This report presents the findings of a review of Sierra Leone’s aid coordination architecture. It assesses Sierra Leone’s aid environment by analyzing aid patterns, the development partner structure and the quality of aid relationships against the background of the fragile state dimension. Further, the report reviews selected elements of the existing aid coordination architecture and makes concrete recommendations on how these can be further strengthened and improved. Where appropriate, this report presents relevant experiences and lessons learned from other developing countries, for example regarding, budget support, joint assistance strategies, use of project implementation units and independent monitoring groups. This study was commissioned by UNDP Sierra Leone and included a comprehensive desk review, as well as a three-week in-country mission.

Sierra Leone is a highly aid-dependent country, which shows signs of state fragility. The country’s government institutions have limited capacities to perform key functions, which affects their ability to adequately respond to citizens’ needs and potentially undermines their legitimacy. The staffing structure and skill level of many formal institutions is insufficient. State institutions are not robust and lack a professional civil service culture. This has consequences for the applicability of the aid effectiveness framework outlined in the Paris Declaration, which is premised on a sufficient level of agreement between a national government and its development partners on development goals and priorities, and sufficient capacity of the national government to take forward its programmes and policies effectively. Consequently, a concern with ‘aid effectiveness’ (i.e. the extent to which aid contributes to achieving development goals) needs to be supplemented by a more fundamental concern with the effectiveness, accountability, responsiveness and legitimacy of the institutions of state. This means that engagement by development partners must explicitly address the agenda of state-building, as well as the agenda of increasing aid effectiveness.

Finding the right balance between both objectives is a particular challenge for development partners in Sierra Leone, where informal mechanisms and institutions such as personal patronage networks and social forms of governance are prominent, and where local politics tend to determine policy outcomes. As a result, there are tensions between the need of the state to maintain fragile power balances between competing interests, on the one hand, and the goal of achieving more effective, transparent and accountable use of public resources including aid, on the other. In this regard, it is important that development agencies be much more aware of the influence of local politics on growth and development, as well as of the resulting timescales required for state-building.

This report argues for a wider use of political economy analysis, to identify factors that influence political incentives for ruling elites to support change in direction of propoor economic growth and development, as well as broad-based service delivery. Taking the importance of local politics into account may require a rethinking of common approaches to growth and good governance. Good governance and related approaches to public sector reform, as typically practiced by development agencies, are often based on an unspoken assumption that it is possible and desirable to transplant institutional models from OECD countries to the developing world.

However, experience has shown that OECD-type institutions are often not suited to developing countries, and work differently in different social and political environments. The importance of understanding and adequately addressing local politics may further require development agencies to make organizational changes, for example regarding staffing structures, recruitment procedures and internal incentives. Many development agencies in Sierra Leone experience a high staff turnover and use ad hoc approaches with a focus on short-term results, instead of long-term approaches that are based on a thorough understanding of political realities.

Sierra Leone has a diverse development partner community. Only 5 donors account for the majority of assistance, while a high number of smaller development agencies, a few non-DAC donors and numerous non-governmental organizations are involved in various aid activities. This structure is contributing to aid volatility and fragmentation with some negative consequences.

Foreign assistance provided to Sierra Leone is not coordinated very well. There is a high degree of fragmentation of responsibilities for the mobilization, negotiation and administration of aid across agencies of government, leading to inefficiencies and reduced effectiveness in the overall system. Further, there are limited efforts by the wider development partner community to coordinate activities among themselves. Isolated coordination and harmonization efforts among specific donor groups, such as the Multi-Donor Budget Support Group or European Union member states, have not yet resulted in a significant rationalization of aid activities. Besides, as they are not government-led and pursued almost independently of one another, these isolated initiatives bear the risk of turning donor groups into ‘aid cartels’.

One consequence of this limited coordination is a high degree of fragmentation of foreign assistance at the sector level, which is characterized by a large number of donors that fund a large number of financially small projects. This results in an increased coordination challenge and high transaction costs for the government, as well as in wasteful duplication of efforts and overlaps in the delivery of aid. Aid funding flows are erratic, which affects project implementation and wider economic stability. Besides, volatile aid funding can undermine attempts to build more institutionalized and predictable policy and budget processes, and so reinforce patronage networks.

In general, aid relationships in Sierra Leone are characterized by a significant lack of trust between the government and its development ‘partners’. In light of the weak capacity and concerns regarding fiduciary risks, development agencies tend to establish parallel structures, which create tensions in the civil service and undermine national ownership, domestic accountability and longer-term institution-building. Also, due to the high degree of aid dependency, the power relation between the government and its partners is asymmetrical. Numerous conditionalities imposed by the largest donors result in one-dimensional accountability of the government to the donors and impede domestic accountability of the government to its citizens.

Given the lack of mutual trust, the high level of aid dependency coupled with weak government structures and capacities, and the resultant assertive donor behavior, which is not always conducive to fostering national ownership and mutual accountability, it is not surprising that Sierra Leone has not moved forward more quickly in improving the aid system and in implementing more effective aid coordination and management mechanisms.

Against this background, it is recommended that government and development agencies jointly formulate and mutually sign an Aid Effectiveness Action Plan that outlines concrete actions by both sides to improve aid effectiveness and aid relationships. This plan would serve as an operational tool to implement the government’s aid policy. In order to increase mutual accountability, it is recommended that an Independent Monitoring Group be established consisting of renowned external experts. This group would periodically carry out independent assessments of the status of aid relationships and the progress made with regard to improving aid effectiveness and implementing the mutual commitments made in the joint aid effectiveness action plan.

Although Sierra Leone has the basic structure of a good formal machinery of dialogue, the overall effectiveness of the collective dialogue and coordination mechanisms is limited. It is crucial to establish better linkages between dialogue mechanisms at different levels, especially between the Consultative Group (CG) and the Development Partnership Committee (DEPAC), as well as between DEPAC and Sector Working Groups (SWGs). Further, the operational effectiveness of many working groups should be enhanced through better advance preparation, action oriented minutes, and wider information sharing, for example through SWG websites. Sector Working Groups should play a key role in reviewing assistance proposals and in monitoring the implementation of related activities, without substituting line ministry functions.

In order to strengthen the government’s aid coordination capacity, it is recommended that the Ministry of Finance and Economic Development (MoFED) be designated the lead coordinating agency for all external assistance. In this regard, a post for a Permanent Secretary, who would head the Development Division of the MoFED and report to the Financial Secretary, should be established. It is further recommended that a Development Cooperation Department be established as part of the Development Division, which should be structured by development agency desks that act as main counterparts for corresponding donor and development agencies and would be responsible for coordination and administration of external assistance along the entire aid business cycle. In addition, an Aid Effectiveness Unit (AEU) should be established, which should perform some of the functions that were previously performed by DACO, such as acting as secretariat for DEPAC. In addition, the AEU should perform knowledge-sharing functions and act as facilitator within the Development Division to ensure policy coherence, in order to avoid gaps and overlaps between development assistance portfolios of individual development agencies. Finally, the AEU should spearhead and monitor the implementation of the national aid effectiveness agenda, including implementation of the Paris Declaration Survey, supporting formulation and monitoring of an Aid Effectiveness Action Plan to support the implementation of the aid policy, etc. Further, it is recommended that a National Appraisal Committee be established under the Office of the President, comprised of representatives from different central and line ministries, as well as from other government agencies and external institutions, such as universities. The main function of the Appraisal Committee would be to review and approve foreign aid and investment proposals.

The Sierra Leone Development Assistance Database (DAD) is a useful and tool for tracking foreign aid provided to the country. However, its effectiveness as a tool to support aid coordination and foster alignment is currently limited due to the fact that many development agencies do not enter data into the system in a timely and sufficiently disaggregated manner. In addition, the MoFED, the institutional host of the system, currently practices insufficient process management. In this regard, the data entry process should be firmly institutionalized, by linking it to the budget cycle and making data provision mandatory. Further, more proactive outreach to development agencies will be required through the proposed development partner desks, as well as proactive and client-oriented preparation of analytical products, such as sector, district and partner profiles by the proposed Research, Planning and M&E Department. The government should further consider implementing a limited number of system enhancements to increase DAD’s analytical capacities. The suggested modifications include the possibility to breakdown multi-year commitments into yearly allocations (potentially combined with a planned disbursement schedule), as well as the possibility to track ‘expenditures’ and Paris Declaration Indicators. The latter would include an electronic calendar where development partners could record their planned missions and analytical works, with the aim to coordinate both better.

Based on a review of other options for regulatory frameworks for foreign assistance, such as a law or a joint assistance strategy, it is recommended that a succinct aid policy document be formulated – one that mainly stays at the level of basic principles and defines the main procedures and corresponding roles and responsibilities for the provision, acceptance, coordination and management of foreign assistance. The policy should be concrete, but at the same time broad enough to encompass the entire development partner community. The current draft provides a good starting point.

In order to facilitate the actual implementation of the policy, it is recommended that a joint aid effectiveness action plan be formulated, which could combine localized Paris Declaration principles with operational targets regarding the provision, coordination and management of foreign assistance. The action plan would be a ‘living document’ that would be adjusted in line with changing realities on the ground and would progress towards more advanced targets. The action plan would define concrete steps government and development agencies commit to undertake, together with timelines and measurable targets, for example regarding the phasing out of (parallel) project implementation units and full integration of contract staff into the civil service structure.

Finally, this report makes a number of recommendations on the draft aid policy document presented during the DEPAC meeting in May 2009, including that the roles and responsibilities within the aid process should be further clarified; that the government should express its preference for an ‘aid mix’, instead of stating budget support as first priority; and that the government should reserve the right to refuse aid that is not aligned with its priorities.