The Effectiveness of Aid: General considerations
With the upcoming Paris Forum on the Effectiveness of Aid (February 28-March 2), jointly organized by the OECD, the World Bank and the United Nations at the invitation of France, it seems important to go deeper into this subject of effectiveness. The present note reviews numerous themes linked to this subject. The most important ones will be the focus of specific notes in the next few weeks.
The relative return into favor of international aid since the Monterrey conference of 2002, in the wake of the adoption of the Millennium Development Goals in the autumn of 2000, has resulted in a minor increase in the sums involved, to 0.25% of the GDP of the OECD countries (with an estimated amount of 0.30% in 2006). At the same time, the questioning of the effectiveness of this aid, which had accompanied its fall over the course of the last decade (from 0.35% until 1992 to 0.22% in 1999) has continued. Then the “exhaustion of aid” was spoken about. Now, paths to improve the effectiveness are sought in numerous areas.
1. Measuring the Results of Aid
Sometimes some real successes of international aid are minimized: tripling of GDP/inhabitant in all of the developing countries in 30 years, spectacular decrease in infant mortality and the fertility index, increase in life expectancy, schooling and access to potable water, absence of famines (except for political reasons), etc. All this took place despite unprecedented population growth.
But it is difficult to know to what extent these successes are attributable to aid. What is more, they are accompanied by the persistence of mass poverty in certain areas, notably in Africa, a failure that has conveniently reflected badly on ODA (Official Development Assistance). The literature on ODA has most often been, and still remains, focused on the crisis of ODA and on the inadequacies of the latter in terms of results in the beneficiary countries.
There have been numerous attempts to find an empirical link between the level of aid and the rate of growth in beneficiary countries. The conclusions are varied, now with more of a tendency to emphasize a positive correlation after years of negative conclusions. The debate is probably neither decided nor decidable. Aid undoubtedly incorporates too many things, with very different future effects, for this approach to make sense, if not, perhaps, at an extremely aggregated level over a period of several years. In this sense, the “lean” decade that we just came through is undoubtedly today a brake on growth in numerous beneficiary countries.
In practice, positive results concretely exist at both a very local level (schools, wells, facilities, etc.) and sectoral level (primary education, human and animal health, cotton growing in West Africa, irrigated agriculture, etc.). On the other hand, some denounce the failures (the “white elephants”, the machines rusting in the fields because they are missing pieces) or at least the numerous limits on interventions. The microeconomic approach is particularly used in very numerous project evaluation studies, carried out after the fact by the sponsors.
One of the greatest difficulties in analyzing aid is the absence of coherence between its local results and the evolution of the national situation of the beneficiary countries. There clearly exists a micro-macro paradox in the effects of aid. In particular, the existence of positive local results without discernible macroeconomic effects leads to two frequently encountered ideas:
A portion of the aid would have undesired and harmful effects (perverse effects), coming to eliminate or overcompensate for measured positive effects.
Specific results would be obtained only by concentrating the means and/or the quality on a particular area, and thus would be obtained to the detriment of the rest. This is the so-called WYSINWYG (“what you see is not what you get”) argument, taken up again in the idea of the fungibility of aid. In this approach, developed by the World Bank beginning in 1998 (with the Assessing Aid report), the effectiveness of aid interventions is not a relevant approach, only the performance of the country counts.
The effect of aid on the institutional development of beneficiary countries is undoubtedly the essential question, although it is not easy to tackle. There is no consensus on the matter:
On the one hand, institutional strengthening is clearly part of the fund backers’ agenda and of the numerous programs devoted to it. This strengthening concerns above all the State apparatus, but also, to a lesser degree, local authorities, professional organizations, etc.
On the other hand, it is probable that some of the perverse effects mentioned above are institutional: disorganization of the State apparatus when it is too exclusively preoccupied with opportunities for or the management of aid, change in the balance of power between the components of the society, change in collective representations, etc.
Institutional approaches insist, in general, on the problems of appropriation (or ownership) and durability, on the local level as well as on the level of governance and national policies.
2. Effectiveness of Modes of Delivering Aid
Although every agency is interested in knowing the effects of their interventions, the principal criterion of effectiveness, in the short term, is the operation of their own means. ODA operates, for the most part, within a logic of means. It is in this sense that the performance of aid is much talked about currently. The primary criterion of performance is the disbursement itself, which has become a criterion of effectiveness in itself. It is, for example, used for the mid-course examination of the National Indicators Programs of the European Commission. Recall that Europeaid, created in 2000, was presented as a new agency charged with “accelerating the disbursements” (Le Monde, August 3, 2000) in response to criticisms that saw in the fact that significant sums of money were not expended in time the primary “sign of serious dysfunction in the way in which the European Commission manages its abundant aid budgets” (id).
The revival of interest in budgetary aid clearly obeys the same imperative of disbursement. Moreover, it should be noted that the Commission has considerably improved its performance in terms of the rate of disbursement, mostly by resorting to budgetary aid, which attained a little more than 20% of the EDF’s (European Development Fund) outlay in 2004.
Disbursement is not only taken into account at the level of large sums of money. It is also the main criterion in portfolio reviews of interventions. A project that disburses slowly is a poorly performing project. The results are put into the same category as expended funds.
In this means perspective, other performance criteria are often evoked:
Limitation of transaction costs.
Respect for procedures, notably those concerning the directive for operations and programming expenditures.
Proper execution of the expenditure, in compliance with international regulations for awarding contracts. Despite the red tape and associated costs, this is an essential criterion for transparency of aid, making it possible to avoid accusations of corruption and misappropriation. It is an important aspect of effectiveness.
3. Causes of the Presumed Ineffectiveness of Aid
The conclusion of one of the first general French studies on the effectiveness of aid, R. Cassen , was that, overall, aid is effective in terms of development when development is truly its goal. R. Cassen referred to political and commercial criteria that ended up with poor choices of beneficiary countries and projects.
In fact, numerous studies on the determinants of the allocation of bilateral aid bring out the importance of political connections, particularly the old colonial link (possibly having become a linguistic link). Roughly speaking, donors give more aid, even exclusively, to their former colonies or countries to which they are close or were close at a particular time (for example, the Scandinavian countries in relation to the front line countries against apartheid in South Africa). Now, as the World Bank has said since 1998 (Assessing Aid), if the donors truly sought development, they would allocate their aid to countries that make the best use of it, thus improving the effectiveness of the “marginal dollar” of aid on the world scale. What is the best use? Lacking quick and sure data concerning results, the criteria can only be concerned with effectiveness in terms of means (capacity of disbursement) and what is henceforth called its standard of governance (economic opening and political regime). This is the principle of selectivity, applied for around five years by numerous donors.
Other presumed causes of ineffectiveness refer to the same idea: if development were really the goal of aid, without a political or commercial or leadership objective or, quite simply, without the “core desire to last” of the agencies themselves and the men and women who staff them:
The aid would not be linked. A linked aid, according to its detractors, pursues a commercial goal and is prevented from obtaining the best prices on the world market and thus optimizing its purchasing power.
There would be fewer problems of coordination between donors, created by the desire of each agency to “plant the flag” of its own country or organization. The choice of a leader by sector would not be subject to rivalry. This aspect is important: the consequences of the absence of coordination are devastating for the results of aid.
Cassen’s explanation is pertinent, but it is certainly not sufficient. It is illusory to think that development is the only goal of all the diverse organizations that make up the ODA. This is not inevitably an obstacle: in the countries of the North, all social aid has an electoral goal. That does not prevent it from having, to various degrees, a recognized effectiveness.
Moreover, it does not take into account the cause of the ineffectiveness that comes from the institutional reality of aid agencies: vast numbers of small administrative units subjected to a large number of not very flexible constraints on governance, program planning and rules of public expenditure. Even without the particular zeal for procedures, these constraints are behind the delays and red tape that inevitably reduce the quickness of reaction and adaptability of public aid, and above all its predictability. Thus, even if the flows of aid are relatively stable in a country from one year to another, the reality of interventions is that they are often in a continually precarious position, harmful to the quality of its effects on the ground.
Nor does it take into account the diversity of local situations and questions of the aid absorption capacity of beneficiary countries. This is an old idea, used by Rosenstein-Rodan and Rostow, for example, which considers an increase as a pre-requisite to economic take-off. Stiglitz defines it as “the ability to use financial transfers effectively and correctly”. Appearing as the true, endogenous limit of the actually disbursed ODA sums, less than the aid offers of donors (hence the delays in disbursements), it justified in part, during the 1990s, the underlying fall in aid. This is an embarrassing notion for the advocates of a substantial increase in ODA. That is why they minimize it or turn it around (cf. the Sachs report of January 2005) by demanding that support for the improvement of this absorption capacity is precisely a priority of the aid. This returns to the idea of support for the institutional construction of countries, which is certainly a major objective of the aid, but is not necessarily identical with massive and rapid contributions and the risks of institutional regression that are involved (see below).
The question of absorption capacity remains, then, for several reasons, one of the major issues involved with the qualitative and quantitative improvement of international aid.
Between characteristics of the aid and local situations, the roots of ineffectiveness are also frequently brought up in relation to two connected themes:
The aid “does not meet the demand”. Without saying that aid is indiscriminate, it is true that agencies work out their own strategies and expertise, which is legitimate, but this can result in the proliferation of standard interventions into countries that are quite different from one another. On the other hand, the concept of “demand” is sometimes difficult to grasp, in general emanating from a situation that one rightly desires to see change, only represents a part of the society and is influenced by the existence of potential aid. As with absorption capacity, the emergence of a constructed demand is also a result of quality aid, but takes time.
It “decides instead of the countries”. By doing this, it prejudices its ownership by the beneficiaries and thus its continuity. It weakens local structures. Here we get back to the institutional effects touched on in the first part. It should be noted that this approach to aid through supply seems, in part, inherent in the nature of the aid. A recent example is found in the “quick impact measures” proposed by J. Sachs: mosquito nets and fertilizers are indubitably an effect of the logic of supply.
4. Improving Effectiveness
Rare are the publications, even strongly critical ones, which do not glimpse possible improvements to aid, at the price of occasionally radical reforms. The concern for improving the effectiveness of aid is one of the causes for the continual reform of organizations and the need to present new ideas regularly. The science of development progresses and the slogans evolve.
International initiatives are numerous and mainly concern, of course, the mode of operation and procedures. Among the main themes conveyed, some are essentially within a logic of means:
The loosening of aid.
The coordination of donors, standardization of their procedures, the use of means at the least transaction cost.
There are also themes closer to concerns about effects, direct or induced:
Improving the predictability of aid.
“Aligning” aid policies with the priorities of beneficiary states, notably within the context of establishing “strategies for reducing poverty” by these countries. The elaboration of these national strategic frameworks, still often artificial, partial and centralizing, are, nevertheless, an undoubted advance.
The “ownership” of these policies by the beneficiaries, within a perspective of partnership with the donor community. In this perspective, aid gives up the idea of prior conditions, where the country is subjected to preconditions in order to obtain funds, and moves on to the idea of jointly defined objectives that are assessed as the funds are disbursed. These objectives are necessarily more focused on factors to implement than on concrete results in terms of development, since the latter require, by nature, a much greater distance in time and a reliable statistical system in order to assess them.
All of these themes are the subject of initiatives in the DAC (Development Assistance Committee) of the OECD.
On the world scale, the rapid advance of the principle of allocating aid as a function of “performance” should be noted. This is supposed to both improve immediately the overall results of aid (more people getting out of poverty in the world) and encourage governments to improve their performances (in order to increase their aid allocation). The limits of this principle are also apparent: criticism of the indicators of performance, weak encouragement, concentration of aid to certain countries, and the existence of orphaned countries.
Generally speaking, there is an obvious convergence within the donor community towards notions of selectivity, alignment/ownership and management by results. These ideas constitute the “new paradigm” of aid “at the dawn of the 21st century”. They are undoubtedly “joint progress towards better effectiveness of aid” (title of the Paris Forum). But because of the complexity of situations on the ground, and the diversity of local actors, they cannot escape some significant contradictions and are far from exhausting the subject of improving the effectiveness of aid.
February 10, 2005