By Paolo de Renzio, Global Economic Governance Programme, Oxford University
Nancy Birdsall’s response on this blog to the issues raised about cash-on-delivery aid in the 2010 Education for All Global Monitoring Report reflect the amount of work that has gone into addressing some potential pitfalls of the new approach to aid delivery championed by her organization, the Center for Global Development. However, it still does not fully address some of the more fundamental criticisms that I raised in a note written with Ngaire Woods of Oxford University at the time when the COD aid initiative was taking shape and which Nancy Birdsall alludes to in her blog post.
Cash-on-delivery aid is based on problematic assumptions about aid relationships that are not backed up by any extensive empirical evidence. It is premised on the assumption that tying aid disbursements to concrete development results will provide a strong incentive for recipient governments to focus their efforts on achieving those results. It also assumes that the low-income countries that cash-on-delivery aid is likely to target have not only the willingness, but also the capacity to improve the effectiveness of service delivery in key areas of public intervention such as education.
Now, if that were the case, then the incentive would not really be necessary, as these countries would already be attempting to use all available resources as efficiently and effectively as possible. What cash-on-delivery aid might do, in these cases, is provide some marginal additional resources that have fewer of the problems – such as unpredictability and donor micro-management – that other aid processes suffer from. In this sense, it could well be a welcome addition.
The problem is that there is ample evidence to show that in most of the countries that cash-on-delivery aid is likely to target, the assumptions it is based on simply do not hold. Governments have not only insufficient capacity, but also limited political interest in using available resources to maximize development impact. Of course, politicians in these countries (like in all others) do consider better health and education for poor people as a priority. But in practice they have to balance this objective with many others. Evidence has shown that political realities in low-income countries may dictate a different, short-term focus, linked to political survival, patronage networks, conflict and other factors.
For cash-on-delivery aid to work, the incentive it provides needs to be large enough to induce the kind of behavioural (and probably institutional) change that leads to a reorientation of government priorities towards better public service delivery. If instead, as envisaged, cash-on-delivery aid is to be another, additional process, representing a small percentage of overall aid flows, not only is its incentive effect likely to be too small to make any difference, but its existence is likely to put additional strains on overstretched bureaucracies, which would face conflicting and competing incentives linked to different aid processes, with little space for the kind of innovation and policy experimentation that cash-on-delivery aid aims to promote.