Tim Harford had an interesting article in the FT in August arguing that we are better off in most walks of life if there is experimentation and a multiplicity of approaches.

But how do we value diversity in the aid business, when the prevailing consensus, embodied in the Paris Declaration, is that proliferation of aid agencies is a growing problem which is making aid less effective?

The aid system could in principle benefit from the emergence of new kinds of donors (specialised multilaterals such as GAVI, new donors such as China and Brazil, philanthropic foundations such as Gates, private non-profits such as Marie Stopes) working alongside conventional bilateral and multilateral aid.  Different kinds of organisations could bring particular strengths which complement each other’s work.

However, in practice these different types of organisation do not seem to be playing to their strengths. Like kids playing football, everybody follows the ball instead of holding their position on the pitch.

Proliferation is a significant problem

We will come to the benefits of diversity among donors. But first let’s acknowledge that proliferation is causing real problems on the ground. Developing countries are having to deal with a large and growing number of partners, each with separate agendas, priorities, and requirements. Meetings, reports, milestones and systems multiply. Skilled staff are hired away to serve in local agency offices or NGOs. Funding is fragmented and unpredictable, which means that developing countries are often unable to bring together the scale of long-term, predictable finance needed to undertake significant institutional reform and service delivery. Donors lose influence, because they undermine each other; and yet developing countries are not able to keep track of, let alone exercise sufficient ownership and control over, an increasingly fragmented system of aid delivery. Public accountability is impossible, since nobody has a clear view of what resources are being used, by whom, or for what purpose. Donors face rising administrative costs when agencies proliferate, and the costs of coordination and harmonization rise exponentially with the number of aid agencies.

Here are three real life examples of the problems that are caused by the proliferation of aid agencies:

  • In Vietnam, it took 18 months and the involvement of 150 government workers to purchase five vehicles for  a donor-funded project, because of differences in procurement policies among aid agencies. (source: Knack/World Bank)
  • In 2007 alone the EU countries launched 22,000 new aid projects inn developing countries, with an average budget of €0.7-1 million. The total costs of preparing new projects by EU donors (not the money needed to fund them, just the administrative cost of putting them in place) is estimated at between €2-3 billion per year. (source: EU)
  • In the aftermath of the tsunami disaster a local doctor in Banda Aceh, one of the most affected areas, wrote: “In February, in Riga (close to Calang) we had a case of measles, a little girl. Immediately, all epidemiologists of Banda Aceh came in, because they were afraid of a propagation of measles among displaced people, but the little girl recovered very fast. Then, we realized that this was not a normal case of measles and we discovered that this girl has received the same vaccine three times, from three different organizations. The measles symptoms were a result of the three vaccines she received.” (source: Djankov et al)

(For more examples of proliferation badness, take a look at ‘The Governance of the aid system and the role of the EU’ by Owen Barder, Simon Maxwell, Mikaela Gavas and Deborah Johnson.)

Different types of agency could make different contributions

These problems are caused by a growing number of aid agencies doing broadly the same thing.  That proliferation imposes substantial costs on donors and on recipient countries and this makes aid much less effective.  The question is whether there are also benefits to having this large number of agencies, compared to delivering the same amount of money through fewer channels.

In principle a greater variety of different types of donor, if they focused on their specialisms, could strengthen the aid system, because they can make different kinds of contribution which could complement both existing donors and each other.

Here are some ways in which different types of donor can make different contributions:

  • Philanthropic foundations, such as Gates, Ford, Hewlett and Rockefeller, are still tiny in comparison to government aid agencies, but they are increasingly important in particular sectors, notably health.   In their recent book, Philanthrocapitalism, Matt Bishop and Mike Green argue that the growth of philanthropic giving should be welcomed, because these foundations bring a “businesslike approach to solving society’s problems”.  According to this view, philanthropic donors bring new attitudes and ways of working. Foundations are frequently founded by successful entrepreneurs, so they may be more inclined to operate along business principles, such as making decisions based on evidence, tightly controlling overheads, adopting new technologies, and focusing more sharply on results. They may be willing to take more risks and accept more failures in return for bigger success than risk averse governments. Foundations may be more able and inclined to work closely with the private sector, which plays a key role in development, which official agencies have not found easy to do.  Because foundations do not depend on public support for future funding, they may be willing to support unpopular causes, or investments which do not easily capture the public imagination (e.g. supporting statistical systems in developing countries).
  • New government donors such as China and Brazil are playing an increasingly important role (though the Economist was wrong to suggest that Brazil’s aid budget is comparable to that of Canada and Sweden).  This has caused concern among traditional donors, who worry that their implicit cartel is undermined by donors that are less concerned about governance and human rights, and that are prepared to be more open about its desire for access to raw materials and minerals. These new donors do not feel constrained to follow the DAC development model, and in many ways developing countries prefer the approach which tends to respect the sovereignty and ownership of developing countries. These donors rarely poach skilled staff; and they do not overstretch developing country governments with meetings, reports and workshops.   They are also willing to invest in sectors that the DAC donors have moved away from, such as infrastructure, irrigation and university scholarships.
  • The number of private charities is also growing, funded both by institutional donors and by private giving. Here in Ethiopia there are about 3,500 NGOs, spending about $1.5 billion a year (compared to the Ethiopian government budget which is about $4 billion a year). Private aid through charities tends to focus on supporting communities and individuals rather than governments. It tends to be more opportunistic and closer to the ground. These organisations can bring about results more directly although it is harder to bring about systemic change this way.
  • Specialised multilateral global organizations – such as the Global Fund against AIDS, TB and Malaria (GFATM) – continue to grow in number. In principle, they can bring apply specialist skills and expertise, they can learn more systematically and spread knowledge more quickly, they can bring together a number of different donors, the public and the private sector to work in a more joined-up way on a particular issue, and they can raise money from the public because they can be more specific about what they do.

This changing landscape could benefit the aid system …

In an ideal world, if these different development actors played to their strengths, and stuck to their specialities, this growing diversity could strengthen the international aid system as a whole. Foundations could act like venture capitalists: taking bigger risks, and backing it up with rigorous evaluation and evidence, but leaving long-term financing of scaled up successes to official aid donors. Official aid agencies could focus on long term funding and resource transfer, and they could provide sustained support for institutional change and capacity. Private aid could focus on achieving community and individual level results. Specialised global organizations could provide particular expertise not available through generalist support. The growing number of official donors could build up expertise in particular countries or topics, and specialise in these, and they could respond to evidence generated by foundations and NGOs about what works, by taking those activities to scale.

If these actors could all focus on their strengths, and if the aid system enabled them to work together well, these changes in the development landscape might substantially improve the effectiveness of development assistance.

… but in practice it does not work like that

That’s all very well in theory, but most people working in the aid business will tell you that back on planet earth, it doesn’t work like that.

Rather than differentiate, development organisations have strong incentives to converge.  So instead of specialisation we get duplication.  The philanthropic foundations say that they have a more entrepreneurial, risk-taking approach; anecdotal experience suggests that in many cases they prefer the implicit validation of being part of a multi-donor group.  (This may be a form of political correctness: agencies seem to think that the Paris Declaration on Aid Effectiveness requires that they be part of a shared funding arrangement rather than doing anything alone.)

For example, consider the bandwagon on restoring funding of health systems.  Increasing the funding of health systems is something of which all right-thinking people should approve.  The arrival of the big global health initiatives, particularly GFATM and GAVI, coincided with a collapse in funding for health systems which led to many unnecessary deaths in developing countries. Donors are now seeing that the shift away from health systems to vertical funds was an error (one which was predictable and predicted), and the pendulum is swinging back to funding health systems.  The institution with the mandate and greatest capacity for supporting developing countries to strengthen their health systems is the World Bank. So why are the Global Fund and GAVI being allowed on the health systems bandwagon?  The logic of establishing these specialised multilateral agencies was that they would bring particular depth and expertise to specific activities which would be available from more generalised aid agencies. If we offer competition to World Bank concessional loans in the form of grant finance through GAVI and and the Global Fund, most developing countries will look to these institutions instead.  As a result of the proliferation of health funds offering grant finance for health systems, the core role and capacity of the World Bank is eroded, and we put at risk the benefits of specialisation by GFATM and GAVI.   Similarly, the International Finance Facility for Immunisation (IFFIm) was set up to enable donors to secure the benefits of front loading spending on vaccination, for which there is a clear economic rationale.  Now it is proposed that it should also finance health systems: if there is an economic rationale for using IFFIm on health systems, I’d like to hear about it.

What’s missing?

The growing number and diversity of development organisations could be a source of strength in the aid system, if different organisations could stick to their specialities and if they worked in an aid environment which enabled them to work together effectively.

In competitive markets, firms tend to focus on their strengths, because this is how they make the biggest profits. Firms that diversify into another line of business either need to make a success of that new work, or they will start to make losses and eventually decide to withdraw or they will go bust. So appropriate specialisation is the consequence of individual decisions by profit-maximising firms, and not a result of a collective compromise.

Unfortunately, the political economy of aid encourages the opposite behaviour.    The “operating system” which supports the work of aid agencies creates pressures against specialisation.  For example:

  • Organisations which work collaboratively and holistically across a wide range of activities are likely to attract more donor funding than organisations which are effective in a particular niche.  One reason for this is that many donors either don’t have, or don’t systematically use , information about impact and cost effectiveness when they make resource allocation decisions – so there are rewards for aid organisations getting involved in as many activities as possible, and no penalty if this mission creep makes them less effective.
  • Lack of transparency and access to information about who is doing what means that organisations cannot make sensible individual decisions about how they can increase their own impact with finite resources and avoid duplication.
  • There are no mechanisms by which innovative ideas can be pioneered by foundations or NGOs and, if they are successful, taken up and taken to scale by official donors and multilateral funders. There too little venture capital to support innovation; too little rigorous analysis of what actually works; and the mechanisms for taking successful programmes to scale are too unpredictable and capricious.
  • Donors, NGOs and foundations are all under pressure from well-meaning activists to be engaged in everything everywhere.   For example, last year the Lancet criticized the Gates Foundation saying that it should “do more to invest in health systems and research capacity in low-income countries, leaving a sustainable footprint”.  DFID is criticised for a perceived lack of investment in agricultural research.  In a sane world it would be perfectly sensible for the Gates Foundation, which has very little in-country presence, to fund technological research in health and agriculture, but not to invest in health systems in developing countries; and for DFID, which has an extremely professional presence on the ground in developing countries, to invest in developing country systems but not to spend money on research, in which it has no discernible comparative advantage.  We could have the same total spending on both research and systems, managed by organisations specializing in those activities and reducing coordination and transaction costs.  But development activists and politics apparently make such a division of labour impossible for both organisations.
  • The Paris Declaration on Aid Effectiveness and Accra Agenda for Action are being implemented in ways which create strong peer pressure on donors to collaborate and harmonise, to engage in pooled funding and joint activities, rather than to diversify and specialise.  Where there are efforts towards a better division of labour (e.g. this EU initiative), the approach is based simply on getting down the numbers by committee, rather than creating incentives which push development agencies towards focusing on the areas in which they have a comparative advantage.

What should we do?

The proliferation of development organisations, which could be a great strength, is instead becoming a growing handicap for the aid system, because the system is not well adapted to taking advantage of that diversity and encouraging appropriate specialisation.

Some possible measures that might address this are:

  • a step change increase in transparency about aid.  The International Aid Transparency Initiative offers the promise of this, as it will provide up-to-date, detailed information about aid projects in an accessible form.
  • agreement to an international standardized system for describing and measuring outputs and unit costs, to facilitate cost-effectiveness comparisons across development organisations;
  • explicit use of unit costs and cost-effectiveness in aid allocation decisions, in a way that penalises organisations which are engaged in activities in which they are relatively ineffective
  • the development of a mechanism for “venture capital” funding with an associated process for scaling up success;
  • self-restraint by development activists who do more harm than good by trying to push every development organisation to be involved in everything.

As ever, I’d welcome further suggestions in the comments section.

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13 Responses to Could donor proliferation lead to better aid?

  • I think also worth adding to this the impact of focusing on results. GAVI and GFATM have built their reputations on being able to tell donors very clearly how many vaccines or bednets their contributions will purchase. Moving into health systems is a messier business with longer term impact. Will be interesting to see how that plays our with their replenishment efforts.

    Vice-versa I think it’s a legitimate concern that pressure on DFID and other agencies to demonstrate value for money discriminates against systems building of all types – be in tax, health or education. Transparency as you say is a critical first step, but more problematic may be building a political and public constituency for a bit of patience.

  • Competition or coordination is a central question for development effectiveness, but it is not easy to give a reply. I will continue to address this question in the future.

    Effectiveness comes normally from an evolutionary process driven by competition. In the current system we have a multiplication of actors, but no competition urging the actors to focus on what they do best. Being able to evaluate donors on what their added value is could help.

    Valuable lessons for stimulating competition come from competition policy: having a level playing field of standards and information exchange, fighting cartels and confusopoly to authorise competition.

    I would add to Owen his list also the acceptance of common procedures, e.g. in procurement, standard forms for project formulation and reporting. Donors could be nudged to accept each others’procedures. In this regards, all EU MS accepting the EC-procedures would be a step. All UN-agencies following the UNDP procurement procedures would simplify another chunk.

    http://search.dilbert.com/search?w=confusopoly&x=0&y=0

  • Surely the broader point about Paris – and the rest – is not so much that donors (and NGOs, and everyone else) should coordinate themselves better but that they should BE coordinated by (legitimate) governments. Much of this post is spot on: the need for more focus on impact (however difficulat that is in practice), the need for different actors to focus and work where they are most effective and so on. However, I find that the ‘what should we do?’ section seems to be missing the role of government. In coordinating and creating the necessary frameworks for the steps you describe to work. In other words, we can be as transparent as we like about the costs and impacts of different interventions – but if these continue to be implemented by ‘outsiders’ – then we are making no progress at all. Whether proliferation is finally a ‘good’ or ‘bad’ thing therefore will depend very much on the strenght of the underlying government/governance in the recipient country.

  • I think the issue of specialisation, and the puzzle of its absence, in the field of international aid is an interesting one, which deserves more attention. In the 1990’s I did a PhD on organisational learning in NGOs, with a focus on NGOs in Bangladesh. The theoretical basis for the analysis of learning was evolutionary epistemology, and as you probably know evolutionary theory has a lot to say about specialisation. I discussed the issue of specialisation amongts NGOs in Bangladesh, and its apparent absence, in a number of chapters of my thesis, especially chapters 6 and 7, which are available online, here> http://www.mande.co.uk/docs/thesis.htm

  • I totally agree with you and the various comments above. Re pressures on aid agencies to do a bit of everything, I wonder whether this isn’t linked to tied aid? In general, a British development charity is more likely to get funded by DfID (who I know are better than others), a Danish NGO by DanIDA etc. Hence the charities in donor countries are likely to lobby their government to be active in their field otherwise the charity is likely to get less funding overall. (I know we wish DfID were more active in the environmental arena, but are too small to lobby.) Untying aid would therefore reduce the pressures on the donor agencies to be everything to everyone.

  • I would like to add to Patrick’s comment. The problem of coordination is most acute because host governments do not or will not play that role. In cases that I am aware of, host governments ministryies actually encourage multiple donors to fund the same activity. If this really is a problem for aid recipient countries, it is surely one that they are capable of fixing. No NGO or bilateral donor can operate in a country without a country agreement from the Ministry of Interior or some similar government entity. Government’s can simply say no if they feel that the organization is not bringing in enough resources to be worth the trouble. India has set an example by gradually asking donor nations to end their bilateral aid programs. It really can be as simple as just saying no. If this happens more often, you would find charities focusing their resources better, and having to make a more compelling case to recipient governments that they really have something to add. This would also introduce an element of competition that has been missing in the aid industry.

    Much more needs to be done to reduce overinvestment in global coordination activities and structures. The proliferation of coordination agencies, conferences, workshops, and meetings that absorb aid dollars is, in my opinion, a bigger problem than the proliferation of agencies actually doing something on the ground. The amount of time and money that goes into coordination is rarely worth the benefit to the recipient countries, but it tends to be self perpetuating because it creates jobs for international experts. It is also an easy way for donors to move money in a way that appears to be supporting aid without running the risks involved in program implementation. Perhaps the call for improved metrics can be applied to investment in coordination.

    Finally, while I am not a fan of China’s foreign policy, I think the competition in the aid arena they are providing to the Euro-American cartel of donors is healthy. They are moving into areas where assistance is needed (infrastructure) and where the cartel has steered away from without justification.

  • I agree with all Owen’s points and feel particularly strongly about the final one – I used to work for a charity that lobbied for more DFID spending on agriculture, and I didn’t really agree with what we were doing. (But it made our trustees feel like we were “influencing”).

    I also agree with the comments that developing country leadership is key.

    Related to this, isn’t the issue one of accountability rather than proliferation? In the case of NGOs, I just checked the UK’s Charity Commission website and there are 180,000 registered charities in the UK, spending £52 billion. So is the fact that there are 3,500 NGOs in Ethiopia spending US$1.5 billion a problem in itself?

    180,000 charities; £52 billin

  • The development – not aid – sector / industry is being MBA-ed. Money flows – tax, tariffs and transfers – induce a management caste, rent seeking and corruption, which are global effects. More and more money is needed for overhead and EU / UN labour costs are high.

    Most information – perhaps even 80% – going around in the development sector is information about information: secondary like time / date stamps and amounts of credits, aggregated, de-contextualised, descriptions, proposals, salary-lists, etc.

    Development is about offering consumers to make informed choices. Choices on using condoms, on services, a telco etc. Step one in information and information wants to be free: http://en.wikipedia.org/wiki/Information_wants_to_be_free

  • One problem is that self-restraint is not a policy, really, and if it worked we wouldn’t be having a problem now. The incentives are all against restraint, not least the save the world mentality. What would help are some policies that would incentivize restraint or specialization: perhaps providing grants to organizations that list no more than 5 core competencies (as a start) or helping to spread the word about organizations that do concentrate and are outstanding experts in their specialization.

  • I’m curious about your point on cost effectiveness. On the whole I fully agree and I wonder how much aid indexes like CGD’s Commitment to Development Index could do to encourage better performance on that front. But in theory, donors build cost effectiveness into their procurement processes by selecting lowest-cost contractors (for minimum quality). At least that’s one procurement method which works toward that end. Wouldn’t the burden of cost effectiveness be on the contracted firm to perform on budget, rather than on the donor? Because they do in fact lose business for poor or too-costly implementation.

    • Hi Taylor

      I think the problem lies in what donors ask firms to do. They don’t say “we want the most cost effective bid to increase literacy”. They say “we want the cheapest project management for our teacher training and education management reform programme”. The firms are typically not able to bid saying “don’t do this at all: spending the money elsewhere would be more cost effective”. So the cost effectiveness resulting from the procurement process is only within a narrow field, which does not include affecting which sectors donors are working in, and the design of their interventions.

      kind regards
      Owen

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