Jonathan Glennie Senior research fellow Seoul, May 2013 MICs and the future of development cooperation

1.The MIC category in a changing international context 2.Implications for international development cooperation: 2 scenarios 3

) 1.The MIC category in a changing international context 4

Human development and income/capita (Hans Rosling) 5

Arbitrary (and stingy) cut-off points Middle income countries Low income (LIC) Lower middle income (LMIC) Upper middle income (UMIC) High income (HIC) $1000 or less $ $4000 $ $12500 $12500 or more 6 “Is it not time for these arcane income thresholds for ‘graduating’ from ‘low-income’ status to be laid to rest?” Martin Ravallion, Director, Development Research Group, The World Bank

Countries graduating to MIC status since 2000 (There are now only about 30 LICs left) 7

Historically, progression has not been linear LIC LMIC UMIC HIC LDC World

Annual world GDP (PPP) growth rate (3-year moving average) 9

The end of poverty? 10 (Source: World Bank)

Where do poor people live? (Sumner A, “Another bottom billion”, 2010) 11

Poverty is persistent in fragile states (Kharas and Rogerson, “Horizon 2025”, 2012) 12

Aid from MICs is about $15bn and rising (plus much non-monetised) 13

SSC and private funds are complementing traditional “aid” 14

Post 2015 = Sustainable development 15 (Green D. From Poverty to Power, Oxfam, 2012)

An expanding set of objectives Already agreed goalsPossible future goals MDGsClimate finance SDGsBroader Poverty eradication Adaptation and mitigation Equitable use of natural resources and ecosystem management e.g. forests, oceans E.g. technological connectivity, security 16 “Development only really begins when extreme poverty is eradicated.” Adolf Kloke-Lesch, former managing director at GIZ, Germany

2. Implications for development cooperation 17

Development cooperation Financial and non-financial 18 (Glennie J, “From Poverty Eradication to Sustainable Development”, 2012)

Recap 1.New context (power and poverty) 2.New actors/flows (public and private) 3.New challenges (planetary limits) 19

Scenario 1: Traditional view Aid declines in the medium term Half of remaining LICs likely to “graduate” in next ten years, leaving only fragile states (and making MIC category even less useful) MICs will graduate from grants towards loans and blended finance, private flows Normal trading relations emerge between countries Aid becomes history 20 “There is basically no role for international development cooperation in middle income countries.” Paul Collier, author of “The Bottom Billion”

Scenario 2: Challenging orthodoxy A transformation in international public finance Orthodox definitions of poverty are narrow, the MIC category is arbitrary; global inequalities are still vast; most poor people today live in middle income countries International presence (incl. civil society) can prove crucial for incentivising the kind of progress necessary in MICs Sustainable Development and Global Public Goods emerge as the major framing theories of the 21 st century – MICs need to develop more sustainably = more expensive “Non-traditional” sources of development finance continue to proliferate including: South-South Cooperation; Innovative sources (taxes); Private funds 21 “the evaluation [of aid to Colombia] found that in certain fields – such as the environment, institutional strengthening, and productive system support, as well as problems related to the struggle against inequality, internal displacement and human rights violations – the selective use of aid financing, expertise and shared experience was ‘a determining factor in achieving better development results’” (Wood et al, 2011) “What is relevant is not so much the direct effect of the amount of resources channelled by aid, but the role that international cooperation may play in modifying the framework of incentives in which agents operate.” Jose Antonio Alonso, Complutense

The vast majority of poor people continue to live in Low Aid Countries 22 (Glennie J, What if ¾ of the world’s poor live (and have always lived) in Low Aid Countries”, 2012)

10 most poor-populous countries 23

Aid to MICs is likely to be increasingly effective (VFM) 24 Effectiveness (Glennie J, “The role of aid to MICs, 2011)

A global public sector: mutual benefit, mutual cost 25

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