Friday, August 21, 2009

What’s wrong with the aid industry in Nepal?

In my latest op-ed, I look at the performance of aid industry in Nepal. I was planning to write about this issue after Jajarkot health crisis. I was more interested in finding how much aid money poured in into the Nepali economy, its impact on poverty and growth. I will write in detail about these links in the coming days. However, for now, I believe that the people should seriously question the effectiveness of the aid industry in Nepal. Here is a good one that looks at donor-funded drinking water mess in the same district where diarrhea killed more than 300 people in three months.

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Nepal's Aid Industry

In less than three months, more than 300 people lost their lives due to diarrhea and cholera outbreak in remote districts. The government, constrained by a lack of resources and effective contingency plan, scrambled to tame down diarrhea and cholera outbreak in Jajarkot and surrounding districts. The spread of these diseases is not yet contained and still there is no encouraging response from one sector that should have aggressively intervened during difficult times like this. The sector I am talking about is the aid industry in general and the development agencies, both NGOs and INGOs, that are working in the social/health sector in particular.

The passiveness of this sector reflects its inefficiency and inconsistency in dealing with such incidents. Accountability, transparency, rigorous evaluation of aid effectiveness, coherence among aid interventions to avoid duplication and waste of resources, and efforts to make donors responsible for their interventions, both humanitarian and technical, are missing from the Nepali economy. The aid industry in Nepal is like a cherry-picking, trigger-happy enterprise i.e. handful of successful social and humanitarian interventions are heavily publicized while multiple failures of aid to deliver intended results are never made public, thus leaving no room for feedback mechanism from the aid recipients.

Who is keeping track of (most importantly, published details about) how much aid money is channeled, for what purpose, and how many of them have been successful in meeting their own targets? Neither the government nor the aid agencies have evaluated and made public the effectiveness of aid interventions. Already more than US$15 billion (more than one and half times the total value of goods and services produced in the country) is poured in into the economy but the progress is dismal. More than 40 percent of central government expenditure is covered by aid. A latest survey carried out by the government shows that out of every Rs 100 foreign aid, Rs 26 is unaccounted for in the government budgetary system. No one knows how much out of Rs 74 that passes through the government budgetary system is actually delivering the intended results. Note that only 14 percent of development assistance is coordinated among donors.

The amount of development aid has increased by multiple folds since the time aid started flowing into the county. During the periods 1970-79, 1980-89, 1990-99 and 2000-06, development aid, on average, amounted to US$172 million, US$494 million, US$483 million and US$475 million respectively. In 2007 alone, it amounted to US$598 million, up from US$ 65 million in 1969. Aid per capita has increased from US$16 in 2000 to US$21 in 2007. With so much money flowing in and so little success attributable to the aid industry, the fact of the matter is that the aid industry has failed to deliver on its promises, especially on poverty reduction and economic growth.

That being said, I am not arguing for the elimination of aid from the impoverished nation. Yes, we do need outside money to bridge the hole in our fiscal budget (almost 3.6 percent of GDP was covered by foreign grant and 1.1 percent by foreign loan in the last fiscal year) and to buttress development activities that are targeted to reach the most vulnerable people. I am also not arguing that all the development agencies have fallen short of making a difference; sure, there are some success stories. Thanks to aid intervention in the education sector, primary and secondary enrollment rates are going up. Also, its contribution in helping poor people weather through miseries brought about by exogenous variables like weather and economic shocks is commendable. However, what it has not done is to create an environment where poor people are ‘incentivized’ to engage in entrepreneurial activities, thus helping to carve a path for meeting their immediate social security needs by themselves. It has instead made them perennially dependent on aid. A case in point is the persistent episodes of starvation in Mid- and Far-Western Regions, where instead of funding projects, say introducing better technology, irrigation and fertilizers, that could boost agriculture productivity, the poor people are supplied with (or implicitly guaranteed) food aid year after year.

Let us look at two issues very dear to the aid industry. First, directly or indirectly, almost all the development aid agencies boast that their ultimate goal is to reduce poverty. According to NLSS II, between FY 1995/96 and FY 2003/04, headcount poverty rate declined from 42 percent to 31 percent, urban poverty from 22 percent to 10 percent, and rural poverty from 43 percent to 35 percent. A World Bank report attributes this successful feat to an increase in remittances, farm wages, urbanization and a decline in fertility. The direct contribution of the aid industry to bring about this change is dubious.

Second, the progress in the health sector is also not that encouraging. It might not do justice to the aid industry’s contribution to improving health services in Nepal if I wholly blame them for episodes like the spread of diarrhea in remote districts. Nevertheless, the Jajarkot incident shows how unprepared the aid industry was in dealing with the outbreak of a disease that could be prevented by taking simple sanitary measures. Where was all the money that has been pouring into the economy for prevention of such kind of diseases through public awareness campaigns and education going? What were rapid response teams and aid workers in the health sector doing when diarrhea outbreak was paralyzing the whole district? Despite so much money poured into the health care sector by the aid industry, why was there an absence of health posts and basic equipments to deal with such diseases? These questions beg answers from the aid industry. There was an utter failure to harmonize aid and relief activities in the diarrhea-hit districts. If development initiatives are not working, then the aid industry should be honest about admitting failure so that new strategies could be forged to make such initiatives effective next time.

The aid industry should harmonize their humanitarian activities so that assistance and care is provided to the neediest ones at the most appropriate time. Importantly, it should help the economy lessen its dependence on aid. One way to do this would be to aid activities that would stimulate entrepreneurial activities, with participation of poor people, in the economy. For instance, funding activities that would help poor people to produce marketable agricultural and industrial goods would jack up their household income, thus enabling them to take care of their family needs by themselves. Helping the poor people take control of their fate by providing them with the necessary tools and skills to unleash their entrepreneurial instincts would do more to improve development indicators than just providing them with readymade products, money and “expert” advice. Similarly, increasing funding to prop up manufacturing activities, which has been growing at a negative rate, to take advantage of the country’s accession to the WTO would be extremely helpful to the poor people.

The aid industry needs to seriously evaluate success and failure of development interventions in the Nepali economy and let the public know what is working and what is not. Injecting money (and increasing external debt, which amounts to over US$3645 million and is approximately 421 percent of total exports) without discernible outcomes is not helpful to the poor people. A better aid bureaucracy with clear rules of intervention, timely evaluation of projects, harmonization of aid activities to create synergies and lessen waste, and projects that would assist and give incentives to poor people to engage in building their own future, would do well to the Nepali people than just operating in an opaque, secretive manner.