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United Nations Development Programme (UNDP)

Human Development Report 2005 (Occasional Paper)

“The Cost of Poverty”: Transaction costs and the struggle to make aid work in the education sector in Tanzania

Kate Dyer
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United Nations Development Programme (UNDP)

SARPN acknowledges the UNDP website as the source of this document - www.undp.org
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Executive summary

This paper was written at the end of 2004 at a critical time in the development of the education sector in Tanzania and of rapid changes in the wider picture of government / development partner relations - characterised by rapid moves towards harmonisation, the development of a Joint Assistance Strategy for Tanzania, and ‘Mkukuta’ the first of the ‘second generation’ Poverty Reduction Strategies.

One of the most frequently quoted expectations of donor harmonisation is reduced transaction costs (TCs), as an early step towards increased aid effectiveness. This paper attempts to look at the different kinds of TC – administrative, tying and fiscal, to see how they play out through different funding instruments: projects, pooled fund support to the education sector, sector support, and what are their likely implications in the context of moves towards increased budget support.

It is argued that TCs do exist only as discreet units (missions, reports, audits etc) which can be cut down upon with consequent increases in efficiency. Rather they form the most visible part of a spectrum that should blend into sustainable partnership and commitment to doing what is necessary to eradicate poverty. In practice this is not the case. Despite dramatic improvements in the primary education sub-sector through the Primary Education Development Programme (PEDP), and very significant increases in donor funding, relationships between government and DPs have over the past few months been very poor. Acrimony, particularly over the release of funding by the pooled fund partners and reporting of it, have led to very unpredictable financial flows to district and school level, with damaging effects on the quality of education.

It is necessary to step back and look at the bigger picture of what is going on, including from a historical perspective. Reform of the education sector is only one of a whole range of reforms, covering public service, financial management, local government, civil service, legal sector and others. They are driven by an analysis that in themselves projects and sector level reforms in the past have not generated the changes that would eradicate poverty and are not likely to do so in the future. More fundamental structural change is required, as an end itself and to mitigate some of the risk of putting more money into Budget Support. All of this is to be supported by on-going high level dialogue to ensure that key decision makers are actively engaged. This, it is argued, may be expensive in the short term TCs, but the potential long term gains justify the cost.

To ensure that these gains in terms of aid effectiveness, government effectiveness and ultimately poverty eradication, this paper has highlighted a number of recommendations. It is central to appreciate that they have to be mutually supportive and proceed together. If DPs ‘harmonise’ without effective communication with government, for example, it can be constructed as donors ‘ganging up’. OECD DAC gives good advice about working in sector wide and more harmonised approaches. These are taken as given, and the following are additional points arising from observation of the education sector in Tanzania.



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