THE history of the industrial world鈥檚 aid to developing countries is littered
with horror stories. This is one of them. In the 1980s, the Brazilian government
needed money to build a high-tech forestry research centre in the Amazon.
Britain agreed to help by contributing towards a field station, but insisted
that the Brazilians use the money to buy British equipment. The Caxiuan茫
Field Station was duly built, with fully equipped laboratories, accommodation
for 30 scientists and a large lecture auditorium, all supplied by British
companies.
Two years after its completion, the field station is still unoccupied and a
tree has fallen through the roof. The Brazilians cannot afford to run it. 鈥淚t鈥檚
a real white elephant,鈥� says a British scientist who visited it recently. 鈥淚t is
totally inappropriate鈥攖oo big, too far away. It was a waste of money.鈥�
It would never have happened, say critics, if Britain had given the money
without insisting that it was spent on British goods. Aid that is 鈥渢ied鈥� in this
way accounts for around 40 per cent of donations from OECD countries. Most aid
agencies claim that tied aid is a huge burden to the developing countries which
receive it, for if a government is forced to buy equipment, spare parts and the
services of consultants or scientists from the donor country, then it cannot
shop around for the best price and often ends up paying over the odds.
Advertisement
鈥淚nstead of giving money, a tied aid policy gives goods which end up as rust
heaps,鈥� claims Robert Shaw, a Kenyan economics writer. 鈥淚n a lot of cases it鈥檚
not a gift, it鈥檚 a soft loan. Looked at cynically, tied aid is a disguised way
of promoting that country鈥檚 product. Any British embassy or high commission has
a strong commercial component鈥攊t is there to represent British companies.
In very big deals that becomes a dominant issue.鈥�
A report published recently by the Overseas Development Administration (ODA),
Review of UK Aid Tying Policy, shows that heavy vehicles and industrial
equipment, as well as shovels and agricultural tools, cost recipients more if
they are bought from British companies. Some spare parts for vehicles are 30 per
cent more expensive if bought from Britain.
The OECD estimates that tying aid increases a developing country鈥檚 costs by
an average of 15 per cent. With tied aid worth $15 billion in 1994, the
extra cost to the developing world during that year amounted to some $2
billion. The OECD tried to reduce this burden with its 1992 Helsinki Agreement,
which restricts the use of tied aid loans to countries below a certain income
threshold. It has been partly successful. The volume of tied aid loans from
Spain, for example, fell from around 70 per cent of total bilateral aid in 1994
to 22 per cent in 1995.
Scared of change
But countries are finding ways to bypass the restrictions, such as replacing
loans with grants, which are not subject to the agreement. And despite
increasingly urgent calls from critics鈥攊ncluding the World Bank and many
aid agencies鈥攆or countries to reduce their commitments to tied aid, there
is little apparent enthusiasm for doing so.
Last month, at a meeting in The Hague of the 21 members of the Development
Assistance Committee (DAC), the group of donor governments within the OECD, most
of the countries agreed in principle to the benefits of untying aid. But France,
Canada and Spain objected, and most of the others were afraid that they would
lose out if they agreed to act without them. Even the US government, once a keen
supporter of untying aid, is now more cautious, fearing that such a change might
prompt Congress to question its entire aid budget.
Nevertheless, the Netherlands and Japan have gone ahead and reduced their
commitments to tied aid. The Netherlands now ties less than 10 per cent of its
bilateral aid, and for the past 10 years has been trying to persuade other OECD
countries to follow its example. Countries say they are convinced and then back
off from doing anything about it, claims Fritz Meyndert, the Dutch government鈥檚
coordinator on the DAC. 鈥淭he problem seems to be that support for [overseas aid
programmes] is not as strong as it was, and so countries use tying aid money as
an argument to support their programmes. Yet untying aid hasn鈥檛 proved to be
damaging for us or for Japan.鈥�
Aid agencies insist that tied aid does little to improve the economies of
poor countries and the living standards of their people. 鈥淭he most effective aid
is geared to capacity building [improving skills] so recipients can improve
their own lives, but tied aid is about promoting goods and services from the
donor,鈥� says Charlie Kronick, an adviser to Action Aid in London. 鈥淣ot only is
this kind of aid expensive for recipients, it might not even be what they
飞补苍迟.鈥�
A large proportion of emergency relief aid is also tied, even when it is
directed through nongovernmental organisations. John Broughton of the Overseas
Development Institute, an independent research group in London, says this is
completely unnecessary. 鈥淪urely it must be possible for humanitarian agencies to
establish formal contacts with local suppliers, in India or Mozambique, or
wherever there is a relief operation, so that local businesses can supply 10 000
blankets or whatever is needed, rather than shipping them all in from Rotterdam
or Britain.鈥�
Robert Maxwell, chief executive of the King鈥檚 Fund, an independent health
charity based in London, accuses donor countries of sometimes putting their
interests before those of the recipients. For example, a donor country may
choose equipment for a hospital in Africa on the basis of what its domestic
companies can supply, rather than on what the hospital actually needs. Tied aid
often leads to poor countries being flooded with equipment which is complicated
to maintain and needs expensive spares from overseas. One survey found more than
16 different kinds of water pump in use in Kenya, each funded by a different
donor nation.
The British government has frequently stated that tied aid is good for
business. But even this assumption is being questioned. The ODA鈥檚 own report
argues that an agreement between countries to untie aid would benefit exports
and competition. During question time in the House of Commons in July, Foreign
Office minister Jeremy Hanley acknowledged that this would produce 鈥渟ignificant
benefits鈥�, but then went on to say that for Britain to reduce its tied aid
without other countries doing the same 鈥渨ould bring little commercial benefit
and would be unpopular with individual firms and businesses competing for
aid-funded contracts鈥�. The ODA鈥檚 report also says that in the absence of
international agreement, the effect of untying British aid would be very small.
It goes on to warn that cutting back tied aid unilaterally could reduce public
support for Britain鈥檚 entire aid programme.
Yet enthusiasm for tied aid appears to be waning. 鈥淭he consensus is that tied
aid doesn鈥檛 do a lot for balance of payments or employment, but no donor country
wants to be the first to stop,鈥� says Kronick. Even industry chiefs are slow to
leap to its defence. Barbara Browntree, senior policy adviser at the
Confederation of British Industry, says: 鈥淲e鈥檙e realistic about the way the role
of tied aid has diminished now that the Helsinki rulings focus it on the poorer
countries.鈥� Nevertheless, the ODA insists that since 1977, British companies
have won 拢4 billion of business through tied aid. The main beneficiaries
have been construction companies such as Trafalgar House and Balfour-Beatty.
Alick Goldsmith, director-general of the Export Group for the Constructional
Industries, says: 鈥淎 small part of the bilateral aid programme specifically
supports projects that are developmentally sound and of industrial and
commercial significance to Britain. This has enabled Britain to promote hundreds
of sound projects in over fifty countries, and has paid for itself many times
over in terms of additional British jobs and exports.鈥�
No more dams
Among those who have gained is the Devon-based truck manufacturer Reynolds
Boughton, which recently helped Pakistan to upgrade rescue and firefighting
facilities at nine of its airports. The ODA provided 拢2.5 million to
support the deal, which enabled the company to win the 拢7-million contract
for 19 airfield crash trucks.
There has been some change in the ODA鈥檚 attitude in recent years. In 1994,
the High Court ruled that the use of 拢234 million from the aid budget to
fund the Pergau Dam project in Malaysia, linked to 拢1 billion of arms
sales, was illegal. Following this fiasco, the ODA鈥檚 funding priorities have
switched away from supporting dam builders and metal bashers, and moved towards
consultancies.
But some critics believe the new policy is just as flawed. 鈥淭he primary
purpose of Britain鈥檚 aid programme is to alleviate poverty overseas,鈥� says Dan
Rees, programme manager of Voluntary Services Overseas. 鈥淒oes exporting British
brains, via hundreds of university departments, increase the capacity of
developing world governments to be self-sufficient?鈥�
Although the ODA insists that its aid programme now targets poorer countries,
and has long since ceased being used as a way of filling empty British order
books, there is puzzlement over the agency鈥檚 continuing commitment to tied aid.
鈥淚s tied aid really aid, or is it about donors giving equipment which ends up as
rust heaps with pumps no longer in working order and no one who knows how to
maintain them?鈥� asks Shaw. Action Aid is even more cynical. 鈥淭he ODA鈥檚 goal is
to keep its budget up,鈥� claims Kronick. 鈥淚t鈥檚 not about aid.鈥�
