Aid, Trade and Investment: From Aid Effectiveness to Development Effectiveness Lecture 3 Source: This collection was collated by Xiuli Xu as teaching material on the Emerging Powers and International Development course at the Institute of Development Studies

Contents From aid effectiveness to Development Effectiveness: broader portfolio of development strategies and policies. Differences and commonalities between aid of established donors and of the BRICS countries: history, principles, modalities, geographic and sector distribution, scale, etc Historical review of aid and business; different perceptions of firms in development since colonial era Aid, trade and investment: public and private link mechanisms

1. From aid effectiveness to Development Effectiveness broader portfolio of development strategies and policies Source:

6/9/ Busan Declaration BUSAN Partnership for Effective Development Cooperation development co-operation is only part of the solution... More effective co-operation should not lead to a reduction in resources for development... not just development policies – to enable countries to make full use of the opportunities presented by international investment and trade, and to expand their domestic capital markets. take action to facilitate, leverage and strengthen the impact of diverse sources of finance to support sustainable and inclusive development

6/9/ Differences and commonalities between the aid of established donors and of the BRICS countries: history, principles, modalities etc. Different history and cultural backgroud: aid and business in Western world Source: ; ;

6/9/ Differences and commonalities between the aid of established donors and of the BRICS countries: history, principles, modalities etc. Different history and cultural background: aid, cooperation and business in emerging powers, taking China as a case in particular. Source:

6/9/ Differences and commonalities between the aid of established donors and of the BRICS countries: history, principles, modalities etc. The economic and social strucuture of these new donors defines a "dual position" as developing countries on the one hand,... and development partners in their external relations on the other. Source:

What did you read from the figure? Implications to emerging powers and international development regime Source: Putzel (2013), presentation in CAU,Beijing

Source: Li (2013), presentation

6/9/ Differences and commonalities between aid of established donors and of the BRICS countries: history, principles, modalities etc. Institutions and actors Definitions, volume and composition Instruments and modalities rules and standards (western) a. transparency b. tied aid and export credits c. environment and social protections d. corruption and governance e. debt Bräutigam, D. (2010). China, Africa and the international aid architecture. African development bank Many who comment on the economic cooperation activities by emerging powers and who compare them with ODA always end up by comparing apples and oranges. Rules and standard (emereging powers) Aid and export credits Win-win, mutural benefits No governance conditionality Social and Environment standards Source:

6/9/ Historical review of aid and business: different perceptions of firms since colonial era The role of the private sector is traditionally a sensitive and controversial issue in development studies. After the independence of countries in Africa, Asia and Latin America, when development studies and theories got a boost, the reality was often one where large, white-owned private businesses, which had for decades or centuries enjoyed unfettered support from colonial administrators, exploited the people and resources of the newly liberated nations. That image of the private sector was solidified by continuation of illicit activities by quite some multinational companies in the Global South. This history greatly influenced development practitioners 'gut reactions to' the private sector Peter Knorringa (2010):A balancing act: private actors in development process

6/9/ Historical review of aid and business: different perceptions of firms since colonial era OECD donors have a long history of using ODA to support exports. As recently as the mid-1990s, Germany directed 85% of its ODA to infrastructure projects, rail, and ships that used German firms and technologies (Evans and Oye 2000: 129). However, although the OECD norms on the use of foreign aid in officially supported export credits are voluntary, they have been successful in gradually bringing conformity into a contentious area. Links between aid and exports began to be reduced when, after long negotiations, the OECD members agreed to the 1978 Arrangement on Officially Supported Export Credits, and its extension in the 1992 “ Helsinki Package ”, and recently a “ gentleman ’ s agreements ”. Many years ago, Europe, the U.S., Canada and Japan regularly had trade disputes concerning tied aid. Tied aid in the context of export credits is considered somewhat separate from the issue of general tying of aid to domestic goods and services. It was defined as “ aid credits for which the motivation is largely (or significantly) connected to promoting the sale of goods from the donor government ’ s country ”. Bräutigam, D. (2010)

6/9/ Historical review of aid and business: different perceptions of firms since colonial era Three stages or mechanisms of linking private sectors to development and poverty reduction: direct intervention of the firm through foundations or ethic codes, e.g., fair trade facilitated by UNCTAD; through public private partnership (PPP) to provide public goods; taking CSR as a framework for development agencies and corporations to work together. Source:

6/9/ Aid, trade and investment: public and private link mechanisms aid as bridge of public-private partnership The orthodox view delinking aid from private capital may rule out the possibility of public-private partnership where official development assistance can leverage private funds to support large-scale infrastructure projects. aid as vanguard of FDI Apart from innovative co-financing mechanisms, aid can also have a vanguard effect of facilitating FDI into less developed countries (LDCs). The Japanese government has sought to use aid to facilitate FDI because aid can “ transmit tacit information on the business environment of the recipient country and reduce country risk with the provision of a quasi government guarantee. ” aid as a foothold for linking into global value chains Aid could enhance learning process by sharing technical and managerial knowledge in trade to upgrade their industrial structures. Xu Jiajun(2011)