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Mixed progress on improving aid quality, but half of aid contracts still go back to rich country firms

Friday November 4 2016

RICH countries need to come clean about how much aid money they plan to use to subsidise their own companies.

A ‘Progress Report’ published last night (November 3) by the Global Partnership for Effective Development Co-operation (GPEDC) states that nearly half of the aid money used to procure goods and services still goes back to suppliers in their own country – a practice known as ‘tied aid’.

The practice continues even though Global Partnership figures show that officially, donors have committed to untying their aid.

Meanwhile, the OECD Development Assistance Committee (DAC) – a group of rich country donors – met in secret in Paris last month to discuss the biggest changes to aid rules for 40 years, which would allow a significant increase in the use of aid to subsidise or underwrite private investments.

Jeroen Kwakkenbos, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad) said: “With the proposed liberalisation of aid rules taking place at the OECD DAC, the door is open for donors to use a lot of aid to subsidise their own firms. We know this kind of ‘tied aid’ works badly, increases costs and undermines the case for aid. The new rules need to be much tighter, and should not be put in place without a firm commitment to untie all aid – in practice as well as in theory.”

Elsewhere, the report shows mixed progress against key promises to improve the quality of aid, with concerns raised about developing country ownership.

A major summit of government ministers – including those from OECD countries – will be held in Nairobi at the end of November to discuss how effective their aid is and how to improve it.

Kwakkenbos said: “The Global Partnership summit is a key moment for all leaders to show they are serious about improving the quality of aid.

They should commit to untie all aid and require the OECD to tighten the rules to prevent aid funds from being used to subsidise their own companies.”

Eurodad and its partners also believe that more robust and regular monitoring of aid on a national and international basis is necessary to deliver on commitments made several times in the past.

ENDS

Media contact: Julia Ravenscroft, Communications Manager at the European Network on Debt and Development (Eurodad), on jravenscroft@eurodad.org or +32 2 893 0854.


Notes to editors:

· The 2016 Progress Report states that: “Tying funding decreases the effective use of the funds and reduces the value for-money of development co-operation, since it limits the suppliers who can bid on the procurement of goods and services to those who are located in the restricted set of territories (typically the country of the development partner). For this reason, goods and services procured with tied aid tend to be more expensive or offer less quality than their equivalents procured from local suppliers in the country where the project or programme is being implemented, or from other more competitive foreign suppliers.”

The report finds that 78% of bilateral aid is officially untied, but that “Contract awarding practices provide another perspective on the extent to which aid is effectively untied. In 2013, 48% of development co-operation contracts were awarded to suppliers from the bilateral partner country.” In other words, while donors may say that most aid is untied in theory, in practice they find ways of bending the rules, or creating systems that favour their firms, meaning aid is not untied in practice.

The report also alludes to Eurodad’s concerns about how new aid rules threaten to make the situation far worse, saying "The increasing involvement of the private sector from development partner countries in delivering development cooperation needs to be carefully managed to avoid further tying of aid."

· In November 2015, the OECD published a report titled: ‘Aid Untying: 2015 Progress report’. This report stated that even though 78.4% of OECD DAC bilateral ODA was reported as untied: “A very high share (often over 75%) of contracts (volume and/ or value) awarded to suppliers in the donor country has been a persistent feature for some donors such as Austria, Canada, Finland, Korea, United Kingdom and the United States.” In some donor countries this amounted to more than 89% of contracts.

· The Global Partnership was created at the Fourth High-Level Forum on Aid Effectiveness in Busan in 2011 and came into effect in 2012.