The age of choice: Ethiopia in the new aid landscape age of choice - Ethiopia in the new aid landscape ii Abbreviations AfDB African Development Bank Afrodad African Network on Debt

The age of choice: Ethiopia in the new aid landscape

Annalisa Prizzon and Andrew Rogerson

Research Report

The age of choice

Ethiopia in the new aid landscape

Annalisa Prizzon and Andrew Rogerson

January 2013

Acknowledgements

Thanks are owed to interviewees from the Ministry of Finance and Economic Development, line

ministries, Development Assistance Committee donors, non-traditional providers and civil

society organisations, who gave generously of their time for interviews. We would also like to

thank Mohammed Mussa, who provided exceptional support in the preparation phase and

during the Overseas Development Institute staff country visit (25 June-7 July 2012),

conducted follow-up interviews in August and September 2012 in Addis Ababa and provided

feedback on an earlier version of this draft. We would like to thank Romilly Greenhill for

reviewing the case study report and for supervising ‘The age of choice’ project. We

acknowledge research support by Ahmed Ali and Matthew Geddes in the preparation phase to

the country visit.

This paper was generously supported by the UK Department for International Development.

The usual disclaimers apply.

Overseas Development Institute

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Fax: +44 (0)20 7922 0399

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Disclaimer: The views presented in this paper

are those of the author(s) and do not

necessarily represent the views of ODI or our

partners.

The age of choice - Ethiopia in the new aid landscape

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Contents

Contents i Abbreviations ii Executive summary v

1 Introduction 1 1.1 Background to the study 1 1.2 Case selection, methodology and research questions 1 1.3 Introducing the case study and structure of the report 2 2 The context 4 2.1 Economic context 4 2.2 Governance context 5 2.3 Aid management 7 3 Mapping non-traditional development assistance flows 9 3.1 Official concessional assistance from NTPs 9 3.2 Vertical health funds 11 3.3 Philanthropic assistance 11 3.4 Climate finance 12 3.5 Private sector 12 4 Priorities for terms and conditions of traditional and non-traditional development

assistance 14 4.1 Fit with national strategy 14 4.2 Speed of implementation versus financial terms 15 4.3 Conditionality versus concessionality 15 5 Arenas: traditional and new actors – overview 17 5.1 Division of labour between donors 17 5.2 Informal mechanisms for aid negotiations 18 6 Conclusions 19

References 21


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Abbreviations

AfDB African Development Bank

Afrodad African Network on Debt and Development

AIDS Acquired Immune Deficiency Syndrome

CIDA Canadian International Development Agency

COMESA Common Market for Eastern and Southern Africa

CPIA Country Policy and Institution Assessment

CSO Civil Society Organisation

CSP Charities and Societies Proclamation

DAC Development Assistance Committee

DAG Development Assistance Group

DCI Development Cooperation Ireland

DFID UK Department for International Development

EIA Ethiopian Investment Agency

EPA Environmental Protection Agency

EPRDF Ethiopian People’s Revolutionary Democratic Front

EU European Union

FDI Foreign Direct Investment

FSP Food Security Programme

GAVI Global Alliance for Vaccines and Immunisation

GBS General Budget Support

GDP Gross Domestic Product

GFATM Global Fund to Fight Aids, Tuberculosis and Malaria

GNI Gross National Income

GoE Government of Ethiopia

GTP Growth and Transformation Plan

HDI Human Development Index

HIPC Heavily Indebted Poor Countries

HIV Human Immunodeficiency Virus

IDA International Development Association

IFC International Finance Corporation

IFPRI International Food Policy Research Institute

IMF International Monetary Fund

KOICA Korean International Cooperation Agency

LIC Low-income Country

MDG Millennium Development Goal

MOFA Ministry of Foreign Affairs

MOFED Ministry of Finance and Economic Development

MOH Ministry of Health

NGO Non-governmental Organisation

NTP Non-traditional Provider

ODA Official Development Assistance

ODI Overseas Development Institute

OECD Organisation for Economic Co-operation and Development

PBS Protection of Basic Services

PEFA Public Expenditure and Financial Accountability

PFM Public Financial Management

PIU Project Implementation Unit

PPP Public–Private Partnerships

PSNP Productive Safety Net Programme

RED-FS Rural Economic Development and Food Security

SIDA Swedish International Development Cooperation Agency

SWG Sector Working Group

TWG Technical Working Group

UAE United Arab Emirates


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UK United Kingdom

UN United Nations

UNDP UN Development Programme

UNECA United Nations Economic Commission for Africa

UNOPS United Nations Office for Project Services

US United States

USAID US Agency for International Development

WASH Water, Sanitation and Hygiene

WTO World Trade Organization


v

Executive summary

The Ethiopian economy expanded at a remarkable rate, averaging over 10% per annum

between 2005 and 2010. Ethiopia is likely to remain among the fastest-growing non-oil

producers in Africa, although this performance is expected to slow. Over the past decade,

Ethiopia has also been one of the faster improvers on the UN Development Programme (UNDP)

Human Development Index (HDI).

Such tangible results, coupled with its strategic position in the Horn of Africa, its relative

political stability and its capital’s location as the African Union’s ‘diplomatic hub’ mean that

Ethiopia is seen as a key partner by donors. It is the top aid recipient in Sub-Saharan Africa.

Its policies are characterised by strong country ownership and the country is actively engaged

in international debates. The late Prime Minister Meles Zenawi co-chaired the recent UN High-

level Advisory Group on Climate Change Financing, for example.

The government of Ethiopia’s priorities in managing traditional and non-traditional

development assistance are driven by the strategic objectives of the Growth and

Transformation Plan (GTP) for 2010-2015. The plan is the main reference point for discussion

of aid management issues.

Ethiopia has received a significant volume of non-traditional development assistance, and such

flows have expanded over the past decade. These include external assistance from official non-

traditional providers such as China, India and Turkey and new Development Assistance

Committee (DAC) members such as South Korea, philanthropic organisations and vertical

health funds, as well as climate finance.

Although information on Chinese concessional assistance to Ethiopia is rather patchy, and it

appears relatively small (0.14% of total official development assistance (ODA) in 2006/07),

the importance of China as a development financier is a recent and emerging phenomenon,

with finance on non-concessional terms used mainly to fund infrastructure projects such as

roads, dams and communication (Geda and Tafere, 2011). Philanthropic assistance by US

grant makers to Ethiopia is estimated at $74.51 million between 2003 and 2011, with average

annual flows of $8.3 million. Ethiopia has also been included among recipient countries of

assistance from the Global Fund since 2003 and received assistance in each funding round.

Ethiopia is the 13th-largest recipient of climate finance at the global level and the second

largest recipient in Sub-Saharan Africa after Kenya, having received a total so far of $107

million in commitments since 2003.

Although the Ethiopian government does not have an explicit written aid management

strategy, government priorities vis-à-vis the type of aid it would like to receive from traditional

and non-traditional providers emerged in interviews with key government officials, DAC

donors, non-traditional providers (NTPs) and civil society organisations (CSOs). These priorities

are:

1 Fit with the national strategy – the main basis for engagement with all partners.

The overarching government priority is to implement the GTP and achieve the Millennium

Development Goals (MDGs) by 2015. Therefore, assistance flows (grants and

concessional loans) are assessed first and foremost to see whether they fit with national

priorities. The government attributes priority to sovereignty and control of the

development strategy, with strong federal management and limited alignment with

donors (DCI, 2005)

2 Meet the speed of implementation versus financial terms. Non-concessional (or

quasi-commercial) loan disbursement should be as fast as possible, in order not to delay

implementation of the national strategy. This point emerged clearly from interviews with

government officials and most DAC donors.

1Foundation Centre (2012). Discrepancies between figures reported in this paragraph owe mainly to differences in the reference time period and coverage.


vi

3 Emphasise conditionality versus concessionality. When providing development

grants or loans at very concessional rates, traditional donors may impose conditions

beyond the narrow viability of the project itself. From the point of view of the

government, these not only reduce country ownership of policy, which is unacceptable in

itself, but may also slow down implementation of the GTP. On the other hand, the

government can seek support from non-traditional donors, such as China, which the

government hopes will provide financing with fewer conditions related to domestic

policies (Furtado and Smith, 2009), albeit at a higher interest rate.

Six key messages emerged from the case study analysis.

1 Over the past decade, the government has successfully retained, increased and

diversified its pool of development assistance, despite crisis-driven donor fatigue and

turbulence in the region. It has done this largely thanks to external recognition of its

strategic importance, its recent rapid economic growth and its good MDG delivery track

record. These facts underpin widespread partner views that aid money is generally well

spent, investment opportunities abound and debt and fiscal sustainability are dynamically

manageable.

2 The government has largely managed to neutralise the negative repercussions on

development assistance flows stemming from an unapologetically authoritarian style and

repeated allegations of human rights violations, amplified by a vocal diaspora. Examples

of this resilience include the rapid transformation of most general budget support, initially

suspended in the aftermath of post-election violence in 2005, into bulk recurrent cost

funding for social services, with similar macroeconomic effects but quite different

branding.

3 At the same time, the government has successfully retained full control of its

development strategy, vis-à-vis both traditional and non-traditional development

assistance flows, resisting external attempts to put in place greater policy engagement

(or conditionality), although its state-led approach significantly restricts private and

especially foreign participation in the economy, against the standard policy advice of the

Bretton Woods institutions and others. ‘New’ donors such as China provide both

heterodox policy comfort to the government and an alternative source for, in particular,

large-scale infrastructure financing, which further diminishes the leverage of traditional

donors, who are disinclined to impose policy terms on a favoured ally. Ethiopia’s regional

leadership in climate change financing discussions opens – or opened until the prime

minister’s demise – a further set of opportunities.

4 Compared with the other two case studies in this project (Cambodia and Zambia), the

government does not have a formal aid strategy, with regard to either traditional or non-

traditional providers. However, based on the secondary literature (e.g. Furtado and

Smith, 2009), as well as our interviews with government officials, DAC donors, NTPs and

CSOs, emerging GOE priorities vis-à-vis the type of aid it would like to receive from both

traditional and non-traditional providers were the following: fit with national strategy;

speed and reliability of implementation (as a result of lower conditionality and fewer

safeguards applied); lower cost of financing (higher concessionality); and maximum

volume commitment possible at one time. Most of these priorities are similar across

traditional donors and new actors.

5 Non-traditional donors (especially emerging country funders like China, and even Korea,

and innovative sources like the Global Fund) do not participate in set-piece donor

coordination fora, which tend to focus on areas where traditional sources dominate, like

delivery of social services, and the government is not necessarily interested in bringing

them in either. Conversely, where, as in major infrastructure, ‘new’ sources are very

significant or dominant, but traditional actors are also present, it is the government that

sets the tone, not only by not inviting the new players, but also, more directly, by itself

not actively convening such groupings, which then cease to be of operational interest to

most parties.

6 Finally, there is a chicken-and-egg dimension (Fraser and Whitfield, 2008) to the debate,

as to whether the ‘division of labour’ between traditional and non-traditional providers of

development assistance is imposed by one side or the other, or evolves as a function of


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both parties’ changing abilities and interests and where they best converge. In Ethiopia,

this third narrative is the more compelling one. Clearly, the government has its own

informal view on where different sources ‘fit’ best. This is shaped by the interests that

traditional donors themselves present (e.g. grant financing of social services) and the

different profile of, in particular, Chinese funding (rapid export finance with minimum

conditions but relatively hard terms). The government is first and foremost reacting to

the need to match total financing requirements by trying to segment the market

efficiently, and will adapt pragmatically to most donor preferences (e.g. South Korea not

being interested in quasi-budget support, some bilateral donors turning to loans rather

than grants for infrastructure, etc.). The government is aware it has (or had, until very

recently) key assets in its strategic position, value-for-money performance and

ideological sympathies with Asian development models. It has used this capital to brush

aside attempts, if any, to second-guess its core development strategy, which is said by

most respondents to be the only real ‘red line’ external funders may not cross.


1

1 Introduction

1.1 Background to the study

Development cooperation is changing rapidly. There are both demand- and supply-side

pressures that suggest that ‘traditional’ development assistance from members of the

Organisation for Economic Co-operation and Development’s Development Assistance

Committee (OECD-DAC) is becoming less important. There are now a myriad of less traditional

sources of development assistance, including from non-DAC donors such as China and India,

philanthropic organisations such as the Bill and Melinda Gates Foundation and new ‘social

impact investors’ such as the Shell Foundation and the Acumen Fund.

This study is one of three being carried out to explore the implications of this new global

landscape for partner country governments.2 It aims to examine the challenges and

opportunities experienced by governments in managing the new landscape, particularly the

growth of what we here call ‘non-traditional development assistance’ (NTDA). By NTDA, we

mean cross-border sources of finance that are provided to developing countries for a public or

philanthropic purpose, and which have an element of concessionality, but are not ‘traditional’

bilateral or multilateral ODA.3 The distinction between traditional and non-traditional is at best

a useful approximation, inevitably involving a degree of subjective judgement. It does not seek

to imply that so-called ‘traditional’ providers do not innovate or that ‘non-traditional’ assistance

is new. It nevertheless provides a useful conceptual distinction for the purposes of our study.

Within our category of ‘non-traditional providers’ (NTPs)4 we include non-DAC donors; climate

finance; philanthropists or philanthropic organisations; social impact investors; and global

funds. We do not focus on domestic resource mobilisation or purely private flows. The rationale

for focusing only on NTDA flows is twofold: to limit the scope of the study; and because these

flows are arguably the most likely to be considered complements or substitutes to ODA, and to

be managed by governments in comparable ways. This is investigated in more detail in the

case studies.

Rather than to act as a standalone report, this study is intended to provide background for the

Working Paper ‘The age of choice: developing countries in the new aid landscape’, which

summarises findings from all three case studies. The Working Paper also provides a more

detailed taxonomy of traditional and non-traditional development assistance. Refer to the

paper (Greenhill et al., 2013) for more detail on the background, rationale and scope of the

study.

1.2 Case selection, methodology and research questions

‘The age of choice’ project uses a three-country case study approach. We selected what

background data analysis suggested would be ‘typical cases’, as they receive amounts of

development assistance5 that are close to the average when measured as a share of gross

national income (GNI). We also sought to select countries representing a mixture of regions,

income classifications, fragility and natural resource endowment. This led to the selection of

Cambodia, Ethiopia and Zambia as case studies.

2 Note that we focus here on government priorities rather than those of civil society, citizens or other stakeholders. We

did, however, interview a number of non-governmental stakeholders for this research. See Greenhill et al. (2013) for more details. 3 Although some of what we define as NTDA is scored as ODA, for example climate finance and global funds. See

Greenhill et al. (2013) for more details. 4 The term ‘NTPs’ is not in common usage in the literature. Most studies focus on these providers as ‘new’, but this is

not strictly accurate, as some of the non-DAC donors have been in operation for many decades. We also avoid using the term ‘donor’ because many such providers do not see themselves as donors, hence the need for a more neutral term. 5 By which we mean both TDA and NTDA.


2

The methodology for the case studies is adapted from Fraser and Whitfield (2008) and Ostrom

et al. (2001). The key insight from Fraser and Whitfield lies in seeing the process of

engagement between governments and donors or NTPs as one of negotiation, in contrast

with much of the literature on the political economy of aid. Governments and providers are

assumed to have a – possibly divergent – set of objectives that they seek to negotiate in order

to reconcile. Fraser and Whitfield also focus heavily on the importance of context, both

economic and political, in shaping country and donor negotiating capital and hence negotiation

outcomes.

Unlike Fraser and Whitfield, however, we do not assume there is a given set of objectives that

countries are seeking to achieve through aid negotiations. Instead, one of our research

questions was to understand country priorities when it comes to the ‘terms and

conditions’ of development assistance. By ‘terms and conditions’, we mean aspects of aid

quality such as concessionality, predictability, speed of delivery and so on. We do not assume

a given set of priorities, for example those expressed through the Paris Declaration on Aid

Effectiveness. Instead, we sought to understand government’s own priorities, and how

successful they had been in securing development assistance that responded to these. We also

asked whether government priorities were the same when it came to flows from traditional

donors and NTPs, or whether they differed between the two groups.

We also draw on Ostrom et al. (2001)’s Institutional Analysis and Development framework,

which emphasises the importance of identifying the arenas in which countries and providers6

negotiate. However, we do not take the arenas as a given. Instead, we ask whether

governments seek to negotiate with donors and NTPs in the same arenas, or in different ones.

Drawing on this theoretical framework, we sought to answer the following questions in the

three case studies:

1 How has the volume and composition of total development assistance, and the

breakdown between traditional and non-traditional sources, changed since 2002?

2 What is the economic, political and aid management context that determines the ability

of Ethiopia to mobilise and utilise development assistance and shapes the outcomes of

negotiations between the government and providers?

3 What are the Ethiopian government’s priorities when it comes to the volume, purpose

and ‘terms and conditions’ of development assistance? To what extent do these priorities

differ between different types of providers?

4 In which arenas does the Ethiopian government seek to engage with providers, and

which strategies does it employ to negotiate with them? How do these arenas and

strategies differ between different types of providers?

5 To what extent is Ethiopia achieving its objectives when it comes to negotiating with

providers? How has the existence of NTPs helped or hindered the Ethiopian government

in achieving these objectives?

The Ethiopia case study was carried out over a two-week period in June-July 2012. Overseas

Development Institute (ODI) staff worked in collaboration with Mohammed Mussa to carry out

interviews with 40 key informants (see Annex 3 for a full list of interviewees who agreed that

their name or institution be published). Some of these interviews took place by phone over

July-August of the same year. Interview findings were combined with a background literature

review and data analysis. The synthesis report (see Greenhill et al., 2013) examines in greater

detail the case study methodology and case selection process.

1.3 Introducing the case study and structure of the report

The Ethiopian economy expanded at a remarkable rate, averaging over 10% per annum

between 2005 and 2010. The country is likely to remain among the fastest-growing non-oil

producers in Africa, although this performance is expected to slow. Ethiopia has also been one

6 By which we mean both traditional donors and NTPs.


3

of the faster improvers on the UN Development Programme (UNDP) Human Development

Index (HDI) in the past decade.

Such tangible results, coupled with its strategic position in the Horn of Africa, its relative

political stability and its capital’s location as the African Union’s ‘diplomatic hub’ mean that

Ethiopia is well appreciated by external partners. It is the top aid recipient in Sub-Saharan

Africa. Ethiopia’s policies are characterised by strong country ownership and the country is

actively engaged in international debates. The late Prime Minister Meles Zenawi co-chaired the

recent UN High-level Advisory Group on Climate Change Financing, for example.

Government priorities in managing traditional and non-traditional development assistance

flows are driven by the strategic objectives of the five-year Growth and Transformation Plan

(GTP) for 2010-2015. The plan remains the main reference point for discussion of aid

management issues.

Almost all the interviews took place before Meles Zenawi’s death in September 2012. The post-

Zenawi era may challenge Ethiopia’s established model of aid relationships, which have relied

on the personal diplomatic skills and networks of the Prime Minister for more than two

decades. The extent to which such negotiating approaches have been institutionalised at lower

levels of the political system will largely determine their sustainability.

This study seeks to answer the questions identified in Section 1.2 as follows.

Section 2 describes the main elements of the economic and governance context as well

as the aid management structure in Ethiopia (Question 2) along the lines of the

framework presented in Greenhill et al. (2013) and summarised above. It highlights

factors most likely to influence government priorities with regards to the terms and

conditions of traditional and non-traditional development assistance; its relative

negotiation power vis-à-vis both traditional and non-traditional providers; and arenas

where negotiations take place.

Section 3 describes major NTPs of non-traditional development assistance flows to

Ethiopia, volumes of their development assistance and aid modalities (Question 1). In

the case of Ethiopia, we consider among NTPs officials donors such as South Korea,

China, India and Turkey; vertical health funds (the Global Alliance for Vaccines and

Immunisation (GAVI) and the Global Fund to Fight AIDS, Tuberculosis and Malaria

(Global Fund)); philanthropic organisations; and climate finance.

Section 4 summarises main government priorities when it comes to the terms and

conditions of external assistance, comparing traditional and non-traditional providers

(Question 3), and discusses whether the government has been successful in achieving

them (Question 5).

Section 5 provides an overview of the main arenas where the government negotiates

development assistance with both traditional and non-traditional providers (Question

4).

Section 6 concludes by summarising the main findings.


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2 The context

Based on a modified framework developed by Fraser and Whitfield (2008) and Ostrom et al.

(2001) to model aid negotiations (see Section 1.2 and Greenhill et al., 2013), we reviewed

major elements of Ethiopia’s economic and governance context that shape both the country’s

and donor/NTP negotiating positions, as well as main elements of the aid management

structure.

2.1 Economic context

Ethiopia remains relatively aid dependent. The ODA/gross national income (GNI) ratio

averaged 12.5% between 2006 and 2010, above the low-income country (LIC) average of

9.3% in 2010 (World Bank, 2012a). It has fallen steadily since 2005, but only because GNI

more than doubled over the same time period:7 ODA gross disbursements to Ethiopia in

constant terms rose by nearly 50%, from $2.4 billion in 2007 to $3.5 billion in 2010. Similarly,

ODA as a share of central government expenditure peaked at 228% in 2008 (from an average

of roughly 120% in 2001-2008); the ratio fell to 62.3% by 2010. However, ODA per capita

figures remained lower than the LIC average ($43 vs. $51 in 2010, for instance), given

Ethiopia’s large and increasing population.8

Ethiopia is a relatively closed economy. The openness ratio – imports plus exports over

gross domestic product (GDP) – in Ethiopia is relatively low: in 2010 43.8% in Ethiopia vis-à-

vis 65.2% average in SSA. Ethiopia has not yet ratified the Common Market for Eastern and

Southern Africa (COMESA) Free Trade Area Protocol, even though it is a World Trade

Organization (WTO) observer and has applied to join. Exports are concentrated in a few

products and partners: 94% of total exports are derived from coffee, gold, oil seeds, khat and

flowers (AfDB et al., 2012). Until 2005, more than half of Ethiopian exports were to Djibouti,

the European Union (EU), Japan and Saudi Arabia (Gebre-Egziabher, 2009). In 2005/06, China

became the leading market for Ethiopian exports (13.3%, up from only 0.22% in 2000). It

remains the leading destination today, with European countries and the US still substantial

buyers. However, the top four sources of Ethiopian imports are all non-traditional donors:

China, followed by Saudi Arabia, India and the United Arab Emirates (UAE).

Foreign direct investment (FDI) inflows are still low, but peaked in 2006 at 3.6% of

GDP, then more than halved, stabilising at around 1% in 2010. The corresponding LIC

averages were 1.5% and 3.1%. Ethiopia has progressively liberalised its markets since 2002,

although sectors like telecoms, energy and banking are still proscribed to foreign companies

(AfDB, 2011). Conditions for FDI are relatively favourable, especially given low wages, large

domestic market potential and incentives mainly related to tax holidays and preferential access

to EU and US markets.

In the case of large FDI projects, it is widely reported that either the former prime minister or

his senior staff engaged personally in negotiations, thus encouraging greater investor

confidence. Engagement in development assistance (non-traditional development assistance

flows including as social impact investment) from NTPs often follows. While negotiations take

place at Cabinet-level in many other countries, the distinctive element in Ethiopia has been

Meles’ reputation of being meticulous in mastering details that others would not.

Workers’ remittances are rising from a low base. These flows went from $18 million in

2001 to $224 million in 2010, after peaking at $357 million in 2007 (World Bank, 2012a).

However, they are relatively minor as a share of GDP (0.8% in 2003 and 0.3% in 2010), which

is well below the LIC average (3.2% and 8%). Despite their relatively low yields so far,

7 The ODA/GNI ratio was 8% in 2000, achieved its peak of 19% in 2003 and then dropped and stabilised at around 12% in 2008. 8 Nearly 85 million in 2011 and a 2.1% population growth rate in 2011 (World Bank, 2012a).


5

diaspora bonds represent an innovative source of external development finance the

government of Ethiopia has been targeting.

Natural and renewable resources are significant. Rents over the 2005-2010 period are

estimated at between 5% and 7% of GDP, depending mostly on forest rents, slightly below the

LIC average (7.5%) (World Bank, 2012a). Mineral resource rents come mainly from gold.

Ethiopia is also the pre-eminent waterpower of Africa. Dam construction, with more than 10

major projects over the past decade, is servicing rising domestic demand and generating

foreign exchange through the sale of excess energy production to neighbouring countries. This

sector is pivotal to understanding government priorities in managing flows from traditional and

non-traditional providers, especially when some of them raise social and environmental

concerns (see Section 5).

Debt is sustainable, for now. The International Monetary Fund (IMF)/World Bank Debt

Sustainability Analysis (IMF, 2012) rates Ethiopia as a country with a low risk of debt distress.

External debt to GNI fell from 83% before the Heavily Indebted Poor Countries (HIPC) initiative

to 11% in 2008, but the ratio has since then doubled. This rise has been attributed to a surge

in public enterprise borrowing, mainly for infrastructure development (AfDB et al., 2012).

Other relevant economic factors. Growth has been not only fast but also relatively broad

based: in 2005-2010, the services sector grew by 12.5%, agriculture by 9% (contributing

nearly half of GDP) and industry by an average of 15%, compared with overall growth of 10%

(8% per capita). Inflation was relatively high at 26.7% in 2011, driven by rising food prices,

imported inputs and domestic factors (loose monetary policy). Following a surge in domestic

borrowing to finance public investment, fiscal policy has been relatively prudent. Tax revenues

increased by 37% between 2010 and 2011 (AfDB et al., 2012).

The government’s GTP was inspired by a belief in a ‘developmental state’ as the locomotive for

development, shifting from a communist regime to an economic model where the public sector

has a leading role in driving economic development, especially through infrastructure. The

direction of the economy is based on similar strategies pursued historically by China and South

Korea, among others.

The GTP’s major objectives are 1) maintain an average real GDP growth rate of at least 11%

to meet the (poverty/income) Millennium Development Goals (MDGs); 2) expand and ensure

the quality of education and health services, thereby achieving the social sector MDGs; 3)

establish favourable conditions for sustainable state building through the creation of a stable

democratic and developmental state; and 4) ensure growth sustainability by realising all the

above objectives within a stable macro framework.

The GTP focuses mainly on industrial and infrastructural development components. It also

identifies an ambitious list of supporting strategies beyond industrial and infrastructural

development, combining a broad set of macroeconomic priorities with social sector

development (health; education; water, sanitation and hygiene (WASH); and agriculture (and

particularly food security)). Donors have expressed concern about the coherence between the

GTP’s ends and means (OECD, 2011). Although the government has never released an aid

management strategy9, priorities for the management of traditional and non-traditional

development assistance flows are implicit in the GTP. For example, the GTP considers a series

of opportunities, including non-traditional actors and instruments, to tap adequate financial

resources and overcome the unpredictability of external financing.

2.2 Governance context

Fraser and Whitfield (2008) describe Ethiopia as characterised by very favourable political

conditions regarding aid negotiations, essentially motivated by a long history of independence

and the absence of extended colonial rule. This negotiating capital enabled the country to keep

9 An initial draft released in 2004 has never been approved or ratified, and the Ministry of Finance and Economic Development (MOFED) has been working on a debt management strategy, due, we understand, by the end of the next financial year.


6

donors at arm’s length and to play off rival Cold War sponsors without allowing any too close.

Furthermore, since the early 2000s, the government has found new sources of diplomatic

capital, notably the ‘War on Terror’ in the Horn of Africa and the green growth agenda.

Political history and institutions. Ethiopia could be considered as a country and a political

system in transition, reminiscent of those of Eastern Europe after the Cold War. Since the fall

of the Derg (the Marxist regime of Mengistu Haile Mariam) in 1991, the country has been

dominated by a single party (the Ethiopian People’s Revolutionary Democratic Front (EPRDF)).

Under the EPRDF the political system has been characterised by a low degree of negotiation

and policy accommodation (Furtado and Smith, 2009). The national elections in 2005 and

2010 and largely uncontested local elections in April 2008 illustrated the fragility of the

democratic transition, the dominance of the EPRDF and the weakened state of the opposition

(ibid.). In particular, the May 2010 parliamentary elections resulted in a 99.6% victory for the

ruling EPRDF and its allies, reducing the opposition from 174 to only 2 seats in the 547-

member lower house, known as the House of People’s Representatives (World Bank, 2012b).

Federal structure of the Ethiopian government. Since taking power, the EPRDF has led an

ambitious reform effort to decentralise authority. This has involved devolving powers and

mandates first to regional states, second to zones, third to woredas (district authorities) and

finally to kebeles (village authorities) (World Bank, 2012b). Matters of nationwide concern and

those that go beyond the jurisdiction of a single region are managed at the national level (e.g.

defence, foreign affairs, electricity, telecommunications and food security). Development

(including transport infrastructure and public services) are managed at the regional level, and

service delivery at the woreda level (World Bank, 2010).

The devolution of fiscal control and responsibilities to regional level has seen substantial

progress. Regions now account for about a third of public spending, including 75% of all health

and education spending and a substantial share of spending on agriculture, roads and water.

Most regional budgets are financed by the federal government via transfers, which are

determined by a block grant formula. The federal government also provides specific grants for

designated programmes, such as the Food Security Programme (FSP) and the Productive

Safety Net Programme (PSNP).

The country’s governing structures and policy-setting mechanisms reflect two competing

pressures. While pursuing further decentralisation, the EPRDF maintains a highly centralised

decision-making structure and control over policy formulation.10 These simultaneous

tendencies towards centralisation and decentralisation have helped the federal government

retain control over its core policy agenda in areas such as food security, agriculture,

liberalisation and the role of the private sector, while holding sub-national governments

responsible for the implementation of important social sector policies (Furtado and Smith,

2009).

Civil society organisations (CSOs). In January 2009, the Ethiopian Parliament passed

legislation L.621/2009 denominated as the Charities and Societies Proclamation (CSP) to

regulate CSOs. This new law restricts sources of CSO financing as well as the composition of

their activities. It distinguishes CSOs status on the basis of the domestic and foreign mix of

funding sources; those CSOs that are active in defined political and human rights areas may

not receive more than 10% of their funding from abroad. Second, CSOs are allowed to allocate

a maximum of 30% of their expenditure to administration costs. As salaries of, for example,

community health workers are counted as administration rather than project costs, outreach

activities are thereby constrained.

The CSP reflects the ambivalent position of the Ethiopian government towards CSOs. It limits

the flow of foreign funding to advocacy organisations considered politically biased or hostile.

10 The highest policymaking body is the Council of Ministers, but other institutions also play a central role in setting national policy within the executive and the EPRDF, such as the Prime Minister’s Office and the EPRDF Central Committee. The result is a system that at times bypasses representative institutions such as the House of People’s Representatives while placing significant responsibility on sub-national institutions (Furtado and Smith, 2009).


7

Moreover, by reducing overhead costs, the CSP aims to make more efficient use of non-

traditional development assistance, preferably channelled through government systems.

What emerged from interviews with CSOs is a general fatigue among donors, especially

international non-governmental organisations (NGOs), in terms of financing CSO activities.

Declining assistance to CSOs as a whole has been triggered by the cap on the use of foreign

resources for some CSO activities. At the same time, some international NGOs have had to cut

and restructure their Ethiopian programmes and local partnerships as a consequence of the

global economic downturn.

Geopolitical importance in relation to DAC and non-DAC donors. Ethiopia is conscious of

its geopolitical position in the Horn of Africa, its proximity to the Middle East and the role of

Addis Ababa as a regional diplomatic hub. Ethiopia’s government is secular (Christians form

about half of the population and Muslims a third). The country’s position as a pillar of relative

stability in an otherwise unstable part of the world, as well as its proximity to the Middle East,

makes it an important strategic ally for several Western capitals (Furtado and Smith, 2009).

Moreover, the presence of large US military bases, among other factors motivated by

Ethiopia’s geopolitical role, results in military and security aid spill-overs.

Ranking in governance and public management indicators. The country’s 2011

Transparency International Corruption Index ranking was 120 (on 182 countries). There is a

reputation for low tolerance for corruption at the apex of government, a view shared by most

of our interviewees, but published indices show the opposite at local level (AfDB, 2011). In a

recent Transparency International survey (2011), 48% of interviewees reported paying a bribe

to at least one of nine service providers in Ethiopia.

On public sector management and institutions, Ethiopia’ Country Policy and Institution

Assessment (CPIA) (World Bank, 2012a) score improved slightly from 3.1 in 2005 to 3.2 in

2010, remaining well above the 2.5 average score for LICs. Public Expenditure and Financial

Accountability (PEFA) findings (AfDB, 2011; OECD, 2011) show that public financial

management (PFM) systems in Ethiopia are strong with respect to revenue outturns, arrears

monitoring, budget classification, transparency of inter-governmental relations, policy-based

budgeting and payroll controls. However, there are challenges associated with internal audit

effectiveness, external audits, legislative scrutiny of the budget law and donor reporting.

Meanwhile, Development Cooperation Ireland (DCI, 2005) has evaluated the administration as

remarkably effective. Revenue collection is close to 20% of GDP, which is well above that of

other Sub-Saharan African countries, the public service is not overstaffed and standards of

fiscal and macroeconomic management are quite high. Finally, trends in the World Bank’s CPIA

rating for Ethiopia over the period 2005-2010 show improvement in the policy clusters of

business regulatory environment, gender equality, equity in public resource use and building

human resources (AfDB, 2011).

2.3 Aid management

Targets and strategies. Even though there is no explicit aid strategy, or target, an indirect

target is stated in the GTP: ‘in order to be conservative, the underlying projection for GTP

assumes a continuation of historical aid levels’ (MOFED, 2010). Aid grants (as against soft

loans) are mentioned in the macroeconomic forecast. The grants to GDP ratio is set to

decrease from 4.3% in 2011/12 to 3.3% in 2014/15, in line with rising GDP and a stable grant

pool.

During our interviews, it emerged that an initiative by the MOFED to formulate an Aid and Debt

Policy and Strategy in 2004 was not pursued, although there were plans to finalise a debt

management strategy in 2013. More interest has been shown in the past in formalising the

harmonisation agenda, culminating in the draft of a Joint Declaration on Harmonisation,

Alignment and Aid Effectiveness. However, this strategy has also never been endorsed or

published. In other words, the government does not seem to be interested in formalising an

aid management strategy. This does not imply a lack of well-understood government priorities


8

in dealing with development partners, traditional or new. These clearly emerge from

documents such the GTP and sectoral strategies.

Progress toward the Paris Declaration on Aid Effectiveness. The three Paris country

monitoring surveys (OECD, 2005; 2008; 2011) present a mixed picture of aid quality trends. A

total of 48% of Ethiopia’s aid was estimated to be on budget in 2010, but the target was 87%;

this was the indicator showing the worst performance. The corresponding shares were 48% in

2005 and 47% in 2007, that is, performance has essentially been static.

The government has recorded a total of 86% of scheduled aid disbursements, exceeding the

50% target. Even though this is one of three indicators achieved from the outset, it has eroded

slightly: the shares were 96% in 2005 and 73% in 2007. Furthermore, 55% of aid channelled

to the government has made use of the country’s procurement systems, improving from 43%

in 2005 and 41% in 2007. The number of project implementation units (PIUs) fell from 56 in

2007 to 49 in 2010, also an improvement, but far from the target for 2010 of 34.

Ethiopia scores quite well on the target of untying aid (86% of aid is untied, well above the

66% baseline), with an improvement on previous surveys (66% and 76%, respectively).

Only 25% of donor missions (well below the 40% target) and only 52% of analytical work

(66% target) in 2010 were conducted jointly.

Decentralisation of aid management. What are the implications of the federal system,

given conflicting decentralised power and strong centralised aid management? Figure 1

illustrates the different channels through which traditional and non-traditional development

assistance flows are disbursed. The government has clearly categorised external assistance

flows into three different disbursement channels. A more detailed example of how the ‘channel

system’ works in the health sector is provided in Annex 1.

Figure 1: Aid disbursement channels

Channel 1 (via Finance bodies)

Channel 2 (via Sector bodies)

Channel 3 (direct)

Ministry of Finance Sector Ministry Regional Finance Bureau Regional Sector Bureau Zonal Finance Department Zonal Sector Department Woreda Finance Office Woreda Sector Office

Source: DCI (2005).


9

3 Mapping non-traditional development assistance flows

This section reviews the main volumes and terms and conditions of development assistance

flows disbursed by NTPs: 1) official NTPs (South Korea, China, India and Turkey, in order of

importance in terms of volume); 2) vertical funds such as the Global Fund and GAVI; 3)

philanthropic assistance; 4) climate finance; and 5) the private sector (social impact

investment/corporate social responsibility, private–public partnerships, diaspora bonds and

blended finance). See Greenhill et al. (2013) for definitions of ‘traditional’ and ‘non-traditional’

development assistance.

3.1 Official concessional assistance from NTPs

South Korea. The Korean International Cooperation Agency (KOICA) opened its country office

in Ethiopia in 1995 but stepped up its programme more recently. Development cooperation

intensified following reciprocal visits of the two prime ministers.11 Diplomatic relations have

been longstanding and reinforced by the participation of Ethiopian troops in the Korean War in

the 1950s.

South Korea follows a specific model whereby its main engagement is at the level of regions

and mainly at the grassroots (Kim and Oh, 2012). It operates in areas where other donors are

often not active, and in the following sectors: education, health, agriculture and governance.

According to OECD-DAC figures (OECD, 2012), Korea has expanded its real-term ODA to

Ethiopia by more than 10 times in 10 years, from $0.6 million in 2000 to $10.2 million in 2010.

Ethiopia was one of the top five recipients in Sub-Saharan Africa of KOICA assistance in 2009,

receiving 1.7% of the total KOICA budget (of 9.1% for the region as a whole). The plan is to

reach $17 million disbursement in 2012; total disbursement for the period 2012-2015 is

estimated at $80 million.

In terms of aid modalities, the Korean Ministry of Foreign Affairs and Trade does not provide

budget support and KOICA is a project implementation agency, conducting procurement within

Ethiopia. Until a few years ago, volunteers ran cooperation activities. At the time of the

country visit, we understood there to be 60 volunteers in four regions of the country. KOICA is

also involved in capacity-building programmes, with more than 100 government officials

invited to South Korea each year.

China. Like Korea, China also has a long history of engagement in Ethiopia: formal relations in

terms of economic and technical cooperation date back to 1971. Chinese engagement with

Ethiopia is different from that in other Sub-Saharan African resource-rich economies. Ethiopia

is seen as a large country with growth and market potential and a leading role in the region,

and is thus considered creditworthy. More importantly, according to MOFED ‘China’s

development assistance to Ethiopia [is] crucial for sustaining the country’s economic growth’.12

However, assessing overall Chinese commitments and engagement in Africa, and in particular

development assistance flows, has proven challenging; the Ethiopian case is no exception.

Chinese cooperation in Ethiopia includes soft loans, grants and technical assistance (Afrodad,

2011). But engagement is largely on a quasi-commercial basis (contractors) in the

infrastructure sector (roads, railway and hydropower). According to Brautigam (2009), Chinese

contractors who originally arrived to carry out Chinese aid projects were by the early 2000s

winning half of the construction contracts funded by other donors.

There has been no systematic estimate of volumes of Chinese development assistance so far,

given the challenges in classifying which Chinese loans are concessional and which are not

11 Meles Zenawi visited South Korea in 2010 during the G20 meeting as well as the Fourth High-level Forum on Aid Effectiveness in November 2011; President Lee visited Ethiopia in July 2011. 12 See MOFED (2012).


10

(and the lack of transparency in loan conditions in some cases).13 Government interviewees

saw some of these Chinese projects as mere ‘contracts’, whereby Chinese construction

companies undertake Ethiopian public projects with loan financing from China. This differs

from the paradigm of an offsetting natural resource off-take agreement or even official

assistance linked to FDI. An exception is the telecoms sector, where it was felt that the

Chinese had a technological advantage or lock-in via their contract. Not only are these

contracts linked to Chinese sources, but they are also said to be ‘steered’ to specific

construction companies, rather than being sourced competitively. This may be, as Brautigam

(2009) suggests, because otherwise construction companies already mobilised in Ethiopia or

neighbouring countries would have to move out, or because of some other distributive logic

that is probably not transparent to the Ethiopian side.

Information on Chinese development assistance to Ethiopia (in financial terms) is not available

on a systematic annual basis. For example, according to Gebre-Egziabher (2009), Chinese

interest-free loans to the government have totalled $78.6 million since 1995, and committed

grants $22.7 million. Geda (2008) estimates that Chinese aid constituted 0.14% of total aid to

Ethiopia in 2006/07 (or approximately $6 million, considering average values for both years),

and was linked mainly to the construction of a modern fly-over road in Addis Ababa and other

similar city roads in the capital (e.g. the Ethio-China Friendship Road). However,

notwithstanding the negligible size of official aid, the importance of China as a development

financier is a recent and emerging phenomenon, with finance on non-concessional terms used

mainly to fund infrastructure projects such as roads, dams and communication (Geda and

Tafere, 2011). Even though it is difficult to track, China has also provided in-kind assistance in

the health, vocational training and agriculture sectors. Most of this assistance has followed

Chinese FDI penetration and the expansion of corporate social responsibility activities among

Chinese companies. However, such projects are rather small and isolated.14

The Chinese government also contributed a grant for the construction of the African Union

building in Addis Ababa, which is outside of its bilateral programme for Ethiopia and not

included in this analysis.

Looking into future volumes of assistance, according to MOFED,15 China is planning to double

development assistance to Ethiopia. For the African continent as a whole, at the fifth Ministerial

Forum on China–Africa Cooperation meeting (Beijing, 19-20 July 2012), China agreed to

gradually scale up the China–Africa Development Fund to $5 billion to strengthen Chinese–

African cooperation. Moreover, China is planning to expand its cooperation with Africa in

investment and financing, to help boost Africa’s sustainable development. China is seeking to

provide a credit line of $20 billion to African countries to support the development of

infrastructure, agriculture, manufacturing and small and medium-sized enterprises. In

principle, Ethiopia could benefit from this credit line on a competitive basis with the rest of the

continent.

India. Similarly to China, bilateral diplomatic relations between Ethiopia and India are

longstanding, having started in 1949 (Gebre-Egziabher, 2009). However, the involvement of

India in development programmes is limited.

Similarly to the case of China, India is engaged mainly through in-kind assistance with a focus

on higher education programmes. Even though aid data reports $354.6 million in development

assistance disbursed between 2006 and 2010, the Indian Embassy in Addis Ababa emphasised

that the Indian government does not provide financial support to Ethiopia.

13 China ranks first in terms of FDI project proposals to the Ethiopian Investment Agency (EIA). 14 Examples are: health sector through medical missions, doctors, medical equipment and the construction of a hospital in 2012; vocational training, through a large training and vocational education centre financed by Chinese aid and jointly operated by the two countries opened in early 2009 in areas of interest to several companies operating in Ethiopia – construction skills, architecture, engineering, electronics, electrical engineering computers textiles and apparel (Brautigam, 2009); and agriculture (financing of an Agricultural Technology Demonstration Centre near Addis Ababa). 15 Source: MOFED (2012).


11

In-kind assistance focuses on scholarships and capacity building and is not concentrated in any

specific sector. The Indian Economic Cooperation Programme has organised short- and long-

term courses in India (e.g. in web design, management), taking in students from all over the

world during the past four years. Ethiopia is one of its largest programmes, and the Indian

government had by 2011 more than doubled the number of students. Another scheme focuses

on post-graduate education, but for this financing is shared between the Indian government

and the government of Ethiopia (for approximately 60 and 360 students, respectively). Both of

these programmes are demand driven and the government of Ethiopia is keen to scale them

up.16 Finally, the Indian government is implementing four institutes for high-tech programmes

(e.g. on solar energy) in Ethiopia, to be run initially by Indians with the objective of handing

them over to Ethiopian government and institutions in the future.

Regarding investment flows, India is present but with volumes that are dwarfed by those of

China. Unlike China’s focus on infrastructure, Indian companies are more diversified, motivated

by good investment opportunities and by the size of the country (in particular in the areas of

potash and sugar cane). Indian companies have started investing in corporate social

responsibility (see next section), but this was still at an embryonic stage at the time of writing

this report.

The Indian Export-Import Bank has recently opened two credit lines, one worth $640 million

for the next four to five years to develop capital equipment in sugar plants and one worth $300

million for the Djibouti railway and rural electrification (60% procured through Indian

companies, in a national bidding process with transparent procedures), to a total of nearly $1

billion in credit lines.

Turkey. Turkey reports ODA flows to the DAC. From close to zero commitments before 2005,

ODA flows to Ethiopia in constant 2010 prices were on average $2.5 million over 2005-2010,

peaking at $4.41 million in 2009 (DAG, 2010). However, Turkish engagement is mainly at the

commercial level, with growing FDI inflows in the textile industry benefiting from conditions

very much closer to those of export processing zones.

3.2 Vertical health funds

Between 2002 and 2012, GAVI disbursed $375 million to Ethiopia,17 with a total commitment

of $685 million. A total of 73% of this has been channelled towards vaccine support; the

remaining share has supported CSO activities, health system strengthening and injection

safety.

Ethiopia is also a ‘darling’ of the Global Fund. Since 2003, Ethiopia has always been included

among recipient countries (the 2011 Round was not awarded owing to limited resource

availability; nevertheless, Ethiopia benefited from a ‘transitional’ funding mechanism replacing

this round). Up to 2012, just under $1.4 billion had been disbursed to fight all three diseases

in Ethiopia ($900 million to HIV/AIDS; $122 million to tuberculosis, $347 million to malaria)

(Global Fund, 2012).18

3.3 Philanthropic assistance

Philanthropic organisations are present in the country but in an embryonic stage, and

information on their work is piecemeal at best. Assistance by US grant makers to Ethiopia is

estimated at $74.5 million between 2003 and 2011,19 with average annual flows of $8.3 million

(Foundation Center, 2012). The Bill and Melinda Gates Foundation started work in Ethiopia in

2000, implementing more than 130 projects in health, agriculture, urban development, WASH,

16 Capacity-building programmes include training sessions for government officials on WTO trade negotiation strategies. 17 Source: GAVI (2012). 18 However, according to an interview with the Global Fund LFA, from 2003 to 2011, Ethiopia received $2.2 billion, of which $1.4 billion went to HIV/AIDS, less than 10% to tuberculosis and the rest to malaria. 19 Discrepancies between figures in this paragraph owe mainly to differences in the reference time period and Foundation Center coverage.


12

emergency relief and finance, with estimated flows of more than $265 million.20 It has

contributed $25.1 million to the Agricultural Transformation Agency through three partners –

UNDP, the International Food Policy Research Institute and the Synergos Institute – with a

focus on smallholder farmers. The David and Lucile Packard Foundation has been active in

population and reproductive health, although we recorded activities at NGO but not

government level. Total grants over 2006-2010 were more than $27 million and peaked in

2008 at $8.3 million, going down by more than half in 2010 to $3.6 million.21 The Heinrich Boll

Stiftung Foundation has reportedly supported projects on climate change at both the NGO and

government level through the Environmental Protection Agency (EPA). The Clinton Foundation

has worked with the Ministry of Health (MOH) on HIV/AIDS.22 In 2007, Midroc Investment

Group, one of the largest investors and philanthropists in Ethiopia, donated $20 million for 10

years to HIV/AIDS programmes within the Clinton Initiative. At the domestic level, Midroc has

made contributions to local development efforts during fundraising events organised by NGOs

in different regions of the country.

3.4 Climate finance

Climate finance in Ethiopia has its rationale in the GTP, which puts climate change at the heart

of national planning. The separate Climate Resilience Green Economy Strategy was approved

in 2011 and is characterised by very ambitious targets of a total of $150 billion in the next 20

years. Ethiopia is the 13th-largest recipient of climate finance, the second largest recipient in

Sub-Saharan Africa after Kenya, to a total so far of $107 million in commitments since 2003.23

3.5 Private sector

Social impact investment/corporate social responsibility. Social impact investment was

at a very embryonic stage during the writing of this report and as such we have very few and

mostly anecdotal examples. Interviews spoke of large-scale land leases in the agriculture

sector without a well-established and structured system in place. Social impact investment

follows larger-scale for-profit investments in the country and has to be evaluated alongside

trends in FDI inflows and the role of the private sector in the country as described earlier.

Apparently, GlaxoSmithKline is engaging in vaccine development, although little is known

about this as yet.24 Corporate social responsibility is a strategic objective for the private sector,

as in the Addis Ababa Chamber of Commerce Strategic Plan and the creation of a Corporate

Governance Institute by the Swedish International Development Cooperation Agency (Sida),

which will manage it initially then pass it on to Ethiopian staff.25

Public–private partnerships (PPPs). PPP investment is also embryonic, and development of

this type of mechanisms was not seen as a priority option in the tapping of resources and

leveraging of expertise, even though it is mentioned in the GTP. The International Finance

Corporation (IFC) has supported the Ethiopian Public–Private Consultative Forum to foster

policy dialogue between the private and the public sectors. There is anecdotal evidence of

some PPP investment, mainly at the local and regional level.

Diaspora bonds. Diaspora bonds have been issued to contribute to the financing of the Grand

Renaissance Dam Project, estimated to cost $4.8 billion. They are offered by MOFED,26 sold by

the Commercial Bank of Ethiopia and promoted abroad by the Ministry of Foreign Affairs

(MOFA). This was fairly ambitious, given total annual remittances (see Section 2). Among

other countries, Ratha and Mohpatra (2011) estimate the stock of potential savings to Ethiopia

for 2009 at $1.9 billion. Terms and conditions are apparently more favourable than

20 Gates Foundation (2012). 21 Elaboration on the basis of Foundation Center (2012). 22 See Ethiopian Embassy/UK (2006). 23 See CFU (2012). 24 See GSK (2012). 25 This is a separate legislative entity from the Addis Ababa Chamber of Commerce. See Addis Ababa Chamber of Commerce (2012). 26 See Plaza (2011).


13

international interest rates (LIBOR + 1.25/1.5/2.0% depending on maturity) and represent the

main incentive for foreign investors.

Blended finance. Blended finance mainly concerns European institutions and actors, such as

the European Investment Bank. This is a recent phenomenon, mostly intended for

infrastructure, although it is difficult to track the actual volume of flows and more research is

needed in this regard.


14

4 Priorities for terms and conditions of traditional and non-traditional development assistance

Compared with the other two case studies in this project (Cambodia and Zambia) the

government of Ethiopia does not have a formal aid strategy, with regard to both traditional

and non-traditional providers. However, we have identified the main government priorities

regarding the terms and conditions of aid flows on the basis of the secondary literature (e.g.

Furtado and Smith, 2009) as well as our interviews with government officials, DAC donors,

NTPs and CSOs.

In order of importance, we found that emerging government priorities for the type of

assistance it would like to receive from either traditional or non-traditional providers were as

follows: fit with national strategy; speed and reliability of implementation (as a result of lower

conditionality and fewer safeguards applied); lower cost of financing (higher concessionality);

and maximum volume commitment possible at one time. In terms of aid instruments, other

priorities emerged: a preference for budget support; use of pooled funds; use of country

systems; and flexible use of funding (no hard earmarks). Most of these priorities were similar

across traditional donors and new actors.

There are two general caveats. First, it was quite challenging to identify government priorities

in relation to the private sector/foundations, given these organisations’ small size and the

largely anecdotal evidence available; the share of assistance they channel through other actors

(they do not necessarily interact with the government directly); and their relatively recent

engagement. Second, the ordering of government priorities is ostensibly the same for both

new and traditional actors, with each provider being treated in principle on a ‘competitive

basis’ without any preferential treatment. Priorities are the same for all actors, but what differs

is their performance ranking; this is particular relevant as far as the trade-off between

concessionality and speed of delivery is concerned.

4.1 Fit with national strategy

The overarching government priority is to implement the GTP and achieve the MDGs by 2015.

Therefore, assistance from both traditional and non-traditional providers (grants and

concessional loans) are evaluated as to the extent they fit (or do not fit) with national

priorities.

As a corollary, traditional donors interviewed recognised that the government had clear

country ownership over its development strategy (as also identified and discussed in Furtado

and Smith, 2009). For example, the GTP was sent for comments to the donor community only

after it was ratified by Parliament (OECD, 2011). The strategic value attributed to the need to

fit with national priorities emerged during interviews with government officials as well as with

traditional DAC donors. Furthermore, the Development Assistance Group (DAG) held a series

of discussions over the course of 2010 to review its focus and structure (DAG, 2010). In April

2010, MOFED State Minister Mekonnen Manyazewal emphasised how government ownership

was key to effective development assistance (ibid.).27 Government priorities in terms of

development assistance do not differ between traditional and non-traditional donors in general,

according to government officials. However, the government is implementing a state-led

development model, itself very much in line with the Chinese experience, suggesting a degree

of greater natural affinity with the latter.

During interviews, it also emerged that the government sees resource mobilisation itself as

one of its main priorities. The government is looking into increasing not only external sources,

27 As a result, the DAG commissioned an independent review of its objectives, structure and functions in order to improve its efficiency and effectiveness, strengthening donor dialogue with government, improving harmonisation and increasing the effectiveness of aid delivery to Ethiopia (the strategy is still to be endorsed).


15

by expanding the number of official actors, funding from philanthropists, etc., but also

mobilising internal resources through improvements in tax policy and administration as well as

the issuance of domestic bonds. We understood that the government had accepted less than

concessional terms to secure funding at sufficient scale.

The government attributes priority to sovereignty and the control of development strategy,

with strong federal control and limited alignment with donors (DCI, 2005). This is made clear

in Fraser and Whitfield (2008): ‘Ethiopia is in control of its development strategy, negotiating

with donors only at the margins, with a tendency to adopt those policy prescriptions of the

Bank and the Fund that it finds acceptable to its own development agenda and to reject

others’. Furthermore, according to Furtado and Smith (2009), the government has from the

outset tended to consider aid relations as a meeting of equals. It is therefore more assured of

its own direction, of its entitlement to set the development agenda and of its stature next to

donors compared with the governments of other low-income African countries (ibid.).

The core section of the policy agenda that is strongly owned entails the government’s approach

to agriculture, economic management and pace of liberalisation and its commitment to

improving basic social services, according to Furtado and Smith (2009). In some of these

areas, there is common ground with donors, for example on the primary education agenda and

the importance of food security measures. In other areas, there is much less agreement, for

example on the financial sector, industrial development and agriculture, where donors in

general do not share the government’s views regarding the role of the state as the prime

service delivery agent and instrument of change. In line with the latter example, donors

claimed that in financial sector and telecoms liberalisation, in particular, there may be no room

for negotiation as there may be limited discussion on implementation and the regulatory

framework.

4.2 Speed of implementation versus financial terms

Non-concessional (or quasi-commercial) loan disbursement should be as fast as possible, in

order not to delay implementation of the national strategy; this point emerged quite clearly

from interviews with government officials and most of the DAC donors. As pointed out by

interviewees at MOFA, speed of delivery is embedded in the approval process (a corollary to

their statement that, if a project is well planned, in the sense that it will suit national

preferences, then there should not be any issue with the speed of implementation). This

preference for speed has implications for other terms and conditions of aid flows and their

management.

4.3 Conditionality versus concessionality

While providing development grants or loans at very concessional rates, traditional donors may

try to impose conditions beyond the narrow viability of the project itself. From the point of

view of the government, these not only reduce country ownership of policy, which is

unacceptable, but also may have slowed implementation of the GTP. On the other hand, the

government could seek support from non-traditional donors, such as China, which the

government hopes will provide financing with fewer conditions related to domestic policies

(Furtado and Smith, 2009), albeit a higher interest rate (LIBOR+3%).

According to donor interviews, we understood that the government rejected some loans at

fully concessional rates, seeing the negotiation process as taking too long and the safeguards

imposed as too burdensome. It then reverted to China, despite the latter’s harder financial

terms. According to interviews with government officials, decisions on how to solve this typical

trade-off between speed and financial terms are referred to the Cabinet level. Concessionality

is not considered a top priority once speed of implementation was compromised. Government

officials reported that, even when Chinese loans were offered at concessional terms,

disbursement remained faster compared with traditional donors. Moreover, some DAC donors

reported that the negotiating power of the government with traditional donors had increased,

thanks to the presence of NTPs.


16

This trade-off must also be interpreted in light of the low risk of debt distress, as evaluated by

the World Bank and IMF in their latest Debt Sustainability Analysis (IMF, 2012). The fact that

the government has some room for manoeuvre before the risk becomes significant has allowed

it to exploit all the financing opportunities available. We were told that, since 2005, MOFED has

never turned down a loan, as this might compromise its debt sustainability. Having said that,

we understood MOFED is currently working on a debt management strategy, to be released by

the end of the 2012/13 fiscal year, with technical support from the World Bank and the IMF.

This may set a target debt to GDP ratio.

The position of the government on the effectiveness of donors imposing governance conditions

in particular seems clear. Meles Zenawi’s said: ‘it will be wrong for people in the West to

assume that they can buy good governance in Africa. Good governance comes from inside; it

cannot be imposed from outside. That was an illusion. What the Chinese have done is explode

that illusion. It does not in any way endanger the reforms of good governance and democracy

in Africa, because only those that were home-grown ever had any chance of succeeding’

(Brautigam, 2009).


17

5 Arenas: traditional and new actors – overview

Not only did Ethiopia start relations with donors earlier than other aid-recipient countries (i.e.

in the 1950s, rather than in the 1960s, after independence), but also it has managed this

relationship entirely within its own domestic governance structures (Furtado and Smith, 2009).

MOFED has the exclusive mandate to negotiate bilateral and multilateral assistance

programmes for the Ethiopian government (Furtado and Smith, 2009), including regional state

governments, as well as to scrutinise loan agreements to be subsequently approved by

Parliament. Annex 2 reviews the main arenas for negotiations, namely the joint government–

donor consultative process in the context of the DAG, the Country Coordination Mechanism for

Global Fund assistance and the Climate Finance Facility. More detail is provided in Annex 2.

Our main interview finding is that neither GoE nor non-traditional providers (NTP), especially

China, have shown interest in including NTPs in the more active co-ordination mechanism. The

result has been that in those areas where the contribution of NTPs is determinant (like

infrastructure), the residual DAG-led coordination fora are beginning to atrophy, if they are not

already redundant. This section focuses on the division of labour between traditional and non-

traditional providers and on informal mechanisms for aid coordination.

5.1 Division of labour between donors

While there is no formally established division of labour among traditional and new actors,

interviews with donors suggested that sector specialisations of DAC and non-traditional

providers were agreed implicitly between the government and the donor community.

Traditional DAC donors operate mainly in social sectors, with the exception of the World Bank,

roughly 50% of whose financing goes to infrastructure, and the AfDB.

According to traditional donors, there is a common understanding and policy view between

DAC donors and the government that these latter operate mainly in the social sectors. A

similarly implicit agreement applies to non-traditional donors, especially China, which mainly

finances infrastructure projects (in particular road construction and utilities), with limited

intervention in the social sectors (only in-kind and small-scale interventions at the local level).

In the case of South Korea, the focus of assistance at regional level matches government

priorities.

Among traditional donors, multilateral financial institutions dominate infrastructure

development. The three largest donors operating in roads are the AfDB, the World Bank and

the EU, and are viewed as having a comparative advantage, including in cross-border

infrastructure networks (AfDB, 2011). Bilateral donors have a strong focus on human

development, safety nets and crosscutting issues, including governance and gender. Bilateral

donors along with the EU and UNDP are active in democratisation and civil society

participation. Some (e.g. the UK Department for International Development (DFID) and the

Canadian International Development Agency (CIDA)) are rebalancing their support to Ethiopia

to include economic growth/sustainable livelihood areas, like private sector development

(ibid.).

Furthermore, non-traditional donors are generally providing loans for infrastructure

development, with traditional donors giving loans and assistance to the social and economic

sectors. It is important to note, though, that the major traditional donors (World Bank, DFID,

AfDB, EU, among others) are providing support to the woreda block grant through the

Protection of Basic Services (PBS) aid instrument. This latter constitutes about 33% of regional

and woreda block grants, which are made up of recurrent budget line-items; 90% goes to

salaries. This has implications, since traditional donors cover part of the salaries of civil

servants, and shows how donor dependent the country is.


18

5.2 Informal mechanisms for aid negotiations

According to Furtado and Smith (2009), there are two parallel processes at work in aid

negotiations in Ethiopia. First, there are negotiations with providers of off-budget financing,

some of which may allow the government more or less latitude in determining the content of

the development agenda. Second, there are parallel mechanisms, such as those involving the

executive branch or within the ruling party, which may be as important as formal aid

coordination mechanisms.

When the relationship with donors was temporarily disrupted in 2005 after violence

surrounding the elections, most donors formally withdrew general budget support, only to

replace it quickly with a close replica, in the guise of large-scale recurrent cost assistance via

the PBS. From this experience, the government’s hand can only have been strengthened.

While government interviewees reiterated that donors were treated equally, several donors

commented that the government worked in a different arena with non-DAC donors and applied

different rules to them, for example limited transparency. The perception among donors was

that the government adapts its language and strategy according to the donor. While it follows

traditional approaches when it negotiates with traditional donors, with non-DAC donors

transactions it has a lower profile (e.g. meetings are not public and the number of people

involved is limited).


19

6 Conclusions

We can identify six main messages emerging from the experience of Ethiopia in managing

development assistance from traditional and non-traditional providers.

First, over the past decade, the government of Ethiopia has successfully retained,

increased and diversified its pool of development assistance, despite crisis-driven

donor fatigue and turbulence in the region. It has done this largely thanks to external

recognition of its strategic importance, its rapid recent economic growth and good MDG

delivery track records. These facts on the ground underpin widespread partner views that aid

money is generally well spent, investment opportunities abound and debt and fiscal

sustainability are dynamically manageable.

Second, the government has meanwhile managed largely to neutralise negative

repercussions on development assistance stemming from an unapologetically

authoritarian style and repeated allegations of human rights violations, amplified by

a vocal diaspora. An example of this resilience includes the rapid transformation of most

general budget support, initially suspended in the aftermath of post-election violence in 2005,

into bulk recurrent cost funding for social services, with similar macroeconomic effects but

quite different branding. Donors either initiated or willingly acquiesced to this restructuring,

which has yet to be replicated on the same scale in any other country.

Third, at the same time, the government has successfully retained full control of its

development strategy, with regard to both traditional and non-traditional development

assistance, and resisted external attempts to put in place greater policy engagement (or

conditionality), although its state-led approach has significantly restricted private and

especially foreign participation in the economy, against the standard policy advice of the

Bretton Woods institutions and others. ‘New‘ donors such as China have provided both

heterodox policy comfort to the government and an alternative source for, in particular, large-

scale infrastructure financing, which has further diminished the leverage of traditional donors.

These were anyway disinclined to impose policy terms on a favoured ally. Ethiopia’s regional

leadership in climate change financing discussions opened up a further set of opportunities, at

least until the demise of the Prime Minister.

Fourth, compared with the other two case studies in this project, the government does not

have a formal aid strategy for either traditional or non-traditional providers. However, based

on the secondary literature (e.g. Furtado and Smith, 2009), as well as our interviews with

government officials, DAC donors, NTPs and CSOs, emerging government priorities for the

type of aid it would like to receive, from either traditional or non-traditional

providers, are as follows: fit with the national strategy; speed and reliability of

implementation (as a result of lower conditionality and fewer safeguards applied); lower cost

of financing (higher concessionality); and a maximum volume commitment possible at one

time. Most of these priorities are similar for both traditional donors and new actors.

Fifth, non-traditional donors (especially emerging country funders like China, India, Turkey

and even South Korea, and innovative sources like the Global Fund) do not participate in

set-piece donor coordination fora, which tend to focus on areas where traditional sources

dominate, like the delivery of social services. The government is not necessarily interested in

bringing them in either. Conversely, where, as in major infrastructure, ‘new‘ sources are very

significant or dominant but traditional actors are also present, according to interviewees it is

the government that sets the tone, not only by not inviting the new players but also more

directly by not itself actively convening such groupings, which then cease to be of operational

interest to most parties.

Finally, there is a chicken-and-egg dimension (Fraser and Whitfield, 2008) to the debate:

whether the ‘division of labour’ between traditional and non-traditional providers has been

imposed by one side or the other, or evolved as a function of both parties’ changing


20

abilities and interests and where they best converge. In Ethiopia, this third narrative is

the more compelling. Clearly, the government has its own informal view on where different

sources ‘fit’ best, shaped by the interests the traditional donors themselves present (e.g. grant

financing social services) and the different profile of, in particular Chinese, new donor funding

(rapid export finance with minimum conditions but relatively hard terms). But it is first and

foremost reacting to the need to match total financing requirements by trying to segment the

market efficiently, and will adapt pragmatically to most donor preferences (e.g. South Korea

not being interested in quasi-budget support; some bilaterals turning to loans rather than

grants for infrastructure; etc.). The government is aware it has (or had until very recently) key

assets in its strategic position and value-for-money performance, and ideological sympathies

with Asian development models. It uses said assets to brush aside attempts to second-guess

its core development strategy, if there are any, which was said by most respondents to be the

only real ‘red line’ that external funders may not cross.


21

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Annex 1: How the channel system works in health

The Health Sector Development Programme IV 2010/11-2014/15 clearly defines the three different channels on the basis of type of flow, programmes and administrative levels involved. See Figure 1 in the main text.

Channel 1 Projects managed are the PSNP, the Public Sector Capacity Building Program Support Project, the General Education Quality Programme and the Urban Sector and WASH

Programmes. 28

Channel 1a (un-earmarked) is the disbursement channel used by the government itself, donors providing budget support and pooled funds like the PBS. These flows are fully on budget. Channel 1b (earmarked) is transferred through MOFED, with funds from each donor tagged

(with a two-figure code) and sent to the region and zone/woreda (with a location code). 29

Channel 2 This is a channel whereby regional and zonal/woreda finance bodies are bypassed. Sector units at each administrative level expend and account for funds. There are variations on this channel. Some development partners centralise disbursement responsibility at the federal level, so that even regional contractors are paid centrally. Other donors have worked directly with regional and/or woreda administrations. However, MOFED is highly involved in scrutinising, negotiating and signing agreements. Line ministries and MOFED also negotiate for loans and assistance to be channelled at the regional level, where we understood regional bureaus of MOFED do not engage with donors. Resources allocated by the Global Fund are recorded under this channel.

Channel 3 In this financing channel, development partners usually carry out any procurement and pay the contractor directly. This is the direct channel between the donor and the (final) recipient and it is highly difficult to monitor and to measure. One of the implicit aims of the CSP is to increase resources channelled through government systems.

28 The federal system allocates resources to regions via a block grant, whose formula is currently under revision. The allocation is on the basis of population, level of development and revenue-raising efforts but the formula has not been published. The budget at regional level includes domestic resources and loans and assistance from development partners. This composition is stated in the annual budget proclamation. For the most recent fiscal year, these shares were 0.2% and 2.5% for external loans and external assistance, respectively; the remaining 97.3% of total regional resources from the federal government represents domestic resources. 29 The funds were reported on and accounted for separately, and used to pay only for activities agreed by the particular donor, often according to its specific procurement and disbursement procedures.


24

Annex 2: Development partners and government–development partner coordination mechanisms

DAG Composition The main donor coordination body in Ethiopia is the DAG. Established in 2001, it is a donor-only group. At the time of the country visit, it comprises 26 bilateral and multilateral partners providing development assistance to Ethiopia within the Paris Declaration principles; its secretariat is hosted at UNDP. The DAG acts as primary interface between donors and government. The size of the country, its strategic importance and the ODA volume disbursed all motivate the need to harmonise development interventions among donors. According to Furtado and Smith (2009), UNDP and the World Bank have generally taken the lead on donor coordination (with a shift to bilateral budget support donors in the second half of the past decade).

It is noteworthy that two members of the DAG30

do not belong to the DAC (the Indian

Embassy and the Turkish International Cooperation Agency). However, neither is an active member; they engaged only at the beginning, as their main challenge related to capacity to engage actively in the group. The Embassy of India stated that it had limited time to spend on the aid management mechanism (also because it is a small donor). It participates when there are critical policy issues to be discussed within the donor coordination group (e.g. the CSP, although in this particular case India did not want to comment or interfere (while other DAG members were concerned as the law makes CSO functioning more difficult), considering this a sovereign issue). Applications of the Czech Republic and South Korea to the DAG were only foreseen in the long term. South Korea had chosen not to be involved in the DAG at the time of writing, mainly because of a lack of a capacity base; if felt not yet ready to join. South Korea does not rule out the possibility of joining the DAG in the future, but requests to join are more from the DAG/UNDP side than from the government. However, this does not preclude South Korea’s collaboration and coordination with other donors. South Korea is planning to work with other donors, especially in the context of pooled funds for maternal and child health. How the DAG works The DAG has a monthly plenary group meeting with the heads of agency. Meetings are chaired by two heads of agency, bilateral and multilateral, respectively. There is a more restricted group, the Executive Committee, whose scope is to set the work plan and define the agenda of the monthly meeting of the DAF. At the time of the country visit, members of the DAG Executive Committee are AfDB, UNDP, EU, World Bank, DFID, CIDA, Irish Aid, the Netherlands Embassy and USAID, with membership expanded in 2011. DAG donors coordinate their activities within Technical Working Groups (TWGs). These are donor-only coordination groups parallel to Sector Working Groups (SWGs, see below). TWGs have been kept, as donors felt they needed a space to talk separately, especially to discuss technical issues characterised by a different viewpoint from that of the government, such as private sector development, governance and infrastructure. At the time of the country visit, 11 TWGs were operational: Education, Gender Equality, Governance, Health Population and Nutrition, HIV/AIDS, Private Sector Development and Trade, Rural Economic Development and Food Security, Monitoring and Evaluation, Transport and Water.

High-level Forum

The High-level Forum meets every six months, even though frequency was originally agreed to be quarterly basis. This is a government–donor forum aiming to discuss

major policy issues, sectoral issues or a combination of these with policy objectives that are on the agenda. It does not serve as a forum for actual negotiation but plays an important role in setting the broad parameters of donor–government discussions (Furtado and Smith, 2009). According to the DAG Review 2010, the forum discusses progress on harmonisation as part of consultation on the implementation of the Plan for Accelerated and Sustained Development to End Poverty (now the GTP) and MDGs. MOFED is the primary reference point for the Secretariat. Both parties propose agenda

30 Current DAG members are the African Development Bank (AfDB), Austrian Development Cooperation, Belgium Development Cooperation, CIDA, the Danish Embassy, DFID, the European Commission, the Finnish Embassy, the French Embassy, the German Embassy, GTZ-Ethiopia, the IMF, the Indian Embassy, Irish Aid, Italian Cooperation, the Japanese Embassy, Japan International Cooperation Agency, the German Development Bank, the Dutch Embassy, the Norwegian Embassy, Sida, the Spanish Agency for International Development Cooperation, Turkish International Cooperation Agency, the UN Children’s Fund, UNDP, the US Agency for International Development (USAID), the World Food Programme and the World Bank.


25

items, with a maximum of three items for each session, with selection jointly defined.31 It is co-chaired by MOFED and DAG donors. At the time of writing, the multilateral donor chair was held by UNDP and the bilateral chair by the Netherlands. Heads of agency participate in the DAG group.

SWGs

By the end of 2007, MOFED informed the DAG about the establishment of five SWGs, on Rural Development and Food Security (RED-FS), the Private Sector, Transport, Gender and Water (Furtado and Smith, 2009). However, the DAG Secretariat reported this was a joint government–DAG decision driven by both parties to improve policy dialogue. While TWGs are donor-only, SWGs are co-chaired by the government, in most cases at the state ministry level. The Secretariat belongs to the relevant line ministry where the DAG Secretariat provides only initial support. Some SWGs are very active (e.g. Rural Economic Development and Food Security); others are not

operational. In 2011, eight SWGs were in place. 32

/33

One of the most active SWGs is RED-FS. This was created in 2008 and chaired by the minister of Agriculture and co-chaired by USAID and the World Bank. The Secretariat is hosted at the Ministry of Agriculture and Rural Development. Agricultural growth, livelihood sustainability, disaster management, risk management and security are the main work streams. RED-FS coordinates and harmonises donors’ assistance: for instance, it elaborated the Policy Investment Framework, the 10 -year development plan for the agriculture sector. RED-FS is composed of 23 donors and its work plan is defined by an executive committee (eight donors and eight members from the Ministry of Agriculture and Rural Development), which meets quarterly. The coordination mechanism also includes a broader platform where NGOs, CSOs, higher education institutions and the Bill and Melinda Gates Foundation participate: this met for the last time in March 2012. These non-official actors would like to join the SWG but apparently some traditional donors and the government would prefer them not to. The government decides which donors participate in selected policy-level discussions and which do not (Furtado and Smith, 2009). For example, only donor countries providing budget support should participate in the Joint Budget Support Mission and Aid Reviews. Some red lines emerge, areas that are most ideologically charged and most political and where there are greater differences, such as fertilisers, telecommunications or financial sector reforms: these are not generally addressed through the formal aid management framework (ibid.). Among non-traditional bilateral official providers, only South Korea has expressed some interest in joining the SWGs, but more as an observer, like the Czech Republic, which holds such a status in three of the SWGs, rather than as an active member. From the DAG Secretariat, there is nothing to report on China, which has not even sent queries (something that other non-DAG members do). From interviews, it emerged that DAG members are trying to reach out to China, inviting it to participate in dialogue on common interests, e.g. private sector development, and then be involved to a larger extent, but is was no interest in engaging on the part of China. However, traditional donors have their own engrained ways of working, including some terms and conditions that non-traditional donors are not interested or not ready to be engaged in (interview with MOFED, bilateral cooperation). At the same time, the government is not keen to involve non-traditional donors either, thus non-traditional donors are doing fine without engaging in the working groups, although they might be interested in being part of such groups in the future.

Aid Effectiveness Task Force

The Aid Effectiveness Task Force monitors progress on the aid effectiveness agenda and the Paris Declaration principles. It was established in 2005 and revitalised with a new focus in 2011, as a joint government–donor group composed of five DAG members, including the UNDP and World Bank, which serve permanently as facilitators, and seven government heads of division within MOFED. They have been developing an Aid Effectiveness Action Plan, with an EU aid effectiveness advisor putting together the details, as a reaction to the slow progress recorded in the latest Monitoring Survey of the Paris Declaration. Its primary objectives are to 1) extend the use country systems (the government and donors are falling behind on commitments to this target); 2) use the Aid Management Platform (see below) more effectively; 3) revitalise the SWGs as well as improve the High-level Forum structure; and 4) provide

31 The DAG invites DAG members (heads of agency) and occasionally extends the invitation to the Ambassador Group, but only those from DAG donors. According to an interview with the DAG Secretariat, an invitation has never been sent to Chinese officials or countries outside the DAC not belonging to the DAG. 32 http://www.aideffectiveness.org/busanhlf4/en/countries/africa/633.html 33 RED-FS, Education TWG, PFM Committee – MOFED, Water SWG, Joint SWG on Gender Equality and Child Rights, Private Sector and Development, CSO SWG and Health SWG (even the DAG Secretariat was not sure about the numbers).

http://www.aideffectiveness.org/busanhlf4/en/countries/africa/633.html


26

support for further development of PFM systems.

Programme-specific coordination mechanisms such as PBS and the PSNP

Increasingly, donor assistance to Ethiopia is being provided through joint and harmonised programmes and pooled funds. There are currently four large multi-donor programmes: the Public Sector Capacity Building Programme; the PBS; the PSNP and the Democratic Institutions Programme.

Aid Management Platform

Ethiopia has an Aid Management Programme for the capacity building of aid information management through a combination of web-based tools, process analysis and training. Its main aim is to increase transparency but it has to be fine-tuned and it covers data only from traditional donors. It was developed by the Development Gateway in partnership with the OECD, UNDP, the World Bank and the government of Ethiopia, with initial funding from the DAG. It was launched in July 2011 by MOFED.

Focus on aid coordination mechanisms in the Health Sector

In the Ethiopian context, funding and resources from GAVI and the Global Fund equate to 53% of all donor resources to the health sector and 95% of the resources are channelled through the MOH (Alemu, 2010). In the health sector, coordination between the Global Fund, the government and other national stakeholders takes place through the Country Coordination Mechanism, in place in every country receiving assistance from the Global Fund. The Global Fund does not directly participate in this coordination mechanism. The Country Coordination Mechanism is a country-level multi-stakeholder interface between the Global Fund and the government on the basis of a formula handled by the Global Fund with a balanced composition of 16 members (at the time of the country visit) made up of the government, multilateral and bilateral donors, CSOs, academia, trade unions and associations representing people with diseases. It is chaired by MOH and its role is to coordinate the development and submission of national proposals. The UN Office for Project Services (UNOPS) operates as the local fund agent for the Global Fund, and participates as an observer that reports only to the Global Fund. MOH chairs the Country Coordination Mechanism but has a conflict of interests in doing so, as it is also the main beneficiary of Global Fund funding in the country. The application for grants is apparently very transparent for CSOs, the government and parastatals linked to MOH. MOFED has given a mandate to MOH to receive and manage money from the Global Fund. However, there is no formal coordination mechanism with the other donors involved in the health sector, as the Global Fund does not participate in any pooled funds. MOH did not raise any concerns regarding coordination with the Global Fund in interviews; also, the government was perceived as being very strong in its coordination. There is no formal coordination mechanism with the Global Fund within the DAG formal structure; it is only on an informal basis in the SWG on HIV with a joint working group that any coordination occurs.

Coordination

mechanism for climate finance: the Climate Finance Facility

Coordinated by MOFED with oversight by the EPA, the Climate Finance Facility was

launched in September 2012 with the mandate of 1) using country systems; 2) pooling climate finance flows; and 3) coordinating access to climate finance on the basis of competition following needs criteria. The objective is to create a channelling mechanism through MOFED to control and integrate climate finance flows to Ethiopia in order to support the implementation of the Climate Resilient Strategy. At the time of the country visit, the EPA and MOFED were working on the terms of reference for a pooled fund financed by Norway, the UK and UNDP. The Climate Finance Facility is going to be managed first by UNPD and then it will be handed over to MOFED. The EPA will be part of the Climate Facility Board selecting and approving projects. It is premature to understand the complete climate finance architecture in Ethiopia; however, with time, this will become quite a relevant arena. The Climate Financing Facility will be similar to General Budget Support,– i.e. climate finance is intended to be channelled through the federal treasury using its accounting system and reporting, aligning assistance with national plans, easing conditions and reducing transaction costs. Currently, there are two main processes for approval of climate finance-related flows. First, as with every other development finance flow going into public coffers, MOFED negotiates and signs the agreement, which has also to be approved by Parliament in the case of a loan. In the specific case of climate finance, the EPA monitors the process. Second, in the case of small grants benefiting local communities (regions, woredas) the EPA is only informed, which is the case with more than 90% of total climate financing in Ethiopia. In terms of coordination and policy dialogue, we understand from interviews that climate change partners meet informally on a monthly basis. This informal group is composed of bilateral and multilateral donors and CSOs with a rotating chair. Invitations are managed by each chair.


27

MOFED has been developing a strategy (the Investment Plan) to engage stakeholders other than official donors, such as the private sector, non-traditional actors and philanthropists. Among these actors, South Korea is currently providing assistance in the preparation of the project strategy.


28

Annex 3: List of interviewees (in alphabetical order)

Name Job title Organisation

1 Abduljelil Reshad Director, Resource Mobilisation Directorate MOH

2 Abebe Belay Programme Director Mary Joy Development Association

3 Abraham Getachew RED-FS Secretariat Ministry of Agriculture and Rural Development

4 Adamou Labara Country Representative IFC

5 Addis Ababa Chamber of Commerce

6 Admassu Nebebe Director, UN Agencies and Regional Economic Cooperation Directorate

MOFED

7 Aklilu Marian Head, Research and Promotion Department EIA

8 Bamidele Ilebani Team Leader and Coordinator UNOPS

9 Bekele Hambissa Director Environmental Protection and Development Organization

10 Berhanu Lakew Economist DFID Ethiopia Country Office

11 Berhanu Solomon Environment Finance Facility Director EPA

12 Bilateral Relations Directorate, MoFED

13 Budget and Finance Affairs Standing Committee House of People’s Representatives

14 Channel One Coordination Unit, MoFED

15 Demissew Lema Resource Mobilisation Team Leader, Planning Department

Ministry of Education

16 Dereje Girma Bilateral Cooperation Senior Expert, External Resource Mobilisation and Management

MOFED

17 Embassy of India

18 Espen Villanger Senior Economist, Africa Poverty Reduction and Economic Management

World Bank Ethiopia Country Office

19 Fassika Kelemework Monitoring and Evaluation Specialist EU Delegation

20 Fikru Gezahegn Director, External Economic Analysis and International Relations Directorate

National Bank of Ethiopia

21 Hadis Tadesse Country Representative Bill and Melinda Gates Foundation

22 Halima Hashi Country Programme Officer AfDB Ethiopia Country Office

23 Hyeyoung Shin Deputy Representative KOICA Country Office

24 Jan Mikkelsen Resident Representative IMF

25 Keberu Belayneh Agricultural Growth Programme Coordinator Ministry of Agriculture and Rural Development

26 Letizia Beltrame Aid Effectiveness and Governance Embassy of Italy Development Cooperation Office

27 Macro Economy Policy and Management Directorate, MOFED

28 Medhin Fisseha Climate Change Team Leader Forum for Environment

29 Meshesha Gezahegn Executive Director Consortium of Christian Relief and Development Association

30 Michele Boario Deputy Director and Senior Economic Advisor Embassy of Italy Development Cooperation Office

31 Peter Mwanakatwe Chief Country Economist AfDB Ethiopia Country Office

32 Pranab Kumar Ghosh Financial Controller Karuturi

33 Seyoum Mengistu Special Assistant of the Director General EPA

34 Tafesse Refera Director Publication and Information Management Core Team

Consortium of Christian Relief and Development Association

35 Teshome Beyene Secretary Ethiopian Public Private Consultative Forum

36 Teshome Negussie Deputy Head Oromiya Bureau of Finance and Economic Development

37 Tsega Wondimagegnuhu

Research Officer, External Economic Analysis and International Relations Directorate

National Bank of Ethiopia

38 Victoria Chisala Programme Management Specialist, Aid Effectiveness DAG

UNDP (as Secretariat of the DAG)

39 Wassihun Abate Director, Legal Service Directorate MOFED

40 Woldehawariat Selassie

Director, Economic and Social Affairs Directorate

MOFED

Overseas Development Institute203 Blackfriars RoadLondon SE1 8NJUKTel: +44 (0)20 7922 0300Fax: +44 (0)20 7922 0399Email: [email protected]: www.odi.org.uk

This material has been funded by UK Aid from the UK Government, however the views expressed do not necessarily reflect the UK Government’s official policies.

Documents

The age of choice: Ethiopia in the new aid landscape age of choice - Ethiopia in the new aid landscape ii Abbreviations AfDB African Development Bank Afrodad African Network on Debt