ABSTRACT
One in five of the world's population still lives
on less than $1.25 a day. This poverty is a source of great human
misery, and, if effective ways can be found to reduce it which
are acceptable to the taxpayers of the developed world, then reduce
it we should.
This report is about development aid, and how effective
it has been in promoting development and poverty reduction in
recipient countries. It examines the Government's plans for a
real terms increase of 37% in official aid spending in the four
years to 2015. The report does not address humanitarian aid for
relief of acute distress following conflict, famine, natural disasters
or other emergencies, which is less than 10% of official aid spending.
This inquiry has shown that finding ways to realise
the simple ambition of reducing poverty by means of development
aid is hugely challenging:
- Economic growth is essential if
poverty is to be reduced. There is however no agreement amongst
experts as to the effectiveness of development aid in promoting
growth. Estimates vary from those which suggest that development
aid has added about 0.5 per annum to growth in recipient countries
to those which suggest that it has had no positive, or indeed
negative, effect on growth.
- There is far from universal agreement amongst
experts as to what the aim of aid should be. Should it be to maximise
economic growth? Should it be to have the maximum effect on poverty?
Or should it for example be a tool for ensuring that values such
as human rights are spread more widely, or for combating climate
change? These objectives are not necessarily in conflict but they
do complicate the design of aid policy.
- There is little agreement amongst experts as
to what forms of aid are the most effective. For example, some
of our witnesses thought it important to promote foreign direct
investment. Some thought that technical assistance was central
while others were keener on large-scale projects designed, for
example, to combat disease. Different arguments were advanced
for project-based aid, for governmental budgetary support and
for large scale infrastructure investment.
- There is disagreement among experts as to what
is the best way to channel aid. Some argue for multilateral aid
on the grounds that it is better for delivery of large-scale development
assistance and reduces the number of different donors which aid
receiving countries need to keep informed and involved. Others
believe that multilateral aid, including aid through the European
Union, can be wasteful and that national aid, at least so far
as the UK is concerned, is better controlled. Some emphasise the
benefits of channelling aid through NGOs and civil society organisations;
others emphasise that such organisations can lack scale, and that
competition between them can undermine aid, for example by tempting
them to make concessions to corrupt governments to preserve their
programmes.
- There is also disagreement amongst experts as
to whether aid should focus on those countries where poverty is
most acute—often "failed" or "failing"
states—and those who believe that, without better governance,
aid will prove a waste of time or worse.
- There is disagreement amongst experts as to whether
aid is a tool enabling donor countries to combat corruption and
bring about internal peace, or whether it tends to feed corruption
and sustain damaging internal conflicts.
We are however pleased to report that expert opinion
is virtually united in agreement that DFID enjoys an outstanding
reputation internationally as an effective aid agent. It has refined
the Government's approach to aid over a number of years. Now,
under an energetic Secretary of State, it is taking direct action
to deal with points made by aid critics by for example, increasing
its emphasis on promoting private investment and on containing
unrestricted budgetary support.
We do make recommendations designed to improve DFID's
performance further. In particular we fear that, sometimes, it
is pursuing various good objectives—helping fragile states,
zero tolerance of corruption, cutting staff numbers—that
are likely to prove mutually incompatible.
We have not sought in this report to reconcile all
these different arguments. We have sought to form a balanced view
of aid, which recognises its strengths and weaknesses. And, in
particular, we have sought to apply that view to reach a sensible
verdict on the future of Britain's aid programme so as to ensure,
to the maximum extent possible, that it does what taxpayers expect
of it: make people in the least developed countries less poor
and less miserable.
Summary of Conclusions and Recommendations
(1-28)
1) This report focuses on development aid which is
over nine-tenths of official aid spending. It is not about humanitarian
aid, which accounts for less than 10% of official aid spending.
We fully support humanitarian aid. (para 3)
2) Since private capital flows to developing countries
are now so much greater than official aid flows it seems clear
that private spending has become a much greater contributor to
development than official aid. (para 11)
3) Economic growth is essential to bring about poverty
reduction in developing countries. Aid is plainly not the main
driver of their growth, since capital and trade flows are so much
greater, but it can arguably play a catalytic role. We consider
in this report what impact aid makes on recipient countries' growth.
(para 18)
4) The difficulties of accurate measurement and attribution,
and of assessing what would have happened if no aid had been given,
are so formidable that the evidence that aid makes a contribution
to growth in recipient countries is inconclusive. (para 32)
5) Large and prolonged aid programmes can have a
corrosive effect on local political systems when the priority
becomes to attract aid rather than to solve problems. DFID should
pay close attention to the scale and composition of aid programmes
to ensure that resource flows do not overwhelm local ability to
manage them and undermine systems of governance in recipient countries.
They should also support recipient governments' systems of audit
and public financial management and have a credible exit strategy.
(para 36)
6) We welcome evidence of graduation from aid, or
progress towards it, by a range of countries in Asia and Africa.
We recognise that any contribution by aid to the economic growth
which enables graduation may not have been great. We do not subscribe
to the fallacy that because graduation took place after aid, it
was even in part because of aid, since many factors such as governance,
trade and investment affect growth. It seems likely that all contributed,
and that aid's impact was greater where, as in Botswana, Ghana
or Kenya, it was a higher proportion of GNP in the early days
of development and was delivered in support of a clear strategy
for growth. We welcome the Secretary of State for International
Development's readiness to move with the times and prepare exit
strategies in countries where graduation is near. (para 45)
7) The risks of corruption are greater in weak, unstable
or failed states. It is important for donors to ensure that opportunities
for corruption are as limited as possible by setting in place
systems of audit and control as rigorous as local conditions permit
and to withhold development aid altogether where corruption is
rife and therefore endangers the effectiveness of aid. In the
battle against corruption, to which we return later, accountants
are more important than economists. (para 50)
8) We recommend that DFID should monitor and report
on flows of capital from recipient countries, with a view to reducing
aid where there are excessive outflows. We agree with Transparency
International that the Government should explore with other G20
countries the scope to discourage illicit capital flight from
developing countries. (para 55)
9) Growth seems the most effective remedy for global
poverty. We are surprised that the role of growth is not more
fully acknowledged in the international community's collective
approach to poverty reduction. We recognise that trade, investment
and remittances are all much more substantial than aid and more
important in driving growth. We accept that accurate measurement
of whether or how much aid helps promote growth is not available.
But similar difficulties arise over measurement of the contribution
to growth of trade, investment and remittances, though their indispensability
to growth is undeniable. It is uncertain that aid makes a proportionate
contribution. (para 58)
10) The risks of failure in aid to fragile states
are greater than elsewhere, as is the scope for misuse of aid
funds. For the Government's planned increase in aid to fragile
states to have any chance of being effective we recommend careful
selection of programmes and continuous evaluation of their effect,
and a robust anti-corruption strategy. (para 73)
11) Where security policy and aid policy overlap
with the aim of bolstering stability, circumstances are often
challenging and outcomes uncertain. Lessons must be learnt from
the unrealistic goals set for aid in Afghanistan. In the UK, DFID
see the Government's Building Stability Overseas Strategy (BSOS)
as a useful aid to decision-making. We agree with Rory Stewart
MP who told us that "the liberal imperialist idea ... of
creating governance and stability in a post-conflict zone through
the application of development aid is mistaken." Decisions
on intervention should be carefully weighed on the basis of thorough
analysis of local circumstances and realistic and proportionate
assessment of what is achievable. (para 74)
12) We agree with Lord Jay of Ewelme who told us
that aid should complement British foreign policy. The Conflict
Pool provides scope for coordinated responses by DFID, the Foreign
and Commonwealth Office and the Ministry of Defence to instability
and conflict in developing countries in carefully assessed cases.
(para 78)
13) We believe that poverty reduction through economic
development should remain the main aim of aid policy. (para 84)
14) We welcome the Secretary of State for International
Development's decision to run down bilateral development aid programmes
in 16 countries including China and Russia and to concentrate
bilateral aid in 27 countries. (para 85)
15) Whatever its merits when it was adopted in 1970,
we do not accept that meeting by 2013 the UN target of spending
0.7% (£12bn) of Gross National Income on aid should now be
a plank, let alone the central plank, of British aid policy because:
a) it wrongly prioritises the amount spent rather
than the result achieved;
b) it makes the achievement of the spending target
more important than the overall effectiveness of the programme;
c) the speed of the planned increase risks reducing
the quality, value for money and accountability of the aid programme;
d) reaching the target increases the risk identified
in Chapter 4 that aid will have a corrosive effect on local political
systems.
We recommend that the core of aid policy should be
choosing and funding the best ways of promoting international
development and stability, rather than finding new ways to spend
ever-increasing resources. (para 95)
16) The Government should therefore drop its commitment
to enact legislation to enshrine in British law an obligation
on future Governments always to comply with the UN target of spending
0.7% of Gross National Income on aid. It would deprive future
Governments of the flexibility to respond to changing circumstances
at home and abroad. The Secretary of State has not put forward
any case for legislation other than the Government's political
commitment to it. (para 96)
17) We welcome DFID's reviews of all bilateral aid
programmes and multilateral agencies supported by Britain. DFID's
renewed commitment to results and value for money is a welcome
change in approach, if carried through. (para 98)
18) We welcome DFID's decisions to cease funding
to a few ineffective multilateral organisations. But more needs
to be done. The evidence we received raised concerns about the
quality of aid delivered via the World Bank and in particular
the UN Development Programme (UNDP). We would support reducing
funding to both organisations, which receive large amounts of
DFID money, while a more detailed re-evaluation of their work
is carried out. The Government should push for a substantial reduction
in the European Commission's aid programmes given its focus on
the EU's neighbours rather than poorer, low income countries that
are in greater need. DFID must provide impact assessments and
regular reports on performance of projects it funds through all
multilateral organisations. (para 100)
19) India's impressive economic growth and technological
attainments, and its own aid programme, coexist with widespread,
extreme poverty. British development aid to the poorest Indian
states may provide a perverse incentive to the Indian government
to use less of its own revenue to alleviate poverty. We recommend
that the Secretary of State should urgently prepare an early exit
strategy from the India development aid programme. (para 104)
20) We welcome DFID's decision to halve general budget
support by 2014/15. We also welcome the introduction of more rigorous
conditions of disbursement. But we are concerned that sector budget
support—where the funds are spent in specific areas such
as health or education—is to jump 20% by 2014/15 and that
much of Britain's funding of multilateral agencies may be used
as budget support. Since the risks of misuse of budgetary aid
are high, both types of budget support—general and sectoral—should
be reduced, not just the general budget support targeted by the
Government. DFID should also ensure that less of the aid it provides
via multilateral organisations is used for budget support, or
withdraw funding from multilateral agencies that persist in focussing
on budget support. (para 110)
21) We welcome the new emphasis on the development
role of the private sector, which is essential to the creation
of strong and sustained indigenous growth. DFID's own efforts
should increasingly concentrate on the ways in which it can help
to encourage and sustain private investment. It should not be
tempted into interfering unnecessarily in the activities of private
companies. The more private sector skills can be embedded within
the Department, the more likely its efforts are to succeed, with
the prize, at the end of the day, of less taxpayer-funded aid.
(para 115)
22) We recognise the difficult case-by-case judgments
on aid delivery which DFID faces in easing the plight of the poorest
in countries where oppressive regimes violate human rights. We
recommend that DFID should continue to exercise vigilance in ensuring
aid does not prop up oppressive regimes, even if they are not
conspicuously corrupt in a financial sense. (para 117)
23) We recognise the valuable contribution that some
NGOs can make to development and agree that DFID should use them
in the right circumstances to deliver some of its aid, recognising
that the NGO sector cannot substitute in the long run for credible
and effective recipient-country governments. We recommend, however,
that DFID should be as robust in monitoring proper use of funds
by NGOs as it is with directly-delivered resources. (para 124)
24) We welcome the Secretary of State's commitment
to ensure better 'badging' of British aid. Other donor governments
are less reticent. (para 130)
25) We do not advocate a return to tied aid. But
we recommend that DFID should consider with the Department for
Business, Innovation and Skills how Britain could derive direct
economic benefit from its development aid programmes without worsening
quality and effectiveness for recipients. (para 131)
26) The planned combination of much higher programme
spending, especially in fragile states, with administrative staff
cuts seems to risk weaker monitoring of programmes and less rigorous
vigilance against corruption. We are not convinced that a cut
in DFID staff of the magnitude planned can be reconciled with
adequate control of the Department's fast-growing budget, although
we welcome DFID's plans to strengthen the front line within a
stable headcount overall, which we trust will lessen the risk.
We recommend that the Secretary of State should ensure that administrative
staff cuts do not hamper his focus on results and in particular
the struggle against corruption. (para 136)
27) There is corruption in many developing countries.
We are greatly concerned by the paltry and implausibly low levels
of fraud identified by DFID of little over £1m in its global
programmes. Given critical reports of the National Audit Office
and the Independent Commission for Aid Impact, DFID must make
much more strenuous efforts to improve its detection of corruption,
especially given the sharp increases in aid over the next few
years. (para 143)
28) We recommend that both Parliament and DFID monitor
ICAI's own effectiveness closely, and take steps necessary to
ensure that both its work and its staffing are sufficient both
in quality and in quantity for it effectively to discharge its
duties. (para 145)
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