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Untying should mean untying - no matter where ODA is delivered

Added 31 May 2018

By Polly Meeks, Senior Policy and Advocacy Officer and Vitalice Meja, Coordinator of Reality of Aid Africa and Co-Chair of the CSO Partnership for Development Effectiveness (CPDE)

Think of the major events of summer 2018, and what comes to mind? Perhaps the World Cup; the Jakarta Palembang Asian Games; or (depending on your location and politics) a certain royal wedding. Your mind might not immediately jump to a deadline buried deep in paragraph 21 of the Organisation for Economic Cooperation and Development’s Development Assistance Committee (DAC) Recommendation on Untying Aid.

Yet for hundreds of millions of people experiencing extreme poverty and inequalities, this deadline could have life-changing implications. It states that in 2018 the DAC will review the countries which the Untying of Aid should and shouldn’t cover.

What’s at stake?

What is at stake is the amount of ODA directly benefiting developing countries and thereby contributing immensely to the poverty reduction of millions of poor households in these countries. When donors tie their aid or use parallel systems to spend ODA they undermine and atrophy partner countries’ public financial management systems. This creates a downward spiral, diminishing public capacities in poor countries and affecting the sustainability of development projects and programs in the long term.

Tied ODA is currently used to buy goods or services from the country providing the ODA. In other words, it puts the commercial objectives of companies in donor countries ahead of the priorities of people in the Global South – whether those priorities are getting the best price; sourcing items that are adapted for local circumstances; and / or using procurement as a means to support local production and build the local economy.

This is why governments have repeatedly committed to untie ODA, including in the 2005 Paris Declaration commitments on aid effectiveness, the Addis Ababa Action Agenda on financing for development, and the Nairobi Outcome Document of the Global Partnership for Effective Development Cooperation. In the last 18 months, both the Chair of the DAC and the UK Secretary of State for International Development have spoken out strongly against the tying of aid.

Gaps in the DAC Recommendation

However, tying persists. In 2015, some 23.8 per cent of bilateral Official Development Assistance (ODA), or over 31 billion US dollars, was formally reported as tied.

One of the reasons for such high levels of tied ODA is that the current coverage of the DAC’s Recommendation on Untying Aid is very incomplete. In fact more than 4 in every 5 of those tied ODA dollars in 2015 fell outside the Recommendation’s scope. The Recommendation does not cover some kinds of technical cooperation, and leaves it to members’ discretion whether to untie food aid. Most importantly for the upcoming decisions, the Recommendation only includes ODA to Least Developed Countries and Heavily Indebted Poor Countries: all the other countries on the DAC’s list of eligible ODA recipients are outside its scope.

Missing millions

This loophole has a huge human cost. The development effectiveness arguments against ODA untying do not stop at the borders of the very poorest countries. Available data suggests that, out of the 783 million people who live in extreme poverty globally, around half reside in countries that the Recommendation does not cover. If ODA is delivered in a way that wastes precious resources, does not meet local needs, or misses opportunities to support pro-poor local growth – it is these people who suffer.

Recent tied ODA projects in the DAC’s database include a programme to tackle tuberculosis in South Africa; a hospital construction project in Laos; and a maternal, new-born and child health programme in Pakistan. The Recommendation, as it currently stands, has little to say on the use of tied aid in these cases, despite the damage that tying is known to do.

Kenya: a case in point

Kenya, where Reality of Aid Africa is headquartered, is a prime example of why the current coverage of the Recommendation doesn’t make sense. Kenya has some 10.9 million people living in extreme income poverty. It is ranked 146 out of 188 countries on the Human Development Index. The National Bureau of Statistics estimates that over one quarter of households do not have access to an improved source of drinking water. And beneath these headlines there are profound geographic and demographic inequalities. These urgent challenges demand the most effective possible forms of financing, including untied ODA. Low absorption capacity of ODA currently standing at 46 per cent is largely blamed on appropriation in aid (AiA) and tied aid.

Kenyan public procurement laws give a clear steer that the government sees local procurement as a means to address some of Kenya’s development challenges, including targeted procurement from marginalised suppliers such as women, youth, and persons with disabilities. Yet donors prefer to appropriate their support directly without using the country’s procurement system, thereby increasing the cost of transaction to the poor, who are largely meant to benefit from such projects.

Kenya currently remains outside the scope of the Recommendation. DAC members are free to put the commercial interests of their own domestic suppliers first.

No place for tied aid

Of course there is vast diversity among the countries on the DAC’s list of eligible ODA recipients, and it would be a major over-simplification to say that all shared Kenya’s characteristics.

However, the beauty of ODA procurement as a development tool is its flexibility to respond to different contexts. It can be used to foster fledgling industries and redress inequalities facing specific segments of the population where this is appropriate. In other settings, considerations of minimising whole-life cost may come to the fore. For the authors of this blog, there is not one right way to use ODA procurement to support development impact, but many – and the decision on the best approach in any given context has to respond to the preferences of local people. The problem with tied ODA is precisely that it rules out the possibility to consider these different approaches before they have even been contemplated, and before local voices have ever been heard. That is why we believe there is no place for tied ODA in any country, regardless of its development or indebtedness status.

Whatever DAC members decide about the scope of the Recommendation, one thing is certain: the repercussions of their decision will be felt long after the buzz around the sporting and celebrity events of summer 2018 has subsided. If DAC members are serious about “contributing to the implementation of the 2030 Agenda for Sustainable Development … and a future in which no country will depend on aid”, let us hope they make a decision that puts the eradication of poverty and reduction of inequalities in all countries squarely before their own self-interest.