The next nine months provide an opportunity to put the economic foundations in place for better management of the mineral boom.

According to the latest numbers from Treasury, the economy is growing fast, including non-mineral sectors. PNG’s Treasury has revised its GDP growth forecast for 2011 from 8 per cent to a very strong 9.3 per cent. Non-mineral sectors are doing well (estimated to grow by 10.2 per cent), but this masks considerable variation. Construction is set to grow by 21 per cent and there is rapid growth of 16 per cent in the transport, storage and communication sectors. On the other hand, growth in agriculture is much more modest (at 4.1 per cent) and this should be something for the government to focus on, especially with respect to rural infrastructure, crop yields and making markets work more efficiently.

These recent growth numbers are part of a broader trend. The LNG project promises to double the size of the PNG economy: the project is an AU$15 billion investment. Treasury estimates it will generate AU$31 billion in revenue over the next few decades, thus creating an opportunity to significantly improve living standards in PNG. However, similar opportunities have been squandered in the past — Kutubu Oil in the 1990s and mineral windfalls in recent years are just two examples. Whether the current boom is a blessing or a curse depends on whether the right foundations are established now. Specifically, there are important opportunities to restore accountability, fix policies and put in place better legislation.

There is a significant opportunity for the O’Neill-Namah government to restore integrity, openness and accountability to PNG’s politics. This new government has returned some experienced and familiar faces to Cabinet: Sir Puka Temu as Minister for Agriculture, Bart Philemon as Minister for the Public Service and Sir Mekere Morauta as Minister for Public Enterprises. There are also some rising stars: Sam Basil as Minister for Planning and Jamie Maxton-Graham as Minister for Health.

Changes have been made in the civil service. There is a new Secretary for the Prime Minister and National Executive Council, and a new Secretary for Finance. An investigation has been announced into the Department of National Planning and the 125 million kina (US$56.5 million) Kokopo loan, with a task force that is starting to make arrests. A former Minister has fled to Australia. There have also been changes at the Independent Public Business Corporation with the appointment of a new board and managing director to get the house in order.

Addressing outstanding economic policy issues is another opportunity for the new government. First and foremost is the design of the Sovereign Wealth Fund to manage macroeconomic volatility, mitigate the impact of ‘Dutch Disease’ and invest in the nation’s future. The Fund will need to have secure governance arrangements and clear rules on the drawdown of funds. But there also needs to be concerted reforms to the budget to improve the quality of spending. Building capacity in the public sector is a tough task and can’t be done overnight, and PNG may need to think outside the public sector box to ensure that financial wealth is translated into real wealth.

The third opportunity is to complete some housekeeping on economic governance legislation. For example: the National Information and Communications Technology Act is about to be reviewed; the International Public Business Corporation Act will also need to be amended; an organic law will be needed for the Sovereign Wealth Fund; and the Public Finance Management Act could also be strengthened. Getting the bills ready for the November sitting of Parliament, and possibly another sitting before the elections, will be essential.

The O’Neill-Namah government has made an impressive start on reform. Yet it only has very limited time to rebuild the basic foundations of economic management, which will be needed as PNG continues to enjoy big resource revenues while facing pressing development needs. The next nine months will be an important and exciting opportunity to get the foundations right. If the O’Neill-Namah government can do this, then there is a real chance that the LNG boom could be a blessing rather than a curse.

Crowdsourced information can help to fix feedback loops and new technologies and apps are making this feasible.

I wanted to test out one of the most talked about platforms–Ushahidi. So before a recent trip to PNG I set up the FixMyRoad website using Crowdmap–a web-based version of Ushahidi that is relatively easy to set-up and configure. The settings are intuitive and after a bit of fiddling I got the basic functionality working and tested it out by uploading reports on the state of PNG’s roads from the press. While not ‘crowdsourcing’, this exercise was interesting in itself in building up a picture of where the road problems are in PNG.

Then, just before leaving for PNG we discovered that Abau, our destination, was flooded. I uploaded the report and wondered whether we would be able to make it down the Magi Highway from Port Moresby to Cape Rodney in Abau.

A week later we were in PNG and hired a 4WD vehicle for the drive down the Highway. It was tough going, but we finally made it to Abau.

I had not been able to get the FrontlineSMS plugin working on Crowdmap, so was unable to send in reports on the state of PNG roads via SMS. However, I was able to post a report via the web and even upload a video of a bogged down PMV.

The next step is to see if I can fix up an SMS-reporting plugin–any ideas on doing this would we welcome–and chat some more to NGOs in PNG about how this kind of platform can help with social accountability.

Tim Harford’s new book Adapt is essential reading for anyone interested in how to improve development aid.

In this TEDTalk, Tim worries about the prevalence of the ‘God complex’ among politicians, doctors and economists in a world where problems and their solutions are multifaceted and complex.

Tim is a big fan of adaptation through variation and selection, trial and error, to find solutions to complex problems. His thesis is that in order to get closer to solving things like global poverty, we need humility and a willingness to make mistakes — ‘good mistakes.’

This is not a new idea for aid policy, Bill Easterly, Esther Duflo and Owen Barder have all made similar arguments. Indeed, Tim mentions them prominently in his book.

Yet adaptation through ‘trial and error’ is an idea that big aid bureaucracies have struggled to come to terms with as they scale up development programs. In the long run though, the best aid agencies will be the ones that adapt fastest and most efficiently. And Tim’s book is packed with cautionary tales for those that don’t..

Saving lives is an important reason for giving development aid. In this excellent debate, Bill Easterly and Peter Singer discuss what people in rich countries can do to save lives. Peter argues that we have a moral responsibility to give more aid. Bill adds that we also have a moral responsibility to make sure that the NGOs and aid agencies that act on our behalf actually save lives.

It’s a myth that aid is static, there are some exciting changes taking place. What are the new innovations that are improving aid effectiveness in the 21st century aid?

As you read this blog post, keep at the back of your mind the determinants of aid effectiveness. (For more on this see a new discussion paper by Stephen Howes.)

• We can improve the quality of recipients by selecting on the basis of performance and results, and (trying) to improve governance.
• We can improve the quality of donors by reducing the knowledge burden and making donors more accountable.
• And we can also improve the interactions between donors and recipients.

Yet all three of these challenges are compounded by imperfect information, principal-agent and political economy problems. Giving aid isn’t easy!

This blog post provide examples of four innovations that are already happening in aid agencies, and two innovations from the private sector that are yet to take-off in the aid world. None of these are panacea, but all have the potential to improve aid effective.

Innovation 1 – Cash on delivery aid

Cash on Delivery is a new approach to results-based aid, proposed by the Center for Global Development.

Traditional programs can create unintended incentives for rent-seeking and problems of dependence. And, as we know, they often have disappointing impacts on development outcomes.

Cash on Delivery aid differs from traditional projects and budget support. It seeks to address these problems by linking payments to progress on specific outcomes. For example, a donor might sign a contract with a recipient that says that for every extra child completing school, the donor will pay $100. A third party is contracted to verify the number of children completing school. And based on this an aid payment is made.

The approach is appealing because it tackles some of the  imperfect information, principal-agent and  political economy problems associated with traditional aid. This is why UK and Germany are planning pilots of Cash on Delivery aid.

Innovation 2 – Independent Evaluation

With these kinds of pilots taking place and increased scrutiny of aid programs, a growing number of donors are making the move to independent evaluation, and using more rigorous methods.

When it comes to scaling up aid, we want to make sure that we avoid two mistakes: a ‘Type 1’ error occurs when we don’t scale up something that works, and and a ‘Type 2’ error when we scale up something that doesn’t work.

Organizations such as the Jameel Poverty Action Lab at MIT, and 3ie (an international initiative on impact evaluation) are driving better evaluation standards to help reduce mistakes.

Better techniques, such as rigorous impact evaluations with control groups, are part of the solution, but we also need to reduce institutional biases associated with internal-models of evaluation. Such models can lead to overly positive assessments, uneven rigor, and delayed publication.

This is why a growing number of donors are making evaluation more independent. The World Bank and ADB’s evaluators both report directly to their respective executive boards. And among the bilateral donors:

• Sweden already has an independent evaluator.
• The UK has established an Independent Commission on Aid Impact (Commissioners were appointed last week)
• The US has just released an independent evaluation policy.
• And Germany is also planning to set up an independent evaluation agency.

Innovation 3 – Selectivity

Aid agencies have a large knowledge burden – the challenges of operating in large number of countries and many sectors.

Specialization and decentralization are two ways to manage this, but in a context where administrative costs are under pressure there are limits to how far agencies can pursue this strategy.

Meanwhile, the number of aid projects has increased exponentially over the last couple of decades – compounding problems of knowledge burden and coordination.

This is why nearly all donors are choosing to be more selective in where they work, the sectors they engage in, and the number of projects that they manage.

• In 2009, the Canada announced that it would spend 80% of its bilateral aid money in 20 ‘countries of focus’ – chosen based on ‘their real needs, their capacity to benefit from aid, and their alignment with Canadian foreign policy priorities’.
• DFID is conducting reviews of the UK’s bilateral and multilateral aid programs, to narrow down the scope of engagement: fewer countries, fewer sectors in countries, and fewer and larger projects.
• And the European Commission is implementing a Code of Conduct on Division of Labour to reduce the proliferation of aid. This agreement also includes giving Commission funds to Member States to manage.

Innovation 4 – Aid Transparency

With disappointing progress in taking forward the aid management reforms agreed in the Paris Declaration there is a resurgence of interest in accountability. Better transparency is necessary for accountability and can also make coordination easier, in line with Paris Declaration goals.

The last couple of months have seen significant advances on the aid transparency agenda both internationally, and by individual donors.

The UK’s Department for International Development (DFID) last year announced their Aid Transparency Guarantee. This signals a move towards proactive disclosure, announcing that in future, detailed information about all new DFID projects and programs will be available online, and the information published will be “comprehensive, accessible, comparable, accurate and timely.”  The crucial thing here is that DFID acknowledges the importance of ensuring that aid information is published in ways that make it easily accessible and internationally comparable.

Meanwhile, 18 donors have so far signed up for the International Aid Transparency Initiative (IATI) – Australia being one of them – a further 15 countries having endorsed the initiative.

• Last month, the US government said that it expects to publish details of its aid program in line with the IATI standard.
• And the EU Foreign Affairs Council has agreed that member states would publish details of their aid in an internationally comparable format.
• Last week the UK became the first donor to meet the new IATI standard for aid transparency.

Some donors are taking transparency further by opening up the vaults to their vast databases.

The World Bank’s Open Initiative makes the World Development Indicators and other datasets freely available, and their Apps for Development competition is encouraging innovation to make this data even more accessible.

Although the main focus of this presentation is on innovations from established donors, we shouldn’t ignore that recipients are also doing things differently to promote transparency. There are some exciting lessons from Africa, including the geo-coding of aid data in Malawi.

Innovation 5 – Crowdsourcing

New innovations can come from aid bureaucracies, but many of innovations above have their origins outside of aid agencies – in think tanks, NGOs and the private sector. The final two innovations that I will discuss are examples from the private sector that have not yet been adopted by aid agencies. These are future opportunities.

Broken feedback loops from recipients to donors are a recognized problem for aid accountability. How do we know projects are being implemented and services reaching recipients? Crowdsourcing recipient feedback is one way to find out.

Ushahidi is a a non-profit tech company that specializes in developing free and open source software for information collection, visualizarion and interactive mapping. Ushahidi is a pioneer in crowdsourcing data from citizens to map out crises as they unfold. Citizens can send an SMS message or an email to provide feedback and the data is collated in a form that is accessible to broad audience.

This is also a potentially powerful tool for fixing feedback loops on service delivery. Imagine PNG schools being able to send an SMSmessage to confirm that Australian-fund textbooks have been delivered, and school kids in Australia being able to see this information visualised on a map.

Innovation 6 – Technical assistance

Technical assistance accounts for about a quarter of bilateral aid from DAC member countries, and almost half of Australia’s bilateral aid, yet the evidence of its impact is tenuous. There are oft-cited problems of high costs and disappointing results. Yet technical assistance is firmly embedded and likely to remain a key instrument of foreign aid for some time to come. Perhaps there are ideas from private sector that can help us to make it work better – specifically to make the market for technical experts work better.

For example, web-based marketplaces and workplaces, such as Elance, have transformed freelance services in the private sector, yet are not a key feature of the delivery of technical assistance.

Web-based solutions have several attracted features.

First, they directly tackle imperfect information on the quality experts by introducing a transparent feedback loop.

Secondly, virtual solutions can also reduce the amount of work that needs to be done on-site. (That’s bad news for hotels and airlines, but good news for bank balances and the environment.)

Thirdly, they can also solve some principle-agent problems by lowering transaction costs so that recipients can recruit and pay for results themselves, with donors playing an ‘no objection’ and co-funding role.

Conclusion

These are just some examples of the exciting innovations and opportunities for the aid world. In the 21^stcentury, the aid agencies that do best will be the ones who, experiment, adapt and evolve.

• Donors who collaborate with new partners to capture the benefits of information, networks and new technologies.
• Donors who experiment with new approaches to giving foreign aid – be it cash on delivery or smarter technical assistance.
• Donors who evaluate and scale up programs that work.

These will be the donors that deliver the best aid. The future of foreign aid beckons – are we ready?

Minister for Foreign Affairs (and International Development?)

As a former treasury economist I’m always delighted when reviews put numbers around their recommendations. It is good for transparency and brings greater clarity. There’s a lot in Australia’s new Aid Review report to think about and the panel have made a compelling case on how to spend an increasing aid budget aid wisely. This blog takes a look at some of the numbers in their plan.

How much extra aid?

The Aid Review forecasts that the aid program will increase from $4.3 billion in 2010-11 to $8.0 billion in 2015-16. This is less than our forecast of $8.6 billion and that of AusAID in the 2011-12 budget where the number quoted by Peter Baxter at the lock-up was $8.5 billion for 2015-16. This means that the allocations in the Aid Review’s report, discussed below, are on the conservative side, with perhaps an extra $500 million available for programming in 2015-16 compared to the Aid Review forecast.

Shining a light on global programs

By putting some numbers on how the global program is distributed to countries and regions, the Aid Review has helped to reframe the way AusAID thinks about it’s country allocations. The Aid Review shows that country programs are the dominant form of Australian aid in Indonesia and the Pacific, but that allocated global programs–including funding for the UN, multilateral development banks, and global fund–is a much larger share of country allocations in South Asia and Sub-Saharan Africa.

Suggesting indicative aid allocations

The Aid Review also puts numbers around its recommendations on where aid should be spent. It provides an expenditure framework for the aid program, built on a pragmatic approach to scaling up: more aid for countries that need it and use it well, and a choice between country and global programs based on Australia experience and expertise.

The Aid Review argues that the biggest increases in aid should go to South Pacific Microstates and Indonesia, and Sub-Saharan Africa and South Asia. In the case of the Microstates and Indonesia, these are countries where Australia has experience and expertise and the recommendation is to scale up bilateral aid programs. In the case of Sub-Saharan Africa and South Asia, these regions account for about two-thirds of the World’s poor so there is a strong case for giving more, yet the Aid Review is pragmatic in recommending that all of this scaling up should be through global programs. That means no further increase in country programs (bilateral aid) in Sub-Saharan Africa–this is a bold, yet practical recommendation, but it remains to be seen if the government will accept it.

While the Government has so far ducked the recommendation on aid allocations–noting that specific geographic allocations will be decided by the Government in the 2012-13 budget process–it has at least accepted that aid to Asia-Pacific, South Asia and Africa will be increased, bilateral aid to China and India will be phased out and any future increase in aid to Latin America and the Caribbean will be modest (with any increases to be provided through regional and global programs).

Improving allocative efficiency: A better budget process

The Aid Review also argues for better budget numbers. An important recommendation (number 25) from the Aid Review is that the Government should develop and implement a Cabinet-endorsed four-year strategy for the entire aid program, for policy and funding clarity. And it is a major achievement that the Government has agreed to develop a comprehensive aid policy framework, linked to a four-year budget strategy, which would be a rolling strategy.

This is good news for several reasons. The old approach of new spending initiatives, led to a layering of new programs on top of old ones and a fragmentation of aid–it was an inefficient, non-transparent way to allocate total aid and undermined scrutiny of the base program (see chart). The new approach will enable the government to make strategic choices across the entire aid program. It will also make aid more transparent and enable better scrutiny where money is going and why.

Improving administrative efficiency

Parts of the aid program, based on many accounts, are already very stretched. The Aid Review recommends that administrative costs will increase from $250 million in 2010-11 to $400 million in 2015-16: a 60% increase, but less than the overall increase in aid. That means there will also need to be productivity gains, which should come from economies of scale. Throughout the report, the Aid Review recommends ways to do this: it stresses the need to geographically focus the bilateral program (recommendation 14), make more use of multilaterals (recommendations 5 and 15) to select fewer sectors (recommendation 8), and to streamline processes and reduce paperwork’ (p29). So if the aid program can become more disciplined, then AusAID and other government departments won’t have to stretch so much.

Final thoughts

The Aid Review panel has done an excellent job. It’s recommendations are grounded in theoretical and empirical evidence and best practice among donor agencies. And it has provided a considerable body of analysis that policy-makers and aid officials will now need to chew over and digest. There is a lot to do, not least to flesh out the four-year strategy and budget, but the Aid Review’s solid analysis and recommendations gives confidence that aid can be doubled and spent well–it’s now up to the Minister and aid officials to deliver.

infoDev is a global technology and innovation-led development finance program of the World Bank and IFC. The new study, Knowledge Map of the Virtual Economy, finds that more than 100,000 people in countries such as China and India earn a living through online games and websites disseminating micro-tasks.

Jobs in the virtual economy include micro-tasks like categorizing products in online shops, moderating content posted to social media sites, or even playing online games on behalf of wealthier players who are too busy to tend to their characters themselves. The study estimates that the market for such gaming-for-hire services was worth $3 billion in 2009, and it suggests that with suitable mobile technologies even the least-developed countries could benefit from this emerging virtual economy.

“Developing countries’ roles in the digital world have been mostly limited to users and consumers, not producers. But today, a growing mesh of digital services is giving rise to a new layer of entrepreneurial opportunities with very low entry barriers,” said Valerie D’Costa, Program Manager of infoDev.

Tim Kelly, infoDev’s Lead ICT Policy Specialist, said, “Some of the poorest people in the world are already connected to digital networks through their mobile phones. The study shows that there are real earning opportunities in the virtual economy that will become accessible as mobile technology develops. This could significantly boost local economies and support further development of digital infrastructure in regions such as Africa and southeast Asia.”

While the virtual economy unlocks a plethora of business opportunities, it should be noted that not all these activities are viewed positively. According to the infoDev study, certain business ventures and services offered may actually detract from the experience of other Internet users. For example, harvesting and selling online gaming currencies or mass clicking “Like” on corporate Facebook pages can create an unfair environment where legitimate game play and user opinion loses value and is represented inaccurately.

“Entrepreneurs should focus on digital micro-work that benefits society. Examples include transcribing books, translating documents, and improving search-engine results,” said Dr. Vili Lehdonvirta, a researcher at Helsinki Institute for Information Technology and the main author of the study.

The study, funded by the United Kingdom’s Department for International Development, is available on infoDev’s website and in print. For more information, visit www.infodev.org.

Many public programs and operations by multilateral organisations include technical assistance to the direct beneficiaries of the program in addition to pure financing. However, there is no substantial body of studies that calculates the additional impact; in the sense of exclusively attributable to, of technical assistance on the outcome of interest of the program. We propose the use of multi-treatment impact evaluation method -propensity score combined with exact matching for dosage and double difference- for estimating technical assistance’s impact. We illustrate the technique for two potable water and sewerage programs where the direct beneficiaries are local governments, although the method is applicable for different types of programs and beneficiaries. The impact calculations reveal that technical assistance does matter as it has an impact over and above that of only financing. Given the small dollar value of technical assistance relative to the dollar value of transfers not only does technical assistance matter but it is a way of getting more for less. Thus technical assistance, in the examples studied, does matter.

The usual questions of external validity of this kind of impact evaluation apply, but it’s interesting to see how aid agencies might evaluate TA more effectively in future.