Delivering Aid Differently
Lessons from the Field
By Wolfgang Fengler Homi Kharas
Brookings Institution Press
Copyright © 2010 Wolfgang Fengler and Homi Kharas
All right reserved.
Chapter One Overview: Delivering Aid Differently
WOLFGANG FENGLER and HOMI KHARAS
Since 1960, $3.2 trillion of aid has been delivered from rich countries to poor countries, mainly through a handful of bilateral and multilateral institutions. Recently, this traditional model of development assistance has been overtaken by a more complex reality of aid in response to new circumstances, new international players, and new instruments for delivery. The changed circumstances reflect the fact that developing countries are no longer a homogeneous group of "poor" countries but instead are highly differentiated in their capabilities and needs.
Meanwhile, the new international donors include more bilateral governments, even some, like China, that are still characterized as developing countries. New international donors also include international NGOs, foundations, and private corporations, all of which channel significant volumes of large and small contributions by private individuals from rich to poor countries. Most of these new players operate differently from and parallel to the traditional aid system. New instruments include budget support, debt relief, public-private partnerships, and South-South cooperation.
New players and new modalities have brought fresh energy, resources, and approaches to the delivery of aid. But they have also added to waste, overlap, and uncoordinated efforts that might be individually successful but that do not add up to the systemic transformation needed for a significant impact on development. It is time for development partners to construct an aid architecture for the twenty-first century that broadens the current system to be inclusive of both existing and potential new players and new modalities. Put another way, aid must be delivered differently.
This book highlights field-based lessons on how aid works on the ground, focusing both on problems in current aid delivery and on promising approaches to resolving these problems. It documents the growing fragmentation of aid into ever smaller projects, the planning and implementation difficulties caused by high aid volatility and unpredictability, and the complexities of trying to coordinate the myriad new and different aid donors. It also looks at country experiences with solutions: new information databases for tracking aid, joint country strategies to coordinate approaches, and lessons from the humanitarian community on how to forge a division of labor between official and private aid givers.
There is one other distinguishing feature of the country case studies in this volume. They are all written by scholars born and living in aid recipient countries who interact on a daily basis with government officials on aid issues. These scholars combine a quantitative, analytical discussion with their own personal perceptions on the impact of aid on development in their countries. Surprisingly, given the rhetoric on the importance of recipient country ownership of aid, the current literature on aid effectiveness is dominated by scholars from donor countries. We hope that, by giving voice to those who are at the receiving end, we can expose some hard truths about what works and what does not work.
In the wake of the 2004 Indian Ocean tsunami, donors worldwide gave billions of dollars in aid to help places like the Indonesian province of Aceh recover from the disaster (see chapter 2, by Harry Masyrafah and Jock McKeon). A brand new coordinating agency within the Indonesian government kept track of the projects being funded by nearly 500 organizations. Its coordination efforts helped identify gaps in funding, and a multiyear trust fund improved predictability of aid flows reaching the people of Aceh.
In Pakistan a small-scale rural support program initiated by a nongovernmental agency has been replicated with financing from the government and international donors. There are now rural support programs in 94 of the country's 138 districts, reaching over 2 million poor households. The program is a notable example of how government can work with private donors to solve the problem of fragmentation by scaling up effective development projects (see chapter 6, by Abdul Malik).
Tajikistan is moving through a joint country assistance process that brings together the largest official aid donors with government officials and even a nongovernmental organization to develop a single strategic plan for development aid in the country. The process will be tied closely to the government's new poverty reduction strategy, promising an aid environment in close alignment with national needs and featuring strong country ownership of the process. Joint country efforts in a dozen other countries have engendered a roundtable mentality among donors and have led to new efforts at collaboration (see chapter 7, by Rustam Aminjanov, Matin Kholmatov, and Firuz Kataev).
Efforts like these, described in the country studies in this volume, show the potential for aid to help development when that aid is coordinated and administered in a way that benefits poor people. These efforts come at a time when the future of foreign aid is being fiercely debated. On the one hand, some observers-including Peter Singer and Jeffrey Sachs-support a huge increase in the size of foreign aid budgets, faulting a lack of donor generosity for the continued existence of severe poverty. Their message: aid works, we just don't do enough of it. On the other hand, there are also scathing critiques of aid. William Easterly derides the "planners" of the world who seek grand strategies that too often end up being supply driven and unimplementable. Dambisa Moyo describes what she sees as the ways that oil wealth, for example, detaches recipient governments from accountability to their citizens and in fact retards Africa's progress. Easterly and Moyo believe official aid should be largely scrapped. In between these camps, aid practitioners argue that foreign aid could work if only it were done right. What should we believe when there is such disagreement among experts?
In this volume we bring to this global debate the realities of how aid works on the ground in a cross section of countries: Aceh (Indonesia), Cambodia, Ethiopia, Kenya, Pakistan, and Tajikistan. In each case aid is important; in some of the countries, it is vital. We chose these countries to reflect some of the diversity of developing countries. In much of the aid literature, developing countries are treated as if they are similar. In reality, they are not. Some countries, like Indonesia and Pakistan, are large, so that aid, while important as a catalyst, is a small fraction of their gross domestic product. These countries also have relatively strong central government administrative structures, with long experience in implementing development projects. Countries like Ethiopia and Cambodia, on the other hand, are more aid dependent. They have had stable governments for some time, governments with a keen interest in managing aid. Tajikistan and Kenya, though, have had volatile political relationships with donors and complicated aid programs. These characteristics, by no means exhaustive, show how difficult it is to generalize about aid when conditions in recipient countries differ so greatly.
A defining feature of all the case studies is the emergence of new players. Bilateral governments, private NGOs, and vertical multilateral agencies that focus on a single theme-the Global Fund to Fight AIDS, Tuberculosis, and Malaria, for example-are now large providers of aid. We asked our case study authors to document how big these players are in practice and to comment on how they interact and coordinate with the large, traditional providers of development assistance.
The multiplication of donors has led to a fragmentation of aid into ever smaller activities. This can spawn innovation and experimentation in new development approaches, but it can also lead to a narrow focus on specific projects without concern for the larger issues of sustainability and scalability. At the end of the day, development is about economic, social, and political transformation. Does aid help achieve this, or is it limited to small successes (and failures)?
Another focus is the way countries deal with volatility in aid. Aid experts generally agree that development problems cannot be solved in a year or two. They take prolonged engagement to be successful. In the past, sustainability was built into development by a concentration on institutions. The green revolution, perhaps the most successful and most cited example of development assistance since the Marshall Plan, still provides benefits to millions of poor farmers in the developing world. But by itself it has not been enough to address rural poverty. The tragedy is that engagement of international donors with agriculture has been short-lived and victory proclaimed too early. Rural poverty is still with us, yet agricultural aid has declined precipitously, from 20 percent of total aid in 1980 to 4 percent today. This example of volatility is repeated in sector after sector, as development fashions change. Volatility is also present in the aggregate, at the country level, with recipients sometimes getting large volumes of assistance and sometimes facing a cutoff from donors. We asked our authors whether volatility is a serious problem for effectiveness in their countries and, if so, what is being done about it.
Last, we asked about the process of coordinating aid among so many players and so many sectors. It is easy to say that aid should be coordinated but harder to know what to do about it. Coordination does not come about cheaply. It is expensive in terms of time and political capital. Coordination raises deep issues about the nature of aid. If official aid is a political expression of solidarity between a donor country and a recipient country, then why should a donor coordinate with other donors? Is donor coordination seen by recipient countries as a means of "ganging up" on the recipient? Or as a means toward achieving more effective development outcomes?
Each of our case study countries has tried to make aid work better. Broadly speaking, they have experimented with three strategies:
-More coordination of aid, either by a domestic agency or working group or by encouraging donors to develop joint country strategies in support of national development programs.
-More transparency of aid, by providing data systems where everyone can see who is doing what where.
-More effectiveness of aid, by establishing a division of labor among donors active in key sectors, as is done in successful humanitarian relief efforts.
Three thematic chapters in this volume address these strategies specifically.
These strategies aim to patch or expand the current model of state-based aid and have had modest success in improving alignment with recipient country programs and harmonization among official donors (members of the Development Assistance Committee of the Organization for Economic Cooperation and Development). But they have not been successful in integrating emerging country bilateral donors and private donors. We conclude this overview with some thoughts on a new aid architecture model, based on recipient country-led coordination efforts and information openness. This model allows for better integration of new donors and addresses the criticisms of those who worry that coordination can stifle effectiveness and innovation in the absence of a more competitive, market-driven approach to development. Done correctly, aid coordination can yield benefits of tens of billions of dollars by preventing waste and achieving sustainable and fair development outcomes.
A Changing Aid Architecture
Aid to countries does not take place in a vacuum. There is a complex architecture of agencies and participants that helps channel resources from taxpayers or individual donors in rich countries to beneficiaries in poor countries. To give some context to the case studies, it is useful to see how this aid architecture has changed.
It is now commonly accepted that aid by itself cannot lead to development. Trade, investment, and job creation-the activities that private businesses support-are far more significant. So why focus on aid? There are two reasons. First, aid is now a multibillion-dollar business and has grown substantially over the last decade. Second, aid is engaging more and more people around the world: today, almost every country is part of the aid business, either in receiving or providing aid.
While academics debate the merits of aid, donors and individuals in rich and poor countries are becoming more and more engaged with development assistance. The numbers speak for themselves. Globally, aid is a $200 billion industry today; most of this ($120 billion) comes from the members of the Development Assistance Committee (DAC), a club of twenty-two rich countries. A large and increasing portion ($60 billion) comes from private NGOs, foundations, church groups, and corporations. A further amount ($10 billion or more) comes from other bilateral governments. The United States alone spent almost as much on aid-public and private-as it did on crude oil imports in 2007.
Growth in aid agencies has proceeded as fast as growth in aid dollars. In a recent count, 233 multilateral aid agencies were giving money to promote development. At least fifty-six bilateral governments have official aid agencies, and most countries have several agencies that undertake foreign assistance programs. More and more countries are opening up new aid agencies. In the past few years, China, India, Brazil, Venezuela, Turkey, and South Korea, to name just a few, have developed large aid programs. They join a landscape that has already expanded to include thousands of international NGOs and perhaps hundreds of thousands of community-based and civil society organizations in developing countries themselves.
When aid is discussed it is natural to assume one is talking about money in a cross-border flow from rich countries to poor countries. But that would be inaccurate. The amount of aid provided in dollars is an accounting concept, not a real cash flow. Aid donors deliver services in different ways: some give money, others volunteer time, and still others hire consultants to provide services or donate goods in kind. These services are aggregated by assigning an accounting money-equivalent value to them. That is what is measured in the most common aid statistic, official development assistance (ODA). But the accounts are determined by each donor, not by professional accounting standards.
Several studies show that there can be large differences in amount, depending on the method of accounting. Think of two options to provide technical assistance: in the first case the development agency uses predominantly international consultants; in the second case, mostly local expertise and networks. Even if the second case were proven to be more effective, the amount of recorded aid would be substantially lower (perhaps one-tenth as much), because the salaries of local experts are so much lower than those of international experts.
This is not just a theoretical example. In our case study of Cambodia, Chanboreth Ek and Hach Sok (chapter 3) show that technical cooperation grants, which make up a staggering 50 percent of all aid to Cambodia, pay for multiple teams of foreign advisers, who give sometimes contradictory advice to the Cambodian government. The conclusion by the authors: aid funds are often duplicative and unnecessary. Most of the money in fact went to foreigners, not to Cambodians.
We argue for finding the right mix of national and international providers in implementing development projects and see this mix as depending on country and project circumstances. International expertise is needed but is not an end in itself. A parallel can be drawn to private business practices. Successful foreign direct investment projects upgrade national expertise and leverage local networks. Aid projects should do the same. Several successful examples, such as the community-driven housing reconstruction program in Aceh after the tsunami, follow this model of leveraging local expertise. However, too often development partners continue to use the traditional model, which relies disproportionately on foreign expertise and often gives preferential treatment to companies and consultants in the donor's home country.
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