Unravelling Tied Aid. Why aid must never be tied to donor country companies at the expense of women and men living in poverty.
Tied aid – aid that can only be used to buy goods or services from the country providing the aid – puts donors’ commercial priorities before the priorities of women and men living in poverty.
In general, tied aid costs more than untied aid. Tied aid is thought to increase costs by 15-30% for many goods and services - more still in the case of food aid. Not only are the costs of tied aid higher; the quality of goods and services can often be lower, because they are less well suited to local contexts and preferences (Section 2.1). So on average every dollar of tied aid goes less far than a dollar of untied aid, robbing people in poverty of essential goods and services that would have been perfectly affordable if the aid was spent a different way.
Tied aid also holds back the long-term development of communities in the South, depriving them of the chance to make their own purchasing decisions that fit their own priorities. Specifically, tying aid means foreclosing the possibility of procuring locally – even though local procurement has the potential to create a ‘double dividend’: not only delivering project results, but also building up a stronger local economy for the future.
Yet despite donor agreements on untying, tied aid continues to make up a significant share of bilateral aid - a share that is likely to grow further unless current commercial and political pressures are resisted.