How can donors manage the risks of engagement in fragile and transitional contexts without constraining aid’s potentially high impact in such environments? Donors acknowledge that the risks of failing to engage in fragile contexts outweigh most of the risks of engagement. However, they and their implementing partners struggle with competing demands for quick results and evidence of accountability, and with low country capacity that restricts national ownership. The current risk-averse approach to aid generates slow and inflexible procedures and, at times, perverse results: appropriate risk taking is essential to effective engagement in fragile contexts. Donors need political backing and more flexible processes. Collective approaches to managing risk show promise.
Aid risks constitute the potential for adverse affects on (a) programme outcomes or the wider context; and (b) the aid provider (in terms of security, fiduciary failure, reputational loss or domestic political damage, for example). Risk management involves balancing risk and opportunity, or one set of risks against another, and should be seen as an enabling process.
Much of donor risk management is focused on avoiding institutional risks such as major corruption or political scandal. But the more risk-averse the approach, the narrower may be the range of achievable goals. In fact, seeking risk reduction by imposing tight reporting requirements or tough financial controls may result in strategic failure. Additional findings include the following:
- Most donors have not developed approaches to risk that are specific to fragile and transitional contexts.
- However, a few have established specific financial and programme mechanisms that allow for greater flexibility, quicker decision-making and devolution of control.
- Lack of strategic co-ordination and of the use of common approaches, concepts and frameworks prevent collective risk management.
- Individual donor exposure to risk is to some extent diluted by pooled funding mechanisms. As currently designed, however, these share many of the problems of bilateral mechanisms, and also have to satisfy multiple stakeholders.
To achieve more effective aid in situations of transition, donors need to change their individual and collective behaviour, allowing their implementing partners greater flexibility. If exceptions to standard procedures cannot be made in fragile contexts, then special units or at least special funds could be created with flexible rules and procedures. Donors also need to:
- Manage risks collectively so as to maximise impact on contextual risk and facilitate risk burden sharing or the pooling of programme and institutional risk. Perhaps the greatest risk factor of all is the failure to co-ordinate donor strategy.
- Establish specific risk management frameworks for fragile and transitional contexts.
- Agree on concepts and terminology and enhance the use of joint assessment and analysis.
- Agree on realistic objectives and results measurements and invest more in monitoring and evaluation in fragile contexts. M&E should include investigating the impact of aid on the wider context.
- Tailor accountability approaches to the context. Either generic standards need to be applied in more flexible ways, allowing explicit exceptions to reporting and other requirements case by case; or alternative standards need to be devised for these contexts.
- Be prepared to pay the additional costs of managing funds and programmes in difficult environments. Such context-specific costs should be separately budgeted or covered by an increased overhead budget line.
- Agree common positions on fiduciary risks in order to increase institutional leverage, and be prepared to use local procurement to help achieve local economic, social and political benefits.
