New study estimates $22bn of official development assistance reported in 2011 was not transferred to developing countries
At least 20% of the aid money rich countries say they give to developing countries never actually leaves their shores, according to new research.
Researchers at the Bristol-based group Development Initiatives estimate that at least $22bn (£13.7bn) of the $100bn-plus reported by donors as bilateral official development assistance (ODA) in 2011 was never transferred to developing countries. The money was instead spent on activities in donor countries, or put towards the cancellation or rescheduling of debts.
“There is a lack of understanding about what aid is,” said the researchers in a report published on Monday to coincide with discussions at this week’s UN general assembly about what targets should replace the millennium development goals (MDGs) when they expire in 2015.
“Large headline figures are presented as if aid is entirely a cash lump sum passed directly from donor to recipient,” added the researchers. “[But] aid is a bundle of different things. Some of it is money. Some is food and other goods. Some is people: the costs of consultants and staff providing technical advice and training.”
Rich countries report their aid spending annually to the Organisation for Economic Co-operation and Development (OECD) in Paris, though their submissions are rarely subjected to rigorous independent scrutiny.
Development Initiatives examined more than a million rows of data from the OECD’s creditor reporting system database, classifying each record for the years 2006-2011 to estimate how much aid is given as cash, rather than as goods or technical advice, and how much aid money is transferred to recipient countries, rather than staying in the donor country.
The researchers found that while Italy reported giving about $2bn in bilateral (country-to-country) aid in 2011, less than $300m was transferred to developing countries.
In contrast, Denmark, which also reported giving about $2bn in bilateral aid, transferred roughly $1.85bn to developing countries in the form of cash grants, loans, project support or technical advice.
Less than 70% of French bilateral aid – and less than 50% of Austrian aid – was transferred to developing countries in 2011.
Of the five countries that have met the UN target to spend 0.7% of their gross national income (GNI) on aid, three – Sweden, Luxembourg, and the Netherlands – transferred less than three-quarters of their aid money to developing countries in 2011.
At least 8% of British bilateral aid was not transferred to developing countries – a relatively low proportion compared with other donors.
The report doesn’t examine which companies or consultants win contracts for technical advice or other projects, which means the real figures on how much aid stays in donor countries could be significantly higher. Last year, critics pounced on the UK’s Department for International Development (DfID) after the Sunday Telegraph revealedjust how lucrative the UK aid business has been for a small group of primarily British consultants.
According to OECD rules, spending can qualify as aid if it has the promotion of economic development and welfare in developing countries as its main objective and is given either as a grant or a concessional loan. The list of specific activities that can be counted as aid has expanded over time, however.
Donors can count cancelled or rescheduled debt as official aid even if no new transfer of resources is involved, for example. The cost to donor countries of supporting students and refugees can also be counted, along with administration costs and funding for activities to increase public support and awareness of development in donor countries.
Aid statistics therefore fail to reflect the resources that developing countries receive, the report argues, making it difficult for poor countries to understand exactly how much money is coming in from donors.
Researchers found, for example, that more than $5bn of aid supposedly given to the Democratic Republic of Congo in 2011 was never transferred to the country. Instead, most of this figure represented debt relief.
Using OECD statistics, Afghanistan, the Solomon Islands and Togo appear to have similar levels of aid dependency, with aid worth 35%, 43% and 36% of GNI respectively. But while Afghanistan receives at least a third of its aid in cash, aid to the Solomon Islands is largely delivered as people and expertise, researchers found.
In Togo, meanwhile, “the bulk of reported aid never gets anywhere near the country,” said the researchers.
Rob Tew, a researcher who contributed to the report, said it was critical to unpick official statistics in order to better understand the importance of aid from the perspective of developing countries.
“When you start looking at aid as this bundle of things you can also start honing in on what, in particular, donors are good at,” said Tew. “We need to put under the microscope different parts of the aid bundle, rather than treating aid as one big number.”
The report, “All investments to end poverty: real money, real choices, real lives”, examined aid flows as part of an attempt to map all financial resources available to developing countries. It also looked at developing country governments’ own spending, commercial flows such as foreign direct investment, and private giving through remittances or non-governmental organisations.
The study calls for greater attention to data as the discussions on what should succeed the MDGs progress, and notes that global poverty measures – which draw on several data sources, including household surveys and national accounts – are surprisingly unreliable given their importance in development debates. A quarter of the total number of people in poverty in sub-Saharan Africa is derived from surveys conducted before 2005, according to the report.
“Good data is essential to global efforts to end poverty,” said the researchers. “It is needed to assess the prevalence and location of poverty. It is needed to inform decision-making, to quantify, allocate and track resources and to measure the effectiveness of investments. And it is needed to empower people in whose name resources are being spent to demand accountability.”