It’s not what you spend

FOR decades rich countries have sought to foster global development with aid. But all too often there is little to show for their spending, now over $135 billion a year and rising. Success depends on political will in recipient countries, says Erik Solheim of the Development Assistance Committee of the OECD, a club of mostly rich countries that includes the biggest donors. And that may well be lacking.

What donors will pay for may not be what recipients deem a priority. So poor countries’ governments say what they must to get cash, and often fail to keep their side of the deal. Aid to build schools may be used to give fat contracts to allies, and the schools left empty. Ambulances bought by donors may rust on the kerb, waiting for spare parts.

Now donors are trying a new approach: handing over aid only if outcomes improve. “Cash on delivery” sees donors and recipients set targets, for example to cut child mortality rates or increase the number of girls who finish school, and agree on how much will be paid if they are met. Conventional approaches still account for the lion’s share of international aid. But several countries, including Britain and Norway, and big private donors, including the Bill and Melinda Gates Foundation, are experimenting with cash-on-delivery.

At the moment, donors fearful of theft or waste usually write detailed plans for how their money is to be spent and insist that they are followed to the letter. But watchfulness may make little difference. Laying a square metre of road costs the World Bank over 50% more in countries where firms report paying bribes above 2% of the value of contracts than in ones where such payments are reported to be lower—even though its anti-fraud measures are equally stringent the world over.

Another reason donors are prescriptive is lack of faith in local bureaucrats’ competence. Scepticism is sometimes warranted, says Mr Solheim, though often overdone. Meanwhile donors are stifling ingenuity and making it hard to adapt schemes to local needs, says William Savedoff of the Centre for Global Development, a think-tank in Washington, DC, that champions the cash-on-delivery approach. To immunise more children, for example, one country will need cold-boxes to stop vaccines spoiling; another to pay health workers’ transport costs to visit isolated villages. A distant donor is unlikely to know what is lacking in each case.

In cash-on-delivery schemes, recipients choose their own paths towards their targets, subject only to basic rules, such as respecting human rights. (A sterilisation programme, for instance, could be a good way to reduce deaths in childbirth, but participation must be voluntary.) A government that signs up starts by using its own money and existing aid. If it succeeds, it may choose to plough the reward back into the programme, creating a virtuous circle.

Elements of the model have featured in several recent government-funded health, education and environmental aid programmes. Private investors are keen on chipping in to reward governments for producing skilled workers, says Nancy Lee of the Millennium Challenge Corporation, an American agency which is planning schemes that will pay countries that succeed in cutting youth unemployment.

Norway makes payments to several countries for preserving their forests and thus cutting carbon emissions. Since 2008 it has paid Brazil $5 for each tonne of carbon it has avoided emitting by leaving trees standing that, if the previous trend had continued, would have been felled. Satellite images are used for monitoring. Brazil decided on the measures it would take to save its trees, which included expanding national parks, making it harder to plant sugar cane in the Amazon region and improving the national land registry.

In 2012 Britain agreed to pay Ethiopia up to £100 ($157) for each extra pupil sitting its school-leaving exam, compared with numbers before then, and another £100 for each pupil who passed (payments are lower for boys and pupils in better-off regions). Two years later nearly 45,000 extra pupils have taken the exam and 42,000 extra have passed. Set against an annual education budget of $1.2 billion, the scheme is spare change. But it focuses the government’s attention on results.

The red tape that comes with conventional aid ties up scarce accountants and managers, who might be better employed running public services. In cash-on-delivery programmes, by contrast, the only checks are on the measurement of outcomes. These are particularly important when national data are being used.

A recent scheme to raise global vaccination rates illustrates the need. Starting in 2000 GAVI, a public-private initiative, paid poor countries $20 for each additional child given all three shots of a vaccine that protects against diphtheria, tetanus and whooping cough. Research by the Centre for Global Development found that the gap between coverage as reported by officials and as found by household surveys widened during the years the programme ran. It stayed the same for the measles vaccine, which attracted no extra payments. GAVI is redesigning the scheme and will use survey data to verify country records.

By setting and measuring targets, cash-on-delivery donors hope to spur healthy competition. Salud Mesoamérica, a public-private programme run by the Inter-American Development Bank, pays a bonus to Central American countries that improve health services for their poorest citizens. The bank’s officials say that the countries that participate care deeply about doing better than their neighbours.

Recipients may have more incentive to avoid failing than in a conventional aid programme, where it is easy to trumpet inputs as achievements. Perhaps the biggest gain from the new approach, says Mr Savedoff, is that it encourages politicians and officials to seek improvements that cost nothing at all, such as ensuring that government money arrives in schools and hospitals on time. They may even put the best person in charge, rather than a relative or ally, if that is what it takes to get paid.