s economy experienced further shocks, including drought, higher food and fuel prices and electricity shortages.

Source: OECD-DAC (2011)

In 2009, 44% of ODA to fragile states went to • social infra-structure and services (education; health; population poli-cies, programming and reproductive health; water and sanita-tion; statebuilding; peacebuilding and security).

Humanitarian aid • plays a particularly critical role in fragile states. In 2009, humanitarian aid represented 16% of total ODA (see Figure 6). In Somalia this figure was as high as 69%. 31% of humanitarian aid is long-term (see OECD 2012c), which might crowd out other types of assistance. Humanitar-ian aid per capita is highest in West Bank and Gaza (USD 183), Somalia (USD 50) and Georgia (USD 32) (see Figure 9).

ODA to “peacebuilding and security” • (OECD DAC Credi-tor Reporting System/CRS code 152) and “statebuilding” (code 151) have all increased from 2005 to 2009, with the ex-ception of ODA to strengthen core public sector management systems and capacity. However, assessing whether more or less aid supports peacebuilding and statebuilding goals would require going beyond the DAC CRS codes to conduct country-specific analyses of what activities can be considered critical to peacebuilding or statebuilding. Job creation, for example, can contribute to peacebuilding just as much as the activities traditionally labelled as “peacebuilding”.

Is ODA to fragile states effective?

Fragile situations are characterised by high need and limited capac-ity — two reasons for aid to be more, not less, effective. However, the combined monitoring survey of the Paris Declaration on Aid Ef-fectiveness and the Principles for Good International Enlargement in Fragile States and Situations shows that the quality of aid to fragile states is generally poorer than in other developing countries (see Figure 14, OECD 2011a and 2011b).4 In particular:

4 The sample of fragile states in this combined Survey is twelve countries: Burundi; DRC; Central African Republic; Chad; Comoros; Guinea-Bissau; Haiti; Liberia; Sierra Leone; Somalia; Timor-Leste; Togo. South Sudan also partici-pated but was not an independent country at the time of the combined Survey.

Use of public financial management (PFM) systems is marked-•ly lower in fragile states than other developing countries (27% aid versus 48% average for all developing countries). This is in spite of fragile states having on average made more progress towards reliable PFM systems: 44% fragile states have moved up at least one measure on the PFM/CPIA scale since 2005, versus 38% developing countries.

Use of local procurement systems is also lower in fragile states •(20% aid versus 44% for all developing countries).

Joint missions and analytical work, and the provision of aid in •the context of programme-based approaches, are also lesser in fragile states than in other developing countries.

Aid is less predictable in fragile states. While this can in some •cases be explained by crises and opportunities, stop-and-go aid can create damaging shocks.

There are three main issues of concern with regard to aid effec-tiveness in fragile states: i) volatile aid; ii) too few donors in some countries and too many in others; and iii) projections of aid reduc-tions from DAC donors.

Fragile states experience much higher rates of volatil-•ity and much lower rates of predictability than other developing countries. Two-thirds of aid shocks between 1970 and 2006 occurred in fragile states, just where country systems are the weakest and the risks of instability highest.5 Such volatility is estimated to shave 15% off the value of ODA. Recent examples include CAR, Guinea-Bissau, Haiti, Liberia and Sierra Leone (see Figure 13).

There are too few donors in some countries and too •many in others. Despite limited capacity, fourteen fragile states have partnerships with 30 donors or more, half of which

5 Aid shocks can be measured as a difference of more than 15% of aid per capita from one year to another or fluctuations of aid in excess of 5% of GDP. See, for example, Levin and Dollar (2005), Fielding and Mavrotas (2005), McGil-livray and Feeny (2006), Celasun and Walliser (2008) and Kharas (2008).


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Kiribati

Sao Tome & Principe

Togo

Nigeria

Uzbekistan

Solomon Islands

Guinea-Bissau

Malawi

Cote d'Ivoire

Congo, Rep

Comoros

Sierra Leone

Papua New Guinea

Angola

Timor-Leste

Burkina Faso

Cameroon

Tajikistan

Guinea

Liberia

Nepal

Bangladesh

Uganda

Niger

Afghanistan

Lebanon

Yemen

Haiti

Burundi

Georgia

Ethiopia

Iraq


Pakistan

Kenya

Eritrea

Congo, Dem. Rep.


Sri Lanka

Myanmar

Korea, Dem. Rep.

Zimbabwe

Chad

Sudan

Somalia

Chart Title%HUM %ODA

SomaliaSudanChad

ZimbabweKorea, Dem. Rep.

MyanmarSri Lanka

West bank and GazaCongo, Dem. Rep.

EritreaKenya

PakistanCentral African Rep.

IraqEthiopiaGeorgiaburundi

HaitiYemen

LebanonAfghanistan

NigerUganda

bangladeshNepal

Liberia GuineaTajikistan

Cameroonburkina FasoTimor-Leste

AngolaPapua New Guinea

Sierra LeoneComoros

Congo, RepCote d’Ivoire

MalawiGuinea-bissau

Solomon IslandsUzbekistan

NigeriaTogo

Sao Tome & PrincipeKiribati

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

HUMANITARIAN AID OTHER ODA

FIGURE 8. HOw mUCH AID IS HUmANITARIAN?

WEST bANK AND GAZA $180.05

FIGURE 9. TOp 10 RECIpIENTS OF HUmANITARIAN AID per capita (2009) IN USD

= USD 1 PER CAPITA

HAITI $14.41

IRAQ $15.76

$17.13

LEbANON $17.60

CHAD $28.39

ZIMbAbWE $29.06

SUDAN $30.12

GEORGIA $32.13

SOMALIA $50.44

AFGHANISTAN

Data

: OEC

D DA

C (2

011)

Data

: OEC

D DA

C (2

011)


are considered non-significant (see Figure 11).6 By contrast, four fragile states are each dependent on only one donor for at least 50% of their aid. These are Iraq (89%), Solomon Islands (81%), Papua New Guinea (68%) and Afghanistan (53%). Whilst donor concentration should generally be encouraged, changes in donor priorities could have a significant impact on countries dependent on exceptionally few donors (see Figure 11).

Current trends and forward projections show aid re-•ductions from DAC donors to fragile states. Looking for-ward, projections for 2012-15 show little change in total coun-try programmable assistance (CPA), with some large increases expected in Bangladesh, Nigeria and Kenya, but large falls ex-pected in Côte d’Ivoire, Guinea and the Solomon Islands. The largest falls in percentage terms are expected in Sao Tome and Principe (-13.8%), the Solomon Islands (-8.3%) and Côte d’Ivoire (-7.6%).

The growing role of non-DAC donors

USD 46.7 billion in net ODA goes to fragile states, or 37% of total ODA. In 2009, the top three doors to fragile states were the United States (USD 12 billion), the United Kingdom (USD 2.9 billion) and France (USD 2.25 billion). The top three in proportion of their total bilateral aid were Italy (48%), the United States (48%) and Australia (40%) (OECD database). Furthermore, DAC donors provide most of the UN peacekeeping budget and other non-ODA funds for security, statebuilding and peacebuilding. The top donors to the 2011-12 UN peacekeeping budget were the United States (27%), Japan (12%) and the United Kingdom (8%) (UNDPKO, 2011).

However, between 2005 and 2009, DAC donors cut their ODA to all countries by 1.8% and to fragile states by 19.9%. While their contribution to fragile states is shrinking, emerging bilateral donors, global funds and philanthropy continue to play a growing role.

Notably, China’s engagement in fragile states is growing on multiple fronts: co-operation, investment, trade and technology. In Novem-ber 2009, the Chinese prime minister announced a USD 10 bil-lion loan package for Africa, including in agriculture, education and health. The state-owned Export-Import Bank of China (EXIM) lent USD 67.2 billion to sub-Saharan African countries between 2001 and 2010, compared to the World Bank’s USD 54.7 billion. Most of the Chinese loans were used for infrastructure projects (Fitch Ratings 2011).7

6 An aid relation (i.e. between an individual donor and partner country) is consid-ered “significant” in financial terms if: a) the donor provides a higher share of aid to the partner country than the donor’s overall share of global aid; and/or b) the donor is among the largest donors that cumulatively account for at least 90% of the partner country’s aid.

7 These are loans on concessional terms for countries who have signed frame-work agreements with China’s EXIM Bank. At least twenty fragile states have signed such framework agreements: Angola, Bangladesh, Cameroon, Congo Rep., DR Congo, Cote d’Ivoire, Djibouti, Eritrea, Ethiopia, Kenya, Laos, Liberia, Nigeria, Pakistan, Papua New Guinea, Sudan, Tajikistan, Togo, Uzbekistan, Yemen and Zimbabwe.

Non-DAC donors reporting to the DAC reduced their overall ODA by 19%, but increased their focus on fragile states (+64.9%).8 The most notable increase was from the United Arab Emirates, whose aid was multiplied by eight over 2007-08 and by 26 over 2008-09.

Can aid be catalytic?

Aid is only a modest part of the resource equation, but it can cata-lyse greater domestic revenue mobilisation, support a better in-vestment environment (e.g. through better policy, regulations and infrastructure), foster trade and combat illicit flows out of fragile states. Donors also have a role to play by harnessing whole-of-government efforts to reduce global average remittance costs, help stabilise commodity prices and make migration policies a force for development.

Aid can play a catalytic role by helping reduce aid dependency, notably by helping countries raise domestic revenues. Although donor support on tax matters is still limited (around 0.1% of annual ODA across all developing countries), experience shows that it can be a high-return investment. Since 1990, 15 African countries have formed revenue authorities with donor support, including Uganda, where tax revenue increased from 55% of government expenditure to 68% in 2010 (Gleenie, 2012). In El Salvador, a USD 10 million project helped the tax department increased its revenue collection from 2004 to 2010 by about 1.5% of GDP (USD 350 million annu-ally, adjusted for cyclical factors) (USAID, 2011).

In the area of trade, fragile states often lack the capacity (institu-tions, policies, infrastructure and access) to negotiate and imple-ment trade agreements and trade-related structural adjustment programmes; to diversify and increase exports and compete ef-fectively in global markets; and more generally to benefit from in-ternational trade. Aid that builds the trade capacity of fragile states can enhance growth prospects, improve the balance of payments and, in some cases, reduce commodity-export dependency. For example, Sierra Leone is building the productive capacity of its cash crops sector as part of its Agenda for Change 2008-12 through a European Union-funded aid-for-trade programme. With the support from the Inter-American Development Bank, Haiti introduced the Automated System for Customs Data (ASYCUDA) customs clear-ance system in the country, reducing customs clearance times for some declarations from four days to two hours.

8 Non-DAC donors reporting to the DAC are: Chinese Taipei, Cyprus, Czech Republic, Estonia, Hungary, Iceland, Israel, Kuwait, Latvia, Liechtenstein, Lithu-ania, Malta, Poland, Romania, Russia, Saudi Arabia, Slovak Republic, Slovenia, Thailand, Turkey and the United Arab Emirates.


Kore

a, D

em. R

ep.

Sao

Tom

e an

d Pr

inci

pe

Kirib

ati

Com

oros

Tim

or-L

este

Cong

o, R

ep

Uzbe

kist

an

Som

alia

Mya

nmar

Libe

ria

Chad

Ango

la

ZIm

babw

e

Guin

ea-b

issa

u

Guin

ea

Togo

Nige

r

buru

ndi

Solo

mon

Isla

nds

Papu

a N

ew G

uine

a

Cent

ral A

fric

an R

ep

Yem

en

Eritr

ea

Mal

awi

bang

lade

sh

burk

ina

Faso

Tajik

ista

n

Cam

eroo

n

Ugan

da

Sier

ra L

eone

Haiti

Suda

n

Nep

al

Keny

a

Leba

non

Wes

t ban

k &

Gaza

Ethi

opia

Nige

ria

Côte

d’Iv

oire

Sri L

anka

Cong

o, D

em R

ep

Geor

gia

Iraq

Paki

stan

Afgh

anis

tan

Data: OECD CRS (2011)

35

30

25

20

15

10

5

0

FIGURE 11. ExTREmE DONOR FRAGmENTATION, ExTREmE DONOR CONCENTRATION

Afgh

anist

an

Pakis

tanIraq

Geor

gia

Cong

o, De

m. R

ep.

Sri L

anka

Cote

d'Ivo

ire

Nige

ria

Ethiop

ia

Pales

tinian

Adm

. Are

as

Leba

non

Keny

a

Nepa

l

Suda

n

Haiti

Sierra

Leon

e

Ugan

da

Came

roon

Tajik

istan

Burk

ina Fa

so

Bang

lades

h

Mala

wi

Eritr

ea

Yeme

n

Cent

ral A

frica

n Rep

.

Papu

a New

Guin

ea

Solom

on Is

lands

Buru

ndi

Nige

r

Togo

Guine

a-Con

akry

Guine

a-Biss

au

Zimba

bwe

Ango

la

Chad

Liber

ia

Mya

nmar

Soma

lia

Uzbe

kistan

Cong

o, Re

p

Timor

-Leste

Como

ros

Kiriba

ti

Sao T

ome &

Princ

ipe

Kore

a, De

m. R

ep.

Number of non-significant donor relations Number of significant donor relations

NUMbER OF NON-SIGNIFICANT DONOR RELATIONS NUMbER OF SIGNIFICANT DONOR RELATIONS

ODA TO FRAGILE STATES AS % OF bILATERAL AID ODA TO FRAGILE STATES IN USD bILLIONS

FIGURE 10. ODA TO FRAGILE STATES (2009)

- 2.00 4.00 6.00 8.00 10.00 12.00 14.00 0.0%10.0%20.0%30.0%40.0%50.0%60.0%

United States

United Kingdom

France

Germany

Japan

Canada

Spain

Australia

Norway

Netherlands

Sweden

Denmark

belgium

Italy

Switzerland

Ireland

Finland

Korea

Austria

Portugal

New Zealand

Luxembourg

Greece

49.4

39.3

31.3

25.5

26.9

34.1

22.1

40.8

28.0

17.4

25.1

34.0

34.5

56.7

26.7

38.9

24.1

25.2

22.6

28.4

29.5

23.3

17.9

12.44

2.90

2.25

1.81

1.66

1.07

0.99

0.94

0.89

0.84

0.76

0.65

0.55

0.50

0.47

0.27

0.19

0.15

0.11

0.08

0.07

0.06

0.05

0 2 4 6 8 10 1250% 40% 30% 20% 10% 0%

Data

: OEC

D DA

C (2

011)


Aid can also play a catalytic role by “investing in investment”. In-vestment, domestic and foreign, creates jobs and growth, which are critical to peace, as reflected in the 2011 New Deal for Engage-ment in fragile states. The private sector contributes to greater domestic revenue mobilization, can lift some of the government’s burden in providing services, and increase legitimacy. The chal-lenges to investment are numerous: on average, fragile states rank 144 out of 183 economies on the 2010, whereas non-fragile states rank 78; although investments are riskier, given this poor business climate, the investment rate to GDP is usually much lower than the 30 percent rate needed for fragile states to stop falling behind and start converging with the global economy (Collier, 2007); lack of stable access to capital is a distinctive feature of fragile states, even in resource rich countries.

Yet there is a growing body of evidence on well-sequenced initia-tives that have delivered results at the macro-economic, enabling environment and enterprise levels. One example is the investment climate program in Liberia, which between 2008-10 generated USD 13 million in private sector investment, created over 20,000 jobs and moved Liberia from rank 177 to 149 on the Doing Busi-ness index (World Bank, 2011). More targeted projects can also contribute notable results, such as the opening of a business reg-istry in 1999 in Kosovo, which led to the registration of 90,000 businesses. At the sector level, there are opportunities for private sector development that are also poverty-reducing, for example in

the telecoms sector, where mobile phones make up for lack of in-formation and infrastructure through teletrading, telebanking and telemedicine. The top three countries with the highest growth rate of mobile penetration are all fragile states: Afghanistan, Iraq and Liberia (2009).

Another example of aid with a high and measureable return to in-vestment is in the area of stolen assets recovery. Since a large portion of illicit financial flows ends up in developed countries, part of the solution to stemming such flows must be focused on strengthening OECD financial system integrity, and the ability to detect, freeze and repatriate stolen assets back to developing coun-try jurisdictions. Weak systems and incentives for uncovering illicit funds from developing countries have meant that only few suc-cessful cases of asset recovery have involved poor countries, but present a high “yield”. In the UK, a USD 20 million project to fight international bribery and money laundering has led to the freezing of USD 250 million worth of assets awaiting repatriation to develop-ing countries – a worthwhile investment and innovative way of lev-eraging ODA resources which other donors may want to emulate.

In the area of remittances, the G8 has committed to reducing the cost of remittance services by 5% in five years (the “5x5 objective”) at the 2009 summit in L’Aquila. Between 2008 and 2011, the cost has decreased in all G8 countries except France and Japan (World Bank, 2011).

FIGURE 12. ODA TO FRAGILE STATES (2004-09)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2004 2005 2006 2007 2008 2009

Fragiles States Total ODA Net Fragiles States ODA Tot excl.Debt

NET ODA (DEbT RELIEF) NET ODA (EXCLUDING DEbT RELIEF)

2004 2005 2006 2007 2008 2009

45

35

25

15

5

USD

BILL

IONS

(CUR

REN

T PR

ICES

)

Data: OECD DAC (2011)


0 20 40 60 80 100

FIGURE 14. AID EFFECTIVENESS IN 12 FRAGILE STATES COmpARED TO ALL COUNTRIES pARTICIpATING IN THE 2011 pARIS DECLARATION mONITORING SURVEy

0 20 40 60 80 100

1. Operational development strategies

2a. Reliable public financial management systems

3. Aid flows are aligned on national priorities

4. Strengthen capacity by co-ordinated support

5a. Use of country PFM systems

5b. Use of country procurement systems

7. Aid is more predictable

8. Aid is untied

9. Use of common arrange-ments or procedures

10a. Joint missions

10b. Joint country analytic work

11. Results-oriented frameworks

12. Mutual accountability

37%

38%

41%

57%

48%

44%

43%

86%

45%

19%

43%

20%

38%

75%

50%

85%

55%

71%

89%

66%

40%

66%

36%

100%

9%

44%

45%

50%57%

27%

20%

35%

90%

29%

16%

38%

0%

8%

75% ALL COUNTRIES FRAGILE STATES TARGET LEVEL

-100

-50

0

50

100

150

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ann

ual

% c

hang

e in

OD

A p

er C

apit

a

Central African Rep. Guinea-Bissau Haiti Liberia Sierra Leone

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

150

100

50

0

-50

ANN

UAL

% C

HANG

E IN

ODA

PER

CAP

ITAFIGURE 13. AID VOLATILITy IN SELECTED FRAGILE STATES (2000-09)

CENTRAL AFRICAN REPUbLIC GUINEA-bISSAU HAITI LIbERIA SIERRA LEONE

2009

Sour

ce: A

dapt

ed fr

om O

ECD

(201

1b).

Sour

ce: A

dapt

ed fr

om W

orld

Ban

k (2

011e

).


ANNEX STATISTICAL DIGEST (2009)

• CONFLICT-AFFECTED TOP THIRD MIDDLE THIRD bOTTOM THIRD

DEVELOpmENT INDICATORS RESOURCE FLOwS

TOTAL POPULATION1

POPULATION UNDER 152

URbAN POPULATION3

GDP GROWTH4

MObILE SUbSCRIPTIONS5 REMITTANCES6 DOMESTIC

REVENUE7 NET FDI8 ODA NET9

ODA PER CAPITA10

Million % of total % of total %∆ 2008-09 per 100 people USD Million % of GDP USD Billion USD Billion USD

Afghanistan • 32.30 47 24.80 8.20 35.89 - 20.57 1.60 6.24 186.47

Angola • 19.60 46 58.50 2.30 43.70 - 30.86 11.58 0.30 12.91

Bangladesh 150.50 34 28.10 6.07 34.28 10.520 10.50 5.16 1.89 8.34

Burkina Faso 17.00 46 20.40 9.24 20.64 0.100 19.36 0.86 1.12 67.81

Burundi 8.60 44 11.00 3.90 10.26 0.030 109.16 0.07 1.56 68.86

Cameroon 20.00 41 58.40 2.60 38.58 0.150 18.38 4.16 0.80 33.87

Central African Rep • 4.40 42 38.90 3.30 3.89 - 16.07 0.25 0.78 56.09

Chad • 11.50 46 27.60 4.30 24.56 - 20.01 3.32 0.61 51.31

Comoros 0.80 42 28.20 2.10 13.97 - - 0.05 0.06 70.79

Congo, Dem Rep • 20.20 47 35.20 7.24 15.83 0.190 19.49 3.06 2.53 122.43

Congo, Rep 67.80 42 62.10 8.75 55.08 - 24.32 13.17 2.56 36.66

Cote d'Ivoire 4.10 41 50.10 3.01 68.97 0.020 24.32 6.20 0.33 71.79

Eritrea 5.40 43 21.60 2.20 2.77 - 15.91 0.38 0.15 28.40

Ethiopia • 84.70 44 17.60 10.14 4.99 0.260 16.29 3.92 3.84 47.05

Georgia 4.30 18 52.90 6.37 64.32 0.710 29.27 7.21 0.96 205.84

Guinea • 10.20 43 35.40 1.93 57.44 0.060 41.00 1.48 0.28 22.01

Guinea-Bissau 1.50 48 30.00 3.47 37.76 0.050 24.80 0.18 0.17 98.93

Haiti 10.10 37 49.60 -5.05 36.98 1.380 17.68 0.45 1.95 113.59

Iraq • 32.70 41 66.40 0.84 63.43 0.070 71.73 5.06 2.79 89.78

Kenya • 41.60 43 22.20 5.30 49.07 1.690 23.67 1.84 2.01 45.07

Kiribati 0.10 31 44.00 1.80 1.02 - 78.39 0.01 0.03 277.27

Korea, DPR 4.30 23 63.40 - 0.29 7.560 - 1.44 0.07 2.75

Lebanon 4.10 28 87.20 7.00 36.36 0.030 24.35 25.51 0.69 152.72

Liberia 15.40 47 61.50 5.51 21.95 - 29.90 3.71 0.54 133.74

Malawi 48.30 47 19.80 7.10 16.62 0.120 34.16 0.80 0.78 53.48

Myanmar • 30.50 26 33.90 10.42 0.94 2.990 6.11 7.52 0.36 7.50

Nepal 16.10 38 18.20 4.55 25.88 0.090 16.78 0.17 0.98 29.07

Niger 162.50 48 16.70 8.81 17.36 9.590 19.11 1.21 0.49 31.39

Nigeria • 24.50 44 49.80 7.85 47.32 - 19.93 50.11 1.71 10.74

Pakistan • 176.70 36 37.00 4.14 60.40 8.720 14.70 14.61 3.48 16.31

Papua New Guinea 7.00 40 12.50 8.00 13.43 0.010 27.45 1.45 0.45 61.71

Sao Tome & Principe 0.20 41 62.20 4.50 39.38 0.002 32.42 0.16 0.03 188.97

Sierra Leone 6.00 43 38.40 4.95 20.21 0.050 19.74 0.46 0.46 78.45

Solomon Islands 0.60 40 18.60 7.00 5.72 0.002 49.80 0.39 0.21 392.86

Somalia • 9.60 44 37.40 - 7.03 - - 0.45 0.66 72.55

Sri Lanka • 21.00 23 15.10 8.01 68.20 3.360 14.53 4.35 1.23 34.05

Sudan • 44.60 40 45.20 4.45 36.11 2.990 15.40 19.14 2.35 53.88

Tajikistan 7.00 38 26.50 3.80 72.24 1.750 23.41 0.87 0.44 60.28

Timor-Leste 1.20 45 28.10 7.42 - - 347.93 0.12 0.22 197.25

Togo 6.20 43 43.40 3.37 37.06 0.340 18.47 - 0.54 84.55

Uganda • 34.50 49 13.30 5.18 28.99 0.750 15.10 5.01 1.81 55.17

Uzbekistan 27.80 32 36.90 8.50 59.13 - 36.72 3.64 0.22 6.85

West Bank & Gaza 4.20 - 72.10 - 30.27 1.160 - -0.22 3.03 748.44

Yemen • 24.80 45 31.80 - 16.47 1.220 25.00 4.08 0.60 21.42

Zimbabwe 12.80 38 38.30 9.00 23.98 - 16.71 1.38 0.74 59.06

Note: To make this data easier to understand, the group of fragile states have been divided into terciles for each column (upper 1/3, middle 1/3, bottom 1/3). The colours used to indicate the three groups are given above.

Sources: 1World Bank (2011); 2 World Health Organisation (2010); 3United Nations WDI (2011); 4World Bank/OECD (2011); 5World Bank/ITU (2011); 6World Bank (2011); 7IMF (2011); 8IMF (2011); 9OECD-DAC (2011); 10OECD-DAC/World Bank (2011).


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The DAC International Network on Conflict and Fragility works on specific development challenges in conflict-affected and fragile states, supporting peacebuilding and statebuilding processes that concentrate on promoting lessons and experi-ences from the field, setting international norms and standards, tracking global results and providing practical guidance to help improve responses. To this end, the Conflict and Fragility Series brings together both in-depth analysis and practical recommendations. Free electronic copies may be downloaded from the OECD bookshop (www.oecd-ilibrary.org). For more information, contact the INCAF Secretariat at [email protected].

Effective Engagement in Fragile States

International Engagement in Fragile States: Can’t we do better?http://dx.doi.org/10.1787/9789264086128-en

Four years after DAC ministers endorsed the Principles for Good International Engagement in Fragile States and Situations, 13 countries have decided to take stock of the quality and impact of international engagement across the areas of diplomacy, development and security. The 2011 Monitoring Report synthesises main find-ings and recommendations from across these 13 countries, providing evidence from the ground of what works and what doesn’t. The report is one of the key inputs for the Fourth High-Level Forum on Aid Effectiveness (busan) and its follow-up.

Financing and Aid Architecture

International Support to post-Conflict Transition: Rethinking policy, Changing practicehttp://dx.doi.org/10.1787/9789264168336-en

1.5 billion people live in countries affected by repeated cycles of violence and insecurity. These countries face tremendous challenges as they transition from conflict to peace. International support can play a crucial role in these contexts, but has so far struggled to deliver transformative results. This volume presents clear policy recommendations for better practice in order to improve the speed, flexibility, predictability and risk manage-ment of international support during post-conflict transition.

managing Risks in Fragile and Transitional Contexts: The price of success?http://dx.doi.org/10.1787/9789264092198-en

From the anarchy of Somalia to the relative stability of Nepal, fragile and transitional situations represent a broad spectrum of contexts. However, they share some common features: these are risky environments – for the people who live there, for their governments, for neighbouring countries, and for those who seek to provide assistance. International engagement in these situations presents significant risks for donors and implementing partners, but also holds the potential for substantial rewards. This publication provides the evidence to help donors understand how to balance risks and opportunities in order to protect the integrity of their institutions while delivering better results to those who need it most.

Peacebuilding, Statebuilding and Security

Supporting Statebuilding in Situations of Conflict and Fragility: policy guidancehttp://dx.doi.org/10.1787/9789264074989-en

This publication presents new thinking on statebuilding and clear recommendations for better practice. Draw-ing from best practices from the field, it offers guidance on how donors can better facilitate positive endog-enous statebuilding processes and strengthen the foundations upon which capable, accountable and respon-sive states are built.

Conflict and Fragility

International Engagement in Fragile StatesCan’t wE do bEttEr?

PrELIMInarY VErSIon

www.oecd.org/publishing

S

upporting Statebuilding in S

ituations of Confl ict and Fragility

DAC Guidelines and Reference Series

Supporting Statebuilding in Situations of Confl ict and FragilityPOLICY GUIDANCEFunctioning states are essential for reducing poverty, sustaining peace and achieving agreed development goals. Despite receiving growing international attention in recent years, fragile states are falling behind other low-income countries in human development. Fragility – and its negative consequences – can destabilise entire regions and have global repercussions. Tackling the challenges associated with fragility requires a concerted international effort to support sustainable statebuilding processes, based on robust state-society relations.

Supporting Statebuilding in Situations of Confl ict and Fragility: Policy Guidance presents new thinking on statebuilding and clear recommendations for better practice. It provides an internationally accepted conceptual framework for statebuilding, informed by today’s realities of confl ict-affected and fragile situations. Building on good practices already being successfully applied on the ground, this guidance lays out how developing and developed countries can better facilitate positive statebuilding processes and strengthen the foundations upon which capable and legitimate states are built. The recommendations in this guidance address critical areas for better international engagement from strategy development and programme design and delivery to day-to-day operations in the fi eld and at headquarters.

ISBN 978-92-64-07496-543 2011 03 1 P-:HSTCQE=U\Y^[Z:

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Please cite this publication as:

OECD (2011), Supporting Statebuilding in Situations of Confl ict and Fragility: Policy Guidance, DAC Guidelines and Reference Series, OECD Publishing.http://dx.doi.org/10.1787/9789264074989-en

This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.

DAC Guidelines and Reference Series

Supporting Statebuilding in Situations of Conflict and FragilityPOLICY GUIDANCE

THE CONFLICT AND FRAGILITy SERIES

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