Comments

Thank you for an insightful piece Peter. 'Developmental risks' indeed. More boldness and better analysis of inequality and insecurity for the poorest people in developing countries is required in Australia's aid program. This report was particularly important as the sector considers the role of ODE in the Aid Effectiveness Review. An interesting development that might take some of Peter's arguments forward is a new report from ODE, still in draft form, about whether AusAID should have a strategic framework for dealing with civil society. The draft report is entitled 'Working with the State is Not Enough', and in many respects it is the missing piece in the puzzle - http://www.ode.ausaid.gov.au/publications/index.html#progress. Taking civil society seriously in the aid program is overdue. How do weak governments improve? By technical assistance from other governments, or by demands for better governance by empowered citizens? Surely by both, but without pressure from the domestic constituency, reforms will falter. The latest thinking from AusAID on governance recognises this ('Power to the People' - http://www.ausaid.gov.au/publications/pubout.cfm?ID=9742_5949_4436_8120_49&Type=PubKAG), but still fails to think of ways to promote bottom-up governance by engaging civil society. Presumably because such a focus is messy and human, but that is the game we are in.

This is a very interesting and timely idea. I wonder if and how we could translate it in a humanitarian context? Perhaps not at the onset but later in the emergency cycle? The sooner the better to avoid the wait and see attitude of beneficiaries, what they call "attentisme" in Democratic Republic of Congo.

Good to see the responses to my posting. I am just back from a week in Dili, Timor-Leste, conducting interviews for a workshop on a related issue - how to provide demand-focused technical training. Informal feedback from colleagues I spoke with is that big changes are still needed there in how aid is delivered. The use of a hybrid system of COD in a post-conflict setting will require careful analysis and innovation. Both parties will also need to negotiate changes if it is not working as expected. Better and more independent evaluation tools will be needed to provide feedback. However, the longer-term benefit must always be kept in mind - the full acceptance by the recipient government of the funding and implementation of the intervention. This is a key test of aid effectiveness. The change in the mode of aid delivery that COD encompasses is akin to the fundamental reforms to labour exchange services in Australia over a decade ago. Australia led the world in these reforms, reviewed favourably by the OECD in its 2001 report Innovations in Labour Market Policies: the Australian Way. The switch from the direct delivery of services to job seekers through the Commonwealth Employment Service (CES) to outsourcing these services to a network of for-profit and non-profit organisations was a huge change. The new focus was on payment for outcomes - jobseekers in jobs, training or education more quickly. Switching from a centralised funder-driven model of service delivery to a ‘steering not rowing’ focus was difficult. It took a number of attempts to finetune the new arms-length system. Above all, it required within the funding department a change of mindset from service deliverer to service designer based on high-level conceptual skills It also took alot of ‘learning by doing’ about what worked and what did not to design tenders that worked more effectively over time. These reforms were an outgrowth of a period of experimentation in public policy in Australia. Is the Australian Public Service up to the challenge in the current era?

Migration to urban areas is a normal phase of development and so is the use of land for more productive uses. I agree with you that GDP should not be the only measure of development, but even Bhutan, which came up with the happiness index , is now heeding traditional national accounts metrics.

Mauri Theo, Thanks very much for this wonderful article. Kiribati has just entered into a Tourism Partnership Initiative with the Maldives and a team of tourism experts have just left us after assessing our tourism potential in resort development. A group of investors will follow up in January 2011. Your report is very timely and useful in our dealings with the Maldivians. Wishing you a Merry Christmas, Tara

COD Aid deserves a go! Coffee connoisseurs can get their cappuccino, café latte, or the like in nearly every little town on the planet. And while the price of a café latte differs considerably across locations, the quality – if my tastebuds are any guide - does not. The same can hardly be said of a classroom-experience in the local primary school. And the reasons may rest with incentives – the café thrives on serving good coffee; the primary school may not. Lots of funds have been spent training teachers, equipping schools, and improving the curriculum to improve literacy and numeracy in the developing world. This, using my café latte example, is akin to increasing the quantity of beans, the size of the coffee grinder, and possibly the dispenser to improve the quality of coffee produced. Absurd you might think. But this is exactly the strategy being pursued by donors such as Australia in Papua New Guinea. A lot is made of the poor quality of teachers for the poor educational outcomes in PNG. However, I find it hard to believe that the level of skills required for delivering a simple lesson in arithmetic or English is any more demanding than those for making a good café latte. Sure – they are very different skills, but which of the two is more demanding is debatable. Good coffee gets served cash on delivery. (BTW, no one has yet given me coffee on credit – but it may just be me!) So why not try the same for primary schooling? I have suggested a small pilot in PNG to test the effectiveness of COD in increasing the quantity and quality of throughput from primary schools. And it is only through carefully designed experiments such as these that we will know if COD works. It is time to roll up our sleeves and give COD a go.

Success story? Rapid urban growth and loss of customary lands to privatization ( = less land available for food plantations...implications for food security!) as contributors to expanding squatter settlements...is this success? I thought we were moving away from a GDP focus to measure development?

The Center for Global Development have a really good FAQ on COD Aid that provides some answers to the questions raised in the previous comment. The full FAQ can be found at http://www.cgdev.org/section/initiatives/_active/codaid/faq#9 <blockquote>How can the country be expected to make progress if it does not receive payments until it has already achieved some of the goals? Countries that enter the COD Aid contract are not starting from a blank slate. They already have their own programs financed with domestic and foreign resources. The COD Aid funds provide an incentive to make existing technical assistance and educational investments “pay off” in improved outcomes. Once the COD Aid payments start flowing, these funds can be used to sustain and further accelerate progress. Wouldn’t there be a big lag between investment and the payoff to the country? This depends on the appropriate time frame. Most development programs have to be thinking of 5 to 10-year horizons, and any program aimed at making substantial changes in institutions or behaviors also has to consider long time frames. The lag in payments is likely to make the contract seem unattractive to short-sighted leaders, but very attractive to those who have longer-term visions. This is, then, another attraction of this approach since it is most likely to be taken up by the same leaders who are most likely to use it well. What if a country doesn’t meet the goal? The COD Aid contract is not an “all-or-nothing” form of assistance. A country would be paid a set amount for each additional unit of progress. So, rather than “passing” or “failing,” the recipient is rewarded in proportion to the amount of progress achieved. Governments only control a fraction of the factors that affect outcomes. How does COD Aid account for this? While it is true that governments do not have full control of all the factors that affect outcomes, there would be no reason to provide aid if funders didn’t believe that governments can influence those outcomes. The outcomes chosen for COD Aid agreements should be outcomes that funders care about and over which governments can have significant impact. The funder may end up paying for progress that is not directly attributable to government action but we view this ‘risk’ as more acceptable than the ‘risk’ of paying for inputs that may have no effect on outcomes at all. What if a drought or other unforeseen shock keeps the government from achieving progress? Sharp changes in international interest rates or terms of trade and natural disasters such as droughts can interfere with development programs. The COD Aid contract should contain contingencies for adverse shocks that interfere with measuring and verifying the outcome indicator. However, COD Aid funds should never be disbursed except against progress measures. If emergency programs are necessary to assist a government, they should use a different aid mechanism rather than compromise the credibility of the COD Aid agreement. Is lack of money really the problem? What about insufficient demand, political obstacles, or weak technical capacity and coordination? Lack of money is not necessarily the problem. The funds disbursed under COD Aid provide an incentive for the country to undertake the right diagnosis and design effective strategies, whether or not those strategies require additional funding. For example, if the only obstacle is political will to enact a particular law or enforce specific management practices, COD Aid would provide leaders with an incentive to take those measures. In such a case, the funds that the government receives for successfully improving educational outcomes could then be applied to other public priorities. In most cases, however, some funding is still necessary though not sufficient for improving outcomes – whether those funds go to additional training, more staff, infrastructure, supplies, research, information systems, administrative reforms, supply incentives, or demand incentives.</blockquote>

Interesting idea, appears to raise a number of implementation issues, though I haven't studied in depth and may be missing something 1. Cash flow. Results aren't instant. There are often long time frames to achievement of results and the recipient is likely to be at an inherent disadvantage in obtaining funds. Possibly this would need further loan aid funding simply to cover the cash flow, more agreements, more administrative complexity. And the longer the time frames the greater this cost. 2. Impact of failure to achieve results. What happens when the aid recipient fails to achieve outcomes at all? Examples are legion, and the more difficult to achieve results, the greater the likelihood of failure. Using the example above, does the recipient default on the loan? Insure against failure (a further overhead)? [Also that nice issue about what is results tied in, do we measure something hard that resembles what we're really looking for, or something easy to measure (and achieve) that isn't] 3. Horse before cart? Kinda related to point 1 above. Where aid is intended to build capacity this may generate change, which may improve performance, with risks in both connections. Donors hate this, they want to see aid deliver results in terms of performance. But commonly the capacity fix (e.g. the old chestnut training) is needed as the hoped for catalyst for change (e.g. new techniques) to improve performance outcomes. But if the aid funding is tied to performance, the process can't start.

I would like to support this Independent review of Australian aid programme. I worked for a UN Agency for many years in Asia and Pacific and the AusAID programmes were what made major differences in most countries I worked in.

This report today in The National - Bougainville mine ‘to reopen next year’ <blockquote>THE European shareholders of Bougainville Copper (ESBC) have welcomed the breakthrough achieved by the Panguna landowners’ conference in Buka regarding the re-opening of the Panguna mine. This historical decision was reached on Sunday when landowners agreed to re-open the mine towards the end of next year. ESBC president Axel Sturm said they were very satisfied with this outcome. “This gives Bougainville the chance to recover financially from all suffering in the last 20 years. “I am very grateful to the Minister of Bougainville Affairs Fidelis Semoso that he finally pushed things cogently forward by organising this conference. “We are also glad that the Autonomous Bougainville Government assisted in this important undertaking,” he said. Sturm said he appreciated Semoso’s courage to face this sensitive issue “without any fear or prejudice”. “Next year would bring giant investment to the island and many people who are jobless now would soon find work,” Sturm said. “This makes me very happy especially for the young generation on Bougainville who would benefit from the decisions on this historic weekend,” he said.</blockquote>

Hi Matt, Its great to have these debates on the table. Perhaps we can play the devil's advocate on this one. 1. Certainly multilaterals offer the capacity to channel large amounts of the Australian aid dollar - that is a benefit in a scaled up world. 2. Multilaterals are often favoured on basis that they reduce efficiency on recipient countries and thus more ore in line with principles of aid effectiveness, however, multilaterals no longer enjoy a major advantage in having low transaction costs. Their compliance procedures have become more cumbersome and costly. Is there evidence to support the claim of lower transaction costs? The jury may be out on that one. 3. Effectiveness of multilateral activities is difficult to establish (and contributions therein even moreso). Will this cause a problem for Australia's greater accountability focus? 4. The ability of multilaterals to mobilise sufficient funds for large-scale ‘development’ projects is often cited as one of their key advantages however in many countries where the technical expertise necessary to manage large-scale programs is absent, some of the aid money is channelled to companies, consultants and technical experts that oversee the projects anyway. Will this be a problem with the strong committment from Australia to reduce TA? Will Australia be able to understand and account for the proprotion of multilateral funds that are channeled to TA? 5. A long-standing issue surrounding aid from multilaterals is conditionality – does Australia have the opportunity to consider and form views on conditionalities in multilateral programs its funds? The issue of multilaterals will be considered in the current aid review - we will watch with interest their commentary on the issue. But as Peter McCawley aptly noted - it all depends on your objectives!