By Kelly Hunte

Introduction

During the second High Level Forum on Aid Effectiveness in Paris in 2005,[1] the global aid community developed two targets for tracking their commitments to improving the effectiveness of non-financial flows: indicator four (50 percent of technical cooperation flows are implemented through coordinated programs consistent with national development strategies) and indicator six (reduce by two-thirds the number stock of parallel project implementation units). While donors concede that they have not achieved the measures dictated under indicator six (reduce by two-thirds the number stock of parallel project implementation units), the donor community’s 2011 Monitoring Survey of the Paris Declaration on Aid Effectiveness reported that their commitment under indicator four met and went beyond the 50 percent requirement.[2] But where is the proof of their claim? Whereas the donor community claims to have hit their targets, non-financial aid flows not been effectively linked to the national development priorities of receiving countries, with Barbados standing as a prime example.

Fragmented Aid Picture

The European Union has been among the pioneers in attempting to focus more on improving the effectiveness of non-financial aid flows and has developed a strategy to hone in on this issue. The EU’s backbone strategy “Reforming Technical Cooperation and Project Implementation Units for External Aid provided by the European Commission” is the first real attempt at placing the microscope on non-financial aid flows. But what is non-financial aid? Non-financial aid is defined as any assistance which strengthens individual or organizational capacity through the provision of expertise, the provision of training and related learning opportunities, and the provision of computer software, vehicles, and equipment.[3] Financial aid flows are any monetary grants, debt relief, and concessional loan financing.

Foreign aid is an important piece of the growth puzzle in many developing countries.[4] Financial aid flows to developing countries were approximately $107.2 billion in 2006. Africa and Latin America received the bulk of the financial aid flows while Jamaica, Haiti, and Guyana received the majority of financial aid to the Caribbean.[5] Aid flows began to fall significantly in 2007, at the onset of the global financial and economic crisis; a slight increase was recorded in 2008, but flattened out to reach $90 billion at the end of 2010.

According to the Organization for Economic Cooperation and Development’s (OECD) online data base, total financial aid to the health sector from Development Assistance Committee (DAC) donors rose from $4,999.22 million in 2009 to $5,079.98 million in 2010 to reach $6,054.77 million in 2012. Financial flows to support the education sector stood at $9,329.86 million in 2009, rose to $9,431.68 million in 2010 and fell to $8,881.35 million in 2012.[6] The banking and financial sector received $2,670.23 million in financial aid in 2009 and $2,197.19 million at the end of 2012.

The financial aid flow dataset is a gold mine for policy makers and researchers alike. Its year-to-year data points are mostly complete and trends can be analyzed as far back as the 1960s. Sadly, this cannot be said about the non-financial aid flow database. Global non-financial flows—which are captured through the OECD database—are broken down into eight categories. The categories are as follows: (1) costs of donor experts, (2) experts and other technical assistance, (3) donor personnel, (4) other technical assistance, (5) scholarships and student costs in donor countries, (6) scholarships/training in donor countries, (7) imputed student costs, and (8) free standing technical cooperation. The OECD dataset shows that non-financial aid flows were trending upward slowly between the period 2003 to 2006, but began to fall in 2007 with the onset of the global financial crisis. Global non-financial flows[7] increased marginally in 2008 and continued to trend upward slowly to spike in 2011 with a drastic fall seen in 2012.

The data provided by Organization for Economic Cooperation and Development (OECD-stats.oecd.org) shows that non-financial aid flows are significantly less than financial aid flows (which are in the billion dollar range).[8] According to a representative from the OECD, donors are not mandated to submit information on non-financial flows, as they are too difficult to track. Therefore, the OECD non-financial aid database may be grossly understated. The picture of the global aid system that these statistics paint is fragmented, as the aid community has now begun to realize the importance of tracking non-financial aid flows. However, donors are not mandated to provide this information, so tracking non-financial flows aid flows has been muddled. Many may argue that tracking non-financial aid flows is too difficult a task to undertake and is not worth the effort and expense., but However, the Barbados case study demonstrates it can be done. If non-financial flows are not properly reported, tracked, and analyzed, how can the global aid effectiveness agenda be fully measured?

Every year, the global aid forum monitors the implementation of the targets they set under the Paris Declaration on Aid Effectiveness, but achieving these targets has not been easy. Despite the targets agreed, only 15 percent of donor missions have been undertaken jointly with other donors, well below the 40 percent target. Only 9 percent of partner countries undertook mutual assessments, against a target of 100 percent.[9] Reconciling national development priorities with the taxpayer-approved objectives of donor countries has been difficult. Less than a quarter of aid flows from Development Assistance Committee (DAC) donors are provided in the form of budget support, and in a few instances aid flow is part of a multi-year program. The statistics speak loudly to a seemingly failing global aid system and many argue that more pressure must be put on donors to achieve the targets they have set.

Notwithstanding the positive contributions of donor aid in many countries and contexts, the quality and effectiveness of the aid continues to come under fire. Prominent critics of aid, such as Easterly (2006) and Moyo (2009), attribute a good share of aid’s failings to the lack of feedback and accountability. In a report by the Humanitarian Policy Group, the authors stated that donors’ approaches to decision-making and resource allocation have been criticized as being weakly articulated, ad hoc and uncoordinated.[10] The report goes on further to state that aid is driven by political interests rather than need; funding allocations have often been inequitable, unpredictable and slow, with weak mechanisms of accountability and transparency.[11]

Despite the many critics of the global aid system, the donor community has vindicated itself with the announcement that they have not only achieved but have surpassed their commitment under indicator four. The current non-financial aid flow database adds no real value to the donor communities’ assertions of their renowned success of linking over 50 percent of non-financial flows to the national priorities of receiving countries. Since submission of this data is not mandatory, there is no real hope that this will change.

Non-Financial Aid Flows, Growth, and Development: The Barbados Case Study[12]

Barbados is a Small Island Developing State (SIDS) which is classified as a high middle income developing country. Barbados does not attract high levels of Official Development Assistance (ODA) due to its economic and development rating. The island’s national priorities, which were expressed in its recent Medium Term Growth and Development Strategy (MTGDS, 2013-2020), are mainly hinged on building economic growth through the tourism and international business sectors and the development of the green economy. The social sectors are also important to the development path of the country and heavy investments are placed in education, health, and various poverty reduction and welfare schemes.

Barbados has received financial and non-financial aid to assist in its efforts to achieve its sustainable development objectives since it does not have all the necessary resources. The data collected from the Congressional Research Service OECD aid flow database showed that the majority of financial aid flows which Barbados received were to aid in the implementation of various bilateral commitments (such as the implementation of the Economic Partnership Agreement[13]). A large amount of financial aid also went toward the provision of humanitarian services to reduce poverty. The development of social infrastructure and social services received a total of $2.1 million for the years 2005, 2008, and 2010, which funded the construction of nurseries and the provision of hospital supplies.

In addition to the aid Barbados receives for its social programs, it is also a recipient of aid toward its economic sectors. Financial aid flows to boost in the development of the economic sectors, though, were significantly less than what was received for social sector development. Tourism, international business, agriculture, and renewable energy have been touted as the economic development priorities of Barbados in its various development documents (Medium Term Development Strategy 2010-2014 and the former National Strategic Plan of Barbados). In 2005, the economic infrastructure and services sector received no aid allocation, but in 2008, the sector received $100,000, and in 2010, it received $40,000. The transport and communications sector received no aid allocation in 2005 or 2010, but $40,000 in 2008. Aid flows to production were approximately $600,000 in 2005 and $100,000 in both 2008 and 2010. Trade and tourism received $10,000 in 2005, $100,000 in 2008, and $30,000 in 2010. Agriculture, forestry, and fishing received approximately $600,000 in 2005 but just $30,000 in both 2008 and 2010. There is clear work to be done in effectively linking financial aid flows to the economic priorities of the country.

Barbados has not only benefited from financial aid flows but also from the provision of technical assistance or non-financial aid. Currently there is no system in place that captures or measures technical cooperation or non-financial flows domestically, so analyzing its actual impact will be difficult; however, the information collected through independent research, from various government departments, shows that non-financial aid flows are significant. Barbados has received approximately $577,707 in technical cooperation flows over the period 2010 to 2012. Technical cooperation inflows recorded in 2010 were approximately $106,036, while the inflows for 2011 were approximately $142,835.[14] By 2012, technical cooperation aid flows reached $328,836, or just under the combined total. The analysis shows that non-financial flows have increased significantly as financial flows decreased with the onset of the global economic and financial crisis. Therefore, one might hypothesize that non-financial aid flows appear to be more resilient[15] to negative shocks; however, to conclude that would require rigorous analysis beyond the scope of this article.

Non-financial flows appear strongly linked to one of Barbados’ social development priorities—provision of educational services. One-third of non-financial aid flows went to Barbados’ Ministry of Education. The provision of free primary and secondary education has stood as a major social development goal for years in Barbados. So has the provision of free health care, yet the link between non-financial flows and all of the county’s social development priorities is weak.

One of the main economic priorities in the country has been to develop the renewable energy sector in order to reduce the fuel import bill and reduce the cost of production for the private sector to increase its competitiveness. Increased food security and strengthening of the tourism sector were also highlighted as priorities. Funding for studies in renewable energy integration studies in order to build the necessary skills to develop this sector was sought and the data collected showed that over the period 2010 to 2012, the country received non-financial assistance of approximately $19,200. Barbados did not have the appropriate programs or available funds necessary to build expertise in the installation of renewable systems across the country; the provision of renewable energy integration studies was a significant step to fill the skills void.

The tourism sector suffered losses at the onset of the economic and financial crisis and new strategies had to be put in place in order to combat this trend. A closer look shows that skills in tourism policy and planning were lacking and training in tourism policy and planning was administered at an estimated cost $11,520 which was covered by various donor partners. Similarly, as a net food importing country, Barbados set a goal to achieve food security, but training in agricultural studies was needed. The donor community has assisted by providing various agricultural assistance and training programs over the period 2010-2012 at approximately $11,504.[16]

On the surface, the data shows that most non-financial flows were linked to the country’s economic development priorities and the donors would conclude that they have successfully achieved the target they set under indicator four of the Paris Declaration on Aid Effectiveness. To recap, indicator four speaks to ensuring that at least 50 percent of technical assistance flows are implemented through coordinated programs which are consistent with national development priorities. But further analysis would show that less than 50 percent of non-financial aid flows went to developing the skills necessary to boost the energy, tourism, and agricultural sectors.

Instead, the bulk of the non-financial assistance—$145,000—received went to the development of a public awareness program on the advantages of renewable energy. The donor community flagged the provision of the public awareness program as an effective use of non-financial flows; however, the analysis shows that this may not be so. The Barbadian economy would have extracted greater benefits if more non-financial aid resources were provided to fund studies in manufacturing, installation, and maintenance of renewable energy systems.

One of Barbados’ highest earning sectors—tourism—received only $11,520 in non-financial flows. It would have been more effective if some of the non-financial flows were extracted from training in poverty reduction policies[17] and allocated to tourism. The government of Barbados should have taken greater ownership in this process by maintaining constant communication with the donors to establish flexibility in the various technical assistance schemes which would have allowed them to transfer some of the training funds from the poverty reduction training program to the renewable energy studies. The impact on the renewable energy sector would have been greater as more skills would have been developed. Although the reduction of poverty is an important goal in Barbados’ development process, the reduction of the fuel import bill through the installation of renewable energy systems might be more pressing in the near term. The importing of fuel represents the largest loss of foreign exchange to the country, and the cost of fuel continues to rise, pushing up the cost of doing business, which not only reduces export competitiveness, but also acts as a deterrent to investment.

Barbados also indicated that increased food security is one of its national priorities in its Medium Term Growth and Development Strategy 2013-2020; however, the Ministry of Agriculture only received 3.5 percent of the total non-financial flows and $11,504 in training assistance.

The Barbados case study shows that the donor community has not fully achieved their goal under indicator four of the Paris Declaration on Aid Effectiveness in linking 50 percent of non-financial aid resources to the national development priorities of Barbados. A detailed analysis of the global non-financial aid flow system provides evidence to refute the donor communities’ claims and reveals that they are yet to achieve their stated target in all contexts.

Conclusion

The OECD has boasted that over 50 percent of global non-financial aid flows were consistent with national development priorities of receiving countries; however, the Barbados case study provides evidence which conflicts with this claim. Greater analysis of global non-financial aid flows may reveal that the global aid effectiveness forum may not have achieved or surpassed the conditions under indicator four of the Paris Declaration of Aid Effectiveness.[18]

The OECD non-financial database needs to be restructured to capture flows by year, donor, receiving country, program, and amount. In the program section, donors and receiving countries should be mandated to provide detailed information in terms of consultancies, training provided, software, and hardware procured. The development of such a comprehensive non-financial flows database will enhance the transparency of the global non-financial aid flow process and aid in strengthening the global aid effectiveness agenda.

Accounting systems must be developed in both donor and recipient countries which would accurately capture non-financial aid flows in order to analyze the true impact and ensure that the aid flows are effectively linked to the national priorities of the recipient country. The global aid effectiveness forum should desist from claims of achieving non-financial aid targets in the absence of a comprehensive global non-financial aid database, because deeper analysis may reveal that targets have not been reached. Both donor and recipient countries must take greater ownership of the non-financial aid process as it is a key pillar to strengthening the global aid effectiveness architecture.

About the Author

Kelly Hunte is a junior economist in the Economic Affairs Division of the Ministry of Finance and Economic Affairs in Barbados.

Endnotes

1. This is where the Paris Declaration on Aid Effectiveness was developed.

2. OECD, “Aid Effectiveness 2011: Progress in Implementing the Paris Declaration,” accessed August 12, 2014, http://www.oecd.org/dac/effectiveness/2011surveyonmonitoringtheparisdeclaration.htm.

3. European Commission, Reforming Technical Cooperation and Project Implementation Units for External Aid Provided, (Brussels: July 2008).

4. World Bank. Global Development Finance Report. Washington: The World Bank, 2012

5. “Newsroom,” OECD, http://www.oecd.org/newsroom/, accessed February 7, 2014.

6. Ibid.

7. See Figure 1 for a look at global non-financial aid flows.

8. OECD 2014

9. World Bank. Global Monitoring Report. Washington: World Bank, 2006.

10. Adele Harmer and Deepayan Basu Ray, “Study on the relevance and applicability of the Paris Declaration on Aid Effectiveness in Humanitarian Assistance,” Humanitarian Policy Group Overseas Development Institute (2009). http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/6020.pdf

11. Ibid.

12. Proxies were taken from various universities to provide costing for quantifying the technical assistance where no actual figures were available.

13. The Economic Partnership Agreement (EPA) is the new reciprocal trade agreement between CARIFORUM (Barbados is a part of CARIFORUM) and the European Grouping which governs the new trading relations among the Parties.

14. This data was collected directly from various government departments through independent research.

15. This is based on the fact that while financial flows decreased, non-financial flows rose during the crisis period.

16. Figure 3 shows the other subject areas funded by donors.

17. See Figure 3.

18. OECD. AID EFFECTIVENESS 2005-10: PROGRESS IN IMPLEMENTING THE PARIS DECLARATION. Paris: OECD, 2011.