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Financing for Development Conference - a diplomatic and developmental success

Tsehay Woldemichael

July 22, 2015

The role of Ethiopia as the diplomatic capital of Africa and as the frontrunner of the war on poverty has been acknowledged time and again.

From global conferences to regional forums, like the Tana Forum, from African Union to IGAD, from peace talks to tourism summits, Addis Ababa attracts prominent personalities, dignitaries, organizations, etc. ever month.

Nonetheless, the latest event was a new peak in Ethiopia's diplomatic and developmental profile.

Last week, Ethiopia hosted the Third International Conference on Financing for Development which congregated high-level political representatives, including Heads of State and Government, and Ministers of Finance, Foreign Affairs and Development Cooperation, as well as all relevant institutional stakeholders, non-governmental organizations and business sector entities from all countries around the world.

It was a pivotal summit intended for an inter-governmental negotiated outcome to pave the way for the implementation of the post-2015 development agenda.

Ethiopia was not merely a host nation but also a key player of the proceedings.

When the participants reached a deadlock as a result of some important points of negotiation and it was said that the summit is "on the brink of collapse", Ethiopia along S. Africa prepared and submitted a compromise proposal to save the process.

As the United Nations clearly stated in its press release:

The agreement was reached by States attending the Conference, following negotiations under the leadership of Ethiopian Foreign Minister Tedros Adhanom Ghebreyesus.

Indeed, the conference was a success.

The 193 UN member countries, which gathered in Addis Ababa from 13 to 16 July 2015, reached a groundbreaking deal on a series of bold measures to overhaul global finance practices and generate investments for tackling a range of economic, social and environmental challenges.

They affirmed strong political commitment to address the challenge of financing and creating an enabling environment at all levels for sustainable development in the spirit of global partnership and solidarity.

Moreover, they reiterated the aim of ending poverty and hunger, and achieving sustainable development in its three dimensions through promoting inclusive economic growth, protecting the environment, and promoting social inclusion.

The agreement comprised bold and across-the-board themes that are believed to be key for tackling a range of economic, social, and environmental challenges, as the outcome document of the conference entitled "Addis Ababa Action Agenda" demonstrates.

One of the important points was that it was recognized the importance of cohesive nationally owned sustainable development strategies, supported by integrated national financing frameworks. It was stated that:

We reiterate that each country has primary responsibility for its own economic and social development and that the role of national policies and development strategies cannot be overemphasized. We will respect each country’s policy space and leadership to implement policies for poverty eradication and sustainable development, while remaining consistent with relevant international rules and commitments.

At the same time, national development efforts need to be supported by an enabling international economic environment, including coherent and mutually supporting world trade, monetary and financial systems, and strengthened and enhanced global economic governance. Processes to develop and facilitate the availability of appropriate knowledge and technologies globally, as well as capacity-building, are also critical.

A related point was that a new social compact was made to end poverty in all its forms everywhere and finish the unfinished business of the Millennium Development Goals.

Fiscally sustainable and nationally appropriate social protection systems and measures for all, including floors, with a focus on those furthest below the poverty line and the vulnerable, persons with disabilities, indigenous persons, children, youth and older persons.

It was also agreed that investing in sustainable and resilient infrastructure, including transport, energy, water and sanitation for all, is a pre-requisite for achieving many of our goals.

To bridge the global infrastructure gap, including the $1 trillion to $1.5 trillion annual gap in developing countries, we will facilitate development of sustainable, accessible and resilient quality infrastructure in developing countries through enhanced financial and technical support.

Regarding illicit financial flows, the conference pledged:

" to redouble efforts to substantially reduce illicit financial flows by 2030, with a view to eventually eliminating them, including by combating tax evasion and corruption through strengthened national regulation and increased international cooperation. We will also reduce opportunities for tax avoidance, and consider inserting anti-abuse clauses in all tax treaties".

Moreover, it urged "all countries that have not yet done so to ratify and accede to the United Nations Convention against Corruption and encourage parties to review its implementation. We commit to making the Convention an effective instrument to deter, detect, prevent and counter corruption and bribery, prosecute those involved in corrupt activities, and recover and return stolen assets to their country of origin. We encourage the international community to develop good practices on asset return".

Countries relying significantly on natural resource exports face particular challenges. Investment in value addition and processing of natural resources and productive diversification, and commit to addressing excessive tax incentives related to these investments, particularly in extractive industries. Every State has and shall freely exercise full permanent sovereignty over all its wealth, natural resources and economic activity.

The importance of inclusive cooperation and dialogue among national tax authorities on international tax matters is emphasized. In this regard, the conference "welcomed the work of the Committee of Experts on International Cooperation in Tax Matters, including its subcommittees. We have decided that we will work to further enhance its resources in order to strengthen its effectiveness and operational capacity. To that end, we will increase the frequency of its meetings to two sessions per year, with a duration of four working days each".

Another major achievement of the conference was with regard to Official Development Assistance (ODA). The Conference agreed:

the increase in volume of ODA since Monterrey. Nonetheless, we express our concern that many countries still fall short of their ODA commitments and we reiterate that the fulfillment of all ODA commitments remains crucial. ODA providers reaffirm their respective commitments; including the commitment by many developed countries to achieve the target of 0.7 per cent of ODA/GNI and 0.15 to 0.20 per cent of ODA/GNI to least developed countries.

[There are] few countries that have met or surpassed their commitment to 0.7 per cent of ODA/GNI and the target of 0.15 to 0.20 per cent of ODA/GNI to least developed countries. Others should step up efforts to increase their ODA and to make additional concrete efforts towards the ODA targets.

The outcome document also welcomed the decision by the European Union which reaffirms its collective commitment to achieve the 0.7 per cent of ODA/GNI target within the time frame of the post-2015 agenda, and undertakes to meet collectively the target of 0.15 to 0.20 per cent of ODA/GNI to least developed countries in the short term, and to reach 0.20 per cent of ODA/GNI to least developed countries within the time frame of the post-2015 agenda.

The importance of International trade rather than aid as an engine for development was clearly acknowledged. The outcome document stated that:

International trade is an engine for inclusive economic growth and poverty reduction, and contributes to the promotion of sustainable development. We will continue to promote a universal, rules-based, open, transparent, predictable, inclusive, non-discriminatory and equitable multilateral trading system under the World Trade Organization (WTO), as well as meaningful trade liberalization.

Such a trading system encourages long-term investment in productive capacities. With appropriate supporting policies, infrastructure and an educated work force, trade can also help to promote productive employment and decent work, women’s empowerment and food security, as well as a reduction in inequality, and contribute to achieving the sustainable development goals.

The significant potential of regional economic integration and interconnectivity to promote inclusive growth and sustainable development, and commit to strengthening regional cooperation and regional trade agreements was recognized. Pledges made to strengthen coherence and consistency among bilateral and regional trade and investment agreements, and to ensure that they are compatible with WTO rules. Regional integration can also be an important catalyst to reduce trade barriers, implement policy reforms and enable companies, including micro, small and medium-sized enterprises, to integrate into regional and global value chains.

Indeed, aid for Trade can play a major role.

Aid for Trade on developing countries, in particular least developed countries, including through the Enhanced Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries. The conference agreed to strive to allocate an increasing proportion of Aid for Trade going to least developed countries, provided according to development cooperation effectiveness principles.

The goal of protecting and encouraging investment should not affect our ability to pursue public policy objectives. That requires crafting trade and investment agreements with appropriate safeguards so as not to constrain domestic policies and regulation in the public interest.

Related areas of developmental concern are the promotion of inclusive and sustainable industrialization. It was noted that:

We stress the critical importance of industrial development for developing countries, as a critical source of economic growth, economic diversification, and value addition.

We will invest in promoting inclusive and sustainable industrial development to effectively address major challenges such as growth and jobs, resources and energy efficiency, pollution and climate change, knowledge-sharing, innovation and social inclusion.

Similarly, micro, small and medium-sized enterprises were recognized as means generating full and productive employment and decent work for all and promoting micro, small and medium-sized enterprises.

To enable all people to benefit from growth, nations need to include full and productive employment and decent work for all as a central objective in our national development strategies and encourage the full and equal participation of women and men, including persons with disabilities, in the formal labour market.

The document stated:

We note that micro, small and medium-sized enterprises, which create the vast majority of jobs in many countries, often lack access to finance. Working with private actors and development banks, we commit to promoting appropriate, affordable and stable access to credit to micro, small and medium-sized enterprises, as well as adequate skills development training for all, particularly for youth and entrepreneurs.

Regarding debt and debt sustainability, the Addis Ababa Action Agenda underlined that borrowing is an important tool for financing investment critical to achieving sustainable development, including the sustainable development goals. Sovereign borrowing also allows government finance to play a countercyclical role over economic cycles.

However, borrowing needs to be managed prudently. Since the Monterrey Consensus, strengthened macroeconomic and public resource management has led to a substantial decline in the vulnerability of many countries to sovereign debt distress, as has the substantial debt reduction through the Heavily Indebted Poor Countries (HIPC) initiative and Multilateral Debt Relief Initiative.

The agreement underlined that:

We recognize the need to assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief, debt restructuring and sound debt management, as appropriate. We will continue to support the remaining HIPC-eligible countries that are working to complete the HIPC process. On a case-by-case basis we could explore initiatives to support non-HIPC countries with sound economic policies to enable them to address the issue of debt sustainability. We will support the maintenance of debt sustainability in those countries that have received debt relief and achieved sustainable debt levels.

We recognize that severe natural disasters and social or economic shocks can undermine a country’s debt sustainability, and note that public creditors have taken steps to ease debt repayment obligations through debt rescheduling and debt cancellation following an earthquake, a tsunami and in the context of the Ebola crisis in West Africa. We encourage consideration of further debt relief steps, where appropriate, and/or other measures for countries affected in this regard, as feasible.

Social inclusion was another crucial developmental agenda that was addressed on the conference as well as the outcome document.

Evidence shows that gender equality, women’s empowerment and women’s full and equal participation and leadership in the economy are vital to achieve sustainable development and significantly enhance economic growth and productivity. Promoting social inclusion in domestic policies, enforce non-discriminatory laws, social infrastructure and policies for sustainable development, as well as enable women’s full and equal participation in the economy, and their equal access to decision-making processes and leadership are essential components of the objective.

In this regard, the conference pledged that:

We reaffirm that achieving gender equality, empowering all women and girls, and the full realization of their human rights are essential to achieving sustained, inclusive and equitable economic growth and sustainable development.

We reiterate the need for gender mainstreaming, including targeted actions and investments in the formulation and implementation of all financial, economic, environmental and social policies.

We recommit to adopting and strengthening sound policies and enforceable legislation and transformative actions for the promotion of gender equality and women’s and girls’ empowerment at all levels, to ensure women’s equal rights, access and opportunities for participation and leadership in the economy and to eliminate gender-based violence and discrimination in all its forms.

Similarly, it recognized that:

"investing in children and youth is critical to achieving inclusive, equitable and sustainable development for present and future generations, and we recognize the need to support countries that face particular challenges to make the requisite investments in this area."

Regarding, science, technology, innovation and capacity-building, it was agreed that the creation, development and diffusion of new innovations and technologies and associated know-how, including the transfer of technology on mutually agreed terms, are powerful drivers of economic growth and sustainable development.

However, it is concerning that the persistent “digital divide” and the uneven innovative capacity, connectivity and access to technology, including information and communications technology, within and between countries. In this regard, the particpants pledged that:

We will promote the development and use of information and communications technology infrastructure, as well as capacity-building, particularly in least developed countries, landlocked developing countries and small island developing States, including rapid universal and affordable access to the Internet. We will promote access to technology and science for women, youth and children. We will further facilitate accessible technology for persons with disabilities.

We will encourage knowledge-sharing and the promotion of cooperation and partnerships between stakeholders, including between Governments, firms, academia and civil society, in sectors contributing to the achievement of the sustainable development goals. We will promote entrepreneurship, including through supporting business incubators.

We resolve to adopt science, technology and innovation strategies as integral elements of our national sustainable development strategies to help to strengthen knowledge-sharing and collaboration. We will scale up investment in science, technology, engineering and mathematics education, and enhance technical, vocational and tertiary education and training, ensuring equal access for women and girls and encouraging their participation therein. We will increase the number of scholarships available to students in developing countries to enrol in higher education. We will enhance cooperation to strengthen tertiary education systems, and aim to increase access to online education in areas related to sustainable development.

We will support research and development of vaccines and medicines, as well as preventive measures and treatments for the communicable and non‑communicable diseases, in particular those that disproportionately impact developing countries. We will support relevant initiatives, such as Gavi, the Vaccine Alliance, which incentivizes innovation while expanding access in developing countries. To reach food security, we commit to further investment, including through enhanced international cooperation, in earth observation, rural infrastructure, agricultural research and extension services, and technology development by enhancing agricultural productive capacity in developing countries, in particular in least developed countries, for example by developing plant and livestock gene banks.

Overall, the conference was a double win for Ethiopia.

On one hand, it was a big boost in Ethiopia's diplomatic stature. The government of Ethiopia did not only make sure that the conference took place in a safe, convenient, and productive environment; it was active in the proceedings facilitating the negotiations and the successful adoption of the ground-breaking agreement.

On the other hand, the agreement document and the consensus reached in the conference are mostly similar to Ethiopia's developmental plans. From investment to tax, from industrialisation to micro, small industries, from ODA to regional integration, from gender to capacity building, most of the key issues adopted in the conference are in line with Ethiopia's developmental paradigm, in general, and the Growth and Development Plan, in particular.

Hence, the Third Financing for Development Conference was both a diplomatic and developmental success for the host, Ethiopia.


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