The problem with foreign aid

Can a sclerotic, half-century-old foreign aid system change? That question is now being asked by its primary clients—the people of developing countries. Between 2011 and 2013, in a study for the United States development agency USAID, my associates and I spoke to more than 500 such people in nine countries, from Peru to Sri Lanka. The study suggests that change will be difficult, but that it must happen if aid is to become more effective.

We found several new trends among recipient countries: an increasing willingness to say no to donor conditions at the risk of getting less money; a growing negative reaction to training and to external assertions that “we’ll show you how it’s done”; a strong desire to take charge of the aid agenda—more and more people in developing countries don’t want to simply “participate” in the work of development (the buzzword of the 1990s), they want to set the agenda; and a rising cry for greater trust between donors and recipients.

While the major donors endorsed the notion of “country ownership” where the receiving country oversees the aid relationship, not the donor—a concept that implicitly embodies the above trends—as far back as the “Paris Declaration” of 2005, the recipient countries are tired of waiting around for that commitment to be fulfilled. They are beginning to invoke the inherent logic of country ownership: if “they” are to own it, then “we” (the donors) must cease to do so.

Working against country ownership is an old habit—dependency. Roughly half of the countries now receiving development aid have been receiving it for at least 50 years—such steady clients as Kenya, the Philippines, Haiti and Nepal. The legacy of that long record of assistance is not only the multi-layered archaeology of projects (a water system installed by one donor in the 1980s lies beneath a newer one installed by another in the 1990s, for example), but the sad phenomenon of dependency, or more accurately “co-dependency.” For both sides—the development industry and the development aid recipients—need each other.

In this co-dependent world, supply and demand are not as clear cut as they seem. Kenya’s need for water system assistance on the demand side also provides the supply side by giving the donors what they want—reasons to keep their hand in the game. And this co-dependency is institutionalised via the industry that has grown up over the decades: the thousands of local jobs and local NGOs and other organisations that are regular “partners” in the implementation of donor-funded projects. A ride down a dusty road in any of these countries will reveal project billboards on which the logos of as many as 20 organisations appear: “The XYZ Project is brought to you by donors Q and R, in partnership with the ministry of A, B and C, along with the NGOs D, E and F...” This increasingly long chain of participants has evolved over decades into an arrangement that involves a great many stakeholders, their principal collective stake being the continuation of the system itself.

This co-dependency is also reinforced by a set of attitudes and beliefs that are more aligned with myth than reality. While donors may be sincere about country ownership, there are, according to our talks with donor personnel, residual beliefs that serve the status quo. The one we found most often was the belief that “the locals” are not quite ready to do the job themselves. “Capacity” is the term of art used by all and so “we,” the donors, must continue to “build” “their” capacity (this involves lots of our consultants and firms). At the same time, even among many of those local people who cry out for a new, more collegial donor approach and attitude, under the surface they harbour a parallel doubt—are we really ready? Perhaps we are not; perhaps we need some capacity building.

In reality, our study suggests that in most countries there is huge local capacity of all kinds. But the system goes on, as if on autopilot. USAID, for example, after a season of much rhetoric about “local solutions” and country ownership, this spring announced yet another five-year grant mechanism worth over $600m (£350m) involving the services of over 50 American firms and contractors, all of it aimed at local “human and institutional capacity development.”

If there is to be real change, besides the need to examine themselves more humbly and self-critically than they are used to doing, donors and recipients should take a number of new, experimental approaches. To believe we know exactly what to do and how to do it is to repeat the arrogance of the past.

First, we need to embrace a paradox: if there is to be a new era of mutual trust, donors need to let go of their now extreme risk aversion and recognise that some risk is worth taking in the interest of learning and long-term development. In grants made to local institutions and organisations, this would mean allowing flexibility in time frames, and adjustments in budgets and objectives as circumstances change.

A version of “tough love” should be employed in the early stages of such new relationships—for example, demanding that recipients of donor funds put significant “skin in the game” in return for the grant. Mechanisms can be tried including long-term payback commitments, or royalty fees paid to the donor upon a programme reaching sustainability, or some portion of the grant money put in escrow until local matching funds are raised by the recipient.

Second, the issue of capacity needs to be faced more courageously on both sides. Donors need to leave the office and really get to know local organisations and people. This entails a longer presence in the country of donor personnel; not two to four-year postings but seven or eight years. Expat personnel must know the local language and have the means to leave behind the paperwork that keeps so many inside embassy or aid agency compounds.

When this field-work reveals to donors that some local circumstances differ from their assumptions, they will need to be humble enough to adjust.

Such approaches and more need to begin, but they will bear little fruit unless there is political will—especially the courage to let go of long ingrained and self-serving habits. Without it, the whole official aid system will be doomed to continued ineffectiveness and eventual irrelevance.