Norwegian aid management should be streamlined

Too much of Norway's aid goes to administration; a total of NOK 2.4 billion per year. Over the past twenty years, there have been major changes in the way Norwegian aid is used. Today, most aid is channeled through multilateral institutions and NGOs and not to national governments as before. Despite the fact that much of the management has been delegated, we still spend five per cent of the aid budget on our own administration. In addition, part of the aid budget is used for refugee spending in Norway, which is not administered by the State Department or Norad.

Norwegian aid subsidizes the Ministry of Foreign Affairs and Norwegian diplomacy. Almost 40% of UD's administration is paid for by aid. Although Norad manages about half of the aid, they receive only 18 percent of the administrative budget. The rest, 82 percent, goes to the State Department. Two-thirds of this goes to Norwegian embassies, because 30 foreign missions, including all in sub-Saharan Africa, are funded 100% by aid funds. In practice, aid funds thus subsidize a significant part of Norway's diplomatic presence in developing countries, which also includes tasks other than aid. It is not in line with the purpose of the aid, and in a review of Norwegian aid administration it is therefore particularly important to evaluate the embassies' costs.

The Ministry of Foreign Affairs feeds on Norad's capacity for good governance. In recent years, significant tasks and responsibilities have been transferred from the Ministry of Foreign Affairs to Norad, without a corresponding share of the operating funds being transferred to Norad. This means that Norad's capacity and competence are currently too weak compared to the directorate's ever-expanding mandate and responsibilities.

Good governance is crucial for results in Norwegian aid, and support among voters. Some aid efforts achieve far better results per penny than others. A competent management and administration with sufficient capacity is essential to ensure quality and effective achievement of objectives. That we use aid funds properly is more important to the results achieved than how much we spend on administration. Nevertheless: every penny spent on administration is one penny less for good purposes. This spending also deserves to be evaluated with a critical eye. Not least, prudent spending is crucial for the trust of aid among the population.

Cuts in UD's administration could free up funds to offset dramatic cuts from U.S. and other donors. A number of highly effective aid projects have suffered sudden funding gaps. A reduction in Norwegian aid's total administrative budget of one percentage point would free up over NOK 400 million. As an illustration, it corresponds to all of Norway's core support to UNICEF or UNDP.

Lack of transparency stands in the way of efficiency. While detailed information exists on the distribution of grant funds on the aid budget, there is only coarse-grained information on how the administrative funds are used. This makes it more difficult to follow the seams in spending, and stands in the way of a good debate about resource use in management. Here we should look to our neighbouring countries Sweden and the UK, which have far more transparency about the spending that goes into administration.

We therefore recommend the following:

1. Cut at least NOK 500 million in administrative budget for Norwegian aid and redistribute these into effective aid efforts. Even without significant changes in Norwegian aid, the administrative costs of foreign aid should be reduced to between five and four per cent. In the event of a substantial concentration of aid (fewer partners and fewer agreements), the budget can also be cut further.

2. Increase Norad's operating budget by 50 percent by moving funds from UD's budget. This amounts to around NOK two hundred million, will offset a bias in the current distribution of management assets, and will provide higher quality in the management of the bulk of Norwegian aid.

‍Introduce greater transparency about the administrative costs in aid management. The Ministry of Foreign Affairs should publish a methodology similar to what Sweden and the United Kingdom do, in order to calculate, highlight and justify the level of administrative costs.

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