Effective Aid Management - OECD

1 Effective Aid ManagementTWELVE LESSONS FROM DAC PEER REVIEWSORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENTThe OECD is a unique forum where the governments of 30 democracies worktogether to address the economic, social and environmental challenges of OECD is also at the forefront of efforts to understand and to help governmentsrespond to new developments and concerns, such as corporate governance, theinformation economy and the challenges of an ageing population. The Organisationprovides a setting where governments can compare policy experiences, seek answers tocommon problems, identify good practice and work to co-ordinate domestic andinternational OECD member countries are: Australia, Austria, Belgium, Canada, theCzech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland,Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand,Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey,the United Kingdom and the United States.

2 The Commission of the EuropeanCommunities takes part in the work of the Publishing disseminates widely the results of the Organisation s statisticsgathering and research on economic, social and environmental issues, as well as theconventions, guidelines and standards agreed by its available in French under the title:Pour une gestion efficace de l aideDOUZE LE ONS TIR ES DES EXAMENS PAR LES PAIRS R ALIS S PAR LE CADE ffective Aid Management : Twelve Lessons from DAC Peer Reviews was first published as Chapter 2of the Development Co-operation Report to OECD publications may be found on line at: OECD 2008No reproduction, copy, transmission or translation of this publication may be made without written should be sent to OECD Publishing or by fax 33 1 45 24 99 30. Permission to photocopy aportion of this work should be addressed to the Centre fran ais d exploitation du droit de copie (CFC), 20, rue desGrands-Augustins, 75006 Paris, France, fax 33 1 46 34 67 19, or (for US only) to Copyright ClearanceCenter (CCC), 222 Rosewood Drive, Danvers, MA 01923, USA, fax 1 978 646 8600, Aid ManagementTwelve Lessons from DAC Peer Reviews OECD 20083 Effective Aid Management : Twelve Lessons from DAC Peer ReviewsPeer reviews have brought many issues to the attention of theDevelopment Assistance Committee over the last five years.

3 Thischapter retains twelve of the more prominent examples of thelessons learned or reconfirmed over the period concerning effectiveaid Management to achieve development results. Lessons at the levelof strategy are: i)find the appropriate legal and political foundation;ii)manage competing national interests; iii) achieve greater policycoherence for development and iv) invest in delivering, measuringand transmitting results of aid-financed activity. Organisationalmanagement lessons are: v) identify a leadership structure thatworks; vi) deal with institutional dispersion, vii) managecontributions to multilateral institutions and viii) decentralizemanagement to the field. Lessons concerning Management of deliveryare: ix) manage the scaling-up of development aid; x) maintain afocused approach towards countries and sectors; xi) emphasiseperformance-based Management , evaluation and quality control; andxii)make human resource Management a AID Management : TWELVE LESSONS FROM DAC PEER REVIEWSEFFECTIVE AID Management : TWELVE LESSONS FROM DAC PEER REVIEWS OECD 20084 IntroductionIn 2006, the 23 members of the DAC disbursed over USD 100 billion ofpublic funds for the purposes of development.

4 This represents an estimated90% of total ODA spent worldwide. How effectively do they manage thesefunds? As DAC Chair since June 2003, I1 have presided over peer reviews of thedevelopment co-operation systems for 22 members of the Committee, andvisited all of This has been a unique experience for learning about thecharacteristics of Effective , these system reviews cover the full range of aid managementissues3 confronted by our members, from policy to delivery, and draw objectivelyfrom the unique DAC data bank on ODA flows. They attempt to offer critical,helpful and respectful commentary on current member practice and aresubstantially enhanced at the end of each review by a full day of open discussionbetween the DAC and the leadership of the reviewed member. The peer reviewsgreatly help the DAC member countries to foster a more common understandingof today s bilateral aid practice and to provide them with regular feedback ondonor innovations and achievements in support of more Effective aidmanagement.

5 Two Secretariat reports issued in 1999 and 2005 summarised themanagement practices of DAC Another update is planned for the peer review process has brought many issues to the attentionof the DAC over this period, I have retained here twelve of the more prominentexamples of lessons learned or reconfirmed about the factors that encourageeffective Management of aid funds to achieve development results. They canbe subsumed into the broad categories of: i) strategy; ii) organisationalmanagement; and iii) Management of the appropriate legal and political foundationLesson 1: Have a clear, top-level statement of the purpose of developmentco-operation, whether in legislation or another form, that has wide ownershipand can remain relevant for a sufficient periodRecent DAC peer reviews demonstrate the importance of obtaining clarityat the highest political level on the overall aim of the national aid co-operation generally operates in a complex politicalenvironment, with multiple relationships and actors whose purposes are notEFFECTIVE AID Management : TWELVE LESSONS FROM DAC PEER REVIEWSEFFECTIVE AID Management : TWELVE LESSONS FROM DAC PEER REVIEWS OECD 20085limited to development or may be quite different.

6 The newer, emerging donorswho interact with the DAC also affirm that high-level clarity is a central topic ofinterest for them as they seek to shape the foundations of their own development policy unambiguously in legislation has providedan Effective framework for governments that have a strong interest indevelopment. However legislation, if not regularly updated, also can restrainsystem efficiency in the fast evolving world of development co-operation, so toomuch detail can be , slightly more than one-third of DAC members havecomprehensive development legislation. More commonly, DAC members usesome form of high-level development policy to guide their operations. Slightlyover two-thirds of DAC members use this approach which, in a number ofcases, complements legislation. While easier to introduce and change overtime, such policy statements may not be strongly binding across governmentand do not normally convey the same sense of national priority as an act oflaw.

7 Peer reviews also note the importance of a clear high-level mandate fordownstream aid Management and for delivery approaches that are internallyefficient and that can adjust to evolving international agendas, such as that ofaid competing national interestsLesson 2: Avoid letting short-term pressures jeopardise the long-termcommon interest in Effective developmentAs DAC members seek to anchor their aid programmes sustainably withinoverall national policy, it is important to be clear how development co-operationBox high-level clarity in the United KingdomThe UK s International Development Act 2002 provides a clear legislativemandate around poverty reduction and gives national developmentco-operation its current strategic orientation on issues of development, notonly aid. For the first time in the UK, it reflects in law the centrality of povertyelimination and forbids the use of development assistance for other purposes,including the tying of bilateral aid to procurement contracts for Britishcompanies.

8 As it has been designated the lead ministry for carrying out thislegal mandate, the Department for International Development (DfID) enjoys anunambiguous relationship with other ministries, which allows it to influencecross-government thinking on development policy. This clarity of purpose alsopermits DfID s downstream operations to be more efficiently managed andevaluated. The Act has been a cornerstone in the substantial improvement ofthe UK s approach to international development since AID Management : TWELVE LESSONS FROM DAC PEER REVIEWSEFFECTIVE AID Management : TWELVE LESSONS FROM DAC PEER REVIEWS OECD 20086can best function within the context of other potentially competing nationalinterests. The DAC recognises that development policy does not operate in avacuum and that all nations have widespread interests (such as trade, politicalrelationships or security) which respond to national priority concerns.

9 Appliedto relations with developing countries, a feature of national interest is thatwhile in the short term they may be (but do not have to be) divergent, in the longterm all DAC members (and indeed all countries) have a common interest indeveloping countries achieving sustainable and broad-based , this common interest is recognised in the Millennium Declaration. DACcounsel has been that, while national interests are legitimate, if they result inineffective aid they will prove self-defeating. Of course, to sustain this position,it is necessary for development actors to demonstrate that coherent policiesand well-considered development co-operation can, and do, contribute tooverarching long-term national interests. More attention should be paid to theneed to assemble and disseminate sufficiently convincing evidence of and national interest in the United StatesGiven the nature of its political system, the US has traditionally justifieddevelopment co-operation policies in terms of both recipient country needand its own foreign policy objectives.

10 This was true of the Marshall Plan(rebuilding Europe while repelling communism and improving US trade) andis in keeping with the 1961 Foreign Assistance Act (helping developingcountries while supporting US national security and prosperity). It is at theheart of the special congressional practice of extensively earmarking theannual foreign assistance budget based on its own perception of the end of the Cold War in 1991, US development co-operation lackeda strong sense of political vision. However, since the events of 9/11 thegovernment has been very successful in boosting the image of developmentco-operation among Congress and the American public. The 2002 NationalSecurity Strategy elevated development to one of the three pillars of nationalforeign policy, along with diplomacy and defence.