Debate

The XNUMX% target is an obstacle to effective development assistance

The XNUMX% target leads to more efficient ways of conducting assistance, such as issuing guarantees, being prioritized because they generate few payments and therefore do not contribute to meeting the target. Sida should instead upgrade the guarantee instrument for effective assistance.
- It is becoming increasingly clear that the one percent goal is a black on the foot for effective development assistance activities, says Helena Antoni, responsible for development aid and development issues within the Moderates.

The key to long-term positive development in aid countries is to mobilize local entrepreneurs who can build society from the ground up. But to start a business or start a major construction project requires capital that can be difficult for a small business owner in a poor country to obtain. Many investors see it as too risky to lend money without collateral, or to finance a project in a conflict zone. Here, Sweden can help by entering as a creditor for larger loans via Sida and taking over part of the risk.

The guarantee instrument has been used successfully for many years and has helped to finance activities and projects that might not otherwise have existed. Above all, it has strengthened low-resource groups such as women and young entrepreneurs. The guarantees have also proved to be a very cost-effective way of conducting development assistance. According to Sida's own calculation, each subsidized krona creates SEK 70 in external capital.

Unfortunately, this cost-effectiveness is in conflict with the XNUMX% target and must therefore be left behind in development aid work. Sweden aims to pay one percent of the country's gross national income in development assistance. In practice, this means that more efficient ways of conducting aid are given lower priority because they do not contribute to meeting the goal. Several of Sida's employees report, for example, that the management advocates the payment of development assistance funds rather than issuing guarantees, as the latter only generate few, if any, payments.

It is high time that we re-evaluate the objective of development assistance to also include other, more effective tools. Sida's guarantees mobilize capital for entrepreneurs and development projects that create added value for their communities. The guarantees can also be directed to different areas that harmonize with Sweden's strategies in general, such as environmental and climate initiatives.

Unfortunately, today we do not know exactly how effective the guarantee instrument is. According to the National Audit Office's review, which was published in November last year, Sida has failed in its follow-up of the guarantees. This applies, among other things, to the evaluation of short- and long-term effects. It is difficult not to get the feeling that the loan guarantees are being treated stepmotherly by the authority's management, and it is easy to assume that the one per cent target is the problem. If the business's goal is to pay out a certain amount in development assistance each year, the natural effect is that cost-effective instruments are given lower priority, as they make it more difficult to achieve the goals.

In that case, it is misconceived by Sida's management. The more the authority focuses on cost-effective initiatives that generate a long-term positive economic development in the aid countries, the more money is left in the aid pot to pay out to those in urgent need of help. Sida's guarantees also multiply the investment in a certain project, which means that it can reach more people.

It is becoming increasingly clear that the one percent target is a black on the foot for effective development assistance. Sweden is a proud donor country, but the efforts we make will generate maximum benefit over time. Everything else would be unsustainable and disrespectful to taxpayers. Through the guarantees, Sweden's development assistance efforts can reach more people, strengthen local communities and create long-term development in the development assistance countries. It would be better if Sida did the opposite and prioritized the guarantees for achieving effective development assistance operations.

This is a debate article. The author is responsible for analysis and opinions in the text.

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