1. The state of fragility in 2020

The state of fragility in 2020 is a story in two parts – as it existed before COVID-19 and as it exists now that the impact of the pandemic has dramatically altered the landscape of fragility. The results of the OECD fragility framework do not yet capture the full effects of the pandemic, but evidence and examples from other sources portray a sobering reality. COVID-19 represents a systemic shock that will exacerbate multidimensional risks and strain the coping capacities serving to counterbalance these risks across the dimensions of fragility. While the situation is evolving rapidly, features of the new landscape are emerging. Some anticipated consequences of COVID-19 in fragile contexts are encapsulated in Box 1.1.

Fragility in 2020 is global and dynamic. This was as true before the pandemic as it is now. Every country, state or territory – henceforth referred to as contexts – experiences varying states of fragility across its five dimensions and over time. These states of fragility emerge from a complex interaction of risks and coping capacities at various levels ranging from the international to the subnational. This publication highlights 57 contexts that exhibit comparatively higher levels of fragility relative to their peers, including 13 classified as being extremely fragile. Almost a quarter of the world’s population (23%), and more than three-quarters (76.5%) of those already extremely poor before COVID-19, live in one of these 57 fragile contexts in 2020 (Lakner et al., 2020[1]; UN DESA, 2020[10]).

Globally, the story of fragility is one of widening gaps over time. From 2012 to 2018, the difference in levels of fragility between extremely fragile and non-fragile contexts grew, albeit by varying degrees across dimensions (Figure 1.1). For example, the differences grew year to year for overall and environmental fragility. In the security dimension, the difference between extremely and non-fragile contexts was widest in 2016, then narrowed afterwards. If the trend in overall fragility persists in the Decade of Action for Agenda 2030, extremely fragile contexts risk being left further behind from sustainable development progress. With COVID-19 magnifying the underlying drivers of fragility, contexts are likely to face yet another hurdle to achieving long-term peace, security and prosperity. In Yemen – the most fragile context in the 2020 fragility framework – COVID-19 has “made the health system’s collapse complete” following years of war and conditions of famine (MSF, 2020[11]). In Nigeria, a fragile context that is recovering slowly from an economic recession four years ago and is home to the world’s largest concentration of people living in extreme poverty, 40% of non-farm workers reported losing income in May 2020 (World Bank, 2020[12]). The COVID-19 impact is similarly dire in Sudan, an extremely fragile context on the 2020 framework with severe economic, political and societal fragility. In July 2020, an estimated 9.6 million people were experiencing crisis or worse levels of food insecurity – more than at any time in Sudan’s history – due to lockdowns, conflict-induced displacement and inflation (IPC, 2020[13]). In many respects, COVID-19 is expected to reverse progress on human development globally (UNDP, 2020[5]).

Since the findings presented in States of Fragility 2018, four contexts (Cambodia, Lesotho, Nicaragua and Togo) moved onto the framework and five contexts (Egypt, Malawi, Nepal, Rwanda and Timor-Leste) moved off (Box 1.3). Each context has faced different multidimensional challenges that have shaped its state of fragility and contributed to its placement on the framework. This edition marks Nicaragua’s first appearance on the fragility framework following increases in all five dimensions of fragility since the 2018 framework. Similarly, fragility in Togo increased over the two-year interval in all but the economic dimension, with the rise in societal and political fragility contributing especially to its movement onto the framework.

At the other end of the spectrum, this publication is the first OECD report on fragility to not include Timor-Leste, which is not on the latest framework owing to marked declines in its economic and environmental fragility (Box 1.2). Malawi, too, exited the fragility framework following declines in its economic fragility and, as reflected in its recent elections, in political fragility (The Economist, 2020[15]). Other shifts of note are those of Cambodia and Lesotho, which were included in the 2016 but not on the 2018 fragility framework. Their movement onto the 2020 framework is a reminder that the trajectories of fragile contexts are not linear. It remains to be seen whether the contexts that left the framework in this edition will sustain their exit from fragility, especially as they address aftershocks from COVID-19.

Overall fragility declined in 103 and rose in 72 of the 175 contexts analysed in 2020. These shifts are relatively modest, however. Only 33 of the 175 experienced a notable change. The picture is different for the 57 fragile contexts: fragility increased over the 2018 analysis in 32 contexts and declined in 25, suggesting a slight increase in average aggregate fragility in the 57 fragile contexts since the results of the 2018 framework. Among these 57 contexts, 13 have experienced significant shifts upwards or downwards in fragility.

Fragility has changed over time at both a global and context level. How it is understood and analysed has changed as well. Until five years ago, the OECD portrayed fragility in its reports as a binary: either a context is fragile, or it is not. Starting with States of Fragility 2015, the OECD introduced a multidimensional fragility framework that treats fragility as the product of an interaction of risks and sources of resilience that can be identified and analysed. States of Fragility 2020 moves a step further by applying this multidimensional approach to better understand how contexts can move from “fragility to resilience” (Ingram and Papoulidis, 2018[18]). The fragility-to-resilience paradigm is gaining momentum among prominent actors in fragile contexts such as the World Bank, the United States and European Union (EU) institutions (World Bank Group, 2020[19]). It does not imply a linear pathway out of fragility and towards resilience but rather involves identifying complex and interacting risks at a high level, understanding their root causes, and developing strategies to address them by strengthening the absorptive, adaptive and transformative capacities of a system (Ingram and Papoulidis, 2018[18]; OECD, 2014[20]).

Fragility and resilience are not at opposite ends of a spectrum. Nor is a movement away from fragility and towards resilience guaranteed. Additionally, strengthening resilience does not always prevent risks related to fragility and conflict from materialising, which underscores the need for investments in prevention (Chapter 2). Both fragility and resilience are properties of complex systems whose behaviour cannot be readily predicted or understood. In this view, navigating fragility means adopting a mindset of best guesses, fast feedback and adaptation to get results – and above all, of course, guarding a sense of humility in light of the complex, multidimensional challenges that fragility poses to sustainable development and peace. This approach places an emphasis on conflict-sensitive and politically informed analysis and ways of working. Practitioners in fragile contexts are akin to navigators. A mechanical way to navigate systems is to go from point A to B in a straightforward way, using a preset log-frame to guide engagement. Another way is to embrace complexity and adaptation, which involves asking questions and using the available evidence to learn iteratively and influence openings in the system that most affect change.

This latter way of working has significant implications for DAC members’ monitoring, evaluation and learning systems (Hernandez, Ramalingam and Wild, 2019[21]). Increasingly, DAC members are experimenting with such approaches in fragile contexts, for example through scenario planning, outcome mapping and developmental evaluations (Pasanen and Barnett, 2019[22]). The OECD’s resilience systems analysis also provides a practical approach to understand the landscape of risks and the broader system within which they emerge, as do tools being developed by DAC members (such as Belgium and Denmark)2 that rely on the OECD fragility framework to assess systemic risks and coping capacities to fragility (OECD, 2014[20]). The data and evidence that are discussed in this publication and that underlie the OECD’s multidimensional fragility framework can help produce actionable insights to guide navigation of systems within fragile contexts and support trajectories from fragility to resilience. Importantly, all levels of a system – from the international to the subnational – affect each other. The implication for a practitioner is to understand those intersections and devise interventions that capitalise on openings within the system to create change. Additionally, the dimensions of fragility represent systems unto themselves that interact to produce varying states of fragility and affect the eventual placement of contexts on the fragility framework.

The heterogeneity of fragile contexts as a group underscores the importance of starting with the context, as discussed further in Chapter 3. At the same time, fragility can be more prevalent in certain groups of contexts than in others, and this informs donors’ priorities as they are devising their context, regional or thematic strategies (Corral et al., 2020[23]). For example, approximately 8.6 out of 10 people in sub-Saharan Africa are living in a fragile context, compared to 4 out of 10 people in the Middle East and North Africa (MENA). While poverty and income are associated with fragility, not all fragile contexts are low-income; 63% of the population of fragile contexts lives in middle-income economies. Finally, although cross-cutting issues such as commodity dependence, violent conflict and climate vulnerability are often linked to fragility, it is important not to conflate these (OECD, 2018[24]). For example, 8 of the 21 chronically fragile contexts3 have not experienced an active, state-based conflict since 2009 (Pettersson and Öberg, 2020[25]). These issues do, however, affect and reinforce one another. As a consequence, almost three out of every four people in fragile contexts live in commodity-dependent economies, and approximately three out of five people live in conditions of violent conflict or in high exposure to climate change (Figure 1.2). These findings suggest that international engagement on such cross-cutting issues cannot turn a blind eye to fragility, just as addressing fragility cannot disregard the cross-cutting issues.

While poverty and income are associated with fragility, not all fragile contexts are low-income; 63% of the population of fragile contexts lives in middle-income economies  
        

The drivers of crises and fragility are not confined within borders. Understanding fragility requires approaches that also extend beyond individual contexts. Analysis of this type is part and parcel of thinking in complex systems and the states of fragility within them. It helps inform more holistic approaches that consider the broader context and operating environment, which make a difference to the success of interventions at the context level. Transnational issues such as violent conflict, economic agglomeration, transnational crime and migration, climate change, and epidemics require “thinking and acting across borders” (OECD DAC, 2019[30]).

To facilitate this type of thinking, this publication introduces an aggregation of fragility scores at regional and subregional levels. Although such scores do not provide a complete and detailed account of underlying transnational issues, they are a starting point to inform donor priorities for regional strategies and establish a basis for joint analysis by international partners and their counterparts. These fragility scores also pave the way for more in-depth and complementary qualitative analyses and case studies. As an example, sub-Saharan Africa exhibits the highest levels of overall, economic and environmental fragility of any region, while political, security and societal fragility are highest in MENA, suggesting that actors could tailor their approaches to take the prevalent dimensions of fragility into account across regions. Figure 1.3 shows the levels of overall fragility across regions. The snapshots of each of the five dimensions of fragility are presented in Annex A. Analysing fragility at the regional level is an important step towards adapting the fragility framework to provide insights across complex systems at different geographic levels (OECD, 2018[24]).

The fragility scores of each context on the framework reflect dynamic undercurrents of fragility within that context. Identifying pockets of fragility can facilitate donor co-ordination and help actors target their work according to need (Custer et al., 2017[33]; Manuel et al., 2019[34]). Identifying such pockets can also inform more disaggregated and “people-centred” policies (OECD DAC, 2019[30]) that leave no one behind, as this addresses where people are within contexts and provides an indication of what they need. There are limited data with which to apply the fragility framework to the subnational level. However, certain national indicators that are also available at the subnational level can highlight areas of vulnerability and lack of coping capacities. The subnational maps in the economic (Sudan), environmental (Myanmar) and security (Afghanistan) snapshots in Annex A highlight administrative areas with high levels of need on indicators relevant to fragility in each of these dimensions. These also can help actors determine where to target resources. Such maps support joint approaches among humanitarian, development and peace actors looking to manage risk and build resilience within contexts (Desai and Forsberg, 2020[14]). The next step is to develop the required data infrastructure to explore fragility holistically, across dimensions and over time, at the subnational level. The OECD cannot do this alone and anticipates the opportunity to collaborate with other data providers seeking to increase access to and transparency of data overall, and subnational data in particular. The state of data on fragility is outlined in Box 1.4.

The combined impact of COVID-19 and multidimensional fragility on fragile contexts places Agenda 2030 at a critical juncture (Green, 2020[42]), as millions of people are at risk of sliding into conditions that reflect acute levels of fragility, such as poverty, high levels of conflict, and social and economic inequality. This is happening at a time when the functioning of the multilateral system has become more competitive, contested and patchworked against a backdrop of a “return to power politics, nationalism and trade wars” (Eggel and Galvin, 2020[43]), while political trends in fragile contexts show the persistence of authoritarian forms of governance. Fragility among fragile contexts that are authoritarian or flawed democracies has intensified since 2012 (Marley and Desai, 2020[44]). In 2019, 35 of the 54 fragile contexts (for which data is available) were categorised as authoritarian regimes, compared to 31 reported in States of Fragility 2018 (Economist Intelligence Unit, 2020[45]). If the strategic vision of the Decade of Action is to be maintained, then the case for Agenda 2030 must adapt rapidly to connect with political realities in a multi-layered and dynamic global governance environment.

Although most fragile contexts are on track to meet SDG 13 (climate action), none are on track to achieve SDG 2 (zero hunger), SDG 3 (good health and well-being) and SDG 5 (gender equality) – all SDGs for which substantial data are available across fragile contexts (Sachs et al., 2020[17]). The lack of progress on each of these SDGs underscores the urgency of investments in human capital, as discussed elsewhere in this report. Their lack of progress is especially concerning in light of projections that COVID-19 will add to the challenges to reaching these SDGs (Sachs et al., 2020[17]). For example, the latest State of Food Security and Nutrition in the World report finds that the pandemic may increase the total number of undernourished people globally by 83 to 132 million people in 2020 (FAO, 2020[46]). Progress also is not positive on other SDGs for which sufficient data are available to capture most fragile contexts. Only a third of fragile contexts are on track to meet SDG 8 (decent work and economic growth), which has important implications for converting human capital into economic opportunities in fragile contexts. Very few fragile contexts are on track to reach SDG 7 (affordable and clean energy), SDG 9 (industry, innovation and infrastructure), SDG 11 (sustainable cities and communities) or SDG 16 (peace, justice and strong institutions). These findings highlight not only the significant challenges facing fragile contexts in meeting Agenda 2030, but also the lack of data available to properly assess progress for many of the SDGs. For example, data to assess progress on SDG 10 (reduced inequalities) and SDG 12 (responsible consumption and production) are not available for any of the fragile contexts.

The evidence in Table 1.1 also suggests that the trajectory for SDG progress among extremely fragile contexts is diverging from that of non-fragile contexts, underscoring that the furthest behind are being left further behind. Progress on eight of the SDGs has stagnated or decreased in the majority of extremely fragile contexts but has risen or is on track for achievement of the goals in more than half of non-fragile contexts.

Not only did their progress on the SDGs appear to be limited before the COVID-19 pandemic, fragile contexts also were expected to account for a growing proportion of the world’s population. As shown in Figure 1.5, 1.8 billion people are living in fragile contexts in 2020 (23% of the world’s population). By 2030, this share is expected to increase to 26%, or 2.2 billion people (UN DESA, 2020[10]). Urban areas are projected to become more populous overall than rural areas by 2030-35. While 43% of the population of fragile contexts is living in urban areas in 2020, this proportion is expected to rise to 48% by 2030 and to 59% by 2050 (UN DESA, 2020[10]). The urban aspect of multidimensional fragility – poverty, housing issues associated with informal settlements and social inclusion – is becoming clearer in many contexts (Box 1.5). For example, Papua New Guinea and the Lao People’s Democratic Republic (Lao PDR) have among the highest urban poverty rates in the Asia Pacific region (Baker and Gadgil, 2017[47]). Average life expectancy in fragile contexts reached a historic high in 2017, the most recent year for which data are available. However, at 64 years, life expectancy is 10 years less than in the average non-fragile, developing context.

Acknowledging the known limitations of conflict and violence data (Asylbek kyzy, Delgado and Milante, 2020[53]), the trend of falling rates on armed conflict must be understood against the backdrop of other forms of violence such as political violence. Fatalities from armed conflict globally continued their downward trend in 2019 (SIPRI, 2020, p. 2[54]). The three major armed conflicts identified by the Stockholm International Peace Research Institute (SIPRI) in 2019 were in Afghanistan, the Syrian Arab Republic (Syria) and Yemen, all extremely fragile contexts. (SIPRI, 2020[54]). Based on author calculations, incidents of violence against civilians in 54 fragile contexts for which data are available (excluding Comoros, Papua New Guinea and the Solomon Islands) increased by 50% from January 2018 through December 2019 (ACLED, 2020[55]). The number of protests recorded increased from 2 509 in Q1 2018 to 5 238 in Q4 2019 (ACLED, 2020[55]), part of a broader trend that suggests the potential for more serious forms of conflict and violence in many fragile contexts is growing. For example, incidents of civil unrest in sub-Saharan Africa rose by more than 800% in eight years, increasing from 32 to 292 riots and protests from 2011 to 2018 (Institute for Economics and Peace, 2020[56]) p.4.

Most fragile contexts also are struggling to achieve momentum towards SDG 16 (peace, justice and strong institutions), and as fragility intensifies in extremely fragile contexts, it fuels grievance and increases the risk of violence. The root causes behind these trends vary by context. For example, Burkina Faso, which fell 13 places from 2019 to 2020 on the Global Peace Index rankings, and Niger, which fell 11 places, both exhibit severe environmental fragility in the OECD fragility framework; meanwhile, Nicaragua, which slipped 15 places on the Index, exhibits severe societal fragility (Institute for Economics and Peace, 2020[56]). Conflict trends significantly affect the numbers of forcibly displaced people. More than two-thirds (67%) of all refugees worldwide came from just five conflict-affected fragile contexts. Except for Myanmar, all of these – Afghanistan, Somalia, South Sudan and Syria – are extremely fragile (UNHCR, 2020, p. 3[57]).

More than 79.5 million people were forcibly displaced during 2019 as a result of armed conflict, violence or human rights violations, including internally displaced people and asylum seekers. Of the total, 68% came from just five fragile contexts: Syria (6.6 million), Venezuela (3.7 million), Afghanistan (2.7 million), South Sudan (2.2 million) and Myanmar (1.1 million) (UNHCR, 2020[57]). An estimated 26 million people were refugees in 2019, the highest number of refugees ever recorded (UNHCR, 2020[57]). Fragile contexts hosted approximately half of the world’s refugees in 2019. All of the ten top contexts of origin for international displacement situations were fragile in 2019, as were seven of the ten top developing contexts hosting refugees. Moreover, slightly more than one-quarter of the world’s refugees are living in contexts experiencing severe environmental fragility. As of 2019, 77% of all refugees, or 15.7 million people, were living in protracted refugee situations of more than five years (UNHCR, 2020[57]). Fragility for people who remain in conflict zones should also be considered; “given their diminished resilience, those who stay behind are increasingly unable to cope with exogenous shocks, so that events unrelated to conflict may trigger waves of displacement” (World Bank, 2017[58]).

Gender inequality is a persistent challenge as the Agenda 2030 horizon approaches. Before COVID-19, there were signs of setbacks in progress towards gender equality and women’s empowerment in fragile contexts. None of the 55 fragile contexts for which data are available are on track to achieve SDG 5 (gender equality): for 23 of these, progress is moderately increasing, but for 32, progress has stagnated (Sachs et al., 2020[17]). Gender relations are deeply political power relations and especially so in fragile contexts, where both patterns of gender discrimination and opportunities for advancing gender equality and women’s empowerment are connected to wider fragility and conflict dynamics and to broader contestations over the distribution of power and resources (OECD, 2019[59]). The World Bank’s (2020[60]) Women, Business and the Law survey finds significant disparities between fragile and non-fragile contexts on gender-related targets, particularly on objectives related to legal frameworks for women and girls in the family, in society and in the labour market. For example, in 2019, 38% of women and girls in fragile contexts (328 million) did not have legal protections against domestic violence, and half (425 million) did not have legal protections against gender-based discrimination in employment. In non-fragile developing contexts, only about 3% of women lack such protections. Progress is also uneven in the political sphere. While women’s participation in parliaments, a useful indicator of political representation for which there is wide coverage, increased in fragile contexts over 2012-19, the rate of progress was lower than in non-fragile developing contexts and declined in extremely fragile contexts from 2017-19 overall.

The COVID-19 pandemic is having a disproportionate impact on women and girls, with the Executive Director of UN Women referring to it as a “shadow pandemic” due to the increased risk of violence against women (Mlambo-Ngcuka, 2020[61]). Early reporting from the International Rescue Committee suggests there has been an increase in this form of violence in fragile contexts such as Honduras, where reported cases increased by 4.1% each week in April and May 2020 (International Rescue Committee, 2020[62]). This figure is likely an underestimate as lockdowns due to COVID-19 have significantly increased the challenges to reporting domestic and intra-family violence, especially in fragile contexts such as Bangladesh and Tanzania (International Rescue Committee, 2020[63]). Global figures from the UN Population Fund suggest that for every three additional months of lockdown, 15 million additional cases of gender-based violence are to be expected – a striking prediction that highlights the scale of the pandemic’s impact on women and girls (UNFPA, 2020[64]). Additionally, evidence from the Ebola epidemic suggests that, when faced with budgetary pressures and the need to prioritise certain health services over others, governments are likely to scale back sexual health and reproductive services, which is also a risk in light of COVID-19 (WHO, 2020[65]).

In the 43 fragile contexts for which data are available, 66.1 million youth between the ages of 15 and 24 are not in employment, education or training, and almost three-fourths of these, or 47.9 million people, are women (ILO, 2020[66]; UN DESA, 2020[10]). Additionally, available data indicate widespread learning poverty (Marley and Desai, 2020[44]). Access to primary and secondary education remains a challenge for millions of children and youth in fragile contexts, limiting their ability to gain the skills and knowledge they need to lead productive and self-sufficient lives. Limited access is more pronounced in situations of violent conflict and among displaced populations and their host communities. Further slowing progress towards inclusive and equitable quality education for all (SDG 4), the COVID-19 pandemic has disrupted education in 191 countries and caused schools around the world to temporarily close (UNESCO, 2020[3]). The impact of COVID-19 on education in fragile contexts, especially for girls, is expected to be severe, with 384.5 million children still being out of school as of 15 July 2020 across all levels of education (and 183 million of these children being girls). It is likely that many girls will never go back to school after the crisis (Albrectsen and Giannini, 2020[67]; Bandiera et al., 2020[68]). The digital divide experienced in many fragile contexts has made access to education during the pandemic all the more difficult. The annualised effective out-of-school rate in 29 fragile contexts (for which data is available) is expected to increase from 22% in 2019 to 34% in 2020 (UNDP, 2020[5]).

Youth living in fragile contexts face particular challenges in employment. They are more likely than older workers to be unemployed and underemployed due to their lack of experience and are found in disproportionate numbers working in the informal sector (UN, 2020[69]). This lack of economic opportunity and decent work conditions at home is a major factor driving youth migration. According to International Labour Organization (ILO) estimates in 2019, almost 30 million young people aged between 15 to 24 left their home countries to seek better economic opportunities abroad, accounting for about 11% of all international migrants (International Labour Organization, 2020[70]). However, many young migrants frequently find themselves trapped in exploitative job conditions when they arrive, including forced labour. The ILO has expressed concern over the risk that the pandemic poses in backtracking progress on child labour in fragile contexts. Higher poverty rates may result in more children being forced into child labour to support their families (ILO/UNICEF, 2020[71]).

Causes of fragility are not always endemic to fragile contexts. The systemic shock of the COVID-19 pandemic has exposed and highlighted fragility globally, underlining the central importance of addressing fragility as a means to achieve the SDGs. The COVID-19 shock further underscores the interconnectedness of risks contributing to health, economic, environmental and climate-related fragilities (Nadin, 2020[72]). As the pandemic unfolded, reports of gender-based violence in many fragile contexts and in situations of forced displacement rose (Cone, 2020[73]; Yayboke and Abdullah, 2020[74]). Criminal organisations and armed militias were seen to capitalise on the opportunity of crisis, as the momentum behind the UN’s call for a global ceasefire dissipated (Columbo and Harris, 2020[75]). Box 1.6 discusses how impacts of the pandemic reverberate through different dimensions of fragility in Gambia, which is one of the contexts in which overall fragility has declined the most since 2016.

Global temperature has already averaged 1.0°C above pre-industrial levels and is on track to reach 2.8°C by the end of the century under optimistic scenarios (CAT, 2019, p. 1[79]). This trajectory will substantially exacerbate challenges to sustainable development, as a global temperature rise of only 0.5°C is expected to increase poverty by several hundred million individuals (Roy et al., 2018, p. 447[80]). The multidimensional impact of the COVID-19 pandemic is giving the world a clear preview of what the cascading effects of climate change will look like in the years and decades to come as well as a real-time lesson in how shocks and disasters can reverberate across dimensions of fragility. Fragile contexts are at particularly high risk of being affected by natural disasters and therefore expected to face disproportionate impacts from climate change as it increases the frequency and intensity of these hazards. In 2019, 52.1 million people were affected by natural disasters in fragile contexts, the highest yearly number since 2010 and accounting for 55% of the total number of people affected by natural disasters worldwide (EM-DAT, 2020[81]). On average, 6 800 people have died from natural disasters in fragile contexts each year since 2011. While the severity of climate impacts will vary significantly by region, the climate crisis could reach a scale that results in negative spillover effects globally – just as economic downturns caused by COVID-19 have occurred even in countries with low case-rates.

Climate change acts as a risk multiplier by compounding upon fragilities that already exist, exacerbating food and water insecurity, adverse health impacts and economic losses in already disadvantaged populations. The impact of climate change will be more pronounced in fragile contexts in the short to medium term, as the convergence of climate, conflict and fragility risks not only can add to food and economic insecurity and health disparities but also limit “access to essential services, while weakening the capacity of governments, institutions and societies to provide support” (ICRC, 2020, p. 8[82]). Of the 22 conflict-affected fragile contexts, 12 are also among the most exposed to climate change and together are home to 669 million people.4 The global experience of systemic shocks – forest fires in the Amazon and the DRC, cyclones and locusts in east Africa, global pandemics, and economic crises, to name a few – alters the terms on which states respond to the call for a Decade of Action. As all development occurs within a changing climate, adapting to the effects of global temperature rise will be a necessary component of planning and operating in fragile and conflict-affected contexts (Chapter 3).

In 2022, the OECD will add a human capital dimension to its fragility framework in acknowledgement of the ambition set forth in States of Fragility 2018 to “never lose sight of the end goal of delivering hope and better lives for all people in fragile contexts” (OECD, 2018[24]). As a measure of the knowledge, skills and health that people accumulate over their lives, human capital is an essential building block of sustainable development in fragile contexts and a powerful asset. Adding a human capital dimension to the OECD fragility framework thus will help place what matters to people – their well-being, lives and livelihoods – at the heart of development policy in fragile contexts. Indeed, support for human capital can provide the tools that everyone needs to utilise to achieve their individual life goals and aspirations, and the best possible outcomes for themselves and their families, while they cope with unforeseen events (UNDP, 2017[83]).

The OECD fragility framework analyses fragility across economic, environmental, political, security and societal dimensions, offering a nuanced perspective on fragility based on the interaction of risks and the coping capacities that help manage risks and build resilience. Because the framework focuses on sources of human vulnerability and resilience, a human capital dimension will enhance its rigour by providing evidence for how what matters for people shapes fragility across all dimensions and at all levels. This evidence can help support better and more effective policy and programming in fragile contexts. This section builds the case for why human capital matters for fragility and why investment in human capital can help develop more inclusive, peaceful and resilient societies.

Fragility reverberates globally, locally and on the level of individuals. Placing people at the centre of sustainable development in fragile contexts means understanding how the issues that matter to people can affect fragility at all these levels, especially in contexts where parts of the population are the furthest behind. It means prioritising people’s well-being, livelihoods and overall quality of life as a core concern and underlying motivation for policy and programming (OECD, 2018[24]; OECD DAC, 2019[30]). As discussed, identifying pockets of fragility can inform more disaggregated policies, and the OECD methodology aims to move beyond the context level and bring a people-centred perspective to its approach to fragility. Assessing a population’s level of human capital is useful because it provides measurable evidence of the return on investment in people (Box 1.7). Additionally, analysing how health, education and social protection affect people’s well-being, lives and livelihoods can provide a tangible understanding of what shapes fragility from the perspective of the individual. This understanding can help international partners support the capacity of governments in fragile contexts to invest in the well-being of their populations and provide necessary public services.

The COVID-19 crisis and its impact on the global economy challenge the ability of governments to ensure the well-being of their populations and emphasise how important it is that they have the right mechanisms to do so effectively. With less than ten years remaining to meet the deadline for achieving Agenda 2030, success will require a greater focus on the building blocks of sustainable development – health (including proper nutrition) and education – and a renewed focus on providing financial support to the poorest by investing in social protection (Manuel et al., 2018[86]).

Support for human capital is an investment in the future. By supporting the human capital of their populations, countries can produce benefits at the individual, local and national levels, promoting resilience and helping maximise people’s potential to live prosperous lives (Flabbi and Gatti, 2018[87]). The COVID-19 pandemic and its associated fiscal, political and social shocks bring into sharper focus the urgency of investing in human capital.

The coronavirus (COVID-19) pandemic and its associated fiscal, political and social shocks bring into sharper focus the urgency of investing in human capital  
        

Fragile contexts are lagging when it comes to human capital. All but one of the 47 fragile contexts measured in the World Bank’s Human Capital Index (HCI) fall below the worldwide average for human capital, with the Islamic Republic of Iran (Iran) being the exception.5 In addition, 33 of the 37 pre-demographic dividend countries listed by the World Bank also are fragile contexts and account for 94% of the total population of pre-demographic dividend countries6 (World Bank, 2018[88]). Pre-demographic dividend countries are mostly low-income countries that lag in key human development indicators and have a high fertility level of more than four births per woman. These countries are experiencing very rapid population growth and have young populations that are not yet of working age (UNESCO, 2020[3]).

There is documented evidence of a gender gap in human capital outcomes. HCI scores are slightly higher for girls than for boys in most countries for which data are available, although evidence varies across countries.7 In 23 of the 36 fragile contexts with HCI scores disaggregated by gender, girls have higher scores than boys (Figure 1.6). However, it is important to note that the HCI does not capture the unique challenges girls continue to face in accumulating human capital, including child marriage, early childbearing and gender-based violence (Avitabile et al., 2020[89]). These challenges will certainly be impacted by the COVID-19 pandemic. Women also continue to face barriers in converting human capital to economic opportunities. Addressing these barriers to women’s empowerment will be important for harnessing the potential benefits of human capital. Box 1.8 discusses support for human capital.

Women in particular play an important role in building human capital. Maternal health and education are critical influences on early childhood development and lay the foundation for a child’s future success (World Bank, 2019[91]; Bhalotra and Rawlings, 2013[96]). In fragile contexts, the maternal mortality rate is four times higher than in non-fragile contexts (Marley and Desai, 2020[44]). This disparity shows the importance of investment in women’s health, as maternal mortality rates are an indication of women’s access to high-quality healthcare and their overall social and economic status in a country or context (Marley and Desai, 2020[44]). As such, maternal mortality rates have major implications for human capital. As the COVID-19 pandemic puts health systems in fragile contexts under increased pressure, maternal mortality may worsen. Women also tend to be overrepresented in the informal economy and in the most vulnerable types of employment in developing countries (International Labour Organization, 2018[97]), and they undertake most of the unpaid care and domestic work, which makes it more difficult for them to access formal social protection and economic opportunities. Women who are not entitled to enough income security during the final stages of pregnancy and after childbirth, especially those working in the informal economy, can expose themselves and their children to significant health risks (OECD, 2019[98]).

Girls are also less likely than boys to go back to school if they leave, making investment in girls’ education even more crucial as a form of crisis response (Bandiera et al., 2020[68]; Albrectsen and Giannini, 2020[67]). In fragile contexts, 183 million girls across all levels of education were still out of school as of 15 July 2020 due to the impact of COVID-19, with 107.5 million being primary-age girls (UNESCO, 2020[3]). Gender inequality and marginalisation can impact human capital and livelihood outcomes for women. That said, when investment in the education of women and girls is made, the returns are higher on average by about two percentage points than for male education, making women’s education a good investment and a development priority (World Bank, 2019[91]; Psacharopoulos and Patrinos, 2018[92]). Investing in human capital for women is important to empower them and give them the opportunity to make decisions about their own lives.

Investment in human capital is especially important for vulnerable populations, and crises such as the COVID-19 pandemic can have significant intergenerational implications for poor families (UN, 2020[99]). Access to health, education and social protection are important dimensions of well-being. Lack of these can have devastating results for the most vulnerable in times of crisis and can make it difficult for them to rebuild after a crisis. Multidimensional deprivation has a trapping effect on individuals and households, in substantial part through impacts on human capital. Outcomes in education and health are far worse for vulnerable populations, reinforcing intergenerational cycles of low human capital, poverty and persistent inequality that are difficult to escape. Investment in human capital can be critical for reducing poverty. However, without a solid foundation early in a child’s life, subsequent public investments in human capital are less likely to be effective and a spiral of increasing inequality more likely to develop (Flabbi and Gatti, 2018[87]; Corral et al., 2020[23]). Further, as noted, no fragile contexts are on track to meet SDG 2 (zero hunger), which is of particular concern considering the vital role that nutrition plays in health during the foundational years of a child’s life.

Assessing a population’s level of human capital is useful because it provides measurable evidence for the return on investment in people. One well-known manifestation of this return is in the positive correlation between increased human capital and economic productivity, making human capital a useful measure of the impact of a population’s health and education on a context’s economic growth (World Bank, 2018[90]; Botev et al., 2019[101]). This is one example of how what matters for people can impact fragility in the economic dimension. However, human capital is more than just another indicator for economic fragility, and its returns on investment can manifest in a number of ways depending on the context and the circumstances. The relationship between human capital and fragility can be observed in a wide spectrum of issues that link across the economic, environmental, political, societal and security dimensions of fragility and that affect people, communities and societies. Human capital can help manage risk and build resilience in fragile contexts through fostering economic growth, promoting strong institutions, and helping to build peaceful and inclusive societies. Fragility can also negatively impact human capital through the shocks and stresses associated with vulnerability, health risks, weak institutions and conflict. The links between human capital and fragility can manifest themselves in circumstances and issues such as socio-economic vulnerability, inequality, quality of governance, food security, and responses to conflict and natural disaster, to name just a few (Forichon, 2020[85]). The multidimensional nature of the challenges posed by COVID-19 in fragile contexts is a clear example of these linkages.

Nevertheless, human capital is but one component of a complex system of risks and coping capacities, and its impacts are not always net positive. Fragility, as noted, is messy and complex, and the movement from fragility to resilience is neither linear nor guaranteed. Although investment in human capital can be a means of building resilience, it can also produce unintended and unforeseen outcomes (Forichon, 2020[85]). Building resilience does not prevent risks from materialising. Indeed, some contexts on the OECD fragility framework are more fragile than others and yet have higher HCI scores (Figure 1.6). Human capital thus is not sufficient as a standalone resource to combat fragility, but it does play a part by interacting with the systems that shape fragility in a way that either exacerbates risk or promotes resilience. Linking these dimensions of analysis, and acknowledging human capital’s unique and important role, are therefore critical to understanding and addressing fragility.

Considering human capital in the analysis of fragility can enhance understanding of the consequences of crises and prioritise effective and targeted responses. Fragility is often prolonged and ingrained, and DAC members and other international partners will only be effective if they address its root causes and support processes from within (OECD, 2020[102]). Human capital investments can have a double positive effect. Investing in health, education and social protection can have the immediate effect of saving lives and protecting the most vulnerable and can also yield substantial benefits over the long term by promoting growth and serving as a coping capacity against future crises. Investment in human capital generates lasting returns – the more human capital an individual acquires early in life, the more effective future investments will be, including for generations to come (Manuelli and Seshadri, 2014[103]). At the same time, violence and crises can cause irreversible damage to societies; once human capital is impacted by violence or crisis, it is very difficult to rebuild (Corral et al., 2020[23]).

The consequences of the COVID-19 crisis in fragile contexts will certainly be felt in the health sector in the short term, but there could be potentially significant socio-economic implications as well. A response that takes human capital into account will help address the multidimensional effects of crises to rebuild livelihoods and promote future resilience. Indeed, the DAC has highlighted health and social safety nets as priorities in its COVID-19 response, while the UN is prioritising health, social protection, social cohesion and community resilience (OECD, 2020[102]; UN, 2020[99]). Support for social protection systems will be crucial for helping people in fragile contexts cope with the shocks associated with COVID-19. While countries and contexts with strong social protection systems and basic services suffer the least and recover the fastest during crises, 55% of the world’s population has inadequate or no social protection to begin with (UN, 2020[99]). Although social systems are in place in fragile contexts, coverage of formal social safety nets is much lower than in non-fragile, developing contexts, with particular disparities in fee waivers, cash transfers, and food and in-kind assistance (Figure 1.7). Factors contributing to this disparity include lack of financing from both governments and development partners, low government capacity for the provision of these services, and differences in reach (Hanna, 2020[104]). This lack of social protection coverage underscores the need for an extraordinary scaling-up of effort, particularly in fragile contexts. Absent such investments, people in fragile contexts risk being further left behind in progress on sustainable development and peace.

Getting financing right can have a significant impact in fragile contexts and support movements from fragility to resilience. Yet fragile contexts face substantial funding gaps for delivering basic services for their citizens and unique constraints to raising revenue, attracting private investment, and growing and diversifying their economies. Fragile contexts can be seen as small ships on a very large and tumultuous economic ocean. While they are home to 23% of the world’s population – and are sources of many products critical to the global economy – fragile contexts account for only 2.7% of global GDP (Infographic 1.2).

ODA has historically been a stable and resilient resource for developing countries (Ahmad et al., 2020[106]). At the outset of the COVID-19 crisis and acknowledging the pressures on public finances in all countries, DAC members moved quickly to pledge to “strive to protect” ODA (OECD, 2020[107]). In doing so, they recognised that ODA would continue to play an important role in responding to immediate humanitarian needs while supporting a more sustainable and green recovery that builds back better. This section begins with an overview of ODA to fragile contexts and then discusses other sources of finance. It provides context for what exactly DAC members are striving to protect by looking at who is providing what, where and how using the latest data available from OECD aid statistics. This analysis can help DAC members respond to the uncertainties and changing needs in fragile contexts due to the pandemic and, in the longer term, target their ODA to address the underlying drivers of fragility.

Fragile contexts have slowly increased their connections to regional and global trading, migration, and economic and investment flows. They remain less well-connected economically than other developing countries, and especially in Africa, they are more likely to trade with each other (regionally) than with the rest of the world (globally). See, for example, Bouet, Cosnard and Laborde (2017[108]). Nevertheless, economic remoteness has dropped by 9.5% since 2000 among the 56 fragile contexts measured by the least developed country indicator (UN DESA, 2018[109]), and many fragile contexts have succeeded in attracting remittances and FDI and increasing their tax revenues.

For many contexts, the process of diversifying economic and financing links has been a source of opportunity and is an important part of increasing self-reliance over time. But it also brings risks to be navigated. While fragile contexts fared reasonably well during the 2008-09 global financial crisis, since then many have increased their linkages to the global economy and capital markets, and these are now drying up due to COVID-19 (Ongley and Selassie, 2020[110]). Reduced economic and financial opportunities could become a source of fragility, with “groups bargain[ing] for access to the basic means of livelihoods and well-being” in arenas of contestation such as land and natural resources and service delivery (UN/World Bank, 2018[111]).

More bilateral ODA – USD 76 billion – went to fragile contexts in 2018 than ever before. Non-DAC donors provided USD 13.4 billion, or 18%, of the total. ODA to fragile contexts has increased every year since 2014. After remittances, it is the second-largest external financing flow to fragile contexts – 2.3 times the volume of FDI and 67% of the total value of remittances (Infographic 1.2). In extremely fragile contexts, its weight is greater still: total ODA is 11.5 times FDI and 2.5 times the volume of remittances. The COVID-19 pandemic is expected to spur capital flight from developing countries and a significant decline in remittances, making fragile contexts even more aid-dependent and boosting the relative weight of ODA (Ratha et al., 2020[114]; UNCTAD, 2020[115]). This may especially be the case in extremely fragile contexts such as Somalia, where ODA and remittances each make up about a third of the country’s GDP but where remittances are expected to fall by 40% due to COVID-19 (International Organization for Migration, 2020[116]). In 2018, the average aid dependency of extremely fragile contexts, as measured by the share of ODA to gross national income, amounted to 19%.

The DAC recognises that its ODA is indispensable to support fragile contexts on their pathways to sustainable development and peace. DAC countries spent 63% of their total net country-allocable ODA, or USD 60.3 billion, in fragile contexts in 2018, which is the highest share since 2013. This ODA also has increased year to year since 2015 (Figure 1.8). Members are also increasingly giving their ODA through core contributions to multilateral organisations, which has important implications for aid delivery, accountability and effectiveness (Chandy, Seidel and Zhang, 2016[117]). In 2018, multilateral ODA represented USD 22.1 billion of the total USD 60.3 billion, the largest volume of multilateral ODA historically.

DAC countries spent 63% of their total net country-allocable ODA, or USD 60.3 billion, in fragile contexts in 2018, which is the highest share since 2013  
        

This pattern of allocation shows that DAC members are important actors in fragile contexts as shareholders in the multilateral system and as actors in their own right (OECD DAC, 2019[30]). In gross rather than net terms, DAC members gave USD 12.7 billion of their bilateral and multilateral ODA to the humanitarian sector in 2018, of which 89% was delivered through either multilateral organisations or non-governmental organisations (NGOs) and civil society channels. Members also gave USD 55.5 billion in development and peace ODA, of which 73% was delivered through bilateral mechanisms such as public sector institutions. These allocations underscore the need for a coherent and co-ordinated effort by DAC members and their multilateral counterparts that strengthens complementarity across the pillars of the humanitarian-development-peace (HDP) nexus (OECD, 2020[107]). They also highlight the importance of multilateral organisations’ adherence to the DAC Recommendation on the HDP nexus, as the UN Development Programme (UNDP) has done and as other organisations have started the process of doing as of July 2020.

The majority of DAC bilateral ODA is focused on the development pillar, though a sizeable portion still goes to the humanitarian sector. DAC members gave 25% of their bilateral ODA in fragile contexts in 2018 to the humanitarian pillar, 62% to the development pillar and 13% to the peace pillar (Figure 1.9). The amount to the humanitarian pillar is understandable given existing humanitarian needs, especially in extremely fragile contexts. However, there is potential to save and redirect money towards sustainable development by using ODA to manage the root causes of need, as articulated in the DAC Recommendation. Doing so calls for greater investment in a preventive and resilience-centred approach, which is discussed further in Chapter 2.

While it is too early to assess its post-pandemic trajectory, ODA has been resilient in the past amid global economic downturns (van de Poel, 2020[118]; Ahmad et al., 2020[106]). Above all, it will be important to ensure a sustainable recovery that addresses funding needs in priority sectors such as health, education, social safety nets, water and sanitation, and gender equality and women’s empowerment, some of which were identified in the Joint Statement by the DAC on the COVID-19 pandemic (Desai, 2020[112]; OECD, 2020[107]). From 2010 to 2018, DAC members increased their bilateral assistance to each of these priority sectors in fragile contexts, both in volume and as a proportion of total ODA (Figure 1.10). Humanitarian ODA also increased by 44% in the same period. DAC members’ ODA commitments to gender equality and women’s empowerment almost doubled from USD 10.5 billion in 2010 to USD 20.9 billion in 2018 and, in 2018, represented 45% of their total bilateral, allocable commitments. This prevailing trend in all sectors is good news and reflects DAC members’ commitment to addressing fragility. It is important to strive to protect these gains, given the impacts already being felt from the COVID-19 pandemic (Box 1.1).

ODA is also an important source of financing for crisis response and preparedness. In 2018, DAC members committed USD 819 million of their bilateral ODA to projects that identified disaster risk reduction (DRR) as a principal or significant objective. This amounted to only 1.8% of their total, bilateral-allocable ODA to fragile contexts. There is an opportunity for a renewed focus on DRR in light of COVID-19 to help fragile contexts address the impact of systemic and multidimensional risks that the pandemic is aggravating in the short term and provide opportunities to mitigate the occurrence of such risks in the longer term.

DAC members deliver their bilateral ODA to fragile contexts primarily through public sector institutions, NGOs and civil society, and multilateral organisations. COVID-19 will affect all these channels in different ways. For example, it will put pressure on the ability of public sector institutions in both donor and recipient governments to deliver key services (Bteddini and Wang, 2020[120]). In 2018, DAC members channelled USD 17 billion, or 37% of their gross bilateral ODA, to fragile contexts, through public sector institutions, of which USD 9.7 billion went through recipient governments. The volume of DAC bilateral ODA in fragile contexts delivered through multilateral organisations, termed multi-bi ODA, amounted to USD 13.1 billion in 2018, or 28% of the total. Finally, DAC members channelled USD 10.5 billion, or 23% of their bilateral ODA, to and through NGOs. Pandemic-related lockdowns and other government measures will affect the space for NGOs, civil society and multilateral organisations to manoeuvre in fragile contexts, including in their humanitarian operations (ACAPS, 2020[121]). These organisations remain at the front line of the COVID-19 response in fragile contexts, especially in remote areas where the capacity and reach of public sector institutions are limited (OECD, 2020[102]). Striving to protect these channels of aid delivery is important to ensure that ODA is reaching the populations that need it.

This trend of differentiated financing by DAC members to address needs in fragile contexts is a positive development and reflects investments in context analysis. However, as Figure 1.11 shows, there is considerable opportunity to focus financing on targeting the underlying drivers of fragility, especially in extremely fragile contexts. It is understandable that humanitarian ODA is prevalent in extremely fragile contexts, considering high levels of need. Yet ODA to the security and societal dimensions comprises only 3% and 7%, respectively, of total DAC bilateral ODA in extremely fragile contexts, despite the prevalence of severe or high security and societal fragility in these contexts (Desai and Forsberg, 2020[14]). Societal ODA, particularly, receives 13% of the total ODA in other fragile contexts. Additionally, ODA to the environmental dimension is only 12% of the total in extremely fragile contexts, while it amounts to 25% of the total in other fragile contexts. Similarly, the economic dimension receives approximately half the proportion of the total ODA in extremely fragile contexts than it receives in non-fragile contexts. These findings are notable given the importance of the environmental and economic dimensions as determinants of overall fragility in the 2020 framework. Taking such multidimensional drivers into consideration when making strategic decisions about the allocation of their ODA can help DAC members ensure that their financing is sufficiently calibrated to the specific needs of fragile contexts and the severity of their fragility.

Despite its weight in fragile contexts, ODA is not the only or always the most important source of financing in fragile contexts. Non-ODA financing is equally important as ODA to achieving stability and the SDGs. The financing landscape is varied across fragile contexts, reflecting the multidimensional factors that shape, and are shaped by, financial flows (Thompson, 2020[113]). The following sub-section discusses the status of financial resources beyond ODA in fragile contexts, outlining trends prior to the COVID-19 crisis as well as initial assessments of its impact. Financing is closely linked to the economic dimension of fragility and thereby affects the societal, political, environmental and security dimensions through, for example, investments in social protection and human capital.

Significant efforts have been made to increase the sustainability of government revenues and financing for social services without relying solely on ODA. 51 out of the 57 fragile contexts have received ODA dedicated to increasing tax revenue between 2014, when data tracking began, and 2018 (OECD, 2020[122]). Raising and spending revenue is seen as a key capacity that supports resilience and can help build social cohesion through the “fiscal contract”, whereby increased taxation increases citizens’ expectations of their government and its accountability (OECD, 2019[123]).

Tax revenue is the single largest source of financing for development globally, with a tax-to-GDP ratio of 15% a widely considered benchmark for effective state functioning and economic development (see, for example, (OECD, 2018[124]) and (Gaspar, Jaramillo and Wingender, 2016[125]). Based on the most recent data available, only a third of the 43 fragile contexts analysed have achieved this level (Thompson, 2020[113]) (Figure 1.12). Many governments in these contexts remain heavily reliant on natural resource revenues: 45 of the 88 commodity-dependent contexts are fragile, representing 73% of the population of fragile contexts (UNCTAD, 2019[26]; UN DESA, 2020[10]), as discussed in Figure 1.2.

The quality of institutions and public expenditure is just as important for effective state functioning. For example, the International Monetary Fund (IMF) has found the following:

  • In only a third of developing countries analysed was a widening fiscal deficit associated with increased public investment across all sectors, implying that borrowing rather than taxation was being used to pay for today’s expenditure (International Monetary Fund, 2020[127]).

  • The quality and efficiency of public investment processes – for example in infrastructure – have a big impact. The most efficient public investors have twice the impact on growth for every dollar spent than do the least efficient investors (International Monetary Fund, 2015[128]). This growth dividend then impacts directly on the country’s ability to provide social services and safety nets and to service debt.

Still, most fragile contexts experience severe capacity constraints in economic governance. In the World Governance Indicators, while other developing countries scored an average 45th and 47th percentile on perceptions of regulatory quality and government effectiveness, fragile contexts scored an average 19th and 16th percentile, respectively (World Bank, 2018[129]), see Infographic 1.2 above.

Clear-eyed strategies and realism are needed to achieve reform. Slow and sustainable reform can be more effective than overly ambitious expectations. Supported by multilateral and bilateral partners, significant advances have been made in countries’ debt management capacity and domestic resource mobilisation, among other aspects. This important work has also begun in fragile contexts and must continue, with realistic expectations and strategies. Especially in fragile contexts, limited absorptive capacities and political and practical constraints can slow the pace of progress and deter country buy-in (Independent Evaluation Office, 2018[130]).

Private investment has increasingly come to be an important potential source of financing for development, especially for investment in infrastructure and private sector development (OECD, 2018[124]; Inter-agency Task Force on Financing for Development, 2020[131]). While private investment can take many forms, one of the most closely watched indicators is the level of foreign direct investment (FDI), defined as an investment made to acquire a lasting interest in, or effective control over, an enterprise in another country. FDI can involve either so-called greenfield investment (investing in a new business or asset) or brownfield investment (taking over and/or repurposing an existing business or asset). FDI is seen as relatively more important for development than other forms of investment such as portfolio investment because it is relatively long-term, may boost productivity and can increase a country’s linkages to global economic opportunities.

However, even under the most optimistic COVID-19 scenario, global FDI flows are expected to fall by more than 30% in 2020 (OECD, 2020[132]). Developing countries may be hit hardest, given that the sectors most severely impacted by the pandemic – for example, the primary and manufacturing sectors – account for a larger share of FDI in fragile contexts than in developed economies. Fragile contexts, however, generally receive only a small fraction of total global FDI flows (OECD, 2018[24]), as investors are generally cautious about the higher potential risks in fragile contexts. Moreover, global FDI has been on a general downward trajectory since 2015 (OECD, 2020[133]). Nevertheless, fragile contexts received a total net inflow of USD 33.4 billion in 2018, with most (USD 30.5 billion) going to other fragile contexts. On average, other fragile contexts received 2.9 times more FDI in 2018 than extremely fragile contexts (USD 245 million versus USD 709 million) (Thompson, 2020[113]). But these averages hide significant variation, both between contexts and over time.

FDI flows can vary significantly from year to year and between countries. Some fragile contexts have received significant volumes of FDI, among them even the relatively isolated Democratic People’s Republic of Korea, which received overall positive net inflows of USD 821 million between 2009 and 2018. Over the same time period, Nigeria received the largest net inflows of all fragile contexts, totalling nearly USD 53 billion, and Bangladesh, Cambodia, Ethiopia, Iran, Mozambique and Venezuela each received between USD 20 and 35 billion (Figure 1.13). Among extremely fragile contexts, the Republic of the Congo (Congo), the DRC and Sudan each received between USD 14 and 21 billion. But substantial disinvestments are also possible. Angola, Iraq, South Sudan and Yemen had net disinvestment over 2009-18 – meaning disinvestments exceed total investments over the period – while Chad, Congo, the Democratic People’s Republic of Korea, the DRC, the Kingdom of Eswatini, Gambia, Guinea, Mauritania, Togo, Venezuela and Venezuela have all had negative inflows in at least one year (Thompson, 2020[113]).

Remittances represent a significant financial resource for many households in fragile contexts. Overall estimated remittance flows nearly doubled between 2009 and 2018 from around USD 60 billion to around 113.5 billion (World Bank, 2020[135]).

Remittances are an individual-to-individual financial resource, supporting incomes at the household level. Their volumes vary significantly by household and by context, with higher volumes reaching contexts such as Haiti, Honduras and Gambia that have high levels of emigration to wealthier neighbouring countries (Figure 1.14). While data are limited, it is often considered that remittances tend to flow to wealthier households that are more likely to be able to educate and send a household member to work abroad. However, remittances can also flow to poorer households and refugees, including through in-kind and informal remittances through hawala networks. For example, refugees in Cameroon have been reported as receiving remittances from family in the Central African Republic (OECD, 2019[136]).

At the household level, remittances can provide a financial buffer during tough economic times (Thompson, 2020[113]). At the country level, remittances are often countercyclical, in that volumes tend to increase during economic downturns in migrants’ home countries. The COVID-19 pandemic, however, is disrupting this pattern. With the global economic downturn hitting migrant-hosting countries hard, remittances to low- and middle-income countries are projected to fall by 19.7% in 2020, and fragile contexts may be among the worst affected (World Bank, 2020[137]). These forecasts underscore the importance of keeping the costs of transmitting remittances down, ensuring that migrant workers are not discriminated against in retaining employment and, as far as possible, keeping remittance channels open as an essential service (Horrocks, Rühmann and Konda, 2020[138]).

Increased access to more diverse financial resources has provided significant opportunities to fragile contexts, but it has also brought additional risks. Even before the COVID-19 pandemic, debt risks were increasing, and these risks appear to be closely linked to fragility.8 First, contexts at medium or high risk of debt distress have increased fragility, and more of these such contexts are on the 2020 fragility framework than were on the 2018 framework. Second, the contexts that exited the framework since 2018 are at low or medium risk of debt distress (Thompson, 2020[113]; OECD, 2020[140]).

These opportunities and risks have become abundantly clear in the economic and fiscal shocks flowing from the COVID-19 pandemic. The IMF predicts that Africa is heading for its first recession in 25 years, while Latin America and the Caribbean may see its worst recession in history (Thompson, 2020 [113]). And while external financing has helped build economic resilience, it is those countries with significant external linkages that may be the worst affected. Yet few governments or households in fragile contexts are able to introduce the kinds of large-scale economic stimulus and social safety net responses that were initiated in Europe. Moreover, a large portion of the private sector in these contexts is comprised of small informal and micro-enterprises with little access to capital and safety nets. Far less is spent on social safety nets in fragile contexts than in other developing contexts: around one-fifth as much (USD 35.5 versus USD 161), according to the World Bank’s Atlas of Social Protection Indicators of Resilience and Equity, or ASPIRE, data (World Bank, 2020[105]).

Public debt has increased steadily since the debt relief provided under the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative. This has reduced the space that fragile contexts have to respond to the impacts of COVID-19 and other economic shocks (OECD, 2020[140]). There also appears to be a strong connection to resource dependence, which not only has enabled a greater and faster build-up of debt but is making the effects of the COVID-19 recession more severe for many fragile contexts. Countries’ access to natural resource assets also enabled them to build up debt faster than non-resource rich countries: between 2013 and 2018, oil exporters’ median debt-to-GDP ratio increased significantly faster than for their resource-poor counterparts, growing from 31% to 54%. For example, the Congo’s debt levels more than doubled over the five-year period while those of Equatorial Guinea grew fivefold (Calderon and Zeufack, 2020[141]).

As shown by data on the suspension of debt repayments available to low-income countries under the G20 Debt Service Suspension Initiative (DSSI), eligible low-income fragile contexts owed approximately USD 432.6 billion by the end of 2018, with 11% of the total owed by extremely fragile contexts. It is likely that without mitigating measures, debt service would amount to around 6% of ODA in 2021 for extremely fragile contexts and around 82% of ODA for other fragile contexts (World Bank, 2020[142]; Thompson, 2020[113]; OECD, 2020[140]). Among official bilateral lenders, by far the largest debt service bill is owed to the People’s Republic of China (China). Infographic 1.2 illustrates debt burdens in fragile contexts as a component of financing.

New lenders and forms of debt are increasing the cost and complexity of borrowing and, if necessary, restructuring debt (OECD, 2020[140]). Fragile and extremely fragile contexts are borrowing from a more diverse group of lenders, and the overall proportion of concessional debt in external debt has decreased (Figure 1.15). Traditional bilateral lenders have reduced their lending while borrowing from other bilateral lenders such as China, the Russian Federation and Saudi Arabia has increased. Commercial borrowing also increased between 2010 and 2018, including Eurobond issuances by 16 low-income developing countries, 12 of which are fragile contexts.9

Given this diversity, fragile contexts face more varied debt risks than during the pre-HIPC era, which places a premium on fiscal management and the ability to service and manage debt as components of resilience. Black swan events will happen, and the most effective time to intervene is before they occur. Dealing effectively with unsustainable debt takes time, institutions, and resources from both borrowers and lenders.10 Debt sustainability, moreover, is not merely a technical fiscal exercise, but it also requires expertise in fragility and the political economy. The quality and sequencing of financing as well as a realistic pace of reform become ever more important in a high-debt fragile context. Understanding debt dynamics on a case-by-case basis will be important for resolving crises while preserving positive incentives on borrowers and lenders. Building contexts’ capacity to negotiate, assess and contract debt can help address incentive issues (OECD, 2020[140]; Thompson, 2020[113]).

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Notes

← 1. See http://www3.compareyourcountry.org/states-of-fragility/overview/0/.

← 2. See, for example, Belgium’s Fragility Risk Assessment Management Exercise tool, described by Vervisch (2019[143]) at www.diplomatie.be/oda/frame_methodology.pdf, and Denmark’s Fragility Risk and Resilience Analysis Tool.

← 3. Chronically fragile contexts are those contexts that have appeared in each OECD fragility report since the first one in 2005.

← 4. This figure is derived from authors’ calculations based on data from the Uppsala Conflict Data Program (UCDP) and the ND-GAIN database (University of Notre Dame, 2020[28]) at https://gain.nd.edu/our-work/country-index, using the classification of exposure to climate change introduced by Krampe (2019[29]) at https://www.sipri.org/sites/default/files/2019-06/pb_1906_ccr_peacebuilding_2.pdf. See Pettersson and Öberg (2020[25]) for the UCDP data at https://journals.sagepub.com/doi/pdf/10.1177/0022343320934986.

← 5. This figure is an authors’ calculation based on data from the World Bank’s Human Capital Index (World Bank, 2020[100]).

← 6. The figures are authors’ calculations based on the 2020 fragility framework and data from the Pre-demographic Dividend database of the World Bank (2018[88]), available at https://data.worldbank.org/region/pre-demographic-dividend?view=chart.

← 7. The World Bank provides disaggregated data for 126 out of the 157 countries analysed by the HCI. See (Avitabile et al., 2020[89]) at http://documents.worldbank.org/curated/en/306651578290912072/Insights-from-Disaggregating-the-Human-Capital-Index.

← 8. This assessment is made on the basis of the low-income countries covered by the Debt Sustainability Framework for Low-Income Countries, for which the IMF publishes debt sustainability analyses, normally on an annual basis.

← 9. The low-income developing country grouping (LIDC) is a diverse grouping of 59 countries used by the IMF for analytical, not operational, purposes. The LIDC group has economic structures and per capita income levels that are insufficient for them to be classified as emerging market economies, although some do have access to international capital markets.

← 10. As part of COVID-19 responses, some immediate steps have been taken, for example by bilateral lenders under the debt service suspension initiative (DSSI), and by the IMF and donors under the Catastrophe Containment and Relief Trust (CCRT), to either defer the timing of repayment, or pay debt service on behalf of low-income countries. At the time of writing, these initiatives extend until the end of 2020 (DSSI) or for six months, to be potentially extended for up to two years (CCRT) ((Thompson, 2020 [113])).

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