Main Findings and Recommendations

See also Austria's aid-at-a-glance

Overall framework and new orientations

Major policy and organisational reforms

Austrian development policy has undergone major changes during the last few years. The aid administration has been restructured and a medium-term Official Development Assistance (ODA) target to achieve the 2002 Barcelona Summit commitment has been set. In 2002, the new Development Co-operation Act was adopted (amended in 2003), replacing the law on development co operation from 1974. Together with the Three-Year Programme 2004-06, these two documents provide good guidance for Austria’s new policy orientations, its main objectives and principles.

Apart from earlier institutional reforms [e.g. in April 2000 responsibility for co operation with Eastern Europe was shifted from the Federal Chancellery to the Ministry of Foreign Affairs (MFA), Section VII for Development Co operation] Austria’s aid architecture has substantially been changed on the basis of the new law. Since the beginning of 2004, Austria joined those Development Assistance Committee (DAC) members where the MFA is responsible for aid policies and overall co-ordination, with a separate agency, the Austrian Development Agency (ADA), acting as the intermediary executing agent for the bilateral programme. The MFA/Section VII’s role as the focal point for development strategy and policy leadership within the Austrian aid system is expected to be strengthened by the foundation of ADA which takes over the operational part of the bilateral aid system. To be able to play a more proactive role, the MFA needs strong strategic policy formulation and co-ordinating capacity. One of the main reasons for the reorganisation is the anticipated increase of ODA. The currently projected 2004 expenditure of EUR 573 million will have to rise by EUR 222 million, or about 40%, in 2006 to meet the Barcelona ODA commitment of 0.33% of gross national income (GNI).

Despite being the focal point for development co operation, the MFA’s share in total ODA is only 22%. This is primarily due to the weight of those items – particularly debt relief and student costs – that are essentially outside federal government control. It does not reflect a lack of authority in the MFA over programmable aid activities, but rather the relatively small share of these core activities within the Austrian aid effort.

The reform process has not led to a reduced number of actors in the Austrian aid system. Apart from the MFA, seven other federal ministries are involved to varying degrees in development co operation spending or policy decisions. Furthermore, Austrian provinces and some communities fund ODA projects. As for implementation, most of these actors work together with Austrian non-governmental organisations (NGOs), business enterprises, international organisations etc. It is the MFA’s mandate to ensure a consistent aid programme for which the Three-Year Programme serves as the instrument for orientation and communication at the national and international level. Furthermore, country strategies aligned with partner countries’ national strategies should be used as a frame of reference for all actors of Austrian development co operation. The challenge will be to ensure a clear division of labour between the different actors so that new policies are carried from theory to practice and that the high number of relatively small projects is reduced, well aligned to partner country strategies and co ordinated with other donors.

Private sector and development has become a new focus of Austrian development co operation, the intention being to involve Austrian firms more actively in the development of the private sector in partner countries. While Austrian firms are already engaged in South East Europe (SEE) to a considerable extent, their response to the new focus in partner countries of the South has been very limited to date. Austria should therefore carefully consider the scope of, and incentives needed for, engaging Austrian private firms in public-private partnership agreements in the South. Austria should continue its efforts to support private sector and development activities that maintain a clear focus on the economic development and welfare of recipient countries.

Geographically, Austria has decided to give enhanced attention to its co operation with Eastern Europe. Historical, economic, social, and cultural links with this region are stronger as compared to partner countries in the South. In the selection of partner countries in Eastern Europe Austria does not only consider development issues but also foreign and security policy as well as economic interests. As these policy areas reflect different objectives, Austria should clarify how it “protects” development co operation against use inconsistent with the purpose of aid, that is, the development of the partner country. The issue of how to situate development co operation in relation to economic, foreign and security policy is of interest to all DAC members.

Poverty reduction and the MDGs – from commitment to practice

In the new Development Co operation Act combating poverty in developing countries is anchored as one of the three main objectives of Austrian development co operation. The Three Year Programme 2004 2006 includes a general commitment to the Millennium Development Goals (MDGs). In contrast to these clear policy statements, there is still a lack of programming and implementation of the commitments. Poverty reduction is not yet fully mainstreamed into all projects and programmes. There is no dedicated focal point for poverty reduction in the Austrian development co operation system equipped with sufficient resources and authority to be able to effectively propel action, institutional change and learning. Austrian co operation would benefit from spelling out precisely how Austria intends to make practical contributions to meeting the MDGs. The MDG targets and indicators could be used to measure results and impact of Austrian development co operation.

Recommendations

• Austria points out that while development co operation is part of foreign policy, it remains a distinct policy area. It would be useful to define the relations between development policy and other policies of national interest.
• The reform of Austrian development co operation is still ongoing. The policies and strategic lines stated in the new Development Co-operation Act and the Three-Year Programme 2004-2006 have to be further operationalised by all actors of the Austrian aid system. A clear division of labour, especially between the MFA and ADA, has to be ensured.
• To promote consistency within Austrian development co operation, the Three-Year Programme and country strategies should expand their coverage to all Austrian ODA relevant activities. Austria should also consider developing a formalised system to allow the MFA to co-ordinate effectively those activities not in its direct responsibility.
• The stated policy commitment to poverty reduction and the MDGs needs to be made operational and be reflected in the allocation of resources. To mainstream poverty reduction into all projects and programmes, strong staff capacity is needed. Measuring the results of Austrian activities and their impact in terms of poverty reduction and contribution to the MDGs should receive close attention.

Aid volume and distribution

The challenge of effectively implementing future ODA growth

Austria’s ODA fell from USD 520 million, or 0.26% of GNI, in 2002 to USD 505 million or 0.20% of GNI in 2003. The fall resulted from short-term factors, including the postponement of some bilateral debt forgiveness agreements and unusually large repayments of earlier ODA loans. This demonstrates a striking feature of the Austrian aid programme, the high share of debt relief and the low share of other bilateral aid. 2003 was a low point for ODA flows. Substantial increases are needed for 2004 and beyond so that Austria can achieve its commitment at the 2002 Barcelona Summit to raise ODA to 0.33% of GNI by 2006. However, the amount of debt relief, which has been a significant factor in recent ODA growth, is likely to decline after 2006. In order to avoid a sharp drop in ODA, it is Austria’s intention to increase its programmable aid, which will require a substantial expansion in the capacity of the MFA/ADA. A consistent strategy for fulfilling the commitments is needed and a multi-year predictable allocation path is recommended. Ideally, the funding envelope should be fixed for the entire Three-Year Programme. Further, the effective use of ODA increases will prove challenging, given the shortage of staff resources and limited use of new funding modalities.

Concentration should be enhanced

In raising the level of its bilateral programme, Austria should sharpen its focus on priority countries. At the moment, the list of top recipients is dominated by countries receiving debt relief and by the largest source countries for refugees and privately financed students in Austria. Since the last Peer Review, no further reduction of the number of partner countries has taken place as recommended. Today, Austrian development co operation (MFA/ADA) works together with 20 partner countries in the South (plus four special programme recipients) and 19 partner countries in the East. Due to the high number of partner countries and the small share of Austrian aid administered by the MFA/ADA, the amount of ODA received by each partner country can be extremely low.

Recommendations

• To fulfil its ODA commitments announced at the Barcelona Summit in 2002, Austria will require strong political support and a consistent strategy, including an explicit growth path.
• The required increase in programmable aid necessitates a substantial expansion of management and administrative capacity. A multi-year allocation path is needed to reinforce the predictability of Austrian aid and to bring it more in line with the programming needs of partner countries.
• Further concentration of Austria’s aid programme would help achieve greater efficiency and effectiveness by creating a critical mass and allowing bigger sectorally-based programmes.

Policy coherence for development

On balance, the ground has been prepared for effective policy coherence work. Compared with other OECD member countries, Austria appears to stand midfield as far as its approach to policy coherence is concerned. The legal, programmatic and institutional basis for enhancing policy coherence for development has considerably improved in Austria in the last few years. By including a coherence clause, the new Development Co-operation Act provides an explicit legal basis for efforts to improve policy coherence for development. While every minister is obliged to act accordingly, it is up to the MFA to monitor and ensure compliance since the responsibility for enforcing the Act rests with the MFA. The Three-Year Programme is not just an internal document of the MFA; rather the MFA draws it up in consultation with the Ministry of Finance, annually submits it to the Council of Ministers and communicates it to the Austrian parliament for information. However, there is no requirement as in some other OECD member countries to report to parliament on policy coherence work.

Co-ordination largely takes place below the level of the Council of Ministers by means of informal contacts between Section VII and other sections of the MFA or other government departments. In order to intensify current inter-ministerial co ordination for the sake of greater policy coherence, it is planned to use additional co ordination fora such as the Private Sector and Development Platform and the Austrian Council for Sustainable Development. The MFA lacks staff and analytical capacity to deal with coherence issues in a systematic way.

According to both the MFA and NGOs, there is currently no intense debate in Austria on "hot" coherence issues. Yet there are a number of subjects that not only reveal incoherence but require attention with a view to either avoiding possible incoherencies or developing a more pro-active role for development co operation, e.g. the Common Agricultural Policy (CAP) of the European Union (EU), and trade in textiles and clothing. Austrian NGOs have not taken the policy coherence clause included in the Development Co operation Act as a point of reference and challenge to thoroughly analyse and discuss the impact of other policies on developing countries and poverty reduction with a view to sensitising the government and the public.

Recommendations

• In order to monitor and ensure policy coherence for development, the MFA will need (i) a detailed strategy or policy framework (e.g. for the MDGs and poverty reduction) from which it can gauge the development impact of other policies, (ii) the means to engage analytical capacity, and (iii) the staff to initiate and organise effective coherence work.
• The Three-Year Programme should include a chapter on policy coherence specifying the areas where the MFA/Section VII wants to achieve progress in the short and medium-term (coherence agenda).
• The Federal Ministry of Agriculture, Forestry, Environment and Water Management could be a special partner for the MFA in coherence work because of its lead role in Austria's Strategy for Sustainable Development and its responsibility for agriculture as a major area for coherence concerns.
• Coherence work requires public awareness building and Austrian NGOs can play a proactive role in drawing attention to policies which might be incoherent with development co operation objectives.

Aid management and implementation

The Austrian Development Agency and its Co-ordination Offices

The main motives for the recent reform of the Austrian aid system and especially the creation of ADA were to (i) provide an adequate structure for effective and efficient management of increased aid volume, (ii) enhance co operation with the EU including opening opportunities to tender for national execution of European Community (EC) aid, and (iii) promote private sector and development activities to help achieve the goals of poverty reduction and economic growth. Created in January 2004, ADA is a non-profit, limited liability company, owned by the federal government of Austria, represented by the MFA.

On the operational side, ADA is expected to increase implementation capacity, to ensure timely reaction to partner countries’ demands and better co ordination in the field. However, the actual implementation of programmes and projects ADA contracts mainly to a broad spectrum of NGOs and private firms. Since ADA is still at an early stage the full impact of its creation is not clear yet. As far as can be seen up to now, it holds considerable potential for improved administration and co ordination of Austrian development co operation.

ADA headquarters receives a great deal of support from its Co ordination Offices in the field. Before the reform process, staff of the Co-ordination Offices were employed by a private consultancy. The Co-ordination Offices are integrated into Austria’s diplomatic structure, representing Austrian development co operation. They are responsible for managing the activities of the development co operation programme of the MFA/ADA in the respective country or region whereas the activities financed by other Austrian ministries do not fall under their responsibility. Adequate delegation of authority to and enhanced capacities of the Offices are needed to ensure aid effectiveness.

Personnel policies (including for the Co ordination Offices and local staff) need to be updated to meet the requirements of a growing and increasingly professional bilateral aid programme. At present, policies for staff training and career development are not yet established. Staff awareness in certain areas is seen as “satisfactory” or “rudimentary” by some Austrian officials, little expertise exists for new aid modalities [budget support and sector wide approaches (SWAps)]. In the light of Austria’s intention to substantially increase development co operation with SEE, ADA and the Co-ordination Offices will need adequate staffing and skills.

Implementation – high share of NGOs and small projects

NGOs have always played a major role in Austrian development co operation: some 50% of the bilateral aid programme of the MFA/ADA is implemented through Austrian NGOs, over 20% is implemented by Austrian business enterprises. Austrian NGOs are contractors and development partners of the Austrian government (on a co financing basis), and at the same time they play an advocacy role, which could lead to a conflict of interest.

Austrian development co operation can be further characterised by its fragmentation in numerous small projects, which may restrict their impact on macro policy reforms and the MDGs. Austria’s support to local civil society is appreciated by partner countries, which may be seen as an Austrian comparative advantage. New instruments have been developed for support of NGOs – important in Austria’s aid delivery – which should permit greater alignment to partner country strategies while respecting NGO roles, for example in advocacy. In line with the principles of ownership and partnership, Austria should increase the share of projects which are administered and implemented directly by local partners.

Aside from its focus on smaller, locally oriented projects, Austria also seeks to support macro policies. The support of such policies might, however, make different aid instruments necessary such as capacity development of partner governments and civil society. In this context, Austria might consider developing orientations for the support of capacity development.

Austria participates in the financing of some SWAps and it plans to increase support to SWAps in the future. Austria does not yet provide direct budget support to any partner country. Its position in relation to this modality is ambiguous. The MFA should take the lead in forming a clear position on participation in programme-based co operation and joint financing arrangements (such as pooled funding, budget support). It will be necessary to study carefully the pros and cons related to possible shifts based on an analysis of Austria's comparative advantage.

Donor co-ordination, harmonisation and alignment – reinforce efforts

Austria is still in an early stage of harmonisation and alignment (H&A). At international level, Austria participates in several fora on H&A. At headquarters level, aid effectiveness and harmonisation items are addressed by an internal work group. Feedback on the Rome Declaration and concerning ongoing discussions at DAC and EC level took place with the field offices and need to be continued. To improve the communication system on H&A, Austria has set up two focal points in the MFA and ADA. Austria has started to draft an action plan on H&A for the Austrian aid system which is due to be finalised during the second half of 2004. Up to now, explicit alignment of Austrian support to national strategies has taken place in very few countries. As far as capacities permit, staff of the Co ordination Offices participate in policy dialogue groups or round tables. Given that Austria’s main experience stems from projects at local level, the Co ordination Offices should give higher priority to bottom up approaches by bringing experiences from the “ground” to the policy level, especially in meetings to define sector strategies and donor co-ordination.

Procurement, project management and evaluation – systematic approach needed

The Austrian Advisory Board for Development Policy has made repeated recommendations that more attention should be paid to competitive tendering, and the Three-Year Programme 2004-2006 includes a commitment to improvement in this area. However, in SEE particularly the criteria for making a decision between direct procurement from NGOs and competitive tendering do not seem to be very clear except for projects with an emphasis on investment (e.g. in the water sector). It is important to ensure a balance between prioritising locally competent actors and efficient, objective and transparent procurement practices, also when NGOs are selected.

Austria does not systematically use the project cycle approach to organise management of the different phases in the life cycle of projects. Adoption of such a model would facilitate a more systematic approach to project management as well as introduce some important quality assurance methods currently not used in the Austrian project management system.

Evaluation is regarded as an integral part of the life cycle of all programmes and projects. Since the reform process, responsibility for evaluations is shared between the MFA and ADA. The previous organisational independence of the evaluation function from decisions on policies, programmes and projects – set as a standard by the DAC Guidelines on Evaluation – has been given up. In the case of the MFA, the evaluation unit could report to the head of Section VII and in ADA to either the Managing Director or the Board of Directors.

There is no complete list of evaluations available in the MFA and ADA, and no annual or periodic reports providing a synthesis of the main findings and lessons learnt of evaluations. It is hard to judge how well the quality standards set in the Austrian Guidelines and the Manual on the Practice of Evaluation are met by the ADA desks, Co ordination Offices and implementing agencies. The results of evaluations are shared and discussed both in the partner countries and at headquarters level, but the extent of systematic feedback from the evaluation process to policy-making is unclear.

Recommendations

• Personnel policies for the MFA, ADA headquarters and Co ordination Offices need to be updated to meet the requirements of a growing and increasingly professional bilateral aid programme. This includes a systematic approach to staff development. Specialist skills are needed according to Austria’s main development objectives and in the area of co operation with Eastern Europe.
• Austria could benefit from a reflection on the role of NGOs as contractors versus development partners (on a co-financing basis) versus advocacy partners, to address possible conflicts of interest issues that may exist under current arrangements. This should be reflected in the current deliberations of the MFA/ADA on their policy towards NGOs.
• Austria is encouraged to take an active role in supporting the development and implementation of PRSPs and other national frameworks. The MFA should carefully consider whether and to what extent Austria, as a small donor with a particular profile in the support of NGOs and target groups on the ground, should redirect part of its country allocations to programme and budget aid. In particular cases delegated co operation may constitute an appropriate response.
• Austria will have to reinforce its efforts in H&A in particular by finalising its plan of action, taking into account the experience of other donors and implementing efforts in the partner countries. This implies an increased communication on H&A between headquarters and the Co ordination Offices as well as with NGOs. Dialogue and consultation with partner governments needs to be strengthened and practical steps to harmonise and align all Austrian support (including NGOs) to partner country national strategies and systems should be increased.
• Logical Framework Approach and Project Cycle Management should be used systematically in all projects. Clearer criteria for making a decision between direct procurement from NGOs and competitive tendering are needed.
• Regarding evaluation it is important (i) to ensure the organisational independence of the MFA’s and ADA’s evaluation units, (ii) to conduct more meta-evaluations to distil lessons learnt, (iii) to properly monitor the implementation of evaluation recommendations, and (iv) to continue establishing multi-annual work programmes for strategic evaluations. With regard to monitoring, the objectives of country and sector strategies should be specified in such a way that progress towards the intended outcome can be measured.

Visit the OECD country web site for Austria.