Bridges Weekly Trade News Digest • Volume 12 • Number 29 • 10th September 2008

Donor, Recipient Countries Struggle over How to Make Aid More Effective

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Officials meeting in Ghana last week agreed to an ‘Agenda for Action’ on ways to improve foreign aid, which critics say is often poorly coordinated, inefficient, delayed by bureaucratic red tape, or redirected to the pockets of corrupt officials.

“Whether aid works can help determine whether the future is one of hope or privation,” World Bank President Robert Zoellick told the participants of the Third High-Level Forum on Aid Effectiveness, which met in Accra from 2-4 September. “The consequences of getting aid right - or getting it wrong - are very real,” he said.

The Accra meeting - which was hosted jointly by the Organisation for Economic Cooperation and Development (OECD), the World Bank and the government of Ghana - brought together 1,200 participants from governments, civil society, and financial institutions; more than 100 countries were represented.

For many low-income countries, foreign assistance is a major source of development finance. In Sub-Saharan Africa, home to most of the world’s poorest nations, foreign aid accounts for about two-thirds of all capital inflows, according to World Bank statistics. Recent spikes in fuel and food prices have made effective aid delivery ever more critical, analysts say.

Participants at the Accra meeting reviewed the progress toward achieving the 12 goals for aid effectiveness that were set out in the Paris Declaration of 2005, in which donor governments promised to make aid more predictable and to reduce certain conditionalities attached to it. The declaration also urged donors to work to increase recipient country ‘ownership’ of development projects, to ‘harmonise’ aid coming from multiple sources, and to work towards mutual accountability for development results.

While a report by the World Bank gave a mixed review of improvements in aid delivery over the past three years, anti-poverty NGO Oxfam International claimed in an official statement that there has been “little progress by donors on meeting many of the Paris targets.”

Making aid effective is critical to the fight against poverty, analysts say. Indeed, some argue that the primary challenge for development is not too little aid - foreign aid from rich-country governments and private sources totals more than US$ 140 billion per year - but rather that the aid is not delivered effectively.

World Bank President Zoellick told meeting participants that the average recipient country hosts 260 donors a year, and that in 2007 those donors conducted an “astonishing” 14,000 missions to 54 countries; less than one fifth of those projects were done in conjunction with another donor. Zoellick also noted that as the donors increased in number, the size of their donations shrank. In 2006, he said, there were more than 70,000 aid transactions - as compared with 10,000 a decade earlier - and the average project size was just US$ 1.7 million.

Development experts say that, while the funds are appreciated, the sheer number of projects is a burden on developing country governments.

UNICEF Executive Director Ann Veneman told meeting participants that she had seen such effects first-hand: “I have met with some ministers in developing countries who tell me they spend as much as 60 per cent of their time meeting with individual donors and organisations and their staff spend more time complying with separate bureaucratic procedures than delivering results,” Veneman said.

She also noted that donors do not always follow through on their pledges: “In 2007, less than half of aid was disbursed according to schedule,” Veneman said.

An ‘Agenda for Action’

After three days of intensive negotiations, meeting participants agreed on the Accra Agenda for Action, which has since been both praised as an important step forward in improving aid delivery, and derided by NGOs and developing country officials as nothing more than a weak symbolic gesture. The US and Japan reportedly fought hard against the inclusion of strict timetables for the achievement of the aid goals.

But meeting participants did agree that more aid needs to be funnelled through in-country public financing systems, rather than through external agencies or funding mechanisms. Less than one quarter of aid now ends up in the coffers of recipient country governments, according to OECD figures.

Developing countries argue that most of the donated funds end up covering overhead costs or paying the salaries of rich-country experts.

“You cannot demand or expect us to produce results or alleviate poverty when only 25 percent of the donated money gets to us,” said Patrice Bemba, a finance official from the Democratic Republic of Congo, as reported by The Daily Nation.

And developing nations are increasingly able to handle an influx of funds, according to a recent OECD assessment, which found that 36 percent of the developing countries surveyed had improved their public finance mechanisms since 2005.

World Bank President Zoellick expressed his support for efforts to increase the amount of development aid going directly into the national budgets. It was critical for recipient governments to have a “driving seat” in development projects, he said.

Robert Fox of Oxfam International echoed that sentiment: “Aid should strengthen local capacity rather than spawning parallel aid empires or relying heavily on contractors and consultants from the North.”

“The sooner we ensure our aid dollars are strengthening the capacity of developing countries to meet their needs, the better,” Fox said.

The OECD also reported that donors have made at least some progress on reducing the proportion of aid that comes with strings attached, such as stipulations that project equipment be procured from the donor country. According to OECD figures, 47 percent of aid in 2006 was given with conditions, down from 57 percent four years earlier.

But more flexibility is needed, some say, especially on food aid: “Restrictions, earmarks and onerous conditions on food aid mean higher costs and these should be removed to ensure that food gets quickly to where it is most needed,” Zoellick said.

Progress toward the MDGs

The quality and amount of aid provided to the world’s poor countries has received significant international attention since the adoption of the Millennium Declaration and the MDGs in 2000. A UN report released on 4 September claims that trade and aid continue to be significant obstacles to the achievement of the anti-poverty Millennium Development Goals (MDGs), even though the debts of many of the world’s poorest states have been relieved. Governments and institutions would need to donate an additional US$ 18 billion per year for the next two years if the MDGs are to be met by 2010, the report says.

UNDP Administrator Kemal Dervis stressed that the commitments made at the Accra conference must be met, especially in the lead-up to a high-level event on the MDGs later this month in New York, as well as the November Doha Financing for Development Review Conference, which will focus on the quantity of foreign aid, and the difference between donors’ promises and the payments they deliver.

“The Accra Agenda for Action calls for an urgent response: we must follow through on these commitments. We cannot wait,” Dervis said in a statement, according to the UN News Service.

ICTSD reporting; “Nice, Fuzzy Language on Aid,” IPS, 3 September 2008; “US and Japan Fight Overseas Aid Proposals,” THE FINANCIAL TIMES, 4 September 2008; “Slow Progress on Development Aid Improvements,” THE GUARDIAN, 4 September 2008; “Africa Tells Off Donors on Aid,” THE NATION, 4 September 2008; “Ghana Meeting Calls for Less Talk, More Action on Aid,” THE NATION, 4 September 2008; “Ghana Conference Brings Together Aid Donors, Recipients,” VOA NEWS, 3 September 2008; “EU Forces New Global Deal on Channelling Aid,” THE IRISH TIMES, 6 September 2008; “W. Bank urges better aid to fight food, fuel squeeze,” REUTERS, 4 September 2008; “A Scramble in Africa,” THE ECONOMIST, 4 September 2008.