United States General Accounting Office

GAO Report to Congressional Committees

February 1995 FOREIGN

ASSISTANCE

Selected Donors’

Approaches for

Managing AID

Programs

GAO/NSIAD-95-37

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-259004 

February 23, 1995

The Honorable Jesse A. Helms, Chairman

The Honorable Claiborne Pell

Ranking Minority Member

Committee on Foreign Relations

United States Senate

The Honorable Mitch McConnell, Chairman

The Honorable Patrick J. Leahy

Ranking Minority Member

Subcommittee on Foreign Operations

Committee on Appropriations

United States Senate

The Honorable Benjamin A. Gilman, Chairman

The Honorable Lee H. Hamilton

Ranking Minority Member

Committee on International Relations

House of Representatives

The Honorable Sonny Callahan, Chairman

The Honorable Charles Wilson

Ranking Minority Member

Subcommittee on Foreign Operations,

 Export Financing and Related Programs

Committee on Appropriations

House of Representatives

The Congress and the executive branch have been deliberating how to

reform the U.S. foreign assistance program in light of the rapidly changing

global environment and recurring management problems. The purpose of

this report is to provide U.S. decisionmakers information about how six

other bilateral donors (Canada, Germany, Japan, Sweden, the Netherlands,

and the United Kingdom) and the European Union, a multilateral donor,

manage their foreign aid programs. Specifically, the report deals with the

issues of (1) the difficulty of planning in an uncertain environment,

(2) common structural dilemmas in foreign aid programs, and (3) common

management weaknesses.

Page 1 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

Background The Congress and the executive branch have indicated that the U.S.

Agency for International Development (USAID), the primary agency for

providing foreign economic assistance, and its program need to be

reformed. They agreed that the objectives of the United States were

outdated and that the management of the program had been inadequate

(e.g., the lack of central direction, inadequate management controls, and

poor personnel practices). As part of this reform effort, in 1994, the

President sent to the Congress a legislative proposal entitled “Peace,

Prosperity, and Democracy Act,” which would have repealed most of the

1961 authorizing legislation1

 and formed a new basis for a restructured

U.S. aid program. The proposed legislation was not enacted by the 

103rd Congress.

Recognizing the need for proactive change to address the concerns of

USAID’s critics, the USAID Administrator declared the agency a reinvention

laboratory under the President’s National Performance Review.2

 In doing

so, the Administrator committed the entire agency to rethink, streamline,

and improve its operations.

Results in Brief All six governments and the European Union, to varying degrees, have

begun reexamining their foreign aid programs for many of the same

reasons as the United States. These reasons are the need to reassess the

rationale of post-Cold War aid programs; increased demands for aid,

including those from former communist countries in Eastern Europe and

the former Soviet Union that currently are considered transitional, not

developing countries; diminished financial or staff resources; charges of

mismanagement; and, except for Japan, diminishing public support. The

experiences of the seven donors we studied offer the following insights:

• The desired balance among the commercial, security, and development

objectives of a foreign assistance program is ultimately a political decision

that will involve government bodies other than aid agencies and will need

to be revisited as conditions change.

• While strategic planning can be a useful internal management tool, as

shown by the Canadians, its effectiveness would be greatly enhanced if

policymakers addressed the desired balance among multiple objectives

through a central, broad-based, and integrated foreign policy.

1

The Foreign Assistance Act of 1961, as amended, establishes the legal framework for the U.S. aid

program.

2

The National Performance Review is a governmentwide management reform exercise initiated by the

administration under the leadership of the vice president.

Page 2 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

• Supporting commercial self-interests continues to be an important

objective of donors’ foreign aid programs, in spite of an Organization for

Economic Cooperation and Development (OECD) agreement to restrict the

use of trade-distorting tied aid—an agreement initiated by the United

States.3

• Devising effective intragovernmental coordination systems that strive for

an integrated, coherent policy, acceptable governmentwide, may be a

more critical factor in aid effectiveness than the organizational placement

of aid agencies because all of the donors’ lead aid agencies, including

those with cabinet status, lack the political clout of foreign, trade, and

finance ministries.

• The growing complexity of aid programs and the proliferation of agencies

involved, as seen most recently in the aid programs of Sweden, the

European Union, the United Kingdom, and Germany, further reinforces

the need for central policy-setting and interagency coordination systems.4

• While several of the donor officials we talked with acknowledged some

operational advantages of USAID’s vast network of overseas offices, all

seven of the donors we studied have pragmatically targeted their overseas

presence based on the type of program and recipient, their overall foreign

policy interests, and the budgetary resources available to staff and support

these offices.

• The governments of Canada, the Netherlands, Sweden, and the United

Kingdom recognize that the changing role of aid agencies from

implementers to brokers of development assistance requires new

approaches for accountability, program management, performance

measurement, and personnel management.

• A commonality of management weaknesses exists among most of the aid

agencies in the countries we studied.

Aid Planning in an

Uncertain

Environment

The worldwide recession, growing deficits, and the resulting budget cuts

force most donors to make choices among aid programs and recipients.

This has reinforced the donors’ realization that careful planning is

becoming increasingly important. Aid agencies must balance their

governments’ development assistance goals with newer foreign aid goals

3

OECD was established in 1961 to promote economic growth and world trade among member states as

well as nonmember states. The Development Assistance Committee (DAC), one of a number of

specialized committees, was set up by OECD to increase the flow of financial resources to developing

countries and to establish common guidelines for implementing the aid programs.

4

Sweden, for example, has four different agencies, each of which specialize in providing one of the

following: (1) development assistance to a select group of countries with which the donor has a

long-term relationship; (2) aid to commercial and industrial sectors in developing countries;

(3) technical cooperation, concessionary credits, and training; and (4) research cooperation between

Sweden and developing countries.

Page 3 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

associated with the environment, U.N. peacekeeping, and democracy. The

balancing of these goals is then weighed against their governments’

self-interests and domestic needs, placing additional pressure on declining

aid budgets. In recognition of this dynamic environment, aid agencies are

attempting to improve planning procedures.

Until recently, linking development assistance plans to budgets was

relatively easy for most donors. Program- and country-level funding was

based on incremental changes to the previous year’s budget, while funding

for new recipients and programs was added to the budget. Now, most

donors are struggling with addressing new demands—including those

from middle to upper income countries in Europe moving away from

communism—with stable or declining aid budgets. Aid agencies have

initiated the following mechanisms to manage conflict and competition

over limited aid resources:

• Establish criteria upon which to base decisions on country allocation of

development assistance funds (Canada, Germany, Japan, Sweden, and the

Netherlands).

• Structure budget allocations by region to eliminate the sense of recipient

entitlement (Canada, Sweden, and the Netherlands).

• Target assistance based on type of program and income-level of recipient

(Germany, Japan, Sweden, and the United Kingdom).

Lead aid agencies in Canada, and aid-associated, for-profit companies

owned by the German and British governments, are adopting

corporate-style strategic planning as a way to better cope with the

dynamic environment. Although strategic planning was viewed as a

valuable management tool by Canadian officials, their experience

indicates that planning must be balanced by realistic projections of

operating budgets and that a policy framework is needed for agency-level

strategic planning. See appendix I for a more detailed discussion of the

planning aspects of other donors’ aid programs.

Four Common

Structural Dilemmas

in Aid Programs

The seven aid donors we studied use a variety of organizational structures

for implementing their foreign aid programs. Tasks, such as policy-setting,

implementation, and monitoring, are distributed differently. Regardless of

the approach, however, most donor governments are struggling with

organizational dilemmas that are similar to those facing the U.S. program:

(1) ensuring coordination and relieving organizational tension among

government agencies, particularly aid agencies and foreign ministries,

Page 4 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

caused by overlapping jurisdictions and conflicts over aid priorities;

(2) increasing institutional specialization as new development problems or

functions are turned over to newly created aid agencies; (3) determining

the most efficient and effective approaches for in-country representation;

and (4) determining how much implementation of development activities

should be carried out by nongovernment personnel.

The aid programs we studied generally involve agreements between

sovereign nations; that is, between the donor nation and the recipient.

However, within the donor nation, several ministries, sometimes with

conflicting views on aid priorities, share in aid decision-making. Debates

over the most appropriate organizational placement of aid agencies often

mirror debates over aid priorities. However, the experiences of Germany,

the Netherlands, Sweden, and the United Kingdom indicate that structural

realignment is not a panacea for relieving organizational antagonism over

aid objectives. Officials in these countries and other sources indicate that

a governmentwide development strategy, coupled with effective

coordination systems, was needed. They pointed out that even

cabinet-level status for their respective aid agencies carried little weight

within the national government hierarchy. The growing number of

specialized aid agencies and the resulting decline in the influence of a lead

aid agency underscore the need for establishing governmentwide

strategies for development assistance.

Officials we spoke with from seven donors we studied had some type of

representation in recipient countries, but none were as decentralized as

USAID or delegated as much management discretion to field officers. Most

donor officials acknowledged the advantages of USAID’s overseas network,

but, as a way to control the cost of overseas operations, their governments

provided different types of field representation based on program

characteristics and ties with the recipient. For example, (1) Canada, the

European Union, the Netherlands, Sweden, and the United Kingdom

concentrate development assistance staff in a few select target countries;

(2) Canada, the Netherlands, and Sweden use locally stationed diplomatic

personnel in all but major recipient countries as development liaisons;

(3) Germany’s and Japan’s development liaison efforts are typically

undertaken by aid staff temporarily assigned to diplomatic missions or by

locally stationed diplomatic personnel; (4) the United Kingdom’s

development liaison efforts are carried out through diplomatic missions,

with regional offices providing technical support; and (5) Japan and the

United Kingdom use visiting missions from headquarters to perform

Page 5 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

development-related tasks, such as data collection and project appraisals,

in recipient countries.

We found no consensus among the seven donors on how much, to whom,

or what to decentralize. Canada, for example, has retreated from its recent

attempt to decentralize operations because of the high cost. The United

Kingdom’s primary aid agency is currently reviewing its operations to

determine whether tasks should be located at headquarters or in-country.

The Dutch are attempting to increase both the number of staff members in

recipient countries as well as their decision-making authority.

All seven donors are increasingly using contractors and nongovernmental

organizations (NGO) to implement development assistance activities and

augment their in-country presence. However, the donors generally lacked

a structure to successfully manage these relationships. Our analysis of the

work of public administration experts indicates that increasing the role of

contractors and NGOs—such as using NGOs to oversee program

implementation carried out by other NGOs—calls for a recognition among

policymakers of the risks and trade-offs associated with third-party

implementation.5

For example, a trade-off typically exists between the amount of risk that

governments will tolerate and the amount they are willing to invest in

management systems to monitor costs. These investments may make

contractor and NGO partnerships more expensive, at least in the

short-term, than direct agency implementation. Donor officials and other

sources also indicated that aid agencies do not have staff members with

the skills needed to determine what to finance and to evaluate the actual

delivery against what was promised. Appendix II presents more

information about issues related to the organizational structures of the

various donors.

Commonality of

Management

Weaknesses

The degree to which governments engage in self-assessment of program

management and disseminate the results varies greatly. However, donors

have reported long-standing problems with inadequate administrative

capacity among aid agencies. Since the Cold War no longer provides an

overriding political rationale for foreign aid, addressing management

problems takes on a new urgency now that politicians and the general

public are looking for greater evidence of development results. The lack of

5

See John J. DiIulio, Jr., Gerald Garvey, and Donald F. Kettl, Improving Government Performance: An

Owner’s Manual (The Brookings Institution, Washington, D.C., 1993) and Donald F. Kettl, Sharing

Power: Public Governance and Private Markets (The Brookings Institution, Washington, D.C., 1993).

Page 6 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

criteria for measuring project and program results, preoccupation with

formulating new projects, and inadequate monitoring of program and

project implementation were consistently cited as problems among the

donors.

Other donors echoed USAID’s complaint that rapid expansion of

programming and management requirements during the 1970s and 1980s

without a corresponding increase in staff created many of their

effectiveness problems. Aid, audit, and evaluation officials have repeatedly

raised the issue that the organizational culture (i.e., the underlying

assumptions, beliefs, values, attitudes, and expectations) within aid

agencies has not reinforced good management practices. Consequently,

increasing staff levels without undertaking the arduous, long-term task of

changing the way staff view their jobs was unlikely to improve overall

management.

In Canada, Sweden, and the United Kingdom, aid agencies are using a

combination of techniques designed to improve overall management. They

are providing training relevant to new roles and missions, creating

integrated management information systems, and changing their reward

systems to reinforce new behaviors among staff. However, officials in

these countries indicated that operating expense reductions must be

balanced with program reductions if management efficiencies are to be

realized.

As part of governmentwide public administration reforms, aid agencies in

Canada, Sweden, and the United Kingdom have recently begun to develop

results-oriented evaluation systems. These systems are expected to offer

the agencies the opportunity to experiment with new development

assistance theories and delivery approaches, while providing policymakers

better assurances that final decisions will be based on what actually

works. In the Netherlands, we were told that the aid agency was exempt

from the governmentwide requirement to focus programs on results

because of the difficulty of determining an individual donor’s impact on

macroeconomic changes within a recipient country. A further discussion

of common management weaknesses is presented in appendix III.

Scope and

Methodology

The seven donors—Canada, the European Union, Germany, Japan, the

Netherlands, Sweden, and the United Kingdom—were selected for this

study because they are major contributors of official development

assistance. Together, these donors accounted for over 80 percent of the

Page 7 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

total official development assistance disbursed in 1992, including their

contributions to the United Nations and the World Bank. In comparison,

the United States provided about 20 percent of total official development

assistance disbursed in 1992. Furthermore, we had indications that their

governments were proposing, or had implemented, actions designed to

address many of the same issues facing USAID.

In Washington, D.C., we interviewed pertinent embassy officials of the

seven donors, officials at USAID and the Department of State, and experts in

the international community. We gathered general information on

managerial initiatives in the public sector through literature searches of

academic studies, consulting and research firms, and GAO publications.

During our field work, we interviewed donor representatives to OECD and

officials from the Development Assistance Committee’s Secretariat in

Paris, France. We also interviewed officials representing the governments

or aid stakeholders in each of the donor countries except Japan. These

officials included those from the primary aid agencies, foreign ministries,

audit organizations, academia, and nongovernmental officials. In the case

of Japan, we interviewed officials at the Japanese Embassy in Washington,

D.C. In addition, we reviewed and analyzed current OECD reports,

assessments, and other documents, including evaluation, policy, and

management reports of the seven donors.

Officials we spoke with from all the donor countries and the European

Union were exceedingly supportive of our study; however, the extent to

which government information was accessible varied. Sweden, for

example, frequently publishes management and program reviews in

English to ensure a wider distribution. The information contained in this

study on management problems and solutions is based on the

self-reporting of the respective governments and on academic studies

undertaken in the United States and in Europe. We did not evaluate the

quality of reforms undertaken by these donors, nor did we draw specific

conclusions about the status of these reforms.

We conducted our study from March 1993 through August 1994 in

accordance with generally accepted government auditing standards. Since

our study did not directly address the U.S. aid program, we did not obtain

written agency comments. However, we submitted this report to officials

from USAID’s Office of Donor Coordination and they had no comments.

Page 8 GAO/NSIAD-95-37 Foreign Assistance
B-259004 

Please call me on (202) 512-4128 if you or your staff have questions on this

report. Major contributors are listed in appendix IV.

Harold J. Johnson, Director

International Affairs Issues

Page 9 GAO/NSIAD-95-37 Foreign Assistance
Contents

Letter 1

Appendix I 

Aid Planning in an

Uncertain

Environment

12

Meeting the Challenges of a Dynamic Environment Through New

Aid Strategies

12

Adapting Strategic Management to the Public Sector 19

Threats and Opportunities for Aid Agencies 22

Appendix II 

Four Common

Structural Dilemmas

in Aid Programs

28

Trade-Offs Between Organization Structure and Interagency

Coordination

28

In-Country Presence 35

Public-Private Relationships With Nongovernmental

Organizations

41

Appendix III 

Commonality of

Management

Weaknesses

45

Overview of Development Assistance Management Tasks 45

Organizational Cultures Do Not Value Management Functions 47

Agencies Experience Staffing Shortages and Poor Personnel

Practices

47

Budget Targets Focus of Aid Oversight 49

Efforts to Improve Development Assistance Management 51

Appendix IV 

Major Contributors to

This Report

55

Tables Table I.1: Comparison of Number of Recipients and Aid

Allocation Criteria

16

Table II.1: Roles and Functions of Aid-related Agencies of

Selected Donors

30

Table II.2: Overseas Development Offices and Staff Levels of

Selected Donors

36

Figures Figure I.1: Strategic Planning Model 20

Figure III.1: Project Cycle 46

Page 10 GAO/NSIAD-95-37 Foreign Assistance
Contents

Abbreviations

BITS Swedish Agency for International Technical and Economic

Cooperation

BMZ Federal Ministry for Economic Cooperation

CIDA Canadian International Development Agency

DAC Development Assistance Committee

GTZ German Agency for Technical Cooperation

JICA Japan International Cooperation Agency

KfW The Reconstruction Loan Corporation

NGO nongovernmental organization

ODA Official Development Assistance

OECD Organization for Economic Cooperation and Development

OECF Overseas Economic Cooperation Fund

SIDA Swedish Agency for International Development

USAID U.S. Agency for International Development

Page 11 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

Some foreign aid proponents argue that the moral case for aid has

remained unchanged; however, the commonly accepted political case

ended with the Cold War and the economic case is being increasingly

challenged. As aid agencies struggle to demonstrate the benefits of their

programs to both recipient and donor, recent events, such as diplomatic

breakthroughs in the Middle East and South Africa, further change the

political environment associated with development assistance within

national governments and the international donor community. In

recognition of this dynamic environment, aid agencies are attempting to

plan reforms that generally fall within one of two categories. The first

category centers around improving forward planning of the budget

process by developing mechanisms to rationalize country allocation

decisions, focus programs, and reduce the administrative burden of aid

programs. The second, which frequently includes elements of the first,

focuses on adapting corporate-style strategic planning procedures to the

public sector.

Although a perception exists among some analysts that the end of the Cold

War and the dissolution of the former Soviet Union provide donors the

opportunity to focus primarily on the development aspects of foreign

assistance, aid agencies continue to face the need to balance aid objectives

with the self-interests of their governments. The continuing tug-of-war

over aid goals is becoming more complicated as most aid agencies try to

manage multiple and growing demands with diminishing resources. For

example, while using aid to promote a donor’s exports was viewed by

development experts and economists as not the most effective form of

assistance to the recipient, aid officials feel compelled to demonstrate how

domestic industry benefits from their programs. This pressure is likely to

increase if, as predicted by many foreign policy experts, competition over

trade replaces military conflict as the greatest threat to international

cooperation.

Meeting the

Challenges of a

Dynamic Environment

Through New Aid

Strategies

For the last 40 years, one of the rationales for providing development

assistance was to contain communism. The Netherlands, for example,

targeted development assistance to counter the actions of the two super

powers. In the late 1980s, the status quo within the international donor

community was jolted by the collapse of communism in the former Soviet

Union and its satellite countries. As a result, Cold War geopolitics no

longer provided a rationale for why aid to developing countries benefited a

donor. Former communist adversaries became new claimants for the

shrinking bilateral aid funding levels of most Western donors.

Page 12 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

Concessional assistance to Central and Eastern Europe and the countries

of the former Soviet Union1

 is not considered to be official development

assistance by the Development Assistance Committee (DAC).2

 In part, this

is because countries in this region are not among the current list of DAC

recipients and some of them are middle-income countries, which fall

outside DAC’s definition of “developing countries.” However, proposals to

establish more inclusive DAC definitions of “official development

assistance” and “developing countries” are politically sensitive.3

Supporters of traditional aid programs are concerned that including aid to

the former communist countries in Europe under the rubric of

development assistance will result in a shift of emphasis from traditional

aid recipients, particularly those in Sub-Sahara Africa. According to U.S.

officials, some East European countries also resist being designated as

developing countries. The U.S. position is that all aid that meets the

criteria of concessionality and development motivation to any, and all,

countries should be counted as official development assistance and that

DAC should not try to establish a definition for developing countries. At the

time of our field work, a Japanese official stated that opinions within the

international development community seemed to be moving in the

direction of a more inclusive definition of official development assistance.

This change in opinion may reflect the shifting of U.S. and European

national security interests from developing nations—the former outposts

of the Cold War—to the former communist countries in Eastern and

Central Europe and the former Soviet Union. U.S. officials from both the

executive and legislative branches have stressed the national security

importance of this region’s successful transition to market economies

within democratic systems. In addition to viewing this assistance as being

a high security priority for the continent, West European officials have

emphasized that the collapse of communism resulted in the reunification

of Europe, which had been artificially divided by communism.

Further challenging the development assistance status quo is the growing

skepticism over the validity of development assistance as an engine of

1

Most assistance to Central and Eastern Europe and the countries of the former Soviet Union has been

in the form of financing mechanisms, such as loans and trade credits.

2

DAC, one of several specialized committees of the international Organization for Economic

Cooperation and Development (OECD), was established to increase the flow of financial resources to

developing countries and to improve their effectiveness.

3

These definitions are important because they form the basis for the international comparison of

bilateral aid efforts, for explaining basic aid rationales, and for judging the quality of bilateral

development assistance.

Page 13 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

economic growth and, therefore, as a benefit to the recipient. The Dutch

ambassador to OECD told us that industrialized nations are wasting their

money on foreign aid. In his view, what the developing world needs most

from the industrialized nations are trading opportunities, not aid. The

World Bank’s chief economist for Asia made similar observations about

aid programs. He is quoted as saying that if trade protections were halved,

the resulting increase in exports from developing countries would equal

the net aid these countries currently receive—about $50 billion. According

to a Swedish official, an evaluation funded by the Swedish government

found its African assistance program had little positive impact after over

30 years of development activity. We were also told that a self-evaluation

conducted by four Dutch nongovernmental organizations (NGOs)

concluded that the impact of their development activities had been

marginal at best.

Other departures from the development assistance status quo include the

following:

• The U.S. share of the world’s development assistance has steadily declined

from almost 60 percent in 1960 to approximately 20 percent today.

• Japan, once an aid recipient, has provided volumes of aid on par with the

United States since the late 1980s.

• The signing of the Maastricht Treaty established, in principle, the concept

of a political union, implying a common foreign and security policy.

• Erupting ethnic conflict in many areas of the world resulted in the

expanding peacekeeping role of the United Nations.

• The reunification of Germany and diplomatic breakthroughs in the Middle

East and South Africa occurred.

• The timing of these historical events with a worldwide recession, rising

unemployment, and growing need for debt reduction created fiscal

constraints on most donor governments.

Since a critical component of planning—whether budgetary or

strategic—is establishing a clear policy direction, all the donors in our

study have revised, or are reviewing, development strategies to update and

clarify policy direction. In 1992, Japan’s Cabinet approved, for the first

time, an aid charter that stated its overall policies. Canada and the

Netherlands recently issued new development assistance charters, while

the European Union articulated its revised aid policy through the

negotiation and ratification of new trade and development protocols and

the development of new regional strategies.

Page 14 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

In the last few years, the concept of sustainable development has emerged

within the international donor community. Sustainable development

strategies typically contain three types of objectives: (1) economic goals

that include encouraging economic growth with equity and improving the

efficiency of development aid; (2) social goals that address enhancing

participation, strengthening democracy, promoting women in

development, and encouraging institutional and human resources

development; and (3) environmental goals that include controlling

population growth and protecting biodiversity. Adopting sustainable

development, however, has meant that donors have added new objectives

to existing objectives, placing further pressure on fixed or declining aid

budgets.

Managing Conflict and

Competition Through

Budgetary Planning

Reforms

The majority of aid agencies for the seven donors we studied have

initiated various mechanisms to manage conflict and competition over

limited financial and operational resources. In the days of expanding aid

budgets, we were told that bilateral donors largely based country

allocation decisions on incremental changes to the previous year’s funding

level and dealt with new recipients through add-ons to the program.

Declining aid budgets and rapid expansion in the number of recipients,

however, have forced many donors into difficult decisions over which

programs to fund and then defending the appropriateness of these

decisions. In response, aid agencies have developed a number of strategies

to rationalize country allocation systems, focus aid programs, and reduce

the administrative burden of traditional bilateral country programs.

The aid agencies of Canada, Germany, the Netherlands, Sweden, and

Japan have established criteria to ensure recipient selection is consistent

with their respective development priorities (see table I.1). The criteria are

generally based on a combination of (1) recipient need, as defined by such

indicators as income level, agricultural production, and population growth

rates and (2) recipient performance in terms of democracy, respect for

human rights, development of free markets, and level of military

expenditures. The assumption behind development criteria is that the

overall effectiveness of economic assistance will be increased by tying

country allocations to the economic, social, and political conditions within

the recipient country that development experts believe are critical to the

success of economic development activities. If the recipient government is

unable or unwilling to address the conditions that impede development,

then aid agencies can channel their resources to other countries where

these resources will be better used.

Page 15 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

Table I.1: Comparison of Number of

Recipients and Aid Allocation Criteria

Donor

Number of

recipient

countries

Number of

program

countries

Number of

program

regions

Country allocation

criteria

Canada 107 30a

1

(Plans to

create

other 

program

regions)

• Need

• Commitment and

capacity to manage

aid effectively

• Quality of social and

economic policies

• Human rights record

• Popular participation

• Market-oriented

economies

• Environmental

conservation

• Political and

economic relationship

with recipient

Germany 113 n/a n/a

• Human rights

• Democracy

• Legal certainty

• Economic and social

order

• Development

orientation of state

action

Japan 117 n/a n/a

• Military expenditures

• Democracy and

market-based

economies

• Basic human rights

• Social and economic

need

Netherlands 96 3 8

• Need based on

UNDPb poverty

indicators

• Historical

relationships

• Economic and

socipolitical policy

performance

• Environment

• Women-indevelopment

Sweden 68 19 n/a

• Human rights,

democracy, and equal

opportunities

• Development of

market economy

• Aid effectiveness

(continued)

Page 16 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

Donor

Number of

recipient

countries

Number of

program

countries

Number of

program

regions

Country allocation

criteria

United Kingdom 114 n/a n/a

• Need

• Commonwealth

countries

• Absorptive capacity

• Economic and social

policies

• Human rights

• Accountable

government

European Union 121 n/a 3

• Degree of recipient’s

association with Union

members (historical

links, aid-trade

framework

agreements, other

commercial interests,

and security concerns)

Source: Compiled by GAO based on donor-provided data.

aCanada’s policy is to have 30 priority countries; however, the aid agency has had difficulty

staying within this threshold.

bU.N. Development Program.

As shown in table I.1, another allocation method that some donors use to

better focus economic assistance is initiating special relationships with

certain countries—that is, establishing “program countries.”4

 For example,

Sweden and the Netherlands have 19 and 3 program countries,

respectively. The Swedish government has taken the additional step of

assigning organizational responsibilities for program and nonprogram

countries functionally to different agencies. To illustrate, the primary aid

agency is responsible for traditional development assistance to program

countries and special programs such as emergency and

balance-of-payment support, while one of two agencies is assigned

responsibility for nonprogram countries and trade-oriented aid to program

countries, based on whether the assistance is for technical cooperation

and concessionary credits or for commercial and industrial sector

activities.

While a Swedish report concluded that the Swedish organizational

structure is unique, the German and British governments also envision

4

Selecting “program countries,” or establishing special, long-term relationships with a recipient, should

not be confused with developing “country strategies” or articulating the types of development

activities to be undertaken within any recipient country.

Page 17 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

categorizing aid recipients and their corresponding aid programs into

functional categories based on their levels of development. For example,

the British aid agency suggests that the role and future of aid is changing,

based on three categories of recipients. The categories are (1) trade and

investment promotion programs for recipients with prospects of becoming

aid graduates; (2) traditional economic development programs for

countries lacking capital investment, appropriate human skills, and a

conducive policy environment needed to take advantage of a good

resource base; and (3) humanitarian relief for recipients that are in such

severe difficulty (population growth, resource impoverishment, and

climatic change) that aid is a permanent subsidy.

Although concentration on a region or a cluster of countries has been a

common practice, many donors, to some extent, have structured their

internal organizational structures and planning procedures to promote a

regional perspective and to meet a number of programming and

operational goals. The Netherlands, for example, switched from

maintaining bilateral relationships with almost 100 countries to placing all

nonprogram countries into 8 regional programs. Under Dutch regional

programs, each region receives a fixed allocation, but the recipients within

the region do not. Dutch documents and OECD officials stated that this

system gives them more political and budgetary flexibility. They can more

easily shift funds within each region because a sense of entitlement is not

created as it is with recipients of country-specific programs and funding

ceilings. Recipients within each region compete for project or program

funding and their success is dependent on the quality of project/program

designs. According to an OECD official, Canada also established a Southern

Africa regional program and adopted a regional focus in Africa as a whole.

In addition to increased flexibility, OECD officials stated that operational

costs for the aid agency were reduced by shifting to a regional approach.

The Canadian, German, and Swedish aid agencies seek to improve the

annual planning and budgeting cycles by focusing on a recipient country,

rather than on individual projects or sectors.5

 Moreover, the Canadian aid

agency reported that its newly created Country Policy Frameworks

increase coordination not only within the agency but also with recipient

countries, NGOs, the private sector, and other donors. In Sweden,

country-level analyses of special program funds, which were outside the

bilateral country programs approved by Parliament, are being developed

5

The U.S. Agency for International Development (USAID) also seeks to improve planning and

budgeting by focusing on the country as the unit of analysis. For example, USAID’s annual budget

process will reflect programming decisions made by mission officials that are based on country-level

objectives tied to performance indicators.

Page 18 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

by the foreign ministry. Parliament sought to become involved in these

country allocation decisions because the financing of special funds

exceeded that of bilateral programs in the late 1980s.

Other types of budgetary planning improvements are also being

implemented. The British aid agency is revising its annual planning cycle

to set out in one document the link between program and operating cost

estimates. It is hoped this change will enable the agency to address its

priorities within available operating funding. The aid agency in Canada is

also trying to increase both the quality and quantity of information

submitted to parliament and the general public.

Adapting Strategic

Management to the

Public Sector

Some aid agencies and associated public companies in Canada, Germany,

and the United Kingdom are adapting corporate strategic planning

concepts to the public sector.6

 The key distinctions between strategic

planning and traditional planning are emphasis on action; consideration of

a broad and diverse set of interested parties (stakeholders); and attention

to external opportunities and threats, internal strengths and weaknesses,

and actual or potential competitors. Figure I.1 depicts a generic

framework of the strategic management process.

6

USAID is in the process of implementing a strategic management process as recommended by GAO in

AID Management: Strategic Management Can Help AID Face Current and Future Challenges

(GAO/NSIAD-92-100, Mar. 6, 1992).

Page 19 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

Figure I.1: Strategic Planning Model

3. Articulate strategic


direction

2. Scan environment

4. Develop strategies


7. Monitor implementation


and provide feedback

6. Establish accountability


and implement plans

5. Develop action plans


and link to budget

1. Obtain commitment to 


planning:


among decisionmakers


whose support is nec- 


essary for successful


formulation and


implementation 

Source: GAO.

Page 20 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

In the early 1990s, the Canadian aid agency undertook perhaps the most

extensive strategic management review of any of the donors we studied.

The agency assessed its ability to meet future challenges and

recommended ways to improve its management practices and philosophy.

It also investigated and tested various options for most effectively fulfilling

its mandate in the face of drastic changes.

The Canadian aid agency’s experience with strategic planning, however,

indicates the importance of following through with key elements of the

strategic management framework. As part of the review, Canadian aid

officials assessed the efficiency and cost-effectiveness of the agency’s

recently decentralized operation (1988), which was modeled after USAID’s

overseas mission structure. Although the review was supportive of the

success of the decentralization, it noted that the labor-intensive and

high-cost nature of this model led the agency to reassess the

decentralization. As a result, the agency had to return to centralize

operations in less than 4 years because it did not have a sufficient budget

to maintain an intensive network of offices.

Although Canadian aid officials presented the results of the strategic

management review as well as other background material to the central

government, only recently with a change in governments were they able to

get foreign policymakers to set in motion the policy review they believed

was needed to provide a framework for reform. In 1993, the Canadian

foreign ministry, outside the aid agency’s strategic management process,

directed significant shifts in Canadian aid policy without consultation.

According to a Canadian official, a debate erupted when the policy

revision was leaked to the press, forcing the government to retract the

policy and to promise a full public consultation on aid policy before

contemplating any more changes.

The Canadian aid agency’s 1994-95 renewal plan includes a strategy for

improving relations with stakeholders and the public through the

development of a strategic communication plan. The agency plans, for

example, to conduct attitude and opinion research with general and

special target groups. A survey was to be undertaken in early 1994 to

obtain the views of stakeholders as to improvements in the process and

substance of agency consultations. This survey will be repeated in 1995.

The German Agency for Technical Cooperation (GTZ) and the British

Crown Agents, two public entities that administer development assistance

activities and contracts, are considered for-profit operations by their

Page 21 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

governments. According to GTZ officials, the use of strategic planning by

these two entities has lead to innovative approaches, such as establishing

a commercial partnership between the two companies. During its strategic

planning exercise, for example, German officials stated that the German

technical cooperation company focused on redefining its corporate

identity, rather than on its current identity as an implementer of German

technical cooperation.

A key strategic issue identified during this strategic planning process was

the increasingly important role of international organizations in designing

and financing development assistance cooperation activities at the

expense of certain bilateral programs, including that of Germany. We were

told that management realized the difficulty the German company would

have competing for increasingly restricted budget resources with other

government programs. The result was a business plan to expand its market

to include other donors. The company was able to negotiate with the

cognizant parliamentary committees and its supervisory board to allow it

to follow an independent course. In the spring of 1993, the German

company opened an office in Brussels, indicating the increasingly

important role the development cooperation activities of the European

Union are expected to play in the company’s future.

The British Crown Agents is also on its way to meeting its key strategic

objective of income diversification. According to a British report, the

impact of British aid funding reductions on the company has been reduced

by its contracting for the development work of other donors, including the

World Bank, the European Union, and the Japanese and Dutch

governments.7

Threats and

Opportunities for Aid

Agencies

Although aid agencies face multiple threats and opportunities, two stand

out as being particularly relevant to the U.S. debate over development

assistance policy. First, commercial self-interest appears to be replacing

security goals as the most important rationale for aid programs.8

 The most

common argument given for using foreign assistance to promote donor

exports is that it will win political support for aid programs by

demonstrating a direct benefit to the donor’s economy. Second, aid

programs have been, and will remain, a tool of foreign policy.

7

Annual Report and Accounts, 1992 (Crown Agents for Oversea Governments and Administrations,

n.d.).

8

See International Trade: Competitors Tied Aid Practices Affect U.S. Exports (GAO/GGD-94-81,

May 25, 1994).

Page 22 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

Consequently, most aid agencies find it just as difficult to change existing

country allocation decisions based on development criteria as they did

during the Cold War era.

Continuing Importance of

Commercial Payoffs Is

Likely

Donors included in our study place more weight on commercial objectives

than does the United States. Some development experts assert that the

U.S. program has had a relative lack of emphasis on the commercial

payoffs of assistance. In fact, the United States motivated OECD to establish

restrictions and guidelines on the tying of aid for commercial advantage.9

Although the amounts of official tied aid reported to DAC have been

declining, it is possible that the reported levels do not represent the full

scope of bilateral donors’ tying of assistance. Many experts have stated

that economic assistance may remain effectively tied (informally tied) by

(1) controlling the choice of programs and projects, or commodities and

services, where the donor’s businesses have a comparative advantage;

(2) creating procurement procedures that make it difficult for nondonor

country firms to compete; (3) funding feasibility studies and joint ventures

that establish conditions favorable to the donor’s business community;

and (4) using business employees in an official capacity for short-term

assignments, as is reportedly occurring in Japan, who can then advance

projects beneficial for their firms.

Anecdotal evidence provides numerous examples of the use of informally

tied aid. Although Japan reports the lowest amount of officially tied aid,

Japanese trading houses and consulting firms often play a leading role in

helping developing countries identify potential aid projects. According to

some experts, since the specifications are developed by Japanese firms,

these firms have a clear advantage when bidding for projects. Other

donors, such as Canada, are also encouraging their private sector to

become involved in aid programs by establishing contacts with domestic

companies in various industrial sectors and funding exploratory,

feasibility, and project investment studies for these companies. The

Canadian aid agency has also set up a Business Cooperation Branch to

facilitate the private sector’s role in development. To further illustrate, an

OECD review stated that it was not clear if the Dutch reporting on

9

The formal definition of tied aid refers to foreign assistance that is linked to the purchase of exports

from the country extending the assistance. Partially tied aid consists of loans or grants that are, in

effect, tied to procurement of goods and services from the donor country and from a restricted number

of other countries, primarily the recipient and possibly other developing countries.

Page 23 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

procurement tying for technical assistance corresponded to the letter and

spirit of the definition agreed to by OECD members.10

In Sweden, a proponent of development aid for its own sake, a study was

published that claimed a fair amount of informal tying by the Swedish

government.11 For example, projects have often been chosen in sectors

where Swedish exports are competitive (telecommunications, water

supply, hydroelectric power). Other forms of informally tied aid were

(1) ensuring compatibility of project specifications and Swedish export

supply, (2) reducing the level of open competitive bidding, (3) establishing

special projects outside country programs that were used to direct funding

toward developing Swedish technology, and (4) establishing procurement

courses for officials of recipient countries and funding study tours to

inform them as to what the Swedish market could supply.

According to the President’s Commission on the Management of A.I.D.

Programs, Germany provides another variation of informally tying aid. It

uses a practice called “advance bidding” in which a financial aid

commitment is made for a project with the stipulation that if a German

firm does not win the contract, the commitment will be reallocated to

another project.

Aid officials in Germany and the United Kingdom told us that European

multilateral aid commitments will likely rise in the 1990s because of the

growth of Eurolateral aid—member states’ contributions to the European

Union’s development assistance programs. Although individual members

of the European Union are required to report bilateral tied aid to OECD, the

OECD agreement specifically excludes “aid programs of multilateral or

regional institutions.” Thus, tied aid that is offered by the European Union

is considered by OECD to be multilateral aid and cannot officially be

challenged as tied aid by the United States. For example, capital project

loans of the European Investment Bank, a financial institution of the

European Union, may be used in association with member state or

European Union economic assistance grants.

A USAID official stated that European support of the European Union’s

development programs is motivated by a desire to demonstrate political

support; however, some U.S. officials have suggested that these

10Aid Review 1991/92: Report by the Secretariat and Questions for the Review of the Netherlands,

(OECD/DAC, Jan. 13, 1992).

11Pierre Frühling, Editor, Swedish Development Aid in Perspective: Policies, Problems, and Results

Since 1952 (Varnamo, Sweden: Falths Tryckeri AB, 1986).

Page 24 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

governments might be shifting funds as a way to circumvent the rules of

the OECD agreement. Potentially validating the concerns of these officials,

the Dutch are on record as advocating converting aid tying at the national

level in Europe to tying at the Union level.12

Demonstrating the political importance of commercial interests, all seven

donors we studied reportedly compile information on the amount of aid

funding used for procurement in donor countries or member states (return

flows). German officials stated that high reflow levels help to mitigate

pressures from business interests to directly tie aid funding. In Sweden,

the concept of return flows first made its appearance in government aid

legislation in the late 1970s. The government’s objective was that Swedish

aid, while fulfilling all its development goals, should be managed in such a

way that the amount of return flows increased.

According to a Swedish study, while the economic motives were similar to

those that once prompted government to suggest an expansion of official

tied aid, a return flow was, and has remained, a neutral or even positive

concept.13 The catchword became better use of the Swedish resource base

in development assistance activities, rather than formally tying aid. The

public’s reaction to the concept of return flows was more restrained

because return flows did not explicitly support the Swedish economy. It

did, however, offer reassurances to members of Parliament and special

interests that Swedish businesses did benefit from bilateral economic

assistance.

The various methodologies used for collecting reflow data ranged from

making estimates based on World Bank information (Sweden) to

maintaining a reflow database built upon disbursement information

(Germany). Although the Germans expressed the most confidence in their

statistics, most European donors noted that the accuracy of reflow

statistics was often questionable. This condition was similar to what we

found for U.S. reflow data.14 Regardless of the accuracy of the data,

however, officials from each of the European donors we visited expressed

the need to meet constituents’ desires to have a general idea of the effect

aid programs had on the business community within the donor country.

12A World of Difference: A New Framework for Development Cooperation in the 1990s (Netherlands

Development Cooperation Information Department, The Hague, Apr. 1991).

13Pierre Frühling, Swedish Development Aid in Perspective.

14Foreign Assistance: Accuracy of AID Statistics on Dollars Flowing Back to the U.S. Economy is

Doubtful (GAO/NSIAD-93-196, Aug. 3, 1993).

Page 25 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

AID Programs Remain

Politically Sensitive

Based on our study, it appears that policy statements and allocation

systems based on current theories of the in-country conditions needed to

achieve development results are a logical development for aid agencies;

however, they may unintentionally set the stage for further criticism of aid

agencies already under public scrutiny if implicit commercial and political

objectives of other government agencies overrule explicit development

objectives in country allocation decisions. The desired balance among the

commercial, security, and development objectives of a foreign assistance

program is ultimately a political decision that will need to be revisited as

conditions change over time. It is also a decision that will inevitably

involve objectives other than those of development agencies.

Despite developing recipient performance criteria as a way to equitably

and effectively allocate often diminishing resources, most of the aid

agencies we studied found it difficult to change existing country

allocations. We were told, for example, that the British aid agency would

like to enforce its human rights conditionality with India but has been

unable to do so because of the foreign ministry’s intervention. A USAID

official stated further that the British foreign ministry does not want to

jeopardize the close ties between the two countries over development

criteria. The Canadian Auditor General’s 1993 report concluded that it had

been difficult for the Canadian aid agency to concentrate on traditional

development assistance, while at the same time dealing with the

commercial and political objectives advocated by key players in the

government.15 In the view of Canadian officials, the Canadian

government’s practice of targeting economic assistance to mirror the

ethnic make-up of its population has further complicated the aid agency’s

ability to concentrate resources.

Dutch officials were concerned, in one instance, that their proposed

elimination of one recipient might not be politically feasible because of its

religious ties with a powerful faction in the Parliament. According to a

Brookings Institution study, the Japanese prime minister told the Japanese

Parliament, the Diet, that China, a country of commercial interest to

Japan, would be exempt from the new aid charter’s guiding principles on

allocation of resources.16

In Germany, officials appeared to hold different interpretations of

development criteria. Aid officials said that the development criteria, or

“guiding principles,” were among the various factors to be considered by

15Report of the Auditor General of Canada to the House of Commons, 1993 (Auditor General, n.d.).

16Edward, J. Lincoln, Japan’s New Global Role (Washington, D.C: The Brookings Institution, 1993).

Page 26 GAO/NSIAD-95-37 Foreign Assistance
Appendix I 

Aid Planning in an Uncertain Environment

the government when making country allocation decisions, while auditors

told us that they fully expect the government to demonstrate a correlation

between country allocations and development criteria.

Page 27 GAO/NSIAD-95-37 Foreign Assistance
Appendix II 

Four Common Structural Dilemmas in Aid

Programs

Regardless of the organizational structures donors have used to manage

economic development aid, they all have had to confront four challenges:

• ensuring coordination and relieving organizational tension among

government agencies, particularly aid agencies and foreign ministries,

caused by overlapping jurisdictional boundaries and conflicts over aid

priorities;

• increasing institutional specialization as new development problems or

functions are turned over to newly created aid agencies;

• determining the most efficient and effective approaches for in-country

representation; and

• determining how best to manage programs that are increasingly

implemented through contractors and nongovernmental organizations as a

way to augment in-country representation.

Trade-Offs Between

Organization

Structure and

Interagency

Coordination

The difficulty of establishing a clear policy direction as discussed in

appendix I is reflected in the organizational tensions evident within donor

governments. Debates over the most appropriate placement of aid

agencies within the government are often proxies for, or extensions of, the

debate over aid priorities. However, the experiences and views of other

donors suggest that structural realignment is not a panacea for relieving

organizational antagonism over aid objectives.

The formal standing of the British aid agency, for example, has fluctuated

greatly over time, but, at no time, was it allowed to assume broader

responsibility for shaping relationships with developing countries. The

agency began as a separate ministry in 1964 and at various times in its

history has had cabinet status. In trying to define its role, the agency ran

into continued hostility within the government over its status and demand

for resources. In 1970, with a change in governments, the agency was

absorbed into the foreign ministry. The aid minister continued to be

charged with the task of day-to-day control of aid matters and became one

of several ministers of state within the foreign ministry. Except for a brief

hiatus in the mid-1970s, this organizational structure has remained in force

since then.

We were also told by German and OECD officials that although Germany

and the Netherlands have a cabinet-level development cooperation

ministry and minister, the agency and the minister seldom have the

institutional clout of other cabinet-level ministries or ministers. The

Swedish experience suggests that aid agencies will be allowed to operate

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Appendix II 

Four Common Structural Dilemmas in Aid

Programs

independently only to the extent that aid programs are complementary to

the Foreign Ministry’s foreign policy objectives. We were told by Swedish

officials that their foreign ministry is reasserting control over development

policy because it views the agenda of the aid agency as being out-of-step

with the times. Furthermore, policy dialogue, a key component of current

development assistance strategies, is also creating turf battles between aid

agencies and foreign ministries. Officials of the Swedish foreign ministry

told us, for example, that they see policy dialogue as a diplomatic function

that should fall under their purview.

Another source of organizational tension is the trend toward

organizational specialization, a pragmatic approach to multiple objectives

that carries the price of coordination trade-offs. (See table II.1.) In some

cases, new agencies were created because the cognizant aid agency was

resistant to a particular objective—frequently, trade or private-sector

development. In other cases, the evolving complexity of development

assistance was perceived as being beyond the administrative capacity of

any one agency.

In Sweden, for example, the distribution of responsibilities between aid

and trade agencies was the result of a lengthy political process. Swedish

officials believe this arrangement was the best solution to safeguard the

overall program and acknowledge specific interests, despite its inherent

conflict potential. The United Kingdom and the European Union also

created new organizations to administer environmental research, related

to sustainable natural resources, and humanitarian programs, respectively.

According to some donor officials, having separate, independent agencies

administer different economic assistance objectives has led to policy

coherence at the agency level, but significant coordination trade-offs at the

interagency level.

Page 29 GAO/NSIAD-95-37 Foreign Assistance
Appendix II 

Four Common Structural Dilemmas in Aid

Programs

Table II.1: Roles and Functions of Aid-Related Agencies of Selected Donors

Donor/lead aid agency

Organizational location

within central government

Other aid-related

agencies

Other agencies’

functions

Canada

• Canadian 

International

Development

Agency

(CIDA)

. . Reports to the

Ministry for External

Relations and

International

Development, and to

the Secretary of State

for External Affairs

• International

Development

Research Centre

• Petro-Canada

International

Assistance

Corporation

• International

Centre for Ocean

Development

• International 

Centre for Human

Rights and

Democratic

Development

. . Supports and conducts

scientific research into

problems of developing

regions; reports to

Parliament

. . Assists developing countries

in reducing dependence on

imported oil; reports to

Parliament through Minister of

Energy, Mines and Resources

. . Supports cooperation in ocean

development

. . Promotes democracy and human

rights through projects

and technical assistance

(continued)

Page 30 GAO/NSIAD-95-37 Foreign Assistance
Appendix II 

Four Common Structural Dilemmas in Aid

Programs

Donor/lead aid agency

Organizational location

within central government

Other aid-related

agencies

Other agencies’

functions

Germany

• Federal

Ministry for

Economic

Cooperation

(BMZ)

. . Cabinet-level ministry

that must coordinate

projects with the

foreign, economic, and

finance ministries

• Reconstruction

Loan Corporation

(KfW)

• GTZ

• Carl Duisberg

Society

• German

Foundation for

International

Development

• German Volunteer

Service

• German Institute

for Development

Policy

• Senior Expert

Service

• German

Investment &

Development Co.

. . Implements BMZ financial

cooperation

. . Implements BMZ technical

assistance

. . Implements BMZ financed

training

. . Implements BMZ financed

training

. . Sends young German

professionals overseas;

financed by central

government

. . Conducts research; jointly

financed by central

government and BMZ

. . Sends German retirees

overseas; financed by central

government

. . Promotes the development of

the private sector in

developing countries

Japan

• Ministry of 

Foreign Affairs

. . Ministry

that jointly sets

policy and approves

loans through

consultations with

Ministries of Finance

and International Trade

and Industry, and

Economic Planning

Agency

• Japan

International

Cooperation

Agency (JICA)

• Overseas Economic

Cooperation Fund

(OECF)

. . Executes the bilateral grant

program for the Ministry of

Foreign Affairs

. . Executes development loans

(continued)

Page 31 GAO/NSIAD-95-37 Foreign Assistance
Appendix II 

Four Common Structural Dilemmas in Aid

Programs

Donor/lead aid agency

Organizational location

within central government

Other aid-related

agencies

Other agencies’

functions

Netherlands

• DirectorateGeneral for

International

Cooperation

. . Organizationally under

Directorate within

Foreign Ministry with

political

responsibility being

assigned to an

independent cabinetlevel Minister for

Development without

portfolio

• Organization for

Development

Cooperation

• National Advisory

Council on 

Development

Cooperation

• Finance Company

for Developing

Countries

. . Provides technical assistance

under its own program or for

other Dutch agencies;

Independent entity

. . Provides policy and scientific

advice to Parliament and the

government

. . Provides project and investment

financing, technical aid and

investment studies

Sweden

• Swedish

International

Development

Authority (SIDA)

. . Quasi-independent

agency under the policy

direction of the

Ministry for Foreign

Affairs, Department for

International

Development 

Cooperation

• Swedish

International

Enterprise

Development

Corporation

(SwedeCorp)

• Agency for

International

Technical and

Economic

Cooperation

BITS)

• Agency for

Research 

Cooperation with

Developing

Countries

. . Provides aid to the commercial

and industrial sectors of

developing countries;

quasi-independent government

agency

. . Administers technical

cooperation, concessionary

credits and training programs;

quasi-independent government

agency

. . Administers research

cooperation; quasi-independent

government agency

(continued)

Page 32 GAO/NSIAD-95-37 Foreign Assistance
Appendix II 

Four Common Structural Dilemmas in Aid

Programs

Donor/lead aid agency

Organizational location

within central government

Other aid-related

agencies

Other agencies’

functions

United Kingdom

• Overseas

Development

Administration

(ODA)

. . Located within the

Foreign and 

Commonwealth Office;

reports to Foreign

Secretary

• Commonwealth

Development

Corporation

• Crown Agents for

Oversea

Governments and

Administration

• Natural Resources

Institute

• The British

Council

• Developing

Countries Trade

Agency

. . Provides loans and equity

investments; quasi-commercial

operation

. . Acts as an agent and

independent supplier of goods

and services purchased by

public sector clients

worldwide; administers British

bilateral loans; commercial

for-profit operation

. . Markets research and 

consultancy services designed

to improve sustainable

management of natural

resources; executive agency

. . Promotes Britain abroad

through cultural, educational

and technical cooperation

. . Provides expert advice and

training to export-oriented

sectors; subsidiary of the

Crown Agents

European Union

• Directorate

General VIII

• Directorate

General I

. . Reports to Commissioner

for Development

. . Reports to Commissioner

for North-South

Relations

• European

Investment Bank

• European 

Community

Humanitarian

Office

. . Provides financing for

development projects;

autonomous public institution

. . Provides emergency and

humanitarian assistance;

independent agency

Source: Compiled by GAO based on donor-provided data.

Note: The degree to which an agency’s mandate focuses on aid or trade objectives is difficult to

determine; thus, this table includes agencies with commercial objectives that are reportedly

developmentally focused.

In contrast to the Swedish approach, the Germans have recently debated

combining the two separate public companies for the administration of

technical cooperation, GTZ, and financial cooperation, KfW. The Germans

considered this action to avoid the types of structural problems, such as

Page 33 GAO/NSIAD-95-37 Foreign Assistance
Appendix II 

Four Common Structural Dilemmas in Aid

Programs

overlapping jurisdictions, interagency competition, and coordination

weaknesses, that can occur with specialized agencies. If the government

had to make the decision today, German officials told us that it would

probably place the activities under one entity, but to do so now would

result in a great deal of resistance from the staff and stakeholders of each

agency. The government originally structured its program in this manner

because of the perceived incompatibility between development projects

(technical cooperation) and banking functions (financial cooperation). As

KfW became increasingly involved in social programs, however, the

activities of the two companies began to blur and to overlap. KfW, for

example, funds feasibility studies, hires technical cooperation consultants

to advise clients on the administration of projects, and provides

training—activities technically under the purview of GTZ.

The German government has decided to address the coordination issue

through an elaborate system of cooperation instead of combining the

companies. This system of cooperation is designed to provide a unified

national strategy for each recipient of German funds. As part of the

coordination agreement, the companies will focus on two or three sectors

in each country with GTZ providing the initial technical cooperation and

gradually shifting the country program over to KfW for financial

cooperation. German officials believe that if the government does not

carefully follow through with implementation, the coordination system

may break down as the two companies simply change project

justifications to make technical cooperation look like financial

cooperation or vice-versa.

The difficulties inherent in ensuring coordination of overlapping

jurisdictions are particularly acute when central direction over

development policy does not exist, or breaks down. According to the

research branch of the Canadian government, the aid agency of Canada, in

theory, advises the government on all matters affecting development

assistance. In practice, the perception has grown that it is more influenced

by the bureaucratic environment in which it must operate than it is

influential in the policy process. The report indicated that this occurs

because the aid agency’s overall mandate is unclear.

In the Swedish governmental system, policy-making is institutionally

separated from the administration of programs and thus, the foreign

ministry is set-up to assist the cabinet in setting central policy direction for

development assistance to be followed by the various implementing

agencies. However, a Swedish report notes that the ad hoc development of

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Programs

specialized organizations, while providing greater flexibility, also made it

difficult for the foreign ministry to obtain an overview of the activities of

the development organizations and to set central policy. Therefore, the

Swedish foreign ministry is preparing proposals that would enable it to

reassert its policy-making role and to exercise more effective coordination

over the large and growing number of independent development-related

agencies. While the Swedish foreign ministry may be successful in this

endeavor, it is instructive to note that, according to a high-level official,

Canada tried unsuccessfully to integrate aid, trade and investment, and

foreign affairs policy-setting in the early 1980s. This integration was to be

managed by the foreign ministry, with separate departments for each area.

He also noted that a parliamentary committee reported in 1987 that this

organizational approach to better coordination was not working and that

the foreign ministry did not pursue trade with sufficient aggressiveness.

Moreover, aid became less effective and foreign policy was being

subsumed.

Recently established aid programs to Central and Eastern Europe and the

countries of the former Soviet Union further complicate the organizational

structure dilemmas of donor agencies. Since most donors viewed

assistance to this region as reconstruction aid to transform economies

mismanaged by communist regimes and not as development assistance

activities, aid agencies were typically not given a leadership role in the

development or management of this assistance. In the United Kingdom, for

example, a new department was set up within the foreign ministry to

administer this aid. Some aid officials and other sources, however,

indicated that governments did not turn to their aid agencies for

leadership in this critically important region because these agencies were

perceived as lacking the institutional capacity to address the new category

of recipient and resistant to programs that might shift the focus from more

traditional recipients.

In the United States, various studies and task forces have proposed

restructuring the organizational structure of aid activities as a way to

improve operations. The experience of other donors, however, illustrates

the difficulty of addressing policy issues through structural realignment.

In-Country Presence All seven donors we studied had some type of in-country representation.

This representation provides different approaches based on specific

program needs and characteristics, instead of trying to establish a global

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Programs

network of aid offices like USAID’s.1 These approaches included wide

variations, such as development liaison conducted by diplomatic missions,

project approval and administrative support provided by regional offices,

and the establishment of an independent aid office in-country (see table

II.2). The percentage of development staff—defined as civil servants, who

are citizens of the donor country, and foreign service officers—stationed

overseas by aid agencies also diverged greatly from 51 percent to

5 percent. Typically, development aid staff are concentrated in target

countries, which, for strategic or historical reasons, are important to the

donor country, while commercial, loan programs administered by other

government agencies have few, if any, overseas staff. For example,

SwedCorp, Sweden’s enterprise development agency, has no staff assigned

overseas.

Table II.2: Overseas Development Offices and Staff Levels of Selected Donors

Donor

Total

staff

Overseas

staff Types of overseas offices

Canada 

CIDA: Development aid agency 1,350 140 (10%) • 40 missions and 9 regional

offices.

• Report to the ambassador.

Germany

BMZ: Ministry of Economic

Cooperation provides

decision-making

568 27 (5%) • Embassies conduct incountry representation.

• BMZ officials overseas are

assigned to embassies

for consultation on projects.

(continued)

1

As we reported in Foreign Assistance: AID Strategic Direction and Continued Management

Improvements Needed (GAO/NSIAD-93-106, June 11, 1993), the proliferation of overseas offices and

the growing complexity of the aid program are beyond the carrying capacity of USAID. The USAID

Administrator, with the concurrence of the Secretary of State, has recommended 21 field missions for

closure as a way to focus the U.S. assistance program on fewer locations and fewer objectives. He has

stated that USAID is operating programs in more than 108 offices in 92 countries and that the agency

can adopt a more strategic approach by operating in only 50 countries.

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Programs

Donor

Total

staff

Overseas

staff Types of overseas offices

Japan

Foreign Ministry: Sees itself

as the development aid 

agency

JICA: Grants

OECF: Loans

1,729a 487 (28%) • Foreign ministry

diplomatic missions,

including some with

economic coordination

sections.

• 44 overseas offices.

• 13 field offices.

Country programming is done through

annual missions from headquarters.

Netherlands

DGISb: development aid agency 682 45 (7%)c • 27 offices within the

embassy

Sweden

SIDA: development aid agency 507 107 (21%) • 17 development cooperation

offices in program

countries that help the

recipient assess needs and

identify projects.

United Kingdom

ODA: development aid

agency

1,080 47 (4%) Five regional offices, or development

divisions, with delegated authority to approve

projects with the agreement of ambassador;

also provide the diplomatic missions with

more detailed financial, technical, and

development expertise.

One country aid management office, which

will do the substantive work on country

program, while headquarters staff will

respond to parliamentary queries on the

office’s behalf.

Numerous aid sections of embassies: often

staffed by ODA employees seconded to the

embassy and responsible for project

identification, needs assessment, and project

administration.

Two special coordination groups: one in

Barbados for coordination and one in Fiji to

coordinate and support embassies’ aid

activities throughout the South Pacific.

(continued)

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Programs

Donor

Total

staff

Overseas

staff Types of overseas offices

European Union Aid Programs

Directorate-General I: Manager of aid to

Asia, Mediterranean, and Middle Eastern

Countries

Directorate-General VIII: Manager of aid

provided under Lome Convention (Africa,

Caribbean, and Pacific States)

211

533

108 (51%)

242 (45%)

• 19 field missions. 

•61 field delegations.

Delegations mainly serve as facilitators; they

have a limited role in identifying, designing,

and preparing projects.

aTotal of all staff working on development activities.

bDirectorate-General for International Cooperation.

cEstimate; exact number not available.

Source: Compiled by GAO based on OECD and donor-provided data.

Note: The total number of staff, such as local hires, embassy staff, and so forth, involved in

development activities is not available. This information represents estimates of development

agency staff working overseas on development activities.

For purposes of comparison, USAID has 1,536 foreign service officers with

998 (65 percent) stationed overseas. It also has 25 missions that administer

major, ongoing aid programs; 21 offices of aid representatives that

administer aid programs that are moderate in size, declining, or have

limited objectives; 3 sections of embassies that administer aid programs

that are small or are being phased out; and 4 regional offices that provide

services to other overseas organizations or administer activities involving

several countries.

To varying degrees, all seven donors we studied have been trying to

address the issue of the most appropriate level of centralization for their

development activities. Canada is in the process of re-centralizing its

recently decentralized operations (1988), while some donors have

selectively decentralized operations. A Canadian aid agency report noted

that, according to most Canadian officials surveyed, the management

advantages of decentralization can be negated by high costs; low quality

staff, such as the absence of project managers who could manage complex

projects; overly bureaucratic field structures; and inflexible rules.2

2

Evaluation of CIDA Decentalization 1991 Annual Report (Canadian International Development

Agency, December 20, 1991).

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The United Kingdom’s presence abroad is essentially through its

diplomatic missions with some management decision-making authority

being delegated to the field. The United Kingdom’s primary aid agency is

reviewing its aid management and organization to determine where certain

tasks should be located—at headquarters or at the field missions. To run

its second largest program, the United Kingdom recently established a

prototype field office in Bangladesh. This office will have 10 to 12

professional staff who will do almost all the substantive work on the

country program, while in London 1 to 2 people will respond to

parliamentary queries on behalf of the office. A Dutch official stated that

the Netherlands is also moving in the direction of selectively expanding its

overseas presence and delegation of decision-making authority to the

field.

To varying degrees, all seven donors have established several types of

public-private partnerships with contractors and NGOs to augment their

in-country presence. Their cited reasons for this approach have been

primarily pragmatic: lack of government administrative capacity, inflexible

civil service rules and procedures, and the increasing complexity of

development assistance. The partnerships between donors and NGOs have

become increasingly important to most programs and have led to some

innovative relationships.

Donors have developed innovative contracting mechanisms to ensure

needed technical skills are available without making an employment

commitment. Canada, for example, has created field support units,

contractor units financed by project funding that is designed to provide

the flexibility necessary to respond to changing requirements and

priorities of programs and to experiment with various alternatives to

headquarters administration. The United Kingdom has developed a corps

of contractors that is expected to provide skills needed for emerging

development programs and activities under long-term renewable

contracts. The United Kingdom is also using new service-level agreements

or contracts with service suppliers following each market test. These

agreements specify output levels and targets and are expected to facilitate

the publication of targets and achievements.

The use of private for-profit companies has become common and, in some

cases, such as the British Crown Agents and GTZ, public entities are

moving into the realm of the private sector. The British Crown Agents, a

British agency that has traditionally provided contracting, procurement,

and accounting services for aid recipients and the British aid agency, was

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made an independent foundation by the British government. As such, the

Crown Agents will be a commercial, for-profit operation, with the profits

accruing to the British aid agency. The Japanese, as well as the European

Union, are major clients of this agency.

Germany’s GTZ is also a publicly owned corporation. German officials told

us that a major advantage of this approach is that all of GTZ’s employees

fall under the private employment rules, rather than the rigid civil service

rules. Another advantage is that as a for-profit company, GTZ has an

incentive to keep the costs of its subcontracting under control. According

to these officials, the extent to which this move has changed the

organizational culture is evident from the legal relationship GTZ has

established with the British Crown Agents. In addition, this move is

designed to enhance their competitiveness throughout the international

donor community, rather than to rely on German contracts for stability or

growth.

The debate on decentralization versus centralization has embedded within

it a discussion of how, and to what extent, implementation of development

assistance should be carried out by nongovernment personnel. In practice,

most of the donors, including the United States, are moving toward a

brokerage management model in which development agencies finance the

private or nonprofit sectors’ design and implementation of development

assistance. As we have previously reported, many of USAID’s current

problems stem from its incapacity to manage its public-private

relationships.3

Other donors noted the way in which these relationships fundamentally

change the role of the aid agency. For example, according to a Swedish

report:4

 “Aid administration thus requires highly qualified generalists, to be

complemented with specialist competency primarily contracted from

outside the agency.”

3

Foreign Assistance: AID Strategic Direction and Continued Management Improvements Needed

(GAO/NSIAD-93-106, June 11, 1993).

4

Ann Wilkens, Development Aid in the 1990s: Swedish Experience and Perspectives (Swedish

International Development Authority, 1990).

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Public-Private

Relationships With

Nongovernmental

Organizations

The donors we studied are generally expanding the scope and role of NGOs

in bilateral development activities. Most of the donors we studied, except

Canada, have reported increasing overall funding to NGOs in recent years

either directly through increased funding or indirectly through stable NGO

funding coupled with decreasing overall official development assistance

levels.5

 Except for Japan, these donors have also begun to involve

domestic NGOs with policy formulation on an informal basis, programming

decisions, and administrative management of their respective bilateral

programs. However, the degree to which donors have institutionalized the

public-private relationship varies from unstructured (Germany) to highly

structured (Canada, the Netherlands, and Sweden) with the other donors

falling in the middle range.

Donors are increasingly turning over operational functions traditionally

done by their aid agencies to NGOs through these public-private

partnerships. The Netherlands (co-financing program) and Sweden

(framework agreements) use large NGOs or a coalition of NGOs to act as

brokers, managing the relationship between the donor and other

NGOs—both NGOs from developed and developing countries. Under

co-financing and framework agreements, NGOs independently program

government funds and, on a periodic basis, provide retrospective reports

on their program decisions and performance. According to a DAC report,

the United Kingdom uses a mixed approach, supporting larger NGOs

through program agreements and smaller NGOs on a project-by-project

basis.6

 Japan, on the other hand, provides support only on a

project-by-project basis and often only for a year at a time.

Canada—perhaps the most innovative in its support of NGOs—is

developing a new approach called “institutional funding.” Under this

approach, Canada’s aid agency will place less emphasis on approving NGOs’

programs for government financing and more on assessing the fit of the

NGOs’ goals, capacities, and performance with Canada’s development

strategy.

The extent to which donors require NGOs to match their funding with NGOs’

own resources varies. Although some countries such as Britain reported

attempting to keep the ratio of government support for development

activities below 50 percent, others such as Sweden and the Netherlands

provide a matching ratio for development projects of 80 percent, and for

5

USAID has recognized the importance of NGOs as a delivery channel and its evaluation unit has an

on-going review investigating under what circumstances it would be in USAID’s management interests

to choose a NGO to implement development activities.

6

The United States often uses a similar approach.

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Programs

emergencies and certain sector priorities, 100 percent. We were told by a

Swedish NGO official, for example, that only 5 percent of this organization’s

annual funding came from private contributions.

Another issue, on which donors held varying views, is whether donors

should directly finance NGOs indigenous to developing countries. Some

donors (Canada and Sweden)7

 use NGOs from industrialized countries as

brokers between indigenous NGOs and their aid agencies as well as having

the aid agencies directly finance indigenous NGOs. Germany, on the other

hand, never directly funds indigenous NGOs, while Japan’s and Britain’s

policy on direct funding is more ambiguous. Although the primary channel

for Sweden is indirect assistance to indigenous NGOs through Swedish

NGOs, when the program becomes too large for the Swedish NGO to handle,

responsibility for it is transferred to the aid agency.

According to a DAC report, direct funding of developing countries’ NGOs

may be viewed as an encroachment on the turf of industrialized countries’

NGOs. An audit official reaffirmed the report’s questioning of the

administrative capacity of donors’ aid agencies, which are stated to be

already overextended, to effectively manage their relationships with

indigenous NGOs. These sources also indicated that developed countries’

NGOs may not have the desire or skills to take on this new broker role.

Overall, most donor officials and other official sources favored the

expanding role of NGOs. Among the reasons cited in support of these new

relationships were that NGOs are viewed as

• a more effective and efficient approach than using personnel of aid

agencies, particularly at cooperating with the poorest;

• an effective way to shift work from downsized government agencies to

another organization;

• a less expensive way to deliver economic assistance;

• a way for donors to leverage private funds through co-financing with these

organizations; and

• organizations generally worthy of government support as a matter of

policy.

In rethinking their governments’ use of NGOs, however, many donor and

NGO officials, as well as other sources, raised a number of concerns. NGO

partnerships that work in one country may not work in another because

the historical role of NGOs in relation to the country ranges from partner to

7

The United States often uses a similar approach.

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Programs

critic and is based on the political culture within each country. DAC

reported that some officials believe that donors are pushing these

organizations into the promotion of democratic values, without

considering how the recipient government might react to foreign funding

of an activist indigenous NGO.

Another concern is that governments may be simply shifting their

management and administrative problems onto NGOs that are unprepared

to undertake the burden. For example, a Swedish study concluded that the

effectiveness of increased funding to NGOs was limited by their lack of

professional staff, by a limited absorptive capacity, and by the need for

stronger administrative skills. The Swedish aid agency apparently greatly

increased funding in spite of the study’s recommendation that NGOs’

funding should be increased gradually and that NGOs may lack the

organizational capacity to manage funds because of its own resource

problems. According to other donors, their governments have shifted

funds to these organizations primarily because of inadequate

administrative capacity of aid agencies, such as inadequate staff levels.

The rising level of NGOs’ dependency on government funds was a source of

concern. For example, donors may be

• creating semipoliticized NGO subsidy systems that are not based on quality

and relevance of NGOs’ projects and programs;

• establishing a situation in which the public-private partnership will break

down as increased competition for declining aid budgets develops

between aid agencies and NGOs; and

• creating incentives for NGOs to move into environmental, humanitarian,

and disaster assistance, especially when these activities receive

100 percent funding.

Perhaps most importantly, some donor officials were concerned that no

one has tested the assumptions behind the rationale for increased use of

NGOs. One official stated that NGOs are not as experimental as they claim to

be and that after years of experience in development, they still use the

“experiment” excuse to justify inefficiency, lack of sustainability, and

other problems. According to an OECD issue paper, despite the fact that

governments spend 10s of millions of dollars annually through their NGO

communities, few governments have taken evaluation seriously.8 The issue

paper also noted that some donor officials believe that NGOs often view

8

Ian Smillie, Trends and Issues in the Evolving Relationships Between Donor Agencies and

Development NGOs, issue paper prepared for OECD Development Centre seminar 

(OECD, June 28-30, 1993).

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continued government funding as an entitlement, unconnected to actual

performance. A way to help rectify this situation, we were told, was for

policymakers to ensure that these organizations are held accountable for

their activities under a results-based management system.

Building public-private partnerships, instead of doing the job directly, may

be a pragmatic solution to many of the problems facing bilateral donors.

However, such partnerships raise important management issues. The aid

agencies of Canada, the Netherlands, and Sweden would like their

governments to only hold them accountable for those functions over

which they have direct control. For example, the Netherlands has five

degrees of accountability that depend on the relationship between the aid

agency and the other party, while the Canadians reportedly no longer

assume government-financed NGOs’ activities are “shared endeavors with

shared responsibility,” but are solely the responsibility of NGOs. We were

also told by Dutch and Swedish auditors that they hold aid agencies

responsible for setting-up and following-through with good management

control systems, but not for the success or failure of any individual NGO.

While this may be good management practice, Dutch officials

acknowledged that it blurs agency accountability and may prove to be

unacceptable to their respective parliaments.

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Commonality of Management Weaknesses

There is a growing interest worldwide in new approaches to public

administration that will likely affect how aid agencies manage

development assistance. Even though the aid programs we studied were

administered under different rules, procedures, and organizational

structures, the aid agencies experienced the same types of management

problems, including inadequate personnel and management information

systems, inability to apply “lessons learned” and follow through on

evaluation findings, and disincentives built into public budgeting

processes, such as focusing accountability on agency spending patterns.

These problems focus management’s and stakeholder’s attention on the

design and approval of aid activities but often work against the need to

focus on project and program implementation. As a result, policy debate

over aid programs of the seven donors we studied has not been based

historically on what has actually been achieved.

In some of the donor countries, there have been calls for a transition from

an organizational culture focused on inputs to a flexible organizational

structure focused on results. In Canada, Sweden, and the United Kingdom,

aid agencies are using a combination of techniques to alter their

organizational cultures, including changes in training, the reward systems,

and incentives. The other aid agencies are undertaking many agency-level

management reforms, such as improving evaluation and follow-up on

project completion.

Overview of

Development

Assistance

Management Tasks

Although there is a wide variation in institutional arrangements and

management practices, the conceptual underpinnings for donors’ overall

aid management are similar. In theory, most donors hold a recipient

responsible for the design and implementation of individual projects. In

practice, a donor is usually deeply involved in most stages of the project

cycle.

The project cycle consists of identification, preparation, design or

appraisal, negotiation and agreement, implementation and supervision,

and evaluation (see fig. III.1). Identification can come from several

sources, including requests from a recipient, local embassy, or aid staff or

temporary missions sent by an aid agency’s headquarters. Preparation is

developing the project idea into a detailed project document or proposal.

Once a project has been approved by the cognizant donor official(s),

negotiations begin for setting up the framework for cooperation on the

project. Implementation is the process by which the project is executed

and includes implementation planning, annual work planning, periodic

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Commonality of Management Weaknesses

progress reporting, and supervision. All the donors have some type of

procedures to evaluate the success or failure of a project. These

evaluations can be conducted during implementation, mid-term, prior to

launching a new phase, or after a project is completed.

Figure III.1: Project Cycle

Identification

Negotiation and


Approval

Appraisal Implementation


and Supervision

Evaluation Preparation

Source: Adapted from the World Bank by GAO.

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Commonality of Management Weaknesses

Normally, the process for determining the need for program assistance

follows a series of steps similar to that of project assistance. DAC defines

program assistance, which is an increasingly important instrument of

development assistance, as consisting of all contributions that are

available to a recipient for general development purposes, such as

balance-of-payments support, general budget support and commodity

assistance, and is not linked to specific project activities.

Organizational

Cultures Do Not Value

Management

Functions

Officials from Canada, Germany, Sweden, the European Union, and the

Netherlands stated that, perhaps, the most critical problem within their aid

agencies was an organizational culture—the underlying assumptions,

beliefs, values, attitudes, and expectations held by development

staff—that emphasized project or program design and other processes but

did not value or reward good management practices. To illustrate,

Swedish and European Union officials stated that aid managers viewed

collecting data and preparing reports as a procedural requirement—a

paperwork burden—that must be fulfilled, but they did not analyze and

follow up on these data and reports to use them as management tools. A

Dutch official told us that development staff in his country want “to be

diplomats and doers of good, not accountants.” This attitude was so

pervasive that officials from the national audit organizations of two donors

told us that senior managers were contemplating shifting, or had shifted,

staff resources from auditing development activities to other government

activities because auditors kept coming up with the same management

findings with no apparent impact on agency practices.

Agencies Experience

Staffing Shortages and

Poor Personnel

Practices

The rapid expansion of programming and management requirements and

the growing complexity of aid activities without a corresponding increase

in staff with the necessary skills are said to be major sources of

effectiveness and efficiency problems in aid programs. Inadequate staff

levels are cited by many aid officials and auditors as the cause of

inattentiveness to implementation and monitoring. An auditor for the

European Union told us that the Court of Auditors had recommended that

the Union increase the budget for operating expenses so that the aid

directorates could hire more staff. The European Union’s Commission

acknowledged the need for an increase in staff resources at headquarters

and in the delegations to ensure that the desired results are achieved in its

development assistance programs.

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Commonality of Management Weaknesses

According to aid officials of several donors, inadequate staff levels are the

driving force behind many of the programming decisions that garner

public criticism. For the Canadian, Dutch, and Swedish aid programs,

contracting is said to be unavoidable because the number of aid activities

greatly exceeds the agency’s administrative capacity. German officials said

that their aid program is specifically structured to use contractors, who

are citizens of Germany or other developed countries, as a substitute for

the direct involvement of German government officials. The officials

expressed confidence in the integrity of this contracting system. They

indicated that a clear audit trail between the government and its

contractors enables them to administer a global program with limited

staff, while still ensuring accountability over funds.

A Swedish evaluation study also reported that the major advantage of

providing commodity aid1

 in the 1970s and 1980s was that it was easier to

administer and quicker to disburse than other aid instruments. Commodity

aid recipients were typically those countries for which the Swedish aid

agency found it too difficult to administer traditional aid programs. Since

these recipients were also characterized by weak administrations and poor

macroeconomic policies, the result was that the “messier” a particular

recipient was, the more likely it was that Sweden disbursed a high

percentage of that recipient’s allocation on commodity aid.2

 A 1993

Congressional Research Service report noted that understaffing problems

contributed to Japan’s sectoral bias toward economic infrastructure

projects because these projects allowed a limited staff to disburse a

relatively large amount of funds.3

 According to a 1991 Nordic study,

multilateral co-financing was originally considered a way to cope with

limited bilateral capacity.4

Officials also stated that staffing shortages can be exacerbated by poor

personnel management practices. The responsibilities of aid staff have

typically changed from that of hands-on implementers of aid projects to

brokers of development assistance. Officials in Canada, Germany, the

European Union, the Netherlands, Sweden, and the United Kingdom told

us that, consequently, a poor match exists between the management skill

1

Commodity import programs provide foreign exchange for the purchase of donor goods.

2

Stefan De Vylder, Aid and Macroeconomics: An Evaluation of Swedish Import Support to

Guinea-Bissau, Mozambique, Nicaragua, and Vietnam (Swedish International Development Authority,

December 1992).

3

Nancy J. Hankes, Japan’s Foreign Aid, Congressional Research Service (93-494F, May 5, 1993).

4

The United Nations: Issues and Options (Nordic UN Project, 1991).

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Commonality of Management Weaknesses

needs of aid staff and those they possess. Frequent rotation of staff was

also mentioned as a problem by officials from Canada, the Netherlands,

and the United Kingdom. They pointed out that staff turnover had caused

management problems because it resulted in a loss of corporate memory,

limited the in-depth knowledge and development of staff, and led to

difficulties in holding individuals accountable for the results of aid

activities.

In 1993, we reported that top positions in U.S. agencies were often filled

by political appointees who generally had little incentive to focus on

long-term management issues and the agencies experience a high turnover

rate.5

 This was not identified as a concern by any of the donor officials

with whom we spoke. One official, however, did mention political

patronage as a problem in the European Union. In contrast to the U.S.

system, the British aid agency had only one political appointee—the

agency head.

Budget Targets Focus

of Aid Oversight

Although many improvements have been made, aid agencies have

traditionally not had effective evaluation and feedback systems. USAID,

through DAC, was instrumental in calling the development community’s

attention to the importance of systematic and formal evaluations for

enhancing aid effectiveness. All of the aid agencies in our study have now

set up independent evaluation units within their aid agencies or foreign

ministries to assess the relevance, efficiency, and effectiveness of aid

programs.

A structure or process is also typically set up within aid agencies to

evaluate the operational performance of an on-going aid activity. The

independent evaluation units in some countries have been criticized for

their lack of attention to the overall results of development assistance,

while the operational evaluations have been criticized as being self-serving

in that the project or the program manager arranges for the evaluation. At

the end of the 1980s, the weak link in the evaluation process was the lack

of a feedback mechanism to tie evaluation results to programming and

allocation decisions. An USAID official told us that this weakness still exists,

even though donors now recognize the importance of strengthening

evaluation. As discussed below, aid agencies in Canada, Sweden, and the

United Kingdom, as well as USAID, are now trying to establish a linkage

5

Improving Government: Need to Reexamine Organization and Performance (GAO/T-GGD-93-9,

Mar. 11, 1993).

Page 49 GAO/NSIAD-95-37 Foreign Assistance
Appendix III 

Commonality of Management Weaknesses

between evaluation results and management decision-making through

results-based management systems.

Most of the donors’ budgeting procedures focus an agency’s attention on

funding and spending patterns, rather than on program results. A DAC

report notes that since funds provided by parliaments are usually

disbursed in the year provided or committed during that year, aid agencies

operate under pressure to obligate and disburse funds.6

 The net result is

that the “obligate and spend” approach to accountability tends to push aid

managers into rapid action and makes it difficult for them to take the time

to ensure aid activities are well-designed, -planned, or -implemented.

Even when funds do not have to be expended in the year provided,

parliaments and others tend to focus on an overall budget target, or the

rate of disbursement of the funds. According to Swedish sources, the

success of the Swedish aid agency is often gauged by whether their

appropriations meet the 1 percent of its national income target, and not by

whether development is occurring. The Swedish aid agency and the aid

directorates of the European Union have been criticized by DAC and others

for the size of their pipelines of unobligated funds from prior years’

appropriations. Unused funds are considered a lost opportunity to redirect

scarce resources to higher priorities. As we noted in 1991, the size of the

pipeline is important because, among other things, it can be an indicator of

management problems in delivering timely and effective economic

assistance.7

World Bank Experiences

Similar Management

Problems

Corroborating the apparent universality of management problems in the

development community, the World Bank’s internal task force on

management published a 1992 report that identified similar causes for

declining performance of its development assistance portfolio.8

 The task

force’s basic conclusion was that the Bank had an organizational culture

that was generally preoccupied with new lending that was not matched by

an equal emphasis on implementation. According to the report, the Bank’s

personnel practices reinforced the preference among Bank staff and

managers for planning and design. The methodology for project

performance rating was considered deficient, lacking objective criteria

6

Arthur M. Fell, A Comparison of Management Systems for Development Assistance in OECD/DAC

Member Countries (OECD, June 7, 1993).

7

Foreign Assistance: Funds Obligated Remain Unspent for Years (GAO/NSIAD-91-123, Apr. 9, 1991).

8

Effective Implementation: Key to Development Impact, prepared by the Task Force on Portfolio

Management in October 1992, under the chairmanship of Mr. Wapenhans.

Page 50 GAO/NSIAD-95-37 Foreign Assistance
Appendix III 

Commonality of Management Weaknesses

and transparency. Furthermore, the Bank’s evaluation system had not

placed adequate attention on actual development impact. The report

stated that, consequently, the Bank’s ability to learn what really works and

what does not had been impaired.

Efforts to Improve

Development

Assistance

Management

Efforts to improve development assistance management by some donors

we studied are occurring under the umbrella of governmentwide

results-based management reforms, while other donors are making

management improvements under aid agency leadership. The motivations

for these reforms are the growing public skepticism of government

programs in general and aid programs in particular and the need for most

governments “to do more with less.” The Canadian government, for

example, is promoting its Public Service 2000 initiative as a way to

enhance government effectiveness. Similar to the U.S. National

Performance Review,9

 Public Service 2000 is designed to focus the

Canadian government on delivering quality products and services, meeting

the needs of its citizens, downsizing the public service establishment, and

ensuring greater accountability for results. The Netherlands’ Great

Efficiency Operation is also an attempt to lessen the tasks of the central

government and to downsize its operations. The United Kingdom’s

Citizen’s Charter also aims to improve the overall quality of public

services. Its principles include increased privatization, wider competition

and contracting out, and basing rewards on performance.

In Sweden, the Results-Based Management Initiative requires agencies’

budget presentations to cover the whole spectrum of their activities over a

3-year period. An appraisal will be conducted at the end of each 3-year

period to analyze the activities of each agency for compliance with the

objectives of Parliament and for efficient use of resources. As part of the

results-based management reforms, Sweden is trying to better define and

clarify the roles of all government participants. At the core of their reforms

is the concept of a contract among the central government, the Parliament,

and the involved agency. The central government and Parliament will

oversee agency operations by providing 3-year budgets that are based on

detailed guidelines that specify the direction and results they expect from

the agency.

As its part of Sweden’s initiative, the aid agency will conduct periodic

in-depth assessments of its entire operations within the normal

9

The National Performance Review is a governmentwide management reform exercise, that is

designed to create a government that works better and costs less by cutting red tape, putting

customers first, empowering employees to get results, and cutting back to basics.

Page 51 GAO/NSIAD-95-37 Foreign Assistance
Appendix III 

Commonality of Management Weaknesses

operational planning and budget processes. These assessments are

expected to provide the basis for setting priorities and reallocating

resources. A Swedish document outlining the reforms specifically states

that the central government and the Parliament should be accountable for

policy, or “for acting as contractors of public sector production.” The aid

agency is to be held accountable for indicating whether the program, or

“order,” is feasible and, if so, for reporting on the results achieved at a

later date.

To date, the aid agencies of these donors have had varying degrees of

acceptance of these public administration reforms. The aid agency of the

United Kingdom appears to have demonstrated less resistance to these

reforms than other aid agencies. According to a British official, the aid

agency is in the process of translating the Citizen’s Charter to agency

operations. It is, however, using a building block approach, leaving the

most difficult programs for last. We were told that the Dutch aid agency

was exempted from performance measurement reforms because of the

belief that development assistance cannot be measured in the short term

and because it is difficult to establish causality for macroeconomic change

in the long term. In the view of the foreign ministry and the Swedish

National Audit Board, the Swedish aid agency’s first application of

performance indicators to the budget cycle was a good “first attempt.” We

were told, however, that the Swedish aid agency is requesting a waiver

from the performance measurement reform because it believes factors

outside the agency’s control determine the overall outcome of

development in a recipient country.

Many donor officials and other sources expressed serious reservations

about results-based management, in general, as well as reservations about

its applicability to foreign assistance, in particular. One concern is

whether the performance of an individual government program can be

measured and whether it is realistic to presume parliaments will not

reexamine government programs annually, in spite of multiyear budgets.

Some Swedish officials also expect that tying performance indicators to

budget decisions will result in bureaucratic gaming of the system.

A U.S. budget expert has suggested that linking performance to budgets

would work best for allocating funds within a country program (measuring

the aid agency’s performance), rather than among countries (measuring

the recipient’s performance).10 Country allocation decisions are often

10Allen Schick, A Performance-Based Budgeting System for the Agency for International Development

(AID Program and Operations Assessment Report No. 4, June 1993).

Page 52 GAO/NSIAD-95-37 Foreign Assistance
Appendix III 

Commonality of Management Weaknesses

based more on other considerations, such as foreign policy or trade

concerns, than on a recipient’s performance. Furthermore, aid agencies

cannot ensure recipients that program performance will necessarily lead

to more aid.

A common prescription for results-based management was the

development of new definitions of accountability, but these have not

proven acceptable to all stakeholders. The Dutch, for example, have

established five different levels of accountability for its aid agency,

depending on the degree to which an “arms-length” relationship exists

between the government and the implementer of development activities.

However, these varying levels of accountability have not yet been

accepted by all members of Parliament.

Another source of tension is between government reformers and auditors.

In Canada, the aid agency was developing a concept of “limited

accountability” in which the agency would be held accountable for setting

up control systems over contractors, nongovernmental organizations and

other implementers, but not for actual use of funds and outcome of an

activity. A Canadian Auditor General official told us that limiting the aid

agency’s accountability for funds and results was unacceptable to his

agency and many members of Parliament. This rejection of “limited

accountability” can have serious implications for other aid agencies that

are also negotiating a shift from control-oriented audit systems to

early-warning, solution-based audit systems with audit organizations.

Aid agencies in Canada, Sweden, the Netherlands, and the United Kingdom

are using a combination of personnel management techniques to introduce

the cultural changes necessary to ensure implementation of results-based

management reforms. Canada plans to develop a workforce planning

system that is to be used in the strategic planning process to ensure that

the use and development of staff support the agency’s overall program

objectives. Canada and Sweden are developing “competency training

programs” that are designed to change attitudes and patterns of staff

behavior. Canada and the United Kingdom are implementing individual

reward systems so that individuals can be held accountable for achieving

development results and meeting specific objectives.

The aid agencies of Canada, the Netherlands, and the United Kingdom are

also attempting to address their lack of adequate financial, management,

and program information through the development of new computerized

systems. The Dutch are working on an automated management system

Page 53 GAO/NSIAD-95-37 Foreign Assistance
Appendix III 

Commonality of Management Weaknesses

that will improve controls. The aid agency of the United Kingdom has

adopted the use of “Team Up,” a project planning and monitoring software

package designed by the World Bank and USAID.

While supportive of management reforms, officials from Canada, Sweden,

and the United Kingdom raised two issues. In Canada and the United

Kingdom, we were told that the central government has promised to

couple operating expense reductions with program reductions; thereby,

ensuring the agency maintains its administrative capacity. According to a

Swedish official, a fear exists within the Swedish aid agency that the focus

of public administration reforms will shift from management

improvements to justifying arbitrary budget cuts. The U.S. Comptroller

General has testified in support of the concept of results-based

management for the federal government. He has noted, however, that

effective results-based budgeting requires an investment in procurement,

recruitment, budgeting, information resources management, personnel,

and agency organization and functions.

Germany, Japan, and the European Union have not linked management

improvements of aid programs to overall public administration reforms,

but they have undertaken management reforms designed to improve

foreign aid effectiveness and efficiency. The aid agencies of Germany and

Japan are expanding the number of aid staff in the field. The German

agency is also conducting “central efficiency control assessments” to

supplement and review the comprehensive system of efficiency controls

that the implementing public companies carry out themselves. The

Japanese aid agency has developed a process that is expected to revitalize

existing projects and is called “after care.” This process consists of

strengthening the agency’s monitoring activities over completed projects

and providing financial support for remedial action, if necessary.

Page 54 GAO/NSIAD-95-37 Foreign Assistance
Appendix IV 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Lawrence L. Suda

Donna J. Byers

Zina D. Jones

James R. Lee

European Office Thomas J. Howard

George A. Taylor

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