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Less than 2% of US aid to Haiti supports local firms – new report

Added 04 Mar 2013

At the time of the earthquake in Haiti I was working as an advocate at the UN headquarters in New York and I recall a sense of purpose and solidarity permeating throughout the building.There was no doubt in anybody’s mind that this was a catastrophe that had to be dealt with effectively and immediately and that we would rebuild Haiti better than it was before. Three years later progress has been marred by poor planning and coordination with very little impact on the ground. This is highlighted by a recent brief from the Center for Global Development (CGD) that points out that only 1.33 dollars of every 100 spent by the US government in Haiti reaches local firms.

For some time now Eurodad has pointed out the double dividend offered by smart and sustainable procurement policies, referred to in the CGD briefing as the double duty. The essence of the double dividend is that aid money spent locally does more than just funding projects which may benefit the poor. As noted in the briefing "local procurement in development projects and peacekeeping missions is a way to 'spend the development dollar twice,' and create a multiplier effect for each reconstruction dollar." This multiplier effect creates new economic activity within developing countries, increasing the capacity of domestic firms and opportunities for people in the country.  Capacity development is key for sustainable impact and gradually reduces the need for future aid.

Despite commitments from USAID to procure locally the brief points out that no bid contracts, contracts that are directly awarded and not tendered, to firms based in the USA have increased drastically since the earthquake: “No bid contracts were 15.5 percent of all contracts in January 2010, rising to 42.5 percent between December and April 2011.” This creates what is known as boomerang aid where the funds disbursed have more development impact on the donor country than the partner country.   

This is not just a problem of the USAID in Haiti. Recent statistics (see graph below) by the OECD DAC demonstrate that the majority of ODA funded contracts are being awarded to firms based in donor countries rather than in developing countries.

If donors are serious about commitments to growing the private sector in developing countries they need to focus on the local economy in partner countries rather than subsidising multi-national companies or firms in donor countries. The recommendations put forward by the CGD paper are in line with those proposed by Eurodad as well as other civil society groups involved in the on-going review of the World Bank procurement policy, as well as the European Union review of its procurement directive.  Developing countries need to be given the opportunity to use their public finance in the most effective manner possible and firms in developing countries need to be given a fair chance to compete and grow. Haiti in particular has the international support to potentially develop a flourishing domestic marketplace. However, bad behaviour and habits by donors continues to mar any such progress.