Examination of Witnesses (Question Numbers 60-79)


30 NOVEMBER 2009

  Q60  Mr Carswell: So they are identifying fraud?

  Dr Shafik: They are identifying fraud and they are prosecuting it.

  Q61  Mr Carswell: The general budget support is subject to fraud?

  Dr Shafik: Fraud exists in all countries. The issue is, are you prosecuting and are you addressing it?

  Q62  Mr Carswell: I believe I am right in saying that the Americans generally do not give general budget support and my understanding is the reason they do not is because of accountability. The United States Congress, a proper legislature that does its job properly, does not like to sign off on what they regard as a form of subsidy which cannot be accounted for. Are they wise not to sign off on it? Should we be more challenging in how our money is being spent?

  Dr Shafik: I think if you asked the General Accounting Officers, they have found widespread fraud in many parts of the US aid programme that is not related to budget support. I do not think this instrument is any more vulnerable to fraud than other aid instruments.

  Q63  Mr Carswell: Do we spend money trying to develop an enhanced democracy in Malawi?

  Dr Shafik: Yes, we do.

  Q64  Mr Carswell: Democracy is about competing tax and spend options in a spectrum of public sector provision. Are we not actually preventing the development of democracy if we are, in effect, providing a large subsidy that prevents the government legitimately raising taxation through a local public policy debate in Malawi?

  Dr Shafik: The government of Malawi gets about a third of its budgets from donors, so two-thirds is still dependent on Malawian taxpayers to generate it. In addition to the anti-corruption bureau, we fund the national audit office in Malawi to generate public information about how money is being spent, and we are paying for them to expand their audit programme from 50% of government spending to 80% of government spending. We fund the parliament. When I met the Speaker of parliament, I think he is very grateful for the support we give to parliamentary accountability.

  Q65  Mr Carswell: I am sure he is, but it is not really enhancing democracy if these are not decisions that are entirely dependent upon the revenue raised. A lot of debate in democracy is about how to broaden the tax base, whether you should broaden the tax base. If we are bunging a third of Malawi's budget to Malawi, this is not going to happen democratically, is it?

  Dr Shafik: Two-thirds is their own money. Gwen, do you want to add something on that?

  Ms Hines: Malawi is increasing the amount of money every year which is raised through domestic taxes. They set themselves targets and in the past year they have easily exceeded those targets, so they are raising more domestic revenue. It is incredibly important to understand just how poor Malawi is. When between 80% and 90% of your population are subsistence farmers who are literally trying to grow enough maize to feed their family, the prospects for raising enough tax revenue to replace aid are very limited. As I said, Malawi last year had 9.7% growth and it would take growth of at least that for the next 10 years to replace aid.

  Q66  Mr Carswell: So should we not cancel general budget support, abolish it, and instead, rather than spend the money on hand-outs for politicians, which is what it is, and hand-outs for grandiose planners, give the budget support money instead to beefed-up programmes that would actually ensure that rural farmers have things like access to credit? It is a lack of credit that forces the farmers to forward sell their harvests, which explains the low productivity. Should we not be addressing their lack of access to credit? Would we not be better off sorting out land ownership issues, making sure that every woman and man in Malawi has access to a mobile telephone, rather than using this money to subsidise politicians who then siphon off that money, as you admit, into propping up their own personal property portfolio?

  Dr Shafik: I do not recognise this picture of budget support that you paint, actually, and I think we are doing precisely that, helping a very, very poor government, which has £80 to spend per capita per year, target that money on an essential package of health services recommended by the WHO as the most effective for saving lives, an essential package of input subsidies which gives the poorest farmers in Malawi access to basic inputs.

  Mr Sharpe: Perhaps I could just say three things. Firstly, obviously we want to be sure that the Malawi government budget is pro-poor. If we support budget support in countries, which we do in 15 countries out of the countries in which we work, it is because we believe that they have a fundamentally pro-poor budget. In Malawi they spend 20% on health and 19% on education so it is good proportions of the budget that go on pro-poor issues. In terms of strengthening democracy, one of the key things it does is to strengthen the information base to citizens. It is because donors have been involved with public accountability systems in these countries that we now have much more transparent budgets, that there are medium-term expenditure plans, that we have supported the accountability mechanisms so that the accounts are published now and they are audited. Involvement with these systems does help strengthen them. The third thing is just to note that when you do compare unit cost, as you were asking us to do earlier, the unit cost advantages that we get from constructing schools through government systems rather than sending in external contractors to do it are enormous. We have to assess the costs and the benefits of the different aid modalities.

  Dr Shafik: Just to give you one small example, if I may. We have looked at our entire education portfolio in DFID, much of which is channelled through budget support. We can get a child into school for £60 a year. That is 2% of the UK cost. We are paying for five million children to go to primary schools around the world.

  Q67  Mr Carswell: In 2004 you had to suspend budget support because of the theft and the kleptocracy. What is it that has changed other than a more malleable set of politicians to make you resume budget support?

  Mr Sharpe: One of the things that has definitely changed is the improvement in the public financial management system. In 2005 in the PEFA (Public Expenditure and Financial Accountability) international assessment, of the 28 indicators Malawi scored a D on 21 of them. In 2008 when they did it again it scored a D on four of them, so it has improved a lot over that period, but I should leave it to the experts in the country to comment more.

  Ms Hines: I would also point out there was an election in the meantime and it was a fundamentally different government which has been bought in. The previous President is currently being investigated by the Anti-Corruption Bureau of Malawi for that period. If you look just at the economic indicators and how they changed between 2004 and 2008, something our budget support helped to achieve was macroeconomic stability. Inflation was 20% in 2004 and 8% in 2008.

  Q68  Mr Carswell: In five years' time will we still have general budget support, do you think?

  Dr Shafik: In Malawi?

  Q69  Mr Carswell: Yes.

  Dr Shafik: Probably yes and I do not think that is a failure; I think that would be a sign that we had confidence in their systems and they had good policies and we were willing to support them.

  Q70  Chairman: Dr Shafik, you believe that budget support or aid to government is no more liable to fraud than other types of aid, microaid for instance rather than macroaid? That is your belief, is it?

  Dr Shafik: That is what my head of internal audit tells me.

  Chairman: That is what you told Mr Carswell and I just wanted to double check. Geraldine Smith?

  Q71  Geraldine Smith: It is a very difficult job obviously in a very, very poor country and £80 million is not that much money. Is there a danger sometimes you can try and spread it too thinly and try and do too much?

  Dr Shafik: It is something we always struggle with and I think Gwen will give you a feel for this. In a country that has so many needs we could be doing everything. In fact, we have tried to focus on what Malawians say are their top priorities. The first was food security, for obvious reasons because that is what matters most to poor households, and the second was health. Those have been the two major sectors which the NAO has looked at. It does not give you a long-term development strategy and the shortfalls and the shortcomings in education in Malawi are good examples of something we would like to do more in but cannot. Gwen, do you want to say something about how you make those trade-offs?

  Ms Hines: It is very difficult especially in a country like Malawi, as Minouche has said, and despite the needs in Malawi there are actually very few large donors in Malawi. There are four or five who provide very much the bulk of the aid, both through budget support and through their individual project support. DFID is the largest bilateral donor in Malawi so we are routinely looked for, not just for our money but for the analysis. My staff are routinely the ones who are asked, "Who has done the budget analysis? Who has done the study on the impact of the financial crisis?" DFID is almost always the first donor to do that kind of analysis in Malawi and it is something the government looks at a lot. They talk to me a lot, ministers talk to me a lot to say, "We have got this problem; how do we deal with this?" We have an agreed division of labour amongst the donors. We and the other major development partners do support the Malawi government's own strategy called the Malawi Growth and Development Strategy and that is a framework for their own spending and for our spending. Within that when we do our own country assistance plans and country strategies we focus on where as DFID we can add most value, so, for example, there is an explicit understanding with the World Bank and with others such as the European Commission that DFID will focus on health and education. We are about 40% of donor funding in both those sectors. The World Bank on the other hand very much leads on issues like energy, which DFID is not set up to lead on, and they can bring a lot of other expertise to it.

  Q72  Geraldine Smith: Can I ask something on health. One thing that jumps out is the figure of £1.2 million to treat 15 patients abroad. What happened there? What was that all about?

  Dr Shafik: Those are some very difficult cases. The majority of those cases are cases of cancer and they are mainly children who have cancer. We asked the Ministry of Health to give us numbers on the wealth quintiles of where those families came from to see if there was any bias in favour of wealthier families, and that was not the case. The proposals for treatment abroad come from public hospitals based on clinical criteria recommended by doctors who chair those committees. The Malawi government has tried its best to reduce those costs so over time they have come down by about 30% or 40% because they have an agreement with a hospital in South Africa which treats children's cancer cases. The alternative would be for Malawi to try and treat people at home, but of course the costs of that would be prohibitive given how poor the country is. Neighbouring Zambia has built a cancer hospital recently. It cost $10 million to construct and $4.8 million to maintain. It runs chronically under capacity with a lack of staff and supplies.

  Q73  Geraldine Smith: It is very hard. I know it is awful when you are talking about people's lives, but it is terrible when you look at the maternal mortality rates and things that they are so high and the fact that people do not have any transport to take them to hospitals, any ambulances or anything like that. Surely, there has got to be a certain amount of health rationing in effect to make the most use of funding? How do you do that? What systems do you have in place to make sure that the money is spent to save as many lives as possible?

  Dr Shafik: In some ways, thankfully, we do not have to make these choices; doctors in Malawi have to make those trade-offs. Obviously this is a very, very, very tiny proportion of the health budget, so it is something that we have to defer to the doctors' judgment about who can benefit most from treatment. Our primary concern though is whether the entire health budget is being focused on maximum benefit. I think there the NAO confirms that the essential health package, which is what we are supporting, is the highest possible return investment we could be making in health.

  Q74  Geraldine Smith: What about the basics such as clean water? There seems to be some dispute in the Report about just how many people do have access to clean water. That is surely the first essential thing that you need?

  Dr Shafik: Absolutely. Malawi has done relatively well on providing access to water. It has gone up from 40% to 65% since 1990.

  Q75  Geraldine Smith: Has that figure not been disputed? Do WaterAid not dispute that figure of 65%?

  Dr Shafik: That is correct. WaterAid's comment that 31% do not work relates to an earlier government number which I think most of us thought was an overestimate. We think these newer numbers are much more reliable. You are quite right; access to water is a basic. When I was there visiting we visited a village which had a water borehole put in place and it was the shiniest thing in the village. It was an incredible source of pride to the whole community and had transformed health indicators in that community, so it is a huge issue.

  Q76  Geraldine Smith: Can I go back to the staffing numbers that was touched on earlier. It does seem that if you had over 100 staff in 2004 and it has gone down to below 40 at one point, that is a very big reduction. Are you saying you were overstaffed to begin with?

  Dr Shafik: Malawi was staffed somewhat unusually relative to other offices because there were many things that in normal offices we would contract out like estates and taking care of buildings and that kind of thing, which were done in-house in Malawi and which because we wanted to reduce numbers we were able to contract out and reduce our core numbers. I think the current staffing numbers in Malawi are quite normal for a typical DFID office in an African country.

  Ms Hines: I was just going to add as the person who has got that team to achieve the work that we are trying to achieve, that I am confident that we have the right staffing numbers now. It is not just about numbers; we have also changed the skills profile of the staff. A lot of those we have lost were very junior staff who did functions which are no longer required. We now have a computerised financial management system and record-keeping systems so we no longer need the people who in the past performed those kinds of functions manually. We also had a school construction unit which was previously part of DFID. As part of our aid effectiveness that unit is now part of government. It is also being merged as we speak with an African Development Bank unit so the government will control school construction in the future as part of a harmonised unit. That was also downsized as part of the transfer of aid into government but that explains for example why a certain number of posts were removed in DFID Malawi. We also have a lot more Malawian staff rather than international staff. Those staff have a huge amount to offer. They have quite different skills than I have or my other British staff have and that enables us also to balance our running costs. We all bring different things. I now have a very good team who can achieve what they need to achieve.

  Geraldine Smith: Thank you.

  Q77  Mr Mitchell: I see that 1.4 says that DFID aligns its work with the other donors, but we are told elsewhere that more and more of the money DFID channels in is going through the government in Malawi. Is that efficient?

  Dr Shafik: We think it is efficient because the cost of the Malawian government delivering health and education services would be far less than if we brought in external parties and tried to—

  Q78  Mr Mitchell: Surely it is much more subject to corruption and political influence?

  Dr Shafik: We think the way to mitigate that risk is to invest in the Anti-Corruption Bureau and try to make sure that public financial management is improving in its quality.

  Q79  Mr Mitchell: Are you transferring more functions to their government rather than having it done through your staff because you have got to reduce staff levels?

  Dr Shafik: No we are not doing it to reduce staffing. It is because we think it is more cost-effective and more sustainable in the long run if the Malawian government runs these programmes themselves rather than us doing it.

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