By Fred Twesiime, Economist, Ugandan Ministry of Finance, Planning and Economic Development
The number and diversity of actors in development co-operation has dramatically increased. To give one example, only one or two donors assisted Mozambique and Zambia in 1964, but this increased to almost every one of the 37 donors in the OECD database by 1999.
Having more donors creates new opportunities for broader partnerships among different development actors. At the same time, it poses challenges for countries receiving aid and other types of assistance. It increases fragmentation, transaction costs and makes management of aid all the more challenging.
How can a country make best use of multiple aid sources while avoiding the negative effects of uncoordinated aid? How can we significantly reduce transaction costs and other negative effects of fragmentation?
The Busan 4th High Level Forum on Aid Effectiveness in 2011 agreed political intentions and concrete, time-bound obligations to address such challenges. This year, the Global Partnership for Effective Development Co-operation endorsed the Building Block on Managing Diversity and Reducing Fragmentation, designed to find innovative strategies to embrace the benefits of broader partnerships while reducing fragmentation and proliferation.
This initiative, of which I am co-chair, aims to make development co-operation more complementary and coherent at all levels. A recent report has examined how aid from different sources can best be managed at country level. Looking at countries working on these issues, we found that partner countries’ ownership plays a crucial role for managing aid diversity.
We must embrace the benefits of broader partnerships while reducing aid fragmentation and proliferation.
For example, the Bangladeshi Government has paid special attention to managing aid diversity since 2006. This is a particularly thorny issue for Bangladesh, a low-income country that receives the bulk of its aid as highly fragmented project support. The government has developed a comprehensive structure for dialogue with donors, and worked intensively to harmonise implementation among donors. The country now aims to rationalise its aid by sector, based on donor mapping, comparative advantage assessment and agreements on division of labor.
Rwanda, often considered a forerunner on aid effectiveness, also has a relatively long history of managing its aid diversity. The Rwandan government mapped its donors in 2008 to discover that certain sectors were being over-provided for while others were under-aided. In 2010, the country started an extensive division of labor process based on the EU Code of Conduct on Complementarity and the Division of Labor, including donor performance assessments and joint programming.
Rwanda’s efforts are showing first effects. Aid management is smoother. In 2012, the fragmentation ratio dropped for the first time, down to 31% from around 40% in previous years. Rwanda has taken a strong lead in donor co-ordination, with its clear national aid policy and other strategies demonstrating the capacity to coordinate efforts. Donors’ positive response to the government’s quest for budget support rendered aid management less demanding than in the case of Bangladesh.
Experiences from Bangladesh, Rwanda and other countries show that reducing fragmentation and managing aid diversity is everything but easy. It relies on a strong leadership from the recipient countries, and on donors adjusting their aid streams to national strategies and agreed-upon sector rationalisation efforts.
The way forward lies in the development of aid management tools. What ingredients are needed to operate aid management systems well? We need a focus on results from donors and recipients alike. We need transparency and predictability as well as ownership and inclusiveness. These can help countries to better integrate aid in the implementation of their national development strategies and plans. Elements of good aid management such as aid management information systems, sector and donor matrices are also key.
Recipient country governments and donors should work together to create an enabling environment for good aid management. This requires concrete results-based national development plans and sufficient recipient government capacity. Donor alignment is also essential. Partner countries should also maintain consistent national development plans over the medium term, even when national governments change. There should be a clear framework for continuity and consistency in policies.
We must embrace the benefits of broader partnerships while reducing aid fragmentation and proliferation. This way, we can enhance the complementarity of development co-operation at both partner country and international levels.
Partner countries and development partners can learn a lot from each other’s experiences of managing aid diversity, attempts to reduce fragmentation and to rationalise aid. Now, we need discussion on the best way to foster global learning and to collect and communicate experiences on aid diversity management tools and approaches.
Fred Twesiime is an Economist at the Ugandan Ministry of Finance, Planning and Economic Development. He is also the Co-Chair of the Building Block on Managing Diversity and Reducing Fragmentation.