Afghanistan

Falling short: Aid effectiveness in Afghanistan

Source
Published

Attachments

Executive summary

Increasing insecurity and criminality is jeopardising progress in Afghanistan. With low government revenues, international assistance constitutes around 90% of all public expenditure in the country, thus how it is spent has an enormous impact on the lives of almost all Afghans and will determine the success of reconstruction and development. Given the links between development and security, the effectiveness of aid also has a major impact on peace and stability in the country. Yet thus far aid has been insufficient and in many cases wasteful or ineffective. There is therefore no time to lose: donors must take urgent steps to increase and improve their assistance to Afghanistan.

Reconstruction assistance is a fraction of military spending. Since 2001 the United States has appropriated $127 billion for the war in Afghanistan and the US military is currently spending nearly $100 million a day in the country, some $36 billion a year. Yet the average volume of international aid provided by all donors since 2001 is woefully inadequate at just $7 million per day. This paucity of aid is reflected in comparative aid per capita figures. In the two years following international intervention, Afghanistan received $57 per capita, whilst Bosnia and East Timor received $679 and $233 per capita respectively.

Since 2001 some $25 billion has been spent on security-related assistance to Afghanistan, such as building Afghan security forces. Donors have committed to spend the same amount on reconstruction  and development, yet some leading donors have failed to fulfil little more than half of their aid commitments. Thus, there is an aid shortfall of some $10 billion - equivalent to thirty times the annual national education budget. Just $15 billion in aid has so far been spent, of which it is estimated a staggering 40% has returned to donor countries in corporate profits and consultant salaries.

In absolute terms, the US is by far the largest donor, contributing one-third of all aid since 2001. Other major donors are: Japan, the UK, the European Commission (EC), the World Bank (WB), Germany and Canada; the relative contributions of The Netherlands, Norway and Sweden also are substantial. France and Spain, however, have made scant bilateral contributions since 2001 of just $80 million and $26 million.

Although a number of donors have major projects underway, according to Afghan government figures, the Asian Development Bank (ADB) and India have disbursed only a third of their commitments for 2002-2008. The US has to date disbursed only half of its $10.4 billion commitment for this period; and the WB just over half its $1.6 billion commitment. The EC and Germany have disbursed less than twothirds of their respective commitments of $1.7 billion and $1.2 billion. These shortfalls are partly attributable to challenging operating conditions, high levels of corruption and weak absorption capacities - and government data may not capture all donor spending. However, the magnitude of the shortfalls underscores the importance of donors increasing efforts to mitigate or adapt to such problems, to factor them in to programme planning, and to improve the flow of information to the Afghan government.

Separately, a number of donors are not on track to fulfil their aid pledges for 2002-2011. Overall, $39 billion has been pledged up to 2011; but, so far, less than 40% of that amount has been spent. According to Afghan government figures, Spain has disbursed only 10% of the aid it has pledged for 2002- 2011, and the US and India have disbursed only 22% of their respective pledges of $22.8 billion and $940 million. Turkey, China, the ADB and WB and Saudi Arabia have all so far delivered less than 40% of their aid pledges for this period.

Much has been achieved in Afghanistan since 2001: there has been the establishment of democratic institutions and ministries, significant improvements in health care and immunization, the major expansion of primary education, the construction of roads and transport infrastructure, economic growth, and the formation of state security forces. There are many cases of well-delivered aid, for example in the education sector or in community-based rural development projects that are part of the National Solidarity Programme (NSP), which have made a significant difference to Afghan lives.

However, most Afghans still endure conditions of hardship and millions live in extreme poverty. Far too much aid has been prescriptive and driven by donor priorities - rather than responsive to evident Afghan needs and preferences. Too many projects are designed to deliver rapid, visible results, rather than to achieve sustainable poverty reduction or capacity-building objectives. One quarter of all aid to Afghanistan has been allocated to technical assistance - which is intended to build government capacity - yet much of such assistance has been wasteful, donor-driven and of limited impact. In the design or execution of projects, too often the promotion of the capabilities, status and rights of women is an afterthought or perfunctory consideration. Most aid has been directed to Kabul or other urban centres, rather than to rural areas where it is most needed and more than three-quarters of Afghans live. At a macro level, areas such as agriculture have been under-resourced due to a lack of prioritisation.

Whilst there are undoubtedly resource constraints in Afghanistan, donors have fallen short on pledges made under the Afghanistan Compact to use more Afghan human and material resources. Over half of all aid to Afghanistan is tied, by which donors often require procurement of services or resources from their own countries.

NGOs have a vital role in supporting rural development and are comparatively cost effective. Yet some donors have reduced funding for Afghan and international NGOs, which has limited their ability to support the delivery of essential services, especially in rural areas, and to build the capacities of communities and local government.

There are significant disparities in the geographical distribution of aid. This is due to a range of factors, but not least because aid is being used to achieve military or political objectives. A number of major donors direct a disproportionate share of their funds to the southern provinces where the insurgency is strongest; if it were a state, Helmand alone would be the world's fifth largest recipient of funds from USAID, the US Agency for International Development. These disparities are also reflected in the pattern of combined government and donor spending: for 2007-2008 the most insecure provinces of Nimroz, Helmand, Zabul, Kandahar and Uruzgan have been allocated more than $200 per person, whereas as many other provinces are due to receive less than half this amount, and some, such as Sari Pul or Takhar, are allocated less than one third.

Given the links between poverty and insecurity, the resentment which these significant disparities has generated, and the perverse incentives created for secure areas, which perceive that insecurity attracts aid, this approach is dangerously short-sighted and has contributed to the spread of insecurity.

Provincial Reconstruction Teams (PRTs) have gone well beyond their interim, security-focused mandate, engaging in substantial development work of variable quality and impact. Although arguably necessary in some highly insecure areas, by diverting resources which otherwise could have been devoted to civilian development activities, PRTs have in many cases undermined the emergence of effective institutions of national and local government, and other civil development processes. PRTs have also contributed to a blurring of the distinction between the military and aid agencies, which has thus undermined the perceived neutrality of the latter, increasing the risk for aid workers, and reduced humanitarian operating space and access.

Some two-thirds of foreign assistance bypasses the Afghan government, which undermines efforts to build effective state institutions, especially at sub-national level. This is partly attributable to problems in- which the Afghan government and donors over the past six years should have done more to address. It is of great concern that there appears to be a lack of political will to tackle high level corruption. Nevertheless, there has been an incremental increase in government capacity, for example, in the ministries of Finance and Education, and in improved public financial management systems.

Donors are failing to coordinate between themselves or with the government. According to an Organisation for Economic Cooperation and Development (OECD) survey, in 2005 little or none of the technical assistance provided by the ADB, EC, Germany, Japan and the UK was through coordinated programmes consistent with the government's strategy, and just one-third of donor analytical work was undertaken jointly. Largely due to lack of donor coordination and communication, the Afghan government says it does not have information on how one-third of all assistance since 2001 was spent - some $5 billion. A large proportion of assistance is not in alignment with national and provincial plans, and only half is disbursed in agreement with the Afghan government.

Donors are failing to fulfil their commitment under the Afghanistan Compact to ensure taxpayers receive value for money. Vast sums of aid are lost in corporate profits of contractors and sub-contractors, which can be as high as 50% on a single contract. Minimal transparency in procurement and tendering processes stifles competition and efficiency. A vast amount of aid is absorbed by high salaries, with generous allowances, and other costs of expatriates working for consulting firms and contractors - each of whom costs $250,000-$500,000 a year; and with the recent deterioration in security such costs are increasing. Efficiency is further impaired by excessive donor bureaucracy.

There is limited donor transparency, and few mechanisms to hold donors accountable, or for effective scrutiny, monitoring and evaluation. The Afghanistan Compact has 77 measurable benchmarks for the Afghan government, but none for donors. Donors are subject to little independent scrutiny; reporting to the Afghan government has improved but is insufficient; and downward accountability to project beneficiaries is limited or non-existent.

Conclusions and recommendations

The impact of assistance to Afghanistan is heavily affected by the wider social, economic, legal, security and political environment; thus, reforms are required in many spheres in order to maximise aid effectiveness. Aid has made a significant difference to Afghan lives, but major weaknesses have severely constrained its capacity to reduce poverty. Thus, donors and the Afghan government should urgently adopt the following recommendations.

Volume of aid In conjunction with steps to enhance its effectiveness, donors should increase the volume of development and humanitarian aid to Afghanistan, which is a fraction of military assistance. Donors should seek to allocate more funds to the Afghan government (covered below) and to effective NGOs, fulfil aid promises, and provide more multi-year aid commitments. To avoid aid dependency, the government must strengthen efforts to increase domestic revenue.

Distribution of aid There needs to be a comprehensive and objective assessment of the reconstruction, development and humanitarian needs of Afghanistan's provinces, and a corresponding reconfiguration of government and donor spending. Whilst insecurity undoubtedly increases the costs of delivering assistance, there needs to be a more equitable distribution of resources and a high level of support for areas with greater development and humanitarian needs.

Quality of aid Donors should ensure their aid programmes have the primary or ultimate objective of reducing poverty, and that they are demand-driven, address needs as identified by Afghans, build local capacity, and are accountable to Afghan citizens and government. More aid must be directed to projects that benefit people living in rural areas, and gender equality objectives should be a primary consideration in the design and implementation of all development activities. Each donor should institute an annual aid review to measure its performance in each of these respects, and to assess consistency with the Afghan National Development Strategy (ANDS). The revised ANDS and other donor-Afghan government development plans should incorporate prioritisation and sequencing, according to the comparative importance and magnitude of poverty reduction objectives.

Indicators of aid effectiveness Donors and the Afghan government should collectively agree on indicators of aid effectiveness, with correlative targets, measuring the impact, efficiency, relevance, sustainability, accountability, and Afghan ownership of aid, as well as the use of Afghan human and material resources.

Monitoring and accountability A national, independent commission for aid effectiveness should be established to monitor aid practices, identify deficiencies and make recommendations. The commission could issue an annual 'report card' for each donor, highlighting levels of achievement in respect of the proposed targets. Measures should be taken to strengthen downward accountability to citizens. Donors should provide funding for civil society organisations to carry out monitoring of aid flows and budget processes, which helps to ensure sustainable scrutiny of aid effectiveness.

Transparency Donors should publicly provide full information on aid flows; the Afghanistan Donor Assistance Database should be overhauled, updated and allow full public access to aid information.

Ownership and governance To maximise Afghan ownership of the development process, donors should seek to increase incrementally the level of aid provided to the government sector and to increase the volume of funds channelled to the core budget, especially the development budget component. To justify this, the Afghan government should take steps to:

- Improve budget execution capabilities, particularly implementing capacities of line ministries;

- Strengthen financial management and fiscal controls;

- Expedite public administration reform, especially in the civil service;

- Ensure rigorous implementation of the government's anti-corruption strategy; enhance transparency; improve monitoring, oversight and audit; and streamline government processes and procedures; and

- Reform sub-national governance, de-concentrate centralised line ministries; build institutional and systems capacities at local level; and expand the participation of communities and civil society in designing, implementing, directing and monitoring development activities.

Coordination and alignment Donors should use existing mechanisms to improve donor-government coordination; the human and financial resources of both the Joint Coordination and Monitoring Board (JCMB) and UN should be strengthened for this purpose. Donors should provide the government with timely, comprehensive and accurate information on all aid flows, and ensure they are consistent with national and local development priorities, above all, the ANDS.

Donors should substantially increase support for sectoral programmes, through mechanisms such as the Afghanistan Reconstruction Trust Fund, and thereby exceed the Paris Declaration target of 66% of aid delivered through such programmes. Donors should also increase the proportion of joint analytical work from one-third to two-thirds and ensure that at least half of donor missions are undertaken jointly.

Procedures Donors should simplify and harmonise bureaucratic processes and procedures for project management; they should establish a working group for this purpose, with Afghan government and NGO representation.

Technical assistance Donors should ensure that technical assistance (TA) is cost-effective, demanddriven, coordinated, aligned with national priorities, and focused on capacity building national staff. Pooled funds should be established by donors to oversee the provision of TA to specific ministries.

Contractors Donors should only use contractors who have a record of efficiency, and avoid multiple layers of sub-contracting. They should agree common rules or principles for contracting and tendering.

Provincial Reconstruction Teams PRTs must enhance the quality and impact of their assistance, ensure it is aligned with official national or local priorities and coordinate fully with state institutions. They should adhere to their mandate to facilitate the development of a stable and secure environment, and, in line with their interim status, they should be downscaled, with closure plans for those in comparatively secure areas. Donor funds should be re-routed from PRTs to local and national government, such as through the NSP.

THE FACTS ON AID TO AFGHANISTAN

- There is an aid shortfall of $10bn - equivalent to thirty times the annual national education budget: donors committed to give $25bn aid since 2001 but have only delivered $15bn.

- An estimated 40% of aid goes back to donor countries in corporate profits and consultant salaries - some 6bn since 2001.

- Largely due to lack of coordination and communication, the Afghan government does not know how one-third of all aid since 2001 - some $5bn - has been spent.

- The US military spends close to $100m a day in Afghanistan; yet the average volume of aid spent by all donors since 2001 is just $7m per day.

- Over half of aid is tied, requiring the procurement of donor-country goods and services.

- Over two-thirds of all aid bypasses the Afghan government.

- According to the latest OECD figures less than 40% of technical assistance is coordinated with the government and only one-third of donor analytical or assessment work is conducted jointly.

- Profit margins on reconstruction contracts for international and Afghan contractor companies are often 20% and can be as high as 50%.

- Most full time, expatriate consultants, working in private consulting companies, cost $250,000- $500,000 a year.