Charity Begins at Home

Development aid is ineffective mostly because it is tied to contracts worth billions of dollars awarded to firms in developed countries in a phenomenon called boomerang aid, a new study says.

The study by the European Network on Debt and Development (Eurodad) shows that more than two-thirds of all aid contracts are bagged by companies in the developed countries. Eurodad is a network of 58 NGOs from 19 European countries that researches and works on issues related to debt, development finance and poverty reduction.

Eurodad examined case studies in Namibia, Ghana, Uganda, Bangladesh, Nicaragua and Bolivia to arrive at its conclusions, one of which links aid effectiveness with procurement, or the purchase of goods and services in implementing aid. Procurement refers to the awarding of contracts to private companies for aid projects such as building roads, supplying drugs or delivering schoolbooks to poor countries. Few poor countries have managed to become independent from international aid. This is partly due to donors’ procurement practice.

"We found that most aid never enters the economy of a developing nation," says Bodo Ellmers, a Eurodad policy officer "Most people think these 92 billion euro were given to developing countries, but, when you take a look at the aid contracts, two-thirds were awarded to companies in the North, only benefiting the North's economy. That's one of the main reasons why aid is not steering development, including decent jobs and higher incomes"

In 2001, countries in the Organisation for Economic Co-operation and Development signed the first agreements to untie aid. 'Tied aid' refers to aid in which all purchases for development aid are made from firms in the donor country. Notwithstanding the promises made 10 years ago, 20 percent of all bilateral aid is currently still tied, says the Eurodad study. Furthermore, most untied contracts still go to firms from rich countries. The study shows that half of the contract value in World Bank-funded projects in the last decade went to firms from donor countries, with the share increasing with the size of the contract. In 2008, 67 percent of all World Bank-financed contracts went to firms from just 10 countries.

Most recipient countries are pressured to allow transnational companies to bid for contracts. "The message often is: we will give aid if you open up your market for international competition," Ellmers said."The company that offers the best value for money will get the contract, but then we miss out on the fact that most developing countries are undeveloped exactly because they don’t have companies that can compete on a global scale."

Johann Hari in the Independent writes about the International Monetary Fund. They said they would only give assistance if Malawi agreed to the ‘structural adjustments’ the IMF demanded. They ordered Malawi to sell off almost everything the state owned to private companies and speculators, and to slash spending on the population. They demanded they stop subsidising fertilizer, even though it was the only thing that made it possible for farmers – most of the population – to grow anything in the country’s feeble and depleted soil. They told them to prioritise giving money to international bankers over giving money to the Malawian people.

So when in 2001 the IMF found out the Malawian government had built up large stockpiles of grain in case there was a crop failure, they ordered them to sell it off to private companies at once. They told Malawi to get their priorities straight by using the proceeds to pay off a loan from a large bank the IMF had told them to take out in the first place, at a 56 per cent annual rate of interest. The grain was sold. The banks were paid. The next year, the crops failed. The Malawian government had almost nothing to hand out. The starving population was reduced to eating the bark off the trees, and any rats they could capture. The BBC described it as Malawi’s “worst ever famine.” There had been a much worse crop failure in 1991-2, but there was no famine because then the government had grain stocks to distribute. So at least a thousand innocent people starved to death. At the height of the starvation, the IMF suspended $47m in aid, because the government had ‘slowed’ in implementing the marketeering ‘reforms’ that had led to the disaster. ActionAid, the leading provider of help on the ground, conducted an autopsy into the famine. They concluded that the IMF “bears responsibility for the disaster.”

In Kenya, the IMF insisted the government introduce fees to see the doctor – so the number of women seeking help or advice on STDs fell by 65 per cent, in one of the countries worst affected by AIDS in the world.

In Ghana, the IMF insisted the government introduce fees for going to school – and the number of rural families who could afford to send their kids crashed by two-thirds.

In Zambia, the IMF insisted they slash health spending – and the number of babies who died doubled.