Changing the rules to unleash innovation in development

I am honored that my blog received a guest post from The Organisation for Economic Co-operation and Development (OECD).

By Jon Lomøy, Director of the OECD Development Co-operation Directorate (DCD)

Innovation isn’t something that springs to mind when speaking of statistical systems. But right now, the OECD is looking to do just that: innovate the way it measures and monitors external development finance in order to boost both its volume and effectiveness.

The official development assistance (ODA) measure developed by the OECD, which has been used for over 50 years to monitor development finance, defines how funds must be delivered in order to be recorded as ODA. These volumes, in turn, are used to measure the effort providers of development assistance make and to score them against their commitments.

Reporting rules can, therefore, make a big difference to how development programmes are designed and to the amounts of money they mobilise. There is a real temptation for providers to design programmes to maximise recorded development flows, letting this take precedence over the focus on what will produce best results. For example, we know that some development finance institutions may not lend support to private investors backing development-related projects simply because the cost of doing so would not be counted as ODA.

Updating the way development finance is reported can, therefore, spur innovation. As with any accounting system, it is essential that clear and robust rules are in place. Yet problems arise if the rules are restrictive to point of reducing flows – and the effectiveness of our development efforts.

This is important particularly for the economies that, without ODA, would be starved of external sources of finance. These are typically the least developed countries, which are often conflict affected and face the biggest development challenges. Encouraging flows to these countries can not only help to fill this gap, but can also be done in such a way as to maximise other resources available to them. While ODA will remain important, developing countries need private financing for infrastructure and to boost economic growth. Official development assistance can help to mobilise private finance using guarantees and other risk mitigation instruments, helping to tap the trillions of dollars managed by major private firms and sovereign wealth funds.

OECD donors are providing around USD 130 billion a year in development assistance today. The scale of the development challenges ahead, however, will require trillions of dollars over many decades. The United Nations is leading international efforts to develop a set of sustainable development goals that will guide global efforts when the Millennium Development Goals (MDGs) come to term in 2015. The scope of this agenda will be much wider than that of the MDGs, encompassing not only the eradication of extreme poverty, but also broader environmental, economic and social sustainability challenges.

Innovation in the way development is financed will be essential to fulfil this ambitious agenda. The new rules must be written in a way that not only recognises the use of innovative instruments, but actively encourages them. This will involve changing attitudes and practices within the official bodies that set and deliver development policy.

Finally, while the money that flows to developing countries makes a big difference, in the end it is their effort to put this money to work – and to increasingly raise their own resources, for instance through taxation and trade – that will make the real and sustainable difference. Here again, using ODA “smartly” to support their efforts can create the sea change needed to make development work for everyone.

To see more about this work, visit the OECD’s External Finance for Development webpage. The Development Co-operation Report 2014, coming out in October, will also focus on how best to mobilise financing for development. The new DAC Prize for Taking Development Innovation to Scale recognises and promotes the scaling-up of innovations that address important development gaps, celebrating achievements in the belief that success is contagious.

Posted by whsaito

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William H. Saito