Tag Archives: foreign aid

How to Scale Development Projects

Doug Hadden, VP Products

I attended a book launch at the Brookings Institution last week (embedded below). The development world is starting to see important patterns in program iteration and where public and private sector organizations can contribute more. It’s interesting to me how much effort is put by the development community to improve practices and find better ways to measure effectiveness at a time when so many observers claim that aid does not work. There are few other government programs that seem to get as much effort in improving effectiveness.

“Dead Aid” Debate needs Big Data

Doug Hadden, VP Products

House of Lords - Well Known Aid Effectiveness Experts?

If we could only harness the hot air coming from the foreign aid debate as a new renewable energy source. There’s a school of thought that aid is ineffective – as encapsulated (poorly) by Dambiso Moyo in Dead Aid, There is little agreement among experts. And, the pantheon of development experts, the House of Lords in the UK want to scrap the foreign aid target. (Stick that in your wig, so to speak.)  Not to say that the aid debate doesn’t have moments of levity – as recently supplied by New York University professor William Easterly.

William Easterly on Aid Effectiveness in Judea

 

Narrative vs Data

The aid effectiveness debate thrives on narrative. Facts are used to support points of view or confirmation bias. Data is powerful. Data disrupts the “truthiness” of an argument .You only need to look at Hans Rosling’s gapminder.org to see the power of data in action. There have been huge strides to liberate data from documents thanks to Aid Data.

The data provides insight. Helps to determine what works and what doesn’t. But, the depth and breadth of aid and economic data is limited. But that’s all going to change.

Towards Big Data and Transparency

It’s rather ironic that so many politicians are prepared to abandon foreign aid just at the point of the aid data explosion. The effects of aid are difficult to measure (except at the micro level) because of factors like remittances, foreign direct investment, protective tariffs in developed countries, government spending, and governance. Thanks to the International Aid Transparency Initiative (IATI) and the opening of more public data – led by the World Bank, it seems that we’ll soon learn how to make aid effective (or definitive proof that aid is a waste of money.)

This is very much a “big data” problem:

  • Structured and unstructured data including open data and documents
  • Multiple data sources at different levels of information abstraction
  • Complex semantics requiring taxonomies and perhaps linked data
  • Multi-variate information (remittances, FDI etc.)
  • Social networking information and activity streams
  • Information-sensing mobile devices and crowdsourced information
  • Geographic-based information
  • Potential for petabytes of data
  • Need for visualization and data exploration

Benchmarking Effectiveness

Foreign aid is an easy target for politicians. Many want a level of certainty about aid effectiveness well beyond standard government programs. For example, the No Child Left Behind funding for 2012 is expected to be over $14B. That’s 1/3 of the entire 2013 State Department and USAID budget request which could be cut down to $38B by Congress. Is there the same scrutiny in developed countries for domestic programs as there is for foreign?

Aid Transparency is a Smoking Gun

Doug Hadden, VP Products

Publish What You Fund has completed a 2011 Aid Transparency Index. Their conclusion? “Some donors do well, all donors can do better.” Perhaps that’s a euphemism for meager improvements.

As a participant in the International Aid Transparency Initiative (IATI) Technical Advisory Group, I have heard that fully supporting IATI is technically difficult. My sense is that the problem isn’t transparency: it’s traceability.

[Technically, the majority of IATI can be supported through any decent financial management system, assuming that donors follow good practices that are imposed on developing nation governments. See: Public Expenditure and Financial Accountability (PEFA) requirements around program budgeting and budget classifications.]

The Smoking Gun

As Richard Allen pointed out in the IMF PFM blog, using “country systems” is a “courageous policy.” The same goes with full aid transparency.

  • Aid transparency could reduce inefficiencies by an order of magnitude by revealing administrative costs and reducing the transaction costs for donor reporting
  • Aid transparency could reduce corruption by an order of magnitude by revealing transaction and by reducing the use of cash
  • Aid transparency could improve effectiveness by an order of magnitude by analyzing “apples to apples” across aid programs and through improved coordination

We know that foreign aid programs are less efficient and effective that could be. We also know that there is a lot of corruption opportunities. Therefore, IATI seems to be a no-brainer.

Here’s the deal: today we know the problems. We just can’t easily trace it to the donor. There is deniability. So, we could be almost certain that 20%, 40% or 60% of a program budget is wasted. With IATI, we know for sure. And, it traces back to the donor.

Let’s not shoot the Messenger

Please, let’s all agree that we won’t criticize donors for corruption, inefficiencies and ineffectiveness if there is a commitment to improve. “Accountability” should not mean front-page stories about money gone astray – it should mean analyzing what donors are doing about it.

My sense is that some of the backtracking on transparency at the Busan High Level Forum is about getting shot in the press. (And blogs.)

Some Odd Moments

In the course of discussions around IATI, I have had some odd points made:

  • IATI is pointless because aid if fungible [that’s what IATI plans to solve]
  • Bi-lateral donors proud of transparency leadership [that score under 30%]
  • Program budgeting is a bad practice [no, it’s a good practice]
  • IATI support is technically difficult [yet small organizations are able to support it]
  • Certain financial software applications are difficult to adapt to support new standards [tell you software vendor to smarten up]

9. Conclusions on Development Impact

Carlos Lipari, FreeBalance Washington

This is a blog series discussing factors that impact development in developing countries. As a For Profit Social Enterprise (FOPSE), improving country growth through good governance is the core company mandate at FreeBalance. As such, FreeBalance participates in governance, development, foreign aid, ICT for development and transparency discussions globally.

If it is true that economic growth by itself does not ensure development, hardly any development can be sustained without economic growth. Therefore, in order to catch up with developed nations, developing and emergent countries need to achieve and sustain higher than average economic growth rates. In order for this to happen, there are some pre-conditions that need to be verified.

One typical way of understanding whether a developing country is in the right path to succeed on its efforts to develop itself is to compare its fundamentals with the ones of countries with a similar level of development and to those of countries towards which we wish to converge.

With the World growing approximately 4% per year, any economic growth rate below that level can easily be considered insufficient to allow developing countries to catch up with the most developed ones.

Savings and Investment levels

The desirable levels of savings and investment change throughout time. Most of this change is related to the fact that the capital intensity tends to increase in line with the relative development level of a nation. By this we mean that the more developed a country is (compared to the rest of the World), the greater the volume of savings and investment (measured in proportion of the GDP) it is required to produce to avoid having its rates of economic growth diminish. Also, any country who wishes to sustain fast growth rates for a long period of time should target gross investment and saving rates higher than 20% of its GDP. In fact, many developing and emerging nations are actually investing more than 30% of their GDP, which helps to explain why their average rate of economic growth is much higher than the one registered in developed nations.

Impact of Emigration

Emigration should be analyzed according to its opportunity cost. Emigration will tend to have a greater positive net impact when developing nations from which people are emigrating have a considerable amount of unemployed/underemployed labor. Also, it becomes more beneficial when externalities such networking through the Diasporas are leveraged, providing new ideas, technologies, skills and investments to developing nations.

The impact of remittances is another important variable. The weight in percentage of the GDP of remittances varies considerably among developing nations. In fact, in certain countries, such as Philippines, remittances represent more than 10% of the GDP (The Economist, Feb 9 2010) more than the overall combined expenditure that this nation has on health care and education.

Two important downsides of emigration should always be mentioned. One is the fact that emigration reduces the stock of labor by reducing the active population as well as birth rates. Such decrease can limit not only the long run economic growth rate but also its ability to sustain its elderly population. One second important downside has to do with the “brain drain” effect than usually comes with emigration. Brain drain can threaten the development process of poor nations by leaving them without valuable skilled labor. Some evidence, though, has been found that an “optimal level” of brain drain actually exists (Lowell, B. Lindsay).

Trade policy: substantial impact in the development process of a country.

There is evidence that, in line with what Classic theory suggests, open markets can lead to greater prosperity by making it easier for countries to specialize themselves and capital to be allocated more efficiently. Despite this, a certain level of protectionism can help countries to foster their development and strengthen their bargaining power.

Foreign Aid: different impact across developing nations.

Opinions regarding the net impact of foreign aid (often referred to as development assistance) diverge substantially. Some believe that it does not have a positive impact on development, while others argue that it actually has some positive impact.

It is important to understand, though, that development assistance is attributed on a highly arbitrary basis. This type of assistance has different types of hidden political agendas and the amount of assistance is everything but homogeneous. Countries such as Liberia, receive large amounts of development assistance, to the point that this type of cash-flow surpasses the entire volume of fiscal revenues. Others, though, such as the Democratic Republic of Congo, get almost nothing.

The size of development assistance, the way it is implemented and the hidden agendas that come with it are crucial aspects that will determine the bottom line effect that assistance will have in the real economy.

Development Impact of Good Governance

Institutions such as the IMF and the World Bank have become more interested in finding ways to access the quality of the governance within countries and on how to improve it. FreeBalance Processes like the Public Expenditure and Financial Accountability (PEFA) framework is helping to focus governments on improving governance factors.

The reason why Governance has become so important now-a-days has a lot to do with the change in the perception of costs and benefits related to corruption. For a long period of time, economic literature argued that corruption relaxed government-imposed rigidities, could increase commerce and allocate investment in a more efficient way. The dominant view, though, today is that corruption benefits mostly “rent seekers”, “is subject to increasing returns that perpetuate it” and creates an environment “that, in time, can lead to the collapse of political regimes” (Vito Tanzi & Hamid Reza, IMF Edition 2000-2182).

In addition to this, corruption can be perceived as an extra tax on the economy that further distorts its activity and introduces uncertainty (Shang-Jin Wei, Nov. 1997). Like almost any tax, this limits economic activity to a suboptimal level and tends to slow down economic growth.

Empirical evidence has been found that corruption not only depresses the long run economic growth of a nation but also contributes to higher poverty rates and greater income distribution inequity.

Final remarks

Over the past twenty years, Emerging and Developing countries have managed to boost their growth and increase their weight in the overall world economy. In 1991, their share in the World GDP (PPP) was as small as 31%. This year, 2011, they are expected to produce 49% of the World GDP (about half of the World income) and by 2013, the IMF expects Emerging and Developing economies to surpass the total amount of real income of the Advanced Economies.

Emerging and Developing countries have been improving their public financial management, increasing public and private savings and shifting current account deficits towards the most developed nations. This has allowed them to improve in a consistent way their levels of development and improve their future economic outlook.

Despite all recent growth, there is still a long way to go. Advanced economies still have a GDP per capita (PPP) six times the size of the rest of the World. Even so, twenty years from now, we will probably look back in time and describe these years as an historical growth period, in contemporary history, for most of the developing World.

7. Impact of Foreign Aid in Developing Countries

Carlos Lipari, FreeBalance Washington

This is a blog series discussing factors that impact development in developing countries. As a For Profit Social Enterprise (FOPSE), improving country growth through good governance is the core company mandate at FreeBalance. As such, FreeBalance participates in governance, development, foreign aid, ICT for development and transparency discussions globally.

Foreign aid has been accused of not promoting economic growth and development in developing countries.  In fact, many studies have criticized foreign aid, stating that it does not promote what it should, such as investment and less poverty, but what it should not, such as more government (Peter Boone, 1996). Some even argue that it is not promoting democracy because evidence was found that corrupt governments tend to receive more aid than less corrupt governments (Alberto Alesina & Weder, 1999).

Lack of Foreign Aid

But when it comes down to numbers, the OECD countries do not really spend a significant portion of their income helping other countries. The overall impact that this help could have among developing countries is, therefore, very limited. In fact the US, the largest contributor in nominal terms, was spending, back in 2009, 4.7% of its GDP with the military but just 0.2% of its GDP with official development assistance (foreign aid). The health care system in America, costing 17% of the national GDP, represents, alone, almost 100 times the amount of money spent on development assistance.  (World Bank and OECD)

The way assistance (help) is delivered is another essential variable to understand how will it help developing nations. This aspect has to be taken into account when analyzing how effective assistance is. Too often, “expensive”/inefficient ONGs with well-paid foreign workers together with other Western institutions and private companies end up absorbing a very large amount of the budget made available for assistance (William Easterly, 2002). As a result of this, little help ends up getting into the ground and, not surprisingly, research finds that economic development has not occurred.

Still regarding the figures of development assistance, OECD countries have contributed to this cause in 2010 with roughly 129 billion dollars, approximately the same value that was been provided in 2008 (121 billion dollars) at the start of the last world economic crises. Development Assistance is at the same level as it was in 2008, in percentage of the GDP, but only represents about 0.5% of the OECD GDP. Assistance has been relatively small over the last decades and attempts to increase it are most of the times unsuccessful as some countries (such as Italy over the last 6 years) do not resist cutting back on this item to finance domestic expenditures.  (OECD and Bill & Melinda Gates Foundation)

Development Impact: Trade, Remittances, Aid, Governance

Carlos Lipari, FreeBalance Washington

What affects the development of a developing nation? This was the question asked during my interview at FreeBalance. The following series of blog entries summarizes my analysis.

Explaining Growth Factors

Trade policy, emigration, remittances and foreign aid (also known as development assistance) are some of the factors that impact economic growth. There are others, though, such as the levels of investment, savings and the volume of current account deficits that tend to have an even greater impact. Higher investment and savings rates tend to translate in faster growth, helping a country to develop itself, whereas large and systematic current account deficits tend to indicate lack of savings and competitiveness of a given economy and therefore, problems down the road, with lower economic growth and development levels along with higher unemployment rates.

With the world economy growing 4 to 5% per year, a developing nation should not be satisfied with less than 4% growth. If it does not reach that level of growth, probably it needs to increase savings, invest more and gain competitiveness by devaluating or depreciating its currency. But in order to grow and invest, it is vital for a country to save a considerable part of its income. A considerable part might mean 20 to 30% of its GDP, but some countries actually save much more than this and, therefore, achieve impressive and consistent economic growth rates. China, for instance, is saving 54% of its GDP and, therefore, has resources to finance an investment rate of almost 50% of its GDP, achieving 10% yearly rates of economic growth.

Savings

Saving money is something that is particularly hard to do in poor countries, due to low income. Governments in these countries are tempted, therefore, to run budgetary and external deficits, making use of foreign debt and some development assistance to compensate for low levels of savings. But these sources of financing can only provide a limited amount of help to boost growth. At the same time, they can, in the long run, if not properly managed, block the development process of that country. The external debt of African countries was, until recently, pointed out as one of the main development obstacles as interests on debt were depriving governments from essential resources to invest in infrastructure and education.

I will address the following development topics in a series of blog entries:

  1. Human Development Index
  2. Impact of Investment on Growth
  3. Real Economic Growth: Developed vs Emerging & Developing Nations
  4. Impact of Savings
  5. Impact of emigration and remittances on developing countries
  6. Development Impact of Trade Policy
  7. Development Impact of Foreign Aid
  8. Development Impact of Good Governance
  9. Conclusions

Is Aid Working?

Global Poverty

Entertainer and activist Bono tells the Globe and Mail to forget the past mistakes in foreign aid. “The present aid is working” . This is a contrast to the ‘aid is just a waste of money’ and ‘it’s better to give at home’ narratives promoted by some politicians in developed countries.

As Owen Barder has pointed out:  most people don’t need to be convinced that development is desirable; they need to be convinced that aid works. However, rising budget deficits have given rise the notion of reducing foreign aid.

Developed country governments have fallen short of past commitments and now more is threatened. This has created concern in the aid community as reflected by the Modernizing Foreign Assistance Network in the United States who pointed out:

For around 1% of the federal budget, experts from the United States Agency for International Development (USAID), the Millennium Challenge Corporation, and other agencies are empowered to work hand-in-hand with our diplomats and members of the Armed Forces to help build accountable institutions and increase stability in “frontline” states like Afghanistan, Pakistan, Iraq, Somalia, and Yemen.  These professionals are also deployed to help boost private-sector and middle-class growth and reduce poverty in developing countries, the fastest-growing markets in the world. Our development efforts in these countries are crucial to opening up export opportunities for American businesses and building stable, long-term trading partners and allies. Were we to pull back, the void left behind would surely be filled by other countries that do not share our values.

Cutting aid may reduce security in developed countries as pointed out by US Secretary of State Hillary Clinton. Much of the security and aid debate relates to military and government aid to maintain stability. But, it is clear that improving the economic conditions of any country increases stability.

Towards a Rational Aid Debate

Aid targeting the sources of poverty and instability could be orders of magnitude more effective than securing borders and building intelligence and military capacity. Fixing the symptom is typically less expensive that mitigating the problem.

Foreign aid may also have more impact than local aid – especially with so many people living in poverty.

There is no question that aid effectiveness could improve. This is one of the benefits of the International Aid Transparency Initiative. The international community is improving results and leveraging transparency. There is a growing recognition of the power of harmonizing aid with government priorities and the need to untie aid.

But what about the other 99% of government budgets? Is there the same scrutiny to improve outcomes for national investment? It seems as if politicians are willing to promote spending based on inputs (the money provided for projects) rather than outcomes, with techniques such as “earmarks“.

Don’t get me wrong, there remain opportunities to improve aid effectiveness. Transparency data with visualization techniques holds much promise. It might be time for governments in developed countries to improve outcomes for internal national programs too.

 

 

Why reinvent the wheel?

James Elrick
Marcom Specialist

I just finished reading an interesting article on the NYT’s website titled “Digital Diplomacy“. The article describes how Jared Cohen and Alec Ross, two employees of the US State department, are using Twitter and other tools to break new ground in using social media technology in the normally staid government. The article covers a lot of material, such as how they helped set up the Text Haiti 90999 program hours after the earthquake so that people could make $10 donations which raised more than $40 million for the Red Cross, and how they worked with a major telecom company in Mexico to allow people to SMS anonymously to report crimes. But there was one section in the article that needs commenting: It’s where the two travelled on a delegation to Silicon Valley, held meetings with various companies, and also met with Eric Schmidt, the CEO of Google and dozens of Google employees. Here’s the section from the NYT’s article:

“After the fireside chat, Schmidt sat in on a meeting with Google.org (the company’s nonprofit arm) in which Ross and Cohen described the difficulty U.S. embassies have in keeping track of services and resources in countries where the U.S. hopes to spur development — tracking, for example, nongovernmental organizations in Kenya. 

“It would be fascinating to transform one of our embassies,” Cohen said, “and see if we can create a virtual aspect to make it a one-stop shop for everything that’s out there.”

“NGOs keep asking for a way to be able to understand, in a country like Kenya, who’s doing clean water, who’s doing education,” one Google employee said.

Several engineers chirped back and forth about the virtues of user-generated feedback and the challenges of multilayer mapping technology, until Schmidt cut them off. “We have a big operation in Kenya,” Schmidt said. “We have the smartest guy in the country working for us. Why can’t we just do this?””

Well, you could Mr. Schmidt, but why reinvent the wheel? If you have the smartest guy in the country, hopefully he is smart enough to realize that he doesn’t have to design and develop something from scratch in order to track “who’s doing clean water, who’s doing education”. And there is much, much more to track as aid agencies and NGO’s provide numerous services to help alleviate poverty and improve economic situations.

My suggestion to “the smartest guy” is that he directs his attention to the International Aid Transparency Initiative (IATI). Why? Because the IATI brings together donors, partner countries and civil society to enhance aid effectiveness by improving transparency. The IATI also helps reduce corruption, increase cooperation and improve aid effectiveness. Aid transparency means that everyone can see how much aid is being provided, what it is being spent on (water, education), and what it aims to achieve. This helps ensure that aid is used in the most effective ways, so that each dollar, euro, pound, yen goes as far as possible in fighting poverty. And the IATI is working towards aid transparency all over the world.

So what’s most troubling to everyone at the fireside chat is that nobody knows exactly where the donor money is coming from and where it’s being distributed and used. As mentioned in a previous blog post, “in addition to using country systems, donors and recipient governments need to harmonize aid and report it. This is the goal of the NGO, Publish What You Fund, one of the most active participants in IATI.” And by quoting that text, I didn’t have to reinvent the wheel.

logo_iati         pub_what_you_fund

Practical Approaches to the Aid Effectiveness Agenda published

SamMoonDoug Hadden, VP Products

The Overseas Development Institute,  International Budget Partnership and Publish What You Fund has published a study that shows how aid information can be aligned and integrated with recipient country budgets.
The report authored by Samuel Mooon (pictured on the left at the recent IATI Technical Advisory Group meeting)  with the assistance of Zachary Mills takes a practical approach.

Why Use Country Systems?

The Accra Agenda for Action mandates the use of country systems by development partners.  According to the authors, “the Paris Declaration and the Accra Agenda for Action emphasise and formalise the importance of aligning aid with recipient government priorities and delivering aid through government systems. Yet, a significant amount of aid, in some countries the vast majority, is not delivered through the national budget. Indeed, many recipient governments are not even aware of large amounts of the aid directed to their countries. Generic donor ‘sector’ categorisations of aid are often applied at country level, even though these do not relate meaningfully to recipient governments’ sectoral or administrative budget classifications.” The use of country Integrated Financial Management Information Systems (IFMIS) can reduce transaction costs, improve transparency and harmonize aid to improve results.

The authors also point out that “the ability of citizens to hold their government to account for the services it delivers may be weakened by the provision of aid.”  Governments become more accountable to development partners rather than citizens.  The use of country systems to integrate development partner and government budgets changes the transparency dynamic to focus on citizens. And, citizens participate when taxes are linked to policy and outcomes.

It is difficult to argue with the statement that “a solution at the country level is imperative to effectively align aid with government planning and implementing cycles and to address country-specific concerns.” Integrating the aid lifecycle from donor through to outcome is the focus of the International Aid Transparency Initiative. IATI also promises to make donors accountable.

Can Aid and Government Information Integrate?

 Many stakeholders seem to view the notion of aid and country integration as a theoretic exercise fraught with technical difficulties. The authors point out that “no AIMS has successfully and reliably brought aid information together in a way that interfaces with the national budget.”  The study examined whether current international classification standards can be leveraged including:

There has been much effort in countries to leverage good practices in budget and accounting classifications. The study found that there is complexity associated with linking sectoral requirements and  international classifications against multi-dimension Charts of Accounts (CoA). Yet, the study shows remarkable similarities in budget classifications across 14 governments. And, the study recommends how international standards can be extended to meet integration and harmonization needs. Government CoAs can accommodate standards support through inferred or side concepts that require little or no change to budget operations. Budget preparation and budget execution can operate independent of these classifications so as not to add any complexity. This is currently supported by many governments who are able to support GFS, COFOG and MDG classifications without affecting daily data entry.

The study recommends that donors should provide budget and funding information to facilitate usage by country system rather than the other way around.  “Those countries most dependent on foreign aid and countries with lower capacity will lose out if donors do not publish aid information that is easy to link with recipient government budget systems,” the study asserts.  The study points out that donors have adjusted to national currencies and fiscal years. So the technical exercise can extend to supporting government budget and auditing calendars.

There remains some semantic issues in classifications that need to be overcome. There is no technical reason why development partner, aid information and country systems cannot integrate.

How is FreeBalance Helping with Aid Transparency?

There is interesting observation that I don’t fully agree with: “the ease of mapping aid onto budgets may have an inverse relationship with institutional capacity levels, and lower capacity countries are likely to start at a disadvantage in the attempt to use aid information and build functioning integral AIMS.” Our anecdotal experience is that countries with lower institutional capacity level may be more receptive to supporting the standards that enables aid management integration. They are more willing to use these standards to accelerate capacity building. We see that some of these countries will often roll-out full compliance with standards in a second phase.

As a For Profit Social Enterprise (FOPSE) with numerous country Government Resource Planning (GRP) systems in emerging nations, FreeBalance has been assisting in improving aid transparency. We are active in IATI and have provided technical advice on country systems. We have integrated the FreeBalance Accountability Suite with the Development Gateway Aid Management Program (AMP). We are producing a Transparency Portal product for our customers.  And, we are working with our for-profit and non-profit partners to develop an integrated aid and budget Ministerial Decision Support System.

We see multiple integration points between aid and country systems. In particular, aid management systems should be integrated with the budget preparation process. This provides full transparency on how the government and development partners expect to achieve joint goals. It should also be integrated to track expenditures throughout the lifecycle. And, it should integrate commitments so that development partners are aware of in-progress activities.