House of Commons - International Development

Select Committee on International Development First Report

3 Constraints on increasing aid

48. While a focus on core priority areas and expanding the use of multilateral institutions and PRBS might help support an increasing aid budget, there are a number of constraints to increasing aid. These include the capacity of recipient economies to absorb additional aid and the Department's capacity to deliver efficiency savings and maintain the quality of aid.

Absorbing aid effectively

49. Various factors may reduce the ability of low-income countries to absorb aid effectively. Providing aid can increase foreign exchange inflows for the local economy, which may cause the exchange rate to rise and reduce the growth of the export-producing sector. Large-scale intervention may also distort economies within their domestic markets. This is especially the case with regard to food aid. The Deputy Prime Minister of Ethiopia, Addisu Legesse, has been reported to say: "When foreign aid lands, local prices collapse, and farmers who have managed to produce a surplus find their crop is virtually worthless. They have no money to pay for seed or fertiliser for the following year".[65]

50. There may also be labour market constraints which reduce the scope for aid in achieving MDGs in low-income countries:

"Structural features of low-income economies are likely to constrain the capacity to scale up aid. For many countries, because of skilled labour requirements for meeting the MDGs, labour markets in particular are likely to pose constraints to absorptive capacity and the pace of scaling up […] Increasing demand for large numbers of teachers, clinicians, accountants and engineers will either not be met in the short run or will need to be accommodated through drawing skilled labour from other parts of the economy (public or private sector)."[66]

51. One of the conclusions of a recent Overseas Development Institute Briefing Paper on the implications of increasing aid into Africa was that:

"Rapid increases in aid stand a good chance of being wasted unless they are provided in the context of more carefully prioritised plans than exist at present. Failing this, there is a risk that donor disillusion will develop, leading to broken promises which leave recipient governments with the familiar problem of transient benefits succeeded by high costs as they try to run expanded services and infrastructures with lower than expected resources."[67]

52. DFID told us that it takes account of a country's ability to absorb aid and ensures that collectively the donor community is addressing constraints to absorption. It also uses a Resource Allocation Model to inform decisions about the allocation of its bilateral resources among low-income countries, which takes into account the volume of aid flows provided though multilateral channels and by other donors.[68]

53. However, recent moves by DFID to 'front-load' funds suggest that the Department may need to give further thought to how to ensure countries are able to absorb aid. The 2005 launch of the multi-donor International Finance Facility for Immunisation (IFFIm) — a pilot for the International Finance Facility (IFF) — aims to increase the amount of money available for immunisations and developing new vaccines by securing long-term donor funding as collateral for bond issues.[69] The provision of vaccinations is clearly an example of the benefits of front-loaded investment for reducing later health-care costs. When we asked the Secretary of State about the IFFIm in October 2006, he told us that he hoped it would act as a demonstrator model for future applications of the IFF principle: he said that the IFFIm is "a way of demonstrating that this works because then that means we can continue to keep up the argument with others: if we can do that for vaccination and immunisation, why can we not do that for other things as well?"[70] But if the IFFIm/IFF policy is expanded, further thought will be needed around how it sits with emerging concerns about the ability of some poor countries to absorb large volumes of aid.

54. We agree with DFID's emphasis on ensuring the predictability of aid flows, improving public financial management and addressing the effectiveness of sector institutions. We recommend that DFID carefully monitors emerging lessons from the experience of the International Finance Facility for Immunisation about the potential value of front-loading aid in certain circumstances, and how this can be balanced with concerns about absorptive capacity.

Staffing

55. DFID's efficiency programme commits it to delivering £420 million of savings through cutting costs or allocating resources better. Annex 8 in the 2006 DR shows DFID's progress against the efficiency targets. Two of the targets are related to staff: "to reduce staff numbers by 170 UK-based and 124 Staff Appointed in Country (SAIC) posts" and "to relocate 85 posts from London to East Kilbride".[71] The Department considered it to be too early to say whether the first target is going to be met by 2007-08 whereas the second target, concerning the relocation of staff to East Kilbride, has already been met.

56. Beyond the immediate efficiency targets, it is also clear that changes such as off-shoring, outsourcing, greater specialisation in fragile states, increased multilateral funding and PRBS will have a profound impact on both staff numbers and the skills DFID requires in the longer term. To help it meet its staffing challenges, the Department told us that

"Overseas, we are likely to:

recruit more local staff in fragile states;
move some UK civil servants from 'good performing' countries that receive poverty reduction budget support to fragile states.

In the UK, we are likely to:

prioritise staffing around core White Paper 3 priorities [helping people get security, income and public services];
maximise headcount savings from ongoing efficiency programmes, particularly in corporate services; and
examine the case for moving more staff abroad.

In terms of skills, we will need to develop and recruit individuals to

work in fragile states (project and programme management skills will be particularly important); and
influence the international development system."[72]

57. We recommend that DFID continues to monitor the impact of relocation of staff to East Kilbride. We also recommend that DFID shows in its Comprehensive Review 2007 how future shifts in policy impact on future recruitment patterns and training. In addition, it would be useful to show how resources — human and financial — align with Public Service Agreement targets.

Working with the Foreign and Commonwealth Office

58. As part of the Efficiency Programme, the Government is currently encouraging departments to save costs through sharing services.[73] DFID is discussing with the Foreign and Commonwealth Office (FCO) how costs might be saved by sharing services and possibly moving towards a co-location of DFID and embassies and high commissions in more places. Currently, co-location occurs in 34 countries. The Permanent Secretary told us that:

"More could be made of this in some places, and I hope the Comprehensive Spending Review will push us on this front. This cost issue is really important if the UK taxpayer is to get a good deal out of this. DFID can purchase services locally in India and Africa much more cheaply than the Foreign Office currently does, so co-location is not the objective so much as effectiveness plus saving for the UK taxpayer". [74]

59. The extent of any joint operation between the FCO and DFID would vary depending on the country concerned. In some countries, such as Malawi or Zambia, where the UK's key interest is development, DFID will take the lead. However in a country like China, where there are also commercial interests, DFID may play a smaller role.[75]

60. We are pleased that DFID is liaising with the FCO on how to co-ordinate more effectively to save money for the taxpayer by sharing services. We recommend that the Comprehensive Spending Review 2007 contains specific proposals on this.

Maintaining the quality of aid

61. Perhaps the greatest challenge facing DFID is increasing aid whilst simultaneously maintaining its quality and effectiveness.

Meeting Public Service Agreement (PSA) targets

62. An important mechanism through which DFID is made accountable to its stakeholders for the quality of its aid is through the setting of PSA targets and through measuring progress against them. The DR is the main publication in which DFID reports on progress against its PSA targets. Many of the PSA targets are related to the Millennium Development Goals. Progress against the targets is often influenced by a wide variety of factors, which make it difficult to assess DFID's contribution to each target.

63. Where targets are not on course, there is often no specific information in the DR 2006 of the remedial action that DFID is taking. To address this we posed some specific written questions to DFID. In response DFID gave examples of action that it is taking in various countries to meet off-target PSAs; for instance, the proportion of births assisted by skilled birth attendants.[76] However, this information is not readily available in the DR.

64. We recommend that future Departmental Reports give specific examples of how DFID seeks to achieve PSA targets. We also recommend that DFID provides evidence of corrective or remedial action it is taking in instances where PSA targets are not going to be met.

Evaluating DFID projects

65. Maintaining the quality of projects is an important challenge for DFID. One of DFID's PSA targets is to increase the proportion of its bilateral projects evaluated as successful.[77] Proper evaluation of DFID projects is therefore vital.

66. DFID states:

"Around 56% of projects are reviewed by a team that includes stakeholders beyond the DFID team and/or externally commissioned reviewers. DFID is currently undertaking a piece of work to look in more detail at current practice and determine what the ideal level of external scrutiny might be. Criteria will then be proposed and the relevant guidance will be updated".[78]

67. We are pleased to see that DFID is reviewing its evaluation system. We believe that external scrutiny of projects is important and that there is scope for having a greater element of external scrutiny than at present. We expect DFID to report on steps it is taking to improve scrutiny in its next Departmental Report.

Quality of technical assistance

68. A frequent criticism of aid effectiveness is that it is constrained by overpriced and unhelpful technical assistance. ActionAid's 'Real Aid' report states that, "Technical advisers are often under pressure from donors to "get the job done" rather than take extra — expensive — time to build capacity"; "technical advisers are more focused on meeting donor demands than building capacity […] In Cambodia, a number of interviewees observed that advisers often write reports that no-one reads because they are long and in English" and "recruitment of technical advisers has tended to focus on the selection of international experts, rather than those who are able to transfer skills".[79] DFID has also been criticised in the press in the past for the high fees paid to consultants.[80]

69. DFID told us that, "The best sort of technical assistance is home-grown, locally owned and locally paid".[81] However, as ActionAid's memorandum highlights, two recent evaluations of DFID's technical assistance have cited instances of insufficient local participation and ownership, excessive use of international consultants and insufficient impact upon capacity development.[82] Yet presumably as part of doing 'more with less' — balancing its increasing budget with reduced human resources — DFID will need to contract out more of its work to consultants and other experts. We recommend that DFID carries out a full analysis of how its technical assistance can maximise local capacity development, participation and impact on poverty. Furthermore, we recommend that DFID outlines the process by which it evaluates external technical consultants and sets out the proportion of funds spent on consultancy fees in its Departmental Reports.

65 Peter Greste, Ethiopia's Food Aid Addiction, BBC News, 2 February 2006 Back

66 François Bourguignon and Mark Sundberg, Constraints to Achieving the MDGs with Scaled-Up Aid, March 2006 Back

67 Mick Foster and Tony Killick, What would doubling aid do for macroeconomic management in Africa?, ODI Briefing Paper, April 2006 Back

68 Ev 25 Back

69 The IFFIm is supported by the UK, France, Italy, Spain, Sweden, Norway and Brazil and implemented through the Global Alliance for Vaccines and Immunisation (GAVI). For further information, see Box 6c in DFID Departmental Report 2006, page 158. Back

70 Evidence taken before the International Development Committee, 19 October 2006, Q 70 [Secretary of State for International Development] Back

71 DFID Departmental Report 2006, Cm 6824. page 279 Back

72 Ev 21 Back

73 http://www.cio.gov.uk/shared_services/ Back

74 Q 35 [Sir Suma Chakrabarti] Back

75 Q 35 [Sir Suma Chakrabarti] Back

76 Ev 21 and 22 Back