Center for Global Development Brief, November Nancy Birdsall, Ayah Mahgoub, and William D. Savedoff (2010)

This article examines the new foreign aid movement of cash on delivery.

Development aid has often been criticized on the grounds of ineffectiveness and waste.  Recent books such as The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good by economist William Easterly and Dead Aid: Why Aid Is Not Working and How There Is A Better Way for Africa by economist Dambisa Moyo are indicative of this discontent.  Some think tanks such as the Center for Global Development have begun promoting the “cash on delivery” model as a way to circumvent some of the inefficiencies associated with foreign aid.  This model rests on five principles: payments for demonstrated outcomes, implementation by the recipient government without donor interference, third party progress verification, transparency, and complementarity with other aid programs.

Birdsall, Mahgoub, and Savedoff argue that “Giving governments the flexibility to design and implement policies and programs promotes country ownership and allows them to build their own capacity and make full use of local knowledge and experiences to innovate and learn.  Recipients can request technical assistance, ideas, and guidance from funders.  Such technical help, being demand-driven, is more likely to be used well” (3). 

One area in which cash on delivery aid would be useful is primary education.  Donors would pay $20 per assessed completer, i.e. a student in the final year of primary school who takes a standardized exam.  The recipient country would provide student and exam data which a third party would verify.  Beyond being useful to donors, this data would also help domestic agents determine which schools and policies are working.  The authors argue that this hands-off approach would incentivize recipient innovation and efficiency in meeting goals:

“In contrast to traditional education programs, COD Aid funds would give whole governments an incentive to tackle all kinds of constraints on educational progress, many of them outside the education system itself, whether that requires simplifying financial administration to disburse funds on time, assuring good transportation and reliable electricity to reach schools, or linking antipoverty programs to school attendance. It provides the government with room to involve the private sector and experiment with vouchers or new regulatory approaches. In contrast to most sector- and budget-support programs, a COD Aid agreement would increase transparency by linking funds to a single, easily understood, and credible indicator of real progress. The need to accurately measure primary completion would foster demand for the collection of accurate, comprehensive data on student achievement. The availability of the data would enable civil society to hold the government to account for providing good education; it would also provide better information for policymakers” (5).

Beyond primary education, the cash on delivery model could be used for any development goal that lends itself to measurable progress, such as secondary education attainment, immunization coverage, HIV/AIDS containment, running water access, and deforestation control.  Program designers should be cognizant, however, of the difficulty in measuring outcomes and therefore should select indicators after consultation with development experts.

The authors suggest that despite assumptions to the contrary, the cash on delivery model may be particularly effective where corruption is problematic.  They argue that “COD Aid can be more successful in the face of corruption than traditional aid because it is paid against verified progress while traditional aid disburses against documented expenditures regardless of progress” (6).  Additionally, cash on delivery aid flows would be more rather than less predictable.  While traditional aid flows are subject to domestic political considerations, “The variability of COD Aid payments is associated with factors that are more under the control of the recipient (i.e., policies that affect outcomes)” (6).  One legitimate criticism is that countries that do not make progress will not continue to receive cash on delivery aid.  The authors suggest, however, that it is important to reward success. 

The authors conclude that the cash on delivery model should not replace traditional aid, but is a useful new policy innovation that should be tested.  In particular, it holds promise for addressing some of the critiques of traditional aid.  They argue that “Despite its successes, foreign aid is subject to major critiques that it can be ineffective or even undermine development in recipient countries. COD Aid is an approach that could address these concerns by fully incorporating the principles of country ownership and paying for results. The simplicity of the approach—paying in proportion to progress that is independently verified—enhances its transparency and could contribute to a substantial improvement in accountability relationships among funders, recipients, and their respective constituencies. We do not pretend that COD Aid is a panacea for problems in the aid system but believe it holds enough promise to be worth trying, adapting, and assessing” (7).