60
AN AGENDA FOR MAKING AID WORK

ActionAid - Real Aid

Embed Size (px)

Citation preview

Page 1: ActionAid - Real Aid

AN AGENDA FOR MAKING AID WORK

Page 2: ActionAid - Real Aid

2

Page 3: ActionAid - Real Aid

ACRONYMS & ABBREVIATIONS 2

EXECUTIVE SUMMARY 3

INTRODUCTION 4

CHAPTER 1 AID AND RIGHTS 7

1.1 INTERNATIONAL AID CAN WORK TO PROTECT BASIC RIGHTS 9

1.2 THE CASE FOR MORE AID 9

1.3 MUCH MORE AID IS NEEDED 12

1.4 AID AND NET RESOURCE FLOWS 13

1.5 CONCLUSION 13

CHAPTER 2 REAL AID 15

2.1 MEASURING REAL AID 17

2.2 CALCULATING REAL AID 17

2.3 REAL AND PHANTOM AID – THE DONOR RANKINGS 28

2.4 CONCLUSION 28

CHAPTER 3 ACCOUNTABLE AID 33

3.1 DONORS ARE NOT ACCOUNTABLE 35

3.2 THE CASE OF AID CONDITIONALITY 36

3.3 AN INTERNATIONAL AID AGREEMENT 39

3.4 CONCLUSION 48

CHAPTER 4 CONCLUSIONS AND RECOMMENDATIONS 51

REFERENCES 54

ACKNOWLEDGEMENTS AND CONTACTS 56

CONTENTS

Page 4: ActionAid - Real Aid

ADB Asian Development Bank

BWI Bretton Wood Institution

CCF Christian Children’s Fund

CG Consultative Group

CITES UN Convention on Trade in Endangered Species

CSO Civil Society Organisation

DAC Development Assistance Committee

EC European Commission

ECOSOC UN Economic and Social Council

GDP Gross Domestic Product

GNI Gross National Income

HIPC Heavily Indebted Poor Countries

IAA International Aid Agreement

IFF International Finance Facility

IFI International Financial Institutions

IMF International Monetary Fund

MDGs Millennium Development Goals

NGO Non-Governmental Organisation

NPRS National Poverty Reduction Strategy

ODA Official Development Assistance

OECD Organisation for Economic Co-operation and Development

PEAP Poverty Eradication Action Plan

PRGF Poverty Reduction and Growth Facility

PRSC Poverty Reduction Support Credit

PRSP Poverty Reduction Strategy Paper

TA Technical Assistance

TAACC The Apac Anti Corruption Coalition

UN United Nations

UNDP United Nations Development Programme

UPE Universal Primary Education

WHO World Health Organisation

WTO World Trade Organisation

2ACRONYMS & ABBREVIATIONS

Page 5: ActionAid - Real Aid

We live in an age of unprecedentedprosperity and technological progress,yet the most basic social and economicrights are routinely violated on a massivescale. Each day, 30,000 children diefrom easily preventable disease. 100million children see their right to aprimary education denied. 800 millionpeople go to bed hungry each night.

Aid has a critical role to play in achievingthese rights. It is not a magic bullet. Butexperience shows that where aid isdeployed effectively as part of a widerdevelopment strategy, it makes a lastingdifference in helping people to liftthemselves out of poverty. It is equallyclear that more aid is urgently needed.Estimates of the financing needs of thepoorest countries vary, but they all pointto the same conclusion – that currentdonor efforts are grossly inadequate.

Yet increasing aid by itself is not enough.Put simply, the aid system is not geared to achieving the poverty reduction goalsthat were agreed in 2000. Donors mustradically improve the quality of their aidif it is going to make a fully effectivecontribution to the fight against poverty. At present, two thirds of donor money is ‘phantom’ aid that it is not genuinelyavailable for poverty reduction indeveloping countries.

Failure to target aid at the poorestcountries, runaway spending onoverpriced technical assistance frominternational consultants, tying aid topurchases from donor country’s ownfirms, cumbersome and ill-coordinatedplanning, implementation, monitoringand reporting requirements, excessiveadministrative costs, late and partialdisbursements, double counting of debtrelief, and aid spending on immigrationservices all deflate the value of aid.

In this report, we show the extent towhich the official aid figures exaggeraterich countries’ generosity. By discountingfor phantom aid, we establish the amountof ‘real aid’ that is promoting basic rightsin the poorest countries. The resultshighlight the urgent need for reform bythe donor countries:

— In 2003, real aid was only $27bn, orjust 0.1% of the donor countries’combined national income

— For the United States and France,two of the world’s largest aid donors,almost 90% of their contributions arephantom aid

— The G7 countries are the worstperformers when it comes to real aid.On average, the world’s seven largesteconomies give just 0.07% ofnational income in real aid. In otherwords, they must increase real aidtenfold to reach the UN target of 0.7%

— In real aid terms, the Norwegians are 40 times more generous perperson than the Americans, and 4 times more generous than theaverage Briton.

The problems underlying the gulfbetween official and real aid are not new.Donors have signed up to numerousinternational agreements to improve thequality of their aid. Yet this agenda hasmade little headway. At the heart of thisfailure there lies a lack of accountabilityon the part of donors for either theamount of aid they commit, or thequality of that aid. Meanwhile, donorscontinue to make excessive demandson recipients for ‘upward’ accountability,attaching rafts of intrusive policyconditions to their aid, and restrictingthe ability of developing countries toplot their own development paths.

This report argues that the share of real aid in official aid flows is unlikely to increase unless this ‘one-way’accountability is replaced by a systemof genuine mutual accountability, whichbalances the legitimate interests ofdonors, recipients and, mostimportantly, poor people.

ActionAid is calling for a new InternationalAid Agreement to make aid real andaccountable, with four key elements:

— Clear policies from developingcountries on the criteria for accepting aid

— Mutual commitments in place of one-sided conditionality, that aremonitored transparently at thecountry level

— National and international forumswhere donors and recipients can review progress on an equal footing, overseen by a UNCommissioner on Aid

— New mechanisms to substantiallyincrease the volume andpredictability of aid.

EXECUTIVE SUMMARY 3

Page 6: ActionAid - Real Aid

International aid is in the spotlight as never before. The ‘aidpessimism’ of the 1990s has been supplanted by widespreadagreement that significantly more aid is needed if poverty is to be reduced and basic rights protected. In the wake of the UNsummit on Financing for Development in 2002, G7 countries are competing to push for their own proposals for financingdevelopment.

Yet aid increases will not help to reduce poverty in the absence of major improvements in the quality of that aid. At present, far too much aid is driven by geopolitical and commercial objectivesrather than by efforts to protect the rights of poor people. If aidcurrently has a mixed record in terms of its impact on povertyreduction, that is because it is often not what it is designed to do.Poor quality aid from unaccountable donors is a blunt instrumentin terms of its impact on poverty. As this report argues, far-reaching changes are needed by donors to make aid a sharp tool in the fight to realise basic rights for all.

Recipient governments also need to reform. Accountability,transparency, democracy and the protection of human rights mustall be improved. But where donors promote these changes, theyneed to happen in the context of genuine mutual accountabilitybetween rich and poor countries. Donors must support andencourage developing country efforts to reduce poverty by meeting their international commitments to provide more and better aid. They must reach these commitments, not as they arecurrently measured, but in terms of real aid that is truly available to support poor countries’ efforts to protect basic rights.

Aid donors fall far short of meeting the official international aidtarget of 0.7% of national income. ActionAid’s new ‘real 0.7%rankings’, presented in this report, show that when it comes to‘real’ aid they are falling even further behind. According to ouranalysis, more than 60% of aid flows are ‘phantom’; that is they do not represent a real resource transfer to the recipient. For theworst performing G7 donors, the figure is as high as 89%. Real aid stood at only US$27 billion, or 0.1% of donor national income in 2003, with G7 donors at an average of only 0.07%.

INTRODUCTION 4

Page 7: ActionAid - Real Aid

5

In other words, despite political grandstanding on the issue, G7 donors are only one tenth of the way towards meeting the0.7% target. And this paltry contribution pales in comparisonwith the value of reverse flows from South to North, in the formof ecological debts, unfair trade rules and South-North financialflows, which stood at US$710 billion in 2003.

This report argues that for aid to be fully effective, it can no longer be treated as a voluntary, charitable transfer from North to South. Instead, aid must be part and parcel of a widerredistributive agenda designed to protect basic rights. For thisto happen, poor people’s voices, needs and priorities must beput front and centre in the design of aid programmes.

This means that current patterns of accountability must change.At present, donor agencies hold recipients accountable, and are in turn accountable to their own taxpayers. But donors continue touse unfair, undemocratic and inappropriate policy conditionality ina way that skews recipient accountability away from the citizens ofpoor countries. Meanwhile, neither governments nor poor peoplein recipient countries are able to hold donors properly to accountfor the quality or quantity of aid they provide. This must change.ActionAid is proposing a new international aid agreement to make aid more accountable, and effective.

This report falls into three parts. Firstly, we show why aid must beprovided as an entitlement based on rights. Secondly, we presentour assessment of ‘real’ aid by donor, and show how far donorsare falling short of meeting the real 0.7% target, and compare this with the extent of South-North flows. And finally, we presentour proposals for a new aid architecture based on mutualaccountability between donors and recipients. Our focus isprimarily on government-to-government development aid –although important, we do not discuss aid from NGOs, orhumanitarian aid, or aid in kind. Our findings are based on desk-based research, new analysis of donor aid flows and new countrycase study research in Vietnam, Cambodia, Uganda and Ethiopia.

Page 8: ActionAid - Real Aid

6

Page 9: ActionAid - Real Aid

“EVERYONE, AS A MEMBER OF SOCIETY, HAS THE RIGHT TO SOCIAL SECURITY AND IS ENTITLED TOREALISATION, THROUGH NATIONAL EFFORT ANDINTERNATIONAL CO-OPERATION AND IN ACCORDANCEWITH THE ORGANISATION AND RESOURCES OF EACHSTATE, OF THE ECONOMIC, SOCIAL AND CULTURALRIGHTS INDISPENSABLE FOR HIS DIGNITY AND THEFREE DEVELOPMENT OF HIS PERSONALITY.” UN UNIVERSAL DECLARATION OF HUMAN RIGHTS, 1948

CHAPTER 1 – AID AND RIGHTS 7

Page 10: ActionAid - Real Aid

Sixty years ago, the UniversalDeclaration of Human Rightsacknowledged that all humans haveinalienable rights, ‘indispensable fortheir dignity and the development oftheir personality.’ The UN Declarationhas since proven to be a powerful toolfor promoting political and civil rights.But the violation of economic, socialand cultural rights, also enshrined inthe UN Declaration, until recentlyattracted less international attention.This is now changing. Increasingly, theinternational community is recognisingthat people who die because they lackaccess to medicines or clean water aresuffering a rights’ violation as urgent asthose dying through persecution,repression or war.

In 1986, the UN declared the Right toDevelopment: “an inalienable humanright by virtue of which every humanperson and all peoples are entitled toparticipate in, contribute to, and enjoyeconomic, social, cultural and politicaldevelopment, in which all human rightsand fundamental freedoms can be fullyrealised….”2 And again, in theMillennium Declaration in the year2000, 189 countries announced that:“We are committed to making the right to development a reality foreveryone and to freeing the entirehuman race from want.”3

But despite growing recognition of the importance of economic and social rights, the violation of theserights continues on a massive scale.Every day, 50,000 people die frompoverty related and preventable

diseases. Thirty thousand of them arechildren. One billion adults are unableto read and write, and 100 millionchildren are outside school. Almostone quarter of people in poor countrieslack access to clean water. 4 This lack of basic rights in poor countries bothstems from and reinforces highlyunequal power – within and betweencountries – which marginalises poorpeople’s needs and priorities.

The aid system itself reflects thesepower imbalances. Partly for thisreason, aid alone cannot be expectedto solve the widescale violation ofsocial and economic rights. Aid iseffective only as one part of a coherent development strategy. For rich countries, this requirespolicies on trade and investment,debt and security that are consistentwith development goals, and whichensure a transfer of resources fromNorth to South rather than South toNorth. For poor countries, social andeconomic rights cannot be pursued in isolation from efforts to improvedemocracy, transparency and the ruleof law, or from those to reduce conflict.

But aid remains part of the solution.Rich countries must ensure that theyprovide sufficient resources, of the rightquality, to ensure the protection of basiceconomic and social rights. They mustalso ensure that aid fosters, rather thanundermines, downward accountabilityfrom governments to citizens.

8

Page 11: ActionAid - Real Aid

1. 1 INTERNATIONAL AID CAN WORKTO PROTECT BASIC RIGHTSInternational aid can work to protectbasic rights, if provided properly. Since1970, for example, aid has contributedto a doubling of school enrolments anda halving of infant mortality.5 Devastatingdiseases such as smallpox and riverblindness have been rolled back oreradicated through well-targeted donorinterventions. In East Asia, aid to SouthKorea and Taiwan was instrumental inhelping lay the foundations for rapideconomic growth that in turn enabledgovernments to extend basic economicand social rights.6

Yet in far too many countries, aid has not done an effective job of reducingpoverty or protecting basic rights. This failure is often blamed on venalgovernments siphoning off aid for theirown purposes, the most notorious case being the Mobutu regime in theDemocratic Republic of Congo, whichstole an estimated US$4 billion of publicfunds.7 But this is at best a partialpicture, not least because donorsthemselves have often been complicit in such corruption.8 As often as not, aidhas failed to reduce poverty because ithas never even reached the recipientcountry, but has instead been paid todonor country companies andconsultants, often for overpriced andinappropriate goods and services thathave few sustainable benefits. Forty percent of global aid, and 20% of aid toAfrica continues to be officially tied. TheDevelopment Assistance Committee(DAC) of the Organisation for EconomicCo-operation and Development (OECD)estimates that the value of aid would beboosted by US$5-7 billion each year ifaid were untied.9

When donors have provided aid ineffective and accountable ways, poorpeople have benefited. In Uganda, forexample, donors have been providingboth budget support and debt relief tofund poverty reduction programmes.This aid has been untied, reasonablypredictable and well co-ordinated. As a result, it has helped to fund a hugeexpansion in primary school enrolment,from three million children in 1997 toalmost eight million by 200310. Whileproblems of educational quality andweak accountability remain, there is no doubt that effective donor aid hashelped many more children to access a basic education. In Southern Africa,

a seven-country donor-financedmeasles immunisation campaignreduced the number of cases from66,000 in 1996 to 117 in 2000, almosteliminating it as a cause of child death.11

Examples such as this demonstrate thepotential for aid – where the objectivesand modalities are right – to make atangible difference to poor people.

1.2 THE CASE FOR MORE AID Despite the growing consensus on theneed for more aid to achieve the MDGs,set out most recently in the MillenniumProject report and the UK government’sCommission for Africa, a number of keyarguments continue to be made againstaid. These arguments include:

— countries cannot absorb more aid

— aid has failed to reduce poverty

— aid will substitute for domesticrevenue

— aid increases dependency

— aid undermines macroeconomicstability

— aid will be wasted through corruption

But on closer inspection, none of thesearguments makes the case for notincreasing aid, although some of themdo underscore the need for the rightkind of aid to be provided:

More aid can be absorbed Some donors are concerned thatadditional aid money cannot be wellspent by poor countries with already over-stretched government capacity. Yetthe evidence does not bear this out. Moststudies find that negative rates of returnon aid do not set in until it reaches at least25-50% of GDP, above the aid levels of all but six low-income countries in 2003.12

Moreover, many of the obstacles toabsorbing aid can be overcome throughinvestment, for example in managementand statistical systems and encouragingbehaviour change.

Limited absorption capacity is often a consequence of administrativelycumbersome aid. Poorly coordinatedmultiple planning, monitoring, reportingand auditing requirements from donorsdirectly limit recipients’ ability to absorbaid quickly and effectively. Experiencefrom countries such as Ethiopia hasshown that using country systems andharmonised procedures reduces thisburden, and significantly increasesimplementation rates for donor

programmes.13 Donors can also increaseabsorptive capacity by providingadditional aid through channels otherthan central government, including localgovernment, civil society groups and theprivate sector, while taking measures toensure this doesn’t undermine the longterm capacity of central government.14

Donors could also help to build capacityby shifting from ineffective andinappropriate Technical Assistancetowards genuine ‘capacity building’ and skills transfer.

Aid can foster growth In one recent review of 70 studies of the impact of aid on growth, 40 found a significant positive relationship, andonly one found a significant negativerelationship.15 Another recent studyfound that where aid has been ‘real’,and has focused on priority investmentsand basic services, it has contributedsignificantly to economic growth.16

Where growth has failed to fosterpoverty reduction, inappropriate WorldBank and International Monetary Fund(IMF) policy conditions have oftenplayed a role. Measures such as tradeliberalisation, privatisation and fiscalausterity, undertaken as a condition ofaid, have often failed to achieve thepromised benefits for poor people. For example in Tanzania, regarded bythe aid donors as a model performer in terms of its record on economicliberalisation, average GDP growth ofalmost 4% since 1990 has led to areduction of just three percentage points in extreme poverty.17

Aid complements domestic revenuesDespite large-scale aid flows to low-income countries, there was animprovement in the efficiency of revenue mobilisation across low-income countries between 1999 and2003. Many poor countries are relativelyefficient at raising revenues, and in Africathe tax effort is strong, once the size of the tax base and the loss of revenueinstruments through trade liberalisation is taken into account. Country studieshave also shown that on balance aid has had a positive impact on revenuecollection efforts, for example in Ghanaand Uganda.18 In Malawi aid has beenassociated with strong resourcemobilisation and reduced domesticborrowing, and has helped to protectpublic spending from the effects ofvolatile domestic financing.19

9

Page 12: ActionAid - Real Aid

Apac District is a poor rural district in northern Uganda. Its local government administration has been rated as one of themost corrupt in the country. This has led local people to startcampaigning to ensure that their government cleans up its act.

In Chawente Sub-Country, the Christian Children’s Fund (CCF) is training primary school children in how to monitor the publicfunds coming into their school, using support from the DFID-financed Commonwealth Education Fund. CCF works with 30 schools across the district, helping children to hold theirteachers to account. Although the project is new, it is alreadyhaving an impact: the District Education Officer is taking up the findings of the children and school inspections areimproving. Where head teachers are not co-operating, parents are demanding to know what has happened to thefunds. Children are learning more about what accountabilitymeans in practice, and are using their knowledge to teach other children and their parents.

A group of child monitors in Chamwente Primary School said: ‘It is important to do UPE (Universal Primary Education)monitoring so that children can learn better. Every fortnight, we go and see the head teacher and ask him questions. We ask for the receipts for what has been spent and also check the physical amount of things bought. We see whether the headteacher has bought the things or if he has just eaten the money.We would know if the head teacher has eaten the moneybecause we look at the receipts to see if they are forged. Wecheck the displays of releases of money which is required underUPE, and we count the children class by class. If something iswrong, we report this to the head teacher. If the head teacherdoes not accept what we say, we call the teachers and tell them. We also talk to the Christian Children’s Fund.’

Adults are also working to promote local accountability in Apac.The Apac Anti Corruption Coalition (TAACC) is a network of 28local and international NGOs, community based organisationsand church groups. TAACC also trains local opinion formers tomonitor the funds coming to their community for education andother projects. TAACC uses the findings of their tracking workto run radio broadcasts and debates and to organise publicdemonstrations against corruption.

TAACC’s work is already showing results. Money diverted from education budgets has been recovered. The DistrictEngineer has been indicted for corruption and TAACC’srecommendations have also been taken up by the DistrictChairperson, who has written to all his staff requesting them to follow them.

Source: interviews with TAACC, CCF and Chamwente Primary School children, March 10 and 11 2005

BOX 1: CAMPAIGNS AGAINST CORRUPTION IN APAC DISTRICT, UGANDA

10

Page 13: ActionAid - Real Aid

11

Real aid fosters independence Some donors are reluctant to increase aidbecause of concerns about poor countriesbecoming unduly dependent on externalfinance, mirroring debates in donorcountries about welfare dependency. Insome cases, commentators in developingcountries have voiced similar concerns,arising partly from a history of intrusivedonor conditionality and poor quality aid.20

If aid is provided in ways that genuinelyplace recipients ‘in the driving seat’ andreduce transaction costs, many of theseissues can be addressed.

Longer term, perhaps the best measureof aid effectiveness is the extent towhich a country reduces its reliance on external assistance. The East Asian‘tiger’ economies and EU accessionstates are examples of aid being wellused to foster greater economic andpolitical independence. Although aidwas only one factor in these countries’successes, the evidence shows thatwhere governments are committed topoverty reduction, and aid is targetedand efficient, it can play a crucial role in helping countries to grow their economies and extend social and economic rights.21

Aid’s macroeconomic impact can be managedInflows of foreign aid will tend toappreciate a country’s exchange rateand reduce export competitiveness,other things being equal. Governments

must either accept this appreciation, or sterilise the impact and raise interest rates.Some countries, backed by the IMF, areconcerned that aid flows can underminethe performance of the private sector,especially in exports, and hit economicgrowth. In extreme cases such as Uganda,these concerns have even led thegovernment to refuse any further aid.

However, most studies suggest that the impact of aid on exchange ratecompetitiveness is small.22 There arealso obvious trade-offs to be madebetween the beneficial impacts of aid and the usually marginal costs toexporters. Any decision to reject aid on these grounds needs to be based on a fully informed public debate. Sucha debate was missing in Uganda, wherethe policy was decided in a closed-doordiscussion between the Ministry ofFinance and the IMF. Line ministryofficials and NGOs involved in theconsultations for the nationaldevelopment strategy, the PovertyEradication Action Plan (PEAP),reported that at no point were thesetrade-offs discussed, and in many caseswere not even understood.23 For its part,the IMF has been reluctant to open up to public debate on this issue, and has resisted using Poverty and SocialImpact Assessments to run alternativemacroeconomic scenarios.24

As with other critiques of aid, the keyquestion is whether aid is genuinely

used for poverty reduction. Aid thatignores recipient needs and priorities,and which also inflates the exchangerate artificially, will result in a lose-losesituation for the recipient country. If aid is ‘real’, it is up to the recipientgovernment, and population, to assessthe trade-offs and to decide whether thebenefits of aid to the poor outweigh thecosts to exporters.

Aid can help combat corruptionCorruption is a very real problem acrossmuch of the developing world, andrecipient country governments musttake urgent action to address it. But asthe UN Millennium Project has pointedout, in many countries corruption and‘poor governance’ stems from a lack ofcapacity and effective systems, as wellas a lack of commitment to povertyreduction. In these circumstances,donor aid can help to provide capacityand to build effective systems, and can also support civil society in holdinggovernments to account (see Box 1).Where government corruption is sowidespread as to make fiduciaryaccountability impossible, donorsshould probably provide fundingthrough alternative channels such as civil society and communityorganisations.

Corruption is a consequence of povertyas well as a cause. Across the developingworld, incentives for ‘rent seeking’behaviour are created by public sector

FIGURE 1 ACTUAL AND REQUIRED ODA IN 2003 AND 2006

250

200

150

100

50

OFFICIAL ODA IN 2003

PROJECTED ODA IN 2006

ODA REQ. FOR MDGS IN 2006 (0.44% of GNI)

ODA IN 2006 IF ALL DONORS REACHED 0.7%

87

135

215

69

VALUE ($BN)

SO

UR

CE

: UN

MIL

LEN

NIU

M P

RO

JEC

T A

ND

OE

CD

–DA

C

Page 14: ActionAid - Real Aid

wages below the cost of living andweak oversight of public servants. InCambodia, for example, the typical civilservant only earns US$25 per month,only one fifth of the cost of living inPhnom Penh. Teachers in Uganda earnonly US$50-$55 per month, far belowthe cost of keeping a family, even in therural areas. The econometric evidencebacks this up, showing that almost everydimension of governance is correlatedwith income, with higher incomes beingboth a consequence and a cause ofbetter governance.25

Donors can help to put pressure onrecipient governments to reducecorruption and to ensure that aid isspent on its intended beneficiaries.More importantly, local people are alsostarting to hold their governments toaccount, for example through budgettracking initiatives.26 At the same time,donors can do far more to tacklecorruption within their own structures,not least by establishing fullytransparent and open procurementprocedures and by refusing contracts to firms and organisations implicated incorruption. While recipient governmentsand donors both need to ensure greateraccountability and transparency,corruption should not be used as an alibi for failure to increase aid. If povertyreduction is neglected, corruption canbe expected to increase and basic rightswill be made more difficult to realise.

1. 3 MUCH MORE AID IS NEEDED The massive scale of unmet basic needsin poor countries gives donor claimsthat the aid system is operating atcapacity a hollow ring. According to the UN Millennium Project, meeting theMillennium Development Goals alonewill require aid of US$135 billion a yearby 2006, up from only US$65 billion in2002. But meeting the MDGs, while acritical first step, will not ensure that allbasic rights have been met. Even if theMDGs are reached in 2015, more thanone in five people in Sub-Saharan Africawill still be living in extreme poverty.27

Clearly, the need for increased aid isboth immediate and long term. But atpresent this need is not being met. As Figure 1 shows, there is a gulfbetween what is needed to achieve thedevelopment goals and what is currentlybeing provided. In 2006 alone, donorcommitments are likely be almostUS$50 billion short of what is necessaryto get developing countries on track forreaching the MDGs. This shortfall ismanifested in the routine underfundingof urgent development priorities, withdevastating results for poor people. For example:

— The World Health Organisation’s ‘3 by 5’ initiative, designed to get threemillion HIV-positive people in need oftreatment onto antiretrovirals by theend of 2005, is currently under-

funded by US$2 billion. The upshot of this slow and inadequate donorresponse is that so far only 750,000of the three million intendedbeneficiaries have been reached.28

— The Education For All Fast TrackInitiative, a multi-donor plan toprovide low-income countries withthe extra funding needed to provideuniversal primary education, hasidentified a US$2.3-$3.1 billionannual resource gap over the nexttwo years for basic education.Donors have been slow to providefunding for the ‘catalytic fund’designed to meet the finance gap for donor ‘orphans’ currentlyreceiving limited donor support: aUS$220m funding shortfall in 2004,and a US$260 million anticipatedshortfall in 2005, will require eight of the world’s poorest countries toscale back plans for reaching theeducation goals.29

— In Ethiopia, the World Bank’s internalestimates of the aid required toimplement the national povertyreduction strategy – which has beenapproved by donors – point to afunding gap of US$1.2 billion, whichthreatens to jeopardise progresstowards the MDGs.30

1. 4 AID AND NET RESOURCE FLOWSSubstantial aid increases are needed,but these need to be dealt with in the

12

FIGURE 2 ROBBING PETER TO PAY PETER: NET RESOURCE FLOWS NORTH TO SOUTH

OFFICALAID

FINACIALFLOWS

TRADE FLOWS

ECOLOGICALDEBT

VALUE ($BN)

69

(210)

(100)

(400)

200

100

0

(100)

(200)

(300)

(400)

SO

UR

CE

: OE

CD

–DA

C, O

XFA

M, W

OR

LD B

AN

K

A

ND

AC

TIO

NA

ID C

ALC

ULA

TIO

NS

Page 15: ActionAid - Real Aid

wider context of overall resource flowsto the poorest countries. At the moment,this isn’t happening. When compared toreverse flows that come from countriesin the South to the North, current aidlevels look all the more inadequate. Inaddition to failing to provide anythingapproaching the volume of good qualityaid needed, rich countries are effectivelyliving at the expense of the very poorestpeople. Here, we identify flows in three key areas – financial, trade andecological debt. Although this is anincomplete calculation, it highlights theurgent need for aid reform to happen aspart and parcel of a redistribution ofresources and power between rich and poor countries.

Financial flowsIn 2003, developing countries transferreda net US$210 billion to the rich world –that is, it paid out US$210 billion morethan it received in new inflows. By far the largest component of this was thepurchase of US$276 billion of foreignexchange reserves, which far outweighednet equity flows – portfolio investmentand foreign direct investment – ofUS$149 billion. Interest payments alone continue to take US$95 billion of developing countries’ resources,almost three times the value of what theyreceive in grant aid31. These figures are anunderstatement, since they excludecapital flight. Although difficult to measureaccurately, a seminal study found that,over the period 1970-1996, the equivalentof US$285 billion left Africa.32

Trade flowsThe fact that the global trading systemdiscriminates against poor countries iswell established. Tariff and non-tariffbarriers, dumping and product standardscost an estimated US$100 billion peryear to developing countries, 50% morethan total official aid.33 Again, thesefigures are underestimates, because theydon’t include the costs of rich countryprotectionism in terms of reducedopportunities for employment, reducedincomes for essential goods such as foodand health care, or loss of investmentopportunities.

Ecological debtCarbon emissions from rich countriesare a key factor in climate change, whichis impacting heavily on poor countriesthrough increasingly unpredictable

weather and rising temperatures andsea levels. In Mozambique, for example,the devastating floods from tropicalcyclones in 2000 cut annual growth rate from 8% to 2%. In Asia, climatechange has been identified as a keyfactor in unprecedented flooding inNepal, India, China, Vietnam, Cambodia and Bangladesh.34

It is difficult to cost exactly this North-South ‘debt’, whereby rich countries arebuilding up a debt to the poor throughtheir over-consumption of the globalcommons. However, primary estimatesusing International Panel on ClimateChange assumptions show thatstabilising atmospheric greenhouse gas concentrations at 1990 levels would have implied a global, equalcarbon entitlement of about 0.43 tonsper person. Yet in 2000, actual percapita emissions in the rich countrieswere about 3.4 tons, meaning that each person in the rich world was over the limit by approximately 3 tons.35

According to the UK government, the damage cost of carbon emissions is US$56 to US$223 per ton of carbon.Using a mid range estimate of US$140,each person in the rich world owesUS$420 annually through excessive use of carbon36. In total, this results in a South-North flow of around US$400 billion.

Based on these calculations, in 2003developing countries subsidised the rich world by US$710 billion, or 10 times official aid levels. Once the real aid calculations in the next chapter are taken into account, the overall picture is even more distorted.

1.5 CONCLUSION Almost 60 years after the UniversalDeclaration of Human Rights wasagreed, basic social and economicrights continue to be violated daily on amassive scale. Aid has a critical role toplay in righting this injustice and helpingto realise these rights. Where aid hasbeen targeted and accountable, it hasbeen shown to make a vital contributionto advances in health and education,and to expanded economic and socialopportunities. Where aid has failed, itwas often not designed to achieve theseobjectives. More aid is needed, but itmust be real aid that supports therealisation of basic rights.

Where aid is well-designed and geared to poverty reduction, concerns about itseconomic and political impact prove tobe misplaced or exaggerated. Immediateunmet financing needs in priority areassuch as HIV and AIDS and basiceducation demonstrate that, against the most important test of absorptivecapacity, more aid is urgently needed.But aid cannot stand alone as a strategyfor reducing poverty and expandingrights. More aid has to be framed inthe context of overall resource flows to developing countries. At present,massive reverse flows from North toSouth underscore the need for aid to be part and parcel of a wider agenda to redistribute resources and powerbetween rich and poor countries.

13

Page 16: ActionAid - Real Aid

14

Page 17: ActionAid - Real Aid

"TODAY'S IS THE THE FIRST GENERATION WITH THERESOURCES AND TECHNOLOGY TO MAKE THE RIGHTTO DEVELOPMENT A REALITY FOR EVERYONE AND TO FREE THE ENTIRE HUMAN RACE FROM WANT" KOFI ANNAN, 'IN LARGER FREEDOM: TOWARDS DEVELOPMENT,SECURITY AND HUMAN RIGHTS FOR ALL', 2005

CHAPTER 2 – REAL AID 15

Page 18: ActionAid - Real Aid

More aid is a necessary condition ofachieving the millennium developmentgoals and realising basic rights. But itis not sufficient. The history of aidshows that all too often poor people’sneeds have figured as an afterthought,thereby weakening its potential impacton economic growth and povertyreduction. As this chapter shows, real aid – the donor resources that are actually made available for poorcountries – are a small proportion oftotal aid commitments. The case formore aid therefore urgently needs tobe linked to a strong agenda for realaid, which ensures that aid increasestranslate into additional funding forpoverty reduction in poor countries.Rather than hand ammunition to aidsceptics, a real aid agenda reinforcesthe political push to reach the 0.7%target – as well as ensuring thatexisting commitments go further,reformed aid strengthens the case for more aid.

To date there have been fewsystematic attempts to estimate how much aid reaches developingcountries or poor people. Equally, little effort has been made to rankperformance across donors, ormeasure the extent to whichtransactions costs overburdenrecipient government capacity.37

We believe that an official rankingexercise, using more complete datathan is currently available, should beundertaken as a matter of urgency. In the absence of this kind of research,ActionAid has made a preliminaryattempt to assess how much donor aid is provided in ways that canusefully contribute to achieving theinternational development goals –what we call real aid. We then usethese estimates to compute, by donor,a set of ‘Real ODA/GNI’ ratios, showingwhat proportion of donor nationalincome is actually being spent onpoverty reduction38. For reasons of data availability, we have onlyundertaken this exercise for bilateraldonors – the scores for multilaterals,where available, have been attributedback to the bilateral agencies whichfund them.

16

Page 19: ActionAid - Real Aid

1717

2.1 MEASURING REAL AID In 2003, official ODA from all donors was US$69 billion, or 0.25% of thecombined donor gross national income(GNI). But a large proportion of this aid was what we describe as ‘phantom aid’. In effect, this aid never materialises forpoor countries, but is instead divertedfor other purposes within the aid system. Our definition of phantom aid includes aid that is:

— not targeted for poverty reduction,estimated to be worth US$4.9 billion

— double counted as debt relief,totalling US$9.4 billion

— overpriced and ineffectiveTechnical Assistance, estimated at US$13.8 billion

— tied to goods and services from the donor country, estimated atUS$2.7 billion

— poorly coordinated and with hightransaction costs, estimated at US$9 billion

— too unpredictable to be useful to the recipient – lack of data preventsan estimate

— spent on immigration-related costs in the donor country; totalling US$1.5 billion

— spent on excess administrationcosts; totalling US$0.4 billion.

In total, at least 61% of all donorassistance is phantom aid, with real aid in 2003 accounting for just US$27billion, or only 0.1% of combined donorincome39. Breaking down the findings for other donor countries reveals thescale of the gap between official andactual giving:

— For G7 countries, official ODA wasUS$50 billion in 2003, or 0.21% oftheir combined GNI. Yet real aid was less than a third of this sum atUS$16 billion, or 0.07% of GNI. Inother words, when phantom aid istaken out, the G7 countries are only10% of the way to the 0.7% target.

— Eighty-six cents in every dollar ofAmerican aid is phantom aid,largely because it is so heavily tied to the purchase of US goods and services, and because it is sobadly targeted at poor countries.

— Just 11% of French aid is real aid.France spends nearly US$2 billion ofits aid budget each year on TechnicalAssistance, and US$0.5 billion onrefugee and immigration expendituresin France. Forty per cent of French aidis provided as debt relief, much ofwhich is an accounting exerciserather than a real resource transfer.

— In real aid terms, the Norwegians are nearly 40 times more generousper person than the Americans,

and 4 times more generous than the average Briton.

2.2 CALCULATING REAL AIDTo arrive at a real aid figure, ActionAidhas deflated the value of official aid totake account of donor practices thatreduce its effectiveness. The finalfigures are indicative, not least because there are numerous possiblemethodologies and because there is a shortage of official data that wouldallow a more precise calculation.Nonetheless, our results are at the more favourable end (to donors) of therange of what has been estimated byothers, and arguably understate thescale of the challenge. Regardless of the exact level of real aid, the resultsshow there is an urgent need for action to ensure donor money makes a fully effective contribution to poverty reduction.

2.2.1. Aid is not targeted for poverty reductionAlthough the Monterrey Consensusestablished poverty reduction as theoverriding objective of official aid, thereality is that other non-developmentobjectives continue to drive manydonors’ aid allocations. As Figure 5shows, the relationship between aidlevels and need is a weak one, withresources allocated in a scattergunapproach. For example:

250

200

150

100

50

FIGURE 3 REAL AND OFFICIAL ODA IN 2003

OFFICIAL AID IN 2003 IF ALL DONORS HAD REACHED 0.7%

OFFICIAL AIDIN 2003

REAL AIDIN 2003

VALUE ($BN)

195

69

27

SO

UR

CE

: AC

TIO

NA

ID C

ALC

ULA

TIO

NS

BA

SE

D O

N O

EC

D-D

AC

DAT

A

Page 20: ActionAid - Real Aid

FIGURE 4 REAL AND PHANTOM AID FROM ALL DAC DONORS, 2003

4% TIED AID

2% REFUGEE SPENDING

14% DEBT RELIEF

39% REAL AID

13% TRANSACTION COSTS

7% LACK OF POVERTY FOCUS

20% TECHNICAL ASSISTANCE

1% ADMINISTRATIVE COSTS

SO

UR

CE

: AC

TIO

NA

ID C

ALC

ULA

TIO

NS

BA

SE

D O

N O

EC

D–D

AC

18

Page 21: ActionAid - Real Aid

— globally, only 40% of aid goes to low-income countries, despite theiraccounting for more three quarters of all people living in poverty40

— only one third of aid goes to sub-Saharan Africa, the region wherepoverty is deepest and mostwidespread, and where the MDGs are furthest off track

— there are no sub-Saharan Africancountries among top ten aidrecipients of the EC, which givesalmost three quarters of its aid to middle-income countries

— three of the top five Japanese aid recipients are middle-income countries.41

Skewed aid allocations reflect thesubordination of development goals to commercial and geopolitical priorities.Since the September 11 2001 attacks on the US, aid has become increasinglypoliticised, with aid allocations favouringstrategic allies in the ‘war on terror’ (see

Box 2). In other cases, aid is stronglyinfluenced by commercial objectives. For example, the US President’sEmergency Plan for AIDS Relief(PEPFAR), which has committed $15billion over five years, requires thatfunding is only provided for brandeddrugs. By excluding cheaper genericdrugs from PEPFAR, the initiativepromises US pharmaceutical companies lucrative contracts while providing farfewer people with life-saving treatmentthan could otherwise be the case.42

In a similar vein, Japan’s CountryAssistance Programme for Vietnamstates that, ‘since Vietnam is significantfor Japan as a manufacturing base, apotential future export market and anenergy supply base, Japan’s assistancefor improvements in the investment,trade and business environment in VietNam is expected to lead to a virtuouseconomic cycle not only between Japanand Viet Nam, but also between Japanand the Association of South East AsianNations (ASEAN) as a whole.’43

Because Japan’s aid to Vietnam isprimarily designed to develop a marketfor Japanese exports and a host for itsForeign Direct Investment, it is focused on large-scale infrastructure to theexclusion of other areas. Eighty-six per cent of Japanese aid to the countrygoes into infrastructure aimed atpromoting growth, while socialdevelopment receives only 6% ofgrants48. Interviewees in Vietnam also suggested that the choice ofinfrastructure projects in Vietnam isdetermined by the location of Japanesecompanies working in the country.49

The most accurate calculation of ‘real’ODA/GNI ratios would take out all aidthat does not go to reduce poverty,including within low-income countries.But given the lack of data, we will onlybe looking at aid allocations byrecipient. We assume that middle-income countries should justifiablyreceive up to 30% of ODA, which isroughly proportionate to the number of poor people living in these countries.

19

BOX 2: AID AND FOREIGN POLICY – THE RE-POLITICISATION OF AID

When the cold war ended, there was widespread optimism thataid would be de-politicised, and poverty reduction placed at thefore of international development efforts. Yet since September11 2001, this optimism has been badly shaken as aid hasincreasingly been linked to the importance of countries in the‘war on terror’.

As the OECD-DAC has noted, recent aid increases have beenmostly gone towards debt write off and reconstruction in Iraq,Afghanistan and Pakistan. Between 2000 and 2002, net ODAreceived by the strategically important countries surroundingAfghanistan44 more than doubled (from US$1.2 billion to overUS$2.7 billion).45 Pakistan’s ODA alone tripled between 2000 and2002, with US bilateral contributions to Pakistan increasing froman average of US$40 million (1998-2000) to US$770 million in200246. In Africa, strategic considerations have seen aid increasein the horn of Africa – Djibouti, Eritrea, Ethiopia and Somalia –from just over US$1 billion in 2000 to US$2 billion in 2003. TheGulf of Guinea oil producers, which now account for about 15%of US oil imports, have been another beneficiary of US aid as ithas worked to secure its interests in the region. Ten years ago the US gave just US$3.4 million in economicassistance to Gulf of Guinea countries. In 2003 it stood atUS$93.4 million.47

Page 22: ActionAid - Real Aid

20

Any aid going to middle income countriesbeyond this 30% share is counted as‘phantom’ aid. On this basis almost US$5 billion or 7% of global aid flows in 2003 have been discounted:50

— Greek aid, 70% of which goes tomiddle-income countries, was mostheavily discounted on this score.Spain, which gives 62% of its aid to middle-income countries, mostlyin Latin America, also fared poorly.

— Both Austria and the US allocatedjust 53% of aid to low-incomecountries.51 Three of the four largestrecipients of US funding are Egypt,Iraq and Pakistan, which betweenthem received 14% of US aid in2002-03.

2.2.2 Debt relief is double counted as aidDebt relief in 2003 amounted to US$9.4billion, equivalent to 14% of the globalaid budget. According to OECD rules, all money used to fund debt relief iscounted as part of official aid. Thisapplies both to debt relief under theHeavily Indebted Poor Countries (HIPC)initiative and to debts cancelled onexport credits, as well as other bilateraldebts. As Box 4 shows, all debt reliefprovided since 2002 has been countedas part of ODA, despite the fact that theMonterrey Consensus agreed that yearexplicitly stated that aid increases shouldbe additional to debt relief.

We have discounted debt relief from real aid for three key reasons. First,cancelled debt stock – the principal and interest on the loan – are counted as ODA in the year in which the relief isagreed, even though any benefits arefelt over several years. This explainsrecent dramatic year-on-year increasesin Belgian aid, after debt relief to theDemocratic Republic of Congo, and in Portuguese aid after debt relief for lusophone African countries.

Second, these figures exaggerate theactual transfer being made to poorcountries because debt relief is valuedat its full nominal value. Much of thedebt relief provided to poor countriessimply closes the gap between whatcountries were scheduled to repay andwhat they actually were able to repay,and has often done little to relievebudgetary pressure on poor countries.For example, most of the US$5.1 billionincrease in aid to the DemocraticRepublic of Congo between 2001 and 2003 was debt relief, even thoughCongo’s debt service has actuallyincreased sharply since the countryentered the HIPC process, fromUS$2.7m in 1999 to US$126.7m in2003.52 Debt service for all developingcountries between 2002 and 2003 fell by just US$0.3 billion. Among the 27countries that have so far received relieffrom the HIPC initiative, debt serviceincreased from US$2.6 billion to US$2.8

billion over the same period.53 Thissuggests that the vast majority of theUS$9.4 billion cancelled in 2003 is notdirectly available for reducing poverty.

Third, counting debt relief as ODAcreates a public perception that moremoney is being spent on developmentthan is actually the case. In the UK, forexample, debt cancellation has beenpresented as additional to aid spending.This is double counting. If debt relief istaken out of the UK’s ODA calculations,then the ODA/GNI ratio fell between2000/01 and 2002/03, although it roseagain in 2003/04.54 Funding debt relieffrom aid budgets is not only misleading.It also risks penalising countries that arenot indebted, as aid resources arediverted towards heavily indebtedcountries. It also violates the principlethat creditors should carry some of thecost of debt relief, given the role thatreckless lending has played in the debtcrisis, and the fact that much of theinitial lending was not supportingdevelopment-related expenditures.

Discounting debt relief from our real aidcalculations does not mean that debtrelief is unimportant. Cancellation ofunpayable debts is urgently neededalongside more and better aid in order to reach the MDGs and help address thenegative net resource flows discussed in Chapter 1. Debt relief can also be aparticularly effective form of resource

FIGURE 5 THE SCATTERGUN APPROACH: AID ALLOCATIONS AND NEED ARE WEAKLY LINKED

190170150130110907050

PER CAPITA AID ALLOCATION ($)

SO

UR

CE

: UN

DP

HU

MA

N D

EV

ELO

PM

EN

T R

EP

OR

T 2

004

COUNTRY HUMAN DEVELOPMENT INDEX RANKING

500

450

400

350

300

250

200

150

100

50

Page 23: ActionAid - Real Aid

FIGURE 6 PERCENTAGE OF AID GOING TO LOW INCOME COUNTRIES 2002 – 2003

SO

UR

CE

: OE

CD

–DA

CGREECE 30%

SPAIN 38%

AUSTRIA 53%

UNITED STATES 53%

NEW ZEALAND 60%

GERMANY 62%

LUXEMBOURG 63%

CANADA 64%

FRANCE 66%

FINLAND 67%

JAPAN 67%

SWITZERLAND 68%

NORWAY 68%

UNITED KINGDOM 70%

SWEDEN 73%

NETHERLANDS 73%

ITALY 74%

DENMARK 75%

AUSTRALIA 78%

IRELAND 79%

BELGUIM 79%

PORTUGAL 82%

21

Page 24: ActionAid - Real Aid

transfer, as it is untied, stable, predictableand flexible. But funding for debt reliefshould be genuinely additional, ratherthan be paid out of current aid budgets.

2.2.3. Aid is spent on overpriced andineffective Technical Assistance (TA)In 2003, US$18 billion of donor money, or more than a quarter of total aid, wasallocated to Technical Assistance. Theofficial figures probably understate theamount being spent in this area, sincemost project and programme allocationshide significant spending on TA. Typically,TA pays for consultants, either long or short term, to support and adviserecipient governments on policy issuesand to ‘build capacity’ – in Africa alone,donors employ an estimated 100,000technical experts.55

Technical and knowledge gaps doubtless exist in developing countries,and in principle TA has the potential toimprove both government commitmentand capacity, and the impact of aid. Butpast experience has shown that TA is

rarely well used. There are three keyproblems. First, although TA, along with food aid, is excluded from the OECD agreement on untying, most of it is in practice heavily tied to donorcountry firms. Even where donors havefully untied, tender and contractarrangements continue to limitcompetition. For example, 25 of the 34largest recipients of the UK TA contractslisted on the DFID website are British. Theother nine recipients are mostly Americanand Canadian, and none is from adeveloping country.56

Second, the upshot of TA being tied and the market being at best semi-competitive is that it is heavily overpriced.For example, in Cambodia the aid spent by donors on 700 internationalconsultants in 2002 was estimated to be between US$50 and US$70m –roughly equivalent to the wage bill for160,000 Cambodian civil servants. Inother words, donor-financed consultantsworking in the Cambodian governmentare paid upwards of 200 times what

their Cambodian counterparts receive.57

In India, DFID spent US$40m on TA fromCredit Suisse First Boston over just sixmonths, in the course of advising thestate government of Orissa on energyprivatisation. The total bill for foreignconsultants on this programme eventuallyrose to US$110m, with most of the TAprovided by Price Waterhouse Coopers.58

In Vietnam, one DFID official estimatedthat they typically pay foreign expertsbetween US$18,000 and US$27,000 per month, compared to US$1,500-$3,000 for local experts.59

Third, TA does a poor job of respondingto local demand, and often leads toinappropriate or irrelevant support. In particular, TA is widely used in waysthat foreclose policy options and steercountries towards donors’ preferredreforms. The World Bank and IMF’s joint initiative with the World TradeOrganisation to provide TA through an ‘integrated framework’ on trade is a case in point. Diagnostic studiesroutinely push for the kind of

22

One of the key criticisms of current arrangements for TechnicalAssistance is that it is strongly supply-driven, therebyundermining country ownership. At present, TA is provided as aseries of uncoordinated analytical, design, implementation,monitoring and capacity building activities, each managedseparately through donor agencies’ own systems. The fact thatcontracts are typically issued by the donor makes it difficult forcountries to have a coherent strategy for filling technical andknowledge gaps, and raises recipient transaction costs.

Some donors have started to address these problems by puttingTA money directly into the hands of recipient governments. Forexample, in South Africa the DFID Support for Economic ReformProgramme enabled the Ministries of Finance and Trade toselect their own consultants, and manage the contractsthemselves. There was a strong preference for local expertisewherever possible. In Ethiopia, donors have pooled TA fundingfor the PRSP through UNDP – although Japan and Italy havecontinued to earmark their assistance. More recently, the WorldBank Public Sector Capacity Programme has pooled supportfrom donors including the UK and USA, with contracts manageddirectly by the government.

BOX 3: TECHNICAL ASSISTANCE AND OWNERSHIP

Page 25: ActionAid - Real Aid
Page 26: ActionAid - Real Aid

FIGURE 7 TA AS A PERCENTAGE OF ODA

LUXEMBOURG 2%

UNITED STATES 47%

GERMANY 34%

NEW ZEALAND 24%

JAPAN 21%

CANADA 17%

SWITZERLAND 14%

ITALY 6%

AUSTRALIA 46%

GREECE 32%

FINLAND 23%

NETHERLANDS 18%

SPAIN 16%

NORWAY 12%

SWEDEN 4%

PORTUGAL 45%

FRANCE 27%

AUSTRIA 23%

BELGIUM 17%

UNITED KINGDOM 16%

DENMARK 6%

IRELAND 2%

DAC AVERAGE 27%

SO

UR

CE

: OE

CD

–DA

C

24

Page 27: ActionAid - Real Aid

FIGURE 8 TYING STATUS BY DONOR, EXCLUDING TA AND ADMINISTRATION

IRELAND 0%

FRANCE 3%

GREECE 5%

FINLAND 14%

AUSTRALIA 33%

AUSTRIA 49%

UNITED KINGDOM 0%

NORWAY 0%

JAPAN 3%

GERMANY 5%

NEW ZEALAND 19%

SPAIN 44%

UNITED STATES 70%

SWEDEN 0%

BELGIUM 1%

SWITZERLAND 4%

PORTUGAL 6%

DENMARK 29%

CANADA 47%

ITALY 92%

SO

UR

CE

: OE

CD

–DA

C, O

XFA

M

25

Page 28: ActionAid - Real Aid

26

privatisation blueprints preferred by the IMF and World Bank – forexample of Senegal’s groundnut sector, urban water in Tanzania, and cotton marketing in Burundi and Madagascar. TA is also inefficient.One recent study found widespreadduplication of TA, partly because donorsdo a poor job of coordinating analytical,diagnostic and capacity building work,and of using it once it is produced.60

For example, in Vietnam there are 60different TA projects covering variousaspects of the country’s accession tothe World Trade Organisation, funded by 23 different donors, with littleapparent coordination.61

Despite these problems we do not wantto count all TA as phantom aid. Thereare some important examples oftechnical assistance being provided in a more cost-effective and ownership-friendly way (see Box 3). In the absenceof any systematic evaluation of theeffectiveness of TA across countries or by donor, we have approximated the contribution of TA to real aid in the following three ways:62

— Most TA remains tied, either officiallyor unofficially. Estimates of the mark-up from tying vary from around 15% to40%, and we would expect TA to be atthe upper end of this range, based oncurrent evaluations. We therefore takeoff 33% of the value of TA.

— The near total reliance on internationalTA involves extra cost items, such asgenerous living expenses and travel.Using local expertise in country, orthird country residents, would notincur such costs. These costs will notbe incurred in all cases, but are likely in at least half. Non-salary, non-profitoverheads are around one third ofresident TA costs. We thereforesubtract a further 17% from the value of TA.

— Based on the available evidence, we assume that around half of theoutstanding amount spent on TA doesnot enhance institutional capacity orquality, or improve management andabsorption of resources.

The total subtraction for tying, additionalcosts for expatriate advisors, and theweak contribution of TA to enhancinginstitutional capacity means that anestimated 75% of TA is ‘phantom’ aid. In reality the impact of TA will vary by

donor, although there is not enough dataavailable to make such comparisons.However, based on the findings fromVietnam and Cambodia, counting 25%of TA spending as real aid is probably a generous estimate. In total, therefore,we estimate that US$13 billion goes into ‘phantom’ TA spending. The largestproviders of TA, as a proportion of theirtotal aid budget, are the US (47%),Australia (46%) and Portugal (45%).

2.2.4. Large sums of aid remain tied An estimated 40% of all aid, excludingfood aid and TA, is tied to the purchase of goods and services from the donorcountry. Italy and the USA are among the biggest culprits of tying, spendingupwards of 70% of aid on domestic firmsand organisations. More recently, donorshave committed to untying all their aid to least-developed countries, although in reality procurement practices are oftenunchanged. For example, even thoughJapan has officially untied its aid, 96% of the 64 billion Yen of Japanese aidspent on large projects in Vietnam in2003 involved projects solely or partiallyinvolving Japanese companies.64 Onlyfour countries – the UK, Norway, Irelandand Sweden – have so far fully untied.

As well as working as a form of round-tripping, tied aid is hugely wasteful,inflating procurement costs by theequivalent of US$5 billion a year – money that could be better spentreducing poverty. For example, inCambodia USAID-funded NGOs must award contracts over a minimumthreshold to US companies. In one case,this would have meant a healthcareNGO being required to buy oralrehydration salts at four to five times theprice of locally available sachets. After asearch for alternative funding, theorganisation was eventually able toprocure locally through the WHO.65

Tying also has a track record of distortingthe content of aid programmes, forexample by encouraging donors to make large capital expenditures thatignore the recurrent cost implications for the recipient country.66 Tying can also slow aid down, at enormous cost to recipients. Food aid to Ethiopia is acase in point: in 2003, USAID’s vegetableoil stocks were still being shipped out of the country, while urgently needed inresponse to the worst food emergency in a decade. Local USAID staff requested permission from headquarters

in Washington, DC to make local foodpurchases but were refused, apparentlyafter pressure from the US farm lobby.67

To discount tied aid from real aid, wemade a lower range estimate that tyingincreases costs by 25%, meaning that20% of tied aid is phantom aid. Thisimplies that US$2.7 billion – or roughly4% of global aid flows – are lost through tying.68

2.2.5. Aid is poorly coordinatedAid carries high administrative andfinancial transaction costs for recipients.There are 35,000 aid transactions a year,85% of them worth less than US$1m.69

Overstretched civil servants in aiddependent countries are required to meet a raft of disbursement,procurement, reporting, monitoring and auditing requirements from multipleagencies, diverting scarce time and resources from identifying andimplementing local policy priorities.

Despite numerous commitments to reduce this burden through closercoordination between donor agencies,harmonisation of procurement, reportingand monitoring procedures, and greateruse of a country’s own budget andadministrative systems, scant progresshas been made. For example, the DACestimates that a typical African countrysubmits 10,000 quarterly donor reportseach year, and hosts more than 1,000donor missions.70

Lack of coordination is driven partly by donor concerns about the visibility of their own efforts and the ability toattribute quick results. In Cambodia, this has manifested itself in three separatestrategic plans, all supposedly ‘countryowned’: the 2nd Socio-EconomicDevelopment Plan (SEDPII), funded by the Asian Development Bank andwritten by one of their own consultants;the National Poverty Reduction Strategy(NPRS), funded by the World Bank and largely written by a World Bankconsultant; and the UN’s MDG strategyfor the country. While the government of Cambodia is now making efforts todevelop its own plan, amalgamating allthree, the result has been a diversion oftime and resources in a country that canscarcely afford either, and widespreadconfusion as to which document is theCambodian government’s guiding strategy.

Page 29: ActionAid - Real Aid

In Ethiopia, 216 missions were reported to the OECD-DAC for 2003. Since onlyone quarter of donors reported theirmissions, the true figure is not known.Senior Finance Ministry officialsreported meeting with several missionson a weekly basis. The Japanese wereidentified as imposing an especiallyheavy burden, with four appraisalmissions from Tokyo being typicalbefore a project can be approved.71

More recently, eight Direct BudgetSupport donors have made progress in harmonising some of their missions,and identifying lead interlocutors withgovernment on key issues.

While lack of donor coordination andharmonisation clearly impose heavytransaction costs, these are difficult tomeasure. Indeed, one attempt to do so in Vietnam foundered when the UNDPconcluded that the transaction costsinvolved in measuring transaction costswere themselves too high.72 To discounttransaction costs from real aid, we havebroken down countries into ‘strong’ and‘weak’ performers, based on anassessment of donor behaviour by the UK based non-profit organisation,Development Finance International(DFI).73 Using DFI’s results, we assumethat 10% of aid will be lost in transactioncosts for strong performers, and 20% for weak performers. The scores for

multilateral agencies have been attributedback to the bilateral donors that fund them.

On this basis, US$9 billion – or 13% ofthe global aid budget – is lost throughtransactions costs, with Japan, Italy,France, Spain and Switzerland amongthe weakest performers.

2.2.6. Aid is unpredictable Aid is highly unpredictable, with much of it arriving late or not at all, and is far lessreliable than government revenues.74

For Africa, actual disbursements ofprogramme aid fall short of projectionsby 14%, and by 26% for project aid. Onerecent survey of aid recipients found thatin 25% of cases, aid disbursementsarrived 6 to 12 months late, while for theEC, only 14% of aid actually arrived ontime.76 Unreliable aid both undermineslong term planning for the MillenniumDevelopment Goals, and creates financial uncertainty for governments.

Administratively cumbersome procedurescontribute to the problem. In Ethiopia,slow procurement arrangements meanthat Italy’s 1999-2001 aid programme is still being implemented. Similarly, inZambia procurement has been blamedfor late and incomplete releases to theeducation sector, which has left largeparts of the country’s education strategyunimplemented (see Figure 9).77 Donorconditions also lead to aid being delayed

or suspended during the financial year. In Ethiopia, one outstanding AfricanDevelopment Bank condition has led to aUS$90m loan remaining undisbursed in thefinal quarter of the financial year 2004-05.

As a result, Ministries of Financeroutinely discount donor commitmentson the basis of past disbursements. In Ethiopia, the Ministry of Financediscounts African Development Bankloans by as much as 80%, and EC aidby up to 75% at the start of the financialyear.78 In Uganda, the Finance Ministryreported discounts of up to 50% ondonor commitments.

The lack of predictable aid is exacerbatedby donors’ failure to make indicativecommitments more than one year inadvance. Countries such as Uganda have been praised by donors for theirrolling three year budget plans, yet mostdonors have not responded with changesto their own budgeting. According to aMinistry of Finance official ‘donors reallyneed to start making us commitmentsover at least a three year time period.’79

The lack of donor-by-donor data ondisbursement delays makes us unable tocalculate a discount rate for unpredictableaid, although the available evidencesuggests that budgeted commitmentsare a poor indicator of the resources thatare usefully available to recipients.

27

FIGURE 9 BUDGETED AND ACTUAL AID TO EDUCATION IN ZAMBIA 2000 – 2002

2000 2001 2002

ZAMBIAN KWACHA BN

BUDGET

ACTUAL

350

300

250

200

150

100

50

SO

UR

CE

: ZA

MB

IAN

MIN

IST

RY

OF

ED

UC

ATIO

N

Page 30: ActionAid - Real Aid

28

2.2.7 Aid is spent on immigration services In 2003, US$1.5 billion of official aid – or 2% of global flows – was spent onrefugee-related expenditures in donorcountries. The extent to which donorscount such costs under the aid budgetvaries. Australia allocated Aus$47m tospending on asylum seekers, more than5% of the total aid budget.80 France isthe biggest spender under this category– US$455m of French aid, or 6% of itsbudget is spent on refugee-relatedservices. Because this money neverleaves the donor country, and is notavailable for poverty reduction in poorcountries, we have discounted it from our ‘real aid’ calculations.

2.2.8 Aid is spent on administrationAbout 5% of donor aid is spent onadministrative costs for bilateral aidagencies. Some administrative costs are inevitable and necessary for theeffective day-to-day running of aidprogrammes. However, some costs are more questionable. Bilateral agencies typically look after their staffwell, including generous living allowancesfor expatriates, high hotel expenses andbusiness class flights. DFID officialsposted overseas, for example, receiveallowances to fund business class flightsback to the UK. Staff can opt instead touse the ‘flight fund’ for other journeys, in effect allowing use of the aid budget to subsidise foreign holidays. DFIDadministrative costs, at 11.5%, areamong the highest of any donor, and well above the 8% ceiling allowed byDFID in its funding agreements withNGOs.81 Other donors with high levels of administrative expenditure includeDenmark (11.7%) and Canada (10.8%).

In total, around US$3.9 billion is spent asadministrative costs by bilateral donors.We have allowed for administrativespending of up to 8%, in line with thestandard established by donors for their funding partners. Discountedadministrative spending above this level totals US$342m.82

2.3 REAL AND PHANTOM AID – THE DONOR RANKINGSGlobally, donors give only 0.1% of their national income in real aid,compared to the UN target of 0.7%. For the G7, the figure is even lower, at 0.07% – only one tenth of what itshould be under the UN target.

The donors that have progressed furthesttowards the 0.7% target are the bestperformers in terms of the ratio of real to phantom aid, as Figure 10 shows. In particular:

— Luxembourg comes out on top, witha 0.65% real aid/GNI ratio. The other0.7% donors – Denmark, Sweden,Norway and the Netherlands – also rank highly. Only 19% ofLuxembourg’s aid is counted asphantom aid.

— Outside the group of 0.7% donors,Ireland, Switzerland, Finland and theUK also do relatively well in terms ofaid quality, with almost 90% of Irishaid counting as real aid, 65% ofFinnish aid and 71% of UK aid.However, their real aid/GNI ratios are brought down by their low officialaid commitments.

The United States and France lead theway among the poor performers, withupwards of 80% of budgets going intophantom aid. In particular,

— The US spends just 0.02% of nationalincome on ‘real’ aid – or US$8 forevery US citizen. Heavily tied aid, alack of poverty targeting and a largeTechnical Assistance budget countagainst the US aid effort.

— French aid is heavily discounted forits US$2 billion TA spend, debt relief –which accounted for 42% of ODA in2003 – and its immigration-relatedspending, which accounted for 6% of total aid.

— Among other G7 countries, Italy andJapan score moderately well in termsof their real/phantom aid ratio, but theirlow official aid commitments put themtowards the bottom of the real aidgenerosity table (see figures 10 – 12).

— Among the smaller donors, Greecescores poorly on real aid, largelybecause it does a poor job oftargeting aid at low-incomecountries, while there is a similarstory in Spain. Belgium’s large shareof phantom aid results from a one-offhike in the budget due to debt relief.

2.4 CONCLUSIONMore aid is urgently needed to reach the international development goals.But equally urgently, donors mustundertake far-reaching reforms toensure that aid quality is improved so

as to make a fully effective contributionto the fight against poverty.

While meeting the official 0.7% target is important, it is far more important thatdonors reach ‘real 0.7%’, a target that noOECD donor meets today. ActionAidbelieves that all donors must commit now to reaching the real 0.7% target as a matter of urgency – and by 2010 at the latest.

Page 31: ActionAid - Real Aid

FIGURE 10 REAL AND PHANTOM ODA/GNI RATIOS BY DONORS, 2003

TOTAL G7 0.07 0.14

TOTAL DAC 0.10 0.15

UNITED STATES 0.02 0.13

GREECE 0.04 0.17

FRANCE 0.04 0.37

SPAIN 0.06 0.17

AUSTRIA 0.07 0.14

ITALY 0.08 0.09

GERMANY 0.10 0.18

PORTUGAL 0.10 0.12

JAPAN 0.11 0.10

CANADA 0.11 0.12

AUSTRALIA 0.11 0.13

NEW ZEALAND 0.11 0.11

BELGIUM 0.19 0.41

UNITED KINGDOM 0.24 0.10

FINLAND 0.23 0.12

SWITZERLAND 0.24 0.15

IRELAND 0.34 0.05

NERTHERLANDS 0.52 0.28

SWEDEN 0.57 0.23

DENMARK 0.60 0.24

NORWAY 0.62 0.30

LUXEMBOURG 0.65 0.15

PHANTOMODA

REALODA

SO

UR

CE

: AC

TIO

NA

ID C

ALC

ULA

TIO

NS

BA

SE

D O

N O

EC

D–D

AC

DAT

A

29

Page 32: ActionAid - Real Aid

FIGURE 11 SHARE OF PHANTOM AID BY DONOR, 2003

IRELAND 13%

LUXEMBOURG 19%

DENMARK 28%

SWEDEN 29%

NORWAY 33%

NETHERLANDS 35%

FINLAND 35%

SWITZERLAND 38%

JAPAN 48%

NEW ZEALAND 49%

CANADA 52%

PORTUGAL 53%

AUSTRALIA 54%

ITALY 55%

GERMANY 65%

AUSTRIA 67%

BELGIUM 69%

SPAIN 72%

GREECE 81%

UNITED STATES 86%

FRANCE 89%

TOTAL DAC 61%

TOTAL G7 68%

SO

UR

CE

: AC

TIO

NA

ID C

ALC

ULA

TIO

NS

BA

SE

D O

N O

EC

D–D

AC

DAT

A

UNITED KINGDOM 29%

30

Page 33: ActionAid - Real Aid

FIGURE 12 REAL AID PER PERSON IN OECD COUNTRIES, 2003 ($)

GREECE $7

SPAIN $13

AUSTRIA $21

GERMANY $29

BELGIUM $56

SWITZERLAND $111

SWEDEN $193

LUXEMBOURG $357

SO

UR

CE

: AC

TIO

NA

ID C

ALC

ULA

TIO

NS

BA

SE

D O

N O

EC

D–D

AC

AN

D W

OR

LD B

AN

K D

ATA

FRANCE $13

ITALY $19

AUSTRALIA $29

JAPAN $36

UNITED KINGDOM $75

NETHERLANDS $162

NORWAY $304

DENMARK $232

UNITED STATES $8

PORTUGAL $15

NEW ZEALAND $22

CANADA $31

FINLAND $70

IRELAND $112

31

Page 34: ActionAid - Real Aid
Page 35: ActionAid - Real Aid

CHAPTER 3 – ACCOUNTABLE AID 33

"ALTHOUGH THE CONCEPT OF COUNTRY OWNERSHIP IS GENERALLY ACCEPTED, THE VARIOUS CONDITIONALITIESINTRODUCED HAVE NOT ONLY SLOWED DOWN THE PROCESS,BUT HAVE FURTHER UNDERMINED THE CAPACITIES ANDFUNCTIONS OF STATE INSTITUTIONS. THE CONCEPT OFDEVELOPMENT…. HAS BEEN SUBJECTED TO CONTINUOUSLYCHANGING 'DEVELOPMENT FADS' WHICH, AT THE END OF THEDAY, MAY RESULT IN THWARTING OWNERSHIP." MELES ZENAWI, ETHIOPIAN PRESIDENT, IN ADDRESS TO AFRICAN FINANCE MINISTERS, 2000

Page 36: ActionAid - Real Aid

As Chapter 2 shows, the internationalaid system is failing to play its part in securing the basic rights of poorpeople. Aid commitments are far below the levels promised by theinternational community. More than 60% of donor commitments arephantom aid that does not represent a real resource transfer to poorcountries. Meanwhile, aid flows fromNorth to South pale in comparison tothe ‘reverse flows’ from South toNorth, in the form of ecological debts,unfair trade rules and South-Northfinancial flows.

Donors have made numerous pledgesto improve both aid quality andquantity over the past three decades.Yet these commitments have rarelybeen fully implemented, and in toomany cases remain shamefullyneglected. In this chapter, we arguethat this is caused by a fundamentallack of accountability on the part ofdonors. Donors are not accountable torecipient governments, and neitherdonors nor recipients are reallyaccountable to poor people. This lackof ‘downward’ accountability contrasts

sharply with donors’ excessivedemands for ‘upward’ accountability.This is reflected in intrusive policyconditions designed to modifyrecipient behaviour, in micro-management of reforms, and in thefailure to use recipients’ own systemsand procedures for channelling aid.

Significant progress towards makingmore aid real requires that donors areheld accountable for their actions. This implies a radically new approach toaid, one that replaces the prevailing topdown, donor-dominated model with asystem of genuine mutual accountabilitythat balances the legitimate interests ofdonors, recipients and, most importantly,poor people. This chapter sets out thekey elements necessary for a systemof ‘accountable aid’ and outlines anagenda for reform.

34

Page 37: ActionAid - Real Aid

3.1 DONORS ARE NOTACCOUNTABLE

3.1.1. Broken promises – aid volumesThe litany of broken promises on aidprovides strong evidence that the mainobstacle to changing the aid system ispolitical, not analytical. There has been no shortage of international pledges toincrease the quantity and quality of aidover the past three decades: the 0.7% aid target, recommended by the ‘Pearsonreport’ and adopted by the UN in 1970,was re-affirmed both in 1992 and 2002 byalmost all donor countries. Yet as of 2005only five donors – Denmark, Norway,Sweden, the Netherlands and Luxemburg– had reached the target. Since the UNtarget was announced, no G7 country hasever joined the G0.7, although France andBritain have pledged to do so by 2012 and 2013 respectively. As Box 4 shows,however, donor promises are easilybroken. And Ireland’s recent decision to backtrack on its own commitment toreach the 0.7% target by 2010 highlightsa lack of real sanctions on donors whobreak such promises.

A similar picture emerges on aid quality.Donors have made commitment aftercommitment to improving aid quality. Yetyear after year these promises have beenbroken. Most recently, donors have madevery little progress in fulfilling promisesmade two years ago in Rome, to harmoniseand align their aid, as Box 5 shows.

3.1.2. Donors are not held responsible for results The lack of progress towards meetingdonor commitments on aid quality ismatched by donors’ reluctance to beheld accountable for results. Very littleinformation on aid quality is madeavailable to the DAC, despite its role as the main monitor of donor behaviour. In Ethiopia, for example, although 23bilateral donors provide aid, only 11submitted information to the recent DAC survey. Often the information that isprovided is so incomplete as to be virtuallymeaningless: in Senegal, France is theonly donor to have reported joint missions,raising the question of who theyharmonised with.83 Data on aid

quality also suffers from the fact thatdonors are self-assessing, meaning thatreports of progress are often based ondonor perceptions that are not shared byrecipients. For example, whereas donorsin Zambia reported that over half of all aidused local procurement systems, thegovernment’s figure was just 10%.84

Similarly, many donors have beenextremely unwilling to adopt targets that would allow them to be identifiedindividually for what they have and havenot delivered. At the Paris High LevelForum in March 2005, Japan and the US objected to targets on issues such as tied aid, in contravention of the DAC’sown guidelines.85 Some donors have alsorejected accountability mechanisms atthe country level. In Tanzania, forexample, key bilateral agenciesprevented the naming of individualdonors by an independent monitoringteam reporting to the World BankConsultative Group meeting.86

Donors are also notoriously bad atdisclosing their planned and actual

35

The Monterrey summit on Financing for Development, held inMarch 2002, was notable for the last minute rush of donorpledges to scale-up aid dramatically. After a decade of decliningaid to the poorest countries, the European Union promised thatall member states would reach the target of 0.33% ODA/GNI by2006, while President Bush committed to increase US aid levelsby US$5 billion a year, to be administered through a newMillennium Challenge Account. The summit document, theMonterrey Consensus, was explicit that these aid flows shouldbe additional to debt relief. Three years on, the pledges look lessimpressive. Six months before EU member states are due tomeet the 0.33% target, Italy, Portugal, Spain, Austria and Greeceare giving between 0.1 and 0.25% of national income as aid; lessstill once debt relief is counted out. For its part, the US has takenthree years to make its first Challenge Account disbursement, toMadagascar, of less than US$30m a year. Disbursements to justthree other countries – Georgia, Honduras and Nicaragua – areexpected during the remainder of 2005. Despite the US promiseof an additional US$5 billion a year, Congress appropriated justUS$1.5 billion for the Challenge Account in 2005, following aUS$1 billion appropriation in 2004.

BOX 4: MIND THE GAP: DONOR PROMISES AND PRACTICE

Page 38: ActionAid - Real Aid

36

disbursements. In Zambia, more thanthree quarters of donor agencies fail to notify the government about actual aiddisbursements, making effective financialplanning extremely difficult for thegovernment. In Tanzania, 20 out of 39donor agencies submitted no informationabout project or programme spendingwhen asked to do so by government.87

A similar picture exists with donors’analytical work which, according to theDAC, ‘a majority of donors’ fail to shareopenly, and with disclosure of aidconditions, as discussed below.88

Since transparency is a prerequisite ofaccountability, donor behaviour suggeststhat for all the talk of ‘partnership’ anddevelopment ‘compacts’, there are seriouslimits on the extent to which donors wishto be answerable for their actions.

In sum, the public accountability forresults that has pushed donors to deliverdebt relief has been missing from the aideffectiveness debate. The aid systemcurrently lacks – and urgently needs –strong mechanisms to replace one-wayaccountability (directed upwards todonors) with mutual accountability. The recent history of donor efforts to improve aid incrementally suggeststhat genuine mutual accountability cannot happen through a ‘technical fix’approach. Fundamental changes areneeded to the power imbalance betweendonor and recipient, which has so far been left unchallenged by official processes. As the new aid agreement set

out in this chapter proposes, this requiresfar-reaching changes to the institutions,objectives and incentives in the aid system.

As a starting point, a more equal donor-recipient relationship will require a scaling down of donors’ own excessivedemands for accountability fromdeveloping countries. Pressure for quick, demonstrable results from aidspending, coupled with heavy reportingrequirements, have driven the creation of parallel donor systems, complicatedprocedures and intrusive conditions. In turn, these have weakened capacity,distorted incentives and skewedaccountability.

3.2. THE CASE OF AIDCONDITIONALITYDonor reluctance to be held downwardly accountable to poorcountries contrasts with donorenthusiasm for holding recipientgovernments to account through aidconditions. Donors use conditionality in a number of ways: as a financialaccountability device, a commitmentdevice, and as a way of inducing policychange. But the underlying concern that leads to conditionality is always the same: donors lack confidence ineither the commitment or the capacity of the recipient.

Donors are right to want to demonstrateto their parliaments and publics that aid is well spent, and this requires that

developing countries properly report on how aid has been used. Yetconditionality has now moved farbeyond what is necessary for basicfiduciary accountability. Since the1980s, the International FinancialInstitutions (IFIs) – backed by key G7 shareholders – have becomeincreasingly preoccupied with thestructural obstacles to growth andpoverty reduction, and have sought to use loans to leverage the kinds ofreforms that their Washington-basedeconomists have deemed desirable. As a result, the average number of World Bank conditions per programmetripled between the early 1980s andmid-1990s, and by the 1990s IMF‘mission creep’ led to it bolsteringthe Bank’s efforts with its own structural conditions.89

As conditionality has escalated andstructural reforms have become morecomplex, donors have also sought tomicromanage many of the day-to-dayfunctions of government by specifyingthe detailed steps countries must taketo improve policy, and by using TechnicalAssistance to place donor-funded staff,many of them expatriates, in keygovernment positions where theycan implement and monitor change.90

For example, in 2001 when Uganda wasnegotiating its first Poverty ReductionSupport Credit (PRSC) with the WorldBank, a dozen expatriate consultantswere working on the staff of the Finance

FIGURE 13 LONG TERM TRENDS IN ODA/GNI RATIOS FOR DAC MEMBERS SINCE 1965

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

ODA/GNI

1970 UN TARGET OF 0.7 ODA/NGI ANNOUNCED

1992 EARTH SUMMITRIO DE JANEIRO

2002 MONTERREY FINANCING FORDEVELOPMENT

CONFERENCE

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

SO

UR

CE

: OE

CD

-DA

C

Page 39: ActionAid - Real Aid

In 2003, donors meeting in Rome under the auspices of theOECD made a series of commitments to harmonise theirpractices and to align to recipients’ own policies andprocedures. Yet two years on, OECD development ministers anddeveloping country finance ministers meeting in Paris to reviewprogress found that minimal action had been taken on most ofthe key indicators.

— On conditionality, rather than reducing the number ofconditions, donor harmonisation has led to more donor money being linked to a largely unreformed set of World Bank and IMF conditions. Bilateral donors have also addedtheir own policy demands to IFI programmes.

— Very limited progress has been made towards alignment with recipient planning, reporting and budgeting cycles, andstill less towards using national systems. The DAC surveyalso revealed a gulf between donor and recipient perceptions of the extent to which country systems arebeing used, reflecting in part the fact that many countrysystems are identified, designed and implemented withdonor funds in order to satisfy donor demands.

— No significant progress has been made in reducingtransaction costs for recipients. In particular, there has been little progress towards genuinely harmonised missionsor silent partnerships, both approaches that are likely tobenefit recipients substantially.

— There was no evidence of progress on untying aid. Despitean OECD commitment to end tied aid to the least-developedcountries, one fifth of aid to Heavily Indebted Poor Countriesin Africa remains formally tied.

BOX 5: FROM ROME TO PARIS – DONOR INACTION ON HARMONISATION AND ALIGNMENT

37

Page 40: ActionAid - Real Aid

38

Ministry. In some cases, this led to the bizarre situation of donor-fundedEuropean economists negotiating PRSC conditions on behalf of Uganda’sgovernment with the donor agencies.91

The failure of this conditionality-heavyapproach to achieve the changes donorshoped for – one recent IMF study found44% of programmes suffered majorinterruptions – has prompted a rethink.92

Since the mid 1990s, donors haveincreasingly stressed the importance oflocal commitment to sustainable policyreform and argued for more focusedconditions that respect countries’ need to plot their own development strategiesand place them in the ‘driving seat’.93 Yetthe evidence on the ground suggests thatold habits die hard (see Box 6). Both theWorld Bank and IMF are continuing toattach large numbers of conditions totheir programmes; ‘streamlining’ of IMFconditionality, agreed in 2001, shows noclear evidence of progress, with onerecent study finding that structuralconditionality in IMF programmes isincreasing, rather than falling.94 The IMF’sown internal evaluations show at bestuneven progress towards streamlining.95

So-called ‘strong performers’ such asTanzania – required to meet 58 formal IMF conditions between 2000 and 2003 –demonstrate the progress that still has to be made.

For its part, the World Bank’s evaluationssuggest that conditions per programmehave fallen slightly, but because this hascoincided with a move from multiple to single tranche PRSC adjustmentprogrammes, there’s no evidence that the burden on poor countries year-on-year has diminished.96 In other cases,conditions have become less explicit as the number of upfront ‘prior action’conditions have been reduced and‘implementation details’ have beenshifted into increasingly complexmatrixes. For example, in Ethiopiadonors make disbursement decisionslargely on the basis of a matrix of over 200 indicators.

The impact of conditionality has beenmagnified as several of the major bilateraldonors have shifted towards programmeaid, often harmonising with World Bankand IMF conditions. In Vietnam, forexample, the World Bank’s PRSC is nowbeing co-financed by at least seven otherbilateral and multilateral donors. Despiterelatively strong government ownership in

Vietnam, the PRSC matrix still containsmany of the traditional ‘structuraladjustment’ policy conditions, includingstate-owned enterprise reform, financialsector reform and trade liberalisation, not all areas in which there is genuinegovernment commitment to reform.102

As well as increasing the burden ofconditionality, this trend also has potentiallyserious implications for aid volatility.

3.2.1 The impact of conditionalityThere is a growing consensus that theimpact of conditionality on poor countrieshas often been negative.103 This impact isfelt in at least four key ways:

— distortion of democratic processes

— imposition of inappropriate policychoices

— generation of transaction costs

— stop/start financing.

Distortion of democratic processesOne of the strongest criticisms ofconditionality is that it has givensignificant policy influence to donor agencies, which are outside thedomestic political process and thereforenot answerable to the electorate. Thisis most problematic when, as has oftenhappened, conditionality leads to poorpolicy outcomes. Arguably, the lack ofproper accountability checks on donorscan breed recklessness, leading them to promote risky and unproven policyexperiments. The export by the WorldBank of a largely untested powerprivatisation model from the UK, Chileand the USA to countries such as Indiaand Indonesia in the early 1990s (havingbeen heavily ‘sold’ to the Bank by majorconsultancy firms involved in the initialprivatisation programmes) is a case in point. 104

Conditions have also often overriddenparliamentary processes. Despitegrowing democratisation across thedeveloping world, IFIs have continued to bypass parliaments, a trend that sitsoddly with donor insistence on ‘goodgovernance.’ In Ghana in 2003, forexample, the parliament approved abudget that included plans to raise tariffson rice and poultry, within WTO limits.These tariff increases were subsequentlyrescinded after the IMF made it clear tothe government that this would risk thestatus of the IMF programme.105 The IFIs'use of ‘one-size-fits-all’ conditions,centered on a standard package of

liberalisation, privatisation anddecentralisation, also forecloses thepolicy choices that are the lifeblood of a democratic system. Recently,parliamentarians from across the worldhave started to assert their democraticright to a greater say in developmentpolicy, through initiatives such as theInternational Parliamentarians’ Petition(see Box 7).

The lack of accountability is compoundedby the un-transparent way in whichconditions are set. Typically, discussionstake place between a small group ofsenior officials in the IFIs and the FinanceMinistry, with conditions often drawn from‘mission objectives’ drawn up by Bankand IMF staff before leaving Washington.There is usually little opportunity for civilsociety or parliament to engage. InUganda, for example, there is notransparency around how conditions in the PRSC are set, and no consultationwith civil society organisations. InVietnam, NGOs complained that limitedconsultations gave them insufficient timeto fully scrutinise or input into the draftPRSC matrix.107 Limiting discussions inthis way can strengthen the power of the Finance Ministry, and give undueprecedence to macroeconomic andmonetary objectives at the expense ofother policy priorities. Line ministries can find themselves being forced toimplement policy choices that they have not been party to, distorting lines of accountability.107 In some cases,conditions are not made publicly available even after they have beenagreed, allowing donors and governmentto engage in mutual finger pointing if thingsgoing wrong, thereby blurring lines ofaccountability. Even when conditions are made public, they are included in abewildering array of technical documents,making them difficult for the public to interpret.

Imposition of inappropriate policy choicesPolicy conditions take the initiative awayfrom countries and often lead to donorpreferences being implemented at theexpense of more locally appropriatepolicy. This happens both because local people are widely excluded fromthe policy making process, and becauseof the lack of flexibility in the modelpushed by donors, in particular the IFIs.For example, one recent overview ofWorld Bank support to the water sector

Page 41: ActionAid - Real Aid

39

found that, in 12 of 14 low-incomecountries where the World Bank wasfunding the water sector, there wassome form of privatisation condition.109

As a result, many of the policy changesimposed by donors have not benefitedpoor people in the way that was anticipated,as a number of evaluations of structuraladjustment have revealed.110 Rapideconomic liberalisation by ‘modelperformers’ has instead often led tomassive social dislocation and wideninginequality, with economic growth failingto translate effectively into povertyreduction. For example, in Uganda –which experienced average rates ofeconomic growth of 6% between 1999and 2003 – the proportion of people livingbelow the poverty line increased from34% to 38%.111

Generation of transaction costsGovernments of poor countries withscarce capacity are diverted from theircore responsibilities by the identification,agreement, monitoring and reporting ofnumerous conditions to different donors.As a general rule, these accountabilitydemands from donors are heaviestwhere capacity is weakest – countrieswith low ratings from the World Bank’sCountry Policy and InstitutionalAssessment (CPIA), which is used by the Bank to guide lending levels – have on average twice the number of conditions than countries with highratings.112 Huge numbers of missionsare carried out by donor agencies tomonitor compliance with conditions. For example, Senegal alone hosted an average of one World Bank mission a week in 2003.113

More recently, transaction costs have been added to by new ‘processconditions’ that involve consultation and feedback, producing additionalpolicy documents and monitoring andreporting on results. For example, thePoverty Reduction Strategy Papers(PRSPs) that low-income countries mustnow produce in order to borrow from theWorld Bank require public meetings, thewriting of a new Strategy Paper, annualreporting, revision every three years,and monitoring and reporting on resultsin relation to the MillenniumDevelopment Goals. Theserequirements may be more justifiablethan policy conditions, and could inprinciple promote a measure of downward accountability by

governments and donors to poorpeople. However, the failure of donors to harmonise their operations, the lack of alignment between PRSPs and otherinstruments (see Box 8) and the failure to build on existing policy makingprocesses has raised their costs relativeto any benefits.

Stop/start financingAs discussed in Chapter 2, aid is one ofthe least predictable sources offinancing, and in itself can underminelong term budget planning and be amajor cause of macroeconomicinstability – thereby underminingprogress towards long termdevelopment goals.116 Although donordisbursement procedures are partly toblame, aid volatility also arises fromnon-compliance with formal conditions,where the IMF presses the ‘off switch’on its programme and sends a signal toother donors that a country is no longertrustworthy. This happened in Rwandain late 2003 when the IMF suspended itsPoverty Reduction and Growth Facilityover a dispute about reducing thebudget deficit by the equivalent of 2% ofGDP, and several bilateral donorsfollowed suit. According to the RwandanMinistry of Finance, US$66m ofdevelopment assistance was forfeitedover the six months that the countrywent ‘off track’ with the Fund – a sumequal to half the national budget.117

In summary, current donor practice on conditionality directly limits poorcountries’ ability to own – still less lead –policy priorities, and skews governmentaccountability away from citizens andupwards to donors. The IFIs remain the arbiters of appropriate policy, andcompliance with IFI conditions probablyunlocks bilateral aid money to a greaterextent than it did a decade ago. There is no clear evidence that the IFIs aresupporting a broader range of policyoptions as a result of the rhetorical shifttowards ‘ownership’ and ‘partnership.’Despite streamlining of structuralconditions, there are few reasons to believe that the aggregate weight of conditionality has reduced.

3.3. AN INTERNATIONAL AID AGREEMENT At present, sanctions in the aid relationshipare one sided, and therefore so isaccountability. If recipients fail to complywith donor conditions, aid can be withheld.

Even where formal conditions are notbreached, donors may decide that thegovernment has not met the spirit of itscommitments and refuse to disburse aid.Donor sanctions carry real bite, especiallywhere groups of donors have chosen toharmonise behind a single set of conditions.

In contrast, recipients have very limitedscope to hold donors to account whenthey fail to meet their side of the bargain,beyond ‘naming and shaming’ orexhorting donors to change their ways.Moreover, there are few internationalforums where this can happen, and it is a risky strategy for an aid-dependentcountry to publicly embarrass donors intoaction, given that many donors havestrongly resisted being held accountablefor their development assistance.

For aid to become truly effective in thefight against poverty, there needs to befar-reaching reform of how it is plannedand delivered. The donors’ self-regulatingapproach has failed to make significantprogress and has run its course in theabsence of changes to the objectives,institutions and incentives of the aid system.

ActionAid is calling for a newInternational Aid Agreement (IAA)through which donors, recipients and civil society organisations can truly be held mutually accountable. Such an agreement would have four key elements:

1. clear policies from developingcountries on the criteria for accepting aid

2. mutual commitments in place of one-sided conditionality, monitoredtransparently at the country level

3. national and international forumswhere donors and recipients canreview progress on an equal footing,overseen by a UN Commissioner on Aid

4. new mechanisms to increase thevolume and predictability of aid.

Increasingly, the international communityis reaching agreement on a range of‘public good’ issues where the costsand benefits spill across countries. TheKyoto Protocol on Climate Change; theInternational Criminal Court; the HeavilyIndebted Poor Countries initiative; theWorld Trade Organisation, and the UNConvention on Trade in EndangeredSpecies are all examples of such

Page 42: ActionAid - Real Aid
Page 43: ActionAid - Real Aid

Donors’ reluctance to reduce their reliance on conditionalitypoints to a wider failure to act on the implications of apartnership approach to development and respect the need fornational ownership and leadership of policy. There are at leasttwo reasons for this failure. First, donors’ own workingdefinitions of ownership are a key part of the problem: for many,ownership is taken to mean ‘recipients do what we want them todo but do so voluntarily’.97 As one recent IMF paper argued,“ownership does not require that an IMF-supported programmebe a government’s first choice, nor that it be the programme thatofficials would have preferred in the absence of IMFinvolvement…what is essential is that the responsible andcontrolling officials be committed and that opposition can beovercome”.98 Such weak definitions of ownership mean that,even if countries are placed in the driver’s seat of reform, donors are often still sitting in the back seat with the map, giving directions.

Second, incentives in the aid system encourage the continuinguse of conditionality, especially the underlying principle that aidshould either induce or respond to ‘good policy’. Programmaticaid thereby encourages donor agencies to define themselves asa policy vanguard, seeking to buy as much reform as possiblefrom governments that, at the margin, must remain reluctantreformers.99 This approach – reflected in the World Bank’sreinvention as a ‘Knowledge Bank’– implies that donors possesssuperior policy knowledge to recipients, or at a minimum pursuea more constant policy course and are insulated from ‘vestedinterests’.100 This is hardly conducive to the partnership andownership principles promoted by donors. As Ethiopianpresident Meles Zenawi has said, “we are not yet sure that it isfully recognised that national ownership must mean that fromtime to time national decisions will be made that are at variancewith donor priorities or established practice. We should alwaysbe willing to listen to advice, and draw on the knowledge andexperience at the disposal of donors, but we should also takeresponsibility for our national policies…achieve our ownsuccesses and make our own mistakes.” 101

BOX 6: THE LIMITS OF OWNERSHIP 41

Page 44: ActionAid - Real Aid

agreements. While these initiatives varyin the degree to which they have beenimplemented, or universally supported,they have made some importantprogress in ensuring that countries worktogether towards a common interest.

Aid, in contrast, is managed in an ad hoc way that fails to balance the interests of donors and recipients. Manycommentators have pointed to the cartel-like behaviour among agencies, includinga tendency to carve up ‘markets’ that areusually former colonies or geopoliticalallies, a mutual interest in avoiding inter-agency comparisons or publicaccountability, and a tendency to respondto shortcomings by adding new deliverymodels to the existing architecture.118

In many ways, ‘architecture’ is amisnomer for a construction asramshackle as the current aid system:

the OECD-DAC plays a key role in co-ordinating and monitoring aideffectiveness efforts, but is inevitablyconstrained by its responsibility forrepresenting the views of its ownmembers – the donor countries. The IFIs act as a linchpin of the aid systemthrough their signalling and analytical role, but their legitimacy, and thereforetheir ability to fairly represent donor and recipient interests, is severelycompromised by an undemocratic andun-transparent governance structure. The UN, while nominally tasked withresponsibility for donor co-ordination, is limited in its ability to impose logic and coherence on the aid system by itsdeclining share of development aid andits own fragmentation. New mechanismsare needed as a matter of urgency, thatare fully representative of both donorand recipient interests, and that havesufficient teeth to truly hold both richand poor to account.

3.3.1 Clear financing policies from aid recipientsAs a first step, recipient governmentsshould set out clear demands on theirexternal financing needs and theconditions under which they will and will not accept aid. Such a strategy hasalready been used by some recipients to strengthen their hand in the aidrelationship. India, for example, recentlyannounced that it would only accept aidfrom the six largest donor agencies in the country, forcing smaller donors such as the Netherlands to close down their programmes.119 In Vietnam, thegovernment has also taken a pro-activerole in forcing donors to harmonise andalign their aid to government strategies.

Once clear criteria for aid quality have been set out, recipients should use these to prioritise some donors over others. This is already occurring in some heavily indebted Africancountries, which are working with

42

To mark the 60th anniversary of the creation of the World Bankand IMF, more than 1,000 Parliamentarians from 46 countrieshave signed a petition calling for greater democratic oversightof IMF and World Bank policies:

‘…recognising that the IMF and World Bank have voiced acommitment to ensuring that individual countries determinetheir own economic policies, and noting that key economicpolicies continue to be imposed by both the World Bank and IMFas conditions for receiving debt relief and new loans, with theBoards of the IFIs retaining the power of veto over all measuresincluding those in Poverty Reduction Strategy Papers. Wetherefore call on the Bretton Woods Institutions and theirprincipal shareholders to ensure that the democratically electedrepresentatives of recipient nations are the final arbiters of alleconomic policies in their countries. It is vital that nationalparliaments in recipient nations have the right and obligation tobe fully involved in the development and scrutiny of all measuresassociated with IFI activities within their borders.’

BOX 7: THE INTERNATIONAL PARLIAMENTARIANS’ PETITION

Page 45: ActionAid - Real Aid

UK-based organisation DevelopmentFinance International to rank andprioritise their donors according to 23 criteria that they have developedthemselves.120 Criteria applied byrecipients could include the extent to which the aid is concessional, flexible, predictable and tied.

Ideally, this kind of exercise couldempower recipients to reject aid thatdoes not meet their minimum criteria.However, this is often not realistic, atleast in the short run – resourceconstrained governments may bereluctant to turn down badly neededfunds, and geopolitical realities maymake it difficult for recipients to refuseaid from large and politically powerfuldonors. But if global aid continues toincrease, and if more predictablesources of development finance aresecured, some of these concerns should be addressed.

Donors whose aid scores poorly or isrejected by recipients could improve aid quality directly, for example byuntying, reducing the burden ofmonitoring and reporting, or increasingconcessionality. Other options wouldinclude redirecting aid throughmultilateral organisations, leaving the country or sector, or increasing aid to other recipients:

a) Redirect aid through multilateralorganisations Channelling aid through multilateralorganisations in place of providing itthrough several smaller bilateralagencies has clear potential to reducetransaction costs for recipients.Multilateral aid has other advantages,including that it is untied and morepoverty-focused and predictable thanmost bilateral aid.121 Such a shift wouldreverse the trend of recent years, inwhich the share of aid spent throughmultilateral organisations has fallenslightly. However, any shift towardsmultilateral agencies would have to beaccompanied by comprehensive reform.Many multilateral institutions wouldscore poorly on the real aid measure inChapter 2, and the World Bank and IMF in particular need to radically reformtheir approach to conditionality. Therealso needs to be greater voice andaccountability of poor countries withinthe UN system, in particular the WorldBank and IMF – see Box 9 – and greater

efficiency and transparency within UNfunds and specialised agencies.

b) Make use of ‘silent partnership agreements’ Donors who score poorly on aid qualitycould also engage in ‘silent partnership’agreements, where they piggy back onanother donor’s capacity and disbursemoney through them. This can help limitplanning, reporting and accountingrequirements, and reduce the demandson government for policy dialogue.

There is already some experience with silent partnerships, mostly in theeducation sector, and between donorswith similar approaches. In Mali, forexample, Sweden has channelled itsmoney for education through theNetherlands’ aid programme, while inRwanda the Swedish and UK govern-ments have recently agreed an educationsilent partnership.122 However, there issubstantial scope to increase the numberof such arrangements, and limit the number of donors with whomgovernments must directly engage.

c) Leave the country or sector andincrease aid to other recipients One of the primary reasons for poor donorco-ordination and high transaction costsis the large number of donors operating in each country. Worldwide, there are now approximately 90 official donorsdispensing aid – most recently joined bythe aid agencies of 10 new members ofthe European Union – each with their ownsystems, procedures and priorities. Thegrowing number of donor agencies hasbeen out of proportion to any increase inthe value of aid, with fragmentation of aiddelivery increasing most in the poorestregion, sub-Saharan Africa, as figure 14shows.123 In Ethiopia, there are over 40active bilateral and multilateral agencies.In Zambia, for example, the educationsector alone involves 20 agencies.

Such ‘donor fragmentation’ can alsoactively undermine the quality of publicadministration, locking poor countries in avicious cycle where the demands placedon government by numerous donors hasa long term effect on their ability tomanage aid effectively.124

Donor fragmentation could be reducedby ensuring that fewer donors focus oneach country. Donors that score badly inone particular country could be forced toleave and focus their attention elsewhere.

Even donors that score well could help to improve the quality of their aid byfocusing larger volumes of resources onfewer countries. Such a shift would needto be accompanied by discussions at theinternational level, however, to ensurethat aid is allocated fairly across countries,on the basis of poverty needs.

3.3.2. From conditionality to mutual commitmentsAt present, accountability is heavilyskewed towards donors and away from recipients and poor people. Agenuine partnership between donors and recipients requires a shift towards a more reciprocal and transparent relations(see Box 10). Conditionality needs to be replaced by a limited set of mutualcommitments, which could be regularlyand transparently monitored as part ofongoing reviews of progress towards the international development goals.

These commitments would be mostlegitimate, and therefore most difficult to evade, if they were based on a minimumset of international and national standardsthat donors and recipients are alreadysigned up to. Examples of suchcommitments could include:

— The UN Declaration on Human Rights

— The UN Convention AgainstCorruption

— Environmental commitmentsincluded within UN Conventions,such as CITES, Convention on Bio-diversity and Montreal Protocol.

— The Convention on the Elimination of all forms of Discrimination AgainstWomen (CEDAW)

Such an approach could also de-politicise and simplify conditionality, and give countries more space toidentify their own policy priorities.

On the recipient side, examples of suchmutual commitments could includegovernments committing to spendmoney on intended beneficiaries in a transparent and accountable way,thereby marrying donor fiduciaryconcerns with strong downwardaccountability to citizens. Effectivebudget processes must include fullconsultation with all stakeholders, in particular poor men and women, that genuinely feeds back into policydecisions and implementation.

43

Page 46: ActionAid - Real Aid

FIGURE 14 AID DELIVERY HAS FRAGMENTED OVER TIME

1975

DONOR FRAGMENTATION

SO

UR

CE

: KN

AC

K A

ND

RA

HM

AN

200

4

0.85

0.80

0.75

0.70

0.65

0.60

0.55

0.50

2000

ALL DEVELOPING COUNTRIES

AFRICA

On the donor side, accountability couldcentre on existing donor commitmentsto reach 0.7%, to making that fundinghigh quality and predictable, and toreforming other areas of policy that arecurrently discriminating against poorcountries in the global economy.Through the 2002 MonterreyConsensus, donors have alreadycommitted to fully funding theMillennium Development Goals incountries that have a coherent strategyfor meeting them. An agreement on howpractically to do this is overdue.

Making sure that all aid is real aid – that responds to recipient needs and is predictable, coordinated, untied andcarries minimal conditions – is a keychallenge. But it is also vital that otheraspects of donor policy are consistentwith the development needs of thepoorest countries. In particular, donorsneed to stop the reverse flows of thekind outlined in Chapter 1. This meansthat donor countries should cut carbonemissions, stop export dumping, canceldebts and ensure that poor countrieshave access to northern markets.Donors could be asked to produce theirown Poverty Reduction Support Papersthat would detail how they willcontribute to meeting the MillenniumDevelopment Goals across the full rangeof public policy. Precedents for suchpapers already exist. Sweden’s GlobalDevelopment Act of 2004 requires all

government ministries to developpolicies that will positively contribute to the achievement of the MDGs. These ‘PRSPs’ could be independentlyassessed – perhaps by mixedgovernment-civil society review teamsdrawn from developing and developedcountries. As with aid recipients,commitments within donor PRSPsshould, where possible, be drawn fromalready existing internationalcommitments.

Monitoring compliance Compliance with these mutualcommitments could be reviewed at national Consultative Group (CG)meetings. The format of CG meetingswould need to be revised, with theagenda no longer controlled by the World Bank and equal space given to allstakeholders. This would include not onlyMinistries of Finance, but also lineministries, parliamentarians and civilsociety groups. All reviews of progresswould be discussed publicly, with fulltransparency of all conditions, includingprogress made against each of thevarious commitments.

Recipients could use the CG meetings to publicly present their rankings of donoragencies, making it clear which donorsare being prioritised and which donorsare failing to meet their commitments.However, in cases where recipients areconcerned about publicly criticising a

politically powerful donor, they couldinstead report the donor to a UNCommissioner on Aid, which isdiscussed below.

Holding donors and recipients to account In the case of recipient failure to meet the mutual commitments ontransparency and accountability, donorsmay in some cases have to withhold aid. However, in order to minimise aidvolatility, a number of changes shouldbe made to the current system ofconditionality and aid disbursements:

— all low-income countries should beguaranteed a minimum annualresource transfer, perhaps linked toper capita GDP or income povertylevels, to act in a similar way to a‘safety net’126

— individual commitments should belinked to specific tranches of aid, sothat failure to comply with one keycondition would not cut off all aid to a country

— donors should commit to notsuspending any aid commitments in a given financial year, except in the most extreme circumstances.

Where donors and local civil societyorganisations have no confidence in theability of the government to meet theseminimum commitments, aid should be

44

Page 47: ActionAid - Real Aid

45

Since 1999 low-income countries borrowing from the WorldBank have been required to write a Poverty Reduction StrategyPaper (PRSP), which sets out a country’s broad developmentpriorities. An increasing number of bilateral donors haveemphasised the importance of PRSPs in guiding their own aid allocations. The PRSP was intended both to pull togetherdisparate policy priorities and activities into a single, strategicoverview, and to change the way in which policy was formulated,by opening up the process to broad participation of governmentand non-government actors, thereby building local ownershipand downward accountability.

Six years on from their inception, PRSPs have at best a mixedrecord in terms of fostering ownership and accountability. Some countries have developed their own versions of the PRSPthrough extensive consultation that mesh reasonably well withpriorities in the budget, such as Uganda’s Poverty EradicationAction Plan (PEAP). But even in Uganda, there is widespreadcomplaint that, despite a good quality process for developingthe PEAP, the IMF has continued to impose its own policyprescriptions through the conditions attached to its lending.Moreover, conditions attached to the World Bank-led PovertyReduction Support Credit (PRSC) are only indirectly drawn from the PEAP, as shown by the disparity between the PEAPimplementation matrix drawn up by the Government of Uganda,and the Bank’s PRSC matrix.

Tellingly, the recent OECD-DAC Survey on Harmonisation andAlignment found no evidence that PRSPs had forced donors to adjust their own aid response. For some donors, ‘alignment’means changing the PRSP to suit donor priorities rather thanthe other way round. Japan’s Country Assistance Plan forVietnam, for example, notes that ‘as the PRSP did not make any reference to the contribution of…large-scale infrastructuredevelopment to poverty reduction, Japan took an initiative in reviewing the PRSP so that it would address this point.’115

In some cases such as Cambodia, PRSPs have even beenwritten by aid-financed foreign consultants, making ‘ownership’little more than a donor fiction. The World Bank and IMF’s ownrecent evaluations are also critical, highlighting the reluctanceof donors to discuss genuine policy alternatives and the failureof Bank and Fund loan programmes to read across to the PRSP.Many civil society groups have been critical of the use of setpiece consultations to educate reform-sceptics, in place of realparticipation that is designed to evolve a shared reform model,and have increasingly questioned the value of their involvement.In short, donors’ own reluctance to relinquish ownership of theirprogrammes has restricted the space in which countries canpursue their own priorities, and governments can become moredownwardly accountable to citizens.116

BOX 8: POVERTY REDUCTION STRATEGIES – OWNERSHIP THROUGH PARTICIPATION?

Page 48: ActionAid - Real Aid

channelled through civil society. Donorsshould also invest in capacity buildingprogrammes with government, forexample on public expendituremanagement.127 Aid to civil societyshould focus not only on basic service delivery, but also on increasingthe capacity of CSOs to hold theirgovernments to account, for example onanti-corruption and human rights, as hashappened in Cambodia and Uganda.

Aid that cannot be disbursed in this way,for example due to absorption capacityconstraints, should be held in trust untilsuch time as governance in the countryimproves. There is already a precedentfor this kind of arrangement with UKdebt relief for countries that have not yet reached ‘Decision Point’ under the Heavily Indebted Poor Countries(HIPCs) initiative. Any debt servicereceived from these countries is held in trust, to be returned to once DecisionPoint is reached. This not only ensuresthat all countries eventually receive their

fair share of global aid allocations, butwould also provide positive incentivesfor the country to reform.

Given the inevitable asymmetries in any recipient-funder relationship, it is more difficult for recipients to holddonors to account for failure to meettheir commitments. Recipients would have three main options:

— Publicly ‘naming and shaming’ the donor at the country level and exhorting them to meetcommitments. This approach is morelikely to succeed in less aid-dependentcountries, or with smaller donors.Recipients may be wary of speakingout in public against large or politicallypowerful donors. Public naming andshaming could also help donors putpeer pressure on each other, however.In Uganda, for example, donors areapparently using the government’s‘partnership principles’ to exhortrecalcitrant donors to improve aid quality.128

— Refusing aid. As noted above,recipients could refuse aid from poorquality donors, particularly if the aidcomes in the form of loans. From thepoint of view of donor staff, seeingtheir aid refused is likely to lead toembarrassment, damaged careerprospects and immediate loss ofemployment. At a personal level, aid agency staff will therefore havestrong incentives to improve thequality of their aid.

— Reporting the donor to the UNCommissioner on Aid. Where neither of the first two options provesufficient, recipients should reportthe donor to a UN Commissioner on Aid. This could either be donepublicly or anonymously. The UNCommissioner could then take the issue up with the donor at theinternational level. If done anonymously,this would help to ease recipient fearsabout losing access to aid. If a major donor is reported by a number

46

Developing countries that rely on the World Bank and IMF forloans and their seal of approval often find their interestssubordinated to a small group of G7 shareholders that dominatethe boards. The seven largest OECD economies hold 40% of thevotes, while the US wields a veto and leadership positions arecarved up between Europe and North America. Africa,meanwhile, holds just two out of 26 board seats in bothinstitutions. Since 2003, board discussions – led by SouthAfrican Finance Minister Trevor Manuel – have attempted toaddress ‘voice and vote’ issues in the IFIs and propose analternative, more accountable structure. Yet so far, nomeaningful progress has been made. The only commitment hasbeen some additional administrative support to the two AfricanExecutive Directors’ offices, which between themselves mustmanage the interests of 46 countries.

BOX 9: THE IMF AND WORLD BANK – THE LONG ROAD TO DEMOCRACY

Page 49: ActionAid - Real Aid

of recipients for failing to meet itscommitments, public pressure fromwithin the donor country should bebrought to bear in order to ensurethat donor behaviour improves.

3.3.3. International forumsAs well as country level monitoringmechanisms, it is also important thatdonors are held accountable at theinternational level. This is because someof the problems of unaccountable aid are systemic, and don’t only exist at thecountry level. It is also because genuinecooperation can only happen through amultilateral framework that maintains the principle of equity and safeguards theinterests of the weaker party.129

In order to ensure appropriateinternational level representation for aid recipients, two major reforms to the current aid architecture are needed.These are:

— annual international meetings to assess donor progress againstcommitments made

— a UN Commissioner on Aid.

International meetings on donor progressIn place of the current donor-dominatedarrangements for co-ordinating aid,there should be annual internationallevel meetings that donors andrecipients attend as equals, to highlightand discuss issues of donor andrecipient performance. These could be held under the auspices of the UN’s Economic and Social Council(ECOSOC). Regional organisations suchas the Economic Commission for Africa,sub-regional bodies and individual UN member countries could alsoparticipate. There should be fullinvolvement of both northern andsouthern civil society organisations and full transparency. Discussions at these meetings should focus on:

— Reviews of progress on aid qualitydonor by donor, perhaps undertakenthrough anonymous surveys of the views of recipients on donor

performance. Such reviews could be undertaken by amalgamatingcountry level assessments of eachdonor, or by sending out a morestandard questionnaire to recipients.This could then be completed byeach country, with only the overallfindings by donor presented. Theforum could also agree and monitortransparent targets for donorperformance.

— Reviews of donor progress onpolicy coherence, for example on environment, trade and financialpolicy, to ensure that donors do nottake away with one hand what theygive with the other.

— Reviews of how much real aid donorsare providing, with a view to namingand shaming donors whose real aidratios are low. The analysis of real aidshould go beyond the preliminaryallocations presented in this report,and should include detailed country-by-country analysis of the proportion of aidthat focused on poverty reduction.

47

Partnership is one of development’s buzzwords, used by officialdonors and International NGOs (INGOs) alike to describe theirrelationship with funding recipients. ‘Partnership’ involvesmutual trust and accountability and shared goals. In turn, thisimplies a shift of control and power, something that has beendifficult to achieve in the aid system.

Several official donors have recently made efforts to applypartnership principles on the ground. This has often proven tobe easier outside of government-to-government relations. Forexample, DFID’s partnership agreements with civil societygroups provide general funding to NGOs on the basis of sharedprinciples and a high level of trust. Reporting requirements arekept to a minimum. In effect, selectivity and programme supporthas replaced conditionality and micromanagement of projects.

INGOs, whose own relationships with Southern civil societypartners often involve similar asymmetries to donor-recipientrelations, have also attempted to behave more as partners.ActionAid’s own planning and learning system involves two way reporting, annual participatory reviews, transparentbudgets and space for ‘local diversity’ in programme planning.These examples hold some potentially important lessons forhow to move donor-recipient relations towards a genuinepartnership model. 125

BOX 10: WHAT DOES PARTNERSHIP MEAN?

Page 50: ActionAid - Real Aid

— Discussion of aid allocations acrosscountries, ensuring that these reflectgenuine poverty priorities and thatthere is a fair allocation of aid acrosscountries. This would ensure that aid is allocated in accordance withpoverty reduction needs and thatthere are no longer ‘donor orphans’and ‘donor darlings’.

— Discussion of best practice in donor-recipient relations, where successfulexperiments can be presented anddisseminated.

— In depth discussion of particularlyproblematic areas, as reported to theUN Commissioner on Aid in their roleas ombudsman (see below.)

UN Commissioner on Aid A United Nations Commissioner on Aid, reporting directly to the SecretaryGeneral, should be empowered to play a ‘refereeing role’ by overseeing thepreparation of periodic public reports on donor and recipient behaviour,handling complaints about breaches of commitments and arbitrating wherethere is a serious breakdown in donor-recipient relations and aid is suspended.

Sanctions against donors that fail tomeet commitments will inevitably beweaker than those sanctions againstrecipients. However, options for sanctionsagainst donors that repeatedly fail tohonour commitments or continue toprovide poor quality aid could include areduction in decision-making powers inthe UN system, such as loss of SecurityCouncil seats and loss of voting rightson the boards of the IMF and WorldBank, or public naming and shamingand pressure from CSOs within thedonor country.

3.3.4 Guaranteed sources ofdevelopment financeMutual accountability will not work whendonors are free to provide aid at will andwhen aid recipients have developmentneeds that are severely under-funded. Akey element of any new International AidAgreement, therefore, should be thedevelopment of guaranteed sources offinancing for development.

Binding long term commitments from donors at global levelDonors should ensure that they makebinding commitments to increasing their own aid budgets to 0.7% of grossnational income by 2010 at the latest, and

should commit to maintaining that levelfor the foreseeable future – at least untilextreme poverty has been eradicated.Between 2005 and 2010, donors shouldsimilarly commit to ensuring that aid flows increase towards the 0.7% target,and should ensure that such flows are insulated from domestic budgetarypressures. Many donor countries alreadymake long term budget commitmentsthat effectively tie future governments andparliaments to a spending floor in areassuch as defence and health; there is noreason why this principle should not beextended to development spending,which currently amounts to a very smallproportion of government spending indonor countries. Donors should committo reaching 0.7% in ‘real’ aid, a target thatno OECD donor has met to date.

Long term commitments at country levelIn order to enable recipient countries to properly plan and budget, aidcommitments to individual countries also need to be made over a longer time period, as Chapter 2 showed.Donors should provide recipients withprojected aid envelopes for at least athree year period, with aid envelopes only changed if recipients fail to meet their mutually agreed commitments, asoutlined above. Such agreements are notwithout precedents: the UK, for example,has recently signed an indicative longterm agreement with Ethiopia for a 10-year programme of aid.

Innovative sources of development financeAs well as increases in aid funded out of donor government budgets, innovativesources of finance could also be used toprovide a predictable income stream tosupport progress towards the MDGs. A number of proposals for raisinginnovative sources of finance have been put forward in recent years. These include the French government’sLandau report, which proposes a tax onglobal currency markets and a voluntaryairline tax, and the quadripartite report put forward by France, Brazil, Spain andChile.130Over the long term, using globaltaxation to finance a growing share ofdevelopment assistance could help tofacilitate the kind of shift we are calling for in this report – away from the currentmodel, in which aid is essentially treatedas a discretionary charitable contributionto the ‘deserving poor’, towards aredistributive welfare model, where aid

is treated an entitlement for countriesunable to meet basic needs from their own resources.131

The UK’s proposal for an InternationalFinance Facility (IFF), whereby future aid flows are frontloaded to provide anincrease in aid up to 2015, could alsohave the advantage of securing morepredictable financing, at least over thenext ten years, and could help to realiseimmediate resources for development.However, it is important that the IFF, if it is implemented, does not result in a sharpreduction in aid flows beyond 2015.132

The IFF is also a costly form of resourcemobilisation, with interest payments onIFF bonds, and the administrative costs of setting up and running the scheme,leading to a net loss in aid flows ofUS$108 billion over its 27-year lifespan.133

The IFF is therefore a second best optionto either immediate increases in ODA/GNIratios towards the 0.7% target, or the useof global taxation to finance development.

3.4 CONCLUSIONS Much more aid is needed if poor people are to be able to secure their basic economic, social and cultural rights, and if the MDGs are to be met by2015. Yet as Chapter 2 has demonstrated, the aid system at present is geared moretowards meeting the desires of the richthan the rights of the poor. Since its post-war inception, the aid system has mutatedinto a confusion of official agenciespursuing competing geo-political,commercial and development objectives,in which poor people’s needs often figureas an afterthought at best. Currentinitiatives and processes by the OECD-DAC, UN, World Bank and other donorshave failed to resolve these problems. Inthe absence of progress, the incrementalreform agenda pursued by these agenciesfaces a growing credibility gap.

Phantom aid will only become real aid ifdonors are held accountable for providingenough good quality aid to enable poorcountries to secure their basic rights. At present, this is far from being the case. Donors are self-assessing and un-transparent, and there are few institutionalincentives to support poor countries’ own priorities and systems. There is little public information on aid quality bydonor, and few forums in which donorsand recipients can be held mutuallyaccountable – by each other, by civilsociety organisations and most importantlyby poor people. Meanwhile, donors

48

Page 51: ActionAid - Real Aid

49

continue to impose unfair, undemocraticand inappropriate policy conditions,which directly limit the scope fordownward accountability fromgovernments to citizens.

ActionAid therefore believes that a newInternational Aid Agreement is neededthat: holds both donors and recipients to account for what they do and don’tdeliver; that replaces conditionality withmutual obligations, and that ensuresguaranteed sources of developmentfinancing.

Page 52: ActionAid - Real Aid

50CHAPTER 4 CONCLUSIONS AND RECOMMENDATIONS

Page 53: ActionAid - Real Aid

CHAPTER 4 – CONCLUSIONS ANDRECOMMENDATIONS

51

"OVERCOMING POVERTY IS NOT A GESTURE OFCHARITY. IT IS AN ACT OF JUSTICE. IT IS THEPROTECTION OF A FUNDAMENTAL HUMAN RIGHT, THE RIGHT TO DIGNITY AND A DECENT LIFE. WHILEPOVERTY PERSISTS, THERE IS NO TRUE FREEDOM." NELSON MANDELA, 2005

Page 54: ActionAid - Real Aid

Rich countries are starting torecognise that much more aid isneeded if poor people are to securetheir basic rights. Yet if aid qualityremains unchanged, increasing aidalone will do little to help poor people.At present, far too much aid isprovided in ways that subordinate theneeds of the poor to rich countries’political and commercial priorities.

ActionAid believes that all donors havethe obligation to provide 0.7% of theirnational income in ‘real’ aid – moneythat is genuinely available to poorgovernments to help them securebasic rights. At present, this is far frombeing the case. As we show in thisreport, almost all donors are falling farshort of meeting even the official 0.7%target, and more than 60% aid flowsare ‘phantom.’ Not one donor has metthe real 0.7% target, with DAC donorsgiving an average of only 0.1%.Meanwhile, the G7 – the seven richestand most powerful countries in theworld – give only 0.07% of theirnational income, or one tenth of whatthey should provide. And these paltryamounts pale in comparison withSouth-North flows, which stood atUS$710 billion in 2003.

If all aid is to become real, theinternational aid system must radicallychange. Accountability relations,heavily skewed towards donors atpresent, must be reformed. There mustbe a new International Aid Agreementthat holds donors and recipientsmutually accountable for securing thebasic rights of the poor. Donorimposed policy conditionality must bereplaced by mutually agreedobligations; secrecy replaced bytransparency; upward accountabilityby mutual accountability; and‘consultation’ by true ‘participation’.

52

Page 55: ActionAid - Real Aid

ActionAid believes that the followingreforms must be put in place as a matterof urgency:

1. All donors must commit to providingat least 0.7% of their national incomein real aid, by 2010 at the latest. Thismeans that:

a) Aid must be allocated according topoverty needs. At least 70% of all aidmust go to least-developed countriesand other low-income countries, withthe remaining 30% allocated to povertyreduction needs in middle-incomecountries. Within countries, all aidshould explicitly be provided solely for poverty reduction, rather thanmeeting commercial, political orstrategic objectives of the donor.

b) While debt relief is important, allfunding for debt relief should beadditional to, rather than drawn from,aid budgets, and debt relief fundingshould not count towards ODA/GNIratios.

c) Technical Assistance must be untiedand purchased locally to the greatestextent possible, using pooled donorfunding if necessary. There should be comprehensive reviews of theeffectiveness of TA in each country. TA should be genuinely ‘technical’, andshare skills rather than steer the country in a pre-determined reform direction.There should be a greater emphasis oncapacity building rather than gap filling,with the extent of any capacity buildingthat takes place monitored independently.The share of global aid budgets allocatedto TA should also be sharply reduced.

d) All aid must be fully untied, anddeliberate policies put in place toencourage local procurement. Thereshould be regular monitoring of theproportion of donor procurement that is going to the recipient country or to its neighbours.

e) Donors must fully implement theRome Declaration on Harmonisationand Alignment, and there should bebinding targets with regular monitoringprocesses set up for reviewing progress.

f) All aid should be committed for atleast a three year period, and onlywithheld under extreme circumstances(such as conflict, widespread humanrights abuses or endemic corruption).

g) Funding for refugees in the donorcountry should not be counted as partof aid budgets.

h) Donors must reduce administrationcosts, and must be more transparentabout the breakdown of expenditureswithin their administration budget.

2. There must be a new International Aid Agreement, in which donors andrecipients are held mutuallyaccountable. This will require:

a) Recipient governments being moreproactive in holding donors to account.Recipients should develop clearfinancing policies that set out minimumstandards for donor aid. Aid that fails tomeet these minimum standards shouldbe rejected. All donors, and in particularthose with poor quality aid, should beencouraged to channel greaterproportions of aid through a reformedset of multilateral organisations, as wellas making use of silent partnershipagreements and limiting the number of countries in which they provide aid.

b) A shift from donor imposedconditionality to mutual accountability.Intrusive donor imposed policyconditions should be abandoned andreplaced by an agreed set of mutualobligations between donors andrecipients. Recipients should commit to spending money on its intendedbeneficiaries in a transparent andaccountable manner. Donors shouldagree to fully finance the MDGs, toprovide good quality aid, and to ensure that other policies serve to help, rather than hurt, developingcountries. Commitments should, where possible, be based on alreadyexisting international commitments.Compliance with these commitmentsshould be monitored publicly duringannual Consultative Group meetings.

c) Sanctions on both recipients and donors that fail to meet mutually agreed conditions.For recipients, this could includewithholding aid, while for donors it could include refusing aid, publicnaming and shaming, and beingreported to the UN Commissioner on Aid.

d) Annual International Aid Forumsshould be convened, by the UN’sECOSOC or a similar body, to monitordonor and recipient performance.Donors and recipients should attend as equals and there should be fullparticipation of northern and southernCSOs, as well as full transparency.

e) A new UN Commissioner on Aid.A new UN Commissioner on Aid shouldbe created to provide impartial oversightof whether donors and recipients aremeeting their commitments. This postcould report directly to the UN SecretaryGeneral.

f) Guaranteed sources of developmentfinance. Mutual accountability will neverwork unless aid recipients are sure thatthey will receive all the financing theyneed to meet the MDGs. Donors shouldmake binding commitments to reach thereal 0.7% target by 2010 at the latest.Donors should also work to complementaid flows with innovative sources offinance such as global taxation. Aidshould be made fully predictable andreliable at the recipient country level.

53

Page 56: ActionAid - Real Aid

1 UN, Article 22, UN Universal Declaration of Human Rights, 1948

2 UN, Article 1, UN Declaration on the Right to Development, 1986

3 UN, paragraph 11, UN Millennium Declaration, 18 September 2000

4 Calculated from 2004 World Bank and UN data.World Bank World Development Indicators 2004,Washington, DC, 2004

5 Foster, M and Keith, A, The Case for Increased Aid, 2003

6 World Bank, Assessing Aid: What Works,What Doesn’t and Why, Washington DC, 1998

7 For example, see The Telegraph. ‘This is where ourmoney goes’ by Christina Lamb, October 29 2000

8 In the case of Mobutu, donor agencies wereaware of the misappropriation of donor funds, butno action was taken on the IMF and World Bankboards, partly due to US concerns about pushingZaire into the Soviet sphere of influence. Forexample, see Leslie, Winsome J, Zaire: Continuityand Political Change in an Oppressive State,Boulder: Westview, 1993

9 OECD-DAC estimates that tying inflates aid costsby 15-30% – e.g. see policy brief, Untying Aid to theLeast Developed Countries, OECD Observer 2001

10 Government of Uganda Poverty EradicationAction Plan 2004/05-2008, 2004

11 Levine, R. et al, Millions Saved: Proven Successesin Global Health, Centre for Global Development,Washington, DC

12 UN Millennium Project, Investing in Development:A Practical Plan to Achieve the MillenniumDevelopment Goals, New York, 2005

13 Mokoro Consulting, Aid Modalities in Ethiopia: a report to Development Cooperation Ireland,August 2004

14 De Renzio, P, The Challenge of AbsorptiveCapacity, ODI report for DFID, September 2004

15 Hansen and Tarp (2000), cited in Foster, M andKeith, A, The Case for Increased Aid, 2003

16 Clemens, Radelet and Bhavani, CountingChickens When they Hatch: The Short Term Effectof Aid on Growth, Working Paper 44, Center forGlobal Development, Washington DC, 2004

17 IMF, Tanzania’s growth process and success inreducing poverty, Working Paper 05/35, 2005

18 Commission for Africa, Our Common Interest:Report of the Commission for Africa, 2005

19 Fagernas, S. and J. Roberts, Fiscal Impact of Aid:A survey of issues and synthesis of countrystudies of Malawi, Uganda and Zambia, ESAYWorking Paper no.11, ODI, London, 2004

20 AFRODAD, Reality of Aid: Does Africa Need Aid?Harare, 2002

21 World Bank, Assessing Aid, 1998; World Bank,The Role and Effectiveness of DevelopmentAssistance: Lessons from World BankExperience, Research Paper, 2002

22 Commission for Africa, Our Common Interest:Report of the Commission for Africa, 2005

23 Interview with NGO Forum,Uganda, 9 March 2005

24 ActionAid USA and ActionAid Uganda, BlockingProgress: how the fight against HIV/AIDS is beingundermined by the World Bank and InternationalMonetary Fund, Briefing Paper, September 2004;

Oxfam et al, Where is the Impact?, Briefing paper,April 2003

25 UN Millennium Project, Investing in Development:A Practical Plan to Achieve the MillenniumDevelopment Goals, 2005

26 For example, seehttp://www.internationalbudget.org

27 World Bank, World Development Indicators 2004,Figure 1c, 2004.

28 World Health Organization, 3 by 5 progress report:investing in a comprehensive health sectorresponse to HIV/AIDS - scaling up treatment andaccelerating prevention, 2004

29 FTI secretariat, Education for All Fast TrackInitiative Status Report, November 2004

30 World Bank, Ethiopia: Accelerating the ProgressTowards the MDGs: Impact on Aid Requirements,Unpublished study, 2004

31 World Bank, Global Development Finance 2004,Volumes 1 and 2, Washington, DC, 2004

32 Boyce and Ndikumana, Is Africa a net Creditor?New Estimates of Capital Flight from SeverelyIndebted Low Income Sub-Saharan AfricanCountries, 1970 –1996, 2000

33 Oxfam International, Rigged Rules and Double Standards

34 Simms, A, Magrath, J and Reid, H, Up in Smoke:Threats from, and Responses to, the Impact ofGlobal Warming on Human Development, 2004

35 World Development Indicators, 2004

36 Simms, A, Real World Environmental Outlook,cited in Pettifor, ed Real World Economic Outlook, 2003

37 One notable attempt to rank donor performancehas been the work of the Center for GlobalDevelopment in Washington DC, whose Indexof Donor Performance 2004 uses a similarmethodology to that used in this paper

38 Unless otherwise stated, all data is from theOECD DAC Development Cooperation Report2004, Statistical Annex

39 This is roughly comparable to estimates by the UN Millennium Project, which found that 24% of bilateral aid and 54% of multilateral aid isavailable to finance investments on the ground

40 This figure differs from the donor-by-donorbreakdown shown in Figure 5, which excludesaid money that is not specified by region

41 OECD-DAC; EU aid website

42 Kaiser Daily Report. November 1st 2004. ‘US Government Accounting Office Report toInternational AIDS Conference’.

43 Government of Japan, Country Assistance Planfor Vietnam, page 1, 2004

44 OECD DAC Development Cooperation Report2004 (Pakistan, Kyrgyztan, Uzbekistan, Tajikistanand Turkmenistan)

45 OECD DAC Development Cooperation Report2004

46 USAID Greenbookhttp://qesdb.cdie.org/gbk/index.html

47 USAID Greenbookhttp://qesdb.cdie.org/gbk/index.html

48 Interview with Embassy of Japan in Vietnam, 18 February 2005

49 Interview with independent consultant in Vietnam,18 February 2005

5 Donor-by-donor data excludes aid that is notspecified by region

51 Note that these figures include funding frommultilateral donors that has been imputed back to bilaterals based on their contributions to themultilaterals. The source for all data is the OECDDAC Development Co-operation Report 2004,Statistical Annex, Table 26.

52 IDA, Global Monitoring Report, HIPC Status ofImplementation Report, September 2005

53 Of course, just because debt service rose it doesnot mean that debt relief prevented debt servicefrom rising even further. We do not have figureson this. Data source is GDF for all developingcountries, World Bank HIPC/debt website for HIPCs.

54 Note: 2000/01 ODA figures including debt reliefrefer to 2000 statistics, 2001/02 to 2001 and so on.

55 World Bank, Can Africa Claim the 21st Century?Oxford University Press, New York, 2000

56 Defined as either receiving three or morecontracts over the time period, or receivingcontracts with a value of more than £1 million.All data taken from DFID website,www.dfid.gov.uk/procurement/constractslet.asp

57 Siddiqui, F, Strickler, C and Vinde, P, CapacityBuilding Practices of Cambodia’s DevelopmentPartners: Results of a Survey, 2004

58 ActionAid UK, Money Talks: how aid conditionscontinue to drive utility privatisation in poorcountries, 2004

59 Interview with DFID in Vietnam, 16 February 2005

60 Oxford Policy Management, A Vision for theFuture of Technical Assistance in the InternationalDevelopment System, Report, July 2003

61 Informal Report prepared for the ConsultativeGroup Meeting for Vietnam, Hanoi, MovingTowards 2010: Vietnam Partnership Report, 1-2 December 2004

62 We are grateful to Andrew Rogerson at the ODI for suggesting this methodology.

63 Johnson, A, Martin, M and Bargawi, H, The Effectiveness of Aid to Africa Since the HIPCInititiative: Issues, Evidence and Possible Areas forAction, Report for the Commission for Africa, 2004

64 Calculated from JBIC website. Only includescontracts of more than 100 million Yen

65 Interview with US funded NGO working on healthin Cambodia, 22 February 2005

66 Reality of Aid, 2002

67 Oxfam GB, Ethiopia Financing for the MDGs,Unpublished paper, 2004

68 Data for US and Italy taken from Oxfam 2004,Paying the Price: Why rich countries must invest nowin a war on poverty. All other data from OECD-DAC

69 Manning, R, How can the DevelopmentCommunity help to achieve greater progresstowards the Millennium Development Goals?,WIDER ‘Angle’, 2004

70 DAC 2003, page 56, based on calculations byVan de Walle and Johnston, cited in Trocaire,Aid Effectiveness, 2005

71 Interview with Finance Ministry official, in Ethiopia April 4th 2005

REFERENCES 54

Page 57: ActionAid - Real Aid

72 UNDP/DFID, Aid Transaction Costs in Vietnam,2000

73 Johnson, A, Martin, M and Bargawi, H, The Effectiveness of Aid to Africa since the HIPCInitiative, 2004

74 Bulir, A and Hamann, J, Volatility of Developmentaid: From the Frying Pan into the Fire?, 2005

76 Oxfam International, Paying the Price: Why richcountries must invest now in a way on poverty, 2004

77 ActionAid, Transaction costs in aid: Case studiesof sector wide approaches in Zambia and Senegal,Paper for UNDP Human Development Report, 2004

78 Interivew with Ministry of Finance official inEthiopia, 4 April 2005

79 Interview with Ministry of Finance official inUganda, 7 March 2005

80 www.aidwatch.org.au

81 DFID Civil Society Challenge Fund Guidelines

82 We do not include multilateral agencies herebecause data is not available for either the World Bank or the regional development banks.However, observation of World Bank spendingsuggests that administrative costs for the multi-laterals are probably even higher than for bilaterals

83 OECD-DAC, Survey on Progress in Harmonisationand Alignment, 2004

84 Ibid.

85 www.oecd.org; Trocaire, The International AidSystem: what’s next?, unpublished paper, 2005

86 Helleiner, G, Local Ownership and DonorPerformance Monitoring: New Aid Relationshipsin Tanzania?, 2005

87 Oxfam, Paying the Price: Why rich countries mustinvest now in a war on poverty, 2005

88 OECD-DAC High Level Forum, Harmonisation,Alignment, Results: Report on Progress,Challenges and Opportunities

89 Easterly, W, The Elusive Quest for Growth:Economists’ Adventures and Misadventures in the Tropics, MIT Press, Cambridge, 2001

90 For example, see White, H, and Dijkstria,Programme Aid and Development: BeyondConditionality, Routledge, London, 2003

91 Interview with former ODI fellow, March 2005

92 Ivanova, A, Mayer, W, Mourmouras, A, andAnayiotos, G, What Determines theImplementation of IMF-Supported Programmes?,IMF Working Paper WP/03/8, InternationalMonetary Fund, Washington, DC, 2003

93 World Bank. 2004. Development Policy LendingGuidelines. Washington, D.C: World Bank; HMGovernment. 2005. Partnerships for povertyreduction: rethinking conditionality. Policy paper;World Bank. 2005. Conditionality Revisited:Concepts, Experiences and Lessons.Washington, D.C: World Bank.

94 Debt Relief International, The Role of the IMF inLow Income Countries: Study for Swedish Ministries of Finance and Foreign Affairs, 2004

95 IMF, Lessons from Real-Time Assessments ofStructural Conditionality, March 2004; IMF-IEO,Draft Issues Paper For An Evaluation Of StructuralConditionality In IMF-Supported Programs, 2005

96 World Bank, Conditionality in World Bank-supported Policy-Based Lending, 1980-2003,OPCS presentation, 2004

97 Helleiner, G, External Conditionality, LocalOwnership and Development, in Freedman, J (ed),Transforming Development: Foreign Aid for aChanging World, University of Toronto Press,Canada

98 Boughton, JM, Who’s in Charge? Ownership andConditionality in IMF-supported programmes, IMFWorking Paper EP/03/191, IMF, Washington, DC,2003

99 Collier, P, 2000, Consensus Building, Knowledgeand Conditionality:http://orion.forumone.com/ABCDE/files.fcgi/139_ collier.pdf

100Wood, A, Conditionality: Past, Present and Future, Issues Paper for ActionAid UK, 2004

101Presidential address to 2002 World BankConsultative Group meeting, cited in Oxfam,Ethiopia Financing for the MDGs, internal working paper

102Interviews with Oxfam Vietnam and ActionAidInternational Vietnam, 16 and 18 February 2005

103For example, see DFID/FCO/HM Treasury,Partnerships for Poverty Reduction: rethinkingconditionality, 2005

104Dubash, NK, et al, Power Politics: Equity andenvironment in electricity reform, WorldResources Institute, Washington, DC, 2002

105Christian Aid, Struggling to be Heard:Democratising the World Bank and IMF, 2003

106Interview with Uganda Debt Network, 7 March2005; interview with NGO Forum Uganda, 9March 2005

107Interview with Oxfam GB in Vietnam,17 February2005; interview with ActionAid International Vietnam

108A.Wood, Conditionality Past, Present and Future

109Wood, A, International Financial Institutions,Conditionality and Privatisation of Water andSanitation Systems: Report for WaterAid,WaterAid, London, 2003

110IMF, External Evaluation of the ESAF, IMF,Washington, DC, SAPRIN, 1999

111Uganda PEAP

112World Bank, Conditionality in World Bank-supported Policy-Based Lending, 1980-2003,OPCS presentation, 2004

113OECD-DAC, Survey on Progress in Harmonisationand Alignment, 2004

114Japan Country Assistance Plan for Vietnam, page17, April 2004

115For example, see World Bank, The PovertyReduction Strategy Initiative: An IndependentEvaluation of the World Bank’s Support Through2003. World Bank/OED, Washington, DC, 2005;ActionAid USA, Rethinking Participation, BriefingPaper, 2004; Oxfam International, From ‘Donorship’to Ownership? Moving Towards PRSP Round Two,Oxfam International, Oxford, 2004

116Bulir, A and Hamann, J, How volatile andunpredictable are Aid Flows, Implications, IMFWorking Paper 01/167, Washington, 2001

117Oxfam International, The IMF and the MillenniumDevelopment Goals, Oxfam: Oxford, 2003

118World Bank, Aid Agency Competition, PublicPolicy for the Private Sector, Note no. 277, 2004;

Rogerson, A and Maxwell, S, Aid: What’s Next? ODI Opinions no. 27, 2004; Easterly, W, The Cartelof Good Intentions, Foreign Policy, July –August:40:49, 2002

119Financial Times, India Opts to Decline Aid from allbut Six Countries, July 8 2003

120Johnson, A, Martin, M and Bargawi, H, TheEffectiveness of Aid to Africa since the HIPCInitiative: Issues, Evidence and Possible Areas forAction, Background Paper for the Commission forAfrica, 2004

121Ibid.

122www.minbuza.nl; the UK committed £7 millionover three years in February 2005 to a silentpartnership with France for basic education in Niger

123Rogerson, A and Maxwell, S, Aid Industry NeedsSlimming Down in Order to Tackle World Poverty,The Guardian, September 27 2004. Donor fragmentation as measured by Knack andRahman is the number of donors relative to theaverage share of the project ‘market’

124Knack and Rahman, Donor Fragmentation andBureaucratic Quality in Aid Recipients, PolicyResearch Working Paper 3186, World Bank:Washington, DC, 2004

125ActionAid, Accountability, Learning and PlanningSystem, ActionAid: IDS. 2001; The New Dynamicsof Aid: Power, Procedures and Relationships,Policy Briefing no.15

126For example, see Lockwood, M, The State They’reIn: Poverty and politics in Africa and the agendafor international action, Monograph, 2005

127Rogerson, A. and de Renzio, P. 2005. ‘The SevenHabits of Effective Aid: Best Practices, Challengesand Open Questions’. ODI Opinions, February 2005.

128Interview with DFID official in Uganda, 9 March2005

129AFRODAD, Governance, Transparency and MutualAccountability Within the Aid Regime, Note, 2005

130Working Group on new international financialcontributions, Landau report, December 2004;Atkinson, AB, (ed), New Sources of DevelopmentFinance, UNU-WIDER November 2004

131Fitzgerald, V, Rethinking Development Assistance:The Implications of Social Citizenship in a GlobalEconomy, Paper for UNRISD Globalisation andCitizenship Conference, 1996

132Development Initiatives, The International FinanceFacility: Briefing Note for CONCORD WorkingGroup on Financing for Development, 2003

133World Development Movement, The InternationalFinance Facility: Boon or Burden for the Poor?, 2005

55

Page 58: ActionAid - Real Aid

ActionAid International is a uniquepartnership of people who are fighting fora better world – a world without poverty.

ActionAid InternationalPostNet Suite #248Private Bag X31Saxonwold 2132JohannesburgSouth Africa

Telephone+27 (0) 11 880 0008

Fax+27 (0) 11 880 8082

[email protected]

Websitewww.actionaid.org

International Head OfficeJohannesburg

Asia Region OfficeBangkok

Africa Region OfficeNairobi

Americas Region OfficeRio de Janeiro

ActionAid International is registered underSection 21A of the Companies Act 1973.Registration number 2004/007117/10

Design: Ranch

This report was researched and written by Romilly Greenhill and PatrickWatt of the Aid and Accountability teamin ActionAid International (UK). For more information, please contact:

[email protected] [email protected]

The report received the support andinput of a large number of colleagues andpartners. Particular acknowledgementsare due to Fern Leathers, Chris Jordan,Daniel Bekele, Fikre Zewdie, AmandaSerumaga, Florence Apuri, KeshavGautam, Sopheareak Meas, Nguyen HoaiChau, Shona Sarkar, Ramesh Khadka,Nguyet Tran Que, Steve Tibbett, TomSharman, Louise Hilditch, Felicity Daly,Simon Wright, Taaka Awori, Tony Durhamand Stephanie Ross in ActionAid, ArryFraser at Oxfam, and to Matthew Martinat Development Finance International,Elena Sisti at the New EconomicsFoundation, Charles Mutasa atAFRODAD, Judith Randell atDevelopment Initiatives and AndrewRogerson at ODI

Photographic CreditsCover Liba Taylor/ActionAid

Page 6 Jenny Matthews/ActionAid

Page 14 GideonMendel/Corbis/ActionAid

Page 23 Sophia Evans/NBPictures/ActionAid

Page 32 Chris Stowers/Panos/ActionAid

Page 40 Gideon Mendel/Corbis/ActionAid

Page 50Gideon Mendel/Corbis/ActionAid

June 2005

ACKNOWLEDGEMENTS AND CONTACTS 56

Page 59: ActionAid - Real Aid
Page 60: ActionAid - Real Aid