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More than half of aid spent on procurement still goes to rich countries' firms - almost two decades after commitment to end 'tied aid'

Added 23 Sep 2018
  • US, Australia and UK worst offenders – with at least US$9 out of every $10 dollars reported going to their own companies
  • The estimated cost of not being able to ‘shop around’ for goods and services was between US$1.95 billion and $5.43 billion in 2016
A new report concludes that rich countries are still awarding more than half of their development aid procurement spending to companies from their own countries. This is despite a 17-year-old promise to end practices that give their own firms an unfair advantage – known as ‘tying aid’.

The new research shows that in 2016 alone some $25 billion of official development assistance (ODA)* – more than one-sixth of Real ODA** - was reported as ‘formally tied’. But a closer look reveals that donors actually awarded far more to their own firms, due to what is known as ‘informally’ tied aid.

The worst offenders are the US, Australia and the UK. All three donors sent at least 90 per cent of aid procurement spending to firms in their own countries. Despite this, the UK and Australia publicly reported 100 per cent of their aid as ‘untied’.

Polly Meeks, Senior Policy and Advocacy Officer at the European Network on Debt and Development (Eurodad) and author of the report Development, Untied, said:
“The procurement of goods and services accounts for almost half of the aid spent by governments around the world according to our estimates. So it is a huge proportion of aid budgets, totalling $55 billion in 2015. Many of these donors regularly acknowledge that untied aid is the way to achieve maximum impact in the fight against poverty and inequalities. However, our report shows that they often fail to practice what they preach.”

The toll that tying takes on the global south is too far-reaching to quantify in full. However, Eurodad estimates conservatively that the immediate cost– that is, the cost of being unable to shop around for the best price – was between $1.95 billion and $5.43 billion in 2016. And that is before factoring in the far greater cost of missed opportunities to catalyse local economic, social and environmental development over the long term.

Furthermore, the report finds that:
  • Companies in the global south especially tend to miss out on public procurement contracts in the more lucrative sectors, such as technical assistance;
  • Sometimes even when a contract appears to be led by a company based in the global south, the main players are actually based in the global north.
Simple strategies for opening up procurement to firms in the global south have been well documented for many years. Yet evidence from 18 donor agencies who responded to our survey shows that such strategies are often ignored. Donors do not consistently advertise contracts in the local media, they still set very large contract sizes, and the procurement processes are often only conducted in the languages of donor countries, but not the local languages of countries in the global south.

Meeks said: “If donors are really committed to maximising the catalytic impact of aid for development in the global south – not just for their own companies – they should urgently take action to untie their aid and improve their procurement processes.”

To read the full report or a summary briefing, click here. 

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To organise an interview with Polly Meeks or for further information please contact Julia Ravenscroft on jravenscroft@eurodad.org or +32 486356814.

Notes to editors

* These are the findings of the report Development, Untied, which analyses the latest data available (generally from 2016). This figure relates to bilateral aid only (not to multilateral aid or aid spent directly through country systems in the global south.) The figure also only capture contracts reported to the OECD Development Assistance Committee (DAC). With more complete reporting, it is likely that even more awards to donor country firms would be exposed.
** ‘Real ODA’ is the value of ODA that is genuinely available for initiatives to reduce poverty and inequalities in the global south (see report).