Development agencies

Development agencies and infrastructure: the view from two sides of the Atlantic - Trevor Davies & Timothy Stiles 

We were joined by Timothy Stiles, Global Chair of KPMG's International Development Assistance Services (IDAS), and Trevor Davies, Head of KPMG's IDAS practice in the UK to talk about the infrastructure agenda for development agencies in two of the biggest donor nations. Timothy works and resides in the United States, while Trevor operates in the UK and Europe.

Editor: Development agencies appear to be putting more focus on infrastructure in the developing world in recent years. What has been driving that trend?

Trevor Davies: In the 1980s, infrastructure development was a significant priority for European aid and development agencies, particularly hard infrastructure such as roads, dams and power stations. But they quickly realized that many of the recipient countries weren't in a position to operate and maintain the projects, so there was a bit of a refocusing towards issues that develop human capital instead; education, health, gender equality and so on. This led to a more 'hands off' approach to infrastructure in the 90s that prioritized private investment in the sector. Today, however, there is broad recognition within the main European agencies of the virtuous relationship between economic development and infrastructure, and that has evolved into a more balanced approach between capacity building and infrastructure development.

Timothy Stiles: The US has seen a similar metamorphosis over the past few decades. We see some of that in the establishment of the Millennium Challenge Corporation (MCC) that is primarily focused on infrastructure development, where USAID has traditionally been focused on human and health services. Of course, the MCC has a number of criteria that recipient countries must meet in terms of rule of law, human rights and health which effectively means that it is active in far fewer countries than USAID is at the moment. For better or for worse, I also think part of the trend on both sides of the Atlantic has been towards projects that demonstrate value to the donor country's tax payers which is often easier to do with power plants and bridges than it is with mosquito nets and gender equality initiatives.

Editor: Clearly accountability and transparency have become a major priority for development agencies. How is that translating into policy?

Timothy Stiles: The funding program in the US, and particularly within USAID, is once again leaning towards local ownership of program funding as opposed to using US-based intermediaries. This is going to have a pretty significant impact, not only in the way countries receive funds from USAID, but also in the types of projects that are ultimately pursued. The reality is that some countries, particularly the smaller states in sub-Saharan Africa, may not have the capacity to manage some of the really large-scale projects that are needed like airports or ports. Third parties are going to have to continue to play a role, and accountability and transparency in the way those contracts are procured are going to be increasingly important to both development agencies and the local populations of the recipient countries.

Trevor Davies: That shift is already underway in Europe. There has been a huge emphasis from development agencies recently on ensuring value for money and evaluating the impact of aid expenditure. In the UK, the Independent Commission for Aid Impact has been established to examine that, and of course Sweden has had a similar body running for some time now. But increasingly the question is how donors can work effectively with recipient governments to help them get the most value from their investment and that comes back to capacity building which has been the real focus of donor agencies and countries for the past decade or so.

Editor: We have also seen a movement towards greater harmonization between some agencies. How is that results on the ground?

Trevor Davies: It used to be that a typical African country would have 40 or 50 different donors all working in the same space but with very different objectives. But the capacity of the recipient countries to absorb all of that activity was always stretched and much of that aid lost its value as a result. The Paris Declaration on Donor Harmonization has obviously been a big help in bringing a level of coordination and transparency in terms of bringing a number of aid agencies together under a joint approach that can be better leveraged by the recipient country.

Timothy Stiles: In the US, there is a strong need to demonstrate accountability to Congress and - ultimately - the tax payers, so the US often prefers to go it alone. That said, I think there is a lot of value in greater cooperation with the major global and European initiatives, maybe not on a material basis, but certainly to gain the coordination of efforts and provide a united front on development aid.

Editor: Developing countries are seeing some of the highest levels of urbanization in the world. Will this change the focus of development agencies in any way?

Timothy Stiles: The US doesn't really have a formalized policy that specifies what proportion of aid is spent on urban versus rural infrastructure. I would argue, though, that MCC's preference has been focused on urban infrastructure. There is a general agreement that with populations in some cities set to double in the near future, urban infrastructure must go through some significant changes to keep up. Otherwise there is growing concern that - without decent living conditions, jobs, access to healthcare and such - this urban migration may set the stage for political unrest or even radicalization. So while there is no clear policy statement about urban development, it clearly will be an important consideration for the US government going forward.

Trevor Davies: I think there is a tendency within DFID and the EU to focus on rural areas primarily because they are often underserved by private investment. Urban areas enjoy higher population densities that can support large scale projects through tariffs and PPP approaches. But in rural areas the population density is too low or too geographically dispersed to justify private investment. As a result, European aid agencies are increasingly using trust funds to either enhance private sector investment in these areas or offset some of the market risks that private investors face to serve this part of the population. So if we look at it from the perspective of putting aid money towards the areas that are most in need and underserved, I'd argue that this is the right direction.

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