The Development Aid Industry: Boom and Bust / Detlef Palm

It is generally thought that the business of development agencies is to add value to donor money by

• garnishing the funds with policy advice, because allegedly countries do not know what is good for them, and by
• micro-managing or implementing the funds, because countries do not know how to handle money.

There are many assumptions behind this business model.  We will discuss those later. 

Almost all donor countries are cutting their aid. Compared to other pressing needs, development seems no longer worth aiding. Donors are disillusioned with the aid circus and have grown weary of the UN's inefficiency and bloated bureaucracy. Suddenly, everyone shares in the criticism. Galvanized into action, UN development agencies are cutting jobs, restructuring, streamlining, and relocating their offices.

Efficiency

Don’t expect the cost-cutting to be commensurate with the reduction of aid. Relocating offices and their problems is not going to do the trick. The inefficiency caused by expensive locations is marginal compared to the inefficiency caused by too many jobs that do not add value.

It is not enough to simply reduce overheads, personnel and administrative costs proportional to the cuts in aid. Inefficiency will not  change. To modestly increase efficiency from, say, 80 to 85 percent, under a scenario of a 20 per cent aid reduction, aid organizations would need to reduce their administrative and staff costs by a whopping 40 per cent [click for the calculation in endnote 1].

This can be hard on many a UN official. But the budget for a single P5 official (estimated at 300,000 USD per year) can buy 1.5 million doses of polio vaccine (at 20 cent each), year after year. Forgive me for feeling more for the millions of children at risk of dying or being crippled from childhood diseases than for a few coddled UN staffers who fear for their job and their mental health.

At this point, we should be wondering whether anyone is consulting the developing countries, which are the most affected by this turmoil. Do they have a say in this restructuring and rationalization? Would they prefer the UN to retain its staff or continue buying vaccines?  So far, the "program countries" have remained suspiciously silent on this hype - except for the growing number of African scholars, economists, and intellectuals who see an opportunity for African countries to escape aid dependence and take control of their own destinies. There is an abundance of literature, here is one example.

But there are even greater contradictions and idiosyncrasies in the aid business model described above.  I have always wondered, for example, why UNICEF has elaborate agreements with donors, but no contracts with supported countries that would commit their governments to the needed reforms. Why do countries that receive the largest amounts of aid remain the least developed? Is it true that if UNICEF doesn't immunize a country's children, no one else will, not even its own government? Why don't assisted governments care about CPDs and UNSDCFs?  In the distant past, the UNICEF Executive Director personally urged heads of state to get their priorities right; so why are today's UNICEF executives fully focused on raising funds? And why, despite the countless control, evaluation, risk and ethics initiatives, were the inefficiencies and waste not identified earlier?

The UNICEF business model

To better understand the business of UNICEF today,  I am adapting from Monika Krause, Professor in Sociology at the LSE, and her book “The Good Project”, in which she analyses the business model of humanitarian agencies.

Aid organizations, including UNICEF, sell their donors "projects," "appeals," or "CPDs." These are promises of development or relief. Agencies compete with each other to write the most convincing or heart-warming proposal.  Program countries and their children are part of the package being sold to donors. It always breaks my heart when I see children packaged like commodities in project proposals, appeals or inscrutable management reports.

If the term “promise” seems far-fetched to you, consider that the number of published plans, intentions, and partnerships easily exceeds by a hundred times the number of reports on the results of these initiatives [click for endnote 2]. Why do UN agencies, UNICEF and its staff celebrate launches and plans instead of achievements [endnote 3] ? And have you noticed that describing expected results has long since given way to asserting that the organization will "carry out impactful activities", saying as much as that nobody can yet say exactly what the outcomes might be?

Donors buy projects and promises from private or multilateral agencies on the aid market. Donors hope that something good will come out of their donation or grant. Donating money absolves donors from addressing the underlying causes of inequity and injustice. It also saves them from the tedium of administering their own funds.

Despite all solemn affirmations to the contrary, program country governments rarely participate in the development of such projects, which are crafted by a cottage industry of consultants.

Governments in developing countries have their own plans and budgets. They are not interested in the UN's strategic plans, logframes or UNSDCF frameworks, which merely help UN agencies secure their respective share of the donor pie. UN planning exercises are purely performative – a side show where  UN offices demonstrate cleverness to themselves and their donors, and a pretense that things are under control. I have been part of it myself, but realized it too late. 

This revised business model looks damning, but it explains many of the incongruities of development practice and why the priorities of developing countries remain at the periphery of UNICEF operations. 

Sometimes something good will come out of the promises - as has been pointed out by former colleagues. This is random, unpredictable, and depends on individual staff, the presence of other aid organizations, the changing priorities of the country’s people, the political situation, and the seriousness of the government. And in all probability, it was more costly than it had to be. 

There is something more fundamental behind it.

Development is not Aid and Aid is not Development,

Having spent my entire working life in the bubble, I was made to believe that development is synonymous with aid. The aid industry operates under the implicit assumption that development will not progress, or not nearly as quickly, without the presence of development organizations handling the funds. This myth is perpetuated in their public communications. If you want conditions in Africa to improve, you have to donate, to us. Likewise, any improvement in social indicators is attributed to the work of one's organization. We and our partners have increased enrollment, no matter how insignificant the contribution of the agency has been. [endnote 4]

In hindsight, nothing is more preposterous than the assumption that a bunch of mid-level international and national UN bureaucrats  (steadfastly calling themselves 'senior' on the pertinent social networks) is needed to explain development to African executives and measurably accelerate progress. Equally absurd is the assumption that something will make it onto a country's priority list simply because it has been declared a Sustainable Development Goal or a UNICEF focus area (or sub-level result, as per the new draft UNICEF Strategic Plan).

Aid is neither sufficient nor necessary to guarantee development. Development happens without aid, and the presence of aid does not guarantee development. While Trump considers development aid a waste of resources, no matter what,  most of you will agree that development aid can be effective if - and only if - other necessary conditions are being met.

When is Aid Effective?

Prompted by the Nordics, aid effectiveness has mainly been discussed as a function of aid delivery. If aid was not effective, it must have been the fault of those who provided it. According to this orthodoxy, aid would only be truly effective if all donors and development organizations worked together harmoniously and pooled their resources. Twenty-five years later, with resident coordinators everywhere,  and UNICEF country offices spending between 10 and 45 per cent of their regular resources on an ominous budget line called "programme effectiveness", we are still waiting for the breakthrough.

What are the conditions that allow development to happen, and which make development aid useful and effective? This question should be discussed with vim and vigor, and ruthless openness within the development community, among the leadership of developing countries, foreign policy decision makers and aid agencies. You can also ask your preferred AI platform, but don't be gullible. AI is more likely to recycle ideas rather than invent original ones.

Obviously, a country develops when a government wants it to happen, and when the domestic and international environment is favorable. 

Development aid may be effective in countries where:

• The government cares more for its people than for its own comfort and survival. That is a delicate statement. But I am sure you have no trouble finding oligarchies with rent-seeking elites that block necessary reforms, religious fanatics and populist leaders that you would NOT want to support with aid.
• Gross domestic product (GDP) must grow if one wants to sustainably send more children to school and ensure basic healthcare for all. Governments have to commit to an agenda for growing the GDP and demonstrate that they are taking appropriate measures.
• Laws and regulations governing foreign investment must be supportive. Property rights must be ensured. Fiscal discipline must be good. The rule of law must be in place.
• There is complete transparency on the use of public funds.
• The government is committed to peaceful conflict resolution with its neighbors and with all ethnic groups within their borders. Aid must not substitute for money spent on waging war or cracking down on dissent. 

Foreign countries need to

• Provide fair and concessional international trade conditions; 
• Facilitate foreign investments that increase productivity and employment;
• Provide debt solutions and a global tax system; 
• Adopt foreign policies that don't disadvantage poor countries or their citizens. 

These and similar issues could also be discussed by the UN. Standards could be agreed. Performance of countries should be assessed and discussed. 

One Plan - One Budget 

There can only be one budget and one plan: a national budget and a government plan. There is no room for additional plans and budgets by the UN, development agencies or donors. If a fledgling government is so inclined, it can agree with willing donors on a highly qualified team of of advisors who know how to get the economy going.

Anyone who lives in a democracy and owns a television set knows that the best part of parliamentary debates revolves around budgets. I haven't seen a UN logframe in the German Bundestag yet, but I don't watch much television.  There may be many good ideas and policy proposals, but it all boils down to affordability and the use of available money. I know that the government of Tuvalu agrees with me, as do probably many others, too.

Provided that the conditions for aid effectiveness are right and you wish to support a Government priority, agree with government what you want to see achieved and hand over the money for inclusion in the national budget. And expect the government to report budget spending transparently. If progress is as planned, consider another grant. If results are wanting and the receiving government can not satisfactorily explain what went wrong, redirect the next tranche to another country. [endnote 5]. 

There is no need for development agencies to force-feed developing countries with their own recycled consultants. If necessary, the government can use the grant to acquire expertise from the most intelligent, experienced and competitive sources, which may but most likely will not include a UN agency. 

Because (conditional) budget support pulls the carpet under the aid industry, let us dispel some misconception and myths:

• Failing to understand that money is fungible, some donors want to pay only for "worthwhile" expenditures, like vaccines or training. As long as children are vaccinated, the insistence on “financing the good stuff” contradicts results-oriented management and is responsible for much of the inefficiency of the aid industry.
• Likewise, accountability for achieving results does not mean that the donor must track every dollar the recipient government spends. The recipient government is accountable to the country's citizens for the wise use of its resources (including grants and loans) to pursue agreed national goals, and the donor government is accountable to its taxpayers for providing aid to trustworthy partners and considering the risks.
• Some donors fear that “the government can’t manage my funds”. If a government can't account for its own money after 70 years of development assistance, there must have been something wrong with that assistance. The key to managing aid provided by donors is transparency in the use of government funds, rather than adding bureaucracy by maintaining separate accounts for each grant. 

Conclusion

The glory days of the aid industry are over. 

• The plans of developing countries are what matters. Interested countries may wish to seek support from a high quality team that includes renowned economic advisors. No additional plans are needed.
• Augmenting the national budgets of developing countries can be beneficial as long as the basic conditions are met, including a commitment by the host government to economic growth, transparency in the use of public funds, peaceful conflict resolution and the rule of law.
• Micromanaging donor funds undermines accountability of recipient countries and creates wasteful bureaucracy. 

What about the UN Development Group? UN agencies should not be a conduit for development aid. Some UN development agencies may continue to have a role in creating global consensus around multi-national policy questions and human rights, assessing progress, collecting and analyzing data, and identifying best practices by member states. If they can add value, they are likely to be funded. 

Humanitarian relief follows a different logic. Do not mix the two.

I look forward to your comments. You may also write to me directly at detlefpalm55@gmail.com

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Note [1]: If aid shrinks by 20 per cent and at the same time efficiency must increase from 80 per cent to 85 per cent

This is a reduction of administrative and staff costs from 200 units to 120 units, or a reduction of 40 per cent.

Note [2]: For example, there is no report that describes achievements compared to the promises of the CPD at the end of country programme cycle.

Note [3]: In their press release on February 16 this year, UNICEF and WHO announced the launch of a campaign to vaccinate 2.5 million children against polio in Somalia. I wrote to the UNICEF and WHO offices, requesting details about what kind of support the organizations would provide. I received out-of-office messages from UNICEF, meaningless replies, and circular references to the WHO's own press release. Later, I inquired about the results but received no response. To this day, I cannot find any information online about the campaign's conclusion. On April 23, 2025, UNICEF and WHO announced the rollout of new vaccines, and the launch of a measles campaign. There was no mention of the previously conducted polio campaign. We don't know whether Somali children were vaccinated against polio or not, but obviously UNICEF and WHO prioritized the publicity or promise of a future campaign over the actual results.

Note [4]: If progress is to be credited, it is due to a country's government and is people. Representatives frequently report that UNICEF ensured that several million children were immunized in their respective countries during the year. UNICEF had supplied the vaccine. The heavy lifting of storing, transporting and administering the vaccine was done by the health ministry, hundreds of its staff and thousands of community health workers. The government could have also bought the vaccine, but is of course happy to get it for free.

Note [5]: This is an example where risk management, including clarity on the acceptance of risks by donors, can eliminate a great deal of bureaucracy.