What can we learn from experiences in donor harmonization with investment in ARD? Gerd Fleischer GTZ, Eschborn (Germany) ADB / IFPRI Policy Forum Agricultural and Rural Development for Reducing Poverty and Hunger in Asia – In Pursuit of Inclusive and Sustainable Growth Manila, August 9 – 10, 2007

Overview ODA trends Transaction costs in aid delivery Responses from donors: Paris Declaration on Aid Effectiveness Experiences with harmonized approaches in agriculture and rural development Outlook 10 August 2007

ODA Delivery side: Protracted decline during the 1990s Resumption of ODA from US $ 58 billion in 1997 to US $ 105 billion in 2005 (constant 2004 prices) Much of the growth has been due to debt relief, and to a lesser extent to emergency assistance Until most recently, pronounced shift from productive sectors to social sectors (health, education) Core development ODA exceeded only in 2005 again its 1992 levels, but expected to increase significantly Recipient side: Increased donor funding is required to finance the agriculture-for-development agenda Aid dependency is already high in a large number of agriculture-based economies Average of 28 % of total agricultural spending in 24 Sub-Saharan African countries In countries such as Mozambique, Niger, Uganda and Rwanda, ODA contributes > 80 % of agricultural spending Agricultural spending: World Development Report 2008 10 August 2007

Aid delivery has grown into a complex system Proliferation of aid channels… Average number of donors per country grew from 12 in the 1960s to 33 in the 2001-2005 period The number of international organizations, funds and programs is now higher than the number of dev. Countries they were created to assist Progressive „earmarking“ of funding, both in bi- and multilateral aid Widespread use of uncoordinated technical assistance Not to forget the role of international NGOs: In 2004, they employed 140,000 staff and generated revenues of US $ 13 billion „meets“ …. increasingly fragemented aid Total number of interventions/activites increased from 20,000 in 1997 to almost 60,000 in 2004 Average size of donor funded activities decreased from US $ 2.5 million in 1997 to US $ 1.5 million in 2004 (2004 constant prices) Fragmentation is the higher the lower is the institutional capacity of recipient countries Proliferation most pronounde in health sector NGOs: full time equivalent Revenues: 36 % from philantrophy, 35 % from gov. Contributions, 29 % from fees. 10 August 2007

Transaction costs in aid delivery Equivalent to a „tax“, reducing the amount of aid resources available to the recipient countries Administrative costs on the donor side have been increasing Recipient countries: Direct costs: Diversion of scarce resources of decision-makers Example: Average number of donor mission per country is 307 per year Indirect costs: Aid is increasingly unpredictable, thus fostering weak fiduciary controls and lack of transparency in the resource allocation process Distortive impact on incentive systems in government administration Example: „Brain drain“ from line ministries to project implementation units But: So far, costs have not yet been systematically quantified. 10 August 2007

The Paris Declaration (2005) as a response to ODA being increasingly under scrutiny Objective: Increased aid effectiveness Key principles: Ownership: „Partner countries exercise effective leadership over their development policies and strategies, and co-ordinate development actions.“ Alignment: „Donors base their overall support on partner countries‘ national development strategies, institutions and procedures.“ Harmonization: „Donors‘ actions are more harmonized, transparent and collectively effective.“ Managing for results: „Managing results and improving decision-making for results.“ Mutual Accountability: „Donors and partners are accountable for development results.“ Common monitoring framework Paris Declaration: Signed by 30 donor countries, 30 multilateral donors and 60 recipient countries. Siginifcant step forward, commitment to an international monitoring process 10 August 2007

Experiences in ARD About 15 programs ongoing worldwide, some date back to 1996 ODI review of seven programs: Ghana, Tanzania, Mozambique, Uganda, Nicaragua, Cambodia, Vietnam (Evans 2007) Harmonization still ongoing Progress on alignment most advanced Number of parallel project implementation units has not decreased significantly Line ministries generally positive about the approach Ghana case: Since 2006, second try on a sector-wide approach for agriculture, stimulated by a national joint assistance strategy and donor agreement on budget support targets 10 August 2007

Lessons learned and challenges Initially, increased transaction costs for coordination. Too much focus on national government administration led to re-centralization. Often, donors have been undisciplined, induced by policy changes in their headquarters. ARD generally more difficult than health and education Role of public sector is more limited Rural development is multi-sectoral, cutting across ministries Donors hold different views on strategies for ARD Weak government control of the process Diverging expectations on the donor and the recipient side 10 August 2007

Outlook Donor harmonization will get stronger attention as the international aid architecture has to deliver more results. ARD will not escape that pressure to remain on the agenda for ODA support. Capacity development of the recipient side to steer donor support is needed Donors will likely specialise in service delivery to remain visible to their home constituencies. 10 August 2007