1
NGDO Aid Allocation and the
role of Public Financing
A case study of the United Kingdom
Student: Titus Sauerwein
Student nr.: 6298362
MSc. Thesis – Research Project
Our Changing Global Economic and Security Order after the
Crisis
Supervisor:. Prof. Dr. G.R.D. Underhill
Political Science, International Relations
University of Amsterdam
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Abstract
One of the fundamental principles of the Paris Declaration on Aid Effectiveness in 2005 was the better alignment of development aid practices. Part of the agenda is the international effort to align the imbalances between government and NGO activities. While bilateral and multilateral aid allocation have long been subject for study, very little is known about the allocation patterns of NGOs. This is due to one main practical reason: the lack of sufficient data on geographical allocation of aid by NGOs. However, in recent decades the NGO sector has grown significantly, both in terms of size and influence as a result of an increased willingness of donors to make funds available to NGOs. These developments lead to important questions concerning the determinants for NGO aid allocation and the influence of public funding on these determinants. By constructing a unique database on the geographical aid allocation of development NGOs in the United Kingdom , these two important topics can be investigated. A Heckman correction model is used to analyze the data, which lead to the conclusion that development NGOs in the United Kingdom are largely driven by the interests of the UK Government. Levels of public funding do not influence the allocation patterns of the development NGOs. These findings are of theoretical relevance, since very little is known about the influence of public funding on NGO aid allocation patterns. In more practical terms, these results are important to be able to better align imbalances between government and NGO activities.
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Acknowledgements
A special word of thanks goes out to Prof. Dr. Underhill – my supervisor and first reader of this thesis – for his inspirational lectures, for his ever optimistic mindset, for his sadistic jokes, for the little chitchats about the future of the UvA, but most of all for his critical eye. I would like to thank Daniel Degen, for his crucial assistance in running my models in Stata, Dirk-Jan Koch for convincing me to dive into the world of aid allocation and finally my parents, friends and girlfriend, for the mental support, love and trust. Because of all of you, I feel proud of the final result.
Titus Sauerwein, January, 2016
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List of acronyms
AAA Accra Agenda for Action
BOND British Overseas NGOs for Development
CSCF Civil Society Challenge Fund
CSO Civil Society Organization
DAC Development Assistance Committee
DFID Department for International Development
EC European Commission
FCO Foreign and Commonwealth Office
GDP Gross Domestic Product
GNI Gross National Income
INGO International Non-Governmental Organization
LDC Least Developed Countries
MDG Millennium Development Goal
NGDO Non-Governmental Development Organization
ODA Official Development assistance
OECD Organization of Economic Cooperation and Development
PPA Partnership Program Agreements
SIDS Small Island Developing States
UK United Kingdom
UN United Nations
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Table of content
Abstract
3
Acknowledgements
5
List of acronyms
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Table of content
8
Introduction
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1.1 - Theory
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1.1.1 - Needs based model
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1.1.2 - Donor interest model
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1.1.3 - Governance
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1.2 - Statement of the problem
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1.3 - Purpose of the study
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1.4 - Research questions
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1.5 - Research hypotheses
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1.6 - Significance of the study
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1.7 - Assumptions
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1.8 - Limitations
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1.9 - Definition of terms
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1.9.1 - Aid
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1.9.2 - NGOs
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1.10 - Outline of the thesis
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Chapter 2 - Review of the literature
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2.1 - The three respective case studies
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2.2 - Conclusion
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Chapter 3 – The case of the United Kingdom
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3.1 - A brief history of UK ODA
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3.2 - NGO sector in the UK
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3.3 - NGO-DFID relations
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3.4 - Subsidy mechanisms
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3.5 - Conclusion
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Chapter 4 – Data and method
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4.1 - The database
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4.2 - The variables
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4.2.1 - Dependent variable
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4.3 - Method
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Chapter 5 – Results
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5.1 - Model 1
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5.2 - Model 2
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5.3 - Robustness Checks
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Conclusion
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6.1 - Discussion
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6.2 - Implications
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6.3 - Further research
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6.4 - Conclusion
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Literature
61
Journals
61
Books
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Websites
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Appendix I
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Appendix II
69
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Introduction
This thesis will deal with what Riddell (2007) describes as the pendulum of altruism and interests in aid allocation. It will deal with the concepts of development aid, aid allocation, non-governmental organizations (NGOs) and the determinants of aid. While some point to the Colonial Act of the British government of 1929 to provide aid to its former colonies as one of the first official forms of aid, most scholars identify the post WWII-era as the official starting point of the study of aid. Since then the effectiveness and functionality of development aid and humanitarian assistance have been widely discussed in both the political and societal domain. While these are important topics, this thesis will deal with questions that precede these research fields. If aid is not found to promote development, is this an inherent feature of aid or the consequence of poor allocation practice by donors (Clist, 2011)? Before one can study the effectiveness or discuss the success of aid, one needs to determine what the initial determinants for the allocation of aid actually are. How else can one determine if the presupposed targets are met?
After WWII and in a response to the success of the Marshall Plan in the 1950s, attention turned from the European continent to more underdeveloped parts of the world in the context of foreign aid. This led to the slow beginnings of the institutionalization of official development assistance (ODA). Synchronized with the independence of many former colonies, especially in Africa, the United Nations (UN) proclaimed the 1960s the (first) Development Decade, formally outlining a strategy for flows of capital to developing countries (Riddell, 2007, p.28). This marked the start for the disbursement of the first ODA, which in the last sixty years only has continued to rise (see figure 1.1).
Only from the beginning of the 1970s development became specifically poverty oriented. One reason for the absence of poverty alleviation in the pre-1970s aid discourse was the little knowledge available about the causes, incidence and location of poverty. In practical terms the shift to a more poverty oriented approach meant redirecting aid away from large infrastructure investment and towards projects in agriculture and rural development, social services, mass inoculation programs, adult literacy campaigns, as well as food for the malnourished (Moyo, 2009, p.16). Also did it result in the official adoption of the 0.7 per cent of GNI for ODA target formulated by the UN. Despite a quadrupling of ODA in current price terms from $6.8bn in 1970 to over $27bn by 1980, the ODA/GNI ratio was only half of the formulated target by mid-decade (see figure 1.1). Not only were the 1970s characterized by a shift towards a poverty orientation, but also did they give rise to the growing visibility of a new emerging group of development actors: the NGOs.
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Source: OECD (2015a)
In a period of twenty-five years between 1970-1995 the aid allocated by NGOs increased a tenfold (see figure 1.2), channeling around US$7.6 billion into developing countries in 1992 (World Bank, 2001). Currently, bilateral and multilateral aid provides around 80-85% of the total development aid, whereas NGOs, together with foundations, corporations and development charities constitute around 15-20% of the budget (OECD, 2013). The annual budgets of some of the largest international humanitarian and development NGOs have in recent years grown to the point where they exceed the entire foreign aid budgets of OECD countries as large as Italy (Büthe & Cheng, 2013). The rise of NGOs in numbers and size is not only an indication of more private initiative and voluntary action, but also reflects an intensified relationship between NGOs, governments and official aid agencies. This relationship is mainly translated in an increased willingness of donors to make funds available to NGOs. Where individual donations and other private donors mainly funded NGOs in the beginning, many of them have switched from being primarily funded by private donors to being essentially funded by institutional donors. Nancy and Yontcheva (2006) identify three main reasons for this increase in public funding of NGOs. First, the assumed cost-effectiveness of NGOs in reaching the poorest makes them attractive for official agencies to support them in providing welfare services (Meyer, 1995). Second, NGOs are seen as more representative of the poor, which gives them a greater public legitimacy than some governments and third, their managerial features are expected to be comparable with private sector levels of cost-control and efficiency (Nancy and Yontcheva, 2006).
0,00 0,10 0,20 0,30 0,40 0,50 0,60 0 20 40 60 80 100 120 140 160 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 (a) 19 92 (a) 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 OD A as p e rc e n tage o f GN I
Figure 1.1 - Net official development assistance, 1960-2014
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Figure 1.2 – Growth of Nongovernmental Organizations, 1950-2005
Source: (Werker & Ahmed, 2008, p. 75)
Both the increased presence and interconnectivity with governments make the allocation patterns of NGOs worth investigating.
Although NGOs receive and channel funds from public sources, they receive significant amounts of private funding as well, rendering them independent actors in their own right. This means that NGOs have their own priorities, interests and political agenda, which may not always align with government priorities and plans (Worthington and Pipa, 2010). Thus, the main challenge governments face is to be able to align their development activities with NGOs, while recognizer their status as independent actors in their own right, even when they receive ODA (OECD, 2011). The most prominent example of the international effort to align the imbalances between government and NGO activities is the ‘Paris Declaration on Aid Effectiveness and the Accra Agenda for Action (AAA)’ agreed at the Third High Level Forum on Aid Effectiveness held in Accra in 2008. By adopting the AAA, donors and developing countries committed to deepen engagement with civil society organizations (CSOs1).
Paragraph 20 of the AAA states that developing and donor countries will…
1 The terms CSO and NGO are often used interchangeably in the literature, where CSOs encompass a broader range
of civil society groups concerned with development – ranging from global networks to international organizations (OECD, 2011). In discussing NGO- (or CSO-) government relations, both concepts can be used interchangeably.
14 …deepen […] engagement with CSOs as independent development actors in their own right whose efforts complement those of governments and the private sector. [We] share an interest in ensuring that CSO contributions to development reach their full potential. (OECD, 2011)
While NGOs are recognized as autonomous actors and are expected to perform specific and autonomous roles, they must act in synergy with bilateral aid and confine their working space to the set rules of the international aid agenda agreed on in the Paris Declaration (Nijs & Renard, 2009). However, to be able to align government and NGO development efforts one needs to have a clear understanding of the determinants and principles driving the aid allocation behavior of both groups. In other words, why are NGOs active in certain developing countries and not in others? And, do these patterns differ from aid allocated by bilateral and multilateral institutions? Surprisingly, the allocation of aid by private donors has received very limited attention in the literature (Büthe & Major, 2012). This is mainly due to a practical reason: the absence of sufficient data. While reliable statistics on bilateral and multilateral aid streams are widely available, inclusive datasets on the aid activities of NGOs are very limited; on the local level as well as on the national and international levels.
1.1
– Theory
Most of the literature in the foreign aid debate focuses on the impact of aid on economic growth and development and on the question whether aid really helps. However, as Alesina and Dollar (2000) indicate, a prior concern is identifying the determinants for aid allocation in the first place. For decades bilateral government donors and multilateral institutions had been the most important actors in the field of aid allocation. It is therefore only logical that most of the literature had focused on the determinants for aid allocation for the public sector. A distinction in the three most important models can be made. The first, the need-based model, explains the allocation patterns of bilateral governments and multilateral institutions on the base of need of a recipient country. From this perspective it is expected that the poorest countries in the world receive the highest amounts of aid (McKinley and Little, 1979). However, this appears not to be the case. Most authors find prove for the donor interest model, which explains aid allocation patterns based on the interests of the donor. Economic and political interests appear to have a significant influence on the allocation behavior of bilateral governments. In this sense aid should more be seen as a tool to fulfill donor interests rather than a primary rationale. The last important determinant for aid can be the level of institutional development in a country, also labeled as governance. Because governments do not want aid to end up in the wrong hands, a certain level of selectivity in governance levels between countries is expected to influence their allocation patterns
(Alesina & Dollar, 2000; Berthélemy, 2006). While both governance and poverty are expected to be of
15 Both the need-based model and the donor-interest model are used in so-called ‘hybrid’ models to explain the allocation patterns of aid (Berthélemy, 2006). Both models are state focused and do help to gain insights in the allocation patterns of national governments, but largely ignore the allocation patterns of non-state bodies. While governments, multilateral institutions and NGOs do share a lot of characteristics; they also vary greatly in size, organizational capacity, focus, interests etc. Differences in allocation principles are therefore expected. For example, NGOs often have to apply for official funding, while national governments are more independent in terms of finance. On the other hand, national governments have to deal with a wider variety of political and economic interests. The differences in terms of characteristics between governments and NGOs will probably have a significant impact on their allocation patterns. Because no theories on the allocation behavior of NGOs exist, the same models as for bilateral and multilateral aid are used to hypothesize about their aid allocation patterns.
1.1.1 - Needs based model
The need-based model emphasizes the utility of aid in line with economic assistance, suggesting that the disbursement of aid is designed to promote economic development in the poorest regions in the world. The model has three important elements: a set of variables, a hypothesis relating to these variables and a rationale explaining the relationship between the variables and the hypothesis. The variables in the model represent the ‘need’ of a recipient country and should be interpreted in terms of economic development and welfare. The other variable is the amount of aid disbursed to the recipient country. The hypothesis in the need-based model states that the exact amount of aid received by the country in need correlates to its level of welfare and economic development. The rationale explaining this relationship is based on two factors. The first factor explains underdevelopment in terms of capital shortage. Since aid is a supplement to domestic savings and thereby to investment, aid can be an important stimulus for economic development. The second factor explains the relationship in terms of morality. The high levels of inequality between donor and recipient countries create an obligation for NGOs to provide economic assistance (McKinley & Little, 1979, p. 59). Because NGOs are less apt to be influenced by strategic preferences and interests than governments (Alesina and Dollar, 2000), NGOs are expected to be more poverty-relief oriented. This understanding is based on the logic that NGOs may be closer to the poor by circumventing (often corrupt) governments and deal directly with target groups organized by local NGOs (Riddell, Bebbington, & Peck, 1995, p. 25). The closer relationship with the recipients of aid may reduce leakage and result in a better alignment with recipient needs (
UN-Millennium Project, 2005, p. 18). This subsequently leads scholars to expect NGO aid disbursement to
be strongly related to indicators of needs such as the GDP per capita of a recipient country or economic and social development measured by the Human Development Index. Secondly, it is expected that NGOs have a stronger presence in unequal countries, since many NGOs have a background in social
16 justice movements, which focuses more on relative than on absolute poverty (Schulpen, 1997). The empirical foundation for the needs-based model is largely build on the firsts large-scale country-level analysis for NGO aid allocation by Nancy and Yontcheva (2006). They conclude that European NGOs (co-financed by the European Union) “seem relatively immune to strategic interests and seem to keep their promise of being advocates of the poor and vulnerable”. However, findings by Dreher et al. (2007) and Koch (2006) contradict these results.
1.1.2 - Donor interest model
On the other hand, the donor-interest based model suggests that the allocation of aid should rather be seen in instrumentalist terms. In this view economic assistance is mainly used to promote the foreign policy interests of the donor. Economic assistance should be seen as a tool to fulfill donor interests rather than the primary rationale for aid. McKinley and Little (1979) distinguish two propositions, respectively commitment and dependency, that could be used to understand the rationale underlying the interest-based model. Commitment between donor and recipient is understood as an attempt by one state to register its support for another. Dependency exists when the recipient country relies on the donor without the reliance being reciprocated. The key elements in the model are a variety of interests the donor has in the recipient country – for example political or commercial interests – and the commitment and dependency expressed through aid. The hypothesis relating to the variables is that the level of commitment and dependency established through aid is a function of the degree of interests the donor has in the recipient country. The rationale explaining the hypothesis is based on the proposition that all states have external interests that they want to promote and protect. The donor-interest NGO model explains aid allocation patterns of NGOs from the priorities of lead funding agencies. The trend toward expansion in the size of individual NGOs and NGO programs can be mainly explained by the increase in official funding of NGOs. This increase in public funding raises questions concerning NGO performance and accountability, NGO-state relations, and the ability of NGOs to act independently in pursuing their goals (Edwards & Hulme, 1996). This in turn would lead NGOs to closely mimic the allocation patterns of their donors, rather than to follow their own aid allocation principles. Bebbington (2004) demonstrates that an increased involvement of the Dutch government into a co-financed project in Latin America led NGOs to suspect that they might lose funding unless being able to demonstrate immediate project-related poverty impacts. This led the Dutch NGOs to shift their attention to easier workable countries. The limited evidence confirming the donor-interest based model is inconclusive. However, Dreher et al. (2007), Koch (2006) and Koch and Loman (2008) find the determinants for aid allocation of NGOs to be subject to donor dominance.
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1.1.3 - Governance
A relatively recent addition to the aid allocation literature is the inclusion of governance as a determinant. Governance should be interpreted as the governance and institutions of the recipient country with two aspects. The first is the ability of a recipient country to turn a given amount of aid into a desirable outcome in the mind of the donor. This logic largely follows the differentiation Collier and Dollar (2002) make in the actual allocation of aid and the poverty-efficient allocation of aid. They argue that in the poverty-efficient view one needs to take three principles into account:
The impact of aid on growth depends on the quality of economic policies and is subject to diminishing returns
There is a wide range of different evidence that the quantity of aid does not systematically affect the quality of policies – even with ‘conditionality’; and
Aid resources are typically fungible, so that it is difficult for donors to target them to particular groups or use them to alter the distribution of income. (Collier & Dollar, 2002) The second aspect includes desirable characteristic of the recipient country that follow the preferences of the donor and that are not need-related. These two aspects of governance would be expected to have a positive relationship with the amount of aid allocated (Clist, 2011). Scholars and policy makers generally argue that NGOs have a comparative advantage in countries with low levels of democratic governance compare to governments and that more NGOs should be active in these countries. In a country with ineffective institutions government-to-government aid is arduous and can even do harm, because aid can easily end up in the wrong hands. Many scholars suggest that if bilateral aid does not work, NGO aid can be a good alternative (Easterly, 2006). Countries with low institutional levels are therefore expected to receive a higher concentration of NGO aid. The UN-Millennium Project (2005) shares this line of thought and states that…
…countries that rank consistently low on civil liberties, political freedoms, and human rights, while rating high on corruption, with little demonstrable will to achieve broad-based poverty reduction. In these cases, the international community can play a role in humanitarian assistance and deliver aid through NGOs.
However, different authors contest this view. Being condemned to the ‘left-over’ countries with low expectation levels of successful development might be a reason for NGOs not to work in countries with low governance levels. Secondly, the donor-interest hypothesis expects NGOs to be reluctant to work in countries with low governance levels because failure might jeopardize future funding (Koch et al., 2009). Empirical evidence for the governance perspective is largely lacking so far. Koch et al. (2007) find Norwegian and American NGOs following this logic, while aid by German NGOs is not. Dreher
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et al. (2007) do not find any evidence for Swedish NGOs to take into account any governance related principle.
Concluding, while bilateral and multilateral donors seem to be mainly interest-driven in their aid allocation patterns, NGOs are expected to have a better poverty orientation based on the need of each recipient country. Secondly, it is expected that due to the priorities of lead funding agencies NGOs are inclined to follow the interests of the back donor. When it comes to the level of governance of a country results are contested. The wide variety of contradicting articles in the scholarly literature indicates that mainly due to a lack of substantive datasets on the charitable expenditure of NGOs empirical evidence for the three perspectives – need, interest and governance based – is far from inclusive.
1.2
- Statement of the problem
However, both the increasing size and amount of public funding of many NGOs, lay the foundation for a new emerging field of theoretical questions related to the accountability and legitimacy of NGOs. For example, to what extent can an NGO be labeled as part of the private sector if a government largely funds it? And if we do expect differences in allocation patterns between national governments and NGOs, what do we expect for the variety of public financing levels within the NGO landscape? While some NGOs refuse to accept government or corporate funding in order to stay independent in their decision-making, many NGOs depend on these funding sources in order to operate. Funding issues have become particularly challenging, following the economic crisis (Global Policy Forum, 2015). In case the level of public funding of NGOs influences their aid allocation patterns, this creates a power dimension for bilateral governments to be better able to align government and NGO activities in accordance with the Paris Declaration. For example, one could argue that by providing more funds to NGOs governments would potentially be able to promote NGO aid allocation to specific developing countries. Gaining more insight in the aid allocation behavior of NGOs is therefore relevant. The influence of funding issues in relations to allocation patterns of NGOs will be the main focus of this thesis. To my knowledge there are only three cases-studies that examine the changing funding structures of NGOs, assessing respectively the case of the Netherlands (Loman et al., 2010), Switzerland (Dreher et al., 2012a) and Germany (Dreher et al, 2012b). These studies will be discussed in more depth in the chapter 2.
1.3
- Purpose of the study
Since only so little research has focused on the relation between public financing of NGOs and aid allocation, many cases are left open for further investigation. However, as indicated before, inclusive datasets on the charitable expenditure of NGOs are very deficient. The governments of the three
19 respective case studies are the only OECD countries that have provided public data on the geographic aid allocation of NGOs. Therefore, the primary purpose of this thesis has been to build an inclusive dataset on the geographic aid allocation of NGOs for a new relevant case that would enable me to conduct a comparable case study as Dreher et al. (2012a; 2012b) and Loman et al. (2010). Finally, the United Kingdom has been selected as a case study. Further justification of the relevance of this particular case, together with a detailed outline of the societal and political context of the NGO landscape in the UK, is provided in chapter 3.
1.4
- Research questions
Now both the case and the specific point of focus have been set, the research question can be introduced. This thesis follows a two-step approach to be able to speculate on a solution to better align government and NGO aid allocation. Because a unique dataset has been built for a new case study, the first step is to answer the following question:
RQ1: What are the determinants for aid allocation of development NGOs in the United Kingdom?
This will lead to the second step and subsequently to the central question of this thesis:
RQ2: To what extent does the degree of public funding influence the allocation behavior of development NGOs in the United Kingdom?
Responding to these questions involves firstly the descriptive identification of the different determinants of NGO aid allocation, and an analysis of these determinants for the selected case. Once the aid allocation pattern of development NGOs in the UK has been identified, the influence of the degree of public financing of development NGOs on this pattern can be tested. The three comparable case studies will be used as a starting point to identify the appropriate research design, method and formulation of variables.
1.5
- Research hypotheses
The three theoretical models – the need based model, the donor interest model and governance – enable to formulate the hypotheses concerning RQ1. It is expected that all three models have a significant effect on the amount of aid allocated by development NGOs in the UK. Therefore the first hypotheses is:
H1: Both the need of a recipient country, the interests of the donor country and the governance level of the recipient country determine the aid allocation behavior of development NGOs in the United Kingdom
20 While the three theoretical models enable me to formulate different hypotheses regarding the first research question, the theoretical ground concerning the second research question is very thin. After all, only three other studies have focused on this specific topic. Therefore the hypotheses concerning RQ2 are formulated after a thorough review of the three case studies in chapter 2.
1.6
- Significance of the study
This master thesis is relevant for both theoretical and practical reasons. Since only very little research has focused on the influence of public funding on NGO aid allocation – due to data restrictions – research in this field is very relevant. Not only does the construction of a new unique database enable other scientists to research the allocation patterns of development NGOs in the UK, but also can the results contribute to theory formation in relation to NGO aid allocation. A comparison of the results with the three other case studies is therefore essential. This thesis is relevant in more practical terms, because its outcomes could have very interesting results for policy advice. For example, finding prove that governmental support of NGOs does influence their allocation behavior could influence future funding patterns.
1.7
– Assumptions
It is important to be aware of one major assumption I (and Dreher et al. (2012a; 2012b) and Loman et al. (2010)) have made concerning the allocation of aid by development NGOs. Like most of the scientific literature on development aid and aid allocation this thesis is conducted from a donor-based perspective. Because this thesis is mainly concerned with the amount of aid allocated by an NGO, rather than the amount of aid received by the recipient country, a donor-based approach is justified. However, one needs to be aware that the data on the amounts of aid received against the amounts of aid allocated can differ greatly. According to OECD/DAC, out of total ODA of just $60bn in 2002/2003 only $17.4bn (less than a third) reached recipient country government budgets (OECD, 2005, p.36). It is therefore expected that the perception on determinants of aid allocation by NGOs can vary greatly between the donor and the recipient of aid. Since data gathering on NGO aid allocation from a donor perspective is already arduous, research from a recipient-based approach is beyond the feasibility of this master thesis.
1.8
– Limitations
Especially in terms of the generalizability of the results it is important to be aware of the limitations of the selected research design and case. Firstly, conclusions are solely made on the ground of theory and quantitative data. While a quantitative method is justified2 it is important to be aware of the limitations
of this approach. Including the perspectives on the determinants for aid allocation of the UK NGOs and
2 See chapter 4
21 government by means of a qualitative research approach, would probably have led to a more comprehensive conclusion on the aid allocation behavior of the UK NGO sector. However, due to time restrictions I have chosen not to use a mixed-methods approach. Secondly, while the United Kingdom has one of the largest development aid sectors in the world, it is important to be aware of the unique characteristics of the case when concluding on development NGO aid allocation in general. Therefore the unique character of the development NGO landscape in the United Kingdom will be outlined in more depth in chapter 3.
1.9
- Definition of terms
Before continuing to the analytical part it is important to define the two most important concepts used in this thesis, respectively aid and NGOs. This is not only important to make the concepts quantifiable, but also because an internationally agreed definition of both terms is nonexistent.
1.9.1 – Aid
Often called ‘foreign assistance’ in the United States, most scholars use the term ‘foreign aid’ as the most common concept in the field of development studies. Many different definitions are used, ranging from very wide to very specific. The broadest definition of foreign aid is as follows: “All resources – physical goods, skills, and technical know-how, financial grants (gifts), or loans (at concessional rates) – transferred by donors to recipients.” (Riddell, 2007, p. 17)
This definition leaves many questions open. For example, it does not make any distinction in actors, motivation or form of conditionality in the actual transfer of aid. This thesis is mainly concerned with so-called development aid or development assistance; the types and forms of foreign aid from rich countries to poor countries, and to poor people, which help to address acute human suffering and which contribute to human welfare, poverty reduction and development (Riddell, 2007, p.17).
While the field of development aid does help to identify the most important actors and their motivations, it does not provide an inclusive definition that both entails the perspectives of the donor and the recipient. Rather, the most used definition of development aid is focused predominantly on the perspective of the aid-donor and is defined by the Development Assistance Committee (DAC) of the Organisation of Economic Cooperation and Development (OECD) as:
Those flows to countries and territories on the DAC list of ODA recipients and to multilateral institutions which are (1) provided by official agencies, including state and local governments, or by their executive agencies; and (2) each transaction of which (a) is administrated with the promotion of the economic development and welfare of developing countries as its main objective; and (b) is concessional in character and conveys a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent). (OECD, 2015b)
22 The definition of this so-called official development assistance (ODA) only includes development aid allocated by official agencies, but excludes any aid funds raised and allocated by private organizations or foundations, NGOs or individuals. The definition does include official aid funds provided directly to or channelled through NGOs, but does not include any aid allocated from private sources.
1.9.2 – NGOs
Because this thesis is primarily concerned with allocation of aid by non-governmental organizations the OECD-DAC definition is not fully suitable. Surprisingly, no internationally agreed definition of aid provided by NGOs and humanitarian agencies exist; not even by the biggest NGOs themselves. As Riddell (2007) indicates, the absence of an internationally agreed definition could be problematic for two reasons. Firstly because of the growing importance of NGOs in the field of development aid and secondly because some NGO activities do not align with the DAC definition of aid. For example, some NGO projects include the payments of loans, while others use aid funds for advertising and fund-raising purposes (Riddell, 2007, p. 20). While it is not the purpose of this thesis to find a proper definition of NGO aid, a justification of the used characteristics for NGO-aid is important. Following Hoebink and Schulpen (2014) in this approach, the definition of Vakil (1997) is taken as a starting point. He broadly describes NGOs as “self-governing, private, not-for-profit organizations that are geared to improving the quality of life for disadvantaged people”.
One can make a distinction in two types of NGOs: humanitarian and development. In relation to aid allocation it is important to make this distinction, because humanitarian NGOs are mostly driven by emergency situations, and its allocation patterns are strongly correlated to shocks and natural or artificial disaster (Nancy & Yontcheva, 2006). Researching the determinants of both humanitarian and development NGOs together would therefore present a skewed image of the allocation patterns. Since development NGOs are more focused on long-term projects and therefore are expected to be more consistent in their aid allocation, development NGOs in the UK are chosen as point of focus. While this approach is expected to benefit the robustness of the data sample, it is not always easy to determine whether an NGO is fully a development or humanitarian organization. For example some NGOs work primarily as relief organizations but do have a specific focus on the long-term presence in the targeted country. Fowler (2011, p.45) describes development NGOs as those NGOs that are active in ‘development’ and particularly those that ‘acclaim and utilize the tenets of international aid as a substantive basis for their existence’. Concluding, using Vakil (1997) as starting point, this thesis is concerned with “self-governing, private, not-for-profit organizations that are geared to improving the quality of life for disadvantaged people”, with a specific focus on development NGOs rather than humanitarian.
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1.10 - Outline of the thesis
This thesis follows the outline of a standard quantitative analysis (Nenty, 2009). In the next chapter I will discuss and critically analyze the analytical background of the three comparable case studies for the case of Switzerland, Germany and the Netherlands. This will enable me to formulate the hypotheses regarding RQ2 and provide a framework for the most relevant research design. In chapter 3 I will further outline the specific characteristics of the NGO landscape in the United Kingdom. This is relevant given the limited amount of studies conducted in this field. The chapter enables to interpret the results in a broader societal and political context. The research design and methodology are described in chapter 4. Special attention is devoted to the different steps taken in constructing the database. Because of the specific characteristics of the database a Heckman correction model is identified as the most appropriate method to analyze aid allocation data. In chapter 5 empirical results of the Heckman correction model are reported. Finally, in chapter 6 the discussion, conclusion and recommendations are provided.
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Chapter 2 - Review of the literature
How would the changing financial structure of NGOs affect their aid allocation behavior? The principal–agent model of Fruttero and Gauri (2005) suggests that financial dependence of NGOs (the agents) on external funding (notably from official principals) drives a wedge between organizational imperatives related to future funding and charitable objectives in locations where NGOs are active. Edwards and Hulme (1996) introduce the concepts of legitimacy and accountability as two important factors that might be influenced by increasing levels of public funding. Quoting a traditional African saying, “if you have your hand in another man’s pocket, you must move when he moves” (Van der Heijden, 1987, p. 106), translates the changing role of legitimacy in this context. To what extent can non-governmental organizations largely depending on the public purse be identified as nongovernmental? In terms of accountability one could ask the question if closer links with donors may result in a move away from self-regulation by the NGO itself to regulation from above the state (Edwards & Hulme, 1996). These questions are only theoretical considerations, but should not be interpreted as universal relationships between increasing levels of public funding and the legitimacy and autonomy of NGOs. Surprisingly very little research has been carried out in the field of aid allocation that does take into account the effect of NGO funding structures on aid allocation patterns. Authors like Bebbington (2004), Nancy and Yontcheva (2006), Berthélemy (2006), Koch (2006), Dreher et al. (2007), Koch et al. (2009), Nunnenkamp et al. (2009) and Büthe and Cheng (2013) are all important authors in the field of aid allocation, but none of them specifically focusses on the financial dimensions of the NGO landscape. While many scholars unify the NGO landscape in terms of allocation patterns, the actual variability within the NGO landscape is significant in terms of internal funding structure.
2.1 - The three respective case studies
While Dreher et al. (2012a) indicate to be the first one to have analyzed the effect of financial dependence of NGOs on public aid on aid allocation, I have found one previous study to conduct a comparable research approach. Loman et al. (2010) are, to my knowledge, the first authors to take this variety into account. They use a Heckman selection model to research the allocation patters of 73 Dutch development NGOs in 2007 and identify two hypotheses regarding the potential impact of donor funding on the country of choice in aid allocation by NGOs. The first hypothesis follows the donor-interest model and expects NGOs that largely depend on public funding to spend their resources in the same countries as where their main financers are operating. The fact that NGOs played a crucial role in developing the OECD-DAC guidelines as part of the Paris agenda for aid harmonization does reinforce this hypothesis. In the guidelines bilateral donors increasingly demand complementarities between
26 public and private aid allocations (Rogerson, 2005). Correlation between the allocation patterns of NGOs and bilateral governments are therefore expected.
The second hypothesis is more outward oriented and related to the conflicting role of legitimacy. Clegg et al. (2007) introduces the role of identity seeking and result-orientation as a driver for aid allocation. Both require NGOs to deliver results that guarantee public support and societal legitimacy. Even NGOs that have a high dependency on public funding and are less capable of raising substantial resources feel obliged to be accountable and have a responsibility of maintaining a recognizable profile for the public domain. This might push NGOs to be active in more innovative and risky projects. From this perspective the allocation patterns of more dependent NGOs are expected to be less inclined to follow back donor interests (Loman et al., 2010).
Loman et al. (2010), finds the degree of public funding of Dutch NGDOs to be a much stronger determinant for the allocation of aid than the objective political and socio-economic criteria that a recipient country should meet. Surprisingly they find that NGDOs “with higher independence from back-donors are likely to allocate less funding in bilaterally selected partner countries, whereas NGDOs that rely more on private fundraising select an aid allocation pattern that is better aligned with public aid agencies.” This is an interesting result, because it suggests that NGDOs with lower levels of public funding easier align their allocation patterns with governments. Loman et al. (2010) explain this theoretically as follows: in terms of accountability mainly privately funded NGDOs have to show the general audience some global indicators of their results in countries where bilateral donors are widely present. On the other hand, publicly funded NGDOs have to meet far more strict outcome monitoring and therefore tend to focus their activities in countries where they can more easily demonstrate their unique performance attributes (Loman et al., 2010). Surprisingly, the most publically funded NGDOs tend to be better poverty oriented than their privately funded counterparts.
Only Dreher et al. (2012a; 2012b) have continued to investigate the financial autonomy of the NGO as a determinant for the choice of country in aid allocation for respectively the case of Switzerland and Germany. In the case of Switzerland NGO-specific data on aid allocation across low and middle-income countries by more than 300 organizations were gathered and analyzed by means of a panel Tobit analysis. However, as Dreher et al. (2012b) indicate, Switzerland is a relatively small donor country, which makes the results of the study of theoretical interest but of limited practical relevance. They find NGOs to mimic the state as well as NGO peers, supporting the donor interests model. Publicly funded NGOs are inclined to imitate the allocation of ODA. However, degree of public funding does not influence the poverty orientation as well as the preference to work in easier workable environments. In the case of Germany Dreher et al. (2012b) collected data from 41 NGOs for the years 2005-2007 and analyze their aid allocation across 152 recipient countries. Instead of using the two-step Heckman procedure they make use of Tobit models. While they do find NGOs to have a better poverty orientation
27 than governments, their need based targeting weakens with rising levels of dependence on public funding. Secondly, they find that NGOs do follow the state as well as NGO peers when allocating. The degree of public financing matters in two respects. First, the poverty orientation of German NGOs weakens with rising levels of public funding. Second, more publicly funded NGOs are inclined to work in easier workable environments.
2.2 – Conclusion
Interestingly the results of the three studies differ significantly. Concerning the three identified models described in the theoretical part of the introduction, support for the donor interest models seems evident in all three cases. However, when it comes to the degree of public funding results vary. While Dutch NGDOs that are less dependent on back-donor funding are more inclined to follow the interests of the Dutch government, Swiss NGOs with high levels of public funding are more inclined to follow the Swiss government. While in the case of Switzerland both the poverty orientation as the preference to work in easier workable environments are not influenced by the level of public funding, in the case of Germany the poverty orientation weakens and the preference to work in easier workable environments rises with higher levels of public funding. Because results vary greatly among the different case studies it is hard to formulate a consistent hypotheses concerning RQ2. Following Fruttero and Gauri (2005) and my own intuition I therefore formulate the second hypothesis as follows:
H2: Development NGOs in the United Kingdom depending on high levels of public funding are more inclined to follow the interest of their back donor compare to development NGOs depending on low levels of public funding
Methodological differences between the three case studies are minor3 – they make all use of
non-linear regression models – suggesting that the differences in results are case specific and more dependent on the societal and political context of the NGO landscape in the respective country. Therefore in the next chapter extra attention is devoted to the specific characteristics of NGOs in the United Kingdom, their relations with the UK government and the different types of funding mechanisms.
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Chapter 3 – The case of the United Kingdom
This chapter will present a detailed overview of the foreign aid landscape in the United Kingdom. It will start with a brief overview of the history of UK ODA to introduce the characteristic specific focus on quality and effectiveness of the UK government. Secondly, the features of the NGO sector in the UK will be discussed. The UK NGO sector is comparable with Germany and the Netherlands in that it contains several NGOs with very large budgets and a pyramid of other organizations below. To shed more light on the NGO-government relations the last part of the chapter introduces the incentives of the UK government to work with NGOs and presents the variety of funding mechanisms through which the UK government support NGOs.
3.1 - A brief history of UK ODA
As a former colonial power the United Kingdom has a long history of involvement in the developing world. The government responsibility for the development of its former colonies was first formulated in 1929 in the Colonial Development Act, which placed a ceiling on development expenditure at £1 million. Later, as a result of decolonization, the Department of Technical Co-operation was established which was the first department assigned with development cooperation. In 1964 the first official Minister on Overseas Development was appointed. The responsibility for development cooperation later switched to the Foreign and Commonwealth Office (FCO), which was replaced in 1997 by the Department for International Development (DFID). The Secretary of State, who is given a full cabinet status, heads DFID. In contrast with other DAC donors the DFID has an independent cabinet-level department, giving it almost full control on development cooperation (JICA, 2009).
When the first Labour government led by Tony Blair came to power in 1997 the long contraction and stagnation of UK ODA in the three previous decades started to reverse. Since then ODA expenditure has experienced an extraordinary growth pattern (Riddell, 2007, p.60). It was by the year 2013 that the UK for the first time met its commitment to spend 0.7 per cent of gross national income on ODA (see figure 3.1) as formulated by the Pearson Commission on International Development in 1969.
In 2014 the UK provided USD 19.4 billion in net ODA (preliminary data), which represented a 0.71 of GNI and increase of 1.2 per cent in real terms from 2013 (see fig 3.1). This makes the UK the fifth largest donor in terms of percentage of GNI and the second largest in absolute amounts behind the US in 2014 (see figure 3.2 and 3.3). Together with Denmark (0.85%), Norway (0.99%), Luxembourg (1.07%) and Sweden (1.10%), the UK is the only DAC member country to reach the 0.7 per cent UN target in 2014.
30 Fig 3.1 – Net ODA: trend in volume and as a share of GNI, 1998-2014, United Kingdom
Source: OECD (2015a)
The US, Japan and Canada have not made any commitment to the target. In 2013 60 per cent of total ODA was provided bilaterally and 40 per cent was allocated as core contribution to multilateral organizations, compare to 27 per cent of the DAC country average. The allocation of bilateral ODA was mainly spent at the partner country level (51%). Other important expenditure were humanitarian and food aid (13%), support to NGOs (6%), debt relief (1%), imputed student costs (1%), refugees in donor countries (0.5%), administrative costs (3%) and ‘other and unallocated’ (25%). (OECD, 2015a)
During both two governments led by Tony Blair UK ODA was characterized by a specific focus on enhancing the quality of aid and its effectiveness, while adopting the formulated Millennium Development Goals (MDGs) with a specific poverty orientation as a target for directing and shaping the British aid program. The most concrete result of this new development focus was the passing of the International Development Act in 2002,…
…which requires ODA to be used solely for development and welfare purposes, provided the Secretary of State is satisfied that such assistance is likely to contribute to poverty reduction. By law, ODA cannot be tied to the purchase of British goods and services, and can only be used to benefit the UK commercially if this is clearly secondary to its core poverty-focused purpose. (Riddell, 2007, p.61) 0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,0 20,0 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14p % o f GN I B ill io n s US D , 2012 c o n stan t p ri ce s
31
Sources: OECD (2015c)
3.2 - NGO sector in the UK
The NGO landscape in the UK is far from uniform as in almost every DAC member country. NGOs vary greatly in terms of their size of income, staff and activities, their historical background and identity, the type of activities they undertake and the number of countries they are active in. Secondly, different types of NGOs are registered in the UK. Most of the NGOs registered in the UK can be defined as
,, 5 000 10 000 15 000 20 000 25 000 30 000 35 000 Ice lan d Slov en ia Slov ak Rep u b lic Cze ch Rep u b lic G re e ce Lu xe m b o u rg Po rtu gal Po lan d N ew Z eala n d Ire lan d Au stria Finla n d Kore a Sp ain B e lg ium De n m ar k Sw itz erlan d It aly C an ad a Au stra lia N o rw ay N eth erl an d s Sw ed e n Jap an Fran ce G erm an y U n ite d K ingd om U n ite d S ta te s
Figure 3.2 - 2014 Total ODA, OECD country
2014 ODA USD million current
-0,20 0,40 0,60 0,80 1,00 1,20 Po lan d Slov ak Rep u b lic G re e ce Cze ch Rep u b lic Slov en ia Kore a Sp ain U n ite d S ta te s It aly Po rtu gal Jap an Ice lan d Can ad a N ew Z eala n d Au stria Au stra lia Fran ce Ire lan d G erm an y Be lgi u m Sw itz erlan d Finla n d N eth erl an d s U n ite d K in gd o m De n m ar k N o rw ay Lu xe m b o u rg Sw ed e n
Figure 3.3 - 2014 Total ODA as per cent of GNI, OECD country
ODA/GNI %
32 donor-country based NGOs, which are NGOs organized at the national level, based and operated either in the donor country or another developed country (OECD, 2013). However, also international NGOs (INGOs) and developing country-based NGOs are part of the UK NGO landscape. Because of the variety of characteristics and types of NGOs, providing a clear-cut overview of the NGO-landscape in the UK is far from easy. OECD-DAC statistics on NGO expenditure for example include also the expenditure of private agencies, humanitarian NGOs and advocacy NGOs, while this thesis is primarily concerned with NGDOs. The absence of an internationally agreed definition of NGOs makes statistics on their financial flows disputable. Figure 3.4 provides an overview of the total grants allocated by private agencies and NGOs in the UK between 2000 and 2013. Grants by private voluntary agencies and NGOs are defined as “transfers made by private voluntary agencies and NGOs in cash, goods or services for which no payment is required.” (OECD, 2016)
Source: OECD (2016)
As can be seen in figure 3.3 the total expenditure on grants by NGOs has not shown a consistent pattern in the last ten years. A possible explanation of the inconsistent grant expenditure of NGOs could be found in the inconsistent and uncertain income flows of NGOs4. However, since 2009 total grant
expenditure has been growing enormously from USD 359 million in 2009 till USD 1.02 billion in 2011. Because a little more than half of the British population donate around £10 a month to charity, charities in the UK received a total income of £9.3 billion in 2011-2012. Most of the budget was spend on medical research and hospitals, but it is expected that around 10 per cent of the total budget was received by
4 This is an explanation of myself. I cannot find any articles in the literature that discuss the grant expenditure of
NGOs in the UK. I do find many articles discussing government-NGO relations in the UK, but none which specifically discusses the UK NGO landscape.
0 200 400 600 800 1000 1200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 To tal, M ill io n US d o llar s
33 development organizations. For the year 2011-2012 this meant that a total of £930 million was donated to development organizations, against £1.1 billion in the year before.
Some of the earliest NGOs worldwide were founded in the United Kingdom. Where most religious NGOs stem from missionary organizations, the majority of NGOs in the UK started as non-religious relief organizations. Allocation patterns and partners of the non-religious NGOs all bare the traces of their predecessors. Most of the non-religious relief organizations started with relief activities in urgent situations, like taking care of war orphans and homeless children in Austria (SOS Children’s Villages), feeding children at the end of World War I or during World War II (Save the Children), helping and adopting children during the Spanish Civil War (Plan International) or helping children in China after World War II (World Vision). Where some of the agencies stayed relief organizations, others later broadened their scope, becoming development organizations. An example of a religious relief organizations that later became a development organizations is the Oxford Committee for Famine Relief (Oxfam). Founded in 1942 the organization started with providing food for Greek and Belgian Children during WWII, but later broadened its work with fighting starvation, offering emergency assistance and promoting fair trade. Christian Aid, founded in 1945, started with a primary focus on Christian reconstruction but also later widened its program activities (Hoebink & Schulpen, 2014, p. 180).
The NGO aid landscape in the UK is comparable with the Netherlands and Germany in that it contains several NGOs with budgets over £100 million and a pyramid of other organizations below. Other European countries like Austria, Sweden, Norway, Switzerland and Belgium are characterized by one dominant organization and many smaller organizations. A third example is Denmark or Italy who domesticates three or four organizations with budgets between £40-60 million pound. A last typology would be Finland or Luxembourg with a wide range of small organization with budgets below £5 million. Most of the largest and oldest NGOs in Europe (four out of nine) are registered in the UK (Hoebink & Schulpen, 2014, p. 183). The largest NGDOs in order of income in 2013 are Save the Children (£283.7 million), Oxfam UK (£265 million), Christian Aid (£95.4 million), Tear Fund (£60 million), CAFOD (£48.8 million). Most of the UK NGOs active in development are represented by the umbrella organization British Overseas NGOs for Development (BOND). BOND was founded in 1993 to act as a link between NGOs and the government. It currently represents over 450 member organizations ranging from large agencies with a worldwide presence to smaller, specialist organizations. BOND organizes workshops and training sessions for its members on topics ranging from funding, reporting and advocacy. While in certain countries funding is provided through umbrella organizations, DFID does not provide funding through BOND because it believes this would represent a conflict of interests. After all, umbrella organizations can be both responsible for the reviewing of funding proposals as for the distribution of the actual funds.
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3.3 - NGO-DFID relations
As described in the previous paragraph the UK is characterized by a significant concentration and amount of NGOs that are involved with development assistance. The high levels of public and political consensus on the importance of development assistance strengthen the sector and make collaboration between DFID and CSOs inevitable. DFID see CSOs as international development partners that could help to achieve the MDGs.
DFID recognizes the important role that civil society plays in development and the elimination of poverty. Civil society offers citizens and communities space for debate, association, critical reflection and action – DFID (2005)
The UK has a long history of NGO-government relations, but it was only until 2006 that this was translated into an official policy report named ‘Working with Non-Governmental and other Civil Society Organisations to promote development’. However, in a policy review conducted by Nijs and Renard (2009) little congruence was found between the pursued NGO-donor synergy formulated in the Paris Declaration and actual bilateral aid and officially funded NGO activities. Donors use different strategies to align activities through funding mechanisms. One way to achieve a better synergy is to incorporate a strategy on the relationship between the bilateral sector and geographic allocations and NGO funding in their NGO funding policy. Donors could stimulate NGOs to be active in certain sectors through financial incentives or theme-based financing. While this could potentially be a successful strategy, the UK government requires or gives no incentives to NGOs to be active in certain countries of interest. Nijs and Renard (2009) make a distinction between two forms of complementarity, respectively intensive complementarity and extensive complementarity. The former refers to NGOs and donors working in the same countries, closely interacting and dividing tasks according to their respective added value. The latter refers to donors and NGOs complementing each other by working in different countries based on the comparative advantage of each actor. The geographic extensive complementarity is formulated in many UK policy documents and evaluations but it does not seem to be translated in any financial incentives of funding restrictions. While little explicit financial policy is found to steer the geographic allocation of NGOs, there seems to be more steering from donors in the form of sectors and themes. This means that NGOs can only apply for specific thematic funding rounds formulated by the government (e.g. in the UK special funding rounds were held for projects related to HIV/AIDS).
The different strategies found to align activities through funding mechanisms by donors can also be understood by the societal and political context of the donor country. For example, in most Scandinavian countries governments and NGOs work together on a more partner based relationship. This means that development policies are formulated on a consensual and collaborative basis between
35 the government and civil society. Public funding of NGOs as such is a goal of government policy. On the other hand do governments and NGOs in the Anglo-Saxon countries – like the United Kingdom – work together on a more principal-agent based relationship. Rather than to fund NGOs on a basis of complementarity, funding is assigned on a basis of the effectiveness (Nijs & Renard, 2009). While both models can work well in different countries, the pressure to report results may end up in encouraging NGOs to work in countries where results are easier achieved. In this sense funding mechanisms based on a principal-agent relationship may diminish the poverty orientation of NGOs.
In line with the typical Anglo-Saxon emphasis on effectiveness, the specific poverty orientation in the UK led the government to increase both the impact and result orientation of its aid programs, resulting in a tight monitoring of its performance against the different MDGs (Riddell, 2007) and attempting to align its developments programs with other important donor countries following the AAA (Nijs & Renard, 2009). The strong commitment to the aid effectiveness agenda led in 2003 Denmark, Finland, Ireland, Norway, Sweden, the UK, and the Netherlands, to form the so-called Nordic Plus group of like-minded states. The group was formed to increase members’ mutual cooperation and to harmonize development practices to lower the burden for development cooperation. The members of the Nordic Plus group are all advocates of the Paris Declaration on aid harmonization (JICA, 2009).
3.4 - Subsidy mechanisms
DFID works together with CSOs through a seven different funding mechanisms of which four can channel funds to NGOs. Compare to other DAC members the UK has the most diversified funding mechanisms (OECD, 2011). Figure 3.5 gives an overview of the different amounts of funding mechanisms among DAC members. The OECD recommends a diversification of funding mechanisms because it enables NGOs of different sizes, strengths and interests to access funds. The most important funding mechanisms for development NGOs are the Partnership Program Agreements (PPAs) and the Civil Society Challenge Fund (CSCF).
The PPAs provide guaranteed three to five year funding for an NGO and are relatively unrestricted. The objective of the PPAs is to cooperate on a strategic level with UK CSOs to meet the MDGs. The PPAs are UK administered and designed around an overall set of strategic objectives and topics (e.g. advocacy on disability and development) rather than based on specific detailed projects. This leaves the NGOs a relatively great space for maneuver. The amount of funding is based on the size of the NGO’s budget and should be seen as a contribution to enable the organization to do its work. PPAs are untied because DFID believes that most benefits can be gained from a long-term
36 Figure 3.5 – Number of NGO funding mechanisms by DAC member
Source: OECD (2011)
funding around a shared strategic vision (Pratt et al., 2006). The first NGOs receiving PPA funding were ActionAid, Catholic Association for Overseas Development (CAFOD), Christian Aid, Catholic Institute for International Relations (CIIR), International Service, Oxfam, Save the Children Fund, Skillshare International, Voluntary Service Overseas (VSO) and WWF-UK (NAO, 2006). The most recent round for PPA funding was held in August 2010 and organizations were selected following an assessment and quality assurance process. Funding was disbursed for the 2011-2014 period, with a possible extension of two years. The total amount of funding approved for this period was £361 million.
The CSCF supports mainly small and medium sized CSOs as most large NGOs receive funding through the PPAs. The objective for CSCF is to engage with UK CSOs in small-scale aid projects. CSCFs are provided on a competitive basis among different CSOs. The CSCF allow DFID to provide project funding linked to the achievement of highly specified criteria. While PPAs receive very positive feedback from development NGOs the CSCF is more criticized:
There is a gap in [Challenge Fund] funding which means that organizations run by the poorest people for the poorest people, which are not run as effectively or on the same scale as other CSOs, fall through the loop. This reinforces a separation between well run NGOs by an educated elite, and more fledgling NGOs. The response we suggest is to provide more targeted
37 funds to capacity-building initiatives among smaller organizations working at the grassroots. (NAO, 2006, p. 24)
The CSCF is no longer open for application. All remaining on-going projects ended in 2015.
A competitive environment for fundraising characterizes the UK, due to the relatively high number and size of NGOs, the low level of available official agency funds and a major tradition of public giving for which NGOs compete. The competitive environment fits the result-based and effectiveness agenda of DFID, as it pushes NGOs to report better and work more effective in order to be eligible for funding. Especially NGOs in the Nordic countries have had less competition for funding than the UK. A result of the competitive nature of the UK fundraising environment is that it leads many of the UK NGOs to apply for funding in other funding markets, either through directly going to other official agencies or by setting up local offices in other countries (Agg, 2006). For example Save the Children UK depends for more than half of its income on public sources, but only 11 per cent is coming from DFID and far more from the European Commission (Hoebink & Schulpen, 2014, p.183).
3.5 – Conclusion
In summary, the United Kingdom is one of the largest and most important foreign aid donors in the world and has a long history of involvement in the developing world. The UK governments policy is characterized by a specific focus on enhancing the quality of aid and its effectiveness while adopting the formulated Millennium Development Goals (MDGs) with a specific poverty orientation as a target for directing and shaping the British aid program. Also the UK NGO landscape is of significant size and one of the oldest in its kind. The sector is comparable with countries like the Netherlands and Germany in that is contains several large NGOs and a pyramid of other organizations below. Most of the UK NGOs active in development are represented by the umbrella organization British Overseas NGOs for Development (BOND). The size and history of development sector in the United Kingdom make the country a very relevant case study both in terms of theoretical interest as of practical relevance.
In relation to the government-NGO relations one has to be aware that the development landscape in the United Kingdom is characterized by a very competitive funding nature. This might have two effects on NGO aid allocation behavior. Firstly, the geographic extensive complementarity formulated in many UK policy documents could potentially explain why NGOs are not active in ODA countries. Secondly, the typical Anglo-Saxon emphasis on effectiveness could potentially encourage NGOs to work in countries where results are easier achieved and diminish their poverty orientation. These specific political and societal characteristics of the development sector in the United Kingdom might be of interests in explaining differences between the results of this thesis and the three respective case studies.
