A Case Study of Aid Effectiveness in Ethiopia: Analysis of the Health Sector Aid Architecture

EDITOR’S NOTE: Ethiopia has been one of the major recipients of international aid in recent years. Getnet Alemu examines aid effectiveness in Ethiopia and analyzes the health sector aid architecture in a case study for the Wolfensohn Center for Development at Brookings. Alemu is associate dean for graduate programs in the College of Development Studies at Addis Ababab University. A few excerpts:

Foreign aid has played a major role in Ethiopia’s development effort since the end of World War II. It has been instrumental in bridging the country’s savings-investment and foreign exchange gaps. Its importance as a source of financing for the development of capacity building (human capital, administrative capacity, institutional building, and policy reforms) is also unquestionable. Thus, increasing efforts were made to mobilize foreign aid in the last two regimes. Following the change in political regime in 1991 and the adoption of the structural adjustment program in 1992/93 in particular, the country has enjoyed a significant amount of aid. A large and growing inflow of concessionary loans and grants has occurred since 2001, following the issuance of the first poverty reduction strategy paper (known as the Sustainable Development Poverty Reduction Program) from 14 multilateral sources-mainly IDA, EC, the Global Fund, and the African Development Fund2 and more than 30 bilateral sources-mainly the USA, UK, Italy, Canada, Germany, Ireland, Japan, Netherlands, Norway, and Sweden.

Ethiopia has been one of the major recipients of international aid in recent times. According to OECD-DAC statistics, net ODA to Ethiopia amounted to US$1.94 billion in 2006, making it the 7th largest recipient among 169 aid receiving developing countries. In absolute terms, the amount of ODA has risen sharply from an average of $881 million per annum in the second half of the 1990s to over $1574 million per annum for the first half of the 2000s. Over the last seven years (2000-2006), ODA has averaged at $1683 million per year. The average contribution of bilateral donors to ODA over the eight year period was $322.4 million per year accounting for 31 percent of ODA. In the 1990s, some 49 percent of the total net ODA was in the form of multilateral aid. This was slightly reduced to 46 percent for 2000-2006, reflecting the increased importance of non-multilateral sources.

ODA in the health sector

We have seen that Ethiopia has been one of the major recipients of international aid in recent times. The health sector is among the few that enjoyed large shares of ODA. A large and growing inflow of aid followed the development of the Health Sector Development Plans (HSDPs) by MoH. Resources were delivered by ten multilateral sources, more than 22 bilateral sources, and more than 50 international NGOs.

Getting the complete picture on the flow of aid in the health sector is very difficult because of problems associated with the disbursement channel itself. This problem may be understood better by briefly looking into the three disbursement channels practiced in Ethiopia.

Why focus on health sector

The Ethiopian health sector exhibits many of the general aid problems shared by many African countries. The health sector in Ethiopia continues to attract many aid organizations, even as compared to other sectors. As mentioned above, there are as many as 10 multilaterals, 22 bilaterals, and more than 50 international NGOs providing aid to the health sector, which poses a big challenge for coordination. There are also emerging players in the health sector aid that represent significant changes to the traditional aid architecture. These include the global initiatives that are modeled using a public private partnership arrangement, including but not limited to GFATM, PEPFAR, and the Global Alliance for Vaccine and Immunization (GAVI). The modalities under which these initiatives are operating are significantly different from traditional bilateral and multilateral donors.

It is against a context of aid dependency, aid problems, and changing aid architecture that we choose our focus on the health sector.

Country Programmable Aid (CPA)

CPA is the part of aid that goes directly into development programs, and thus excludes components such as emergency humanitarian aid, development food aid, debt forgiveness, and technical co-operation. In the Ethiopian context, except for a few years, the share of CPA in total net ODA has always been more than 50 percent (Figure 2). The exceptions are 1971, 1972, 1973, 1981, and 2003. In 1971, non-CPA increased due to technical cooperation and CPA has decreased. What happened in 1972 was that both have decreased but the initial volume for non-CPA was higher than that of CPA. In 2003, CPA decreased significantly and non-CPA more than doubled.

Emerging aid providers in the health sector

There are emerging players in health sector aid that significantly affect the health sector aid architecture. These include the global initiatives that are modeled using a public private partnership arrangement, including but not limited to GFATM, PEPFAR, and GAVI. The modalities under which these initiatives operate are significantly different from traditional bilateral and multilateral donors.

Recent estimates by the WHO suggest that there are between 75 and 100 Global Health Partnerships (GHPs), sometimes referred to as Global Health Initiatives (GHIs). GHPs are a heterogeneous group, both in mission (advocacy, coordination, financing, etc.) and in design (scale, scope, etc.). However, the vast majority engage communicable diseases; many target the “big three” diseases of HIV/AIDS, TB, and malaria. While there are a large number of GHPs, only a handful have a major impact on health financing-most notably GAVI, GFATM, and PEPFAR. Between 2003 and 2005, GFATM annually committed on average $1.16 billion around the world. Funding from GAVI and GFATM now accounts for 9 percent of development assistance in health.

Magnitude of resources for the health sector

In the Ethiopian context, the Global Fund and GAVI account for about 55 percent of all donor resources. Their resources are estimated to account for about 95 percent of the resources going through “channel 2” (the MoH account, see above). This figure does not include PEPFAR, one of the major financiers of health. According to HSDP III midterm review, the attempt to obtain PEPFAR’s contribution has not been successful. Table 6 reflects the contribution of these donors for health sector financing.

Alignment with government systems and priorities and their effect on the health system

The Global Fund and GAVI are not only the major financiers of the health sector in Ethiopia, but they are also at advanced levels of alignment with the government system. GAVI is already in the MDG Performance Fund, a pooled fund using government systems.

Overall, the Global Fund and GAVI are funding government priorities that are aligned to the five year sector strategic plans. On the other hand, the alignment of PEPFAR’s financing to health sector strategies is questionable as there is no evidence or mechanism to ascertain this. Its resources are not reflected in the health sector resource mapping exercise and are not part of the integrated Wereda-based planning that tries to bring all actors’ activities and resources together at all levels of the Ethiopian health system.

The Global Fund is like most other donors in the health sector in that it follows its own resource channeling approach to support health activities. The result can be a complicated implementation process as well as systems issues in terms of human resources, resource use, measurement, evaluation and reporting, financial management, and requirements for the submission of statements of expenditure and overall accountability. Therefore, harmonization of donor funds is now a priority for the Ethiopian government. The MoH has put a lot of effort to harmonize programs operating in the health sector. One of the most significant early efforts is the signature a memorandum of understanding between the GFATM and PEPFAR to coordinate activities and resources relative to HIV and AIDS. Outcomes from the memorandum still need to be reviewed.

Fragmentation of total ODA

The main feature of aid fragmentation in Ethiopia is an increasing numbers of donors each with a small share of the total aid envelop yet numerous aid projects. This setup is believed to overburden the Ethiopian government and compromise the effectiveness of aid.

There are three possible methods of computing aid fragmentation.17 The first one is using data extracted from the OECD, which provides a breakdown of annual disbursements by various bilateral and multilateral donor agencies, treating each funding country or multilateral institution as a single donor. The second method is by treating agencies or departments (within a single donor) as separate donors. The difference between the two methods, however, is small as the correlation coefficient between the two indexes is about 92 percent. The third method computes aid fragmentation based on investment projects and other activities financed by bilateral and multilateral donors. According to Knack and Rahman (2004:14), “A count of projects sponsored by each donor can be made. From these counts, a fragmentation index is computed from donors’ shares of projects.”

Aid fragmentation in the health sector

As we discussed earlier, aid fragmentation in the health sector can also be manifested in different forms: the number of donors, donor size, and the number of donor-funded projects/activities. In 2006, there were 14 bilateral donors, which accounted for 46.8 percent of the total net ODA to the health sector. The remainder was sourced from two multilateral donors: UNICEF and GFATM.

Aid predictability and volatility

Why does aid predictability and volatility matter? For developing countries like Ethiopia, aid is an important source of public spending. The government has a target for aid revenue, and it incorporates the expected revenue into its fiscal planning. Ethiopia has a plan to mobilize more than 30 percent of its revenue from foreign financing. This means that aid is taken into account when revenue decisions and expenditure allocations are made. Thus, volatile and unpredictable aid undermines the development effort. If the recipient government is not certain about the volume and the time of aid inflows, it is in a very difficult position to plan and implement development expenditures in line with its development priorities. Thus, one can say volatile and unpredictable aid can cause ineffective and distorted uses of resources, and can compromise growth and development.

Instruments of coordination

The government of Ethiopia has used the earlier Sustainable Development and Poverty Reduction Program (SDPRP) and now the PASDEP as its development strategy. PASDEP has a five year horizon and its development has been led and owned by the government. Though the extent to which the process of its development has been broad based and participatory is debatable-its ownership and government-commitment is not questionable at all. Based on the development strategy, the health sector has also developed a health sector development program to guide the health sector spending decisions. Both PASDEP and HSDP III aim their targets and resource requirements at meeting the MDG goals and are based on an MDG Needs Assessment Study.

Structures and mechanisms for dialogue

There are established structures at county and sectoral levels that help the coordination of aid. An enhanced mechanism for government-donor dialogue has been put in place since 2004 to assist “each party to hold the other transparently accountable” and for better dialogue on program implementation and policies. A high level government-donor forum (HLF) led by the State Minister of MoFED and co-chaired by the Development Assistance Group is expected to meet on quarterly basis to meet the three main HLF agendas (program implementation, harmonization, and policy discussions). In addition to the HLF, subsidiary groups (health, education and food security) sector coordinating institutions (see below for health) have been recognized and should link to the HLF.

Key challenges

Aid is not effectively coordinated. It is fragmented and unpredictable. There are several donors that have several projects but only a small share of the aid market. Despite Ethiopia’s early initiation of an incountry harmonization and alignment process, both at the sector and country levels, achievements have not been comprehensive. The health sector SWAp, for instance, has not been effectively exploited by either the government or donors to improve aid predictability or harmonize funding arrangements. Progress is often made in areas where significant transaction costs cannot be reduced. Most multilateral organizations continue to use their own systems rather than aligning and harmonizing. UN agencies, in particular, harmonize neither among themselves nor with the government, with exception of UNICEF. What really seems to be the main challenge for further alignment and harmonization in the health sector is the willingness and political commitment of donors and their headquarters. Most of donors do talk positively about the agenda but are not able to walk the talk. Without political commitment at donor headquarters or incentive mechanisms to change the attitude and behavior of donor staff, recipient counties are likely to be frustrated by the lack of meaningful progress.

The other challenge is related to meeting the ideals and principles that underpin the Paris Declaration. A lot more should be done to strengthen good governance, the rule of law, and fiduciary systems to an acceptable standard. These are real challenges, as they require huge investment in a country with severe financial and capacity constraints. These investments require commitment well before visible results. The IHP initiative in the health sector that aims to ensure that aid is more predictable and aligned to government priorities and systems can reduce a number of transaction costs-but only if systems are strengthened and become acceptable to donors.

The coordination structures both at the country and sectors levels exist, but their full functionality remains a challenge. Most coordination structures need to work as per their terms of references. In the health sector, the coordination structures require consolidation and reduction of parallel mechanisms. These coordination structures should practice the concept of mutual accountability (including naming and shaming) rather than government-to-donor accountability to influence donor behavior on aid effectiveness in general, and on alignment and harmonization in particular. The concept of division of labor among donors through the introduction of lead and silent donors, delegated partnership, or specialization in a few sectors has yet to be practiced in Ethiopia.

The composition of the existing consultative and coordination mechanisms at all levels do provide room for all stakeholders to voice their concerns and issues. However, in terms of power and decision making, one can say that it is dominated by the government and donors. The involvement of the private and NGO sectors is weak. This is justifiably so for reasons related to their limited roles (comparatively) in service delivery and management, and their weak organizational strength. But it is a challenge for the private sector and NGOs to align their interests and strengthen their negotiating ability with the government and donors.

Re-published with permission by the Wolfensohn Center for Development at Brookings. Visit the original article.

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