The Economic Impact and Effectiveness of Development Aid - Economic Affairs Committee Contents


CHAPTER 7: How DFID Operates

New approach: General

97.  The Coalition Government made changes to aid policy after coming to power in May 2010. It promised greater emphasis on results when choosing and funding aid programmes. It set up an Independent Commission for Aid Impact (ICAI) to monitor the effectiveness of overseas development assistance. A review of bilateral aid led to programmes in 16 countries—including China, Iraq, Russia and Vietnam—being closed. British bilateral aid is now to focus on 27 countries from Afghanistan to Zimbabwe. Table 4 below lists the largest recipients of bilateral aid, with Pakistan expected to be the largest recipient in 2014/15, up from sixth largest in 2010/11. The Government also reviewed aid disbursed through 43 multilateral development agencies. As a result "core funding" was stopped to the International Labour Organisation, the UN International Strategy for Disaster Reduction, UN-HABITAT and the UN Industrial Development Organisation, all deemed "poor value for money." Multilaterals that had "serious weaknesses"—which included the International Organisation for Migration, the Food and Agriculture Organisation, the development programmes of the Commonwealth Secretariat and UNESCO—were put on a watch list and may lose funding if improvements are not made by next year.[121]

98.  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.

TABLE 4

Principal recipients of UK Bilateral Aid (excluding humanitarian assistance and regional or non-allocable expenditure) 2010/11 and 2015
Top 10 Recipients
2010/11£million % Total Projected Allocation 2014/15 % Projected Total
India279 11.0%Pakistan 12.1%
Ethiopia245 9.7%Ethiopia 10.6%
Bangladesh171 6.8%Nigeria 8.3%
Tanzania144 5.7%Bangladesh 8.1%
Nigeria142 5.6%India 7.6%
Pakistan120 4.7%Dem Rep Congo 7.0%
Afghanistan97 3.8%Afghanistan 4.8%
Uganda94 3.7%Tanzania 4.5%
Mozambique94 3.7%Kenya 4.1%
Rwanda90 3.6%Sudan 3.8%

Source: DFID, Statistics on International Development 2011 and DFID Bilateral Aid Review, March 2011

Bilateral vs multilateral

99.  In addition to its bilateral aid programmes the UK channels aid through multilateral agencies. DFID's multilateral programme accounted for £3.22 billion in 2010/11, up from £2.28 billion in 2008/09 (41%). The European Commission's development programme received the largest DFID multilateral assistance (£1.26 billion), followed by the World Bank (£927m) and the United Nations (£355m).[122]

  • The European Commission

Open Europe argued that the European Commission is unclear whether it is an "all-encompassing aid donor or ... a niche player complementary to the member states' existing aid programmes." The organisation argues that Commission aid is heavily driven by geopolitical considerations (such as immigration from and political stability in neighbouring countries) and colonial ties. For example, Turkey, an upper middle income country, is the biggest single recipient of EU aid. Only 46% of EU aid goes to low income countries, compared to the UK's 74%, EU member states' 58% and the US's 56%. Open Europe would like the EU to be only a forum for donor coordination, rather than a donor in its own right.[123]

Mr Manning agreed that the Commission had "chosen largely to 'communitise' ... aid to its immediate neighbours." But he did not criticise this policy: "There is virtually no British aid to immediate neighbours of the EU and there is not a lot of bilateral aid from others, either ... you have to ask yourself: is it intelligent or not for the European Union to have a common approach to providing assistance to countries that either are potential members or have a long-term close relationship."[124]

  • World Bank

Adam Smith International argued that the World Bank's approach was flawed in turning funds to procure and administer assistance over to developing country governments which often "do not have the capacity to do this effectively" with the administrative arrangements "often extremely poor." There was also an "institutional prejudice in favour of 'getting money out the door'", so that "spending more money is seen as a sign of success."[125]

DFID's Multilateral Aid Review of 2011 was more positive about the World Bank.[126] Its key affiliate the International Development Association—the arm of the World Bank which supports the poorest countries and is one of the world's largest sources of aid to low-income countries—was rated 'very good' and as delivering a strong contribution to the UK's development objectives, although over keen on getting money out the door: "incentives ... are tilted towards inputs—project and loan approvals—rather than results". The IDA's organisational strengths were rated as satisfactory, though there were "limited incentives to generate cost savings in projects."[127] The World Bank's International Finance Corporation (IFC), which provides loans, equity and technical assistance to stimulate private sector investment in developing countries, was rated 'good' by the Multilateral Aid Review. Its contribution to UK development objectives was only rated satisfactory because the IFC focuses more on middle income countries and less on the poorest nations and fragile states than DFID. But the IFC's organisational strengths were rated strong.[128]

  • UN Development Programme (UNDP)

DFID's Multilateral Aid Review rated UNDP's performance as 'good'.[129] This overall result was surprising given some of the criticisms in the Multilateral Aid Review of UNDP. The Review stated: "Evidence gathered at country level was highly critical of UNDP's ability to deliver results." The Review added that delivery of projects "can be undermined by staffing issues and bureaucratic processes" and cited "limited evidence of active senior management consideration of cost control". Furthermore, the Review saw the chances of improvement as uncertain: "The Executive Board is politicised and there is a lack of consensus on the key areas for reform. It is not clear that current plans for change will deliver the required depth and breadth of reform."

DFID said the Multilateral Aid Review "has sent a strong signal to the UN leadership and is seen as a catalyst for change." Britain is "working with like-minded donors ... to improve results reporting and to ensure maximum value for money for the UK's contributions."[130]

100.  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.

Why aid India?

101.  British aid to India was £421 million in 2010.[131] We questioned why DFID still provides development aid to India despite its rapidly growing economy, which can fund space and nuclear activities as well as its own aid programme, and reported statements by Indian Ministers that they would rather do without British aid but that British officials had replied that cancellation would cause political embarrassment in Britain.[132]

102.  The Secretary of State for International Development told us that he had after careful consideration taken the decision to retain the bilateral aid programme in India, focussing on the three poorest states: "In India, seven and a half times the total population of the United Kingdom live on less than $2 a day. In some of the poorest states, more than half the children are malnourished ... The decision that I made was that we should walk the last mile with India on development but that we should work in only the very poorest states. We have identified three of the eight poorest states as the places where we should work, principally on trying to support with technical assistance basic services and governance."[133] The Secretary of State also told us that reported dismissive comments by Indian Ministers about British aid were "out of date" as they were made in 2010.[134] Agreement with India on British aid programmes was reached the following year "and they have since welcomed our programme."

103.  Christian Aid told us that Madhya Pradesh, population 70 million, has rates of poverty nearly identical to the Democratic Republic of Congo, even though India's GDP per capita is over 10 times that of the DRC.[135] We also heard that there are still as many Indians (about 300 million) living in extreme poverty as in the whole of Sub-Saharan Africa.[136] Professor Ramachandra Guha of the LSE advocates closure of DFID's operations in India.[137] Mr Dominic Lawson, a journalist, sees British aid to India as "a combination of misplaced post-colonial noblesse oblige and a desire to look good on the international stage."[138]

104.  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.

Budget support

105.  Budget support comes in two forms: general which can be spent in any area; or sectoral which can be spent only in one area such as health or education. Both are disbursed through the national government of the recipient country, unlike project aid which is often delivered outside the host government's system.

106.  Professor Ndulu said: "To some extent, project funds are much less amenable to co-ordination and to government prioritisation in the manner that budget support ... would be."[139] Save the Children argued that budget support is more effective than project aid, which is more fragmented and therefore involves higher transaction costs. But Mr Riddell, argued that, lower transactions costs had not yet happened:[140] "For both donors and recipients, transaction costs seem to have risen, not fallen."

107.  In contrast, the Business Council for Africa UK wrote: "Large amounts of budgetary support by their very nature tend to undermine the democratic process by intervening between the government and its electorate because the government is neither accountable to, nor dependent on, the electorate for that part of its revenue." Once the money is handed over it is "virtually impossible for DFID to apply any rigorous audit regime". The organisation added that large amounts of budgetary support make corruption "more likely to flourish" and risk freeing up recipient government funds for other programmes that do not enhance economic development such as "expensive items of defence equipment."[141]

108.  Professor Sachs said: "I am not keen on programmes that say, 'You are a good Government, you get high governance scores from the World Bank, therefore you are going to be a recipient of budget assistance and we trust you.' I trust nobody." Handing over money to central government and expecting it to reach the local level is, unless very carefully designed, "a hope too far",[142] Professor Sachs is instead "a big fan of well targeted, well defined programmes that can accomplish well designed and specified purposes", such as delivery of bed nets or vaccines.[143]

109.  The Secretary of State for International Development told us that budget support could be useful since otherwise avoidance of recipient governments' systems "might weaken or undermine developing countries accountability to their own citizens."[144] But "The UK Government only gives general budget support in countries where we are completely satisfied that funding will be used for the intended purpose."[145] He had decided that DFID would halve bilateral general budget support, £360 million in 2010/11, by 2014/15. DFID has tightened disbursements, now made in biannual or quarterly tranches rather than annually. Bilateral sector budget support is nevertheless to rise from £283 million by about 20% over the same period.[146] And much of Britain's funding of multilateral agencies—£3.2 billion in general funding and £1.5 billion for specific programmes in 2010-11[147]—takes the form of budget support. For example, the European Commission gave €1.8 billion (£1.5 billion) in 2010 for budget support—26% of the Commission's aid programmes.[148]

110.  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.

Aid, private investment and DFID

111.  DFID now emphasises its commitment to the private sector as a driver of growth. Its policy paper "The Engine of Development—the Private Sector and Prosperity for poor people" says that British aid helps pave the way for private-sector led growth by investing in developing the necessary workforce skills and in physical infrastructure. Policies designed to insure macroeconomic stability and good governance can help too by creating an environment in which the private sector is prepared to use its skills, and invest.

112.  The Secretary of State for International Development calls DFID's private sector department the "SAS of the DFID army. We are giving it a huge priority."[149] DFID is seeking to recruit staff from the private sector with the right skills in finance, investment, audit and supply change management to support its efforts. Dr Alison Evans noted that "With the need to engage much more closely with private sector partners … you need to have high-quality technical skills that are able to execute against those agendas … compared with others within the field … they have a good complement of skills in the area of ... private sector development." Of DFID she said while recognising that progress was being made the balance is not completely right.[150]

113.  Our witnesses broadly welcomed DFID's declaration of a new focus on the private sector although some expressed considerable doubt whether this was yet part of DFID's DNA. They expressed support for well-targeted technical assistance in support of, for example, commercial legal reform, audit and contract enforcement and strengthening standards enforcement. Mr Simon Harford of private equity firm Actis said "really targeted technical assistance, to complement what the private sector is doing anyway, would be very catalytic."[151]

114.  Technical assistance could also help improve local firms' access to private capital, both domestic and international. Mr Harford and Mr Jan Dehn hoped donors would support the development of local capital market infrastructure and associated regulation.[152]

115.  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.

Political conditionality

116.  Concern is sometimes expressed about aid to countries with oppressive regimes or patchy human rights records. Ms Wrong said: "I think you have to be tougher on them. I think it is time that they realised they are no longer donor darlings. Particularly the relationship with [Rwandan leader Paul] Kagame,... this is now a regime that has not once but several times sent assassination squads out to the UK, out to South Africa, to bump off members of its opposition who are exiled abroad. That makes me very uneasy."[153]

117.  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.

DFID and NGOs

118.  DFID works closely with local and international non-governmental organisations (NGOs). About 15% of DFID's bilateral aid funds projects run by NGOs,[154] while for the major UK NGOs, DFID accounts for as much as 10-20% of their total income.[155]

119.  While NGOs have traditionally been in the vanguard of humanitarian and relief efforts in conflict and post-conflict environments, they are also increasingly engaged in longer-term development activities, delivering core services especially in health, education, water and sanitation and, more recently, business services and political governance.

120.  There is a wide range of NGOs large and small, based in donor and recipient countries, with different aims and skills. Some are more effective than others. Journalist and author Linda Polman outlined in her book War Games the problems raised by the explosion of small, new NGOs, some of which provided aid that was useless—in one case frostbite medication to victims of tropical disasters—or even harmful such as performing medical operations without the necessary aftercare.[156] NGOs' comparative advantage is often seen as the flexibility to operate where official donor agencies or even recipient governments cannot, especially in remote and insecure environments. They may also, in some cases, be able to operate beyond the reach of predatory governments in weak states. Rory Stewart MP said: "It appears to be possible for Oxfam or Save the Children to deliver development aid to communities without paying huge numbers of bribes. In fact, one of the nice things about operating in most of the developing world is that most Governments in the developing world seem to be relatively good about not shaking down NGOs for bribes."[157] Others, however, argue that international NGOs, especially those engaged in humanitarian assistance, are vulnerable to capture by powerful interest groups and thus become indirectly complicit in corruption.[158]

121.  There are risks to excessive reliance on the NGO sector. In the long run, the NGO sector cannot be a substitute for effective government, nor should it. As Professor Sachs notes: "they are not ... the ultimate mechanism for success" since they "cannot deliver ... a coherent national programme."[159] Professor Collier said: "The public sector has the scale but not the motivated workforce, and the churches and NGOs have the motivated workforce but not the scale."[160] Heavy reliance on NGOs in the short-run may even hinder attempts to re-build government capacity in the longer term. Other witnesses pointed out that NGOs delivering good projects can undermine the credibility of host governments by depriving them of credit for progress with local people.[161]

122.  More generally, the strength of the NGO sector is also a weakness. Local NGOs tend to be very small, which limits their capacity to deliver efficient services at scale, and they vary enormously in terms of their capacity to deliver and their quality of financial management. And since many local NGOs are able to operate only by maintaining close links with domestic political elites, there is an ever present risk of co-option by undesirable regimes.

123.  DFID conducts detailed and regular due diligence on UK and international NGOs before funding them,[162] but, according to the Independent Commission for Aid Impact NGOs funded in recipient countries are "not subject to the same level of scrutiny."[163]

124.  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.

Should DFID learn from China's engagement with developing countries?

125.  China's assistance to developing countries, particularly those in Africa, is closely integrated with its wider commercial interests and tends to be geared towards acquiring control over scarce natural resources and gaining access to new and growing markets for its exports. Aid projects are typically executed on a commercial basis relying heavily on Chinese capital, labour and expertise. Ms Evans said: "They frame it very much in a language of mutual reciprocity—this is about solidarity. They see themselves as partners of these countries, certainly not as donors ... Quite a lot of that is ... with an explicit eye to a return, in terms of access to critical resources or particular markets [but] interpreting this as a single self-interested transfer is dangerously stereotypical."[164] Mr Glennie opposed any emulation by the UK of the Chinese approach to aid: "As the sixth or seventh richest country in the world, we do not have the same right to demand a return as I think the Chinese and the Indians do."[165]

126.  NGOs opposed linking aid with commercial interests. Mr Max Lawson feared that wider adoption of China's self-interested approach to aid could lower standards: "Our fear is ... that we will see a fall in the standards of European aid in a race to the bottom and a return to a much more self-interested approach to the aid business, against which we spent many years campaigning."[166]

127.  The UK has long abandoned tied aid aimed at securing commercial benefits, on the lines of the old Aid and Trade Provision (ATP). In Mr Manning's experience of managing tied aid "You make so many bad decisions ... that we should do everything we can to avoid it."[167] He doubted in any case that British business would be competitive with China in building infrastructure in Africa. Better in his view to "work with African governments to strengthen local accountability and good governance, so that they take a careful approach to borrowing from any source, including the emerging economies."[168]

128.  Asked if the UK should emulate China in deriving direct economic benefit from aid projects, the Secretary of State for International Development argued that British aid policy "does have an economic return in terms of building prosperity in very poor countries" and that the aid budget "is spent in Britain's national interest [and] is a tremendous investment in our future stability and prosperity."[169] He would however ensure that British aid was more conspicuously badged: "Recently in Mandalay I visited a big project which Britain is supporting and I was irritated to discover a number of plaques lauding the generosity of the German Government, which was greatly below the generosity of the British taxpayer. So I am intent on making that change."[170]

129.  The Secretary of State considered that China's role was "extremely productive and extremely good for development." It would discover "the importance of embracing transparency and openness." He had discussed with his Chinese colleague "ways in which we could cooperate in third countries and on issues where we both have common interests."[171]

130.  We welcome the Secretary of State's commitment to ensure better 'badging' of British aid. Other donor governments are less reticent.

131.  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.

Staffing

132.  Like other Whitehall departments DFID is to cut its administration budget by a third in the four years to 2014/2015. Of the £33.8 million savings £18.5 million have already been made through country office closures, reductions in the number of senior civil servants, new controls on travel and consultancy and tighter approval of training. That leaves £15.3 million to be found, of which £9.1 million is to come from streamlining human resources, moving to cheaper office accommodation in London and new telecoms services.[172]

133.  The cuts have raised concerns about the quality and evaluation of the aid programme. Professor Wood said: "There will be fewer and fewer people per $1 million of aid spent ... To deliver aid effectively, particularly in fragile states, is a very labour-intensive activity. I am seriously concerned that there is a mismatch here."[173]

134.  But DFID officials told us: "The spending settlement also allows us to scale up our front-line staffing ... The overall picture for departmental staffing is that numbers will probably stay at around 2,400 over the period. Within that, a significantly higher proportion of staff will be working on the front line and a smaller proportion on corporate tasks."[174] Some administrative staff were being recategorised as programme support staff. Front line delivery costs would rise from £91.2 million in 2011/12 to £138.9 million in 2014/15.[175] A large part of the planned expansion of front line staff is in advisory posts across a range of areas. Advisory staff in the area of evaluation and results are set to double to 51 over the two years to March 2013 while the number of humanitarian aid advisors is targeted to more than double to 22.

135.  Mr Gordon Bridger, a former senior aid official and author of "How I Failed to Save the World" alleged that DFID officials were not motivated to ensure value for money because they were awarded bonuses for reaching aid spending targets, regardless of effectiveness or results.[176] The Secretary of State vehemently denied this claim describing it as "nonsense". He went on: "No member of staff has an objective to simply spend a certain amount of money."[177] DFID operates two performance award schemes—one for senior civil servants and another for all other staff. Senior civil servants can receive a bonus ranging from 10-13% of annual salary.[178] For the year 2010-11 out of 93 senior civil servants, 23 were awarded a bonus—the maximum awarded was £15,000; the median £10,000. A maximum of 25% of senior civil servants can receive a bonus. The criteria for awarding bonuses to senior civil servants are based on DFID's Business Plan.[179] Non-senior staff can receive bonuses from £275 to £1,000.[180]

136.  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.

Corruption

137.  The Secretary of State for International Development called corruption the "cancer in development" and said "we have to have zero tolerance towards corruption."[181] Corruption "diverts resources hugely from productive deployment. An obvious example is using aid money ... for the purchase of expensive defence toys that are neither necessary nor productive", according to Mr Charles Cullimore of the Business Council for Africa UK.[182] DFID's written evidence stated: "The Department does not tolerate corruption or misuse of taxpayers' funds in any form."[183] But as Sir Tim Lankester and Lord Jay of Ewelme pointed out, "... there is a degree of corruption in any developing country. That does not mean that all money you give to that country is going to be misused."[184] Lord Jay of Ewelme nevertheless emphasised that "... you should never publicly accept that corruption is there ... you fight against it and you try to ensure that you have the sort of programmes that prevent it happening."[185] Former Foreign and Commonwealth Office consultant Michael Shaw said: "Life is grey, not black and white, is it not? If you are going to say, 'Absolutely no corruption whatever', you will not get anywhere in life."[186]

138.  It is not clear how far tough talk leads to tough action against corruption. Although the Secretary of State cited a rise to 90% in recovery of identified losses from corruption, the total sum quoted for a year was only £1.2 million[187] or less than 0.02% of DFID's annual budget, an implausibly low proportion. The National Audit Office acknowledge that DFID's "risk profile is very different" from other departments as it "distributes aid in some of the most troubled areas of the world."[188] Although "once a fraud is known, DFID's record on investigating it is good",[189] DFID "does not attempt to quantify its estimated likely losses ... The Department is too reactive and cannot provide Parliament and the taxpayer with a clear picture of the extent, nature and impact of leakage."[190] The Auditor General added: "I can understand, frankly, why DFID is not very keen to talk about fraud in its programme because it probably thinks that that is quite damaging to the Government's willingness to support aid programmes."[191]

139.  Sir Edward Clay wrote that during his time as High Commissioner to Kenya, from 2001-2005, corruption "infected every institution of the state."[192] "When I have challenged DfID's continuing assistance to the Kenyan government, and their association with some suspect individuals, the stock answer has been that their investment in education and the fact that over a million additional children had been admitted to primary school overrode any serious reservations they might have about the senior Kenyans they worked with. But of the top heads that rolled as a result of the outcry over corruption I had helped stimulate in 2004, three were key ministers in our bilateral relationship. Thus, the good that our aid has done was tainted by association of British support with some seriously bad hats."[193] Referring to a corruption scandal in the Kenyan Education Ministry, Ms Wrong wrote "This discovery, a full nine years into the donor-funded programme, raises alarming questions about the level of checking and auditing performed by DFID officials who believe themselves—naively—to be fully on top of their dossiers." Ms Wrong argued DFID "routinely plays down the importance" of policing corruption.[194] Sir Edward Clay agreed, but welcomed DFID's subsequent suspension of aid to the Kenyan education ministry "I do not think it has yet produced the missing money; but the action was a severe shock to Kenya, and felt right at the top."[195] The Secretary of State later told us that £120,000 of lost funds in this case had been recovered.[196]

140.  Ms Wrong also emphasised the risk of more corruption arising from pressures to spend a rapidly-rising aid budget. "The obvious way to get large amounts of money out the door is to give it as direct budgetary aid, but that means very little oversight unless you trust the Auditor-General in the country concerned and ... that is often a mistaken assumption to make. You are either going to have to do it as direct budgetary aid, which you cannot then monitor, or you are going to have to give it to the multilaterals and then you are depending on their processes, or you are just not going to give it. But you have to give it because you have to meet 0.7% aid, so I do not understand how you square that circle."[197] Corruption was also likely to increase as a greater proportion of an increasing aid budget focuses on countries, such as fragile states, where the risk of fraud is higher.[198]

141.  Ms Wardell said that in countries where corruption was rife DFID tried to avoid "holding poor people hostage to their poor governance ... What we will say is that we will not invest in certain areas or we will not work with certain parts or certain institutions like the Government because we do not have any confidence in their ability to manage funds in an accountable way." She gave examples of programmes in Pakistan and Guyana where DFID had cut funding after corruption was uncovered.[199]

142.  Fraud can also be prevalent in the programmes of multilateral agencies funded by Britain, such as the external aid programmes of the European Union. OLAF, the EU's anti-fraud body, stated in its 2009 annual report: "In the external aid area, OLAF investigators often encounter modus operandi typical of organised fraud. The risks that make such fraud possible include shortcomings in coordination between the different global and international donor organisations."[200] One of the measures against corruption taken by the Government is the setting up of the Independent Commission on Aid Impact (ICAI), intended to hold DFID to account on this and other fronts. According to the ICAI's first report on DFID's anti-corruption measures, much more needs to be done: "Most UK aid ... is delivered by external partners. DFID's monitoring of these partners requires improvement. There is a need for more articulated processes for managing the corruption risks associated with particular aid types and greater attention to due diligence and on-the-ground monitoring."[201] The Secretary of State said he had accepted the ICAI's recommendations on how to improve DFID's anti-corruption measures and instructed his department to implement them "lock, stock and barrel."[202]

143.  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.

The Independent Commission for Aid Impact (ICAI)

144.  The government is aware of the need to persuade the public that aid money is being used wisely and well. The Secretary of State said: "My job as Development Secretary ... is to spend the money well and to get the results that we have promised to get."[203] To secure this it has set up the Independent Commission on Aid Impact, which reports directly to parliament through the House of Commons International Development Committee. This is an important development which in principle we applaud.

145.  However, we are concerned that the Commission is not in practice fulfilling the role which it has been given. In its evidence to us, the Commission refused to divulge the most basic facts about its budget on grounds of commercial confidentiality, though the Secretary of State subsequently wrote to us admitting the figures could be derived from published documentation. In oral evidence, the ICAI failed to convince the committee that it was appropriately resourced for the work with which it was charged and that it could be relied on adequately to fulfil its role. These are early days for ICAI, but 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.


121   DFID (2011), UK aid: changing lives, delivering results (this is a summary of the results of the bilateral and multilateral aid reviews) Back

122   Data taken from DFID, Statistics on International Development, 2006/07-2010/11, October 2010 Back

123   Open Europe  Back

124   Q 314 Back

125   Adam Smith International Back

126   The World Bank is made up of five agencies of which the International Development Association is one. The other four are: the International Bank for Reconstruction and Development which lends to governments of middle-income countries and creditworthy low-income countries; the International Finance Corporation which provides loans, equity and technical assistance to stimulate private sector investment in developing countries; the Multilateral Investment Guarantee Agency which provides guarantees against losses caused by non-commercial risks to investors in developing countries; and the International Centre for Settlement of Investment Disputes which facilitates conciliation and arbitration of investment disputes.  Back

127   Department for International Development, Multilateral Aid Review, Page 182, March 2011 Back

128   Department for International Development, Multilateral Aid Review, Page 185, March 2011 Back

129   Adam Smith International  Back

130   DFID 1, para 47 Back

131   Statistics on International Development 2011, Table 10, Top Twenty Recipients UK Net Bilateral ODA 2008-2010 Back

132   Sunday Telegraph, 'India tells Britain: We don't want your aid' by Andrew Gilligan, 5 February 2012  Back

133   Q 607 Back

134   Secretary of State for International Development (SoS 5)  Back

135   Taken from the CIA's World Factbook. On a purchasing power parity basis GDP per capita in 2010 was $3,500 for India and $300 for the DRC. Back

136   Q 11, Q 54, Q131 Back

137   Financial Times, 'Send India the power of our pen, not our purse', 10 February 2012 Back

138   The Independent, 'If India doesn't want it, why are we still giving them money?' by Dominic Lawson, 7 February 2012 Back

139   Q 34 Back

140   Roger Riddell, Does Foreign Aid Work?-a chapter in Monique Kremer, Peter van Lieshout and Robert Went (eds.) (2009) Doing Good or Doing Better, Development policies in a globalizing world Back

141   Charles Cullimore, Business Council for Africa UK Back

142   Q 461 Back

143   Q 461 Back

144   Secretary of State for International Development (SoS 3)  Back

145   Secretary of State for International Development (SoS 3) Back

146   DFID 3 Back

147   DFID, Statistics on International Development, Table 3, October 2011 Back

148   DFID 5; DFID provided budget support figures for six of the multilateral agencies it funds. Back

149   Q 635 Back

150   Q 90 Back

151   Q 262 Back

152   Harford, Q 259 and Dehn, Q 263 Back

153   Q 430 Back

154   Independent Commission for Aid Impact, The Department for International Development's Approach to Anti-Corruption, 2 November 2011 Back

155   Q 208 Back

156   Linda Polman War Games: The Story of Aid and War in Modern Times, Chapter 3 (Penguin, 2010) Back

157   Q 351 Back

158   For example Linda Polman War Games: The Story of Aid and War in Modern Times (Penguin, 2010) Back

159   Q 461 Back

160   Q 328 Back

161   Q 352 Back

162   Q 250 Back

163   Independent Commission for Aid Impact, The Department for International Development's Approach to Anti-Corruption, par 3.28, 2 November 2011 Back

164   Q 95 Back

165   Q 99 Back

166   Q 245 Back

167   Q 305 Back

168   Q 297 Back

169   Q 631 Back

170   Q 628 Back

171   Q 641 Back

172   Secretary of State for International Development (SoS 4) Back

173   Q 28 Back

174   Q 143 Back

175   Ibid Back

176   Q 663 Back

177   Secretary of State for International Development (SoS 6) Back

178   Secretary of State for International Development (SoS 6) Back

179   Figures available at http://www.dfid.gov.uk/About-us/How-we-measure-progress/SCS-staff-who-received-a-bonus/  Back

180   Secretary of State for International Development (SoS 6) Back

181   Q 617 Back

182   Q 669 Back

183   DFID 2, para 19  Back

184   Q 68, Q 71 Back

185   Q 73 Back

186   Q 670 Back

187   Q 619 Back

188   Q 369  Back

189   Q 391 Back

190   National Audit Office (April 2011), Department for International Development-Financial Management Report  Back

191   Q 393 Back

192   Sir Edward Clay (SEC 1)  Back

193   Sir Edward Clay (SEC 1)  Back

194   Wrong, para 5 Back

195   Sir Edward Clay (SEC 1),para 24  Back

196   Secretary of State for International Development (SoS 1) Back

197   Q 413 Back

198   Independent Commission for Aid Impact, The Department for International Development's Approach to Anti-Corruption, executive summary, November 2011 Back

199   Q 193 Back

200   OLAF/European Anti-Fraud Office, Annual Report 2009, Ninth Activity Report for the period 1 January 2008 to 31 December 2008 Back

201   Independent Commission for Aid Impact, The Department for International Development's Approach to Anti-Corruption, executive summary, November 2011 Back

202   Q 617 Back

203   Q 606 Back


 
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