Follow the money: calculating net aid flows

Aid, Methodology Leave a Comment

What percentage of aid reaches the intended recipient country? Our methodology tool can be used to calculate this, but more aid data transparency is needed.

Connecting smallholder farmers to markets is a priority of US aid to Ghana. Development Initiatives and Oxfam used the methodology explained in this paper to assess the traceability of US aid to Ghana during 2013-2015. Credit: A. Kauffield/USAID.

Connecting smallholder farmers to markets is a priority of US aid to Ghana. Development Initiatives and Oxfam used the methodology explained in this paper to assess the traceability of US aid to Ghana during 2013-2015. Credit: A. Kauffield/USAID.

Aid data transparency just got a major boost from the UK Department for International Development (DFID). Its new policy document, ‘Open aid, open societies: A vision for a transparent world’ reaffirms the agency’s requirement that all implementing partners publish their data to the International Aid Transparency Initiative (IATI). Other donors, such as the Netherlands, have a similar policy.

In November 2017, Oxfam America joined Ibis, Novib, Oxfam GB, and Oxfam India as an IATI publisher. All told, 637 organizations now publish to IATI, including donor governments, UN and other multilateral agencies, non-governmental organizations (NGOs), foundations, and for-profit firms.

What difference does this make? Aid transparency is important for its own sake, of course. After all, wealthy-country governments send well over USD 100 billion in aid each year to the Global South. How the money is used and where it actually goes are of interest to people around the world.

Aid transparency is important for other reasons:

  • It gives developing-country governments information to help them allocate resources;
  • It gives civil society—in both the South and the North—information needed to hold governments to account;
  • It helps multiple development actors coordinate their efforts; and
  • It helps people who care about development share and learn from their experiences.

One interesting question is whether it’s possible to use IATI data to calculate ‘net aid flow’. That number is a crucial one, but it isn’t easy to figure out. It’s a measurement of how much aid actually reaches the intended recipient country and gets spent in the local economy. It’s the money used for such things as health services, classroom instruction, or agricultural research and technical advice that can increase the productivity and incomes of smallholder farmers.

Knowing the net aid flow is important… to hold donors accountable and to hold developing-country governments accountable to their own people.
A lot of aid never gets to the notional target country. Instead, it stays in the donor country to cover debt relief, scholarships for partner-country students, administrative overhead, and hosting refugees. Also, it’s used to purchase goods and services from third countries. All along the aid implementation chain, organizations that receive money may use some of it to cover their own administrative costs, and in the case of international NGOs and consulting firms, that may mean that a significant share of the funds never get to the ‘aided’ country. Knowing the net aid flow is important if we want to know whether aid is supporting developing-country governments to hold donors accountable and to hold themselves accountable to their own people.

Oxfam and Development Initiatives (DI) have devised a tool that uses IATI data to try to calculate net aid flow. The late Simon Parish of DI took the lead on that effort. Oxfam and DI recently published a study of US aid to Ghana employing Simon’s approach, and we’ve dedicated the report to his memory. We found that, using 2013–2015 IATI data, we can only confirm that 7 per cent of US aid ($28m) arrived in Ghana. This traceability gap stems mainly from limited IATI reporting by the international NGOs and firms that implement US aid. If the US followed the lead of DFID and the Dutch, and required its implementers to publish, that would greatly enhance our ability to calculate net aid.

Oxfam is publishing a Methodology Note that gives details on employing the tool Simon developed. Anyone can utilize it to ‘follow the money’ from a donor country’s treasury to its final end use. If all the organizations involved in the development implementation chain publish their information to IATI completely and accurately, then it’s possible to figure out how much of the total funding at the beginning of the chain is spent on goods and services, and where it’s spent.

The methodology note walks the reader through how to access IATI data and use it to calculate how much aid actually reaches the intended recipient country and stays there. It’s a rather intensive process, and may require a good amount of manual data coding. Here’s a visual representation:

All this might seem a bit geeky, but it’s essential to remember the ultimate purpose of aid transparency. As David Hall-Matthews, former managing director of the aid transparency organization Publish What You Fund has said, that’s to offer ‘a useful weapon in the fight to end poverty’.

Download Follow the money: Using International Aid Transparency Initiative data to trace development aid flows to their end use

Author
Marc Cohen

Marc Cohen

Marc J. Cohen is senior researcher on aid effectiveness at Oxfam America. Previously, he carried out research on humanitarian policy and climate change, as well as evaluations of humanitarian advocacy. His academic training is in political science and development studies. Marc’s field research has taken him to Ethiopia, Haiti, Rwanda, Taiwan, Thailand, Uganda, and the USA. He has taught at American, George Washington, and Johns Hopkins Universities, as well as at the Universities of Florence and Oslo.