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2.6 Leadership and Ownership are Consistent with Reduction of Transaction Costs

It might be worth noting that there is reason to believe that our assumptions about how to reduce transaction costs (by switching aid modalities in particular) are not very well evidence based (Killick, T. Macro-level evaluations and the choice of aid modalities. Paper presented at OED Conference on Evaluating Aid Effectiveness 2003). Also practical experience tells us that in the early phase of the ‘new aid agenda’ transaction costs may actually rise rather than fall for at least two reasons. First, in the initial period the new and the old aid modalities will coexist for some time and during this period transaction costs may rise. The rate at which such transaction costs will decline will depend on how soon the old modalities can be phased out and be fully replaced by the new modalities. Second, the new modality may require new capacities which may take some time to be put in place. During this learning period, the transaction costs may rise before they begin to fall as the new capacities are being built. For these reasons, reaping the gains of lower transaction costs may actually take quite a time. Tanzania is well on track, but expectations as to how far and how fast transaction costs decline with innovations such as GBS and the JAS, need to be kept under constant review. In this regard, two recommendations are in order:

1. 
   Conscious action needs to be taken to minimize the period over which parallel systems (the old and the new) will continue. Capacity building initiatives should be introduced to manage the integration of new systems.
   

2. 
   Lessons need to be drawn from the experience of GBS and PRBS showing that GoT leadership is the single most effective way of reducing transaction costs. When it is still necessary to use a multiplicity of aid modalities (DBS, baskets, projects and TAs), it befalls on the leadership to indicate the right modality or blend of modalities to apply in each financing operation and to insist on its choice and say NO when it is warranted. This means priority should be given to putting in place the right leadership to supervise and manage harmonization.
   

2.7 Governance and Other Cross-cutting Issues: Mechanism for Dialogue

Governance is a major area of concern. One priority area, which is rated as a high-risk area, is corruption and the need to formulate action plans which can lead to more concrete action. The dialogue on transparency and accountability has been dominated by concerns over corruption. A recent report on the State of Corruption in Tanzania (2002) found that the emphasis on anti-corruption strategy has been on laying the institutional foundations of fighting corruption. The level of corruption was found to be declining in general and in specific sectors. However, two other observations have been made. First, it was also acknowledged that important aspects of the legal framework had been addressed and that basic Acts had been passed which are useful for fighting corruption. But implementation and follow up was found to be lagging behind. Concrete steps have not been taken to make sure that institutions function as they are supposed to function. Second, there is the possibility that the GoT is actually doing more to curb corruption that is being reported. Publicity and communication of what is being done to curb corruption is limited. There is need for further work on publicity and work in the regions and other local levels. With better publicity and communication, more could be said to report on steps being taken to curb corruption. One way of publicising what is being done is through annual reports on corruption. Such an initiative was introduced once in 2002.
On the side of DPs, improvements in governance have also been acknowledged. In this regard, the DPG has agreed to establish a code of ethics for donors, with a view to improving governance, transparency and accountability in aid delivery. These will be reflected in the Joint Assistance Strategy (JAS). The issue of governance has received prominence in MKUKUTA. It is one area which merits legitimate support from DPs as they impact on the environment for productive activities and social welfare. This suggests that as aid relations improve more regularized dialogue is needed on corruption and on high-level cross cutting issues which cannot be adequately handled at the level of sectors. In some cases the lack of opportunity for dialogue when needed has become a source of frustrations. In particular the lack of opportunities for higher-level dialogue has raised concern. One important mechanism that had been set up to carry out high level discussions between GoT and the DPs is the Development Cooperation Forum (DCF) under the leadership and chairmanship of the Chief Secretary in the President’s Office. Many DPs have expressed concern that the DCF has not been functioning as it should. Meetings have been infrequent at the risk of missing the opportunity to exert GOT leadership and to address and clarify key issues arising between GoT and DPs before they get to crisis proportions.
Consultations on the future of the DCF have revealed that it has been agreed that the DCF has been reconstituted and a supportive structure, the technical committee, has been formed. The DCF which comprises representative ambassadors will be preceded by a Technical Committee consisting of technical experts from both sides (GoT and DPG), i.e. senior public servants and heads of development cooperation. The governance technical working group has formed a Task Force. The technical group meetings are expected to address more substantive and technical issues and inform the ambassadors who will meet in the DCF chaired by the Chief Secretary. The technical level meetings will basically inform the DCF on important aid and cooperation issues, while not hijacking the really important political role of the DCF. The Technical Group will ordinarily meet before the main DCF meeting. The DCF could play the role of looking at the development partnerships as a whole and discuss key issues, which cut across.
Considering the good progress that has been made towards reconstituting the DCF, it is recommended that it proceeds to meet and address high level governance issues and any other high level cross-cutting issues and find a solution for them before they grow to unmanageable proportions. That way its functioning would have the effect of reducing the chances of donors withholding support for reasons of disagreement and that way enhance the predictability of resource flows.