Reinventing CIDA – Second Thoughts

“Development is a messy process.” Rieffel and Fox (2008)

Abstract
Reinventing CIDA is the twenty-fifth review of Canada’s main aid organization. Does it offer something new in an already crowded field where previous proposals appear to have failed? Yes, in the sense that it updates and takes advantage of the extensive recent literature on aid administration and offers in Chapter 3, “Introducing Incentives and Competition,” a series of techniques for administering aid in order to increase its probable effectiveness. An extension of this study would be use of the literature on how organizations and contracting is organized to deal with the type of problems faced by CIDA. Other government policies face similar problems especially in areas like research funding of all kinds. Viewing aid delivery in an industry context where agencies and multilateral institutions compete against and collude with each other is another possible approach as is the collection of case studies of successes and failures. One conveniently ignored aspect of aid is immigration policy that seeks to attract those people with the skills that are most needed in the aid recipient countries. The taxation of Canadians for the benefit of foreigners is supported for humanitarian assistance, but less so for development purposes where there are obvious unsolved needs at home for aboriginal peoples.
Report is posted at http://www.cdfai.org/PDF/Reinventing%20CIDA.pdf

INTRODUCTION
For 2010, Canada’s aid budget is about $5.2bn a year (0.33% of GDP) of which CIDA’s share is $3.7bn. In relative terms, the aid budget is about $5 per person per year in the 20 countries that are currently the foci of CIDA’s aid, or perhaps $1 per year for the total population of developing countries. However looked at, the sums received are small change and will not make much of a developmental impact. If they are spent on investment such as schools rather than on current consumption, the impact will be somewhat greater. The annual cost to Canadians is about $158 per capita.

The $5.2bn can be viewed in other ways. It represents the moral obligations that Canadians have to assist those in other countries and is the equivalent of domestic transfers or welfare payments. It also provides publicity for Canada in different countries and international organizations by allowing diplomats and politicians to show that something is being done, especially when votes are needed, for example to support Canada’s bid for a seat at the UN Security Council or in other international fora. All developed countries are similarly motivated, so Canada has to play this game in the interests of trade, investment and Canada’s international ambitions.

Whatever the purpose of aid expenditures, one question concerns the best way to organize aid in order to get the biggest bang for the buck internationally, both directly in terms of aiding development and indirectly to promote Canada globally. It is the organizational dimension of aid that is the focus of Reinventing CIDA, authored by Barry Carin and Gordon Smith and released in May 2010, and an organizational and contractual response that is proposed.

By focusing on the organization of aid delivery, various issues arise.

1. The objectives of any expenditure are often difficult to define and measure. If it is a school, hospital or factory then the purposes are clear in terms of buildings and equipment. If it is to provide a service such as education, policing and health care, then the expenditures are partly on wages and the outcome is hopefully more educated children, a safer environment and better health, none of which will occur immediately. In these cases, it will always be easier to quantify the financial inputs than to evaluate the results, which if measurable, occur over time.

2. Once an aid program is in place, vested interests arise that support the activity and lobby for its continuation. Rent seeking behavior is endemic to any government program where funds are involved. It occurs with respect to culture, agriculture and many other sectors aside from aid. If federal political constituencies have populations from parts of the world that are the recipients of aid, the diasporas in Canada will lobby their MPs for their countries and the MPs may support a more liberal immigration policy and aid for these regions. Over 200 federal ridings (out of 308 that may rise shortly to 338) are estimated to have significant numbers of ethnic groups. MPs are loath to discuss immigration reform in Canada for fear of offending potential voters. In the same way MPs support aid to certain countries and projects in order to enhance their prospects for re-election. These are some of the impediments to discussing revisions to both immigration and aid policy.

3. The two sets of policies often have diametrically opposed objectives. Immigration is a form of reverse aid. Canada and other countries target and compete for those economic immigrants who are the more highly educated and trained persons in developing countries. Aid policy carefully ignores this conflict and aid and immigration are kept in separate silos hoping that no one will notice. Diplomats in Canada from developing countries are not so blind.

4. The boundary of what is included in aid policy is ill-defined. Public opinion supports humanitarian assistance in cases like Haiti and following the Tsunami in Indonesia and other parts of SE Asia. Support for general development funding abroad is much weaker, especially when the domestic circumstances and needs of aboriginal peoples in Canada are noted. Canada has unsolved developmental problems at home that should be a priority is one argument used. CIDA tends to get whipsawed between allocating its limited funds between humanitarian and development assistance. This further limits the sum annually available for development aid. The location of donor and recipient in different countries explains why there is often lukewarm support for development aid, which is an international form of welfare transfer, as opposed to humanitarian assistance which arises for different reasons. When the transfer is made internally then domestic taxpayers assist domestic recipients. With aid the monies go abroad. For example, recent events in 2010 have shown how German holders of Greek bonds are reluctant to help bail out Greece.

5. CIDA outsources much of the delivery of aid to NGOs, consultants and firms. This requires the establishment of a bureaucracy in CIDA and abroad to manage the outsourcing thereby diverting funds from the agency’s main objectives. Any publicly financed organization will have some administrative component but NGOs and others find that the red tape and reporting now diverts too much time and money from the actual delivery of aid. The two authors note (p.6) “Many contractors, including the present authors, have sworn off working with CIDA because of unreasonable and unrealistic reporting requirements.” I use to think this was CIDA’s fault, but now conclude it results from the aura of accountability that surrounds all types of government expenditures due to scandals associated with past misappropriation of funds in other policy areas. The public is now more likely to demand accountability and the elected representatives and the bureaucracy have naturally responded with tighter controls – except when it comes to auditing MPs allowances. Perhaps a better balance will evolve in the future. On the receiving end, Tanzania declared January 2010 as a NGO free month so that their officials could get on with some work.

6. There are other policy areas with publicly funded mandates that have characteristics similar to CIDA which seem to work reasonably well. All funding of research and development whether for health care, academic research, industrial purposes and cultural activities like plays, books, movies, music and video have features that make it difficult to know what will work ex ante, who are the best people and organizations to fund, and how to make recipients of public monies accountable for their use. Academics and others are involved in these processes all the time as applicants for research funds and as referees for other applicants. They learn how to identify phoney applications and to evaluate performance reports submitted to the funding bodies. Not all the misleading submissions and reports are caught but many are. Applicants do game the systems in place but these can be managed. When searching for an organizational structure for aid administration by CIDA, one can look to other policy areas where some or all the same conditions apply.

7. What literature is available to address the organizational needs of aid? Reinventing CIDA focuses on an institutional approach by reviewing how CIDA has operated in the past and using the often negative appraisals that have arisen and the frequent reviews made of its operations – 25 reports over the past 40 years (p.4,fn.8). The four principal recommendations propose that CIDA should be “liberated” and “reinvented” by giving it a focused objective, by becoming a Crown Corporation, by adopting new approaches emphasizing incentives and greater competition among those delivering assistance, and by addressing a number of obstacles to meaningful reform (pp.v-vi). The report includes references, amongst others, to Burnside, Collier, Dollar, Easterly and Moyo, all of whom have been critical of the aid process. A missing name is Peter Bauer who in 1972 wrote Dissent on Development and with Basil Yamey (my PhD supervisor) The Economics of Under-developed Countries in 1957, suggesting perhaps that “everything old is new again.”

8. An alternative approach to exploring the future role for and organization of CIDA is to step back and ask what is the nature and purpose of aid, what are the contractual relationships between aid donor and receiver, and what type of organization(s) can best deliver aid. These conceptual issues can then be related to available empirical research that measures and ranks individual countries in terms of their aid performance. If a rating agency for aid is required (pp.29-31), similar to a bond rating agency, it needs to be based on conceptual foundations. Where does one look for such literature?

9. One starting point is Why do aid agencies exist? by Bertie Martens (http://www.oecd.org/dataoecd/18/61/34353531.pdf). His discussion starts from Ronald Coase’s question, why do firms exist, to ask a similar question re aid agencies. Coase’s work led to a Nobel prize in economics and the foundation of theoretical and empirical work on the nature of the firm and organizations. Concepts such as transactions costs, moral hazard, adverse selection, asymmetric information, non-aligned preferences and conditionality are used to explain how organizations form and decide either to internalize transactions or to contract out to other firms. If aid is a way to transfer tax revenue raised in one country to recipients in another, then the successive stages of transfer offer alternative ways to organize these transactions. The donor-recipient aid gap is filled with various combinations of in-house and arms-length transactions from taxpayer to donor government, aid agency, NGO, private firm and often more than one organization in the aid receiving countries. There is little overlap in the literature references in Reinventing CIDA and in Why do aid agencies exist? reflecting the focus on CIDA in the former and on aid delivery in the latter, with implications for the type of agencies best suited to administer aid.

10. A further approach, based on another bloc of literature, would be to look at aid agencies as an international industry with national agencies and multilateral organizations competing and colluding with each other for the delivery of aid. What mix of competition/cooperation is desirable for delivering effective aid? (I have not developed this line of analysis but it may be worth considering).

11. The proposal for a rating agency for aid delivery (p.29-30) is useful and has foundations in the work of the OECD, Brookings and the Global Development Institute. On best practices in administering aid, Canada ranks 21 out of 37 based on five criteria of aid delivery by donors. Rating aid effectiveness is a companion issue and would benefit from case studies of successes and failures. Donors and their recipients would be unlikely to report accurately on failures without some independent means of review.

12. Case studies of actual projects provide learning experiences. Often the disasters get more attention as they are newsworthy, such as Mark Steyn’s reporting of how Sri Lankan officials engaged in a shakedown of Oxfam officials who were trying to get aid to tsunami victims (p.46). My visit to CIDA projects in a developing country found sewing machines which had been stolen within days of delivery to a village, and the construction of a brick factory where no bricks had ever been made. When meeting with the local council to discuss the projects, the main request was for a new prosthetic limb for the local leader. In another instance involving training, the aid recipients requested that we hand over the funds and let them get on with job. But other examples deal with the provision of clean drinking water, vaccines for health care, materials for schools and the building of roads. There are good and not so good news stories to report and learn from.

Advertisements

One Response to “Reinventing CIDA – Second Thoughts”

  1. John Croizat Says:

    Hi — I am the CFO of a US based NGO doing work for CIDA. We are finding their regulations somewhat challenging and are looking for an experienced independent consultant to advise us.

    Can you recommend anyone?

    Thanks much and best regards, John

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: