What’s the role of Aid in Fragile States? My piece for OECD

July 18, 2018 1 By Duncan Green

The OECD’s ‘States of Fragility’ report was published yesterday. It’s a 260 page monster, so I haven’t got round even to skimming it yet. Will report back on the interesting bits, but in the meantime here is the piece I contributed, on fragility and aid.

If aid is primarily aimed at reducing extreme poverty and suffering, then its future lies in fragile contexts. Recent research predicts that poverty will continue to fall in stable settings but will rise in fragile and conflict-affected settings, with poverty in these contexts overtaking the rest of the world by 2020 and then pulling away, effectively bringing an end to the current era of rapid poverty reduction. In the same vein, this report anticipates that by 2030 some 80% of the world’s poor will live in fragile contexts. As shown in Figure 1.3, aid to fragile contexts has been rising steadily although not dramatically over the last decade, increasing to $68 billion in 2016 from $52 billion in 2007.

The increasing concentration of aid in fragile contexts lays bare the difficulties facing donors. First, these are the hardest settings in which to achieve results and the most likely to produce failures and scandals. In addition, the institutional design of aid agencies often prevents them from adapting their way of working to fragile contexts. For instance, security concerns mean that staff of the International Monetary Fund cannot even visit some fragile settings. Other donor staff who are able to work in fragile environments face daunting restrictions on their movements and contacts; many are confined to heavily fortified compounds with little access to partner governments and still less to non-state players who might be able to inform decisions. Staff turnover in such environments is often high. Finally, funding cycles are often dominated by short-term humanitarian responses, making it difficult to design longer-term strategies needed to address the fragility and its deeper causes.

The challenges to traditional aid approaches run even deeper, however. Bilateral and multilateral aid agencies have traditionally seen sovereign governments as their natural partners and/or arenas of action. But in fragile contexts, states are often weak or predatory. Many other actors fill the partial vacuum of politics and administration, among them traditional leaders, faith organisations, social movements and armed groups. The actions of individuals and organisations are constrained by these different facets of what is considered public authority, and in ways that are poorly understood by researchers and still less by aid agencies. Furthermore, the instruments of aid – funding cycles, logical framework approaches, project management, and monitoring and evaluation – assume a level of stability and predictability that is often absent in such settings.

Overall, the level of aid dependence of governments in fragile contexts has fallen back slightly over the past several years. The relationship of aid to the delivery of essential services in these places raises a number of complex questions, including whether aid creates incentives or disincentives for government ownership of these services. In best-case scenarios, the importance of aid can be exaggerated. In Mozambique, for example, health and education are overwhelmingly government-funded, with only water, sanitation and hygiene (WASH) largely aid-funded (Figure 1.4.). But in worst-case scenarios, donors’ willingness to fund basic services can absolve the partner government from doing so. In South Sudan, for example, it is reported that donors fund 80% of health care and that the government funds just 1.1%.

One recent response to the difficulties faced by development actors in fragile contexts is to turn to the international private sector for help. However, international companies face many of the same problems in operating in these difficult settings. High levels of risk and unpredictability do not encourage long-term investment and the possibility of corruption and abuse poses serious reputational risks to brand-conscious companies.

Companies could seek to offset risk through public-private partnership agreements with donors and/or governments in fragile contexts. However, some in the development community and private sector have raised concerns about the higher cost of capital, the lack of savings and benefits, complex and costly procurement procedures, and inflexibility of such agreements in these settings.

International companies are most likely to take on the risks of operating in fragile contexts when returns are commensurately high. Extractive industries drill and mine in many such places. But extractives as a sector are capital intensive, create relatively few local jobs, and have a chequered record on human rights and environmental protection.

Local small and medium-sized enterprises (SMEs) are the one part of the private sector that undoubtedly has a great deal to contribute to livelihoods and well-being in fragile contexts. However, SMEs often find it hard to navigate the complicated systems to access funding.

In trying to find effective ways to reduce poverty and vulnerability in fragile contexts, development actors increasingly accept that they must learn to “dance” with the system, which is a matter of grappling with the messy realities of power and politics and navigating the unpredictable tides of events, opportunities and threats. This often means abandoning or significantly adapting approaches to statebuilding and best practice developed in more stable settings.

Aid professionals have responded to these challenges by setting up networks to find ways of providing aid and support that function better in fragile contexts. One is the Doing Development Differently (DDD) network, whose 2014 manifesto set out its proposed way of working.

DDD approaches give weight to understanding the specificities of the local context in order to be “politically smart [and] locally led” and to “work with the grain” of existing institutions. Responses to complex, messy problems need to be iterative, as donors and implementers adapt to changing circumstances and to lessons learned as their work progresses. These approaches are increasingly described as ‘adaptive management’.

Several new research programmes are also exploring the role of aid in fragile contexts and the efficacy of these new approaches. A recent analysis of theories of change among donors who seek to promote social and political accountability in fragile settings found an interesting bifurcation in thinking:

One current of thinking advocates deeper engagement with context, involving greater analytical skills, and regular analysis of the evolving political, social and economic system; working with non-state actors, sub-national state tiers and informal power; the importance of critical junctures heightening the need for fast feedback and response mechanisms; and changing social norms and working on generation-long shifts requiring new thinking about the tools and methods of engagement of the aid community. But the analysis also engenders a good deal of scepticism and caution about the potential for success, so an alternative opinion argues for pulling back to a limited focus on the “enabling environment”, principally through transparency and access to information.

In addition to the ideas outlined above, several additional options are worth exploring to try to improve the developmental contribution of financial flows in fragile contexts:

Diasporas and remittances As Figure 1.3 shows, remittances to fragility-affected countries already eclipse official development aid and foreign direct investment. They also are expected to continue to rise faster and more steadily than either of these other sources. Diasporas that send the remittances also have good knowledge of local contexts and how to support development. Some donors are exploring whether instruments such as diaspora bonds can improve the developmental impact of such flows.

Domestic resource mobilisation. Revenue raised from taxation and royalties on natural resources is growing in importance with respect to aid flows, but in many fragile contexts remains at low levels as a percentage of gross domestic product (GDP). Domestic resource mobilisation offers a way to further reduce aid dependence and strengthen the social contract among citizens, the state and the private sector. Until now, however, aid agencies have failed to recognise its potential. Aid figures reported to the OECD suggest only 0.2% of aid to places affected by fragility or conflict in 2015 and 2016 – a trifling USD 116 million in 2015 and USD 110 million in 2016 – was dedicated to technical assistance for domestic resource mobilisation.

Localisation. Pushing power and decision-making as close as possible to local levels makes good sense in fragile contexts to deal with the enormous variations in conditions over space and time. So far, the localisation agenda has been more apparent in statements than action, however.

Duncan Green, London School of Economics and Political Science

Tomorrow: why I don’t think much of the report of the Commission on State Fragility