House of Commons - International Development

Select Committee on International Development Ninth Report

1 More effective aid

5. Developing countries are today dealing with more donors than ever before. While increased donor commitment and money is of course welcome, it also brings with it new pressures for aid recipients. The Overseas Development Institute (ODI) succinctly set out the problem in its evidence:

"The international aid system is a loose aggregation of more than 50 bilateral donors and over 230 international organisations, funds and programmes. The result is high proliferation and fragmentation, with bilateral and multilateral donors, and recipient governments, pursuing multiple agendas for different purposes, leading to poor coordination and high transaction costs."[1]

DFID's evidence to us outlined what this challenge means for individual developing countries: "The average number of donors per country has grown from about 12 in the 1960s to more than 30 in 2001-05."[2] Myles Wickstead of the Open University drew on his own experience to provide us with an illustration of the impact on the administrations of developing countries:

"I think the international community is beginning to understand the burden that aid can put on developing countries, particularly on their finance ministries but also on other departments like health and education particularly, and I am very conscious that even back in the 1990s when I was running British development programmes in East Africa that the Treasury in Tanzania told me that they had 400 donor missions per year. That is just over one a day and these are the people who, essentially, should have been responsible for running the Tanzanian economy and they did not really have time to do that."[3]

6. It would therefore appear logical that a more streamlined approach by donors to delivering their aid in coordination with others should have a beneficial impact on international development. As a result, donors and developing countries have paid considerable attention to trying to establish better harmonised and aligned practices and programmes.

The Paris Declaration on Aid Effectiveness

7. In much of the evidence we received, and in the literature more broadly, the Paris Declaration is seen as an important milestone for aid effectiveness.[4] It was facilitated by the Organisation for Economic Cooperation and Development (OECD) and was endorsed on 2 March 2005.[5] It is an international agreement signed by over 100 Ministers and Heads of Agencies who committed their countries and organisations to achieve better development outcomes from aid. The Declaration commits signatories to five principles:

Ownership: partner countries exercise effective leadership over their development policies and strategies, and coordinate development actions;
Alignment: donors base their overall support on partner countries' national development strategies, institutions and procedures;
Harmonisation: donors' actions are more harmonised, transparent and collectively effective;
Managing for Results: managing resources and improving decision-making for results,
Mutual Accountability: donors and partners are accountable for development results.

These principles have been further divided into 12 indicator targets for 2010. These include, for example, increasing to 66% the amount of aid channelled via programme-based approaches and ensuring that at least 50% of donors' technical assistance is coordinated with others.

8. Much of the evidence we received from civil society in this inquiry acknowledged the central role played by the Paris Declaration in defining and promoting effective aid but also raised concerns about its implementation. Paris is, according to ActionAid, a "useful but limited attempt to deal with persistent problems of aid delivery".[6] A recent report by the International Civil Society Steering Group for the Accra High Level Forum calls for donors to be held to account for commitments they have made under the Declaration:

"The Paris Declaration contained some important commitments from donors to meet basic standards of aid quality. However, there is reluctance from some donors to be held to account for these commitments. Although targets have been set for individual recipients, donors have resisted setting themselves individual targets for 2010."[7]

In September 2008, Ghana will host a High Level Forum on Aid Effectiveness in Accra, which will assess progress against the Paris principles and targets. We return to prospects for this summit and the next steps for the Paris Declaration in chapter 4.

MONITORING THE PARIS DECLARATION

9. In 2006, the OECD undertook a baseline survey of performance against the Paris Declaration targets—the 2006 Survey on Monitoring the Paris Declaration.[8] The Survey collected information from 34 developing countries and 55 donors to assess the effectiveness of aid globally and by donor. The Survey concludes that, while there has been progress, much remains to be done in certain areas. DFID told us:

"The baseline Paris Declaration Monitoring Survey found that the Declaration had stimulated an important dialogue at country level on how to improve aid, and that there has been at least some implementation activity in over 60 countries. However, the Survey showed that both donors and partner countries need to accelerate progress if the Paris Declaration targets are to be met by 2010."[9]

The Survey results for some major donors, including Japan and the United States, show particular weaknesses in reducing transactions costs and in making progress in establishing mutual accountability.

10. The OECD are conducting another survey in 2008 with an enlarged sample of 56 developing countries.[10] The Chairman of the OECD's Development Assistance Committee (OECD DAC)—the leading multilateral donor co-ordination forum—told us that he expected final results to be available and discussed at the Accra Forum.[11] The OECD provided us with a preliminary assessment of the UK from this latest survey: "The data we have on the UK programme is very good and DFID has either met or exceeded targets".[12] The Parliamentary Under Secretary of State, Shahid Malik MP, told us in his evidence:

"We recognise the Paris Declaration Monitoring Survey as being the most rigorous and internationally-recognised measure of aid effectiveness, and I am very pleased actually that […] we have either met or are on track to meeting our commitments by 2010."[13]

11. The Paris Declaration is an important milestone for aid effectiveness. We commend the commitment shown by donors and developing countries to working together to make aid more effective. The UK has performed well against almost all of the Declaration targets and we welcome UK commitment to meet all targets by the 2010 deadline. Global progress, however, has been patchy and slow. We recommend that DFID raise in its discussions with all donors, but particularly the United States and Japan, the urgency of progress against the targets.

The benefits of better coordinated aid

12. Evidence from World Vision suggested that "aid effectiveness should be measured in terms of achieving rights, and reducing poverty, inequality and injustice, particularly for the most vulnerable".[14] Effectiveness is most clearly proven when linked to outcomes and we will look at the importance of measuring the outcomes of aid in chapter 5. Before attempting to look at questions of development impact, however, it is worth considering the practical impact on costs.

TRANSACTION COSTS

13. Transaction costs are the costs other than the money price which are incurred in an economic transaction. These include, for example, time, expenses and fees. Better co-ordination should mean fewer donors acting independently which in turn should translate to fewer and lower transaction costs for the recipient countries. The International Initiative for Impact Evaluation said in its evidence that "[developing country] governments should no longer need to deal with multiple reporting formats, multiple donor missions on the same subject and so on, freeing up time from aid management for the business of government."[15] According to the 2006 Survey by the OECD, progress has not been fast enough and "donors will need to work aggressively to reduce the transaction costs of delivering and managing aid."[16]Sarah Mulley of UK Aid Network told the Committee:

"I think there is a risk with moving [towards more coordinated donor activity] that what ends up happening is that you keep the old modalities and then you layer the new ones on top, and you actually end up in the short term potentially increasing transaction costs. So I think there need to be commitments from donors not just to do new things but also to stop doing old things."[17]

14. During our visit to Ghana, the Ministry of Health told us that it had not noticed a reduction in transaction costs as a consequence of a UK-Netherlands arrangement to coordinate aid to the health sector through a single shared Health Adviser. In contrast, DFID gave us a more positive example:

"Discussions […] with the Zambian Ministry of Health indicate that they have seen […] a lowering in transaction costs on the ministry itself, the director of planning talking about 20% for him alone. There is anecdotal evidence out there that it is happening."[18]

While anecdotal examples are interesting illustrations of donor practice in action, they do not provide the concrete evidence of the benefits of coordinated aid that we seek. We asked the Minister for such concrete evidence and he told us:

"In all honesty I am not aware of any statistic […]. It is a really interesting question; I am not sure if we could carry out some kind of research that might get to the bottom of that but it would be interesting. […] There is a long way to go and we need the evidential base to give you more confidence that we are having an impact and we are lowering transaction costs in the way that you described."[19]

15. That transaction costs should come down as a result of better donor coordination is a plausible assumption. We would, however, like to see some hard evidence to prove this. Without it, DFID is operating on guesswork. We recommend that DFID programme the research necessary to provide the evidential base which links DFID's inputs in terms of coordinating with other donors to the outputs of lower transaction costs for the recipient country. This should provide the platform for the additional effort necessary if DFID is to respond positively to the OECD's recommendation that donors need to "work aggressively to reduce the transaction costs of delivering and managing aid".

DFID's promotion of its own model

16. The OECD DAC conducts periodic Peer Reviews of the development assistance delivered by its donor country members. The DAC's most recent Peer Review of the UK acknowledges UK leadership on aid effectiveness. It notes DFID's "coherent and well-organised approach" and that the "UK is currently seen by many aid practitioners and donors as one of the bilateral models for today's evolving world of development cooperation."[20] The Review does, however, note some areas of weakness, including that "implementation of the aid effectiveness agenda is not consistent across all of DFID." The Review also raises concerns that DFID is perceived to be championing its own approach rather than promoting harmonisation:

"DFID enthusiasm for certain initiatives is not always shared by other partners and British advocacy can be perceived as promoting DFID's own model rather than leading and encouraging complementary donor action. […] As DFID influences international partners toward common approaches, it should seek to strike a balance between its interest in promoting aid reform and in leading donor harmonisation efforts."[21]

In his evidence in this inquiry, the Chair of the DAC, Mr Deutscher, expanded on this point:

"Maybe when a climate is created that is too pushy it does not stimulate more cooperation. In my view the concept of, engagement in and effectiveness of aid management—what DFID provides—should not be reduced or diminished, but maybe some educational role or intention would be very fruitful."[22]

We asked the Minister about DFID's approach and the balance between promoting its own model and working towards effective coordination. He told us:

"On occasions we may well have been a bit more confident perhaps than we ought to be about some of the models and the mechanisms that we use, but we are a learning organisation and we are actually keen, where we believe that aid is being used effectively, in actually trying to influence other donors and the like."[23]

17. We are pleased to see that the Peer Review carried out by members of the Development Assistance Committee of the Organisation for Economic Cooperation and Development is broadly positive about DFID's performance on aid effectiveness. Where DFID is a leader, it is right that it promotes its achievements. We agree, however, with the Chairman of that Committee that taking this a step further—being "pushy"—does not stimulate cooperation. Cooperation cannot simply be on DFID's terms. Working with others to make aid more effective requires a certain flexibility of approach which DFID has so far found difficult. We recommend that DFID reassess its engagement with other donors on aid effectiveness so as to prioritise effective coordination over promotion of its own model.

1 Ev 87 Back

2 Ev 50 Back

3 Q11 [Mr Wickstead] Back

4 The Department for International Development (DFID) defines aid effectiveness in its 2007 Annual Report as "a measure of the quality of aid delivery and maximising the impact of aid on poverty reduction and development". Back

5 The text of the Declaration is appended to this Report. Back

6 Ev 61 Back

7 ICSSG, From Paris 2005 to Accra 2008: Will aid become more accountable and effective?, page 8 Back

8 www.oecd.org/dac Back

9 Ev 53 Back

10 Q54 [Ms Killen] Back

11 Q56 [Mr Deutscher] Back

12 Q50 [Ms Killen] Back