Alternative sources of development finance

Nordic development finance

The Nordic countries - Denmark, Finland, Iceland, Norway, and Sweden - have a strong reputation for their social democratic and regulatory systems, consistently high human development rankings, and eco- and climate-friendly outlook (Clement 2004). Compounded by their standing as ‘honest brokers’ and ‘faithful implementers’ of international norms and rules, they have built considerable trustworthiness in their bilateral and multilateral interactions with less developed countries (Bengtsson, Elgstrom, and Tallberg 2004, 312). Broadly defined by ‘human internationalism’ (Engh and Pharo 2009), the foreign aid and development assistance programmes of the Nordic countries have long promoted poverty alleviation as both a moral obligation and a benefit to aid donors as much as aidrecipients (Stokke 1989). Poverty alleviation, social welfare, environmental protection, good governance, and human rights typically characterise Nordic aid, with each Nordic country delivering their own national aid programmes as well as collaborating multilaterally through the Nordic Finance Group.

Inter-Nordic cooperation has seen largely consistent progress since the end of the Second World War, encompassing finance and trade, collective security, and environment and development (Czarny 2017). There have been ebbs and flows, however, with tensions created during the Cold War and by European Union (EU) accession. Despite these, multilateral engagement within the Nordic region remains strong, with Forsberg (2013) arguing that it stems not only from institutions, like the Nordic Council (founded in 1952) and Nordic Council of Ministers (established in 1971), but also a shared ‘Nordic identity’. In the context of multilateral development assistance, the Nordic Finance Group illustrates inter-Nordic cooperation.

0rvik (1974, 88) made the prophetic claim that the ‘seventies may well become a watershed in Nordic regional cooperation.’ From a multilateral development finance (MDF) standpoint, this was very accurate. Following the NIB’s establishment in 1975, there came the Nordic Project Fund (Nopef) in 1982, NDF in 1988, and Nordic Environment Finance Corporation (NEFCO) in 1990; collectively, they comprise Nordic Finance Group. The Nordic countries are generally more progressive than OECD and EU donors in their foreign aid, well exceeding average official development assistance (ODA) contributions and donating more than other European countries to multilateral organisations. They are also distinct from US and Western European aid models, with a reputation as ‘soft donors’ that rely on recipient terms rather than dictating conditions (Danielson and Wohlgemuth 2003, Elgstrom and Delputte 2016). Further, the Nordic countries ‘publicly assumed the role of bridge-builders between developing and industrialised countries’ during African decolonisation (Engh and Pharo 2009, 115). The Swedish International Development Cooperation Agency’s (SIDA) engagement with African SRDBs and the appointment of two Nordic citizens to run the East African Development Bank (EADB) are examples of this trend. In addition, foreign aid served as a connecting node between African and Nordic countries and many ‘diplomatic missions in African countries were only established after the [Nordic] aid agencies were located there’ (Selbervik and Nygaard 2006, 22). Nordic aid has had its controversies, notably a joint Nordic development aid project established in 1968 was tangentially involved in President Julius Nyerere’s ujamaa peasant village programme that used force and coercion to become one of Africa’s largest resettlement efforts (see Paaskesen 2010). But, overall, the legacy of Nordic development cooperation is positive, standing as a viable (if smaller) alternative to other Western aid programmes.

Arab development finance

Regional integration and cooperation between Arab countries began in 1945 with the founding of the Arab League, a time when the countries of the Middle

East were ranked among the lowest levels of socioeconomic development globally (Yousef 2004). It was spurred by Arab nationalism, anti-colonial sentiment, and backed by oil wealth and institutionalised through successive initiatives in the 1950s. The intent was to strengthen the structural position of the region (Corm 2006, Worrall 2017), and development finance formed one pillar.

Since the 1970s, Arab ODA has exceeded the average among OECD countries. Although peaking in the 1970s and 1980s, Arab ODA averaged 13% of global ODA and 75% of non-OECD ODA between 1973 and 2008, with most aid being untied and without conditions (Kellerman 2019, Rouis et al. 2010, Shushan and Marcoux 2011, Tok, Calleja, and El-Ghaish 2014, ). Like the Nordic countries, Arab development finance offers an alternative investment stream, particularly to countries that are not allies of OECD donors, especially the US.

Saudi Arabia, Kuwait, and the UAE-lead Arab ODA and the Arab MDBs. There is a complex network of bilateral and multilateral Arab development organisations, which is unified under the Coordination Secretariat for Arab National and Regional Development Institutions. The Coordination Secretariat was established under the auspices of the AFESD in 1975 to coordinate Arab aid and avoid resource duplication - although, in practice, its power is limited to data collection and dissemination. It comprises three national development agencies -the Kuwait Fund for Arab Economic Development (1961), Abu Dhabi Fund for Development (1971), and Saudi Fund for Development (1974) - and four MDBs -the AFESD, BADEA, IsDB, and OFID - and also the IMF-like Arab Monetary Fund (AMF) and other bodies (Fritz and Miihlich 2019, Momani and Ennis 2012, Rouis et al. 2010, Shushan and Marcoux 2011, Zimmermann and Smith 2011). While the IsDB and OFID are not Arab-only MDBs, Arab countries are among their largest shareholders (Neumayer 2003).

The emergence of so many Arab development organisations in the 1960s and 1970s was prompted by the 1967 Arab-Israeli War and 1973 oil price shock, as well as broader attempts to further Arab foreign policy, promote regional stability and solidarity, and establish an alternative to Global North-led finance (El Mallakh and Kadhim 1976, Neumayer 2003). Tudoroiu (2012, 25-6) argues that the Organisation of the Petroleum Exporting Countries (OPEC) can be understood as a mirror of the BRICS in that both groupings are heterogeneous and ‘the creation of OPEC was due to Third World nationalism directed against Western economic neo-colonialism,’ just as the formalisation of the BRICS was to carve out space for emerging economies. Further, both OPEC and the BRICS exercise financial and geopolitical influence. The Arab-Israeli War led to an expansion of Arab foreign aid as oil-exporters not directly participating in the conflict - Kuwait, Libya, and Saudi Arabia - offered financial support to countries such as Jordan, Egypt, and Syria that suffered heavy economic and human losses (Corm 2006, Porter 1986, Williams 1976).

The 1973 oil shock prompted a major expansion of Arab MDF. The oil-rich Arab countries used some of their vast petrodollar reserves as aid to (i) offset potential negative political fallout from oil-importing countries suffering financial decline from oil price spikes and (ii) to dissuade the Global North and South that oil reserves were being used as an economic ‘weapon’ (Corm 2006, El Mallakh and Kadhim 1976, Porter 1986, Shushan and Marcoux 2011). Equally, though, key Western powers encouraged many of these ventures as outlined in Chapter 4. As Corm (2006, 294) argues, Arab aid was not only political but at the time ‘Arab oil-exporting countries did not have the capacity to absorb the new financial flows that were accruing to them,’ a situation similar to that of China in the NDB and AIIB. The resultant petrodollars were not just used in aid but invested in Northern banks, which became a key driver of the 1982 debt crisis.

Arab countries received 62% of Arab ODA between 1970 and 2008, followed by Asian and African countries with large Muslim populations (Momani and Ennis 2012). A ‘striking feature of Arab aid is its high volatility... Arab aid has had huge swings over the years, and changes in oil prices seem to be the major driving factor’ (Villanger 2007, 228). Cumulative Arab ODA increased from $7.7 billion between 1970 and 1974 to $32.7 billion from 1980 to 1984, and then declined to $6.8 billion between 1995 and 1999 as oil prices fell. Next, it rapidly increased to $15.7 billion as oil prices spiked between 2000 and 2004 (Corm 2006). The four Arab MDBs are financed from capital subscriptions and loan repayments and thus are fairly sheltered from oil price fluctuations (Rouis et al. 2010).

BRICS development finance

The BRIC acronym was coined by Goldman Sachs Chief Economist Jim O’Neill in 2001, describing countries ‘with the most potential for growth in the first half of the twenty-first century, based on demography, the size of potential markets, recent growth rates, and the embrace of globalisation’ (Robinson 2015, 4). At first used as an investment strategy, the 2008 Global Financial Crisis (GFC) catalysed the formalisation of the grouping as the crisis undermined the Global North’s paradigmatic credibility (Cammack 2018, Duggan 2015, Stuenkel 2015, Tudoroiu 2012). With the 2010 admission of South Africa, the BRICS built new institutional arrangements, including the NDB and Contingent Reserve Arrangement (CRA) - an IMF-style $100 billion fund that member countries can draw from in financial emergencies - and they are all members of the China-led AIIB, while India, Brazil, and South Africa comprise the IBSA Dialogue Forum. We agree with the argument that the BRICS do not intend to displace the capitalist status quo (see Harmer and Buse 2014, Nayyar 2016, Robinson 2015, Thakur 2014, Tudoroiu 2012). Instead, they ‘pose a within-system challenge... they challenge its most liberal content, while becoming dependent on, and engaging with, its existing institutional structures’ (Stephen 2014, 914). Nevertheless, the BRICS demonstrate an ‘aspiration to be “rule makers” instead of “rule takers’” (Duggan 2015, 17).

The rise and sustainability of the BRICS have been exhaustively reviewed over the past two decades. Some economic analyses claim that the BRICS are finished because they have not been able to maintain predicted growth rates (see Sharma 2012), even though they recovered quickly after the GFC (Chen and De Lombaerde 2014). Such analyses overlook the fact that the BRICS are more than simply an investment strategy; they are a formalised grouping and

The specialised development banks 183 they are actively changing global governance. Yet, their institutionalisation runs into difficulties given their disparate cultures, politics, and demographics. South Africa, as an example, has often been regarded an odd choice for the grouping, given its relative economic size. However, its inclusion reflects a logic of having strategic influence in sub-Saharan Africa, and South Africa has a leading role in the Southern African Development Community and African Union as well as being the only African country in the G20 (Petropoulos 2015, Telia 2017). Further, Russia has been constrained by low oil prices and Western sanctions (Stephen 2017) and Brazil under President Jair Bolsarno has created tensions by aligning closely with US President Donald Trump, hence some of their original unity has dissipated with political changes. The BRICS additionally display ‘various symptoms of internal crisis and socioeconomic oppression... including severe inequality, poverty, unemployment, diseases, violence... inadequate education and prohibitions on labour organising... [and] worsening political and civil rights violations’ (Bond 2013, 267).

The development agenda of the BRICS illustrates both their role as alternative sources of finance and their strategic pursuit of their own foreign policy interests, as well as some challenge to Global North donors (Chin 2014, Gu et al. 2016, Naim 2007, Tok, Calleja, and El-Ghaish 2014, 595, Woods 2008). In founding of the NDB and AIIB, it has been usefully suggested that the BRICS are not restructuring the world economy but positioning themselves more influentially within it. They do not want to supplant the existing system because they benefit from its institutions (Qobo and Soko 2015, Zavyalova 2016).

China, as the centrepiece of the BRICS, is particularly relevant to MDF. The NDB and AIIB are ‘entwined with the Belt and Road Initiative (BRI) - a vast infrastructure-building, trade, and investment strategy that Beijing launched in 2013’ (Kalathil 2018, 52). Notably, however, the new MDBs are but one facet of Chinese development assistance, with finance moving in larger volumes through the China Development Bank and Export-Import Bank. This finance is generally well received by many developing countries given it lacks the conditionality of Global North-led MDF (Chin and Gallagher 2019, 246). Significantly, Chinese development assistance almost exclusively focusses on infrastructure investment.

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