Too big to succeed?

The dilemma of how to involve middle-income countries in the post-2015 discussion.

Arne Bartelsman | July 11, 2014

Now the process of agreeing a new set of sustainable and inclusive development goals is reaching its decisive phase, the middle-income countries (MICs) are threatened to be mostly left out of the agenda. Even though 75% of the global poor live in MICs, the heterogeneity and joint group size of these countries make it impossible to identify a clear set of common challenges. This hinders their ability to effectively position themselves on the international development agenda. As a result, having outgrown the least developed country (LDC) category but not yet attained the financial capacity of OECD countries, MICs are in danger of falling between two stools.  

With the post-2015 process fully underway and the preparatory Open Working Group (OWG) sessions almost coming to an end, it is good to look back at the message that started the process: ‘The world’s nations must unite behind a common programme to act on those aspirations.’ 1 These were the words of UN Secretary-General Ban Ki-Moon when he called upon Member States to adopt a post-2015 development agenda at the 68th General Assembly meeting in New York. However, the difficult position of the group of MICs seriously endangers the universality and thus the success of the sustainable development goals (SDGs).

Since the beginning of the process, strong efforts have been made to ensure that the new SDGs are the result of a global and inclusive process, involving countries from all regions and categories as well as other non-governmental stakeholders. Examples of these are the OWG sessions, which extensively involve important stakeholders, and the high-level panel which consisted of men and women from the public, private and academic sphere of both developing and developed countries. However, while LDCs and OECD countries have a predominantly coherent approach to the negotiations, there is a large middle group, ranging from Sri Lanka to Brazil, for which it has proved more difficult to define a clear common set of needs, demands or priorities. As such, finding common ground among MICs and formulating these into clear, commonly shared priorities, let alone goals and targets, may prove one of the most demanding challenges of the post-2015 process.

Double bottom billion

Yet including MICs is important. First, they represent around 80% of the world population and a large number of the people for whom the SDGs will be designed. One billion people in MICs live below $1.25 a day and another billion under $2 a day, 74% and 79% respectively of the total $1.25 and $2 poor in the world. 2 Spatial inequality and fragile sub-regions within stable states make the predicted share of the poor that will be living in MICs by 2020 and 2030 still very high. 3 Furthermore these countries currently face a wide variety of challenges, including gender inequality, non-diversified economies, and high carbon-intensity of the economy.

Rising middle classes

Second, MICs are also the locus of a growing middle class, often said to be an important driver for economic growth and democratization. However, as discussed extensively at the EADI conference in June, establishing and dealing with an emerging middle class poses specific challenges. For a large proportion of people that have climbed out of poverty (and who are thus living slightly above $2 a day), the risk of falling back below the poverty line  is ever-present. These people can hardly be seen as drivers of economic growth and democratic consolidation, but rather as a group that requires specific attention to the needs and challenges they face in order to outline a universal sustainable and inclusive development strategy. Consequently, if the MICs are not able to commonly prioritize these issues at global level, the interests of yet another important segment of MIC societies will be in danger of being neglected.

A troubling classification

However, despite their significance, little attention has been given in reality to MICs in the post-2015 process. Although previous OWG sessions have discussed the special condition of MICs, the current working document on proposed goals and targets only mentions their position once, while referring extensively to other groups like LDCs, landlocked developing countries (LLDCs) and small island developing states (SIDS). 4 This is not surprising. Their wide economic variety makes it nigh on impossible to design specific policy for this group . 103 countries are classified as MICs, including for example both Brazil and Mauritania, while the economy of the former is roughly 300 times bigger (and its per capita GDP six times higher) than that of the latter. It is obvious that countries with such substantial differences also face substantially different challenges. This is reflected in the statements and priorities of MICs in the OWG6 discussion on the needs of countries in special situations. Mexico and Peru for example emphasize regional inequalities and the need for the continuation of ODA to MICs. Indonesia, China and Kazakhstan identify the lack of diversity in their economies and of capacity to upgrade their manufacturing sectors as key vulnerabilities, while Turkey points to the sustainable provision of public goods, technology transfers and ODA as forms of leverage for private finance. Ultimately, as a result of these diverse calls, attention for MICs lags behind. For example, the Co-Chairs summary bullet points for OWG6 on countries in special need only involved a very brief line stating that ‘it was noted that the current classification methodology based on income is incomplete, particularly masking the challenges faced by middle-income countries and contributing to the middle-income trap’. Clearly the international development community, and even MICs themselves, are struggling to find a way in which the situation of these countries can be effectively advocated and subsequently addressed, as is happening with other groups like LDCs and LLDCs.

Declining funds

This trend is not only visible within the OWG process; there is also a clear decline in ODA to MICs as a whole. Many OECD donors and multilateral institutions in particular are unenthusiastic about providing aid to a group of countries that includes global top-15 economies. 5 Over the last 15 years Japan has reduced its aid to MICs by 50%, while Canada and the Netherlands have cut their share of aid to MICs by one third and Norway and the US by 25%. 6 These traditional donors face austerity measures at home and point more and more to the ‘diverse range of sources of finance, including foreign direct investment, portfolio equity, commercial debt, remittance and domestic resource mobilization’. 7

However, these alternative sources of finance are mostly available only to a small group of countries in the MIC category, while large regional differences also exist within these countries. As a result, only a very small group actually benefits, and many MICs fail to make the transition to the high-income category. Ongoing domestic challenges and a decline in financial assistance from the international (Western) community are not only problematic for the MICs themselves. The success of the post-2015 agenda is also at stake, with the risk of MICs, which feel that the final SDGs do not respond to their specific problems, isolating themselves from the agenda.

A different approach?

So what can MICs do to improve their positioning on the post-2015 agenda? The current strategy seems to be characterized by indecisiveness between presenting a unified case and calling for a more disaggregated methodology. The outcome document of the first High Level Meeting of the Global Partnership for Effective Development Co-Operation is a good example. While calling for a ‘need to devise methodologies to better account for the complex and diverse realities of MICs’, the rest of the described outcomes do not reflect this ‘need’ at all. Similarly, many countries and experts start their argument by expressing the need to move away from the broad definition of ‘middle-income country’, only to use exactly that methodological structure in the following section to talk about MIC priorities and needs. As a result, little actual attention is paid to creating a new conceptual framework that will address the true needs of all MICs, albeit no longer categorized as ‘MICs’ as such. 8

An example of a genuinely different approach to this middle-income dilemma was given by the Economic Commission for Latin America and the Caribbean (ECLAC) in its report Middle-income countries: A structural-gap approach. The report, which focused on the Latin-American and Caribbean region, identified 11 structural development gaps that potentially hinder MICs in their development. These gaps (displayed in box 1) aim to look beyond the narrow focus on per capita GDP and rank countries per potential development gap. A look at the report shows that, in terms of inequality, Colombia, Bolivia and Honduras can be classified in the same category while, looking at fiscality, Colombia is grouped with Ecuador, Paraguay, Peru and Chile. The advantage of this differentiated classification is that it allows the specific challenges facing each MIC to be better understood, making it easier for the international community to address them. For the countries in question, it also provides an opportunity to position themselves in the post-2015 debate as a group in need of special attention, without being lost in the catch-all term of ‘MIC’.

End the flip-flopping

However, this approach is also inevitably more complex. Other smaller and more similar groups, like LDCs and the Alliance of Small Island States (AOSIS), can potentially make a more powerful case by advocating their needs as a unified group on every single issue. But, in reality, this has not worked for MICs. The delegation from Brazil and Nicaragua stated this dilemma as such during OWG6: ‘Creating additional levels of graduation among developing countries can help to find customized development cooperation solutions but should not lead to a fragmentation and thereby the weakening of the political voice of the South in expressing a common position on the Post-2015 Development Agenda process’. 9 The true challenge for MICs is thus positioning themselves in a way that shows the international community that their challenges are urgent and require assistance, while at the same speaking with a united voice. If MICs continue their current strategy of flip-flopping between the two, their situation will be insufficiently addressed, and the SDGs will be unable to achieve the universality and inclusiveness Ban Ki-Moon so hopes for.

Photo credit main picture: Eric Parker/ Commons