Crunch time for the OECD’s new aid rules?

Added 25 Apr 2017
Blink and you might miss it: but a seemingly low-key meeting of the Organisation for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC) officials this week could signal one of the biggest changes in decades to the way that donors think about aid. 

That’s because tomorrow’s meeting [April 26] could be decision time on the rules governing ‘private sector instruments’ (PSIs). The proposed rule changes would allow donors to count more of their investment in, and other support to, private sector companies as aid, if those companies are doing business in developing countries, and if certain conditions are met. 

Civil society, from both North and South, has been warning of risks in these proposed changes for months.

To be clear: our concerns aren’t about the pros and cons of support to the private sector per se. We recognise the vital role that the private sector, particularly local firms in developing countries, can play in creating jobs, providing essential goods and services, and generating tax revenue. 

But the devil is in the detail. Without strong safeguards, there is a very real risk that powerful private sector lobby groups in donor countries will push for aid money to be used to support their own operations, diverting it from other development activities, even if these would have a much higher impact on the lives of people living in poverty.

That’s why the European Network for Debt and Development (Eurodad), and a coalition of other civil society organisations, is calling for DAC members not to rush into any hasty decisions on the new rules, until there are strong guarantees that:

  • Aid through PSIs will never be ‘tied’ to firms in the donor country – neither in principle, nor in practice. Tied aid increases costs, leads to missed development opportunities, and is in conflict with internationally agreed principles that development should be southern-led. As analysis for the OECD has found, donors all too often use procurement processes that still favour their own firms, even long after they have formally agreed to untie aid. So it’s essential that the new PSI framework provides for rigorously enforced public reporting on the locations of the companies that benefit from PSIs in practice, together with an action plan to remove the barriers that stop developing country firms benefiting from aid contracts.

  • PSIs should only be counted as aid if they are concessional (i.e. they involve significant tangible costs to donors) – just like any other aid flow. Under the current proposals, PSIs would be subject to less stringent concessionality criteria than other forms of aid, such as loans to southern governments. Not only could this artificially inflate aid statistics: it also risks creating a dangerous perverse incentive – if it’s easier for donors to get aid ‘credits’ by investing in the private, rather than the public, sector, they may choose to divert aid into PSIs even if this means taking it away from other activities that people in the south value more. We are calling for the DAC to take a consistent approach to measuring all aid flows, which only recognises activities that carry significant tangible costs to donors.

  • PSIs should be aligned to the priorities of developing countries. For there to be any chance of this happening, it’s essential that southern governments and civil society be brought into the next stages of the DAC’s discussions. It’s also vital that data on PSIs be disclosed in a way that is sufficiently detailed, timely and complete to allow meaningful scrutiny by governments and civil society in developing countries – particularly over the instruments’ claimed development impacts.
Wednesday’s discussions at the DAC might easily go unnoticed – but their impact on the lives of people in the global south could be far-reaching - which is why it’s so important that their voices be heard and acted upon.