September 2010 – Over the past four decades, Arab aid, which has been relatively under-studied, has played an important role in global development finance
Arab donors, predominantly the Kingdom of Saudi Arabia (KSA), Kuwait and the United Arab Emirates (UAE), have been among the most generous in the world, with Official Development Assistance (ODA) averaging 1.5 percent of their combined gross national income (GNI) during the period 1973-2008, more than twice the United Nations target of 0.7 percent and five times the average of the OECD-DAC countries.
Arab Official Development Assistance (ODA) accounts for 13 percent of total DAC ODA on average and nearly three-quarters of non-DAC ODA.
About one-third of all ODA during the 1970s was from Arab donors. High levels of Arab ODA in the 1970s and 1980s were primarily a reflection of high oil prices and, to some extent, the substantial start-up costs associated with establishing aid programs and capitalizing development funds and banks (Figure 1).
The levels of Arab aid witnessed in the 1970s and early 1980s were exceptionally high by international standards and could not be sustained over time. Also, fiscal space in the donor countries has been reduced over time as a result of declining oil revenues and growing national spending on wages, transfers, debt service, and social services for a growing population.
Aid levels have increased since 2002, both in volume and as a share of GNI, as oil prices have risen and post-conflict reconstruction needs have expanded. As in the past, most aid comes from Saudi Arabia, Kuwait, and UAE, respectively.
In addition to government-to-government aid, Arab donors have established a number of specialized financial institutions to provide development assistance to an increasing number of developing countries across the world
Assistance through these institutions increased substantially by over 4 percent per year in real terms over the past twenty years.
Over time, Arab donors have expanded their reach in terms of recipient countries, beyond Arab and predominantly Muslim countries, and in terms of sectors, beyond infrastructure
At present, Arab ODA covers a large and wide range of countries, including poor countries in sub-Saharan Africa such as Mali, Mauritania, Senegal, Somalia, and Sudan; and in Asia such as Cambodia, Bangladesh, Nepal, Pakistan, Sri Lanka, Tajikistan, and Vietnam.
The Kuwait Fund for Economic Development, the Saudi Fund for Development and the OPEC Fund for International Development 1 are the most global in focus, also financing projects in Europe and Latin America.
Arab aid has played a major role in total ODA flows to several developing countries such as Syria, Morocco, Yemen, and Jordan to name a few.
The sector focus of Arab ODA has broadened over time to include agriculture, health, education, and social services.
There are good reasons to believe that Arab aid will continue to play an important role in international development assistance into the foreseeable future. Arab donors have recently increased their aid volumes despite the severity of the global financial crisis; and Arab financial institutions are well capitalized, with the capacity to scale up assistance.
1Strictly speaking OFID is not exclusively a Arab-financed institution, but Arab countries provide the largest share of funding.
