The international rules that define what spending rich countries can count as foreign aid – and which developing countries are eligible to receive aid – are up for grabs for the first time in decades, with potential faultlines being drawn over whether donors should be able spend more aid money on support for private companies overseas.
The development assistance committee (DAC) of the Organisation for Economic Co-operation and Development (OECD), the club of rich countries, defines and polices what its members can count as official development assistance (ODA). Only spending with "the promotion of the economic development and welfare of developing countries" as its main goal is eligible, but in practice the rules, set in 1969, have allowed donors to count a wide range of activities. The UK, for example, counted £3m worth of pension payments to former colonial officers as ODA last year.
The DAC is considering ideas on whether, and how, to change the official ODA definition, with the aim of setting concrete proposals by late 2014. "It's too early to start guessing what the final result may be," said Jon Lomoy, director of the OECD's development co-operation directorate. "But we know countries have different positions, and some are more keen than others to open the ODA definition."
Amy Dodd, co-ordinator for the UK Aid Network, said there were concerns that this process would merely water down the meaning of foreign aid. "We could see a whole range of things included in a new definition that put the development and poverty eradication focus of aid at risk, such as harder loans, guarantees, etc," she added.
Civil society groups have complained for years that the current rules allow donors to count too much spending that never reaches poor countries. Research from the Bristol-based group Development Initiatives suggests that at least 20% OECD aid never leaves the donor country – and is instead spent on activities at home, or put towards the cancellation or rescheduling of debts.
However, some donor countries argue that the current rules fail to account for the range of tools they use to help spur development in poor countries, such as guarantees where public money is used to mobilise private investment. This year, Mark Lowcock, permanent secretary of the UK Department for International Development, suggested discussions should look at how ODA could be better used to promote private sector flows.
Today, more donors are working in closer collaboration with private companies. This week, the UK development secretary, Justine Greening, is in Tanzania to launch a "high-level prosperity partnership", which aims to double by 2015 the number of British companies doing business in the country's renewable energy and agriculture sectors.
"Business can bring much needed investment and innovation at a scale that can be transformational … It is sensible for us to work with business to make sure their plans help local communities," she said.
If the ODA definition is changed, this will have knock-on effects on the international target for donors to spend 0.7% of their gross national income (GNI) as aid. Only five countries – Norway, Sweden, the Netherlands, Denmark and Luxembourg – have met the 0.7% target, while the UK is expected to meet it this year. Dodd warned that changing the way aid spending is measured "could be seen as just moving the goalposts to make achieving our targets easier".
Lomoy acknowledges there are risks involved in opening up the ODA definition, particularly as donors feel increasing pressures on their aid budgets. But the risks associated with doing nothing are probably bigger, he said.
The value of OECD aid dropped for the second year in a row in 2012, after growing dramatically since the early 1990s; between 2000 and 2011, ODA grew from less than $80bn to more than $125bn. Meanwhile, for many developing countries, other sources of cash – such as private philanthropy and remittances sent home from migrant workers abroad – have far outpaced aid.
"One could say we need ODA to become a smarter tool in the future," said Lomoy, arguing that foreign aid remained a critically important resource for the world's least developed countries and states affected by conflict.
Which countries are eligible to receive aid could be a major sticking point in the OECD aid debate. More than 140 countries are eligible, including China and Brazil. Some donors are pushing for a shortened list, and many have already started to whittle down their own sets of aid recipients. The UK, for example, has announced it will close aid programmes in middle-income India and South Africa, and Greening has said the UK has been pressing for the number of EU aid recipients to be reduced.
The last time the ODA definition of aid was changed, in the 1970s, it was broadened to allow spending on refugees in donor countries, and the estimated costs of hosting students from developing countries.
