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Increasing Aid Effectiveness by Harmonization Requires Reduced Proliferation

by Mark McGillivray

The international development community, including senior representatives from partner countries, bilateral and multilateral donors, met in Paris in late February and early March 2006 at the High Level Forum on aid effectiveness. What emerged from this forum was the Paris Declaration, an international agreement to which over 100 Ministers, Heads of Agencies and other Senior Officials committed their countries or organizations to various efforts aimed at increased harmonization and alignment of aid activities. This articles looks at aspects of the Paris Declaration in a broader aid effectiveness context. It argues that the international donor community must urgently address aid proliferation if greater harmonization is to occur.

For many decades there were mixed messages as to whether aid was effective in reducing poverty by promoting economic growth in the developing world. Many of these messages came from the research literature. Some studies found that aid decreased growth; others found that it had no impact or that it increased growth. This lack of a consensus regarding the countrylevel impact of aid combined with strong evidence that aid projects were in general effective in attaining their intended outcomes, was described as the ‘macro-micro paradox’ of aid. This paradox was widely accepted in the aid policy and research circles.

Times have changed. Donors are now freer to pursue development-first aid strategies, with less emphasis on commercial and strategic objectives. Many more progressive donors provide a larger share of world aid flows. The research literature on the country-level impacts of aid has also come a long way in recent years due to better data and empirical techniques. Research conducted over the last 10 or so years provides overwhelming evidence that aid is effective: economic growth in developing countries would have been lower in its absence. Virtually all of the approximately 50 studies that have been conducted, albeit with a few well-publicised exceptions, draw this conclusion.

While estimates vary, it is reasonable to suggest that average annual per capita GDP growth in developing countries would be as much as 2 per cent lower in the absence of aid flows. Taking into account empirical evidence on the relationship between growth and income poverty reduction, such a contribution to growth means that aid has lifted up to 40 million people out of income poverty over the last 10 years. While these figures are crude approximations, they do give some idea of the effectiveness of aid. Combined with the knowledge that aid contributes to income poverty reduction via other routes and has other developmental benefits, they certainly tell us that the macro-micro paradox would appear to be dead and buried.

Yet this should not imply that aid effectiveness cannot be improved, that it works in all countries, that no resources have been misused or wasted, or that there are no other interventions that might be more effective in reducing poverty. Aid still has many failings, and donors have a responsibility to address them in ways that go well beyond only increasing the level of aid. Indeed, if the above numbers are any guide, increases in the level of aid will need to be accompanied by substantial improvements in its effectiveness if aid is to make any meaningful contribution to achieving the Millennium Development Goal of halving the number of people living in income poverty between 1990 and 2015.

One failing of aid, identified in the Paris Declaration on Aid Effectiveness, is insufficient harmonization. The Declaration calls on donors to be more harmonized and collectively effective. Recognizing that all developing countries have limited or in many cases very weak administrative capacity, the Paris Declaration also calls on donors to be less burdensome on partner countries. 

It should be emphasized that there is much more to the aid effectiveness agenda outlined in the Paris Declaration. Progress in any one agendum is very much dependent on progress in the others. Those most closely linked to harmonization are alignment and ownership. Alignment requires donors to base their aidfunded activities on partner country national development strategies, institutions, and procedures, avoiding the imposition of multiple conditions based on other agendas. Ownership requires that partner countries exercise effective leadership over their development policies and strategies and coordinate development efforts.

The Paris Declaration contains many strong statements, and rightly so. It states that ‘increased aid flows are unlikely to make a serious dent into global poverty if donors do not change the way they go about providing aid and developing countries do not enhance the way they currently manage it’. ‘Business as usual’ will undermine further attempts to reduce poverty, it asserts. Yet one aspect of ‘business as usual’ has been given insufficient attention in the Paris Declaration and elsewhere. It concerns the proliferation of aidfunded activities. 

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Table 1 highlights the growing concerns over proliferation. In 1980, donors funded 3283 activities in partner countries. This corresponds to an average of 23 activities per partner country. By 1990 the total number of activities had more than doubled, to 7783, and the average per partner increased to 50. A radically different picture emerges in 2004. Donors now fund 59312 activities, or 357 per partner country. As a partial result of this proliferation the average dollar value per activity has fallen from US$12.6 million in 1980 to US$1.5 million in 2004. Finnish development aid, for example, follows a broadly similar pattern, with the number of average activities per partner increasing from 4 in 1990 to 67 in 2004. Finland does, however, fund far fewer total activities than other donors do on average. In 2004 it funded a total of 643 activities, compared to the all donor average of 1913.

Proliferation evident from Table 1 clearly sends worrying messages about aid effectiveness in general and the Paris Declaration in particular. The average number of activities per partner country has increased by 1450 per cent between 1980 and 2004. Has there been a commensurate increase in capacity of partners to efficiently handle aid activities? Or has the nature of these activities changed, so that they require much less attention from partners? One would expect not, on both accounts, and can only speculate as to the extent this proliferation has reduced the otherwise reasonably positive impact that aid has had on poverty reduction. 

What would appear clear is that the Paris Declaration’s attempts to achieve greater harmonization, alignment, and partner country ownership will be frustrated unless the proliferation of aid activities is addressed. The prime purpose of this note is to draw attention to the proliferation issue, and not to propose ways of addressing it. But one way of achieving reduced proliferation, possibly, is for a greater share of aid to be provided as budget support. Other measures also need to be considered.

Mark McGillivray is a Senior Research Fellow at WIDER. His main areas of research focus on issues such as social development indicators, the Millennium Development Goals, and development aid. He is the co-organizer of the WIDER Conference on Advancing Health Equity, 29-30 September 2006.