February 8, 2011Doug Hadden
Doug Hadden, VP Products
Yet another story about corruption in Africa, this time from The Daily Telegraph [Wikileaks cables: millions in overseas aid to Africa was embezzled]. It’s no wonder, as Owen Barder has pointed out: “many people are worried that aid ends up in the Swiss bank accounts of despots and dictators, or of corrupt consulting and construction firms.”
Perhaps Wikileaks has not exposed the millions in overseas aid to Africa that was not embezzled. Or, more importantly, the millions that were wasted because of high transaction costs and lack of coordination among donors and recipient countries.
I’ve written before about the narrative that permiates the Western press: developing countries are corrupt, therefore, deserve to be under-developed. The current story describes corruption in Sierra Leone while the previous blog post was about a Wall Street Journal investigation in Afghanistan. Both stories missed the point.
Direct Budgetary Support and Corruption
The Paris Declaration and Accra Agenda for Action are designed to improve development outcomes. One of the commitments by donors or International Financial Institutions (IFIs) is to use “country systems“. This means that the majority of donor funding should be funnelled through the country Integrated Financial Management Information Systems (IFMIS). (Yes, the IFMIS is FreeBalance in Sierra Leone and Afghanistan). As Richard Allen has pointed out, many donors are concerned that the IFMIS could be used for corrupt purposes. Yes, as Steven Symansky pointed out, the financial system in Afghanistan has eliminated the opportunity for corruption. That’s because transactions are auditable. There are automated controls. Electronic funds transfer and secure cheque printing can be used to eliminate cash.
This story is more evidence that large-scale corruption occurs outside the financial system.
Direct Budgetary Support and Effectiveness
Corruption reduces the funds available for development. Lack of coordination and administrative costs also reduce aid effectiveness.
Administrative or transaction costs are introduced when there are many donors supporting many projects. Donors require accountability. So, government agencies receiving “off-budget” funds or organizations executing projects outside of the government need to generate frequent reports. In different formats. On different fiscal periods. This decreases the funds available for development.
Multiple donor projects reduces efficiency. Governments cannot effectively plan and coordinate budgets with donors when the information is not available. Countries end up with 2 schools where only 1 is needed. Or a bridge without a road. Or schools without teachers. Donors can often work at cross-puposes.
What the Media Needs to Do
Billions of dollars flying out of Afghanistan. Government ministers buying plasma televisions. Swiss bank accounts. It all makes for sensational headlines.
Where are the stories about what works? Where are the stories on the International Aid Transparency Initiative? [Google News results = 0] Aid effectiveness? [Google News results = 42]. No problem finding stories on corruption in Afghanistan [Google News results = about 2000]. corruption in Africa [Google News results = about 4061].
What about successes to date? For example how Afghanistan, Liberia and Mongolia have improved budget transparency. The media needs to benchmark corruption and development – not with developed countries of today – with developed countries when at the same stage of development. Such as comparing corruption, legal systems, regulations, development in Russia today with the United States in the 1920s.
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