A couple of weeks ago I wrote about the distinction between useful aid and bad aid, prompted by Dambisa Moyo‘s critique of aid. But how much aid is good, and how much is detrimental?
That’s a question answered by a new report from ActionAid (pdf). They reckon that out of $120 billion given in 2009, $66 billion could be termed ‘real aid’, or just over half. The rest of it, 45.3%, is substandard for a variety of reasons. That’s pretty shameful to be honest, but there are several elements of good news in the report too. First, that aid can and does work. It isn’t all bad, even if much of it is. Furthermore, this is the third time ActionAid have run this study, and the proportion of good aid is increasing. As more good aid is given, dependency on aid will be reduced, and there are plenty of examples of countries moving forward on breaking free from aid.
Of course, bad aid is down to the donor, and some countries are better at delivering good aid than others. The top three are Ireland, UK and Luxembourg. 85% of Britain’s aid is useful. At the other end of the league table, only 17% of Greece’s aid is up to scratch, and 28% of French aid. The US manages 43%.
But what makes bad aid, and where does it go wrong? Here’s the breakdown, with an explanation of what these things are below.
What makes these things bad aid? Some of it is poorly targeted and doesn’t benefit the poor. Some is debt relief double-counted in aid budgets.
The biggest source of misplaced aid is ‘donor driven technical assistance’. Technical Assistance is the provision of expertise, often in the form of consultancy. It can be really useful, building institutions, sharing best practice, and providing training – but only if the country actually wants that help in the areas where it is offered. Some technical assistance is more beneficial to the donor country than the recipient, and actually undermines local institutions.
Tied aid is funding given for the purpose of buying goods and services from the donor country, and is essentially a form of subsidy for domestic business. (For example, a country might give money to buy tractors, but stipulate that the country must buy tractors from their companies.)
The 13.6% of misplaced aid doesn’t support recipient governments, which means it wasn’t delivered in partnership with the developing country, in some cases not even informing them of it. That saves duplicating effort, and allows recipient governments to plan and deliver their own services more efficiently.
Finally, refugee and students costs are technical classifications. Spending on refugees only counts as aid for the first year. After that it ought to be counted as domestic spending by the host country.
For more on this and lots more besides, check out ActionAid’s latest Real Aid report.
The Earthbound Report 
I found this report by Easterly and Pfutze interesting:
http://www.aeaweb.org/articles.php?doi=10.1257/jep.22.2.29
were you aware of it?
I’ve also just found there is a more recent update by Easterly and Williamson:
http://aidwatchers.com/2011/05/rhetoric-on-%E2%80%9Caid-effectiveness%E2%80%9D-keeps-escalating-is-there-anything-to-show-for-it/
Williamson says that DFID come out best:
“DFID is one of ten agencies that fully reports aid flows to OECD, and it lists number of staff, administrative costs, salaries and benefits and its ODA budget on its website. DFID also has relatively low administrative costs and salaries and benefits relative to aid disbursements (2.6% and 1.6% respectively). DFID relies on more effective channels of aid disbursements, not tying any of its aid and dispersing relatively little food aid (1.3%)”
She also points to other studies:
Birdsall and Kharas, 2010; Knack, Rogers and Eubank, 2010; and Ghosh and Kharas, 2011.
Thanks for those links, some interesting things there – like the Scandinavian countries, which always report the highest percentage of aid given, but turn out to be rather inefficient at disbursing it. Or the fact that donations to corrupt regimes have actually risen rather than declined in recent years.
This is important stuff. We need to hold our governments accountable not just to stumping up the cash, but how and where they distribute it.