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Can we move from a risk framework to an opportunities framework in international development?

Written by Simon Maxwell

I’m trying to work something out and would appreciate some help.

In thinking about the future of international development, under the rubric of our ‘What’s Next?’ theme, I’ve found it very useful to make use of risk management frameworks, like the global risks analysis pioneered by the World Economic Forum. An example of what they do is pasted in below, taken from the Global Risks 2008 Report. This charts 26 core global risks by likelihood and by severity of economic loss. An asset price collapse is in the top right-hand corner, seen as reasonably likely and very expensive. Extreme inland flooding is in the bottom left hand corner, seen as rather unlikely and somewhat less expensive. The Report was published in January 2008. I don’t know whether the WEF tracks the accuracy of its analysis, but this year has been marked by both an asset price collapse and severe inland flooding, both very expensive in money terms and in human misery. It is worth looking at some of the other risks in the table: pandemics, nanotechnology, transnational crime, war. Not all bad things have happened at the same time. Yet.

The 26 Core Global Risks: Likelihood with Severity by Economic Loss

There is lots to say about risk analysis. Global or Local? Long-term or short-term? Financial or social? There is lots to say, too, about the implications for development planning. It is a useful approach.

However, a risk analysis is only half the story. We are missing the opportunities. A sensible guide to making decisions and spending money should take account of risks, but also of opportunities. Where is the opportunity analysis?

I had hoped that this was a question no-one had quite thought of, but of course that is not the case. The Millennium Development Goals provide a kind of opportunity framework, though without the rigour of cost-benefit analysis. The MDGs and their key indicators are listed below.

Goal 1
Eradicate extreme poverty and hunger

Target 1.A
Halve, between 1990 and 2015, the proportion of people whose income is less than a dollar a day

Target 1.B
Achieve full and productive employment and decent work for all, including women and young people*

Target 1.C
Halve, between 1990 and 2015, the proportion of people who suffer from hunger

Goal 2
Achieve universal primary education

Target 2.A
Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling

Goal 3
Promote gender equality and empower women

Target 3.A
Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015

Goal 4
Reduce child mortality

Target 4.A
Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate

Goal 5
Improve maternal health

Target 5.A
Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio

Target 5.B
Achieve, by 2015, universal access to reproductive health*

Goal 6
Combat HIV/AIDS, malaria and other disease

Target 6.A
Have halted by 2015, and begun to reverse, the spread of HIV/AIDS

Target 6.B
Achieve, by 2010, universal access to treatment for HIV/AIDS for all those who need it

Target 6.C
Have halted by 2015, and begun to reverse, the incidence of malaria and other major diseases

Goal 7
Ensure environmental sustainability

Target 7.A
Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources

Target 7.B
Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss*

Target 7.C
Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation

Goal 8
Develop a global partnership for development

Target 8.A
Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. Including a commitment to good governance, development and poverty reduction – both nationally and internationally

Target 8.B
Address the special needs of the least developed countries. Including: tariff and quota free access for least developed countries’ exports; enhanced programme of debt relief for HIPC, and cancellation of official bilateral debt; and more generous ODA for countries committed to poverty reduction

Target 8.C
Address the special needs of landlocked developing countries and small island developing States (through the Programme of Action for the Sustainable Development of Small Island Developing States and the outcome of the twenty second special session of the General assembly)

Target 8.D
Deal comprehensively with the debt problems of developing countries through national and international measures, in order to make debt sustainable in the long term.

*Target added at the 2005 UN World Summit

Sources: The Millennium Development Goals Report 2007, United Nations; World Bank website, February 2008.

Another possible source of ideas is the work of Jean Francois Rischard, who published a book called ‘High Noon. Twenty Global Problems and Twenty Years to Solve Them’. His list is below, taken from a paper for the Helsinki Process on Globalisation and Democracy. Rischard distinguishes between issues involving the global commons, those addressing key human needs and those requiring regulation at global level.

20 years, 20 issues

Sharing our Planet: Issues involving the global commons

  • Global warming
  • Biodiversity and ecosystem losses
  • Fisheries depletion
  • Deforestation
  • Water deficits
  • Maritime safety and pollution

Sharing our humanity: Issues whose size and urgency requires a global commitment

  • Massive step-up in the fight against poverty
  • Peace-keeping, conflict prevention
  • Education for all
  • Global infectious diseases
  • Digital divide
  • Natural disaster prevention and mitigation

Sharing our rulebook: Issues needing a global regulatory approach

  • Re-inventing taxation
  • Biotechnology rules
  • Global financial architecture
  • Illegal drugs
  • Trade, investment and competition rules
  • Intellectual property rights
  • E-commerce rules
  • International labor and migration rules

Another approach is Jeff Sach’s list of ‘quick wins’, predicated on the idea that there are practical and cost-effective opportunities available in development. His list is below, taken from the Millennium Report. There are some very practical ideas here, including free school meals, the abolition of user fees for health services, and the free distribution of bednets.

Eliminating school and uniform fees to ensure that all children, especially girls, are not out of school because of their families' poverty. Lost revenues should be replaced with more equitable and efficient sources of finance, including donor assistance.

Providing impoverished farmers in sub-Saharan Africa with affordable replenishments of soil nitrogen and other soil nutrients.

Providing free school meals for all children using locally produced foods with take-home rations.

Designing community nutrition programs for pregnant and lactating women and children under five that support breastfeeding, provide access to locally produced complementary foods and, where needed, provide micronutrient (especially zinc and vitamin A) supplementation.

Providing regular annual deworming to all schoolchildren in affected areas to improve health and educational outcomes.

Training large numbers of village workers in health, farming, and infrastructure (in one-year programmes) to ensure basic expertise and services in rural communities.

Distributing free, long-lasting, insecticide-treated bed-nets to all children in malaria-endemic zones to cut decisively the burden of malaria.

Eliminating user fees for basic health services in all developing countries, financed by increased domestic and donor resources for health.

Expanding access to sexual and reproductive health information and services, including family planning and contraceptive information and services, and closing existing funding gaps for supplies and logistics.

Expanding the use of proven effective drug combinations for AIDS, tuberculosis, and malaria. For AIDS, this includes successfully completing the 3 by 5 initiative to bring anti-retrovirals to 3 million people by 2005.

Setting up funding to finance community-based slum upgrading and earmark idle public land for low-cost housing.

Providing access to electricity, water, sanitation, and the Internet for all hospitals, schools, and other social service institutions using off-grid diesel generators, solar panels, or other appropriate technologies.

Reforming and enforcing legislation guaranteeing women property and inheritance rights.

Launching national campaigns to reduce violence against women.

Establishing, in each country, an office of science advisor to the president or prime minister to consolidate the role of science in national policymaking.

Empowering women to play a central role in formulating and monitoring MDG-based poverty reduction strategies and other critical policy reform processes, particularly at the level of local governments.

Providing community-level support to plant trees to provide soil nutrients, fuelwood, shade, fodder, watershed protection, windbreak, and timber.

Finally, this approach has been systematised by Bjorn Lomberg, through his work on the Copenhagen Consensus, specifically in the context of ‘prioritising global opportuntities’. This was born out of Lomberg’s scepticism about the cost-effectiveness of action on global warming, itself highly controversial, of course, but has developed into a systematic effort to rank issues of global importance. In brief, expert panels are presented with a list of ten global challenges and possible solutions. They then rank the cost-effectiveness of the solutions. The latest exercise was completed in May 2008. The ten global challenges were: air pollution; conflicts; diseases; education; global warming; malnutrition and hunger; sanitation and water; subsidies and trade barriers; terrorism; and women and development. The final, ranked list of 30 interventions is given below, within a notional budget constraint of $US 75bn over four years. Apart from a trade deal, nutrition and interventions aimed at women dominate the top ten.


Solution

Challenge

Yearly cost in million USD

1

Micronutrient supplements for children (vitamin A and zinc)

Malnutrition

60

2

The Doha development agenda

Trade

0

3

Micronutrient fortification (iron and salt iodization)

Malnutrition

286

4

Expanded immunization coverage for children

Diseases

1000

5

Biofortification

Malnutrition

60

6

Deworming and other nutrition programs at school

Malnutrition & Education

27

7

Lowering the price of schooling

Education

5400

8

Increase andimprove girls’ schooling

Women

6000

9

Community-based nutrition promotion

Malnutrition

798

10

Provide support for women’s reproductive role

Women

4000

11

Heart attack acute management

Diseases

200

12

Malaria prevention and treatment

Diseases

500

13

Tuberculosis case finding and treatment

Diseases

419

14

R&D in low-carbon energy technologies

Global Warming

15

Bio-sand filters for household water treatment

Water

16

Rural water supply

Water

17

Conditional cash transfers

Education

18

Peace-keepingin post ‐ conflict situations

Conflicts

19

HIV combination prevention

Diseases

20

Total sanitation campaign

Water

21

Improving surgical capacity at district hospital level

Diseases

22

Microfinance

Women

23

Improved stove intervention

Air Pollution

24

Large, multipurpose dam in Africa

Water

25

Inspection and maintenance of diesel vehicles

Air Pollution

26

Low sulfur diesel for urban road vehicles

Air Pollution

27

Diesel vehicle particulate control technology

Air Pollution

28

Tobacco tax

Diseases

29

R&D and mitigation

Global Warming

30

Mitigation only

Global Warming

TOTAL

18,750

In terms of financial allocation, the results for the top 13 are listed above. Again, nutrition and gender dominate the list.

Not surprisingly, perhaps, climate change mitigation and adaptation receive short shrift in this analysis. Nick Stern would certainly have something to say about that, from his report on the economics of climate change. As we’ve seen in the period since that was published, a key issue is about the appropriate discount rate. Stern himself has written about that in his recent proposals on a climate change deal.

The use of a budget of $US 75 bn reminds me that this was the sum that the Africa Commission used as the estimate of what it would cost to implement its recommendations in 2010. Here is the table from Annex 5 of the Report, showing the allocation of money by sub-sector. Health and education are large items, with HIV/AIDS as an additional item, but it is notable that growth features prominently, with infrastructure taking up more than one quarter of the funds available.

Costings of the Commission’s Recommendations – Taking No Account of Constraints of Absorptive Capacity*

Resource Estimates for
2010 (US$ billion)

Governance (Chapter 4)

2.6

- APRM trust fund

0.01

- AU Institutional Transformation Program

0.02

- Programme costs for AU (excl. Peace & Security)

0.02

- Improve statistical systems

0.06

- Higher education

0.50

- Science & technology (Centres of Excellence)

2.00

Peace and Security (Chapter 5)**

1.7

- Arms control

0.04

- UN peacebuilding fund

0.25

- Expand World Bank Post-Conflict Reconstruction Trust Fund

0.06

- Clearing arrears for post-conflict countries

1.00

- AU Peace Fund

0.30

HIV and AIDS (Chapter 6)

10.0

Education (Chapter 6)

7.5

- Primary education (incl. through FTI)

3.75

- Secondary education

3.75

- Extra for curriculum development

0.04

Health (Chapter 6)

19.6

- WHO/NEPAD health systems strengthening

1.50

- Human resources

5.00

- GAVI

0.50

- Polio eradication

0.00

- Malaria and HIV and AIDS vaccine development

1.00

- Sexual and reproductive health services

0.29

- Programmes against parasitic and infectious debilitating and blinding diseases and micronutrients

0.30

- ‘Tuberculosis and HIV and AIDS linkages’ program

0.25

- Commission for Macroeconomics and Health basic health package

10.58

- Protection against vitamin and mineral deficiency

0.14

Social Inclusion (Chapter 6)

4.0

Growth (Chapter 7)

20.1

- Infrastructure (incl. irrigation, water, sanitation, slum upgrading, transport, power)

20.00

- Investment Climate Facility

0.08

- MIGA

0.02

- Africa Enterprise Challenge Fund

0.01

- Youth Employment Network

0.01

- Growing Sustainable Business Initiative

0.004

Environment (Chapter 7)

0.01

Trade (Chapter 8)

0.1

- Meeting sanitary and phytosanitary standards

0.07

- Improve productive capacity

0.02

- Trade facilitation (inc. customs reform)

0.004

Mitigation of Shocks (Chapter 9)

3.8

Contingency Funding

5.6

TOTAL

75.0

What is interesting about all this is what gets onto the agenda and what doesn’t. For example, I don’t think there is much discussion of infrastructure in the Copenhagen work. Nevertheless, the fundamental approach taken by Lomberg is consistent with the risk approach taken by the WEF: identify opportunities and rank them by impact and cost-effectiveness. There are enough Nobel prize-winning economists involved in the Copenhagen Consensus to underwrite the logic of the method.

Indeed, a similar cost-benefit approach is often advocated in budget planning. Adrian Fozzard wrote an ODI Working Paper on this in 2001, though qualifying his conclusions with the observation that all planning was in the end political.

The question for us is whether we can do better. Is there a way of linking Sachs and the MDG project to Lomberg and the Africa Commission? Do we have anything to say about method? Of course we know that cost-benefit analysis is never quite as objective as it appears. Discount rates, I’ve mentioned. What about income distribution weights or poverty weights? How are environmental externalities to be costed and weighted?

It would also be interesting to link this work to scenario planning. There are lots of sources on that, but one I have found useful recently is by the Humanitarian Futures Project, who have carried our work on drivers of humanitarian futures.

Some people may think that an ‘opportunities analysis’ does not take us very far. I’m not sure I agree. With the development ‘project’ likely to be threatened by the recession, careful priority-setting will be essential. That’s why I would appreciate some help.