News in focus: Official aid - how billions are wasted

Graham Willgoss

A report contends that the cost of bureaucracy is stifling global development efforts.

A new report by ActionAid and Oxfam claims that as little as a fifth of aid from governments and other official sources gets through to the world's poorest people, and lays the blame for this on what it calls an "unco-ordinated, self-serving and hypocritical" international aid system.

A forum called 'Joint progress toward enhanced aid effectiveness: harmonisation, alignment, results' met in Paris on 2 March to discuss the issues the report raises. Led by the World Bank, the Organisation for Economic Co-operation and Development and the French government, its aim was to put forward plans to make aid more effective.

Billions on bureaucracy

So where is the money going? Patrick Watt, ActionAid policy officer and author of the report Millstone or Milestone? What rich countries must do in Paris to make aid work for poor people, says the problems begin with the "billions spent on administration and bureaucracy".

Eighty official agencies handle aid distribution and are responsible for 'red tape' from 35,000 transactions a year, 85 per cent of which are worth less than $1m. There is a huge burden of administration, with excessive demands for accountability. Civil servants in aid-dependent countries are required to produce thousands of quarterly reports and sit in hundreds of meetings with donor agencies, diverting scarce time and resources.

Senegal had more than 50 World Bank missions in 2003 - one a week.

Watt thinks donors unwittingly create this duplication and muddle because they tend to be more concerned with the success and visibility of their projects than the success of a country's development plan. "Their efforts are generally badly co-ordinated, overlapping and undermining of local efforts," he says.

This criticism of official aid raises the question of the relative efficiency of voluntary aid. Watt says there are greater pressures on NGOs to keep costs down, but cannot give a figure for the proportion of funds reaching the front line.

Harmonisation and alignment were a priority on the OECD's Paris agenda.

Watt says lack of communication between official donor and recipient leads to a "massive diversion of money and effort away from where it is most desperately needed" because donors often set up parallel delivery systems, paralysing existing ones.

In Zambia, for example, three out of four donor agencies fail to notify the government about their aid disbursements.

The major problem identified by ActionAid is that 40 per cent of aid is tied to purchasing goods and services from the donor country. This inflates costs by up to $7bn (£3.6bn) a year.

Tying aid is one example of how controversial aid conditions are put in place, forcing countries to pursue particular policies. This can lead to vast sums being withheld: the World Bank held back $100m (£52m) of assistance, for example, because the Ghanaian government did not privatise municipal water.

ActionAid and Oxfam called on the OECD meeting to fill the "political vacuum" and agree on an open process of donors making explicit aid commitments, which are monitored and held publicly accountable.

The charities say aid should support recipient countries' own development policies, instead of creating parallel competing systems.

They want donors to untie all aid and spend it on goods and services in poorer countries. Watt says transaction costs could be cut if donors were to provide aid through countries' budget systems in multi-year commitments that would reduce the cost of administration.

He says donors appear to be more concerned with reducing the cost to themselves of doing business "than how they can support developing countries' own needs".

Richard Manning, chairman of the development and assistance committee at the OECD, responded to ActionAid's report by arguing that major progress had been made since the previous aid effectiveness forum in Rome in 2003.

Indicator of progress

More than 60 aid-dependent countries attended the Paris forum, compared with the 28 that went to Rome. Manning sees this as an indicator of progress, adding that developing countries were "loud and clear" about what they wanted.

He said the meeting reinforced the commitment to untying aid, recommended a move away from the parallel systems and agreed on closer monitoring of how aid is distributed.

Watt remains unimpressed, saying: "Rich countries have squandered a major opportunity to reform the way they deliver their aid so it tackles extreme poverty more effectively."

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