The multilateral aid system has become a hydra-headed monster that must be stopped. Don’t take my word for it. This is the view of the ministers, NGOs and business leaders who signed up to the outcome document at the High Level Forum on Aid Effectiveness in Busan last year. Read on to track their thinking, and read my 20-point action programme.

In Paragraph 25 of the outcome document, the participants in Busan said that ‘providers of development assistance have a responsibility to reduce fragmentation and curb the proliferation of aid channels’. In Para 25b, they added that

‘We will improve the coherence of our policies on multilateral institutions, global funds and programmes. We will make effective use of existing multilateral channels, focusing on those that are performing well. We will work to reduce the proliferation of these channels and will, by the end of 2012, agree on principles and guidelines to guide our joint efforts. As they continue to implement their respective commitments on aid effectiveness, multilateral organisations, global funds and programmes will strengthen their participation in co-ordination and mutual accountability mechanisms at the country, regional and global levels.’

The original Hydra, slaughtered by Hercules, had as many as one hundred heads, and each time one was severed, two would grow in its place.  Does that sound familiar? There are now more than 230 multilateral organisations that report their outflows to the Development Assistance Committee of the OECD. In their latest report on multilateral aid, the DACDevelopment Assistance Committee (of the OECD) point out that the multilateral system accounts for 40% of total aid, or $US 54bn in 2010. The DACDevelopment Assistance Committee (of the OECD) calculates that the number of multilateral ‘aid relations’ (i.e. donor-recipient links) amounts to 1650, many of these defined as too small to be significant – though still incurring transactions costs. The number has grown by a third since 2000, driven by the creation of new funds and programmes, like the Global Fund, GAVI, and a multitude of climate windows. In practice, that means many developing countries are dealing with a baker’s dozen of different multilateral agencies – as many as 17 in heavily-aided countries like Ethiopia, Mozambique or Nepal.

Hang on a minute, though: a reality check is needed. The fragmentation of bilateral agencies is worse, and the DACDevelopment Assistance Committee (of the OECD) concludes (Para 27) that ‘fragmentation stems mostly from bilateral sources’. Ethiopia has 21 bilateral donors from the DACDevelopment Assistance Committee (of the OECD) member list, excluding many non-DAC donors; Mozambique has 20; Nepal 18. The overall numbers are in the graph below. Are there in fact two hydras? And are both receiving equal attention? In fact, there may be three hydras, since NGOs are excluded from these statistics. A modern-day Hercules will have his work cut out!

Source: DAC

Proliferation is worse in some countries than others, and in some sectors. Health is usually cited as the classic case, with more than 90 global health funds, many bilateral agencies and many NGOs, all operating at country level. The following graph illustrates the problem in Tanzania, but there are many similar cases. Anyone who doubts the scale of the problem should try talking to aid managers in developing countries about the complexity and transactions costs.

Source: DAC

We will need to come back to the issue of proliferation overall. If we stick for the time being to the multilateral sector, however, the DAC has usefully provided a conceptual framework and a set of ‘emerging guiding principles’. The conceptual framework (below) distinguishes four levels of intervention, viz (a) decisions about the funding and governance of multilateral organisations, (b) measures to increase the effectiveness of organisations, (c) action to improve delivery, and (d) better country-level harmonisation and alignment.

The guiding principles are organised under the same headings, as follows:

‘(1) For bilateral donors in their headquarters interaction with multilateral agencies:

• Avoid setting up new funds unless they respond to a compelling need. Do not duplicate, or compete with, existing organisational mandates and programmes (a checklist for “thinking twice” could be added to this principle);
• Within government, establish coherence in decisions on what multilateral activities to fund;
• Where possible, consolidate multilateral organisations, funds and initiatives and use existing coordination mechanisms within the multilateral systems.

(2) Organisational effectiveness of multilateral organisations:

• Continue to work within the DACDevelopment Assistance Committee (of the OECD) membership and with multilateral partners to develop more coherent approaches to assess multilateral effectiveness and build on existing frameworks to stem the further proliferation of assessments of multilateral organisations;
• Place greater emphasis on partner country perspectives in assessing the effectiveness of multilateral organisations’ delivery on the ground, where possible. For organisations without country operations, agree on a framework that can measure its effectiveness;
• Agree on a systematic method to internalise the results of multilateral assessments more regularly within formal and informal decision-making processes, and know key levers for change.

(3) For the effective delivery of multilateral aid:

• Support efforts to co-ordinate multilateral operations at partner country level (including reporting, analyses, strategies, missions, and capacity development) and to respect the five Principles of Aid Effectiveness, in particular allowing partner governments to own development efforts;
• Ensure such efforts have the necessary support structures at headquarters.

(4) For country-level harmonisation between bi- and multilateral donors:

• Bilateral and multilateral donors participate actively in multi-donor co-ordination mechanisms and engage in common procedures for programming, supporting government-led processes.

There is a great deal of common sense in this list, albeit it is cautiously written, in characteristic DACDevelopment Assistance Committee (of the OECD) consensus-building style. I was glad to have the opportunity to debate it at a DACDevelopment Assistance Committee (of the OECD) workshop I moderated in Paris on 4 October. Some reflections:

First, the fact that this topic made it into the Busan outcome document and is now on the DACDevelopment Assistance Committee (of the OECD) agenda is definitely worth celebrating. It is a topic many of us have been writing about for years (see, for example, this ODI Working Paper from 2006, written jointly with Simon Burall and Alina Rocha Menocal). It is also important that there is a deadline to agree principles – December 2012. That’s only twelve weeks from now!

Second, the proof of the pudding will be in the eating. My own sense is that the incentives which lead to proliferation have not changed very much. New institutions often emerge for political reasons, so that leaders can claim something new. Old institutions often survive because there is a high degree of inertia in the system. At the level of assessment, MOPAN, the Multilateral Organisations Performance Assessment Network, provides a common framework and institutional infrastructure, but donors still engage in their own, independent reviews, like DFID’s Multilateral Aid Review. The National Audit Office has recently commented on this anomaly, and called on DFIDDepartment for International Development to collaborate more with other donors.

Third, the process will be hard to drive from the bottom-up and will require leadership from Ministers, in both developing and developed countries. There was much talk in Paris of the fact that the One-UN process, designed to achieve greater harmonisation of UN efforts, made some progress at country level, but could not advance further without more integration at headquarters level. The independent evaluation, published in April 2012, made this point. The creation of UN Womenwas cited as an example of reform, sweeping various gender-oriented programmes into a single body. (Note: annoyingly, I made exactly this point about the need for top-down integration when the High Level Panel met in Downing Street in 2006 and asked me to present options. It always seemed to me that the answer was to put money behind greater coherence of the UN system, using UNDPUnited Nations Development Programme as a kind of Ministry of Finance to manage the system. I also recommended 3-5 year replenishment funding, following the same principles as budget support to countries).

Fourth, it goes without saying that the debate should be carried over to bilateral agencies as well as multilateral, and that principles and action should be universal. Again, my own view has always been that the main answer to proliferation is to increase the share of aid channelled through multilateral agencies, from its present level of one third, to perhaps two thirds or three quarters: to stand the aid system ‘on its head’. A good slogan is ‘don’t just harmonise, multilateralise’. In the process, the management of multilateral agencies would very much be simplified if the proliferation of trust funds and other non-core funding could be controlled. At present, about a third of all aid to multilaterals is additional to core funding. In the case of UN Funds and Programmes, some 70% is provided in this way. (Figures from the DAC Report on Multilateral Aid). The World Bank runs more than 1000 Trust Funds, worth $US 30bn.

Fifth, change cannot be achieved by traditional aid donors alone, and must be delivered in partnership with emerging powers and developing countries. For this reason, the Global partnership for Effective Development and the Development Cooperation Forum must play a key role, alongside the DAC. (Another note. In 2006, ambitious plans for One UN were greeted with suspicion by the G77, who feared a rich country take-over. My solution was to offer a deal: greatly increased funding, and governance reform, in return for much higher standards of performance and accountability).

Sixth, and most important, principles are great, practical guidelines are better, but actions are better still. The DACDevelopment Assistance Committee (of the OECD) has been modest in proposing specific plans, and has promoted only agreement to principles by the end of 2012. Can we, I wonder, make some progress in seeing what might actually be done?

Here, we are on speculative ground, but the following list might provide at least the basis for a conversation. To make things easy, I have used the same headings as in the DACDevelopment Assistance Committee (of the OECD) Conceptual Framework, and phrased the points, in communiqué style as ‘We Wills’.

1. For bilateral donors in their headquarters interaction with multilateral agencies:

• We will, over the next decade, and in agreement with developing countries, reduce the number of multilateral agencies, funds and programmes by at least 5% each year, by closures or mergers.
• We will, as far as the UN is concerned, channel all funding through central mechanisms, especially the Central Emergency Relief Fund on the humanitarian side, and the UNDPUnited Nations Development Programme on the development side.
• We will channel all climate funding through the Green Climate Fund.
• We will ensure that innovative finance, including blending options, is fully integrated into mainstream aid mechanisms.
• We will adopt the practice of replenishment funding for all multilateral agencies, on a 3-7 year basis.
• We will restrict the share of funding to multilaterals directed through Trust Funds or similar arrangements to no more than 10% of total funding.
• We will, year on year, increase the share of total oda spent through the multilateral system, aiming to reach 75% of the total by 2018.
• We will, in the spirit of contestability, ensure that the World Bank, the UN and the Regional Development Banks all have the option to deliver the right mix of grants loans, and technical cooperation in pursuit of their objectives.
• We will ensure that the governance of all multilateral bodies is democratic and accountable.
• We will report annually on progress, to the DAC, the Global Partnership for Effective Development and the Development Cooperation Framework.

1. Organisational effectiveness of multilateral organisations:

• We will focus our assessment efforts on MOPAN, eschewing individual Government reviews of multilateral agencies.
• We will ensure that the default approach to aid evaluation is multi-donor and comparative, with strong recipient country engagement.
• We will put in place independent evaluation, focused on results, value-for-money and development effectiveness.
• We will guarantee that developing countries participate in all peer review exercises, including those carried out by DACDevelopment Assistance Committee (of the OECD) donors.
• We will report transparently on the results of comparative evaluation and peer review, in order to ensure continuous improvement of aid programmes.

1. For the effective delivery of multilateral aid:

• We will ensure that the chief executive and other senior management positions of all multilateral agencies are filled by open competition, and on the basis of transparent criteria.
• We will develop jointly-owned country-level results frameworks.

1. For country-level harmonisation between bi- and multilateral donors:

• We will devise and apply a Code of Conduct on Division of Labour, which limits the number of donors active in each sector.
• We will make maximum use of budget support, either General Budget Support or Sector Budget Support, and ensure that all aid is on-budget.
• We will apply fully the ownership, harmonisation and alignment principles of the Paris, Accra and Busan Declarations, and hold ourselves accountable through independent monitoring and evaluation of progress.

Well, I could carry on all day like this, but that’s twenty points. What am I missing? And what should be taken out?

A final question is about who will take on the genuinely Herculean task of ensuring that the DACDevelopment Assistance Committee (of the OECD) principles are turned into action: sifting through this list, securing agreement on priorities, delivering change, monitoring progress, and being held accountable. Will it be the Chair of the DAC? Brian Atwood is standing down, so his successor? Will it fall to the political leaders of the Global Partnership: Armida Alisjahbana from  Indonesia, Justine Greening from the UK, and Ngozi Okonjo-Iweala from Nigeria? Or is a new formation necessary?