Written evidence submitted by the UK Aid
The UK Aid Network (UKAN) is a network of UK development
NGOs who work together to advocate for more and better aid, from
the UK Government in particular, but also internationally in cooperation
with other NGO networks across the EU and beyond. Members of UKAN's
Steering Group include: ActionAid UK, BOND, Care International
UK, CAFOD, ONE, One World Action, Oxfam GB, Publish What You Fund,
Tearfund, WaterAid and World Vision UK.
DFID's capacity challenges - It is increasingly apparent
that the reduced staff capacity that unsuitable efficiency targets
(for a growing Department facing unique challenges in Government)
have imposed on DFID are challenging its ability to deliver maximum
value for money from its work. UKAN therefore recommends a new
approach to DFID's efficiency efforts be taken in the future,
- Uses the share of administration in DFID's total
budget as a basis for future efficiency targets.
- and avoid letting this share fall any further.
- Protects as far as possible DFID's program funded
admin, whilst ensuring that other admin.
- costs are kept at sufficient levels.
- Is informed by a comprehensive review of DFID's
current capacity for managing its spending,
- how it meets needs and future policy / program
The development focus of CDC
- CDC's investments continue to be very loosely focused on achieving
development outcomes, due to a weak policy framework and because
CDC is essentially operating as a standard private equity funder.
Given CDC's role in delivering the UK's ODA (£203 million
in 2009) UKAN members therefore recommend that DFID work much
more closely with CDC to agree with it more comprehensive investment
policies and practices that will transform CDC into a body that
is fully committed to supporting the most economically marginalised
people and delivering maximum development outcomes.
Poverty focus of the UK's ODA
- DFID continues to increasingly focus its programs in the poorest
countries and on the needs of the poorest people, an approach
driven by policies to invest in low income countries, sub- Saharan
Africa and on basic services and the MDGs. UKAN members believe
that if DFID's programs are to deliver maximum poverty reduction
impacts in the future it must keep these policies in place and
continue to implement and defend international aid standards.
Technical assistance -
DFID has failed to carry out any major assessment of the effectiveness
of itsTA in recent years, a significant concern given that it
constitutes at least 25% of DFID's aid spending and TA is is perhaps
the most challenging form of aid to deliver but also the critical
for helping recipients to develop sustainable capacity. DFID must
therefore urgently undertake an assessment of the effectiveness
of its TA, focussing on how effectively it is country owned (in
design and management), supports sustainable capacity development
Measuring DFID's effectiveness and the proposed
Aid Watchdog - An increasing focus
on results and more independent scrutiny of the UK's aid by the
proposed Aid Watchdog will be critical to efforts to ensure the
UK's aid supports better development outcomes. UKAN members do
though urge DFID to ensure its results initiatives and the Watchdog
take an approach to results that is responsive to development
realities and challenges, is long term focussed, promotes innovation
and learning and is fully consistent with its Paris, Accra and
future aid effectiveness commitments.
UKAN welcomes this evidence session and the IDC's
efforts to maintain scrutiny over the UK's performance and future
policy direction. UKAN's responses and concerns related to DFID's
performance in 2009/10 are presented below:
1. Finding a Suitable Approach to Promoting DFID's
1.1 The IDC's concerns around the impact of recent
efficiency savings made by DFID on its capacity to manage its
programs effectively are well known, and best expressed by the
IDC's conclusion in 2009 that "DFID should be exempt from
future efficiency savings"
due to its expanding budget. We welcome the IDC's leadership in
raising these concerns - which we back up with additional evidence
- and also want to back its call for a different approach to DFID's
pursuit of efficiency to be taken in recognition of DFID's expanding
1.2 We are aware of increasing concerns about the
impacts of efficiency savings on DFID capacity across DFID's country
programs, as illustrated below:
What do recent Country Program Evaluations have
to say about DFID's current capacity for delivery?
- AFGHANISTAN (2002-07) - Had insufficient staffing
for state-building and governance strategy, one of its major program
pillars: had limited capacity for justice and security sector
- NEPAL (2001-06) - Reduced headcount by 40% 2004-6,
contributing to mismatch between strategic ambitions and staffing
in areas such as education, peace-building (had conflict advisor)
and statistics; peace-building efforts were confined to Kathmandu
due to staffing pressures.
- PAKISTAN (2002-07) - One of the motivations for
using budget support seems to have been tight staffing constraints.
- SIERRA LEONE (2002-6) - DFID was unable to develop
its growth agenda wider than a focus on private sector development
to include a livelihoods focus because of staffing constraints.
1.3 As an illustration of the impact efficiency savings
are having on the demands being made on DFID staff, the average
member of DFID staff was responsible for £1.25 million of
spending in 2004-5, £2.42 million by 2008/9 and will be responsible
for at least £4.5 million by 2013-14 (if DFID's staff levels
fall further this figure will be higher).
This is an increase of around 260% in nine years. Seen from this
perspective DFID's efficiency savings have been substantially
higher than its targets and possibly any other Government Department.
1.4 UKAN members believe there are two main fundamental
problems with the way the Government is dealing with DFID's efficiency
program. Firstly, it is asking DFID to reduce its absolute administration
spending (5% over the 2007 CSR) when a rising budget should require
a focus on administration as a share of total spending.
1.5 Secondly it is asking DFID to benchmark itself
against other UK Government departments rather than other international
donor agencies, which would be more suitable a reference point
given the uniqueness of DFID's role in Government. Such a comparison
shows that the share of administration costs in the UK's total
ODA (3.3% in 2009) is well below the average for OECD donors (4.3%
and therefore DFID is already a relatively efficient organisation
given the challenging context in which it works.
1.6 Of course, the scale-up in DFID's budget - possibly
around 10% per year - expected for the next few years and the
new Government's agenda for DFID - to spend more aid in fragile
states and deliver more results focussed aid - only serve to further
highlight concerns about future efficiency savings DFID will be
expected to make. It is important that a wider focus on value
for money - taking into account DFID's wider capacity to deliver
effectively - is not pushed aside by a narrow focus on this goal
- focussing simply on administration costs etc.
1.7 Given the above context we believe there is now
a very strong case for proposing that a different approach to
DFID's pursuit of efficiency be taken in this Spending Review,
one that recognises its growing budget, the wider value for money
reform effort the Government is seeking from DFID and the unique
challenges that it faces within Government in managing spending
in the developing world.
1.8 UKAN members therefore recommend that
the IDC propose the following for the way these issues are dealt
with at DFID in the future:
- Use the share of administration in DFID's total
budget as a basis for future efficiency targets and avoid letting
this share fall any further in recognition that DFID's administration
costs are well below the average for DAC donors.
- Protect as far as possible DFID's program funded
admin in its Spending Review efficiency program, whilst ensuring
that other admin costs are kept at a level that allows DFID to
continue to manage its spending effectively.
- Undertake a comprehensive review of DFID's current
capacity for managing its spending, how it meets needs and the
challenges for delivering on the Government's emerging reform
plan for DFID.
2. Significant Questions Remain About CDC's Focus
on Poverty Reduction
2.1 The net annual investment of the Commonwealth
Development Corporation (CDC) - the UK Government's Development
Finance Institution - counts towards the UK's ODA, which was equivalent
to £172 million in 2008 and £213 million in 2009. This
role in contributing to the UK's ODA confers on CDC a responsibility
to invest its resources in ways that deliver maximum poverty reduction
impacts. However, CDC's operations are currently only weakly poverty
oriented, posing questions about its suitability to continue to
deliver the UK's ODA and how it can best reform its business model
to better promote poverty reduction.
2.2 CDC is the UK Government's Development Finance
Institution (DFI) and is wholly owned by the Department for International
Development. Since 2004 CDC has been funding private equity funds
in developing countries who in turn invest in firms directly.
2.3 In recent years there have been substantive and
growing questions asked about CDC's policies and practices, including
its weak poverty focus,
its oversight of the business practices of the firms its funds
are invested in
and the excessive remuneration of its management.
It is urgent that CDC management urgently address all these issues,
however, this submission focuses on the challenges around how
CDC can better promote poverty reduction through its investments.
2.4 So, what are the specific indications of concern
about the poverty focus of CDC's investments?
2.5 The vast majority of its investments are in larger
(the average CDC supported firm had 1,188 employees in 2009)
established firms, especially in the power generation, retail
banking and agribusiness sectors. Although these firms will be
contributing to economic development their direct contribution
to poverty reduction may be limited as these are not the sectors
where poor unskilled workers are likely to be employed. In contrast,
a very small proportion of CDC's funds end up in the small and
medium enterprise sector (only £125 million planned for 2009-13;
compares to CDC current investment portfolio of £1.4 billion),
where poorer entrepreneurs would be operating, and only 2% of
its funds are currently invested in microcredit, which can help
the poor to gain access to affordable credit.
2.6 At the root of this pattern of investment is
the limited policy framework in place at CDC to direct investments
towards areas likely to contribute more directly to poverty reduction.
Such investments by their nature are likely to involve greater
risk than investing in established businesses. However, CDC management
have agreed to accept higher risk in only 15% of their investments
limiting space for investing in such areas.
2.7 The only other policy of CDC that could be said
to have emerged in response to the concerns raised about CDC's
poverty focus is a commitment to deliver 75% of future investments
to low income countries and 50% to sub-Saharan Africa. However,
this policy in fact does little to address these concerns as it
still leaves developing country fund managers free to invest the
funds they receive from CDC in any sector and company they see
2.8 A final concern to raise is that CDC only very
weakly monitors and assesses the poverty impact of its investments
and its evaluation procedures are still quite under-developed.
2.9 In fact, if one were to take an honest look at
CDC's policy framework and recent financial performance - it has
outperformed other equity funders in its key markets
- it is hard not to conclude that it first and foremost a standard
private equity funder focussed on emerging markets. Its management
have arguably been more vocal about its successful financial returns
than anything else, hardly the approach one would expect from
a DFID-owned DFI.
2.10 It is therefore clear that CDC is far from operating
in a way that maximises its poverty focus and impact, an issue
which puts in question its management of a substantial share of
the UK's ODA (2.7% in 2009) and certainly should preclude the
UK Government from injecting any further investment into CDC.
2.11 So what should CDC do to address these concerns
and become a more suitable and responsible member of the UK Government's
2.12 UKAN members do not currently have the expertise
to identify the specific day to day investment policies required
by CDC to improve its focus on investments that are most likely
to directly contribute to poverty reduction. However, DFID does
have significant private sector development expertise at its disposal
and the IDC should direct DFID to work much more closely with
CDC to develop such policies and practices. These should be at
the heart of CDC's corporate functioning and the commitments Fund
Managers make to CDC when receiving its funds. Such an approach
will probably require CDC to accept lower returns on its investments,
which should be an acceptable approach for an institution with
development as its core mandate.
2.13 UKAN members would also strongly encourage the
IDC to demand DFID and CDC are suitably ambitious about the poverty
impacts to be achieved by CDC and do not benchmark themselves
against other DFI's which we believe are even more weakly focussed
on their responsibilities to promote poverty reduction than CDC.
3. The Poverty Focus of the UK's ODA - Progress
and Future Challenges
3.1 DFID's delivery of the vast majority of the UK's
ODA, a continued focus of delivering ODA to poorest regions of
the world and focussing it on basic services, has been critical
to focussing the UK's ODA on poverty reduction in 200910. This
approach to managing ODA has been driven by a strong policy and
legislative framework, which will be important for DFID to keep
in place and continue progress to deliver on in the coming years
in order to maintain its focus on poverty reduction.
3.2 The Department for International Development
(DFID) is the primary Government agency supporting the UK's international
development efforts, a role it is well equipped to play given
due to its significant expertise in supporting development efforts
around the world and its recognition as one of the leading international
development agencies in the world.
3.3 DFID's focus on supporting poverty reduction
efforts in the developing world is built on a strong policy and
3.4 In recent years DFID ODA has been increasingly
focussed on the poorest countries and the needs of the poorest
people, supported by policies to deliver 90% of bilateral ODA
to the low income countries, to increase ODA to sub-Saharan Africa
and spend 50% of bilateral ODA on basic services.
3.5 In 2009-10
DFID continued its progress towards meeting these goals by delivering
almost 40% of sector allocable bilateral ODA on basic services,
73% of country allocable bilateral ODA to low income countries
and 55% to sub-Saharan Africa.
If further progress on this important approach to delivering the
UK's ODA is to continue then these policies need to remain in
place and the IDC should encourage DFID to commit to doing so.
3.6 The 2002 International Development Act, commits
DFID to spend ODA in support of development and poverty reduction
outcomes, has played a significant role in focussing DFID's work
on poverty reduction, a factor recognised by the recent OECD Development
Assistance Committee Peer Review of the UK.
3.7 This legislation has also provided an important
foundation from which the UK Government has been pro-actively
promoting the use of ODA for poverty reduction in a range of international
fora. For example, during 2009-10
the UK Government played a leading role within the EU, G8 and
the OECD's Development Assistance Committee in ensuring donors
agreed to maintain strict standards for what ODA can be spent
on and how to regulate its focus on development focussed interventions.
3.8 UKAN members therefore urge the IDC to encourage
DFID to continue to sincerely apply international standards on
ODA to its own ODA and to play a pro-active role in protecting
these standards and encouraging others to apply them internationally.
4. The need for Greater Scrutiny of the Effectiveness
of DFID's Technical Assistance
4.1 Technical assistance (TA) - the provision of
technical, advice, training and analysis to help build the capacity
of developing country institution, organisations etc - is perhaps
the most difficult form of development assistance to deliver effectively,
DFID delivers at least 25% of its aid in this form and its effectiveness
is critical to the ability of developing countries to lead their
own development efforts. Despite this, there has been no major
assessment of DFID's TA for many years and certainly not since
new guidance was introduced on its use in 2006. UKAN members therefore
urge the IDC to direct DFID to undertake such an assessment in
order to explore how effectively its TA is being delivered and
the suitability of its existing policies and practices around
4.2 Technical assistance (TA) - the provision of
technical, advice, training and analysis - is perhaps the most
difficult aid modality to deliver effectively. This is because
its effectiveness relies on a clear understanding of recipient
needs, communicating often complex skills and knowledge and significant
challenges in achieving sustainability and empowerment of beneficiaries.
4.3 In large part because of major difficulties in
overcoming these challenges, it is widely recognised that the
effectiveness of TA across the donor community is far from optimal.
The OECD recently concluded that TA is all too often "ad
hoc, piece-meal", has involved "donors short term project
goals displacing long term incremental change", is "costly"
and has sometimes "impacted negatively on ownership".
4.4 There is certainly no indication that the UK's
TA is any less prone to these problems than any other donor, especially
given that no major assessment of DFID's use of TA has been carried
out in recent years. This is a major concern given that probably
at least a quarter of all of the UK's aid is delivered in this
form and that the effectiveness of this form of assistance is
critical to the ability of developing countries to successfully
develop the capacity they require to lead their own development
efforts and overcome any dependence they have on aid.
4.5 In an effort to improve the effectiveness of
its TA in 2006 DFID introduced guidance
to be used across the organisation to support its staff to more
effectively engage in dialogue on, design and manage its TA. However,
as of yet DFID has not undertaken an assessment of how well this
guidance is being implemented and how well it responds to the
challenges involved in delivering its TA effectively.
4.6 UKAN members therefore believe an assessment
of the effectiveness of DFID's TA is urgently required in order
to help understand the challenges it faces with this modality,
to improve its use in the future and to contribute to ongoing
efforts to deliver better value for money from the UK's aid.
4.7 This assessment should not only focus on the
degree to which DFID's TA guidance is being implemented and is
fit for purpose, but also the general effectiveness of DFID's
TA, including in relation to the following factors:
- Ownership - to what degree are TA priorities
identified by recipients and programs designed and managed in
cooperation with them.
- Cost effectiveness - to what degree are the most
cost effective delivery agencies used, including a focus on the
use of developing country agencies.
- Sustainability - to what degree is its TA supporting
long term capacity development and empowerment of developing country
stakeholders rather than filling short term technical constraints.
- Impact on DFID's knowledge development and institutional
learning - there are concerns that because much of DFID's TA is
managed through contracting-out, opportunities are
being lost for knowledge development and learning within DFID.
(please see Bond's submission to this inquiry for
more on this matter)
5. The challenges for DFID in Measuring its Effectiveness
and Establishing an Independent Aid Watchdog
5.1 There is clearly much that DFID can do improve
its focus on results, including developing better results systems
and establishing the independent Aid Watchdog. Such efforts must
though be sensitive to the complex issues aid aims to address
and therefore include a focus on tangible results as well as intangible
ones (such as empowerment); long term as well as short term objectives;
tolerate and work with difficult questions of attribution; and
allow for learning, innovation and risk. It is also important
that DFID maintains it focus on aid effectiveness reforms agreed
in the Paris Declaration and Accra Agenda for Action - such as
the use of budget support, of which DFID is a pioneer - and these
are critical to efforts to deliver country-led, sustainable and
5.2 Recent assessments of DFID's corporate systems
and approach to monitoring and evaluation
have clearly shown that there is more DFID can do to improve its
results systems and culture and its monitoring and evaluation
practices. Motivated by these concerns and the need to manage
DFID's funds more effectively in a challenging economic climate
the new UK Government has announced its intentions to improve
DFID's focus on results and to establish an independent Aid Watchdog
to better scrutinise the impact of the UK's aid.
5.3 Such steps have the potential to contribute to
efforts to improve the development results achieved from the UK's
aid and with the effort to achieve the MDGs faltering there is
no better time for DFID to have maximum ambition on delivering
5.4 The business of development is a complex and
unique one and therefore DFID needs to take an approach to results
that is sensitive to these complexities and the unique goals of
aid and builds on the decades of experience within the development
community of using external assistance to support development.
5.5 UKAN members currently come together within a
number of Bond working groups to discuss challenges around their
effectiveness, monitoring and evaluation and how to pursue results,
and they have prepared some inputs to this inquiry on the challenges
around development results. These are presented in Bond's submission
to this inquiry, which in summary calls on DFID to take an
approach to results that focuses on tangible results as well as
intangible ones (such as empowerment); long term as well as short
term objectives; tolerates and works with difficult questions
of attribution; and allows for learning, innovation and risk.
5.6 The independent Aid Watchdog needs to be responsive
to these issues and will only be able to do so if it is staffed
by a multi-disciplinary team of development professionals who
are able to utilise their diverse development experience to develop
a suitable approach to results and communicating about the challenges
of development free from political interference.
5.7 The donor community has spent the last decade
reflecting on the types of practices that have hindered its ability
to deliver aid efficiently and effectively and to contribute to
development efforts. A substantive and growing body of evidence
is now available to illustrate the impact of some of these practices
on the value of aid.
The Impact of Inefficient and Ineffective Donor
Practices on the Impact of Aid
- Tied aid reduces the value of aid by 15-30% (Actionaid,
- The unpredictability of aid reduces its value
by around 20% (EC, 2009).
- A study on Tanzania found that reporting to poorly
coordinated donors took up 40-50% of the time of District Medical
Officers; hosting took another 10-20% (WHO 2007).
- 20% of aid for health supports government programs;
over 50% is parallel systems (WHO 2007).
- EC aid's value is reduced by around 10% by weak
performance on Paris reforms (EC, 2009).
5.8 From this process of debate and analysis a solid
consensus has emerged about some of the most significant of these
practices that need to be reformed culminating in donors committing
to a range of reforms in the 2005 Paris Declaration on Aid Effectiveness
and the 2008 Accra Agenda for Action.
Donor Reforms Committed to in the Paris Declaration
- Aid on budget - getting info on aid flows to
govs; assists budget process and parliamentary oversight.
- Country owned technical assistance - ensuring
technical advice, training and research is directed by country
strategies and not driven by donor interests.
- Use country systems - deliver assistance through
gov systems; helps build their capacity and ownership.
- Reduce use of parallel systems - these fail to
support country institution building, are expensive and compete
for precious human resources and need to be reduced.
- Delivering aid predictably - un-delivered aid
hinders development program implementation + planning.
- Using program approaches - moving away from delivering
many dispersed and uncoordinated projects to supporting country-owned
programs covering various sectors and development priorities.
- Donor coordination - reducing burden donors put
on recipients with uncoordinated missions + analysis.
- Helping to strengthen country development strategies,
delivery systems and results frameworks.
5.9 At their heart these reforms ultimately aim to
ensure that aid recipients can take ownership of their development
efforts with donors working together to support these efforts.
Such an approach to aid not only helps to deliver value for money
in the short run, but by empowering aid recipients also helps
to ensure that development assistance is focussed on country needs
and priorities and has greater potential to be sustainable.
5.10 DFID has been the leading proponent and implementer
of these reforms internationally - especially the use of budget
support - it is recognised that they have made a contribution
to improving the effectiveness of the UK's aid in supporting development.
In recent years DFID has also been integrating these practices
into its corporate management and performance systems, so that
they become part of the culture of the organisation.
5.11 The Paris Declaration expires in 2010 and in
late 2011 international development agencies and developing country
governments will be coming together in South Korea at the 4th
High Level Forum on aid Effectiveness to discuss what reform commitments
will follow on from it. An ambitious and progressive outcome from
this conference is vital to future international efforts to promote
5.12 UKAN members urge the IDC to encourage DFID
to continue to make the Paris Declaration and Accra Agenda for
Action (and subsequent aid effectiveness reforms agreed to in
2011) a corporate priority for DFID in recognition of their critical
role in supporting sustainable country-led development results.
5.13 DFID should also be encouraged to play a leading
role in ensuring that at the 4th High Level Forum on aid Effectiveness
an ambitious and progressive framework of aid effectiveness reforms
253 Report from the IDC inquiry on "DFID's Annual
Report 2008", paragraph 81; the Cabinet Office and DFID management
have also been vocal in their concerns Back
Based on DFID staffing numbers quoted in "DFID Annual Report
2009"; Departmental Expenditure Limits quoted in Report from
the IDC inquiry into "DFID's Performance in 2008-9 and the
2009 White Paper", volume II for years 2004-5-2010/11 and
UKAN's own estimates for 2011-12 to 2013-14 Back
Gathered from the OECD's CRS database during August 2010 Back
" Investing for Development: the Department for International
Development's oversight of CDC Group plc", Public Accounts
Committee of the UK parliament, 2009 Back
"Concerns over alleged corruption in CDC-backed companies
in Nigeria Memorandum to Secretary of State for International
Development", The Corner House, 2010; this is just one of
many such cases Back
See footnote 4 Back
"CDC Development Review 2009, CDC, 2009, p17 Back
Ibid, p41 Back
See footnote 4 Back
Ibid, p13 Back
"Bottom Lines, Better Lives?", March 2010 - produced
by a consortium of UK development NGOs Back
The OECD's 2010 Peer Review of the UK stated that the "UK
is in many ways seen as a model by other donors" and that
"the clarity of its poverty reduction focus has been a powerful
"See Department for International Development - DFID in 2009-10",
p7,8 and 84 Back
See footnote 12 Back
At EU and G8 the EU levels the UK has opposed proposals to introduce
approaches to development assistance which may have lead to non-development
focussed financial flows to count towards the ODA efforts; at
the OECD the UK has been a strong proponent of ODA standards that
disqualify military and counter-terrorism related expenditures
from counting towards ODA
"Technical cooperation - its role in capacity development",
OECD issues Paper, October 2006, p2 http://www.oecd.org/dataoecd/25/57/37823356.pdf
"How to Provide Technical Cooperation Personnel", DFID
How To Note, June 2006 Back
In 2007 DFID announced it would carry out such an assessment,
but this commitment was dropped following an unsuccessful tendering
process for it and a change in priorities within the organisation
In 2008/9 68% of DFID contracts (most of which one was for TA
related work) were won by UK firms,
suggesting that possible de facto tying
is harming the cost effectiveness of TA
"DFID: Progress in improving performance management",
National Audit Office Review, May 2009 Back
"Evaluation Quality Review", Independent Advisory Committee
on Development Impact, Dec 2009 Back
"The case for budget support and country-led aid", UK
Aid Network Policy Paper 2, January 2010 Back