Chapter 6. What sources of external development finance are available to fragile contexts?

Roberto Schiano Lomoriello
OECD Development Co-operation Directorate

Chapter 6 summarises sources of external development finance available to fragile contexts other than official development assistance, such as remittances and foreign direct investment. It also looks at the reach and potential of private philanthropy within these flows and provides an updated overview of what the relatively new instruments of blended finance may mean for increasing development finance in fragile contexts. The chapter looks at the breakdown of the different flows to fragile contexts and how each can most effectively address fragility.


It is important to better understand the full range of international financial flows, their effect on fragility and how to harness them for optimal impact in fragile contexts. As a recent OECD working paper by Poole (2018[1]) notes: “The aspirations of the Addis Ababa Action Agenda (AAAA) require an updated approach to bringing together financial flows from public and private, and domestic and international sources. Nowhere is this more so than in fragile contexts with the greatest potential risks, and the greatest potential returns.”

6.1. The overall external development financing landscape

In 2016, external financial flows to fragile contexts totalled more than USD 240 billion, up from USD 220 billion in 2014. These flows include remittances, official development assistance (ODA), other official flows (OOF) and foreign direct investment (FDI). Remittances were the largest type of external financial flows to fragile contexts, amounting to 45% of the total. The shares of other types of flows were 22% for FDI, 5% for OOF and 28% for ODA (Figure 6.1).

Figure 6.1. External financial flows to fragile contexts, 2016

Sources: FDI and remittances data from (World Bank, 2018[2]) “Foreign direct investment, net inflows (BoP, current USD)”, World Development Indicators (database),; (World Bank, 2018[3]), “Personal remittances, received (current USD)”, World Development Indicators (database), ODA data from (OECD, 2018[4]), “Aggregate DAC Statistics Table DAC2a: ODA official development assistance: 2016 Net disbursements”, OECD International Development Statistics (database),


This picture of external flows is similar to that presented in States of Fragility 2016. Remittances are still the largest flow to fragile contexts, as they have been since 2008, and their share of the total has continued to grow, reaching USD 111 billion in 2016 (Figure 6.2). FDI has been more volatile over the years, reaching a peak of almost USD 65 billion in 2015 and dipping to USD 56 billion in 2016. Other external financial flows such as philanthropic funds and blended finance also are gaining in importance but remain at much lower levels than other financial flows.

This chapter discusses all of these external sources of financial flows, devotes particular attention to the fragile contexts that benefit the most from them and examines why that might be the case.

Figure 6.2. External financial flows to fragile contexts, 2007-16

Sources: FDI and remittances data from (World Bank, 2018[2]), “Foreign direct investment, net inflows (BoP, current USD )”, World Development Indicators (database),, converted to USD, 2015 constant prices; (World Bank, 2018[3]), “Personal remittances received (current USD)”, World Development Indicators (database),, converted to USD, 2015 constant prices. ODA data and OOF data from (OECD, 2018[4]), “Aggregate DAC Statistics Table DAC2a: ODA official development assistance: net disbursements”, OECD International Development Statistics (database),; (OECD, 2018[5]), “Table DAC1; OOF Other Official Flows: net disbursements”, OECD International Development Statistics (database), Authors’ calculations.


6.2. Remittances

In 2016, as noted above, USD 111 billion in remittances were sent home to the 58 fragile contexts. Only a small share of this total, or USD 10.4 billion, went to the 15 extremely fragile contexts. Extremely fragile contexts have not experienced significant growth in remittance inflows even though some of them also have large diasporas. The reasons for this vary from one fragile context to another. For some extremely fragile contexts, among them Sudan, sanctions have affected remittances; likewise, efforts to choke off potential terrorist financing via alternative remittance systems have affected remittance flows to some contexts, for example to Somalia (Vaccani, 2010[6]). While they have some of the world’s largest diasporas, neither Syria (with more than 5 million citizens outside the country) nor Afghanistan (with 4.8 million outside) benefits from a significant inflow of remittances.1 In the case of Syria, this can be attributed to the obstacles faced by Syrian refugees. Those living in neighbouring countries have only recently had the right to work; refugees reaching Europe are concentrating on re-establishing their lives; and people who have fled the conflict may have few if any relatives still in Syria to whom they can send remittances.

Figure 6.3. Remittances to fragile contexts, 2008-16

Source: (World Bank, 2018[3]), “Personal remittances, received (current USD)”, World Development Indicators (database),, converted to USD, 2015 constant prices.


However, the largest portion of remittances to fragile contexts in 2016, USD 100.6 billion, went to the 43 other fragile contexts (Figure 6.3). Most of these flows are highly concentrated in a small number of lower middle-income countries and territories that have large diaspora communities, with 70% of all remittances going to just five fragile countries: Bangladesh, Egypt, Guatemala, Nigeria and Pakistan (Figure 6.4). Ultimately, levels of remittance inflows depend on the earning potential of people in the diasporas. This is mostly a function of where they have resettled. People who live principally in Europe or the United States, for instance, are able to send more home than people who have resettled in other developing countries.

Figure 6.4. Top 10 fragile recipients of remittances, 2016

Source: (World Bank, 2018[3]), “Personal remittances, received (current USD)”, World Development Indicators (database),,


The top three fragility-affected recipients of remittances per capita, in descending order of magnitude, are Guatemala, the West Bank and Gaza Strip, and Honduras (Figure 6.5). The extent of dependence on remittance inflows varies by context. Liberia and Haiti are the most economically dependent on remittances among the fragile contexts, with remittances accounting for 17% of gross national income (GNI) in Liberia and 12% in Haiti (Figure 6.6).

Remittances are a vital flow to fragile contexts. They go directly to households and, unlike other financial flows, tend to increase during periods of crisis and after disasters as migrants send more money to help families at home through hard times (UNDP, 2011[7]).

Figure 6.5. Top 10 fragile recipients of remittances per capita, 2016

Sources: (UN, 2017[8]), Trends in International Migrant Stock: The 2017 Revision (database),; (World Bank, 2018[3]), “Personal remittances, received (current USD)”, World Development Indicators (database),


Figure 6.6. Top 20 fragile recipients of remittances as a percentage of GNI, 2016

Source: (World Bank, 2018[3]), “Personal remittances, received (current USD)”, World Development Indicators (database),


6.3. Foreign direct investment

Fragile contexts still receive only a small proportion of the total FDI that flows into developing economies overall. In 2016, USD 55.5 billion in net FDI (inflows minus outflows) went to the 58 fragile contexts identified in the OECD fragility framework. This contrasts starkly with the amount of FDI that went to other ODA-eligible countries, which in 2016 amounted to USD 539.6 billion. Only 9.3% of all FDI to ODA-eligible countries, therefore, has reached fragile contexts. Of the FDI to such contexts, USD 7 billion went to extremely fragile contexts and USD 48.4 billion went to other fragile contexts – demonstrating that a certain degree of stability is required before the private sector will engage in fragile situations. Figure 6.7 presents the FDI picture over time. Since the 2008 financial crisis, the amount of net FDI to extremely fragile contexts has been relatively stable at about USD 10 billion per year, but levels were more volatile in other fragile contexts, fluctuating from USD 37.7 billion in 2009 to USD 53.8 billion in 2015.

Figure 6.7. FDI to ODA-eligible, other fragile and extremely fragile contexts, 2008-16

Source: (World Bank, 2018[2]), “Foreign direct investment, net inflows (BoP, current USD)”, converted to USD, 2015 constant prices, World Development Indicators (database),


As is the case with other external finance flows to fragile contexts, FDI is not evenly distributed among different places. Two-thirds of all FDI (66%) to fragile contexts in 2016 went to just ten countries. In descending order, they were Egypt, Nigeria, Angola, Ethiopia, Iran, Myanmar, Mozambique, Pakistan, the Republic of the Congo and Bangladesh (Figure 6.8). This relative concentration of FDI may be explained by the fact that five of these ten countries are considered resource-rich.2 However, FDI also flows to contexts that are not necessarily natural resource-rich such as Bangladesh, where such investment is largely centred on the garment industry; Ethiopia, where it flows to infrastructure and manufacturing; Myanmar, whose economic opening is attracting such flows; and Mozambique and Pakistan, which receive inflows mainly from China.

Figure 6.8. Top 10 fragile recipients of FDI, 2016

Source: (World Bank, 2018[2]), “Foreign direct investment, net inflows (BoP, current USD)”, World Development Indicators (database),


6.3.1. Foreign direct investment to contexts that are resource-rich and not resource-rich

To a large extent, investment in natural resource sectors remains the main driver of FDI in fragile contexts, but it is not the only one. Fragile economies that are not resource-rich received an estimated 44% of total FDI to fragile contexts in 2016.3 As alluded to above in the discussion of how FDI is allocated across fragile contexts, five of the top ten FDI recipients are resource-rich and all are oil-producing countries: Angola, Iran, Nigeria, Congo and Egypt. As shown in Figure 6.9, while FDI in countries that are not resource-rich was trending steadily upward between 2008 and 2016, FDI in resource-rich countries was stable. Research also shows that countries with better doing business rankings are likely to attract more FDI (Bayraktar, 2013[9]).

This positive trend in FDI across fragile settings may reflect some willingness on the part of investors to diversify beyond investments in natural resources, even in the risky environments that fragile contexts present. Fragile contexts that lack significant natural resources are benefitting from a shift in foreign investment towards consumer goods, with Kenya, Tanzania and Uganda, among others, attracting investors (African Development Bank/OECD/UNDP, 2016[10]). Kenya, for instance, is becoming a business hub for manufacturing, transport, and information and communications technology (African Development Bank/OECD/UNDP, 2016[10]).

Figure 6.9. FDI to resource-rich vs. non-resource rich fragile contexts, 2008-16

Note: Determination of resource-rich contexts relied on the methodology used for the African Economic Outlook,

Source: (World Bank, 2018[2]), “Foreign direct investment, net inflows (BoP, current USD”, World Development Indicators (database), converted to USD, 2015 constant prices.


The positive trend should not minimise the many challenges that private investments confront in fragile contexts, which can include poor infrastructure, unreliable electricity supply, low education levels, a difficult business climate, and limited access to credit and sophisticated financial services. Investments in such settings, if not made in a principled manner, can also do harm. For example, they may add to fragility risks by exploiting political patronage, increasing incentives for corruption, operating in a non-sustainable way and distorting local markets (Poole, 2018[1]).

ODA in fragile contexts can serve as a catalytic instrument for FDI. ODA can be used for technical assistance to increase domestic human and institutional capacity in fragile contexts, support infrastructure investment, and improve the business climate, for instance. Aid can also help reduce some of the risk that private investments may do harm, for instance when aid providers ensure that private investments are made in a way that is fragility-sensitive.

As discussed further in Chapter 7, countries that mainly export natural resources often have undiversified economies that also are heavily exposed to price volatility in international markets for natural resources.

6.4. Blended finance

A recent OECD survey on blended finance finds that 22% of the total private finance mobilised in 2015, or USD 5.8 billion, was mobilised through blending in fragile contexts.4 Nigeria, for example, recorded over USD 1.5 billion in private capital mobilised with blended finance tools. Other top recipients were Kenya, Egypt, Pakistan, and Honduras where at least USD 500 million in private finance was leveraged for each. Mozambique, Angola, Zambia and Bangladesh also each mobilised over USD 100 million. Box 6.1 outlines the potential offered by blended finance to enhance development financing in fragile contexts.

Box 6.1. The promise and challenge of blended finance for development in fragile contexts

The Sustainable Development Goals (SDGs), the Addis Ababa Action Agenda and the Paris Agreement require innovative solutions to finance development results. Private finance plays an increasingly important role in bringing innovation, expertise and additional resources to help developing countries achieve the SDGs. Good development support in fragile, at-risk and crisis-affected contexts must consider and use the full range of tools available (OECD, 2016[11]). The growing volume of private capital flows offers opportunities that cannot be overlooked.

Blended finance is the strategic use of development finance for the mobilisation of additional finance towards the SDGs in developing countries, where such additional finance primarily refers to commercial finance (OECD, 2018[12]). This practice is rapidly gaining traction among development finance providers: 17 of the 30 members of the OECD Development Assistance Committee (DAC) already carry out blended finance activities and more donors are looking to enter this field.

Private investment, whether cross-border or domestic, can increase access to capital, jobs, skills, technology and links to global value chains. A flourishing financial market may also support reconstruction financing, boost public revenue and improve foreign exchange. However, private investors in fragile contexts and low-income countries face particularly high risks and costs. These relate to a broad spectrum of conditions that include poor market information and uninformed buyers, a limited supply base, inadequate hard and soft infrastructure (such as credit registries), weak financial institutions with limited long-term financing available, inexperienced local sponsors or contractors, weak regulatory environment, unreliable or unproven off-takers or buyers, and reputational risks. From the perspective of developing countries and fragile economies, there may also be concerns about FDI, which is often associated in the public mind with extractive projects and major infrastructure concessions. Governments in fragile contexts may lack the institutional capacity to negotiate fair contracts and proper oversight, while companies engage in activities with potential environmental and social risks.

More needs to be done to engage private actors in leaving no one behind, as most private sector mobilisation (77%) is now occurring in middle-income countries (Benn, Sangaré and Hos, 2017[13]). But interest in blended finance to support and expand development financing is quickening. Between 2000 and 2016, 167 facilities that engage in blending were launched, with a combined size (as measured by commitments) of approximately USD 31 billion. An additional 189 funds engage in some form of blended finance, typically at the fund level but also at the project level. Among these is the Conflict-Affected and Fragile Economies Facility established by the World Bank Group’s Multilateral Investment Guarantee Agency in 2013.

While existing blended finance initiatives aim to bring in much-needed private finance, their strategies, objectives and approaches vary greatly. Finding agreement among all stakeholders on what constitutes good practice and aligns with the SDGs has become critical. Acknowledging this, the DAC High Level Meeting approved the OECD DAC Principles for Unlocking Commercial Finance for the SDGs on 31 October 2017 (OECD, 2017[14]). The implementation of these policy-level principles is further supported by the Development Finance Institutions (DFI) Working Group’s enhanced guidelines on blended concessional finance for private sector projects (African Development Bank et al., 2017[15]). The group found that support to small and medium-sized enterprises, in particular banking, and local currency lending show high levels of expected development impact in fragile and conflict-affected situations.

Still more work is needed to understand which blended finance instruments and structures may work best in specific contexts. Places transitioning from conflict may be best served with an approach that may be less appropriate for another context, for instance one experiencing fragility. Important outstanding questions concern how blended finance can be used to attract commercial capital into difficult markets, how it can be aligned with national priorities, and what safeguards are needed to ensure that it does not have a negative impact on the environment or vulnerable communities.

Contributed by the Financing for Sustainable Development Division, DCD, OECD

The private finance mobilised through blended finance tools in fragile contexts is concentrated geographically and by sector. More than 60% of this private finance in 2015 went to sub-Saharan Africa, compared to 17% directed to Asia. These flows were also concentrated in a few sectors, with more than 80% of the total reported finance mobilised going to energy, industry, mining, construction, and banking and financial services.

Most of the private finance in fragile contexts in 2015, or 60% of the total USD value, was mobilised through a multilateral channel. Through its Multilateral Investment Guarantee Agency, the International Finance Corporation and the International Development Association, the World Bank Group mobilised over USD 2.5 billion during that year. The OECD survey on blended finance found that the United States and France are the most active donor countries in private finance mobilisation, with the Overseas Private Investment Corporation and the French development agency (AFD) ranking as the most active among bilateral agencies (OECD, forthcoming[16]).

On average, each blended operation reported in fragile contexts in 2015 mobilised over USD 18 million from private sources – just half of the amount mobilised in other, non-fragile developing countries. This difference shows that more careful engineering is required to assemble blended finance deals in fragile contexts as well as the challenges of mobilising large amounts in these places.

Over 45% of the private capital mobilised through blending in fragile contexts in 2015 came from OECD member countries and other high-income countries. However, some also originated from inside the fragile context, with local private partners raising almost 15% of the financing. An additional 14% was mobilised by private actors from other developing countries (OECD, forthcoming[16]).5

6.5. Private philanthropy

Private philanthropic funds also contribute to development finance in fragile contexts and are playing an increasingly significant role. Box 6.2. Survey on global private philanthropy for development provides some details.

Box 6.2. Survey on global private philanthropy for development

The Addis Ababa Action Agenda clearly demonstrated the important role of private foundations in development co-operation. Limited statistical evidence, however, has resulted in different interpretations of the modalities and magnitude of foundations’ giving.

To help address this knowledge gap, the OECD recently carried out its first Survey on Global Private Philanthropy for Development. This survey collected comparable, activity-level information on developmental activities of more than 140 foundations from all over the world, providing unique insights about the sectoral and geographic focus and the modalities of philanthropic giving. The survey found that Africa was the main beneficiary region (28% of the three-year total), followed by Asia (17%) and Latin America (8%).

Figure 6.10. Philanthropic foundation giving by region, 2013-15

Source: (OECD, 2018[17]), Private Philanthropy for Development,


The Private Philanthropy for Development report and the survey on which it is based also offer fresh perspectives and action-oriented recommendations to optimise philanthropy’s role in support of sustainable development at a global level. Knowing who does what, where, how and with whom invites informed dialogue and new partnerships and eventually leads to philanthropy serving the most in need more effectively.

This work is part of the broader efforts to enhance the coverage and quality of the OECD statistics beyond official development assistance with the aim to get a better understanding of the big picture of all resource flows to developing countries.

Contributed by the Financing for Sustainable Development Division, DCD, OECD

Out of total private philanthropy in 2015, the latest year for which data is available, USD 1.7 billion was allocated to fragile contexts (OECD, 2018[17]). This was 19% of all philanthropic funding for all developing countries.6 Nigeria received the highest amount at USD 356 million (OECD, 2018[17]). Other top recipients were Ethiopia with USD 266 million and Kenya with USD 139 million (OECD, 2018[17]).

The Bill and Melinda Gates Foundation is one of the most generous of the main philanthropic foundations in fragile contexts, accounting for 49% of the total in 2015 alone. Other foundations engaged in these contexts include the Children’s Investment Fund Foundation and the Susan Thompson Buffett Foundation.

In 2015, the largest share of philanthropic giving in fragile contexts targeted health (36.6%) and reproductive health and population policies (15.4%). Other sectors included agriculture (19.8%), education (4.5%), and government and civil society (5.5%). The latter includes funding to civilian peacebuilding and conflict prevention and resolution, although this funding accounted for just 0.4% of the total.

In 2015, 336 foundations made 2 908 grants totalling USD 351 million for projects related to peace and security, according to Peace and Security Funders Group, which tracks private contributions to such projects (Foundation Center/Peace and Security Funders Group, 2018[18]).7 These grants constituted less than 1% of the total foundation giving that year8 (Foundation Center/Peace and Security Funders Group, 2018[18]). However, because private foundations do not have to answer to taxpayers, they can often support projects that might, for various reasons, be deemed inappropriate for ODA. This means their full potential to help address or reduce fragility has yet to be realised.

International financial flows to fragile contexts include a mix of remittances (the largest share and one that is growing), ODA and private FDI flows, some of which have been catalysed by blended finance. Philanthropy is part of the finance jigsaw. The mix varies from context to context and significantly between extremely fragile and fragile contexts. ODA, for example, plays a major role in extremely fragile contexts, but a lesser role in some other fragile situations. Going forward, it will be interesting to look at the value that each type of flow provides in terms of impact – negative and positive – on stability and people’s lives.


[15] African Development Bank et al. (2017), DFI Working Group on Blended Concessional Finance for Private Sector Projects: Summary Report,

[10] African Development Bank/OECD/UNDP (2016), African Economic Outlook 2016: Sustainable Cities and Structural Transformation, OECD Publishing, Paris,

[9] Bayraktar, N. (2013), “Foreign Direct Investment and Investment Climate”, Procedia Economics and Finance, Vol. 5, pp. 83-92,

[13] Benn, J., C. Sangaré and T. Hos (2017), “Amounts mobilised from the private sector by official development finance interventions: Guarantees, syndicated loans, shares in collective investment vehicles, direct investment in companies, credit lines”, OECD Development Co-operation Working Papers, No. 36, OECD Publishing, Paris,

[18] Foundation Center/Peace and Security Funders Group (2018), Peace and Security Funding Index: An Analysis of Global Foundation Grantmaking., Foundation Center/ Peace and Security Funders Group,

[5] OECD (2018), “Aggregate DAC Statistics Table DAC-1: OOF Other Official Flows: net disbursements”, OECD International Development Statistics, (accessed on 23 May 2018).

[4] OECD (2018), “Aggregate DAC Statistics Table DAC-2a: ODA official development assistance: 2016 disbursements,”, OECD International Development Statistics (database), (accessed on 04 April 2018)

[12] OECD (2018), Making Blended Finance Work for the Sustainable Development Goals, OECD Publishing, Paris,

[17] OECD (2018), Private Philanthropy for Development, OECD Publishing, Paris,

[14] OECD (2017), OECD DAC Blended Finance Principles for Unlocking Commercial Finance for the Sustainable Development Goals, OECD,

[11] OECD (2016), “Good development support in fragile, at-risk and crisis affected contexts”, OECD Development Policy Papers, No. 4, OECD Publishing, Paris,

[16] OECD (forthcoming), “Opportunities and Risks for Blended Finance in Fragile contexts (tentative title)”, OECD Publishing, Paris.

[1] Poole, L. (2018), “Financing for stability in the post-2015 era”, OECD Development Policy Papers, No. 10, OECD Publishing, Paris,

[8] UN (2017), Trends in International Migrant Stock: The 2017 Revision,;. (accessed on 03 May 2018)

[7] UNDP (2011), Towards Human Resilience: Sustaining MDG Progress in an Age of Economic Uncertainty, United Nations Development Programme (UNDP),

[6] Vaccani, M. (2010), “Alternative remittance systems and terrorism financing issues in risk management”, No. 180, World Bank,

[2] World Bank (2018), “Foreign direct investment, net inflows (BOP, current USD)”, World Development Indicators (database), http://Foreign direct investment, net inflows (current USD). (accessed on 28 April 2018)

[3] World Bank (2018), “Personal remittances, received (current USD)”, World Development Indicators (database), (accessed on 27 April 2018)


← 1. In 2016, the highest number of recorded refugees (including people in refugee-like situations) came from Syria (5.5 million) and Afghanistan (2.5 million), according to UNHCR data. See UNHCR, population statistics, available at:

← 2. For this section, the methodology developed by the OECD for the African Economic Outlook was followed. Natural resource-rich countries are defined as those whose resource rents minus forest rents exceeded 10% of GDP for at least five of the ten years from 2006 to 2015. Applying this methodology results in 20 fragile contexts that are considered resource-rich: Angola, Chad, Congo, the Democratic Republic of the Congo, Egypt, Equatorial Guinea, Guinea, Iran, Iraq, the Lao People’s Democratic Republic, Liberia, Libya, Mauritania, Nigeria, Papua New Guinea, South Sudan, Sudan, Venezuela, Yemen, and Zambia. Solomon Islands is not included because its natural resource rents derive mostly from forest revenues. Neither Timor-Leste nor Syria was included since they did not pass the data threshold.

← 3. Whether a context was or was not resource-rich was determined using the methodology developed by the OECD for the African Economic Outlook, described in Note 2 to this chapter.

← 4. These calculations are based on (Benn, Sangaré and Hos, 2017[9]). The analysis will be further developed in a forthcoming report (OECD[14]), tentatively titled Opportunities and Risks for Blended Finance in Fragile Contexts. More information on the methodology is available at

← 5. The source of the remaining 26% was unspecified or came from multiple origins.

← 6. This figure excludes regional allocations.

← 7. The dataset covers grant making by institutional funders including private foundations, public charities and community foundations. It covers grants from 336 foundations worldwide that made at least one grant in 2015 consistent with the Peace and Security Funders Group Index definition of peace and security funding.

← 8. This 1% figure is calculated using flows from all foundations including those active solely domestically in high-income countries.

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