22/09/2011 - Development aid has increased from USD 37 billion in 1960 to 128 billion last year. However, poor co-ordination and unpredictable aid waste funds that should be eradicating poverty in the world’s poorest countries.
Donor and developing countries signed up to the Paris Declaration on Aid Effectiveness in 2005. All parties to this ‘aid compact’ agreed that, to lift more people out of poverty, developing countries must plan and manage their own paths to progress. Donors committed to work with each other and with developing countries to help pave that path, and all parties are accountable for the results. But are they keeping their commitments?
A new survey of 78 countries and territories is a global scorecard showing whether they are making aid more effective. The Survey findings are summarised in Aid Effectiveness 2005-10: Progress in Implementing the Paris Declaration and will be the basis of discussion at the international High Level Forum on Aid Effectiveness in Busan, Korea later this year.
To design and own their national development strategies, developing countries must work with their citizens and other domestic stakeholders. The Survey gives Rwanda and Tanzania an A rating, the top score, and notes that Kenya and Sudan have made huge progress since 2005. Other countries, including Chad, Madagascar and Nepal, have backtracked to D ratings.
Donors committed to support those strategies, including providing aid funds to the governments in developing countries who then manage activities themselves. Some donors are allocating large proportions of their aid through developing countries’ financial systems: Ireland (80%), France (69%) and the UK (68%), for example. Others, such as Turkey (0%), Portugal (2%), and Luxembourg (4%) allocate next to nothing; Korea (10%) and the United States (11%) also lag behind.
Trust in developing countries’ financial systems is key. Yet even in the face of relatively good management of public funds, some countries – such as Cape Verde, Mongolia and Vanuatu – still see less than a third of the aid to their countries provided in this way.
Co-ordination among donors – working together, sharing information and focussing on a limited number of countries and projects – would cut transaction costs. In 2010, the US made 1 456 missions to 61 developing countries; France 928 to 46 countries; and Japan 509 to 70 countries. Each mission meets with officials from developing country governments. Too often these officials spend more time meeting with donors than responding to the needs of their own citizens. Niger, for example, received almost 900 missions from abroad in 2010 alone, most of them not co-ordinated among donors.
The Survey notes that some donors still tie aid – imposing restrictions on where goods and services must be bought or contracted, often in the donor country, instead of allowing the developing country to choose the best offer at the best price. Tied aid increases the cost of development projects by 20 to 30%, reducing value for money. Portugal has untied 23% of its aid to the countries surveyed, Korea 44%, and Austria 51%. By contrast, Canada, Ireland, Norway and the UK have untied 100% of their aid.
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>> For full details of OECD work on aid effectiveness.