Posts Tagged ‘Cash on Delivery’

Anti-corruption efforts: perfecting the art of isomorphic mimicry

UNDP has launched a portal on Anti-Corruption for Development. (To distinguish it from anti-corruption efforts that are anti-developmental??) It includes an anti-corruption poster for REDD programmes that, I am sure, is guaranteed to reduce rent-seeking and improper uses of funds.

Anti-corruption commissions and their ilk seem to me to be one of the worst uses of aid money out there. Because they almost never deal with the politics they only ever address a few low level symptoms (disposable scapegoats) and abysmally fail to tackle causes. And yet they are legion, and probably persist now quite happily without donor money, both for the sinecures they provide, and because, from time to time, they may be politically useful to chastise the opposition. Are anti-corruption commissions therefore the pinnacle of isomorphic mimicry? I think it could be so.

How about a Cash on Delivery solution? $10,000 for every successful prosecution (where the accused have had a fair chance to defend themselves), rising to $100,000 and $1million for more senior officials. Make the bounties high enough and in themselves they may even start to provide an incentive against corruption, because even if the current government are not inclined to follow through, the next one might be …


Wherefore art thou Aid?

Nancy Birdsall and William Savedoff have an excellent piece over at CGD about one of the hidden pitfalls that lie in wait putting into practice a Cash on Delivery aid programme. In it they describe how targets, often a good thing for benchmarking performance, can fatally undermine implementation of COD. The problem boils down to this: if the donor government expects to disburse $2m through a COD programme and the recipient government expects to receive $2m through said programme, then it can be very difficult to deviate from that even though in practice one would expect variance either positive or negative, with negative deviation being the trickier but more likely scenario.

One can understand the recipient government’s situation; they would surely always want to get the full $2m even when, according to the agreed formula, their performance only merits $600k. But, what I find particularly disappointing is the tendency for the donor to want to disburse the cash any way. There are explanations of a sort: the donor has budgeted that amount, so returning it to their home treasury can mean reduced budgets in future, and maybe the desk officer find themselves in a tricky situation in their relationship with the beneficiary government, which is most easily resolved by giving in, and handing over the full amount. But none of these are very satisfactory. Pressure to disburse can be resisted with a little bit of backbone, and donor governments seem able to cope with varying budgets for things like unemployment benefit, so surely ought to be able to cope with aid budgets that fluctuate?

In my opinion the real issue, and one which fatally undermines so much of official development aid, is that the whole international aid system is constructed around the needs of the donors, not the recipients. Hence the desire to push out the $2m regardless. If we can agree that COD aid is at least an idea good enough to be worth trying, why are we trying to shoe-horn it into a rigid budgeting framework that will not support it?

The problem is that it is the act of giving which has come to be celebrated, not the outcomes of that giving. Politicians get the media coverage they crave when they announce the donation, not when (if?!?) the programme delivers on its promises. Why else the ridiculous focus on aid budgets reaching 0.7% of GDP?

If we wanted to design a system to actually deliver useful benefits to poor people world wide, rather than to reward donors, we would never come up with the system we have now. Cash on Delivery seems like an eminently sensible step in the right direction, but I fear that the required wholesale reform of the aid system is unlikely to occur before market forces and economic conversion over time remove it much of its original raison d’être, as has happened recently with the cessation of British government aid to India.

But in the meantime, if the mainstream media, in developing as well as developed countries, could learn a little self-restraint, and refuse to report any announcements of aid, just maybe we might start to have a chance …

Trust (part 2)

Yesterday I blogged about how the critical elements of a healthy trust relationship are too often missing in community development and conservation projects. Today, I turn my attention to the donor-implementer relationship, where trust seems to be even more lacking.

It is axiomatic of human nature that when given a job to do, whether just by our boss or a contract we have won, that, as far as possible, we just want to be left alone to get on with the job. Of course, if we have not completed the task to a satisfactory standard within a reasonable period of time we expect our boss to come asking awkward questions. But equally, we really resent a boss who checks up on us too much or asks lots of detailed questions about process rather than simply assessing the actual final product. This is just a fact of basic human nature and the need for both self-respect and the respect of others.

Some donors really do seem to get this, focus on the big picture, and we love them for it. But others unfortunately cannot resist the urge to quibble about minor details and to obsess about issues such as corruption or gender-mainstreaming in projects that have little otherwise to do with such things. Unfortunately, the message that sends out to us as a project implementer is: they don’t trust us. And nobody likes to work for a boss who doesn’t trust them, so you can expect us to carp about it … a lot! E.g. accusing one’s donor of neo-colonialism.

This issue can be bad enough between donors and NGOs, but I get the impression it gets even worse between bi- and multi-lateral donors and recipient country governments. After years of failed delivery, of course, the donor officials hardly trust the government officials, but each are locked into a system in which the donors are compelled to keep on giving, and the officials are compelled to keep on receiving. Worse, both sets of officials are accountable to their bosses for the successful continuation of the grant giving, and so are doomed to fight the same running battles about use or misuse of funds over and over again.

It seems to me that if donors want their donations to succeed, then we need to restore proper dignity and trust to this relationship, and not just with a few inane platitudes from ambassador to minister. In order to do this we need to simultaneously put aside all our historical bad feelings, while at the same time ensuring we have learned the necessary lessons so we do not just fall into the same trap all over again. This is what Cash on Delivery aid promises to do.

Some NGOs which are both (a) darned competent and (b) lucky to be working on a zeitgeist issue, can get popular enough with the donors that they can start to push back, and dictate terms to some extent as to how they are supported. Maybe even some more effective governments (Ethiopia? Rwanda?) have some success in this respect to? But most of us are stuck with benefactors who, despite all their protestations of being mere partners in the development process, clearly do not trust us very much. That can be hard to stomach.

Tomorrow, I will consider the even more poisonous non-trust relationship between civil society and government in developing countries.

Accountability and Overheads

Mike Jennings isn’t the only one concerned (and blogging) about accountability. Chris Blattman is peeved about excessive administration costs in humanitarian aid:

17% is an unfortunate expense but a rather common rate for administration, and even low by many standards.

It’s a requirement driven not so much by the multilateral donors, but a consequence of the fact that the giving public and governments have close to zero tolerance for misuse of funds.

This drives a Byzantine and expensive accounting system which partly reduces risk of misuse, and partly gives the multilaterals cover (“we did the best we could”).

This discomfit with misuse gets amplified by the press who tend to tend to report on graft and mismanagement more than success.

So the root cause is the failure of the public and donors to think about the high cost of extreme accountability.

I agree with much of what he says, and have experienced this directly. Having won a biggish grant from a bilateral donor to pilot an innovative new community conservation project, we were surprised to find them apparently more interested in the upgrades to our accounting system that we had promised. At one point I posed them the question: “Did you set out to fund a CBNRM project, or an NGO capacity building project?” Their response was that they considered the accounting system a bottom line requirement for a grant of this size.

I can sympathise with them. The least whiff of a scandal has the minister for international development phoning them up to find out what is going on, demanding answers as of yesterday.

However, as Chris Blattman points out, cost-effectiveness just goes out the window. For a particularly excruciating example of this, see this bizarre episode we experienced last year. Unfortunately, in my experience, the byzantine accounting systems are at best only a partial protection against fraud. (I’ve heard of a couple of examples of money gone missing in bigger NGOs of late.) And I would be prepared to bet that well run small NGOs (you can spot them amongst their briefcase counterparts because they deliver real impact), are probably the least susceptible to such failings due to the strong ethos and commitment that will permeate the entire organisation. (Greedy people tend to work elsewhere where the salaries are higher.)

To me this demonstrates the shortcomings of the bilateral donors in particular. We find the large trusts and private funds much more flexible and understanding of the challenges faced by a small but growing NGO.

Dave Algoso acutely observed last year that “increasing accountability will increase your overhead, every single time”. It seems this trade-off is here with us to stay. But maybe not. Owen Barder recently wrote about the need to move to a ‘post-bureaucratic’ aid system. Aid that is conditioned on results not management of inputs, i.e. contracted like a business, could do away with a significant chunk of this accountability versus overheads tension. (I think it would be naively over-optimistic to expect it to do away with it all.) In a business relationship, you do not worry if, for example, there is a case of corruption in your electricity supplier; you just pay for the electricity you get, and it is the power company’s job to sort out its accounting failures, and ultimately the shareholders loss.

If donors saw themselves more as commissioning agents, doling out money based on results achieved (Cash on Delivery) then the issues such as corruption and the appropriate level of overheads become just something for the service provider to manage.

We’ve got a long way to go, but here’s hoping!

A hypothetical proposition

Discussing my previous posts on the lack of donor success in stimulating serious governance reform in developing countries a friend asked, “So what’s the alternative?” Here’s how I think it could work if donors abandoned their posse-ocracy and actually got their act together, i.e. a purely hypothetical proposition.

It’s a form of  COD aid for GBS (that’s Cash on Delivery aid for General Budget Support for those not fully inducted into the development sector’s jargonology). You start by defining the general conditions under which you, a donor, are prepared to give GBS aid. You could do this based on national GDP, poverty rates, or following Andy Sumner’s recent conclusions (that most poor people are now found in middle-income countries), based on sub-national analyses. If you were sensible, you would define this on a marginal basis, like different income tax tiers that only apply to the amount of income above a certain threshold, so as to provide a smooth exit ramp out of GBS aid as countries (hopefully!) grow and reduce poverty amongst their citizens, although there would probably be a minimum amount ($10 million?) below which you just wouldn’t bother to disburse GBS aid to a country at all.

The important thing is that you make these same rules apply to all developing countries across the world, irrespective of previous national ties and other ‘strategic’ considerations. Thus any developing country with an interest in GBS (the juiciest form of aid) can instantly work out how much it could be in line to receive straight into their treasuries. Yummy! But, aid recipients have lots of different donors to bargain with, so you need to all agree on what are your conditions, and these should apply to all donors who join the system.

There could be certain minimum requirements, e.g. basic democracy; if you don’t meet these then no iced lolly, I mean GBS. But many other governance requirements could be handled through proportional reductions. E.g. if, as OECD DAC appear to, you really believe that a giant work of fiction entitled National Poverty Reduction Strategy is important, then you could say that not having one reduces the maximum GBS available by 10%. Such conditions could even have a temporal dimension, e.g. in year 1 you have to write the NPRS, so no reduction, but you lose 10% in year 1 if it’s still not written, and this could increase to 20% in year 2 etc. Of course, as any blogger knows, good story-tellers need to be kept in gainful employment, so you should also demand the NPRS be updated every so often (5 years?), and the penalties are reinstated if you don’t keep up with this process.

More usefully you could make sliding-scale conditions around financial management processes, audits, democratic oversight of budgets and the like. Some could even work in reverse; extra iced lollies for the best behaved! Some conditions will be general and widely applicable, others may be specific to the developing country concerned. E.g. developing countries who let big corruption scandals go unpunished in the courts would lose their GBS.

The big benefit of this system would be that developing countries would have a clear set of goals, and remove the usual messy negotiations surrounding renewal of GBS. Earlier this year Malawi had its GBS from the UK suspended due to increasing authoritarianism; with well-designed rules this might have translated into a gradual withdrawal, plus a clearer understanding on the part of President Mutharika as to the road that he was heading down and the implications of doing so. Like Saddam Hussein and his WMD, developing countries often believe they can snub their donors to little effect, and only discover too late when they are wrong.

Moreover developing countries would have a clearer view of how they are faring against their peers, with the knowledge that those who reform most effectively will get the most the cash. Conversely, if there are insufficient reformers, donors need to be strong enough willed to simply use the money to pay down their national debts, and stop the nonsense that just because money has been put on the table that it has to be used. All society is built around rules-based systems, and in every walk of life we see the benefits of this approach and the clarity it brings. Why should development aid be any different?

There are two big dangers I can see with this my hypothetical proposal. One, which it shares with the rest of COD aid, is the need for rigorous independent processes to determine when conditions have been met. For national level governance controls this is always going to be a politically fraught process, and there will probably be more grey areas than the simpler deliverables that mostly are suggested as targets for COD aid, but I don’t see that this has to be a show-stopper so long as the political will can be found, and donors do not break ranks at the first sign of trouble.

Secondly there is a danger of development by blueprint. The design of the various conditions would need to be smart enough to allow for local flexibility and adaptability in how they are implemented without compromising on the essential governance improvements that are sought. I would imagine the conditions would need plenty of tweaking as we went along. But arguably donors are already doing this, pushing things like the World Bank’s Medium Term Expenditure Framework, and the basics of sound financial management cannot vary much with social setting.

Finally, I would also note that such an approach might not be very clever in the most fragile states where political compromise is the critical criterion against which all policies will need to be judged, and where a certain amount of leakage through patronage networks an unpleasant but necessary price to pay for peace. As the recent example of Afghanistan shows us, determining when to move to a more normal treatment of such issues is a very tricky judgement call to make.

Aid effectiveness and governance experts have probably already dreamt up such a system, spotted the flaws in it, and discarded it, but if so I haven’t read about it. (This says more about my reading habits than anything else.) But when even the normally upbeat Owen Barder is moved to say “The development sector is in a mess.” I am inclined to think that almost anything is better than the status quo and needed if we are to sustain political support for aid in donor countries. Unfortunately the status quo is real, and all of the above is purely hypothetical.

Evolutionary biology meets development

Darwin’s (and Wallace’s) theory of evolution by natural selection has been described as the most powerful idea ever conceived; the shear breadth and variation in the natural world all created from the inexorable application of one, very simple principle. So fantastically powerful is it that its application is not limited just to biology but is increasingly being applied in the social sciences … and now in development economics.


If looks could kill: a non-poisonous frog that looks rather poisonous

The Sapito Listado frog from South America would make a tasty meal for many a tree snake, but it doesn’t get eaten so much as it looks like poison dart frogs which the snakes have learned are not nearly so digestible. In other words the Sapito Listado has all the trappings of a poisonous frog without the key poison functionality. Since poison is a hard thing to produce this is a great evolutionary strategy, known as Batesian mimicry, or at least it is until the snakes learn to spot the difference.

Lant Pritchett reckons the same thing could be happening with institutions in developing countries. This is an analogy that makes a lot of sense: the education ministry may have an org chart that looks like a Western education ministry, it has lots of schools and nearly as many teachers as classrooms, but, at least around here, too many children aren’t learning very much. Lant Pritchett suggests that this is because developing country institutions have mimicked their Western cousins’ appearance without taking on their functions.

I think this is a key insight. Development experts have long understood that just providing the monetary inputs isn’t enough (even though donors have taken rather longer to catch on), and the dysfunctional nature of many developing country institutions has been clear to see. The response has usually been to invest in building the capacity of those institutions (perfecting the mimicry), but Lant Pritchett’s analysis tells us this is insufficient, and that instead we need to go back to square one and focus on the outcomes. This brings us back to Cash on Delivery aid.

In the evolutionary arms race some snakes may eventually work out how to tell apart a Sapito Listado from its more dangerous cousins, and the Sapito will have to come up with a new survival strategy. There might not quite be an ‘arms race’ between Western donors and patronage networks in developing country governments but their priorities clearly diverge. Can they evolve a more symbiotic relationship? I hope so. A bit more selective pressure and less quasi-monopolies on both sides would help a lot, along with better feedback loops.

The psychology of giving and the corruption double whammy

An excellent post by William Savedoff and Nancy Birdsall over at GCD on Cash on Delivery aid got me thinking. Talking about proposed preconditions to successful COD aid they say:

“Similarly, conditioning a contract on adequate financial controls assumes that it is better to control the use of funds by tracking where they go than to control the use of funds by verifying what they yield. … Any further eligibility conditions are likely to undermine the restructuring of the accountability relationships or to simply delay implementation.”

They are absolutely right. Proposing such pre-conditions struck me as the classic aid mistake of focusing far too much on process, which able bureaucrats can spin out ad infinitum, as opposed to outcome, which is what we all want to see. Essentially donors are suggesting that they’d prefer to see none of their money stolen through local corruption than any particular outcome achieved, although given that money leaks even from the best aid projects, really all they are doing is prioritising the enforcement of controls – so that they cannot be accused of lax oversight – over effective implementation.

A good example of this which filters down even to small NGOs is procurement policies. A friend of mine experienced actual cost increases (never mind all the wasted staff time) when the NGO where he works was forced to implement a comprehensive procurement policy, and we have recently come under pressure to put one in place. Yet we all know the simple truth: trusting – and being able to trust! – your staff is easily the best, most cost-effective solution to dodgy procurement. I also have heard of big NGOs with dedicated procurement officers nonetheless paying suspiciously high prices for certain items.

What this highlights to me is one of the most pernicious effects of corruption: the layers of red tape that are imposed in an attempt to stamp it out; what I call the corruption double whammy. Unfortunately they rarely stop the leaks.

Donors ought to be capable of realising this and rising above it, but for their paranoia about best practices and being caught with their pants down. For most donors, I assume, this is basically a fear of the political process: tolerating a certain amount of corruption tends not to go down to well, and it is likely that the cacophony of condemnation will drown out more level-headed arguments. Indeed it is something we can all relate to: if you give some money to a good cause you’d prefer they suffered a glorious failure than that they’d achieved something with some of your cash, and then stolen the rest.

Is there a way forward? Perhaps some donors could set aside at least some of their funds for perceived riskier projects in which outcomes were prioritised over process? At least if the potential problems, but also potential gains, are acknowledged up front that might help draw some of the sting from the almost inevitable damning exposé when it comes.

Aid efficiency & focusing on the important things

(with apologies to DR who doesn’t make the rules)

Informal chat with a Donor Representative (DR), 2009

MJ Presumably the NGO projects will be much more efficient than the government ones.
DR Yes, we expect that. But they won’t be the most efficient.
MJ Oh? Who will be the most efficient?
DR The private sector.

Meeting with Donor reviewing progress on a grant we have from them, 2011

(Same donor representative, DR)

DR We’re a bit concerned about this capital expenditure here [value < 0.5% of budget] which was not in the original budget and not approved by us.


And that, my friends is why the private sector will always be more efficient than NGOs.

But seriously, putting aside the nit-picking, what, at the end of the day, are your public interested in? (This is a bilateral donor.) The answer is impact. If you stopped worrying so much about the little things (including in your work with government), and instead focused on the impact bottom line, everybody would be much happier. If an aid recipient can deliver great service to its beneficiaries who cares how many Land Cruisers they buy? I guess this is what COD aid is all about.

COD, REDD and the free market

Swahili Street asks about REDD in relation to Cash on Delivery.

With REDD (carbon-based payments for Reduced Emissions from Deforestation and forest Degradation for the uninitiated) I think it all depends on how the international architecture pans out. Lots of people are arguing for fund based approaches, and there are some good reasons why that could be a better solution as being both potentially simpler to manage and to avoid penalising well-behaved countries like Costa Rica who have already acted to control deforestation. (Is there anything to be read into the appointment of a Costa Rican as the new UNFCCC coordinator?) But I am with lots of other people in voicing substantial skepticism that other developing countries could actually get deforestation under control without a more robust transactional system which pays for actual achievements. This would act in a more commercial way than I expect most COD will do, but maybe that’s the exactly the direction we should be going on this? Perhaps we could end up with exchanges trading things like completed primary school years; the money would flow to those countries which could deliver such public goods at the lowest possible price, and governments of other developing countries would have to scrabble around to see how they could deliver the same benefit at the same price. The ultimate free marketeer’s solution to development in poor countries!

Cash on Delivery & the Last Mile

Recently I had a conversation with a donor representative here who was frustrated by the progress of rolling out CBNRM initiatives in this country, and the subject of Cash on Delivery came up. (Ok, I suggested it.) This was well analysed by Owen Barder, but I think he missed one important angle which in many ways sums up  my motivation for writing this blog.

Owen principally talks about COD creating incentives for policy changes (though he is not clear what kind of policy changes he means), and correctly points out that until donor threats carry real credibility these will have little impact on donor country leaders. He also highlights the marginal impact aid conditionality has on the interests of elected politicians, although I believe we should not underestimate their persuasive force when there is no direct negative impact on a politician’s personal interests. (Not all politicians are totally corrupt.) My interest, however, is on solving the delivery problem, and here we are not necessarily talking about the bigwigs. (As the CGD blurb mentions, COD can be used within countries too.)

A lot of aid suffers from the problem of the Last Mile (e.g. see Esther Duflo’s TED talk). This problem is not always well appreciated (or well enough appreciated) by aid officials working in their plush offices in the capital city, or those even further away in donor countries. They tend to engage with aid on two levels. Firstly they get involved in direct bilateral projects; these are intensively funded and can help pilot new approaches, and point the way forward for a certain sector in the host country. Such projects can produce great results (if you can avoid the problem of unsustainability), but do not produce many bangs for the lots of bucks invested owing to the rather concentrated nature of such work. Donors, typically, then seek to convert these narrow projects into broader national programmes; in doing this they team up with the best officials they can find, nurture and support them, and generally get a good feeling that they are working with the right people.

Except that, at least in the country where I work, such talent is at a premium, and most of it heads towards the private sector. All this aid has to be delivered by someone, and here donors are trapped by constraint of low human resources and their understandable, though often misguided, desire to minimise transaction costs. I’m talking here about the teacher who doesn’t turn up to work, or the agricultural extension officer who cannot get to work because his car has been requisitioned by a higher-up. The final mile is often by far the worst managed, and this is the problem we confront daily in our view from the Bottom Up. I think most people working in aid do realise this, but then rather forget it in their desire to push out the latest big idea, or somehow kid themselves that this time they’ve got the right trick to solve that problem.

I think mid-ranking officials, as long as they’re not hopelessly corrupt, might be more susceptible to COD incentives. Most such officials want to be managing bigger departments, with bigger budgets (more opportunity for patronage if you want to be cynical). Under COD, those officials who can better manage delivery will do better, those who cannot will be left by the wayside. And it will also get the donor out from under their noses; as Owen points out, the best thing about COD might be how it incentivises donors to reform. Those who want change should first put their own houses in order, and donors are more culpable than most in this respect.

%d bloggers like this: