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Questions and accountabilities @ Thursday, July 16, 2009 10:57 AM
As Alison notes, this is a challenging time for aid/development agencies such as DFID, increasingly at risk of being caught between three sets of demands for accountability: first, the demands made and commitments given under the Paris Declaration and Accra Agenda for Action on aid effectiveness; second, increasing demands on donors to make themselves accountable to their own domestic stakeholders; and third, the need to deliver aid in ways that strengthen rather than undermine domestic accountability in developing countries.
Debates over budget support, earmarking, reporting requirements imposed on aid recipients, and the meaning of “ownership”, demonstrate that there can be tensions between these various demands for accountability. How development agencies manage these various accountability relationships will have a major bearing on the future of aid, its sustainability and effectiveness. (This is something that I am working on, along with the Institute for Research and Debate on Governance, for the French development agency AFD)
There are no easy answers, but a focus on transparency and results (a concept which need not mean only kids in school or people accessing treatment), along with efforts to explain that proving that this pot of aid led to this exact outcome is not always the best approach, seems to offer a fruitful way forward. As indeed, in certain contexts, does the idea of Cash-on-Delivery Aid.
The “results agenda” is not a magic bullet that will enable a development agency to resolve any tensions between the various demands for accountability that it faces. It should however help to make explicit the fact that different constituencies may be more or less interested in different sorts of results.
This – along with greater transparency and more information – would provide a better basis for an honest conversation between development agencies and their stakeholders, and help to provide the agency with the information it needs to balance and manage the various demands in order to meet its mission. The Conservative Green Paper does not provide all the answers, but in raising some questions it is a welcome contribution to an increasingly important debate.
re: More questions than answers: reflections on the Conservative Green Paper @ Thursday, July 16, 2009 4:53 PM
The Conservative green paper discusses three big issues: value for money, wealth creation and, which I will not deal with, conflict as a development issue. And, by the way .... commits to a 0.7% of GNI aid target and the continuation of a separate department devoted to development.
These issues count: the previous Conservative report on poverty which emphasised economic development was written at a time when DFID’s was thinking of more emphasis on economic growth (e.g. the commissioning of an International Growth Centre) as a way to promote sustained increases in living standards.
I can’t agree more that value for money is needed, but so far we know too little about the quantitative effects of aid anyway. We have the stories, descriptions and anecdotal and circumstantial evidences, but sometimes lack numbers on what it actually means for levels of poverty and living standards. We note this in an empirical evaluation of aid for trade. Would aid allocation towards a more concentrated group, as advocated in the green paper, be helpful in promoting more value added? Perhaps, but an economist would ask, where does aid achieve the highest marginal return (in terms of sustained living standards) on investment which can be dependent on the concentration of aid in positive or negative ways. A reallocation of funds towards crisis-resilient growth would indeed channel more funds towards several Commonwealth small states hit hard by the crisis. But there will also be liquidity constrained consumers in other countries.
The attention to wealth creation is welcome: “The single most important exit from the grinding poverty which characterises so much of the developing world is economic growth and trade”, and “The key to development is sustained economic growth”, and “The building blocks of wealth creation: a vibrant private sector, property rights, access to finance, productive agriculture, and the infrastructure necessary for growth.” But I also could not agree more with Alison’s observation that this report too lacks a reference to market failures which provide a rationale for government support for the private sector.
The report recommends (p. 55) it will “explore ways in which DFID could co-invest in developing countries alongside private sector companies”.
Well, yesterday we heard one compelling answer to all of the above challenges. CDC is already co-investing in developing countries along-side the private sector. The private sector arm of DFID addresses market failures including relating to capital markets and the environment. Yesterday, it launched its development report. It is a good read, and ranks amongst the best in the DFI industry (while realising that CDC’s fund of funds approach is somewhat unique amongst DFIs). CDC measures the contributions of its investments towards development goals along four parameters: financial performance, economic performance, ESG performance and private sector development, which collectively make up the development outcome of a fund investment. For instance, 515 portfolio companies reported they employed 676.000 jobs, paid US$ 2.2 bn in taxes, and interestingly from a dynamic (through still micro, and not meso/macro) perspective a sample of companies reported employment turnover and profitability growth.
It is surprising we hear little on the remarkable shift in the role of DFIs in development these days. The situation in many developing countries has shifted from one where capital was less of a binding growth constraint, where DFIs had a lot of liquidity and were sometimes over-capitalised (see note on the use of subsidies by DFIs), where there was little known about DFI investment, to one where access to external capital has become a binding constraint in many circumstances, where we are looking for the DFI sector to play the countercyclical role, and where DFIs are reporting more micro level detail than aid programmes. Of course the work is not completely done, but CDC report of yesterday it is very good step towards measuring impact and understanding value for money. We need to take note.
David Cameron and Andrew Mitchell launched the Conservative Party’s Green Paper on International Development on 13 July with the message ‘every pound of aid will get a hundred pennies of value’. The emphasis on value for money for the UK taxpayer takes poll position in the Paper, clearly setting out the Conservatives’ stall on aid in the run up to the next general election.
The Green Paper opens strongly with a statement of commitment to achieving, by 2013, the UN target of spending 0.7% of national income on aid. This is hugely important and points to a clear political consensus on the moral case for international development. The first 20 pages of the Green Paper then focus on how this aid money will be delivered and accounted for under any future Conservative government. At its simplest, the message is that there needs to be greater independent scrutiny and transparency of aid spending – the proposal for an independent aid watchdog reappears – more performance-based aid delivery, from aid vouchers to cash-on-delivery; and more direct engagement by the British taxpayer in how aid money is spent. This includes the creation of a MyAid Fund to let British taxpayers vote on projects they think should receive further support. There are repeated references to subjecting aid spending to more scrutiny; to following the aid pound and ensuring accountability to the UK taxpayer.
The Green Paper states a commitment to the current international consensus on aid effectiveness, enshrined in the Paris Declaration and taken further in the Accra Agenda for Action but doesn’t make it clear how it will balance the call for more or rather different accountabilities at home with the mutual accountability principles that are enshrined in the Paris–Accra framework.
As expected with a Green Paper, the devil lies in the detail and there is much in the chapter on value for money, and indeed in the whole report, that raises further questions. On how aid is spent, for example, it is not clear what the criteria will be for allocating aid by country if, as the Green Paper states, the 108 countries in which DFID works at present is too many (even though 90% of current spending is concentrated in 23 countries).
What share of DFID funds would be spent in better performing countries versus those that are not performing as well, under a Conservative Government? What share of aid would go to conflict-affected and fragile states? The Green Paper states that there would be no more funding for China. Would the same apply for India? These are not theoretical questions. They have a major bearing on how the Conservatives plan to contribute to achieving the Millennium Development Goals (MDGs), and how they balance their sense of moral purpose with the practical action proposed in the Green Paper. Cash-on-delivery schemes, for example, are unlikely to be viable in conflict-affected states where there is next to no capacity to mobilise or deliver services in advance of international support. Delivering budget support only when the conditions are right would have ruled out the very successful experiments with budget support in both Rwanda and Sierra Leone; two cases that the Green paper applauds, and rightly. Private sector experiments in service delivery may work where market and regulatory conditions are right but it is precisely because of huge market failures in the poorest of countries that market solutions have not already been found. The concept of market failure does not appear at any point in the Green Paper.
How this brave new world of ‘pay as you go’ aid would fit with the hard won principles of supporting country-led strategies, strengthening country systems and addressing fundamental market failures, whether in infrastructure or regulation, is not at all clear.
On broader themes the Green Paper has some bold statements on growth and on working with conflict affected and fragile states, but there are also some gaps. Despite being a game changer for development, climate change receives one and a half pages in the 64-page paper, plus some scattered references throughout the text. There is very little on social protection, despite a growing body of work, including work by ODI, showing that social protection is an absolutely critical investment in managing shocks and securing future human capital. The shifting geopolitics of development get fairly short shrift; as does the rise of the BRICs and of China, in particular, as a donor nation. A return to a focus on the Commonwealth is interesting but may not be seen as completely in line with this changing world. Beyond aid issues, such as migration, security and technology are there but only barely; not much on the role of development finance institutions and mega-foundations in the future financing of development.
The Green Paper offers food for thought, and the solid pledge to reach the aid target of 0.7% of GNI is reassuring. But there are as many questions here as answers.
This blog post features the author's personal view and does not represent the view of ODI.
