Review of the Development Co-operation Policies and Programmes of the Netherlands

The Netherlands (2011) DAC Peer Review will be published 10 November 2011 See also the Netherlands' Aid-at-a-Glance

Overall framework and new orientations

A tradition of leadership and commitment to performance

The Netherlands is viewed within the international donor community as a front runner with regard to its ability to adapt to new challenges and to test innovative operational approaches. Since the early 1990s, the Netherlands has been a leading player in consistently promoting poverty reduction, with a particular focus on the quality of aid and the international aid effectiveness agenda as now contained in the 2005 Paris Declaration on Aid Effectiveness. The Netherlands has also been a major source of influence on the growing international consensus on the importance of policy coherence for development. With a target for Official Development Assistance (ODA) of 0.8% of Gross National Income (GNI), the Netherlands is among the most generous donors within the DAC.

The Netherlands should be commended for its work to address the recommendations of the 2001 DAC Peer Review. The review identified as key issues the relationship between the headquarters of the Ministry of Foreign Affairs (MFA) and embassies, and the adequacy of human resources. The Netherlands has addressed the DAC recommendations related to these and other issues by: i) developing a strategic planning and monitoring system for bilateral aid; ii) improving communications between headquarters and embassies; iii) strengthening the ministry’s capacity through additional posts and expertise; iv) reducing the number of priority partner countries; v) reforming the NGO cofinancing system; and vi) establishing a dedicated policy coherence unit.

Some areas, however, merit further attention. For example, the planning and monitoring system may need further adjustments and ensuring that embassies have the appropriate delegation of authority and the right human resource skills and capacity to fulfil the ambitious Dutch policy agenda at the country level is a continuing challenge. This DAC Peer Review explores progress achieved and highlights new issues.

The current vision of Dutch development policy

The Netherlands’ development policy is formulated in Mutual interests, mutual responsibilities: Dutch development cooperation en route to 2015. This policy framework, adopted in 2003, reaffirms sustainable poverty reduction as the main objective of Dutch development co-operation and the Millennium Development Goals (MDGs) as the basic reference point. A key principle of the new policy is that Dutch aid should be concentrated in 36 partner countries and in two to three sectors, at most, within each country. The policy framework introduced a number of new spending targets associated with the thematic priorities and emphasised the importance of improving the quality of aid and ensuring a results driven approach. It also called for increased partnerships with civil society and the private sector. Mutual interests, mutual responsibilities emphasised the need for an integrated and coherent policy framework for development, combining diplomacy, political dialogue, security, trade, market access and development co-operation.

The value of introducing thematic spending targets is debatable. Such targets can play a useful role for keeping the focus on the MDGs and in facilitating communication with the general public. But they risk compromising partner country ownership and a managing for development results approach. Targets may lead to a supply driven approach where embassies feel pressure to focus on headquarters’ policy priorities rather than partner countries’ own priorities and local efforts towards a better division of sector responsibilities among donors.

Maintaining strong public support

Dutch development co-operation is underpinned by strong public support. At the same time, opinion surveys indicate that Dutch citizens want to be better informed about progress in development co operation. They have also become more critical on how aid is delivered because of concerns over corruption and war in developing countries and a perceived lack of measurable impact. To meet the growing demand for results, the MFA released in 2005 a report entitled Results in Development which details country-level results measured by performance against the MDGs. The report focuses on showing the relevance of Dutch inputs where progress is being made, which is a good example of attempting to capture the contribution of a donor to development results, without attempting the more difficult task of attributing results to inputs.

In comparison with some other DAC member countries, the MFA does not have a systematic and strategic approach to domestic policy dialogue beyond the cofinancing and contractual arrangements with various civil society organisations. The MFA has delegated the task of promoting public support for development to the National Committee for International Cooperation and Sustainable Development (NCDO) while the MFA’s own communication and reporting targets parliament. The MFA is encouraged to pursue broader public communication efforts showing both the complexity of development and the results being achieved. This will require building on initiatives such as the Results in Development report to communicate the policy objectives and achievements of Dutch development co-operation.

Recommendations

• The current policy framework gives the MFA a clear mandate and provides geographic and sector focus. The MFA should ensure that spending targets do not jeopardise the principles of aid effectiveness and are balanced with a strong focus on results.
• The MFA should consider a more structured domestic policy dialogue with the full range of Dutch stakeholders, including civil society organisations, private sector and the development research community.

Aid volume and distribution

The Netherlands should be commended for being among the few DAC member countries to exceed the United Nations (UN) ODA/GNI target of 0.7%. This target has been surpassed every year since 1975. In terms of ODA volume, the Netherlands was the sixth largest DAC donor in 2005 and net ODA disbursements amounted to USD 5.11 billion.

The MFA is responsible for 80% of Dutch ODA and relies on several aid delivery channels. Embassies have the primary responsibility for managing bilateral country programmes, which represent about 20% of ODA. Non-governmental organisations (NGOs) also receive 20% of Dutch ODA funds and the business sector a further 5%. Multilateral aid accounts for 28% of ODA.

Increased country and sector focus

In comparison with many other DAC members, the Netherlands has made progress in increasing the strategic focus of its bilateral co operation. In 2003, it decided to reduce the number of partner countries from 51 to 36. Consistent with the poverty reduction objective of Dutch development policy, Dutch ODA is largely allocated to countries with low levels of per capita income. In 2005, least developed and other low-income countries received some 60% of the Netherlands bilateral aid, half of which was assigned to sub-Saharan Africa. The priority partner countries include 15 least developed countries, 10 other low-income countries and 11 lower-middle income countries. Despite concentration efforts, some dispersion of resources remains. While 62% of bilateral allocable ODA was disbursed in the 36 partner countries in 2005, there were disbursements in 125 countries in total. This can be explained by the fact that the concentration policy concerns bilateral development co-operation programmes in the 36 partner countries and excludes humanitarian aid, debt relief, NGO co-financing and private sector development.

In each of the 36 partner countries, the Netherlands policy is to focus on two to three sectors out of an overall range of five sector priorities (education, environment, water, HIV/AIDS and reproductive health and rights). In practice, crosscutting themes such as governance and private sector constitute two areas of focus in addition to the sector priorities, and lead to additional management and capacity demands on embassies.

The question is also being debated internally as to whether productive sectors should figure more prominently as a priority for the Dutch programme. The Netherlands is committed to private sector development but needs to adjust its approach to address more strategically the challenge of promoting its stated objective of pro-poor growth. There remain a number of instruments providing direct support to businesses despite some potential risks of market distortion and crowding out of local private sector development and unclear contribution to the poverty reduction objective of Dutch development policy. Emerging DAC guidance on pro-poor growth could be helpful in this regard.

New focus on results in NGO co-financing

The Dutch government has a long standing commitment to involve civil society in development co-operation. In 2004/05, the NGO cofinancing system was restructured. All Dutch NGOs are now eligible to apply for funding provided at least 25% of their funding is secured from other sources. While the new “25%” requirement is in principle a positive step towards a more competitive system with incentives for improved performance, some NGOs are concerned that fundraising will divert scarce resources and management effort away from core development activities. NGOs are now also required to include, within their funding applications, more detailed information on results planning, monitoring and reporting. This should give a strong impetus to strategic management in the Dutch NGO sector. At the same time, the MFA should consider how to manage potential risks identified by the NGOs, for example in ensuring that NGOs are not discouraged from innovating and risk taking and remain able to adapt to changing country circumstances. An additional ongoing challenge is to ensure complementarity between bilateral development programmes implemented by Dutch embassies and Dutch NGO activities funded by the MFA.

Increased focus on multilateral performance

The Netherlands is a strong supporter of the multilateral system. It is the biggest contributor to several UN agencies and has increased its contribution to the International Development Association. It is also committed to increase its focus on European co-operation and is supportive of efforts towards a more unified aid policy among European Union Member States. The multilateral share of Dutch ODA was 28% in 2005 but approximately four to five percentage points higher if bilateral funds channelled through multilateral agencies in the form of earmarked contributions are taken into account.

The 2003 policy framework marks a shift in the Dutch multilateral policy towards an approach “more results driven and based on relevance to Dutch policy objectives”. This has resulted in a shift from un-earmarked contributions towards theme-based earmarked contributions with the intention of meeting targets in Dutch priority areas. This approach poses some challenges. First, the resulting fragmentation in Dutch funding of multilateral agencies can make it difficult for the MFA to have an overall consistent approach to multilateral assistance. Second, this à la carte practice could hinder multilateral agencies’ management improvement efforts and corporate focus, as individual agencies have to deal with competing demands from members.

In order to increase the overall consistency of its approach, the MFA has been working on a new strategy for managing its multilateral aid portfolio. The key proposal emerging from this work is to focus on about a dozen multilateral agencies and to co-ordinate Dutch contributions to these agencies (at this point this approach has yet to be endorsed). In reviewing its overall multilateral approach, the Netherlands should make efforts to strike a balance between bilateral considerations and implications for multilateral agencies in order to avoid the risk of “bilateralising” multilateral agency programmes. It should also reinforce co-operation with other DAC members on collective approaches to improving the effectiveness of the multilateral aid system to ensure complementarity among various multilateral assessment initiatives.

Recommendations

• The Netherlands is encouraged to build on its efforts towards geographic concentration by increasing the share of its aid provided to the 36 partner countries. The Netherlands is also encouraged to pursue, in collaboration with other donors, its efforts towards stronger sector focus in its bilateral country programmes.
• The Netherlands could develop a more coherent strategy with respect to private sector development and pro-poor economic growth.
• The MFA is encouraged to pursue its efforts to improve the effectiveness of its programmes with NGOs while ensuring complementarity with its bilateral programmes and considering how to manage potential risks identified by the NGOs in moving to a stronger results focus.
• Given its objective of promoting greater multilateral effectiveness, the Netherlands is encouraged to elaborate its multilateral strategy and to strike a balance between bilateral objectives and implications for the management of multilateral agencies, taking account of on-going reform efforts.

Policy coherence for development

A conducive institutional setting for policy coherence for development

The Netherlands has a long-standing political commitment to policy coherence and has played a proactive role in international debates on a number of policy coherence issues, particularly within the European Union as well as the OECD and World Trade Organisation. The MFA established policy coherence as one of the main priorities of the Dutch development policy in Mutual interests, mutual responsibilities. The Netherlands now has a “winning combination” of political commitment, a clear policy framework and the capacity to deliver through a dedicated Policy Coherence Unit (PCU) located within the MFA.

The MFA has adopted a three-pronged strategy for policy coherence:

• Promoting coherence at the European Union level.
• Proactive targeting of specific coherence dossiers.
• Building partnerships and promoting awareness of the importance of coherence.

A key strength of the Dutch approach to promoting coherence at the European level is that the MFA systematically screens all new Commission proposals and Council agendas for their development impact and the PCU represents the development perspective on the relevant inter-ministerial committees. The PCU is also taking specific policy coherence dossiers forward proactively and working with relevant players from the MFA and other ministries. The PCU is aware that it cannot achieve policy coherence on its own and needs to prioritise structured working with embassies and coalition building nationally and internationally. For example, memoranda have been agreed to clarify joint positions with the Ministries of Agriculture, Economic Affairs and Defence. In building international partnerships, the PCU is aware that it needs to reach beyond traditional like-minded donors and to work with partner countries and civil society organisations.

Moving ahead in enhancing policy coherence

The MFA has taken initial steps towards a managing for results approach to its work on coherence by ensuring a strong focus on results delivery and clear reporting on progress to parliament, including the regular MDG-8 report. However, the PCU could undertake further work in ensuring a systematic approach to performance assessment, both in tracking progress against objectives and in assessing the “real-world” effects of specific policy coherence successes. The PCU is also considering the question of how to broaden the coherence agenda while ensuring that it remains able to focus intensively and delivers tangible results on specific coherence issues.

A policy of gradual and constructive engagement with other ministries should not discourage the MFA from addressing the more difficult outstanding issues. For example, alongside steps towards further untying and supporting new untying initiatives, the Netherlands maintains the partially tied Development-Related Export Transactions Programme (ORET). An additional step would be to follow the example of other DAC member countries which have decided to untie their aid entirely.

Recommendation

• The Netherlands is encouraged to pursue its efforts in enhancing policy coherence for development domestically and internationally. It could now build on achievements to date to ensure a more systematic approach to performance assessment in this area, both in tracking progress against objectives and in assessing the “real-world” effects of specific policy coherence successes.

Aid management and implementation

Addressing organisational challenges

Within the MFA, the Directorate General for International Cooperation (DGIS) is the organisational heart of much of Dutch development co-operation. The main recent organisational change is the establishment, in 2005, of the Effectiveness and Quality Department (DEK). The MFA estimates that approximately 1 000 of the foreign service staff work specifically on development co-operation with about 50% of these based in the Hague and about 50% overseas. The Director General for International Co-operation directly oversees a staff of 157 persons while sharing management responsibility for an additional 162 staff with other directors generals.

A continued challenge for the Netherlands is how to deploy and use existing resources to ensure that embassies in particular have the right skills mix and capacity levels to deliver on the policy agenda. Since 2001 a number of steps have been taken to bring staffing levels and personnel policy more in line with the management needs of the development assistance programme. This includes the creation of an additional 80 posts, a new policy on careers at the MFA and a reform of the system by which staff are transferred to new positions. Nevertheless, the DAC Peer Review field visits indicated ongoing problems in filling posts in both Bangladesh and Uganda and suggested that MFA has not yet solved the challenge of filling all posts with the right people. The MFA is also aware that the capacities demanded of its staff will continue to evolve and has developed innovative support and learning programmes for existing staff with a particular focus on higher-level policy dialogue, for example around public financial management and capacity development.

The Netherlands relies on a “decentralised” system in which embassies are responsible for policy dialogue with partner country governments and other donors, formulation of Dutch country and sector policy, and assessment, approval and monitoring of implementation activities within the limits of the “delegated funds”. In line with the increased emphasis on partner country-led approaches, and as suggested by the DAC Peer Review team, the Netherlands has decided to move further in increasing the resources for which financial authority is decentralised. General budget support funds are no longer authorised centrally and have been delegated to embassies in the 15 partner countries where the MFA is currently using this modality.

The introduction of an integrated planning, monitoring and knowledge management system has greatly contributed to improve communication between the MFA’s headquarters and embassies. In this context, DGIS could usefully undertake further work on clarifying the role and value added of Country Teams (composed of representatives from across the DGIS thematic departments) which, according to some MFA staff members, vary in their quality and performance. The MFA also needs to ensure incentives for both Country Teams and regional departments to provide demand-driven support services to embassies.

Integrated planning, monitoring and knowledge management

The Netherlands should be commended for its proactive efforts to develop an integrated planning, monitoring and knowledge management system. A key step forward has been the introduction of a new system of country-level Multi Annual Strategic Plans across the 36 partner countries and the updating of associated assessment tools, including the annual Track Record. The new strategic plans enable a more explicit linking between the country context and the Netherlands’ central policy framework and are a very significant step towards a more strategic, contextualised and long-term approach to embassy planning. However, the strategic plans are considered to be internal planning documents and the Netherlands could move towards a more collaborative approach involving partner country governments and other key stakeholders in their development. It would also be useful to make the strategic plans public once they are agreed. In addition, they could be produced and amended on a rolling basis, to better enable amendments in view of changes in the country context.

Since the number of planning and monitoring mechanisms now being used constitutes a somewhat complex system, this risks being perceived by some embassies as a management burden rather than a learning tool. The Netherlands is encouraged to consider options to simplify and rationalise the various new monitoring and information management systems. The MFA also recognises the need to make a greater and more systematic use of information generated through joint donor and partner country monitoring and reporting systems, to avoid duplication of analysis and reporting and to help strengthen those joint systems. The locus of accountability needs to be in providing results information to both the Netherlands public and parliament and also to partner country public and parliament.

Commitment to increase aid effectiveness: strong focus on programme-based approaches

The Netherlands is committed to implementing the principles of the 2005 Paris Declaration on Aid Effectiveness. The Netherlands’ commitment to alignment and harmonisation is an important component of its policy framework and Paris Declaration targets are embedded in the annual budget process. The MFA has a strong preference for programme-based approaches and the sector-wide approach has been the organising principle for Dutch bilateral development co-operation since 1999.

Alongside concrete action on the ground to implement the Paris Declaration, the Netherlands is now moving to develop an aid effectiveness action plan, which will build on the outcome of the 2006 survey launched by the DAC to establish a baseline for monitoring the Paris Declaration. As the Paris Declaration and its five pillars – ownership, alignment, harmonisation, managing for results and mutual accountability – call for a degree of commitment going beyond previous initiatives focusing on harmonisation, a more explicit and detailed policy statement (or “action plan”) could help the MFA to guide actions and support consistency in implementation and monitoring of progress at the country level. This action plan could also link to a strategy for what can be achieved in fragile states where there is a less conducive environment for making progress on the aid effectiveness agenda. Following internal discussions based on the consultations with the DAC Peer Review team, the MFA has indicated that it is now starting work on developing an overall policy for its engagement in fragile states, building on its active engagement in the DAC Fragile States Group.

The Netherlands has a long standing commitment to partner country led approaches to poverty reduction going back to the mid 1990s. This translates operationally into “on-budget where possible, off budget where necessary”. The MFA considers budget support as the most effective form of aid since it ensures that recipient countries assume responsibility for implementing their own development agenda and contributes to a better alignment of aid with policy and systems of partner countries. The MFA estimates that about 37% of its bilateral country programmes was channelled through programme-based approaches in 2004 (20% for budget support alone). The Netherlands has demonstrated its leadership in successfully promoting sector wide approaches in partner countries and is among the driving forces within the DAC promoting budget support. The Netherlands has also demonstrated leadership in how to effectively implement gender strategies in the context of changing aid modalities.

The Netherlands considers that adequate partner country capacity is crucial for effective poverty reduction and contributes to capacity development through sector wide approaches. The Netherlands is aware of the need for a more comprehensive approach to capacity development with more attention to organisational strengthening in addition to human resources. Findings from several recent evaluations also raise the challenge of monitoring grass roots developments and trends while engaging fully in macro policy dialogue. The Netherlands is willing to fund supplementary capacity development activities and partnerships with civil society aimed at strengthening partner country monitoring systems in order to address this challenge. Because a more effective approach to capacity development involves a different role for donors, the MFA launched in 2006 a support programme for institutional and capacity development in order to enhance the capacity of embassy staff.

In conjunction with other donors, the Netherlands needs to clarify the approach to conditionality in order to ensure that general budget support contributes effectively to both ownership and predictability as well as poverty reduction objectives. This may require strengthening the analysis of political governance in the “Track Record”, which is the MFA’s key assessment tool in selecting the most appropriate choice of aid modalities in partner countries. In this context, the Netherlands is encouraged to continue its efforts on the basis of transparent dialogue with partner countries and in co ordination with other donors, to promote convergence of different performance assessment frameworks for general budget support.

Ensuring the relevance and quality of evaluation

The independence of the evaluation function has been a long-term strength within the Dutch system in which the Policy and Operations Evaluation Department (IOB) is responsible for evaluating broad policy and cross cutting themes in addition to decentralised evaluations undertaken by the MFA’s policy departments and embassies. In 2006, the MFA decided to move the responsibility for the evaluation planning process from IOB to policy departments so as to address the challenge of the extent and timeliness with which evaluation findings and recommendations are feeding back to policy makers. In this context, the MFA is encouraged to ensure that, to safeguard evaluation quality, IOB retains its independence for managing the evaluation once the subject has been determined and for reporting and making public the findings. Mechanisms could also be developed to create more of a joint planning process, enabling IOB to continue to play a challenge function in more difficult policy areas while also adapting to the more systematic demand-driven relationship with the policy community.

Recommendations

• In order to fulfil its ambitious policy agenda the MFA should continue its efforts to ensure that embassies have the right human resources (skills mix and capacity levels).
• The MFA is encouraged to consider options to simplify the planning and monitoring system, potentially by combining certain of its components. In developing the new strategic plans, the Netherlands could move towards a more collaborative approach involving partner country governments and other key stakeholders.
• The Netherlands is encouraged to move forward with its plan to develop an overall aid effectiveness strategy to better communicate how the Paris Declaration agenda is to be implemented at headquarters and in different partner country circumstances.
• In conjunction with other donors, the Netherlands needs to clarify the approach to conditionality in order to ensure that general budget support contributes effectively to both ownership and predictability as well as poverty reduction objectives, while paying due attention to governance issues.
• The MFA is encouraged to ensure that, to safeguard evaluation quality, IOB retains its independence for managing the evaluation process and for reporting and making public the findings.

Humanitarian aid

A key supporter of international humanitarian good practice

The Netherlands has been a consistent and strong participant in global efforts to respond to humanitarian crises, whether natural disasters or conflict-related. In 2005, Dutch expenditure on emergency and distress relief amounted to USD 495 million (or 10% of its total ODA). The Netherlands provides needs-based, flexible and predictable humanitarian support. Humanitarian aid funding tends to be distributed to UN agencies and the Red Cross movement (75%) and civil society organisations (25%). The Netherlands has paid increased attention to the challenges in moving, in post-crisis contexts, from emergency response to reconstruction, rehabilitation, reconciliation and restoration of affected populations’ livelihoods. Inter-ministry work led to the 2005 Memorandum on post conflict reconstruction, published jointly by the ministries of Foreign Affairs, Defence and Economic Affairs. A Stability Fund has been created to facilitate the transition in such contexts with a budget allocation of EUR 82 million in 2005.

The Netherlands is one of the countries which initiated the formulation of the Principles and Good Practice of Humanitarian Donorship (GHD). It has adopted a GHD action plan which translates commitments into policy and programming actions. The Dutch efforts for improved humanitarian response also include establishing and strengthening the UN Central Emergency Response Fund (CERF) and strengthening the UN Common Humanitarian Action Plans, the UN Consolidated Appeal Process, and the role of UN Humanitarian Coordinators. In this context, the Netherlands is willing to consider different funding arrangements, such as the pooled funding approaches being tested in the Democratic Republic of Congo and Sudan. Apart from these efforts to address systemic issues, the Netherlands has engaged in a dialogue with humanitarian aid agencies on humanitarian policy issues such as the right to protection and curbing illegal trade in small arms.

Scope for further improvements

Notwithstanding Dutch commitment to greater humanitarian aid effectiveness, the Netherlands has as yet no overall humanitarian aid policy framework which could serve as a vehicle for stimulating discussion around priority issues and inform operational partners of its policy principles.

Management of humanitarian aid is centralised within a dedicated division of the Human Rights and Peacebuilding Department of the MFA. There are very few dedicated humanitarian aid staff in embassies. Where local co ordination needs or headquarters expectations require a more active role by embassies, the MFA should consider allocating resources to enable embassies to avoid pulling staff away from other priority tasks and to benefit from specialist expertise.

Projections of humanitarian aid expenditures are contained in the annual ODA budget message to parliament. Initial budget levels set at the start of the year are usually topped up via reallocations and overall increases in line with demand and at the direction of the ministers for foreign affairs and development co operation. A distinct budget line for mine clearance has been created. The Netherlands is committed to provide timely, un-earmarked, needs-based funding to its operational partners, including in support of the UN consolidated appeals process. There is nevertheless scope for a consolidation of the budget structure, so as to reinforce efforts to protect a minimum level of humanitarian financing in the annual ODA budget. With a view to improve the predictability of Dutch humanitarian assistance and help reduce transaction costs for operational partners, the Netherlands could usefully review its funding arrangements for protracted complex emergencies.

Recommendations

• The development and publication of a comprehensive humanitarian aid policy framework could be useful in drawing together the various elements of the Netherlands’ involvement in this area and in identifying those issues where further work needs to be done.
• The funding arrangements for protracted complex emergencies could be reviewed in the light of experience with existing instruments, including CERF, in order to improve the predictability of Dutch humanitarian assistance and help reduce transaction costs for operational partners.

 

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