64498 August 2011 – Number 42 ARAB DONORS RESPOND FAVORABLY TO THE GLOBAL FINANCIAL CRISIS Mustapha Rouis1 Co-operation (OECD) nearly doubled during the two-year crisis period, as compared to the The World Bank’s 2010 study, Arab Development two years before the crisis, rising to 3.9 percent Assistance: Four Decades of Cooperation, showed from 2.1 percent. Their share in total ODA of that Arab countries have been generous donors non-DAC donors (some 20 countries reporting over the years, particularly the three Gulf to DAC on a voluntary basis) also increased countries—Kuwait, Saudi Arabia, and the significantly from half to nearly two-thirds.3 United Arab Emirates (UAE)—which represent over 90 percent of total Arab aid provided by The combined net ODA disbursement from those countries on which information is these three countries peaked at US$ 5.4 billion available. This paper confirms that the in 2008, a period when the global financial crisis generosity extends to the period of the global was at its worst, and remained high at US$ 4.2 financial and economic crisis. Arab Gulf billion in 2009 (Figure 1). In real terms (2009 countries and regional financial institutions prices), total ODA from the three countries were responsive to this new reality and combined nearly doubled over the crisis period collectively scaled up financial assistance to (2008–2009) compared to the two-year period address critical development and humanitarian preceding the crisis. All three countries needs in developing countries. substantially increased their assistance, with Saudi Arabia showing the highest increase. Gulf Countries Substantially Increased Their Furthermore, Saudi Arabia continued to be the Development Assistance in the Crisis Years most significant contributor, averaging 85 percent of total disbursement during both During the height of the global financial crisis years, followed by the UAE (10 percent), and (2008–2009), official development assistance Kuwait (5 percent). (ODA) from Kuwait, Saudi Arabia, and the UAE2 significantly increased in both relative Total ODA from the three countries also and absolute terms. Their combined share of increased significantly as a share of gross total aid as reported by the Development national income during 2008–2009, averaging Assistance Committee (DAC) of the 0.59 percent compared to 0.32 percent during Organisation for Economic Development and the previous two years. This level is higher than the OECD-DAC average of 0.31 percent, and in 1 the case of Saudi Arabia (1.04 percent) much Lead Economist, Chief Economist’s Office, Middle East and North Africa region, The World Bank. Data support was provided by Nardos Lemma (Consultant). The author is grateful for valuable comments received from Farrukh Iqbal and Caroline Freund (World Bank), Kimberly Smith 3 Gross ODA disbursements of the 20 countries reporting to (OECD-DAC), Martin Barber (UAE-OCFA) and Steven DAC total USD 7.3 billion in 2009. The BRICS (Brazil, Tabor and Amanda Green van Kirk (external reviewers). Russia, India, China and South Africa) are among the 2 In the case of the UAE, the increase in 2009 is partly due countries which do not provide information to DAC. Their to the increase in the coverage of reporting. In 2010, as combined assistance is estimated at USD 3.7 billion in 2009. discussed below, the UAE began reporting its whole-of- See Zimmermann and Smith (2011.) “Policy Arena: More government aid to the DAC. Previously, UAE reporting Actors, More Money, More ideas for International Development was limited to the Abu Dhabi Fund for Development. Co-operation�. Journal of Development 23, 722-738 higher than the United Nations target of 0.7 The United Arab Emirates Is The First Non- percent. DAC Country To Provide Detailed Aid Flow Information The bulk of assistance from these three Gulf countries is provided on a bilateral basis (97.6 It is possible to examine the allocation of UAE percent), channeled largely through the development assistance in more detail, as the respective governments, and provided in the UAE now provides detailed activity-level form of grants (about 93 percent). Recently, reporting on aid flows to the OECD/DAC. In Saudi Arabia and Kuwait have increased their 2008, the UAE established the Office for the contributions to the International Development Coordination of Foreign Aid (OCFA), which Association (IDA) under the IDA-16 tracks and documents the financial assistance replenishment. provided by the country.4 In 2010, the UAE became the first country outside the OECD- Figure 1. Total Net ODA Disbursements of DAC to provide detailed aid flow information. OECD data show that, in 2009, the UAE 6000 0.6 contributed US$ 1.04 billion in gross ODA.5 Of 5000 0.5 this assistance, 91 percent was in the form of grants or in-kind aid (such as food aid) and 9 4000 0.4 percent in concessional loans. This aid was sourced from the government (76 percent), the 3000 0.3 Abu Dhabi Fund for Development (16 percent), and foundations and charities (8 percent). Over 2000 0.2 twenty five agencies in the UAE are involved in 1000 0.1 providing overseas assistance, and the list is growing. 0 0.0 2000 2002 2004 2006 2008 From a regional perspective, 56 percent of UAE’s gross ODA disbursements in 2009 were Arab ODA (US$mil)LH directed to the Middle East and North Africa, Arab ODA/GNI % 4 OCFA was established by decree and reports directly to DAC ODA/GNI the UAE Cabinet. It has about 20 staff. 5 This figure for gross ODA (US$ 1,038 million) should not Kuwait, Saudi Arabia and UAE be confused with the net disbursement figure used in the above section (US$ 834 million). Also, there is a difference in the total ODA reported by the OECD’s Development Co- The three Gulf countries stepped up their aid operation Directorate and the UAE’s OCFA. OCFA’s data even though they themselves were not immune show that total financial assistance for 2009 was US$ 2.432 to the global financial crisis. Kuwait and the billion. The OECD’s ODA report only included development and humanitarian assistance given to UAE experienced economic recessions in 2009, countries listed on the DAC’s List of ODA Recipients. In and economic growth in all three countries addition, the OECD ODA figures exclude charitable decelerated in 2008–2009 as compared to 2006– assistance, aid from private sources, and assistance given to 2007. Fiscal and current account balances in non ODA-eligible countries. The ODA-eligible portion amounts to US$ 1.038 billion in total gross ODA these countries also shrank. The impact of the disbursements. The main adjustment consisted of excluding global crisis was felt in 2009, with a one-year amounts committed by the Abu Dhabi Fund but not yet lag. In that year crude oil prices dropped by 40 disbursed to Yemen, Pakistan, Afghanistan, and the percent in real terms. World commodity prices Seychelles. These amounts total about US$ 1.18 billion. Other adjustments, totaling some US$ 214 million, include reached their peak in 2008. Cereal prices are of contributions made by the private sector and some particular relevance to the Middle East and nongovernmental organizations, and those received by North Africa region, and to the Gulf countries countries that are not on the OECD’s List of ODA in particular, as the region accounts for half of Recipients. For a discussion of the adjustments, see Kimberly Smith (2011). “United Arab Emirates Statistical total world cereal imports. Reporting to the DAC�. OECD Development Co-operation Directorate. Paris August 2011 · Number 42 · 2 13 percent to Sub-Saharan Africa and the bulk Arab Regional Financial Institutions Scale Up of the remaining 30 to Asia (excluding Middle Their Assistance East). Over half (54 percent) of UAE’s aid was provided to poor countries (defined as IDA Arab generosity in response to the global recipient countries). Some 22 percent of UAE financial and economic crisis was not limited to aid was provided to Highly Indebted Poor bilateral aid from Gulf donor countries. Countries (HIPC), all but Afghanistan in Sub- Regional development financial institutions Saharan Africa. also increased their assistance during and after the crisis6 (Figures 2 and 3). Five recipient countries (West Bank and Gaza, Pakistan, Oman, Yemen, and Syria) accounted Figure 2. Commitments of Regional Arab for over 70 percent of UAE assistance. In terms Financial Institutions of sector allocations, economic sectors and commodity aid/general programs each 35 accounted for 19 percent, followed by 30 government and civil society at 18 percent, 25 infrastructure (including water supply and 20 sanitation) at 15 percent, humanitarian aid at 14 percent, and health and education at 12 percent. 15 10 The OCFA is also in the process of extending 5 the coverage of reporting to the years prior to 2009 to arrive at a comprehensive account of 0 the UAE’s ODA during those years. Until 2009 data reported to OECD-DAC only reflect ODA reported by the Abu Dhabi Fund for 2010 2009 2008 Cum 2007 Development and may not show the total ODA for the UAE. (USD billions, constant 2009 prices) The establishment of the OCFA points toward Figure 3. Commitments of Regional Arab the potential for continued improvements in Financial Institutions the effectiveness of UAE assistance. The OCFA (USD billions) envisions helping UAE donor organizations to 7 build stronger capacity for monitoring and evaluation of their assistance. Two reporting 6 agencies—Dubai Care and the Khalifa 5 Foundation—have already put monitoring and 4 evaluation systems in place. OCFA also plans to play a growing role in international aid 3 effectiveness forums. The UAE plans to 2 participate in the Fourth High Level Forum on Aid Effectiveness, which is to be held in Busan, 1 in the Republic of South Korea, in November 0 2011. The success of the OCFA could be 1990 94 1995 99 2000 04 2005 7 2008 10 emulated by other countries in the region. Qatar and Saudi Arabia are moving in this nominal real direction by building and strengthening their own aid agencies. 6 It should be pointed out that there is a double count between this section and the first one as outflows from the three national funds (Abu Dhabi Fund, the Kuwait Fund and the Saudi Fund) are included in the figures that the UAE, Kuwait and Saudi Arabia respectively report to the DAC. These entities are the primary bilateral aid agencies of the countries in question. August 2011 · Number 42 · 3 According to data provided by the Figure 4. Allocation of Arab Financial Coordination Secretariat of the Arab National Institutions by Recipient Countries (%) and Regional Developmental Institutions, total commitments of the eight Arab financial 0 20 40 60 institutions7 increased substantially over the period 2008–2010 compared to the pre-crisis IDA recipients period (2005–2007). This increase amounted to 35 percent in real terms. Total commitments HIPIC reached nearly US$ 7 billion in 2010, as compared to US$ 4.7 billion in 2007. As in the Africa past, the bulk of assistance provided during 2008–2010 came from three institutions: the Sub saharan Africa Islamic Development Bank (36 percent), Arab Fund for Economic and Social Development (21 percent), and Kuwait Fund for Arab Economic Asia Development (13 percent). 2005 7 2008 10 Arab financial institutions expanded their support to poorer countries. IDA recipient countries saw their share of Arab financial institution aid flows increase by 8 percentage Figure 5. Sector Allocations of Arab Financial points over the period 2008–2010 as compared Institutions (commitments, %) to 2005-2007, reaching 46 percent of total commitments. Similarly, Sub-Saharan Africa’s Other share increased by 15 percentage points, Industry reaching 49 percent of total commitments. The increase in aid to poor countries came largely as Agriculture a result of a drop in the share of aid provided to Arab countries (Figure 4). Water During the financial and economic crisis, Arab Energy financial institutions continued to support Transport primarily infrastructure sectors such as transportation, energy, and water (Figure 5). Financial assistance dedicated to supporting 0 10 20 30 40 50 infrastructure-related projects grew during 2010 2009 2008 Cumulative 2007 2008–2010. Lately, there have been efforts to devote more resources to agriculture and social sectors. Contact MNA K&L: Emmanuel Mbi, Director, Strategy and Operations. MNA Region, The World Bank Regional Quick Notes Team: Omer Karasapan, , Roby Fields, and Hafed Al-Ghwell Tel #: (202) 473 8177 The MNA Quick Notes are intended to summarize lessons 7 learned from MNA and other Bank Knowledge and Learning These include the Abu Dhabi Fund for Development, activities. The Notes do not necessarily reflect the views of the Kuwait Fund for Arab Economic Development, Saudi Fund World Bank, its board or its member countries. for Development, Arab Fund for Economic and Social Development, Arab Monetary Fund, Arab Bank for Economic Development in Africa, OPEC Fund for International Development (OFID), and Islamic Development Bank (IsDB). Strictly speaking, the IsDB and OFID are not exclusively Arab-financed institutions, but Arab countries provide the majority of their funding. August 2011 · Number 42 · 4