Aid Effectiveness - Why Effectiveness Matters

Why Effectiveness Matters

As recognized by the OECD's Working Party on Aid Effectiveness, at the beginning of the 21st century it became apparent that promoting widespread and sustainable development was not only about amounts of aid given, but also about how aid was given.

Aid flows have significantly increased over the last decade, but at the same time aid has become increasingly fragmented. There has been an explosion in the number of donors, and while the number of projects has multiplied, their average size has dropped. Small projects being often limited in size, scope and duration, they result in little lasting benefit beyond the immediate impact. With more players, aid has become less predictable, less transparent and more volatile.

Information, at the donors' as well at the recipients' level, is often poor, incomplete and difficult to compare with other data, and beneficiaries' feedback and formal project evaluations are rare. Aid is predictable when partner countries can be confident about the amount and the timing of aid disbursement. Not being predictable has a cost: the deadweight loss associated with volatility has ranged on average from 10 to 20% of a developing country programmable aid from the European Union in recent years.

In the past decade, the aid environment has dramatically changed. Emerging economies (China, India, Saudi Arabia, Korea, Turkey, Brazil, Venezuela, etc.), which are still receiving aid from Western countries, have become donors themselves. Multinational corporations, philanthropists, international NGOs and civil society have matured into major players as well. Even though the rise of new development partners had the positive effect of bringing an increased variety of financing, know-how and skills to the development community, at the same time it has shaken up the existing aid system. This is particularly true in the case of emerging economies, as they do not feel compelled to conform to traditional donors’ norms. Generally demanding conditionality in return for assistance, which means tying aid to the procurement of goods and services, they are challenging traditional development aid standards.

The governance of aid presents itself as complex, bureaucratized and fragmented, with evident diseconomies of numbers and coordination, which have meant an increase in transaction costs. This is true for recipient countries, forced to neglect their domestic obligations to cope with requests and meetings with donors (given the lack of capacity at the country level and the precedence given to responding to donor demands), but also for donors, and ultimately, for beneficiaries. In fact, each project has fixed costs of design, negotiation and implementation, which reduce dollars available for final beneficiaries.

Despite the fact that the international community addressed the effectiveness issue through the Paris Declaration and the subsequent Accra Agenda for Action, the implementation of this agenda has been difficult. Governments and aid agencies have made commitments at the leadership level, but for the moment have done little more than pursuing top-down, aggregate targets. Decades of development have shown that if countries are to become less dependent on aid, they must follow a bottom-up approach, where they determine their own priorities and rely on their own systems to deliver that aid. There is broad consensus that aid could be managed more effectively, answering a call for program quality and accountability.

With more than $2.3 trillion spent in foreign aid over the last half-century and no equivalent impact in reducing poverty and conflict, and new crisis such as the recent famine in the horn of Africa, this call becomes particularly desperate. The publication on September 21, 2011 of the OECD-Development Assistance Committee's“Aid Effectiveness 2005-2010: Progress in Implementing the Paris Declaration” Report, clearly demonstrates that only one out of the 13 targets established for 2010 has been met.

The 4th High Level Forum (HLF) on Aid Effectiveness held in Busan, Korea, from November 29 to December 1, 2011, arrives at a crossroads in the context of international development cooperation. HLF-4 is expected to make recommendations on a future aid quality framework, at least for the period up to the MDG date of 2015.