All Eyes on Addis

Why the 3rd Conference on Financing for Development is critical for the Post-2015 Development Agenda

Addis Ababa, the third largest diplomatic hub in the world, is preparing to host one of the most important conferences of the year: the 3rd International Conference on Financing for Development (also known as the Addis Conference), which will be held from July 13-16, 2015. It is going to be attended by high-level representatives of governments, international and non-governmental organizations and the private sector.It is fair to say that the world is looking at Addis. If successful, it could be a turning point in the history of human development. That is why the former Prime Minister of Australia, Julia Gillard, described the conference as “our moment of truth.” All this international attention on the Addis Conference is justified, as the event could determine the success of the global post-2015 development agenda.
The international community has been working to alleviate the suffering of millions living in poverty. The Millennium Development Goals (MDGs) have galvanized the support of the global community to reduce poverty and enhance access to and the quality of social services such as education and health. It has to be recognized that MDGs have brought a certain level of improvement to the lives of millions of people. However, millions still live under extreme poverty and hunger.
Still, the world is replete with children that do not go to school and many who die due to lack of access to health services. Global unemployment is high and income inequality is threatening the social and economic viability of poor countries, further exacerbating their fragility. It has been a daunting challenge to end poverty in all its forms without leaving anyone behind.
That is the promise of the post-2015 development agenda, which has been under negotiation by UN member states. It is expected to be endorsed by the world leaders meeting in New York this September. The new development framework establishes a universal agenda to eradicate extreme poverty from the face of the earth by 2030, and achieve inclusive and sustainable economic growth. There are 17 goals and 169 targets that include, among others, eradicating poverty; secure education, health and basic services for all; empowering women; addressing the impacts of climate change; and building a just and peaceful society. This is an ambitious and transformative agenda that requires strengthened global partnership.
It may be relatively easy to come up with 17 goals. The biggest challenge is how to mobilize sufficient resources to implement all the targets and achieve a world free from poverty. This is precisely the objective of the Addis Ababa Financing for Development Conference: how to mobilize finance, technology and capacity building assistances to implement the post-2015 development agenda of eradicating poverty throughout the world. The success of the Addis Conference will determine the implementation of the development programs in the coming 15 years.
If the international community does not decide on development financing in Addis, then the post-2015 development agenda might remain elusive. This is something that the world cannot afford for social, economic and political reasons. Without addressing poverty and hunger, one cannot have a peaceful and prosperous world that can provide decent lives for its inhabitants. We live in an interconnected world that can be characterized as a boat. One cannot have a section of the boat filled with people suffering from poverty, hunger and disease, while the rest of the space is filled with people enjoying a decent life.
It requires enormous financial and technological resources and the right mix of strategic policies and highly driven leadership to see a world free of abject poverty and instability. And the world leaders will be in Addis to discuss whether they will deliver what is expected of them to make the world better for the present and upcoming generations. It is for this reason that the Addis Conference has become the focus of the international community.
One of the main constrains developing countries encounter to eradicate poverty and register pro-poor economic growth has been lack of finance. Although it is the primary responsibility of each nation’s government to design and implement policies to reduce poverty, the international community also has a responsibility to support poor countries in their endeavor to achieve economic growth. Despite the global partnership component of the MDGs, most donors have not fulfilled their commitment to provide 0.7Pct of their gross national income (GNI) as official aid to developing countries. Besides, reports indicate that aid to sub-Saharan Africa dropped for two consecutive years – in 2012 and 2013. In light of this, the Addis Conference is expected to mobilize finance to implement the ambitious agenda of the post-2015 development framework.
The financial investment needed to implement the Sustainable Development Goals (SDGs) is estimated to cost USD5-7 trillion per year globally and USD3-4 trillion per year in developing countries. This is mainly for infrastructure, food security, and the provision of social services.
If one takes Africa, the financial resources required to achieve SDGs is more than the current aid and other financial flows. For instance the infrastructure deficit in Africa is estimated at USD50 billion per year.
The good news is there are sufficient resources globally to eradicate poverty. The question, therefore, is not whether there is capacity to finance the SDGs but whether there is the political will and commitment to deliver the necessary funds.
Consequently, allocating these funds will require new and an enhanced international partnership and employing all sources of financing –public and private, as well as local and international. The Addis Ababa Conference includes all forms of financing instruments from national governments, development partners – both north and south and the private sector.
Domestic resource mobilization is one of the focus areas of the Addis Conference. Though global partnership is key for the successful eradication of poverty, developing countries should also do their best to mobilize local financial resources by broadening their tax base, reforming their tax administrations and taking legal measures to curb illicit financial flows and trade mispricing, and better managing natural resource concessions, among other things.
In this regard, fighting corruption by ensuring good governance is an important measure. Developing countries mobilized USD7.7 trillion in 2012 from domestic revenues. However, a UN Economic Commission for Africa report shows that Africa loses up to USD50 billion per year through illicit financial outflows. By some estimates, this is double the official development assistance Africa receives. Actual figures could be higher, since accurate data does not exist for all transactions and for all African countries. Therefore, increasing domestic resource mobilization capacity and curbing illicit financial outflows will save billions of dollars that could be used for financing developmental programs. Moreover, domestic resource mobilization enhances the legitimacy of governments and fosters ownership of development policies and strategies.
For successful domestic resource mobilization, two conditions should be met. First, countries should enhance economic growth. If a nation fails to register continued, job-generating economic growth, then it will be almost impossible to broaden the tax base. Broadening the tax base without ensuring economic growth would only be taxing the poor.
The second is curbing illicit financial outflows and preventing mispricing. This requires international cooperation. If corrupt officials and businesspersons embezzle public money from poor countries and put it in foreign banks, nations will miss vital resources to finance their development.
Though domestic resource mobilization is important, there are poor countries that would still face huge financial gaps. These countries require external financial assistance to address their deficits. Therefore, official development aid remains critical to finance development in most developing countries to reduce poverty. Despite the commitment of advanced countries to give 0.7Pct of their GNI, only five countries have fulfilled their pledge.
One of the points of agreement in the Addis Conference should, therefore, be for developed countries to recommit and meet their promise and enhance development assistance according to the national priorities of recipient states. In addition, South-South cooperation should also be further strengthened to forge a strong global partnership.
Another essential means of financing is increasing the role of the private sector in financing sustainable development programs. The private sector has a mission, beyond profit making, in development. An economic environment conducive to private sector development should be created to maximize the benefits of the sector as an engine of growth.
Trade, as a tool of job creation, should also be promoted. Local and international practices that thwart fair, competitive and free trade should be prohibited. Similarly, foreign direct investment that channels capital and appropriate technology should be encouraged by setting up favorable legal and instructional frameworks.
Economic growth without structural transformation will not bring sustainable and inclusive development. Poor countries should add values to their primary products and must kick off an industrialization process. This could be realized with the transfer of appropriate technologies and the establishment of national innovation systems with the necessary support from the international development partners.
The 3rd International Conference on Financing for Development is a historical opportunity to mobilize all forms of finances to implement the ambitious and transformative post-2015 development agenda. The success of the Conference demands the cooperation of governments, the private sector and international development actors. It is possible to eradicate poverty, just like colonialism and apartheid, and if the international community can reach consensus in Addis, it could be said this generation has seized its opportunity and taken a huge step towards creating a world free from poverty and backwardness. For the sake of billions around the world, the Addis Conference should deliver the required finance for development and meet the high expectations of the world.