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Donor harmonisation and the EU

Profile of a donor darling

by Joachim Schmitt
A business street in Accra

A business street in Accra

In September, the OECD's 3rd High-Level Forum on Aid Effectiveness will take place in Accra, the capital of Ghana. Experts from countries on both ends of the donation process will assess the progress made since the prior summits in Rome (2003) and Paris (2005), and they will draw up new goals. At the heart of the matter is boosting the responsibility (“ownership”) of target countries. To this end, donors and partner countries need to become better harmonised, and official development assistance (ODA) is to be disbursed through target countries’ authorities and procedures. The venue was chosen well: Ghana is one of the countries that has reaped true benefits from development cooperation. [ By Joachim Schmitt ]

Ghana is popular. During the football World Cup of 2006, the West African team won over the hearts of many fans, not only in Germany, which hosted the games. Many years earlier, the country had already won over the hearts of the international donor community. Since the early 1980s, Ghana is considered a model student of the World Bank and the International Monetary Fund. In 1992, free elections took place, and in 2000 President John Agyekum Kufuor followed Jerry Rawlings in a peaceful, democratic
change of power.

In crisis-haunted West Africa, this country looks like an oasis of stability. It plays a leading role in the African Union (AU) and in the Economic Community of West African States (ECOWAS). This year, Ghana may even reach the first of the UN’s Millennium Development Goals by cutting in half the share of its population living in poverty, with 1990 as the base year.

More ODA

Not many sub-Saharan countries can say that of themselves. In addition to Ghanaian decision-makers, donors also claim some responsibility for the country's success. Today, the World Bank, the African Development Bank, the European Commission, 12 UN organisations and the Global Fund to Fight AIDS, Tuberculosis and Malaria all have commitments to Ghana. In addition, 12 bilateral donors are engaged in Ghana. In the past four years, ODA has more than doubled to around $ 1.3 million dollars per year, and itis still rising – not counting funds from Muslim countries, China or India.

For several years, the number of bilateral and multilateral donors has been growing. In 2005, the Millennium Challenge Corporation from the USA got on board as a de facto independent donor. When oil was discovered off the Ghanaian coast last year, Norway announced that it would resume development cooperation. Aside from the EU Commission, seven EU members are active in Ghana, and the Czech Republic is considering entering the fray. Cooperation with Ghana is attractive to donors, because
they can point out developmental success to an often skeptical audience at home.

During Germany’s presidency last May, the EU adopted a voluntary “Code of Conduct on Complementarity and Division of Labour in Development Policy” (see page 64). One of the aims was to better balance support between donor darlings and donor orphans. Among other things, the European Commission and EU members are called upon to coordinate which target countries they are active in. This voluntary agreement makes sense. But on the ground in Ghana, it has yet to leave a mark. If the Code proves successful, the number of donors should decrease somewhat in Ghana – to the benefit of other developing countries.

Budget support

No doubt, the Rome and Paris Declarations left their marks on Ghana. In mid-2003, nine donors initiated joint budget support, directly subsidising Ghana’s national budget. Today, the Multi-Donor Budget Support Group has 11 members and will collectively contribute some $ 350 million to Ghana’s budget in 2008 – equivalent to five percent of government revenue and a quarter of total ODA. Disbursement of the money hinges on macroeconomic stability. In order to receive all budget support earmarked for the country, Ghana’s government must achieve certain indicators of success as well as implement reforms as agreed. One indicator of success is that, though budget support has increased, its share of the national state budget has decreased from 10 % to a mere five percent. The government’s domestic revenue has skyrocketed. Since 2002, reforms in the tax-sector have quadrupled such revenue.

Joint budget support has proven useful. It reduces the administrative workload of Ghanaian authorities, while granting donors scope for comprehensive, toplevel dialogue. Donors used to make pledges at “Consultative Group” meetings held every year under the direction of the World Bank. Since 2005, “Annual Partnership Meetings” have been held instead, with all sides involved. The cabinet of Ghana attends, and so does President Kufuor himself.

Since 2007, standardised statistics have been used at these meetings, not only systematically listing planned donor contributions, but also Ghana’s own efforts in the fields concerned. Planning has thus become much more transparent to all involved. The government has promised to ask “new” donors, such as China and India, to publish their figures as well.

The Annual Partnership Meetings have resulted in a clearly structured architecture for development cooperation. There are 17 sector-specific working groups, consisting of donors and Ghanaian representatives (see
article on page 68). Another result of the harmonisation process is a “mission-free period” every year, giving Ghana’s government almost two months of breathing space before it presents the budget in parliament.

No additional élan

In spite of all the obvious progress, one guiding principle of the Paris Declaration – that of “ownership” by the national government – plays only a minor role in Ghana. There can be no doubt that Ghana is pursuing a reform agenda to develop the country, and it has succeeded in many respects. Yet, the resolutions reached in Paris have not given this government any additional momentum. While it actively participates in some sector-specific working groups, it shows only little interest in others.

Indeed, it sometimes seemed as though the government gave little priority to draft a second national growth strategy to fight poverty. Such documents matter very much to donors. On this basis, for instance, the countries and multilateral donors that collectively contribute 95 % of the ODA to Ghana designed a “Joint Assistance Strategy for Ghana” (G-JAS). However, the Ministry of Finance and Planning in Accra only observed such donors efforts from afar. It took four months to reply to the final G-JAS proposal.

In 2006, the OECD’s Development Assistance Committee (DAC) sent out a questionnaire to assess the starting point for implementing the Paris Agenda. In the case of Ghana, donors provided almost all the data. So far, donor proposals to step up mutual accountability have either met with no response or outright rejection. Ghana's Finance Ministry sees the nation’s government in a spectator role vis à vis donors. Officials say that nothing can be imposed on partner countries. In truth, donors would appreciate more active Ghanaian involvement.

There is no doubt that national tenders and revenue management have improved. But a number of donors think more progress is needed; they feel that Ghana’s institutions and procedures are still not safe enough for the disbursement of their funds to be fully handled by them alone. It is therefore not all that surprising that the DAC team gave Ghana only average marks when assessing the country’s starting point for harmonisation (OECD: “2006 Survey on Monitoring The Paris Declaration – Country Chapters – Ghana”, Paris, 2007). The World Bank, however, had more praise for the country in a recent study. In a comparison of 30 developing nations, Ghana came in third just behind Uganda and Tanzania (“IDA’s Role in Enhancing Country-Level Effectiveness: Strengthening Harmonization and Alignment”; International Development Association / Operation Policy and Country Services, October 2007, p. 38).

There are a number of possible explanations for Ghana’s relative lack of harmonisation enthusiasm. It is regularly pointed out that the Finance Ministry has limited resources. In the short and mid-term, harmonisation does cause greater transaction costs, while better results will only be seen in the long term, if coordination efforts bear fruit.

Other ministries seem to fear that harmonisation will weaken them. As they no longer negotiate directly with the various donors themselves, they cannot pit partners against one another when “selecting” individual projects or asking for help in certain fields of priority.

Greater confidence

There are probably more important reasons for Ghana’s authorities not being more excited about harmonisation, however. The Paris Declaration on Aid Effectiveness came at a time when the government of Ghana was entering new terrain, where it will hardly need classic donors.

According to Ghana’s development strategy, the country will become a middle-income nation (with a per capita income of at least $ 1000 per annum) by 2015. Last September, Ghana was the first low-income country in Africa to take up a commercial loan after the first rounds of multilateral debt relief. Standard & Poor gave the government a “B+”. In only six hours, funds worth more than $ 3 billion were made available by private investors. The government contented itself with $ 750 million. Two months earlier, an apparently significant amount of oil had been discovered off the coast of Ghana. Commercial production is to start in three to four years. China, India and other “new” donors are offering funding, without showing much interest in harmonisation or insisting on reforms. All these factors imply that Ghana, the donor darling, is becoming less dependent on classic donors.

All eyes will be on Ghana in September because of the 3rd High-Level Forum. Presidential and parliamentary elections will be held some three months after the summit. The government will therefore probably start to pay more attention to harmonisation issues soon. The prospect of an Accra Declaration to follow up on the internationally acclaimed Paris Declaration is, of course, quite exciting for any incumbent politician.

The multilateral conference will allow participants to draw conclusions from – and to pay tribute to – Ghana’s many and obvious success stories. Nonetheless, donors, rather than their model student Ghana, are now the ones most interested in stepping up harmonisation. Transaction costs could be reduced considerably on all sides if only the government in Accra played a more decisive role. But first, decision-makers in Ghana will have to be convinced of further benefits.

Indeed, government officials in other developing countries also have yet to be convinced. To this end, civil society and public opinion will play crucial roles. After all, experience in Ghana tells us that the success of coordinated development cooperation depends on local governments being held accountable. They have to be under pressure to make good use of ODA at home too.