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Best and Worst of Official Aid 2011- new release

By Claudia Williamson, Post-Doctoral Fellow, Development Research Institute

Rhetoric on “aid effectiveness” keeps escalating, is there anything to show for it?

The past (almost) two years, Bill and I have been collecting data, combing through that data, and refining the numbers to ‘grade’ aid agencies and assess overall trends in aid practices. We waited until our paper passed peer review to release our findings. Rhetoric versus Reality: The Best and Worst of Aid Agency Practices has now been accepted for publication in a special issue of World Development. {{1}}

Our work updated Easterly and Pfutze’s 2008 study, Where Does the Money Go: Best and Worst Practices in Foreign Aid, on five dimensions of agency ‘best practices’: aid transparency, minimal overhead costs, aid specialization, delivery to more effective channels, and selectivity of recipient countries based on poverty and good government.  Based on these measures, we calculate an overall agency score using original data and 2008 OECD data. These scores only reflect the above practices; they are NOT a measure of whether the agency’s aid is effective at achieving good results.

There is slight improvement in transparency and more donors are moving away from ineffective channels. But transparency is still at unacceptably low levels. For example, two agencies (MOFA Japan and France’s DgCiD) fail to report any aid data at all.

The most conspicuous failures in both trends and levels are in specialization and selectivity. Luxembourg is as unspecialized as the US with a 70th of the aid flow. Many such unspecialized small donors likely have most of their aid eaten up by fixed costs before the funds reach any beneficiaries. At the same time, allocation to corrupt countries is increasing, not decreasing. Aid to corrupt autocrats is not explained by emphasis on the least developed countries; donors such as the US, Sweden, and Norway do poorly on both income selectivity and autocracy/corruption selectivity.

The best bilateral agency is UK’s Department for International Development (DFID).

DFID is one of ten agencies that fully reports aid flows to OECD, and it lists number of staff, administrative costs, salaries and benefits and its ODA budget on its website. DFID also has relatively low administrative costs and salaries and benefits relative to aid disbursements (2.6% and 1.6% respectively). DFID relies on more effective channels of aid disbursements, not tying any of its aid and dispersing relatively little food aid (1.3%) (pages 53-54).

Japan, New Zealand, and Germany also do well, rounding out the top five best agencies.  The United States ranks below average mainly because of poor performance on selectivity and choosing to allocate aid through ineffective channels. As we write in the paper, “the foreign policy needs of the US superpower and the lobbies for particular aid channels seem to dominate the politics of American aid” (page 54).

Another theme that emerged is that the Scandinavian countries’ reputation of altruism based on aid volume does NOT translate to good practices; they have below average scores on specialization and transparency and are mediocre in the overall ranking.

Lastly, the UN agencies on average are worse than the other multilateral agencies and the bilateral agencies, and the differences are statistically significant. Above all, they are worse on overhead and transparency. On overhead, they have an average ratio of 46 percent of administrative costs to ODA. UNDP reports no data on its operating costs or ODA, now even worse than its minimal reporting in 2008.

The two goals of the paper were to test if: 1) donors’ rhetoric matches reality; and 2) they are making any improvements in doing so. Our answer is no on both accounts.

Postscript: Fortunately, we are now part of a larger community running independent checks on aid. For other recent aid quality exercises, see Birdsall and Kharas, 2010; Knack, Rogers and Eubank, 2010; and Ghosh and Kharas, 2011.

[[1]]The dataset for the paper can be downloaded here[[1]]

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8 Comments

  1. It’s hard to state on an agency’s efficiency, as they all make choices on countries they wanted to help, and ways they did so. Maybe DFID is efficient only because they have chosen the easy track.

    Posted May 11, 2011 at 10:15 am | Permalink
  2. In other words: you clearly say that these scores do not reflect the achievement of good result, so I do not think that the use of “best and worse” in your title is appropriate. Even if I have a good opinion on DFID’s action.

    Posted May 11, 2011 at 10:28 am | Permalink
  3. Scott wrote:

    Not sure whether this new resource contains UNDP ODA data: http://webapps01.un.org/ldcportal/web/guest/home

    Posted May 11, 2011 at 10:44 am | Permalink
  4. Geir Sundet wrote:

    Is there a danger that these assessment can get a little, say, linear? Although I agree that one cannot have too much transparency, i.e. more is better, I am not so sure about overheads, particularly salary for staff. Many of the bilaterals have engaged in a twin effort in recent years, of cranking up the volume of aid, while cutting down the number of staff. What’s more scarce in aid today, funds to spend, or the know-how and intelligence on how to spend it best?

    Posted May 11, 2011 at 1:24 pm | Permalink
  5. Bula wrote:

    DfID scores high and USAID scores low because they have fundamentally different missions. I doubt anyone at USAID or State would attempt to say with a straight face that AID is anything other than a public diplomacy tool. DfID as a stand alone ministry has made a serious effort in all of the areas you’ve measured because it’s mission aligns more closely to ‘doing development’ and less with ‘public diplomacy’. Seems to be common sense.

    Posted May 11, 2011 at 4:00 pm | Permalink
  6. Tom wrote:

    “These scores only reflect the above practices; they are NOT a measure of whether the agency’s aid is effective at achieving good results.”

    Seriously? How can you possibly give an aid agency a grade based solely on criteria that have no necessary relationship with aid effectiveness? It is your HYPOTHESIS that transparency, overhead, etc, significantly affect the quality of aid, but without looking at actual effeciveness that hypothesis is completely unproven. An A or an F means absolutely nothing in this context. Without looking at what the agency does with the aid (i.e. is it effective), why should we care whether an aid agency has low or high overhead? To take another example, an aid agency could be the least transparent but achieve the best results; which matters more, your ideological view of how an agency “should” function, or that they achieve results? In my mind it’s the ends that matter, and we should then determine what the best means are to achieve that result. You approach it with an a priori belief that those factors are the most important, and therefore risk having ideology overrule effectiveness. Isn’t that criticism the foundation of this blog and Dr. Easterly’s work more generally?

    Posted May 11, 2011 at 4:17 pm | Permalink
  7. geckonomist wrote:

    Thank Goodness that there is a post-doctoral fellow in the New York based Development Research Institute who is paid for sending us this piece of valuable information on the overhead & administrative costs of other organisations.

    The world can’t wait until DFID makes all those African countries under its programs extremely rich.

    However, if the DRI would put its money where its mouth is, it should relocate its HQ to a provincial town in a developing country, paying local landlords & local “post-doctoral fellows” in order to execute from there its *valuable* reporting of self-congratulating prizes in a very cost-effective way.

    Furthermore, the first rental & salary payment would even provide the first-ever direct tangible benefit that the DRI ever produced for the poor.

    After all, that ought to be what we are asking for, isn’t it?

    Edit: I could be the second benefit! How could i forget D. Bennetts’ much needed Bibles in Sudan!

    Posted May 13, 2011 at 7:13 am | Permalink
  8. Jeffrey Silverman wrote:

    Count the money, anything to show for aid effectiveness

    This might give insight as the best way to measure the effectiveness of AID, check out how many “Qui Tam” cases actually exist with USAID and count the amount of public funds recovered. It takes no leap of faith to understand that most of what disappears is by design and not purely greed, at least in the case of the sordid history of USAID in Georgia.

    “I have asked my agency USAID IG to set up a percentage reward system but they have not yet decided to do so. We had a great system at DEA which delivered a percentage back to the person providing the information. There is also a system of launching a “Qui Tam” law suit where the government civil sues a party and the person who provided the information (called a relator) can get a percentage. There are statute of limitations on some of this stuff which means if enough years have passed sine they occurred, they may not be prosecutable of still hold civil liability. The bottom line is I do not want you to think I have any guarantees for you to receive any percentage. However, we can discuss this further. In reference to the information you mentioned below about this and also the ACDI/VOCA project, as I understand it, this was the project in Georgia? I would be interested in looking at the methods and proof regarding the theft of funds. We can also discuss if there is any qui tam possibility.

    Posted May 16, 2011 at 3:13 am | Permalink

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  • About Aid Watch

    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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