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Three uncomfortable truths – and some glimmers of hope – in the latest data on untying Official Development Assistance

Added 18 Jun 2018

Last week the Organisation for Economic Cooperation and Development’s Development Assistance Committee (OECD DAC) released its 2018 report on untying Official Development Assistance (ODA).

This may sound dry and technocratic, but tied ODA has life-changing – and sometimes even life-threatening – consequences for people living in poverty in the Global South. Tied ODA can only be used to buy goods and services from the country providing the ODA – putting the commercial objectives of companies in donor countries ahead of the priorities of local people. And when commercial objectives take precedence over development objectives, it’s no surprise that the end result is wasted resources; failure to meet local needs; and /or missed opportunities to support pro-poor local growth and build stronger local capacities for the long term.

The DAC’s new report is a gold mine for anyone seeking to find out more about the extent of tying, and to get some clues on what drives it. As well as a breakdown of DAC members’ performance on untying, this year’s report includes some important innovations, such as a detailed analysis of the share of ODA contracts awarded to local firms in different ODA recipient countries. This makes sobering reading: for example in Ghana between 2008 and 2016, only 5.2 per cent of contracts were awarded to Ghanaian firms. [Analysis by value of contracts].

This Autumn, Eurodad will release research that marries this data up with an investigation of donor procurement practices, to identify what is holding back progress on untying ODA, almost two decades after DAC members committed to untying. In the meantime, here is a round-up of some key headlines from the new DAC report.

The uncomfortable truths

Overall, the picture on untying remains a deeply troubling one:

  • Total levels of tied ODA remain very high – around 25 billion US dollars in 2016. This is almost one-fifth of total ODA.
  • The DAC’s commitments on untying have major gaps. More than 4 out of every 5 of those tied ODA dollars in 2016 fell outside the scope of the DAC’s Recommendation on Untying. This is because the Recommendation does not cover all sectors: it does not include some kinds of technical cooperation, and leaves it to members’ discretion whether to untie food aid. In addition, the Recommendation only covers Least Developed Countries and Heavily Indebted Poor Countries - a small subset of the countries eligible to receive ODA.
  • Firms based in donor countries are the biggest beneficiaries of ODA procurement. Even when ODA is untied in principle, there remains a significant risk that it may still be tied in practice, through informal barriers (e.g. language) that prevent firms outside the donor country from competing. Informal tying is hard to quantify exactly, but the DAC’s new report confirms that just over half of ODA contracts reported to the DAC in 2015 and 2016 were awarded to a bidder in the donor’s own country. Only 7% went to firms in Least Developed Countries or other Heavily Indebted Poor Countries. [Analysis by value of contracts].

The glimmers of hope

Despite this alarming big picture, there are some small signs of progress.

  • A big step forward for the European Union. In 2016 for the first time, the European Union reported 100% of its ODA within the scope of the Recommendation as untied. This is thanks to new financial regulations that came in during 2016, so there is every reason to expect this performance to continue. However, the total level of untying across all European Union ODA (including ODA outside the scope of the Recommendation) is only 72%, which is well below the average for major European donors. Eurodad continues to engage with the European Union about ways to drive further progress on untying and local procurement across the whole of European ODA spending.
  • Forthcoming opportunities. The report also hints at some upcoming decisions that could drive further progress on untying. First, the DAC will be reviewing its earlier decisions to the effect that Heavily Indebted Poor Countries should be included within the Recommendation on Untying. This process could in theory reduce the scope of the Recommendation still further, but it could also expand it. Eurodad and allies have argued that this would be a golden opportunity to extend the Recommendation to all countries that are eligible to receive ODA. Second, the DAC is looking at new ways to improve donors’ reporting of individual contracts advertised – an important test of whether they are translating into reality their commitments to open up contracts to bidders beyond their own countries.

These developments are a sign that the untying ODA agenda is back on the radar for DAC members, and not a moment too soon considering that the potential adoption of new instruments targeting the private sector come with significant tying risks. What is needed now is a comprehensive process to stamp out formal and informal tying for good.

Eurodad’s forthcoming research will provide evidence and analysis to kick-start such a process. By highlighting some of the best and worst practices of ODA procurement, we will put forward a positive agenda for how donors can put an end to the damage done by tying, and multiply the impact of their ODA. Watch this space!