Broad support for policies and actions that will generate resources in support of the implementation of a new sustainable development agenda, emerged from the United Nations Third International Conference on Financing for Development.
The so-called Addis Ababa Conference, which was a follow-up to the 2002 Monterrey Consensus and the 2008 Doha Declaration, was supposed to be the first of three milestones in the year 2015.
World leaders agreed on ways to pay for the ambitious and costly sustainable development goals (SDGs), which include ending poverty and achieving food security in every corner of the globe by 2030. The Conference resulted in the adoption of the Addis Ababa Action Agenda, a comprehensive framework to guide policies that will mobilize financial resources, as well as the launch of new initiatives to finance the achievement of the proposed sustainable development goals, including on social welfare, access to clean energy, and greater cooperation on tax issues.
“Our goal is to end poverty and hunger, and to achieve sustainable development in its three dimensions through promoting inclusive economic growth, protecting the environment, and promoting social inclusion. We commit to respect all human rights, including the right to development. We will ensure gender equality and women’s and girls’ empowerment. We will promote peaceful and inclusive societies and advance fully towards an equitable global economic system where no country or person is left behind, enabling decent work and productive livelihoods for all, while preserving the planet for our children and future generations.”
Nevertheless, ambitious aspirations turned into a compromise agenda missing concrete instruments for implementation of development objectives.
Here we discuss some of the key issues largely debated at the Conference, offering both a geopolitical and an economic perspective.
The transparency of the private sector.
As stressed by the World Bank, achieving development goals requires the mobilization of resources from private sources, including FDI, bank loans, capital markets, and private transfers. Notably, for most developing countries, FDI is the preferred private financing modality, given its potential to strengthen productivity and growth and help diversify the economy. Although the fragile market conditions, in which currently austerity rules, created a mismatch between available financing and investment needs, the private sector, ranging from micro-enterprises to cooperatives to multinationals, still play a vital role in post-2015 efforts to end global poverty, in all its dimensions.
Nevertheless, the Addis Abeba Conference failed to strengthen regulatory frameworks to better align private sector incentives with public goals, including incentivizing the private sector to adopt sustainable practices, and foster long-term quality investment. With a transparent, stable and predictable investment climates, regulatory environment would support financial market stability and promote financial inclusion in a balanced manner. Otherwise, private sector investment risks to be not conducive to achieving national development policies.
The tax evasion.
From the very beginning of the Addis Abeba Conference, it was clear that the issue of taking the tax evasion in developing countries would have played a key role in negotiations. Indeed, as the developed countries cut development assistance budgets, developing countries are increasingly called to tackling the loss of tax revenues from illicit financial flows.
As matter of fact, developing countries face great challenges in mobilising tax revenues, which result in a gap between what they could collect and what they actually collect. Currently, the governments of developing countries collect much lower proportions of their GDPs in tax revenue than do the governments of the OECD countries: 10-20% rather than 30-40%. Nonetheless, different opinions arose about how to deal with this issue and divergences risked to put the talks in a deadlock.
Indeed, while developed countries, particularly the US, UK and Japan, insisted to leave the competence of the international tax cooperation for development to the OECD, the Group 77 and China demanded the upgrading of the current UN Tax Committee of Experts that is dominated and controlled by the OECD, to a full intergovernmental tax body, under the ECOSOC, which was widely seen as a way for less wealthy nations, that struggled to build an effective tax system, to influence policy decisions at the UN.
Faced with the opposition from developed countries, the final text was a compromise in terms of insertion of some language on regionally proportionate representation in the current tax body of experts with a 2016 deadline to decide on structural changes. In the meantime, the OECD has lauched an initiative, in collaboration with the UN Development Programme, entitled Tax Inspectors Without Borders to help poorer countries bolster domestic revenues by strengthening the ability of tax authorities to limit tax avoidance by multinationals. In parallel, the Addis Abeba Initiative has also been launched, in order to improve tax rules for the benefit of all countries and train qualified inspectors in developing countries who will collect the tax.
As widely known, the aim of the Conference was to approve a set of “Sustainable Development Goals” (SDGs) to replace the “Millennium Development Goals” (MDGs) which are due to expire in 2015. Thus, Addis Abeba paved the way to the adoption of the 17 Sustainable Development Goals (SDGs) and the 169 targets defined by the United Nations (UN), which will be presented at the organisation’s New York summit in September. But the SDG targets will not be formally adopted until March 2016, meaning that the conference just decided on financing before figuring out how progress will be measured.
Nevertheless, the Conference, which was expected to deliver billions of dollars needed to fund the ambitious sustainable development misses initiatives that come close to the scale of ambition required to finance the SDGs. Financing a holistic and forward-looking development agenda will require available resources to be used in a more effective and strategic manner, in order to catalyze additional financing from official and private sectors.
Developing countries will need to step up efforts to finance their own development by improving domestic resource mobilization, including by strengthening tax administration, better harnessing natural resource revenue, and curbing illicit financial flows.
In this context, the ambitions of this financing framework does not correspond to the ambitions set for the Post-2015 Development Agenda and are therefore insufficient in supporting the operational Means of Implementation (MoI) for the Post-2015 Development Agenda.
Firstly, the new SDGs are not only more numerous, but also more complex and more difficult to implement than the MDGs. Secondly, according to UN sources, additional finances needed in order to achieve targets will range from $135 to $195 billion every two years for the eradication of poverty. Infrastructures investments are expected to costs between $5 to $7 trillion annually . Thus, the cost of the new SDGs would massively exceed the current global development aid budget.
In addition, we do not forget that finding the money to pay for the SDGs will be difficult, given the world’s increasingly volatile financial outlook. Indeed, the Greek debt crisis, China’s economic slowdown and pressing humanitarian emergencies, such as Syria’s civil war and Europe’s migration crisis, are clamouring for donors’ attention.
Regardless of pessimism, Ban Ki-moon, the UN Secretary General, welcomed the final accord. “This agreement is a critical step forward in building a sustainable future for all,” he said. “It provides a global framework for financing sustainable development. The results here in Addis Ababa give us the foundation of a revitalised global partnership for sustainable development that will leave no one behind.”
We hope sustainable goals do not exist just on paper.