Making aid more effective: recent insights and future challenges
Traditionally, aid effectiveness has been concerned predominantly with ex-post issues - focusing on what has happened after decisions have been made about how aid is to be allocated and how it should be provided. For the first 30 years of official aid-giving (until around the late 1970s), most attention was focused on audit-type issues: ensuring the aid was used for the purpose intended and neither misallocated nor mis-used (corruption). For the next 20 or so years, the focus was primarily on the impact of the aid provided, with most attention on the impact of aid projects.
In recent years (see section 2 below) the parameters around which aid is assessed have begun to shift. Notwithstanding these changes and their likely growing importance, in the next few years, the traditional interest in ex-post impact questions will continue. Accountability and transparency
Today, there is increasing interest in and concern with the linked issues of accountability and transparency in the discourse about aid. Recent insights suggest the following:
Over the last five to 15 years, there has been a marked overall improvement in the accountability of ODA funds used for development purposes, and donors clearly need to ensure these improvements are sustained, but - perhaps of greater importance - give priority to informing the public of the successes that have been achieved in this area. This is because of the influence that one-off scandals have, notwithstanding the fact that they are usually representative of the overall situation.
However, far less progress has been made in ensuring that humanitarian aid is used for the purpose intended. There is a steady stream of evidence (especially in complex emergencies) showing when aid funds have been mis-used and mis-allocated. Ironically, however, public tolerance of this problem is higher greater. There is a risk, though, that such public “complacency” will not continue with the likely continued increase in humanitarian aid, which, in real terms, has risen has increased seventeen-fold in the last 30 years, compared to only a two-and-a-half times the expansion in ODA. Aid impact
The number, scope, range and quality of aid impact assessments over the last 20 to 30 years have grown significantly. However, most assessments have tended to focus on the impact of discrete projects, largely reporting on the relationship between (aid) inputs and outputs. The success rate is broadly high (over 80%), though this falls when sustainability is incorporated into the analysis. Project success remains lower in poorer - including especially conflict and post-conflict - countries, notably (though not exclusively in Africa. The area of greatest concern is in relation to aid for capacity building and institutional development, where (some) evidence suggests that most projects have failed to achieve their long-term objectives. Current debates and future trends and challenges
Notwithstanding improvements in the quality of the evaluations of project aid, criticisms of the quality, and especially, the rigour of impact evaluations have been growing, and this is likely to continue. Those who have been advocating for more systematic and more rigorous aid evaluations have (understandably) been amongst the most vocal critics. There is no doubt that more rigorous evaluations do enhance our knowledge of aid’s impact, with “randomised” evaluations, in particular, providing a particularly rich source of data and information especially in relation to development outcomes. However (1) these tend to be expensive and time-consuming to implement; and (2) the methodologies used generally are not appropriate for assessing aid at the wider sectoral and national level - and this is going to become even more central in the future discourse about aid impact.
Ironically, as the quality of the evaluation of discrete aid projects improves, growing attention is being paid to the relationship between aid and aggregate development outcomes, particularly at the sectoral and national level. What people increasingly want to know (above all else) is the impact that aid has on poverty and other aggregate development outcomes - a focus and interest hugely boosted by the publicity given to the Millennium Development Goals (MDGs) and the fact that a number (though by no means all) donors have linked their aid to the achievement of the MDGs. Recent work provides three clusters of insights.
Firstly, professional evaluators are extremely reluctant to draw firm conclusions about the relationship between aid (inputs) and aggregate development outcomes, especially at the country level but (for many) also at the sectoral level. This is because of the potentially large number and range of factors which can - and do - influence development outcomes, often swamping the impact and influence of the aid funds provided.
Secondly, the leading donors have approached the challenge of how to assess the relationship between their aid in puts and the MDGs in very different ways. Some donors (the UK and Canada) have suggested that it is possible to assess, indeed even quantify, the relationship between their aid and (at least some of the MDG). Other donors (such as Norway, Denmark and the Netherlands) have argued, often even more strongly, that this cannot be done. The problem this raises is the lack of consistency between donors on this (key) issue. There is a key role - probably for the OECD/DAC - to play in addressing this problem A third group of donors (the US, Japan) have not entered the debate, largely because - notwithstanding the rhetoric at international summits and conferences - they do not formally link their aid allocations to the MDGs. What factors contribute to aid effectiveness?
There is broad agreement in the literature that the impact of aid is critically related to the commitment, capacity and capability of the recipients to use aid funds well. In recent years the importance of “governance” to aid effectiveness has been particularly emphasised, the term often used as a catch-all phrase linking these three attributes. However, it has been suggested that this assertion clarifies very little and that it is necessary to move on from what could be interpreted as an unhelpful (tautological) statement/assertion to more detailed analysis. The World Bank has led some pioneering work on governance issues, involving the assessment, collection and monitoring of trends in a range of different indicators across countries and over time. However, concern has been expressed about the way certain indicators have been constructed, about the nature of some of the policy indicators selected and the relative weights assigned to particular indicators. Additionally, evidence has been provided to show that across most countries governance constraints are neither immutable nor permanent leading some to conclude that a far greater understanding of the factors influencing the impact of aid will come from undertaking more in-depth country case studies than from seeking to find patterns and relationships of (incomplete and often not very accurate) indicators at the cross-country level. Other key aid effectiveness issues
Historically, debates about aid effectiveness focused almost entirely on the impact, not merely of ODA but that part of ODA funds used for development purposes. However in the past 30 years, there has been a huge expansion in aid provided for emergencies and in aid channelled to and through NGOs for emergency and development projects and programmes. Today, and even more so in the future, it will be increasingly important to focus on the impact of emergency and NGO activities funded by aid monies, not least as the rise in funds from philanthropic organisations is likely to increase, and hence to continue markedly to shape and influence the ultimate destination of aid. However, the gap between what we know about the impact of humanitarian and NGO aid and what we need to know remains very wide: the quality of humanitarian aid evaluations continues consistently to be assessed as “poor” while the assessments of NGO development projects and programmes has scarcely begun to focus on the relationship between aid inputs and broader development outcomes. Growing interest in accountability and transparency issues suggest growing pressure for more, and more rigorous, evidence from those types of aid providers.
In recent years, some of the traditional differences between the two forms of aid have narrowed as growing amounts of humanitarian aid have been used to rebuild livelihoods and growing amounts of development aid have been used to “save lives”, for example by funding the purchase of retroviral drugs for HIV/AIDS. What this suggests is that increasingly the traditional distinctions made between development and emergency aid are becoming blurred. Relatedly, the OECD/DAC guidelines on impact assessment have provided (slightly) different approaches for assessing development and humanitarian aid. Over the next few years, it will become increasingly necessary to revisit both the traditional distinctions between these two major forms of aid and the ways in which their impact is currently assessed and evaluated.
Especially since the rise in prominence of the MDGs, there has been a change in the priorities donors have attached in aid-giving. Most notable has been the rising share of aid channelled, directly or indirectly, to social and welfarist purposes: meeting immediate health needs, contributing to an expansion in basic education etc. This has led to a relative down-playing and eclipsing of aid directed at wealth-creating activities, notwithstanding the (more recent) swing to support infrastructural development. Especially in countries and regions where the core (poverty-reducing) MDG targets are not being met, donors will increasingly need to focus their aid on wealth-creating activities - to complement, rather than to replace aid’s welfarist roles.
For nearly ten years, donors have been influenced by the view (advocated especially by the World Bank) that aid should be channelled predominantly to those countries able to use it well. Though not all donors followed this prescription, its influence inevitably led to some of those countries in greatest need of aid, but unable to use it as effectively as others receiving proportionately less than they required. There has been a swing back over the past year or so to concern to provide aid more on the basis of need. While donors will continue to try to ensure that the impact of aid remains as high as possible, it is likely that providing more aid to the poorest countries, to fragile states and those in conflict will result on lower aggregate impact. The core problem - which donors have insufficiently focused upon - is how to convey to the public that aid ought to be provided even in contexts where its impact is less certain, and its positive impact less likely. Strikingly, the public is ready to provide strong support for aid for emergencies, even if evidence is produced of such aid in earlier emergencies not being used effectively. However, the public appears to expect (all) aid for development to “work”. There is an increasing need for donors to address this dilemma - not to undervalue the importance of always trying to enhance aid’s impact, but to suggest that weak performance is not a sufficient reason to stop providing aid. This is because the central dilemma in providing aid is that it is needed most in precisely those contexts where the prospects for its being used effectively are the lowest.
The 1996 Rwanda emergency evaluation drew attention to the importance of ethnicity in development and the consequences of donors ignoring this dimension of development. It showed not only that ethnicity matters but that aid can have serious - in the Rwanda case appalling - adverse consequences if ethnicity is not “factored into” decisions about aid. Recent work on horizontal inequalities, the distributional effects of growth and studies of the political economy of aid-recipient countries, such as DFID’s “Drivers of Change” studies highlight the centrality of these issues for aid donors. In the years ahead, donors will need both to mainstream these issues and ensure that they have the skills and capacities to factor them into decisions about how their aid is used.
NGOs have expanded their development activities to become major “deliverers” of development aid. The impact and quality of their different projects and programmes are now coming under scrutiny, just as they have been for some time in relation to their humanitarian activities. NGOs have responded to questions about their humanitarian activities, initially, by committing themselves to adhere to a number of codes of practice, and, more recently by committing themselves to an evolving range of quality standards, such as the Sphere standards and “People in Aid”. The time has now come for NGOs to debate and discuss the merits of developing a range of quality standards in relation to their development work. This would resonate with the human rights perspective many have adopted, which places particular emphasis on ensuring that those assisted are both consulted and can be assured of the assistance provided to them reaching accepted minimum standards. Norway has a role to play, with other donors, in encouraging further discussion on this issue. The global aid architecture: recent trends, future challenges and the implications for Norway
The importance of ex ante and systemic factors influencing aid effectiveness
As noted above, historically the discourse about aid effectiveness has focused on the impact of aid after decisions have been made about its allocation, and how it has been provided. However increasingly over the past 10 to 15 years, donors have begun to turn their attention more explicitly to ex ante and systemic issues - decisions made about how aid is allocated and the influence of the overall context within which the actions of individual donors are placed. For a number of decades these issues have been the focus of attention of the United Nations and the Nordic and other “like-minded” donors, to be joined more recently by both the European Union and its member states and the OECD/DAC.
Following a number of different initiatives, the Paris Declaration provides one of the most significant and explicit acknowledgement that systemic issues matter greatly to and profoundly influence the impact and effectiveness of aid - in the case of Paris, by drawing attention to the issue of aid harmonisation, alignment and coordination. Relatedly, the report Delivering as One, in turn, acknowledges the importance of harmonisation and consistency within and across different UN agencies working in the development field, while the trend away from projects towards programme aid and providing more aid in the contexts of SWAps and as general budget support are also tangible examples of the recognition by donors of the need to work more closely together - and that there are costs, in terms of reduced potential aid effectiveness, of not doing so. In the area of emergency aid, the Good Humanitarian Donorship initiative has drawn donors (and humanitarian agencies and NGOs) to focus on some key systemic issues in the area of humanitarian aid.
Thus far, with the exception of some notable achievements in the humanitarian aid field (such as the creation of the new Central Emergency Response Fund), tangible successes in terms of altering traditional forms of aid-giving - whereby donors take decisions on their own with little to no consideration of the actions of others - have been quite limited. The 2007 assessment of progress in moving towards the agreed Paris Declaration targets indicates extremely limited progress in aggregate and some reversals from the base-line position. Likewise, Delivering as One has been criticised as failing to have the courage to address the duplication of activities across UN agencies, while many of the old ways of working within different agencies continue.
But the real challenge in relation to the global aid architecture lies in the extent to which the donor community as a whole is willing to place on the agenda for substantial discussion some of the key systemic issues which continue profoundly to adversely affect the impact of aid but which have not been the subject of recent substantial discussion. One of the reasons is that for the past ten years donor engagement with such issues has been undertaken predominantly against the backdrop assumption of the need (always) to reach universal consensus on the way forward, notwithstanding the partial discussions that have taken place amongst the like-minded group of donors and the pooling of (some) emergency aid funds. Some of aid’s systemic problems
The following constitute some of the main systemic problems of aid-giving which are not actively under discussion by the aid community. Their overall effect on the potential impact of official aid is profound.
Aid is provided by individual donors on an entirely voluntary basis. Each donor government chooses and determines itself how much aid it will give. Recent repeated pledges and promises made at international conferences and summits to increase the total amount of official aid are not materially very different from earlier international commitments, stretching back more than 30 years, to expand, and double aid. They remain what they are - merely promises - and are not binding on donor countries. Indeed, there is not even a commitment, no less a promise or pledge for any donor country or group of donor countries to make up the shortfall in aid if some donors break their individual promises to increase aid - or fail even to maintain aid at current levels. There are no sanctions imposed on countries which fail to honour their promises.
Insufficient amounts of aid are provided, especially to the poorest and most needy countries. There is no clear and predictable link between the overall amount of aid provided by rich countries and the aggregate aid needs of recipients, though the crude and partial assessments made suggest a huge gap between the amounts provided and the amounts needed. Hence for many poor countries, the potential impact of aid is reduced because insufficient aid is often provided.
Equally, there is no necessary relationship between the aid requirements of individual poor countries and the amount of aid each receives. This is because the total amount each recipient receives is determined by the aggregate of the individual decisions made by each donor agency on whom it chooses to channel its own aid funds - rarely influenced by the decisions of other donors.
Allocations of official aid continue to be influenced by the commercial, strategic and short-term political interests of donors, reducing the share of aid to the poorest countries and raising its costs.
- The 63 poorest countries of the world receive less than half of total ODA.
- In 1999, less than two percent of all ODA was channelled to Afghanistan, Iraq and Pakistan, but by the year 2005, aid to these countries accounted for a quarter of all ODA, having risen thirty-fold.
- In aggregate, aid tying is estimated to add over 20 percent to the costs of providing aid, amounting today to some $7 bn.
A major consequence is the extreme volatility in the flow of aid funds to particular countries. Recipients do not know whether the aid they will receive this year will continue to be provided five, three or even one year hence, and experience confirms that the amounts provided vary markedly from year to year. Aid volatility makes recipients extremely reluctant even to use the aid they receive, particularly to fund recurrent expenditures, reducing still further its potential impact.
Aid effectiveness is severely reduced by the growing complexity of donor-recipient relationships. Today, there are over 200 official donor agencies, more than double the number 40 years ago, and the numbers continue to rise. In 1990, no aid-recipient country had to interact with more than 40 individual donors. Today, at least 30 recipients must deal with more than 40 donors. Most aid is still managed by donors and not given to recipient governments to use as they see fit: less than 40 percent is disbursed through recipient government channels; half of all multilateral aid is earmarked for particular uses; and only a third of aid provided by UN aid agencies is aligned to national priorities. In 2005, the number of separate aid transactions recorded, in aggregate, by all official aid agencies was estimated at 60,000 – three times the number less than ten years ago - while the average size of each transaction has progressively fallen. On average there are 54 separate aid Project Implementation Units in each recipient country, and if the Paris target is met, there will still be 18, on average, in each recipient country. What Norway - and others - can do
The greatest challenge in terms of reforming the global aid architecture in the years ahead lies less in following through on commitments (like Paris) already made - though these are important. Rather, it lies in debating and discussing changes to he way aid is given which are not (yet) part of mainstream discussion.
In its 2005 Human Development Report, the United Nations Development Programme argued that “fixing the international aid system is one of the most urgent priorities facing governments… ” (p. 75). This remains unfinished business. The following comprise the core building blocks of an aid system for the poorest countries in tune with the core principles of our contemporary world.
- The acceptance by all nation states, but particularly by the wealthier nations, of the obligation to provide assistance independent of their own commercial strategic and short-term political interests and channelled to those countries unable, on their own, to ensure the fundamental rights, basic needs and core freedoms of their own citizens.
- Compulsory contributions by the rich countries, provided on the basis of their relative wealth, and pooled into an aid fund of a size sufficient to meet the total aid needs of the poorest countries, based on the aggregate assessments of their individual aid requirements. Aid funds from the common pool would be channelled to each of the poorest countries to help meet their needs and address the financial, skills and other requirements upon which the assessment of aid needs would have been based.
The main challenge in creating such a system probably lies less in agreeing its broad principles and core building parameters and far more in debating and agreeing precisely how a workable system might be established, and to gain the support of all nation states, both donor and recipient governments. Here, the greatest hurdle is unlikely to be the switch from voluntary to compulsory donations or the distancing of aid-to-the-poorest from the commercial and short-term political interests of the donors. Rather, it is likely to hinge on the confidence of the main donor governments that the recipient countries accessing aid funds from the common pool will make good use of the aid funds provided. This issue goes to the heart of the twin paradoxes of aid.
Aid is needed most in precisely those countries which are least able to use it well. The less inauspicious the context into which aid funds are channelled, the higher the likelihood that donors will wish to apply a range of conditions to try to ensure that “their” aid funds are well spent. However, the impact of aid tends to be linked directly to the commitment and capability of the recipient to use it well, and the greater the degree and intensity of conditionality applied by the donors, the more recipients are likely to feel that they are not in control, so they will be less committed to ensuring the funds are used as effectively as possible.
Many wise women and men have grappled with these issues over the five decades that official aid has been provided, and a number of proposals for change have been placed on the table - by US Presidents, by the Person and Brandt commissions, by the Zedillo Panel and by a range of different scholars and academics. However, for too long donor governments have avoided facing head-on the challenges involved in trying to change the aid system. They need to be encouraged, or shamed, into trying, if they really believe that extreme poverty is the most serious form of human rights violations in the world today and requires urgent attention. For, as all donors agree, aid can contribute to making a difference - if it is provided in ways which seek to maximise its impact. As one of the most forward-thinking donors, with a long history of support for multilateralism, Norway has the potential to play a key role in leading the world in this radical re-thinking of the contemporary aid architecture.
The role of trade in southern development: issues, research finding and implications for Norwegian aid and trade policy
Trade issues for poor countries
Trade remains an important issue in development and has often been a critical “driver” of development. However, “sources of growth” analyses still tend to confirm that out of the three potential sources of growth - domestic demand, import substitution and exports - domestic demand continues to contribute the most to aggregate growth.
Trade is important for poor countries as a source of foreign exchange and employment and, especially in the longer term, as a means of enhancing long-term competitiveness through accessing, making use of and adapting new technologies. However, trade can also lead to losses of employment and increasing balance of payments problems. The key issue for poor countries is not whether to trade but what policies to adopt in order to expand in a manner which is beneficial. A key problem is that significant trade expansion often stimulates, or is accompanied by structural change and changes in relative prices within an economy. As a result, some parts of an economy are likely to gain and others to lose from expanded trade, and the actual and potential gains and losses will tend to vary within and across different socio-economic groups in both the short and long-term. In most poor countries, the poorest strata of society do not comprise a unified and homogenous group. Expanding trade and structural change are thus likely to affect different groups of poor people in different ways: poor urban consumers will often gain immediately and directly from lower food prices, while farmers growing food crops will lose out.
Much recent discussion has focused on the respective merits of poor countries liberalising their trade regimes, not so much as to whether they should liberalise but when and how. The historical evidence tends to suggest that some countries have benefited from rapid liberalisation of their trade regimes, but that many others have achieved more sustained improvements in well-being by maintaining a range of protective policies behind which adjustment has taken place to produce a stronger industrial sector. The current (at present stalled) round of trade negotiations in theory recognises the principle of “special and differential” treatment for the poorest countries. However, poor country negotiators have expressed concern at the partial and incomplete nature of this treatment, and at “asymmetrical liberalisation” under which countries are drawn into liberalising their trade regimes by reducing tariff and non-tariff barriers when other (often richer and more powerful) countries or groups of countries are either not taking similar steps, or when their more powerful original positions enable them to gain disproportionately from seemingly-equal reductions in protectionist measures. Areas for action
Against this backdrop, the following policy issues of critical importance to the poorest countries are areas where donors, such as Norway, can make a contribution.
The (potential) gains from trade do not happen automatically. A major issue for poor countries are the supply-side constraints which limit, constrain and, at the extreme, prevent countries from taking advantage of increased liberalisation. Supply-side constraints range from the lack of skills and know-how to technological and infrastructural constraints. Donors keen to assist trade expansion can have a critical role to play in helping countries identify and then help to address these supply-side constraints.
Trade both causes and contributes to the structural changes and adjustments which occur within and across poor country economies as trade expands. It is highly likely certain groups of poor people will lose out, either relatively or absolutely (or both) from the changes caused or induced by trade. Yet the poorer the country, the fewer resources it has to assist those adversely affected by these changes. Aid can assist in meeting the costs of adjustment and, importantly, this need for aid should be viewed as additional to traditional aid needs and uses of aid. In many cases, the costs of adjustment, and hence the demand for aid-for-adjustment, are likely to be considerable.
Increasingly over the past few years, donors have recognised that the impact of the aid funds they provide, particularly their role in accelerating the process of poverty reduction, wealth creation and self-sustaining development are influenced by the actions that they take, or fail to take, individually, and as a group beyond the aid relationship - in relation to trade, immigration policies, the environment and other global public goods. This has led a growing number of donors to articulate the need for policy coherence: ensuring that all the policies they implement and change are consistent with the aims and objectives they articulate when providing aid - most notably their commitment to more rapid self-sustaining development in the poorest countries to achieve the most rapid permanent reductions in extreme poverty. However, the evidence suggests that a considerable gap remains between donors’ verbal articulation of a commitment to policy coherence and current practice. It should be a priority for Norway to narrow this gap and to play a lead role in encouraging other donor countries to do the same.
There has been growing criticism of the manner in which trade negotiations and discussions surrounding them are conducted. Among the concerns expressed has been the fact that many poor country representatives and delegates to international trade talks often come poorly prepared and ill-equipped to negotiate-as-equals with the richer countries of the world, able to deploy significant resources for research and lobbying activities. One way of assisting poor countries is to provide one-off support. However, the issue needs to be tackled more systemically. Hence, Norway should give priority to joining with other countries to work out ways in which the donor community can provide in-depth and sustained support to the poorest countries to enable them to engage in discussions more as equals partners than has happened in the past and than still occurs today.
More systemically, historical problems remain about the way that the poorest countries engage in and are represented on international bodies up to and including at board level. This, too, is an area, where Norway’s experience as a small but important industrialised nation can contribute to addressing these problems, to provide structures and process more in keeping with the needs of the 21st century.