The global economic landscape has evolved dramatically since 2000: developing and emerging economies have been driving global growth, new sources of development finance have mushroomed and the diversification of actors, instruments and delivery mechanisms has continued. Transformations in the poverty map and new forces on the supply side of development finance are challenging the international development architecture. This paper aims to stimulate debate on the future of this architecture.
This article projects that, by 2025, the locus of global poverty will overwhelmingly be in fragile, mainly low-income and African, states, contrary to current policy preoccupations with the transitory phenomenon of poverty concentration in middle-income countries. Moreover, a smaller share of industrialised country income than ever before will potentially close the remaining global poverty gap, although direct income transfers are not yet feasible in many fragile country contexts.
Against this backdrop, new institutions, business models and practices are challenging long-established ‘aid industry’ actors. Agencies providing development finance for improved social welfare, for mutual self-interest in growth and trade and for the provision of global public goods will find that, in each area, disruptors to their programmes may force a change in positioning. The article focuses on one such disruptor for each of these three complementary rationales for development cooperation. The key disruptor discussed in the first area is high-impact philanthropy and non-governmental giving channels; in the second, South–South cooperation combining trade and finance, and blended public–private funding in general; and in the third, the power of climate change finance, particularly its quite different country and project allocation logic.
The methodology consists of an assessment of the global poverty map, based on growth projections provided by the International Monetary Fund (IMF) through 2016 and extrapolated to 2025 using assumptions on capital accumulation, labour force and productivity experience. These projections are independent of the composition of external finance flows as such. Poverty projections are based on these growth forecasts by computing the distribution of the population spending less than $2 a day from the most recent household surveys and assuming that average per capita expenditure grows at the same pace as gross domestic product (GDP).
The base case scenario through 2025 highlights the following four new features:
- High per capita income growth and falling population growth in large, dynamic, MICs shrink the global poverty pool drastically.
- Income stagnation and high fertility rates in selected low-income and fragile countries re-establish them as the main locations of global poverty.
- Growth in emerging economies dominates global growth and they account for most new trade and foreign capital flows to poor countries, along with sizable increases in aid-like flows, competing for influence with traditional aid donors.
- Availability of public and private resources for development, coupled with the fall in global poverty, imply that dramatically more funding is potentially available for each poor person.
The article considers, against this backdrop, the three major enduring motivations for international development support: improved social welfare (e.g. the Millennium Development Goals, MDGs); mutually beneficial growth and trade (bilateral self-interest); and equitably shared provision of global public goods.
Aid agencies providing development finance for social welfare, growth and the global commons will find that, in each area, there are disruptors to their programmes that will force a change in strategy or alliances. Just one significant disruptor is described for each motivation – acknowledging that there are several others that might be invoked:
- For social welfare, new philanthropy and social impact investors, delivering new constructs such as micro safety nets, social enterprises and bottom-of-the-pyramid businesses;
- For building mutual prosperity, South–South styles of cooperation linked to trade and infrastructure and, more generally, blended public–private finance;
- For common space, supranational tax bases and pricing regimes to finance climate change.