Thursday, July 24, 2008

An aid bubble? - Interpreting aid trends

(unattributed source)

This graph (from a DFID presentation) shows what many people have already heard, that the volume of aid given by DFID will continue to increase, but that the amount of money being spent on administering that aid will plateau. Does this divergence mean:
  • DFID has discovered a new means of effectively giving development aid that requires less and less administrative overhead each year?
  • There is a huge amount of slack capacity within DFID that can safely be pared away for years without hindering its effectiveness?
  • This graph is prima facie evidence of an impending aid bubble that is highly likely to burst in the next few years, as one or more mal-administered or corrupted aid programs are publicly exposed, to the discredit of both the good and the bad?
  • Yes, it does mean there will be more mal-administered and corrupted aid programs in the future, but not many more people will be worried about this than have been in the past?
  • This is a good example of where there is a pressing need for an ex-ante impact assessment of a budgeting strategy ( if ever there was one)?
  • The category “Admin budget” is meaningless and in fact the real costs of administering aid have not been adequately disaggregated in this graph.
  • Or...?

You can record your opinion, by posting a Comment below, or registering your vote on this anonymous opinion poll.

My initial preference would be for the fifth option, even though it is probably unlikely that the results would have much impact on decisions that have already been made.

But on reflection option one may not be so impossible as it seems. DFID may well give more and more of its aid through third parties (multilaterals, and international programmes of different kinds). When it does this those organisations' administration costs will not appear on the DFID books as administration costs, but as aid given. And those organisations can in turn use the same device to manage the apparent levels of their own administration costs, by funding other parties, such as national NGOs.

The cumulative outcome of this re-iterated strategy may well be very perverse, adding up to a bigger proportion of aid being spent on administration than would be the case if the orginal donor had been more directly engaged and been willing to show higher admin costs in its own budget. All this is speculative though. What it does suggest however, is the possible relevance of a "whole supply chain" approach to the evaluation of the costs of different forms of aid. Unlike private sector supply chains, the total cost of delivered aid is not evident in what the beneficiary pays for the final product.

Perhaps these issues could be pursued by the new Independent Advisory Committee on Development Impact?