GRM 2010 GRM 2011

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The OPEC Fund for International Development – just another Arab donor?
Paper Proposal Text :
Today, official development assistance (ODA) is hardly considered “charity” any more. While the more radical critics argue that development aid creates long-term dependencies and should not be accepted at all, most experts deplore that tying loans or grants to conditionalities devaluates aid for the receiving country and that ODA is often embezzled or misapplied.
This criticism is not new and when income from oil and gas suddenly put developing countries in the position to disburse development aid, the declared aim was a “South-South” cooperation without conditionalities, just tailored to the needs of the recipient country. Apart from OECD-ODA, oil-rich Arab countries, mainly Kuwait, the United Arab Emirates and Saudi Arabia, are the most important donors. Their development assistance is often disbursed bilaterally, sometimes even without making it public, but also via multilateral funds.
Arab donors have indeed avoided to tie their aid to conditionalities such as market-liberalization or export promotion. However, especially after 9/11, Arab aid has been under the cloud of the financing of terrorism or radical Islamic movements. Furthermore Arab donors have been blamed for their propensity to give mostly to other Arab or Islamic countries.
Statistical analyses (Neumayer 2003) have shown that the latter is true for overall Arab aid and this is not astonishing: A major part of the Arab and Islamic world are less developed countries, even if there are few least developed countries among them. Giving to “friendly” countries with whom one shares a common history or political interest is a common feature of Western bilateral aid as well.
Several funds or institutions in the Arab Gulf states have been established with the declared aim of enhancing “Arab development” or development in Islamic countries. There is, however, one fund which is, firstly, not located in the Arab Gulf States, and secondly, a so-called multilateral donor which has also non-Arab and non-Islamic members: The OPEC Fund for International Development (OFID).
Looking at OFID's statutes, the declared goals are again “South-South” assistance and aid for the least-developed countries. OFID also stresses that it opposes conditionalities.
Nothing hints to Islamic motives or a special focus on Arab or Islamic countries and one might ask if OFID is finally a fund offering aid according to the need of the receiving countries only. As a multilateral donor located in Vienna, OFID would probably arouse less suspicions of financing terrorism and could improve the reputation of Arab aid. Or is OFID just again an “Arab-Islamic Club” with several rather weak alibi-members from other regions?

Among OFID's twelve current members, there are seven Arab and ten predominantly Islamic countries (including Nigeria). After Ecuador withdrew in 1993, there remain only two countries which are neither Islamic nor Arab: Gabon and Venezuela. Pledged contributions of Kuwait, Qatar, the UAE and Saudi Arabia alone amounted to almost 50 percent of the commitments in 2010, predominantly Islamic countries accounted for more than 85 percent.

This first glance can be deceiving. Therefore, this paper will address several questions: Firstly, does OFID money predominantly flow to Arab or Islamic countries or to countries which are rather in line with the Arab Gulf monarchies' political interest? And secondly, have political events in the Arab world, among them the two peace treaties with Israel, but also 9/11 and the Arab spring affected OFID aid? Have the major Gulf-donors rather increased bilateral aid while decreasing their OFID commitments in order to be more flexible ? Or have they increased their OFID commitments because such a multilateral organisation is probably less suspicious of financing terror?
The first question will be examined by way of several statistical analyses, mainly replicating Neumayer (2003) with OFID data only. The volume of OFID's aid to a country will be tested for correlation with a country's Arab or Islamic background, its level of development and its political stance towards Israel. Furthermore, I will look at the types of assistance. It is, for example possible, that loans to Arab or Islamic contain higher grant elements.

The other questions are more difficult to address. It is unlikely that OFID staff members will reveal critical aspects of OFIDs work. Nevertheless, an interview will take place in February or March 2012.
This is necessary because the influence of the Arab spring, if it exists, is too recent to be found in the data. However, data can reveal a lot about past events. Egypt, to mention just an example, is one of OFID's main recipients. Data may show that OFID decreased ODA to Egypt after the peace treaty with Israel.
The sum total of development assistance by Arab donors is highly dependent on their income from oil and gas. Donors, however, could shift their commitments from a multilateral fund to their bilateral funds if they are no longer able to pursue their interest via the multilateral fund. For Kuwait, the UAE and Saudi Arabia, I will hence compare if they have tended to increase their bilateral or their multilateral assistance.

Having not yet obtained the complete data, I would argue that the propensity to give only to Islamic or Arab countries is less pronounced in OFID, but still there. Especially, it seems that the commitment amounts are higher for Arab countries.
When it comes to the influence of major events in the Arab world, it should be noted that the OFID members do not have the same political stance. Revolutionary regimes and traditional monarchies, friends and foes, can be found at the same table. Decisions to cut or increase commitments will seldom be unanimous and it is doubtful if the “Gulf influence” makes itself strongly felt in the data.
From 1999 on, at least, it can be noted that OFID commitments rose steadily, probably in function of the rising oil price. It seems that the Gulf countries do not want to let OFID aid just peter out.

Neumayer, Eric (2003), “What factors determine the allocation of aid by Arab countries and multilateral agencies?”, The journal of development studies, 39 (4). pp. 134-147.