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The transfer of aid money from wealthy countries can be an effective instrument for fighting poverty and promoting sustainable development, and is a vital resource for low-income countries in particular, where it makes up close to 10% of gross domestic product (GDP). However, this implies that aid actually flows to developing countries and is used effectively. In practice this is often not the case. We will support members and allies who campaign for donors to meet their commitment to devote 0.7% of national income as aid, by focussing on how to make sure that the aid is also of high quality.

Much aid is still ‘tied’ to the condition that all supplies are procured from firms in the donor countries. Aid tying increases costs by 15% to 30% and shows that donor countries are prioritising support for their own companies over poverty reduction. It also means that developing countries have less scope to use aid to boost domestic industries. In 2001, donors promised to tackle this problem, and the share of overseas development assistance (ODA) that is officially reported as tied did decrease significantly. However, this had little impact on the reality of aid. In practice, more than 60% of contracts awarded by donors are given to firms in the donor’s country. Aid remains heavily tied in practice, a scandal that must be ended.

In a series of international declarations, including the Paris Declaration (2005), the Accra Agenda for Action (2008) and the Busan Partnership For Effective Development Cooperation (2011), donors have also committed to procuring locally and regionally, use developing countries’ public procurement systems as the first option when aid is channelled through governments, and slashing their use of parallel implementation units. Using country systems in these cases empowers the recipient country because it contributes to handing over the decision-making power on how aid is spent. It means that aid can have a lasting impact through supporting countries’ development strategies and systems and not just be temporary islands of progress that disappear once the donor loses interest. However, using country systems is the area where least progress has been made to implement international aid effectiveness agreements. Aid cannot be truly effective until these agreements are fully implemented. Of course, the effective use of government-channelled aid depends critically on strong accountability to the citizens of developing countries and building this accountability is very important if aid is to be truly effective.

Aid to developing countries often comes with conditions attached. Basic ‘fiduciary’ conditions are necessary to ensure that money will be spent appropriately, but International Financial Institutions and other donors also attach economic policy conditions, which can determine fiscal and monetary choices. This undermines democracy, by making key national decisions the result of a bargain between donors and governments. It has also in the past led to damaging outcomes including the privatisation of essential services, and budget cuts, which, all too often, have had a harmful impact on the poor. Though, after a long campaign by Eurodad and allies, there has been an encouraging decrease in the number of economic policy conditions attached to development aid, they still have no place in a truly just and effective aid system.

Aid to developing countries nearly always comes with conditions attached; Southern governments must adhere to donor and international financial institutions' ( IFI) conditions in order to receive development finance. Even if fiduciary conditions are necessary to ensure that money will not be misappropriated, IFIs and other donors impose economic policy conditions on developing countries, which go as far as determining fiscal and monetary choices, pushing for privatisation of essential services, or other controversial policies such as trade liberalisation. Conditions imposed by foreign donors undermine the democratic ownership of development by the recipient countries. They deprive poor nations and people of choosing their own development path. All too often, they also have a harmful impact on the poor.

Civil society organisations (CSOs) have campaigned to stop development agencies imposing economic policy conditions as part of aid. After much debate, donors have agreed to change the nature of conditions, to agree with developing countries on a limited set of mutually agreed conditions drawn from national development plans. They also committed to make public all conditions.

Despite the fact that there has been an encouraging decrease in the number of conditions attached to development aid, indirect conditions such as aid allocation systems based on performance against policy reforms (i.e. World Bank CPIA), informal influence of the IFIs in negotiations prior to financing agreements which take place at closed doors, non-legally binding benchmarks, or donor-driven technical assistance are still common place. This practice of “conditionality through the back door” reduces the transparency of the conditions themselves and constrains developing countries’ policy space to conduct inclusive national debates on the policy choices which are most appropriate to their context and which respond to their people’s needs and aspirations. 

Eurodad calls on IFIs and European donors to:

  • Phase out all policy conditionality. Only fiduciary conditions, which are negotiated in a transparent and inclusive manner with mechanisms for public monitoring, ought to be attached to development aid. Donors and developing countries as signatories of human rights covenants and conventions should work together to meet their international obligations.
  • Ensure that all technical assistance is demand-driven; ensure that it reflects a broad range of policy options; and source locally where possible.

Aid can be an effective instrument for fighting poverty and promoting sustainable development. However, this implies that it actually flows to developing countries, is retained in developing countries and used effectively. In practice this doesn’t happen.

Much aid is still tied to the condition that all supplies are procured from firms in the donor countries. Aid tying increases the costs of projects by 15% - 30%. The surcharge can amount to 40% when it comes to food aid. Aid tying also undermines the ownership of developing countries, because the decisions on how aid is spent are determined by the donor.

In 2001, donors endorsed the Development Assistance Committee (DAC) Recommendations on Untying Overseas Development Assistance (ODA) to the Least Developed Countries. In consequence the share of ODA that is officially reported as tied has decreased enormously. In the Paris Declaration, Accra Agenda for Action and Busan Partnership for Effective Development Cooperation (2011), donors have also committed to procure locally and regionally and use the developing countries’ public procurement systems as the first option.

However, this had little impact on the reality of aid. In practice, more than 60% of contracts in EU-funded development projects are still awarded to European businesses and consultants. Due to such procurement practices, much European aid quickly flows back to Europe. It is a reverse flow rather than a sustainable North-South flow. It does little to create jobs and income opportunities for people in the South, to build capacities and boost the equitable economic development that is needed for gradually reducing poor countries’ dependency on aid.

Eurodad monitors progress against commitments made on untying aid and improving procurement practices for development effectiveness. But we are also going beyond the free-market principle of untying aid in order to investigate how governments and aid agencies can use their purchasing power more effectively to boost equitable economic development and poverty eradication through pro-poor procurement.

European aid donors often use their own agencies to implement aid-funded projects. In this way, aid is fragmented into thousands of badly coordinated projects. The authorities of developing countries lack oversight on what happens in their countries and have to cope with the huge administrative burden of dealing with many different donors and their procedures.

Eurodad advocates for aid donors to use recipient country systems. We also monitor advice given by European donors and international financial institutions when they support developing countries in strengthening country systems.

Using country systems empowers the recipient country because it contributes to handing over the decision-making power on how aid is spent. It is essential for making sure that developing countries can align the aid they receive to their development strategies.

In the Paris Declaration and the Accra Agenda for Action, donors have committed to stop setting up parallel implementation units and rather use the recipients’ country systems as the first option.

However, while the commitments and targets are ambitious, in reality not much progress has been made. Using country systems is the area where the implementation of international aid effectiveness agreements lags furthest behind. Donors are still reluctant to let developing countries take the driver’s seat. This for a number of different reasons which may range from a lack of trust in the quality and accountability of their institutions, via the desire to keep track of “their” aid in order to report on results to media parliaments and taxpayers at home, to the aspiration to remain in control of aid spending in order to promote vested interests.