International DevelopmentWritten evidence submitted by Adam Smith International

1. Introduction: Overview of ASI’s Involvement in DFID’s Programme in Afghanistan

1.1 We welcome the opportunity to contribute to this inquiry. We have focused the bulk of our remarks on the effectiveness of DFID and also provide information on the impact of some key DFID programmes.

1.2 ASI has been working in Afghanistan since early 2002 when we were asked to help rebuild key Ministry of Finance and Central Bank functions. Since that time, ASI has implemented over 60 projects in Afghanistan for DFID, USAID, FCO, DANIDA, EU, CIDA, World Bank, ADB and SIDA.

These projects have ranged from small design and review projects, eg reviewing gender projects in Nangarhar, surveying district level accountability mechanisms in Balkh, Laghman and Bamian, to major programmes of institutional development such as our ongoing multi-phase multi-year programmes of DFID funded support to institutions such as:

The Revenue Department of the Ministry of Finance.

The Budget Department of the Ministry of Finance.

The Ministry of Mines.

The Ministry of Commerce and Industry.

The Independent Directorate of Local Government (IDLG) within the President’s Office.

1.3 These projects all have teams of long term international advisers—for example, a team of two in the IDLG and a team of 23 currently engaged in the Revenue Department—who work full time in the government institutions that we support and make up the bulk of the 60 or so international advisers we have in country at any one time. These experts from around the world work alongside our team of more than 100 Afghan technical advisers. We are particularly proud of the contribution that these Afghan colleagues are making to the development of their country, and take care to support their professional development as an additional wider benefit to Afghanistan in terms of human resources for the future.

1.4 We continue to undertake new engagements. For example we have recently started work on a project to help privatize the New Kabul Bank—the remaining part of the previous Kabul Bank minus its bad debts, which had resulted in the Bank’s collapse.

1.5 To support these projects ASI has an efficient operational platform that includes six houses in Kabul and project offices in five provinces (Balkh, Herat, Kandahar, Nangarhar and Kunduz). At all times ASI has significant number of full time ASI international staffers who are resident in Kabul and who serve in project director, project manager and operational and security support roles. The operational platform is supported by over 100 Afghan staff in administrative, operational, security and domestic roles.

1.6 In sum ASI provides significantly more DFID funded TA to the government of Afghanistan than any other single company and our comments in the sections below are derived from broad experience of working with and for DFID in Afghanistan over the last decade. This period has seen the operational context for DFID’s programmes worsen considerably as the security situation in Kabul and elsewhere has deteriorated.

2. ASI and DFID Programmes: An Overview of Results

Two of ASI’s DFID projects in particular—Support to the Revenue Department of the Ministry of Finance and Support to the Budget Department of the Ministry of Finance—have been praised for achieving outstanding results: both have been adjudged to have scored “1” in the most recent external and independent Output-to-Purpose Reviews commissioned by DFID and both projects have won Project of the Year Awards at the prestigious British Expertise1 awards in 2009/10 and 2010/11 respectively.

2.1 Results in tax reform

We have worked with the Afghanistan Government and DFID on innovative tax reform since 2002, initially as part of a broad project to support economic development, and since 2004 on dedicated DFID tax reform projects: Tax Administration Reform, 2004–08; Strengthening National and Provincial Tax Administration, 2008–12; and now Tax Administration, 2012–15.

In summary we have helped the Afghanistan Government achieve the following:

Develop a comprehensive tax policy and law that constitute the framework of Afghanistan’s tax system.

Restructure, reorganise and build capacity of a sustainable modern tax administration in Kabul and five priority provinces.

Increase revenue six-fold since 2004. Revenue for the latest financial year was over $2 billion.

Increase revenue as proportion of GDP from 4% in 2004 to almost 12% today.

Increase in tax revenue relative to customs, with tax taking over as the single largest revenue source in 2008 and increasing relative to customs at an accelerating rate.

Turn non-tax revenue, ie royalties, fees and charges raised by line ministries into a major revenue source from a close to zero base.

2.2 Results from DFID’s support to the budget department

DFID’s programme of support to the Budget department began in early 2008 and is about to enter its second phase later this year. Key achievements of that project to date include:

The rolling out of performance based budgeting reforms across all budget units.

The development of the budgetary process to an 11 month schedule, that includes defined national policy priorities, from a three to four month process based on bilateral negotiations between ministers.

The development of a Medium Term Fiscal Framework which is integrated into Pre-Budget document and Budget Statement—containing analysis of different fiscal pressures and risks.

The introduction of a Medium Term Budget Framework containing budget ceilings—specifying what priorities the funding is allocated to—over three years.

The raising of development budget execution rates by nearly 15 percentage points last year.

The creation of a number of forums to assess and include donor funding levels into budget process.

The provision of assistance in the establishment of the Open Budget Index (OBI) as a measure of the transparency of the Afghan budget process and raise Afghanistan’s predicted rating to over 40% this year (from 8% in 2008).

The development of a comprehensive Budget statement in three languages and published online, containing analysis of historical spending, achievements, medium-term outlook, issues, budget and performance targets.

The first ever presentation of new budget and fiscal policy reforms to the Afghan media.

The formation of a dedicated capacity development unit within DGB (the Budget Reform Unit—BRU).

The mapping of all processes. All key budget processes have now been documented and training conducted as a means of making the Budget Department a process-centred organisation.

2.3 Results and wealth creation in the Mining sector

A third project—DFID’s support to the Ministry of Mines (MoM)—has also delivered some headline results recently.

With ASI assistance the MoM is transiting from an owner-operator type role to that of a policy-maker and regulator able to attract private sector investment. With DFID-funded ASI support, the MoM has developed a five-year business plan to oversee its restructuring aims, and is two years into its implementation. Under this business plan, key directorates have been staffed, and significant capacity development has been undertaken within the policy group, the investment promotion directorate, and the legal directorate. The project has supported the ministry in updating the legal environment for mining in the country, which was previously outdated and unfriendly to investors. Additionally, support has been provided in securing the corporatisation of state owned enterprises eg Northern Coal Enterprise, with a view to their being privatised in the near future.

Much work has been done to improve coordination between the provincial directorates and the central MoM to better understand the needs at the community level and to harmonise administrative and reporting requirement across the organisation. Work continues in all of the above-mentioned areas, with the current focus on the legal reforms, ahead of the MoM signing an estimated US$1 billion deal on a world-class iron ore deposit at Hajigak later this year.

ASI/DFID played an important role in the US$ 1 billion investment in Hajigak Iron Ore by an Indian consortium led by Steel Authority of India —this will directly lead to the creation of over a thousand jobs at the plant and several thousand more in the surrounding area and in supporting industries. The development of local infrastructure will also have a beneficial knock on effect. Because of the Hajigak success, several other tenders in the oil and gas and rare earth metals sectors are being planned.

3. Maintaining DFID’s Capacity to Mount Successful Interventions

3.1 These, and other, projects have demonstrated that—despite the deteriorating security situation and the gloom surrounding the Afghanistan mission in the international media—it is possible for DFID to deliver high quality TA programmes at scale and with significant strategic impact in Afghanistan. DFID’s impact in Afghanistan has been significant. We believe it essential that DFID continues to maintain a strong enough capability to mount large interventions of this nature. The alternatives are not very attractive:

Channelling money through the UN system will achieve little. Most of the UN organisations operating in Afghanistan are highly ineffective, as multiple evaluations have made clear. DFID should be congratulated for reducing the amount of funds it has provided to UN organisations such as UNDP in Afghanistan.

Channelling technical advisory funds through the Afghan Government and relying on Govt. procurement processes is not prudent, as it widely agreed that these are not fit for purpose for more complex interventions.

Similarly, channelling funds through World Bank systems is not a good option, as these processes take so extraordinarily long that the delivery of support is neither timely nor predictable.

When there is pressure to “get money out the door,” it can be tempting to use channels such as these—or indeed dump money in a multi-donor trust fund—, especially if one’s own administrative resources are constrained. However in most cases it would better to route the funds through DFID’s own bilateral mechanisms.

3.2 Compared to other bilateral donors DFID scores well. The DFID approach is characterised by:

Pragmatism—DFID have a pragmatic approach to the work given the environment. Examples include flexibility between budget lines and prioritisation of key activities in the TOR; where work is taking more time than expected, they are generally supportive if it is clear that the area is of importance.

Commitment—when DFID have designed and awarded a contract, they generally support the implementation to its completion. Other donors sometimes pull work streams from projects with little forewarning and expect consultancies to change track as suits.

Preparedness to take risks—For example DFID should be praised for supporting IDLG—it was the first donor to substantially support sub national reform at the centre—critical given Afghanistan is a unitary state. It really was the only donor that engaged sensibly in this highly political area.

We see the following as key factors in maintaining and enhancing an effective DFID commitment to Afghanistan.

4. Key Factors for Future Success

4.1 Maintaining the ability to engage in policy dialogue

DFID needs to maintain a staff complement in Kabul that is technically strong in the different policy areas with good influencing capabilities. Technical assistance interventions are less effective than intended when donors who are providing support do not regularly engage with counterparts to provide advice, emphasise the need for government to make decisions, and intervene when problems occur.

DFID and its consultants work most effectively when they engage with the Government as a team and are seen, as far as possible, to be singing from the same song sheet. This is particularly the case when a consultancy team needs assistance in delivering a tough message or bad news even on matters as small as saying NO to a study tour. An official from the British government can often reinforce a message more effectively than a consultant when dealing with an Afghan representative. When a DFID official does this working alongside their consultants it helps maintain the advisory relationship we, the consultants, have built with our Afghan counterparts.

These types of dynamic will become more and more important as Afghans become more and more experienced in how development funds are spent and they become more adept at playing consultants and donors off against one another.

We would recommend that more is done by DFID to participate in working with their consultancy teams to develop common positions and understanding of the work that is being undertaken. This will probably require that ASI and other consultants spend more time in the DFID offices briefing our DFID colleagues on the work that we are doing. We would welcome this. Projects may also usefully support DFID direct engagement with counterparts. The current Tax Administration Project is successfully operating a “Project Steering Committee” mechanism for this purpose.

It is important that DFID’s administrative budget is sufficiently large to enable it to maintain an effective presence in Afghanistan.

4.2 A pragmatic approach to duty of care

Afghanistan is an increasingly dangerous place for international advisers. The attack on the British Council guesthouse in mid 2011 is a case in point. ASI staff and consultants have on several occasions been in Government of Afghanistan buildings that have been subjected to sophisticated Taliban attacks. We have also been subject to direct attacks. For example one of our consultants was seriously injured in the bombing of the Finest Supermarket near to the British Embassy in Kabul.

However we believe that DFID’s approach which has, to date, been to vest duty of care of their advisers with the firm that deploys them, is by far the most effective approach.

By contrast ASI has been active for DFID in Baghdad from 2003 until 2012 delivering a programme of TA to the centre of government in Baghdad, Iraq. Here our advisers—working from the Embassy—fell under increasingly stringent HMG duty of care provisions which have severely limited our ability to work alongside our counterparts in the Iraqi Cabinet Office. The costs of this level of duty of care are prohibitive and drew resources/funding away from the TA programme. Eventually the costs of security dwarfed the costs—per day—of the TA.

ASI hires staff and advisers who understand and are comfortable with the level of risk inherent in working in a conflict affected environment. ASI is skilled at developing procedures to mitigate risks and in hiring and subsequently flexing the appropriate level of security for each day we work and each location we work in. Transferring Duty of Care to a trusted contractor such as ASI is more efficient, effective and economical than having a “blanket” duty of care policy from an Embassy based DFID/FCO office that covers all DFID officials and consultants irrespective of their location and the demands of their job.

When ASI clearly assumes the duty of care for our advisers the risk and liability to DFID of their injury/death is diminished and our ability to get the job done is enhanced. The twin imperatives of our reputation and our need to retain high quality advisers mean that we will not seek to take unnecessary risks.

Security restrictions imposed on DFID’s own staff are more onerous than those applied by most companies. While of course HMG staff are likely to be seen as higher value targets by the Taliban care must be taken to ensure that security restrictions do not prevent DFID staff from doing their job effectively.

4.3 A correct interpretation of value for money (VFM)

The current UK government is quite rightly placing greater emphasis on VFM. The central element of VFM is the achievement of results. Without results there can be no VFM. There is always a temptation to equate VFM with the price of inputs and the production of paperwork regarding inputs. This is much easier than driving programmes to achieve results.

As we reported in earlier evidence to the IDC, we have had some absurd examples of this tendency in Afghanistan, with an Indian procurement firm hired by the Afghan Govt. demanding to see photocopies of the stamps in consultants’ passports, amongst other extraordinary requirements, before they would sanction payment.

Following a recent ICAI report on programme controls, DFID is in the process of increasing paperwork requirements. Whilst the ICAI found no evidence of leakage of DFID funds, their report recommended the strengthening of processes and controls.

Great care must be taken to ensure that any response to the ICAI report is proportionate and tailored to the particular funding channel. For example, additional controls might well be justified if one provides funds to an organisation such as UNDP, bearing in mind that a succession of evaluation reports have criticised its financial controls.2 There is much less justification for a major escalation in the paperwork requirements imposed on professional firms. This could involve large increases in their own administrative and reporting burdens, which could consume resources which are much better directed towards trying to achieve results.

4.4 Ensuring a high speed of response

In a difficult, conflict-affected environment such as Afghanistan there is a premium on being able to move quickly. Situations evolve swiftly and can easily spin out of control. DFID needs to be able to mobilise resources very rapidly indeed. The procurement approach being implemented for many years until the end of January 2012 had succeeded in ensuring that resources could be deployed quickly, often in only a couple of weeks. However, the new approach that has been put in place centrally for DFID since that time has to date been much less effective in ensuring a fast response. Some revision of this approach will be required if DFID is to retain its reputation for speed and flexibility in fragile environments.

4.5 A stronger focus on getting the message out

ASI has observed over time that much of the good news from the DFID programme and indeed from wider international effort—the undoubted successes in girls’ education for example—has been drowned out by more newsworthy stories and narratives focussing on security. While DFID has invested in strategic communications in Kabul we are of the view that greater investment in this area would have had a positive impact. While we recognise that “more stratcomms” is by no means a groundbreaking recommendation we do believe it makes a difference.

Our specific recommendation would be that DFID could seek create a greater demand for “good news” stories from its operating partners in Afghanistan and to establish active routes and channels through which it could be fed by consultants to DFID on a regular basis.

While firms such as ASI work hard to meet the ever increasing demand from DFID for quantitative data: indicators/M&E data/VFM data and work tirelessly on complex sets of log-frames, this effort and the data it generates sometimes seems to create a fog of data and this comes at the expense of more qualitative and potentially headline grabbing stories about what DFID is doing, and why.

5. Conclusion

Our central point is that DFID needs to retain the capability to conduct large scale interventions of the type discussed in this note.

At all times, these projects, have been delivered in coordination with, and support from, DFID officials. DFID’s officials, as usual, have tended to be more technically engaged, politically astute, interested in results, and motivated, than the officers of the competing donor agencies. Our ability to achieve is a direct result of this quality. But within the sector as a whole the bar remains low. DFID can do even better to secure its reputation for the quality of its programme design and delivery.

We make the following specific recommendations which would assist in this regard:

Maintaining the ability to engage in policy dialogue.

A pragmatic approach to duty of care.

Ensuring a high speed of response.

A correct interpretation of value for money.

A stronger focus on getting the message out.

July 2012