EFFECTIVENESS OF OFFICIAL DEVELOPMENT ASSISTANCE IN

RURAL DEVELOPMENT

1991-2002

PURPOSE

– Studying current ODA policies and regulations

– Determining accuracy of ODA information; – Studying ODA contributions to rural

development– Identifying strengths and weaknesses in the

above framework– Proposing new policy recommendations

TERMINOLOGICAL CONCEPTS

”POVERTY” shall be reduced by facilitating ”GROWTH”.

”RURAL” – aimag centers – Reasons:

The highest level of poverty is in aimag centers – 45% Living standard of total aimag population will be

improved by developing aimag centers They are focal points for delivering social services,

including health and education, to rural people There were many researches and policy documents

on detailed socio-economic issues below aimag level, which were directed to herdsmen and livestock production

RESEARCH FRAMEWORK

Policies and regulations – at national level Information- at international, national and

some aimag levels Implementation and utilization – in 7 rural

aimags:– Uvurkhangai– Bayankhongor– Khentii– Dornod– Selenge– Khovd– Zavkhan

RESEARCH METHODOLOGY

Getting information from primary sources

Personal interview and discussion

Questionnaire

Studying secondary sources – Documents– Internet news – Other sources

DonorRural ODA

beneficiaries

Government

ODA

PROBLEMS FACED DURING THE RESEARCH

Information ownership Bureaucracy Negligent attitude not to attach importance to the

research Common self-seeking responses of civil servants Ineffective growth indicators for measuring rural

development– Number of taxpayers– Tax income– Budget subsidy – GDP per capita etc.

ODA IN MONGOLIA

1991-2002 - 2.5 billion USD

ODA/GDP = 21.7% – (>10% highly dependent on assistance) – (Mongolia was ranked in the 4th among the

world countries)

ODA PER CAPITA(1993-2001 average)

10 11 14 14 16 16 1721

26 2731 32 32

4045

5159

68 70

8291

0102030405060708090

100

Rus

sian

Fed

.

Tai

land

Vie

tnam

Pan

ama

Rom

ania

Mol

dova

Hun

gary

Slo

vaki

a

Cze

ch

Bul

garia

Lith

uani

a

Latv

ia

Tan

zani

a

Pol

and

Est

onia

Bot

swan

ia

Sen

egal

Pap

ua N

ew G

uine

a

Hon

dura

s

Mon

golia

Zam

bia

$US

ODA DEPENDENCY

 

Share in total investment

(1993-2001 average)

Share in central government expenditure

(1993-2001 average)

Share in total imports (1993-2001 average )

  %Dependency

rank %Dependency

rank %Dependency

rank

Congo (democratic) 55 5 25.5 3    

Senegal 62 4 50.2 2 27.5 4

Mongolia 75 3 83 1 31.2 3

Tanzania 79 2     43.7 2

Zambia 160 1     47 1

Moldova     22 5    

New Guinea     24 4    

Honduras         15.8 5

ODA STRUCTURE

Developing countries with low

and middle income

Developing countries with high income

Mongolia

LOAN 35% 43% 51%

GRANT AID 65% 57% 49%

EFFECTS OF ODA EQUALS TO 1% OF GDP

2,2-3,7% growth of GDP per capita 0,5 % increase in GDP growth 1,9 % increase in investment 1 % reduction in poverty 1 % reduction in infant mortality

Growth of GDP per capita, if utilized ODA effectively

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

US

$

If the growth was 1 %

If the growth was 2.2 %

If the growth was 3.7%

Actual

Poverty level

36.3 36.1 35.8 35.6 35.8 35.9 35.5 35.036.3

32.9

30.4

27.725.9

24.022.9

21.6

36.3

34.032.2

30.529.2

27.9 27.126.3

0

10

20

30

40

1995 1996 1997 1998 1999 2000 2001 2002

Pove

rty %

in to

tal p

opula

tion

In case ifGDP growthratio was 1:1

In case ifGDP growthratio was1:2.2

EFFECTS OF ODA ON INVESTMENT

0

100

200

300

400

500

600

700

800

900

1000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

million

US

$

Actual investment at 1995 price

In case if ODA/GDP

ratio was 1:1

In case if ODA/GDPratio was 1:2.2

In case if ODA/GDPratio was 1:3.7

INFANT MORTALITY -PER 1000 LIVE BIRTHS

64.1 64.4 62.659.5 61.2

4844.4

40 39.635.3 37.3

32.829.5 29.6

0

10

20

30

40

50

60

70

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Actual

If utilized ODA effectively, not regarding GDPgrowthIf utilized ODA effectively, assuming GDPgrowth ratio was 1:1

SUCCESSFUL ACHIEVEMENTS

Successfully overcame transitional crises (...especially power supply, health, education, pension, welfare etc.)

Founded bases of market economy (implemented major reforms and restructuring)

Established economic system dominated by private sector

Increased school attendance

ODA POLICY AND REGULATION DOCUMENTS

Law on foreign aid regulations – 2003 Procedure for regulating official development

assistance that the Government of Mongolia receives from foreign countries and international organizations – Government resolution No. 93 - 1999

Procedure on Foreign Aid Coordination Council and its rules – Government resolution No. 152 - 2000

Law on international treaties

Sectoral Ministry

Central public administration organization in

charge of foreign aids

Government

Supported projects Central public administration organization in

charge of foreign aids and sectoral

ministries

Cabinet member in charge of foreign aids (except specially authorized by

the Cabinet)

Project proposal

State Great Hural (ratifies only loan agreements)

Sectoral ministry and implementing

agencies

Diagram on procedures for receivong ODA

Donor

MOFA

Reviewed project

LOAN REGULATION - TODAY

SGHV

CabinetIV

FACCIII

Sectoral ministry

I

MOFEII,V,VI

Donor

VII

GRANT AID REGULATION

Business entities

Individuals

State organizations

NGOs

MOFA

MOFE

Sectoralministries

Donor

Basic legal requirements

1. Shall be closely linked with medium-term development strategy, long term strategy and state budget investment plans;

2. Shall regard common interests of the country; 3. Shall have concessional terms if it's a loan; 4. Shall have low total costs of consultancy service;5. Shall reflect production and repair costs in the technical and

economic terms; technological, socioeconomic and environmental requirements; and loan efficiency calculations, according to relevant legal acts;

6. A project loan shall have basic requirements that total domestic funding shall include domestic tax relief and exemption as well as costs of domestically supplied products and services according to the contract terms.

Comparison between requirement and actual

implementation - 1

Requirement -1

Shall be closely linked with medium-term development strategy, long term strategy and state budget investment plans;

Reality Priorites of long and medium term

development policies are indefinite; instead, cover and list all sectors and spheres of socio-economic development;it’s not cleary whether prioritised particular issues;

Insufficient linkage between budget framework statement (investment programme) and ODA. They relate each other only in case if some large program and project objects covered by once approved ODA had to be eliminated from budget framework statement.

Linked fairly well with infrasturcture and social welfare objectives of the government action plans of the last 2-3 governments

Comparison between requirement and actual

implementation - 2

Requirement-2 Shall regard

common national interests of the country

Reality Generally regarded.

But:– Looked through a window of budget

-gave priority to filling budget gaps and fullfilling loan terms;

– High probability to approve politisized, economically inefficient, well-lobbied projects and programs, since all of them considered to regard common national interests from social sides.

Comparison between requirement and actual

implementation - 3

Requirement-3

Shall have concessional terms if it's a loan;

Requirement-4 Shall have low cost

consultancy service.

Reality -3 Concessional

Reality -4 Cost of consultancy

service is high – 25-63% (as for audited UNDP projects)

Comparison between requirement and actual

implementation - 4

Requirement - 5 Shall reflect

production and repair costs in the technical and economic terms; technological, socioeconomic and environmental requirements; and loan efficiency calculations, according to relevant legal acts

Reality -5 Don’t carry out project technical and

economic feasibilty studies themselves and don’t analyse and make country-specific adjustments against what donors have done

Don’t calculate production and repair costs realistically, and don’t utilize equipments fully due to expensive and scarce supply of spare parts and auxiliary materials

Implementation of economic and environmental requirements are barely legitimate, therefore, economically inefficient loan projects are being implemented.

Comparison between requirement and actual

implementation - 5

Requirement-6 A project loan shall have

basic requirements that total domestic funding shall include domestic tax relief and exemption as well as costs of domestically supplied products and services according to the contract terms

Reality-6 Domestic source of funds

have been reflected in budgets in recent years;

Tax relief and expemtion measures have been taken.

SUCCESSES AND POSITIVE TRENDS IN THE FRAMEWORK OF

REGULATIONS

Got own legislation Loans have been discussed and resolved

through one window Proposals have been made to donors

according to directions of their assistance Started to undertake sectoral and territorial

coordination Sectoral ministries started make attempts to

coordinate their ODA proposals with relevant donors

ODA COORDINATION CENTER - MOFE

Links with directions of donor assistance Doesn’t carry out realistic analyses in project economic

feasibility estimates – but it’s required by law– Too optimistic assumption– Need political resolution– Overemphasis on social efficiency – Indefinite indicators to measure efficiency– Lack of human resource and system to make analyses

FACC dicusses proposals – though this structure is not legitimate – but members are led by their interests to take more for their sectors

Information database – incomplete

SECTORAL MINISTRIES

Project processing – mostly done by donors’ side –ministries don’t have such capacity

Obsolete mentality – to take certain parts by wanting more – sends list of wishes to the MOFE

Private sector support policies don’t find reflections in ODA

Communicate with donors separately on their own channels, especially in terms of technical assistance

Low capacity and stability of profesional employees

INFORMATION

Information available on loans started to be utilized.

Incomplete grant aid information Information available to the public:

– Only quantitive amounts received;– Only contract signing ceremonies of received projects or

tape cutting ceremonies for imported goods, machineries and equipments – mostly with political background images- appear well to the public through media.

– Little information on implementation and follow-up activities at all levels.

ACTUAL CONTROLS

Utilization of created items

Project outcome

Project processing

Analyses

Project implementation

Cabinet Ministries

Implementing agency

Users

PROBLEMS THAT CAUSE TROUBLE TO DONORS

Don’t keep promises – Don’t make timely finances– Don’t take preparation measures

Poor project processing – send a list of wishes Don't care project outcomes, instead, put more

importance on training, facilities and study trips.

Many bureacratic stages of decision making -basically, all issues are resolved by reaching the top level.

ODA- IN RURAL DEVELOPMENT

OUTCOME

ODA – RURAL (million US $)

Loan Grant aid

Total ODA 1255 1221

1991-1993 270 220

1994-2002 985 1001

Where related to rural (not including

assistance ended before 1996, food and emergency aids, particular objects and Ulanbaatar, Darkhan, Erdenet cities)

58.8% 38.8%

ODA utilized in rural area,by main sectors

Infrastructure42%

Agriculture8%

Industry3%

Bank and finance

8%

Other 20%

Social sector19%

ODA AWARENESS OF RURAL PEOPLE

Aids come down by ”upper” decision making

One or two sack of flour or rice Grant aid – humanitarian aid Aid beneficiaries:

Public administration officers Soum, bagh and khoroo governors and their

close people

How ODA affected improvement of living standards?

80% of aimag administration officers responded – ”WELL”

10% of businessmen responded- “WELL” Local residents and ordinary citizens

responded – ”DON’T KNOW”, ”NO DIFFERENCE”

10 projects most popular among rural people

1. Sustainable livelihoods project(WB)2. Gobi initiative project (US)3. Regional development programme and other

projects (World vision)4. Education and information projects (Soros

Foundation)5. Reproductive health projects (FRG)6. Grassroots (Japan)7. Health development programme I & II (ADB)8. Local town public utility development project (ADB)9. Child education projects (Save the Children, UK)10. Agricultural sector development programme (ADB)

How do you evaluate contributions of foreign aid projects implemented

in your aimag?

Don't know

44%

Criticized

22%

Good

18%

To some extent

16%

2%

98%

2%

98%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Have you ever involved in aforeign aid project?

Have you ever taken part in aforeign aid project tender?

ODA for private sector Loan interest Term

1-2%

Govern-ment

Commercial bank

Interest rate - 36-42% + many references+

estimates+guarantee+pledge

From donors

Rural businessme

n

Mult

iple

sta

ges

20-30 years

1 yea

r

ODA in rural infrastructure(+)

Over 30 % of total ODA Over 40 % of ODA utilized in rural area Government priority for the recent 10 yearsOutcomes:

Overcame power supply crises and improved smooth operation of power supply

Improved roads Improved telephone and mobile communication Increased sources of renewable energy Internet information and communication reached aimag level

completely

ODA in rural infrastructure

How do you evaluate contributions of power supply, road construction and telecommunication to your local

development?

Good66%

Don't know3%

Poor24%

Very good7%

ODA in rural infrastructure(-)

1. Economic efficiency (+) (-) Example: Dornod power station – 20% of capacity, subsidy

Dulaan khaan power station – subsidy2. Utilization (-)

1. Repair and maintenance (-)2. Repair and maintenance budget (-)3. Instable professional personnel

1. Low salary – works for a project2. Improper management system

1. Politics2. A good professional becomes chief or the project loses a good

professional3. No systematic policy-based training

Do budgets reflect repair and maintenance costs adequately?

No77%

Yes3%

Don't know20%

ODA in rural social sector 15 % of total ODA

Human resource development – 9% Health – 4 % Social welfare – 2%

19% of total rural ODA Human resource development - 14 % Health and social welfare - 5 %

Ways: Through government organizations Directly from donors Through humanitarian organizations Through NGOs Through volunteers

ODA in rural education (+)

School material bases (+) Dormitory conditions (+) Curriculum (+) Wide range of training (+)Outcome:

School attendance (+)

ODA in rural health(+)

Improved supply of diagnostic equipments and materials

Large number of training Changes in first medical aid service

system Outcomes:

Reduction in maternal mortality Reduction in infant mortality Improvements in other indicators

ODA utilization in rural social sector

Utilization of equipments (-) Too expensive- kept unoperated in fear of breakdown Irrational choice of equipments Insufficient use under designated purpose Expensive and scarce spare parts and auxiliary materials Instable trained personnel

Low salary – project Unfavourable working conditions No promotional motivation Those who learned foreign languages go abroad

Misuse of equipments for other purposes

Outcomes continued (-) Upper management don’t attach importance or understand. For example: informatiion

network – aimag administration Ambition Politisization Personal interests

ODA- Actual situation of rural social sector (-)

Bureaucracy - ethics Management – as old as usual Inefficient wasteful system Report-oriented, but not outcome-oriented, activities Poor human resource management

A good doctor becomes a chief executive – Òhereby, Loses a good doctor Suffers management of the organization – non-professional manager Increased number of training and workshop - outcome (-) Work absenteeism Training and workshop – income source for certain group of people

Attitude of social sector officers Aids must come and they come as usual Don’t have mentality that the aid is designed for their clients

CONCLUSION ODA – RURAL DEVELOPMENT

49 % of total ODA went to rural areas Relatively well developed infrastructure No significant effects on rural

development Projects implemented directly by

donors reach their targets relatively well

Why ODA had no significant effect on rural development?1. Irrational policy and regulation2. Civil service

1. massive size – irrational 2. poor human resource management3. too low salary 4. got used to aids5. widespread corruption and conspiracy

3. Didn’t support private sector4. Don’t estimate economic efficiency5. Politicization-Social welfare –superior effects6. Too many stages of decision making – resolve issues only at

the top level7. Budgets inadequately reflect repair and maintenence costs

Why ODA had no significant effect on rural development?

11. Poor information12. Insufficient control13. No performance accountability system14. Don’t take into account continuation of a project

from its drafting to completion phases15. Too high costs for foreign consultants16. Too expensive equipments and materials 17. Unfair competitive tenders

Policy recommendations on enhancing ODA effectiveness

À. Policy makingB. Implementation

Â. Outcome, continuation - control

À. Policy regulation - I1. Draw up medium and long term strategy on utilizing ODA. Where:

À. IN RURAL AREAS – with following priority order: Power

To create conditions for running production in aimag centers – not for all of them

To involve private sector producers of renewable energy sources To construct convenient apartment houses at aimag centers To provide long term, low interest housing loans for residents in

aimag centers Long term, low interest business loans for rural businessmen Veterinary service Private sector Advertisement and promotion for increasing public awareness From politicization and political discrimination to economic

management

À. Policy regulation - IIB. To change loan and grant aid ratio to 35:65.

Not to take economically inefficient loans To take only grant aids in rural social sector To suspend loan disbursement in road

construction – budget To discuss projects broadly To establish ”Head” institute

C. To transfer economic development policy functions from MOFE to the ”Head” organization of development policy

D. Equal representation of NGOs, institutes, citizens and businesses in FACC;

2. To issue urgently the procedures for implementing the Law on foreign aid regulations

B. Implementation regulation -I

To involve lenders actively in project drafting processes, where include: Economic efficiency/feasibility estimates Analyses Implementation forms Repayment schedule

To make selection criteria basic indicators of decision making Equal duties and responsibility shared between Lender & Government;

To eliminate donors’ and political influence on decision making; where: Composition of project management boards No political influence on project tenders

Equal representation in tender committees Fair selection

Stop using ODA for political campaign purposes

Same implementation reports both for donors and Mongolian government

B. Implementation regulation -II

Products and services – basic requirements: Not to be out of production in the near future Easy to use Priced at market rate Easily available spare parts and materials Low utilization cost

Personnel recruitment, stability - guarantee At least three personnel Salary equals to the level of project officers Prospective employees for training and study trips

B. Implementation regulation -III

To set limits on the costs of project foreign consultants

To improve ODA information To create automatic entry system

Registration - promotion, discount Donor – Mongolian Government adjustment

To provide regular systematic information on project implementation and follow-up utilization process. Particularly:

Series of information bulletin ”Foreign assistance in Mongolia”

Media – expected outcome – actual performance/outcome Information on continuation, utilization and efficiency after

1,3,5 years of project completion

C. Outcome, its continuation - control

To inform amount of aids to the benficiaries– self controlling mechanism

To include performance indicators in the criteria for project approval

Clear economic indicators Structure, personnel and plan for project continuation

Transparency of selection criteria Monitoring and evaluation departments of ministries -

ODA NGO, private sector – follow-up project utilization

control – publication of reports