Introduction, rationale and brief history

Any meaningful discussion on aid effectiveness requires a good understanding of the global context of development cooperation, and of the factors and changes influencing its direction and priorities. The purpose of this introductory chapter is to review how this context has evolved in the course of the past five to six decades, and to identify the key factors that have reshaped development cooperation and its impact on developing countries’ progress towards sustainable development.

The origins of foreign aid, according to some writers, were traced to “the development activities of the colonial powers in their overseas territories”

(Führer, 1996). But this was a different kind of “development assistance”

administered during colonisation, when colonial powers built infrastructure (roads, bridges, waterways, ports and harbours, schools, etc.) and promoted the development of certain agricultural crops as well as the exploitation of mining and other natural resources. Such actions were driven primarily by the occupying powers’ economic and political interests, including gaining access to raw material resources for their industries, opening local markets for their products and assuming control of strategic locations along vital trade routes (such as the Suez Canal, as an example). Although some benefits accrued to the colonised countries, the lion’s share went to the colonial powers – in fact, some have argued that these powers’ actions have caused a reversal in developing countries’

paths out of poverty (Mazrui, 2010; Ayittey, 2005).

Be that as it may, our focus is on foreign aid since the end of the Second World War – a period in which an increasing number of developing countries achieved their political independence and began the process of building national institutions and managing their development efforts. In

so doing, they sought external assistance to supplement their domestic resources, which were inadequate to meet development needs.

Today’s development assistance refers to both official and non-official (private) sources. Official development assistance (ODA) dominated the scene for several decades until private assistance started assuming increased significance in more recent years. Post-war ODA was conceptually based – at least partly – on the success of the Marshall Plan, which supported Europe’s reconstruction and promoted cross-border trade as a first step towards regional integration. The plan involved massive food aid, infrastructure rebuilding, raw materials and re-education of the workforce to a Europe starved of basic economic resources. It was thought then that a similar approach could be used to assist developing countries in addressing poverty and other causes of underdevelopment – a view that turned out to be too simplistic, as later events would show, if only because these countries lacked Europe’s well-developed institutional and skill-base, which the war had damaged but did not demolish (Sagasti, 2005).

Our concern throughout this study is with how effective aid has been in achieving its objectives. Aid effectiveness, while seemingly simple and straightforward, has evolved in concept and practice over many years as a result of interacting events and actions that have produced a vastly different setting for development cooperation, giving rise to more opportunities as well as new challenges. An outcome of these interactions was the launching of the first High Level Forum on Aid Effectiveness in 2003, ushering in a new era in which key development actors adopted a sharper focus on aid effectiveness issues.

Before we begin our review, readers may wonder why it has taken so long to achieve what many consider to be too little. A question posed in the Preface is whether the aid effectiveness exercise and the substantial time and monies invested in it have been worthwhile. I hope the analysis presented in this study will provide a clear answer, backed by much evidence. For now, my summary response to this crucial question is that, initially, I had my own serious doubts about the value of this endeavour – doubts triggered by the outcome of early discussions, repeated statements of support and of commitments to improve aid effectiveness, which produced meagre results. I wondered whether my further participation in meetings was justified. This was the view of many observers as well. And

this is where most sceptics have felt justified in concluding that this was a futile process doomed to failure.

But this is precisely where sceptics were mistaken. Before long, while I was still on the periphery of this process, I came to realise that there was much more to achieving this goal than high-level statements and pumping in more money. Aid effectiveness, properly understood, is a complex socio-political-economy process with layers of vested interests and conflicting views. Even when there was agreement on the ultimate goals, the parties involved had differing views and perspectives on “how to get there”. This explains why generally-worded statements and commitments were not difficult to endorse; but imbedded in the non-specificity of these (mostly sincere) statements were the seeds of failure and poor results.

Once such complexity was gradually (and slowly) understood, the approach to greater aid effectiveness had to change in order to cope with this reality. There was neither a magic formula nor a shortcut to reach that destination.

Only more in-depth analysis, more careful listening to competing viewpoints, more efforts to enhance an open dialogue and build trust, more patience and an unshakable persistence to stay the course could deliver better and more sustainable outcomes. This study traces how the international community has acquired a better understanding of this process, travelling a bumpy road with many ups and downs until we managed to agree on the necessity and urgency to launch a Global Partnership for Effective Development Cooperation (GPEDC). In a nutshell, this is the theme of this study, or, if you prefer, its storyline.

It is interesting that critics of the process, who rightly pointed to its many failing, have not come up with more viable alternatives. Without the dialogues, numerous forums and lessons learnt with every up and down during the past dozen years, it is my view that development cooperation would have become a jungle ruled by the dictates of the most powerful players, lacking any codes of conduct or rules of play. The more powerful actors still (and will continue to) exercise their influence, as we do not yet have a level playing field, but such influences have been tamed through well-established modalities and agreed frameworks.

Some observers have also asked whether aid effectiveness issues should continue to receive much attention today, when aid’s importance has been

declining relative to other international financial flows to developing countries. Although this decline is significant and will probably continue in relative terms for the foreseeable future, it is not prudent to judge aid (or any other financial flow for that matter) merely by volume. Aid tends to contribute most through its catalytic effect by mobilising other resources (domestic and external) for development, and transferring successful development modalities and approaches. In addition, the lessons learnt from efforts to improve aid effectiveness are applicable to other forms of development cooperation, including, for example, assistance to developing countries in coping with climate change. Unless these lessons are heeded, we risk repeating avoidable mistakes in managing such assistance. Finally, there is an “unfinished agenda”, which requires more actions to produce better aid impact.

Does the launching of the GPEDC mean we can look forward to a smooth path of progress from now on? Not really, as this would be simplistic! The global setting – politically, economically and socially – has changed and is generating fresh opportunities and new challenges. The GPEDC is potentially a game changer, but vigilance and coherent actions have become essential to meet challenges, as is discussed in the last two chapters.

We now commence or review with a brief note on the motives and pressures behind post-war development assistance, and proceed to trace the emergence of specialised aid agencies (traditional and non-traditional), and identify the main trends in aid growth, sources, allocations, delivery modalities, innovative financing and quality aspects. We also take note of aid commitments and pledges at key international conferences, the changing roles of key actors and the receding importance of ODA relative to other forms of development finance. The chapter concludes with a summary of the main features of the emerging aid architecture.

1.1.1 Initial motives and pressures

Several motives may be identified to justify rich countries’ actions to extend development aid. The United States was concerned about the threat of the spread of communism to other parts of the world and was willing to, and did, use foreign aid as an explicit foreign policy tool. The Soviet Union used its central planning approach to integrate Eastern European

countries further into the Soviet economic structure through aid and other means, while also eying the prospects of aid to developing countries as a means of extending its reach. Recovering European countries wished to maintain their ties with their former dependencies, and viewed aid as an effective means to rebuild relations with these countries on a new basis.

Developing countries started exerting their own pressures on the United Nations body to set up a UN aid agency to cater to their development needs at a time when they could not afford to borrow from, or access, the World Bank (WB) or available commercial sources of finance.

There was, therefore, a mix of motives that blended security and protection of US and European global / regional power interests with the recognition of a “moral imperative” to assist poor countries in improving their living standards. Underlining this imperative was also a long-term vision of self and mutual interest, as improved standards in these countries promised to open markets and to promote investment opportunities for more developed countries.

Gradually, the United States and West European countries put in motion actions that launched aid initiatives of different kinds. The United States enacted the “Point Four” assistance programme in 1949, the Mutual Security Agency in 1952 and the PL480 in 1954, which provided the legal basis for the Food Aid programme; the United Nations established the Expanded Programme for technical assistance in 1950; the Paris Club was created in 1956 as a multilateral mechanism for renegotiating developing countries’ official debts; and in 1957 Europe established the European Development Fund as part of the Rome Treaty, which gave birth to the European Economic Community.

1.1.2 Development Assistance Committee

In an effort to coordinate development assistance among providers, the Development Assistance Group was established under the auspices of the Organisation for European Economic Co-operation in 1960 and became the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) a year later. The DAC has played a leading role in the aid effectiveness debate from its inception.

It was created as “a forum for consultations among donors on assistance

to developing countries” (Führer, 1996; Organisation for Economic Co-operation and Development [OECD], 2006a). Its mandate has been

to promote development co-operation and other policies so as to contribute to sustainable development, including pro-poor economic growth, poverty reduction, improvement of living standards in developing countries, and to a future in which no country will depend on aid (Sagasti, 2005).

DAC membership gradually expanded to comprise 29 countries by 2014, including the Czech Republic, Iceland, the Slovak Republic and Poland, which joined in 2013.¹ All major aid providers are represented at the DAC as well as a few members contributing smaller ODA amounts. The WB and International Monetary Fund (IMF) serve as observers, as do the regional development banks (except the European Bank for Reconstruction), the United Nations Development Programme (UNDP) and the United Nations Children’s Fund (UNICEF). OECD countries that are not members of the DAC are entitled to participate in all its meetings and those of its subsidiary bodies. “The DAC is part of an extraordinary surge in aid-related institutional developments which have laid the foundation for the current aid system” (OECD, 2010f).

One of the DAC’s first tasks was to agree on a definition of ODA, as this Committee became responsible for, among other things, gathering, analysing and publishing ODA statistics. The official definition states that ODA consists of

[f]lows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent. By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (‘bilateral ODA’) and to multilateral institutions. ODA receipts comprise disbursements by bilateral donors and multilateral institutions (OECD, s.a.a).

1 The OECD/DAC members are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, European Union, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, the United Kingdom and the United States. See: http://www.oecd.org/dac/dacmembers.htm#members.

An important landmark initiative was the DAC’s 1996 21st Century Report. The report recognised the changing global environment in which distinctions between East and West, and South and North, were no longer relevant; the importance of “propitious environments” for aid to work; and the urgency with which developing countries’ challenges had to be addressed, despite progress made. It proposed a global partnership effort to achieve given goals:

a reduction by one-half in the proportion of people living in extreme poverty by 2015; universal primary education in all countries by 2015;

demonstrated progress toward gender equality and the empowerment of women by eliminating gender disparity in primary and secondary education by 2005; a reduction by two-thirds in the mortality rates for infants and children under age 5 and a reduction by three-fourths in maternal mortality, all by 2015; access through the primary health-care system to reproductive health services for all individuals of appropriate ages as soon as possible and no later than the year 2015; and implementation of national strategies for sustainable development in all countries by 2005. (OECD, 1996)

There is little doubt that this initiative – and the goals it put forward, which were endorsed by the G-8 summit in 1999 – made a significant contribution to the formulation of what were articulated later as the Millennium Development Goals (MDGs).

1.1.3 Emergence of other aid agencies

In addition to the OECD/DAC, other development agencies emerged during the second half of the past century, playing increasingly important roles in development cooperation. These agencies comprised regional development banks in Africa, Asia and Latin America; the European Bank for Reconstruction and Development and the European Investment Bank;

affiliates of the WB such as the International Finance Corporation, International Development Association (IDA) and the Multilateral Investment Guarantee Agency; they expanded the UN system of agencies and global funds as well as hundreds of non-governmental organisations (NGOs) (international and local), and public-private partnerships (Bürcky, 2011; OECD, 2010c). Space does not permit for any elaboration of the mandates and activities of these institutions. But it is important to recognise the vast spread of development-engaged institutions for a better

understanding of the complexities of the aid effectiveness debates, as will become clear later on.

Adding to the institutional complexity are other factors and events that have been instrumental in shaping how development cooperation has evolved over the years. We have, for example, not touched on the major economic and political changes during the past 50–60 years – changes that have affected the fortunes of countries in different ways and left their mark on ODA policies and practices on both sides of the aid divide. Add to this the impact of the Cold War and subsequent dismantling of the Berlin Wall;

regional and cross-border conflicts causing their victims to become fragile states; the so-called Arab Spring uprisings and their aftermath; repeated financial crises in Asia and elsewhere, including the 2008 meltdown and persistent slow pace to recovery; recurring oil crises; food shortages; the HIV/AIDS pandemic and the most recent Ebola epidemic afflicting west Africa; persistent debt issues; negative consequences of globalisation; the growing impact of climate change; and the recent Euro-zone crisis, to name a few key factors.

These and other events have had, and continue to have, a direct impact on both developing countries’ needs for assistance and aid providers’ ability / willingness to respond more fully to these needs. On the positive side, we note the improvement in the economic performance of middle-income countries; the rise of the emerging economies, led by China, India and Brazil, which are contributing substantial additional flows of assistance;

the introduction of new aid delivery modalities; the successful reform efforts by developing countries to address institutional and policy challenges; and the global calls to institute more effective regulatory financial and economic coordinating frameworks to mitigate the impact of future crises.

1.1.4 Millennium summit and conference on development financing

The cumulative impact of the quickening pace of change on developing countries, and particularly the seriousness of the challenges facingthose that have lagged behind, led the United Nations to call the Millennium Summit in New York in 2000. Attended by all 193 member states and

leading international organisations, the key issue was how the global community could best handle the urgent and chronic challenges posed, which undermined developing countries’ efforts to achieve sustainable development. As Kofi Annan, then UN Secretary-General, said, this was also a unique opportunity “to identify the challenges that it will face in the future and to engage in an imaginative exercise to enhance and strengthen a unique institution” (Johnsson, 2014). The summit led to the establishment of the Millennium Development Goals, to be achieved by 2015, following the adoption of the UN Millennium Declaration. Since then, the MDGs have been the key benchmark intended to guide development policies and international cooperation efforts (Annan, 2000).

About to supersede these is the forthcoming post-2015 development agenda, which is capturing current and future challenges not fully incorporated in the MDGs (United Nations [UN], 2013; UN, 2014).

The Summit of 2000 was followed in 2002 by the UN International Conference on Financing for Development, in Monterrey, Mexico.

Recognised were the “current estimates of dramatic shortfalls in resources required to achieve the internationally agreed development goals, including those contained in the United Nations Millennium Declaration”

(UN, 2003), dealing with issues of poverty, universal education, gender equality, child health, maternal health, HIV/AIDS, environmental sustainability, and global partnership. This last goal, MDG 8, has clear implications for the international development community to deal with issues pertaining to trade, debt relief, development finance, least-developed countries (LDCs) and landlocked countries, cooperation with pharmaceutical companies to access drugs to treat HIV/AIDS, and the private sector’s role in accessing new technologies.

Subsequent reviews show some progress towards achieving the MDGs, though

progress has not been uniform across countries, and there have been setbacks and disappointments. But overall, the rate of progress in reducing poverty and in increasing access to basic health, education, water, and other essential services is unparalleled in many countries’

histories (Overseas Development Institute [ODI], s.a.).

While this was considered encouraging, actual progress varied substantially among countries. For example, members of the g7+ group (now comprising 20 countries (G7+, 2014)) have had real difficulties in

achieving tangible progress – a fact that should impact aid providers’

priorities and policies on the ground. The 2010 UN MDG Summit

priorities and policies on the ground. The 2010 UN MDG Summit