EFFECTIVENESS OF OFFICIAL DEVELOPMENT ASSISTANCE IN RURAL DEVELOPMENT

1. EFFECTIVENESS OF OFFICIAL DEVELOPMENT ASSISTANCE IN RURAL DEVELOPMENT 1991-2002

2. PURPOSE • Studying current ODA policies and regulations • Determining accuracy of ODA information; • Studying ODA contributions to rural development • Identifying strengths and weaknesses in the above framework • Proposing new policy recommendations

3. TERMINOLOGICAL CONCEPTS • ”POVERTY” shall be reduced by facilitating ”GROWTH”. • ”RURAL” – aimag centers • Reasons: • The highest level of poverty is in aimag centers – 45% • Living standard of total aimag population will be improved by developing aimag centers • They are focal points for delivering social services, including health and education, to rural people • There were many researches and policy documents on detailed socio-economic issues below aimag level, which were directed to herdsmen and livestock production

4. RESEARCH FRAMEWORK • Policies and regulations – at national level • Information- at international, national and some aimag levels • Implementation and utilization – in 7 rural aimags: • Uvurkhangai • Bayankhongor • Khentii • Dornod • Selenge • Khovd • Zavkhan

5. Government ODA Donor Rural ODA beneficiaries RESEARCH METHODOLOGY • Getting information from primary sources • Personal interview and discussion • Questionnaire • Studying secondary sources • Documents • Internet news • Other sources

6. PROBLEMS FACED DURING THE RESEARCH • Information ownership • Bureaucracy • Negligent attitude not to attach importance to the research • Common self-seeking responses of civil servants • Ineffective growth indicators for measuring rural development • Number of taxpayers • Tax income • Budget subsidy • GDP per capita etc.

7. ODA IN MONGOLIA • 1991-2002 - 2.5 billion USD • ODA/GDP= 21.7% • (>10% highly dependent on assistance) • (Mongolia was ranked in the 4th among the world countries)

9. ODA DEPENDENCY

10. ODA STRUCTURE

11. EFFECTS OF ODA EQUALS TO 1% OF GDP • 2,2-3,7% growth of GDP per capita • 0,5 % increase in GDP growth • 1,9 % increase in investment • 1 % reduction in poverty • 1 % reduction in infant mortality

12. Growth of GDP per capita, if utilized ODA effectively 5000 If the growth 4500 was 1 % 4000 3500 3000 If the growth US $ was 2.2 % 2500 2000 1500 If the growth 1000 was 3.7% 500 0 Actual 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

14. EFFECTS OF ODA ON INVESTMENT 1000 900 Actual investment at 1995 price 800 700 In case if ODA/GDP 600 ratio was 1:1 million US $ 500 400 In case if ODA/GDP ratio was 1:2.2 300 200 In case if ODA/GDP 100 ratio was 1:3.7 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

16. SUCCESSFUL ACHIEVEMENTS • Successfully overcame transitional crises (...especially power supply, health, education, pension, welfare etc.) • Founded bases of market economy (implemented major reforms and restructuring) • Established economic system dominated by private sector • Increased school attendance

17. ODA POLICY AND REGULATION DOCUMENTS • Law on foreign aid regulations – 2003 • Procedure for regulating official development assistance that the Government of Mongolia receives from foreign countries and international organizations– Government resolution No. 93 - 1999 • Procedure on Foreign Aid Coordination Council and its rules– Government resolution No. 152 - 2000 • Law on international treaties

19. LOAN REGULATION - TODAY Donor VII

20. GRANT AID REGULATION

21. Basic legal requirements • Shall be closely linked with medium-term development strategy, long term strategy and state budget investment plans; • Shallregard common interests of the country; • Shallhave concessional terms if it's a loan; • Shall have low total costs of consultancy service; • Shall reflect production and repair costs in the technical and economic terms; technological, socioeconomic and environmental requirements; and loan efficiency calculations, according to relevant legal acts; • A project loan shall have basic requirements that total domestic funding shall include domestic tax relief and exemption as well as costs of domestically supplied products and services according to the contract terms.

22. Requirement -1 Shall be closely linked with medium-term development strategy, long term strategy and state budget investment plans; Reality Priorites of long and medium term development policies are indefinite;instead, cover and list all sectors and spheres of socio-economic development;it’s not cleary whether prioritised particular issues; Insufficient linkage between budget framework statement (investment programme) and ODA.They relate each other only in case if some large program and project objects covered by once approved ODA had to be eliminated from budget framework statement. Linked fairly well with infrasturcture and social welfare objectives of the government action plans of the last 2-3 governments Comparison between requirement and actual implementation - 1

23. Requirement-2 Shall regard common national interests of the country Reality Generally regarded. But: Looked through a window of budget -gave priority to filling budget gaps and fullfilling loan terms; High probability to approve politisized, economically inefficient, well-lobbied projects and programs, since all of them considered to regard common national interests from social sides. Comparison between requirement and actual implementation - 2

24. Requirement-3 Shallhave concessional terms if it's a loan; Requirement-4 Shall have low costconsultancy service. Reality -3 Concessional Reality -4 Cost of consultancy service is high – 25-63% (as for audited UNDP projects) Comparison between requirement and actual implementation - 3

25. Requirement - 5 Shall reflect production and repair costs in the technical and economic terms; technological, socioeconomic and environmental requirements; and loan efficiency calculations, according to relevant legal acts Reality -5 Don’t carry out project technical and economic feasibilty studies themselves and don’t analyse and make country-specific adjustments against what donors have done Don’t calculate production and repair costs realistically, and don’t utilize equipments fully due to expensive and scarce supply of spare parts and auxiliary materials Implementation of economic and environmental requirements are barely legitimate, therefore, economically inefficient loan projects are being implemented. Comparison between requirement and actual implementation - 4

26. Requirement-6 A project loan shall have basic requirements that total domestic funding shall include domestic tax relief and exemption as well as costs of domestically supplied products and services according to the contract terms Reality-6 Domestic source of funds have been reflected in budgets in recent years; Tax relief and expemtion measures have been taken. Comparison between requirement and actual implementation - 5

27. SUCCESSES AND POSITIVE TRENDS IN THE FRAMEWORK OF REGULATIONS • Got own legislation • Loans have been discussed and resolved through one window • Proposals have been made to donors according to directions of their assistance • Started to undertake sectoral and territorial coordination • Sectoral ministries started make attempts to coordinate their ODA proposals with relevant donors

28. ODA COORDINATION CENTER - MOFE • Links with directions of donor assistance • Doesn’t carry out realistic analyses in project economic feasibility estimates – but it’s required by law • Too optimistic assumption • Need political resolution • Overemphasis on social efficiency • Indefinite indicators to measure efficiency • Lack of human resource and system to make analyses • FACC dicusses proposals – though this structure is not legitimate – but members are led by their interests to take more for their sectors • Information database – incomplete

29. SECTORAL MINISTRIES • Project processing – mostly done by donors’ side –ministries don’t have such capacity • Obsolete mentality – to take certain parts by wanting more – sends list of wishes to the MOFE • Private sector support policies don’t find reflections in ODA • Communicate with donors separately on their own channels, especially in terms of technical assistance • Low capacity and stability of profesional employees

30. INFORMATION • Information available on loans started to be utilized. • Incomplete grant aid information • Information available to the public: • Only quantitive amounts received; • Only contract signing ceremonies of received projects or tape cutting ceremonies for imported goods, machineries and equipments – mostly with political background images- appear well to the public through media. • Little information on implementation and follow-up activities at all levels.

31. ACTUAL CONTROLS Cabinet Ministries Implementing agency Users

32. PROBLEMS THAT CAUSE TROUBLE TO DONORS • Don’t keep promises • Don’t make timely finances • Don’t take preparation measures • Poor project processing – send a list of wishes • Don't care project outcomes, instead, put more importance on training, facilities and study trips. • Many bureacratic stages of decision making -basically, all issues are resolved by reaching the top level.

33. ODA- IN RURAL DEVELOPMENT OUTCOME

34. ODA – RURAL (million US $)

35. ODA utilized in rural area,by main sectors

36. ODA AWARENESS OF RURAL PEOPLE • Aids come down by ”upper” decision making • One or two sack of flour or rice • Grant aid – humanitarian aid • Aid beneficiaries: • Public administration officers • Soum, bagh and khoroo governors and their close people

37. How ODA affected improvement of living standards? • 80% of aimag administration officers responded – ”WELL” • 10% of businessmen responded- “WELL” • Local residents and ordinary citizens responded – ”DON’T KNOW”, ”NO DIFFERENCE”

38. 10 projects most popular among rural people • Sustainable livelihoods project(WB) • Gobi initiative project (US) • Regional development programme and other projects (World vision) • Education and information projects (Soros Foundation) • Reproductive health projects (FRG) • Grassroots (Japan) • Health development programme I & II (ADB) • Local town public utility development project(ADB) • Child education projects (Save the Children, UK) • Agricultural sector development programme (ADB)

39. How do you evaluate contributions of foreign aid projects implemented in your aimag?

41. 1-2% Govern-ment Commercial bank Interest rate - 36-42% + many references+ estimates+guarantee+pledge ODA for private sector Loan interest Term From donors 20-30 years Multiple stages Rural businessmen 1 year

42. ODA in rural infrastructure(+) • Over 30 % of total ODA • Over 40 % of ODA utilized in rural area • Government priority for the recent 10 years Outcomes: • Overcame power supply crises and improved smooth operation of power supply • Improved roads • Improved telephone and mobile communication • Increased sources of renewable energy • Internet information and communication reached aimag level completely

43. ODA in rural infrastructure

44. ODA in rural infrastructure(-) • Economic efficiency (+) (-) Example: • Dornod power station – 20% of capacity, subsidy Dulaan khaan power station – subsidy • Utilization (-) • Repair and maintenance (-) • Repair and maintenance budget (-) • Instable professional personnel • Low salary – works for a project • Improper management system • Politics • A good professional becomes chief or the project loses a good professional • No systematic policy-based training

46. ODA in rural social sector • 15 % of total ODA • Human resource development – 9% • Health – 4 % • Social welfare – 2% • 19% of total rural ODA • Human resource development - 14 % • Health and social welfare - 5 % • Ways: • Through government organizations • Directly from donors • Through humanitarian organizations • Through NGOs • Through volunteers

47. ODA in rural education (+) • School material bases (+) • Dormitory conditions (+) • Curriculum (+) • Wide range of training (+) Outcome: • School attendance (+)

48. ODA in rural health(+) • Improved supply of diagnostic equipments and materials • Large number of training • Changes in first medical aid service system Outcomes: • Reduction in maternal mortality • Reduction in infant mortality • Improvements in other indicators

49. ODA utilization in rural social sector • Utilization of equipments (-) • Too expensive- kept unoperated in fear of breakdown • Irrational choice of equipments • Insufficient use under designated purpose • Expensive and scarce spare parts and auxiliary materials • Instable trained personnel • Low salary – project • Unfavourable working conditions • No promotional motivation • Those who learned foreign languages go abroad • Misuse of equipments for other purposes • Outcomes continued (-) • Upper management don’t attach importance or understand. For example: informatiion network – aimag administration • Ambition • Politisization • Personal interests

50. ODA- Actual situation of rural social sector (-) • Bureaucracy - ethics • Management – as old as usual • Inefficient wasteful system • Report-oriented, but not outcome-oriented, activities • Poor human resource management • A good doctor becomes a chief executive – Òhereby, • Loses a good doctor • Suffers management of the organization – non-professional manager • Increased number of training and workshop - outcome (-) • Work absenteeism • Training and workshop – income source for certain group of people • Attitude of social sector officers • Aids must come and they come as usual • Don’t have mentality that the aid is designed for their clients