Tied aid strangling recipient nations

Thalif Deen

Donor money that comes with strings attached cuts the value of aid to recipient countries 25 to 40 per cent because it obliges them to purchase uncompetitively priced imports from the richer nations says a new UN study on African economies. The 24-page study singles out four countries — Norway, Denmark, the Netherlands and the UK— as the only do-nors breaking away from the concept of “tied aid,” which comes with strings attached. These nations now provide more than 90 per cent of aid “untied,” says the report, wh-ich will go before the current session of the UN Economic and Social Council, scheduled to end on July 23. Tied aid mandates developing nations to buy products only from donor countries as a condition for development assistance.

About 60-75 per cent of Canadian aid is tied, one of the world’s highest amounts. The US, Germany, Japan and France still insist that a major proportion of their aid money be used to buy products originating only in their countries, according to the report. “This has ensured that aid money is eventually ploughed back into the economies of donor nations,” says Njoki Njoroge Njehu, director of 50 Years is Enough, a coalition of over 200 grassroots non-governmental organisations. “The US makes sure that 80 cents in every aid dollar is returned to the home country,” she said. “It’s not so much the volume of trade that is important,” according to the UN report, “but rather its qualitative aspects that make a demonstrable difference from a developmental point of view.”

Njehu cited the example of Eritrea, which discovered it would be cheaper to build its network of railways with local expertise and resources rather than be forced to spend aid money on foreign consultants, experts, architects and engineers imposed on the country as a condition of development assistance. Njehu also pointed out that money being doled out to Africa to fight HIV/AIDS is also a form of tied aid. She said Washington is insisting that the continent’s governments purchase anti-AIDS drugs from the US instead of buying cheaper generic products from South Africa, India or Brazil.

The UN study is also implicitly critical of the much-trumpeted African Growth and Opportunity Act (AGOA), signed into US law in May 2000, as being too restrictive in its scope. Citing studies by outside experts, the report says that out of the 37 sub-Saharan African countries eligible for tariff preferences under AGOA, the only major beneficiaries have been South Africa and Nigeria. South African exports to the US were 45 per cent higher in 2002 than in the preceding year while 60 per cent of Nigeria’s exports to the US were under AGOA. Secondly, excessively tight rules of origin and the limited list of countries admitted to benefits from the special textile preferences regime reduce the usefulness of the scheme for African textile producers. Thirdly, the regime expires in 2008, “something which obviously tempers the reaction of potential investors.” And finally, there is concern that the benefits of AGOA will be diluted as the US government negotiates free trade agreements with other regions, such as the Middle East and Central America.

“If a country is to be eligible for AGOA, it has to refrain from any actions that may conflict with the US’s strategic interests. The potential of this clause to influence our countries’ foreign policies was hinted at during debates at the UN over the invasion of Iraq,” she said.

Last year two of the countries benefiting from AGOA — Eritrea and the Central African Republic — were taken off the list for “failing to meet the eligibility criteria. — IPS