International aid and development assistance are important contributors to the economies of the Lower Mekong region. All Lower Mekong countries receive official development assistance (ODA), with Thailand also contributing ODA as a donor. Nevertheless, the region accounts for just LMC 3.37% of the world’s total ODA received in 20171, a low figure considering the significant military conflicts that the region has faced in the last five decades and the current spectre of climate change related disasters.
ODA trends in the Lower Mekong Countries
ODA is specifically defined by the OECD. It refers to the flow of resources from official agencies (including governments and government agencies) where economic development and welfare is the main objective. The assistance must be concessional – there must be a “grant element”, which means that aid is provided with an interest rate or maturity period that is exceptionally beneficial to the recipient.2
The majority of ODA to developing countries comes from the 29 members of the Development Assistance Committee (DAC) of the Organization for Economic Co-operation and Development (OECD). ODA in the LMCs is primarily bilateral. Japan continues to be one of the top donors to the Lower Mekong Countries, based on 2016-2017 World Bank numbers. The total amount of ODA received in the Lower Mekong was almost US$5.5 billion in 2017, US$300 million less than the total amount received in 2016 (US$5.8 billion).3Over the last decade, Vietnam has received the highest annual amount of ODA among the Lower Mekong countries by far, although in 2013 Myanmar received a spike of ODA.
Myanmar’s increase of ODA came as it continued to remove barriers to trade and restrictions on foreign entities operating within its borders. Western donors, such as Australia, the European Union and the United States, had committed only limited humanitarian aid in Myanmar following the 1962 military coup, complaints of the repression or rights, and intermittent political instability over several decades. They began expanding assistance and re-establishing local offices following moves towards greater transparency and democracy, especially after 2011.4 The massive increase was not sustained, however, and Myanmar’s 2015 ODA figure of US$1.2 billion was less than a third of the figure of 2 years earlier.
A donor country’s aid commitments can change significantly after a change in national administration. Proposals include cutting aid to developing nations by over a third, merging USAID with the State Department and realigning funding to tie it more closely to US national security objectives. As at June 2019, the changes are still pending.5
Chinese aid and financing in the LMCs
Although not listed in the chart of top donors to the Lower Mekong, China is a large financial contributor to the region. The exact amount that China contributes is difficult to determine, as China does not classify its assistance according to the OECD’s definition of ODA. Instead, Chinese aid is made up of grants, interest-free loans, and concessional loans, and it comes from a variety of sources, including the China Eximbank and the Lancang Mekong Cooperation Special Fund. Some of China’s aid comes in the form of pledges to lend,6, which further complicates the matter. In addition, until 2018, China did not have a dedicated foreign aid agency. Prior to this, aid was administered through the Ministry of Commerce. In 2018, the China International Development Cooperation Agency (CIDCA) was established. CIDCA is a dedicated agency for managing foreign aid, and going forward, will be responsible for coordinating all aid. It should be noted that while Chinese aid is increasing, Chinese outbound investment amounts are much higher.7
China’s financing information is not openly and publicly available, so up to date information is hard to aggregate. Further, money allotted to development is not clearly separated from other official flows such as export credits, making it difficult to determine what amounts make up which type of financing. In addition, China announces its aid at specific project events rather than in annual reports, and often announces both aid and investment in one event.
One key difference between Chinese aid and western development aid is the focus: 75% of Chinese aid goes to natural resource and infrastructure projects, with less than a quarter to humanitarian work.8 It should be noted that observer estimates do vary, partly depending on what the observer considers a concessional loan. For example, JICA Research Institute has estimated China’s total “net foreign aid” at US$5.4 billion in 20139, while the RAND Corporation estimated China’s foreign aid programmes for 2013 at US$317 billion10 – a massive difference.
See below for a map of Chinese financial aid projects in the Lower Mekong, and explore the full profiles dataset here.
Source: AidData. Chinese Official Finance in Three Ecologically Sensitive Areas, Level 1, Version 1.01. Map created by Open Development Mekong, March 2017. Licensed under CC BY-SA 4.0.
Although the China-led Asian Infrastructure Investment Bank does not have projects in all of the LMCs, the multilateral bank, which began operations in 2016, is specifically for infrastructure and is comprised of 97 member countries. This has increased China’s influence in infrastructure development and policy.
Although China is active in all five of the LMCs, it has contributed the most financing to Lao PDR.11 However, China has recently increased its activity in Cambodia significantly. UNDP indicates that China increased its ODA to Cambodia almost 10 times between 2006 to 2013 (from US$53 million to US$414 million12. In February 2019, the Lancang Mekong Cooperation, through its Special Fund 2018, provided US$7.66 million to Cambodia for implementing 19 projects in 2018.13 This is on top of other Chinese trade investment, such as the agreements signed during the April 2019 Belt Road Initiative Forum.14
The charts above indicate the known amounts of financing that China provided to each of the LMCs, cumulative in the period 2000-2014. It is interesting to note that there is no difference between the known concessional financing that fits within the OECD definition provided to Lao PDR and Vietnam in this period and all known amounts of financing provided to these countries. However, in the period of time from 2014 to today, it is likely that many changes have occurred, but due to the above-noted challenges it has been difficult to acquire accurate information on China’s aid contributions.
Aid for infrastructure development
Donors and development assistance agencies such as the Asian Development Bank (ADB), have prioritized infrastructure projects to meet the demands of these transitions. These projects include hydropower generation and grid extension, road and bridge construction.15 The ADB alone has funded infrastructure projects worth about US$11 billion since 1992. In addition, as mentioned above, China prioritizes infrastructure investment in the region.
A man operates a bulldozer during the leveling of and upgrading of a road base in Cambodia. Photo by Asian Development Bank, taken on 15 February 2011. Licensed under CC BY-NC-ND 2.0.
Finding a balance
Large projects, such as infrastructure development, have far-reaching and sometimes unintended effects. The environmental and social impact of such projects, such as the mass relocation of people living on affected lands, sometimes results in criticism of the donors involved. In providing aid to promote economic development, responsible donors aim to balance the needs of governments, the private sector and the rights of local communities.
Both country donors and large institutions are sometimes criticised for the projects they support. In March 2017, the advocacy group Inclusive Development International (IDI) and partners released a report looking at the activities of the International Finance Corporation (IFC), the World Bank’s private-sector arm.16 It found that the IFC provides funding that supports development with profound environmental and social impacts, including displacing local populations and damaging their livelihoods. This is despite IFC’s purpose of reducing poverty through sustainable development and requirements that it protect people and the environment.
Sustainable Development Goals
An important global guide to aid and development is the 2030 Agenda for Sustainable Development adopted at the United Nations Sustainable Development Summit in September 2015.17 The Agenda includes 17 Sustainable Development Goals (SDGs) – successors to the UN’s Millenium Development Goals that ended in December 2015. The 17 SDGs are: (1) No poverty (2) Zero hunger (3) Good health and well-being (4) Quality education (5) Gender equality (6) Clean water and sanitation (7) Affordable and clean energy (8) Decent work and economic growth (9) Industry, innovation and infrastructure (10) Reduced inequalities (11) Sustainable cities and communities (12) Responsible consumption and production (13) Climate action (14) Life below water (15) Life on land (16) Peace, justice and strong institutions and (17) Partnerships for the goals. There are 169 associated targets.
Each country localizes the programme, setting indicators against which local progress can be measured. The SDGs are then integrated into national planning.
| Terms | Definitions |
|---|---|
| Official Development Assistance (ODA) | The OECD defines ODA as government aid to promote the economic development and welfare of developing countries. It does not include loans or credits for military purposes. Aid may be provided bilaterally, or multilaterally. To be considered ODA, loans must be concessional, also known as having a “grant element”, which means that aid is provided with an interest rate or maturity period that is exceptionally beneficial to the recipient. |
| Bilateral aid | Bilateral aid (more generally called “bilateral flows”) is assistance given by a government directly to the government of another country. |
| Multilateral aid | Multilateral aid (more generally called “multilateral flows”) is assistance provided by governments to international organisations like the UnitedNations and the World Bank, which then provide money to countries or projects. |
| Other Official Flows | The OECD defines Other Official Flows as funds that are not ODA, either because it is not for development or it is not concessional enough, received by a country already receiving ODA. |
| Concessional loans | Concessional loans are provided on terms substantially more generous than market loans. This means that aid is provided with an interest rate and/or maturity period that is exceptionally beneficial to the recipient as compared to market loans.Concessional loans typically have long maturity periods. |
| Blended finance | Blended finance is the use of development finance to mobilise additional finance for sustainable development in developing countries. |
| Public Private Partnerships (PPPs) | PPPs are a long-term cooperative project between the private and public sectors for the provision of a public asset (like a bridge or road) and/or public service (like sanitation services). It allows the project partners to share risks, responsibilities and rewards.. |
| Conditional Aid | Conditional aid, such as that provided by the IMF, is defined as aid provided in exchange for policy reform and structural adjustment. |
| Technical assistance | Aiding a developing country in the form of directly providing or funding specialized support and advice (like that of doctors or engineers) to private sector actors. |
| Guarantor | An entity, named in a loan contract, which is required to pay all or some of the total amount of funds loaned by a creditor to a borrower in the event of non-payment by theborrower. |
| Official Guarantee | A guarantee that the loan will be repaid by the guarantor in the borrower country, that can also be the official entity of the borrower country that guarantees external loans. |
| Project Finance | Project finance is the provision of longer term loans to international projects, often by a group of investors from commercial banks, regional development banks or export credit agencies (like the EXIM Bank China). |
| Portfolio Investment | Refers to the purchase of foreign stocks, bonds or other securities. It is typically a short-term investment. In contrast to Foreign Direct Investment, foreign portfolio investors have no controlling interest in the investment. The relative ease with which portfolio investment can enter and exit countries has been a major contributing factor to the increasing volatility and instability of the global financial system. |
| Foreign Direct Investment (FDI) | FDI is a category of investment that involves an enterprise in one country (direct investor) investing in an enterprise (direct investment enterprise) of a different a country. There is a long-term relationship between the two enterprises, including a significant degree of influence on the management of the enterprise. |
| Joint Venture | A joint venture is a contractual agreement between two or more parties to engage in a business enterprise. The parties agree to share in the profits and losses of the enterprise as well as the cost of forming and operating the enterprise. capital formation and contribution of operating inputs or costs. Whether a joint venture has been formed or not can be ambiguous. As such, there is a risk that they could be omitted or double-counted, so particular attention needs to be paid to them. |
| Equity Investment | An equity investment is money invested in a company through the purchase of its shares. When people speak about equity investment, they generally refer to the buying of shares in the stock of a company traded on a stock exchange. |
| Debt Securities | A debt security is a financial instrument issued by a company (usually a publicly traded corporation) representing a promise to repay the amount stated plus interest. There are many varieties of debt securities. The most common is a bond, including government bonds, corporate bonds, municipal bonds, collateralized bonds and zero coupon bonds. |
| Bond | A type of debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, must pay them interest and/or repay the principal at a later date. |
| Debt Conversion | Process in which creditors exchange bank debt for an equity interest in assets owned by the borrower to settle the debt. This activity has been extensively conducted by banks holding debt of less developed countries. |
| Export Credits | An export credit is an insurance, guarantee or financing arrangement which enables a foreign buyer of exported goods and/or services to defer payment over a period of time. Export credits are generally divided into short-term, medium-term (usually two to five years repayment) and long-term (usually over five years). |
Related to aid and development
- Social development
- Disasters and emergency response
- Urban administration and development
- Infrastructure
References
- 1. World Bank. 2018. Net official development assistance and official aid received (current US$). Accessed June 14, 2019.
- 2. Organisation for Economic Co-operation and Development. 2018. DAC Glossary of Key Terms and Concepts: Total Receipts. Accessed January 1, 2019.
- 3. World Bank. 2018. Net official development assistance and official aid received (current US$). Accessed June 14, 2019.
- 4. “Burma, History.” Accessed 5 May 2017. http://www.usaid.gov/burma/history.
- 5. USAID. 2018. Transforming USAID’s Structure. Accessed June 14, 2019.
- 6. UNDP. 2015. Demand-Driven Data: How Partner Countries are Gathering Chinese Development Cooperation Information. Accessed January 1, 2019.
- 7. Inclusive Development International. 2019. Safeguarding People and the Environment in Chinese Investments. Accessed June 19, 2019.
- 8. Charles Wolf Jr. 2015. “China’s Foreign Aid Offensive“. Accessed 5 May 2017.
- 9. JICA Research Institute 2016. “JICA Research Institute Releases an Update on the Estimation of Chinese Foreign Aid“. Accessed 5 May 2017.
- 10. Charles Wolf Jr 2015. “China’s Foreign Aid Offensive“. Accessed 5 May 2017.
- 11. Aid Data. “China’s Global Development Footprint”. Accessed February 11, 2019.
- 12. UNDP. 2015. Demand-Driven Data: How Partner Countries are Gathering Chinese Development Cooperation Information. Accessed January 1, 2019.
- 13. Lancang Mekong Cooperation. 2019. China offers 7.66 mln USD from Lancang Mekong Cooperation Special Fund 2018 to Cambodia. Accessed June 14, 2019.
- 14. David Hutt. 2019. China throws Hun Sen an economic lifeline. Accessed June 14, 2019.
- 15. For example, JICA funded the Can Tho Bridge in Vietnam. JICA. 2010. JICA and Mekong Delta. Hanoi, Vietnam: JICA. Accessed 19 June 2019.
- 16. Inclusive Development International, 2017. Reckless Development: The IFC’s Dodgy Deals in Southeast Asia. Accessed 5 May 2017.
- 17. United Nations 2015. “Transforming our world: the 2030 Agenda for Sustainable Development.” Accessed 5 May 2017.
