The new aid approach – the jury is still out

Development Policy05 Feb 2008Nadia Molenaers

The report (summary) mentions the reorganization of the Ministry of Foreign Affairs, and emphasizes the decentralization of the budgets. But what about the integration of Development Cooperation in Foreign Affairs – has this affected (positively or negatively) the effectiveness of development cooperation (at headquarters and/or in the field)? The summary mentions, for example, that the number of partner countries wasn’t brought down sufficiently, that there was too much policy and too few priorities. Is this in any way related to the different agendas of foreign affairs and development cooperation? Are there instances where institutional tensions inhibit decision-making? Is the development cooperation policy the result of political, difficult and lengthy negotiations in which the interests of Foreign Affairs and Development Cooperation often/sometimes clash?

Integrating Foreign Affairs and Development Cooperation: synergy or trade-off?

The reasoning behind these questions is as follows. The new aid approach (NAA) aims to support and strengthen the performance of state institutions in recipient countries in order to reach developmental objectives. As such, the aid agenda is centred around reform and good governance. The international political and diplomatic world (foreign affairs, but also defence) is worried about issues of security, migration, terrorism, etc., and hence these actors are also interested in good governance. Both departments traditionally have very different sets of instruments they can use to influence governance in a given country.

If both departments share the same concerns, and are pursuing the same objectives in the recipient country, then it is logical to integrate them (this happened in the Netherlands, and is happening in Belgium). This is what the OECD-DAC is also promoting (the ‘whole-of-government’ approach).

However, certain donors (UK) have opted for a clear separation of the institutions and their tasks, because there might be an intrinsic conflict of interest between the objectives pursued by Foreign Affairs (national interest, including commercial and trade interests) and Development Cooperation. Or, it could be that development cooperation activities are needed in a country where Foreign Affairs does not wish to be present.

What influenced the evolution of the Dutch Africa policy?

What was the role – if any – of Dutch civil society and parliament? Of domestic political dynamics? Deciding whether or not to give budget support is highly political because it is also a matter of ‘trust’ (do we trust the recipient government enough to give them flexible budget support?). This can vary substantially from one actor (and ideology) to another. In Belgium it is felt that civil society and parliament are ‘one reform’ behind when it comes to development cooperation. They lack knowledge about the NAA, and about the new aid modalities, and hence they oppose more and hamper the full deployment of new-style development cooperation.

How, and to what extent was the Dutch Africa policy implemented?

When reading the summary I started to doubt whether the evaluators had looked at implementation or the disbursement of funds. Put bluntly: full implementation of programmes is always good, I presume. But full disbursement is not necessarily a good proxy for performance. It might say more about spending pressure, and/or being too soft a donor.

What results has the Dutch Africa policy actually achieved?

One way of looking at it is how the Dutch Africa policy affected the recipient countries (in one evaluation not so long ago the Dutch were nominated the best donor by recipient countries – if I remember well it was an SPA evaluation), but quite another is how the Dutch have played their role in the international donor community. From that perspective, the Dutch form part of the like-minded group and are as such a progressive, modern donor (which is good, so some cheers are well deserved).

General budget support (GBS)

The evaluators seem to suggest implicitly that general budget support (GBS) is the aid modality? I would add that in some cases it is the best modality, but certainly not in all cases. Steven Radelet recently wrote a nice paper on how, ideally, the governance situation in a country should determine the aid modality (see table below). Although he also argues that the quality of governance should influence the amount of funding, I would not take the argument that far because this would lead to fragile states becoming aid orphans while in effect they need a lot of assistance (but not necessarily in the form of budget aid).

Where political risks are high (corruption which is linked to the fundamental nature of the political system based on neo-patrimonialism) donors might consider a ‘portfolio approach’: a mixture of aid modalities with a bit of GBS, sector budget support (SBS), maybe some basket funding and some new-style projects (projects that respect the principles of the NAA and which are embedded in vertical policy cycles).

The MDGs

Although linking aid efforts to the Millennium Development Goals (MDGs) sounds nice – and probably sells well to public opinion – I have strong doubts about this.

Focusing on the MDGs (and the increasing donor panic that they will not be reached) has led to:

* donors overcrowding social sectors (every donor wants to be in education and health);

* donors forgetting about less ‘sexy’ sectors which are linked to productivity (like agriculture – which is probably why the World Bank focused on it in its latest World Development Report…); and

* donors funding mutually contradictory aid modalities like SBS (respecting the principles of the NAA) and vertical funds (undermining the principles of the NAA).

GBS is de facto a political instrument – questions about the objectivity and the quality of the track record – joint donor decisions about GBS – GBS versus SBS and the links with governance

1. GBS is easy to disburse: that is its biggest advantage (flexible aid for the recipient, easy to spend for the donor, it can be very predictable, and it might have enormous development impact if the recipient government is committed to reform and is development oriented). But that is also its biggest disadvantage (once it is disbursed the donor loses track, it can be used as a political spoil by donor, it can be very unpredictable, and it will have no impact if the recipient government is not committed or development oriented).

2. A technocratic track record with objective standards, etc., is a great idea and it should be used up to a certain level or moment, but technocracy must know its limits. In the end, GBS is about giving money to a political party in power and this is hugely political (and delicate). As such it should never just be a ‘technocratic’ decision. And the most important element for effective GBS (‘commitment of the recipient government to reform and to make development work’) remains subject to subjective interpretations (there are no agreed ‘indicators’ that measure commitment). In that sense every decision for GBS should be politically motivated but from the perspective of aid and development effectiveness – not from the perspective of ‘political visibility’ or other ambitions… (which might have been the case in Mozambique?)

3. GBS is so political and so linked to the political issues in the governance agenda that some donors prefer to stick to SBS or sector approaches because then it is easy to ‘forget’ about the political dimension … although this ‘evasion strategy’ can only be upheld for a little while. It is not because the level of intervention is ‘lower’ that it becomes less political, it is just easier to ignore the political dimension because policy dialogue at that level ‘sounds’ more technical. The fundamental problems (corruption, problems in implementation, stalled reforms, problematic policies, etc.) are fundamentally political (clientelism, neo-patrimonialism…) and do not disappear at the sectoral level.

4. The Rwandan case clearly demonstrates the tensions between technocratic good governance versus political good governance. The country moves ahead in institutional and economic terms, it seems, with the right macro-economic policies, commitment to certain reforms, etc., donors like the strength of government and its determination to want to move ahead (that fits the development agenda very nicely). But, politically there are issues which raise concerns… what do you do as a donor? What weight do you give to certain areas of progress versus other areas where progress is stalled (or even in regression)… this is highly political and there is almost no ‘technocratic tick-the-box model’ that can prepare a donor for this… By their very nature, these decisions involve political weighing and deliberation.

5. Joint donor decision making about GBS is absolutely not realistic. Although the Paris Declaration is in principle a good thing, harmonization has its limits, and those limits are (once again) profoundly political. Sharing information (and maybe even analysis) is one thing (accessibility and transparency should be increased, I agree with the evaluators), but taking joint decisions on GBS is not necessarily desirable, and would deny that domestic politics in donor countries do play an important role. A change of government in the Netherlands can understandably have an effect on which country can get which kind of aid, and how flexible it will be. Rather than projecting unattainable goals (full harmonization) it is more valuable to think in terms of realistic ways of harmonizing (the same goes for alignment).

6. GBS has turned donors into actors based in capitals without rural field knowledge about what is actually going on. They are becoming increasingly dependent on the recipient governments for information – and this is not a good thing, since that information can be biased, manipulated, maybe even wrong. Involving other actors such as project donors with good knowledge of the field, and/or civil society (not necessarily those NGOs that are already heavily involved in the NAA, but organizations in touch with the field, with rural areas), is a good way of diversifying sources of information.

Dependency on aid/GBS

Donors should worry more about recipient countries generating their own revenues. Mick Moore (2001) explained how the sources of public revenue (of developing countries) influence the nature of the state. He distinguishes earned from unearned state income. Aid (like oil) being a kind of ‘unearned state income’. Earned state income is when the state puts in effort into working with citizens in order to get its money. This implies an organizational and a political effort, like the need of an elaborate, differentiated and efficient bureaucratic apparatus to collect income. A lot of states in the South depend on unearned income to finance their activities, like revenues from oil and aid. Unearned state income is derived from a few resources – e.g. mineral revenues, especially oil and aid – and requires little organizational and political effort to collect. It involves little interaction between the state apparatus and the mass of citizens. Since the state is autonomous from citizens: they see no need to listen to the citizen’s needs. Conflicts/ demands are resolved through clientelism or force, and, citizens are not likely to engage in political participation because it is not their money, hence the state is not held accountable, and, the state does not feel accountable towards the citizens. Donors think too little about this. When will taxes become a more prominent issue in policy dialogues?

Or, put very bluntly and very provocatively, why are donors committed to increasing aid to 0.7% of GDP? Why are recipient countries not putting forward a goal like ‘reducing their dependency on aid by 1% by 2012’?

Finally, which problems are specifically ‘Dutch’, and which are inherently linked to being a ‘modern’ donor involved in the NAA?

In the aid business we know what doesn’t work, but we do not know what does work! So the relevant questions to pose are: is Dutch development cooperation to some extent still making the ‘old’ mistakes? If it is, judge hard! On the other hand, is Dutch development cooperation to some extent the ‘victim’ of the trial and error character of the new aid approach? If it is, judge soft! Dutch cooperation should not be ‘blamed’ for the problems inherent to the new aid approach, because the jury is still out in this one …


Molenaers, N. and Renard, R. (2007) Ontwikkelingshulp Faalt, Is Participatie het Redmiddel?
Leuven: Acco. Radelet S. (2005) From Pushing Reforms to Pulling Reforms: The Role of Challenge Programs in Foreign Aid Policy. Working Paper 53. Washington, DC: Center for Global Development.