“Boomerang aid” study by EURODAD

A decade since donor governments agreed to stop tying development aid to lucrative contracts for their domestic companies, a major new study reveals that most aid contracts worth billions of dollars continue to be awarded to firms in rich developed nations.

A two-year study by the EuropeanNetwork on Debt and Development (quite disconcertingly shortened to Eurodad, which sounds like a really terrible superhero) on selected countries including Namibia, Ghana, Bolivia, Bangladesh, Nicaragua and Uganda on donor aid effectiveness found that donor aid is not benefitting recipient countries as the donations are largely tied to billion dollar contracts that are awarded to companies from the donor countries. The report was released on 6^th September in the presence of EU Development Commissioner Andris Piebalgs, ahead of the High-Level Forum in Korea that will gather world’s governments to agree on actions to make aid more effective. The study found that two thirds of all aid contracts were awarded in such a manner. Eurodad comprises 58 NGOs and 19 European countries. The report stated that the Paris Declaration and Accraeffectiveness agreements by the international community were the first major attempts to make aid work better fir poverty eradication and sustainable development in poor countries however it noted that little attention has been paid to how aid can enable poor people and poor countries to help themselves and become independent from aid. In successive international agreements, donor governments have committed to untie aid and allow poor country firms to compete for aid contracts. But although aid tying is estimated to raise costs by up to 40 percent, the rich countries continue to favour their own companies. “Currently, even when aid is not formally tied, donors continue to procure in a way that favours big firms from rich countries. This is a crucial reason why aid does not work as well as it could.” said Eurodad Director Nuria Molina

The findings of this report are highly relevant to Malawi. The Malawian government depends heavily on outside aid to meet development needs, although this need (and the aid offered) has decreased since 2000. However donor funding still accounts for more than 40 percent of the government's receipts. Britain being Malawi's single largest bilateral donor. This leaves the country at the mercy of donor countries. This has been most relevant over the past few months where a number of donor countries including the Uk and the US have pulled large donations from the country.  The United States had approved a $350 million grant for Malawi's dilapidated electricity network that had been delayed because of concerns about human rights abuses.

Central to the findings of the study were that procurement procedures which decide which private firms will undertake aid funded contracts generally result in firms from aid donor countries reaping the benefits of such contracts as in many contracts aid is tied to the condition that all purchases are made from firms from such donor countries. This is turn sends the funding right back to the donor countries and doesn’t add in the development of local capacity. the report states that

Around USD 69 billion a year, half the total official development aid, is distributed through public procurement tenders to private companies for aid projects such as building roads, supplying drugs or delivering schoolbooks to poor countries

Eurodad will join over 1000 campaigning organisations globally under the BetterAid coalition, campaigning for donors to finally make good on a decade of commitments and make aid work when they meet at the international conference on aid effectiveness starting late November in Busan, South Korea.