8 Conclusions and recommendations

The world is at a crossroads. Poverty is increasing globally, and climate change is already having impacts on poor countries. Democracy, human rights and civil society are being undermined in more and more countries. In other words, there is a great deal at stake, and the choices we make now will influence the prospects of sustainable development for many years to come. This is true of the fight against poverty, climate action and efforts to determine what type of governance becomes dominant in different regions of the world.

As one of the world’s richest countries, Norway has a moral responsibility to influence these developments, and also greater opportunities to do so than most other countries. Norway also has a long tradition of providing more aid per capita than most other countries. As a result, Norway has considerable influence and a positive image, which have also been helpful for Norwegian interests. However, changing circumstances mean that Norway’s financial wealth is becoming increasingly dependent not only on new and growing markets, but also on political stability and on risk reduction and response to global threats and crises. The COVID-19 pandemic showed unequivocally that Norway is affected by what happens in other parts of the world.

In addition, the war in Ukraine has resulted in a sharp rise in oil and gas revenues, reinforcing other countries’ expectations that Norway will be a major contributor to poverty reduction and to efforts to address global challenges. Any signals that aid levels may be reduced or proposals to further water down ODA rules could jeopardise Norway’s reputation and reduce its international influence in several areas.

Contributions to development initiatives in poor countries and to climate change adaptation and mitigation are an investment in a common future for developing countries and for ourselves. The expert group therefore proposes a change of course in development policy, so that contributions to poverty reduction and to risk reduction and response to climate change and other global challenges should be considered as investments rather than donations.

The expert group concludes, firstly, that this change of course will require considerable upscaling of Norway’s contributions. This is also economically beneficial, because it is far less costly to invest in limiting climate change and reducing its impacts than to seek to manage impacts that have already occurred. The proposed increase in development finance is based on long-term, enlightened self-interest. It should therefore not be at the expense of but in addition to the resources Norway has undertaken to provide for poverty reduction, reducing inequality and humanitarian aid in poor countries. It is just as important as before, if not more important, to maintain a high level of ODA financing for these purposes. In addition to scaling up official finance flows, it will be important to use this to mobilise private capital, for example through guarantee arrangements. However, private capital should not be included when reporting on aid.

Secondly, the expert group’s position constitutes a new line of thinking as regards international development, where resources must be viewed as investments that are used to maximise social benefits. The expert group therefore proposes the establishment of an investment framework with clearly formulated goals and criteria. The aim is to ensure that all activities contribute as effectively as possible towards political goals adopted at various levels of the public administration. This must not result in a greater administrative burden for partners but must ensure effective allocation of aid funding and opportunities to make adjustments in order to achieve goals.

Thirdly, the expert group concludes that a ‘Team Norway’ should be established to coordinate the activities of all development cooperation stakeholders and ensure an integrated approach and policy coherence. This could combine regulatory work at national and international level with an integrated approach to overall goals, and ensure that research institutions, the public sector, civil society, together with the social partners, all work together. The focus on policy coherence is vital to maximise the returns on the resources – in terms of both funding and expertise – available from Norway for developing and scaling up investments and good solutions in developing countries.

Recommendations

The expert group was asked to (i) recommend ways of following up the aim set out in the Government’s political platform to spend 1 % of Norway’s GNI on international efforts to achieve the SDGs and socially, economically and environmentally sustainable development, (ii) recommend how Norway can most effectively contribute to the international debate on how to secure the funding needed to promote economic development and welfare in developing countries, as well as to deliver global public goods, and advice regarding internationally acceptable reporting systems, and (iii) recommendations on possible exceptions to ODA rules in the aid budget. In response, the expert group has made the following recommendations:

Aid to poor countries is more than just an expression of solidarity. It is also an investment in a common future. However, there is only a limited window of opportunity for mitigating and adapting to climate change – activities that will be of crucial importance in the fight against poverty and growing inequality. To ensure political debate and a sound political basis for the new approach, and to analyse and make decisions on the administrative and budgetary consequences of the specific recommendations of this report, the expert group recommends that a white paper should be prepared on the development policy choices Norway is facing.

A new framework for development policy: investing in sustainable development

1. Investment principles: performance and effectiveness
2. To ensure genuine partnerships and achieve goals more effectively, the expert group proposes a new framework for thinking about, assessing, and following up the use of limited development finance, organised around investment principles designed to maximise social benefits.
3. This will include the following points:
• Following the principles of setting clear goals and requirements for effectiveness, taking a long-term approach, and showing patience, and active management and follow-up.
• Establishing an investment framework that makes it possible to assess which activities and channels are most effective for achieving specific political goals.
• Drawing up investment instructions for sound assessments as part of the management of Norwegian aid funding.
• Focusing more strongly on equitable partnerships with and political backing in developing countries (localisation).
• Clarifying development policy goals, and establishing two different categories of development activities, one focusing on development and poverty reduction (category 1) and the other on global public goods that are particularly relevant to developing countries (category 2).
• Making a complete review of Norway’s aid portfolio based on the investment principles set out in this report and the evaluation criteria included in the investment instructions.
4. From 1 % to 2 % of GNI: poverty reduction and global challenges
5. The expert group proposes that Norway’s total contribution towards our common future should over time be doubled from 1 % to about 2 % of GNI. To ensure effective use of resources and good results, clear goals are needed. This is why the expert group proposes a two-pronged development policy, with two categories of activities.
• For category 1 (a and b), the overall objective is poverty reduction (1a), together with emergency aid during humanitarian crises (1b).
• For category 1 activities, this will involve markedly stricter application of ODA rules than is the case today. Only activities that are considered to contribute effectively towards achieving the overall objectives will be included. In line with this, funding for hosting refugees in Norway should be allocated from outside the aid budget.
• The expert group proposes that finance for category 1a and 1b activities together should correspond to 0.7 % of GNI, in line with the UN target, and should be higher than this in periods where there are major humanitarian crises and needs.
• For category 2, the objective is to play a part in addressing global crises that affect developing countries particularly severely, such as climate change. The expert group proposes funding initially corresponding to 0.3 % of GNI for this category, but in line with recommendations by the Intergovernmental Panel on Climate Change (IPCC) and the Paris Agreement, proposes that this should be gradually increased to reach 0.7 % of GNI by 2032.
• The increase in development finance in category 2 should not be at the expense of but in addition to resources provided under category 1.
6. Target of mobilising private capital corresponding to 0.7 % of GNI for sustainable development
7. Official aid makes up only a small proportion of the investments needed to achieve the SDGs. The expert group therefore proposes a target of mobilising further private resources corresponding to 0.7 % of GNI over time. Action to achieve this target includes the following:
• Establishing or further developing arrangements involving guarantees to trigger private investments in cooperation with other Nordic countries.
• Increasing replenishment levels for Norfund and Norway’s Climate Investment Fund, and considering the inclusion of new sectors, for example health and education. Only the proportion of such replenishments that constitutes development expenses and is not purely an investment should be included as part of the aid budget.
• Increasing the use of investment platforms that reduce costs and risk levels, and that promote greater investment in local business and industry in developing countries.
• In addition to mobilising private capital, considering the use of innovative mechanisms to deal with risk factors such as natural disasters, including insurance arrangements that can be used to reduce risk and shorten response times during crises.
8. Effective channels for official development assistance
9. The channels for official development assistance that are most effective will depend on which goals are to be achieved. A well-functioning multilateral system is vital for achieving the objectives of poverty reduction and delivering global public goods. The development banks – the World Bank and the regional development banks – are more effective than other channels for mobilising further funding because they leverage four times as much financial support to low-income countries as they receive in donor contributions. The development banks also have a role to play in achieving the target for greater private investment (see point 3 above). Funding via UN organisations will be another useful channel of delivery where aid operations can be combined with normative work.
• Norway should give priority to increasing replenishment levels through for instance the World Bank Crisis Facility and corresponding mechanisms in the African Development Bank. Increasing the loan capacity of these institutions will increase the likelihood of developing countries investing in green development and will result in a lower risk of debt problems than loans from other institutions.
• Norway should actively follow up and support the applicable G20’s recommendations on increasing the lending capacity of the development banks within the framework of their existing capital and without jeopardizing the banks’ long-term financial sustainability and high credit ratings.
• Norway should actively support the UN Secretary-General’s vision for inclusive multilateralism. In line with the proposal for an investment framework, Norway should work towards clearer goals for different parts of the UN system and towards more effective multilateral solutions, for example by strengthening core support, using earmarking less, and reducing the use of unnecessary intermediaries that drive up costs.
• Norway should particularly support those parts of the UN system that deliver results most effectively, but without undermining the UN’s important role as a norm-setter and a legitimate and representative actor.
• In cases where civil society organisations are the most effective channels for delivering humanitarian aid and development programmes and for strengthening democracy and governance, Norway will continue to support these organisations.
10. Mobilising all development cooperation stakeholders
11. Norway can offer both financial and other resources. For these resources to be used successfully, it is vital to link together expertise and other tools and instruments so that different activities and investments are coordinated. The establishment of a ‘Team Norway’ for development to link together all stakeholders should be considered. This will include:
• An integrated, cross-sectoral approach to ensure policy coherence. This will require coordination at a high political level, with clearly defined responsibilities for following up strategies and action plans.
• Norwegian bilateral activities in category 2 should be concentrated in countries where Norway has a direct presence.
• A stronger focus on resource mobilisation at national level through taxation and by making action to combat corruption and illicit financial flows an integral part of other efforts in a country or sector. This is important not only as a way of establishing a good framework for economic growth via private investments (both national and international) but also for developing a social contract between a state and its citizens.
• Ensuring local ownership and cooperation with relevant national authorities.
• Support for research, civil society, democracy and good governance as an integral part of efforts to promote sustainable development.
• A focus on creating decent workplaces where the social partners are represented.
• Establishing innovation and value chains in developing countries on the same pattern as in Norway and the rest of Europe to forge links between research and innovation of particular relevance to developing countries.
• Support for regulatory work to reduce investment-related risk, support for developing expertise and industrial development at local level, and the establishment of investor platforms that can play a part in building up investment ecosystems.
12. International reporting systems: ODA and TOSSD
13. Reporting systems are an important basis for ensuring international support and mobilising efforts to achieve shared goals. They are also essential for obtaining comparable data series, which are needed for quality assurance and learning over time. The OECD’s Development Assistance Committee (DAC) plays an important role by determining ODA rules but does not ensure adequate participation and influence by countries that receive aid funding.
• OECD-DAC is still the key channel for assessments and as a basis for allocation of Norway’s aid budget. Developing countries should have a seat at the table and be able to exert influence when ODA rules are being discussed.
• Norway should work internationally towards stricter application of the ODA rules.
• Provided that it is designed appropriately, the TOSSD framework should in the longer term be a suitable reporting system for investments in sustainable development. Norway should actively seek to influence international discussions on the development of TOSSD as an instrument for tracking these resources and a source of data on aid and should support broad participation by developing countries in governance arrangements for TOSSD.
• Norway should seek to ensure that the TOSSD framework includes a distinction between investments in global public goods that are of substantial benefit to developing countries and investments in global public goods in high-income countries that are not of substantial benefit to developing countries.
• To ensure that Norway’s total investments in sustainable development, including the proportion that does not come within the scope of ODA funding, are transparent and can be monitored nationally and internationally, Norway together with other countries should seek to ensure that the TOSSD framework is developed to include an appropriate donor perspective.
14. Exceptions from ODA rules in the aid budget
15. In some cases, our interpretation of ‘investments in sustainable development’ may go beyond what is included in the current ODA rules. Within category 2 – cooperation on global public goods that are particularly relevant to developing countries – new activities may be organised in such a way that they are no longer in line with the ODA rules. This means that:
• There will not generally be exceptions from the current ODA rules for category 1 activities.
• In practice, the criteria included in the proposal: requirements relating to effectiveness and sustainability, and the geographical criterion that there must be a link to developing countries, together with the considerable scope already allowed by ODA rules for including investment in development, mean that any exceptions for category 2 activities will only apply to exceptional cases and will be very limited. The flexibility proposed here will primarily be relevant when finance for category 2 activities has increased so much that total development finance provided by Norway exceeds 1 % of GNI.
• In exceptional cases, it should be possible to use resources from the aid budget for category 2 activities for international financing of sustainable development (here divided into four pillars – social, economic, environmental, and political) if their ODA eligibility is doubtful or they are outside the scope of ODA rules. It should be an absolute requirement that activities have a poverty-reducing effect and improve effectiveness through greater financial flexibility compared with similar projects that fall within ODA rules.
• It should be possible to adjust the design or financing of activities that are already under way under the aid budget. Not having to adjust to the ODA rules might improve performance of some projects. This could be relevant for the Climate and Forest Initiative, Norfund, the Climate Investment Fund and organisations with a wide or global reach.
• Norway should seek to ensure that activities that are excepted from ODA rules but financed through the aid budget are covered by the tools used by the OECD’s Development Co-operation Directorate (DCD) to assess aid effectiveness. Activities should be evaluated as part of peer reviews to ensure that ex-post adjustments are made as necessary.
• Financing must be official and concessional in character.