The cost of poverty

Transaction costs and the struggle to make aid work in the education sector in Tanzania

By: Dyer K
Published by: Human Development Report Office (HDRO), UNDP , 2005
Via: Eldis

This paper explores transaction costs (TCs) in the Tanzanian education sector. It looks at the different kinds of transaction costs, including administrative, tying and fiscal, to see how they play out through different funding instruments such as projects, pooled fund support to the education sector, sector support, and examines their likely implications in the context of moves towards increased budget support.

The paper argues that TCs do exist only as discreet units (missions, reports, audits etc) which can be cut down with consequent increases in efficiency. They form the most visible part of a spectrum that should blend into sustainable partnership and commitment to doing what is necessary to eradicate poverty. But in practice this is not the case and relationships between government and Development Partners (DPs) have previously been very poor. Acrimony, particularly over the release of funding by the pooled fund partners and reporting of it, have led to very unpredictable financial flows to district and school level, with damaging effects on the quality of education.