Development Co-operation Report 2023

Executive summary

Amid overlapping crises and unprecedented strain on aid budgets, development actors are being called on to adapt their policies, strategies and partnerships in a spirit of global solidarity and burden sharing. The Development Co-operation Report 2023: Debating the Aid System finds that debates are crystalising around the need for a fundamental rethinking of the international development system – the mandates, drivers, capacity and coherence of traditional and emerging actors – and feeding into urgent new discussions about scaling up and optimising the allocation of official development assistance (ODA) to reach goals.

Drawing on diverse contributions from all regions, this report takes stock of opportunities and challenges confronting the aid system and presents concrete ideas for action for keeping development co-operation relevant and impactful amid daunting challenges. Themes, ideas and proposals are brought together in the Overview, which proposes the following ways forward:

1. deliver existing commitments and unlock progress

2. support locally led transformation in partner countries

3. modernise business models and financial management practices to align strategies, budgets and delivery

4. rebalance power relations and find common ground for partnerships.

Crises and geopolitical shifts are challenging the aid system but also opening an opportunity for it to change

The political economy of aid is changing. Protracted crises have aggravated global instability, hunger, extreme poverty and fragility. Geopolitical shifts raise new challenges for development co-operation. On the one hand, pressure is on the development community to use the unique influence, relationships and financial flows at its disposal to contribute to security goals or create new trading relationships. On the other, calls are growing for development co-operation to meet the immediate needs of the most vulnerable while also tackling today’s complex challenges, such as climate change and pandemic preparedness and mitigation.

Moments of challenge also offer a window of opportunity for change. In recent years, anti-racist movements calls to upend colonial legacies and a renewed push for locally led development have triggered reflections on how the aid system is structured and operates. Several countries have carried out reviews on racism in the sector, in some cases making direct links with power structures and paternalism that are the legacies of colonialism and taking steps to redress the balance. The ways in which funding relationships can perpetuate aid dependency are also being recognised, and an increasing emphasis is being placed on support to regional and global public goods as an alternative way to build resilience.

The weakness in the international financial architecture revealed by successive crises has led to a number of ideas for its reform – for example, the Bridgetown Agenda and calls for multilateral institutions to increase their level of risk and improve their ability to enable solidarity, in particular through the reallocation of International Monetary Fund special drawing rights. Humanitarian organisations, too, are attempting to fill the gap between the mounting needs and existing levels of funding by taking innovative financing approaches. The increase in the number of feminist foreign policies being adopted by OECD and other countries is a further sign of positive change.

Staying relevant requires delivering on past commitments and responding to new calls for change

Against this backdrop of crisis and reflection, development co-operation providers can pursue two strategic avenues: delivering on past commitments and responding to new calls for change. Over time, the aid community has made commitments and agreed on good practices that, if effectively implemented, could maximise ODA in this context of constrained budgets. Delivering on financing commitments, for example, will be particularly important in light of the pressures to finance expenditure on global public goods and respond to new crises. Delivering on the promise to maximise the collective impact of DAC members’ ODA would decrease transaction costs for partner countries, enhance economies of scale, better focus ODA budgets on addressing needs, and help balance humanitarian interventions and long-term development impact. Tackling the fragmentation and proliferation of low-value projects and declining support to country systems would help simplify development co-operation and improve co-ordination.

As shown by the external contributions to this report, the calls for change are not rhetorical. There are also proposals for action. To operationalise their commitments to locally led development, all actors in the aid system, individually and as a group, must act on several simultaneous fronts. Cultivate new institutional capacities to rebalance power dynamics. Create a stronger evidence base on outcomes. Allocate larger proportions of financing to local organisations. Value the contribution of local researchers and forge stronger partnerships with entities based in the Global South. Adapt financing to fit with funding frameworks defined by developing countries and their representative bodies. And make space for the voice of civil society in priority-setting and decision making. Learning from what works and acknowledging failures and limitations, particularly in the most fragile contexts, is crucial to avoid repeating mistakes. Failing to engage seriously with such specific and direct proposals would undermine relevance going forward and miss a crucial opportunity to raise the bar for development co-operation.

With priorities changing, development actors must be more agile and adaptable

Recent crises and wider shifts have transformed the priorities of developing countries. In Africa, for example, the focus is now on productive transformation as a source of growth and resilience. The sudden increase in poverty has re-engaged actors around tackling its root causes. Leaders across developing countries identify a lack of progress in job creation and government accountability as key areas where external support would add significant value. Some priorities are shared across developing countries; others are highly context-specific. Development co-operation providers, therefore, are facing the complex task of aligning with local priorities and complementing local reform efforts while also identifying sectors in which they have more or less of a comparative advantage and respecting the right of developing countries to draw support from multiple partners.

Adding to the complexity is the fact that: 1) local priorities change and are themselves the subject of debate among local stakeholders, which can make upholding the effectiveness principle of alignment challenging; and 2) country ownership is complicated by a plethora of global goals and aid providers’ own interests and needs as well as the range of development pathways that countries may pursue. National development plans can help articulate country priorities and, despite their complexity and vulnerability to capture by various interests, strengthen development co-operation by encouraging context-specific approaches. Importantly, some national development plans also highlight the global causes of domestic developmental challenges. As such, they are used as mechanisms to localise global agendas like the Sustainable Development Goals. Development co-operation providers can support this growing alignment between global and local goals by putting a greater emphasis on policy coherence for development. Regional bodies and frameworks can also provide spaces for co-ordination, co-operation and co-creation between countries.