Aid$and$Middle!Income' Countries:+Policy+Implications+ for$norway$"

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1 Aid$and$MiddleIncome' Countries:+Policy+Implications+ for$norway$" International"Law"and"Policy"Institute" January"2014 ilpi.org(

2 International"Law"and"Policy"Institute"(ILPI)"provides"analytical"work,"juridical"briefs,"and"policy"advice"within" international"law,"human"rights,"corporate"social"responsibility,"governance,"and"country/conflict"analysis."ilpi"is" established"with"the"conviction"that"the"combination"of"academic"excellence"and"operational"policy"experience" facilitates" handson "solutions"and"the"ability"to"handle"complex"processes"and"issues."ilpi"is"based"in"oslo," Norway,"but"has"an"extensive"network"of"partners"worldwide." " January'2014' :'' 1

3 Acronyms"" GNI HDI HIC LDC LIC LMIC MIC ODA UMIC ( ( ( ( ( Gross national income Human development index High-income country Least developed country Low-income country Lower middle-income country Middle-income country Official development assistance Upper middle-income country 2

4 Table"of"Contents" Acronyms(...(2 Table(of(Contents(...(3 1.(The(Future(of(Aid:(An(Introduction(to(the(Debate(...(4 2.( The( Country( Perspective:( ( Why( aid( should( focus( on( LowFIncome( Countries(...(5 2.1((The(Counterarguments:(...( TheNewGeographyofPoverty CanEconomicGrowthinMICstrulyclosethepovertygap? TheimpactofpullingoutofMICs (The(problem(with(how(poverty(is(defined(...( CountryClassification:HowitWorks Isthesystemuseful? WBMeasureofPoverty:FitforPurpose? ((The(People(Perspective:((Why(aid(should(focus(on(poor(people,(not(poor( countries(...(12 3.1(The(New(Bottom(Billion(...( Howtoexplainthenewpovertydemographics? Arethesedemographicsreallynew? (Poverty(in(MICs:((A(Question(of(International(Aid(or(Domestic(Politics?(...(15 4.( ( The( Innovation( Perspective:( ( Why( aid( architects( need( to( go( beyond( traditional (aid(...(17 4.1(Beyond(Poverty(Reduction:((Aid(as(a(Game(Changer(...(17 4.2(((Aid(for(Sustainable(Development:(Climate(Financing(and(the(Provision(of( Global(Public(Goods(...(18 4.3(((Financing(the(postF2015(Development(Goals(...(19 4.4((Changing(how(aid(is(done:((The(Need(for(New(Partnerships(...(20 5((Current(Trends(in(Development(Assistance(...(20 5.1((How(the(development(debate(is(shaping(practice(...(20 5.2((The(Regional(Level:((The(EC(Policy(of(Differentiated(Development(...(21 5.3((The(National(Level:((Norwegian(Development(Policy(...(21 Norway swhitepaper:roadmapforaid2.0?...21 WheredoesNorwegianODAgonow? ((((Policy(implications((F(The(Future(of(Aid(...(23 References(...(26 Annex(1:(Snapshot(of(Norwegian(Aid(Today(...(29 CurrentLevelsofNorwegianODA...29 WhereDoesItGo?...30 TheMainBeneficiariesofBilateralAid...30 KeySectors...31 " 3

5 1."The"Future"of"Aid:"An"Introduction"to"the"Debate" Thefutureofinternationaldevelopmentaidhasbeenmuchdebatedinrecentyears. Questions of how aid should be allocated, who should receive it, and specifically, wheremiddleincomecountries(mics)shouldfeatureinthenewaidlandscapeare the subject of lively debate. 1 The questions are set against the background of broaderglobaldeliberationsonthepostd2015developmentagenda,whichisyetto take shape. Theyarealsosetwithinacontextwherebydevelopment cooperation takes place in an increasingly complex environment marked by `shifting patterns of wealth,poverty,tradeandgeopoliticalpower 2 andby manynewapproaches,and many more donors and actors. 3 The architects of the new global development agendaarebeingcalledupontotakeglobalgovernancemoreseriously withafocus on policy coherence, climate change and the provision of global public goods. It is perhapsnowonderthatthebusinessofdevelopmentcannotgoonasusual. AkeydriverinthedevelopmentdebateisthatlimitedresourcesandtheriseofnonD DACdonors(whomaybebothrecipientsandgiversofaid)provideaclearrationale for cutting aid to MICs and concentrating it instead on a smaller number of Low Income Countries (LICs). Although emerging development policy 4 appears to favour thistrack,theevidenceshowsthatthegreatmajorityoftheworld spoor upto80% DliveinMICsandnotinLICsastheyoncedid.Ifdevelopmentaidisperdefinition aboutpovertyreduction,shoulditnotthenfocusonthepoor,regardlessofwhether theyarefoundinlowormiddledincomecountries?theanswerstothedevelopment conundrum are not simple, nor without contradictions. Thequestionofwhether Indiashouldcontinuetoreceiveaidornotforinstance,ledDuncanGreenofOxfam GBandauthorof FromPovertytoPower toremarkthat ifyouarenotconfused, you renotthinkinghardenough. 5 This paper will outline the basic tenets driving current thinking and practice on development aid with a view to assessing where MICS should feature in the developmentlandscape.itwillpresentanumberofpolicyimplicationsflowingfrom thedifferentperspectives,whichcanbesummarizedlooselyasfollows: The$Country$Perspective:FocusonthePoorestandmostFragileCountries The$People$Perspective:FocusonPoorPeoplewherevertheyare The$Innovation$Perspective:Thinkbeyondtraditionalaid 1 Seeforexample,JonathanGlennie WhereshouldMICsfeatureinthenewaidlandscape? availableat: futuredaid;andannathomas DoMiddleIncomeCountriesNeedAid? andsianherbert What FutureforEUDevelopmentCooperationinMiddleDIncomeCountries,bothavailableat: 2 SianHerbert WhatFutureforEUDevelopmentCooperationinMiddleDIncomeCountries. 3 UnitedNationsUniversity ThePresentDevelopmentDebate andbeyond.availableat: 4 AnumberofindividualEUbilateraldonorsaswellasthebroaderEuropeanUnionappeartofavourthisapproach intheformulationoftheirrespectivedevelopmentaidpolicies. 5 OxfamBlog:FromPovertytoPower.DuncanGreen DoesIndianeedaidandifso,whatkind? accessed20december,

6 2." The" Country" Perspective:""Why" aid" should" focus" on" Low Income"Countries" Although,$nearly$five$billion$of$the$world s$people$are$beginning$to$climb$from$a$desperate$poverty$and$ to$benefit$from$globalization s$reach$to$developing$countries,$there$is$a$ bottom$billion $of$the$world s$ poor$ whose$ countries$ $ are$ falling$ farther$ behind$ and$ are$ in$ danger$ of$ falling$ apart,$ separating$ permanently$ and$ tragically$ from$ the$ rest$ of$ the$ world. PaulCollier,TheBottomBillion 6 Paul Collier s highly influential 2007 book The Bottom Billion: Why the Poorest Countries are Failing and What Can be Done About It 7 identified 58 countries classifiedasfragilestatesorasfailingeconomies wheretheworld s bottombillion peoplelive.comprisedofmostlylowerincomecountriesandbasedlargelyinafrica andpartsofcentralasia,thiscohortexperiencedlittle,ifanyincomegrowthoverthe 1980s and 1990s. Moreover, they were caught in intractable `poverty traps that wouldnotbeovercomewithoutexternalassistance.accordingly,collierarguesthat developmentassistanceshouldfocusincreasinglyonthebottombillionintheselowd incomeandfragilestateswhereitwould(i)makethemostdifferenceand(ii)where developmentwouldnototherwiseoccur.headdsthatmiddledincomecountrieshave the resources to eventually eradicate poverty themselves, including through sustainedeconomicgrowth.theconclusionisthatthereisnoroleforinternational developmentcooperationinthesecountries. 8 IntheirreportHorizon2025:CreativeDestructionintheAidIndustry, 9 HomiKharas and Andrew Rogerson forecast that by 2025, over 80% of the world s poor will be basedoverwhelminglyinfragile,mainlylowdincomeandafricanstates.theysupport Collier s assertion that poverty in middledincome countries is a transitory phenomenon that will be reduced dramatically by economic growth over the next decadeorso.fortheseauthors,officialdevelopmentassistance(oda)shouldfocus notonthedividinglinebetweenlowandmiddledincomecountries,butrathertheline dividing stable and fragile countries. This outlook has been especially attractive to donors in light of postdfinancial crisis austeritymeasures,whichhavepromptedcallsfornotonlyreducedodalevelsbut alsoaredefiningofwhatconstitutesoda. Policy$Implications$ Limited aid resources should be channelled increasingly to lowdincome and fragile states,thatcannotpullthemselvesoutofintractablepovertytraps; AidtoMICsshouldbediscontinued:povertyinMICsisamatterofdomesticpolitics andinternalredistributivepoliciesratherthanamatterofinternationalaid. 6 Collier,Paul TheBottomBillion:WhythePoorestCountriesAreFailingandWhatCanBeDoneAboutIt. Oxford:OxfordUniversityPress. 7 Collier,Paul.2007.TheBottomBillion. 8 PaulCollier.2007.TheBottomBillion. 9 HomiKharasisaseniorfellowatBrookingsInstitutionandAndrewRogerson,SeniorResearchAssociateatthe OverseasDevelopmentInstitute.Theirreport,Horizon2025:CreativeDestructionintheAidIndustry(2012)is availableat: 5

7 2.1""The"Counterarguments:""" 2.1.1TheNewGeographyofPoverty Critics of this line of thinking have pointed to a number of accounting errors and assumptions underlying these arguments. In his study, The New Bottom Billion: RewritingtheDevelopmentNarrative, 10 AndySumnercautionsthatCollier s`bottom billion describesthetotalpopulationofthe58countriesidentifiedasfailingorfragile andnotthepoor$population$withinthemperse.itisprobabletherefore,thatalarge amountofaidchannelledtothesecountrieswasnotnecessarilyreachingtheglobal poor.secondly,thebottombillionwaspublishedin2007andusesdatafromaround Therehasbeenalargeshiftintheglobaldistributionofpovertysincethen. Most recently, research led by the Institute of Development Studies Andy Sumner showsthatalmostthreequartersoftheworld spoor the newbottombilliondare concentratedinmicsandnotinlowdincomecountriesaswasoncethecase. 12 Asa result,collier sapproachoverlookscloseto70%ofthepoorpeopleintheworld. 13 Thirdly, Homi and Kharas s future projections on where the poor will be located in 2025(predominantly back in LICs and subdsaharan Africa) and that poverty in MICs willbeonlyatransitoryphenomenonhavebeencriticizedforusingoverlyoptimistic growthscenariosthatmaximizepercapitaincomeandminimizepoverty. 14 $ 2.1.2CanEconomicGrowthinMICstrulyclosethepovertygap? Numbercrunchingaside,therearealsofundamentalassumptionsunderpinningthe aiddfordlics school of thought, which require closer examination. One of the assumptionsisthathighpercapitaincomegrowthinmicswillliftpoorcitizensoutof poverty and (more implicitly) that inequality remains constant as countries grow. 15 The reality is argued to be somewhat different. Inarecentliteraturereviewand analysis of the aid differentiation debate, Ana Thomas cautions that whereas countriesmovefromlowtomiddledincomestatusonthebasisofeconomicgrowth (measured by GNI), growth$ is$ not$ the$ same$ as$ poverty$ reduction 16. Similarly, in its 2011discussionpaperongrowthanddevelopment,theUKumbrellaorganizationfor developmentngos,bond 17 assertsthefollowing: 10 AndySumner TheNewBottomBillion:RewritingtheDevelopmentNarrative,availableat: 11 AndySumner TheNewBottomBillion:RewritingtheDevelopmentNarrative. 12 ibid. 13 Ibid. 14 OxfamBlog:FromPovertytoPower.DuncanGreen. Horizon2025:TheFutureofAid(andapotentiallyepic nerdwaronpovertynumbers.availablefrom: potentiallydepicdnerdwardondpovertydnumbers.accessed12december, SeeAnnaThomas DoMiddleIncomecountriesneedAid?:LiteratureReviewandAnalysisofthe EvidenceandOpinionsusedintheAidDifferentiationDebate. Availablefrom: 16 AnaThomas DoMiddleDIncomeCountriesNeedAid? 17 BONDisaUKDbasedumbrellabodyforNGOsworkingininternationaldevelopment 6

8 It$ appears$ that$ for$ every$ example$ of$ a$ country$ that$ has$ achieved$ poverty$ reduction$ linked$ to$ economic$ growth$ rates,$ there$ are$ examples$ of$ countries$ that$ have$ experienced$ rapid$ growth$ without$ any$ associated$ reduction$ in$ poverty$and$inequality. 18 $ The World Bank itself acknowledged in a 2011 statement that the effectiveness of growth in reducing poverty has varied across countries. 19 So, while 27 developing countries have graduated to middle income status since 2000, the poor people withinthemarebeingleftbehind. 20 GeoffreyGertzandLaurenceChandyfromthe Brookings Institution provide a vivid illustration of this point using a comparison of three very different countries: Guyana, China and the Republic of Congo. Each of these countries graduated out of LIC status between the years 1995 and However,theydidsowithvastlydivergingpovertyrates:Guyana(9percent);China (36%)andRepublicofCongo(54%). 21 With respect to the(more implicit) assumption that inequality remains constant as countriesgrow,incomeinequality asmeasuredbytheginiindex actuallytendsto increaseasacountry sgrossnationalincomegrows.inhis NarrativeofInequality, Andy Sumner writes: the$ fact$ that$ gross$ domestic$ product$ (GDP)$ growth$ often$ happens$ without$ social,$ economic,$ or$ political$ transformation$ might$ begin$ to$ explain$ the$ continuing$levels$of$absolutely$poverty$in$new$middlenincome$countries$(and$ in$the$remaining$lownincome$countries). 22 $$$$ Furthermore, Martin Ravallion, head of research at the World Bankwarnsthatthe highertheinitialinequalityiswithinacountry,thelessthepoorwillshareinthegains from growth. 23 So where it may take a lowdinequality country 10 years to halve its poverty rate, a highdinequality country with the same economicgrowthratesand with the same initial poverty level, would take a staggering 57 years to halve its poverty rate AnnaThomas DoMiddleIncomecountriesneedAid?:LiteratureReviewandAnalysisoftheEvidence andopinionsusedintheaiddifferentiationdebate. Availablefrom: 19 Bond Growthanddevelopment:DiscussionPaper.Availablefrom: pipk:149093~thesitepk:342771,00.html 20 AndySumner TheNewBottomBillion:RewritingtheDevelopmentNarrative,availableat: 21 LaurenceChandyandGeoffreyGertz TwoTrendsinGlobalPoverty.BrookingsInstitute.Washington, D.C. 22 AndySumner: TheNewBottomBillion:RewritingtheDevelopmentNarrative. 23 MartinRavallion InequalityisBadforthePoor.WorldBankPolicyResearchPaperNo3677.Available from: 24 ibid. 7

9 2.1.3TheimpactofpullingoutofMICs Thepremisethatsomecountriescannowaffordtofightpovertythemselvesandaid shouldthusfocusonplacesthat need helpandwhereitwillhave higherimpact is defining development policy in a number of places. 25 The foundations of this argumentareconfrontedbyanumberofeconomistsandpolicyscholarswhoprovide evidencetothecontrary.theargumentsforwhethermicscanorcannoteradicate poverty themselves are covered in more detail in the next section. For now, the dimensionsofpovertyinmicsarediscussed.accordingtosumnerandglassman, 26 thereisamistakenassumptionthatmicsfeatureonly pocketsofpoverty,anotion echoed amongst others by the European Commissioner for Development, Andris Piebalgsonhisblog. 27 PovertyinMICsissimplyconsideredlessprevalentandless severethaninlics.itisaccompaniedbytheideathataidlevelsarenothighenough comparedtomics budgetstomakeasignificantimpactinthosecountries. SumnerandGlassmanadvancethatinfact,MICsdonotcontain pockets ofpoverty. On the contrary, MICs are home to the most of the world s poor and the global distribution of malnutrition, multiddimensional measures of poverty and global diseaseanddeathfigures allpointtomics. 28 SumnerandGlassmanconcludethatif aid agencies pull out of middledincome countries, they re disconnecting from the majorityoftheworld spoorandsick. 29 Moreover,theproblemwillonlygrow.The Centre for Global Development for instance suggests that the number of LICs is projectedtodropfrom35toapproximately20bytheyear2025,usingimfgrowth projections. 30 Thepoorandthesickwilltherefore,beincreasinglyconcentratedin themiccountrycategoriesinthefuture. Attheheartof these development contradictions is the way in which povertyis defined and measured. The practice of using national income basis to classify countries as low or middle income has framed development and poverty in such a way that international aid seeks to aid the poor based on their nationality and not theirpoverty EvidenceofdivertingaidfromMICsandconcentratingonLICsisathemerunningthroughtheredesigned developmentpoliciesinmanyindividualcountriesacrosstheeuropeanunionaswellasintheeuropean Commission sdevelopmentpolicy.norway srecentlyreleasedwhitepaperonsharingforprosperityreflectsthe samedirection. 26 AmandaGlassmanandAndySumner AidCutstoMiddleDIncomeCountriesworsenglobalpovertyandillD health,intheguardian spovertymattersblog.accessiblefrom: development/povertydmatters/2012/jan/02/aiddcutsdmiddledincomedcountries.accessed1december, EUDevelopmentCommissioner,AndrisPiebalgsblogposttitled AgendaforChange:Unveiled,accessedfrom 28 AmandaGlassmanandAndySumner AidCutstoMiddleDIncomeCountriesworsenglobalpovertyandillD health,intheguardian spovertymattersblog.accessiblefrom: development/povertydmatters/2012/jan/02/aiddcutsdmiddledincomedcountries.accessed1december, ibid. 30 CentreforGlobalDevelopment. ThefutureforIDAWorkingGroup,availablefrom: 31 RaviKanbur AidtothePoorinMiddleIncomeCountriesandtheFutureofIDA.Availablefrom: sandthefutureofida.pdf 8

10 2.2"The"problem"with"how"poverty"is"defined"" Is$it$not$time$for$these$arcane$income$thresholds$for$`graduating $from$`lownincome $status$to$be$ laid$to$rest?$$$martinravallion,directoroftheworldbank sdevelopmentresearchgroup $ 2.2.1CountryClassification:HowitWorks TheWorldBankclassificationofcountriesbyincomebasedonitsAtlasMethodisthe most widely used system for country income classification. It uses gross national income(gni)percapitaasitsmaincriterionforclassifyingeconomies 32.Basedon GNI per capita, countries are classified into four categories: lowdincome, middled income (subdivided into lowerdmiddle and upperdmiddle) or high income. The income classifications are revised each year on 1 July. Table 1 below reflects the mostrecentincomethresholdsforcountryclassification. 33. Table1:WorldBankDefinitionorClassificationofincomeDlevelcategories(2013) LowDincomecountry(LIC) $0to$1,035 MiddleDincomecountry(MIC) $1,036to$12,475 LowermiddleDincome $1,036to$4,085 UppermiddleDincome $4,086to$12,615 HighDincomecountry(HIC) $12,616ormore Ofthe214countrieswithavailabledatafor2012,36countrieswereclassifiedasLICs, 103 countries were classified as MICs and 75 as HICs. This means that the MIC category encompasses almost half of all countries. The category is further subd divided into lowerdmiddle income (48 countries) and upper middledincome (55 countries). How a country is classified has a number of profound implications including whether it is eligible for concessional lending from multilateral banks, officialdevelopmentassistancefromdonorsand/orpreferentialtradedeals. 34 $ 2.2.2Isthesystemuseful? Jonathan Glennie s take on the World Bank s classification system is that is has fosteredsomedamagingmisconceptionsaboutwhatconstitutespoverty. 35 Firstly,it measurestheincomedlevelofcountries,notpeople.indoingso,itfailstotakeinto account the highly uneven distribution of wealth in many middledincome countries. 32 TheincomeDlevelassociatedwiththethresholdforeachgroupisnotstatic,butisadjustedfortheaverage inflationoftheus,theuk,japan,andtheeurozone.andysumner GlobalPovertyandtheNewBottom Billion:WhatifThreeDquartersoftheWorld spoorliveinmiddledincomecountries?,idsworkingpaper349, InstituteofDevelopmentStudiesattheUniversityofSussexBrighton,p TheWorldBank sofficialwebsite, HowWeClassifyCountries,2013, classifications,(accessed ). 34 Kaplan,Seth DoWorldBankCountryClassificationsHurtthePoor?, GlobalDashboard.Retrieved: 35 JonathanGlennie.July2013. IndiamaybeamiddleDincomecountry,butthatdoesn tmakeitwealthy,the Guardian.Retrievedfromhttp:// middledincomedcountrydwealthy 9

11 Forinstance,somestatesinIndia,suchasBihar,haveapercapitaincomesimilarto thepoorestcountriesinsubdsaharanafrica. 36 TheuseofjustoneindicatorDincome percapita todetermineacountry sstatusdoesnotaccuratelyreflecttheeconomic developmentwithinacountry.itfailstotakeintoaccountthevariousdimensionsof povertysuchashumandevelopment,employment,vulnerabilityandsocialexclusion. Ineffect,theGNIpercapitaDmeasurerenders80% 37 oftheworld spoorthatlivein middledincomecountriesinvisible. Secondly, the WB classification system has been levelled as being `crude` and `arbitrary.themicbandcomprisesmorethan100countrieswithawidedisparity, whichmakesittoobroadtobeuseful.asanexample,therichestuppermiccountry (Venezuela) is more than twelve times as rich as the poorest lowerdmic(senegal). Therationalefortheincome bandwidths is further questionable when a GNI per capitadifferenceofonly$1isenoughto`graduate alowerincomecountry($1,035) intomicstatus($1,036).thequalitativeorquantitativedifferenceonedollarmakes onpovertyisdebatable. Thirdly,countriescan,andoftenhave,regressedfromMICtoLICstatus.Inarecent presentation,entitled AidandMICS:Somecommonassertionsandsomecluestothe future of aid 38, Glennie outlines the movement of countries between income categoriesandclassifications.hereferstoanumberofexamplesincludinggeorgia which was classified as an LMIC in 1991, regressed to LIC status two years later in 1993,rosetoLMICstatusagainin1996,droppedagaintoLICstatusin1999andthen rosebacktolmicstatuswhereithasbeensince2003. Table2:Movementofcountriesbetweenincomeclassifications Source:JonathanGlennie 39 Lastly, the definition of poverty D an average daily consumption of $1.25 or less D requires revisiting. Glennie refers to it as an exaggeratedly stingy definition, 36 AndySumnerandAmandaGlassman AidcutstomiddleDincomecountriesworsenglobalpovertyandillD health,theguardian. 37 BondforInternationalDevelopment(BFID) AidtoMiddleDIncomeCountries:WhatShouldBeDone?, Reportretrievedfromhttp:// 38 JonathanGlennie AidandMICs:Somecommonassertionsandsomecluestothefutureofaid. OverseasDevelopmentInstitute.Availableat: %2F%2Fwww.bond.org.uk%2Fdata%2Ffiles%2FJG_MICS_Presentation_BOND.pptx&ei=IwPZUrCIA5DE4gTJuoGICw &usg=afqjcnhdzncgren95cskvxidduc2oglxna&bvm=bv ,d.bge 39 ibid. 10

12 intended to identify the most destitute people on the planet, not to stipulate an acceptable standard of living. 40 Andy Sumner supports this notion asserting that poverty thresholds nearer $5 or $10/day would better imply resilience against the possibilityoffallingbackintoextremedestitution. 41 JonathanGlenniecallsthesystem unhelpful: The actual words middle income are proving unhelpful in communicating development realities to busy lawmakers, journalist and the public at large. Theyimplythatsuchcountriesarenolongerpoor,butthisistrueonlyifwe drawanunacceptablylowbarforpoverty. 42 He goes on to provide a number of examples that illustrate the middledincome conundrum,suchas: 43 Guatemala, an established MIC, which has the thirddhighest rate of chronic malnutritionintheworld(54%). India, a MIC since 2007, but with more than a third of the world s malnourished children, and where prevalence is double that of subdsaharan Africa. SouthSudan,arecentadditiontotheMICclassin2011,whichfacesseverepoverty, andwhichfellbackintolicstatusin2012,onceitsoilexportsfell. Thereareanumberofreasons,therefore,whytheWorldBank sgnipercapitaclassification schemeneedsrevisiting.althoughthelogicandrelevanceofthesystemarequestionable, the classification system is still used as a standard metric for assessing poverty and for determininghowaidisallocated WBMeasureofPoverty:FitforPurpose? TheGNIpercapitameasureisincreasinglybeingdiscountedinpolicyandacademic circles. The OECD provides a more nuanced classification of countries albeit by income per capita. An additional category for least developed countries(ldcs) for example, takes into account human development indicators and economic vulnerability. This means that a number of MICs may also be categorized as LDCs once factors other than GNI per capita are accounted for. These countries will be shielded from falls in aid as long as they remain within the LDC category. 44 Importantly,countriesgraduatefromtheaidlistiftheyreachhighDincomestatusand remainthereforanumberofyears,eliminatingthearbitrarinessofthewbsystem. 40 Glennie Sumner JonathanGlennie The MiddleIncome Conundrum:Theneedforandeffectivenessofinternational assistanceto MiddleIncome countries.backgroundpaperpreparedfortheseoulinternationalworkshopof theglobalpartnershipoftheeffectivedevelopmentcooperation. 43 Ibid. 44 JonathanGlennie TheRoleofAidtoMICs:acontributiontoevolvingEUdevelopmentpolicy.Working Paper331.OverseasDevelopmentInstitute.See: assets/publicationsdopiniondfiles/7189.pdf 11

13 3." " The" People" Perspective:" " Why" aid" should" focus" on" poor" people,"not"poor"countries"" Popular$understandings$of$global$poverty$are$based$on$the$false$premise$that$poor$people$all$ live$in$poor$countries.$$in$fact,$three$quarters$of$the$world s$1.3bn$or$so$poor$people$live$in$ middle$income$countries "The"New"Bottom"Billion"" Mostoftheworld spoor,definedasthoselivingonunder$1.25dday,nolongerlivein poor countries.researchbyandysumner 46 drawsattentiontoa`newgeographyof poverty, whereby the large majority of the world s poor (72%) now live in middle income countries. This stands in stark contrast to two decades ago when 93% of people lived in lowdincome countries. 47 In the new demographics of poverty, 960 millionpoorpeople whomsumnerreferstoasthe newbottombillion 48 Dlivein MICssuchasChina,India,NigeriaandIndonesia.Theremainderoftheworld spoor (370millionpeopleorroughly28%oftheglobaltotal)aresituatedintheremaining 39lowDincomecountries,locatedpredominantlyinsubDSaharanAfrica.Incontrastto PaulCollier s bottombillion,just12%oftheworld spoorareinfragilelics. 49 Figure 1: The New Bottom Billion' 7% 1990 LowZIncomeCountries MiddleZIncome 2011 LowZIncomeCountries MiddleZIncomeCountries 28% 93% 72% Twodecadesago,mostoftheworld spoor(93%)couldbefoundinlics.today,thelargemajority almostthreequartersoftheworld spoordareconcentratedinmics. 45 InstituteofDevelopmentStudies TheNewBottomBillion.Retrievedfrom: 46 AndySumnerandAmandaGlassman AidcutstomiddleDincomecountriesworsenglobalpovertyandillD health,theguardian. 47 Ibid. 48 Ibid. 49 InstituteofDevelopmentStudies TheNewBottomBillion.Retrievedfrom: 12

14 Laurence Chandy and Geoffrey Gertz of the Brookings Institution provide a further breakdownoftheworld spoorbycountrycategorybelowcapturingtwokeytrends: thatpoorpeopleareincreasinglyfoundinmicsandinfragilestates. Figure 2: Share of world s poor by country category Source:LaurenceChandyandGeoffreyGertz Howtoexplainthenewpovertydemographics? Thedramaticdisparityinwherepoorpeoplelivecanbeexplainedbythefollowing:as thosecountriesinwhichpoorpeoplelivehavegrowninpercapitaterms,theyhave beenreclassifiedundertheworldbanksystemashavinggraduatedfromlowdincome tomiddleincomestatus.inthewordsofanathomas, poorpeoplehavenotmoved; their countries have crossed an arbitrary dividing line in GNI. 51 Since 2000, for example, 27 countries have graduated to middle income status, including India, Indonesia,PakistanandNigeria.Theneteffectisthatwhileonly7%oftheworld s poorlivedinmicsin1990,by2008thatfigureincreasedto75% 52 Smallchangesinincomeforafewcountrieshavehadaprofoundimpactonthestatistics. For instance,china,india,indonesia, Pakistan, and Nigeriahave all graduated from the LICs category to that of the MICs. While these countries have experienced growth, the wealthishighlyunevenlydistributedandthecountriesare,bymoststandards,stillpoor. Forinstance,Pakistan,India,andNigeriaallhaveaGNIpercapitaoflessthan1600USD,in otherwordsjustbarelyqualifyingforthemiclabel.puttogether,allfivecountriestogether (thepicnicountries)arehometoalmosthalfoftheworld spoor. 53 Theimplicationsareclear:incomeDbasedgraduationobscurescountries continuing economicandsocialchallenges.countriescanandoftendocrossesthethresholdto MICstatus, irrespectiveofhowmanypoorstillremaininthecountry,andhowpoor 50 LaurenceChandyandGeoffreyGertz TwoTrendsinGlobalPoverty.BrookingsInstitution.Accessible from: 51 AnnaThomas DoMiddleIncomecountriesneedAid?:LiteratureReviewandAnalysisoftheEvidence andopinionsusedintheaiddifferentiationdebate. 52 Sumner, JonathanGlennie.May2012. Whatifthreequartersoftheworld spoorlive(andhavealwayslived)inlowaid countries? ODIBackgroundNote. dependency 13

15 theyareinincomeandnondincomedimensions. 54 Andwhenaidallocationistiedto incomedbased classification, the net effect is that aid disengages from the bulk of the world s poor Arethesedemographicsreallynew? Whilethe`newbottombillion isconcentratedinmics afactthatisattributableto thereclassificationoflicsasmicsratherthanamassmigrationoftheglobalpoord JonathanGlennieoffersanimportantqualificationtothispoint.Inhisreport, What if three quarters of the world s poor live (and have always lived) in low aid countries? 56 hepointsoutthatofthecountriesgraduatingfromlictomicstatus, five were the world s most poordpopulous countries: India (480m poor people today), China (c. 200m), Nigeria (c.100m), Indonesia (c.45m) and Pakistan (c.40m). `These`PICNI`countriesasGlennie calls them, account for the entirety of theshiftofpoorpeoplefromlicstomics. 57 IfthePICNIcountriesareremovedfrom the equation, there is no shift whatsoever in the whereabouts of poor people: the sameproportionliveinmicsnowasdidtwodecadesago. Glenniegoesontoarguethatabout75%ofthepoorestpeoplelivedincountriesthat received either low or very low amounts of aid in 2009(defined as less than 2% of theirannualincome). 58 BecausethevastmajorityofthesepeopleliveinChinaand India,thisisalmostexactlythesameproportionasin1990.Inotherwords, thevast majority of the world s poorest people have for some decades lived in countries where aid is a minimal part of the national economy. 59 If it stands that the vast majority of the poor, found in countries such as India and China, were always receivingonlylowamountsofaid,thentheargumentto redirect aidfrommicsto LICs is perhaps somewhat flawed? Glennie also claims that the point about the poorestpeoplehavinglivedforsomedecadesincountriesthatreceiveeitherlowor very low amounts of aid, render the arguments raises the question: what has changedtodaytoimplythatsmallamountsofaidcannolongerplayausefulrolein thesecountries? RaviKanbur.2011.AidtothePoorinMiddleIncomeCountriesandtheFutureofIDA 55 Ibid. 56 JonathanGlennie.May2012. Whatifthreequartersoftheworld spoorlive(andhavealwayslived)inlowaid countries?. 57 JonathanGlennie The MiddleIncome Conundrum:Theneedforandeffectivenessofinternational assistanceto MiddleIncome countries.backgroundpaperpreparedfortheseoulinternationalworkshopof theglobalpartnershipoftheeffectivedevelopmentcooperation. 58 JonathanGlennie.May Ibid. 60 JonathanGlennie The MiddleIncome Conundrum:Theneedforandeffectivenessofinternational assistanceto MiddleIncome countries

16 Figure 3: ThedistributionofpovertyinMICS:HowPICNIcountriesfeatureinthe new bottom billion Source: Institute for Development Studies "Poverty"in"MICs:""A"Question"of"International"Aid"or"Domestic"Politics?" The Collier, Kharas and Rogerson camp on aid to poor countries have suggested thatmicscaneradicatepovertybythemselvesandhowinternalresourcesarespent islargelyamatterofpolitical$will.otherssuchasanathomasconfrontthenotionof poverty in MICs being a reflection of political will by underlining that some middled incomecountriessimplycannotendpovertyusingtheirownresources.shesays, Attempts to end poverty in middle income country countries through domesticresourcemobilizationinvolvelevyingtaxes;thisgeneratesrevenue to finance essential service and can reduce inequality directly by redistributing.howeverpeoplewhoseincomeisjustover$1.25adaycannot betaxed. 62 A country is graduated to MIC status once it reaches a GNI per capita of approximately$1000,whichdifequallydistributeddtranslatesintoroughlyus$3per dayperperson. 63 Isthisenoughtoendpoverty,sheasks?MartinRavallion,Director of the World Bank s Development Research Group answers no : the threshold for 61 GraphicfromInternationalDevelopmentStudies InFocusPolicyBriefing:TheMillenniumDevelopment Goals Progresstowards AnnaThomas DoMiddleIncomeCountriesNeedAid? 63 Ibid. 15

17 taxation is closer to $13 per day. He performs a series of calculations to assess the marginalrateoftaxationoncitizenstoobtainenoughrevenuetoendpoverty.his findings show that the required taxation to redistribute wealth in a way that eliminates poverty would be prohibitively high: inindia,thenecessarymarginaltaxrate[oncitizens,toendpoverty]would be over 100% D therefore India could not do it. For China, it comes out at 37%, which would be politically tough but theoretically feasible. Essentially, he demonstrates that the argument they could end poverty themselves is not always true. It depends partly on the national income level but also incomedistributioninthecountryandthenumberofpotentialtaxpayers. 64 Some MICs then cannot eliminate poverty alone it seems. And then there is the question of political will in others. Jonathan Glennie cautions that the political feasibilityofredistributingwealthandincomeisoverdestimated. 65 Forinstance,India alreadyhasaginicoefficient whichmeasureslevelsofincomeinequalitydthatis on a par with most developed countries, and significantly below that of the United States. Although it may be desirable, there is no reason to expect radical redistribution ofincome. 66 India:ChildNutritionorSpaceProgrammes?: IndiaprovidesapowerfulillustrationoftheMICsconundrumandtheargumentthatresourcescould beusedtoendpoverty,ifthepoliticalwillexisted.thesatellitedlaunching,nucleardpoweredcountryis hometoonethirdoftheworld spoor.whilethecountryspendsroughly$1billionayearonitsspace programme,itspublichealthspending inacountrywheretwodfifthsofitschildrenremainstunted frommalnutrition standsatadismal1.2%ofgdp. 1 Evenmorepuzzling:Indiaspent$3.55billionin foreignassistance 67 from1992d2009,whileastaggering55%ofitspopulationlivesinpoverty(these 400millionpeopletotalmorethanthecombinedpoorinsubDSaharanAfrica) 68 Howtojustifyaidtoacountrythatisableto afford amissiontomarsandprovidelargeamountsof developmentaidtoothercountries?ontheotherhand,couldindiausetheseresourcesinsteadto actuallyeradicatepoverty? Incaseswherethesecountriescannotorwillnoteradicatepoverty,shouldthepoor belefttothemselves?assumnerargues: 70%oftoday spoorpeoplearenotincollier s bottombillion.thisdoenot invalidatecollier spointthathisbottombillionaretrappedandwithouthope but one might ask whether all or some of the new bottom billion are trappedtoo.imaginealowercastewomaninoneofindia spooreststates is she not trapped in poverty, just like someone in Collier s fragile, lowd incomecountries? Ibid. 65 Glennie,Jonathan The MiddleIncome Conundrum:Theneedforandeffectivenessofinternational assistancein MiddleIncome countries. BackgroundPaperfortheSeoulInternationalWorkshopoftheGlobal PartnershipoftheEffectiveDevelopmentCooperation. 66 Ibid. 67 ibid. 68 Figuresaccordingtothe2010OxfordUniversity smultidimensionalpovertyindexataiddata.see 69 AndySumner TheNewBottomBillion:RewritingtheDevelopmentNarrative. 16

18 Lastly, the school of thought supporting aid to MICS also argues that aid to poor countries achieves more because there is more absorptive capacity onpartofthe country.ifdonorswantmore bangfortheirbuck thenthisistobefoundinmiddle incomecountrieswherecapacityissufficientasopposedtolowdincomecountries. Policy$Implications$ Ifpovertyreductionistheoverarchingobjectiveofdevelopmentassistance,thenwherepoor peopleliveisacrucialquestion. 70 $ Povertycannolongerbedefinedasa`LIC problem. Aidshouldfocusonpoorpeopleregardlessofwheretheylive,andtheyhappento livelargelyinmics. Economicgrowthand/orgreatertaxationalonecannotreducepovertyinMICs The country classification system for LICs and MICs and idea that poverty can be measuredthroughonenationalincomeindicatorsrequiresamajorrethink. Withtheproportionoftheworld spoorinmicstripling, 71 thesecountriesforman integralpartofwhethermdgscanbeachieved,andwillplayaroleinhowsuccessful postd2015globalpovertyreductionstrategiesare. 4.""The"Innovation"Perspective:""Why"aid"architects"need"to"go" beyond" traditional "aid" 4.1" Beyond" Poverty" Reduction:" " Aid" as" a" Game" Changer" " Thiscamparguesthataidshouldcontinuetomiddleincomecountries,albeitwitha renewedfocusonqualityofaid,ratherthanonquantityofaid.althoughtherehas beenageographicalshiftinpovertyfromlicstomics,infactmostpoorpeoplehave long lived in countries that receive very little aid 72, and in these countries aid has constituted an unnecessary but significant boost 73. For this camp, the real motivation for seeing aid continue to MICs is beyond the traditional parameters of poverty reduction. Rather aid is seen as having the potential to play a gamed changingrole andtoactasacatalystfortransformation. 74 Infact,JonathanGlennie arguesthatusingaidasagamedchangermaximizesitsvalueandimpact.forinstance, he describes aid money in India as being small fry compared to its overall budget. Nevertheless,donoraidagenciesproviderealbenefittothecountryinthefollowing ways: 70 IDS InFocusPolicyBriefing:TheMillenniumDevelopmentGoals ProgressTowards2015.Andy Sumner.Accessiblefrom: 71 Ibid. 72 Glennie Whatifthreequartersoftheworld spoorlive(andhavealwayslived)inlowaidcountries?, ODIBackgroundNote. 73 AnnaThomas DoMiddleIncomeCountriesNeedAid? 74 Ibid. 17

19 lessondlearningandknowledgedsharingareatleastasimportantasthefinancial investments themselves. The work they[donor aid agencies] do on the ground and the money they invest allows innovative ideas to be applied, increasing the pool of knowledge and experience in breaking through difficult problems of extremepoverty. NGOS and government aid agencies can connect various sectors of society including civil society, think tanks and the private sector. For all the important work it does, the UN can find it hard (for political reasons) to challenge host governments,meaningthatbilateraldonorsandngoshaveanimportantroleto play. 75 Accordingtothisschoolofthoughtthen,throughprovidingaiddonorscanplayarole in promoting innovation and knowledge transfer and offer both the incentives and technical support for identifying better solutions to problems as well as their implementation. He also refers to the role of aid and donors in helping promote accountability and inclusive political processes at the national level. In those cases wheremiddleincomecountriescouldinprinciplereducepovertybutdonotdoso, aid could assist civil society organizations and broad coalitions in demanding economic,politicalandsocialchange """Aid"for"Sustainable"Development:"Climate"Financing"and"the"Provision"of" Global"Public"Goods"" Thenthereistheissueofsustainabledevelopmentwhichbalancespovertyreduction withenvironmentalsustainability.thepoor whoarethemostdependentontheir naturalenvironmentforfoodandenergy arealsoimpactedthemostheavilybythe negative consequences of climate change. If the global community wishes to prioritize environmental sustainability, green development and the reduction of carbon emissions, then it will also have to prioritize the investments required in developing countries to help realize these goals. These significant investments will entailfinancialsupporttomics. The development literature puts forth a number of compelling arguments for why donors should empower MICs to address the cleanness of their economies and growth strategies. These include a moral argument whereby developing countries should not be expected to take the more expensive but ecodfriendly route to developmentwhenmostdevelopedcountrieshavenotdoneso. 77 JonathanGlennie remarksthat: 75 JonathanGlennie IfIndiadoesn t need aidwhydoforeigngovernmentsstillgiveit?.accessiblefrom: 76 AndySumner ThenewBottomBillion:RewritingtheDevelopmentNarrative 77 JonathanGlennie The MiddleIncome Conundrum:Theneedforandeffectivenessofinternational assistanceto MiddleIncome countries.backgroundpaperpreparedfortheseoulinternationalworkshopof theglobalpartnershipoftheeffectivedevelopmentcooperation. 18

20 Ifindustrialisedcountriesareseriousaboutaskingpoorercountriestokeep globalco2emissionstoaminimum,inacontextwheretheyarestrugglingto reduce their own emissions, they will need to pay other countries for this costlyenvironmentalservice,aprincipleestablishedinthecopmeetingson climatechange. 78 The second argument is simply that without aid from donors, many MICs would be unable to address the issue of green economies. For example, many MICs such as China and India are highly dependent on coal for their energy supply.in order to transitiontorenewableenergiesaspartofeffortstocutthenetamountof global CO 2 emissions, MICs will need financial and technical assistance 79. So far, agreements on climate finance (developed countries funding climate friendly initiativesindevelopingcountries)havebeendisappointingornondexistent """Financing"the"post2015"Development"Goals" As the Millennium Development Goals near their target date of 2015, a number of processes have been initiated to put forth a vision of what a new postd2015 development framework should look like. Although the framework is not yet finalized, poverty is likely to remain as the central focus. It is likely that thenew framework will usher in a broader definition of poverty, which encompasses its multidimensional forms, and also pay more attention to how inequality and vulnerabilities entrench poverty. The new agenda may also place an increased emphasisonhow$aidisdone,aswellaswhatisdone. The provision of global public goods (GPGs) D such as a clean environment, the controlofinfectiousdiseases(hiv/aids,tb),peaceandsecurity,andinformationand knowledge arealsobeingincreasinglyhailedasimportantcontributionstopoverty reduction.whetherornottheyareincludedinthenewdevelopmentagendaintheir entiretyremainstobeseenbutitdoesappearthatclimatefinancingwillbecomean importantpillarofthesustainabledevelopmentvision. What is important about this dialogue is that the post 2015 development goals will most certainly need to include MICs as key recipients of, but also partners in development aid. If, for example, aid to MICs was to be curtailed, what would happen to the MDGs? And financing for development D as a more innovative approachtoaid willmostcertainlyrequiretheprovisionofdevelopmentassistance to MICs. This recognizes that aid and development D is about more than poverty reduction, and that it can contribute to economic growth and to lasting structural transformation. 78 ibid. 79 Ibid. 80 HelenaWright, Moremoneyforclimatechange:willWarzawdeliver?,TheGuardian,27November2013, ). 19

21 4.4" " Changing" how" aid" is" done:" " The" Need" for" New" Partnerships" " The development landscape has changed dramatically over the past two decades. This necessitates a new way of conceptualizing aid and how to engage with recipients. Development experts have called for policy makers to look beyond the traditional parameters of aid to consider foreign direct investment, publicdprivate partnerships, remittances, direct cash transfers and a range of other innovative mechanisms. The financing of global public goods such as climate change will also require the creation of international regulatory and facilitative mechanisms. These necessitatethedevelopmentofnewpartnershipsacrossarangeofinstitutionsand nondtraditionalactors,whicharetransparentandmutuallyaccountable. 5." " Current" Trends" in" Development" Assistance" " 5.1""How"the"development"debate"is"shaping"practice" Thecurrentthinkingondevelopmentpolicy,combinedwithanumberofshiftsinthe developmentlandscape,havealreadyshapedpracticeinanumberofareas. Sian Herbert captures some of the global shifts driving changes in the current development policy agenda: shiftingglobalpatternsofwealth,poverty,tradeandgeopoliticalpowerhave prompted many donors to change their aid allocation models, concessional benefits and ways of working with middledincome countries. The ondgoing Eurozonecrisis,austeritypoliciesofmanymemberstatesandfearsofaglobal power shift from West to East have been particularly influential in shaping current thinking about development policy. 81 Theeconomicdownturnhasbeenparticularlyinfluentialinshapingthedirectionof globaldevelopmentpolicy.awidespreadrecessionandnationalspendingcutshave providedfertilegroundfortheargumentthatodashouldbeconcentratedinfewer countries.thegeographicalconcentrationofaidtowardslicsandawayfrommics seems to make sense in a context of limited aid resources and demands for maximizing aid s impact. Secondly, rapid growth in a relatively large number of countriesacrossthedevelopingworldhavecreatedanewclassofemergingdonors, who themselves receive aid. Justifying the allocation of aid to countries that also spendmoneyondevelopmentassistanceisunderstandablyatoughsell. 81 SianHerbert WhatFutureforEUDevelopmentCooperationinMiddleDIncomeCountries. 20

22 " 5.2""The"Regional"Level:""The"EC"Policy"of"Differentiated"Development" Inreactiontomorelimitedresourcesavailableforaidandcallsforincreasedvaluefor money, the European Commission proposed a policy of differentiation as a key feature of the EU s new development cooperation strategy. Outlined in the EU s Agenda for Change, the differentiation policy will create new criteria for aid allocation to developing countries, where funds will be spent, and how they will be channelled.theecarguesthatdifferentiateddevelopmentpartnershipswillenable the EU to target its resources where they are needed most to address poverty reductionandwheretheycouldhavethegreatestimpact 82. ThepolicyagendapointstoleastdevelopedcountriesandlowDincomecountriesasa priority for overall resource allocations, with a particular focus on Africa and fragile states 83. What does the policy of differentiation say about MICs? The Agenda for Change states that grantdbased aid will not feature in cooperation with more advanceddevelopingcountries andthatforthesecountries,therewillbea pursuit of a different development relationship based on loans, technical cooperation or supportfortrilateralcooperation " " The" National" Level:" " Norwegian" Development" Policy""" " Norway swhitepaper:roadmapforaid2.0? 85 $ InitsmostrecentWhitePaper,NorwaysignalsanumberofshiftsinitsODAstrategy that appear to parallel the direction taken by the EU s development cooperation policy.theseincludeaprioritizationofaidtolics,particularlyinsubdsaharanafrica and a change in how aid will be channelled to MICs. The changes follow four key lines 86 : 1. InlowDincomecountries(LICs)seekingsocialdevelopmentwithlow inequality,engagementindirectdialoguewithauthoritiesanduseof 82 EuropeanCommission IncreasingtheimpactofEUDevelopmentPolicy:AnAgendaforChange,page9, 83 EU.2011.Para66 84 EU.2011.Para.4 85 Thetermaid2.0wascoinedbyAndySumnerandRichardMalletintheirbookontheFutureofForeignAid: DevelopmentCooperationandtheNewGeographyofGlobalPoverty. 86 Meld.St.25,2012/2013,April5.2013,p.5, 2013/meldDstD25D /1.html?id=721515,(accessed ),Originalquote: Norgesinnsatsvilvære langsfirelinjer:1.ilavinntektslandsomselvønskerensamfunnsutviklingmedlavulikhetvilviengasjereossien direktedialogmedmyndigheteneogbrukebistandenstrategiskforbedrefordelingogøktvekst.samtidigskalvi fortsettemedmyeavdenpolitikkensomvivetbidrartilfattigdomsbekjempelse,foreksempelstyrkingavhelsed ogutdanningssektorene.2.idialogenmedmyndigheteneimellominntektslandenevilvileggemervektpåatdisse måforberedesegpåatdeninternasjonalebistandenviltaslutt,ogatdeselvmåtaetstørreansvarfortjenestene ogvelferdsgodenetilbefolkningen.3.ilandsomerpregetavautoritæreregimer,diskrimineringog/eller hemmeligholdvilregjeringenleggestørrevektpååsamarbeidemedendringsaktørerisivilsamfunnethellerennå gibistandgjennommyndighetene.4.pådeninternasjonalearenaenvilregjeringenarbeideforøktglobal oppmerksomhetomnasjonalfordelingspolitikk. 21

23 aid to improve fair distribution and increase growth. Poverty reduction efforts would continue to support the health and educationsectors. 2. In middledincome countries (MICs), engage in dialogue that will (i) drawattentiontotheirneed toprepareforthetimewhentheyno longer receive international aid and(ii) take a larger responsibility fortheprovisionofwelfareandservicestotheirpeople. 3. In countries with authoritarian regimes, discrimination and/or secrecy,increasecooperationwithagentsofchangeincivilsociety, ratherthangivingaidthroughtheauthorities. 4. Draw greater attention in international fora, to the importance of nationaldistributivepolices. To summarize, the White Paper, and a number of followdup political statements, 87 signalaredirectionofodafrommicsinfavourofasmaller numberoflics,concentratedmostlyinsubdsaharanafrica.thepolicyshift has enjoyed fairly broad support in the Norwegian parliament(stortinget) andthenewlyelectednorwegiangovernmentisunlikelytoreverseanyof itskeytenets. 88 TheshiftinNorwegiandevelopmentpolicymirrorsbroader global trends such as the European Commission s Agenda for Change, whichannouncesamoretargetedallocationofaidfundingwithpriorityto begiventosubdsaharanafricaandfragilestates.unlikemanyeucountries affectedbythe2008economicdownturnandresultingausteritymeasures, however, Norway continued to experience steady growth rates, high employmentandlowinflation.itcannotbesaidtherefore,thatnorway s fiscal situation motivated cuts to aid spending or an increasing public oppositiontoaidspending. ItisnotclearwhetheraidtoMICswouldbephasedoutoveraperiodof time,andwhatthattimeperiodwouldlooklike,and/orwhatthedefinitive cutdoffdateforaidtomicswouldbe. 87 SeeforexampleBerittenden, Høyresalternativeutivklingsbudsjett2012:konsentrasjonomfærreland høyurekonsentrererbistandenomfærreland økertilafrikaogkuttertillatindamerikaogasia,høyre sofficial website,6march2012, DTMtbKX6.ips,(accessed ). 88 ForexampleGunnarZachrisenandAnneHåskollDHaugen, FrpstøtterHøyresbistandsreform,Bistandsaktuelt, 17desember2013, støtterdhøyresdbistandsreform,(accessed );geirsalvesen, ErnaSolbergvilatfærrelandfårbistandfra Norge,Aftenposten,5March2013.Therealsoappearstobeanoticeabledecreaseinpublicsupportforaidas evidencedbymediacommentary,politicalpartycampaignsandpopulartvdprogrammes,whichhaveincreasingly questionedtheeffectivenessandutilityofaid.therealsoappearstobeanoticeabledecreaseinpublicsupport foraidasevidencedbymediacommentary,politicalpartycampaignsandpopulartvdprogrammes,whichhave increasinglyquestionedtheeffectivenessandutilityofaid. 22

24 WheredoesNorwegianODAgonow? In2012,thetoptenrecipientsofNorwegianODAcomprisedthefollowingcountries listed below. Brazil, which is an upper middledincome country received the largest shareofodabyfar.therestofthetableissplitevenlybetweenlicsandmics 89. TopTenRecipientsofNorwegianAid, Brazil(1248millionNOK) 2. Afghanistan(735millionNOK) 3. Palestine(623millionNOK) 4. Tanzania(539millionNOK) 5. Mozambique(501millionNOK) 6. SouthSudan(428millionNOK) 7. Malawi(404millionNOK) 8. Uganda(306millionNOK) 9. Zambia(302millionNOK) 10. Vietnam(270millionNOK) Source:NorwegianMinistryofForeignAffairs The list shows that a large amount of Norwegian aid flows to MICs. How this will changeinlightofthenewwhitepaperand/orinlightofthepostd2015development agendaremainstobeseen.whatitdoesshowisthataidquiteoftenhasmorethan poverty reduction as its main motivation. Strategic and geodpolitical ties, shared culturalandlinguisticbackgrounds,andspecificissues otherhtanpovertyrecution ofteninfluenceaidagenda.thisisjustastrueforemergingnonddacdonorsasitis forestablisheddacdonors. Annex1providesamoredetailedsnapshotofcurrentlevelsofNorwegianODAand whereitgoesintermsofitsgeographicandthematicallocation. 6.""""Policy"implications"""The"Future"of"Aid"" Thenewpovertydemographicsrevealthatthreeoutoffouroftheglobalpoortoday liveinmics.thetrendislikelytocontinueforatleastthenextdecadewithsumner forecasting that by 2030 there will be a 50:50 split between poverty in low income 89 SeeJoachimNahem NorwegianAidPolicy:Anewdemocracyagenda,inNorwegianMFApublication, DilemmasandChallengesinNorwegianDevelopmentAid Accessiblefrom: pressemeldinger/nyheter/2013/utvikling_dilemma.html?id=

25 andmiddleincomecountries. 90 ThisimpliesthatMICssimplycannotbeleftoutof thedevelopmentaidagenda. Relatedly,economicgrowthalonewillnotlikelybringpovertyreductioninMICs.On the contrary, economic growth is often associated with increasing inequality. This meansthatpovertyinmicsisnotlikelytodisappearofitsownaccord.ontheother hand,ifeconomicgrowthmeansthatacountrycrossesthethresholdofmicstatus, itspoorwillbecomeincreasinglyinvisibleandvulnerabletodisengagementfromaid. Furthermore,incomegrowthand development arenotlinear.theevidenceshows thatcountriesmoveinandoutofmiddledincomestatus:25countriesfellbackfrom middleincometolowdincomestatusfromtheperiod1978to All in all, there is a strong moral argument that poor people matter wherever they are 92.AccordingtoBOND theukumbrellaorganizationfordevelopmentngos: aid must be provided to the poorest irrespective of their geographical location. The eligibility of middledincome countries for official development assistance must be based on a multidimensional poverty assessment, consideringgniratesbutalsoinequalitylevels,socialdevelopmentindicators, longtermdevelopmentandresilienceofacountry. 93 Mostrecently,theOECD sdevelopmentcooperationreport2013 EndingPoverty 94 brings together a collection of essays from leading development experts that questionhowpovertyisdefinedandmeasured.itadvocates,interalia,formoving from poverty to the concept of inclusive welldbeing, improving data for tracking progress, building inclusive and sustainable economies and making environmental sustainability a coreprioritylinkedtopovertyandwellbeing. Scholars and policyd makersarelookingtoindicatorsthatnotonlycapturethemultiddimensionalaspects ofpoverty,butthatcanmeasureaccesstoimportantgoodsorservices,andserveas areferenceforsocialandeconomicdevelopment(suchasthehumandevelopment index(hdi)andtheinequalitydadjustedhdi) 95. Anumberoffactorsaredrivingareconsiderationofnotonlywhereaidgoes,butalso inhowitisdelivered.afocuson aiddbeyonddoda callsondonorstotakea dono harm agenda and to design favourable development policies on remittances, trade preferences, climate financing and tax havens. 96 Donors will need to increasingly differentiate their aid strategies and approaches depending on whether they are 90 AndySumner Wherewilltheworld spoorlive:abriefingonglobalpovertyprojectionsfor2020and 2030.InstituteforDevelopmentStudies.Accessiblefrom; BriefingonGlobalPovertyProjections.pdf 91 AnnaThomas DoMiddleIncomeCountriesNeedAid? 92 Ibid. 93 Bond ThefutureoftheEUDevelopmentBudget:PositionPaperontheEUmultiannualfinancial framework,2014d2020.accessiblefrom: 94 OECD DevelopmentCooperationReport2013 EndingPoverty.Availableat: 95 TheHDIincorporatesvariablesmeasuringincome,education,andlifeexpectancy. 96 AndySumner TheNewBottomBillion:RewritingtheDevelopmentNarrative. 24

26 engaging in LICs, MICs or fragile countries and based on the level of corruption, democracy and openness in a given country context. Finally, aid strategies and programmes should be aligned to empower people, and address inequities and vulnerabilities so that genuine transformation can take place. The overwhelming motivation is to reframe poverty so that the focus is on poor people and not poor countries and that poverty is seen not only a question of getting to zero but of stayingthere,andpreventingnewimpoverishment. " 25

27 References" Amanda Glassman and Andy Sumner Aid Cuts to MiddleDIncome Countries worsen global poverty and illdhealth, in the Guardian s Poverty Matters Blog. Accessible from: middledincomedcountries. AndySumner GlobalPovertyandtheNewBottomBillion:WhatifThreeDquartersof the World s Poor Live in MiddleDincome Countries?, IDS working paper 349, Institute of DevelopmentStudiesattheUniversityofSussexBrighton. Andy Sumner The New Bottom Billion: Rewriting the Development Narrative, availableat: Andy Sumner Where will the world s poor live: A briefing on Global poverty projections for 2020 and Institute for Development Studies. Accessible from; Andy Sumner Global Poverty and the New Bottom Billion. IDS Working Paper. IDS: Sussex,UK.Accessiblefrom: AnnaThomas DoMiddleIncomeCountriesNeedAid?:LiteratureReviewandAnalysis of Evidence and Opinions used in the Aid Differentiation Debate. Accessible from: Bond The future of the EU Development Budget: Position Paper on the EU multiannual financial framework, 2014D2020. Accessible from: _Framework.pdf Centre for Global Development. The future for IDA Working Group, available from: Chandy,L.andGertz,G.2011.PovertyinNumbers:TheChangingStateofGlobalPoverty from2005to2015.brookingsinstitute:washington,d.c. Collier,Paul TheBottomBillion:WhythePoorestCountriesAreFailingandWhatCan BeDoneAboutIt.Oxford:OxfordUniversityPress EuropeanCommission IncreasingtheimpactofEUDevelopmentPolicy:AnAgenda for Change, page 9, lex.europa.eu/lexuriserv/lexuriserv.do?uri=com:2011:0637:fin:en:pdf Helena Wright, More money for climate change: will Warzaw deliver?, The Guardian, 27 November 2013, changedwarsawddeliver,(accessed1 HomiKharasandAndrewRogerson Horizon2025:CreativeDestructionintheAid Industry. Institute for Development Studies In Focus Policy Briefing: The Millennium 26

28 DevelopmentGoals ProgressTowards2015. JoachimNahem NorwegianAidPolicy:Anewdemocracyagenda,inNorwegianMFA publication, Dilemmas and Challenges in Norwegian Development Aid Accessible from: pressemeldinger/nyheter/2013/utvikling_dilemma.html?id= JonathanGlennie IfIndiadoesn t need aidwhydoforeigngovernmentsstillgive it?. Accessible from: matters/2010/nov/08/indiadaiddeconomicddevelopment Jonathan Glennie The Role of Aid to MICs: a contribution to evolving EU development policy. Working Paper 331. Overseas Development Institute. Available from: JonathanGlennie WhereshouldMICsfeatureinthenewaidlandscape? availableat: countriesdconferencedfuturedaid; Jonathan Glennie. May What if three quarters of the world s poor live (and have always lived) in low aid countries? ODI Background Note. Jonathan Glennie Aid and MICs: Some common assertions and some clues to the futureofaid.overseasdevelopmentinstitute. JonathanGlennie The MiddleIncome Conundrum:Theneedforandeffectiveness ofinternationalassistanceto MiddleIncome countries.backgroundpaperpreparedfor the Seoul International Workshop of the Global Partnership of the Effective Development Cooperation. JonathanGlennie.July2013. IndiamaybeamiddleDincomecountry,butthatdoesn tmakeit wealthy, The Guardian. Retrieved from development/povertydmatters/2013/jul/10/indiadmiddledincomedcountrydwealthy Kanbur, Ravi and Andy Sumner Poor Countries or Poor People? Development AssistanceandtheNewGeographyofGlobalPoverty. Kaplan, Seth Do World Bank Country Classifications Hurt the Poor?, Global Dashboard. Retrieved: countrydclassificationsdhurtdthedpoor/ Laurence Chandy and Geoffrey Gertz Two Trends in Global Poverty. Brookings Institution. Accessible from: globaldpovertydtrendsdchandy MartinRavallion InequalityisBadforthePoor.WorldBankPolicyResearchPaper No3677.Availablefrom: 27

29 Organization for Economic CoDoperation and Development (OECD) Development Cooperation Report 2013 Ending Poverty. Available at: OxfamBlog:FromPovertytoPower.DuncanGreen DoesIndianeedaidandifso, whatkind?accessed20december, OxfamBlog:FromPovertytoPower.DuncanGreen. Horizon2025:TheFutureofAid(anda potentially epic nerdwar on poverty numbers. Available from: ondpovertydnumbers.accessed12december,2013. Ravi Kanbur Aid to the Poor in Middle Income Countries and the Future of IDA. Available from: iddleincomecountriesandthefutureofida.pdf Sian Herbert What Future for EU Development Cooperation in MiddleDIncome Countries. Available from: _What_future_for_EU_development_cooperation_in_MICs.pdf United Nations University The Present Development Debate and Beyond. Available at: beyond.html World Bank Website, How We Classify Countries, 2013, WorldBank.StrategiesforProDPoorGrowth:ProDPoor,ProDGrowthorBoth? " 28

30 Annex"1:"Snapshot"of"Norwegian"Aid"Today" CurrentLevelsofNorwegianODA $ In 2012, Norwegian ODA totalled approximately US$4.8 billion (NOK 27.6 billion), making Norway the sixth largest European government donor in absolute terms 97. This figure represents 0.93% of Norway s gross national income (GNI), however, which exceeds the OECD/GNItargetof0.7%andiswellabovetheOECDaveragefor2012,whichwas0.31%. 98 Despiteitsrelativelyhighlevels,NorwegianODAhasdecreasedyearonyearasapercentage ofgnisince2010(seegraph1).unlikemanycountriesintheeu,theeconomicdownturn doesnotexplainnorway sdownsizingofaid,giventhatitactuallycontinuedtoexperience steadygrowthrates,highemploymentandlowinflation. ' Table'1:'Norwegian'Official'Development'Assistance'(2007B2012)' NorwegianOfficialDevelopmentAssistance Spendingin$USDBillion TotalODA 3.73bn 4.08bn 4.37bn 4.76bn 4.75bn %ofgni OECDaverage ' Graph'1:''Norway s'total'net'oda'as'a'percentage'of'gni'''(source:''oecd/dac) 97 PreliminaryOECDfiguresfor2012availableatwww.donortracker.org 98 SeeOECD/DACfiguresforOECDaverageofODAin%ofGNIathttp:// 99 DatafromOECD/DACsourceatwww.aidflows.org 29

31 WhereDoesItGo? The majority of Norway s aid (approximately threedquarters 100 ) is channelled bilaterally to partnercountries,withalargeshareearmarkedformultilateralorganizationsandcivilsociety organizations. The relative size of Norway s ODA has enabled it to engage with a large numberofpartnercountries(27) 101 andnewerinitiatives,suchastheoilfordevelopment Programmeandforestryinitiatives,willlikelyextendthisgeographicscope.Theremaining 25%ofNorway saidiscomprisedofmultilateralspending;themainrecipientsincludethe UNagencies,theWorldBank,regionaldevelopmentbanksandtheGAVIalliance. TheMainBeneficiariesofBilateralAid The main recipients of Norway s bilateral ODA for the years 2009D2011 included Brazil, Afghanistan,Tanzania,theWestBankandGazastrip,Sudan,Mozambique,Uganda,Malawi, ZambiaandPakistan.Figure1belowillustratesthetoptenrecipientsofNorway sbilateral ODAandtheamountsdisbursedtoeach. ' ' Figure'1:''Top'10'Recipients'of'Norway s'bilateral'oda'(2009a2011'annual'average) 102 ' Source:""OECD"CRS.""Gross"disbursements"in"constant"prices"(US$"million)" The main beneficiary by far is Brazil, which is an upper middledincome country (UMIC). Overall,thetopbeneficiariesaresplit50:50betweenLICsandMICs.Regionally,thelargest shareofaidwenttosubdsaharanafricafollowedbysouthandcentralasia ThisnumberrepresentstheproportionofODAbilateralspendingfortheyear2011,takenfromdonortracker atwww.donortracker.org 101 Accordingtothe2008OECDDDACpeerreview,Norwayhad28partnersinitsdevelopmentportfolioresultingin acriticismthatthehighdegreeofgeographicdispersalwouldspreadresourcestoothinlyanddiluteimpact.see OECDDACPeerReviewofNorway,2008availableat: 102 Thefigurepresentsthetop10recipientsofNorway sgrossbilateralodaexcludingdebtrelief 103 UsingtheWorldBankcriteriaforclassifyingcountriesaspertheAtlasmethod. 30

32 KeySectors ThelargestsharesofNorwegianODAfor2011flowedtothefollowingsectors:Government andcivilsociety(13.3%),humanitarianaid(10.6%)andagriculture(9.2%).withrespectto theagriculturesector,asignificantshareoffundingwasdirectedtotheforestrysector. $ Figure'2:''Bilateral'ODA'by'Sector'(2011)' Source:""OECD"CRS. '104 ""As"of"April"2013.""Gross"disbursements"in"current"prices." Summary To summarize, Norwegian ODA as a share of GNI has declined significantly by 0.48 percentage points D from 2010 to Currently, ODA is dispersed among 27 partner countries.thetop10recipientcountriesofnorway sodafeatureanequalnumberoflics and MICs, with the largest recipient of Norwegian aid by far (Brazil) being an UMIC. The allocationofnorwegianaidmaybesettochange,however,inlightoftheintroductionof Norway swhitepaper, SharingforProsperity. 104 Source:OECDCRSaccessedatdonortracker.org 31