Problem Statement and Purpose
Despite the proliferation of donor funding by the European Union (EU) and other donors for public sector programmes in South Africa, there are often tensions between the donor and the recipient country when developing Overseas Development Assistance (ODA) institutional arrangements. Currently, recipient countries bear heavy transaction costs due to different donors using distinct institutional arrangements. As a result, managing contrasting donor procedures and meeting different donor requirements takes up a large proportion of recipient countries’ administrative capacity. This situation presents both challenges and opportunities to policy makers (Riddell, 2008). The main challenge is that differing donor institutional arrangements have a heavy aid transaction cost for recipient countries. However, there is an opportunity to develop an innovative approach that can be used in other similar contexts to reduce aid transaction costs for both donors and recipients. Thus, it is critical to understand how to structure institutional arrangements in undertaking multi-stakeholder donor supported programmes. The study aims to explore how ODA institutional arrangements are developed in multi-stakeholder donor supported programmes. Transaction Cost Economics (TCE) was employed to shed light on why actors choose one institutional arrangement over another (Jobin, 2008) based on the transaction costs involved. Scant attention has been paid to assessing how transaction costs influence aid institutional arrangements (Paul and Vandeninden, 2012). This study aims to close this gap.
Methodology
Based on the conceptual framework identified in the literature review, this study adopted a qualitative research strategy to understand how institutional arrangements in multi-stakeholder ODA programmes are formed. A qualitative research strategy was appropriate for this research in that it assisted in exploring and unpacking the nuances surrounding the formation of institutional arrangements in a multi-stakeholder programme and in exploring donors’ influence thereon. This research followed a case study research design. This design was appropriate because it focuses on a single instance of a social phenomenon (Babbie, 2016). The target population of this study was middle to senior management personnel at the Ecosystem Development for Small Enterprises (EDSE), the National Treasury (NT) and the Department of Small Business Development (DSBD). Purposive sampling was employed to select the respondents. The research site was the EDSE Programme. This study utilised semi-structured interviews to collect the qualitative primary data from participants. After collecting the data, the interviews were transcribed verbatim. The verbatim transcribed interview transcripts were manually subjected to thematic analysis.
Findings
The main finding is that different donors require distinct institutional arrangements. This creates onerous accountability processes in multi-stakeholder institutional arrangements which increase aid transaction costs for recipient countries and undermine the prospects of aid effectiveness. It was also found that ODA institutional arrangements and their attendant rules and conditionalities are heavily influenced by donors with scant input by the SA government. Budget support programmes are the favoured form of ODA in South Africa, mainly because they entail fewer administrative burdens and transaction costs as the funds are deposited directly into the respective departments’ fiscal budgets
Proposals
In order to reduce excessive ODA administrative burdens and transaction costs, the South African government should consider crafting an overarching ODA Act to govern ODA institutional arrangements. This would go a long way towards bringing certainty to the regulatory aspects of ODA and would likely reduce aid transaction costs. Similarly, to reduce ODA transaction costs, the National Treasury’s IDC Unit will be critical in ensuring harmonisation of ODA institutional arrangements.
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