Financing for Development

William Mwanza, tralac Researcher, highlights seven key issues identified in the Addis Ababa Action Agenda

THE THIRD International Conference on Financing for Development (FFD3) was held in Addis Ababa, Ethiopia, from 13 to 16 July, under the theme “Time for Global Action”. It was the first time the Conference was held on the African continent, after having been held in Monterrey, Mexico in 2002 and Doha, Qatar in 2008.

As noted in a previous discussion note, the Conference was held in the midst of some significant risks in the global economy. At the time the Conference was being held, efforts towards solving the Greek debt crisis continued in Europe, the Chinese Government reigned in with measures to halt steep losses on its stock market, and the price of brent crude oil had decreased by 10%, with forecasts of further decreases into 2016.

In spite of these prevalent risks in the global economy and in spite of initial failure to agree on a text in the drafting rounds of the outcome document, delegates to the Conference were able to agree on and adopt the Addis Ababa Action Agenda (AAAA). The framing of this outcome document is a noticeable departure from the ‘consensus’ reached in Monterrey, the ‘declaration’ issued in Doha, and the ‘Addis Ababa Accord’ as it was termed in the drafting sessions prior to the Conference. It signals the recognition and call for vigilance on the part of all UN Members so as to address challenges being faced in the global economy and in human development, with the main aim of delivering on the sustainable development goals (SDGs) to be agreed in September.

In line with this focus, Member countries recommitted themselves on a number of issues agreed in previous Conferences, as well as in new areas that are evolving and pertinent to the global development agenda. At the outset of the AAAA, a number of important issues for the global framework for financing development in the post-2015 era are highlighted, including delivering on social protection and essential public services; scaling up efforts to end hunger and malnutrition; promoting inclusive and sustainable industrialization; generating full and productive employment and decent work for all; protecting ecosystems; and promoting peaceful and inclusive societies. Of quite some significance to note was the welcoming of new initiatives for investment in infrastructure including the Asian Infrastructure Investment Bank, the Global Infrastructure Hub, the New Development Bank, the Asia Pacific Project Preparation Facility, the Global Infrastructure Facility, and the Africa50 Infrastructure Fund, as well as an increase in the capital of the Inter-American Investment Corporation. This was coupled with a call for the establishment of a global infrastructure forum, which would build on existing multilateral collaboration mechanisms and led by multilateral development banks (MDBs).

Prior to the Conference, these MDBs – including the African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank, World Bank Group – and the International Monetary Fund had committed to extend more than $400 billion over the next three years towards financing the SDGs.

While it is not possible to detail all the specific issues covered in the AAAA, some aspects in the respective action areas of the AAAA are worth highlighting as follows:

1. Domestic public resources

As ultimately the most important source of national development, Members reiterated their commitment to strengthening mobilization and effective use of domestic public resources. Fairness, transparency, efficiency and effectiveness of tax systems, and the curbing of illicit financial flows were particularly emphasised. In this regard, Members adopted the Addis Tax Initiative declaration, through which they committed to step up technical cooperation in tax/domestic revenue mobilisation; enhance domestic revenue mobilisation so as to spur development; and to ensure policy coherence.

2. Domestic and international private business and finance

The role of the private sector in driving sustainable development in the post-2015 era was encapsulated in a call for businesses to apply their creativity and innovation in solving sustainable development challenges and to bring about more sustainable production and consumption patterns. The importance of remittances as a source of finance was acknowledged and a commitment was made to ensure that remittance corridors do not require charges higher than 5% by 2030. New sources of financing such as philanthropic giving and development-oriented venture capital funds were welcomed. Members resolved to adopt and implement investment promotion regimes for LDCs; committed to provide technical support for project preparation (particularly noting the AU’s Programme for Infrastructure Development in this regard); and also committed to substantially increase the share of renewable energy. In this regard, they welcomed the Secretary General’s Sustainable Energy For All initiative, Power Africa, NEPAD Africa Power Vision and the Global Renewable Energy Islands Network.

3. International development cooperation

Members noted an increase in official development assistance (ODA) since Monterrey and were particularly encouraged by few countries that have met or surpassed their commitment of providing 0.7% of their gross national income (GNI) as ODA and 0.15% to 0.20% of GNI as ODA to LDCs. However, they expressed concern that many countries still fall short of their commitments and reiterated that this fulfilment remains crucial. They welcomed the decision of the EU to collectively achieve its overall ODA targets within the timeframe of the post-2015 agenda, and its commitment to LDCs in the short term. Members recognized the increase in the importance of South-South cooperation and viewed it as a complement and not a substitute to North-South cooperation. They welcomed the Lima call for climate action and were encouraged by the commitment to reach an ambitious agreement in Paris in 2015. They also welcomed the initial resource mobilization process of the Green Climate Fund, encouraged MDBs to channel resources towards long-term infrastructure and green bonds among other areas, and also acknowledged the role of the Global Environment Facility in mainstreaming environmental concerns into development efforts.

4. International trade as an engine for development

Members recognised the approval of the Bali Package in 2013 as an important achievement but recognized that multilateral trade negotiations require additional effort. They called on members to fully and expeditiously implement all decisions of the Package. They reaffirmed their commitment to strengthening the multilateral trading system, while noting that Africa’s trade remains low in spite of progress by other developing countries. Members committed to strengthening regional cooperation and regional trade agreements as important catalysts for reducing trade barriers and enabling companies to integrate into regional and global value chains. They urged an increase in support for projects that foster regional integration, with particular attention to the process in Africa. Members committed to strive to allocate an increasing proportion of Aid for Trade to LDCs. They also committed to endeavour to craft trade and investment agreements with appropriate safeguards so as to not constrain domestic policies and regulation in the public interest. In this regard, they requested the UN Conference on Trade and Development (UNCTAD) to continue existing consultations with Member States on investment agreements.

5. Debt and debt sustainability

Members noted that there has been strengthened macroeconomic and public resource management over the years, which has led to a significant decrease in the vulnerability of most countries to sovereign debt distress. However, it was noted with concern that many countries still remain vulnerable to debt crises, while some countries – LDCs, small island developing states, and some developed – remain in the midst of crises. They called for the urgent solution to such crises, and reiterated the need for debtors and creditors to work together to prevent and resolve unsustainable debt situations. They welcomed the IMF-World Bank debt sustainability analysis framework and recognized the applicable requirements of IMF debt limits policy and/or the World Bank non-concessional borrowing policy. They also reaffirmed the importance of effective debt restructurings, which should restore public debt sustainability while preserving access to financing resources under favourable conditions. These were seen as important for enhancing the ability of countries to achieve the SDGs.

6. Addressing systemic issues

Members noted that they have become increasingly aware of the need to take account of economic, social and environmental challenges. They committed to take measures that enhance global economic governance with the aim of attaining a stronger, more coherent, inclusive and representative international architecture for sustainable development while respecting the mandates of respective organizations. They reiterated the importance of international coordination and policy coherence in the reform of the global financial system so as to continue building resilience and reducing vulnerability to international financial crises. Members also recommitted to increasing the voice and participation of developing countries in international economic decision-making and norm-setting bodies and strongly urged the earliest ratification of the 2010 reforms proposed in the IMF. They looked forward to the upcoming review of special drawing rights by the IMF and called on it to provide adequate financing to developing countries. Members also committed to cooperate on international migration with full respect for human rights and to combat money-laundering, corruption and financing of terrorism.

7. Science, technology, innovation and capacity-building

Members noted how new innovations and technologies are powerful drivers of economic growth and sustainable development. They committed to promote ICT infrastructure and to design and implement policies that will incentivize the creation of new technologies, research in and support for innovation in developing countries, and increase investment and industrial diversification. They decided to establish a technology facilitation mechanism which will comprise a multi-stakeholder forum, a UN inter-agency task team and an online platform. Members also looked forward to progress on a proposed Technology Bank and innovation capacity-building mechanism for LDCs.
In conclusion to the AAAA, members noted the importance of high quality data for policy making at all levels. They committed to enhance capacity-building in this regard to developing countries. They also resolved to integrate a dedicated follow-up and review process of the financing for development outcomes with that of the post-2015 framework. They encouraged the Secretary General to convene an inter-agency task force that would build on the MDGs Gap Task Force, and would report annually on progress in implementing the financing for development outcomes within the context of the post-2015 agenda.

On the whole the FFD3 was a successful Conference. Reflecting the amount of diplomatic efforts that went into the process, the outcome document that was adopted at its conclusion was measured in its approach to discussing specific threats to global economic cooperation and sustainable development, but comprehensive in the scope of matters covered and specific commitments that are pertinent to the process. Although concluded in difficult circumstances, it sets a platform for the adoption of the sustainable development goals in September, and for concerted efforts in attaining them thereafter.