Nemat Shafik
Nemat Shafik

Despite the economic downturn, the development industry is growing and fragmenting as more and different actors enter the field. This is in a context of wider changes in global governance in which new alliances are emerging to solve different global challenges like poverty or climate change. All development organisations need to find their niche in this more complex architecture and developing countries need to become more assertive about aid being aligned with their country strategies and systems. Given the absence of market forces or enforceable regulation, these trends in the aid industry place a higher premium on transparency, benchmarking and independent evaluation.

A More Fragmented and Diverse Aid Industry

The development business is changing rapidly with a growing number of players and greater fragmentation in the way they operate. Today there are more than 40 bilateral donors and over 200 multilateral agencies. Official development assistance, as reported to the Development Assistance Committee (DAC) of the OECD, rose to a high of $120 billion in 2008. There are several new or expanding development actors, ranging from large ones like China and the Gates Foundation, to new global funds to the millions of NGOs and charitable organisations operating across the world. The scale of international private philanthropy is difficult to measure, but recent research has estimated $49.1 billion goes from developed to developing countries each year. While this growth has brought additional resources and dynamism, the sheer scale of the increase in development players makes existing coordination mechanisms increasingly unwieldy.

Fragmentation also manifests itself in smaller projects and programmes. The number of aid activities registered with the DAC rose from 17,000 in 1996 to 81,000 in 2006. But the average size fell from $3.2 million to $1.6 million over that period. With a proliferation of small projects from new players, the median size of a new project had actually fallen to $67,000.

In addition to greater fragmentation, the aid industry is becoming more bilateral.. The multilateral share of official development assistance (ODA) is flat in nominal terms, and declining as a share of the total, as more and more countries choose not to have their objectives diluted by multilateral governance structures. As countries’ objectives diverge, compromise through multilateral structures is harder to achieve and the ability for those institutions to adapt and innovate diminishes. As a consequence, the recent growth in aid has been driven by bilaterals, global funds, and private philanthropies that respond to specific issues (like HIV or education) without requiring compromises on a broader development agenda.

Notwithstanding the significant impact of the global recession on all flows to developing countries, this trend of increasing multiplicity in official development assistance, philanthropy and private capital is set to continue. This simultaneous growth and fragmentation of the development industry is not merely an interesting phenomenon for observers. It has a real impact on developing countries, as they deal with more players, and poses a challenge to fulfilling greater policy coherence. Development actors should adapt to this new landscape in three ways: first, by establishing suitable networks to coordinate solutions to global problems; second, by concentrating on their own comparative advantage; and third, by establishing clearer mutual accountability between donors and recipients.

Global Governance and Variable Geometry: Form will Follow Function

It has become increasingly apparent that the current structures of global governance and aid architecture are ill suited to the needs of the changing development landscape. The DAC is reviewing its membership and reaching out to expanding donors such as India and China in an attempt to bring these players into multilateral fora that establish norms, share good practices, and monitor progress. Both the philanthropies and the NGOs have extensive networks for collaboration with their peers that will have to become ever more effective.

The emergence of the G20+ as the key forum for responding to the global economic crisis is an important example of form following function. It reflects a more pragmatic approach to global problem-solving that brings key representatives to the table to solve a massive collective action problem. Interestingly, a similar formulation was suggested in 2006 by the International Task Force on Global Public Goods which proposed a “Global 25? or G-25 ” a representative group of heads of state and government with strong links to formal international institutions – to provide leadership on issues such as climate change, infectious diseases, financial stability, trade and peace and security. It seems likely that we are entering a world of “variable geometry” – more contact groups, more “Gs” (G7/8/20/25/77), more global funds, more coalitions and partnerships of private sector, NGOs and government around specific development issues or around themes like international standards for business or the environment. Rischard (2002) argues that these “global issues networks” provide an important addition to global governance and problem-solving that have the advantage of speed, flexibility, and legitimacy. As form follows function, it will be a messier world, but one in which the opportunities for the nimble and networked to influence outcomes will be great.

All Players Need to Find their Niche

These changes imply that all development actors will need to be clear about their niche, especially as scrutiny increases in tougher economic times. Bilateral aid donors will need to define their comparative advantage – on fragile states or low income countries, by region or by sector. DFID, for example, will focus its bilateral programme increasingly on fragile states and its multilateral contribution on those institutions which are most effective at addressing the needs of the poorest. Emerging powers like China, India, Brazil or South Africa do not like being called “donors” and prefer the language of “partnership”; no doubt they will bring new models to the bilateral and multilateral development agenda.

The international financial institutions will continue to be important to provide countercyclical financing (as has become so apparent in this economic crisis) and providers of wholesale funding for larger scale investments such as infrastructure and programme aid. The UN system’s role as a standard setter and enabler of global norms and action will become even more important.

The private philanthropists and foundations are well placed to be the venture capitalists of the development industry, able to take more risks than public funders and create innovations that can later be mainstreamed through public finance. NGOs will continue to be important providers of humanitarian and development services, but will also be key for holding governments and the private sector to account. But as their roles grow, there will be an imperative for both the philanthropies and NGOs to become more transparent and accountable.

Greater Mutual Accountability

More choice for poor countries is a good thing, but it will become even more imperative for poor countries to become better equipped to manage their aid flows strategically. For aid recipients, they will need to become more assertive about greater aid effectiveness, embodied in the agreements in Paris and Accra, to achieve more coherence, a better division of labour and more alignment with developing country plans and systems. For donors, the debate should shift increasingly to aligning behind countries’ priorities and having clear mutual accountability with developing country partners. With more players, there is a greater role for “naming and shaming” by independent watchdogs, NGOs and evaluators to monitor and lobby for better donor and recipient performance.

From Architecture to Networks

The international aid architecture going forward will feel less like architecture as it is applied to buildings (solid lines and structures with clear divisions and responsibilities) and more like architecture as it is used in describing the internet (a place where connections are made where parties with common interests find each other and transact business). Increasingly, issues will migrate to the fora in which they can most effectively be resolved. There are some real advantages to network-based systems – they tend to be more resilient and more innovative. Development organisations will have to find their niches in this new, more complex world.

Will this new network of aid delivery be more effective? There are very real risks of more bad projects and greater transaction and coordination costs. However, there is also the possibility of more resources, greater innovation, and faster progress on fighting global poverty. One way to increase effectiveness in this new aid world is to put an even greater premium on transparency, benchmarking and independent evaluation. Regulation and coordination are unlikely to work.

The efforts of many NGOs, think tanks and aid agencies to highlight who is delivering effective development is key. There may be a case for the certification of “good aid” that, like the fair trade label, informs the public which development efforts (public and private) are delivering good results. These can be at the global level (such as CGD’s ranking of development performance of donor countries), regional (such as the numerous NGOs that are monitoring the Gleneagles commitments to Africa), or at the country level (such as the recent independent evaluation of donor performance in Mozambique). Like Google’s use of hits to measure the utility of various internet sites, this kind of comparative information will tell taxpayers and developing countries where to get the best value for money in the aid business.

photo by Reuters / Paolo Bona

I subscribe to the ID4D newsletter

Once a week, I receive the latest blog posts!