How to spend it. Eurodad launches a new aid effectiveness report in Brussels

Just three months ahead of the Fourth High-Level Forum on Aid Effectiveness in Busan, Eurodad launched its newest aid effectiveness report. Andris Piebalgs, Development Commissioner of the European Union, and senior officials from OECD, UNCTAD and Eurodad partner UNNGOF were invited to comment on the report’s findings and suggestions. The launch, hosted by the Friedrich-Ebert Foundation, was well attended by officials from the European Union, diplomats from EU and developing countries, and civil society organizations. In a period where the aid effectiveness agenda seems largely stuck, the launch saw a lively and highly political debate on the crucial question: how can we spend aid better?

Boomerang aid: Much aid never reaches developing countries,

Eurodad’s Bodo Ellmers presented the findings of the new report which focuses on the area of procurement, aid untying and the use of country systems. This is just a small share of the aid effectiveness agenda, but a crucial one that links aid with wider issues of trade and private sector development. Ellmers highlighted that aid yields a double dividend when it not just funds development projects but is spent locally, on locally produced goods and services. Injecting aid monies into developing countries economies builds productive capacities, and creates jobs and income opportunities that the local population can use to lift themselves out of poverty.

Unfortunately, Ellmers stressed, two thirds of contracts awarded by bilateral donors still go to firms from the North. Multilateral aid does not yield much better results. More than half of World Bank-funded contracts in the case study countries went to foreign firms, in Uganda the share of local procurement is as little as 18%. This is a consequence of donors’ procurement practices: Tying aid to the condition that all contracts go to Northern firms is the worst of all because it fully excludes firms from developing countries from the business opportunities that development cooperation offers. Although formal aid tying could be reduced due to aid effectiveness agreements, donors use many other informal tying practices to lift the playing field in favour of businesses based in donor countries. Ellmers concluded that the key for making aid a more effective tool for driving sustainable economic development is to spend aid locally under consideration of social and environmental criteria that creates decent work and drives green growth. Donors should support developing countries in building procurement systems which are up to this task, and use these systems as the default option.

Double dividends of smart procurement,

The EU Commissioner for Development acknowledged that local spending can yield a double dividend for development. He cited the latest data from the Paris Monitoring Survey that assesses donors performance against aid effectiveness commitments that proves that EU donors perform better than peers, in particular when it comes to using country procurement systems. But there is also an enormous perception of mismanagement risk in Europe that prevents some EU donors to use these systems to the maximum extent possible. Transparency is key for reducing such fiduciary risks. The EU will continue its efforts to further untie aid and scale up the use of country systems, however, stressed the Commissioner. “We acknowledge that there is a double dividend of aid when country systems are used. The European Commission is committed to do every effort to continue increasing the use of country procurement systems.”

Progress on aid effectiveness is mixed,

Patti O’Neill from the OECD’s Development Co-operation Directorate pointed at the preliminary findings from the 2011 Paris Monitoring Survey and said: “Latest findings show that overall progress made by donors toward their effectiveness commitments is mixed and very variable between donors. Some have made progress, but for others there is still work to be done.” The quality of procurement systems is increasing in many countries but the targets set in the Paris Declaration were not met. She confirmed Eurodad’s findings that donors’ willingness to use country systems is not necessarily dependent on their quality. She congratulated Eurodad for publishing an evidence-based report that on the one hand criticizes the poor progress in implementing the Paris Declaration and the Accra Agenda for Action, but that also includes examples of best practice and concludes with solid and clear recommendations. This comes very timely as the preparations for HLF4 enter their hot phase.

Ownership remains a challenge,

Richard Seewarkiryanga, director of the Uganda national NGO Forum which conducted the Uganda case study together with Eurodad, highlights that Uganda is among the countries with the lowest share of local procurement. He criticized procurement conditions attached to aid: “The decision of whether or not to allow foreign firms to compete for particular contracts should remain the decision of recipient governments. If this means that aid money gets spent in the local economy rather than in the donor country, so be it.” He also pointed at the suboptimal results of donor-driven procurement reform programs that have complicated the procurement process in Uganda, with ironic consequences. “A paradoxical phenomenon is that in Uganda government departments are also preferring to use donor systems because they are deemed as ‘simpler’ than the systems that were built for the government by the same donors.”

The benefits of procurement are not fully used,

Charles Gore, Head of Research for Africa and LDCs at UNCTAD, congratulated Eurodad for presenting such important but “unglamorous” issues in an accessible way. He stressed that it is indeed problematic for LDCs that food aid and technical assistance have been excluded in donor agreements on untying aid. Gore confirms that aid can yield much higher benefits and that procurement practices can play a role in building productive capacities. He also noted with interest Eurodad’s analysis that procurement reforms in poor countries are donor driven and follow primarily donors’ interests. Donors should however look at their own domestic policies on procurement, “Eurodad simply asks that developing countries can do what developed countries do and always did: use procurement for developing their domestic industries.”

The report in the media:

The Guardian Aid still benefits companies from donor countries

Reuters Africa EU development aid still benefits EU firms, says report

Inter Press Service ‘Boomerang Aid Enriches Donors’

Defence web EU development aid still benefits EU firms, says report

The lnternational News Magazine DEVELOPMENT: EU Steps Towards Common Aid

Ghana Business News Ghana’s efficient country system for aid management not complemented by donor conduct – Study

Het Belang van Limburg Vooral rijke landen worden beter van ontwikkelingshulp

WDEV Scandalous procurement in development assistance

Proact New report: How to spend it – Smart procurement for more effective aid

Le Devoir Climat: où est l’aide promise?

Neues Deutschland Lieferbindung: Ineffektiv, aber üblich