A better development funding model for Lebanon: Prospects, challenges, and applicable lessons

The international nature of development funding makes it susceptible to political events. In the current global security climate, amidst conflicts that undermine international law and institutions, and as cost-of-living crises grow more widespread, foreign development aid is increasingly taking a back seat to other policy concerns. However, by neglecting or even weaponizing development funding, donor countries lose an important tool for creating mutually assured prosperity and stability. If the West remains committed to the rules-based world it was instrumental in creating after World War II, then development funding should be part and parcel of maintaining that order.

Development is not to be confused with humanitarian aid. The economic and social advancements that it can create benefit both funder and funded. When intelligently designed, development funding can help grow new markets and consumers, address some of the root causes of migration, facilitate international alliances, support human rights, enhance global trade, and drive democratic reforms.

However, for development funding to deliver on its promise and not inadvertently reinforce local corruption, funders need to ensure that the funds achieve their objectives and reach the intended beneficiaries. Funders can be tarnished with the same accusations of corruption if failures remain shrouded in mystery, and no one is publicly held accountable.

Lebanon is a good testing ground for measures that funders can adopt to mitigate against corruption and mismanagement and increase transparency and accountability. The problems are so extreme in the country that they have been a major cause behind the collapse of its infrastructure and economy. The destabilizing effect that this has on the country is of concern to its citizens, neighbors, and globally. Moreover, the systemic solutions that can be identified for Lebanon may be adapted by funders in other countries.

International funders have often called upon recipients to carry out reforms before any funding can be made available or the amount increased. But in many crisis-wracked countries, such as Lebanon, the prospect of reforms may be too distant, with intervention needed immediately. This is why greater emphasis must be placed on risk mitigation measures over which funders can exercise control.

The dangers of weak risk mitigation

In 2021-22, the Reform Initiative for Transparent Economies (RITE), a non-governmental organization (NGO) based in the United Kingdom that is headed by this author, conducted an independent case study to demonstrate the challenges facing donors in Lebanon. It published its heavily referenced findings along with evidence-based recommendations in an 80-page report in May 2023. An abridged version of the RITE recommendations was quickly adopted as part of the “European Parliament resolution of 12 July 2023 on the situation in Lebanon” (Paragraph 12).

RITE’s study focused on the waste-management sector as it has attracted significant international aid in Lebanon, with the European Union leading the way. The periodic pile-ups of unhygienic, unsightly, and stinking waste as well as its poor disposal are a regular cause of public outcry, while the environmental problems they create spill over into the Mediterranean basin.

The EU responded to calls from Lebanese municipalities to help them address this challenge. In 2005, the EU launched the first of a three-part project to build, equip, and provide operational support to 16 Lebanese waste-management facilities. The project has incurred over €30 million in spending and remains ongoing until 2025. It was a much-needed initiative, and the processes specified for implementation seemed good on paper:

• The municipalities decided on what projects they needed.

• The specifications for building, equipping, and redeveloping the waste facilities were provided or verified by the EU’s local implementing partner, the Office of the Minister of State for Administrative Reforms (OMSAR). OMSAR also managed the bidding and contracting processes.

• The municipalities were supported by OMSAR and the EU in monitoring operations.

• All steps were done with the involvement of specialist consultants approved by the EU.

• The EU also approved the selected projects.

• The United Nations Development Program (UNDP) in Lebanon was part of the project steering committee and took over the employment of the project manager from OMSAR for an important period during the implementation process.

• Reporting and project assessments were built into the project.

• Funding for building and equipping the facilities was initially paid outright by the EU to OMSAR. The EU then adopted a more cautious approach, making direct payments under follow-up programs that were meant to develop more facilities and support all operations.

However, RITE found that all 16 EU-supported waste facilities that were part of the project failed to meet their objectives. Instead, many created additional risks of environmental and health hazards. Several remained shut for years, opened sporadically, or closed prematurely. RITE found that their under-performance was linked to the EU and OMSAR not properly fulfilling their allocated responsibilities. This wasted EU and Lebanese funds and contributed to the risk of fraud.

The project’s failings quickly became apparent to municipalities or residents, and some were reported in the press. However, the reasons were initially shrouded in public denials and a lack of accountability. The EU commissioned an assessment that was completed in 2020 without publicly releasing it. RITE obtained it through a freedom of information request. The assessment listed a catalogue of errors and made some solid recommendations. However, they were different in nature to those offered by RITE, which focused on funder risk mitigation. Also, unlike the RITE findings, the EU-commissioned assessment was adamant that the EU was not at fault, praised OMSAR, did not find any party responsible, and declared that there was no fraud. The RITE report shows that these conclusions do not stand up to scrutiny.

Poor management is as wasteful of resources and objectives as fraud. When it is systematic, it points, at best, to negligence, if not outright corruption. In Lebanon, corruption is more likely to take the form of inflated contract prices and poorly implemented performance-related pay than an outright pocketing of funds.

The EU-supported waste facilities in Lebanon lacked basic elements such as drainage to protect against the risk of environmental damage, filters to minimize olfactory pollution, or hangars to shield the waste. There were no plans by OMSAR to develop sorting of waste by the residents. At the same time, the choice of waste-sorting equipment for the facilities was not well suited for dealing with mixed refuse. Several facilities closed because of insufficient planning for the likelihood that the dumpsites where they sent their reject waste would fill up and be shut down. The composting technology used at five facilities was not fit for purpose and was discarded. OMSAR tried to shift the blame for some of these failings onto a third party. However, the RITE report fact-checked their claims, finding them not justified.

The biggest facility of its kind was redeveloped as a public-private partnership (PPP) in the northern Lebanese city of Tripoli. OMSAR provided, yet again, inadequate specifications and performance incentives. The Tripoli waste-management PPP, like the other facilities, failed to meet its objectives and stopped being fully functional within six months of opening — this while remaining profitable to the operator but a serious financial burden to the municipality without offering the promised value for money. Though meant to be operative even under new management, RITE’s site inspection found the plant derelict and vandalized. Another waste facility that RITE visited in the north of Lebanon also under-performed throughout its lifespan, closed prematurely, and burned down.

The EU support project did not abide by the principle that repeat business should not go to repeat offenders. Some contracts went to companies that were subsequently placed on the United States’ sanctions list due to their association with corruption, others went to operators that were under-performing on other projects, and several contractors did not have the requisite experience.

Monitoring was important to preventing fraud as well as for the facilities to achieve their objectives. This is because the facility operators were paid based on tons of waste received with deductions for performing below agreed-upon contractual targets. Monitoring was primarily the responsibility of municipalities; however, because of their limited experience, the EU entrusted OMSAR with supporting them in this. The EU also offered to provide technical support, but this was not properly implemented. An assessment commissioned by the EU ascribed monitoring failures to “all stakeholders involved, including by donors who funded the facilities.”

Another phenomenon that raises concerns of possible fraud is poor record keeping. The EU-commissioned 2020 project assessment found it to be “not compliant to the EU reporting standards and should have been much more traceable.” Moreover, it described record keeping by the EU delegation in Lebanon as tantamount to a “loss of institutional memory.”

The EU’s joint parliamentary resolution of 2023 thus backed RITE’s call for an investigation over the possible misuse of funds.

How funders can improve outcomes

RITE agrees with the prevalent view in the international development field that funders should agree on the objectives but leave it to their implementing partners to reach them as they see fit within the allocated budget. However, as RITE’s research and experience makes clear, this goals-based framework needs to be combined with risk-mitigation measures. Project objectives should be broken down into key stages with clarity on what will be achieved by whom. Funds should be released incrementally following an independent verification of the satisfactory completion of each stage.

Choosing the right implementing partner is important to success. There is a trend toward partnering with donor-country development agencies, international organizations and NGOs, and the private sector in the belief that they are less likely to act corruptly or may be more competent. Similarly, funding municipalities is presumed to produce greater local accountability. The EU-supported waste facilities that RITE investigated employed several of these favored partnership approaches.

Yet RITE found that all partners, whoever they may be, need to be subject to risk-mitigation measures. They should, of course, be demonstrably competent, and the funder should perform due diligence on their track record. Funders also need to be satisfied that their chosen partner can safeguard, as much as possible, against conflicts of interest, that all within the organization hierarchy are answerable for their actions, and that they regularly review and address the performance of their team.

Lebanon is a small place, where politics and business are intertwined and where those in charge are needed to facilitate work. These relationships are ultimately driven by a profit motive that funders can harness to improve performance. But it requires selection processes that bar repeat under-performers as well as include contractual terms, pay structures, monitoring, and enforcement that ensure results.

In difficult environments such as Lebanon, it is tempting for funders and their partners to aim for safer projects that have more easily achievable goals. Yet this might neglect the most urgent needs and leave entire economic sectors in a state of failure. Feasibility studies need to be conducted on complex projects and proofs of concept provided. Moreover, while funders and their partners should not shy away from challenges, they should only proceed once satisfied that there has been adequate planning to compensate for regulatory and infrastructure shortcomings.

An important part of strengthening risk mitigation is for funders to facilitate independent oversight in real time at all key stages. This includes planning and project design, bidding, due diligence, contracting, and performance monitoring. It is especially important to empower civil society organizations to perform this watchdog function and provide them with the necessary access to information and resources. This is something that last year’s EU joint parliamentary resolution on Lebanon also stressed. Indeed, the heightened levels of scrutiny over funding that have emerged in the context of Gaza have only increased the relevance of the work done by watchdog NGOs such as RITE. When funding flows again, it will be accompanied by increased concerns that it be spent as intended.

Although the European Commission contends that the EU has modified how it executes international development projects since the lessons learned from supporting Lebanon’s waste-management facilities, RITE’s analysis shows more work remains to be done on improving risk mitigation on the ground. Success is more likely if Lebanon’s key funders better coordinate their efforts and work hand-in-hand with civil society.

Mona Deeley is the CEO of the UK-based Reform Initiative for Transparent Economies (RITE).

Photo by PATRICK BAZ/AFP via Getty Images