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 to 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 DAC Recommendations on Untying 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 and the Accra Agenda for Action, 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 purchase power more effectively to boost equitable economic development and poverty eradication through pro-poor procurement.