Taking the Strain Off Over-Burdened Budgets

Erik Lundsgaarde

Senior Researcher at the German Development Institute (DIE)

While governments around the world have long advocated mobilising finance for development from sources beyond official development assistance, the engagement of private actors in the global development arena is especially welcomed in the current context of strained budgets in OECD donor countries. Just as there are variations within the donor community in terms of the organisation, rationale, and impact of development cooperation programmes, in developing strategies for engagement with non-state actors it is necessary to acknowledge their heterogeneity. There is a large distance between a profit-oriented multinational corporation that can make a potential contribution to development goals by creating jobs, providing tax revenue, and adhering to social and environmental standards through core business operations, and a family foundation providing grants related to a narrow set of themes. Even within the foundation sector, it is important to recognise differences among actors regarding their history of engagement in developing countries, their size, their priorities, and the nature of their existing interaction with OECD donors at headquarters level and in the field.

The financial independence of private foundations brings potential advantages in addressing politically sensitive development goals and disbursing funding without extensive consultation processes that can slow down the work of public donors. However, this independence also presents foundations with a challenge to demonstrate their legitimacy as development assistance providers, for example by ensuring that their funding priorities respond to locally determined needs. The desirability of pursuing demand-driven development cooperation has been on the donor agenda for many years now. It is reflected in Paris Declaration commitments to promote national ownership of development programmes and to increase the alignment of donor interventions with national development strategies and improve implementation through country systems. Questions concerning the predictability and sustainability of aid flows, the extent to which external aid providers contribute to capacity building within partner organisations and the relative effectiveness of different types of interventions are relevant for private foundations and OECD donors alike. Private and public aid providers should thus consider themselves as part of the same community, where exchange and agreement on standards of best practice in development cooperation can be pursued further. Existing efforts to develop standards of best practice in the philanthropic sector through umbrella groups such as the Council on Foundations and the European Foundation Centre offer an entry point for donors in deepening ties with private foundations.

To enhance the legitimacy of their global development activities, private foundations (like public donors) must also work to increase the transparency of the financing they provide. Determining how to build more effective partnerships for development and assessing effectiveness requires a better information base on funding volumes and priorities. Compiling more comprehensive country-level data on these financing flows is an issue that donors, private foundations, and partner governments should address in order to understand how different types of financing flows can best complement one another in the pursuit of broad development goals that individual actors cannot achieve alone.