/ 30 August 2008

Donor meeting to review making aid effective

With more than bn in aid flowing into poor countries every year, donor talks in Ghana this weekend will focus on how to make aid more effective.

With more than $100-billion in foreign aid flowing into the world’s poorest countries every year, donor talks in Ghana starting this weekend will focus on how to make aid more effective in reducing poverty.

The past few years have seen the international aid system become more complex due to a growing number of private foundations and new lenders such as China, while poor countries have become over-stretched by different donor demands.

”If you’re going to scale up aid, then aid needs to be made more effective,” said World Bank managing director Ngozi Okonjo-Iweala, Nigeria’s former finance minister.

”If we are all to work together more effectively in developing countries, we need to look at how we are doing business,” said Okonjo-Iweala, who will attend the meeting in Accra that officially takes place from September 2 to September 4.

In terms of total dollars, the United States is the world’s largest donor, followed by Japan, France, Britain and Germany. When measured as a share of donor income, the most generous countries are Norway, Denmark, The Netherlands and Sweden.

The emergence of a host of new donors like China, India and Middle East funds has turned the spotlight on making aid more transparent. Senior representatives from China and other emerging market countries will attend the Accra meeting.

Better aid flows
Traditional donors from industrialised countries have expressed concerns that the new lenders may be imposing unmanageable new debt burdens on impoverished nations that recently won $50-billion in write-offs from rich countries while also ignoring human rights and corruption.

Still, countries like China are pouring billions of dollars into building roads and railroad lines in African countries endowed with natural resources, helping to fill a $22-billion a year infrastructure financing gap.

”We need to work more effectively together,” Okonjo-Iweala said. ”We need to strengthen our partnerships, we need to work better with new donors that are coming in, and we need to do this through new ideas,” she said.

Britain has proposed an international aid transparency initiative that will provide information on aid to recipient countries so they can plan in advance. Aid surveys have shown that only 45% of aid arrives on time.

Okonjo-Iweala said the World Bank supported introducing more transparency of aid flows and is also pushing donors to channel aid through government budgets. Many donors inject their aid directly to development projects, working through foreign agencies.

”We need to increase the transparency of aid and be more accountable for outcomes,” she said. ”To coordinate better, we need new instruments, and we need to pool funds.”

Pooling funds would take the strain off poor countries trying to respond to donor demands. In 2005, Vietnamese authorities received 791 donor visits, which is more than two a day, while in Tanzania health workers spent almost 25% of their working days writing reports for donors.

Okonjo-Iweala said the rising cost of food, which has further strained the budgets of poor countries, has highlighted the need to ”untie” aid, especially when it comes to food.

Many donors tie their aid by requiring that certain goods and services be purchased from firms in their home country.

”It doesn’t make sense that if you live in Burkina Faso, and Nigeria has surplus food, or Mali, that you go to France or the US to get it when you could get it next door if you had the cash,” Okonjo-Iweala.

She said donors needed to become more creative and flexible with their aid, including creating new financial instruments that will make better use of markets for funding.

”How do we tap the liquidity that is out there to help countries?” Okonjo-Iweala said. ”Whether we are doing this through crop or disaster insurance, whether we are building equity markets in these countries, or we are using local currency financing instruments, the issue is how do we innovate to help these countries?” – Reuters