Individual bilateral donors spread their assistance very widely – they ‘proliferate’ aid. In consequence, individual recipient countries receive their aid in an increasingly large number of small packages, from a larger number of donors. The indirect costs of this proliferation may be very large. New statistical analysis identifies which donor countries are the worst proliferators and highlights the consequences of aid fragmentation for recipient countries.

More and more developed countries are developing their own bilateral aid programmes. There are now 27 bilateral donors. On average, each of the 22 bilateral donors who operated continuously during 1999–2001 gave aid to 107 recipient countries. The average recipient state had to interact with 23 bilateral donors. The burden of dealing with so many separate donors is heavy.

Vietnam, with aid at about five per cent of gross domestic product, is a fairly typical aid recipient. In 2002, 25 bilateral donors, 19 multilateral donors and some 350 international non-governmental organisations were funding over 8 000 projects – one per every 9 000 Vietnamese. Here, as elsewhere, senior officials are required to spend much time receiving foreign missions. Reporting formats and financial years used by each donor are rarely the same. Donors lure skilled civil servants into working on their programmes or otherwise divert them to pay excessive attention to donor concerns and needs.

Researchers from the Institute of Development Studies examined data from the Development Assistance Committee of the Organisation for Economic Cooperation and Development (OECD) and found that that a disproportionate number of the worst proliferators are states such as Germany, the Netherlands, Canada and Switzerland with little colonial history and relatively new and “progressive” overseas aid programmes.

Rather than donate to ex-colonies, or countries in which they have geo-strategic interests, these donors have extended their aid programmes widely to the poorest nations. The net result of these good intentions has been a serious exacerbation of aid proliferation. Further, those donors who proliferate their aid most widely are especially likely to give aid to recipients who receive their aid from the widest range of sources – and therefore suffer most from the indirect effects of proliferation.

In 1999–2001 80 per cent of monetary transfers between a bilateral donor and an aid recipient (dubbed ‘aid events’ by the authors) involved less than one per cent of the donor’s total aid budget. In such conditions it is hardly surprising that aid agencies are unable to devote much attention to any one recipient or develop understanding of their particular needs.

A multiplicity of donors in one recipient country weakens prospects for coordination and contributes to a lack of a sense of responsibility for the outcomes of aid. The more donors there are, the easier it is to argue that the lack of development progress is someone else’s fault. Individual donors are tempted to hoard information and prioritise obtaining good results from their own projects.

Not enough is being done to deal with this growing problem:

• While the donor community has agreed in principle to co-ordinate and centralise interactions with recipient governments via Sector-Wide Approaches (SWAps) in distributing aid funds, SWAps remain a minority phenomenon.
• 'Budget support' - the direct transfer of aid into the general revenues of recipient governments - is coming back into fashion, despite the fact that it was viewed as 'neo-colonial' some decades ago. This is in principle a potential solution to the proliferation problem, but progress is very slow, and the obstacles to the wide diffusion of this practice are enormous.
• Efforts to organise donors into ‘partnership groups’ within recipient countries, while admirable in principle, also move slowly and generate problems.
• Rapid turnover of aid agency staff reduces the effective scope for in-country donor co-ordination.

The obstacles to reducing the transaction costs arising from aid proliferation are considerable. The authors suggest that donors could cooperate among themselves to reduce the number of countries which each assists, and therefore enable each to concentrate more on fewer recipients. A useful first step would be to recognise that proliferation and cooperation between donors should be central to any evaluation of donor performance.

Source(s):
‘The proliferators: transactions costs and the value of aid’ by Arnab Acharya, Ana Fuzzo de Lima and Mick Moore, Working Paper 214, Institute of Development Studies, January 2004 Full document.

id21 Research Highlight: 26 February 2004

Further Information:
Arnab Acharya, Ana Fuzzo de Lima and Mick Moore
The Institute of Development Studies
University of Sussex
Falmer
Brighton
UK

Tel: 44 (0) 1273 606261
Fax: 44 (0) 1273 621202/6916437
Contact the contributor: a.acharya@tfgi.com

Contact the contributor: ana_teresa_lima@hotmail.com

Contact the contributor: M.P.Moore@ids.ac.uk

Institute of Development Studies (IDS), UK

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'Aid, public expenditure and Millennium Development Goals: is collaboration possible?'

'Rethinking the debt-aid conundrum: lessons from Côte d'Ivoire'

'Sector wide coordination of aid: are SIPs shaping up?'

'Country level harmonisation' from aidharmonization.org

'Increasing aid effectiveness in Africa?' The World Bank and sector investment programmes