Needs of Countries in Special Situations: African Countries, LDCs, LLDCs, and SIDS as well as Specific Challenges Facing the Middle Income Countries December 11, 2013 Mahmoud Mohieldin, President's Special Envoy The World Bank Group Email: mmohieldin@worldbank.org 1
Unique Challenges African countries growth with little poverty reduction in many countries LDCs limited investment, poverty, challenges of human development, jobs, governance and regulation, technology, some in conflict LLDCs transport and trade SIDs scale, isolation and vulnerability to climate change MICs home to 75% of world s poor, second generation development challenges, many caught in a middle income trap 2
MDGs Progress Source: Global Monitoring Report, World Bank, 2013 3
Of 101 middleincome economies in 1960, only 13 became highincome by 2008 Sharp deceleration of growth Stagnation of innovation and productivity The Middle Income Trap Source: Economic Presmise: Avoiding Middle-Income Growth Traps, Agenor, Canuto, Jelenic, World Bank, 2012 4
Good Policies for Development are not the Same Everywhere Source: Adapted from World Development Report 2013: Jobs 5
Universal Challenges Leave no one behind Put sustainable development at the core Transform economies for jobs and inclusive growth Build peace and effective, open and accountable public institutions Forge a new global partnership Source: High-Level Panel of Eminent Persons on the Post-2015 Development Agenda 6
An Implementation Challenge: Financing the Post-2015 Development Agenda The financing for development requirement is large, and aid will meet only a small part of it. Countries will need to put in place sound policies and institutions in order to use existing resources more effectively and leverage other sources of financing to achieve the MDGs. It also needs to adapt to changes in the global economic and financing landscape and tap financing from diverse sources: 1. Better and smarter aid 2. Domestic resource mobilization 3. Private finance for development 4. Innovative sources of finance, including for global public goods The relative significance of each source, and the associated leveraging challenges, will differ between countries. 7
A Challenge to Grow and Diversify Finance Net financial flows to developing countries, 2010 Total: USD 1,267 billion Gross financial flows to fragile states, 2010 Total: USD 125 billion Worker remittances 25% FDI 40% Worker remittances 38% Foreign Direct Investment 22% Long-term debt (official) 5% ODA grants 7% Long-term debt (private) 12% Portfolio investment 10% ODA 40% Source: World Bank CFP Working Paper No. 8, Finance for Development Source: Fragile States 2013, OECD NB: Based on OECD definition of fragile states 8
ODA Still Falls Short of Monterrey Target DAC Members' Official Development Assistance as a percentage of GNI, 2000-2011 0.00 0.20 0.40 0.60 0.80 1.00 1.20 United States Germany United Kingdom UN Target: 0.7% of GNI France Japan Netherlands 2000-2001 2007 2009 2011 Sweden Canada Australia Norway Source: MDG Gap Taskforce Report, 2012 9
Recent Downturn in ODA Net ODA (% of GNI) by all DAC members 0.34 0.32 0.30 0.28 0.26 0.24 0.22 0.20 1995-1996 average 2000-2001 average 2007 2008 2009 2010 2011 Official development assistance (ODA) plays an essential role as a complement to other sources of financing for development, especially in those countries with the least capacity to attract private direct investment For many countries in Africa, least developed countries, small island developing States and landlocked developing countries, ODA is still the largest source of external financing and is critical to the achievement of the development goals and targets of the Millennium Declaration and other internationally agreed development targets. Monterrey Declaration, 2002 Source: OECD DAC Database 10
Emerging Donors Could Change the Aid Landscape ODA from Non-DAC donors, excluding BRICS 10 8 6 4 Other Non-DAC Donors OECD, non-dac Donors EU, Non-OECD Donors Arab Countries 2 0 2003 2004 2005 2006 2007 2008 2009 Source: World Bank Paper, Financing for Development Post-2015, 2013 11
Emerging Donor Trends Emerging donors, led by China, provide limited aid now as defined by the OECD but they also contribute through other external flows and in-kind assistance. 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Estimated aid from BRICS, 2003-2009 (USD billion) 2003 2004 2005 2006 2007 2008 2009 China India Russia Brazil South Africa For the purpose of comparison, in 2009, net ODA from DAC members was 119.8 bn USD. Source: World Bank CFP Working Paper No. 8, Finance for Development 12
Emerging Donor Trends ODA from Saudi Arabia, South Korea, and Turkey 6 0.9 5 0.8 0.7 4 3 2 0.6 0.5 0.4 0.3 Saudi Arabia Turkey (Secondary Axis) South Korea (Secondary Axis) 1 0.2 0.1 0 2003 2004 2005 2006 2007 2008 2009 0 Source: World Bank Paper, Financing for Development Post-2015, 2013 13
Maximize the Impact of ODA Limited progress on certain aid modalities but improvement still needed on most indicators Progress in Implementing the Paris Declaration Percentage of countries Source: MDG Gap Taskforce Report, 2012 14
Domestic Resource Mobilization Taxation capacity improving in MICs, progress needed in LICs 35 30 Tax Revenue (in % of GDP) by Income Groups, 1994-2009 28.4 28.4 29.3 25 20 21.2 18.8 17.1 19 19.3 15 10 11.3 10 10.5 13.6 5 0 1994 1998 2003 2009 Source: World Development Indicators High Income Middle Income Low Income 15
Ensure Efficient Public Spending Fossil fuel subsidies do not target the poor Subsidies are an inefficient means of assisting the poor: only 8% of the $409 billion spent on fossilfuel subsidies in 2010 went to the poorest 20% of the population. Fossil fuel consumption subsidies measure what developing countries spend to provide below-cost fuel to their citizens. High-income countries offer support to energy production in the form of tax credits or loan guarantees, which are not included in these calculations since they are directed towards production rather than consumption of the fuel. Source: World Energy Outlook, IEA, 2011 16
Private Finance for Development Financial and private sector development creates opportunities for entrepreneurship and job creation How do financial institutions contribute to economic growth? Improve the allocation of resources Lower the cost of financial and nonfinancial transactions Facilitate efforts to reduce and trade risks 17
Improving Financial Inclusion Globally, about 50 % of adults have a bank account The other 50 % (2.5 billion) remain unbanked Adults with accounts at a formal financial institution Source: Global Financial Inclusion (Global Findex) Database, worldbank.org/globalfindex 18
Improving Financial Inclusion ECA # of MSMEs (in Mn) 188 EAP 20 12 6 10 # Total MSMEs (formal and informal) # with Checking account # with Loan/Overdraft # Unserved + Underserved 62 23 92 # Total MSMEs (formal # with Checking account # with Loan/Overdraft # Unserved + # Total MSMEs (formal and informal) # with Checking account # with Loan/Overdraft # Unserved + Underserved and informal) Underserved MNA 78 SAR 21 9 3 10 34 11 36 # Total MSMEs (formal and informal) # with Checking account # with Loan/Overdraft # Unserved + Underserved # Total MSMEs (formal # with Checking account # with Loan/Overdraft # Unserved + and informal) Underserved LAC AFR 52 25 13 27 40 18 4 22 # Total MSMEs (formal # with Checking account # with Loan/Overdraft # Unserved + and informal) Underserved # Total MSMEs (formal and informal) # with Checking account # with Loan/Overdraft # Unserved + Underserved Source: Two trillion and counting, IFC & McKinsey, 2010 19
International Long Term Debt to Developing Countries $ billion % of GDP Bonds Bank Lending % GDP (right axis) 400 2.0 350 300 1.5 250 200 1.0 150 100 0.5 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0.0 Source: World Bank Development Prospects Group 20
Rise of South-South FDI South-South FDI rising, although small % of world average South-South FDI Flows, Worldwide, 1990-2009 Source: John Wilson presentation on Constraints and Opportunities for Growth in the LDCs: Research to Support Action, 21 World Bank DECRG, 2012
Leverage the Private Sector: Partnerships Maharashtra & Tamil Nadu, India CLIFF COMMUNITY SANITATION PROJECT Kenya PRIVATE SECTOR POWER GENERATION PROJECT Total initial investment: $7.2 million - Homeless International - SPARC (NGO in India) - Community-based Organizations Total initial investment: $623 million - Kenya Power and Lighting Company - IFC - MIGA - Commercial Banks Sao Paulo, Brazil METRO LINE 4 Total initial investment: $450 million - Companhia do Metropolitano de Sao Paolo - 5 Equity Sponsors - Inter-American Development Bank - Commercial Banks Lake Kivu, Rwanda KIVU WATT Total initial investment: $142.25 million - ContourGlobal - Energy Authority of Rwanda - MIGA - Emerging Africa Infrastructure Fund - FMO - AfDB - Belgian Development Bank Source: Emerging Partnerships, IFC, 2013 and World Bank, Africa Region. 22
Leverage the Private Sector: Syndications IFI participation in syndications contributes to extending maturities of private flows to developing countries and therefore financing long-term productive investments 45% 40% Percent of international syndications to the private sector in developing countries where an IFI participated, by income level and maturity, 2007-2010 41% 35% 30% 29% 25% 22% 21% 25% 23% 24% 20% 15% 13% 14% 10% 5% 4% 6% 8% 0% 1 to 5 years 5 to 10 years 10+ years Lower Lower middle Upper middle BRICT Source: International Finance Institutions and Development through the Private Sector, IFC, 2011 23
Innovative Financing Examples of Innovative Financing I n t e r n a t i o n a l F i n a n c e F a c i l i t y f o r I m m u n i z a t i o n ( I F F I m ) Global Funds that pool resources for specific issues of global importance, e.g., GAVI Alliance (formerly the Global Alliance for Vaccine and Immunization) Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM) Global Partnership for Education Global Environment Fund (GEF) CGIAR Fund: International agricultural research trust fund Carbon markets Diaspora (remittance) bonds Remittances are expected to reach US$ 414 billion in 2013. There is scope to further reduce the costs of remittances. Source: World Bank Paper, Financing for Development Post-2015, 2013 Diaspora bonds could be a means to leverage the flow of remittances for investment needs. 24
Five Critical Components of Development Finance Supportive framework for development cooperation More inclusive and innovative sources of finance Effective domestic resource mobilization More private finance for development Better and smarter aid 25
A Life of Dignity for All 26