Delivering Aid Differently – The New Reality of Aid

This month Homi Kharas and I published a book titled “Delivering Aid Differently – Lessons from the Field”. We launched the book yesterday at the University of Nairobi.  Here is a summary of the main messages:

We live in a new reality of aid. Rich countries delivered US$ 3.2 trillion of aid to poor countries between 1960 and 2008, and it is a US$ 200 billion dollar industry today. Despite disputes and convulsions, the core of the aid industry has changed little over the past few decades. Now the new pressures on the aid systems may be too strong to resist fundamental change.

 

The new reality of aid is apparent in developing and donor countries alike. Gone is the “Third World” as a homogenous block of poor countries in the south, as Robert Zoellick has put in his speech at the Woodrow Wilson Center for International Scholars this April.  Many of the previously poor countries, especially in Asia, have been growing richer. Some of them have become major donors themselves, most prominently China. Strong growth in many developing countries – including in Africa since 2000 – meant that aid has declined in relative importance in most countries. This paradox of increasing flows and more players, and at the same time reduced financial significance will shape the new aid architecture.

The donor landscape has changed fundamentally over the last decade, a trend that will likely to accelerate in the coming years. New players are responsible for an ever larger share of the aid volumes, especially when one considers actual cash flows to the governments and poor people in developing countries. The new donors are not just countries with growing foreign policy roles on the international scene, but increasingly international NGOs, foundations and private corporations. Private philanthropy from developed to developing countries may represent as much as US$ 60 billion annually. The following figures illustrate the shift from the relatively static “old reality of aid” to the more complex “new reality of aid”.

Old Reality of Aid

 

The New Reality of Aid

 

 

 

 

 

 

 

 

 

 

 

 

 

Many of the new players operate differently and in parallel to the established aid system. They have brought fresh energy, resources and approaches to the delivery of aid but coordinating their activities can be a logistical nightmare. As a result, it has become harder for recipient governments to figure out what the different development partners are doing, whether they are actually responding to the greatest needs and gaps. Lack of effective monitoring may also mean that successes can go unnoticed and that small projects that work are not replicated or scaled up. Fragmented, uncoordinated, and unreliable aid leads to waste and inefficiencies.

The dynamic in the relationship between donors and recipients has changed. The diversification of donors offers recipient countries more choice and more leverage. Many traditional donors struggle to fulfill differing demands with systems that were built for a different context. While the volumes of aid are growing, the average project size is shrinking, even for ODA-projects (see figure).

Projects have quadrupled – but their average size has declined

 

 

 

 

 

 

 

 

 

 

 

 

 

Small projects are not bad, per se. They are a source of experimentation and innovation. They can be exactly what are needed in isolated communities, where small amounts of money can make a significant difference in lives. But fragmentation of ODA runs the risk of heavy administrative costs. Each project must be prepared, negotiated between governments, supervised, and reported on. In 2007, for example, official donors sent out probably more than 30,000 missions to manage their aid projects.

In a next blog post I will write about the implications for  Delivering Aid Differently. I look forward to feedback and other ideas on how to Deliver Aid Differently and successfully.