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Donor harmonisation

Not much progress

by Peter Nunnenkamp, Hannes Öhler, Rainer Thiele

In depth

“The USA is not the only donor that is unwilling to accept an international agenda that might significantly reduce its room for manoeuvring.” Obama T-Shirt on sale on a street corner in Dakar, Senegal

“The USA is not the only donor that is unwilling to accept an international agenda that might significantly reduce its room for manoeuvring.” Obama T-Shirt on sale on a street corner in Dakar, Senegal

Aid donors do not do enough to coordinate their activities. That is the conclusion of a recently published study on the impact of the Paris Declaration. Despite the promises donors made in 2005 to focus on individual countries and specialise in certain sectors, there is still not much evidence of words being followed up by action. By Peter Nunnenkamp, Hannes Öhler and Rainer Thiele

Donors are not keeping their promises. In the Paris Declaration on Aid Effectiveness in 2005, they pledged to do more to coordinate their programmes. A recent study prepared by the Kiel Institute for the World Economy and Heidelberg University, however, shows that this has not happened.

At the High Level Forum (HLF) on Aid Effectiveness in Paris, everyone agreed that development aid was too fragmented. Developing countries typically received support from lots of donors at once, and many of those donors were even trying to address the same issues. This approach was ineffective – and expensive too. So the participating donors promised to avoid duplicating activities in future. They agreed to specialise, each focusing on particular countries and specific topics such as education, agriculture or infrastructure.

Our recently published research paper (Nunnenkamp, Öhler and Thiele 2011) sought to establish whether donors are moving towards greater harmonisation. We considered 19 signatories of the Paris Declaration – 17 major OECD members, the EU and the World Bank – and compared their performance before and after the Paris Declaration (for the years 1998 to 2004 and 2005 to 2009 respectively).

We took into account how much money each donor promised to which countries and for what purpose. Our analysis covered 24 aid sectors and 140 re-cipients. Two indices were used to assess
– how intensely donors focus on particular sectors and countries (degree of specialisation), and
– to what extent their projects and programmes overlap with those of other donors (degree of overlap).

Sobering results

Had donors kept the promises they made in Paris, the degree of specialisation would have increased and the degree of overlap would have decreased since 2005. Unfortunately, this is not the case. On the contrary, the degree of specialisation has hardly changed at all and the degree of overlap actually rose for all 19 donors.

The increase in aid overlap was particularly marked for Japan and Denmark. Both countries stood out as positive ­examples in 2000, but later fell into line with most other donors. On the whole, therefore, there was actually more duplicated activity after the HLF in Paris than before it.

The majority of donors – including Denmark, Netherlands, Norway, Sweden, USA, EU and World Bank – were hardly any more specialised after 2005 than they were earlier. In other words, the aid they delivered was no more focused on specific countries and sectors. Indeed, Japan even broadened the spread of aid activities.

In our data, only Germany, Britain and Italy displayed a higher degree of specialisation. This seemingly positive result, however, was misleading due to a number of factors. Prominent among them was budget support, which is about donors subsidising the budget of a developing country or one of its line ministries, in return for a dialogue on that nation’s policymaking. Budget support is a single policy tool, so it statistically looks like speciali­sation. In truth, however, budget support may be used for a wide range of policy purposes. If one statistically controls for this effect, there is no rise in specialisation.

At the same time, more budget support looks like overlap in our statistics if several donors join forces by taking an identical approach. But once again, this impression is misleading. Since budget support serves many purposes it is not overlap in the strict sense.

Debt relief granted to a large number of countries by 2006, moreover, similarly looks like a higher degree of overlap in our data, but this effect is not related to the Paris Declaration. Controlling for the ­effects of budget support as well as debt relief, the sad truth is that duplication of efforts has increased among donors in spite of HLF pledges.

Change politically thwarted

One reason for the sobering results is the politics behind development aid. Policymakers are accountable to taxpayers, but the taxpayers normally lack the information they would need to appreciate the merit of individual projects. So donors tend to support projects that are visible and can convincingly be presented to the general public. Ultimately, policymakers want to demonstrate commitment and win over voters.

Moreover, self-interest and foreign policy concerns are relevant too. The USA is not the only donor that is unwilling to accept an international agenda that might significantly reduce its room for manoeuvring. Other countries are similarly reluctant to do so, although perhaps to a lesser degree.

Matters are further complicated by the ever-growing number of actors that are involved in development cooperation. Accordingly, individual institutions have less influence on final outcomes and less ­incentive to engage in costly coordination procedures. Moreover, important new donors such as China are often not involved in the existing coordination regimes at all. Overall, therefore, there is little prospect for major progress being made on specialisation and better coordination in the foreseeable future.