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From Africa Recovery, Vol.17 #4 (January 2004), page 18

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Aid effectiveness: How other donors assess the US

Africa pushes for better aid quality

Donors must also be held accountable for their policies and practices

To make the best use of limited aid flows to Africa, the continent's leaders are calling on donors to join in efforts to improve the quality and effectiveness of the aid that is given. They are urging Africa's development partners to achieve greater efficiency in aid delivery, align donor programmes with African development plans, improve donors' coordination with each other and better integrate aid policies with action in such areas as global trade and debt relief.

By Michael Fleshman

For most of the past 40 years, Africa's debate with the international community over economic aid has focused largely on the amount of official development assistance (ODA) available and the economic, social and political conditions that must be met to obtain it. This is understandable, since donor conditions have sometimes forced recipient governments to cut vital health, education and infrastructure budgets, and the current level of global ODA — about $57 bn annually — is less in absolute terms than it was a decade ago. Despite increases in development aid in recent years, that amount is only about half what economists estimate is needed to achieve the internationally agreed development targets contained in the Millennium Development Goals (MDGs).

The absence of resources for investment in health, education, industrial and rural development and transport and communications is generally recognized as the single greatest obstacle to achieving the MDGs in Africa and other poor regions. Yet on 30 October, UN Secretary-General Kofi Annan told the General Assembly that in 2002 developing countries transferred almost $200 bn more to the developed world in debt service payments, profit remittances, and other transactions than they received from all sources, including aid, private investment and debt relief. It was the sixth consecutive year poor countries have been net exporters of capital to wealthy regions and the largest such outflow on record. “Funds that should be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals,” he lamented, “are instead being transferred abroad.”

To make the best use of the limited resources available, African leaders “in the spirit of mutual accountability and responsibility that is embedded in NEPAD,” the New Partnership for Africa's Development, called in November 2002 for donors to join with them to improve aid quality. The statement, issued at the end of a meeting of the NEPAD heads of state Implementation Committee, urged Africa's partners to achieve greater efficiency in aid delivery, align donor programmes with national plans, improve donors' coordination with each other and better integrate ODA with donor policies in such areas as global trade and debt relief. The leaders urged the UN Economic Commission for Africa (ECA) and the association of industrialized countries, the Organization for Economic Cooperation and Development (OECD), to “urgently conclude” discussions on ways to hold donors as well as recipients accountable for their commitments and improve aid effectiveness.

Donors 'not cooperating'

It is an ambitious undertaking, given the inherent imbalance of power between rich and poor, and the domestic political considerations that sometimes drive aid decisions in wealthy countries. During the Cold War, ODA was often provided to secure commercial advantages in recipient countries or as a reward for ideological allegiances, instead of achieving development objectives on the ground. Donor countries and multilateral lending agencies sometimes imposed conflicting conditions on loans, while the absence of cooperation among bilateral donors often produced overlapping projects in the same sector — each with its own reporting and administrative requirements.

In Tanzania, notes a November 2003 UN Development Programme (UNDP) report on development effectiveness, some 40 donors maintained 2,000 separate aid projects during the 1980s. This created a “chaotic” situation and a vast administrative burden on the government, but achieved little sustainable development on the ground. According to World Bank President James Wolfensohn, the problem is a global one. Addressing a February 2003 donors meeting in Rome, he noted that since 1992 more than 400,000 separate development projects have been initiated around the world, and that 80,000 are currently underway. “This is ridiculous,” he said. “We're not cooperating. We're not coordinating. We're not learning from the experiences of others, and in some cases we're not even learning from our own experience.” If the world is to reach the MDGs by 2015, he continued, improving aid quality and forging genuine partnerships between developed and developing countries is essential. “If we go on the way we're going, we're really not going to make a hell of a lot of progress.” (see graph)

Happily, Tanzania has gone from being a case study of the need for improved aid quality to a laboratory of how best to achieve it. In the mid-1990s, the government appointed an independent commission to study ODA programmes and recommend reforms. Its findings brought a reduction in the number of projects and increased the channelling of development funds through the national budget, which reduced paperwork and made resource flows more predictable and flexible. In 2002 the government published the Tanzania Assistance Strategy, which clearly defined its relationship with donors and led to the creation of a joint donor-government secretariat to monitor development programmes and further improve donor coordination and mutual accountability.

The Tanzanian experience and similar initiatives under way in Senegal, Uganda, Mozambique, Ghana and other countries are indications that both recipient and donor countries are beginning to “get it” about aid quality, the former development minister of the Netherlands, Ms. Eveline Herfkens, told Africa Recovery. For 15 years, ODA budgets in wealthy countries declined, she noted. “Now governments are under pressure to increase aid pledges to meet the MDGs, and they realize they can get more ‘bang for the buck'” by improving aid effectiveness.

Charged with mobilizing international support for the MDGs in her capacity as the UN's executive coordinator for the MDG Campaign, Ms. Herfkens asserted that half of ODA funds are being wasted by “leakage” of aid to middle-income countries, donor-driven projects outside developing countries' poverty reduction and development strategies, and lack of capacity in recipient governments. Greater accountability by all parties, she said, “would add much more value to current levels of ODA.”

Also, Ms. Herfkens added, improved aid effectiveness would accelerate progress towards the MDG targets, which include a reduction by half in the number of people living in absolute poverty by 2015 (see Africa Recovery, October 2003). Donor support for social services vital to the MDGs, such as health and education, has risen in recent years, although the increase has come at the expense of investment in productive sectors and programme assistance, which includes balance of payments and budget support (see graphs, page 18).


German aid project in Tanzania : The Tanzanian government has made progress in getting different donors to better coordinate their activities.
Photo: © Das Fotoarchiv / Hacky Hagemeyer
 

Mutual accountability and coherence

For their part, African governments have sought to institutionalize mutual reviews of development programmes with their partners and improve cooperation or “harmonization” among donors to reduce waste, duplication and administrative costs. Development agencies like the ECA and the World Bank have also called on African and donor governments to achieve greater policy coordination, or “coherence,” to ensure that the various activities of the state, including health, education, agriculture, trade, investment, defence and budgeting reinforce development objectives and not conflict with or nullify each other. In a progress report to African finance ministers in June 2003, the ECA argued that only a process of mutual accountability could ensure that both sides keep their commitments and make maximum use of ODA.

For Africa, the principal means to improve aid effectiveness is NEPAD, which commits African governments to:

• promote sound macro-economic policies
• combat corruption
• respect human rights, democracy and good governance
• pursue the MDGs in national development strategies
• improve the domestic business climate to attract private investment.

Monitoring these commitments is the purpose of NEPAD's voluntary African Peer Review Mechanism (see Africa Recovery, February 2003), through which African countries are to assess each other's progress on governance issues. To date, 16 governments have agreed to participate.

Donor commitments made at the 2000 Millennium Summit and the 2002 Monterrey, Mexico, financing for development conference include:

• increasing the amount of ODA available for achieving the MDGs
• achieving better alignment of donor priorities with national development strategies
• reducing duplication and reporting requirements
• improving the predictability and timeliness of aid disbursements
• strengthening recipient “ownership” of the development process by expanding developing country technical capacity, reducing the number of expatriate consultants and eliminating requirements that recipient countries purchase project-related goods and services from donor countries, a reform known as “untying” aid.

Donor performance is currently assessed by other donor governments, operating through the OECD's Development Assistance Committee (see box, page 20). But there are few opportunities for developed and developing countries to conduct joint assessments of aid programmes, and even fewer ways for African governments to hold their partners accountable for their commitments.

This is particularly true of policy coherence, an area where the ECA sees shortcomings by both African governments and their partners. An increase in military spending, for instance, may make it impossible for an African government to increase the budget for health and education programmes vital to progress on the MDGs.

The spread of democracy in Africa, together with better economic management and greater budget transparency, has improved policy coherence in many African countries in recent years. The ECA finds less coherence in developed countries, however, as they continue to pursue a range of conflicting policies and objectives. US, European and Japanese farm subsidies, for example, have devastated the economies of many of the African countries they assist with rural development programmes. According to the UNDP development report, crop subsidies cost developing countries between $125 bn and $310 bn annually in lost sales and lower world prices — far more than they receive in ODA. Similarly, high tariffs on processed and manufactured products from Africa are common in industrialized countries, even though tariffs discourage private investment, job creation and economic diversification.

African governments have also called for greater support for African development priorities and the MDGs by the International Monetary Fund and other multilateral economic institutions. Despite improvements in some areas, however, “what we haven't seen in practice is a macro-economic framework that is really geared towards poverty reduction,” UNDP economist Jan Vandermoortele told Africa Recovery. “Poverty reduction programmes very often ... have to be tailored and adjusted and downsized so that they fit into a macro-economic framework that is set before the word ‘poverty' is even mentioned.”

From ‘adjustment' to ‘partnership'

Nevertheless, the evolution of development models from the harsh austerity and zealous free market measures of the 1980s and 1990s to today's language of partnership and ownership has strengthened Africa's argument for a larger voice in the aid debate. NEPAD has further increased pressure on donors to match Africa's initiative and make the partnership a more equal one.



French President Jacques Chirac in Mali, with President Ahmadu Toumani Touré (in white robe): France has made aid to Africa a high priority.
Photo: © Getty Images / AFP / Patrick Kovarik

The greatest progress has been made in harmonizing and coordinating country-level donor programmes, and creating a venue for joint review and mutual accountability. In a declaration issued at the end of the February Rome meeting, the 76 countries and aid agencies in attendance acknowledged that the “wide variety of donor requirements and processes for preparing, delivering, and monitoring development assistance are generating unproductive transaction costs for and drawing down the capacities of partner countries.” The statement further recognized that donor practices often run counter to recipients' national development priorities. “These issues require urgent, coordinated and sustained action to improve our effectiveness on the ground.” An OECD task force has been established to work with the ECA to develop recommendations for improving country-level coordination among donors, with a follow-up meeting scheduled for 2005.

Work is also proceeding on the establishment of joint reviews. A number of consultations between ECA and OECD technical experts over the past year have produced agreement in principle for mutual reviews every two years. A new OECD entity, the Working Party on Aid Effectiveness and Donor Practices, will provide a forum for direct developing-country participation in the process.

In the meantime, the technical groups will attempt to reach agreement on outstanding issues, including reconciling bilateral donor-recipient reviews with the NEPAD peer review process, maintaining African ownership of development within a framework of stronger international partnerships, and improving the accountability and coherence of independent multilateral bodies like the World Trade Organization (WTO). Final recommendations on a mutual review mechanism are expected to go to the NEPAD Implementation Committee and the OECD early in 2004.

National interests versus coherence

The collapse of the WTO meeting in Cancún over developing country demands for the end of Northern agricultural subsidies, better market access and reform of other inequitable trade policies (see Africa Recovery, October 2003), underscores the difficulty of aligning global trade and financial policies with national aid and development initiatives. Although it is widely acknowledged that subsidies and tariff barriers in particular are a major contributor to poverty in developing regions, many Northern governments fear the domestic political consequences of removing them.

The result, noted Ms. Herfkens, is that “there is going to be a delay at least in seriously addressing the issues of subsidies and market access.” That, she said, “is very bad for the poor and particularly bad for Africa .” Most of the poorest people, she noted, “live in rural areas and are dependent on agriculture or related activities.... Continuing distortion of markets by subsidies is going to destroy rural livelihoods in Africa .” The failure to eliminate trade barriers and subsidies in the world's richest markets, she continued, has an impact on many other aspects of development and further reduces the chances for the least developed countries to achieve the MDGs. “The whole issue of the sustainability of debt is related to your export income, which is related to your market access, so it's a vicious circle we are getting into here.”

Addressing European parliamentarians in Paris in early October, Ms. Herfkens pointed to her own career in parliament and as a Dutch development minister, noting that despite nearly 20 years of discussion about increasing and improving aid, “we are discussing the same subjects today,” without adopting reforms. The 2015 deadline for meeting the MDGs, she said, means that “we cannot say our cheque is still in the mail.”

Parliamentarians, Ms. Herfkens argued, have a key role in improving the quality and quantity of development assistance by holding ministers accountable for commitments made at international conferences, ending trade-distorting subsidies and tariff barriers and insisting that ODA be delivered efficiently and effectively. Although each EU member state has promised to provide at least 0.39 per cent of its GNP as development aid by 2006 — a move she estimated would generate an additional $20 bn in ODA annually — only 8 of the 15 EU governments had deadlines for eventually reaching the internationally agreed target of 0.7 per cent of GNP.

Improving aid quality in the meantime, she added, “could double the impact” of current spending. Untying aid alone, she noted, would add 30 per cent to the value of existing ODA. Standardizing and simplifying administrative procedures, channelling more aid through the national budgets of developing countries and making more multi-year commitments would strengthen local ownership of development. “We have ... to stop creating the absorptive capacity problems ourselves ... that some donors subsequently refer to as the reason not to increase aid.”

'No excuses 2015'

Her task as director of the MDG campaign, Ms. Herfkens explained, “is making governments accountable. We are going to work closely with civil society and parliaments to make governments accountable to their people for their commitments.” African governments, she asserted, had committed themselves “loud and clear” to the MDGs. Now is the time for those governments and their development partners to follow through. “The campaign is called ‘no excuses 2015.' There can't be an excuse on any side.”

Although the challenge is to ensure that governments abide by their MDG promises, Ms. Herfkens continued, she has no intention of flying into a country to lecture senior officials about their obligations. Her goal instead is to empower citizens in both developed and developing countries to hold their governments to account for the effectiveness of development programmes. Africa's economic prospects, she said, have been badly undermined by policies that make African governments more accountable to their donors instead of their own citizens. “We have to move away from that. Governments have to report to their own people.” By mobilizing local civil society, social justice movements and parliamentarians, and finding links between local campaigns and the global MDG effort, she concluded, you build a movement for development for the long haul. “That saves people's lives if you succeed.”

Aid effectiveness: How other donors assess the US

The US has the unusual distinction of being at once the OECD's largest contributor of development assistance, in dollar terms, and its smallest, when measured as a percentage of national income (see graph). Its aid policies were reviewed by the OECD's Development Assistance Committee in 2002. That assessment observed that “the United States has a substantial impact on promoting economic growth and reducing poverty in developing countries” because of its economic and political influence.

The study, conducted by representatives of two other OECD countries and the OECD Secretariat, noted, however, that the US government's ability to forge strong partnerships and improve coordination with other donors is severely hampered by the large number of government agencies that provide ODA — some 50 separate and largely autonomous bodies ranging from the State Department to the defence and health ministries. Competing agendas and the absence of a shared strategic vision, it asserted, “can leave the United States in a position of ad-hoc development decision-making.” The report called for the US Agency for International Development (USAID), which currently controls only about half of Washington's aid budget, to be given greater authority over ODA disbursements.

The congressional practice of setting aside, or “earmarking,” aid for specific countries and legislation requiring that most US development assistance be tied to the purchase of US goods and services further limits the effectiveness of Washington's aid programmes. These practices, the reviewers said, can sometimes be an “impediment” to stronger cooperation with donors and recipients, and direct assistance away from the countries in greatest need.

The failure to integrate aid, trade, defence and other aspects of US foreign policy into a coherent approach to developing countries reduced aid effectiveness and had “major repercussions” for poor countries' development prospects, the study noted. It recommended that USAID be given greater responsibility within the government for improving policy coherence and efficiency in ODA delivery. It urged the US to untie more of its aid and consider ways to better harmonize ODA priorities with recipients' poverty reduction and development strategies. Washington was urged to work with other OECD countries to reduce and standardize project reporting requirements and integrate development priorities more thoroughly into its overall foreign policy. Finally the OECD panel recommended that legal restrictions on USAID advocacy for ODA programmes be relaxed to strengthen public and parliamentary support for US development activities.

OECD peer reviews, observed Ms. Eveline Herfkens, UN MDG campaign coordinator and former Dutch development minister, “are terrific reports, serious and deep.” Unfortunately, she said, too few policymakers and advocates know about them. After meetings with parliamentarians in 10 OECD countries, she said, “I was shocked by how few were aware of them.” The reviews can be found on the OECD web page at: http://www.oecd.org/infobycountry/0,2646,en_2649_34603_1_1_1_1_37413,00.html

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