International Development CommitteeWritten evidence submitted by Bond and UKAN

A. Introduction

1. Bond is the UK membership body for non-governmental organisations (NGOs) working in international development.

2. The UK Aid Network (UKAN) is a coalition of UK-based development NGOs working together to advocate for more and better quality aid through joint policy, lobbying and advocacy work.

B. Whether the 0.7% ODA target will be appropriate in the long term

3. How long the 0.7% target is needed depends on global progress in addressing development challenges. We believe the 0.7% target will remain relevant in the long term.

4. Aid is the only resource targeted solely at eliminating poverty. Almost 1 billion people still live in poverty. While we aspire to reduce the need for aid, placing an arbitrary limit on how long we will commit to the 0.7% target is unhelpful and sends the wrong signal to partner countries.

5. An assessment by the UN in 2005 found that meeting the MDGs alone would require 0.54% of developed countries’ gross national income (GNI) to be delivered in aid, but to comprehensively address global development and poverty challenges requires roughly 0.7% (see Bond/UKAN briefing paper http://www.bond.org.uk/data/files/Three_reasons_to_support_aid.pdf). Real progress has been made on some MDGs but there is still a lot to do ahead of the 2015 deadline, and beyond. If there is to be an ambitious development agenda post 2015, we will need more not less financing.

6. The European Council has reaffirmed that a key priority for Member States is to respect the EU’s formal undertaking to collectively spend the 0.7% target by 2015. As other donors strive to meet the target, the UK should continue to demonstrate global leadership on this agenda.

C. The balance of financial instruments, loans and grant aid and climate finance

7. The current balance of financial instruments is adequate though more thought to the modality of grants is recommended.

8. The focus of financing should continue to be on providing aid for poverty reduction. Any new financial instruments must be assessed against these criteria.

9. Loans may not be the most effective form of aid spending given that they increase debt levels. Any increase in loans must be assessed against the risks—lack of transparency, lack of evidence of impact or very long evidence chains.

10. Loans could potentially be used as counter-weight to other, more pro-cyclical investment flows to flatten out downturns but this should be assessed on a case by case basis and not underpin general policy.

11. The UK has committed £2.9 billion to international climate finance until 2015 through the International Climate Fund. DFID should ensure its climate finance is governed by a pro-poor, participatory approach, in support of renewable technologies through funds with transparent governance structures.

D. Whether the UK should establish a development finance institution to offer concessional loans

12. DFID, and the Secretary of State, have indicated that they are considering creating a new facility such as an investment or development bank to help deliver the vision of “ending aid dependency through growth and jobs”.

13. Any decision to establish a development finance institution must be informed by analysis of:

Aid effectiveness: The UK committed through the aid effectiveness process to reduce donor fragmentation and increase harmonisation; will the creation of a new finance institution further increase fragmentation? Does the financing build ownership, local capacity and mutual accountability? It is transparent at organisational, country and programme level? How would countries and programmes be assessed as suitable?

Duplication: Creating a new finance institution would increase and duplicate administration costs; will this mean a reduction in the percentage of aid going towards poverty eradication? Does this represent value for money?

Leverage: A new finance institution would likely divert funds from other institutions; would this result in a reduction in UK influence at more powerful, global financial institutions?

Impact: Does the finance institution respect national priorities and ownership of development priorities? Is it adequately focused on results for the poor and most marginalised, including women? How will the evidence and results be measured?

Ending aid dependency: Would a financing institution build genuine independence from aid? Aid dependence means countries are dependent on aid to deliver basic government services, often referred to when more than 20 or 30% of a recipient country’s budget is funded by ODA. Aid dependency has fallen significantly since 2000. According to a 2011 report (ActionAid—RealAid 31), 14 of the 30 most aid dependent countries reduced their dependence by more than 20% of expenditure between 2000 and 2009. This has been achieved, inter alia, by strengthening county leadership, strengthening accountability to domestic stakeholders and using aid to generate long term and sustainable financing, notably strengthening tax systems. There is no specific reason establishing loans through a British finance institution would increase the potential to end aid dependency.

How will DFID ensure projects meet international human rights obligations, equitable access and do not do environmental damage, threaten livelihoods or impinge on land rights?

E. Balance between bilateral and multilateral aid

14. In principle, the allocation between multilateral and bilateral aid (approximately 35% and 65% respectively2) seems appropriate given that aid modality and delivery mechanisms are chosen based on the best way to achieve results. However, in practice, the decision is not necessarily as value-free—aid allocations can be influenced by political negotiations around funding rounds for multilaterals, political and other external considerations, historical ties and some degree of national or economic interest even if this does not go so far as tied aid.

15. Given the increasing size of the UK ODA budget, it is more practical to deliver a significant proportion of our aid through multilaterals. While multilaterals are sometimes associated with higher administration costs, this is at a saving on the UK side as it is “cheaper” to fund multilaterals than attempt to build the necessary infrastructure in a much larger number of countries. Multilaterals are sometimes the most effective, and only, way of delivering aid in places the UK/DFID cannot easily work due to security or political considerations. Multilaterals also allow the UK to scale up influence in places where there is not any (or significant) bilateral presence.

16. Against aid effectiveness criteria, multilateral aid can deliver some important advantages—ie less fragmentation and duplication, a more unified donor group to work with national governments on influencing and supporting national development policy, clearer and simpler accountability processes both for donors and recipients, etc.

17. In places where the UK has the appropriate infrastructure and relationships, bilateral aid can deliver many of the same advantages (ie a strong and productive relationship with recipient country governments and civil society can help to ensure and build country ownership, bilateral aid delivered through local civil society can help to build long-term, sustainable capacity and support government accountability, etc).

18. Rather than determining a fixed balance between bilateral and multilateral channels, the assessment should be which funding channel to use, based on relative effectiveness and the impact/results for people living in poverty.

F. Lessons from other national donors

19. Non-traditional providers/donors represent an increasing share of global aid-like flows (from approximately 8.1% in 2000 to 30.7% in 2009) and, as a recent ODI report3 found, recipients welcome the increased choice, speed of disbursement and negotiating power this change gives them. The case study countries prioritised, in addition to the additional resources these new flows provided, ownership, alignment and speed which suggests some clear areas for improvement for traditional donors like the UK.

G. Monitoring and influencing multilateral expenditure

20. DFID should strive for closer coordination with other bilateral donors and NGOs who have a presence in non-DFID countries to gather evidence on the performance of multilateral institutions.

21. Impact evaluation of aid through multilaterals is limited. DFID should prioritise funding to multilaterals with demonstrable effectiveness and value for money. The results chains and principles of transparency, accountability and traceability so rigorously applied to bilateral aid must also be considered and applied to all funds to multilaterals.

22. DFID should make every effort to prioritise funding to multilateral agencies who work effectively with civil society and beneficiaries.

23. DFIDs Multilateral Aid Review (MAR) is a bilateral review process. The Multilateral Organisation Performance Assessment Network (MOPAN) is a network of 17 donor countries, including the UK, who carry out joint assessments and shares information on the effectiveness of the multilateral organisations they fund. Different donor country objectives mean MOPAN assessments can’t provide what country reviews can, however there is room for closer coordination between the focus, findings and recommendations of DFIDs MAR Updates and the MOPAN Common Approach.

24. See Bond/UKAN submission to IDC Inquiry on the MAR.

June 2013

1 http://www.actionaid.org.uk/sites/default/files/doc_lib/real_aid_3.pdf

2 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/175529/Prov-UK-_ODA-2012-_stats-release.pdf

3 http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8188.pdf

Prepared 11th February 2014