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Aid effectiveness, or the effectiveness of development aid, is of vital importance to the recipients of aid, as well as to donors (who would no doubt rather spend money on something else rather than ineffective aid). Effective aid enables economic and human development.W
How to improve effectiveness
There is no simple answer, but measures to improve the effectiveness of aid include:
- Increase local ownership of programs and policies. This may need to increase in stages, depending on local capacity.
- Buy goods and services locally.
- Direct assistance through the government and local firms where they are able to do the job well
- Increase local leadership - this is an aspect of capacity building.
- Prioritize capacity building,W a.k.a. capacity development, in all activities.
- Ensure accountability, for both resources and results.
- Aid conditionalityW - though this is controversial and can be problematic
- Improved governance.
- Inclusive aid partnerships ensuring that the strengths of each partner is utilized.
- Institutional and staff incentives for effective cooperation as well as for final results.
- Eliminating factors that lead to risk-aversion and which discourage innovation.
The modern foreign aid system began when the United States helped to rebuild Europe through the Marshall Plan.W From the 1960s to the 1980s, foreign aid was often used to support client states of the US and the Soviet Union, which of course compromised the integrity and the development goals of the aid.
When the Cold War finished, the stated aims of such aid were refocused on reducing poverty and boosting development. Donor governments and aid agencies began to cooperate with each other and with developing countries, to improve their impact.
The Monterrey ConsensusW agreed on increased funding for development, while acknowledging that the amount of money was not enough - it was essential that the money be used effectively.
Some argue that aid is never effective - Dambisa MoyoW has achieved prominence by arguing this (or appearing to argue it, as presented in the media). Most critics, however - even harsh critics such as William EasterlyW - acknowledge that there are examples of effective aid.
Overall, there is widespread agreement that:
- Well-managed and directed aid has been effective, especially in health and basic education
- Aid is only one factor in the complex process needed for development
- Economic growth and good governance are essential to development
The OECD has explored, through its Development Assistance CommitteeW (DAC), why aid has and has not worked in the past. This has resulted in a body of best practices and principles that can be applied globally to make aid work better.
See Wikipedia: Aid effectiveness #Historical background for greater detail.
The Micro-Macro Paradox is that some researchers (Paul Moseley and others) consider that it is impossible to find a significant correlation between aid and growth rate of GNP, and yet at a micro level, all donor agencies regularly report the success of most of their projects and programs. Possible explanations and observations include:
- Leakage of the aid into unproductive expenditure in the public sector, directly and indirectly through fungibility (i.e. if aid is now covering education, the government doesn't need to spend its own money on education.
- Improved welfare of the poorest members of society may have a relatively small impact in total monetary terms, and be dwarfed by other factors when looking at GNP.
- Some improvements in welfare do not have immediate economic impacts - in fact may reduce spending in some areas (e.g. better health due to hygiene practices may result in less money spent of medical care).
Burnside and Dollar recently found that the impact of aid on growth is positive in countries with a good political environment for making policy. This is indicated by a significant and positive coefficient on the ‘aid’ policy interaction in the growth regression. As a result they advocate selectivity in aid allocation. (See also Governance as a condition of aid.) The difficulty is that this then excludes countries that are less fortunate in terms of policies and require help most. (One possible response is to focus on governance support for such countries - though this may be difficult if the aims of such programs conflict with the aims of those in power.) However, doubt has now been cast on their research and conclusions, in particular by William EasterlyW and his colleagues, who re-estimated the Burnside & Dollar model with updated and extended data, but could not find a significant aid-policy interaction term.
One problem in these studies on aid is that they typically combine different types of aid without distinguishing them.[verification needed] It would be expected that some type of aids such as short term aid do not have an impact on economic growth while other aids used for infrastructure and investments will result in a positive economic growth.
Accra Agenda for Action
The intergovernmental Accra Agenda for Action (AAA) is a joint ministerial statement developed with support from the OECD’s Working Party on Aid Effectiveness. The AAA identifies three main areas where progress towards reform is still too slow.
1. Country ownership. The Accra Agenda for Action says developing-country governments still need to take stronger leadership of their own development policies and engage further with their parliaments and citizens in shaping them. Donors must commit to supporting them by respecting countries’ priorities, investing in their human resources and institutions, making greater use of their systems to deliver aid, and further increasing the predictability of aid flows.
2. Building more effective and inclusive partnerships. The Accra Agenda for Action aims to incorporate the contributions of all development players—middle-income countries, global funds, the private sector, civil society organisations—into more inclusive partnerships. The aim is for all the providers of aid to use the same principles and procedures, so that all their efforts are coherent and have greater impact on reducing poverty.
3. Achieving development results—and openly accounting for them. The Accra Agenda for Action says the demonstration of impact must be placed more squarely at the heart of efforts to make aid more effective. There is a strong focus on helping developing countries to produce stronger national statistical and information systems to help them better monitor and evaluate impact. More than ever, citizens and taxpayers of all countries expect to see the tangible results of development efforts. In the AAA, developing countries commit to making their revenues, expenditures, budgets, procurements and audits public. Donors commit to disclosing regular and timely information on their aid flows.
The Accra Agenda for Action sets out a list of commitments for its signatories, building on those already agreed in the Paris Declaration. It asks the OECD’s Working Party on Aid Effectiveness to continue monitoring progress on implementing the Paris Declaration and the Accra Agenda for Action and to report back to the Fourth High Level Forum on Aid Effectiveness in December 2011. Many donor and recipient governments will have to make serious changes if the AAA’s aims are to be fulfilled. The fact that ministers have signed up to these changes in Accra makes the AAA a political document—rather than a technocratic prescription— to move from business as usual to a new way of working together.
Paris declaration on aid effectiveness
In February 2005, the international community came together at the Paris High Level Forum on Aid Effectiveness, hosted by the French government and organised by the OECD. The role of aid in promoting development was attracting increasing public scrutiny in the run-up to the G8 Summitin Gleneagles, Scotland, and the global campaigns such as Make Poverty History.
While some progress had been made in harmonising the work of the different international aid donors in developing countries, it was acknowledged that much more needed to be done. The aid process was still too strongly led by donor priorities and administered through donor channels, making it hard for developing countries to take the lead. Aid was still too uncoordinated, unpredictable and un-transparent. Deeper reform was felt to be essential if aid was to demonstrate its true potential in the effort to overcome poverty.
At the Paris meeting, more than 100 signatories—from donor and developing-country governments, multilateral donor agencies, regional development banks and international agencies—endorsed the Paris Declaration on Aid Effectiveness. The Paris Declaration went much further than previous agreements; it represented a broader consensus among the international community about how to make aid more effective. At its heart was the commitment to help developing-country governments formulate and implement their own national development plans, according to their own national priorities, using, wherever possible, their own planning and implementation systems.
The Paris Declaration contains 56 partnership commitments aimed at improving the effectiveness of aid. It lays out 12 indicators to provide a measurable and evidence-based way to track progress, and sets targets for 11 of the indicators to be met by 2010.
The Declaration is focused on five mutually reinforcing principles:
• Ownership: Developing countries must lead their own development policies and strategies, and manage their own development work on the ground. This is essential if aid is to contribute to truly sustainable development. Donors must support developing countries in building up their capacity to exercise this kind of leadership by strengthening local expertise, institutions and management systems. The target set by the Paris Declaration is for three-quarters of developing countries to have their own national development strategies by 2010.
• Alignment: Donors must line up their aid firmly behind the priorities outlined in developing countries’ national development strategies. Wherever possible, they must use local institutions and procedures for managing aid in order to build sustainable structures. In Paris, donors committed to make more use of developing countries’ procedures for public financial management, accounting, auditing, procurement and monitoring. Where these systems are not strong enough to manage aid effectively, donors promised to help strengthen them. They also promised to improve the predictability of aid, to halve the amount of aid that is not disbursed in the year for which it is scheduled, and to continue to “untie” their aid from any obligation that it be spent on donor-country goods and services.
• Harmonisation: Donors must coordinate their development work better amongst themselves to avoid duplication and high transaction costs for poor countries. In the Paris Declaration, they committed to coordinate better at the country level to ease the strain on recipient governments, for example by reducing the large numbers of duplicative field missions. They agreed on a target of providing two-thirds of all their aid via so-called “programme-based approaches” by 2010. This means aid is pooled in support of a particular strategy led by a recipient country—a national health plan for example—rather than fragmented into multiple individual projects.
• Managing for results: All parties in the aid relationship must place more focus on the end result of aid, the tangible difference it makes in poor people’s lives. They must develop better tools and systems to measure this impact. The target set by the Paris Declaration is for a one-third reduction by 2010 in the proportion of developing countries without solid performance assessment frameworks to measure the impact of aid.
• Mutual accountability: Donors and developing countries must account more transparently to each other for their use of aid funds, and to their citizens and parliaments for the impact of their aid. The Paris Declaration says all countries must have procedures in place by 2010 to report back openly on their development results.
A first round of monitoring of the 12 Paris Declaration indicators was conducted in 2006 based on activities undertaken in 2005 in 34 countries. A second survey was organised in early 2008 in which 54 developing countries examined progress against the targets at country level. This 2008 Survey covers more than half all the official development assistance delivered in 2007—nearly USD 45 billion. It will be presented at the Third High Level Forum on Aid Effectiveness in Accra in September 2008. The evidence so far suggests that progress has been made. For example, more than one third of developing countries surveyed had improved their systems for managing public funds; almost 90% of donor countries had untied their aid; and technical cooperation is more in line with developing countries’ own development programmes. Despite these improvements, however, the results of the Survey show that the pace of progress remains too slow to reach the targets set in 2010. In particular, although many countries have made significant efforts to strengthen their national systems (for instance by improving how they manage their public funds), in many cases donors are still reluctant to use them. The predictability of aid flows also remains low (with just over a third of aid disbursed on schedule), thereby making it hard—or impossible—for governments to plan ahead. In summary, whilst some progress has been made there are still many areas where the pace of change must be accelerated if the targets set for 2010 are to be reached.
In some quarters, the Paris Declaration is almost synonymous with aid effectiveness; it is expected that aid will be effective and achieve development outcomes when the principles are observed for government sector aid. However, there continue to be criticisms and alternative views, particularly from non-government aid organisations. Implementation of the Paris Declaration still needs to be significantly stepped up, according to the results of the 2008 Monitoring Survey. Concrete targets set for 2010 (such as an increased proportion of aid to be untied; establishment of "mutual accountability" mechanisms in aid recipient countries; and for two-thirds of aid to be delivered in the context of so-called programme approaches rather than projects) may be difficult to meet. Independent NGOs, such as Eurodad, also release their own evaluations, showing that the Declaration is not being implemented as planned. The Overseas Development InstituteW has specified that better monitoring of the relationship between the Paris Principles and development results at sector level is necessary.
The OECD's work on aid effectiveness
The Organisation for Economic Co-operation and DevelopmentW is the main coordinating body for the international community’s efforts to make aid more effective. The OECD traces its roots to the Marshall Plan which sought to rebuild Europe after the Second World War. Today, it groups 30 member countries committed to democratic government and the market economy. It provides a forum where governments can compare and exchange policy experiences, identify good practices and promote decisions and recommendations. In addition to the analysis and advice it provides on a wide range of economic issues, the OECD is one of the world’s largest and most reliable sources of statistical, economic and social data.
The OECD’s work on aid effectiveness is undertaken by its Development Assistance CommitteeW, known as the DAC. One of OECD’s oldest committees, the DAC was founded in the early 1960s to guide, promote and enhance co-operation with developing countries. Today, it comprises 23 members: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States and the European Commission (EC). These countries have significant aid programmes. The World Bank, the International Monetary Fund (IMF) and the United Nations Development Programme (UNDP) participate as observers.
Hosted by the DAC, the Working Party on Aid Effectiveness (WP-EFF) is the major international forum where developing countries join with multilateral and bilateral donors to work on improving the effectiveness of aid. It was set up in May 2003 to promote the global partnership for development agreed at the 2002 Financing for Development Conference in Monterrey and to accelerate progress towards the Millennium Development Goals. It is the body responsible for organising the Third High-Level Forum on Aid Effectiveness in Accra in September 2008.
The Working Party on Aid Effectiveness’ primary function is to measure and encourage progress in implementing the commitments of the 2005 Paris Declaration and provide guidance on policy and good practice. The Working Party comprises senior policy advisers from the 23 DAC members, 23 developing countries and 11 multilateral organisations. It has a unique “tripartite” chairing arrangement, including representatives of a bilateral donor organisation, a multilateral organization and a developing-country partner. This reflects the partnership commitments embodied in the Paris Declaration. The WP-EFF also engages actively with civil society organisations. In order to effectively cover its broad mandate, it has established a number of Joint Ventures to examine particular areas of interest, including monitoring the Paris Declaration, public financial management, procurement, and managing for development results.
In addition to the work of the WP-EFF, the DAC tackles aid effectiveness issues through its other working parties and regular activities.
The DAC maintains and makes available unique and definitive statistics on the global aid effort. Its Working Party on Statistics tracks official development assistance over time, providing a firm basis for analytical work on aid trends and for assessments of aid effectiveness. Beyond the traditional OECD aid donors, its data collection also includes other official and private flows to developing countries.
One of the DAC’s important tasks is to conduct regular peer reviews of its members’ development policies, strategies and activities. Each year, the DAC conducts regular peer reviews of four or five of its members. These reviews look at how members are putting into practice the policy work carried out by the DAC, and how they are responding to international commitments and to their own national goals. These reviews are designed to encourage positive change, support mutual learning and raise the overall effectiveness of aid throughout the donor community.
Other aid effectiveness work is carried out by the DAC’s networks—global fora that bring together experts in various fields.
The Network on Development Evaluation supports robust, informed and independent evaluation of aid activities. This Network promotes joint reviews of the effectiveness of aid, such as the Evaluation of the Implementation of the Paris Declaration. It also works to improve the standards and norms used in evaluations. The 30 Evaluation Network members include heads of evaluation from all DAC member countries and from the African Development Bank (AfDB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD) and the World Bank.
The DAC’s Network on Gender Equality, GENDERNET, produces practical tools to help integrate gender equality and women’s empowerment into all aspects of development co-operation. It is currently focusing on the implementation of the Paris Declaration, designing a set of guiding principles to show how women’s empowerment can be clearly integrated into aid effectiveness efforts to increase their impact.
The Network on Environment and Development Co-operation, ENVIRONET, aims to enhance the coherence of OECD country policies in the areas of environment and development co-operation, as called for by the Paris Declaration.
The DAC’s Network on Poverty Reduction, POVNET, promotes economic growth for poverty reduction, stressing the importance of both the rate and the pattern of growth, and works to ensure that growth is broad-based and inclusive. Subjects of workshops held by this network have included applying Paris Declaration principles in agriculture and infrastructure.
The Network on Governance and Capacity Development, GOVNET, helps donors to be more effective in supporting democratic governance. It offers a forum to exchange experiences and lessons, identify and disseminate good practice, and develop policy and analytical tools. It has produced important publications on themes such as fighting corruption, building institutions and ensuring human rights are placed at the centre of aid effectiveness efforts.
The Network on Situations of Conflict and Fragility brings together experts on governance and conflict prevention from bilateral and multilateral development co-operation agencies, including the EC, the UN system, the IMF, the World Bank and regional banks. It helps to improve development co-operation and coherent international action in situations where the Millennium Development Goals are undermined by threats of violent conflict, human insecurity, fragility, weak governance and instability.
The DAC also works on emerging issues in aid effectiveness. In 2008, it published the first in a new series of yearly surveys to tackle two major information gaps that hinder increased aid effectiveness: future spending intentions of donors, and the proliferation of aid donors. The results of these surveys will help donors make more informed decisions about where they should focus their aid, and to improve aid predictability at the country level. New analyses of historical information are also showing where there is donor fragmentation within a country, prompting donors to seek a better division of labour amongst themselves.
The DAC is working to build recognition among the development community that trade is an important tool for development. Its aim is to increase support for “aid for trade” activities—aid that helps build poor countries’ capacity to trade successfully. Experts from the DAC and the OECD Trade Committee are disseminating evidence of trade’s impact on development and creating an analytical toolbox for improving the design and implementation of aid-for-trade programmes. This includes strengthening the application of the Paris Declaration principles to trade-related aid activities.
- "Is water lagging behind on Aid Effectiveness?". Overseas Development Institute. September 2008.
- Eurodad: The European Network on Debt and Development
- Special Report on Aid Harmonization
- "Addicted to Aid"-documentary by Sorious Samura
- World Bank "Future of the Aid Industry"
- Center for Global Development: Aid Effectiveness
- Millions Saved A compilation of case studies of effective foreign assistance by the Center for Global Development.
- Development Gateway Aid Effectiveness Topic Page
- Reading list on the future of development assistance
- PSD Blog: aid effectiveness
- Boston Review Forum: Making Aid Work Initial article arguing for funding of projects confirmed as effective in randomized trials, followed by replies.
- CGAP's (Consultative Group to Assist the Poor) Aid Effectiveness Work. Microfinance as a test case.
- The Crisis in African Agriculture: A more effective use for EC aid? A Practical Action and Pelum 'African Voices' Report
- European Network on Debt and Development reports, news and links on aid effectiveness
- Euforic pages on aid evaluation and effectiveness
- Three-Cs.net Six joint-evaluations to explore and assess the role played by the Maastricht Treaty precepts of coordination, complementarity and coherence (3Cs) in the EU's development co-operation policies and operations
- The OECD DAC's site on the Paris Declaration on Aid Effectiveness
- Governance and Social Development Resource Centre's Topic Guide: Aid instruments and aid effectiveness
- Milestones in Aid Effectiveness
- ODI Briefing Paper: Aid effectiveness after Accra
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