"We know this kind of tied aid works badly, increases costs and undermines the case for aid"
By Umberto Bacchi
LONDON, Nov 7 (Thomson Reuters Foundation) - Private firms in rich nations have increasingly benefitted from aid money earmarked for the world's poorest in recent years, a new study shows.
Campaigners say donors are failing to rein in so-called "tied aid", a practice forcing aid recipients to buy goods and services from a donor country.
In 2001 wealthy donors pledged to end tied aid, which is considered to be detrimental to recipient nations as it raises costs by squeezing competition and deprives local companies of business opportunities.
Global efforts to stop the practice have stalled in recent years, according to a report published last week, which showed donor country companies were still pocketing a large and growing share of development contracts.
"This is an agenda that is not taken seriously anymore," said Jesse Griffiths, director of the European Network on Debt and Development (Eurodad), a network of 47 non-governmental organisations from 20 European countries.
Griffiths said he feared the quality and impact of development projects was becoming incidental to trade benefits.
Eurodad said the findings, published in a study by the Organisation for Economic Cooperation and Development (OECD) and the United Nations Development Programme (UNDP), were worrying in the light of reports that wealthy donors were discussing the relaxation of development aid rules that could increase support for the private sector.
"With the proposed liberalisation of aid rules taking place... the door is open for donors to use a lot of aid to subsidise their own firms," Eurodad's policy and advocacy manager Jeroen Kwakkenbos said in a statement.
"We know this kind of tied aid works badly, increases costs and undermines the case for aid."
According to the OECD/UNDP report, the share of bilateral donations with no conditions attached dropped one percentage point to 78 percent of the total in 2014.
Moreover in 2013 - the last year for which data was available - almost half of development contracts, 48 percent, were awarded to suppliers from donor countries, a two percent increase on 2012.
Frans Lammersen, an OECD specialist, said looking longer term, however, countries had cut about 25 percent of tied aid over the past two decades.
"If you look at the longer term you'll see that in the 90s and at the beginning of the century there was a steep increase in the share of aid that was untied," he said in a phone interview. "(But) we seem to have reached a plateau".
(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Ros Russell; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women's rights, trafficking, property rights and climate change. Visit http://news.trust.org)
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