Untying Aid

Evaluation

of the implementation of the

Paris Declaration

Thematic Study

The Developmental Effectiveness of Untied Aid:

Evaluation of the Implementation of the Paris Declaration

and of the 2001 DAC Recommendation on Untying

ODA to the LDCs

Ownership, Alignment, Harmonisation, Results and Accountability

This report presents the results of a thematic study undertaken within the framework of the Evaluation of the Paris Declaration and in response to the request by the DAC for an evaluation of the effects of untying of aid to LDCs.The report builds on extensive research carried out in a first phase, pub-lished in October 2008 and subsequent case studies in Burkina Faso, Ghana, Laos, South Africa, Vietnam and Zambia.

Untying aid: Is it working?

Evaluation of the Paris Declaration

Untying aid

: Is it wo

rking?D

ecemb

er 2009

Aid untying: is it working?

tHEMAtiC study on tHE dEvElopMEntAl EffECtivEnEss of untiEd Aid:

EvAluAtion of tHE iMplEMEntAtion of tHE pAris dEClArAtion And of tHE 2001 dAC

rECoMMEndAtion on untying odA to tHE ldCs

synthesis report

ISBN: 978-87-7605-352-9e-ISBN: 978-87-7605-356-7

Copyright©2009DanishInstituteforInternationalStudies,DIIS

Suggestedcitation: Clay,EdwardJ.,MatthewGeddesandLuisaNatali: UntyingAid:Isitworking?AnEvaluationoftheImplementation oftheParisDeclarationandofthe2001DACRecommendation ofUntyingODAtotheLDCs,Copenhagen,December2009.

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ThisThematicStudywasundertakenundertheauspicesoftheSecretariatfortheEvalu-ationoftheParisDeclarationandtheOECD/DAC.Theviewsexpressedaresolelythoseofthestudyteamanddonotreflecttheviewsofthesponsoringorganisations.ThestudymakesextensiveuseofinformationfromtheOECDCreditorReportingSystem(CRS)data-baseasupdatedon29September2009.

Aid untying: is it working?

tHEMAtiC study on tHE dEvElopMEntAl EffECtivEnEss of untiEd Aid:

EvAluAtion of tHE iMplEMEntAtion of tHE pAris dEClArAtion And of tHE 2001 dAC

rECoMMEndAtion on untying odA to tHE ldCs

synthesis report

Edward J. Clay, Matthew Geddes and Luisa Natali

Untying aid: Is it working?iv

ContentsList of Acronyms....................................................................................................................................................................................................... vii

Summary......................................................................................................................................................................................................................... x

1. Introduction.............................................................................................................................................................................................................11.1 Background........................................................................................................................................................................................................ 11.2 Purpose,scopeandtimetable..................................................................................................................................................................... 11.3 Approach,activitiesandoutlineofreport.............................................................................................................................................. 2

2. The international rules and agreements concerning the tying status of ODA........................................................................5

3. A statistical analysis of the untying/tying status of ODA...................................................................................................................83.1 AnincompletepictureofuntyingandtyingstatusofODA............................................................................................................ 83.2 Tyingstatus:trendsandrecentdonorperformance........................................................................................................................113.3 Donorsrespondingtothe2001Recommendation..........................................................................................................................11

4. Donor policies and practices: how does untying work? A survey of five donor experiences of untying............ 184.1 Objectivesandscope...................................................................................................................................................................................184.2 Donorcountryexperiencesofuntying..................................................................................................................................................184.3 Findings.............................................................................................................................................................................................................24

5 .The impacts of tying and untying: a literature review...................................................................................................................... 255.1 Introduction:objectivesandscope........................................................................................................................................................255.2 Theeffectsoftying:conceptualissues..................................................................................................................................................255.3 Theeffectsoftying:evidence...................................................................................................................................................................265.4 Theimpactsofuntyingaid.........................................................................................................................................................................28

6. Uses of untied aid in six partner countries.............................................................................................................................................. 316.1 Objectivesandscope...................................................................................................................................................................................316.2 Profileofsixcasestudycountries............................................................................................................................................................336.3 Aidmodalitiesanduseofcountryprocurementsystems..............................................................................................................336.4 Econometricanalysisoftheimplicationsofbilateralaidfordonorexports............................................................................376.5 Conclusions......................................................................................................................................................................................................39

7. An assessment of the effectiveness of untied ODA: findings of project studies.................................................................. 407.1 Introduction.....................................................................................................................................................................................................407.2 Inputfeatures:contractingarrangementsandtyingpractice......................................................................................................427.3 Consequences:interconnectionsandaideffectiveness.................................................................................................................487.4 Aidefficiency:costeffectivenessandtime..........................................................................................................................................487.5 Aideffectiveness:ownership,alignment,harmonisationandtransparency...........................................................................517.6 Developmentalimpacts..............................................................................................................................................................................527.7 Awkwardissuesaboutuntying:possibletrade-offsandrisks......................................................................................................537.8 Conclusions......................................................................................................................................................................................................53

8. Conclusions............................................................................................................................................................................................................ 55

AnnexesAnnexA:TermsofReference...................................................................................................................................................................................60AnnexB:Statisticaltables........................................................................................................................................................................................64AnnexC:Econometricsanalysisoftheimplicationsofbilateralaidfordonorexports....................................................................68AnnexD:ExecutiveSummariesofCountryStudies.......................................................................................................................................73AnnexE:References..................................................................................................................................................................................................93

Untying aid: Is it working? v

list of tablesTable2.1 DACdefinitionsoftyingstatusofODA,otherofficialflowsandofficiallysupportedcredits...................................... 5Table2.2 ChronologyofOECDagreementsontyingstatusofaidincludingcreditsthatqualifyasODA................................. 6Table3.1 DACdonorcountries:tyingstatusofbilateralODAtoLDCsandnon-LDCsin1999-2001and2005-07 (percentagesbasedonthreeyearaverages)................................................................................................................................. 8Table3.2 DACdonorcountries:tyingstatusofbilateralODAin2007(includingdonoradministrativecosts).....................10Table3.3 DACdonorcountries:untiedaidaspercentofdonorODAin2007....................................................................................12Table3.4 DACdonorcountries:tyingstatusofbilateralODAtoLDCsaccordingtogrant/non-grantstatusin2007.........13Table3.5 DACdonorcountries:tyingstatusofbilateralODAtoLDCsaccordingtotechnicalcooperationcomponentin2007...13Table3.6 DACdonorcountries:bilateralODAbyconsolidatedsectorsin2007:tyingstatusaspercentofsectorODA...14Table3.7 Globalcerealsfoodaidbysourceofsupplyin2001and2007.............................................................................................15Table3.8 DACdonors:geographicaldistributionofcontractsawardedin2007..............................................................................17Table6.1 Profileofsixcasestudycountries.....................................................................................................................................................32Table6.2 TyingstatusofODAinsixcasestudycountries(2005-07)......................................................................................................33Table6.3 BilateralDACdonors(includingEC)–PercentofaidtogovernmentusingCountryProcurement Systems(CPS)in2007...........................................................................................................................................................................34Table6.4 AidandotherinfluencesonDACdonorexports:comparativeeconometricresultsforsixpartner countriesduring2002-07....................................................................................................................................................................38Table7.1 Projectcasestudies:recipientrelationship,implementingentity,headandTCcontracts.........................................43Table7.2 WorldBankcontractsbysupplierdevelopmentcategorysignedin2003-08inthesixcasestudy countries(averagepercentageshareoftotal).............................................................................................................................44Table7.3 Projectcasestudies:procurement,subcontracting,aidmodalityandmajorinputs....................................................46

TableB.1 DACdonorcountries:bilateralODAbyconsolidatedsectorsin2007.TyingstatusaspercentofsectorODA...61TableB.2 Formalfeaturesofthe21projectcasestudies............................................................................................................................62TableB.3 DACdonors:representativenessofthepurposivesampleofsixpartnercountries......................................................67TableD.1 Ghana:bilateralDACdonorsandECdisbursementsbyaidmodality2006-08(US$mn)...........................................75TableD.2 BurkinaFaso:bilateralDACdonorsandEC:disbursementsbymodality2007(US$mn)............................................77TableD.3 SouthAfrica:donoruseofcountrysystems,2005.....................................................................................................................80TableD.4 Zambia:disbursementsofODAbyselecteddonorsin2007/8.............................................................................................84TableD.5 LaoPDR:bilateralODAdisbursementsbysource,2005-06....................................................................................................88TableD.6 Vietnam:aidcommitmentsanddisbursementsbytypeofassistance2006-07.............................................................90

list of figuresFigure3.1 Donorshareoftotalbilateral‘tied/notreported’ODAin2007............................................................................................... 9Figure3.2 Shareoftotalbilateralaidthatisuntied,threeyearaverages(1984-2007):DACandCRSdatacomparison......11Figure3.3 RelationshipbetweenshareofuntiedODA(untiedaidratio)andeffort-sharing(ODA/GNI)in2007...................16Figure4.1 Percentageofbilateralaidreportedasuntiedfrom1996to2007......................................................................................19Figure7.1 Flowdiagramofaid,untyingpracticeandsourcingoutcomes............................................................................................47

list of BoxesBox4.1 ThedeclineofMixedCreditArrangements..................................................................................................................................20Box4.2 Transparency:serviceprocurementbyDanidaHQ...................................................................................................................21Box4.3 UntyingCanadianfoodaid.................................................................................................................................................................22Box4.4 InformationaboutAusAIDopencompetitivetenders.............................................................................................................23Box5.1 Developmentalimpactoflocalandregionalprocurementoffoodaid............................................................................29Box7.1 DFIDSurveyofconstraintsonlocalfirmsbiddingforinternationalcontracts................................................................50Box7.2 Untying,OwnershipandAlignment:countrystudyconclusions.........................................................................................51

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Untying aid: Is it working?vi

Acknowledgements

T heauthorswouldfirstofallliketothankallthoseofficialsinthegovernmentsofthesixpartnercountries,Burkina

Faso,Ghana,LaoPDR,SouthAfrica,VietnamandZambia,fortheircooperationduringthecountrystudiesduringNovem-ber2008-September2009.PreparationofthestudyhasdrawnextensivelyonideasdiscussedandinformationprovidedduringPhaseOneofthestudyontheuntyingofaid,espe-ciallybydevelopmentcooperationagenciesinAustralia,Canada,Denmark,NorwayandSwitzerland,aswellasinPhaseTwowithUKDFIDandNetherlandsMinistryofForeignAffairsandthemembersofthemanagementgroupforthestudy.Thecooperationofdonoragencystaff,especiallythosewhofacilitatedtheworkofthestudyteamsinthesixpartnercountrieshasbeenmuchappreciated.MembersoftheInternationalReferenceGroupfortheParisDeclarationEvaluationalsomadeusefulcomments.TheauthorswouldliketoexpresstheirthankstoNielsDabelsteinoftheSecre-tariatfortheEvaluationoftheParisDeclarationandFrans

LammersenofDevelopmentCooperationDirectorateforthegenerousadviceandassistancetheyhaveprovidedoverthecourseofthisstudy.TheStudyhasbenefittedfromtheadviceofthoseresponsiblefortheCRSdatabaseandtheExportCreditSecretariatintheOECD.Dr.FlorianWienekeatKfWforhelpfullysupportingtheGhanapilotstudy.AtODItheadviceofIsabellaMassaandDirkW.teVeldehasbeenhelpfulandDaniPhilipsandMahaliaRimmerprovidedadministrativesupport.MavisClayandJennyJoneshelpedwithediting.JimBoyce,StephenBiggs,RichardManning,TrevorSibumbaandKenStephensonprovidedvaluableinsightsand/oradviceonanalyticissues.AnespeciallywarmthanksisofferedtothemembersofthesixcountrystudyteamsincludingEmmanuelJ.MensahandPeterQuartey(Ghana),YashRamkolowanandMatthewStern(SouthAfrica),OliverSaasaandChrispinMphuka(Zambia),PietLanser,JudithMattiejsesenandEliPare(BurkinaFaso),andAdamMcCarthyandcolleaguesatMekongEconomics(LaoPDRandVietnam).

Untying aid: Is it working? vii

AAA AccraAgendaforAction(2008)ACP Africa,CaribbeanandPacific(Countrypartyto LoméAgreementwithEU)AFD FrenchDevelopmentAgency(French DevelopmentAgency)ANZCERTA AustraliaNewZealandCloserEconomicRelations TradeAgreementANZGPA AustralianandNewZealandGovernment ProcurementAgreementASEAN AssociationofSouthEastAsianNationsAusAID AustralianAgencyforInternationalDevelopmentB2B BusinesstoBusinessBMZ GermanFederalMinistryforEconomic Co-operationandDevelopmentBOP BalanceofPaymentsCEA CostEffectivenessAnalysisCHF SwissFrancCIDA CanadianInternationalDevelopmentAgencyCPG CommonwealthProcurementGuidelines(Australia)CPS CountryProcurementSystemsCRS CreditorReportingSystem(OECD)DAC DevelopmentAssistanceCommitteeDanida DanishInternationalDevelopmentAssistanceDBI DirectBilateralInstrumentsDFI DirectlyFinancingImportsDFID DepartmentforInternationalDevelopment(UK)DKK DanishKronerDPE DonorPartnerEnvelopeECOWAS EconomicCommunityofWestAfricanStatesEEA EuropeanEconomicAreaEFTA EuropeanFreeTradeAssociationEU EuropeanUnionFAC FoodAidConventionFAO FoodandAgricultureOrganizationFDI ForeignDirectInvestmentGATT GeneralAgreementonTariffsandTradeGBS GeneralBudgetarySupportGDP GrossDomesticProductGNI GrossNationalIncomeGST GoodsandServiceTaxGTZ GermanTechnicalCooperationHIPC HighIndebtedPoorCountryHLM HighLevelMeetingHQ Headquarter(s)ICB InternationalCompetitiveBiddingICRC InternationalCommitteeoftheRedCrossICT InternationalCompetitiveTenderIDA InternationalDevelopmentAssociation(WorldBank)

list of Acronyms

IDRC InternationalDevelopmentResearchCentreJICA JapaneseInternationalCooperationAgencyKfW GermanDevelopmentBank(Germany)LDC LeastDevelopedCountryLIC LowIncomeCountryLRPs LocalandRegionalPurchasesMERX CanadianPublicTenderingSystemMCA MixedCreditsArrangementMCC MillenniumChallengeCorporation(US)MIC MiddleIncomeCountryMoFA MinistryofForeignAffairsMFI MultilateralFinancialInstitutionNAFTA NorthAmericanFreeTradeAgreementNCB NationalCompetitiveBiddingNDFI NotDirectlyFinancingImportsNGO Non-GovernmentalOrganisationNMFA NorwegianMinistryofForeignAffairsNOK NorwegianKronerNorad NorwegianAgencyforDevelopmentCooperationODA OfficialDevelopmentAssistanceOECD OrganisationforEconomicCooperationand DevelopmentOLICs OtherLowIncomeCountriesO&M OperationandMaintenancePD ParisDeclarationPDE ParisDeclarationEvaluationRTE ResourceTransferEfficiencySADC SouthernAfricanDevelopmentCommitteeSBS SectoralBudgetarySupportSDC SwissAgencyforDevelopmentandCooperationSDR SpecialDrawingRights(IMF)SECO StateSecretariatforEconomicAffairs(Switzerland)Sida SwedishInternationalDevelopmentCooperation AgencySSA Sub-SaharanAfricaSWAP Sector-WideApproachTC TechnicalCooperationToR TermsofReferenceUMIC UpperMiddleIncomeCountryUNDB UnitedNationsDevelopmentBusinessUSAID USAgencyforInternationalDevelopmentVNG AssociationofNetherlandsMunicipalitiesWFP UNWorldFoodProgrammeW&SS WaterandSanitationSectorWTO WorldTradeOrganisation

Untying aid: Is it working?viii

summary

Background

T heOECDDAC,inmakingitsRecommendationin2001foruntyingofaidtoleastdevelopedcountries,envis-

agedacomprehensiveevaluationofitsimplementationandimpactby2009.TheParisDeclaration(PD)reaffirmedtheRecommendationfirstlybystatingthatuntyingaidgenerallyincreasesaideffectivenessbyreducingtransactioncostsforpartnercountriesandimprovingcountryownershipandalignment,andconsequentlybymakingfurtherstepstowardsaiduntyingIndicator 8ofprogresstowardsincreasingaideffectiveness.AccordinglyOECDcommissionedthisstudyaspartofthePDevaluation.

Thisstudy,undertakenduring2008-09,hasincludedare-examinationofeffortstowardsuntyingasreportedstatisti-callybyDACdonorstotheOECD,complementedbyareviewofdonorpoliciesandpracticesthroughapurposivesurveyoffivedonorswhohadeitherlargelyuntiedtheiraid,orwereactivelycommittedtountyingafter2001(Australia,Canada,Denmark,NorwayandSwitzerland).Thewidespreadpercep-tionthatuntyingincreasesaidefficiencyandeffectivenesshasbeenre-examinedthroughaliteraturereviewontheeconom-icsoftyinganduntyingpractices,followedbyaninvestigationintountyingpracticesinsixpartnercountries(SouthAfrica,Zambia,BurkinaFaso,Ghana,VietnamandLaoPDR).Twenty-onedevelopmentprojectsinthesecountries,supportedindi-viduallyorjointlybythirteenDACmembersaswellastheEUandtheWorldBank(IDA),andreportedtotheOECDasfullyuntiedorwithuntiedcomponents,wereexaminedindetail.ECadministeredaidisincludedtoensurecoverageofpartial untyingandIDAaidisincludedasabaseforcomparisonwithfully untied funding.MostprojectsareintheWaterandSanita-tionSector(W&SS),whichcombinesbothinfrastructureandsocialdevelopmentobjectives.

Key findings TheoverallpictureisverypositiveintermsofprogressbyDACdonorsintheformal untyingoftheiraid,removinglegalandregulatoryimpedimentstotheprocurementofgoods

andservicesoutsidethedonor’sownmarket.Theproportionoffullyuntiedbilateralaidroseprogressivelyfrom46%in1999-2001to76%in2007,andforLDCsithasincreasedfrom57%to86%.Takingintoaccountmultilateralaid,thepropor-tionofuntiedODAhasrisento83%overall.Thechangesoverthepast10yearsindicatethatthe2001Recommendationonuntyingofaid,togetherwithotherinternationalagreementssuchastheParisDeclaration,havehadanoverallpositiveim-pactonfurtheruntyingaid.Butthereareimportantqualifica-tions.Free-standingtechnicalcooperation(TC)andfoodaidwereexcludedfromtheRecommendationandbothremainsignificant‘greyareas’,with30%andatleast50%respectivelystillreportedastied,andthetyingstatusofsignificantpropor-tionsnotbeingreportedbysomedonors.

Thestudyplacestheseoverallpositivefindings(whicharebasedondatareportedbydonorstotheOECDandasurveyofdonorviewsabouttheirownactions)intothecontextofre-cipientperspectivesandfindingsabouttheactualorde factopracticeofaiddeliveryinpartnercountries.

Country partner stakeholdersstronglyaffirmedthatuntyingisabouttransferringresponsibilityforplanningandmanagingfundsfromdonorstorecipients.Practically,untyingisthenamatterofcontracts,modalities,useofcountrysystemsandofferinglocalbusinessanopportunitytocompetesuccessfullyforcontracts.Theyarelessconcernedaboutremovingbiasesbetweendonorpartnersintheirtrade,exceptwhereexcessiveinefficienciesoftyingsignificantlyreducetheresourcetransfervalueofaid.

Therearesystematicdifferencesintherevealedpreferencesofdonorsaboutaidusesinthecountriessurveyed,wheretheiraidisoverwhelminglyformallyuntied.Genuine(de facto)untyingwastypicallyfoundconvincinglylinkedtoevidenceontheadoptingofprogrammaticandpoolingmodalities,forwhichuntyingisanecessarycondition,combinedwitheffortstostrengthenpartnercapacitiesinfinancialmanagementandprocurement.

Untying aid: Is it working? ix

Project-type aidisstillthedominantmodalityinallsurveyedcountries.Manyformallyuntiedprojectswerefoundtobede factotiedortohaveonlysomeuntiedcomponents.InmostinvestmentprojectstheprimaryorheadcontractsandmostoftheTCcomponentsarestillprocuredfromthedonorcountry,evenifprocurementischannelledthroughrecipientsystems.Thiscallsinquestiontoacertainextentthegenuine-nessofuntyingeffortsandreflectstherealitythat,evenwhereprocurementisbeinghandedovertopartners,mostdonorstrytoinfluenceprojectimplementation,throughlong-termtechnicalassistanceormanagementconsultantsfromtheirhomecountry.Reasonsforthisde factotyinginclude:(i)do-norregulations;(ii)lackoflocalcapacity;(iii)localandregionalcontractorsbeingunabletocompeteinternationally(espe-ciallyiflarge-scalecontractsarebeingprocured,e.g.becauseofweaklocalsecondarymarketsforcreditandprofessionalinsurance);(v)unequalaccesstoinformation;(vi)potentialriskaversionatdonorHQ;and(iv)pressureforspeedyimplemen-tation.

TheWorldBank(IDA)wasmoresuccessfulthanDACdonorsinusingInternationalCompetitiveBidding(ICB)andNationalCompetitiveBiddingtosourcingcontractsbothlocallyandregionallyinotherdevelopingcountries,againpointingtosomecombinationofintendedandunintendedconstraintsonde factountyingofbilateralaid.

Value for money:theneargeneralconclusionineconomictheoryandthelimitedevidence-basedliteratureconcludethatuntiedaidislikelytobecost-effective,andthisisbroadlyconfirmedbythestudy.Inmostcasesprocurementcostswerecompetitivewithlocalandinternationalmarketprices.Occasionallycostswerehigher,reflectingsmall-scaletender-ingprocessesandsocialnetworks.ICBwasnotalwayscost-effective,assomebilateraldonorsstilltend(butnotnecessar-ilyintentionally)toadvantagedonor-basedcompanieswithassociatedhighercosts.

Ownership and alignment:thecountrystudiesfoundthatapositiveapproachtotheuseofuntiedfunds,includingusingprogrammaticmodalitiessuchasgeneralbudgetarysupport,sectoralbasketfundingandjointpoolingbydonors,aswellasadoptingcountrysystemsforprocurement,werepromot-ingownershipandfacilitatingalignmentwithpartnercountrypriorities.

Developmental impacts:thecountrycasestudiesarecautious-lypositive,findingevidenceofdirectemploymentandincomestreamgeneration.Byuntying,thebalanceofsourcinggoodsandservicesisshiftedtowardslocalsuppliers,therebypromotinglocalbusinessdevelopment.Inaddition,capac-itybuildingandknowledgetransferappeartobemorelikelywherelocalandregionalfirmsofmediumcapacityundertakeprojectinvestmentactivities.However,thelinkageeffectsarelimitedduetothelowdevelopmentofmanylocalmarkets.Furtherexpandinguntyingthereforemustgoinlinewithlocalmarketdevelopment.

Overall,successfuluntyingemergesfromthecountrystudiesasacriticallyimportantcontributoryfactortowardsachievinggreateraideffectivenessandmustthereforenotonlybejusti-fiedongroundsofcost-efficiency.

The way forward Donorsandtheirpartnerscandomuchmoretocompletetheprocessofuntyingandtoexploittheopportunitiesofferedbyuntyingtoincreaseaideffectivenessanditsdevelopmentim-pacts.Theseactionsneedtobesetclearlywithinthechangingglobalcontextofaidincluding:

• ‘Theelephantintheroom’–abetterunderstandingisneededaboutthegrowingroleofconcessionalandlargelytieddevelopmentfundingprovidedbyemergingnon-DACdonors;

• NewverticalfundingmechanismsthatcouldbeatoddswiththePDaideffectivenessprincipleswhichprovidetherationaleforuntiedaid;

• Newformsoffinancingseemlikelytoberequiredtoad-dressthechallengesposedbothbytheglobalfinancialcrisisintheshort-termandclimatechangeinthelongerterm.

The2008AccraAgendaforAction(AAA)onaideffectivenessreaffirmedthecommitmenttocontinuetheprocessofunty-ingandcallsuponDACMembersinrespondingtoelaborate individual plans by 2010 to untie their aid to the maximum extent and to improve reporting on the 2001 Recommendation (OECDDAC,2009).Theseproposalsarestronglyendorsedandfurtherspecificmeasuresaresuggestedtosupportgenuineuntyingandreduce,ifnoteliminatede factotyingpractices.

Donorsshould increase the transparency oftheirreportingtotheOECD,forexamplebyincludingthetyingstatusofcatego-riesofaidexemptfromtheRecommendation,includingallTCandfoodaidandexpandingtheroleof ex antereporting.

Donoruntyingplansshouldincludespecificmeasuresformakinggreateruseofcountrysystems,andtospecifythemeanstheyhaveadopted,orplantoadopt,forremovingob-staclesandencouraginglocalandregionalfirmstoparticipatesuccessfullyinprocurement.

Donorsshouldconsiderindividualorjointinitiativestostrengthenlocalandregionalcapacitytocompeteforaidsup-portedcontracts.BroadeningthesourcingofTCandmanage-mentofprojectsshouldbepriorityareas.

Agencieswhoseuntyingpracticeisstillconstrainedbydo-mesticregulationsshouldincludeintheirplansproposalstoremoveorobtaingeneralexemptionsfromsuchrestrictionsonthedisbursementofpublicfunds.

Untying aid: Is it working?x

Reportingonimplementationofplansforcompletingtheun-tyingofaidshouldbesubmittedtobecomepartoftheannualreporttotheDAC,andalsoshouldbemadeaspecificitemforinclusioninfutureDACmemberpeerreviews.

TheDACshouldconsideradding,totheannualprogressre-portsonuntying,acountrypartnerfocusedreviewofprogressinuntying,undertakenwiththefullcooperationofanLDCorHIPCcountryandalsoDACmembers.

DACmembersindividuallyneedtomonitorandrigorouslyevaluateboththeirprogressinuntyingandinmakinguseofthecapacitieswithinpartnercountries.

Untyingisnotanendinitselfbutameanstoincreaseaideffectivenessanditsdevelopmentalimpact.TherehasbeenmuchprogressbymostDACmembers,butsomehavedonelittlemorethannominallyuntyingtheiraidinalegalorregulatorysense.Sothereismuchscopeforfurtheractionstowardsuntyingaidinpracticalwaysandexploitingtheopportunitiesthatthisoffersforstrengtheningaideffective-nessthroughgenuinepartnershipsbetweendonorsandaidrecipients.

Untying aid: Is it working? 1

Chapter 1

1.1 Background

F orseveraldecadesdebatesonaideffectivenesshavefocusedontheissueofthetyingstatusofaid(Seebelow

Chapter2andTable2.1).Ithasbeenclearlydocumentedthattiedaidraisesthecostofgoods,servicesandworksby15%to30%onaverage,andbyasmuchas40%ormoreforfoodaid.1Thisisaconservativeestimateoftherealcostsoftying,sinceitdoesnotincorporatetheindirectcosts.Furthermore,therehavebeenwidelydiscussedconcernsabouttyingreducingeffectiveness:actingasaconstraintondonorcooperationandthebuildingofpartnershipswithdevelopingcountries,byinhibitingtheownershipandresponsibilityofpartnercountriesinaidsupporteddevelopment,aswellashamperingbroadereffortstopromotetheirintegrationintotheglobaleconomy.2

Asaresult,afterextendedanddifficultnegotiations,theOECD/DACadoptedin2001aRecommendationtountiemuchOfficialDevelopmentAssistance(ODA)toLeastDevel-opedCountries(LDCs).TheRecommendation(amendedin2006andin2008)alsoinvitesDevelopmentAssistanceCom-mittee(DAC)memberstoprovideuntiedaidinareasnotcov-eredbytheRecommendation,andtostudythepossibilitiesofextendinguntiedaidinsuchareas.Basically,areasnotcoveredaretechnicalcooperation(TC),foodaidanddonoradministra-tivecosts.3Countrycoveragemightalsobewidened.ProgressachievedintheproportionofODAthatisuntiedistrackedinthecontextoftheMillenniumDevelopmentGoals,astarget

1 The estimates of the average costs of tying were presented in a survey of research and evaluations up to c. 1990 published by the OECD (Jepma, 1991) and those for food aid in a more recent OECD (2006a) study; for further discussion see Chapter 5 below.

2 See, for example, Helleiner (2000) as a statement of such broader concerns about tying practices inhibiting effective partnerships.

3 It might be thought that the tying status of donor administrative costs is irrelevant, as these are virtually by definition tied. However, as donors report more fully on the tying status of their aid, some are found to have begun to source administrative services more widely (see below Table 3.6).

1. introduCtion

number35.The2005ParisDeclarationonAidEffectiveness(PD)reiteratedthe2001DACRecommendationandenvisagedthatprogressintheshareofaidthatisuntiedbemonitoredthroughIndicator8.4

TheWorkingPartyonAidEffectivenessandtheDACNetworkonDevelopmentEvaluationaskedforastudyoftheextenttowhichdevelopmentpartnershaveuntiedtheirassistanceandthekeyfactorspromotingorimpedingprogressonfullyuntyingdevelopmentassistance.Furthermore,theyhaveaskedforthestudytoidentifyexamplesofbenefitsoffullyuntiedaid.The2001DACRecommendationtountieODAtotheLDCshadalsoincludedarequestforacomprehensiveevaluationofitsimpact,whichismandatedforsubmissiontothe2009DACHighLevelMeeting(HLM).5SointhelightoftheclosecommunalitiesbetweenthestudywithintheframeworkoftheevaluationoftheParisDeclaration,andtherequestforanevaluationinthe2001DACRecommendation,thisstudyisbeingundertakentoassesstheeffectivenessofuntiedaid.

1.2 Purpose, scope and timetableThepurposeofthestudyistoprovidetheDACandthe2009HLM,aswellasthewiderdevelopmentcommunity,withacomprehensiveassessmentofcurrentdonorpoliciesandpracticesregardingthetyingstatusofaid,andanassessmentoftheeffectsoftheuntyingstatusonaideffectiveness.Thestudy’sintendedfocusisontheresults of untied aid,andex-aminesif,andtowhatextent,thepresenteffortforuntying aid has contributed to aid effectiveness.Thestudyalsoexplorestheprospectsforincreasingtheshareofuntiedaid,and,where

4 “Untying aid generally increases aid effectiveness by reducing transaction costs for partner countries and improving country ownership and alignment. DAC donors will continue to make progress on untying as encouraged by the 2001 DAC Recommenda-tion on Untying Official Development Assistance to the Least Developed Countries (Indicator 8).” OECD DAC, 2005, Para 31.

5 ‘The comprehensive evaluation will also pay attention to the implementation of this Recommendation with respect to achieving a balance of efforts among DAC Members and promoting and sustaining ODA flows to LDCs.’ OECD DAC, 2001, Para 20.

Untying aid: Is it working?2

Chapter 1

relevant,providespolicyrecommendationsonhowtoachievethisobjective.Thequestionsaddressedbythestudyinclude:

• Towhatextenthasdonorbehaviourchangedasaresultofthe2001DACRecommendationonUntyingAidtoLeastDevelopedCountries,i.e.towhatextenthavedo-norsuntiedtheiraidfurther?

• Whatfactorshaveenhancedorimpededfullyuntyingdevelopmentassistance?

• Whatistheevidencethatuntiedaidhasresultedinanincreaseintheeffectivenessandefficiencyofaid?

Theevaluationstudyhasbeenconductedintwostages.

• Thefirststage,PhaseOne,fromMaytoSeptember2008,providedacomprehensiveheadquartersleveloverviewofthecurrentpoliciesandpracticesofDACmembersandnon-DACdonorsregardingthetyingstatusoftheiraid,andtheeffectsonaideffectiveness.DuringthisfirststageamethodologyforPhaseTwo,includingpartnercountrycasestudies,wasdevelopedforpresentationtoDACmembersinDecember2008.

• PhaseTwoconsideredtheeffectsofthetyingstatusofaidonaideffectivenessonthebasisofarepresentativegroupofsixevidence-basedcasestudiesinpartnercountries(althoughoriginallyonlyfourwereenvisagedintheTermsofReference(ToR)).Thestudieswereorganisedintwostages.TheODIcoreteam,incooperationwithlocalresearchers,didapilotstudyinGhanaduringNovember2008toFebruary20096Fivefurthercasestudieswereundertaken,againincooperationwithlocalresearch-ersbetweenFebruaryandOctober2009.Thisphaseexaminedtheextenttowhichuntiedaidhasresultedinprocurementfromlocal/regionalcompaniesanditseffectonaideffectiveness.7

ThecomprehensivefinalreportcoveringPhasesOneandTwoincludespracticalpolicyrecommendationsforincreasingtheshareofaidthatisuntied.

1.3 Approach, activities and outline of reportItwasenvisagedthatthestudywouldbedonethroughaconsultativeprocesswithdonors,partnercountriesandcivilsociety,andsothisintentionhasshapedthewayPhasesOneandTwohavebeenundertaken.

First,thereisastatisticalanalysisoftyinganduntyingpracticeasreportedtotheOECDdatabases,toprovideanindepend-

6 The Ghana study was made possible by support to ODI under a research a grant from KfW for investigating the trade implications of aid instruments.

7 The Executive Summaries of the country studies are included in Annex D.

entreassessmentofprogresstowardsuntying.Thepreliminaryfindings,reportedinPhaseOne,havebeenupdatedtoincludedatafor2007.ThisanalysiswasundertakenafterdiscussionswithOECDstatisticiansaboutthecoverageandlimitationsofthedataasreportedbymembergovernments.

Second,thereisadesk-basedreviewofpubliclyavailabledocumentation,includingresearchandevaluationstudiesonimpactsoftyinganduntyingpractices.

Third,thereisanexploratorysurvey,basedoninterviewsanddocumentationmadeavailablebyagencies,ofhowfivedonors,Australia,Canada,Denmark,NorwayandSwitzerland,haverespondedtothe2001Recommendation.Thesecoun-triesarealsopartytodifferentregionalandbilateraltradeagreementsthatincludeprovisionsregardingpublicprocure-ment,whichcouldbeaninfluenceonuntyingpractices.

Fourth,therearesixcountrypartnerstudies,whichprovidethroughacombinationofstatisticalinformation,interviewsanddocumentation,furtherevidenceonuntyingpractices,includingchoiceofaidmodalitiesandorganisationalarrange-ments.Thesixpartnercountrieswerepurposivelyselectedtoberepresentativeoftherangeofaidrecipientsandalso,sinceuntyingpotentiallyhastrade,includingregional,implications,aspairswithineconomicandtradingregions–WestAfrica(ECOWAS),SouthernAfrica(SADC)andSEAsia(ASEAN)(seeChapter6,Table6.1formoredetail).8

Fifth,inthecasestudycountries,morein-depthinvestigationswereundertakenfor21developmentprojects,supportedlargelywithbilateraluntiedfunds.Theprojectswerepurpo-sivelyselectedtocovermanyDACmembers,includingthelargestdonors,andtofocusmostlyononesectortoprovidecomparabilitybetweenprojectcomponents.WaterandSani-tationSector(W&SS)waschosenasitincludesbothinfrastruc-tureandsocialdevelopmentaspects,andallprojectswereon-goingin2008-09,thusfacilitatingdatacollectionandtheavailabilityforinterviewofpersonnelfromtheimplementingagencies.Therationaleforfocusingoninvestmentprojectsissetoutbelow.

Project-type aid as an evaluation priority:Discussionswithdonorofficialsandreviewingtheavailabledocumentation,includingevaluationsduringPhaseOne,suggestedfourdiffer-entschematicmodels,reflectingtypesofaidandassociatedmodalities,wherethepotentialimpactofuntyingshouldbeconsideredseparately.ThisschemawasusedtodeterminecountrylevelevaluationprioritiesforPhaseTwo.

Model A: Discrete investmentswhichcanbecomparedwithinvestmentselsewhere,buthavetobetailoredtoaspecificsituation.Theseincludeinfrastructureprojects,suchaspower

8 The ToR originally envisaged at least four country studies. The proposal for Phase Two hoped to include six, including one in Latin America, provisionally Nicaragua, subsequently Honduras. This proved impractical because of time constraints and other unforeseen difficulties.


Chapter 1

stations,portsanddams,someindustrialunitse.g.fishingfa-cilitiesandtelecommunicationssystems.Multilaterallyfundedprojectsofferastandardforcomparison,andsoWorldBankprocurementwasrecognisedasprovidingacounterfactualtobilateralprocurement.IndividualprojectshavebeenrelativelylittleassessedfromaperspectiveofuntyingpracticesandweremadethemajorfocusofPhaseTwothroughasurveyof21projectsinthesixcountries.

Model B: Highly divisiblegoodsthatarewidelytradedoncompetitive,butnotnecessarilyperfectlycompetitivemarkets(mostobviouslyinthecaseoffoodaid).Extensivelyre-searchedandevaluated,cost-effectivenessanalysisdemon-stratesefficiencyofunrestrictedsourcinginprocurementbyadonor,itsagentorpartner.Therearealsoeffectivenessissuesintermsofselectionofappropriategoodsanddeliverytimes.AsfoodaidisexemptfromtheRecommendationdiscussionofthiscaseisconfinedtothestatisticaldonorpolicyandliteraturereviews.However,highlydivisibleandwidelytradedgoodssuchascementandpipingwererecommendedforcost-effectivenessanalysesinthecountrystudies.

Model C: Free standing technical cooperationbetweendonorandrecipientpartnercountryorganisations,whereforexamplethedevelopingcountryorganisationisdisadvantaged in terms of information aswellasinaccesstofunding.Thepartnershipsareseenasawayofovercomingtheseobstacles.Twinningar-rangementsbetweenpublicsectororganisationsandBusiness to Business(B2B)involvingprivatesectorenterprisesisbasedonthisthirdmodel.9AsfreestandingTCisoutsidetheRecom-mendationonlyafewTCprojectshavebeenincludedtoensurewiderdonorcoverageintheprojectsurvey.

Model D: Direct bilateral instruments (DBI)wherefundsaremadeavailabletotherecipientpartnercountrygovernment,usuallyasgeneralbudgetary(GBS)orsectoralbudgetary(SBS)orprogrammaticsupporttodisburseaccordingtothepart-ner’sprocedures.Sometimesthesearedescribedas‘basket’arrangementswhereseveraldonorscontributetoacommonprogrammaticfund.Fundsarealsopooledwithinaprojectframework(ModelB).DebtreliefshouldalsobeconsideredaswithinthiscategoryofDBI.Programmaticsupporttoapartnercountrycivilsocietyorganisationaccordingtothepartnerorganisation’sproceduresfollowsthismodelandmaybeimportantinsomecountrieswherethereareproblemsofgovernance.However,theremightnotbegeneralagreementonthislattercase,whichisusuallyoff-budget.TheuntyingstatusofDBIsisrelativelyunambiguousandGBSandSBShavebeensubjecttoinvestigations.Thereforetheircoverageinthisstudyislimitedtostatisticalandliteraturereviewsandcountrylevelsurveystodetermineincidence.

Methods of analysis:Afteracarefulreviewofthestatisticaldataitwasdecidedtoconfinetheanalysistosimpletabularand

9 The OECD study on promoting local and regional procurement identifies informa-tion and dialogue obstacles to local firms’ successful participation in procurement (OECD, 2008a).

graphicalpresentationsofactualvalues,proportions,distri-butionsandtrends,allbroadlysimilartothoseintheannualprogressreportsonuntying.Aneconometricanalysisquanti-fiesincrosssectionforrelationshipsbetweenuntyinganddonorandrecipientcharacteristicsandisreportedmorefullyinPhaseOneChapter3.Amoreambitiousquantitativeanalysisoftrends,asenvisagedintheToR,wasprecludedbydatathatwereincreasingincompleteasonegoesbackwardsintime.Respondingtothewidelyexpressedviewinbothdonorandrecipientcountriesthatinformaltyingpracticesarewidespread,asecondeconometricanalysisisundertakenoftherelationshipbetweenthebilateralaidandexportflowsofindividualdonorsduring2002-07toeachofthecasestudycountries.

Therecipientcountrypartnerstudiesprovidedanopportu-nitytoexplore,throughacombinationofstatisticalanalysisandqualitativeevidencefrominterviewswithstakehold-ers,theextentandinfluenceofuntyingonaidoutcomes.Againtheapproachiseclecticandlimitedbyalackofstrictlycomparablestatisticalreporting,forexampleontheuseofaidmodalitiesandlackofdataonprocurementpractices.Theinvestigationsintoaid-effectivenessanddevelopmentalimpactsarelargelybasedonacombinationofqualitativeevidencefromthe21projectcasestudieswithselectivecost-effectivenessanalyses.10Specialattentionwasgiventoprojectreviewsasawayofprovidingconcrete,case-specificevidence.TheliteraturereviewandinterviewevidencefromPhaseOnehadhighlightedtheproblemoftheabsenceofpreviousevaluativeevidenceontheimpactsofuntyingandthatinvestmentprojectswereprobablythemostworthwhileareafordetailedinvestigation.

Thereportisorganisedasfollows.InChapter2thereisabriefoverviewoftheinternationalrulesandagreementsconcern-ingthetyingstatusofODA.Chapter3providesastatisticalanalysisoftyinganduntyingpracticesofDACmembers,showinghowuntiedaidhasquicklycometopredominatewithinbilateralaid,buthowcontinuingdataproblemspre-cludeapreciseestimateoftheextentofuntying.InChapter4,thefindingsofasurveyofchangingdonorpoliciesandprac-ticesofthefivedonorsaresummarised.Chapter5presentsthefindingsofareviewoftheresearchliterature.Thisreviewconfirmsthatattentioninbothresearchandevaluationhasalmostentirelyfocusedoneffectsoftyingpracticesandverylimitedattentionhasbeengiventountyingpractices:hencetherationaleforthisstudy.11

10 A note of clarification is useful on the uses of qualitative data. When a survey is purposive, as in this case where six countries and 21 projects have been selected on grounds of representativeness, then the appropriate way to use such data is as if it were non-parametric, and so give equal weighting to each observation. We do that and draw attention to what we have done (full transparency), and so it is easy for anyone viewing the data to make an alternative calculation if they so wish. Otherwise the overall picture could be dominated or heavily biased by any country or project value that just happened to be relatively larger.

11 The lack of evidence on the consequences of untying is confirmed by the ‘Evalu-ation of the implementation of the Paris Declaration Phase One Synthesis Report’ (Wood et al., 2008).


Chapter 1

Chapter6providesafactualreviewbasedoncountryexperi-enceofhowuntyingworksinpracticefromrecipientaswellasdonorperspectivesintermsofmodalitiesadopted,pro-curementpracticeandusers.Inresponsetothewidespreadscepticismaboutthegenuinenessofuntying,aneconometricanalysisexaminestherelationshipbetweendonorsandtheirexportstoeachofthecasestudycountries.InChapter7,projectlevelevidenceispresentedonthewaysuntiedaidisorganised,inputsaresourcedandtheoutcomesintermsofaidefficiency,effectivenesscriteriaanddevelopmentimpacts.Finally,Chapter8setsouttheconclusionsandrecommenda-tionsforincreasingtheshareofaidthatisfullyuntied.


Chapter 2

T hischapterprovidesabriefoverviewofthemainagreementsandrulesfordeterminingthetyingstatusof

aidandforregulatingthetyingpracticesofdonorcountries.

Theattemptstoreachinternationalagreementonrulescover-ingthetyingstatusofODAhavealonghistorybecauseoftwodistinctbutultimatelyoverlappingsetsofconcerns.First,therearethedevelopmentcooperationimplicationsoftyinganduntyingpracticesfortheefficiencyandeffectivenessofaid,aswellasburdensharingamongstdonorcountries.Second,therearetheexportcompetitionissues:thepoten-tialtradedistortingimplicationsofconcessionallendingandgrantaidtiedtotheexportofgoodsandservicesfromdonorcountries.AttheinternationallevelthefirstsetofconcernshasbeenafocusofdiscussionintheOECDDAC,whilethesecondhasbeenaddressedprimarilybytheParticipantstotheArrangementonOfficiallySupportedExportCredits.

Definitions of tying status:Theimportantcurrentlyoperativeagreementsarethoseofthe1987DACGuidingPrinciplesforAssociatedFinancingandTiedandPartiallyUntiedOfficialDevelopmentAssistance(OECDDAC,1987)summarisedinTable2.1.

Thecategoriesoftiedanduntiedaidare,atleastformally,rela-tivelyunambiguousfocusingonthekeyissueofwhetherthe

sourcingofgoodsandservicesiseitherrestrictedorfreefromrestrictionandopentosuppliersinotherdonorcountries.Thepartiallyuntiedcategoryismorecomplex.Itwasdevisedtotakeaccountofasituationinwhichthedonorwishestoallowlocalprocurementintherecipientcountryorpossiblyagroupofdevelopingcountries,forexampleinthesameregion.Donorsmayalsoagreetopermitprocurementfromwithineachother’smarketonabasisofreciprocity,aswellastodevelopingcountries.Conventionallysuchtransactionsarestillregardedaspartoftiedaid.However,inthisstudytheyarebothseparatelyidentifiedandalsogroupedwithuntiedaidasameasureofmovementsintyingstatustoallowprocurementwithintherecipientcountryandotherdevelopingcountries.

Reporting on tying status:theGuidingPrinciplesincludeanagreementtoreporttotheOECD’sDACaggregatetablesonthetyingstatusofaid.ReportingonTechnicalCooperation(TC)andadministrativecostswasspecificallymadevoluntary.However,reportingtotheOECDCreditorReportingSystem(CRS)onaprojectleveldoescontaininformationonthetyingstatusofmostODA.Apartfromtechnicalproblemsofensur-ingconsistentreporting,somedonorsinitiallychosenottoreportonthetyingstatusoftheirbilateralaidtotheCRS,andevenmoredidnotreportfullyontheirTCoradministrativecosts.ThecombinationofthesefactorshaslimitedtheabilityoftheOECDDACtomonitorpreciselyprogressonuntyingof

2. tHE intErnAtionAl rulEs And AgrEEMEnts ConCErning tHE tying stAtus of odA

Table 2.1 DAC definitions of tying status of ODA, other official flows and officially supported credits

TYING STATUS CATEGORY DEFINITION AND COVERAGE

UNTIED AID Loans and grants whose proceeds are fully and freely available to finance procurement from all OECD countries and substantially all developing countries.

PARTIALLY UNTIED AID Loans and grants which are tied, contractually or in effect, to procurement of goods and services from a restricted number of countries which must include substantially all developing countries and can include the donor country.

TIED AID All other loans and grants are classified as tied aid, whether they are tied formally or through informal arrangements.

Source: OECD DAC (1987).


Chapter 2

aid.TheconsequentdataproblemsthathampermonitoringoftyingpracticesaredescribedmorefullyinSection3.1.

In2001DACmembersagreeduponaRecommendationtountiemostcategoriesofaidtoLDCs(OECDDAC,2001).TheRecommendationhastheusualexceptionsoffree-standingTCandfoodaid.ThresholdlevelsontheapplicationoftheRecommendationwerealsoinitiallysetatSDR700,000(SDR130,000inthecaseofinvestmentrelatedTC).Thesethresholdsweresubsequentlyremovedin2006(OECDDAC,2006b).In2008coverageoftheRecommendationwasextendedtoin-cludenon-LDChighlyindebtedcountries(HIPCs)andtherebyprovidedequaltreatmentforthewholeHIPCgroup(OECDDAC,2007).12TheDACalsourgeddonorstopromotegreaterlocalandregionalprocurementindevelopingcountriesandinvitednon-DACdonorstorespecttheprinciplesoftheRec-ommendation.

The2005ParisDeclarationincludesafurtherqualitativecom-mitmentwithoutanyspecifictarget(Indicator8)tocontinuetheprocessofuntying.The2008AccraAgendaforAction(AAA)onaideffectivenessreaffirmedthiscommitment,andcalleduponDACmemberstoelaborateindividualplansby2010tountietheiraidtothemaximumextentandtoimprovereportingonthe2001Recommendation(OECDDAC2009).

Table 2.2 Chronology of OECD agreements on tying statusof aid including credits that qualify as ODA

WHO WHAT WHEN

DAC Official flows split into:- ODA, and- Other Official Flows

1969

Introduction of 25% Grant Element (10% discount rate)

1972

Participants Tied Aid Disciplines- LDCs 50% concessionality- Others 35% concessionalityDifferentiated discount rate (cost of money)

1987

Participants/DAC New Measures in the Field of Tied Aid - No tied aid loans for commercially viable projects

1992

DAC Recommendation to Untie ODA to LDCs (exc. TC and Food Aid)

2001

Somespecificissuesforinvestigationarisefromthestepwiseprocessofcommitmenttowardsuntying.TowhatextenthastheRecommendation,includingcoverage,exemptionsandthresholds,beenaninfluenceondonorpoliciesandpractices?

12 Eight non-LDCs are part of the HIPC Initiative: Bolivia, Cameroon, Cote d’Ivoire, Ghana (case study country), Guyana, Honduras, Nicaragua, and Democratic Republic of Congo.

Incompletereporting,asthestatisticalreviewinChapter3indicates,seriouslyrestrictsanyattempttomonitordonorresponsestotheRecommendation.Promotinglocalandregionalperformanceisakeyissueinassessingtheimpactofuntying,asdiscussedbelowinChapter7.

Issuesoftyingstatusarealsodiscussedinotherinternationalfora.MultilateralagenciessuchastheWorldBankhaveagreedrulesregardingtheacceptabilityandeventuallynon-acceptabil-ityoftiedaidundertrustfundingarrangementsandsoforth.

Thepotentialfortradedistortionwheredonorsusedaidtoseekacompetitiveadvantagefortheirexportershasbeenrec-ognisedandaddressedinanumberofways.Forofficiallysup-portedexportcreditsOECDmembersenteredintoasequenceofagreementsthatsetoutcriteriafordefiningandrestrictingtheuseofcreditsasaformofexportcompetition.Thesecriteriaincludetheconcessionalitylevelandnotificationprocedures.TheprocessculminatedintheHelsinkiPackageofTiedAidDisciplinesin1991thatsetoutprinciplesforofficiallysupportedexportcreditsandtiedandpartiallyuntiedaid,complementedin1992bycorrespondingmeasuresagreedbytheDAC.Theseprohibitedtiedandpartiallyuntiedcreditsforricherdevelopingcountriesaswellas,onacase-by-casebasis,projectsthatarecommerciallyviableandforwhichcommercialfinancingwouldbeavailable.13Thepackagealsoreinforcedmonitoringproce-duresfortiedaidcredits.ThecriteriaagreedforcategorisingtiedcreditsasODAintroduceddifferentialtreatmentforuntiedloansqualifyingwith25%concessionality,tiedcredittoLDCsrequiringaminimumof50%andcreditstootherdevelopingcountriesaminimumof35%.Achronologyofthemainagree-mentswithintheOECDregardingthetyingstatusofaidandofficialcreditsaresummarisedinTable2.2.

Untied aidwouldincludeODAthatdirectly financesimportswherethesourceofprocurementisunrestricted.Inaddition,transactionsthatarenotdirectly financing imports(NDFI)areas-sumedtobewhollyfungibleandthereforefreefromanytradedistortingimplications.Theseformsofaidincludebudgetaryandbalanceofpaymentssupport(theprovisionoffreelyusableforeignexchange),local cost financingand debt relief (includ-ingrefinancingandrescheduling).Inaddition,contributionstoNGOsandofficial funds in support of, or intended for, direct equity investmentarealsoconventionallyregardedasuntiedornon-distorting.Theseareinpractice‘greyareas’wherethereissomeelementofimplicittying(Chapter4).

Internationalconcernsaboutpotentialtradedistortingeffectsoftyingpracticesandtheintroductionofregulatorypracticestocombatthesehavehistoricallyfocusedontwobroadcat-egoriesofaidwithrestrictiveconditions.Theseare:• transactionsthatdirectly finance imports(DFI),which

specifytheprocurementwithaidfundsofspecificgoodsandservices;and

13 See OECD (1991), OECD (2008a) and, for an account of the process that led to the Helsinki Accord, see Ray (1995). The transparency criteria have been extended since 2005 on a voluntarily basis to untied aid credits that qualify as ODA.


Chapter 2

• aid-in-kindwheregoodsarepurchasedinthedonorcountryandwhicharereadyforconsumptionoruseinarrivalintherecipientcountry.Conventionally,asubstan-tialpartofbilateralemergencyaid/humanitarianreliefhasbeensourcedinthisway.

ThereisapotentialoverlapofthevoluntaryOECDagreementsandthetreatyobligationsunderWorldTradeOrganisation(WTO)agreementsandproceduresfordisputes.However,thishasbeenineffectresolvedbyexemptingODAfromtheAgreementonGovernmentProcurementinGATT(1979)andalsointheWTOAgreementonSubsidiesandCountervailingMeasures(ASCM),includingtiedaid,whichrecognisestheOECDarrangementasanexemptiontotherules.14

Agriculturehasthroughoutbeentreatedseparately,asreflect-edintheexemptionsforfoodaidfromthe2001Recommen-dationonuntyingofODA,andtheHelsinkidisciplines.Thereareparallelandseparateproceduresforavoiding,oratleastminimising,commercialtradedisplacementthroughthesup-plyoffoodaidthroughtheFAOPrinciplesonSurplusDisposal.FoodaidtyingpracticeshavealsobeenanissueintheexportcompetitionpillaroftheagriculturalnegotiationsfortheDohaDevelopmentRound.TheDACdefinitionsoftyingstatushavebeenadoptedindraftmodalitiesforfoodaid(WTO,2008).

14 See Annex 1, Footnote K of the WTO Agreement (WTO, 1995).


Chapter 3

3.1 An incomplete picture of untying and tying status of ODA

T hischapterincludes,first,astatisticalanalysisoftrendsinthetyingstatusofODAofDACdonors,largelybasedon

thereportingbydonorstotheOECD.ThisiscomplementedbyamoredetailedreviewofthetyingstatusofODAin2007,themostrecentyearforwhichOECDCRSdataareavailable.15DonorperformanceiscomparedtotheRecommendationandrelatedtargetsagreedbytheDAC.Becauseoftheseverelimitationsoftheavailabledata,especiallypriortotheRecommendation,thisstatisticalexplorationisrestricted:trendscannotbemeasuredwithanyprecisionandcautionisrequiredinmakinginferencesabouttheextenttowhichformalreportingofuntyingisassociatedwithchangesinactualpractices.

15 The statistical information used in this chapter is based on data downloaded from the CRS database on 29 September 2009. A few modifications have been carried out to the raw data (see Annex B for details).

ThedataontyingstatusofODAandotherofficialflows,asreportedtotheOECD,arequiteincomplete,asiswellknownwithintheDAC,butperhapslesswellunderstoodoutsidedo-norcircles(OECD,2008a).Nevertheless,thereportingbyDACmembersonthetyingstatusoftheiraidisimproving,soitispossibletobemoreconfidentindescribingandanalysingthecurrentstatus,asthisconformswithOECDdefinitions(OECDDAC,1987).However,trendsintyingstatushavetobeinferredwithsomecaution,firstbecauseofthesubstantialreductioninnon-reportingasshowninTable3.1(thenon-reportingdeclinedfrom38%during1999-2001toonly7%in2005-07).Secondly,thereareexamplesofdonorsreclassifyingthetyingstatusoftheiraidtobemorefullyconsistentwiththepracticeofotherdonors.16Thirdly,asdiscussedabove,

16 For example, CIDA used to report bilateral aid grants to Canadian based NGOs as ‘tied’ until 2005, when these were reclassified as ‘untied’ to be consistent with the usual practice of other DAC members. There is really no reason why aid to a national NGO should be treated differently from aid to a national enterprise, so should be considered as a ‘grey’ area in examining tying practices.

Table 3.1 DAC donor countries: tying status of bilateral ODA to LDCs and non-LDCs in 1999-2001 and 2005-07 (percentages based on three year averages)1

Period Recipient country grouping Untied (%) Partially tied (%) Tied (%) Not reported (%) Total

1999-2001 LDCs 57 3.5 8 32 100

Non-LDCs 49 2.0 9 40 100

All DCs 51 2.3 9 38 100

All DCs (including EC) 46 7.5 8 39 100

2005-2007 LDCs 83 0.3 13 4 100

Non-LDCs 70 0.8 22 7 100

All DCs 73 0.7 20 6 100

All DCs (including EC) 65 12.1 18 5 100

Source: OECD Creditor Reporting System (CRS) database.Notes: 1. Data are based on commitments in current US$.

3. A stAtistiCAl AnAlysis of tHE untying/tying stAtus of odA


Chapter 3

thereareinconsistenciesinthestatusofaidreportedaspartiallyuntied.

Thecurrentextentoftheincompleteinformationandnon-reportingofthetyingstatusofODAisindicatedinFigure3.1forindividualDACdonors.ThemostwidelyavailableannualassessmentoftyingstatushasbeentheannualDevelopmentCooperationReport,whichisbasedonaggregatecommit-mentsreportedtotheDAC,andexcludestechnicalcoopera-tion(TC),onwhichdonorreportingisoptional,anddonorad-ministrativecosts.Around76%ofbilateralODAwasreportedasuntiedfor2007,includingdonoradministrativecosts17.

ThisstudyreviewsdonorperformanceusingdatafromtheOECDCreditorReportingSystem(CRS),towhichdonorsreporttheircommitmentsonanactivitybasis.TheCRShasamorecomprehensivecoverageoftyingstatusthantheDACtables,butstillremainsincomplete.FormostDACmembersthecoverageiscompleteorclosetocomplete.Afewdonors(e.g.FranceandSwitzerland)experiencedifficultiesinreport-ingaidattheactivitylevelprovidedbysomegovernmentdepartmentsandlocalgovernments.EvensothereportingoftyingstatustotheCRSfor2007isover90%ofbilateralODA,incontrasttoaround60%adecadeago.Howeverpreviousunder-reportingmeansthatatthetotalDAClevel,trendsinuntyingcanbeinferredonlyveryapproximatelysince1987,whencurrentdefinitionsoftyingstatuswereadopted(Figure3.2).

Thestatisticalcoverageofthestudyincludesthebilateralaidof22membersoftheDAC,aslistedinTable3.2,andalso

17 Slight differences with figures reported in the 2009 DAC Progress Report are explained by our decision to include donor administrative costs; moreover, a modi-fication, regarding the tying status of non reported Budget Support, was applied to OECD CRS data (See Annex B for further details on data modifications).

insomeinstances,forpurposesofcomparison,EuropeanUnion(EU)aidasorganisedbytheEuropeanCommission.EUaidismultilateral,butitstyingstatusisstillwithreferencetotheSingleEuropeanMarket,andstakeholders,includingofficialsofsomeDACmembercountriesandrecipientpartnercountries,madereferencetotheEUintheirdiscussionoftyingpractices.Assomedonorsreportthatelementsoftheiradmin-istrativecostshavebeenuntied,sothiscomponentofbilateralaidisalsoincludedinthestatisticalanalysis.

Source: OECD Creditor Reporting System (CRS) database.Notes: 1. Data are based on commitments in current US$. 2. Only bilateral donors who report less then 1% (or 0%) tied or not reported ODA are not included.

United States

Germany

Spain

Netherlands

France

Canada

Japan

Austria

Italy

0% 10% 20% 30% 40% 50% 60%

Japan

Germany

Canada

Portugal

Sweden

Italy

Greece

Spain

Denmark

France

Belgium

Finland

0% 10% 20% 30% 40% 50%

(A) Donor share of tied ODA (B) Donor share of not reported ODA

Figure 3.1 Donor share of total bilateral ‘tied/not reported’ ODA in 20071


Chapter 3

Table 3.2 DAC donor countries: tying status of bilateral ODA in 20071 (including donor administrative costs)

Donor

Tying status as % of donor ODA Tying status as % of bilateral ODA

Bilateral ODA2 (US$

million)

Untied Partially tied

Tied Not Reported


Tied Not Reported

Australia 1,710 96 0 4 0 2.4 0.0 0.4 0.0

Austria 1,382 76 0 24 0 1.5 0.0 2.0 0.0

Belgium 1,587 92 0 4 4 2.1 0.0 0.4 1.1

Canada 3,338 69 1 17 13 3.4 12.8 3.6 8.2

Denmark 1,481 88 0 4 8 1.9 0.0 0.4 2.4

Finland 661 85 0 7 8 0.8 0.0 0.3 1.0

France 8,223 90 0 9 1 10.8 0.1 4.6 1.7

Germany 9,644 73 0 20 6 10.3 0.0 12.1 12.2

Greece 248 13 2 8 77 0.0 2.1 0.1 3.7

Ireland 832 95 5 0 0 1.2 14.7 0.0 0.0

Italy 1,440 52 13 21 13 1.1 68.4 1.9 3.7

Japan 12,503 75 0 4 21 13.8 0.0 3.2 50.2

Luxembourg 253 100 0 0 0 0.4 0.0 0.0 0.0

Netherlands 4,800 78 0 22 0 5.5 0.0 6.6 0.0

New Zealand 279 85 2 13 0 0.3 2.0 0.2 0.0

Norway 2,898 100 0 0 0 4.2 0.0 0.0 0.0

Portugal 605 38 0 8 54 0.3 0.0 0.3 6.4

Spain 3,778 67 0 29 4 3.7 0.0 6.8 3.2

Sweden 2,324 86 0 0 14 2.9 0.0 0.0 6.2

Switzerland 1,524 98 0 2 0 2.2 0.0 0.2 0.0

UK 5,712 100 0 0 0 8.4 0.0 0.0 0.0

USA 24,724 63 0 37 0 22.7 0.0 56.8 0.0

EC 13,373 0 100 0 0 - - - -

All donors (excluding EC)

89,945 76 0 18 6 100.0 100.0 100.0 100.0

All donors (including EC)

103,318 66 13 16 5

Source: OECD CRS database.Notes: 1. Data are based on commitments in current US$ millions. 2. There seems to be a misreporting problem with EC commitments: the tying status should be reported on a commitment basis however the amount of aid from the EC for which the tying status is

reported exceeds the commitments reported by EC.


Chapter 3

3.2 Tying status: trends and recent donor performance

3.2.1 The continuing trend towards the untying of ODATheDACdonorshavemovedfromalargelytiedregimeforbilateralODAtoonethatisuntied.ODAreportedasuntiedrosefromaround40%inthemid80stoover70%in2005-07(Figure3.2).Thereiscontinuingprogresswithaidreportedasuntiedrisingto76%in2007.

Acomparisonofthethreeyearsimmediatelypriortothe2001Recommendationandthemostrecentperiodforwhichdataareavailableindicatesthatthereportedincreaseinuntyingispartly‘real’,partlyreflectsachangeindonoractionsandpartlyimprovedreporting(Table3.1).TheportionofODAtoLDCsreportedasuntied,thefocusoftheRecommendation,increasedfrom57%to83%andfrom49%to70%fornon-LDCs.Therewasanapparentincreaseintyingassociatedwiththesharpfallinnon-reportingfrom32%to4%.ThesetrendssuggestthattheRecommendationhasbeenassociatedwithasignificantincreaseinuntiedaidtoLDCsandtodevelopingcountriesmoregenerally.

Thefullextentofthechangeisclearerinfocusinginmoredetailontheoverallandindividualdonorpictureanddifferentformsofaidfor2007.Unfortunately,suchwasthepreviousextentofnon-reporting,itisnotfeltthatmeaningfulde-tailedcomparisonscanbemadeatdonorcommunitylevelabouttypesandformsofaidfromtheOECDdataalone.Such

temporalcomparisonsmaybepossible,drawingonarangeofqualitativeandquantitativeevidenceforindividualdonors,asintheDACPeerReviews,otherrobustbutnotstrictlycom-parabledatasuchasWFPonfoodaid,andintheexploratorysurveyofuntyingpoliciesoffivedonorsinChapter4.

3.2.2 Tying status of ODA in 2007: a cross-sectional analysisTheprogresstowardsuntyingisindicatedinTable3.2:threequartersofallbilateralaidwasreportedasuntied(76%),18%astiedand6%notreported.Eightmembersreported90%ormoreuntiedaid.CanadathathaduntilrecentlyprovidedahighproportionoftiedaidandtheUSAthathadalmostentirelytiedaidhavebothreportedsubstantialprogress.Toconclude,theDACdonorshavewithfewexceptionsmovedtowardsalargelyuntiedframeworkforprovidingbilateralaid.

3.3 Donors responding to the 2001 Recommendation

3.3.1 Targets exceededInordertoimproveeffortsharingamongdonors,theRecom-mendationsetoutreviewmechanismsthatwouldassessmembers’effortsagainsta60%benchmarkforuntyingaidtoLDCs.By2007thishasbeensubstantiallyexceededbyalmostallmembers(exceptItaly)(Table3.3).

1984-1986 1987-1989 1990-1992 1993-1995 1996-1998 1999-2001 2002-2004 2005-2007

100

90

80

70

60

50

40

30

20

CRS data

DAC data

Figure 3.2 Share of total bilateral aid1 that is untied, three year averages (1984-2007): DAC and CRS data comparison2

Source: OECD DAC and CRS databases. Notes: 1. Data are based on commitments in current US$. 2. The two figures are not strictly comparable as DAC data (Table 7b of DAC online dataset) do not include administrative costs and TC. ‘Table DAC 7b is used to report the tying status of bilateral ODA

commitments. Members have agreed that administrative costs and technical co-operation expenditure should be disregarded in assessing the percentages of tied, partially untied and untied aid. These items should therefore not be included in the data reported in this Table.’ (OECD, 2008g)


Chapter 3

TheextentofuntyingofbilateralaidtoLDCs(83%)issubstan-tiallygreaterthanfornon-LDCs(70%)andoverallwas76%in2007(Table3.2).If(untied)multilateralaidistakenintoaccount,then83%ofallODAwasuntied.ThebroadconclusionisthatformallyDACmembers’ODAtotheLDCsisoverwhelminglyuntied.EvendonorssuchasAustraliaandCanadathathadalargeproportionoftiedaidhavemoveddecisivelytowardsuntying(seeChapter4below).TheUSAisthemajordonorthatcontinuestoformallytie,37%in2007.However,throughdevelopmentssuchastheMillenniumChallengeCorporation

thatmakesavailableuntiedbilateralgrants,therehasbeenasubstantialopeningofaidtointernationalsourcing.18Thereisstillsubstantialscopeforfurtherprogressonformaluntyinginrespondingtothe2001Recommendationandmorebroadly,asindicatedinTable3.3.Thereisstillalackoftransparencyre-gardingsomedonorsnon-reporting;forinstance,asFigure3.1shows,morethan50%ofnon-reportedaidisbyJapan.

18 For example, all Millennium Challenge Corporation compact assistance, which accounted for about 6% of total US ODA in 2006, is untied and open to competitive international bidding.

Table 3.3 DAC donor countries: untied aid as percent of donor ODA in 20071

Donor Untied aid Untied aid ratio2

as % of donor aid to all DCs

as % of donor aid to LDCs

as % of donor aid to non-LDCs

Luxembourg 100.0 100.0 100.0 100.0

UK 100.0 100.0 100.0 100.0

Norway 99.9 100.0 99.9 99.9

Switzerland 98.2 96.5 98.8 98.4

Australia 95.8 97.6 95.1 96.7

Ireland 95.1 100.0 89.2 96.6

Belgium 92.3 99.7 86.6 94.4

France 89.8 87.9 90.3 92.8

Denmark 87.6 94.0 83.5 92.2

Sweden 86.3 97.0 83.1 91.6

Finland 84.9 97.5 75.3 90.7

New Zealand 84.7 81.3 86.3 87.8

Netherlands 77.8 98.9 70.5 85.6

Austria 76.1 90.0 75.4 82.5

Japan 75.2 86.3 72.5 77.5

Germany 73.2 80.1 72.0 81.9

Canada 68.8 84.9 59.5 75.1

Spain 66.5 75.7 65.3 77.6

USA 62.9 74.8 58.5 66.8

Italy 52.2 52.5 52.2 83.5

Portugal 38.2 91.1 23.6 64.2

Greece 12.6 86.7 3.5 56.5

All donors (excluding EC) 76.0 86.0 72.8 82.1

Source: OECD CRS database.Notes: 1. Data are based on commitments in current US$ millions. 2. The untied aid ratio is the sum of: the percent of bilateral aid to LDCs reported as untied (to the CRS) multiplied by bilateral ODA (as reported to the DAC) and DAC multilateral ODA, divided by DAC

total ODA.


Chapter 3

3.3.2 Aid instruments and types of aidDifferentialprogresstowardsuntyingmightbeexpectedforspecialaidinstrumentsandtypesofaid.Historically,loansandnon-grantformsofaidwereassociatedwithtyingpractices,involvingelementsofexportpromotion.Theproportionofloansuntiedin2007(97%)wassubstantiallyhigherthatforgrantaid(86%)(Table3.4),andhasincreasedconsiderablysince2006,whenonly48%wasuntied,asnotedinthePhaseOnereport.Thescaleofbilateralloanaidhas,however,alsocontractedsharplysincethemid1990s.Twoexplanatoryfac-torsinthecontractioninloanODAandthemovetountyingareconcernsaboutindebtednessandanarrowingofcommer-ciallyrelatedlendingopportunitiesundertheHelsinkiagree-ment.Mixedcreditarrangementscontinuetobealimitedareaoftyingpracticesforafewdonors,includingtheUSAand

Denmark,asconfirmedbyreportstotheOECDCommitteeonExportCredits(OECDDAC,2008a:Table1).Tiedfoodaidloans,whichareexcludedfromtheOECDreportingonexportcreditsarestillprovided,butonamuchreducedscale(WFP,2008).

TCisexplicitlyexcludedfromthe2001RecommendationandreportingtotheDAContyingstatusisvoluntarythoughrecommended.Evenso,morethan71%ofaidasTCorinclud-ingaTCcomponentwasreportedasuntiedin2006(Table3.5).However,thehighproportionofaidforwhichapossibleTCcomponentisnotreported(61%)putsthisfigureindoubt.Amoredetailedreviewofdonorpractices(SeeChapter4)confirmseffortstountiemanyformsofTC.

Table 3.4 DAC donor countries: tying status of bilateral ODA to LDCs according to grant/non-grant status in 20071

(US$ million) (%)

Bilateral ODA Share of bilateral ODA


Tied Not Reported

Share of untied bilateral ODA

ODA Grants 21,181 96.6 85.7 0.2 11.5 2.6 96.2

ODA Loans 712 3.2 96.9 0.7 2.4 0.0 3.7

Equity Investment 23 0.1 100.0 0.0 0.0 0.0 0.1

Total ODA 21,916 100.0 86.0 0.3 11.2 2.5 100.0

Total ODA (including EC) 25,454 74.1 14.1 9.6 2.2

Source: OECD CRS database.Notes: 1. Data are based on commitments in US$ millions.

Table 3.5 DAC donor countries: tying status of bilateral ODA to LDCs according to tech nical cooperationcomponent in 20071

(US$ million) (%)



Tied Not Reported

Share of untied bilateral ODA

Without TC component 4,589 20.9 96.6 0.6 2.7 0.0 23.5

With some TC component 183 0.8 91.4 3.0 5.6 0.0 0.9

Wholly TC2 3,754 17.1 70.4 0.1 16.6 12.9 14.0

TC component not reported 13,390 61.1 86.7 0.2 12.6 0.5 61.6

Total bilateral ODA (excluding EC) 21,916 100.0 86.0 0.3 11.2 2.5 100.0

Total bilateral ODA (including EC) 25,454 74.1 14.1 9.6 2.2

Source: OECD CRS database.Notes: 1. Data are based on commitments in US$ millions. 2. Projects where TC is the only component.


Chapter 3

Asectoral classificationofbilateralODAfor2007indicatesareaswhereuntyingismoreextensive,aswellastypesofaidinwhichformaltyinghasbeenretainedtoagreaterextent(Table3.6andB.1).

Aswouldbeexpected,theextentofuntyingisgreatestfordebtrelief(100%)andgeneralbudgetarysupport(99.3%).Incomparing2006,asreportedinPhaseOne,with2007inTable3.6,therehasbeenadeclinefrom23%ofbilateralODAin2006to13%in2007intheseformsofdirectassistancetogov-ernments.Meanwhiletheoverallproportionofaidreportedasuntiedhasincreasedby2%yearonyear,underliningthemoregeneralmovetowardsuntying.Itisalsointerestingtonotethat20%ofdonoradministrativecostsarereportedin2007asuntied,althoughthiscategoryisexemptedfromtheRecom-mendation.

Thehighlevelofnon-reportinginsectorsinwhichtyingofprojectaidmightbeexpected,infrastructure,transport,in-

dustryandenergy,indicatethatcautionisrequiredinmakinginferencesfromstatisticaldataaboutuntyingpracticesatanaggregateorindividualdonorlevel.

Food aidisexemptfromthe2001Recommendation.ItisalsodifficulttodeterminethefullextentofuntyingfromOECDCRSforaformofaidthatisreportedaspartofatleastthreesectors,includingemergencyassistance(21%tying),develop-mentfoodaid(53%tying)andcommodityaid(tyingstatusalmostentirelyunreported).TheOECD(2006)studyfoundwidespreadmovestountying,withtheexceptionoftheUnitedStates.TheWFPINTERFAIS,whichreportsonfoodaiddeliveriesinphysicaltermsastonnagesofcommodities,pro-videsameasureofprogressonuntying(Table3.7).Totalcere-alsfoodaiddeclinedby46%from9.5milliontonnesin2001to5.1milliontonnesin2007.Commoditiessourcedindonorcountries(directtransactions)alsodeclinedsharplyby65%,from8.5milliontonnesto2.9milliontonnes.Incontrast,theshareofuntiedandpartiallyuntiedcerealsaidsourcedinre-

Table 3.6 DAC donor countries: bilateral ODA by consolidated sectors in 2007: tying status as percent of sector ODA1.

Consolidated Sector (US$ million)

(%)

Bilateral ODA Share of bilateral

ODA


Tied Not Reported

Share of untied bilat-

eral ODA

Budget Support 2,769 3.1 99.3 0.0 0.7 0.0 4.0

Debt 9,010 10.0 100.0 0.0 0.0 0.0 13.2

Economic Infrastructure 11,131 12.4 76.0 0.1 21.2 2.6 12.4

Production Sectors: - Agriculture, Forestry & Fishing- Other

4,2661,337

4.71.5

86.169.0

0.40.0

8.2

16.7

5.3

14.2

5.41.3

Social Infrastructure & Services 26,850 29.9 77.6 0.2 17.5 4.7 30.5

Multisector 6,313 7.0 82.6 1.1 12.5 3.8 7.6

Government & Civil Society 11,287 12.5 71.0 0.3 25.8 2.9 11.7

NGO Support 799 0.9 84.4 3.0 1.5 11.1 1.0

Commodity Aid / Program Assistance 278 0.3 1.2 0.0 0.2 98.6 0.0

Emergency Assistance & Reconstruction 7,201 8.0 78.9 0.2 20.9 0.0 8.3

Food Aid 1,020 1.1 46.9 0.0 53.0 0.0 0.7

Refugees in Donor Countries 1,968 2.2 59.2 0.0 31.9 8.9 1.7

Donor Administrative Costs 4,357 4.8 20.4 0.9 46.3 32.4 1.3

Unspecified 1,360 1.5 44.6 0.5 8.0 47.0 0.9

Total (excluding EC) 89,945 100.0 76.0 0.3 18.0 5.7 100.0

Total (including EC) 103,318 66.2 13.2 15.6 5.0

Source: OECD CRS database.Notes: 1. Data are based on commitments in current US$ millions.


Chapter 3

cipientcountries(localpurchases)andinthird,almostentirelydevelopingcountries(triangulartransactions)increasedfrom10%to42%andthequantitydeliveredalsoroseby121%fromunder1milliontonnesto2.1milliontonnes.19Thesedevelopmentsarestriking:inaperiodofincreasinglytightglobalmarketsandrisingprices,boththeshareandreallevelsofuntiedandpartiallyuntiedfoodaidsourcedindevelopingcountriesincreasedstrongly.

3.3.3 Effort-sharingTherearewidedifferencesinaideffort-sharingamongstDACmembers.Thisisreflected,forexample,inthemostwidelycitedindicator,thepercentageshareofODAinGrossNationalIncome(GNI)inrelationtotheUNtargetof0.7%ofGNI.Morespecificallytheimplicationsofadoptingthe2001Recom-mendationcanbeexpressedintermsoftheproportionofaiddirectlyaffected.TheDAChasadoptedtwoindicatorsandrelatedtargetsforeffort-sharing.ThefirstistheshareofuntiedODAintotalaidtoLDCs,withastraightforwardtargetof60%.Asshownabovealmostalldonorshavereachedthistargetwithinsixyears,includingthosethathistoricallyprovidedaidonalargelytiedbasis.ThesecondindicatoristheratioofuntiedbilateralLDCODAandmultilateralLDCODAwithGNI.Atargetequivalentto0.04%ofGNIwasagreedandisreportedtohavebeenexceeded(OECDDAC,2009).However,thisindicatorissomewhatopaque.Donorsmaychoosetodisproportionatelysupportpartsofmultilateralaid,includingregionalfinancialinstitutionsthatproviderelativelymoreorlessassistancetoLDCs.

InconsideringoveralleffortsharingintheuntyingofODA,andnotjusttheaidtoLDCs,theproportionofaidchannelledmultilaterallyisasignificantfactor.Sotoprovideanindicatorofuntyingoverallan‘Untiedaidratio’isestimated,whichistheproportionofuntiedbilateralaidplusthataidchannelled

19 WFP reports that over 90% of local and triangular purchases are in developing countries. The changes between 2001 and 2007 in ‘non-cereals’ food aid deliveries are broadly similar to those for cereals, but the heterogeneity of this category, which includes pulses, vegetable oils, sugar and dairy products, makes interpretation of statistical data more difficult.

multilaterallyexpressedasashareoftotalODA(Table3.3).ThescatterplotinFigure3.3showsthattheuntiedaidratioispositivelycorrelatedwitheffort-sharing,theoverallODA/GNI–thatisthosegivingrelativelymoreaidasapercentageofGNI–appearalsotoproviderelativelymoreuntiedaid.Thisconjecturethatthereisapositiverelationshipbetweenunty-ingandaideffort-sharingwasconfirmedinaneconometricanalysisundertakeninPhaseOneofthisstudy.20However,asdonorswhoseODAisarelativelylowerpercentageofGNI,havealmostfullyuntiedtheiraid,forexampleAustralia,sothisrelationshipisbecominglesspronounced.

20 The analysis for the bilateral aid of 22 donors in 2006 found that approximately two thirds of the inter-donor variations in untying were explained statistically by the following influences in order of significance. First, the share of aid received by LDCs is highly significant, suggesting that the Recommendation is an influence on the ex-tent to which aid is untied. Second, the share of food aid in bilateral ODA is negatively and significantly associated with untying. This confirms our expectation that a high share of bilateral food aid is associated with tying practices. Third, a higher share of TC and fourth a lower GNI per capita are associated with a lower share of untied aid. (Clay et al., 2008, Section 3.5).

Table 3.7 Global cereals food aid by source of supply in 2001 and 2007

Source ‘000 tonnes in 2001(% of total)

‘000 tonnes in 2007(% of total)

Change 2001- 2007 (%)

Developing countries1

(Untied/partially untied)967(10)

2139(42)

+121

Direct transfers2

(Tied)8537

(90)2949

(58) - 65

Total 9499(100)

5088(100)

- 46

Source: WFP INTERFAIS.Notes: 1. Includes local purchases in recipient countries and triangular purchases in third countries. 2. Sourced in the donor country or in the case of the EU within the single European market.


Chapter 3

3.3.4 Additionality of tied aid?Aconcernoftenvoicedbythosedefendingtyingpracticesorcautioningagainstchangeisthatuntyingcouldresultinalossofdomesticsupportforaidoverall,orhavediversion-aryeffectsawayfromLDCstootherpartnercountries.ThesepossibilitieshavebeenconsideredinthereportingtotheDACorimplementationofthe2001Recommendation.Theannualreviewssuggestmorepositivedevelopmentsandnoevidencetosupporttheseconcerns.AbsolutelevelsofODAtoLDCshadalmostdoubledby2007sincethebaseperiodof1999-2001.TheshareofLDCsintotalODAwasalso5%higher,andevenhigher(13%)whenthesomewhattempo-rarysurgesindebtreliefduring2005-06areexcluded(OECDDAC,2008a).Asthehistoricaldataonuntyingaresoweakbecauseofthehighlevelofnon-reportinginearlieryears,itisunlikelythatanymoresophisticatedstatisticalinves-tigationwillbeattemptedthatmightoverturnthissimplerefutationoftheadditionalityargumentbasedontrendsinaid.Furthermore,theprocessofuntyingiscontinuingbeyondtheRecommendation–intermsofaidtonon-LDCs,TCandfoodaid.

Thechangingpatternofsourcingwithinsteeplydecliningfoodaidlevelscastsfurtherdoubtontheadditionalityargu-mentfortying.Thereallevelsofuntiedfoodaidmorethandoubledbetween2001and2007inaperiodofincreasingly

tightmarketsandhigherglobalprices.Incontrast,levelsoftiedaidsourcedindonorcountriestumbled(Table3.7).Atadonorlevel,thosewhohadalreadyshiftedtodevelop-ingcountrysourcingandremovedresidualtyingpracticessustainedtheirreallevelsoffoodaid,whilstflowsfromthoseprovidingdomesticallysourcedcommoditiessharplycon-tracted(WFP,2008).Iftherewereanyadditionalityoftiedfoodaid,thenthisphenomenonwouldbeunstable,contingentontransientsurpluses(FAO,2006).

Takentogetherthefindingsofthesestatisticalanalysessug-gestthattheRecommendationhashadasignificantimpact,andsoextendingthecoverageoftheRecommendationintermsofcountryandformsofaidcurrentlyexemptwouldleadtofurtheruntyingofaidasenvisagedintheParisDeclara-tion.

3.3.5 Formal untying and de facto tying: saying it does not make it soTheformaluntyingofaiddoesnotnecessarilyhaveadevelop-mentalortradeimpact,unlessitisaccompaniedbyachangeinactualpractice.Herethereisaseriousissue,theactualinformation,whichonlysomedonorschoosetosubmitaboutsomeoftheiraidtotheOECDaboutcontractsthatareopentocompetitivetender,indicatesthat62%ofcontractsand60%byvaluewereawardedwithinthedonorcountry(Table3.8).In

Source: OECD CRS and DAC database.Notes: 1. Data are based on commitments in US$ millions.

GRC

POR

USA

JPN

ITA

NzL

AUSSUI

Uk

FRA

FIN

AUT

IRL

NL

DkSWE

NORLUx

BEL

CAN

ESP

DEU

60

70

80

90

100

.2 .4 .6 .8 1

Untie

d ai

d ra

tio

ODA/GNI

Figure 3.3 Relationship between share of untied ODA (untied aid ratio) and effort-sharing (ODA/GNI) in 2007


Chapter 3

theabsenceofcontraryevidence,itwouldseemreasonabletoinferthatanevenhigherproportionofallcontracts,includ-ingthosethatarenotreported,areawardedwithinthedonorcountry.Thereisthusapresumptivegapbetweentheformaldeclaratoryuntyingofbilateralaidandactualpractice,whichimpliesaconsiderableelementofintendedorunintendedde

Table 3.8 DAC donors: geographical distribution of contracts awarded in 2007

Donor Total contracts awarded

Within donor country Other OECD and non-DAC

countries

Developing countries

(excl. LDCs)

LDCs

No. of con-

tracts

US$ mn

No. of con-

tracts

US$ mn

as % of total contracts

awarded (n)

as % total con-tracts awarded

(value)

No. of con-

tracts

US$ mn

No. of con-

tracts

US$ mn

No. of con-

tracts

US$ mn

Australia 12 100.5 10 96.3 83.3 95.8 0 0.0 1 1.4 1 2.8

Austria (2) .. .. .. .. .. .. .. .. .. .. .. ..

Belgium 5 18.2 1 2.8 20.0 15.4 0 0.0 2 2.1 2 13.3

Canada 1 16.1 1 16.1 100.0 100.0 0 0.0 0 0.0 0 0.0

Denmark (3) 6 6.5 5 6.5 83.3 100.0 1 0.0 0 0.0 0 0.0

Finland 3 5.5 3 5.5 100.0 100.0 0 0.0 0 0.0 0 0.0

France 66 350.3 16 57.4 24.2 16.4 7 119.7 32 134.3 11 38.9

Germany 52 171.8 29 75.9 55.8 44.2 3 6.7 4 6.4 16 82.9

Greece (4) 0 0.0 .. .. .. .. .. .. .. .. .. ..

Ireland (2) .. .. .. .. .. .. .. .. .. .. .. ..

Italy (5) 0 0.0 .. .. .. .. .. .. .. .. .. ..

Japan (6) 23 .. 20 .. 87.0 .. 2 .. 0 .. 1 ..

Luxembourg .. .. .. .. .. .. .. .. .. .. .. ..

Netherlands 1 4.0 1 4.0 100.0 100.0 0 0.0 0 0.0 0 0.0

New Zealand 7 10.5 6 9.1 85.7 86.7 1 1.4 0 0.0 0 0.0

Norway 1 6.0 0 0.0 0.0 0.0 0 0.0 1 6.0 0 0.0

Portugal 1 1.4 0 0.0 0.0 0.0 0 0.0 1 1.4 0 0.0

Spain (4) 0 0.0 .. .. .. .. .. .. .. .. .. ..

Sweden (4) 0 0.0 .. .. .. .. .. .. .. .. .. ..

Switzerland (2) .. .. .. .. .. .. .. .. .. .. .. ..

UK 54 293.7 44 258.4 81.5 88.0 4 13.3 4 12.6 2 9.3

USA 95 1917.0 65 1207.4 68.4 63.0 6 20.2 20 650.2 4 39.2

Total DAC 327 2901.3 201 1739.4 61.5 60.0 24 161.2 65 814.3 37 186.4

Source: Table 5 of DCD-DAC(2009)21-REV2-ENG from Contract Awards Questionnaire, 2006. (Provisional data).Notes: 1. This table does not include information on small contracts (below SDR 700,000). 2. No contract award information provided. 3. Two contracts for Denmark did not include project amounts. 4. No contracts from Greece, Spain and Sweden were reported above the SDR 700,000 threshold. 5. No contracts awarded pertaining 2007 ex ante notifications. 6. No contract amounts have been provided.

factotying.Thatapparentgapbetweendeclarationsandout-comesimpliesthattheinvestigationmustseektounderstandhowthecurrentuntiedaidregime,whichdonorshavevolun-tarilyagreed,worksinpracticewithindonoragencies(Chapter4)andatacountrypartnerlevel(Chapter6)beforeattemptingtodetermineitsimpacts.


Chapter 4

4.1 Objectives and scope

T heToRcallsfora‘comprehensiveoverviewofthecurrentpoliciesandpracticesofDACmembersandnon-DAC

membersregardingthetyingstatusoftheiraidandtheeffectsonaid-effectiveness’(Para10).

Thisreview,undertakeninPhaseOne,drawslargelyontheannualprogressreportstotheDACthatmonitordonorperformanceinrelationtothe2001Recommendation21.Thesereportsprovideapicturebasedlargelyondonors’ownreportingontheformaltyingstatusoftheirODA,andsuggeststeadyprogresstowardsmeetingtheRecommendation.Thereis,however,lessunderstandingofwhatthisformaluntyingmeansintermsoftheorganisationandmanagementofbilat-eralaidinrelationswithpartnercountriesanditsconsequenc-es–inshort,howuntyingactuallyworks.Acomprehensivesurveyofcurrentuntyingandtyingpracticeswasprecludedbytimeconstraintsofreporting.Itwasthereforedecidedtoexplorethisquestion,aswellasexaminetherecentevolutionofdonoraidpoliciesandpractices,forarepresentativesampleoffiveDACmembers,withadditionalexamplesfromotherdonorpractices.Thememberssurveyedare,accordingtotheirownstatements,committedtotheRecommendation,butareatdifferentstagesinuntyingtheiraidoverall:Australia,Canada,Denmark,NorwayandSwitzerland.

ThethreeEuropeandonorswerealreadycommittedtountyingmostoftheiraidandreportedconsiderableprogresspriorto2002.CanadaandAustraliahaveexplicitlymodifiedtheirsourc-ingpoliciesforLDCsinresponsetotheRecommendation,aswellasmovingtountieTCandfoodaid,whicharenotcoveredbytheRecommendation.Thesefivecountriesarealsopartytodifferentregionalandbilateraltradeagreementsthatincludeprovisionsregardingpublicprocurement,whichcouldbeaninfluenceonuntyingpractices:Australia–bilateralagreements;Canada–NAFTA;Denmark–EU;andNorwayandSwitzerland–EEAandEFTA.Canada,DenmarkandNorwayarealsopartof

21 The latest report is OECD DAC (2009)

theinformalNordic+groupingofdonorscommittedtoworkingjointly,includinginsomecasesmanagingeachother’said.

ThisbriefsurveyisbasedonastatisticalanalysisofODAasreportedtotheOECD,plusareviewofofficialdocumentationandinterviewsortelephoneconversationswithaidofficialsatdonorHQlevelundertakenduringJuneandJuly2008.IthasservedtohighlightbothcommonanddistinctivefeaturesofdonorpoliciesandpracticesandtoidentifymorepreciselyissuesappropriateforexplorationatapartnercountrylevelinPhaseTwooftheStudy.Thesurveyresultsarepresentedfirstintheformofabriefaccountoftheevolutionofpolicyontyingandinfluencesforeachdonor,thenacomparisonofcurrentpracticesand,third,identificationofissuesforfurtherexploration–byextendingthesurveyonalimitedrangeofuntyingpracticefeaturestoincludeallmembers,andinvesti-gationatpartnercountrylevel.

4.2 Donor country experiences of untying

4.2.1 Norway Untyingaidbeganinthe1980s,andby2002therewereonlyafewresidualareasoftying(Figure4.1).TheseincludedpartofNorway’sfoodaidcommitmenttoWFP,emergencyaid-in-kind(materielandpersonnel)andsomeTC,includingsupportforprivatebusinessdevelopmentorB2B22,post-secondaryeduca-tionandresearch.

22 These are called ‘Matching Making Programmes’ in Norway (Norwegian Ministry of Foreign Affairs (NMFA), 2004)

4. donor poliCiEs And prACtiCEs: How doEs untying work? A survEy of

fivE donor EXpEriEnCEs of untying


Chapter 4

Apartfromthegeneraleconomicdevelopmentargumentsinfavourofuntying–suchasresourcetransferefficiency,provid-inggreaterflexibilitywithinagencyprogramming,aswellaspromotinggreaterresponsibilityandownershipforrecipientpartnercountries–morecountryspecificfactorswereinfluen-tial.First,therewasaconcern,initiallyexpressedinthe1970s,toavoidsectoraldistortionswithinanexportsurplusoil-economy.Second,anegativeexperienceofthe‘commercialisationofaid’–highprofilerepaymentdifficultiesoverconcessionalloanguaranteestofinanceshippingconstructioninNorwaythatledtodebtcancellationin1987–gaveadiscretepushtowardsuntying(Stokke,1989;2005;Abildsnes,2007).23ThelimitedpoolofNorwegianexpertiseisafurtherargumenttojustifybroadersourcingofTC,whichisalsoformallyuntied.However,politicalconcernsaboutsustainingpublicsupportrecentlyledtogivingspecialemphasistoareaswhereNorwayisseentohavecom-parativestrength–petroleumexploitationandenvironmentmanagement–whichmakesitmorelikelythatNorwegiantechnicalexpertisewillbefunded(Norad,2007a;2007b).

Bilateralaidwasreportedaswhollyuntiedin2007(Table3.2).Thelasttiedfoodaidwasphasedoutoncost-effectivenessgroundsin2006(NMFA,2007).Thereare,however,specialprogrammesfortheprovisionofNorwegiansourcedin-kindemergencyaidandpersonnel;theseinvolveassuredsupplyandstockpilesofalimitedrangeofmaterialswhicharede factotied.Arecentevaluationdrewattentiontothecomplexissuesinvolved.Therearehighcostsofaid-in-kindwhichhavetobebalancedagainstthedifficultiesofassuringthetimelyprovisionofsuppliesofhighlyspecificgoodstomeetunpre-dictabledisasterneedsintheabsenceofawell-establishedmarket(Norad,2008).Problemsalsoariseinensuringthat

23 There are parallels with the Pergau Dam affair that led to a political commitment to complete untying of UK bilateral aid first by abolishing the Aid and Trade Provision in 1997 and full final untying in 2000.

productinnovationandchangingbestpracticearetakenintoaccountwherethereistyingtospecificsuppliers.24Thisisseenasagreyareainwhichbalancingthebenefitsandcostsofty-ingpracticesarebothlessclearandsignificantlycasespecific.

Civilsociety,includingNGOs,researchinstitutionsanduni-versitiesandtheprivatesector,hasamajorroleinNorwegianODA.In2006,almost25%ofbilateralODAwaschannelledthroughNorwegianNGOs.Theseagenciesarefreetosourcegoodsandservicesanywhere.However,therewillbeaproportionofdonorcountryexpenditureinthisassistance.Fromarecipientcountryperspectivesuchpracticesmayalsoappearagreyareainthesourcingofaid.ApossibleissueforfutureinvestigationistheeffectthatchannellingofaidthroughNGOshasonsourcingofgoodsandservices.

TheshareofHQlevelcontractingisquiterestricted,amount-ingtounder5%ofODA.TheEEAandEFTAtradeframeworksmeanthatNorwayandalsoSwitzerland(seebelow)followEUguidelinesquitecloselyonthresholdsforcompetitivetender-ing.25ThispracticeexplainswhytherearesevereandEurope-widelimitsondonortyingpossibilities.

24 A similar problem of lack of incentive to innovate was found in an evaluation of US food aid support for nutritional improvement. Products developed in the 1960s were still being supplied from dedicated processing facilities three decades later, without taking into account advances in nutrition and food fortification (Marchione, 2002).

25 The current thresholds (according to Norwegian Government regulations) require national tendering over NOK 500,000. Above NOK 1.2 mn an open international tendering is required. Contracts for tender are posted in English as well as Norwegian on the Norad web-site and also forwarded to Brussels to post on the EU’s procure-ment web-site. Norad does not post contracts on the UN business web-site. Direct contracting is allowed below NOK 100,000. Between NOK 1,000,000 and NOK 500,000 Norad is expected to invite at least three proposals on the basis of a simpli-fied invitation.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

100

90

80

70

60

50

40

30

Source: OECD CRS database.

Australia Canada Denmark Norway Switzerland

Figure 4.1 Five DAC Donors: bilateral aid reported as untied from 1996 to 2007 (percent)


Chapter 4

MixedCreditArrangements(MCAs)areanexampleofhowuntyingmayleadtothedeclineinuseofaidinstruments.Norwayandothersthathavesofarretainedthemcouldphasethemout(Box4.1).

Theresidualareasofde factotyingandcontractingpracticeunderanuntyingregimeraisetheinterestingandimportantissue– when is the market the most appropriate regulator?

4.2.2 Denmark DevelopmentisaccordedhighpriorityinDenmark;thisisreflectedinanetODA/GNIratioof0.8evenafteradecadeoflittlegrowthinrealODA.OvertwothirdsofallDanishbilateralaidhadbeenuntiedpriorto2002(Figure4.1).Thisuntyingprocesshascontinued,includingbothTCandfoodaid,andin2007over88%ofbilateralaidwasreportedasuntied(Table3.2).Tyinghasbeenretainedformixedcredits.Supportforprivatesectordevelopment(B2B)isanambiguous‘grey’areainbilateralprogrammes,becauseassistanceisusuallydirectedtobuildinglinksbetweenbusinessintherecipientanddonorcountries.ThesetwoareasamountedtorespectivelyUS$32mnandUS$20mnin2006.

Historically,ahighproportionofDanishaidwastied,withstronglinks,forexample,toagricultureandagribusinessaswellashightechareas.TheEUregulationsonpublicprocure-

ment,introducedfollowingthecreationoftheEuropeanSingleMarketin1992,providedastrongimpetusfortheuntyingofallDanishbilateralaid,includingTCandcontributionstomultilateralfoodaid.TherequirementsforopencompetitivetenderingwithintheEUfor‘large’publiccontractsoverthethreshold,whichisnow€125,000,weakenedthelinksbetweenaidanddomesticexporters.Theargumentofcost-effectivenesswasusedtojustify,forexample,switchingDenmark’sshareoftheEU’sFACcerealsaidcontributionfromHQprocurementtogivingcashtoWFP(ColdingandPinstrup-Andersen,1998).Thetiedsupplyofdairyproductsasaidwasalsoendedin2003.

Denmarkhasdeliberatelyretainedsometyinginsupportofprivatesectordevelopmentandtofundinfrastructure,accountingforaround2-3%ofODA.26TheMixedCreditProgramme,largelydirectedtonon-LDCs,isseenassustainingdomesticbusinesssupportforaproportionatelyhighlevelofaid.Tenderingrulesareincreasinglyflexible:contractorsareal-lowedtosourcegoodsandservicesoutsideofDenmark,and,ifthereisinsufficientdomesticinterest,non-Danishregisteredcompaniescancompete.27

B2Bisseentobelargelydemanddriven.Developingcountrybusinessesareinvitedtoseekassistancefromdonorcountryofficesinfindingpartners.Suchdirectedassistanceisseenasrespondingtoinformationproblemsthathamperbusinessdevelopmentinpartnercountries.BoththeMixedCreditProgrammeandB2Bhavebeensubjecttorecentevaluations,leadingtoadaptationsinpracticetoimproveperformance(Danida,2002;2004).

Thehighproportionofuntyingisseenasassociatedwithdecentralisationofbilateralaidprogrammingandmanage-menttocountrylevel.Enhancedprocedureshavebeenestablishedformonitoringcountryofficeperformance.Wherethereisstronggovernanceandcapacityinplace,policyistochannelfundsthroughpartnerinstitutionsad-ministeredaccordingtotheirownsystems,asexemplifiedinSouthAfrica(PhaseOne,Box4.2).Denmarkisalsosupport-ingthestrengtheningofrecipientprocurementcapacity,forexampleinBangladeshandTanzania.Asecondrouteisjointfundingwherecontractingbecomestheresponsibilityofanotherleaddonor.ThethirdpossibilityiscontractingaccordingtoDanishprocedures.EUdirectivesonpublicprocurementgoverncontracting.Thehightransactioncosts

26 The government elected in 2000 was more questioning than its predecessors about the value of aid, cutting the aid budget by around a quarter; and that was a possible reason for retaining instruments that command support in the business community.

27 The Danida Board, which advises the Minister for Development Cooperation on matters related to Danish development cooperation, is a distinctive institutional fea-ture which is indicative of links between domestic stakeholders and aid strategy. The Board reviews and comments on new projects and programmes (or new phases of these) and discuss major strategy issues. It is comprised of nine members appointed by the Minister. Members come from different organisations (interest groups) in the Danish society such as NGOs working on development issues, the Danish Industry, universities and workers organisations.

Box 4.1 The Decline of Mixed Credit Arrangements

MCAs were widespread and have been contracting sharply since the adoption in 1991 of the Helsinki Ac-cord Rules on export and aid credits. This instrument was designed to operate in a tied aid environment, funding infrastructure and power projects, for example. Currently the Norwegian MCA provide around NOK 100 mn annually, although this amount is variable. Prior to untying the level was around NOK 300 mn a year. Projects of over NOK 5 mn are considered. All contracts are internationally tendered and this has proved prob-lematic. Tied MCA could offer a predictable package in-cluding timing, guarantees, private loans and suppliers. Untied, the MCA is not a full financing package – as the agency is unable to assure more than the interest sub-sidy on part of the funding with the remainder coming from a commercial source that in turn needs guarantees in place. Thus a project for Lao PDR in 2006, as part of a World Bank assisted project, was very slow to organise under international competitive tendering rules. China ended its Norwegian MCA when it became untied and China could no longer specify the exact source of supply for the equipment. Switzerland has phased out MCAs, but Denmark continues to provide them mainly for infrastructure to non-LDCs. Canada provides only grant aid and Australia has ceased to make new com-mitments as loans.


Chapter 4

andtimerequiredmightexplainthedeclininguseofcon-tractedprojectsthatrequiredopencompetitivetenderinginfavourofothermodalities.28Danidaisexemplaryinbeingtransparentaboutitscontracting:ICTcontinuestoawardpredominantlytoDanishcompaniesandtheirpartners(Box4.2).ThisoutcomeisconsistentwithotherdonorpracticeasreportedtotheDACandissuggestiveofapersistent,butinthiscasedeclining,advantageheldbydomesticorganisa-tions.

DenmarkhasalsoengagedineffortstountieTC,whichby2006wasfreeofsourcingrestrictions.Researchandhigher

28 In 2006 procurement through HQs had fallen to around 5% of bilateral ODA (OECD DAC, 2008b). Contracts of less than DKK 500,000 can be contracted directly. Then under DKK 975,000 (€ 125,000) there is a letter of notification; and evidence is required of three offers, but not a formal tender procedure. Over DKK 975,000 Danida is required to make an international openly competitive tender (equivalent to € 125,000 under EU directives); and this typically needs seven months for full procedure, a committee established involving partners, embassy and technical advisory services.

educationremainareaswherefundingisprimarilydirectedtoDanishinstitutions.29

4.2.3 SwitzerlandSwissODAhasincreasedby47%inthepastdecade.However,theshareofODAinGNIis0.4%andSwitzerlandhasmadelittleprogresssince2001towardsmeetingtheUN0.7%ofGNItargetforODA.98%ofSwissbilateralODAcommitmentsin2007werereportedasuntied(Table3.2).

Switzerland’saidwasoverwhelminguntiedpriorto2002(Figure4.1).30Thekeymomentinmovingonuntyingwas1994,whenthecurrentframeworkwithinwhichalmostallSwissODAisfor-mallyuntiedwasestablishedinresponsetothreedevelopments:theHelsinkiAccordin1991,theintroductionoftheEUsinglemarketin1992andthe1994WTOUruguaySingleUndertak-ing(i.e.agreementontrade)(Switzerland1994;1995;2007a).Switzerland,asanEFTAcountry,broadlyadoptedEUrulesonpublicprocurementofaid,similartotheEU,enablingcompaniesregisteredwithintheEU(15)in1995andtheEECtocompeteonanequalfooting.31Tyingpracticesweregraduallyphasedout.TheStateSecretariatforEconomicAffairs(SECO),whichisresponsibleforSwitzerland’sODAundereconomicdevelopmentcooperation,phasedoutmixedcreditsfromthelate1990s.InmeetingFACcommitmentstheSwissAgencyforDevelopmentandCooperation(SDC)begantoreplacecerealsfoodaidin-kindwithcashfrom1995(FerreiraDuarteandMetz,1996).

Remainingareasofde factotyingincludedairyaidandemer-gencyrelief.32In-kinddairyaid,costingUS$15mnin2006,wasdirectedsolelyforuseinnutritionalprogrammes,therebyminimisingrisksoftradedistortion,andjustifiedassustainingsupportforaid.In-kindemergencyaidincludesthehighprofiledirectassistanceprovidedbytheSwissHumanitarianAidUnit.

Untyingisnon-controversial,withSwissbusinessperceivingitselfascompetitiveinitsareasofspecialisation.Nevertheless,since

29 Grants are primarily awarded to research in Danish programme countries and within the yearly prioritised research themes. Priority is given to larger strategic research projects/programmes with partners in developing countries, and collabora-tion between several Danish institutions. Capacity building of these partners has for many years been a high priority for Denmark and so the majority of the budget is provided to them. Apart from this type of support, international research institutions are supported e.g. the Consultative Group for International Agricultural Research (CGIAR).

30 Swiss ODA is determined within a four year ‘credit framework’ under which annual appropriations are made. A large share of the bilateral portfolio is taken up with follow-on actions, suggesting that international commitments such as the MDG and the 2001 Recommendation have not been significant influences on the real level of ODA.

31 While a member of EFTA, Switzerland is not party to the European Economic Area Agreement. Regulations governing trade with the surrounding EEA countries tend to meet or exceed the requirements of EU Directives. http://www.euro.cauce.org/en/countries/c_ch.html

32 Switzerland did not report to the CRS the tying status of TC and administrative costs commitments in 2006 explaining the high level of non-reporting shown in Figure 4.3.1.

Box 4.2 Transparency: service procurement by Danida HQ

In 2006 Danida entered into 20 service contracts with a total value of DKK 254 mn. Danish companies account-ed for 15 contracts with a total value of DKK 199 mn. About one third of the contracts with Danish companies were in joint venture with foreign companies. Danida received 118 applications for the 20 tenders, with 41 being from foreign companies.

In 2007 Danida entered into 14 service contracts with a total value of DKK 163 mn. Danish companies account-ed for 12 contracts with a total value of DKK 157 mn. About half of the contracts with Danish companies were in joint venture with foreign companies. Danida re-ceived 68 applications for the 14 tenders with 29 being from foreign companies, which suggests an increasing interest from foreign companies.

Note: * The contracts are tendered according to the rules and procedures of the EU-directive on procurement. Contracts under the threshold of the EU-directive are awarded according to Dan-ish procurement rules. The contracts are completely untied. In 2008 Danida entered 520 such contracts to a total contract value of DKK 190 mn.

Service contracts tendered by Danida* 2006 2007

Total number of contracts 20 14

Number of contracts with Danish companies 15 12

Total value of contracts in DKK mn 254 163

Total value of contracts Danish companies in DKK mn 199 157


Chapter 4

1994SDChascommissionedfouryearlyinvestigationsintotheimpactofODAontheSwisseconomy(GDP)andemployment.Thesestudieshaveindicatedaratioofbetween1.40-1.60ofout-putinassociationwitheveryCHFinODAwhichhavenotbeenaffectedbyprogressiveuntyingofaid(Zarin-Nejadanet al.,2008).

CivilsocietyhasamajorroleinSwissODA,includingNGOs,researchinstitutionsanduniversities,theprivatesectorandtheGenevabasedICRC,withwhichtherearestronghistoricties.In2006,almost21%ofSwissODA(24%ofSDCand8%ofSECOfunding)waschannelledthroughSwissbasedorgani-sations.Sourcingofgoodsandserviceswaslargelyuntied,exceptingdairyfoodaid(Switzerland,2007b).

Therelativelyhighproportionofmultilateralaid,NGOchan-nelling(together40%ofODA)andtheuseofdirectbilateralassistanceinstrumentslimitedSDCHQ’sprocurementofgoodsandservicestounder11%ofSDCbilateralaidin2006.Around85%ofthisfundingwasthendirectlycontracted,largelybecauseofthepracticeofexemptingon-goingprojects(74%)fromcompetitivetenderingrequirements.33Internationalcompetitivetenderingincludedonly2%ofcontracts.Non-Swissorganisationsaccountedfor9.6%ofcon-tractedfunding.Consequently,theeffectsofuntyingpracticesarelargelyintermediatedthroughthechannellingofODA,in-cludingformsofdirectbilateralassistancesuchassectoralandbudgetarysupportaswellasunrestrictedsupporttoNGOsandtheICRC.Untyingisseenasassociatedwithastrongpolicycommitmenttojointfundinganddecentralisationofmanagementtoacountrylevel.Thereisconsiderableinterestinabetterunderstandingofhowuntyinghasfunctionedanditsconsequencesatacountrylevel.

4.2.4 Canada LevelsofCanada’stotalandbilateralODAhaverisensubstan-tiallyduringtheprocessofuntying,especiallysince2004.Onlyfoodaid,acategoryofODAexemptfromtheDACagreementsonuntying,andpriorto2006virtuallyalltiedaid,declinedinrealterms.Untyingandtyingpolicieswouldappeartobeanissueaboutthecompositionofaidandnotaboutoveralllevelsofaid.

Historically,Canadawasadonorthatgaveitsbilateralaidlargelytied.Since2002,significantstepshavebeentakentountieODA,bothinacceptingtheRecommendationandgoingbeyondit;aidtonon-LDCs,TCandfoodaidhavebeenuntiedinresponsetoevidenceoneffectivenessandefficiency.Priorto2002,around50%ofbilateralODAwasuntiedand6%par-tiallyuntied(Figure4.1).By2007,atleast69%ofbilateralaidwasuntied,17%tied,1%partiallytiedand13%notreported(Table3.2).TheremainingareasoftyingareoutsidetheRec-ommendation:TCandemergencyordisasterrelief.

33 The SDC categories are that procurement under CHF 50,000 can be directly contracted. Contracts up to approximately CHF 250,000 (limited to the EU direc-tive € 125,000) are subject to an invitation procedure. Above that level a public call to tender is required. However, ‘ongoing’ (Folgephasen) projects are exempt (Switzerland, 2007a). In 2006, 9.5% of contracts were under CHF 50,000, 74.2% were ongoing, 14% subject to invitation and 2.2% open to competitive tender.

TheRecommendationhadanimportantinfluenceonuntyingpolicy.Priorto2002,thegreaterpartofCIDA’sODAwastiedtoprocurementinCanada,witharequirementthatgoodsandserviceshadamajorityofCanadiancontentcoveringabout8%oftotalODA.Theprevious1987policy,whichcoincidedwiththeDACdeterminationoftyingstatus,calledforpartialuntying(50%inthecaseofLDCsandSSA).Procurementintheindustrialisedcountrieswasrestrictedto10%andpermis-sibleonlywhenlocalorCanadiansourcingwasimpractical.TheRecommendationwasincorporatedin2002intoCIDAoperationalguidance,andeligibilitytobidonCIDAcontractsextendedtoLDCsandSSA.InternationalcompetitivetenderoutsidetheRecommendationcanbesanctionedonacase-by-casebasis.Foodaidwasexempt,butuntyingofTCpermitted.However,untyinghasbeenseparatelyextendedtofoodaid,initiallyto50%offundingonapartialuntyingbasisin2005,andthenthefulluntyingofallfoodaidin2008.Laterin2008,CIDAcommittedtofullyuntyingallitsbilateralaidby2012/13.

Partial untying toallowdevelopingcountrysourcinghasbeenanimportantsteptowardsfulluntying.TheabsenceofreciprocityonthepartofCanada’sneighbourandmajortrad-ingpartner,theUSA,wasamajorfactorinexemptingODAfromNAFTArulesthatwouldhaveallowedUSorganisationstocompete.Sourcingrestrictionswereinitiallymodifiedtoallowdevelopingcountrysourcing.Fulluntyingwasseenaspoliti-callydifficultasillustratedbythecaseoffoodaid(Box4.3).

PresentlythemainareasoftyingareTC,76%untiedin2007(asreportedin2009DACProgressReport),andsectorallybotheducationandsupporttogovernanceandcivilsocietywhichhaveahighTCcomponent,aswellasemergencyassistanceandrecon-

Box 4.3 Untying Canadian food aid

Canada has been a food aid donor since the 1950s, exporting cereals, oil seeds and dairy products, both as direct distribution and as budgetary/BOP support. Then, in 1998, a Performance Review highlighted resource transfer inefficiencies of Canadian programme food aid and the similar experience of other donors. At that stage untying was not considered a practical op-tion, so the focus shifted to making targeted nutritional improvement the primary goal and programme aid for sale was phased out. There was very limited partial untying to allow local procurement. In 2005, in the con-text of WTO agricultural negotiations and citing further OECD evidence on resource transfer efficiency, a policy decision committed CIDA to partial untying of 50% of funding. In 2008, food aid was fully untied. These steps were made following NGOs meeting with domestic agricultural interests to emphasise the benefits of local and regional sourcing for developing country small farmers and the likely negligible effects on Canadian agricultural exports.


Chapter 4

struction.ThefullextentofchannellingofaidthroughCanadianNGOsisunclearbut,incontrasttopracticeonthepartofEuro-peandonors,untilrecentlyCIDAreportedsuchaidastied,evenwheretheywereinfactfreetosourceindevelopingcountries.34

Thedecisiontountie,inaccordancewiththeRecommenda-tion,requiredtheformulationofnewoperationalguidanceandanundertakingwiththeTreasuryBoardonexemptionsfromnormalpublicprocurementguidelines:aconditionofthesechangeswasacommitmenttomonitoringandevaluatingtheconsequencesofuntying,sotheprocessiswelldocumented.Inpreparationforareviewtheevaluatorsformulatedalogicframeworktomakemoreexplicittheobjectivesofuntyingfromadonorperspective.ThishasbeenofassistancetoPhaseTwooftheOECDthematicstudy(seebelowChapter5).

IncontrasttoEuropeandonors,forwhomregionaltradearrangementshavebeenanimportantinfluenceonaidasaformofpublicprocurement,aidprogrammingliesoutsideoftheNAFTAobligationsbecauseofahistoriclackofreciprocity.Otherwise,CanadiancompanieswouldhavehadaccesstobidonUSaidcontracts–buttheydonot.35

4.2.5 AustraliaPriorto2001about55%ofAustralianbilateralaidwasuntied.Historically,onlyasmallshareofODAwasmultilateral(15%)andtherewasageographicalfocusonneighbouringcoun-trieswitharoundhalfintheformofTC.AustraliathenmovedtountiesomecomponentsofitsaidtoLDCsinconsistencywiththe2001Recommendation,andin2004Australiare-ported89%ofitsaidasuntied(Figure4.1).

In2006,thepolicyofuntyingwasextendedtoincludevirtuallyallODAinrecognitionofitsroleinimprovingeffectivenessandefficiency.Untyingisseenasincreasingpartnershipsbetweendonorsandpartnergovernments,strengtheningownershipandachievinggreatervalueformoneythroughcompetition(AusAID,2006).Inaseparatedecision,foodaidhasbeenwhollyuntied.Inconsequence,almostallbilateralODAhasbeenuntiedwithafewspecificexceptionssuchasTCinpost-sec-ondaryeducationandtheAustralia-IndonesiaPartnershipforReconstructionandDevelopmentthatcontinuesupto2010.36In200798%ofcommitmentstoLDCsand96%ofallbilateralaidwerereportedasuntied,indicatinghowquicklythepolicytountieaidhasbeenimplemented(Table3.3).

34 As of the beginning of 2008 all Canadian partner agreements are free of conditions on grant use and so are from the donor perspective untied. Past differences in donor reporting are another indication of the difficulty of inferring trends in tying practices.

35 However if funding is from CIDA’s Operation and Maintenance (O&M) budget, then there is an obligation to allow for competitive bidding by firms from NAFTA partner countries – as this represents the procurement of goods and services for CIDA’s own account and not that of developing countries. There is a threshold of CND 76,500, however, for NAFTA (including GST – Goods and Service Tax) for which CIDA have to go through a competitive process through the Canadian Public Tendering System (MERX) that allows for NAFTA competition.

36 Under this agreement, which predates the untying policy, Australia also provided A$ 500 mn worth of concessional loans.

Throughouttheprocessofuntying,netaidhasrisenbroadlyinlinewitheconomicgrowthratessotheODA/GNIratiohasremainedstableataround0.3%.Thispatternreflectsdomesticpublicexpenditureprioritieswhichconstrainedthelevelsofaid.Atthesametime,anemphasisonvalueformoneyinuseofthere-sourcesunderpinnedthecommitmenttountying(AusAID,2006).

Priorto2001,bilateraltradearrangementswithNewZealandgavefavourednationstatus.37Theseagreementsinfluencedpubliccontractingunder(national)CommonwealthProcure-mentGuidelines(CPG)(Australia,2004).Since2005,ODAhasbeenspecificallyexemptfromDivision2oftheCPGs(theMan-datoryProcurementProcedures),whichestablishanA$80,000opentenderthreshold(AusAID,n.d.).Duetothisexemption,AusAIDhasestablisheditsownthreshold(A$500,000)belowwhichdirectcontractingispermissible.Again,toprovideflex-ibility,procurementcanbeundertakenbelowthethresholdbycountryoffices.Follow-onexemptionsfromcompetitivetender-ingareallowed,butonlyasexceptionstotherule.Effortsaremadetomaketenderinggenuinelyinternational(Box4.4).

TheimmediatebenefitsofuntyingareseenfromtheAusAIDperspectiveasbothgreateroperationalflexibility,allowingnotonlybudgetaryandsectoralsupport,butalsocontracting,asinVietnam,accordingtopartnergovernmentprocedures.Untyingwidensthepoolof internationalexpertise andhence

37 These are the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) and Australian and New Zealand Government Procurement Agreement (ANZGPA). There are post 2001 arrangements with USA (2005), Thailand (2005), Singapore (2003) and with Chile that comes into force in 2009: all are contributing to a context favouring non-discrimination as a key principle underpinning procurement.

Box 4.4 Information about AusAID open competitive tenders

Recognising that the problem of information can restrict competition, invitations to tender for large contracts are posted not only on the government’s own tender website (AusTender) but more widely. The fol-lowing locations are typically used:· DAC Untied Aid Website;· dgMarket (http://www.dgmarket.com/ – the tenders

and consulting site attached to the US Development Gateway);

· UN Development Business (UNDB) website (recently signed up, but will now be standard);

· Newspaper advertising – usually in the Weekend Australian, and may include other Australian or overseas papers as appropriate for the tender (e.g. The Economist, The Sydney Morning Herald, The Canberra Times, The Age, Australian Financial Re-view, etc. as well as local papers around Asia and the Pacific.); and on occasion

· Other websites (such as the Australian Development Gateway), email newsletters and industry journals.


Chapter 4

reapsbettervalueformoneyfrom aiddeliveryteams.Untyingisalsoexplicitlyassociatedwithstrengtheningofjointfundingwithotherdonors.Forexample,theeffectivenessofTC,his-toricallythemajorareaofaidtying,hasbeenjointlyevaluatedbyAusAIDwithDanidaandBMZ,providingfurtherguidanceonimplementingthesepolicies(Land,2007).

4.3 Findings Performance on untyingAllfivedonorshavesuccessfullyrespondedtotheRecom-mendation,infourcasesvirtuallyuntyingalloftheirbilateralaidinthe‘eligiblecategories’andthefifth,Canada,iscom-mittedtodosoby2012/13.Allhaveextendeduntyingbe-yondthecategoriescoveredbytheRecommendation,bothtoincludenon-LDCsanduntyingofTCandfoodaid.Formaltying,namelysourcinginthedonorcountry,haslargelybeenphasedout.

Sofarthewidespreadmovestowarduntyinghavenotbeensubjecttosystematicmonitoringorevaluation.Thereareafewprojectorsectoralevaluationsthatmayofferinsights.Ratherthanprovidinganswers,discussionswithofficialsatdonorHQleadtothequestion–howdoesuntyingactuallywork?Whatistheexperienceofotherdonors?Soitwouldbeprematuretodomorethanspeculateonthelikelyconsequencesoftheextensiveuntyingofaidinthepastdecadethathasgatheredpacesincethe2001Recommen-dation.

Additionality of tied aid?Firstofall,inconsideringoverallODA,thereisnoevidencethatuntyinghasbeenassociatedwithanyreductioninbilat-eralaidorinoverallODA,andwithoneexception,Denmark,ODAhasrisensignificantlyinrealtermssincetheRecommen-dation.InDenmark’scase,domesticpoliticalconsiderationsratherthanuntyingofaidperhapshadanegativeimpactonODAatthebeginningofthedecade.

The evolution of policy on untyingTheexperienceofthefivedonorcountriesillustrateshowtheRecommendationhashaddifferentimplications,especiallysignificantforthoseDACmembersthathadpreviouslytakenverylimitedstepstowardsuntying.Canadahadtointroducelegalandinternalregulatoryinstrumentsandthendevelopproceduresfortheadministrationofuntiedaid.Incontrast,forAustraliauntyingrequiredaministerialdecisiontomovetheaidprogrammeintolinewithrecentgovernmentguidelines,whichhavenon-discriminationasakeyprincipleunderpin-ningprocurement.

Untyingiswidelyseenascloselylinkedwithdecentralisationofresponsibilityforaidprogrammingtoacountryofficelevel.Somanyofthequestionsabouthowitworksandimpactsarefelttobeanswerableonlyatapartnercountrylevel.ThisissueistakenupinChapters6and7.

Thesurveysuggeststhatuntyinghasbeenassociatedwithashifttoinstrumentsthatpassresponsibilityfordisburse-menttocountrypartners,otherjointdonorpartners,andcivilsocietyorganisations,andsoreducesthedonor’sroleincontractingorganisationstoimplementprojects(Denmark,Norway,Switzerland).However,inthemuchreducedlevelofHQcontractingtheproportionofawardstoforeignorganisa-tionsisverylow.Twofactors,policychoicesintheselectionofprioritysub-sectorsandthewaycontractingisorganised,especiallyinprovidingTC,appeartoinvolveasubstantialele-mentofde factotying.

Thereareseveralremainingrelativelysmallgrey areasoftyingpractice.Thesetendtobejustifiedonconventionalgroundsofsustainingdomesticsupportforaidthroughthesupportofinterestgroups,andofprovidingvisibleevidenceofadirectlinkbetweenbilateralaidandimpactsinbeneficiarycountries.Thisisafactorbehindthesubstantiallevelsofemergencyandhumanitarianaidprovidedbothin-kindandthroughperson-nel.ApossibleissueforfutureinvestigationistheeffectthatchannellingofaidthroughNGOs,presumedtobeuntied,hasonsourcingofgoodsandservices.AlthoughoutsidetheRecommendationallfivedonorshavelargelyremovedformaltyingrequirementsforfoodaid,whereasTC,supporttogovernance,post-secondaryeducationandresearchareareasofcontinuedtying.However,thereareotherargumentsthatrequirecarefulconsideration.ThejustificationofBusinesstoBusiness(B2B)citesproblemsofaccesstoinformationaboutglobalmarketsthatdisadvantageprivatebusinessdevelop-mentinmanydevelopingcountries.Arethereinfactareasinwhichmarketsalonearenotnecessarilyabletodeliver(i.e.emergencyequipment)orarenotthebestregulators?


Chapter 5

5.1 Introduction: objectives and scope

T hischapterreviewstheliteratureontheimpactoftyinganduntyingpracticesonthedonorandtherecipient

country.Theearlyliteraturehasbeenreviewed(Jepma,1991)andsotheintentionistoconsiderwhethermorerecentstudiesconfirmearlierfindings,providebetterexplanationsofwhatarecomplexrelationshipsoraregoinginfreshdirec-tions.Whenmostbilateralaidwastiedtheeffectivenessandtheimpactofuntiedaidwasatbestasubjectforspeculationandhypothesising.Sotheobjectivehereistoprovideapreliminaryaccountofastilllittleinvestigatedfield.

Thereviewcoversacademicliterature,contributionsfromcivilsociety,informationgatheredthroughvisitstodonoragenciesandinternaldonorreports.Itfocusesfirstontheconceptualframeworkunderpinningtheliterature,thenconsidersthecontributionofmorerecent(since1991)quantitativeinves-tigationsintoeffectsoftyingontherecipientandthedonorcountry,andfinallyconsiderstheextremelylimitedliteratureontheimpactsofuntying.

5.2 The effects of tying: conceptual issues Themostsignificantcontributionsintheliteraturefromananalyticperspective(Chilchiniski,1983;Bhagwatiet al.,1983;KempandKojima,1985;Schweinberger,1990;Hatzipanayo-touandMichael,1995;LahiriandRaimondos,1995;Brak-manandvanMarrewijk,1995)havesetouttheanticipatedconsequencesoftyingandestablishedtheconceptualframeworkforquantitativeestimatesoftheeffectsoftyingpractices.Thebroadconclusionofallthesestudiesisthattyingpracticesarelikelytoresultinwelfarelossesforrecipi-enteconomiescomparedwiththealternativeofunrestrictedaidtransfersmadeintheformofforeignexchange.Regard-ingthedonoreconomyaspartofathree-economyworldinwhichtherecipient,donorand‘othercountries’trade,thewelfareeffectsareunclear.Theglobalconsequenceislikelytobeareductioninwelfarewhencomparedwithunrestrict-edtrade.Thelimitationofsuchmodellingistheinherent

difficultyofinferringwhatwillbeabetterpolicyinasecondbestworld.38

Adegreeofcautionisnecessarywhenexaminingtheas-sumptionsandapproachesemployed,astheymayreducetherelevanceofthefindingsandrestricttheirpracticalapplicabil-ity.Theuseofthesemodelsbecomesproblematicwhencon-ventionalassumptionsdonothold.Perfectcompetitionandinformationareoftenassumed;findingsmaydifferdepend-ingonwhetherthetransferistiedtomanufacturedgoodsorprimarycommodities.Findingsmayalsovaryaccordingtowhetherthegoodsareprivateorpublic,consumptionorinvestment,tradableornon-tradable,onwhetherflowsareconsideredtobetemporaryorpermanent,ontheextenttowhichdifferentcharacteristicsoftheeconomiesaretakenintoaccount,orontheexistenceofquantitativetraderestrictions,andsoforth.Finally,themethodologicalapproachusedintheanalysis(comparativestaticversusacomparativedynamicmodel)mayinfluencefindings,underminingtheirrelevanceinpracticalanalysis.

Aconsequenceofthegulfbetweentheoryandrealityisamultiplicityofpossiblespecialcases.Forexample,thoseargu-inginfavouroftyingpracticesmayclaimthatinaparticularcasetheefficiencygainsofuntyingarenegligibleandshouldbesetagainstthepracticalrealitythattyingsustainshigherlevelsofaid.Afurtherissueisthat,ascircumstanceschange,theattempttoempiricallyexploretheconsequencesofuntyingmaychange.Forexample,thepolicyliteratureasitrelatestotying,pointstotheneedtounpackthethird‘other’economy.Itmaynolongerbeotherdonorindustrialisedeconomies,theimplicitassumptioninagreementstocontaincompetitivetyingsuchastheFAORulesonSurplusDisposalforfoodaid(1955)andtheHelsinkiRulesonexportcredits(1991).Insteadinsomecontextsthe‘other’economymaybeneighbouringdevelopingcountriesoremergingeconomies,includingnonDACdonors.

38 For a more detailed review of studies on foreign aid and trade policies see Suwa-Eisenmann and Verdier, 2006.

5. tHE iMpACts of tying And untying: A litErAturE rEviEw


Chapter 5

5.3 The effects of tying: evidenceMostinvestigationsthatattemptquantificationhavefocusedeitherontheimpactoftyingontherecipientcountriesintermsofitsefficiencylosses,oronitsimpactonthedonors,mainlyintermsoftheassessmentofpotentialeconomicbenefits.Soitisappropriatetoconsiderthesestrandsoftheliteratureseparately.

5.3.1 Effects of tying on recipient countriesThefirststrandoftheliteratureontiedaidhasfocusedontheimpactoftiedaidasadistortionimposedbyaidpolicyontherecipient.Mostoftheempiricalstudieshavetriedtodeterminetheextenttowhichtyingpracticesrepresentacostonrecipientsthroughoverpricing,asaid-financedgoodsandservicessourcedinthedonorcountrymayinfactbeconsist-entlymoreexpensivethanthoseavailabletotherecipientfromalternativesources.Thus,tyingreducesthevalueofaidifnotnecessarilywhollyoffsettingthebenefitsofconcessional-ity.Beyondassessingdirectcostsofrestrictedsourcing,thereissomeexplorationoftheindirectcostsandotherfactorsthatcouldreducethepotentialnetbenefitsofaid.

Theattemptstoquantifythecostsoftyinghavebeenham-peredbyseveralpracticallimitations.Firstofall,dataavail-abilityconstrainstheestimates;secondly,todeterminewithprecisionthelikelyimpactoftiedaidontherecipientrequiresaknowledgeabouttheexistenceofinformaltyingpractices(JepmaandDeHaan,1984)andthedegreeoffungibility,ortheextenttowhichaid-financedimportsmightsubstituteforcommercialimportswhichwouldhaveoccurredanyway(Bhagwati,1985).Therefore,estimatesofthecostsoftyingtotherecipientsshouldberegardedasroughapproximations(Jepma,1991).

Resource transfer efficiency:Jepma(1991)inthemostwidelycitedreviewoftheearlyliterature(1960-90)concludesthattheexcesscosttorecipientsisintherangeof15-30%.Thisestimatewasmadenotwithstandingtheexistenceofstud-ieswhichreportsubstantiallyhighercosts,implyingthatthemostwidelycitednumbersareaconservative,lowerlimitestimateofthecostsoftying.

After1991,therearefewerstudiesontheimpactoftiedaidonrecipients.Somestudiesontheresourcetransferefficiencymodel(RTE)estimatethedirectexcesscostoftying(Yeats,1990;Yassin,1991;Osei,2004;Osei,2003;OECD,2006a).Thisapproachquantifiesthecostsoftyingbycomparingpro-curementpricesundertiedaidwiththecostofalternativecommercialtransactionsthatcouldhavebeenprocuredintheabsenceoftyingrestrictions.ThefindingslargelyreconfirmJepma’sconclusion:procurementpricesoftiedaidaretypi-callyhigherandthemark-upinpricesoffundedgoodsandservicesisoftenover20%.Asimilarconclusion(overpricingintherangeof5-25%),althoughusingadifferentapproach,isfoundbyAryeeteyet al.(2003)whointerviewprojectmanagerstoprovideestimatesoftheadditionalcostoftyingwithrespecttoopencompetitivebidding.Furtherqualitative

evidenceonthedirectexcesscostoftyingisalsoprovidedbycountry-basedexamples(Chinnock,1998;ChinnockandCol-linson,1999;ActionAid,2003;ActionAidInternational,2005;ActionAidInternational,2006;ODA,1996).

Themark-upsmaydiffersignificantlyamongfundedgoodsandservices;inparticular,thepricedifferentialisespeciallyhighforthoseproductsprovidedonaone-offbasis(Osei,2003),orcharacterisedbyahighertechnologycomponent(Osei,2004).Moreover,theexcesscostsoftyingaidmaybesystematicallyhigherthanJepma’s15-30%bandforparticu-lartypesofaid,suchasTC(Williamset al.,2003;RiddellandStevens,1997)orfoodaid(BarrettandMaxwell,2005;OECD,2006a;USGAO,2005).

Somestudieshavealsoexaminedtheimpactofexcesscostsontheconcessionalityofaidusingtheshadowgrantelementapproach,whichinvolvescomputingthegrantelementofaid,takingintoaccountthattheworthofatiedloanisactuallylessthanitsnominalvaluebecauseoftheeffectoftheexcesscostoftying(Yassin,1991;Osei,2003;MorrisseyandWhite,1996).Theyfindthattherealworthofaidisseverelyreducedbytheattachedtyingrestrictions(Yassin,1991;Osei,2003),althoughnotallthebenefitsofconcessionalityseemtobewipedoutbydirectexcesscosts(MorrisseyandWhite,1996).Giventhehardertermsonwhichmixedcreditsareofferedandtherelatedhighexcesscostsoftying,associatedfinanceisfoundtoreducetheconcessionalityofaidmorethanothertiedaidcredits(MorrisseyandWhite,1996).

Manyinvestigationshighlightadditionalwaysinwhichtyingindirectlyreducesthenetvalueoftheaidtransfer.Thereareindirectcostssuchasadditionalrecurrentcostsandshippingexpenses.Othernon-pricefactorscanentailactualreductionsinthestreamofpotentialdevelopmentalbenefitsofthetrans-fer,suchasdelaysindelivery,thequalityoffundedgoodsandservices,theinefficientallocationofresourcesfollowingfromhighlyinappropriateorlowerprioritypurchasesorselectionofprojects;environmentalimpactofsomesectoralaidflows,e.g.infrastructure;factorsrelatedtothetradeimpactsoftying,whereitbecomesabarriertoaccessingmarketsandpromot-inginter-regionaltrade,orimpactsonthelocalmarket(Jepma,1991;Jepma,1994;Bhagwati,1985;Ensign,1992;Hendra,1987;Belfrage,2007;Barrett,1999;ActionAid,2003;Chinnock,1998;ChinnockandCollinson,1999;ActionAidInternational,2005;ActionAidInternational,2006).Tiedaidcreditsmayalsoimpactonarecipientcountry’sexternaldebt(Larrú,2003;Hendra,1987);someevidencesuggeststhatbeingarecipientoftiedaidincreasesacountry’sexternaldebt,atleastinthemediumterm(Alonso,1999;LarrúandGonzales,2004;Abildsnes,2007).

Asemergingdonorsincreasetheiraidtodevelopingcoun-tries,theirpoliciesandpracticesbecomemorerelevant.Theappearanceofnew(nonOECD)donorswhomaynotfeelobligedtocomplywithvoluntaryDACrules,bringsforLDCstheriskofincurringonceagainthecostsofunsustainable,un-productivecapitalprojects(Manning,2006;Pehnelt,2007;Gill


Chapter 5

andReilly,2007;McCormick,2008).Itshouldbehighlighted,however,thatemergingdonors’tiedaid(especiallyChineseandIndian),withitspackagedapproach,iswhollyunevaluat-edfromeitheranefficiencyoreffectivenessperspective(PauloandReisen,2009;Collier,2008).Thustheargumentaboutwhetherthistiedaidisinfactcost-effectiveascomparedwithpreviousexperienceisinconclusive.

Finally,tyingpracticesmayalsohaveanimpactonrecipients’behaviourorattitudetowardsaid,oftencharacterizedasa‘lackofownership’,whichisoutsidetheformaleconomiccalculations.Recipientslearntorequestaidfinancingfromdonorsinthosespecificsectorswhichdonorsarewillingtofinance(Hendra,1987)andtowastefully‘cherrypick’tiedaidpackages.Suchpracticesreducethevalueofaidfromthedonorperspective.However,theyalsocontradicttheviewthattyingoftenrendersrecipientsaspassiveactorsinthedevelopmentprocesswiththestandardexampleofmachin-eryinappropriatelyprovidedbydonorslyingbrokenwhilerecipientsareleftwaitingforsparepartsortechnicalassist-ance(examplesinHendra,1987;ActionAid,2003;Chinnock,1998;ChinnockandCollinson,1999;ActionAidInternational,2005;ActionAidInternational,2006).

Tosumup,therecentliteratureontheimpactoftyingontherecipientcountrybroadlyreconfirmsearlierfindingsthatprocurementcostsoftiedaidaretypicallyover15%-30%higherthanactualandhypotheticaluntiedalternatives.Pricedifferentialsmayvarysignificantlyamongfundedgoodsandmaysystematicallybehigherforsomeformsofaid.Thereissupporttooforearlierfindings,usingmorerefinedevidence-basedapproaches,includingonthereductionintherealconcessionalityofassociatedfunding.Theimportanceofindirectcostsandnon-pricefactorsinassessingtheimpactonrecipientcountriesisconfirmed.

Overall,thereisbroadagreementintheliteraturethattiedaidinvolvesasubstantiallossofvaluetorecipients,butlittlesys-tematicinvestigationintohowdifferentformsoftiedaidmayimpactonrecipientsandonparticularsectors.Thisgreaterspecificityoffocusandtheimpactofemergingdonors'aidpracticesonrecipientswouldseemtobeprioritiesforfurtherinvestigation.

5.3.2 Effects of tying on donor countriesTheprimaryintentionintyinganaidtransactionistofavoursuppliersinthedonoreconomyrelativetotherestoftheworld.Thiseffectwouldeitherdisplacecommercialexportsthatwouldhaveoccurredwithouttheaidtransactionor,assumingahigherlevelofimports,entailadisproportionateincreaseinthedonor’sexportscomparedwithcompetitors.

Soiftyingiseffective,donorswillderivebenefitsfromin-creased tradethataremorethanproportionaltotheirshareofworldexportmarkets.Morerecentstudiesindicatethattherealimpactoftyingondonors’exportsisquitelimited(Tajoli,1999;Johanssonet al.,2006;Lloydet al.,2000;Lloydet al.,

2001;Oseiet al.,2004);oftenwhenaidflowsarefoundtohaveasignificantpositiveimpactonexports,thisisevenmoresoastheproportionofuntiedaidincreaseswithtime39(SchönherrandVogler-Ludwig,2002;Zarin-Nejadanet al.,2008;Martínez-Zarzosoetal.,2008).Sectoralstudies,andinparticularthoseonfoodaid,offersupportforthisthesis;foodaidisusuallyfoundtobenotfullyadditional.40Somestudies,however,findasubstantialpositiverelationshipbetweenaidflowsandexportsfromdonorcountries(Nilsson,1997;Wagner,2003;Larrú,2003;LarrúandGonzález,2004;Nowak-Lehmannet al.,2008).Sectoralstudies,againforfoodaid,offersomeempiri-calevidenceofthispositiverelationship.Acrediblesequenceofimpactsisthatcommercialfoodimportsarereducedintheshorttermandthereisalaggedincreaseinexportsinthelongterm(Barrett,1998;1999).Theoverallimpressionisthat‘italldepends’onthetemporalspecificsofgoodsandmarkets.

Similarlycertainformsofaid(debtrelief,budgetsupport,technicalassistanceandremainingmostlyprojecttypeaid)areexpectedtohavedifferentimpactsondonors’exports;duetothelackofdataavailabilityonlyafewstudies(Johanssonet al.,2006;JohanssonandPettersson,2009)haveinvestigatedthishypothesisanditisthereforenotpossibletodrawwell-foundedconclusions.

Economicliteraturehasbeenlargelysilentontradedistortingimpactsofdifferentaidinstruments.AnODIstudyhowevershowsthatgrantsandloans,andthereforethelevelofconces-sionalityper se,donotseemtohavedifferentialtradedistort-ingimpactsbeyondtyingpractices(ClayandTurner,2007;MassaandTeVelde,2009;Clayet al.,2009).

Aid,andinparticulartiedaid,isalsolikelytohavedifferentimpactsdependingonthesector(economicinfrastructure,socialsectorandsoforth).Sectoraldifferences,althoughac-knowledged,havenotbeenthoroughlyanalyzed.JohanssonandPettersson(2009),inordertotakeintoaccountthataidflowsimpactmightbeheterogeneous,disaggregateexportsbycategory.

Ingeneral,disaggregatedanalysishasbeenlimited,con-strainedbylackofdata.Therearefurtherimportantqualifica-tionstobemadeontherobustnessofthesefindings.First,studiesrarelydisentangletheimpactofaidonthedonorcountryintermsofexportsdirectlyfinancedbytiedaidandthosethatarenot(Jepma,1994).Secondly,fungibilityisusu-allynottakenintoaccount;yetthiscouldconsistentlyaffectfindings.Thereareindicationsthatthesubstitutioneffectisfairlylarge(Jepma,1991;KhiljiandZampelli,1991;PackandPack,1993;Feyziogluet al.,1998;Devarajanet al.,1999).However,theremaybecasesinwhichtherecipientcountry

39 This is known as the goodwill effect; as a result of untied aid flows, the recipient might feel more inclined to buy goods and services directly from the donor.

40 When food aid is provided for sale on the recipient market the ratio of aid to displaced imports has been found to be around 0.6 tonnes for each tonne of aid (FAO, 2006). The displacement is lower, around 0.3 of directly distributed food.


Chapter 5

isnotableorwillingtoexploitsuchfungibilitypossibilities(Bhagwati,1985).Finally,thedisplacementeffect,theextenttowhichthedomesticorexportdemandfordomesticinputsisdisplacedbythedemandtomeettiedaidexports,shouldnotbeunderestimated,asitcouldentailareductioninthenetimpactoftyingonthedonor(Morrissey,1989;Jepma,1994).

Moreover,empiricalinvestigationshaveusuallyfocusedontheimpactofaidondonorsexportflows;however,aidcouldalsoinfluencerecipientexports(Johanssonet al.,2006;Jo-hanssonandPettersson,2009).JohanssonandPetterssonfindthataidflowshaveapositiveeffectnotonlyondonor-recipi-entbutalsoonrecipient-donorexportsandconcludethatthedonor-recipientaidrelationshipreduces‘theeffectivecostofgeographicdistance’,impactingpositivelyontradeflowsandnotonlyonexportflows.

Afewstudiesattempttoassesswhetherdonors’tyingprac-ticesleadtoanetincreaseinemploymentintheircountries(Jepma,1991;Maleket al.,1990;Morrissey,1990;MorrisseyandRudaheranwa,1998;focusonmixedcredits:MacQuaideandToye,1986;LoveandDunlop,1990;Morrissey,1991).Theconclusionsarethattyingofaidisnotsuccessfulingenerat-ingsubstantialemploymentindonorcountriesbutfinancialbenefitsseemtoaccruetoparticularfirmsandgroupsinthedonorcountry.Tyingisawayofmakinginternaltransfersfunded,usuallythroughgeneraltaxation,tothesebeneficiaryinterestgroups.

Astiedaidhasbeenjustifiedforthepositiveimpactexpectedondonors’balanceofpayments(BOP),someearlystudiesmakeanattempttoempiricallytestthispropositionandfindanegligibleimpact(Hopkin,1970;Levitt,1970).Associatedfinancingseemstohaveaproportionallymorepositiveimpactonthedonor’sBOP(Jepma,1991;ToyeandClark,1986).

Finally,itshouldberecognizedthattyingaid,andspecificcasesofaidmalpractice,canhaveanimportantpoliticalratherthananarrowlyeconomicimpactonthedonorcountry,asillustratedbythefollowingexamples.ThePergaudamscandalintheUKhadlongertermrepercussionsasitaddedmomen-tumtotheexistingdevelopmentalconcernswithinthegov-ernment,pushingtowardsapolicyshiftandthedecisiontountieBritishaid(ChinnockandCollinson,1999).InNorwaytheShipExportCampaignhadimportantrepercussions,leadingNorwaytoofferdebtforgivenesstothedevelopingcountriesinvolvedandrecognizingirresponsiblelending(Abildsnes,2007,andseeaboveChapter4).

Literatureontiedaidisstillverythinfromalegalperspective;apartfromafewarticlestiedaidhasrarelybeenreferredtoinlegalliteraturewhereathoroughanalysisoftyingpracticesandtheconnectionstothecurrentWTOlegalframeworkisstillmissing(LaChimia,2009).

Tosumup,themorerecentliteratureontheimpactoftyingondonoreconomiesbroadlyreconfirmsearlierfindings;the

macroeconomicimpactisfoundtobefairlylimitedwhereasthe‘limited’commercialbenefitsmaybeimportanttoparticu-lardomesticinterestgroups.

5.4 The impacts of untying aidTherehavebeenveryfewempiricalinvestigationsintotherelativeeffectivenessofuntiedandtiedaidonacomparablebasis,oroftheimpactsoftheactualuntyingofaid.Theexist-ingliteratureincludesstudiesdifferinginscopeandmeth-odologyandsofindingsarerarelygeneralisableorstrictlycomparable.Furtherevidence-basedstudiesareneededontheconsequencesoftheextensiveuntyingthathasoccurredsincethemid1990s.

Therearepurelyanalyticortheoreticalexplorationsthatcomparethehypotheticalwelfareandterms-of-tradeeffectsoftiedanduntiedaid(e.g.ChatterjeeandTurnovsky,2004;MichaelandvanMarewijk,1998;Chatterjeeet al.,2003;ChatterjeeandTurnovsky,2007).Theseanalysestypicallyconcludethatunder‘plausibleconditions’,untiedaidben-efitstherecipientandtheworldeconomymorethantiedaid.Somestudiesareempiricalinthesensethattheymodel,usuallyexante,thepotentialconsequencesofuntying,usingactualvaluesforkeyvariables.Untiedaidispresumedtoben-efittherecipientandsostudiesusuallyhaveadonorfocus.Theprocessofuntyingdoesnotseemtoentailawelfarelossforthedonorcountry(MorrisseyandRudaheranwa,1998).Onthecontrary,somestudiesdemonstratethattheprovisionofuntiedaidmightevenincreasedonorexportstotherecipi-entcountryasaconsequenceofgoodwillgenerated(ArvinandChoudhry,1997;Arvinet al.,2000;ArvinandBaum,1997;Arvinet al.,1996;Arvinet al.,2003).Jepma(1988)examinedtheimpactofahypotheticalcoordinatedshifttowardspartialuntyingofaidonanEUscaleondonors’tradeflowspriortotheintroductionofthesinglemarketthatwouldopennationalprocurementtoothermemberstates.Heconcludedthatsuchashiftinpolicywaslikelytobebeneficialfromadonor’sperspective.

Withregardtotherelativeeffectivenessoftiedversusuntiedaid,Miquel-Florensa(2007)concludesthatuntiedaidismoreeffectivethantiedaidincountrieswithpolicyenvironmentsmorefavourabletoeconomicgrowth.Similarly,Amegashieet al.(2007)highlighttheinefficiencyoftiedaid,butnoteitisbetterabletocontrolmoralhazardwheretheremaybeproblemsofcorruptionanddirectionoffundsawayfromtheenvisagedaidpriorities.

Thedebateovertheeffectivenessoftiedversusuntiedaidhasalsogivenrisetoanormativeliteraturebasedoncaseexamples.Quartey(2005)seesbudgetarysupportasawaytoovercometheproblemsoftiedaid;Hendra(1987)con-trastsCanada’sbilateraldevelopmentassistance(highlytied)withScandinavianpractices(moreuntied)andhighlightsthesuperiorityofthelatter.Morecomprehensivestudiesof


Chapter 5

untyingoffersomeusefulinsightsonthepotentialbenefitsofuntiedaid(e.g.Puttersideet al.,2004),oftenusingasastartingpointthenegativeimpactsoftiedaidincountry-casestudies(ActionAid,2003;Chinnock,1998).

Theexistingliteratureinadequatelycoverstheimpactsofuntiedaid;thefewstudiescarriedoutseemtohavefocusedontheimpactofuntyingfromthedonor’sperspective.Incontrast,evidence-basedstudiesarelackingoftheexpost,economy-wideimpactsofactualuntyingforeitherindividualrecipienteconomies,groupingssuchasLDCsorregionalcom-munities.Theliteratureislargelysilentontheeffectofuntyingonrecipientcountries(impactonlocalmarkets,procurementand/orpromotionofregionaltrade)andontheefficiencyofuntiedaid.Thisisapowerfulargumentinfavourofcountryfocusedstudiesofuntyingpractices.Animportantexceptionistherapidlygrowingliteratureontheimpactsoflocalandregionalpurchasesmadepossiblebytheuntyingorpartialuntyingoffoodaid(Box5.1).

Mostimportantly,whatseemstobemissingisafullydevel-opedanalyticframeworkdesignedtoprovidethebasisforexploringtheimpactofuntying.Intheanalysisoftheimpactoftiedaid,thestartingpointwasrepresentedbyanidealiseduntiedsituationinwhichtyingwasintroducedasadistortion.Intheanalysisoftheimpactofuntyingwehavethereversecondition:inaworldcharacterizedbytiedaid,onetriesto

predictwhatwouldhappenifthesourcingrestrictionwereremovedandaiduntied.However,thereisnoreasontobelievethatwhatisobservedinthetiedaidframeworkissimplyreversible.Thisisnotareturntoanidealisedworldinwhichgoodsandservicescanbesimplysourcedincompeti-tive,undistortedmarkets.Furthermore,aidisanadminis-teredprocesswithmanyformalandinformalrestrictionsthatarenotnecessarilyalteredwhentheformalrestrictiononsourcingisremoved.Thewholediscussionislocatedwithinahighlyconstrainedsecond-bestframework.Theinvestigationintotheconsequencesofamodificationinanaidregimehastofocusonlocaloptimality:efficiencygains(bettervalueformoney)withinaceteris paribusframework,andsimilarlywitheffectiveness.Forthisreasonagain,ananalyticframeworkthatsetsoutthesepossibilitiesinasystematicandlogicalwaywouldbeparticularlyhelpfultothesecondphaseofthisevaluationandthewiderassessmentofthemovestountying.

Ashighlighted,studiesontheconsequencesofuntyingarelimited.However,thereisaparallelliteraturethatfocusesontheuseofaidmodalitiesforwhichuntyingisanecessary(pre)condition.Thesemodalitiesincludewhataresometimescalled‘directbilateralinstruments’,financialaidforGBSandnewmodalitiesofaidsuchaspooledfunding.41Severalstudiesdiscussthepotentialdevelopmentalbenefitsandimpactsofbudgetsupport:reductionintransactioncosts,facilitationofdonors’co-ordination,improvementinthepredictabilityofaidflowsandhigherallocativeefficiencyofpublicexpenditureaswellasstrengtheningofpartners’ownershipandinstitutionaldevelopment(forexampleOECDDAC,2006b;NascholdandBooth,2002;Nilsson,2004).Anin-depthevaluationoftheefficiencyandeffectivenessofGBSbasedonsevencountrycasestudiesovertheperiod1994-2004(IDDandAssociates,2006)concludes,whilstemphasis-ingsomeintrinsiclimitations42oftheinvestigation,thatGBSisoften‘anefficient,effectiveandsustainablewayofsup-portingnationalpovertyreductionstrategies’.TheevaluationalsoconcludesthatGBShasbeensuccessful:instrength-eningownershipandaccountability,aswellasimproving‘operationalandallocative’efficiencyofpublicspending;inimprovingharmonisationandalignmentofdonors.ThusGBSbenefitsseemtooutweighsomenegativeunplannedeffects(suchasfeedingcorruptionandunpredictability),

41 Strictly we are talking about financial aid as budgetary support. In the past pro-gramme commodity aid that the recipient government sells on the local market to generate ‘counterpart funds’ has been used to provide budgetary support. The most important case has been US program food aid. The record on impact was positive for the Marshall Plan, very negative especially in the Vietnam war. Such programme aid as was found to be poor value for money as development aid in 1980s and 1990s and drastically reduced by the US and phased out by other donors (Barrett and Maxwell, 2005; OECD, 2006a).

42 The evaluation is limited to seven countries and it is difficult to draw robust conclusions as GBS experiences are relatively recent. Differently from project aid, it can be difficult to isolate GBS and distinguish its effect from the aggregate ones as there are several interactions and forces at play. For a fuller analysis of the caveats see page 117 of the evaluation.

Box 5.1: Developmental impact of local and regional procurement of food aid

There has been a substantial increase in the scale and relative importance of local and regional purchases (LRPs) of food aid, notably in East and Southern Africa (WFP, 2006; see also Table 3.7). Evidence-based research has demonstrated efficiency gains from LRPs, and that these result directly from actual domestic and import parity prices of commodities sourced locally (40%) and within the region being typically 30% below delivered costs of foodstuffs procured on donor markets (OECD, 2006a). These efficiency differentials have been main-tained even during the current period of escalating food prices (Tschirley, 2008). So far studies have been positive about greater net benefits for rural and urban populations of local (untied) rather than imported (tied) aid (NRI, 2005; Coulter et al., 2007; WFP, 2006). The qual-ity of commodities offered for purchase by local traders rises. Local processing is encouraged and distortions of local markets largely avoided. However, assuring sustained benefits for local agriculture and trade may be difficult where intervention is episodic (Tschirley and del Castillo, 2006). Findings are, of course, context spe-cific and so generalisation will require an accumulation of case specific evidence for an under-researched area.


Chapter 5

whilstrecognisingthattherearepoliticalandotherriskstoitssustainedusethatshouldbecarefullyconsidered.

Inconclusion,thereviewoftheliteratureonuntiedaidbroadlyshowsthattherehasbeenlittleformalinvestigationoftheeffectivenessoftiedversusuntiedaidorontheimpactofuntying.Studiesdifferinscope,coverageandmethodol-ogyandfindingscannotbegeneralized.Thediscussionaboutuntyinghasalsofailedtotakeintoaccounttheevidenceaboutaidmodalitiesforwhichuntyingisanecessarycondi-tion.Furtherempiricalstudiesareneededinordertodrawmorerobustconclusions,especiallywithrespecttotheimpactofuntyingontherecipientcountries.Mostimportantly,whatseemstobemissingisaconceptualframeworktobeusedforsystematicempiricalinvestigationsintotheconsequencesofuntying.


Chapter 6

6.1 Objectives and scope

O nlyasmallminorityofdonorsreporttyingforafractionoftheirbilateralODA.Formallytiedaidis,apartfrom

foodaidandfreestandingTC,exceptional.Howthendoesthisregimeofformallyuntiedaidworkinpractice?ThesurveyoffivedonorsattheHQlevel,andwiderinformalsoundingswiththedonorsfoundthatagencypersonnel,drawingontheirownexperience,seeuntyingasassociatedwithotherchangesinaidmanagement.Theseincludeashifttodecentraliseresponsibilityatarecipientcountrylevel,jointprogramming,usesofrecipientcountryproceduresandareducedshareoffundingthroughdirectcontractingandopentenderingbydonoragencies.Butintheabsenceofanysystematicinvesti-gationtheseviewswererecognisedasspeculative.Theimplicationisthatthefirsttaskinthecountrylevelinvestiga-tionswastoundertake a factual review of how untying works at this level.Theproductofthisinitialpartoftheinvestigationisanaccountoftheuntyingregime,itsconsistencywiththeOECDRecommendationandothervoluntaryunderstandingssuchastheguidelinesonaidprocurement.

ThedonorcountryHQperspectiveasreflectedinreportingtotheOECD(Chapter3)isthatmostaidisnowformallyuntied.Incontrast,partnercountrygovernmentofficials,academicsandothersincivilsocietypresentedininitialcontactsaquitedifferentview.Theyarguethattheprocessofformaluntyingwasunsatisfactoryinthreeways:itfailedfirst,togiveowner-shipandsecondly,toachievealignmentofmuchoftheaidofmany,includingmajor,donors;whilstthirdlytherewasstillextensivede factotying.Thislatterconcernwasinformallyreiteratedbysomeagencypersonnelwithregardtocertainaspectsoftheirownprogrammesandespeciallytotheprac-ticesofotherdonors.

Thecountrystudies,inprovidingafactualreviewoftheextentofformaluntying,firstsoughttoconfirmwhatwasreportedfromHQ,bycomparingcountrylevelsourceswithCRSdata.Second,thereviewwouldbeusedtoestablishhowtheunty-ingregimeisworkingintermsofmodalitiesandusersofaid

atacountrylevel.Forexample,isuntyingactuallyassociatedwiththeadoptionofmodalitiesthatareconditionalonunty-ingsuchasdirectbilateralinstrumentstoprovidebudgetarysupport,poolingofprojectorprogrammaticfundsandtheuseofcountrypartnerssystems?Inpractice,monitoringmaynotdistinguishmodalitiesinthisway.Therefore,asappropri-ate,theteamsweretocomplementavailableinformationwithapurposivesurveyofmodalitiesanduseofdifferentprocure-mentsystems.AfterprovidingcomparativeprofilesofthesixcountriesinSection6.2,theresultsoftheinvestigationsintomodalitiesandusesarereportedinSection6.3.

Thewidespreadscepticismencounteredregardingthegenuinenessofsomesupposedlyuntiedaidnecessitatedaninvestigativeresponse.Thisresponsetakestwoforms.First,itwasdecidedtoundertakeacountry-leveleconometricinvestigation,reportedinSection6.4,intotherelationshipbetweenbilateralaidanddonorexportstotestforevidenceofcontinuedtradedistortingpractices.Second,thestudywouldconsiderforarepresentativeselectionofdonorprojectsthegeographicalsourcingof‘head’contractors,whomanageprojects,sub-contractingandsourcinggoodsandserviceswithinprojects.ThisisreportedinChapter7.

Smalltwoorthreepersonteamsundertookthecountryinves-tigationsovertwomonths,involvingcollectingofinformationandinterviewsoveraperiodofthreetofourweeks.Theyhadtobehighlyselective,andheavilydependentonthedataanddocumentationthatwasreadilyaccessiblethroughtheco-operationofcountrypartnersanddonors.Theseinvestiga-tionsshouldthereforeberegardedasexploratory.ForamorecomprehensiveassessmentasimilarlevelofresourceswouldbeneededforconsideringtheconsequencesofuntyingbyasingleDACdonorinanyonerecipientpartnercountry,andperhapsthroughrepeatedassessmentonceabenchmarkwereestablished.

6. usEs of untiEd Aid in siX pArtnEr CountriEs


Chapter 6

Regi

onCo

untr

yDe

velo

pmen

t st

atus

1

DAC D

onor

sTo

tal O

DA

(bila

tera

l an

d m

ulti-

late

ral)

US$

mn

Mul

tilat

-er

al O

DA

(%)

Bila

t-er

al

ODA

(%)

Bila

tera

l OD

AGD

P

per

capi

taTo

tal

ODA

ODA

pe

r ca

pita

Mul

ti-la

tera

l OD

A (%

)

Aid

as

% o

f GN

IBi

lat-

eral

OD

A (%

)

Aid

as %

of

Pub

lic

Expe

ndi-

ture

2

Wat

er &

Sani

tatio

n

DAC

Dono

rsTo

tal

ODA

US$

mn

Mul

tilat

-er

al O

DA (%

)

Bila

tera

l OD

A (%

)

LDCs

OLIC

sLM

ICs

UMIC

sHI

PCs

> U

S$ 2

mn

Wes

t Af

rica

Burk

ina

Faso

X

X2,3

0233

.866

.216

416

5312

.8-

92.2

50.4

49.6

Gha

na

X

X

4,441

26.0

74.0

1657

166

11.7

26.0

228.6

34.3

65.7

Sout

hern

Af

rica

Zam

biaX

X

4,636

9.690

.418

808

129

17.6

39.9

153.5

30.4

69.6

Sout

h Af

rica

X

2,8

544.6

95.4

225,5

1520

0.40.9

227.4

0.010

0.0

Sout

h Ea

st As

ia La

o PDR

X

85

028

.471

.615

592

478.4

89.7

39.7

1.298

.8

Viet

nam

X

8,4

9734

.865

.221

718

344.8

-85

8.954

.046

.0

Sour

ce:

OECD

Cred

itor R

epor

ting

Syst

em (C

RS) d

atab

ase;

Wor

ld D

evel

opm

ent I

ndica

tors

(WDI

).No

tes:

1.

The d

evel

opm

ent s

tatu

s of e

ach

coun

try i

s defi

ned

acco

rdin

g to

the D

AC li

st o

f ODA

recip

ient

s (w

ww.

oecd

.org

/dac

/sta

ts/d

aclis

t).

2.

Aid

as %

of P

ublic

Expe

nditu

re re

fers

to 2

007

and

not t

o 20

05-0

7.

3. D

ata a

re in

curre

nt U

S$ m

illio

ns; O

DA d

ata a

re b

ased

on

com

mitm

ents

.

Table 6.1 Profile of six case study countries


Chapter 6

6.2 Profile of six case study countriesThesixcountrieswereselectedtobebroadlyrepresentativeoftherangeofdevelopingcountrysituations.Theselectionalsotakesintoaccountregionalandeconomicgroupings,bearinginmindtheimportanceaccordedintherationaleforuntyingassetoutintheRecommendationtopromotinglocalandregionalmarketsandenterprises.Thesurveyincludesfivelow-incomecountries(LICs)andoneuppermiddleincomecountry(UMIC),SouthAfrica,withinthreeregionalpairinginWestAfrica,SouthernAfricaandSEAsia(Table6.1).

ThethreeAfricanLICsarealsofullACPmembers.BurkinaFaso,LaoPDRandZambiaasLDCs,arecoveredbythe2001Recommendation,asisGhanaasanon-LDCHIPCsince2008.Thesefourcountriescanalsobecategorisedasrelativelymoreaiddependentintermsofaid/GNIandaid/governmentexpenditureratios(Table6.1).ODAislessim-portantforVietnam:disbursementswere1.2%ofGNIdur-ing2005-07.AidisofmarginalsignificanceforSouthAfrica(under1%ofcentralgovernmentexpenditure).TherelativeimportanceofloanandgrantODAreflectsvoluntarycom-mitmenttoprioritisegrantaidtoLDCs(BurkinaFaso,LaoPDRandZambia).ThehighproportionofloanODAforVietnamisaccountedforbythethreelargestdonorsbe-ingJapan,FranceandGermany,andthattheycontinuetoprovideacomparativelyhighshareofloanODA.ThestudywastofocusspeciallyontheWaterandSanitationSector(W&SS),andsothereisasubstantialamountofODAinallcases.Finally,thepurposivelyselectedcountriesasagroupreflectbroadlytherangeofreporteduntyingofbilateralaidforindividualcountries(Table6.2)andtogethertheshareofuntied,tiedaidandnon-reportingoftyingstatus(TableB.3inAnnexB)issimilartothosereportedforallODA(Table3.2).

Morebackgroundinformationonthesixcountriesisprovidedintheexecutivesummariesofthecountrystudies(AnnexD).Fivecountries,thatisexceptingSouthAfrica,werealsoincludedinthepre-Accra2008ParisDeclarationEvaluation(PDE)surveysonaideffectiveness.

6.3 Aid modalities and use of country procurement systemsAreviewofaidmodalitiesandusesofCPSonacasebycasebasisprovidesevidencefirstlyonwhetherthereareinfactdifferencesbetweencountriesand,second,onwhethertherearesystematicdifferencesamongstindividualdonorsintheiruntiedaidpractice.ThisreviewbeginswithGhana,thepilotcasestudy,andthenconsidersthethreeLDCscoveredbytheRecommendation–Zambia,BurkinaFaso,andLaoPDR–andnextthetwonon-LDCs,VietnamandfinallySouthAfrica.ThestatisticalevidenceonusesofmodalitiesforeachofthesixcountriesisincludedintheexecutivesummariesasTablesD.1-D.6andusesofCPSsummarisedinTable6.3.

Ghanahasrelativelygoodmonitoringofaid.ThegovernmentwithWorldBanksupportcloselymonitorsaiddisbursementsintheformofthedonorpartnerenvelope(DPE)andreportstotheConsultativeGroup(CG).Thereisahighlevelofreportedfullunty-ing,77%in2005-07,with8%partiallyuntied(almostentirelyEU),11%tiedandonly3%withnon-reportedtyingstatus(Table6.2).Thefindingsofasurveyonbilateraltyingpracticesin2006werealmostidenticaltotheuntyingreportedtotheCRS,confirmingthatHQdataareusedtodetermineuntyingstatus(MAPConsult,2007).Afterthissurveyinterestinmonitoringuntyinglapsed.

Agroupofeightdonors,includingtheEC,providesubstan-tialgeneralbudgetsupportandmakeextensiveuseofother

Table 6.2 Tying status of ODA in six case study countries (2005-07)

Region Country Bilateral ODA

Loans as % of total bilateral ODA

Untied ODA as % total bilateral ODA

Partially Tied ODA as % total bilateral

ODA

Tied ODA as % total bilateral ODA

Not Reported as % total bilateral ODA

West Africa Burkina Faso 2.7 80.5 5.5 7.6 6.4

Ghana 8.1 77.1 8.7 11.0 3.2

Southern Africa Zambia 3.5 85.6 9.0 3.6 1.8

South Africa 14.2 64.8 20.7 10.7 3.7

South East Asia Lao PDR 5.7 70.4 3.0 4.4 22.2

Vietnam 57.9 64.9 6.9 19.4 8.7

Source: OECD Creditor Reporting System (CRS) database.Notes: 1. Data are based on commitments in current US$.


Chapter 6

modalitiesassociatedwithuntyingsuchasbasketfunding.Collectively,55%oftheiraidin2006-08wasprovidedthroughthesemodalities(TableD.1).Thesedonorsalsoreportedsubstantialuseofcountryprocurementsystems(CPS)intheiraidtogovernment(Table6.3).Twoofthefivecasestudydonors,CanadaandSwitzerland,alsoconfirmedthishighlevelofuntiedmodalitiesanduseofCPS.Incontrast,twomajordonors,Japan,almostentirely,andtheUSA,wholly,continuetouseaprojectapproachandmadelittleuseofCPS(13%and0%respectively).Threeotherdonors,Belgium,ItalyandSpain,providedonlyprojectaid,anddidnotreportdisburse-mentsusingtheCPS.Ghanaianinformants,whilstwishingtocommentinformally,arguethattheonlygenuinelyuntiedaidintermsofownershipandalignmentwereunrestrictedfundsmadeavailabletogovernmentanddisbursedusingtheCPS.

Zambiahasthehighestreportedlevelofuntyingamongstthesixcasestudycountries,86%ofcommitments,withlessthan5%reportedastiedornon-reportedduring2005-07

(Table6.2).GovernmentanddonorswithintheConsultativeGroupagaincooperateinmonitoringaidperformance.Intheabsenceofdonorspecificinformationonuseofmodalitiestendonors,includingtheECandtheWorldBank,wereaskedtoassistinprovidinginformationinresponsetoasurveyaboutmodalitiesandprocurement,andalldidso(TableD.4).ThesurveycomplementedbyinformationcollectedforthePDEconfirmsthattherearewidevariationsindonorpractices.Eightdonors,includingtheECandtheWorldBank,providedsubstantialsupportthroughprogrammaticandpooledfundingmodalities.Inadditiontoprogrammaticsupport,somealsousedtheZambianCPSforpooledprojectaid.Twomajordonors,JapanandtheUSA,continuetouseaprojectapproach,withprocurementoutsidetheCPS.Japanusestheagency’sownprocurementrules.TheUSAfundsaredisbursedthroughnon-stateproceduresofimplementingagencies,contractedunderinternationalcompetitivetender;buttheseprocedureshavetoconformtoanyapplicableUSlegislationonsourcinggoodsandservices.Thesedifferencesindonor

Table 6.3 Bilateral DAC donors (including EC) – Percent of aid to government using Country Procurement Systems(CPS) in 20071

Donor zambia Lao PDR Ghana Vietnam Burkina Faso2 South Africa1 Six countries (average3)

Ireland 100 100 100 100

Norway 96 100 100 99

Netherlands 94 100 97 79 100 94

Spain -- 83 83

Canada 100 82 100 10 100 78

Denmark 87 56 44 99 75 72

UK 93 99 44 29 66

Switzerland 0 91 48 96 88 65

Belgium 39 76 75 63

New Zealand 0 80 100 60

France 80 100 19 86 7 58

Sweden 76 72 0 79 42 54

Germany 90 69 14 55 33 52

Finland 84 0 30 85 50

EC 74 0 32 58 77 42 47

Japan 0 27 13 92 0 26

Austria 24 -- 24

Italy 69 0 0 23

Luxembourg 0 -- 41 21

Australia 0 40 20 20

USA 22 54 0 -- 0 4 16

Source: OECD (2006b); OECD (2008d); OECD (2008e); OECD (2008f); OECD (2008g); OECD (2008h).Notes: 1. Percent of aid using CPSs in 2005 (South Africa did not participate to PD Survey 2008 and therefore no data was collected for 2007). 2. Computed as ‘aid disbursed using CPSs’/’aid for government sector’. However, in some cases aid disbursed using CPSs was higher than aid for government sector and therefore % of aid using `CPSs

was computed as ‘aid for government sector’/’aid disbursed using CPSs’ (See OECD, 2008d for further details). 3. Computed as an unweighted average.


Chapter 6

practiceareconfirmedinthePDEsurvey,whichindicatesahighlevelofuseofCPS,74%to100%,exceptingJapan(0%)andtheUSA(22%)(Table6.3).AgainZambianinformantsstressedtheimportanceofunrestrictedprogrammeaidanduseofCPS,implyingownershipandalignment,asindicatorsofgenuinelyuntiedaid.

Burkina Faso:againtheevidenceindicateswidedifferencesindonorpracticesassociatedwithahighlevelofreportedformaluntying,81%(Table6.2).GBSasaproportionofallODAdisbursements,under18%inthelatenineties,hasvariedbeen27%and32%during2001-07.GBShasbeenprovidedsince2001byDACbilaterals,includingin2007Canada,Denmark,France,Germany,Netherlands,SwedenandSwitzerland,aswellastheEC(TableD.2).Theproportionofbilateralcommit-mentsreportedtotheCRSasGBSisevenmorevariable.In2007GBSwas29%ofODAandbasketfunding(Fondscom-muns)werereportedseparatelyforthefirsttimeasafurther7%ofODA.Meanwhileaidfollowingaconventionalprojectapproach,andincludingadecliningproportionofTC,stillaccountedfor64%ofODA(57%forthebilateralsgivingGBSandbasketfunding).Twomajordonors,JapanandtheUSA,aswellasAustria,Belgium,ItalyandLuxembourgcontinuetouseonlyaprojectapproach.TheuseofCPSamongstdonorshasalsobeenvariablewithtwoDACdonors,ItalyandtheUSAmakingnouseofnationalsystemsandothersrangingbetween55%and96%ofsupporttogovernment(Table6.3).Whereinvestmentfeasibilitystudieswereundertakenonasectoralbasis,thiswasmorelikelytoleadtosectoralbasketsupport,orpoolingbydonorscommittedtosuchanap-proach.

Lao PDR:thepatternofbilateralaidanduntyingappearstobequitedifferentfromthoseofthethreelowincomecountriesinAfrica.ThereisasmallproportionofDACloanODAfundingsimilartotheotherLDCs.However,theextentofformalunty-ingislower(70%)withahighlevelofnon-reporting(TableB.3inAnnexB).Thenon-reportingismostlyforJapan(56%),thelargestbilateral,whichprovidesalsoahighproportionofTCrelatedassistance(CRS)andwhich,accordingtolocalinform-ants,isde factotied.BilateralaidisoverwhelmingprojecttypewithlittlecommitmentofGBSinrecentyears.France,SwedenandtoamorelimitedextentJapanuseCPS.ThelowlevelsofGBSandCPSuseareexplainedbydonorsasrelatedtolimitedcountrypartnerfinancialmanagementcapacity.

Governmentreportingonbilateralaidincludesnon-DACAsiandonorsprovidinganuncommonsnapshotoftheiractivities(TableD.5).Asiandonorsprovidedalmost60%ofbilateralaidin2005-06:Japan,27%;Vietnam,11.1%;China,9.5%;Thailand,8.4%;andKorea,2.6%.Informantsindicatedthatvirtuallyallofthenon-DACaid(30%ofbilateralaid)wasde factotiedandalsoJapaneseassistance,apartfromlocalprocurement.43Thisestimatewouldimplythatatleasttwo

43 A different perspective is provided by JICA that “it is not appropriate to treat Ja-pan, a DAC member which has untying obligations, as other Asian non-DAC countries that do not have reporting obligations in the context of untying extent of ODA.”

thirdsofallbilateralaidisde factotied.Furthermore,takingintoaccountapparentlysubstantial,butunquantifiedofficialexportcreditsfromnon-DACsources,theimplicationisthatinpracticeexternalfundingfordevelopmenttoLaoPDR,anLDC,isoverwhelminglytied.

VietnamasarapidlydevelopingLICreceivesahighproportionofDACmemberODAasconventionalprojectaid,mostlyfo-cusedoninfrastructureandeconomicsectors.Thisaidincludesahighproportionofloans(58%ofbilateralDACODAin2005-07)andalsosubstantialtying(19%)andnon-reporting(9%)(Table6.2).ThehighlevelofconcessionalloanODAisexplainedbythethreemajorbilateraldonors,Japan,France(AFD)andGermany(KfW),beingthosethathaveretainedasubstantialloanelementintheirportfolio.Programmaticsupportisarelativelylow8.5%ofODAduring2006-07(TableD.6)andDACbilateralODAin2007includingonly2%ofbilateralGBS.

TheuseofCPSbydonorsisextremelyvariable(Table6.3).Dif-ferentviewswereencounteredtooaboutcapacity,especiallybelowthelevelofcentralgovernment,andcorruptionprob-lems.IncontrasttotheothercasestudycountriestherewasahighusageofCPSunderJapanesesupportedprogrammesin2007underabilateralagreementthatexperienceddifficultiesduring2008.

Vietnamalsoreceivessubstantialbutseparatelyandpartlyreportedconcessionallendingfromnon-DACdonors,includingespeciallyChinaaswellasIndia,Korea,Kuwait,SingaporeandThailand.ForexampleKoreacommittedoverUS$100mnofconcessionalexportcreditsayearduring2007-09whichexceedsthelevelofODAbyallexceptthethreelargestDACdonors.Thelevelsofconcessionalcreditsimplythattheproportionoftiedfundingfordevelopmentis,asinLaoPDR,verymuchhigherthanthereportedlevels.Theextentofuntyinganddomesticorregionalsourcingverymuchdependonthewaysinwhichprojectcontractingandprocurementwithinprojectisorganised.ThegovernmentiswidelyconsideredtoadoptastrongnegotiatingstanceonissuessuchascontractingandsourcingofODAfundedgoodsandservices.

South Africa:bilateralODAisrelativelyunimportantforanup-permiddleincomecountry.Incontrasttothefivelowincomecountries,governmentinsistsontakingdirectresponsibil-ityforcoordinationnegotiatingandorganisingonadirectbilateralbasis.Thereisunusualnichefunding,suchassupportforsomeofthepreparationsforthe2010WorldCup(Clayet al.,2008,Box4.2).AnotherconsequenceislackofstatisticalreportingonaidmodalitiesandSouthAfricachosenottoparticipateinthe2008PDEsurveyofaideffectiveness.

BilateralODAisequivalenttolessthan1%ofpublicexpendi-ture.AlowproportionofODAisreportedastied(10%)withlittlenon-reporting(3%).Bilateralaid,asreportedfor2005,alsoshowsvaryingdonorpracticesinusingpublicfinancemanagementsystemsandCPSprocurement(TableD.3).Three


Chapter 6

bilateraldonorsrespondedtothestudysurveyindicatingamixofmodalitiesandprocurementarrangementsthroughtheirown,governmentandnon-governmentpartnerproce-dures.Indiscussionthesechoices,andsoassociatedvarianceinCPSuse,werefoundtoberelatedtothewayindividualorasmallnumberofbilateralprojectshadbeendesigned.Soitisdifficulttodrawmoregeneralconclusions.Nevertheless,somedonorswereagainfoundtomakelittleuseofgovernmentsystems,preferringtheirownproceduresorthoseofcontrac-torsthathadtoconformwiththefunder’sownregulationsandlegislationonsourcingandreporting.

TheSouthAfricangovernmenttakesastrongposition,activelypromotinglocalcontractingandquestioningdonorchoiceswheretheseinvolveotherformsofsourcing.Finally,theviewofgovernmentofficialsontyingpractices,andtak-ingEUproceduresonlyasanexampleofawiderissue,werenoteworthyinexpressinginaforthrightwayaperspectivecommontomostcountrypartners:

“FormanySouthAfricanGovernmentofficials,theprinci-pleoftyingoftenreferstotheproceduresandprocessesusedinaidprogrammes.Thefocusisthereforeonthealignmentandownershipofaidwithcountrysystemsoverandabovetheprocurementandsourcingofgoodsandservices.AnexampleofthisistheEUaidmodel,citedbysomeGovernmentofficialsasparticularlytied.ThisperceptionrelateslargelytotheECrequirementthatunlesscertaineligibilitycriteriaaremetandabudgetsupportaidmodalityisused,EUaidis,forthemostpart,governedbytheEU’sPracticalGuidetoContract.44How-ever,inSouthAfrica,thefactthattheEUimposesitsownrulesandconditionsonhowODAisspentisinitselfseenasproblematic.Insuchcases,theuseofdonorcountryprocurementsystemsissometimessynonymouswithtying.” (Ramkolowan and Stern, 2009).

Overall Findings:Therearecertainiterativepracticesthatemergefromareviewofthesixcountries.First,theextentofformalunty-ingandchoiceofaidinstrumentsisbroadlysensitivetocountrydevelopmentstatusandcurrentfinancialcircumstances:thehighestlevelofuntyinganduseofgrantaidisfoundinthefourHIPCs,BurkinaFaso,Ghana,LaoPDRandZambia.Second,theex-tenttowhichdonorshaveadopteddirectbilateralfundingmo-dalitieswithuntiedfundsisverycountrycontextspecific,whichthejointevaluationofGBSconfirms(IDDandAssociates,2006).Third,therearehoweverwidedifferencesindonorpracticeonlypartlyreflectedinthefivedonorcasestudies.TheNordic+groupincludingCanadawithFrance,Germany,LuxembourgandSwit-zerland,andmostrecentlyAustraliahavefundedsucharrange-ments,alongwiththeMFIs,especiallytheWorldBank.

Fourth,thereisapaucityofreliablequantitativeinformationontheextentofpooledfundingarrangements,whichdonot

44 Procedures for EC external actions (commonly referred to as PRAG). Under these guidelines EU aid to South Africa is only partially tied to the EU states; the state that is a beneficiary of assistance and developing countries as specified by OECD DAC.

relatetoconventionalclassificationsofODAsuchassectors,instruments,TCcomponentsortyingstatus.Ontheevi-denceprovidedthesemodalitiesappeartoinvolvesubsetsofdonorswithinthewidergroupthatarealsowillingtoprovidedirectbudgetarysupport.The‘experiments’withpooledfundinggoingbeyondconventionalparalleljointfundingarealsoinwhatdonorsperceivetobefavourablecountry,sectoralandprojectspecificcircumstances.Thesedevelopmentscannotbesaidtobetheresultofuntying,whichisformallynowalmostgeneral.Rathertheseinitiativesarenowmorelikelywhereasectoralapproachisadoptedforinvestmentplanning.Thosemorelikelytoparticipatehaveregulatoryflexibilityinthewaysfundscanbeused,includingcriticallytransferringthesetoanotheragencyorthecountrypartnertodisburse.Somedonors,includingthetwolargest,theUSAandJapanhavenotparticipatedsubstantivelyinthesearrangementsorGBS.NorhavesomeEuropeandonorssuchasAustria,Italy,Spain,Portugal,theCzechRepublicandGreece,eventhoughpoolingwouldseemtoofferrelativelythesmallerdonorbothanopportunitytopartici-pateinmajorinitiativesandtoachieveefficiencysavingsinaidadministration.Thereissofaralsoalackofsubstantiveevaluativeevidenceontheaideffectiveness,letalonethedevelopmentalimpactofsuchinitiatives.

ThelinksbetweenchoiceofmodalitiesandtheuseofCPSareapparentbutcannotberigorouslydemonstrated,becausetheavailabledatadonotfocusonthesepotentialconnections.ThePDEcountrysurveysprovidesomeusefulcross-sectionalevidenceonuseofcountrysystems,withwhichthefindingsofthecasestudiesarebroadlyconsist-ent.Againtherearewidedifferencesindonorpracticethatarebothprogrammaticandtosomedegreereflectcountrycircumstances.

Thestudysoughttoobtainmoredetailedinformationaboutpoolingandbasketsandprocurementarrangementsatanagencylevelwithincountries,butwithverylimitedsuccess.TheexplanationappearedtobesomecombinationofdonorsurveyfatigueafterworkpreparatorytotheSeptember2008Accrameeting,theextentofin-countrydonorcoordinationoninformation,andsensitivityinsomecasesoverprovid-ingevidenceaboutprocurementissues.Someprojectswerethereforeselected(seebelowChapter7)formorein-depthreviewasexamplesofthewaypoolinganduntyingmaybelinked.

Thewidespreadscepticismexpressedinallsixcountries,butofteninformallyandofftherecord,aboutthegenuinenessofuntyingonthepartofsomeifnotmanydonorspromptedthestudyteamtoconsiderthisissueintwoways.First,ifthereisextensivede factotying,thentheeffectmaybeobservableasanaidassociatedbiasinfavourofdonorexportsortradedis-tortion(Section6.4).Second,asprojecttypeaidstillpredomi-nates,actualpracticesshouldbemoretransparentataprojectlevel,asconsideredinChapter7.


Chapter 6

6.4 Econometric analysis of the implications of bilateral aid for donor exports

6.4.1 Introduction to econometric analysisIfoneconsiderstheexportsfromdevelopedindustrialdonorcountriesthatconstitutetheDACtoaidrecipientdevelopingcountries,thenonewouldexpecttheflowofexportsfromadonorcountrytoarecipientcountrytobeexplainedbyfac-torssuchasthesizeoftheexportingeconomy,theproximityordistance,andthesharingofacommonlanguage.Eventhetotallevelofaidmightbeaninfluenceontheexportsofalldonorcountries.However,inamulti-donorworld,wherenosingledonordominatesastheUSdidduringtheMarshallPlanera,thereisnoreasonwhythelevelofaidfromadonortoarecipientwouldinfluencethatdonor’sexports,unlessbilateralaidwerehavingatradedistortingeffectthroughintendedorunintendedtying45.Tyingiswidelyconsideredtoadvantageexportersinthedonorcountry.Untyingisthereforeexpectedtoreducethedistortingbiasofaidinfavourofthedonor’sexports.Similarly,particularaidinstruments,notablybilateralconcessionalloans,werethoughttobeoftenassociatedwithdonorexports,forexamplethroughamixedcreditarrange-ment.Sophasingoutofsucharrangementswithadeclineinloansagainoughttoenddistortions.

Thissectionthereforeinvestigateswhetherrecentbilateralaidflowsandassociatedpracticeshavetradedistortingeffects.TheaimistounderstandwhetherbilateralODAisaninfluenceonadonor’sexports,evenwithcurrenthighlevelsofunty-ing,whilsttakingintoaccountothervariablesthatmightbeinfluencingthisrelationship(suchasFDI,exportcredits,ECdisbursements).Conventionally,tyingstatusandthedifferentformsinwhichaidisprovided,forexampleloansandgrants,havebeenhypothesisedtoinfluenceaggregatedonorexportflowsatthecountrylevel.

Inordertotakeintoaccountcountryspecifics,asimilareconometricinvestigationhasbeingundertakenforeachofthesixcasecountrystudiesandthecomparativeresultsoftheanalysisforthesixcountriesarereportedinthissection.Thesixcountriesarepurposivelypairedaccordingtotradingregiontoisolatepotentialregionaleffects:GhanaandBurkinaFasoinWestAfrica,LaoPDRandVietnaminSouthEastAsiaregionandASEAN,andZambiaandSouthAfricainSADCregion.Moreover,thesixselectedcountriesalsodifferfortheirDACclassification:BurkinaFaso,LaoPDR,ZambiabeingLDCs,SouthAfricaasUMIC,andVietnamandGhanaasOLICs;BurkinaFaso,GhanaandZambiaarealsobeingclassifiedasHIPCs,aswellasbeingfullACPmembers.Thescopeofthein-vestigationanditstheoreticalframeworkaresetoutinAnnexC,withonlysummaryfindingspresentedinthissection.

6.4.2 DataEmpiricalestimationincludesaidfromupto22DACdonorstorecipientcountries,withobservationscoveringtheyears

45 This conjecture is explored further through the project level analysis in Chapter 7.

2002-0746becauseofdataqualityissuesandavailability47.ThebilateralODAdataaretakenfromtheOECDCRSdatabase.Theanalysisusesaiddisbursementsandnotcommitments,becausetradeeffectsareexpectedtofollowactualdisburse-mentsandnotcommitments.Theavailableexportseriesincludeonlygoodsandsounder-estimateeconomicflowsfromthedonortorecipient,whichinvolvealsoTCandotherservicesin-kindfinancedatthedonorend.ThesedataissuesarediscussedfurtherinAnnexC.

6.4.3 FindingsThestatisticalresultsattheindividualcountrylevelsuggestprobabilisticandnotnecessarilyrobusteconomicrelation-ships.Therelationshipswhicharefoundmayinturnbeonlyaproxyformorecomplexunderlyingeconomicrelationshipsbetweendonorandrecipientcountry.However,acomparisonofresultsfromallsixcountries,aspresentedhere,providesafullerandpossiblymorerobustanalysis,highlightingsimilarpatternsandsystematicdifferences.Theseresultsaresumma-risedinTable6.4anddiscussedmorefullyinAnnexC.

GDP of donor countries,whichproxiesfortheireconomicsize,is,asexpected,animportantdeterminantofdonorbilateralexports.Thelargerthedonorcountry’sGDPthehigherthelevelofexports,ascountriessuchasJapanorUnitedStatesclearlyexportmorethanLuxembourgorSwitzerland.

46 2002-06 for South Africa.

47 Further details can be found in Annex C and the background paper (Natali et al., 2009).


Chapter 6

Astrikingdifferenceinresultsamongcountriesrelatestothecommonlanguage.Language,aswellasmoregeneralcom-monculturalfactors,canhelptofacilitatetradeflowsbetweencountries.SharingthesameofficiallanguageishoweveronlystronglyandpositivelylinkedwithbilateralexportflowsforFrancophonedonorstoBurkinaFasoanddoesnotholdforthethreeAnglophonecountries48,wherenoobservableadvantageisconferred.ApartfromthesharedlanguagetherearethelinkswithFranceastheformercolonialpower;itisthereforehypothesizedthatasimilarrelationshipmightbefoundbetweensomeSpanish-speakingLatinAmericancountriesandSpain.

Otherexpectedinfluencesarehoweverfoundtobemostlyinsignificant:the level of development of donor countries,meas-uredbytheirincomepercapita,hasnoclearinfluenceonbilateralexportflowsandonlyinVietnamthereisevidence,inaccordancewiththetheory,thatanincreaseinthedistanceisassociatedwithalowerlevelofexportsfromdonorcountries.

Turningtotheinfluenceofaidflows,itisimportanttodis-tinguishbetweenadonor’sODAandODAthattherecipient

48 In Vietnam and Lao PDR the common language variable is automatically dropped as no donors share a common official language with these countries.

countryreceivesfromallotherbilateraldonors.Thebasicideaistoconsiderwhetherthereareanytradedistortingeffectsofaidatanaggregatedlevelbyexaminingwhetherbilateralaidfromaparticulardonortoarecipientcountryaffectstradebetweenthatdonorandrecipientpairdifferentlyfromaidfromotherdonors.

Resultsshowthataggregatedaidflowsfromadonorhaveasignificantimpactonthatdonor’sexports,whereasODAfromtherestofbilateraldonorsisnotasignificantinfluenceonthatdonor’sexports.Thissuggeststhatanincreaseindonoraggregateaidflowsisassociatedwithariseinexportsevenwhereaidisoverwhelminglyuntied.AlsoincountriessuchasSouthAfricaandZambia,wherethisaid-traderelationshipdoesnotseemtoholdatanaggregatedlevel,adisaggrega-tionshowsthatgrantsfromthedonorcountryarepositivelyassociatedwithitsexports,whereasgrantsfromtherestofbilateraldonorsarenotsignificant.Suchresultsareagainsuggestiveofsomeformoftradedistortion:itisdifficulttoexplainwhybilateralgrantsfromaparticulardonortoarecipientcountryshouldaffecttradebetweenthatdonorandrecipientpairdifferentlyfromgrantsfromotherdonors.Thisresultissuggestiveofinformalorde factotyingofgrants.Amongotherpossibleexplanationstherecouldbethegood-

Table 6.4 Aid and other influences on DAC donor exports: comparative econometric results for six partner countriesduring 2002-07

West Africa Southern Africa – SADC South East Asia – ASEAN

Dependent variable: Exports Ghana Burkina Faso South Africa zambia Lao PDR Viet Nam

GDP (+)*** (+)*** (+)*** (+)*** (+)*** (+)***

GDP per capita (-)***

Distance (-)***

Common language (+)***

FDI (+)***

Import residuals (+)*** (+)*** (+)***

Tying status % (+)** (+)** (+)**

Grants i (+)*** (+)** (+)*** (+)** (+)*** (+)***

Grants All-i

Loans i (+)** (-)*

Loans All-i (+)**

Export credits

EC disbursements (+)** (+)*** (+)** (-)***

N observations 117 102 75 95 103 126

Period under analysis 2002-07 2002-07 2002-06* 2002-07 2002-07 2002-07

Notes: 1. All variables are in natural logarithms (except Common language, Import residuals and Tying status). All regressions include a time trend not reported.Legend: * significance at 10 percent **significance at 5 percent *** significance at 1 percent.


Chapter 6

willontherecipient’sparttowardsthedonor;still,theaidrelationshipmightsimplyfacilitatetradebetweenthedonorandtherecipient,increasingrecipient’sproclivitytoprocuregoodsfromthedonor(reinforcingcommercialties)49.Loans,whichareanunimportantformofaidexceptinVietnam,arenotasignificantinfluenceondonorexports.Thisresultmightbeexplainedinpartbytherelativelevelsofgrantsandloansinthecountriesanalyzed,andsoadisaggregationofODAintoloansandgrantsisnotnecessarilyverymeaningful.

Tosumup,theaidvariablesarefoundtobeanimportantin-fluenceondonorexports,suggestingthataid,despiteformaluntying,isneverthelessasignificantpartofthecomplexcom-mercialrelationshipbetweendonorandrecipient.Althoughthereisevidenceofapositiveimpactofformal tied aid ondonors’exports(especiallyinSub-SaharanAfricancountries),ratheritisaidoverall,evenifformallyuntied,whichappearstohaveatradedistortingimpactonbilateralexports.

Theanalysisalsofoundthatdisbursements from the ECposi-tivelyassociatedwithexportsinfullACPmembercountries(BurkinaFaso,GhanaandZambia)supportingtheideathattheACP-EUrelationshipisapositiveinfluenceonexportsfromEUmemberstatesinACPrecipientcountries.

Foreign direct investments(FDI)areanotherpotentiallyimpor-tantinfluenceontradebetweencountries.DuetolackofdataforindividualDACmembersthisrelationshipisstudiedonlyforSouthAfrica,whereFDIarefoundtohaveapositivebear-ingonexportflows.ThereareseveralwaysbeyondtheinitialinvestmentinwhichFDIandexportscouldbestronglylinked.Noevidenceisfoundthatexport creditshaveanimpactonbilateralexportflowsinthosecountrieswheredatawereavail-able,aresultperhapsrelatedtothepoorqualityofthedata50.

Thestatisticalanalysiscanonlyhighlightinfluencesthatarecapturedwiththeavailabledata.Thereareotheraspectstotheeconomicrelationshipbetweendonor-exporterandaidrecipientimporter,oftendifficulteithertoidentifyormeasure,soanattemptismadetocontrolforsuchunderlying relation-shipsbytakingintoaccountimportsbythedonorfromtheaidrecipient51.InSouthAfrica,LaoPDRandVietnam(middleincomeand/orSEAsiancountries),theresultsaresuggestiveofacomplexreciprocalcommercialrelationshipcomparedwithaperhapsmoreaiddependentoneforthethreeAfricanACPcountries.Ifitistruethatasaresultofthedonor-recipientrelationship‘theeffectivecostofgeographicdistance’isre-duced(JohanssonandPetterson,2009),thenfurtherresearchisneededoninter-countrytradeflowsbetweendonorandrecipientsandnotjustondonorexports

Theresultsofthiseconometricanalysissuggestthatbilateralaidisstilladistortinginfluenceontrade,evenafteruntying

49 See theoretical framework in Annex C for further details.

50 See Annex C for further discussion.

51 Through the inclusion of an import residual variable (Annex C).

ofmostbilateralODA.Thatfindingjustifiesacloser,disaggre-gatedexaminationoftheusesofaidandsourcingofgoodsandserviceswithaidfunds.Theresultsespeciallyfordisag-gregatedaidflowssuggesttheexistenceofsomecontinuingtradedistortingeffectsofaidinthepost-tyingworld,atleastforgrants.Loans,whichareanunimportantformofaidinmostofthecountriesanalyzed,arenotasignificantinfluenceondonorexports.

6.5 ConclusionsTosumup,thecountrylevelanalysishighlightshowtheper-ceptionsofdonorsandpartnercountriesontyinganduntyingdiffer.Whereasfromadonors’perspectiveuntyingisdirectlyrelatedtoremovingsourcingrestrictionsonprocurementofgoodsandservices,recipientcountriesperceiveuntyingasabroaderconceptrelatedtoalignmentandownershipofaidandlocalcompaniesbeingabletocompetesuccessfullyforcontracts.

ThereviewofaidmodalitiesanduseofCPSdrawsattentiontosystematicdifferencesamongstbilateraldonors.Donors,suchastheNordic+Group,France,GermanyandSwitzerland,whomakelargeuseofprogrammaticapproachesandCPScontrastwiththetwomajordonors,theUSAandJapan,whoarefoundtohavemainlyaproject-typeapproachandmaderelativelylittleuseofCPSinthecountriesunderreview.Otherdonorstooarefoundtofavouraproject-typeapproachbutarenotactiveinallcountries.

Thereviewalsoindicateduntyingpracticesarecountry-specif-ic.Therearedifferencesbetweenpartnercountriesaccordingtotheirdevelopmentstatus(thehighestlevelofuntyinganduseofgrantaidisfoundinthefourHIPCs);totheirnegotiationpower(asSouthAfricaandVietnamcasestudiesshow,theex-tentofuntyingisrelatedtopartnercountries’ownershipandstrengthofnationalsystems);andtotheirin-countrycapaci-ties(theextentofuntyingcanbelimitedbylackofcountrycapacity).InLaoPDRlittlecommitmenttotheuseofGBSandCPSismainlylinkedtolimitedcountrypartnerfinancialmanagementcapacityandpossiblytotherelativeimportanceofnon-DACdonors.

TheanalysisofaidmodalitiesanduseofCPSalsohighlightthepaucityofexistingdataonaidmodalitiesandinparticularonpooledfunding.Somecountrystudies,suchasBurkinaFaso,LaoPDRandVietnamalsoindicatediscrepanciesbetweenthepatternofaidsuggestedbytheCRSandlocaldatatowhichgovernmentsanddonorsmakereferenceatacountrylevel.

Finally,doubtsonthegenuinenessofaiduntyingseemtobesupportedbyaneconometricanalysis:aidisfoundtohavesometradedistortingimpactinaposttyingworld.


Chapter 7

7.1 Introduction

Objectives and scope

T hischapterpresentstheevidencefromthe21projectcasestudiesundertakenaspartofthesixcountry

studies52.Anumberofkeyfeaturesofuntyingpracticehavealreadybeenconsideredandthischaptertakesasitsstartingpointthetheoretical,econometric,donorandrecipientcountryanalysesofthepreviouschapters.Themainaimistocomplementtheseperspectiveswith‘reallifeexamples’fromcurrentpracticeattheprojectlevel.ThepilotstudyforGhanashowedhowmanyofthevariationsinpracticecanonlybeproperlyunderstoodintheirindividualcontext.

Theprojectlevelreviewisorganisedintwoparts.Section7.2considersthecasestudiesintermsofinputfeatures;whofundedwhat;andthetermsandcontractingarrangementsemployed.Thentheconsequencesareconsideredofthewayprojectsareorganisedandinputssourcedforaidefficiency,effectivenessanddevelopmentinSections7.3to7.7.

Case study approachThecasestudymethodwasdevelopedduringtheGhanapilotcountrystudyontheassumptionthatmanyofthefeaturesofuntyingcanonlybeunderstoodintheirprojectcontext.Foreachcountrytheprojectswereselectedjointlyinconsultationwithcountrypartneranddonoragenciesusingtheavailableinforma-tionfromtheCRSandcountrydatabases.Selectedprojectsweretobepredominantlyuntied,intheWater&SanitationSector(W&SS),involveprocurementofgoodsand/orservicesandbecurrentlyactive(2008).Countryteamsthencarriedoutaseriesofstructuredinterviewswithrecipientanddonorpersonnel,aswellasendusers,contractors,NGOsandothergovernmententities,includingthepublicprocurementagencies.Fromtheseinter-viewsandsupplementaryinformationprovided,aprofileofeachprojectwaspreparedcoveringdisbursementoffundsateverystage,thedecision-makingprocessandfactorslikelytoinfluence

52 The EXSUMS are in Annex D and full versions of the reports will be available on the PDE website in due course.

outcomes.Forsomeprojects‘Ground-Truthing’visitstoprojectswerecarriedouttoverify‘capitalcitylevel’informationandviewsaboutwhatwashappening.

Practically,eachcountryteamwasabletoinvestigatethreeorfourprojectsindepthduringthetwomonthperiodallocated.Thepilotconcludedthattoensurefocusandcomparabilitybetweenprojectsthestudiesshouldconcentrateprimarilyononesector,watersupplyandsanitation.Thissectorwasse-lected,becauseitisbothaninfrastructureandgrowthsectorandhasastrongsocialorientationwithbothruralandurbancoverage.Itinvolvestheprocurementofsubstantialamountsofbothphysicalgoodsandcivilengineeringservices,aswellashavingasignificantTCcomponentalongsideavarietyofaiddeliveryapproaches.ODAusuallyplaysakeyroleandmanybilateraldonorsareinvolved.Theprojectselectionproc-essaimedtoprovidewidestcoverageofdonorsacrossthesixcountries,andsosomeprojectsareinothersectors.Thecasestudiesshouldberegardedasprovidingexamplesofwhatagenciesconsidergoodpractice.

Tying and untying in practice53

Tyingisultimatelyaboutoutcomes,thegeographyofsourcing,andnotjustaboutlegalorallowablepossibilities.Whenthereisformaltying,becausecontractsarespecificallyrestrictedtoorganisationsregisteredinthedonorcountry,ortheuseoffundsislimitedtobuyinggoodsandservicesfromthedonormarket,theoutcomeisunambiguous.Aidcanbeconsideredtobeeffectivelyuntiedwherethecontractisawardedtoanorganisationregisteredintherecipientcountryortosomethirdparty.54Thecontractmaybetendered

53 Unlike at the theoretical level, it is also possible to consider the effects of partial untying on a case by case basis because there is an answer to the question of which countries are included. Depending on which set of countries are unrestricted, partial untying can be closer to either tied aid or untied aid in terms of its effects.

54 There may be disagreement as to the genuineness of such a registration. Some informants specifically questioned whether ‘Chinese’ companies registered in Ghana were genuinely local, having regard to the possible implications for employment and sourcing of goods.

7. An AssEssMEnt of tHE EffECtivEnEss of untiEd odA: findings of proJECt studiEs


Chapter 7

internationallyoronlynationallybythefunderorthroughthecountryprocurementsystem(CPS),orevendirectlyawarded.

De factotyingariseswherefundsareformallyuntiedorpartiallyuntiedbutthecontractisinfactawardedtoadonorcountryorganisation,orgoodsandservicesdirectlyprocuredfromthedonormarket.Thisoutcomeisprima facieevidenceofde factotying,butnotconclusive.Theoutcomemaybetheintendedorunintendedconsequenceofthewayinwhichthecontractisorganised.Someinformantsarguethattheveryactivitiesselectedforfundingmayleadtoanunintendedbiasinfavourofsourcinginthedonorcountry,andreflecteitherthedonor’sownortherecipient’spercep-tionofthefunder’scomparativeadvantage:forexample,NorwegianTCforoilexploration,ChineseroadconstructionorJapanesecarsormotorcycles.

Thecontractingprocesshastobeexaminedtodeterminewhetherthereareobstaclestoorganisationsoutsidethedonorcountryobtainingacontract,suchasprequalificationrequirementsorlackofinformation.Theseconsiderationsleadtocategorisingcontractingorprocurementoutcomesas‘untied’ifsourcedotherthanfromthedonorcountry.Butifacontractgoestoadonorcountryentity,thatisatleastanambiguousoutcome,potentiallysuggestiveofde factotying.

Todemonstratede factotyingisdifficult.Acase-by-caseinves-tigationcanindicatewhetherthereisabiasinfavourofdonorcountryorganisations.Practicesareagencyspecific,boundbyorganisationalandnationalregulatoryframeworks,asillustrat-edinChapter4,andsoacomparisonofapurposivesampleofprojectswillhighlightdifferencesandtheirimplications.Whatisdifficulttoestablishisacounterfactualexample,tocomparewithselecteddonorprojects.However,theIDA(WorldBank)reportsonthegeographicalsourcingofcontracts,usuallybyICB,NCB,qualitybasedselectionand‘shopping’andthisinfor-mationprovidesasetofoutcomesagainstwhichtocomparesurveyedbilateralprojects55.

Finally,cost-effectivenessanalysiscanprovideanexposttestoftheefficiencyofchoices.Ifoutcomesofrestrictivesourcingdecisionsareinefficientcomparedwithactualorlocalmarketpricesorcostingofhypotheticalalternativetransactionsthatissuggestiveofabias.

Aprojectcaseapproachispotentiallyverytimeandresourceintensive,andsoisonlypossibletoundertakeonahighlyselectivebasis.Thisapproachalsorequirescooperationoffunders,partnersandimplementingagentsinmakingavailablewhatmayberegardedasprivilegedorcommer-ciallysensitiveinformation.Thepilotindicatedthatprojectanalysiswasonlyfeasibleforcurrentprojectswithpersonnelanddocumentationavailablein-country.Sothatlimitedthe

55 Another reference point to compare with IDA sourcing is the reporting of ex ante contract awards to the DAC. This outcome measure of untying could provide a valu-able form of verification to compare with the formal commitments (input measure) also reported by donors.

choiceofprojectsanddonors.Countryteamsalsofoundthatcooperationdependedonanorganisationhavingacultureoftransparency,andthatsomeinvestigationswereconstrainedbyslowandincompleteresponses.

Theinvestigationsrecognisetheimportanceoflevelsofcontractingandsofocusonthreelevelsofprocurement.First,thereisthehigherlevelimplementingentity.Insomecasesthisisthecountrypartnerministryortheagencytowhichithasdelegatedresponsibility.However,inmanycasesthereisaheadcontractforthemanagementoftheprojectorthepro-videroftechnicalcooperationtothelocalmanagingagency.Thiscontractcommonlyinvolvessupervising,disbursementandmonitoringofexpenditureonbehalfofthefunder.Thebilateralfunderconventionallyawardstheheadcontract,andthereportedtyingstatusofprojectsisbasedontheformalcontractingrulesadopted,andwhetherornottheseatleastintheoryallowunrestrictedsourcing.Second,sub-contractingoccurredwithinalmostallinvestmentprojectsorganisedbytheheadcontractororlocalimplementingorganisations,andsomaybesubjecttodifferentcontractingrules.Third,thereisactualprocurementorpurchaseofgoodsandservicesbyheadorsubcontractors.Anassessmentofthetyingstatusintermsofoutcomesofaprojectshouldtakeintoaccountallthreelevelsofprocurement.

ThelimitedscaleoftiedODAhasresultedinfocusinglargelyonformallyuntiedODA.Thisfocusiscontinuedattheprojectlevel:thoseidentifiedforreviewwereformallyfullyuntied,exceptinfourcases,whichwereexplicitlymixed,orhybrid,in-cludingbothtiedanduntiedcomponents.Despitethisrestric-tion,thecasestudiesencompassawiderangeofvarietyoftypesofaidanddonorpractice,demonstratingtheincreasedrangeofdonorpracticewithuntiedaid.

ItwastheintentiontotryandincludeatleasttwoprojectsforallofthemajordonorsandatleastoneprojectforallotherDACmembers.Limitingfactorswerethenumberofprojectcasestudiesthateachcountryteamcouldcarryout,thedonorsthatwereactiveineachoftherecipientcountriesintheW&SSandtherequirementthattheprojectswereactivein2007/8toensurethatthedocumentationandatleastsomeoftheimplementingstaffwerestillavailablein-country.ThestudywasabletoincludeprojectssupportedbyAustralia(AusAID),Canada(CIDA),Denmark(Danida),theEU(EC),France(AFD),Germany(KfW),Ireland(IrishAid),Japan(JICA,MoFA),Luxembourg(LuxDev),Netherlands(VNG),Sweden(Sida),UK(DfID)andUSA(USAID).AWorldBank(IDA)projectwasalsoincludedasacounterfactualcasestudy.Switzerland(SECO,SDC)providedusefulinformationregardingtheirbudgetarysupportandusefuldiscussionswereheldwithNo-rad,GTZandtheMCC.NoprojectsfundeddirectlybyAustria,Belgium,Italy,NewZealand,Norway,Spain,orSwitzerland,wereincluded.Severalnon-DACdonorswerealsoincludedaspartneragenciesinspecificprojects,aswereseveralothermultilateralssuchastheregionaldevelopmentbanks,UNagenciesandtheGlobalFund.WaterAidandseveralprivate


Chapter 7

foundationsarealsoincludedaspartfunders.TheprojectcommitmentsrangedfromapproximatelyUS$500thousandtoUS$1.5billion.

Thegeographicalcoverageofthe21projectsisshowninTableB.2inAnnexB,andtheprojectsarealsonumberedforeasyidentificationwhentheyarecited.TableB.2alsoliststheformalcharacteristicsoftheprojectsasreportedtotheOECD,donorandcountrydatabases.

InSouthernAfrica,theprojectsselectedinSouthAfricaincludetwointhehealthsectorandonlyoneintheW&SS,wheretherewerefewbilateraldonorsupportedprojects.Allthreemostlyfundedtechnicalcooperation.InZambiathreeprojectswereselectedintheruralW&SS,mainlycoveringinvestmentactivities.AUSAIDprojectprovidesTCforBusi-nessDevelopment,andaWorldBanksupportedprojectwasincludedforcomparison.

IntheASEANregiontherearefourVietnameseinvestmentprojectsintheW&SS,oneamulti-donorloosepoolingar-rangement.ProjectsinLaoPDRincludedroads,ruraldevelop-ment,energyandoneintheW&SS.TheUS$1.5billionenergyprojectisjointlyfundedandledbytheWorldBankandhasmanyprivatesectorpartners.

InWestAfricatheBurkinaFasostudyincludestwohealthsectorandtwoW&SSprojects,allexceptoneinvolvingmulti-donorfunding.TheGhanapilotstudyconsideredtworuralW&SSprojects,includingonepooledarrangement.

7.2 Input features: contracting arrangements and tying practice

7.2.1 Organisational features and tying statusTheprojectssurveyedareallconsideredintermsoftheiror-ganisationalandcontractingarrangementsthatexplaintheirtyingstatus.Thestudyteamslookedcloselyintoorganisation-alandespeciallycontractingarrangementssoastoestablishsourcingoutcomes.ThesefindingsaresummarisedinTables7.1.and7.3.

Formal tying statusThestudypurposivelyselectedprojectsthatarereportedasformallyuntied.ThirteenbilateralprojectsandanIDAsup-portedprojectwerereportedasfullyuntied.AlltheECsup-porttoprojectsisreportedaspartiallyuntied.Fiveprojectswerereportedashavingbothtiedanduntiedcomponents.AsacomparisontheCRSdatabaseindicated79%ofbilat-eralprojectsbyvalueinthesamesixcasestudycountriesareuntied(Table3.3).Amajorfactordeterminingformaltyingstatuswastheprojectstartupdate.Olderprojectsoriginatinginanearlierdonorpolicycycleweremorelikelytobereportedashavingtiedcomponents.Forexample,theCIDAsupportedW&SSProject21inGhanaincludestiedelements,whereasthemorerecentiterationofthisCIDA

projectsupportisfullyuntied.Similarly,theKfWProject5inZambiaandthejointfundedProject18inBurkinaFasobothbeganbeforethe2001Recommendation.

Untying in practiceGovernmentandotherinformantsinallpartnercountriesex-pressedsurpriseattheextentofformaluntyingasindicatedbytheCRS.Thereis,asdiscussedinChapter6,adifferentconceptionofuntyinglinkedtoownershipandalignment.Additionally,bothlocalandinternationalprivatesectorcon-tractorsonlysawaidasuntiedwhentherewasareasonableprospectthattheycouldbidandwincontracts.So,fromtheperspectiveoflocalfirms,anICBthatwouldbeawardedtoaninternationalcompanyandbeyondtheirreachappearedtohaveatying-likerestriction.Thekeytothisgulfbetweendonordeclarationsandcountrypartnerperceptionsislinkedtode factotying.Makingthesimpledistinctionthatifacon-tractissourcedinthedonorcountrythisissuggestive(prima facieevidence)oftying,theprojectcasestudiesareusedtoestablishfirst,whatistheextentofuntying,andsecond,whatinfluencesexplainthedifferentoutcomes.

I. The extent of untying amongst case study projectsBearinginmindthatthestudyspecificallytargetedformallyuntiedprojects,13ofthesampled21bilateralprojects(62%)plustheIDAprojectwereformallydescribedasbeingfullyuntied(Table7.1).Oftheremainingprojects,thetwoECprojects(2and16)weredescribedas100%partiallyuntied,andfiveprojects,(around25%)numbers3,6,14,18,and21,weredescribedashavingbothtiedanduntiedcomponents.Theclassificationoftyingstatusisdeterminedbywhethertheheadcontractisformallyopentounrestrictedinternationalcompetition.

Incontrasttoreporteduntyingstatus,lookingatthegeo-graphicalsourcingofheadcontracts,generalTCandprojectcomponents,onlyeightoutof21(Projects2,5,7,9,10,15,17,19)wereunambiguouslyfullyuntied.Themajorityofprojectswerehybridormixed(Table7.1).

II. Components of projects that are more likely to be formally tied or de facto tiedThemostcommonlytiedcomponentsorthoselikelytobesourcedinthedonorcountryweretheheadcontracttomanagetheprojectanditsfunds,or,whereaprojectislocallymanaged,theprovisionofeitherservices-in-kindand/orcon-sultancycontractsforTC.Oftentheseaspectswerebundledintoasingleheadcontract.

Ten(around50%)ofthebilateralheadcontractsdirectlysignedbythedonorwereawardedtodonorcountryorganisa-tions.Whereheadcontractswereprocuredthroughframe-workagreements(bythedonorHQ),100%ofthesecamefromthedonorcountry.

GeneralTC/consultancycontractstellasimilarstory.In13(62%)ofthe21projectstheTC/consultancywasofdonor


Chapter 7

nationality,infour(19%)projectstheTC/consultancywasofDACmembernationality’leavingonlyfour(19%)projectswheretheTC/consultancywasofrecipientnationalityandnoprojectswheretheTC/consultancywassourcedfromanon-DACthirdparty.

Table 7.1 Project case studies: recipient relationship, implementing entity, head and TC contracts

Project Number

Recipient involvement

Implementing entity

Head contractprocurement

Head contract nationality

TC/Consultant procurement

TC/Consultant nationality

Untied Aid share

(top level)

SA1 + Private Framework agreement

Donor Donor, Framework Agreement

Donor 82%

SA2 ++ Recipient Competitive Recipient Recipient Recipient 100%*

SA3 + Recipient Tied Donor Donor Donor 31%

ZM4 - Private Competitive Donor Unknown Donor 71%

ZM5 + Recipient Competitive Recipient Donor Recipient 100%

ZM6 - Recipient Competitive Donor Donor Donor 15%

ZM7 + Recipient Unknown Unknown Recipient Recipient 100%

VM8 ++ Recipient Competitive Recipient Private Donor 92%

VM9 ++ Recipient Competitive Recipient Recipient Recipient 100%

VM10 ++ Recipient Competitive Recipient Recipient DAC member 100%

VM11 ++ Recipient Competitive Recipient Donor DAC member 98%

LA12 ++ Recipient Competitive Recipient Donor Donor 90%

LA13 - Private Competitive Donor Donor Donor 95%

LA14 + Recipient, Private Tied Donor Donor, Tied Donor 0%

LA15 + Donors, Recipient Non-competitive Donor Donor Donor 100%

BF16 ? Recipient, Donor Not applicable N/A Donor Donor 57%

BF17 ? Recipient, Donor Competitive Donor Donor DAC member 100%

BF18 ++ Recipient Tied Donor Competitive Donor 92%*

BF19 + Recipient Not applicable N/A Donor DAC member 100%

GH20 + Recipient Framework agreement

Donor Donor, Framework agreement

Donor 100%**

GH21 - Private Tied Donor Donor, Tied Donor 74%

Notes: *Partially Untied, ** Excluding services-in-kind

key to headings:Project Number: Reference for project details in Table B.2Recipient involvement: The amount of involvement by the recipient partner (dominant = ++, significant = +, mixed = ?, little = -).Implementing entity: The dominant implementing entity.Head contract procurement: The procurement systems used for the head contract, the primary contract signed with the donor.Head contract nationality: The nationality of the head contractor.TC/Consultant procurement: The procurement system used for the technical cooperation or consultancy services.TC/Consultant nationality: The nationality of the TC or consultant(s)Untied aid share (top level): The share of the project at the top level of contracting and contracts signed by the donor that are both formally untied and untied in practice according to whether there is a reasonable

opportunity for firms other than from the donor nationality to be awarded contact.

Provisionofservices-in-kind(Projects8,12and20)involvedcon-sultantsfromdonorcountries.Althoughcompetitivelytenderedoftenusingframeworkagreements,services-in-kindallowednoopportunitytocountrypartnerstomanage,orlocalfirmstobidforthesecomponents.


Chapter 7

III. Components that are likely to be untiedThoseprojectcomponentsusingCPSand,significantly,thoseinvolvingsub-contractedprocurementweremorelikelytobeuntied.AllprojectcomponentsusingCPSwerefoundtobeuntied,thatiswithoutawardstodonorcountrybasedentities.

Sub-contractingisamajorsecondarylevelsourceofunty-ing,whetherornottheheadcontractorwasadonorcountrypartnerorganisation.Inmostcasescontractorswereallowedtosub-contractwithouttyingrestrictions.So,forexample,75%offundingwassub-contractedlocallyorregionallyintheKfWfundedProject6inZambia,withaGermansourcedcontractor.

World Bank contracting: a counterfactual.AnIDAfundedprojectinZambiawaspurposivelyincludedtoprovideacoun-terfactualtobilateralpractice.AllTCandothersub-contractsonthisprojectinZambiawereawardedtoregionalorlocalcompaniesaftertheIDAthresholdrequiringICBwasraisedtoencouragelocaltenders.ManyinformantsseetheWorldBankICBtenderingproceduresasamodel,forexampleforCPS.ItisthereforeinterestingtocomparethegeographicaldistributionofWorldBankcontractswiththebilateralsourcinginthesixcasestudyrecipientcountries(Table7.2).Whereasnobilateralcontractwasawardedoutsidethepartnercountrytocompa-niesregisteredinregionalLDC/HIPCsorothernon-DACcoun-tries,theseaccountedfor44%ofBankcontractsintheW&SSand26%ofallBankcontracts.Thesesamecountrieswerealsoespeciallyimportantincivilworks(e.g.VietnamandChinesecontractorsinLaoPDR).ThehighproportionofbilateralTC/consultancycontractsawardedtocompaniesfromthedonoreconomy(71%–12outof17whollybilateralprojectsinTable7.1),comparedwithonly23%forallDACcountriesforBankcontractssuggeststhatformalorde factotyingisaninfluenceonoutcomes.Thissuggeststhatbilateralagenciescoulddosignificantlymoretocreatealevelplayingfieldonbothanindividualandjointfundingbasis.

IV. Factors preventing local or regional firms from winning tendersAkeyissueappearsnottobeoneoflocalandregionallybasedfirmsbeingout-competedbutratherthattheywereoftennotbiddingforaidcontracts.

Onefactorisunequalaccesstoinformation.Thisisinprac-ticelinkedtothelevelofprocurementandresultantspreadofadvertising,andeventheinformalspreadofinforma-tionaboutcontracts.NCB(whichdoesallowinternationalcompaniestotender)attractedfarmorelocalinterestthanICB.Organisationsthatcontributetoprojectdesignweremorelikelytobedonorcountrybased.Projectsmaywellrepresentanexplicitorinformalcontinuationofapreviousprojectandwithahistoryoftiedprojectimplementation.Thosesameentitiesareineffectadvantagedinsidersintheirknowledgeofthedonor’sprocedures,thefocusoftheprojectandinearlyinformalaccesstoinformationaboutthecontract.

Thelocalresponsetotendersisalsorelatedtotheskillsandcapacityofthelocalmarket.LDCsarenotabletosupplyallofthegoodsandservicesrequiredforprojects,sothisdependsonwhatisrequiredandtheprojectsector.

Thesizeoflotsputoutfortenderwasasignificantinflu-enceontheamountoflocalinvolvement.Project7raisedtheICBthresholdtoincreaselocalparticipation.Localfirmssometimesdidnothavethecapacitytobidandwereoftenex-cludedatpre-qualificationstages.Largelotsarelikelytohavehigherbarrierstoentryintheformoflargerdeposits,largerstocksofequipmentandmanpowerandhigherrisk.Forthemostpartthisfavouredinternationalandlargeregionalfirmsfrommoreadvanceddevelopingcountries.

CompaniesbasedintheLDCswerefacedwithotherfinancialbarrierssuchastheweakcreditmarketandunavailabilitylo-

Table 7.2 World Bank Contracts by supplier development category signed in 2003-08 in the six case study countries(average percentage share of total)

Source Country Water & Sanitation Sector All sectors

Civil works Consultancy Goods Total Total

DAC Members 12% 23% 55% 20% 38%

Local (aid recipient) 54% 53% 21% 36% 35%

Other (non-DAC) 18% 15% 1% 13% 15%

Regional LDC/HIPC 0% 4% 0% 1% 0%

Regional Other 16% 4% 23% 31% 11%

Total 100% 100% 100% 100% 100%

Source: World Bank Contract Awards datasetNotes on source country: Local is sourcing from within the recipient partner country; Regional Other refers to non LDC/HIPC countries within the region (e.g. Thailand in SE Asia); Other refers to non-DAC, non-regional third parties. Where there is overlap of categories, then DAC members are recorded as DAC (e.g. Japan in SE Asia).


Chapter 7

callyofprofessionalindemnityinsurance,givinginternationalfirmsfurtheradvantages(Box7.1).

V. How the procurement system can affect the level of untyingNineofthe11projectswhichusedtheCPS,alsoinvolvedmajorlocalprocurementcomparedtothreeofthenineprojectswhichdidn’t,suggestingthattheprocurementsys-temaffectsthelevelofuntying.Procurementoptionsseeninthesampleprojectsweredonorprocurement(inallcasesviaHQ,therewaslittleevidenceofdecentraliseddonorprocure-ment),countryprocurementsystemsandprocurementbyaprivateentityfollowingtheirappointmentbythedonor.Sevenprojects(33%)solelyusedtheCPS.Onlyoneproject,whichusedtheCPSforanycomponent,waslessthan90%untied.Thegovernmentwas(orwaspartof )theimplement-ingentityfor16(76%)ofthe21projects.Fourprojectswereimplementedsolelybyprivateentitiesandnoneweresolelyimplementedbythedonor.

VI. Recipient country partner influence and the aid environmentIneverycountrywiththepossibleexceptionofVietnam,therewasawidevarietyofdifferentcontracting,fundingandprocurementproceduresinvolvingdifferentrelationshipswithdifferentdonorsforspecificprojects.However,severalfeaturesstoodout.

Strongnationalsystemsandgovernmentownershipassistsuntying.BothSouthAfricaandVietnam,thetwoleastaiddependentandrichestrecipientcountries,exercisesignificantownershipbychannellingaidfundsthroughtheirnationalfinancialmanagementsystems.

InSouthAfrica(apartfromTCandframeworkheadcontracts)allprocurementwaslocal.Thegovernmentvigorouslychal-lengedtheuseofaframeworkcontract(Project1)acceptingitonlyongroundsthatitwouldexpeditedisbursement.Project3,involvingtwinningofDutchandSouthAfricanlocalauthori-ties,isapartnershiponfloodprotection,wheretheNether-landsisperceivedtohavespecialexpertise.

InVietnam,duetouseoftheCPSandstronggovernmentinvolvementtherewasaveryhighshareofuntiedaidandlocallyledprojects.ThisisexemplifiedinProject10where,despiteafunderpreferenceforcontinuingwiththedonorcountrybasedcompanythathadbeenresponsiblefordesign,themainconsultancyserviceswereputtoICTandwonbyacompanyinanotherDACmembercountry.

IncountriesandsectorswhereSWAPswereinoperationthenpooledfunds(whichtendtobeuntied)weremostlikelytobeorganised,asinGhanaandZambia.

7.2.2 Project characteristicsTheformalfeaturesoftheprojectsaresummarisedinTableB.2inAnnexB.Thisprovidesaconventionalprojectdescriptionintermsoffullprojecttitle,donors,valueofdonorcontribu-tionsectoraluseandformaltyingclassificationasreported

totheOECD.Onthebasisofthedistinctionmadeabovebetweenlevelsofcontracting,projectsarethenprofiledinTable7.1accordingtotheways‘top’levelheadcontractsandTCareprocured,geographicalsourcingandtheirformaltyingstatus.Anassessmentismadeofthelevelofrecipientpartnerinvolvement,whichisqualitativelyindicatedasdominant(++),significant(+),unclear(?)andlittle(-).Thusassuggestedabove,ahighlevelofinvolvementisfoundtobestronglyas-sociatedwiththechoiceofacompetitiveformofcontractingandmorelikelytoleadtoalocallybasedorganisationbeingawardedtheheadcontractand/ortobeproviderofTCandconsultancyservices.Formaltyingstatusprovidesnoindicatoroflikelygeographicalsourcing.

SecondarylevelcontractingandfinalsourcingoutcomesareconsideredinTable7.3.Theimportanceofsub-contractingarrangements,includingespeciallylotsize,ishighlightedasadeterminantofthelikelyextentofcontractawardswhicharelocalandregional.Smallerlotsweremostlyawardedlocally,andthisoutcomeisirrespectiveofwhetherornottheheadcontractorisdonorcountryorlocallybased.Furthermore,thefinaloutcome,takingintoaccountsecondarylevelcontract-ing,indicatesaveryhighlevelofuntying.Thislinkissointhecaseofpartialtyingrestrictions(Project2inSouthAfricaandProject18inBurkinaFaso)orwheretherewasprovisionofTCservicesin-kind(Project20inGhana).ApparentexceptionsarealocalauthoritytwinningprojectinSouthAfrica(Project2)andalargelyTCactivityinZambia(Project4)whichbothreflectthelowproportionofsub-contractingandsourcingofgoodsandservicesintheoverallprojectdesign.Project14inLaoPDR,theonlyoneforwhichinformationonsourcingwasnotavailable,wasseeminglylargelyde factotied.Thekeyun-tyingissuewouldseemtobewhetherinbothprojectdesignandimplementationthereisastrongcommitmenttopromot-inglocalandregionalsourcingofgoodsandservices.


Chapter 7

7.2.3 Untying and sourcing outcomes: a process approachTheprocessofdeliveringformallyuntiedaidiscomplex,andsoattemptingtotracethelikelysourcingconsequencesoftheexplicitandimplicit(default)choicesmadebydonorandrecipientcountrypartnersistheonlywaytodeterminewhetheraidisinpracticetiedoruntied.Thisalsohastobethefirststeptowardsexploringtheoutcomesintermsofaidand

Table 7.3 Project case studies: procurement, subcontracting, aid modality and major inputs

Project Number

Main procure-ment system(s)

Lot size Subcontracts and their sourcing

Modalities used Project type / major inputs

Local pro-curement

Untied aid share

(final)

SA1 Private Small +, Local Project TC, services + 82%

SA2 CPS Small +, Local Programme/SBS TC, services + 100%*

SA3 Donor Small -, Local Project TC, services - 31%

ZM4 Donor Small +, Local Project TC, services + 80%

ZM5 CPS Small -, Local Programme Civil Works + 100%

ZM6 Donor Large -, Regional Project Civil Works, TC + 75%

ZM7 CPS, IDA Large -, Intl. Project Civil Works - 100%

VM8 CPS Small +, Local Pool, Programme TC, Civil Works + 92%

VM9 CPS Small -, Local Project Civil Works + 100%

VM10 CPS, Donor Small -, Local Project Civil Works, + 100%

VM11 CPS, Donor Small -, Local Project Civil Works + 98%

LA12 CPS Small +, Local Project Civil Works + 0%

LA13 Private Small -, Local Project TC - 95%

LA14 Private Large Unknown Project Civil Works . Unknown

LA15 Private Large -, Intl. Project Civil Works + 100%

BF16 CPS Small +, Local Project Civil Works, TC . 57%

BF17 Donor Small +, Local Project Works, TC . 100%

BF18 IDA rules Large -, Local, Intl. Project Civil works, TC . 92%*

BF19 CPS / IDA Large & Small +, Local Pool, Programme TC, Goods . 100%

GH20 CPS Small +, Local Project Civil Works, TC + 100%**

GH21 Private Large & Small -, Regional, Intl. Project Civil Works, TC + 74%

Notes: *Partially Untied, ** Excluding services-in-kind

key to headings:Project Number: Reference for project details in Table B.2 in Annex BMain procurement system(s): The main procurement system for the project.Lot size: The size of the majority of contracts tendered for implementation Subcontracts and sourcing: The number of subcontracts and their dominant sourcing location (Many = +, few = -, unknown = ).Modalities used: The aid modality.Project type / major inputs: The dominant type of assistance and corresponding major inputsLocal procurement: The level of local procurement (major = +, minor = -).Untied aid share (final): The share of the project at the level of final disbursement for implementation that are both formally untied and untied in practice according to whether there is a reasonable

opportunity for firms other than from the donor nationality to be awarded contact.

developmentaleffectiveness.SomethingofthiscomplexityispresentedinastylisedwayinFigure7.1.Thisflowdiagrampresentsinqualitative,probabilistictermswhathasbeenlearntintheprojectstudiesanddiscussionswithcountrypartnerandagencyofficialsandotherswithexpertiseaboutthemoreorlesslikelyoutcomesofchoicesmadeandtheinfluencesontheprocurementprocess.


Chapter 7

Figure 7.1 Flow diagram of aid, untying practice and sourcing outcomes56

56 By their nature flow diagrams are qualitative assessments so additionally, for example, it is important to note that some donors are able to untie some administrative costs and also source them locally which is not shown on the diagram.

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Chapter 7

Keyinfluencesonthesourcingoutcomeare:• Ownership–theextentofrecipientinvolvement;• Choiceofmodality;• Procurementsystemused(CPS,privatenon-stateagency,

donor)anditsdetails(extentofsub-contracting,frame-work,agreements,etc.);

• ProjectactivityintermsoftherelativeproportionofTCandphysicalinvestment(constructionandplant);

• Contractingprocedure(NCB,ICB,directcontracting,qual-itybasedselection,shopping);

• Sizeoftenderedlots;• Extentoflocal(andregional)capacity.

Theoutcomesarereflectedintermsofthelikelyproportionoflocal,regional,otherDACandnon-DACdonorcountrycontractingandsourcingofgoodsandservices.Evenwhereaidisformallytiedatheadcontractleveltheoutcomemaybemixed,ifcontractorsarefreefromrestrictionsinsub-contractingandsourcinggoodsandservices.Similarly,formallyuntiedaidmaybede factotiedtodonorcountrysourcing.

Thechoicestobemadeatdifferentlevelsintheprocessraiseanimportantissue,thegenuinenessofthecommitmenttountying.Istyingperceivedconstructivelyorpositivelywithinadonororganisationorbyitsagents?Alternativelyisunty-ingperceivednegativelyasamodificationtoregulationsoncontractingandprocurementnecessarytoconformtotherequirementofuntyingstatusasintheOECDdefinitionsandthe2001Recommendation?Apositiveapproachwouldimplyencouragingproject-typepreferencesandprocesschoicesthatflowtotheleft-sideuntyingoutcomes.Anegativeorpurelyconformistapproachwouldresultinapreponder-anceofde factotyingoutcomesontherighthandsideofFigure7.1.Ontheevidenceofthe21studies,first,therearestillwidedifferencesindonorpractice,someintendedandsomeunintended,andsecond,theoutcomesarealsostronglyinfluencedbycountrypartnerinvolvement,capacityandthebargainingpowerthattheyfeelvis à visfunders.

7.3 Consequences: interconnections and aid effectivenessTheinterconnectednessoftheprocessesthroughwhichtheorganisationofprojectsiscontracted,inputsprocuredandthesourcingoutcomesinvolvealargenumberofpossiblepathways,asillustratedinFigure7.1.Theseinterconnectionsmakeitdifficulttoisolateanysingleaspectoftheprocessandtoinferoutcomesonapartialbasis.Theoutcomesmaybemisleadinglyattributedtoasingleinfluence.Itisalsoimpor-tanttoreiteratethatformaluntyingisnotonlytherelaxationofaconstraintthatmayconsiderablyincreaseflexibilityinthesourcingpossibilities,butthatitalsoopensupthechoiceofprocedurethatcanbeused.Iftheuntyingisgenuine,thentheuseofthedonor’sfundsiscompatiblewithallprocure-mentsystems,formsofcontrol,aidmodalitiesandfinancialmanagementsystems.

Onecanlookattheconsequencesandeffectivenessofunty-ingasbothapolicyandaprocess.TheToRforthestudyrecog-nisesthreeformsofeffectiveness.Firstly,thereisefficiencyasmainlyreflectedintheliteratureontying(Chapter5)intermsofcosteffectivenessandtimeefficiency,whichisconsidered,inSection7.4.NextthecontributionofuntyingtotheParisDeclarationaideffectivenessobjectivesofownership,align-mentandharmonisationareconsideredinSection7.5.ThentheissueofuntyingandtransparencyisconsideredinSection7.6.Finally,thereisthecontributionofuntyingtodevelop-mentaleffectivenessintherecipientpartnercountryasanoutcome,includingespeciallystrengtheningoflocalmarketsandregionalintegration(Section7.7).Theformsofevidencethatcouldbeassembledmeanthatthefocusofinvestigationismainlyondirecteffectsandonlysuggestiveaboutultimateaideffectivenessanddevelopmentoutcomes.

7.4 Aid efficiency: cost-effectiveness and timeCost-effectivenesshasbeentheconventionalrationaleforuntyingaid.Theoreticalanalysisoftyingimpliesthatitisinefficientandtheverylimitedempiricalliteraturesug-geststhattiedaidisbetween15%and35%morecostlythanunrestrictedmarketprices.Withthisfindingasbasisforcomparison,eachcountryteamundertookatleastonecost-effectivenessanalysis(CEA)attheprojectlevel,lookingattheuseofuntiedfundsforsourcingofgoodsandservicesincomparisontolocalcommercialmarketorinternationalmarketprices.

TheSouthAfricanCEAlookedatthecosteffectivenessoflocalprocurementfortwoprojects.Thecivilworkswereappar-entlycosteffective,butthelowlevelsofcompetitionfromacombinationoflocalonlyadvertising,limitedlocalcapacityandpreferentialprocurementwasseenasapotentialthreattopriceefficiency.Project1,organisedbyadonorbasedconsult-antunderaframeworkagreement,comprisedwhollylocallycontractedTCtothehealthsectorandtheteamfoundthattheconsultancyratespaidunderSouthAfricanprocurementguidelineswerehigherthantheywouldhavebeenunderdonorguidelines.TheECsupportedProject2demonstratedtheadvantageofflexibilityassociatedwithevenpartialunty-ing,asitwaspossibletoshifttousingtheCPSduringprojectimplementation.Project3involvedTCprovidedbyadonorpartnermunicipalityintheNetherlandsinfloodprotectionaswellaslocalprocurementforminorcivilworks.Thecost-effec-tivenessofTCcouldnotbeassessedbecausetheestimatedcostsofTCwerenotavailable,andalsothereisnotransparentmarketforsuchresources,butbothsidesperceivethisasanareaofdonorcomparativestrength.

InZambia,thestudyconsideredarepresentativesampleofgoodsprocuredunderIDAfundedProject7,whichwereallprivatelyimportedfollowingIDAguidelinesbythecontrac-torfromSouthAfrica,theregionallydominanteconomy.TheCEAshowedthecostofthegoodsprocuredusinguntiedaid


Chapter 7

waslowerbyatleast6%,relativetotheimportparitypriceforcomparablegoods.

TheVietnamstudy’sCEAsoncomponentsofthreeprojects(8,10and11)concernedlocalprocurementthroughtheCPS.TheCEAindicatedmixedresults,withlargevariationinpricesandgoodsprocuredaroundmarketreferenceprices.Thestudyconcludedthatequipmentandmaterialspurchasedfortheprojectswere,inthemajorityofcases,actuallymoreexpen-sivecomparedtothemarket,duetoproblemsofcorruptionorstrongsocialnetworks,leadingtocostinefficiencies.

InLaoPDR,CEAsonProjects12and13,involvingCPSandprivatelocalsourcing,alsoshowedsignificantvariationinprocurementcosts.Butonbalancecostsavingsweremadeonthepurchaseofequipmentitemsandconstructionmaterials,relativetothemarketreferenceprice.Thisimpliedcost-effec-tiveuseofaidfundsasaresultofuntying.

TheBurkinaFasostudywaslaunchedlaterthantheothersandatthetimeofdraftinghadnocompleteCEAavailable.However,provisionalfindingsindicatequalityissuesconcern-ingtheimportingofgoodsbylocalfirms.Interestingly,Project19involvedacompetitivere-contracting,whichresultedinareplacementbidfromtwolocalcompanies15%belowthemixedcreditarrangementthatitreplaced.

TheGhanastudyconsideredCEAwithinProject20,whichcombinedTCservicesandunrestrictedpooledfunds.ADanishcompanyprovidedTCforprojectmanagementasservices-in-kindfundedbyDanidaHQunderanEU-widetenderedframeworkcontract(formallypartiallytiedandde factotied).ThecostsofTCtotheprojectwereapparentlynotseparablefromthoseofawiderprogrammeanditwasnotpossibletoestimatecost-effectiveness.

TheDFIDpooledcontributionwaspaiddirectlytoDanidafortheprojectteamtodisburse,fundingimplementationofallinvestmentsunderCPS,whichwerethenconsideredtobecontractsratherthansub-contracts.Procurementofcontrac-torsbynationalcompetitivebiddingwascarriedoutthroughsub-contractsatdistrictlevel,withassistancebytheregionalgovernmentwaterdepartment.Sixofeightcontractorswerewhollylocalandtwocontractswereawardedtolocallyregis-teredChineseentities.Contractorswerethenunrestrictedintheirprocurement.Thegoodsandcivilworksprocurementwasbroadlycosteffective,matchingreferencepricesfromthelocalmarket.

TheGhanastudyalsoreportsanexampleofdrainageworkswhereICBledtosubstantiallycheapersourcingthaneithersinglesourcingornon-competitiveselection.ThreestretchesofdrainageweretenderedbyICB,selectivebiddingandsinglesourcing.Thesectioncontractedbyselectivebiddingwaspriced47%higherthanthesinglesourcingsection,whichwasinturn90%higherthantheICBcontract.

Therearebroadlyconsistentfindingsfromthesecountrycas-es.Untiedaidandlocalcompetitivesourcingwerefoundtobecosteffectivefortheprocurementgoodscomparedtomarketprices.Thecostadvantagesincomparisonwiththepreviousevidenceontiedaidweremostapparentwhereuntyingledtoincreasedandtransparentcompetition.Itprovedimpossibletotestthecost-effectivenessofTC,anareaofpoortranspar-encyfromacountrypartnerperspective.Afurthercautionisnecessary.Thecountrystudiesareonlyabletoprovideillustra-tiveexamplesingeneralrelativelyfavourablecircumstancesofgooddonor-recipientrelationships,bettergovernanceandeconomicstability.

Asthestudyspecificallylooksatuntiedprojects,thedirectcosteffectofcompetitiveprocurementisnotsurprising.Pertinentquestionsarethereforehowdoesuntyinginteractwithcurrentsourcingpractices,andwhatarethekeyfeaturesassociatedwithcosteffectiveness?

Costsavingsfromuntyingwerefoundtobefarfromauto-matic.Untyinggivesmoreoptionsbutispronetosomeofthesamepitfallsthatbedevilpubliccontracting,perhapsuniversally.

Costeffectiveprocurementrequirescapacityandskills.Ifunty-ingtriggersamovetousingcountrysystemstheninordertogainthebenefits,CPSneedadequatecapacity.UntyinghighlightedthecapacitychallengesforCPSineachcasestudy.However,untyingalsoprovidedtheopportunity(funding,trainingandamajorincentive)forimprovement.CPSwereidentifiedaslackingcapacityespeciallyattheprovincial(dis-trict)level.CPSwerenoteffectiveforprocuringinternationalTC,buthadbeengivenlittleopportunitytodothis.Thestudyfoundmixedresults.ManyprojectssucceededusingtheCPS,wherethoseresponsibleforotherprojectsusingotherap-proacheswereclaimingthatitwasnotfoundfitforpurpose.

Realisingthepotentialbenefitsofuntyingalsorequiresthesupplycapacitytomakepossiblegenuinecompetition.Sever-alstudiesreportedlownumbersofbiddersbothinprocuringatlocallevelswheretherewerelowskillsets,andalsointerna-tionally,duetothelargesizeofsomecontracts(Box7.1).

Theimportanceofeffectivecompetitionappliedateitherorboththelocalandinternationallevel,dependingonwhatwasbeingprocured.Forwidelytradedcommoditiessuchasaggre-gatesandcementtherequirementsforefficientprocurementwereeffectivelocalcompetitionandalsowideningthepoolofexpertiseavailabletotenderbids.Narrowlydefinedconstruc-tioncontracts,suchasfordrainsorwells,alsoappearasareasinwhichthesamecriteriaforefficiencyapply.


Chapter 7

Frameworkcontractscanprecludethecompetitiongainsfromuntyingtolocalandregionalsuppliers.Undoubtedlydonorsfindthesecontractsconvenientinachievingadminis-trativeefficiencysavingsandtheymaybecosteffectivefromaperspectiveofmanagingamulti-countryprojectportfolio.Theymayalsobecompetitivelytenderedamongstdevelopedcountrysuppliers.However,attheindividualprojectlevelandfromtherecipientperspectivetheyappeartobeaformofde factotyingthatprecludeslocalsourcing.Undertheprojectswithframeworkagreements,contractshadbeenawardedtodonornationalityfirms.Frameworkcontractsareoftenregardedas‘captured’byasmallgroupofnationalfirms(oftenworkingtogether).Anoptionforachievingcompetitiongainscouldbetoprioritiseincreasingtheabilityoflocalfirmstopartnertheframeworkcontractwinner.

Time efficiencyTheimplicationsofuntyingfortimeefficiencyappeartodependontheprocurementsystem.Untyingallowsachoiceonthespeedofprocurement,balancingthisagainstcostandotherconsiderations.

ICBwasfoundinbothdonorHQandcountrylevelinvestiga-tionstobewidelyregardedastimeconsuming,aswellascostlyandadministrativelyinconvenient.Accordingly,itisonlyadoptedwhereprocurementgoesbeyondminimumthresh-olds.Inpractice,agencieswerefoundtousevariousexpedien-ciestoavoidICBunlessitwasfeltunavoidableorpreferableoncompetitiongrounds.

TheoverwhelmingviewofinformantswasthatCPSweretypi-callyfasterforlocaltendering,whereasmostdonorsystemswerelikelytobequickerforinternationaltendering.Therewereeveninconsistentviewsoverusingdonorprocedures.GovernmentofficialsmanagingProject2commentedun-favourablyontheneedfortheapprovaloftheEC’sofficeinSouthAfrica’sforsomeitems,buttheyalsogreatlyappreci-atedthesingletenderprocurementprocedureunderEUrulesonotheritems.

Anotheralternativefavouredbysomedonorsisusinganexternalagent(asinallprojectswithprivateprocurement)whicheffectivelyunburdenstheagentfrombothdonorandgovernmentprocedures.Privateprocurementwastypicallyseenasveryfast,asonewouldexpectbeinglessencumberedbyagencyrules.However,privateprocurement,usingrulessetbythedonor,wasfoundtobeslow,asinthecaseoftheMCAinGhana,whichprecludedinclusionofoneofthatagency’sprojectsinthisstudy.

Takingawiderviewthestudiesmostlyfoundevidencethatsupportsthecombinationofdonorsprovidingfundingthatisgenuinelyuntiedandsoflexibleandtheuseofcountrypro-curementsystems.TheareaaboutwhichthereisawidespreadlackoftransparencyisTCcostsandtheefficiencyofthewayinwhichTCiscontractedevenformanyoftheprojectsonwhichdonorswerewillingtocooperatewiththestudyteams.

Box 7.1 DFID Survey of constraints on local firms bidding for international contracts

Finding a lack of interest in bidding from companies in partner countries, DFID (UK) conducted a survey and held consultations with local businesses in India, Bang-ladesh, Nigeria and South America. The purpose was to jointly review constraints on local companies bidding for internationally tendered contracts for bilateral aid in their region, and to identify ways of breaking down the barriers to entry. The survey found that even where they were aware of the opportunities, developing country consultancies usually did not bid, perceiving the cost of preparing bids was greater than the reward, taking into account the perceived risk of not winning. Developing country consultancies face problems in submitting bids that were competitive with interna-tional consultancies because of the following:• financial constraints of comparatively smaller firm

based in a developing country with lower turnover (harder to meet prequalification), facing exchange rate risks, managing cash flow of costs and pay-ments, and bid security;

• lack of capacity to understand ToRs and bidding documents, which are often vague and overly legal, in unfamiliar language and bidding practice, with terms not suited to local conditions;

• difficulty of sustaining partners which enable bid-ding on larger tenders or to compete with interna-tional consultancies for these partners; and

• lack of reputation outside their own country, even when experienced.

The problems were greater for LDC consultancies bid-ding for work in other LDCs, with experience but with-out local expertise and links. Suggestions for increasing the number of bids and their success rate included:• raising the threshold for ICBs, and otherwise using

NCB;• circulating a list of local experts to level the informa-

tion playing field;• reducing prequalification requirements;• making advance payments, as do development

banks;• increasing transparency of why the winner was

chosen;• modifying contract terms to suit local conditions;

and • assistance with understanding ToRs, bidding docu-

ments and current practices.

Source: DFID Procurement Group, Value for Money Department


Chapter 7

7.5 Aid effectiveness: ownership, alignment, harmonisation, and transparencyUntyingcontributestotheAidEffectivenessagendabecauseuntiedaidisanecessaryconditionformanyofthestepsdonorstaketoimplementtheParisDeclaration.Soitisneces-sarytoconsiderwhetheritisuntyingthatiscontributingtoaideffectiveness,ortheinternalpressureswithinagenciestountiecomefromseekingtheflexibilitytoforwardtheParisDeclarationAgenda.

ThecasestudyprojectsprovidedexamplesofpotentiallyimprovedpracticeinPDeffectivenesstermsbasedonthewaysinwhichuntyingisassistingdonorsinmovingawayfromtheconventionalstand-aloneprojectbasedapproachtoapproachesthatarecooperative.Thismovementfacilitatesalignmentandharmonisationincludingbudgetsupport,pooling,delegatedcooperation,useoftheCPSanddecen-tralisation.Thesesteps,supportedbymanybutnotalldonors(SeeChapter6),werefoundtobestronglysupportiveofPDgoalsofownershipandalignment(Box7.2),whichisoneoftheultimateobjectivesofuntyingaccordingtotheRecom-mendation.

Thestudiesprioritisedprojectfocusedinvestigationsmakingitmoredifficulttoconsiderharmonisationamongstdonors.Nevertheless,thestrongassociationbetweencooperativeuseofprogrammaticmodalitieswithuntiedfunds,towhichmanygovernmentandagencyinformantsdrewattention,confirmstheviewthatgenuineuntyingcontributestoharmonisation.

InLaoPDRwhere,ofthesixcountries,conventionalproject-typeassistancewasmostdominant,theteamconcludedthat“toincreaseaideffectivenessingeneral,itisrecommendedonthebasisofthisstudythatfurtherstepsaretakentoencour-agetheuseof‘newer’aidmodalitiesamongdonors(e.g.budgetsupportandpooledfunding)andincreaseduseofcountryprocurementsystems”(AnnexD,McCartyandJulian,2009).

Transparency in donor procurement isoneofthesixPDEobjec-tivesandakeyaspectofanyuntyingaudit.Thefollowingar-easofdonorcontractingpracticeswerefoundtobelessthanwhollytransparentfromarecipientcountryperspective:• DonorcontractingatHQ• Frameworkcontracts• B2B• Twinning/partnershiparrangements• Privatemanagementcontracts

Alloftheaboveareasarefullycompatiblewithuntiedaid.However,alloftheseofferscopeforde factotyingpractices.Transparencyisneededtoseewhethertheoutcomesfollownotjusttheformalrulesbutresultingenuineuntying.Iftrans-parencyisessentialanditisgoingtobehardtomaketheseareasofcontractingmorefullytransparent,thenthealterna-tivefordevelopmentpartnersistomakelessuseofthem.

Thesewerealsoareaswhereinmanycasesstudyteamsstrug-gledtoobtaininformation,whichwas‘unavailable‘atacoun-

Box 7.2 Untying, ownership and alignment: country study conclusions

Ghana: “Untying is creating policy space for recipient country ownership, use of recipient country systems and align-ment with recipient country priorities. The existence of strong country leadership, such as through the creation of SWAPs, was also seen as a driver of untying.”

Burkina Faso: “Le déliement est souvent accompagné par le transfert de gestion au pays bénéficiaires. Effectivement, l’alignement sur les procédures nationales, que veut la Déclaration de Paris, est difficilement envisageable sans délie-ment de l’aide.”

South Africa: “In an untied environment, donors are more likely to make use of recipient country procedures. The case studies show that the use of recipient country procurement systems enables government to pursue domestic policy pri-orities and improve alignment.” The EC supported Project 2 demonstrated the advantage of flexibility associated with even partial untying, as it was possible to shift to using the CPS during project implementation.

Zambia: “Untying has facilitated the increased use of GBS and SWAPs. This improves the transparency and alignment of aid.”

Lao PDR: “Untying has been associated with a shift away from donor priorities and towards the government’s needs and objectives (alignment), and has encouraged a decentralisation of responsibility and increased recipient ownership, sup-ported by the fact that more government agencies are now responsible for project implementation and management.”

Vietnam: “From the cases reviewed, a significant efforthas been made to ensure that ownership over ODA lies in the hands of government, through the use of country systems, national technical advisers and the greater involvement of government executing agencies.”


Chapter 7

trylevel.Theextentoftransparencywasvariable.Asthecost-effectivenessanalysesdemonstrate,somelocalagenciesandsomedonorswerewillinginallcountriestobeopenaboutcontractingandprocurement.However,someimplementingentities,especiallyprivatecontractors,wereinpracticeunen-thusiasticaboutwhattheyregardedasprivilegedinformation.Someweresoslowtorespondthatthisprecludedundertak-ingaCEAorfullerexplorationofthecontractingprocess.

Ontransparency,themostopaqueaspectsofdonorpracticeconcernedTCandassociatedconsultancies,theareasofas-sistancewhereformalandde factotyingwerefoundtobestillmostpervasive.Asonecountrystudyconcludes:“thehighleveloftechnicalassistanceandco-operationagreementsinSouthAfricamakesODAlesstransparentandincreasesthepotentialfortying”.

7.6 Developmental impactsTheToRforthethematicstudydrawattentiontothemanyim-pactsthatareaspectsofdevelopmentaleffectiveness:“effectsonthemarketforlocalandregionalproducers,onpromotionofthelinkageofthelocaleconomywithregionalnetworks,globalnetworks,onemployment,onpro-poorgrowthandpovertyalleviation,andongenderandenvironment,impactofuntiedaidonCorporateSocialResponsibilityandonprojectlifetimecostsavings.”

Therearealsomultipleinfluencesatwork,whichwilldeter-minethedevelopmentalimpactofprojects,donorpro-grammesorthewholedevelopmentcooperationeffort.Itis,asindicatedalready,difficulttotracetheconsequencesoftherelaxationofasingleconstraintforalltheseaspectsofeffectiveness.Soinsteadcountrystudieswereaskedtoconsiderwhetheruntying,andspecificallyataprojectlevel,wassupportiveofratherthanlikelytoimpedeeffectivenessintermsofpovertyreduction,advancinggenderequalityandsoforth.Andindeedthecountrystudiesfoundthatmostoftheprojectsunderreviewwerelikelytohavepositivebroaderde-velopmentaloutcomes,butthatthesecouldnotbeattributedtountyingper se.

Theinvestigationsfocusedmoreonareaswhereamoredirectconnectionmightbeobservedbetweenuntyingandoutcomes,specificallyahigherproportionofthetransferflow-ingasemployment,incomesandprofittothelocaleconomy,developmentoflocalbusinessthroughgreateruseoflocalandregionalcontractorsandsourcingfromlocalsuppliersthroughlocalmarketsandusesoflocalsystems.

Country studies are cautiously positive, finding evidence of direct employment and income stream generation.However,theseef-fectsarehighlysectorandactivityspecificandsocouldnotbeattributedtountyingper se.InVietnam,“Locallabourandlocalsourcingofgoodsincreasedtheincomesandemploymentofsomeof(the)poorestprovinces,wherethesedevelopmentinitiativestakeplace.Yetproblemsofseasonalortemporary

employmentquestionthesustainablelong-termdevelop-mentimpact.Difficultiesalsolieindeterminingwhethertheeffectonlocalemploymentisadirecteffectoftheuntiednatureoftheprojects,i.e.thereislittleevidencetoassumethatiftheseprojectsweretiedthattheywouldsourcelabourfromforeignmarkets.”Similarly,theLaoPDRstudyconcluded(butcautiously)thatlocalsourcingofcontracts,consultants,workersandmaterialsasaresultofuntyingcanhavepositivedevelopmentaleffects,byprovidingincreasedemploymentopportunitiesandrevenuesforlocalmanufacturersandsup-pliers.However,intheprojectsstudiedthesebenefitswereseverelyconstrainedbylackoflocalcapacity.TheZambiastudyfound:“theevidenceprovidedbythesefourprojectssuggeststhat,ingeneral,theextensiveuseoflocalsub-con-tractors,whichismadeeasierinanuntiedenvironment,hascontributedtothecreationofemploymentopportunitiesandatransferofskills.”

The balance of sourcing of goods and services is shifted by unty-ing towards local suppliers, as all studies indicate. Thispromoteslocalbusinessdevelopment,butthelinkageeffectsarelimitedbytheunderdevelopedstructureoftheeconomy.ThedirecteffectonthelocaleconomyisdampenedbecausemostLICsdonotproducemanyoftherequiredgoodsdomestically.Forexample,theZambiastudyfoundinadetailedprojectinvesti-gationthatamixoflocalandforeign(butZambianregistered)companieswoncontractsthroughacombinationofICBandNCB,butvirtuallyallthegoodswereimported57.TheBurkinaFasostudyreportedasimilarsituationwhentheylookedindepthataprojectlevel.

The promotion of regional networkingappearstobelimitedandlikelytobenefitthestrongereconomiessuchasSouthAfricaandVietnam.NoprojectsreportedcontractsawardedtoorganisationsfromneighbouringLDCsorHIPCs.TheZambianexampleagainhighlightedtheabsenceofsourcingofgoodsandservicesfromregionalLDCs.Infact,noneoftheprojectstudiesreportedsourcingfromotherregionalLDCs.Againthisfindingmayreflectthehighlysectorspecificbasketofgoodsandservicesunderstudy.Incontrast,foodaidstudieshavereportedregionalprocurementwithinSADCashighlycontingent,reflectingthethencurrentlocationofsurplusesanddeficits.58

UntyingwascloselyassociatedinmostcaseswithuseofCPS,exceptwhereprivatecontractorsweremanagingprojects.AgainstudiesareallcautiouslypositiveaboutthewaythisuseofCPSstrengthenslocalcapacitybybuildingupexperi-ence.ThelackofcapacitywasfelttolimituseofCPSorashifttoprogrammaticmodalitiesinLaoPDR.TheSouthAfricaand

57 Untying in both the OECD definition and the literature refers to the first round effect i.e. no account is made of the origin of the good or service. Some donors do make use of national content requirements when tying their aid in order to capture the second round effects as well as the first round effects.

58 At different times Malawi, Zambia, Zimbabwe and Tanzania as well as South Africa have exported aid funded food to other SADC countries.


Chapter 7

Vietnamstudiesemphasisethatspecificeffortsareneededtocombineefficiencyandcapacitydevelopment.

Thecontentofaprojectratherthannominaltyingstatuswasfoundtobecriticallyimportantindeterminingoutcomes.TwoprojectsinZambiaandSouthAfricaprovidedfundingforlocalgovernmenttodisbursedirectly,withapparentsuccess.Incontrast,inanotherSouthAfricanproject,asubstantialproportionofthegainsintermsofexperience,management,trackrecord,reputationandprofitwerecapturedbythedonorcountrycontractorunderaframeworkagreement.Capacitybuildingandknowledgetransferappeartobemorelikelywherelocalandregionalfirmsofmediumcapacityundertakeprojectinvestmentactivities.

7.7 Awkward issues about untying: possible trade-offs and risksAre there efficiency-development effectiveness trade-offs as-sociated with untying? Theconsequenceofuntyinghavingmultipleobjectivesofincreasingefficiencyandaideffective-nessultimatelyisthattheremaybeareasinwhichdonorsandrecipientsfaceimmediatetrade-offs.AnumberoftheprojectsweretradingoffalignmentandharmonisationagainstcostandtimeofprocurementbypreferringtousedonorandprivateprocurementsystemsinsteadoftheCPS.Theadmin-istrativeburdenandinefficienciesofusinglocalsystemswerecommonlycitedbydonorinformants.However,theadminis-trativeburdenimposedbydonorsystemswasalsoregardedasasubstantialissuebylocalinformants.ThecostandtimerequirementsofICBpredisposedsomedonorstofavourframeworkagreementsanddirectcontracting,whilstmanylocalinformantspreferredNCB.

SeveralcountriesincludingSouthAfricaandGhanahavepref-erentialprocurementpolicies.Thesemaydirectlylowertheassessedcostoflocalprocurementrelativetoothersourcesinordertoincreasetheshareoflocalsourcing.TheywereusedextensivelyinSouthAfricaandveryrarelyinGhana.Asimilareffectwasthatlowlocalcapacitymeantthatwhenprocuringlocally,projectscouldbepayingapremiumforcertainskillsduetothelackofcompetition.

Riskaversionappearedtobepartoftheexplanationforwidespreadde factotying.Theprojectsreviewedillustrateawiderangeofdonorresponses,notonlytotheopportunitiesbutalsototheperceivedrisksincontractingandprocure-mentassociatedwithuntying.MostbilateraldonorsstillshowarevealedpreferenceforcontractingmanagementandTCfromwithinknownsocialnetworksongroundsofriskaver-sion.Thisoftenhintedatbutnotexplicitlystatedpreferenceisreflectedinthehighproportionofheadcontractsawardedtoorganisationsregisteredinthedonorcountry.Contractrequirements,includingpreregistration,completionbondsandsoforth,makesuchoutcomesmorelikely.Somedonorsfocusonsuchrisksaspartjustificationforadoptinga‘businessasusual’approach.Forexample,thiswasarguedbyadonor

directlytenderingfromHQlevelforaprivatecontractorastheimplementingentity.

Inmostcases,evenwhereheadcontractswereformallyorde factotied,therewaswillingnesstouseCPSforsub-contractingprojectcomponentsandtheprocurementofspecificgoodsandservices.ThesepositivechoicesinuseofuntiedaidwereconsideredtoreflectcountryandsectorallevelassessmentsofrisksaboutwhenemployingCPSandalsousingdirectbudgetaryinstrumentswereappropriate.Thepossibilityofpooroutcomesduetoinefficiencyincontracting(e.g.delaysorrestricteddisseminationofinformationabouttenders)andcorruptionwererecognisedbyinformantsandreportedincountrystudies.Mostdonorsconsideredtheseriskstobemanageablethroughfinancialreportingandmonitoring.

Becauseofconcernsabouttransparencyandaccountability,untyinghaddonelittletoreducefinancialreportingandmonitoringrequirementsbyrecipientsorwithindonoragen-cies,evenforpooledfundingarrangements.Sofromadonorperspectiveoneoftheanticipatedbenefitsofuntyinghasyettomaterialise.TheSouthAfricaandVietnamstudiessuggesttheappropriateresponsetorisksofinefficiencyormisuseoffundsincontractingisanawarenessofproblemsandcoop-erationwithcountrypartnerstoaddresstheimplications.Inmostcountrieseffortswerenotedtosupportthestrengthen-ingoflocalfinancialmanagementcapacity.

7.8 ConclusionA priori analysisofwhetheraprojectisuntiedisimpractical.Thetyingstatusisformallydeterminedbywhethertheheadcontractisopentounrestrictedinternationalcompetition.Howevercountrylevelanalysisindicatesthatthedetermina-tionshouldtakeintoaccountallthreelevelsofprocurementincludingsubcontracts.Thetyingstatusalsoneedstotakeaccountoftheextentofde factotying.Thischapterthereforeshedslightontheimportance of the genuineness of the commit-ment to untying.Istyingperceivedconstructivelyorpositivelywithinadonororganisationorbyitsagents?AlternativelyisuntyingperceivednegativelyasamodificationtoregulationsoncontractingandprocurementnecessarytoconformtotherequirementofuntyingstatusasintheOECDdefinitionsandthe2001Recommendation?

Apositiveapproachwouldimplytheuseofdirectbilateralinstrumentsandpoolingarrangementswhichgiveownershipandalignment,wherethisisregardedaspracticalandalsobytryingtostrengthenlocalfinancialmanagementandpro-curementcapacity.Aconsiderabledifferenceintherevealedpreferencesofdonorswasfound(Chapter6)withthetwolargestbilaterals,theUSandJapan,makingleastuseofsuchmodalities.

Apositiveapproachalsoimpliesencouragingproject-typepreferencesandprocesschoicessuchasusingreducingtendersizesandraisingICBthresholds,i.e.designingcontract


Chapter 7

packagesthataremorelikelyresultinuntiedoutcomes.Anegativeorpurelyconformistapproachdoesresultinapre-ponderanceofde factotyingoutcomes.

Theseformsofpositiveuntyingareverymicroinnatureandbasedinaprojecttypeapproach.Buttheyshowthatthespecificusesoftheprocurementsystemareimportantindeterminingthelevelofuntyingaswellasobviouslyuntiedmodalitiessuchasbudgetsupportandfullpooling.

Intermsof value for money or aid efficiencythefollowingcanbeconcluded:localcompetitivesourcingusingNCBorICBwasfoundtobecosteffectiveforgoodsprocurementcomparedtomarketpricesandtheefficiencygainsweremostclearwhereuntyingledtoincreasedcompetitionincompari-sonwithtiedaid.Thecostsavingsfromformallyuntyingaidarefarfromautomatic.

Internationalcompetitivebidding,althoughoftendescribedastimeconsuming,costlyandadministrativelyinconvenient,resultedinincreasedcompetitionthroughamuchwidergeographicalsourcingofcontractorsincludingregionally.However,evenwhereICBwasadopted,theprojectplanningandcontractingprocessesofseveralDACmembersappearedtointentionallyorunintentionallyadvantagedonor-basedcompanies.Someindicationofthisisgivenbytheeconomet-ricresultsinChapter6andalsobythecomparisonwithWorldBankcontractingandtheassociateddifferentdistributionofsourcing.

Issuessuchasunequalaccesstoinformationandfinancialbarriersprecludelocal(andregionalLIC)firmsfromcompet-ingfortenders.Intheprojectcasestudiesthiswasparticu-larlytrueforframeworkcontracts.Anoptionforachievingcompetitiongainscouldbetoprioritiseincreasingtheabilityoflocalfirmstopartnertheframeworkcontract.Otheroptionsincludepositivepracticessuchasreducingtendersizeswhereappropriate.

ProcurementusingCPSminimisedmanyofthesebarriers.However,thebestresultswereachievedwhereCPShadca-pacityinplacetoachievetransparentandeffectivecompeti-tion.

Realisingthepotentialbenefitsofuntyingalsorequiresthesupplycapacitytomakepossiblegenuinecompetition.Thiswassometimesconstrainedbylownumbersofbiddersbothinprocuringatlocallevelswheretherewerelowskillsets,andalsointernationally,duetothelargesizeorspecificnatureofsomecontracts.

Thefollowingareasofdonorcontractingpracticeswerefoundtobelessthanwhollytransparentfromarecipientcountryperspective:donorcontractingatHQ;frameworkcontracts;B2B,twinning/partnershiparrangements;andprivateman-agementcontracts.Alloftheseareasofferscopeforde factotying.Themostopaqueaspectsofdonorpracticeconcerned

TCandassociatedconsultancies,theareasofassistancewhereformalandde factotyingwerefoundtobestillmostpervasive.

Thecountrystudiesfoundmanyexamplesofpotentiallyim-provedpracticeinPDeffectivenesstermsinthewaysinwhichuntyingisassistingdonorsinmovingawayfromtheconven-tionalstand-aloneprojectbasedapproachtocooperativeap-proaches.Thismovementfacilitatesbudgetsupport,pooling,delegatedcooperation,useoftheCPSanddecentralisation.Thesesteps,supportedbymanybutnotalldonors,werefoundtobestronglysupportiveofPDgoalsofownershipandalignmentandharmonisation.Untyingandownershipisatwo-wayrelationship;untyingsupportsownershipandstrongnationalsystemsandownershipassistuntying.

In terms of development effectiveness,countrystudiesarecau-tiouslypositive,findingevidenceofdirectemploymentandincomestreamgeneration.However,theseeffectsarehighlysectorandactivityspecificandsocouldnotbeattributedtountyingper se.

Thebalanceofsourcingofgoodsandservicesisshiftedbyuntyingtowardslocalsuppliers,asallstudiesindicate.Thispromoteslocalbusinessdevelopment,butthelinkageeffectsarelimitedbytheunderdevelopedstructureoftheeconomy.Thepromotionofregionalnetworkingwaslimitedandmoretobenefitthestrongereconomies.

Thecontentofaprojectratherthannominaltyingstatuswasfoundtobecriticallyimportantindeterminingoutcomes.Capacitybuildingandknowledgetransferappeartobemorelikelywherelocalandregionalfirmsofmediumcapacityundertakeprojectinvestmentactivities.


Chapter 8

T hisfinalchapterdrawstogetherinsummaryformtheconclusionsfromthewholestudy,PhaseOne,adeskand

donorfocusedreview,andPhaseTwo,partnercountrystudies,whicharesetoutmorefullyonachapterbychapterbasis.Theconclusionsareorganisedhereintermsofthethreequestionsproposedforevaluation:

• Towhatextenthasdonorbehaviourchangedasaresultofthe2001DACRecommendationonUntyingAidtoLeastDevelopedCountries,i.e.towhatextenthavedo-norsuntiedtheiraidfurther?


• Isthereevidenceoftheuntyingofaidhavingresultedinanincreaseoftheeffectivenessandefficiencyofaid?

Theseconclusionsarefollowedbyrecommendationsforwaysofensuringthefulfilmentofcommitmentstofullyuntieaidinanefficientandeffectiveway.

The 2001 Recommendation and untying of aidTheannualreportsonprogressinuntying,basedonstatisti-calinformationsubmittedtotheCRSandtheDAC,indicatecontinuedprogressonuntying,andthatallDACmembersareatleasttosomedegreeintheprocessofuntying.Thepropor-tionofuntiedaidrosefrom46%in1999-2001to76%in2007andforLDCsfrom57%to83%.If(untied)multilateralaidistakenintoaccountthen83%ofallODAin2007wasuntied.Formally,theODAofDACmembers,andespeciallytoLDCs,isoverwhelminglyuntied.

Intermsofeffort-sharingtheDACindicatedtwotargets.Thefirstisastraightforwardtargetof60%shareofuntiedODAintotalaidtoLDCs,whichalmostalldonorshadreachedwithinsixyears,includingthosethathistoricallyprovidedaidonalargelytiedbasis.ThesecondindicatoristheratioofuntiedbilateralLDCODAandmultilateralLDCODAwithinGNI.Atar-getequivalentto0.04%ofGNIwasagreedandisreportedto

havebeenexceeded.ThescopeoftheRecommendationwasextendedin2006and2008andreinforcedbytheParisDecla-ration.IthasbeenasignificantinfluenceonthebehaviourofDACmemberstatessince2001inencouragingandsustainingtheprocessofformaluntyingofbilateralODA.AtthisoverallleveltheresponsetotheRecommendationisanaidsuccessstory.

Thisstudyhasre-examinedthedataontyingstatusasreportedtotheOECD,andcomplementedthisfirstbyase-lectivereviewofdonorpoliciesandpracticesinrespondingtotheRecommendation,andthenthroughseekingviewsandevidencefrompartnercountries.Thereviewbroadlyconfirmstheannualreportsonprogressinuntyingasaformalprocess.

Thereviewoffivedonorcountriespoliciesprovidedmorespecificevidenceonhowtheuntyingprocesshasbeencharacterisedbytheremovalofformaldomesticregulatoryrestrictionsonthesourcingofgoodsandservicesbydonors,andinagreementswithpartnercountriesandcontractswithaidimplementingentitiesthatwereintendedtofavourdomesticorganisationsinthedonorcountries.GovernmentssuchasthoseofAustraliaandCanadathatpriorto2001hadlargelytiedaidmadenotjustsubstantialchangesinagencypolicybutagreedexemptionsfromdomesticrestrictionsonuseofpublicfunds.Thedonorpeerreviewsandthe2008studyonpromotinglocalandregionalprocurement(OECDDAC,2008b)confirmthatallDACmembershaveparticipatedtovaryingdegreesintheprocess.

TherehasbeenfurtherprogressyearonyearsincethePhaseOnereportreviewedtheresponseinthefiveyearsupto2006.Budgetarysupportanddebtreduction,thetwoalmostentirelyuntiedcategoriesofdirectassistancetogovern-ments,declinedfrom23%ofbilateralODAin2006to13%in2007.Nevertheless,theoverallproportionofuntiedaidin-creasedby2%,underliningthemoregeneralmovetowardsuntying.

8. ConClusions


Chapter 8

Additionality of tied aid?Somewhodefendtyingpracticesorcautionagainstchangearguethatuntyingcouldresultinalossofdomesticsupportforaidoverall,orhavediversion-aryeffectsawayfromLDCstootherpartnercountries.ButabsolutelevelsofODAtoLDCshadalmostdoubledby2007since1999-2001.TheshareofLDCsintotalODAwasalso5%higher,andevenhigher(13%)whenthesomewhattemporarysurgesindebtreliefduring2005-06areexcluded.AgainthedonorreviewinthisstudyconfirmedthatuntyinghadhadnonegativeeffectoneithertotalODAoraidtoLDCs.

Acloserscrutinyindicatesvariouswaysinwhichthenarrativeofuntyingofaidasasuccessstoryshouldbequalified.TheuntyingofformsofaidexemptfromtheRecommendationhasbeenlessthanthoseincluded.Some30%oftechnicalcooperation(TC)andaidwithaTCcomponentwasreportedastied,oritstyingstatuswasnotreported.Itisdifficulttodeterminethefullextentoftyingoffoodaid,reportedaspartofassistanceinthreesectors:emergencyaid(21%tying),developmentfoodaid(53%tying),andcommodityaid(tyingstatusvirtuallyunreported).Butitisalsointerestingtonotethat20%ofdonoradministrativecostsarereportedin2007asuntied,althoughthiscategoryisexemptedfromtheRecom-mendation.

TherearestilllargevariationsinDACmembers’untyingandreportingontyingstatusoftheiraid.SevenDACmembersreportedover90%untyingin2007.TheUSisthemajordonorthatcontinuestotieextensively(37%ofitsbilateralODAin2007and57%ofallreportedtying).Halfofallnon-reportingwasbyJapan.Therewasahighlevelofnon-reportingforTCandsectorsinwhichtyingofprojectaidmightbeexpected:infrastructure,transportandenergy.Thereisalackoftranspar-encythatindicatestheneedforcautioninmakingstatisticalinferences.Improvedreportingisnecessaryasagreedinthe2008AccraAgendaforAction(seebelow).

Beforeconsideringthequestionoffactorsthatenhanceorimpedefullyuntying,thereisthepriorissueraisedbymanyinformantsinthecourseofthisstudy,thegenuinenessofthedeclaredformaluntyingofaid.Changesinpolicyandregula-tionsmayallowthesourcingofgoodsandservicesoutsideofthedonorcountrybut,inpractice,aretheresuchobstaclesastomakethissounlikelythataidremainsde factotied?

Twoformsofstatisticalevidenceindicateapresumptivegapbetweentheformaldeclaratoryuntyingofbilateralaidandactualpractice,whichimpliesaconsiderableelementofintendedorunintendedde factotying.First,thehighreportedproportionofcontractsawardedtocompaniesregisteredinthedonorcountry(Chapter3)findsfurthersupportinthedonorreview(Chapter4)andfrompartnercountries(Chapter7).Second,thereis,afterextensiveformaluntying,acontinu-ingassociationbetweentheamountofbilateralaidfromtheindividualdonorandthevalueofitsexportstothesurveyedrecipientcountries,exceptingonlySouthAfrica,forwhichaidisofmarginaleconomicsignificance(Chapter6).

Factors enhancing and impeding fully untying development assistanceThereviewoffivedonorsandfurtherdiscussionwithbothcountrypartnersandagencypersonnelhighlightedfactorsencouragingthemovestountyingofaid.First,theRecom-mendationandtheextentofitscoveragecontinuetobeapositiveinfluence.Second,movestofulfiltheParisDeclarationobjectivesofgivinggreaterownershipandalignmentwithpartnercountrystrategiesandharmonisationofdonoractionsisassociatedwiththeadoptionofaidmodalities,generalandsectoralbudgetarysupport,basketfundingofprogrammesandpoolingoffunding,forwhichuntyingisanecessarycon-dition.Thirdly,untyingincreasesprogrammaticflexibility,andvirtuallyallcountypartnerandaidagencypersonnelwereinfavourofthat.

Impedimentstoformaluntyingincludetheeffortneededtochangeregulatoryandlegislativeframeworks.Thereisalsothecarryovereffectofcontinuingprojectsandprogrammes.IntheimportantcaseoftheUSA,legislativerestrictionsonuseofpublicfundsremaininplace(whilstallowingforwaivers)andforfoodaidalmostentirely(OECD,2008a),inpartbecauseofeffectiveoppositionfromdomesticinterestgroups.

Thefivedonorsreviewalsoidentifiedseveral‘greyareas’oftyingpractice.ThesearealloutsidetheRecommendationandoftenjustifiedongroundsofsustainingdomesticsupportforaidofinterestgroupsandofprovidingvisibleevidencetothepublicofadirectlinkbetweenbilateralaidandimpactsinbeneficiarycountries,aswellasfosteringaidefficiencywheremarketsareunabletodeliver.Theseareasincludeemergencyandhumanitarianaidprovidedbothin-kindandthroughpersonnel,channellingofaidthroughNGOs,presumedtobeuntied,foodaid(nowexplicitlytiedonlybytheUSA),TC,sup-porttogovernance,post-secondaryeducation,researchandBusinesstoBusiness(B2B).

Thecountrystudyevidencesuggeststhattheobstaclestoun-tyingarenowformostDACmembersnotsomuchtocomple-tionoftheformalprocessofuntying,buttoreducingorevenremovingintendedandunintendedtyingpractices.

Aid effectiveness and developmental impacts of untyingAideffectivenessisunderstoodintermsofaidefficiencyinprovidingvalueformoneyandtheParisDeclarationaimsofownership,alignment,harmonisationmanagingforresultsandaccountability.Thedonorpolicyreview(Chapter4)foundthatagenciesassociateduntyingwithashifttoinstrumentsthateithergivegreaterresponsibilityforfinancialmanage-menttocountrypartners(directprogrammaticsupportanduseofcountryprocurementsystems(CPS)),ortojointdonorpartnersthroughpoolingoffunds,ortocivilsocietyorganisa-tionsemployingtheirownprocedures.Therewouldalsobedecentralisationofmanagementatcountrylevel.TheroleofHQprocurementwasbeingmuchreduced.


Chapter 8

Bothgovernmentsandotherinformantsinpartnercountriesstronglyaffirmedthatuntyingimpliestransferringresponsibil-ityforplanningandhandlingfundsfromdonorstorecipients(Chapter6).Thisismoreamatterofcontracts,modalities,usesofCPSandofferinglocalbusinessanopportunitytocompetesuccessfullyforcontracts.Recipientcountrystakeholdersarelessconcernedaboutremovingbiasesamongstdonorpartnersintheirtrade,exceptwhereexcessiveinefficienciesoftyingsignificantlyreducetheresourcetransfervalueofaid.

Theliteraturereviewcoveringtheefficiencyanddevelopmen-talimpactsoftyinganduntyingfoundanextensivebodyofeconomicanalysisandaquitelimitednumberofevidence-basedstudies,withfewrecentcontributions,focusedontheinefficiencyoftyingandpotentialtradedistortingeffects.Untyingwastypicallyfoundconvincinglylinkedtoevidenceontheadoptingofprogrammaticandpoolingmodalities,forwhichuntyingisanecessarycondition.SofarDACmembershavealsodonelittletosystematicallyevaluatetheactualconsequencesoftying.Thereisthereforenowellestablishedconceptualframeworkforempiricalinvestigationintothecon-sequencesofuntying.ThesixcountrystudiesrequiredapilotstudyinGhanatodevelopafeasibleanalyticapproachandshouldberegardedasanexploratoryinvestigation,providingprovisionalfindings.

Thekeyissueraisedbythecountryinvestigationsisthegenu-inenessofthecommitmenttountying.Istheroleofuntyingperceivedconstructivelyorpositivelywithinadonororgani-sationorbyitsagents?AlternativelyisuntyingperceivednegativelyasamodificationtoregulationsoncontractingandprocurementnecessarytoconformtotherequirementofuntyingstatusasintheOECDdefinitionsandthe2001Recom-mendation?Apositiveapproachwouldfirstimplytheuseofdirectbilateralinstrumentsandpoolingarrangements,whichgiveownershipandalignment,wherethisisregardedaspractical.Second,whetherprovidingprogrammaticorproject-typeassistanceitimpliestryingtostrengthenlocalfinancialmanagementandprocurementcapacityratherthanseeinglimitedcapacityasjustaconstraint.ApositiveapproachalsoimpliesmakingchoicesinprojectssuchasusingCPSandde-signingcontractpackagesthataremorelikelyresultinuntiedoutcomes.Anegativeorpurelyconformistapproachislikelytoresultinapreponderanceofde factotyingoutcomes.

Untying aid modalitiesThecriticalchoicefordonorpartnersisthatofaidmodalities.Thereisalackofcomparativeandconsistentdataontheusesofdifferentmodalities(particularlyjointpooling)andalsotheuseofpartnercountryfinancialmanagementandprocure-mentsystems.Nevertheless,takinganeclecticapproachtotheevidence,thecountrystudiesshowthattherearesystem-aticdifferencesamongstdonorsintherevealedpreferencesofdonorswasfoundincountrieswheretheiraidisoverwhelm-inglyuntied(Chapter6).AgroupofDACmembersprovideasubstantialpartoftheiraidtosupportjointlyprogrammaticapproachesandusepoolingarrangements.Thecountry

surveyforthePDEalsoconfirmsthatbroadlythesameDACmembers,theso-calledNordic+group,aswellasFrance,GermanyandSwitzerlandmakeextensiveuseofCPSinaidtogovernment.Others,includingthetwolargestdonors,USAandJapan,restrictthemselvesalmostentirelytoproject-typesupportandmakelittleuseofCPS.Project-typesupportisstillthedominantaidmodalityinallsurveyedcountries.

The project approach and aid effectivenessProgrammaticmodalitieshavebeenevaluatedelsewherewithbroadlypositivebuthighlycountry-specificfindings(e.g.IDD,2006).Thestudythereforefocussedontheuseofformallyuntiedfundingforapurposivelyselectedsampleofprojecttypestoillustratetherangeofcurrentpractices.Thefindingsfor21projectsfundedsinglyorjointlybydonorsinsixcoun-trieswerebroadlyconsistentandsopermitaprovisionalsetofconclusionsonefficiencyandaideffectiveness(Chapter7).

Projects,evenwhenformallyuntied,arerarelyfullyuntied,butincludeelementsofuntyingandde factotying.Inpar-ticular,itishighlylikelythatwherethereareheadcontractsformanagingTCthesewillbesourcedinthedonorcountry.Recipients’powerinnegotiationisakeyinfluenceonwhetherimplementingentitiesarelocalandthetop-levelcontractsaresubjecttoICB.WheredonorsallowahighproportionoffundstobedisbursedthroughCPSusingICBorNCBforsubcontract-ingcontractsaremorelikelytobeawardedtolocalorregionalfirms.

Value for money – aid efficiency:LocalcompetitivesourcingusingNCBorICBwasfoundtobecosteffectiveinmostcasesforgoodsprocurementcomparedtointernalcommercialorinternationalmarketprices,andtheefficiencygainsweremostclearwhereuntyingledtoincreasedcompetition.However,directcontractingandNCBwasinsomecasesmorecostlywheretherearelocalsupplyconstraintsandpowerfulsocialnetworks.Similarlyadonoremphasison‘quality’incontractspecificationratherthanvalueformoneycaneasilybecomeawayofnarrowingtherangeofsupplyoptions.

An unlevel playing fieldInternationalcompetitivebiddingresultedinamuchwidergeographicalsourcingofcontractorsincludingregionally.ThisismostevidentincontrastingthesourcingofbilateralprojectswiththosecontractedbytheWorldBankusingICBandNCBinthesixpartnercountries.However,evenwhereICBwasadoptedtheprojectplanningandcontractingprocessesofseveralDACmembersappearedtointentionallyoruninten-tionallyadvantagedonorbasedcompanies.

ManyfactorspreventlocalandregionalfirmsfromwinningcontractswhentheseareopentoICB,especiallywherethisisundertakenbythedonorundertheirownrulesandatHQlevel.Thesefactorsincludelackofaccesstoinformation,lackofskillsandcapacity,thesizeoflotsputtotender,aswellasotherfinancialbarrierssuchasweakcreditmarketsandnon-


Chapter 8

availabilitylocallyofprofessionalindemnityinsurance.Wherefirmsarelikelytotenderonlyforcontractsintheircountryorregion,thentheyrunintoaproblemofactuarialriskassoci-atedwithunsuccessfulbids–incontrastwithdonor-basedormultinationalfirmsandnon-profitorganisationstheyareunabletospreadpreparationcostsforproposalsacrossmanyapplications.

Frameworkcontracts(aformofservices-in-kindfromtherecipientandprojectperspective)canprecludecompetitiongainsfromuntying.Anoptionforachievingcompetitiongainscouldbetoprioritiseincreasingtheabilityoflocalfirmstopartnerintheframeworkcontract.

Untying and aid effectiveness: Thecountrystudiesfoundmanyexamplesofpotentiallyim-provedpracticeinPDeffectivenesstermsinthewaysinwhichuntyinghasalloweddonorstomoveawayfromtheconven-tionalstand-aloneprojectbasedapproachtocooperativeap-proaches.Thesemoves,supportedbymanybutnotalldonors,includingbudgetsupport,pooling,delegatedcooperation,useoftheCPSanddecentralisation,increaseownership,facili-tatealignmentandachieveharmonisation.

Thefollowingareasofdonorcontractingpracticeswerefoundtobelessthanwhollytransparentfromarecipientcountryperspective:donorcontractingatHQ;frameworkcontracts;B2B,twinning/partnershiparrangements;andprivatemanagementcontracts.ThemostopaqueaspectsofdonorpracticeconcernedTCandassociatedconsultancies,theareasofassistancewhereformalandde factotyingwerefoundtobestillmostpervasive.

Developmental impacts of untyingCountrystudiesarecautiouslypositive,findingevidenceofdirectemploymentandincomestreamgeneration.However,theseeffectsarehighlysectorandactivityspecificandsocouldnotbeattributedtountyingper se.

Thebalanceofsourcingofgoodsandservicesisshiftedbyuntyingtowardslocalsuppliers,asallstudiesindicate.Thispromoteslocalbusinessdevelopment,butthelinkageeffectsarelimitedbytheunderdevelopedstructureoftheeconomy.

Thecontentofaprojectratherthannominaltyingstatuswasfoundtobecriticallyimportantindeterminingoutcomes.Capacitybuildingandknowledgetransferappeartobemorelikelywherelocalandregionalfirmsofmediumcapacityundertakeprojectinvestmentactivities.

Overall,anddespitereservationsontransparency,genuineun-tyingemergesfromthecountrystudiesasacriticallyimportantcontributoryfactortowardsachievinggreateraideffectivenessandnotonetobejustifiedonlyintermsofefficiencygainsorpromotinglocalbusinessdevelopment.Thepreciseeffectsalsodependverymuchoncountryspecificcircumstances,asisap-parentfromcomparinganyofthethreecountrypairings.

Therelativelynewprogrammaticmodalities:financialaid,asgeneralandsectoralbudgetarysupportandbasketfunding,isde factountiedanddemonstratesgenuinelyuntiedpractices.Fundsdirectedtogovernmentanditsagenciesaremostlikelytobedisbursedusingcountryprocurementsystems.

Incontrast,theformaltyingstatusofaprojectprovideslittlecluetotheactualextentofuntyinganditsconsequences.Projecttypeaidisnowmostlyreportedasuntied.Thatdecla-rationistakentomeanthatatleasttheheadcontractformallysatisfiestheOECDdefinitionforuntiedaidevenifinpracticeitisde factotied.

Inpracticethetypicalproject,asfundedbymostDACdonorsindividuallyorjointlyislikelytobeahybridoramixofaidcomponentsthatareformallyorde factotiedandalsoformallyorde factountied.Thisrealityimpliesaviewoftyingthatisquitedifferentfromthesimplecategoricalnotionthataidistied,partiallytiedoruntied.Fromthisperspectivetheuntiedcontentofaprojectcanbeincreasedthroughchangesincon-tractingatdifferentlevelsanddifferentcomponentactivities.

Technicalcooperationcomponentsofmostprojectsconsid-eredwerefoundtobede facto,ifnotformally,tied.Thisfind-ingimpliesfocusingonfurtherpracticalstepstobroadenthesourcingofTCandthemanagementaspectsofprojects.

Beyond rhetoric: the future of untying in a rapidly evolving aid context Beforeproceedingtomakespecificrecommendationsonhowtomovetowardsmorefullyuntiedaid,thatnarrowlyfocuseddiscussionshouldbesituatedinitswidercontext,avoidingrhetoricandrecognisingpoliticaleconomicrealities.

Fullyuntyingaidobligesdonorstogiveuptwoconvenientpractices,justifyingtheiraidthroughtyingandrelyingontheirnetworksofdomesticallybasedorganisations.Sofarsomedonorshavebeenreluctanttodothisresultinginbothopenandde factotying.

Similarly,untyinginpracticeexposesproblemsofrecipientgovernmentcapacityinfinancialmanagementandgovern-ance.TheuseofCPSraisesissuesofcapacityandalsorisksofcorruption,ascountrystudieshavenoted.Realisingmanyofthepotentialbenefitsofuntyingdependsondevelopinglocalcapacitytosupplybothgoodsandservices.Thisissueextendsalsotosecondlevelservicessuchasefficientlyfunctioningmarketsforcreditandpublicliabilityinsurance.

The changing global aid contextraisesstrategicpolicyissues.Thegrowingroleofconcessionalfundingfordevelopmentprovidedbyemergingnon-DACcountries,suchasChinaandIndia,mostobviouslyinSEAsiabutalsoinAfrica,wasaneverpresentbackgroundissueinundertakingthecountrystud-ies.However,thescaleandtermsofsuchconcessionalflowscouldnotbesatisfactorilydocumented,letalonequantified.


Chapter 8

Thisfundingisoftenverylargescaleandmostlydirectedtobasicinfrastructure,facilitatingcommodityexportsandsomeprestigeprojects.Mostlyprovidedasconcessionalloans,itappearedtobelargelytiedbutwithlittleconditionality,andisthereforeveryattractivetomanyaidrecipients.ThesecountriesareurgedtoacceptDACprinciples.Butinanycasethescaleofsuchnon-DACflowsraisesthequestionofwhatisthefuturecomparativestrengthofbilateralODAofDACmembers?Whatcombinationwouldbeappropriateofwhollyuntieddirectbilateralbudgetaryassistanceandproject-typeinvestmentandTCwhichareformallyuntiedbutinpracticearealmostallmixedpackagesofuntiedandde factotiedele-ments.

Newverticalfundingmechanisms,forexamplePEPFAR(President’sEmergencyPlanforAIDSRelief )andtheGFATM(GlobalFundtoFightAIDS,TuberculosisandMalaria),couldbeatoddswiththePDaideffectivenessprinciplesthatprovidetherationaleforuntiedaid.Duetotheirverticalnaturethesemechanismsmaynotbealignednorharmonised,preferringparallelimplementationstructurestoCPS.Theirverticalnaturemayalsoworkagainstindividuallytailoredlocalsourcingar-rangements.

Finally,newformsoffinancingseemlikelytoberequiredtoaddressthechallengesposedbothbytheglobalfinancialcrisisintheshorttermandclimatechangeinthelongerterm.

The way forward: recommendations The2005ParisDeclarationincludesafurtherqualitativecom-mitmentwithoutanyspecifictarget(Indicator8)tocontinuetheprocessofuntying.The2008AccraAgendaforActiononaideffectivenessreaffirmedthiscommitment,andcalleduponDACmembersinrespondingtoelaborateindividual plans by 2010 to untie their aid to themaximumextentand to improve reportingonthe2001Recommendation(OECDDAC,2009).Theseproposalsarestronglyendorsedandfurtherspecificmeasuresaresuggestedtosupportgenuineuntyingandreduce,ifnoteliminatede factotyingpractices.

Donorsshouldincreasethe transparencyoftheirreportingtotheOECD,forexamplebyincludingthetyingstatusofcatego-riesofaidexemptfromtheRecommendation,includingallTCandfoodaid.

TheuntyingplansshouldincludespecificmeasuresformakinggreateruseofCPSandspecifythemeanstheyhaveadoptedorplantoadoptforremovingobstaclesandencour-aginglocalandregionalfirmstoparticipatesuccessfullyinprocurement.

Donorsshouldconsiderindividualorjointinitiativestostrengthenlocalandregionalcapacitytocompeteforaidsup-portedcontracts.BroadeningthesourcingofTCandmanage-mentofprojectsshouldbepriorityareas.

Agencieswhoseuntyingpracticeisstillconstrainedbydo-mesticregulationsshouldincludeintheirplansproposalstoremoveorobtaingeneralexemptionsfromsuchrestrictionsonthedisbursementofpublicfunds,followingthepositiveexampleofAustraliaandCanadasince2001.

Reportingonimplementationofplansforcompletingtheuntyingofaidshouldbesubmittedtobecomepartofthean-nualreporttotheDACandalsotobemadeaspecificitemforinclusioninfutureDACmemberpeerreviews.

TheDACshouldconsideraddingtotheannualprogressre-portsonuntyingacountrypartnerfocusedreviewofprogressinuntyingtobeundertakenwiththefullcooperationofanLDCorHIPCcountryincludedintheRecommendationandalsoDACmembers.Suchcountrystudieswouldbothbuildonthisthematicevaluationandgivemoresubstancetotheannualreports.Thefirstofsuchannualreviewsmightbeun-dertakenincooperationwithacountryintheLatinAmericanandCaribbeanregion,whichisnotincludedinthisstudy.

Thisstudyhasonlybeenabletoprovideaprovisionalassess-mentoftheextentofuntyingandtheimplicationsforaideffectiveness.Theassessmentisonbalancepositivebuttherearemanyunknownsandtoolittletransparency.Therearetheinevitabledataproblems.ButtheseissuesoffullandgenuineuntyingconcernallDACmembers.Untyingandtyingprac-ticesrarelyappearontheevaluationagendaandsoopportu-nitiestoknowmorearesystematicallymissed.DACmembersindividuallyneedtomonitorandrigorouslyevaluateboththeirprogressinuntyingandinmakinguseofthecapacitieswithinpartnercountries.Thisstudycouldprovideabench-markforfutureassessmentswhenDACmembersaresharingtheirfindingsandlessonslearnt.


Annex A

THEMATIC STUDY – THE DEVELOPMENTAL EFFECTIVE-NESS OF UNTIED AID: EVALUATION OF THE IMPLEMENTA-TION OF THE PARIS DECLARATION AND OF THE 2001 DAC RECOMMENDATION ON UNTYING ODA TO THE LDCSTERMS OF REFERENCE 22 FEBRUARY 2008 (Revised14May2008)

1 Background1. Fordecades,debatesonaideffectivenesshavefocussedontheissueofthetyingstatusofaid.Ithasbeenclearlydocumentedthattiedaidraisesthecostofgoods,serv-icesandworksby15%to30%onaverage,andbyasmuchas40%ormoreforfoodaid.Thisisaconservativeestimateoftherealcostsoftying,sinceitdoesnotincorporatetheindirectcosts.

2. Asaresult,afterextendedanddifficultnegotiations,theOECD/DACadoptedin2001aRecommendationtountiemuchODAtoLeastDevelopedCountries(LDCs).TheRecom-mendation(amendedin2006)alsoinvitesDACmemberstoprovideuntiedaidinareasnotcoveredbytheRecommenda-tionandtostudythepossibilitiesofextendinguntiedaidinsuchareas.ProgressachievedintheproportionofODAthatisuntiedistrackedinthecontextoftheMillenniumDevelop-mentGoals,e.g.targetnumber35.The2005ParisDeclarationonAidEffectivenessreiteratedthe2001DACrecommendationandprogressintheshareofaidthatisuntiedismonitoredthroughIndicator8.

3. Internationalconferencesondevelopment,suchastheMonterreyInternationalConferenceonFinancingforDevel-opment,haveconsistentlyhighlightedthatincreasingtheshareofaidthatisuntiedisasignificantmeanstoimproveaideffectiveness.ThisviewhasbeenreiteratedatsuccessiveG-8Summits,mostrecentlytheJune2007HeiligendammG-8Summitwhichnotedinparagraph21theneedtocontinueenhancingeffortstountieaid.

4. InviewoftheseargumentsandthecallsforfurtheruntyinganumberofDACdonorshaveeitherfullyuntiedtheiraid(e.g.Ireland,Norway,Luxembourg,andtheUnitedKingdom)oralmostcompletelyuntiedtheirbilateralaidpro-grammes(e.g.Australia,Belgium,Denmark,Finland,SwedenandSwitzerland).Inaddition,theEuropeanCommunityhasadoptedtworegulationsgoverningaccesstoECexternalassistanceunderwhichallaidtoLDCsisprovideduntied.Moreover,allexpertise(e.g.technicalco-operation)andfoodaidwillbeuntiedandaidfromtheEUbudget(i.e. exclud-ingtheEuropeanDevelopmentFund)willbeopentootherdonorsonthebasisofreciprocity.Finally,theUSMillenniumChallengeCorporation(MCC)alsoprovidesitsaidinuntiedform.

5. InpreparationoftheThirdHighLevelForumonAidEffectivenesstobeheldinAccra,Ghanaon2-4September2008,MembersoftheWorkingPartyonAidEffectivenessandtheDACNetworkonDevelopmentEvaluationhaveaskedforaThematicStudyoftheextenttowhichdevelopmentpartnershaveuntiedtheirassistanceandthekeyfactorspromotingorimpedingprogressonfullyuntyingdevelopmentassistance.Furthermore,theyhaveaskedtoidentifyexamplesofbenefitsoffullyuntiedaid.

6. Inthecontextofthe2001DACRecommendationtoUntieODAtotheLDCsacomprehensiveevaluation, inter alia,ofitsimpactismandatedforsubmissiontothe2009DACHighLevelMeeting.(Thecomprehensiveevaluationwillalsopayat-tentiontotheimplementationofthisRecommendationwithrespecttoachievingabalanceofeffortsamongDACMembersandpromotingandsustainingODAflowstoLDCs.)

7. InlightoftheclosecommunalitiesbetweentheThematicStudywithintheframeworkoftheevaluationoftheParisDeclarationonAidEffectivenessandtheDACrequestforacomprehensiveevaluationof2001DACRecommenda-tiononUntyingODAtotheLDCs,onethematicstudywillbeundertakentoassesstheeffectivenessofuntiedaid.The

AnnEX A: tErMs of rEfErEnCE


Annex A

evaluationstudywillincluderesultsassessmentsbasedoncasestudiesinanumberofpartnercountries.

2 Purpose 8. Thepurposeofthestudyistoprovidethe3rdHLFinAccrainSeptember2008,theDACandthe2009HLM,aswellasthewiderdevelopmentcommunity,withacompre-hensiveassessmentofcurrentdonorpoliciesandpracticesregardingthetyingstatusofaidandanassessmentoftheeffectsoftheuntyingstatusonaideffectiveness.TheThematicStudyshouldfocusontheresultsofuntiedaid,andexamineif,andtowhatextentthepresenteffortforuntyingaidhascontributedtoaideffectiveness.TheStudyshouldalsoexploretheprospectsforincreasingtheshareofuntiedaid,andwhererelevantprovidepolicyrecom-mendationonpromisingapproachesonhowtoachievethisobjective.

9. ThequestionstobeaddressedbytheEvaluationstudyare:

• Towhatextenthasdonorbehaviourchangedasaresultofthe2001DACRecommendationonUntyingAidtoLeastDevelopedCountries,i.e.towhatextenthasdonorsuntiedtheiraidfurther?


• Isthereevidenceofuntyingofaidhavingresultedinanincreaseoftheeffectivenessandefficiencyofaid?

3 Output10. TheThematicStudywillbeundertakenthroughaconsultativeprocesswithdonors,partnercountriesandcivilsociety.Theevaluationstudywillbeconductedintwostages.

• Theoutputofthefirststagewillbeareportprovid-ingacomprehensiveoverviewofthecurrentpoliciesandpracticesofDACmembersandnon-DACdonorsregardingthetyingstatusoftheiraidandtheeffectsonaideffectiveness.DuringthisfirststagetobebasedondocumentaryresearchandtheDACdatabase,ameth-odologyforthepartnercountrycasestudieswillalsobedeveloped.

• Theoutputofthesecondstagewillbearepresentativenumberof,evidence-basedcasestudiesinpartnercoun-triesconcerningtheeffectsofthe(un)-tyingstatusofaidonaideffectiveness.Thecasestudieswillbeundertakenincooperationwithlocalresearchcentres,suchasforinstancetheAfricanEconomicResearchConsortium.Thisstageshouldalsoexaminetheextenttowhichuntiedaidhasresultedinprocurementfromlocal/regionalcompa-niesanditseffectonaideffectiveness.

11.ThecomprehensivefinalreportcoveringStagesIandIIshouldoutlinepracticalpolicyrecommendationsforincreas-ingtheshareofaidthatisuntied59.

4 Activities12. Theoverallassessment(e.g.StagesIandII)willbepre-sentedinasuccinct,butcomprehensivereportthatcontains:

• Anexecutivesummary.

• BriefoverviewoftheinternationalrulesandagreementconcerningthetyingstatusofODA.

• AstatisticalanalysisoftrendsinthetyingstatusofODAincludingtying/untyingpracticesofemergingnonDACdonors.[Thereportshouldalsoaddressissuesofburden-sharingandtransparencyofprocessesandprocedures].

• AsurveyofthepoliticalfactorsandnationalrulesandregulationsbearingonthetyingstatusofODA.

• AnassessmentofthedevelopmentaleffectivenessoftiedversusuntiedODAbasedonaliteraturesurveyandtheoutcomesinarepresentativenumberofcasestudiesinpartnercountries.

• PolicyfocussedconclusionsandrecommendationonpromisingapproachestoincreasetheshareofODAthatisuntiedanddevelopmentallyeffective.

13. ThechapterconcerningtheinternationalrulesandagreementsregardingthetyingstatusofODAwillprovideasuccinctandcomprehensiveoverviewofOECDarrangementsandrecommendationsontiedanduntiedaidaswellasWTOarrangementsandagreements.Thechaptershouldassessthecurrentpositiononbothsidesofthedebateastothede factocredibility,balanceandenforceabilityofuntying.

14. Thechapterconcerningthestatisticalanalysesbydo-norcountryoftrendsinthetyingstatusofODAwillcovertheperiod1985-2005.Itwillaimatidentifyingrobuststatisticalcorrelationsbetweentheextentoftied/untiedODAand;

• financialinstruments,suchasloans,grantsormixedcred-its,andinnovativefinancinginstruments,suchasGlobalFunds(HIV/AIDS)

• typesofaid,suchasfinancialaid,technicalassistance,foodaid,programmeaid,budgetsupportanddebtrelief;

• bilateralandmultilateralflows;

59 PD para 31: “Untying aid generally increases aid effectiveness by reducing transaction costs for partner countries and improving country ownership and align-ment. DAC Donors will continue to make progress on untying as encouraged by the 2001 DAC Recommendation on Untying Official Development Assistance to the Least Developed Countries (Indicator 8).”


Annex A

• incomecategories,and

• ODA/GNIratios(asaproxyforpublicsupportfortheaideffort).

15. ThechapterprovidinganoverviewoftrendsinDACMembersandnon-DACdonors’policiesandpracticeswillbebasedontheexistingdataanddocuments,especiallythean-nualProgressReportontheimplementationof2001UntyingRecommendationandtheresultsoftheDACstudyconcern-inglocalandregionalprocurementwhichiscurrentlybeingundertaken.

16.ThechapteraddressingthepoliticalfactorsinfluencingthetyingstatusofODAwillprovideananalyticalassessmentoftheargumentsmadeindifferentcountriesinsupportoftiedaidsuchas, inter alia,capturingorpreservingexportmarketsfordonors’companies,generatingdomesticsupportfortheaideffortandstrengtheningtheinteractionbetweencitizensfromdonorandpartnercountries.ToassessthestrengthofargumentsinfavourofuntyingODA,thechapterwilladdressissuesrelatedtotradedistortion,nationalaswellasinternationalpolicycoherence,costeffectiveness,andaideffectiveness.

17. Thesecond stageoftheevaluationstudy(e.g.Chaptervi)willassessthedevelopmentaleffects(oreffectiveness)oftiedversusuntiedaidprojectsandprogrammesthrougharepresentativenumberofcasestudiesinpartnercountries.ThisassessmentwillbebasedontheDACevaluationcriteria,e.g.• Relevance(e.g.appropriatenessoftheprocuredgoods,

worksorservices,andwhetherthetyingstatusofaidisconsistentwiththecounty’sdevelopmentobjectiveandneeds.

• Efficiency(e.g.costandnon-costfactorssuchas,qualityofgoodsandservices,deliveryperiod,guaranteeconditions,maintenanceconditions,costofrepairsandspareparts,safetyandhealthaspects)

• Impact(e.g.effectsonthemarketforlocalandregionalproducers,onpromotionofthelinkageofthelocaleconomywithregionalnetworks,globalnetworks,onemployment,onpro-poorgrowthandpovertyalleviation,andongenderandenvironment,impactofuntiedaidonCorporateSocialResponsibilityandonprojectlifetimecostsavings.

18.Theassessmentslistedabove(e.g.Chaptersii–vi)shouldbediscussedwithrepresentativesfromdonors,partnercountries,civilsocietyandtheprivatesectortoarriveatasmallsetofkeypolicyfocussedconclusionstoincreasetheeffectiveness,quality,transparencyandshareofaidthatisun-tied.60TheserecommendationsshouldmeettheDACcriteria

60 The modalities for this need to be established.

forreviewingpossiblewaystoincreasetheshareofaidthatisuntied.First,thereshouldbebroad-basedsupportfortheproposalandsecond,themagnitudeofthepotentialbenefitsshouldbereasonable.

5 Timing19. TheinitialreportonStageIshouldbereadyintimefortheThirdHighLevelForumonAidEffectiveness,whichwillbeheldinAccra,Ghanaon2-4September2008.ThespecifictimingofstageII,e.g.partnercountrycasestudies,willbedecidedwhenspecificToRhavebeendevelopedandrelevantcasestudycountriesidentifiedandagreedupon.Tentativeschedule:

1August2008:PhaseOne:DraftReport5September2008:DraftPaperonMethodologyforPhaseTwoMidSept-midOctober2008:DAC/EvaluatorsAgreeonDe-tailedPlansforPhaseTwoMidOctober-MidNovember2008:Recruiting/contractingforCountryStudiesNovember-December,2008:LaunchCountryStudiesMarch2009:DraftCountryStudiesApril2009:DraftReportonPhaseTwoMay2009:PeerReviewofDraftReport;AgencyreviewJune2009:PresentationofFinalDraftReport

6 Experts profile 20. Theresearchteamshouldcombinetrainingandexperi-enceindevelopmentpolicy,officialdevelopmentassistancefinancing,evaluationandprocurement,andhaveasoundexperiencerelatedtotheissuesofresultsassessments.Theyshouldalsohaveexperienceregardingtheissueofthetyingstatusofaidandbefamiliarwithrelatedpublicationsandworks.TheteamshouldcombineexpertsfromdifferentDACMemberStatesandfrompartnercountries.

7 Reporting21. Atthestartoftheassignmenttheconsultantswillprovideaninceptionreport.Duringtheassignmentthecon-sultantswillprovideprogressreportsonacontinuousbasis.ProgressinworkandprovisionalresultswillalsobepresentedanddiscussedinregularmeetingswithaManagementGroupcomprisingrepresentativesoftheDACSecretariatandtheRef-erenceGroupfortheEvaluationoftheParisDeclaration.Theconsultantsshouldacceptsuggestionsandguidelinesagreeduponatthesemeetings.

22.AttheendofStageIoftheThematicStudyaninterimreportwillbeproducedinEnglishnolaterthan1August2008.Thisreportwilldescribetheresultsofthedescriptiveanalysis,database,conclusionsandreferencesaccordingtosection4above.AttheendofStageIIafterthecompletionofthecasestudies,acomprehensivereportwillbeproducedinEnglishnolaterthanJune2009


Annex A

23. ThereportwilltheneventuallyberevisedfollowingcommentsfromtheManagementGroup.Thefinalreport,whichshouldlinkaclearcommunicationsstylewitharigor-ousanalyticalapproach,willbepublishedandsharedwiththeOECDmembersandpartnercountries.

8 BudgetAmaximumof€310.000isavailable.Distributedapproxi-matelyasfollows:

PhaseI: EUR52,000PhaseII:CoordinationandSynthesis: EUR90,000FourCountryCaseStudies: EUR168,000


Annex B

AnnEX B: AdditionAl stAtistiCAl MAtEriAlTable B.1 DAC donor countries: bilateral ODA by consolidated sectors in 20071. Tying status as % of sector ODA.

Consolidated Sector (US$ million) (%)



Tied Not Re-ported

Untied share of bilateral ODA

I.1.a. Education, Level Unspecified 1,822 2.0 85.0 0.3 7.8 6.9 2.3

I.1.b. Basic Education 1,800 2.0 83.5 0.3 13.8 2.3 2.2

I.1.c. Secondary Education 764 0.8 68.7 0.0 10.3 21.0 0.8

I.1.d. Post-Secondary Education 3,781 4.2 48.9 0.0 39.5 11.6 2.7

I.2.a. Health, General 1,486 1.7 86.7 1.0 6.3 6.0 1.9

I.2.b. Basic Health 2,911 3.2 85.3 0.2 12.2 2.3 3.6

I.3. Population Pol./Progr. & Reproductive Health 6,482 7.2 90.9 0.1 8.3 0.7 8.6

I.4. Water Supply & Sanitation 4,402 4.9 89.0 0.4 8.1 2.5 5.7

I.5.a. Government & Civil Society-general 8,783 9.8 71.9 0.3 25.3 2.5 9.2

I.5.b. Conflict, Peace & Security 2,504 2.8 67.8 0.2 27.6 4.4 2.5

I.6. Other Social Infrastructure & Services 3,401 3.8 53.6 0.1 40.7 5.6 2.7

II.1. Transport & Storage 3,863 4.3 72.2 0.0 24.6 3.2 4.1

II.2. Communications 276 0.3 60.2 0.0 26.5 13.3 0.2

II.3. Energy 3,881 4.3 82.2 0.2 16.8 0.9 4.7

II.4. Banking & Financial Services 1,655 1.8 92.4 0.2 6.1 1.3 2.2

II.5. Business & Other Services 1,456 1.6 54.2 0.0 40.3 5.4 1.2

III.1.a. Agriculture 3,508 3.9 86.6 0.4 8.6 4.5 4.4

III.1.b. Forestry 565 0.6 92.2 0.0 1.5 6.3 0.8

III.1.c. Fishing 194 0.2 59.8 1.1 21.6 17.6 0.2

III.2.a. Industry 703 0.8 71.1 0.1 15.0 13.9 0.7

III.2.b. Mineral Resources & Mining 42 0.0 42.8 0.0 14.9 42.3 0.0

III.2.c. Construction 85 0.1 75.4 0.0 20.2 4.4 0.1

III.3.a. Trade Policies & Regulations 462 0.5 69.5 0.0 17.5 12.9 0.5

III.3.b. Tourism 46 0.1 43.9 0.0 31.2 24.8 0.0

IV.1. General Environment Protection 2,237 2.5 78.9 2.2 14.7 4.2 2.6

IV.2. Other Multisector 4,075 4.5 84.7 0.5 11.2 3.6 5.0

VI.1. General Budget Support 2,769 3.1 99.3 0.0 0.7 0.0 4.0

VI.2. Dev. Food Aid/Food Security Ass. 1,020 1.1 46.9 0.0 53.0 0.0 0.7

VI.3. Other Commodity Ass. 278 0.3 1.2 0.0 0.2 98.6 0.0

VII. Action Relating to Debt 9,010 10.0 100.0 0.0 0.0 0.0 13.2

VIII.1. Emergency Response 6,270 7.0 76.8 0.3 22.9 0.0 7.0

VIII.2. Reconstruction Relief & Rehabilitation 799 0.9 92.5 0.0 7.5 0.0 1.1

VIII.3. Disaster Prevention & Preparedness 132 0.1 95.4 0.0 4.0 0.6 0.2

IX. Administrative Costs of Donors 4,357 4.8 20.4 0.9 46.3 32.4 1.3

X. Support to NGO’s 799 0.9 84.4 3.0 1.5 11.1 1.0

XI. Refugees in Donor Countries 1,968 2.2 59.2 0.0 31.9 8.9 1.7

XII. Unallocated / Unspecified 1,360 1.5 44.6 0.5 8.0 47.0 0.9

All sectors 89,945 100.0 76.0 0.3 18.0 5.7 100.0

All sectors (including EC ODA) 103,318 66.2 13.2 15.6 5.0

Source: OECD CRS database.Notes: 1. Data are based on commitments in current US$ millions.


Annex B

Table B.2 Formal features of the 21 project case studies61 62

Project Number

Project Name Country Partner

Donor(s) Value of Donor contribution (millions)

Formal untied aid share61

Sector Major Input Type

1 RRHF (Rapid Response Health Fund) South Africa DFID UK£ 15 100% Health TC

2 EPDPHCP (Extended Programme for Delivery of Primary Health Care)

South Africa EC € 70 100% partially untied

Health TC

3 Buffalo/Leiden Storm Water & Drainage

South Africa VNG62 € 0.3 31% untied Water & Sanitation

TC

4 PROFIT (Production, Finance and Technology)

Zambia USAID US$ 17.5 100% Business TC

5 WSSNP (Water Sector Support In Northern Province)

Zambia Irish Aid € 2 100% Water & Sanitation

Investment

6 SWSP (Southern Province Water Supply and Sanitation Project)

Zambia KfW DM 27 Tied and untied aid (shares unknown)

Water & Sanitation

Investment

7 WSPIP (Water Sector Performance Improvement Project)

Zambia World Bank (IDA) US$ 33 100% Water & Sanitation

Invest-ment

8 NTP RWSS II (National Target Programme for Rural Water Supply & Sanitation

Vietnam AusAID, Danida, Netherlands

US$ 125 100% plus services-in-kind

Water & Sanitation

Investment

9 Saigon River Lowlands Flood Prevention Project

Vietnam AFD US$ 11.8 100% Water & Sanitation

Investment

10 Phan Ri-Phan Thiet Irrigation Project

Vietnam JICA US$ 51.9 100% Water & Sanitation

Investment

11 Nam Tuan Irrigation Project Vietnam LuxDev € 3.3 100% Water & Sanitation

Investment

12 Lao-Swedish Road Sector Project Phase III

Lao PDR Sida US$ 20 100% plus services-in-kind

Roads Investment

13 ICBRDP (Integrated Community Based Rural Development, Namor & Xay Districts, Oudomxay Province)

Lao PDR EC € 1.1 100% partially untied

Rural Development

Investment

14 Vientiane Water Supply Develop-ment Project

Lao PDR JICA, MOFA US$ 30.2 Tied and untied aid (shares un-known)

Water & Sanitation

Investment

15 Nam Theun II Lao PDR AFD, WB, Thai-Exim, ADB, EIB, Private Banks and Shareholders

US$ 1,450 100% untied Energy Investment

61 It proved impossible to consistently identify projects in the CRS database therefore this column is populated with the study team’s best estimate of the formal reporting of the untying status for each project

62 Association of Netherlands Municipalities.


Annex B

Table B.2 (continuation) Formal features of the 21 project case studies6364

Project Number

Project Name Recipient Foreign Funder(s) Value of Donor contribution (millions)

Formal untied aid share64

Sector Major Input Type

16 PADSEA (Programme d’Appui au Développement du Secteur Eau et Assainissement)

Burkina Faso

Danida, Sida CFAF 30.7 100% untied Water & Sanitation

Investment

17 CNTS (Le Projet d’Appui au Centre National de Transfusion Sanguine)

Burkina Faso

LuxDev CFAF 1.3 100% untied Health Investment

18 ZIGA (Le Projet d’Approvisionnement en Eau potable de la ville de Ouaga-dougou à partir du barrage de Ziga)

Burkina Faso

WB, AFD, EIB, EDF, IDB, BADEA, KFAED, KfW, Belgium, OPEC, BERT

€ 228 92% untied and partially untied

Water & Sanitation

Investment

19 PADS (Le Programme d’Appui au Développement Sanitaire)

Burkina Faso

WB, Netherlands, Sida, AFD, ENFPA, PMNCH, GAVI, Gates Foundation, GFATM

CFAF 38 100% untied Health Investment

20 Damanko-Kpassa Ghana Danida/DFID US$ 2.5 65 100% plus services-in-kind

Water & Sanitation

Investment

21 NORWASP/NORST Ghana CIDA CDN$ 16.4 74% untied Water & Sanitation

Investment

63 It proved impossible to consistently identify projects in the CRS database therefore this column is populated with the study team’s best estimate of the formal reporting of the untying status for each project.

64 DfID contribution only as the value of the Danida supplied TC is not known.


Annex B

Table B.3 DAC donors: representativeness of the purposive sample of six partner countries

Donor All Developing Countries Countries under review

Commitments 2005-07 Untied aid share of donor ODA (%)

Commitments 2005-07 Untied aid share of donor ODA (%)

Australia 5391 83.5 138 78.2

Austria 3725 77.5 67 43.6

Belgium 4710 94.9 282 73.6

Canada 8454 62.1 301 67.3

Denmark 4394 90.4 755 93.5

Finland 1941 83.3 212 87.8

France 26080 78.5 2174 72.7

Germany 28404 74.3 1527 80.7

Greece 652 28.0 4 55.3

Ireland 1948 97.9 196 100.0

Italy 6667 65.7 117 51.1

Japan 41882 78.2 3880 70.4

Luxembourg 670 100.0 105 100.0

Netherlands 18595 90.8 1266 88.1

New Zealand 875 64.4 35 65.2

Norway 7500 99.8 370 99.1

Portugal 1066 56.5 1 99.0

Spain 8390 49.7 120 48.3

Sweden 8078 92.0 440 98.8

Switzerland 4182 68.0 184 76.1

United Kingdom 26033 100.0 1566 100.0

United States 76758 45.5 2494 73.2

Total DAC donors 286393 71.6 16235 79.3

Source: OECD Creditor Reporting System (CRS) database.Notes: 1. Data are based on commitments in current US$ mn.


Annex C

1 Introduction – objectives and scope of investigationIfoneconsiderstheexportsfromdevelopedindustrialdonorcountriesthatconstitutetheDACtoaidrecipientdevelopingcountriesthenonewouldexpecttheflowofexportsfromthedonorcountrytotherecipientcountrytobeexplainedbyfactorssuchasthesizeoftheexportingeconomy,proximityordistance,andsharingacommonlanguage.Eventhetotallevelofaidmightbeaninfluenceontheexportsofalldonorcoun-tries.However,inamulti-donorworldwherenosingledonordominates,astheUSdidduringtheMarshallPlanera,thereisnoreasonwhythelevelofaidfromadonortoarecipientwouldinfluencethatdonor’sexport,unlessbilateralaidwerehavingatradedistortingeffectthroughexplicitorimplicittying.Tyingiswidelyconsideredtoadvantageexportersinthedonorcountry.Untyingisthereforeexpectedtoreducethedistortingbiasofaidinfavourofthedonor’sexports.Similarlybilateralconcessionalloanswerethoughttobeoftenassoci-atedwithdonorexports,forexamplethroughamixedcreditarrangement.

Thisannexthereforeinvestigateswhethercurrentbilateralaidflowsandassociatedpracticesarehavingtradedistortingeffects.TheaimistounderstandwhetherbilateralODAisaninfluenceondonorexport,evenwithcurrenthighlevelsofuntying,whilsttakingintoaccountothervariablesthatmightbeinfluencingthisrelationship(suchasFDI,exportcredits,ECdisbursements).Conventionally,tyingstatusandthedifferentformsinwhichaidisprovided,forexampleloansandgrants,havebeenhypothesisedtoinfluenceaggregatedonorexportflowsatthecountrylevel.

Inordertotakeintoaccountcountryspecifics,asimilareconometricinvestigationisbeingundertakenforeachofthesixcasecountrystudies65andanoverallanalysisforthesixcountriesisprovidedinthissection.Thesixcountriesarepur-posivelypairedaccordingtotradingregiontoisolatepotential

65 The econometric analysis for each country can be found in Country Reports which will be placed on the PDE web-site in due course.

regionaleffects:GhanaandBurkinaFasoinWestAfrica,LaoPDRandVietnaminSouthEastAsiaregionandASEAN,andZambiaandSouthAfricainSADCregion.Moreover,thesixse-lectedcountriesalsodifferfortheirDACclassification:BurkinaFaso,LaoPDR,ZambiabeingLDCs,SouthAfricaasUMIC,andVietnamandGhanaasOLICs;BurkinaFaso,GhanaandZambiaarealsobeingclassifiedasHIPCs.

TheAnnexisorganizedasfollows.Thefirstsectionbrieflysetsoutthetheoreticalframework.Sections3and4respectivelybrieflydescribethemethodologyandthedataused.Section5discussesandcomparestheresultsoftheempiricalanalysisoftherelationshipbetweenaidandtradeflowsforthesixcountriesunderreview.

2 Theoretical framework Thebasicideaistoconsiderwhetherthereisanytradedistort-ingeffectsofaidatanaggregatedlevelbyexaminingwhetherbilateralaidfromaparticulardonortoarecipientcountryaffectstradebetweenthatdonorandrecipientpairdifferentlyfromaidfromotherdonors.

TherecouldbeseveralreasonswhyOfficialDevelopmentAssistancecouldleadtoanincreaseinthedonor’sexports(positive impact).Themostobviousexplanationisthataid is formally tiedtoex-portsfromthedonorcountry(direct effect);bydefinitiontiedaidresultsintradedependency66.However,thereareseveralwaysforadonortoeffectivelytieaidwithoutaformaltyingagreement.Therefore,alsode factotyingbycovertrestrictionsonsourcingcangenerateincreasedtradewiththerecipient.TherearethenotherindirecteffectsthatmightleadtoapositivecorrelationbetweenODAanddonor’sexports.Aidmighthaveamacroeconomic impact intherecipientcountries;higherratesofeconomicgrowthandstructuraleconomic

66 Tied aid may simply finance donor exports that would have been procured from the donor country anyway; however, we would expect tied aid to usually increase donor’s exports.

AnnEX C: EConoMEtriC AnAlysis of tHE iMpliCAtions of BilAtErAl

Aid for donor EXports


Annex C

reformssuchastradeliberalizationmightindirectlyimpactondonor’sexports.Moreover,aidflowscouldresultinanincreaseintradewiththedonor,reflectingthegoodwilloftherecipienttowardsthedonor.Finally,theaidrelationshipmightfacilitatetradebetweenthedonorandtherecipientincreasingrecipi-ent’sproclivitytoprocuregoodsfromthedonor(reinforcingcommercialties).Intheory,bilateralaidcouldalsodecreasedonor’sexportstotherecipientcountry(negative impact);ifaidweretiedtheremightbeastraightforwardsubstitutioneffect(Oseiet al.,2004;Wagner,2003;Martínez-Zarzosoet al.,2008;Zarin-Nejadanet al.,2008;).Alsoiftherewereapartialtyingrestriction,forex-ampletolocal,regionalordevelopingcountrysourcing,thatcouldhaveanegativeeffect.Ingeneral,earlierstudies(Nilsson,1997;Wagner,2003;Martín-ez-Zarzosoet al.,2008;Zarin-Nejadanet al.,2008;Nowak-Leh-mannet al.,2008;PettersonandJohansson,2009)havefoundapositivecorrelationbetweendonoraidanddonorexports;theseresultshaveusuallybeenseentocorroboratethehy-pothesisthataidistied(formallyorinformally)toexportsfromthedonorcountry(PettersonandJohansson,2009).

3 Methodology – Empirical specificationThegravityapproachhasbeenoftenpraisedforitsremarkableexplanatoryvariableanditissolidlybasedintheempiricallit-erature(asopposedtoTajolimethodologywhichisonlyami-norapproach).Grangercausalityitselfhasseverallimitations67andwouldbedifficulttoimplementgiventhelimitednumberofobservationsavailable.Forthisreasonitwasdecidedtouseagravitymodelandadaptittothecountrylevel.

Inthissection,theempiricalspecificationusedtotestempiri-callythehypotheses68issetout.Thisfollowscloselythemeth-odologyadoptedbyMassaandTeVelde(2009).First,thefollowingregressioniscomputedinordertoun-derstandwhetheraidflowshaveanimpactontotaldonors’exportflowstotherecipientcountryatanaggregatelevel.

67 See ‘Problems in estimating the determinants of exports – the aid and trade relationship’ section of the background paper for a full discussion on the direction of causality as well as Granger causality drawbacks.

68 See ‘problems in estimating the determinants of exports related to the nature of the aid and trade relationship’ section of the background paper (Natali et al., 2009). The variable for the recipient having been in a colonial relationship, is also dropped; at the country level this variable loses its interest and moreover it is likely to be highly correlated with the common language variable.

ThedependentvariableExpirepresentstheexportflows69fromcountryitotherecipientcountry;YiandYpcimeasurerespectivelytheGDPandGDPpercapitaofdonorcountryi;DististandsforthedistancebetweentheexportingandtherecipientcountrywhereasComLiisadummyindicatingwhetherthedonorcountryandrecipientshareacommonofficiallanguage70;FDIistandsforforeigndirectinvestmentstotherecipientcountry;ExpCistandsforexportcredits;ImpRistandsforimportresiduals;ODAiisthecountryi’sOfficialDevelopmentAssistancetotherecipientcountrywhereasODAAll-irepresentsODAtherecipi-entcountryreceivesfromallthebilateraldonorsotherthancountry i.εiistheerrorterm,normallydistributed,withmean0andvarianceσε

2.

Theremightbeanumberofunmeasuredinfluencesthataffectbothaidandexportsinthemodel.Theomissionofvariablesrepresentingsuchinfluences(eitherdifficulttomeasureandunquantifiablerelationshipssuchaspoliticaltiesbetweenthedonorandtherecipient,orsimplyunderlyingrelationshipsnotidentifiedaspotentialdeterminants)couldleadtoattributingtoogreatanimportancetotheexplana-torypowerofforeignaid.Aidcouldbeproxyingforacomplexrelationshipincludingseveraloftheseomittedvariables.InordertoovercomethisproblemanOLSregressionofimportstothedonorfromtherecipientisestimatedandtheresidualsfromthisregressionareincludedintheoriginalequations.Thisprocedureiscarriedoutontheassumptionthatunderly-ingrelationships,andmoreingeneralunmeasuredvariables,betweenthedonorandtherecipient(tradingpartnersinthiscase)affectimportsandexportsinthesameway(Wagner,2003).

69 Exports include all traded goods but not services. Ideally, exports of goods and services would have been used as a dependent variable; this exercise would have proved particularly interesting considering aid is often tied to consultancy services. However, exports of services had to be excluded due to the unavailability of disag-gregated data (see data issues in the background paper for further details).

70 In order to adapt the original gravity model to the country level, the recipient’s GDP and GDP per capita (which only vary across years and not across donors) are not included in the regressions. The dummy ‘colony’, indicating whether the donor and the recipient have been in a colonial relationship, is also dropped; at the country level this variable loses its interest and moreover it is likely to be highly correlated with the common language variable.

(ODA aggregated)


Annex C

Second,theaboveregressionisre-estimatedincludingapotentiallyimportantextravariableTS(tyingstatus).TSistandsfortheshareofdonorODAreportedastied.Thereisadirectlinkbetweenformallytiedaidandtrade.Whenadonorprovidestiedaid,therecipientisconstrainedtothepurchaseofdonorcountryexports.

Third,theregressionaboveisre-estimateddisaggregatingODAintoloansandgrants71totestwhethercertainaidinstru-mentsimpactdifferentlyontradeflows.

Aidinstrumentsaredistinguishedbasedontheoriginoftheflows.Grantsiisthecountryi’sgrantstotherecipientcountrywhereasGrantsAll-i representsthegrantstherecipientcountryreceivesfromallthebilateraldonorsotherthancountryi.Similarly,LoansiandLoansAll-i arerespectivelytheloanstherecipientcountryreceivesfromexportingcountryi,andfromallthecountriesotherthancountryi72.

However,theexclusionofcertainpotentiallyimportantfactorsmayconfoundtheinfluenceoftheexplanatoryvariablesonexportflows.Therefore,theaboveregressionisre-estimatedincludinganECvariable;somedonorpersonnelinGhanasuggestedthattheACP-EUrelationshipmightbeaninfluenceonexportsfromEUcountries.InordertoexplorefurtherthisrelationshipavariableforECdisbursementsisincluded.

4 DataTheeconometricanalysis includes annualflowsofex-ports and ofaidandotherdevelopmentfinancefrom upto22DACdonors tothesix recipientcountrieswithobservationscovering2002-07 becauseofdata availability and qualityis-suesforearlieryears. ThebilateraltradedataarefromtheIMFDirectionofTradeStatisticsdatabase,ODAdataaretakenfromtheOECDCRSdatabase,FDIcomefromtheOECDInterna-tionalDirectInvestmentStatisticsandofficialexportcreditsareasreportedtotheOECD.ThebilateraltradedataarefromtheIMFDirectionofTradeStatisticsdatabase,ODAdataaretakenfromtheOECDCRSdatabase,FDIcomefromtheOECDInternationalDirectInvestmentStatisticsandofficialexportcreditsareasreportedtotheOECD.

71 Aggregated ODA includes loans, grants, equity investment and grant-like (see definitions section). However, with the disaggregated analysis information about equity investment and grant-like is lost.

72 One cannot compute the log(loans) or log(grants) when the variable is equal to zero (the log is undefined). To handle this type of problem we add 1 to the data before logging it – log(0+1). We assume that such adjustment is immaterial in the dataset as all positive values in the data are large numbers.

Theanalysisusesaiddisbursementsandnotcommitments,becausetradeeffectsareexpectedtofollowactualdisburse-mentsandnotcommitments.Dataonthetyingstatusofaid,however,isnotavailableindisbursementform73.Therefore,aproxyforthetyingstatusiscomputedbyapplyingtheshareoftiedcommitmentstototalcommitments(averageoftheprevioustwoyears)andthenassumingthetiedshareindis-bursedaidtobethesame.

DataforGDPandGDPpercapitaaretakenfromtheWorldDevelopmentIndicators(WDI)Onlinedatabase.Allnominalvariables(exports,exportcredits,GDPandGDPpercapita,FDI)aredeflatedinto2000constantUSdollarsusingDACdeflators.DatafordistanceandcommonlanguagedummyaretakenfromtheCEPIIDistanceDatabase.

5 Comparative econometric results Limitationsontheavailabilityandqualityofthedata,thesmallsampleandpotentialproblemswiththeeconometricmodel,warrantcautionininterpretingtheresultsatthecoun-trylevel74.Over-interpretationofresultsfromsmalldatasetsshouldbeavoidedespeciallygiventheincompletenatureofthetradedata:theanalysisisrestrictedtotradeingoodsandthereforethepotentialtradedistortingimpactoftechnicalas-sistance/cooperation,whichisbothasignificantshareofODAandanevenlargershareoftiedODA,isnotpickedup.

Moreingeneral,findingsatthecountrylevelsuggestproba-bilisticandnotnecessarilyrobusteconomicrelationships.However,thissectionwillprovideafullerandpossiblymorerobustanalysislookingatthecomparativeresultsforthesixcases,highlightingsimilarpatternsandsystematicexplicabledifferences.

73 In the OECD Creditor Reporting System, tying status is reported against new commitments only.

74 See data section in background paper for further details.

(Tying status)

(ODA disaggregated)


Annex C

Itisinterestingtocompareresultsforsixcountriesdeliber-atelypairedaccordingtotradingregion:GhanaandBurkinaFasoinWestAfrica,LaoPDRandVietnaminSouthEastAsiaregionandASEAN,andZambiaandSouthAfricainSADCregion.Moreover,thesixselectedcountriesalsodifferfortheirDACclassification:BurkinaFaso,LaoPDR,ZambiabeingLDCs,SouthAfricaasUMIC,andVietnamandGhanaasOLICs;BurkinaFaso,GhanaandZambiaarealsobeingclassifiedasHIPCs.Econometricresultsbycountryarereportedineachcountryreportswhereasasynthesistable(Table6.4)withtheeconometricresultsforthesixcountriesisreportedinChapter6.

Inlinewithexpectationsandpreviouspublishedfindings,thesizeofdonoreconomyseemstobeoverallanimportantde-terminantofbilateralexports;anincreaseinGDPisassociatedwithariseinexports.However,thelevelofdevelopmentofdonorcountries,measuredbytheirincome per capita level,hasnoimpactonbilateralexportflows75.

Distanceisnotfoundtobesignificantanddoesnotseemtoaffectthelevelofexportflows.OnlyinVietnam,inaccordancewiththetheory,distanceisfoundtobehighlysignificantandnegative;anincreaseinthedistanceleadstoadecreaseinexportsfromdonorcountries.

Onestrikingdifferenceinresultsamongcountriesconcernsthecommonlanguagevariable.ThelanguagevariableprovestobestronglysignificantonlyforFrancophoneBurkinaFaso;thisdoesnotholdfortherestofthecountries76:withEnglishbeingthelinguafrancaofinternationalcommerce,noobservableadvantageisconferredonAnglophonecountries.Sharingthesameofficiallanguageisstronglyandpositivelylinkedwithbi-lateralexportflowsfromFrancophonedonorsandBurkinaFaso;suchrelationshiphoweverisnotsimplydrivenbyalanguageissuebutbythelinkswithformercolonistFranceastheestima-tionofanalternativespecification,wherethelanguagevariableissubstitutedwithacolonyvariable,shows.

Thedirectionoftherelationshipbetweenformallytiedaidandexportsisasexpectedbutnotatallrobust:theestimatedtying statusvariableispositivebutnotalwayssignificant.ThepositiverelationshipimpliesthatthehighertheshareoftiedaidoverdonorODAthehighertheexportflowsfromthedonorcountrytotherecipient(Ghana,SouthAfricaandZambia).Thisresultislesstrivialthanmightappear.Itisnotclearthattiedaidalwaysleadstoanincreaseindonorexportsastiedaidmaysimplyfinancedonorexportsthatwouldhavebeenprocuredfromthedonorcountryanyway(PettersonandJohansson,2009).

75 In Burkina Faso, however, the direction of the relationship between exports and the level of development of donor countries, measured by their income per capita level, is unexpected although apparently robust.

76 In Vietnam and Lao PDR, the common language variable is automatically dropped: no donors share the common official language with either Vietnam or Lao PDR.

Whenaidisdisaggregatedintermsofloansandgrants77,grantsfromthedonorcountryarefoundtobepositivelyassociatedwithdonors’exportswhereasgrantsfromtherestofbilateraldo-norsarenotsignificant.Suchresultsaresuggestiveofsomeformoftradedistortion:itisdifficulttoexplainwhybilateralgrantsfromaparticulardonortoarecipientcountryshouldaffecttradebetweenthatdonorandrecipientpairdifferentlyfromgrantsfromotherdonors.Grantsresultinanincreaseintradewiththedonorcouldbeseenasmostlikelyreflectinginformalorde factotyingofgrants;amongotherpossibleexplanationstherecouldhoweverbethegoodwillontherecipientparttowardsthedonor;still,theaidrelationshipmightsimplyfacilitatetradebetweenthedonorandtherecipient,increasingrecipient’spro-clivitytoprocuregoodsfromthedonor(reinforcingcommercialties)78.Incontrast,loans,whichareanunimportantformofaidinmostofthecountriesanalyzed,arenotasignificantinfluenceondonorexports.Thismightinpartbeexplainedbythegrant/loanlevelinthecountriesanalyzed:adisaggregationofODAintoloansandgrantsisnotnecessarilyverymeaningfulsincetheloancomponenthasbeenverysmallandthereforeanunimpor-tantformofaidinmostcountriesapartfromVietnam.

Tosumup,theaidvariablesareprovedtobeanimportantinfluencesuggestingthataiddespitetheformaluntyingisneverthelessasignificantpartofthecomplexcommercialrelationship.Results,asreportedinthebackgroundpaperwhereanaggregateODAvariablehasbeenincluded,high-lightthattheoverallexplanationdoesnotincreasemuchindisaggregatingfromthetotalaidvariable.

Otherflowsseemhowevertohaveabearonbilateralexportflows.DuetodatarestrictionsthisrelationshipisstudiedonlyintheSouthAfrican79casewhereFDIarefoundtobeaposi-tiveinfluenceonbilateralexportstowardthehostcountry.Thiscouldbeexplainedbypatternsofintra-firmtradewithinmulti-nationalenterprises(MNE),thatisexportsbetweenhomecountryparentsandtheirforeignaffiliates(HejaziandSafarian,2001).Forinstance,newfacilitiessetupbyaMNEsubsidiarycouldbeequippedusingimportedcapitalgoodsfromthehomecountry;therearehoweverseveralotherwayswellbeyondtheinitialinvestmentinwhichFDIandexportscouldbestronglylinkedinSouthAfrica.Otherpotentialinfluencesarefoundtobewhollyinsignificant:export creditshavenoimpactonbilateralexportflowsinthosecountrieswheresuchdatawasavailable.Thismighthoweverberelatedtothepoorqualityofthedata80.

77 Econometric results for an aid aggregate variable are reported only in the background paper.

78 See theoretical framework.

79 An attempt was made to include FDI as an explanatory variable in the empirical specification for the remaining countries; however, reviewing that data it was found this would have led to a substantial loss of observations as 2007 data are still not available from the OECD International Direct Investment Statistics, and there are also many missing values in the data for some specific donors in particular years.

80 Very few observations and missing values have been treated as zeros (see data section in background paper).


Annex C

Thestatisticalrelationshipsfoundhighlightinfluencesreflect-ingtheavailabledata;intherealitythereareotherrelation-shipsoftendifficulteithertoidentifyormeasure.The import residualsvariable,whichisusedtocontrolforsuchunderlyingrelationshipsbetweenthedonorandtherecipientcountries,ishighlysignificantandpositiveforSouthAfrica,LaoPDRandVietnam(nonACPcountries),implyingthatspecialrelation-shipsbetweentradingpartnersdoexistandimpactpositivelyontheexportslevel.Thisresultissuggestiveofacomplexreciprocalcommercialrelationshipforthesecountries;bilat-eralaidcouldincreaserecipientexportstodonorcountriesinSouthAfrica,LaoPDRandVietnam.Ifitistruethatasaresultofthedonor-recipientrelationship‘theeffectivecostofgeographicdistance’reduces(PettersonandJohansson,2009),furtherresearchisneededtoanalyserecipienttradeflowsandnotjustexportflows.

Finally,overallresultssuggestthatdisbursements fromthe EC impactpositivelyonbilateraldonorsexportsinfullACPmem-bercountries(BurkinaFaso,GhanaandZambia)supportingtheideathattheACP-EUrelationshipisapositiveinfluenceonexportsfromEUmemberstatesinACPrecipientcountries.

6 ConclusionOveralltheseresultssuggestthataidisstilladistortinginfluenceontrade,evenafteruntyingofmostbilateralODA,justifyingacloser,disaggregatedexaminationoftheusesofaidandsourcingofgoodsandserviceswithaidfunds.Inthepost-tyingworld,alsodisaggregateaidflowsestimatessup-porttheexistenceofsometradedistortingeffectsofaidatleastforgrants;loans,whichareanunimportantformofaidinmostofthecountriesanalyzed,arenotasignificantinfluenceondonorexports.


Annex D

d.1 ghana Country study81

IntroductionThisstudyisacontributiontoPhaseTwoofthewiderOECDDAC–PDEThematicStudyonUntiedAid82.TheThematicStudyonUntiedAidisdesignedtoprovidebothacomprehensiveassessmentofcurrentdonorpoliciesandpracticesregardingthetyingstatusofaidandanassessmentoftheeffectsoftheuntyingstatusonaideffectiveness.TheGhanaCountryStudyisfundedpartlyunderagrantfromKfWtotheOverseasDevelop-mentInstitute(ODI),London,andpartlybytheSecretariatfortheParisDeclarationEvaluationandtheDCDoftheOECDinsupportingtheThematicStudyonUntiedAid.ThePhaseOnereport83focusedontheHQlevelandtheex-tentoftheformaluntyingthathasbeenreportedbydonors.PhaseOneconcludedthatODAtoLDCs,andtodevelopingcountriesmoregenerally,isnowoverwhelminglyformallyuntied,exceptingexemptedcategoriesunderthe2001Rec-ommendation.However,therehasbeenverylittlesystematicinvestigationintotheeffectivenessofuntiedaid,orevenintounderstandinghowuntyingworksatthecountrylevel.Thiscountrystudyispartofawiderattempttoaddressthisgap,andwasdesignedtoserveasthepilotforthesubsequentseriesoffivefurtherrecipientcountrystudies.InselectingGhanaforthepilotcountrystudy,severalfactorsweretakenintoaccount:

• Africanstatesmakeupalargeshareofaidrecipientcoun-tries.

• Ghanaiswidelyregardedashavingrelativelygoodgov-ernance,andhasnotsufferedanyrecentlarge-scalehu-

81 The study was undertaken by Matthew Geddes, Emmanuel J. Mensah, Luisa Natali and Peter Quartey ([email protected]) (Geddes et al., 2009).

82 The full title is: The Developmental Effectiveness of Untied Aid: Evaluation of the Implementation of the Paris Declaration and of the 2001 DAC Recommendation on Untying ODA to the LDCs.

83 http://www.oecd.org/dataoecd/5/22/41537529.pdf

manitariancrisisorothershockthatwouldhaveresultedinahighproportionofnon-developmentaid.

• Donorsemployawiderangeofinstrumentsandmodali-ties.

• Ghanahasarecentlyreformedprocurementlawand,inaddition,arangeofprocurementoptionsshouldbeavail-able.

• TheGovernmentisstronglycommittedtothePDprocessforaideffectiveness,asreflectedinithostingtheAccrasummitin2008,thereforeensuringtherequisiteco-op-erationforastudyfocussedontheeffectivenessofdonorpractices.

Ghanahasapopulationofapproximately23millionandinrecentyearshasenjoyedsteadyandincreasingeconomicgrowth,aswellasbeingthefirstSub-SaharanAfricancountrytoachievetheMillenniumDevelopmentGoal(MDG)onpov-erty.GNIpercapitawasUS$450in2005,andODAwas10.4%ofGDPin2005.ODAtoGhanaamountedtoUS$1,236mnin2007,equivalentto10%ofGNIandoverUS$50percapita.Ghanaisregardedasa‘star’partnerofthedevelopmentco-operationcommunity.Supportisbroadbased:theWorldBankprovided20.4%ofODAdisbursementsin2007;Netherlands,12.8%;UK,11.9%;USA,9.4%;EC,6.7%;AfDB,5.4%;andDen-mark5%,withfiveotherdonors–Canada,France,Germany,JapanandSpain–eachcontributingbetween2.5%and4.7%.BilateraldonorsincreasinglydominateaidsupportinGhana.Asthepre-Accraaidperformancereviewrecognised,thismul-tiplicityofdonorsexemplifiestheneedforactiononimple-mentationoftheParisDeclarationonaideffectiveness.

MethodologyUntyinginpracticeinvolvestherelaxationofjustonecon-straintontheprovisionofaid–onthesourcingofgoodsandservices.Theapproachadoptedistoconsiderthequestionofeffectivenessintermsoffivesequentialissues.Firstly,it

AnnEX d: EXECutivE suMMAriEs of Country studiEs

The full country reports can be downloaded from http://www.oecd.org/dac/evaluationnetwork


Annex D

examinestheassociationbetweenformaluntyingandaidmo-dalitiesandusesinstatisticalterms.Secondly,itlooksattheconnectionsbetweennewerandpotentiallybetterpracticesinthePDaideffectivenesssenseforwhichuntyingisaneces-sarycondition.Thirdly,itinvestigatestheeffectsofuntyingonprocurement,intermsofproceduresused,thesourcingofgoodsandservices,andtheimplicationsforthelocalandwiderregionaleconomy.Thisleadstoaprovisionalexplora-tionofboththecostefficiencyandfinallydevelopmentaleffectivenessimplicationsofuntying.Itishopedthatthisstudywillprovideabenchmarkagainstwhichfurthermovestowardsuntyingcouldbeassessed.Inaninitialreview,includingdocumentationanddiscus-sionswithstakeholders,itbecameclearthattoensurefocusandcomparabilitybetweenprojectstudiesthisstudyshouldconcentrateononesector.WaterandSanitationwasselected,becauseitisaninfrastructureandgrowthsectorwithastrongsocialorientation,whichinvolvesprocurementofsubstantialamountsofbothphysicalgoodsandservicesaswellasasig-nificantTCcomponentandavarietyofapproaches.ItisalsoasectorinwhichODAplaysakeyrole,manybilateraldonorsarestillinvolved,andithasbothruralandurbancoverage.

Asanexploratoryinvestigation,thestudyadoptedaneclecticapproach,combiningdifferentformsofanalysistodocumentandthenexaminetheconsequencesofcurrentaidpractice.Thisevidence-basedinvestigationinitiallyinvolvedadeskreviewoftheavailablestatisticalinformation,publishedandgreydocuments.Thestudyteamundertookaseriesofstructuredinterviews,betweenNovember2008andFebruary2009,withmajordonorsandthosesignificantinwaterandsanitationandgovernmentanditsagencies,aboutcurrentpolicyandpractice.Atwo-stepprojectanalysisincludedaninitialreviewofsixdonoractivitiesinthewatersectorand,duetodataaccessproblems,onlytwoin-depthstudiesofcurrentdonor-supportedprojects,toinvestigateprocurementpracticesandtheirimplicationsforcosteffectiveness.Inonecase,theteamundertook‘ground-truthing’fieldvisits.

Aid modalities and tying practicesAreviewbasedonOECDCRSdatafoundthat,formally,DACbilateralODAtoGhanawas75%untied,11%partiallyuntied,11%tiedand3%notreportedduring2005-07.ThispatternisbroadlysimilartoaveragereportedtyingstatusforbilateralODAforLDCsandHIPCsoverall.Thereis,however,significantvariationamongdonors,bothintermsoftyingandalsoofnon-reporting.ThereisanexistingmonitoringsystemforaidinGhana(theDevelopmentPartnerEnvelope),reportingtotheGovernmentanddonorsintheConsultativeGroup(CG),focusedonboththeMDGandPDobjectivesthatfacilitatedthestudy.A2006surveytotheCGbroadlyconfirmedthetyingstatusofaid,asreportedtotheCRS.Thedisbursementbyaidmodalityshowsover40%ofbilateralODAchannelledthroughprogrammaticmodalities,forwhichuntyingisnecessaryandalsolikelytoinvolvecountryprocurementsystemsincludinggeneralandsectoralbudgetarysupportandsomeformsofbasketfund-

ing(TableD.1).Theremainderofaidisdisbursedthroughaprojectapproach.Pooledfundingofprojects,anewermodal-itywhichislikelytobeassociatedwithuntying,wasidentifiedasgrowinginimportancebutisnotyetseparatelymonitored.TherearewidedifferencesindonorpracticeswithCanada,Denmark,France,Germany,Netherlands,Switzerland,theUK,aswellastheECandWorldBank,stronglysupportingtheprogrammaticarrangements.Otherdonorsprefertocontinuelargelywithestablishedproject-relatedarrangements(Japanandsomeminordonors),oreventoestablishnewparallelproject-typearrangements(USA),whichisseeminglyoutofstepwiththePDgoalofharmonisation.Thereisextensiveuseofcountryprocurementsystems(CPS),includingover50%ofaidtotheGovernmentsector,imply-ingthatatleast20%ofbilateralaidinaprojectapproachalsousesCPS.Anattempteddonorsurveybytheteam,toquantifybothuseofpoolingarrangementsanddifferentprocurementpractices,wasunsuccessfulduetopoorresponse.Thiswaspartlybecausedonors’ownfinancialandstatisticalmonitoringappearnottobeorganisedtoreportdirectlyoneithertyingpracticesoruseofdifferentprocurementarrangements,andpartlyduetoassessmentfatiguefollowingthesurveyunder-takeninpreparationfortheAccrameetingonthePD.

Thereremainconsiderableinconsistenciesbetweenthehighlevelofreportedformaluntyingandtheviewsofmanystakeholders(includingmostGhanaians)that,inpractice,tyingisstillwidespread,evenpervasive,especiallyonthepartofsomedonors.Ghanaiansuniformlyseeuntyingnotsomuchasavoidingaid-transferinefficienciesandtradedistor-tions,butratherintermsofownershipandalignmentwithnationalprioritiesfordevelopment,whichisonlyassuredwithunrestrictedprogrammaticaidandtheuseoftheGhanaianprocurementsystem.Muchtechnicalcooperation(TC)iscloselyassociatedwithtiedaid:between2005and2007only35%ofstand-aloneTCaidwasuntied,comparedwith80%ofnon-TCaid.Interviewevidencesuggeststhatthisassociationisaconsequence,notnecessarilyintended,ofanumberoffactors.Donorschooseareaswheretheyhavecomparativeprofessionalstrength,e.g.hydraulicsandwaterengineering.Frameworkcontractsfavournationalconsultantsandtheprovisionofservicesinkindisexplicittying.Therearenoevidentformallinksbetweentheuseofdifferentaidinstruments,grantsorconcessionalloansandtyingprac-ticesamongstDACdonors.However,thisisapparentlynotsofornewdonors.Thescaleandmodalitiesofconcessionalfundingbynewdonors,suchasChina,remainsoutsideoftheCGandDACmonitoringprocesses,butappearstobelarge,growingandintheformoftiedconcessionalexportcredits.Tyingis,bydefinition,apracticethatconfersacompetitiveadvantageondonorexportersofgoodsandservices.Ifde factotyingwerewidespread,despiteformaluntying,thenthiswouldbereflectedindonorexportscomparedwiththeircompetitors.Aneconometricanalysiswas,therefore,under-takentodeterminewhetherODA,formaltyingstatusandthedifferentformsinwhichaidisprovided(loansandgrants)


Annex D

hadadiscernibleimpactonaggregatedonorexportflowsatacountrylevel.TheoverallresultssuggestthattheODAingeneral,andgrantsinparticular,haveatradedistortingeffect,andwerefelttojustifycomparableinvestigationsforthefiveothercasestudycountries.

Project analysisUntyingishighlyinfluencedbythemodalityofaid.Budgetsupportandpoolingarrangementswherefunding,oncecom-mitted,isnotdistinguishableascomingfromanyonedonor,arebothhighlyassociatedwithuntiedaid.Incontrast,theextentofde factotyingoruntyingwithinprojectsisunclear.Aninitialreviewofthewatersectorrelatedprojectssupportedbysevendonors,Canada,Denmark,theEC,Germany(KfW),Netherlands,theUK(DFID)andtheUSAconfirmedthatmostprojectsare,whatevertheirformalstatus,typicallyhybrid,

comprisingamixofaidelementswithdifferenttyingstatus,procedures,implementingagenciesandrulesets.Morein-depthinvestigationintoprocurementpracticesandoutcomesisresourceintensive,andonlypracticalforanon-goingprojectwheredocumentationislocallyaccessibleandpersonnelinplace.Thestudy,therefore,restricteditselftotwocasestudiesofwaterimprovementprojects:aDanida-DFID(UK)pooledfundedprojectandaCIDA(Canada)supportedproject.Thecasestudiesfocusedonprojectinputsandout-putsandoutcomes,suchastheextentoflocalsourcingandcost-effectiveness.The‘headcontract’thatdeterminestyingstatus,asreportedtotheCRS,wasfoundinpracticetobetiedinbothcasestudyprojects.Inbothcases,the‘headcontract’accountedforthemajorityoftheTCresources.However,subcontractingpracticesandcontractornationalitieswithintheprojectswere

Table D.1 Ghana: bilateral DAC donors and EC – disbursements by aid modality 2006-08 (US$ mn)

Donor Project Approach

Basket-Funding

Sector Budget Support

earmarked


unearmarked

General Budget Support

IMF2 Total disbursements

Project Approach as % of donor

disbursements

Belgium 2.0 0.0 0.0 0.0 0.0 - 2.0 100.0

Canada 81.4 0.0 55.8 0.0 46.2 - 183.4 44.4

Czech Republic 0.5 0.0 0.0 0.0 0.0 - 0.5 100.0

Denmark 1.7 161.9 12.3 0.0 24.4 - 200.3 0.9

EC 230.8 0.0 0.0 2.9 79.5 - 313.1 73.7

France 71.6 0.0 0.0 0.8 57.7 - 130.0 55.0

Germany 76.8 24.8 0.0 0.0 39.3 - 140.9 54.5

Italy 52.8 0.0 0.0 0.0 0.0 - 52.8 100.0

Japan 116.5 0.0 0.0 0.0 3.1 - 119.6 97.4

Netherlands 274.2 55.8 0.0 38.4 91.1 - 459.5 59.7

Spain 84.2 0.0 0.0 0.0 0.0 - 84.2 100.0

Switzerland 8.8 4.4 0.0 0.0 22.7 - 35.9 24.5

UK 94.0 24.7 12.7 88.6 227.0 - 447.0 21.0

USA 369.3 0.0 0.0 0.0 0.0 - 369.3 100.0

IMF/UN** 1083.5 40.2 0.0 45.0 433.9 116.6 1719.2 63.0

Total (excluding IMF/UN)

1464.5 271.6 80.9 130.7 591.0 0.0 2538.6 57.7

Total (including IMF/UN)

2548.0 311.8 80.9 175.7 1024.8 116.6 4257.7 59.8

Source: WB DPE, 2008Notes: 1. 2006-07 data is based on actual disbursements whereas 2008 data is based on projected disbursements. 2. Support to Balance of Payments (only IMF) 3. It includes: AfDB, EIB, FAO, Global Fund, IFAD, ILO, IMF, IOM, NDF, UNAIDS, UNDP, UNESCO, UNFPA, UNHCR, UNICEF, UNIDO, WB, WFP, WHO.


Annex D

moreimportantindetermining,forexample,theextentoflocalsourcingofservicesandgoodsandlikelytradeeffects.Useofcountrysystemsemergedasbothanoutcomeofandaninputtotheuntyingprocess.Projectsandpartsofprojectswhichprocuredgoodsandservicesthroughthecountrypro-curementsystem,usingNationalCompetitiveBidding,wereuntiedandpredominantlycontractedlocallyandregionally.ThisappearedtobemainlyaresultofsmallerlotsizesandlocaladvertisingunderCPS.AnexploratorycosteffectivenessanalysisofprocurementwithintheDanida-DFIDsupportedprojectusingCPSindi-catedthat,forthemostpart,goodsandcivilworkscontractswereboughtatcompetitivepricesanddonesolocally.Onceruleshadbeenagreed,thepoolingarrangementbetweenDanidaandDFIDalsoledtosavingsfromsharingauditingandmonitoring,aswellasmatchingresponsibilitiestosectorexpertise.

ConclusionsUntyinginGhanaiscontributingsignificantlytotheaideffectivenessagenda.Untyingiscreatingpolicyspaceforrecipientcountryownership,useofrecipientcountrysystemsandalignmentwithrecipientcountrypriorities.Theexistenceofstrongcountryleadership,suchasthroughthecreationofSWAPs,wasalsoseenasadriverofuntying.Knowingwhetheraidsupportisformallyuntiedprovidesaquitelimitedindicationastothebalanceofactualtyinganduntying,andthedevelopmentalimplicationsofthesepractices.Tounderstandtheserelationshipsrequireslookingatthechoiceofmodalityand,forproject-typeaid,theactualarrangementsforcontracting,fromtheheadcontracttothelowestlevelofsub-contractingandtheprocurementofgoodsandservices.Asthereisadearthofempiricalstudiesonhowformallyuntiedaidisworkinganditsimplications,thisconclu-sionwasfelttojustifyaccordingahighprioritytoprojectanalysisinthecountrystudies,foracrosssectionofdonors.Atamacro-level,thedonorchoiceofmodalitiesandanex posteconometricinvestigationintotherelationshipsbetweenaidandtradeflowsprovidesfurtherevidenceonuntiedaidpracticeanditsconsequences.Ghanahasrelativelygoodco-operativemonitoringofaidbyGovernmentandthedonorcommunity.Nevertheless,whatthesereportingarrangementstellusaboutmodalitiesandusesofnationalandotherformsofprocurementisquitelimited.ItalsoprovedalmostimpossibletorelateindetailaidasreportedfromdonorHQtotheOECDandaidasbeingmonitoredatacountrylevel.Theconclusionfromthispilotstudyisthatinvestigatingtheextentofgenuineuntying,continuingde factotyingandthedevelopmentalimplicationsofthesepracticesisgoingtobefarfromeasy,evenwithfullco-operationfrommajorstakeholders.


Annex D

d.2 Etude de pays Burkina faso84

IntroductionCerapportprésentelesrésultatsdel’étudedepaysduBurkinaFaso.L’étudemiseàmettrecesgrandesquestionsenavantàtraversunebrèverevuestatistiqueetéconométriquedesdon-néesdisponiblesetparl’évaluationdequatreétudesdecas.L’accentdesétudesdecasétaitsurlespratiquesdesdonneursenmatièred’approvisionnementetdesarrangementslocauxquipourraientavoiruneffetsignificatifsurlafaçond’acheterlesbiensetservices.Lesétudesdecasconcernaientdeuxpro-jetsausecteurdel’eauetdel’assainissementetdeuxausec-teurdelasanté.Ils’agitdedeuxprojetsbilatéraux,unprojetfinancéparuncofinancementconjointparungrandnombredebailleursetunprojetfinancéparunfondscommun.

La revue statistique et économétriqueLeBurkinaFasoreçoitdesmontantsimportantsenaidepubliqueaudéveloppement(APD).Depuis1998l’APDapratiquementdoubledeEUR433millionàEUR862millionen2007.Ainsi,leBurkinaFasodépendlargementdel’aide

84 The study is undertaken by Piet Lanser ([email protected]), Judith Mat-tiejsesen ([email protected]) and Elie Pare (Lanser et al., 2009).

extérieurequireprésentait15%duproduitintérieurbrut(PIB)et47%dedépensesdel’Etaten2007.Environtroisquartsdel’aideestfourniesousformededons.Parmilesdixpremiersbailleursdefondsontrouvecinqbailleursbilatéraux,ycom-prislaCommissionEuropéenne,troisinstitutionsfinancièresinternationales(IFI),leSystèmedesNationsUnies(SNU)etuneorganisationnongouvernementale(ONG).LaplupartdesIFIoctroientprincipalementdesprêts,maiscertaines,tellequelaBanquemondiale,fournissentégalementdesdons.En2007,l’aidedébourséeétaitrepartieentreappuibudgétairegénéral(29%),aideprojet,ycomprisl’assistancetechnique(63%),fondscommuns(7%)etaidealimentaire(1%).

Lesdonnéesstatistiquesdusystèmedenotificationdespayscréditeurs(SNPC)del’OCDE/CADetdesrapportsdelaDirectionGénéraledelaCoopération(DGCOOP)montrentdegrandesdifférences.UngrandnombredepartenairesduBurkinaFasonesontpasmembresoupartenairedel’OCDEetparconséquentneparticipentpasauSNPC.QuantauxpaysdontlabasededonnéesduSNPCcomprendlesdonnéesonconstatequeleschiffresfournisenmatièrededéboursements

Table D.2 Burkina Faso: bilateral DAC donors and EC: disbursements by aid modality 2007 (US $ mn)

Donor Project Approach

Basket-Funding


earmarked


unearmarked

General Budget Support

Total disbursements

Project Approach as % of Total

disbursements

Austria 4.4 0.0 0.0 0.0 0.0 4.4 100%

Belgium 5.4 0.0 0.0 0.0 0.0 5.4 100%

Canada 7.2 11.3 0.0 0.0 0.0 18.5 39%

Denmark 30.6 4.7 0.0 0.0 8.7 44.0 70%

EC 129.5 0.0 0.0 0.0 74 203.5 64%

France 44.4 6.6 0.0 0.0 9.5 60.5 73%

Germany 19.7 0.0 0.0 0.0 6.7 26.4 75%

Italy 2.9 0.0 0.0 0.0 0.0 2.9 100%

Japan 11.5 0.0 0.0 0.0 0.0 11.5 100%

Luxemburg 6.6 0.0 0.0 0.0 0.0 6.6 100%

Netherlands 14.7 26.4 0.0 0.0 19.9 61.0 24%

Spain 0 0.0 0.0 0.0 0.0 0.0 0%

Sweden 7.9 4.1 0.0 0.0 9.3 21.3 37%

Switzerland 3.1 2.6 0.0 0.0 7 12.7 24%

UK 0 0.0 0.0 0.0 0.0 0.0 0%

USA 12.9 0.0 0.0 0.0 0.0 12.9 100%

Total 300.8 55.7 0.0 0.0 135.1 491.6 61%

Source: DGCOOP, 2008


Annex D

auSNPCsontsouventsupérieursàceuxcomprisauxrapportsdelaDGCOOP.Apartdesdifférencesduesauxerreursetomissions,ilparaîtqu’unepartiedesl’APDdestinéeauBurkinaFason’yestpasenregistrée.LaDGCOOPprésenteunchiffredel’aidenonliéede92%.Cependant,ilestapparuquecechiffreestunesimpleestima-tion.Lesquestionnairespériodiquesnecontiennentpasunequestionenlamatièreetl’indicateur8dusystèmedesuividelaDéclarationdeParisn’estpasrenseigné.L’OCDEprésenteunchiffredel’aidebilatéralenonliéede80,5%.Enincluantl’aidedesinstitutionsmultilatéralescechiffremonteà87,1%àraisonducaractèrenonliédesprêts.Enréalitéletauxdel’aidenonliéeseraitmoindrecommequelquespaysdéclarentqueleuraideestliécontrairementauxdonnéesdel’OCDEetunepartiedesinstitutionsfinancièresnonpartenairesdel’OCDEdonnentdesprêtsquisontpartiellementliés.Lebutdel’analyseéconométriqueestdedéterminersil’APD,lasituationduliementetlesdifférentsmodesdel’aide(donsetprêts)ontunimpactperceptiblesurlesfluxcumulésdesexportationsdesdonneursauniveaudupays,danscecasleBurkinaFaso.Lesrésultatssuggèrentquel’APDengénéraletlesdonsenparticulierpourraienteffectivementavoircertainseffetssurlecommerceparlesrelationsdonneur-bénéficiaire.

Types de l’aide et liementSelonlesstatistiquesdelaDGCOOPletypedel’aidepré-dominantestl’aideprojet.Cependant,cetypecomprendégalementl’aideprogrammequin’estpasfournisousformed’aidebudgétaireoucommefondscommun.L’aidebaséesuruneapprocheprogrammeauraitété57%en2007selonlerapport2008surlesuivideladéclarationdeParis.Danslapanopliedesinstruments,l’appuibudgétairegénéralprenduneplaceimportantavec29%desdéboursementsen2007etestappliquépar11bailleurs.Cetyped’aideestdépenséenutilisantlesprocéduresnationalespardéfinition.Lesbailleursayantacceptél’appuibudgétairegénéralsouventutilisentégalementaumoinsunepartiedesprocéduresnationalespourd’autrestypesd’aide.Lepourcentagedel’aideutilisantlesprocéduresnationalesdelapassationdesmarchésétait54%selonlerapport2008del’OCDEenreculde6%parrapportaurapport2006.Cechiffrecontrasteavecceluiconcernantl’aidebilatéralenonliéede92%selonlemêmerapport.Ceciimpliquequ’unepartiedel’aidenonliéeestutiliséeselonlesprocéduresdudonneur.NotonsquelesprêtsdesIFIsontsouventnonliés,maisquel’utilisationdesprocéduresdesbanquesestsouventobliga-toire.

Analyse des projetsQuatreprojetsontétéétudiés,quionttouspasséunnombreimportantdemarchéspourl’acquisitiondesbiensetdeser-vicesoudel’exécutiondetravaux.Troisbénéficientdel’aidenonliée,lequatrièmeconnaissantunecombinaisondel’aideliée,partiellementetnonliéeetnonliée.

1. LeProgrammed’AppuiauDéveloppementduSecteurEauetAssainissement(PADSEA)acommeobjectifd’assurer

l’accèsdurableàl’eaupotablepourenviron300.000person-nesenmilieururaletpourenviron100.000personnesenmilieusemi-urbaindanstroisrégionsduBurkinaFaso.LeprojetestuncofinancementduDanemarketdelaSuède.Lapartiedestravaux,ycomprisl’achatdesbiensetservicesyafférents,estgéréeparlesinstitutionsburkinabèselonlesprocéduresnationales.Lescomposantesconcernantdel’assistancetechniquesontgéréesauniveaudel’AmbassadeRoyaleduDanemarkselonlesprocéduresdelaDanidapourlapartiedanoiseetauniveaudel’ASDIpourlapartiesuédoise.Lesaidesconsistentendonsnonliés.Touslesmarchéspassésparlesservicestechniquesontétéadjugésauxentreprisesburkinabè.Enmatièredesmatériaux,lagrandepartieestimportée,maislamissionn’apasd’informationquantàlaprovenanceexacte.Entoutcas,lesdossierd’appeld’offresneposentpasdeconditionsàceniveauetlaissentlechoixauxsoumissionnaires.Larestrictionlaplusimportantestauniveaudespompesmanuellesquidoiventêtred’unedesmarquesutilisésdanslesrégions.Lesmarchéssontdetaillerestreinte,cequilimitelessoumissionséventuellesdel’extérieureàcausedefraisgénérauxélevésqu’engendraientlesentreprisesétrangères.

2. Leprojetd’ApprovisionnementenEauPotabledelavilledeOuagadougouàpartirdubarragedeZigaestungrandprogrammedeplusdeEUR230millionspourlapremièretranchedelapremièrephaseconsistantenlaconstructiond’unbarrage,d’unestationdepompageetdetraitementdel’eau,desadductionsjusqu’àOuagadougouetleréseaudedistributionetdesbranchementsàOuagadougou.Ycom-prisl’Etatetl’OfficeNationaldel’Eauetdel’Assainissement(ONEA)lenombretotaldesfinanciersétaitde15.Parmelesfinancements,unétaitlié,septétaientpartiellementliésetseptétaientnonliés.Pourdesraisonsd’harmonisationetdecoordinations,lesinstitutionsfinancièresarabesontfaitunedérogationdelaconditiond’éligibilité.Malgrél’étendudescontrats,lesfournisseurssesontlimitéàdesentreprisesétabliesenFrance,enAllemagneetauBurkinaFaso.Lesfraisd’approcheetdemobilisationdeschantiersontgonflélesoffresdesentreprisessansbasesolideauBurkinaFaso.Unedeuxièmeraisonpourraitavoirétél’origineallemandeetfran-cophonedesbureauxd’études,financéssurdesressourcesliées,ayantrésultédansdesdossierstechniquesfacilitantlasoumissiondesentreprisesdecespays.

3. LeProgrammed’AppuiaudéveloppementSanitaire(PADS)apourobjectifl’améliorationdel’étatdesantédespopulationsàtraverslacréationetlagestiond’unfondscommun.LePADSreçoitdesfinancementsd’unnombrededonneursbilatérauxetmultilatérauxetdesfondationsinternationales.TouslesfinancementssontdesdonsnonliéssauflefinancementdelaBanquemondiale(IDA)quiestenpartieunprêt.LesfondssontdépensésselonlesprocéduresnationalessauflesfondsIDAquisuiventlesprocéduresdelaBanque.En2008lePADSalancé39appelsd’offresrésult-anten60marchés.Surles39appelsd’offrestroisseulementontfaitl’objetd’unappeld’offresinternationalrésultantdans


Annex D

quatrecontratdontlesattributaireviennentdelaFrance,del’Allemagne,duSwazilandetduBurkinaFaso.Ils’agitdesmarchésfinancésparIDA.Lesprocéduresnationalesfixentdesseuilsaudessuslesmarchésdoiventpassentparappeld’offresouvert,maispasderèglesobligeantàdesappelsd’offresinternationaux.Laplupartdesfournisseurssontdesétablissementsburkinabè,dontcertainssontdesconcession-nairesdesentreprisesmultinationales.Quatremarchésd’unmontantimportantconcernantlalivraisondesmédicaments,vaccinsetcontraceptifs,passentdegréàgréavecl’UNICEFoulaCentraled’AchatdeMédicamentsEssentielsetGénériques.

4. LeprojetdAppuiauCentrenationaldeTransfusionSanguine(CNTS)estunprojetbilatéraldelacoopérationLuxembourgeoise.Sonobjectifestd’assurerunedisponibil-itécontinuedesproduitssanguinsdequalitéetenquantitésuffisantepourl’ensembleduterritoire.L’appuiestundonnonlié,quiestgéréensembleavecLuxDevelopmentselonlesprocéduresdecetteagence.Depuisjuillet2007onaenregistré35marchéspourunmontanttotaldepresqueEUR1million.Onzemarchéssontpassésparappeld’offresouvertreprésentant91%dumontant.Lagrandepartiedesfournis-seursviennentduBurkinaFasooudelaFrance,quoiquequelquesétablissementsburkinabèsoientdesconcession-nairesdesentreprisesmultinationales.Lesautresfournisseursviennentdel’AllemagneetduLuxembourg.Lagrandepartiedel’aideavaituncaractèrenonliéparori-gineougrâceàunedérogation.LebénéficiaireprincipaldudéliementparaîtleBurkinaFasodontlesfournisseurssesontaccaparésd’unegrandepartiedesmarchés.Cephénomèneseraitliéàunnombredecauses.Lepaysétantenclavélesfraisd’approcheetdemobilisationdechantierssontélevés.Enplus,lemarchénationalestrestreintcequilimitel’intérêtdumonded’affairesinternational.Lalanguepourraitégalementconstituerunobstacleàunmilieudeprédominanceanglo-phone.Lemorcellementdesacquisitionsendesmarchésdevolumelimitédiminuel’intérêtéventueldesfournisseursinternationauxquin’arriventpasàrécupérerleursfraisgéné-rauxsurdesmarchésrestreintsàunprixacceptable.Enfin,lapublicationdesappelsd’offresdansdesjournauxnationauxourégionauxauniveaudelacommunautéouest-africainefavoriseralesétablissementsayantdéjàunœilsurcemarché.

Efficacité en termes de coûts et de développementL’informationgénéraleindiqueunediminutiondescoûtsgrâceaudéliement.LeprojetZigaafourniunexempleconcretd’unmarchéquiestdevenumoinscherdûauchange-mentducaractèredeliementaucoursduprocessus.Cepen-dant,legainestannuléenpartieparlesprocéduresnationalesgénéralementconsidéréespluslongues.Aceniveauilfautnoterqueladécisiondudéliementestparfoiscoupléeàuneconditiond’unavisdenonobjectionducôtédubailleur,cequicontribueégalementàlaprolongationdeladuréedesprocédures.Uneautrerestrictionestquelemoindreprixestparfoisaudétrimentdelaqualité.Ledéliementpermetaupaysdemieuxdéfinirlesproduitsquiluisontutiles.Telsestlecasdepompesàeauàmotricité

humaineoupourlesbranchementsdel’eauenmilieuurbainoùunecertainestandardisationdeséquipementss’estavérénécessaireafind’enassurerunniveauminimumdemécani-ciensforméspourletyped’appareilsprécisetl’approvisionne-mentcontinudepiècesdétachées.L’attributiondesmarchésàdesentreprisesnationalesacertainementuneffetpositifsurledéveloppementécono-mique.Ceteffetseproduirasurtoutauniveaudel’assemblagedesproduitsimportés,delameilleureutilisationdescom-pétencesnationales,delagestionetdel’intermédiation.Ilyauraégalementunepartiedeprofitsquiparviennentaupays,quoiqu’unepartiedeceux–cidisparaissentdanslecasdesfilialesdescompagniesinternationales.Ledéliementestsouventaccompagnéparletransfertdegestionaupaysbénéficiaires.Danslaperceptiondesinterlo-cuteursnationaux,leliementconcerneraitplutôtlemodedegestionquel’originedeprojets.Effectivement,l’alignementsurlesprocéduresnationales,queveutlaDéclarationdeParis,estdifficilementenvisageablesansdéliementdel’aide.AuBurkinaFasoilyaunetendanceversl’appuibudgétaireetdel’approcheprogrammeavecdefinancementsousfondscommun.Cetyped’aideestincompatibleavecl’aideliée.Lapassationdeplusdebailleursavecuneplusgrandepartiedeleursfondsverscestypesd’aidefavoriseraégalementl’avan-céedansledéliementdel’APD.


Annex D

d.3 south Africa Country study85

IntroductionThisstudyaimstohighlightkeyissuesthroughashortstatisti-calandeconometricreviewoftheavailabledataandthroughtheassessmentofthreeprojectcasestudies.Thefocusofthecasestudieswasontheprocurementpracticesofthedonors,governmentalexecutingagenciesandimplementingagents,thatmayhaveasignificantimpactonhowgoodsandservicesarepurchased,withimplicationsforaideffectiveness.Thethreeprojectsselectedascasestudieswere:• ahealthsectorprojectfundedbyDFID• ahealthsectorprojectfundedbytheEU• awatersectorprojectfundedbytheAssociationofNeth-

erlandsMunicipalities(VNG)International.

Statistical and econometric analysisODAinSouthAfricahasincreasedprogressivelyanddiversi-fiedsince1994-95,whenofficialaidwasfirstusedtosupportnationalpolicydevelopment.YettotalODAcommitmentsasapercentageofGDPremainverysmall,atlessthan0.4%in2007.ODAcommitmentshaveprimarilybeenintheformofgrants,andmostaidhasbeenfrombilateraldonors.TheUnitedStatesandtheEUareSouthAfrica’slargestdonorpartners,respectivelycontributing29.5%and20.6%oftotalbilateralODAtoSouthAfricabetween2005and2007.Asanon-LDC,SouthAfricawasnotoriginallycoveredbythe2001DACRecommendation,butODAcommitmentsreportedasuntiedhaveshownageneralupwardtrendsince2001(thoughthereremaininconsistenciesbetweendonorreport-ingofuntiedaidandstudiescommissionedbytheSouthAfricanGovernment).AlargeproportionofdonorODAtoSouthAfricaisintheformoftechnicalco-operation(TC),andthetyingstatusofmuchofthiskindofODAisnotreportedtotheDAC.Projectswheretherewasnoreportingonprojecttypeaccountedfor39%oftotalODAbetween2005and2007.InSouthAfricaalmostallGovernmentofficialsexpressedcon-cernabouttheuseofTCasameanstotieaidtohomecountryconsultants.TheaimoftheeconometricanalysisistodeterminewhetherODA,thetyingstatusandthedifferentformsinwhichaidisprovided(loansandgrants)haveanydiscernibleimpactonaggregatedonorexportflowsatthecountrylevel,inthiscasetoSouthAfrica.TheoverallresultssuggestthatODAingen-eral,andgrantsinparticular,mayhavesometradedistortingeffectthroughthedonor-recipientrelationship,thoughtheSouthAfricaanalysisisnotconclusive.

Aid modalities and tyingMostdonorsinSouthAfricastillmakeuseofthetraditionalprojectapproach.TheapparentlowusageofcountrysystemsissupportedbyanalysisintheSouthAfrican2006SurveyontheParisDeclaration:lessthanhalfofallODAmadeuseofSouthAfrica’sfinancialorprocurementsystems.Basedonin-

85 The study was undertaken by Yash Ramkolowan ([email protected]) and Matthew Stern ([email protected]) (Ramkolowan and Stern, 2009).

formationinQuistet al.(2008),just7%oftotaldonorfundsre-ceivedbySouthAfricainthe2007-2008financialyearwereintheformofbudgetsupport,andonlythreedonorshaveusedthebudgetsupportmodalitybetween2005and2008(theEU,NetherlandsandIreland).CountriessuchasJapan,theUnitedStates,theUKandGermany,thatreportahighpercentageoftotalODAasuntied(80%,45%,100%and72%respectivelyfor200686),makeverylowusageofSouthAfricanprocurementsystemsbasedonthe2006SurveyontheParisDeclaration(TableD.3).Inthesecases,thepossibilityofde factotyingismorelikely.Inthecountryreportonthe2008EvaluationoftheImplementationoftheParisDeclaration,somereasonsgivenbydonorsfornotusingSouthAfrica’ssystemsincludeconcernthattheuseofcountrysystemsdelaysthequickimplementationofprojectsandthatdonorHQshavedirectedlocalstaffnottouselocalsystems.

Table D.3 South Africa: donor use of country systems, 2005

Donor

Aid disbursed (US$ mn)

Public financial management

systems

Procurement systems

Australia 1 0% 20%

Belgium 6 75% 75%

Canada 0 100% 100%

Denmark 14 37% 75%

EC 139 42% 42%

Finland 9 85% 85%

France 1 2% 7%

Germany 21 33% 33%

Global Fund 10 67% 100%

Ireland 8 100% 100%

Italy 3 33% 0%

Japan 15 0% 0%

Netherlands 22 100% 100%

New Zealand 0 100% 100%

Norway 8 100% 100%

Sweden 7 42% 42%

Switzerland 0 88% 88%

UK 41 0% 29%

United Nations 2 81% 0%

USA 43 0% 4%

Total 351 38% 44%

Source: 2006 Survey on Monitoring the Paris Declaration: South Africa Country ChapterNotes: 1. Percentage figures reflect the baseline ratios for each donor.

86 Based on Clay et al. (2008).


Annex D

Project analysisThreedonorprojectswereusedascasestudiesfortheSouthAfricananalysis:twofromthehealthsector(bothrelatingtoHIV/AIDS)andonefromthewaterandsanitationsector.Allthreeprojectsweresimilarinthattheylargelyinvolvedtheprocurementofservices(especiallyrelatingtoconsultingservices)ratherthangoods,yetallthreeprojectshaddifferentcontracting,fundingandprocurementprocedures.ThisgavetheopportunitytocontrasttheprojectsandtoprovideamoreholisticviewofthewayuntiedaidworksinSouthAfrica.Thethreecasestudyprojectsaresummarisedasfollows:

1. TheRapidResponseHealthFund(RRHF)wasestab-lishedinlate2008asthefifthoutputoftheMulti-sectoralHIVandAIDSSupportProgramme(MSP),fundedbyDFID.TheRRHFwasinitiatedduringhighleveltalksbetweenSouthAfricanandUKGovernmentofficials.AtameetingbetweentheUKSecretaryofStateandthenewlyappointedSouthAfricanHealthMinister,itwasagreedthatahealthfundwouldbemadeavailabletotheMinister,inordertorapidlyimproveHIV/AIDSpolicyanddeliveryinSouthAfricaandtoassistwithanyunexpectedproblemsthatmightarise.GBP15mnhasbeencommittedtotheone-yearprogramme,whichrunsfrom2008to2009.TheheadcontractwasmanagedbyHLSP,thelo-calsubsidiaryofaBritishcompany,whichhadbeenawardedthemanagementoftheMSPunderaframeworkcontract.

2. TheExtendedPartnershipsfortheDeliveryofPrimaryHealthCareincludingHIVandAIDSProgramme(EPDPHCP)isanEUfundedprogrammethatbeganin2001.TheprogrammeaimstocontributetomoreaccessibleandaffordableprimaryhealthcareinSouthAfricabypartneringwithNotforProfitOrganisations(NPOs).Theprogrammehasevolvedovertheperiod,bothbyexpandingdeliveryofservicesfromfivetoallnineofSouthAfrica’sprovincesandbymovingfromEUtolocalsystemsandprocedures.Fortheperiod2001to2006,theEUcommittedEUR25mn.Intheperiod2007to2010theEUhascommittedafurtherEUR45mn.ThecontractingagencyfortheEPDPHCPistheSouthAfricanGovernment,throughtheNationalDepartmentofHealth.

3. TheStorm-waterDrainageandSanitationprojectwasimplementedin2005throughthemunicipaltwinningarrangementbetweenBuffaloCityMunicipality(SouthAfrica)andtheCityofLeiden(Netherlands),andwasfundedthroughtheCityofLeidenbyVNGInternational.VNGInter-nationalisfundedby,amongothers,theNetherlandsMin-istriesofForeignAffairsandHomeAffairs,theEU,theWorldBankandvariousUnitedNationsagencies.Fortheyear2009-10thebudgetapplicationwasEUR566,815,ofwhichEUR297,000wasprovidedbyLeidenintheformoftechnicalassistance.VNGInternationalrequiresthatthecontractingagencyisaDutchorganisation;assuchLeidenisseenasthecontractingagency.However,BuffaloCityislargelyrespon-sibleforthemanagementandexecutionofthestorm-waterproject.Thesethreeprojectsraisetwoverydifferentsetsofconcerns:

• Firstly,theuseofframeworkcontractscaneffectivelyexcludesmallerandlessexperiencedSouthAfricanfirmsfromparticipatinginlucrativeheadcontracts.Forexam-ple,theRRHFcontractwasawardedtoaUK-ownedcom-pany,whichalreadyheldaframeworkcontractwithDFID.Thismayhavebeennecessaryforexpediencyreasons,butitdideffectivelyexcludeSouthAfricanhealthcompaniesfromtenderingforthisspecificcontract.

• Secondly,thereissomeevidencethatthehighleveloftechnicalassistanceandco-operationagreementsinSouthAfricamakesODAlesstransparentandincreasesthepotentialfortying.Forexample,inthecaseoftheBuffaloCitystorm-waterproject,asignificantamountofbudgetassistancewasintheformoftechnicalassistancefromLeiden,andfortravelandaccommodationofbothLeidenandBuffaloCityofficials.BuffaloCitywasalsorequiredtocounter-fundasubstantialamountfortheprocurementofconsultingservicesrelatingtotheproject,withthiscounter-fundingamountbelievedtobesubstan-tiallymorethanthefinancialcontributionbyVNG.

Cost and developmental effectivenessIntheactualprocurementofgoodsandservicesforallthreeprojects,thereislittleevidenceofimplicitorde factotyingbydonors,withallthreeprojectsmakingextensiveuseoflocalsuppliersforbothservicesandworkscontracts.Theextenttowhichthishascontributedtoneworsustainabledomesticcapacityislessclear.FortheRRHF,theuseoflocalconsultantsandcompaniescer-tainlyraisesthepotentialfordomesticcapacitydevelopment,butmanyoftheconsultantscontractedwerealreadyhighly-sought,withspecialisedskills.TheEPDPHCPhasamuchclearerdevelopmentimpactandhasexplicitlycontributedtotheestablishmentoftechnicalandadministrativecapacitywithinthenationalandprovincialhealthdepartments.TheBuffaloCitystorm-waterprojecthasusedaSouthAfricancon-sortiumforthemajorconsultingworkandlocal(basedinthemunicipality)workscompaniesfortheminimalconstructionactivities.Thiswouldhavehadpositivespin-offswithinthelocalcommunity.However,fromabudgetperspective,techni-calassistanceprovidedbyLeiden,travelandaccommoda-tionaccountforoverhalfthetotalinternationalfunding.ThefactthatBuffaloCityhascounter-fundedoverhalftheactualamountspentontheprocurementofworksandservices(out-sideoftravelandaccommodation)reducesthepotentialben-efitofaidprovided.Inaddition,itisnotclearthatthetwinningarrangement(i.e.informationandknowledgeexchange)hasbeenusedefficiently,soVNGInternational’sactualcontribu-tiontolong-lastingcapacityandinfrastructuredevelopmentmaybesmall.Cost-effectivenessisoftencitedasakeyreasonfortheunty-ingofaid.Assessingthecost-effectivenessofconsultingserv-icesisverydifficult,giventhevaryingdegreesofqualityandspecialisation.Professionalfeesaredifficulttocompareandareusuallytreatedascommerciallysensitive.Thisstudyhasrevealedfourissuesthatdonorsneedtoconsiderinanuntied


Annex D

environmentingeneraland,specifically,whenlocalsystemsandproceduresareused:

• localrulesandguidelinesforconsultingratesmaydifferfromtheinternationalnorm

• preferentialprocurementpoliciesmayraisethecostofcertaingoodsandservices

• theadministrativeburdenoflocalprocurementmaybehigherormoretimeconsuming

• alackofcompetitioninsomedomesticmarketsmaycontributetopremiumratesoncertainskills.

ConclusionSouthAfricaisexceptionalasarecipientofaid,largelybe-cause,ingeneral,itisnotverydependentonaidasarevenuestream,andalsobecauseithasthenecessaryinstitutionsandcapacitytoco-ordinatedonoractivitiesandmanagedonorfunds.Thisisconfirmedbytheeconometricresults:donorflowsimposenosignificantdistortionsontheSouthAfricaneconomy.Thepresumptionisthatthisshould,inpractice,con-tributetothemoreeffectiveandefficientuseofODA.Thecasestudiesrevealthreereasonswhythisisnotalwaysthecase:

• Firstly,intwoofthethreecases,thereremainssomeevi-denceofde factotying,withsourcecountryconsultantsorcompaniesbroughtintodoworkthatcouldpotentiallybedonedomestically.

• Secondly,althoughalargeproportionofreportedODAisuntied,theriskofnon-reportingmayincreaseinmorede-velopedcountries.Thisislargelybecause,incountrieslikeSouthAfrica,areasonablylargeproportionofoverallODAisprovidedasad hoc orshort-termtechnicalco-operation.Thisformofassistanceisgenerallylesstransparentthanmoreconventionallong-termdevelopmentprojects.

• Thirdly,inanuntiedenvironment,donorsaremorelikelytomakeuseofrecipientcountryprocedures.Thecasestudiesshowthattheuseofrecipientcountryprocure-mentsystemsenablesGovernmentstopursuedomesticpolicyprioritiesandimprovealignment.But,insomein-stances,thiscanraisethecostanddiminishtheeffective-nessofspecificdonorprogrammes.

InthecaseofSouthAfrica,itwouldappearthatuntyinghascontributedtoimprovementsinthealignmentanddevelop-menteffectivenessofaid.Moreover,althoughdonorsareminorfundersinSouthAfrica,theycanplayacriticalroleindeployingtechnicalandfinancialresourcesquickly.Theexam-plesexploredinthisreporthighlightthesignificantcontribu-tionmadebyjustthreeprojects:rescuingvariousnationalHIV/AIDSprogrammes;providinghigh-leveladvicetoanewCabinetMinister;andprotectinganimpoverishedcommu-nityfromsevereflooding.Couldmorehavebeenachievedif

thesedonorshadadoptedamoreopenprocurementprocess,ormadegreateruseoftheSouthAfricansystem?Certainly,alignmentanddevelopmenteffectivenesscouldbefurtherenhanced,butthesegainsmightbepartiallyoffsetbytheintended(policy-related)andunintended(inefficiencies)costsofalternativeprocurementprocedures.


Annex D

d.4 Zambia Country study87

IntroductionThisstudyaimstohighlightkeyissuesthroughashortstatisti-calreviewoftheavailabledataandthroughtheassessmentofalimitednumberofprojectcasestudies.Thefocusofthecasestudieswasontheprocurementpracticesofthedonors,governmentalexecutingagenciesandimplementingagents,thatmayhaveasignificantimpacthowgoodsandservicesarepurchased,withimplicationsforaideffectiveness.

Thefourprojectsselectedascasestudieswere:

• theWaterSectorSupportinNorthernProvince(WSSNP)supportedbyIrishAid

• theSouthernWaterandSanitationProject(SWSP)fundedbyGermany

• theWaterSectorPerformanceImprovementProgramme(WSPIP)financedbytheWorldBank

• thedistrictfocusedagriculturaldevelopmentProduc-tion,FinanceandTechnologyProject(PROFIT)fundedbyUSAID.

Statistical and econometric analysisZambiahasreceivedsignificantlevelsofexternalassist-anceandcurrentlyranksamongthetop10AfricancountryrecipientsofODA.Aidflows,asashareofoverallpublicex-penditure,peakedat53%in2001(i.e.theyearwhentheDACRecommendationonaiduntyingwaspassed).Sincethen,thecontributionofODAtopublicexpenditurehasdeclinedsteadily,toaround24%inthe2008budget.Inabsoluteterms,totalODAcommitmentshalvedbetween2005and2007.ThefallinthecontributionofaidflowstoZambiacanlargelybeexplainedbyimprovedexternalconditions,arisingfrombothdebtreliefandrisingcopperprices.

AccordingtoOECD/DACstatisticsfrom2005to2007,bilateralaidaccountedforjustover90%oftotalODAcommitments.AlmostallofthisbilateralODAtakestheformofgrants,withnonewloancommitmentsmadein2007.Thetopbilateraldonors,intermsoftheircommitmentstoZambia,areJapan,theUSA,Germany,theECandtheUK(inthatorder).Together,thesefivebilateraldonorsaccountedfor70%ofthetotalbilateralODAtoZambiaoverthisperiod.

ThevastmajorityofbilateralODAtoZambiaisreportedasuntied(86%),witharound4%ofbilateralODAreportedastiedand9%aspartiallytied.Buttherearelargediscrepanciesinapproachbetweenthedifferentdonors.WhereastheUK,Swe-den,Austria,IrelandandLuxembourgreportedalloftheiraidasuntied,Switzerlandreportedthat46.1%ofitsODAistied.Amongothermajorbilateraldonors,Japanreported94.2%of

87 The study was undertaken by by Oliver Saasa ([email protected]) and Chrispin Mphuka ([email protected]) (Saasa and Mphuka, 2009).

itsaidtoZambiaasuntied;theUSA81.8%,Germany94.5%;andtheECjust17.7%untied.Thelargestproportion(82.3%)ofECaidisreportedaspartiallyuntied.

Aid modalities and tyingDonorscurrentlyadoptfourdifferentmechanismsinoperat-inginZambia:ProjectSupport,IntegratedProjectSupport’,Sector-WideApproach(SWAp)andGeneralBudgetSupport(GBS).

Thereisnoofficialdataontheuseofthesedifferentmecha-nismsbythemajordonors,butasurveyundertakenaspartofthiscountrystudyprovidessomeinformationontheprefer-encesofthetenparticipatingdonorsbasedon2007disburse-ments(TableD.4).Sevenofthetendonorsusegeneralbudgetsupport(GBS)and/ornon-earmarkedsectorbudgetsupport(SBS)todisburseODAtoZambia,withtheEUdisbursingtwo-thirdsofitsaidthroughthischannel.Amongsttherespond-ents,Canada,JapanandtheUSAdisbursenoODAthroughthischannel.EarmarkedbudgetsupportisnotwidelyusedinZambia.

TheWorldBank,Germany,Norway,Sweden,Japan,CanadaandtheUKgenerallyadoptaSector-WideApproachandusetheZambianprocurementsystemtofundnon-pooledprojects.Morethan70%ofWorldBankdisbursementsand44%ofUKaidischannelledthroughthismodality.AlmostallUSAODAgoestonon-pooledprojects,butthesedisburse-mentsfollowUSrulesandguidelines.Anumberofsmalldo-nors,includingCanada,FinlandandSweden,domakeuseofpooledprojects,withCanadadistributing83%ofitstotalODAthroughthischannel.Japanadoptsaverydifferentapproach,withmorethan97%ofallODArestrictedtospecificprojectsandJapaneseprocurement.TheEU,Germany,SwedenandtheUKalsousetheirownprocurementsystemstoprovideprojectsupport,buttheproportionofoverallODAdisbursedthroughthismodalityismuchlower,at28%,18%,17%and13%respectively.


Annex D

Anumberofimplicationscanbedrawnfromthissurvey.Firstly,theresultsconfirmthedatareportedtotheOECD/DAC.MostdonorsusetheGBSand/ornon-earmarkedsectorbudgetsupportmodalityandtheZambianprocurementsys-tem.Suchsupportisde jureuntied.Secondly,thesurveyraisessomequestionsaboutthereportingofsomespecificdonors.Forexample,althoughtheUKreportsallofitsODAtoZambiaasuntied,alargeproportionofthisfundingisdisbursedthroughhostcountryandhead-officeprocurementsystems.Thisrequiresfurtheranalysistoexplorewhether,infact,thisODAistrulyuntied.Finally,thesurveyhighlightsanumberofcountriesthatappeartoavoidtheuseofZambianprocure-mentsystems.Again,thiswouldappeartoraisetheriskofde factotying.Twoofthesecountries(JapanandtheUSA)areamongthelargestdonors.

Project analysisFourprojectswereselectedascasestudies:threewaterandsanitationprojectsfundedbyIreland,GermanyandtheWorldBank;andaUSAID-fundedprivatesectorcompetitivenessproject.

1. WSSNPhasitsoriginsintheIrishGovernment’ssupporttowatersupplyandsanitationactivitiesintheNorthernProv-inceofZambiasince1983.Initially,theprogrammewasimple-menteddirectlybyDevelopmentCooperationIreland’s(DCI)ownstaff.Afterareviewinthemid1990s,theProgrammebe-

ganitsfullintegrationintotheZambianGovernment’sWater,SanitationandHygieneEducation(WASHE)systemin1998,thoughfullintegrationwasonlyachievedin2002.DCIstaffhavereducedtheirdirectparticipationinProvincialWASHE(P-WASHE)meetingsandcurrentlyattendonlyattheinvita-tionoftheChairoftheCommittee.TheProgrammecurrentlyprovidesbothfinancialandtechnicalsupporttofourdistrictsintheNorthernProvince:Mbala,Isoka,LuwinguandMpika.

2. SWSPwasinitiatedin1998throughthesigningofafinancialagreementworthDM27mnbetweentheZambianandGermanGovernments.Theagreementcovered8townsintheSouthernProvince,excludingLivingstone.Laterin2000,anadditionalagreementforLivingstoneworthDM13mnwassigned.Theobjectiveoftheprojectwastoprovideacontinu-ousandsufficientsupplyofhygienicallysafedrinkingwaterforthemajorityofthepopulationandindustryintheninetownsoftheSouthernprovince,throughtherepairofexistingwatersupplysystemsandtheexpansionofnewnetworks.TheProjectalsoprovidedsupporttotheprovisionofadequatesewageandhumanwastedisposalservicesinthosetownsthathavesewagesystems.SWSPwasfundedthroughGermanFinancialCoopera-tion(KfW)andrequiredasmallcounterpartfundingfromtheGovernmentoftheRepublicofZambia.AlthoughtheProjectwasoriginallyscheduledtocommenceinJuly2000andendbySeptember2003,anumberofdelaysresultedinitsextensiontoFebruary2009.

Table D.4: Zambia: disbursements of ODA by selected donors in 2007/8

Donor

Total Disburse-ments

GBS & Unear-marked SBS

Earmarked SBS

Non-Pooled Projects Pooled Funding

Project Funding involving agency’s own procurement

using zambian System

using non-state pro-cedures other than agency’s

at local office

through HQ

US$ million (%) (%) (%) (%) (%) (%) (%)

WB 54.4 18.4 0.0 71.3 0.0 10.1 0.0 0.0

Canada 15.7 0.0 0.0 1.5 0.3 82.7 5.9 9.6

Japan 34.4 0.0 0.0 2.6 0.0 0.0 97.4 0.0

EU 58.0 66.7 0.0 0.0 0.0 5.7 27.6 0.0

Germany 29.4 23.1 0.0 44.2 3.4 11.2 18.4 0.0

USA 212.9 0.0 0.0 0.0 99.9 0.1 0.0 0.0

Finland 17.7 39.0 0.0 0.0 14.7 43.5 0.0 0.0

UK 72.9 60.6 10.8 0.5 0.0 13.2 1.9 12.9

Sweden 52.2 27.2 0.0 8.2 4.6 42.7 17.2 0.0

Norway 72.7 24.9 22.7 10.3 36.7 5.4 0.0 0.0

Source: Data collected directly from donors through questionnaire administered by Premier Consult Limited in May 2009.


Annex D

3. WSPIPwasestablishedin2007underaconcessionalloanagreementfromtheWorldBankforUS$23mn.Itwasinitiallyplannedtobecompletedwithinaperiodofthreeyears,buthassincebeenextendedto2012,withanadditionalinjectionofUS$10mn.TheobjectiveoftheProjectistosup-porttheGovernment’son-goingcommitmenttourbanandruralwatersectorreforms,andincreasedaccesstoservices,throughtheexpansionofexistingfacilities.ItincludessupporttotheGovernmentanditsutilitiestoimplementacompre-hensiveinstitutionalstructurewhichwillleadtoabetter,moresustainedandco-ordinatedapproachtothepublicandprivateprovisionofwaterandsanitationservices.

4. PROFITisafive-yearUSAIDprojectthatbeganinJune2005.TheprojectisimplementedbytheCo-operativeLeagueofUSA(CLUSA)inpartnershipwiththeglobaldevelopmentconsultingcompany,theEmergingMarketGroup(EMG).FundingoftheProjectwasobligatedinthebilateralStrate-gicAgreementforEconomicGrowthbetweentheZambianGovernmentandtheGovernmentoftheUnitedStates,andthetotalfinanceforPROFITisUS$17.5mn.PROFITseekstoimprovethecompetitivenessofselectedindustriesinwhichlargenumbersofmediumandsmallenterprisesparticipate.Thiswillenablefirmsandindustriestorespondtomarketdemands,bothintheshortandlongterm,andtoraisethebenefitsthatthesefirmsprovidetomarketparticipants.

Therulesandregulationsforprocurementdifferacrossthefourdonors/projects.InthecaseoftheIrishAID-supportedWSSNP,theProjectiscompletelyuntied,useslocalprocure-mentrules,regulationsandsystems,andhasnorestrictiononprocurementtoaparticulargeographicregion.Theotherthreeprojectsusedonorrulesandguidelinesforprocure-ment.Althoughtheserulesandregulationsdonotusuallyrestrictsourcingofgoodsandservicestothedonorcountry,itwasfoundthattherearecertainspecificationsthatmayre-quirethesourcingofbothequipmentandconsultantsfromthedonorcountry.Furthermore,mostZambianlocalfirmsdonothavethefinancialortechnicalcapacitytomeetthetenderrequirementsoflargedonorprojects.Asaresult,intheGerman-fundedSWSP,about85%oftheprojectmoneywenttoGermanfirms,whereasaround29%ofthetotalfundingfromtheUSAID-fundedPROFITwenttoUSorganisa-tions.

Cost and developmental effectivenessAllfourprojectsexamineddemonstratedtheirdevelopmentalrelevancetotheextentthattheyarealignedtotheFifthNa-tionalDevelopment(FNDP)priorities.Partlyasaresultofunty-ing,donorsareseentobeworkingtowardsharmonisingtheirprogrammesthroughtheJointAssistanceStrategyforZambia(JASZ).Inaddition,moreofthedonorscurrentlyuseGBSandSBSasaidapproaches(ratherthanprojectspecificfunding).Delegatedco-operationisalsobeingemployedinZambia.

Duetothelimitednumberofprojectsevaluatedinthisstudy,ithasnotbeenpossibletoassessfullywhethertheuntyingof

aidleadstoimproveddevelopmentaleffectiveness.Neverthe-less,theevidenceprovidedbythesefourprojectssuggeststhat,ingeneral,theextensiveuseoflocalsub-contractors,whichismadeeasierinanuntiedenvironment,hascon-tributedtothecreationofemploymentopportunitiesandatransferofskills.ThisiscertainlytrueoftheWSSNPproject,inwhichallworksarenowhandledbyZambianfirms.Inothercases,however,suchastheSWSPproject,therewasnosub-contractinginvolved(exceptforonejoint-venturebetweenaZambianandaGermancompany)andthedevelopmenteffectivenessis,therefore,likelytobeconsiderablylower.Thesizeandtechnicalrequirementsoftheprojectclearlyhaveastrongbearingontheextenttowhichgoodsandservicescanbeprovidedbylocalfirms.

Anotherspin-offbenefitofuntying,intheZambiancontext,isthatithasprobablycontributedtothestrengtheningoflocalprocurementsystems.Forexample,theIrish-fundedWSSNPisimplementedatthedistrictlevel,andtheprojecthashadtoinvestinimprovingplanning,procurement,accounting,andmonitoringandevaluationwithcouncils,toenablethemtocontractlocalsuppliers.Similarly,inthecaseoftheGerman-fundedSWSP,theuseoflocalprocurementsystemshelpedtoinstilasenseoflocalownership.

Measuringthecosteffectivenessofuntiedaidproveddifficult,andwaslimitedtoasetofitemsinonecasestudy.Inthisexample,thepriceofthegoodsprocuredusinguntiedaidwaslowerbyatleast6%,relativetotheimportparityprice.Therewasnootherevidencetosuggestthatuntyinghadraisedcosts,inanyofthestudies,thoughthismayrequiremorecomprehensiveanalysis.Suchanalysiswouldneedtolookbeyondthemonetarycostofuntyingandalsoconsidertheexpectedtimebenefitsofprocuringlocally.

ConclusionZambiaisamajorbeneficiaryofODAandaidflowsconstituteasubstantialshareofthecountry’sbudgetandGDP.Improve-mentsinthedevelopmentandcosteffectivenessofODAare,therefore,likelytohaveasignificantimpactonindividualbeneficiariesandthecountryasawhole.ThefourcasestudiesconfirmthesignificantcontributionmadebythesespecificprojectsinZambiaandshowhowuntyingingeneral,andtheuseoflocalprocurementsystemsandsub-contractorsinparticular,cancontributetoemploymentcreationandskillstransfers.

Intheactualprocurementofgoodsandservices,thereissomeevidenceofimplicitorde factotyingbydonors.InthecaseofPROFIT,nolocalfirmswereinvolvedintheinitialtender,andparticipationbyotherinternationalorganisationswaspoor.IntheawardofSWSP,theGovernmentindicatedthatitwasaskedtosuggestfirmsforconsiderationandthatGermanfirmsshouldbeamongstthoserecommended.Thisprojecthasmadenouseoflocalsub-contractors(exceptinonein-stance,asajointventurewithaGermancompany).


Annex D

Therearetwomainreasonsfortheuseofhostcountrycompa-nies,consultantsandmaterialsinZambia:

1. Althoughrulesandregulationsdonotrestrictthesourc-ingofgoodsandservices,therearecertainspecificationsthatmayrequiresourcingfromthedonorcountry.Forexample,inSWSP,replacementpartshadtobepurchasedfromGermanybecausethisiswheretheexistingwaterpumpscamefrom.USAIDimposesrestrictionsontheprocurementofspecificgoodsandservices,suchasmo-torvehiclesandairtravel(althoughthesearenotalwaysenforced).Inprojectsthatrequireaconsultantoranimplementingagent,theprimecontractororconsultantusuallycomesfromthedonorcountry.

2. MostZambianfirmsdonothavethefinancialcapacityortechnicalexperiencetotenderforlargedonorprojects,re-gardlessofwhetherornottheprojectistied.Forexample,inthecaseofWSSIP,postqualificationrulesrequiredthatthebiddingcompanyshouldhavedeliveredatleasttwocontractsofatleastthesamevalueinthelastthreeyears,thathavebeensuccessfullyandsubstantiallycompletedandthataresimilartotheproposedworks.ThiscriterioneffectivelydisqualifiedalmostallZambian-basedfirms.

Inadditiontotheseexamples,theincreasinguseofverticalfundingarrangementssuchasthePEPFARandtheGlobalFund,whicharebetterresourcedthatmostotherprogrammesinZambiaandremainstrictlytied,maydiminishthegainsfromuntying.Finally,interviewswithvariousdonorsandthestatisticalanalysisrevealedthatuntyinghasfacilitatedtheincreaseduseofGBSandSWAPsinZambia.Thisimprovesthetransparencyandalignmentofaid,butalsoraisesnewchallenges.ForZam-bia,procurementcapacityandsystemsneedtobeimprovedtomanageadditionalfundswellandprovidedonorswithsufficientconfidence.Forthedonors,thereisneedtoworktowardsintegratingtheirsupportedprojectsintothenationalsystem,andtoreducethetransactioncostsemanatingfromtheparallelstructuresthatoftenthreatenthesustainabilityofproject/programmeoutcomes.


Annex D

d.5 lao pdr Country study88

IntroductionInthe2008PhaseOnestudyTheDevelopmentalEffectivenessofUntiedAid,itwasfoundthataidtoLDCsisnowoverwhelm-inglyuntied(excludingexemptcategories,technicalco-operationandfoodaid).However,itwasalsofoundthatthereexistedverylittleformalanalysisofboththedonorpracticesinpartnercountriesandtheactualconsequencesofuntyingaidatacountrylevel.ThePhaseTwostudyisinresponsetotheproposalsoftheWorkingPartyonAidEffectivenessandtheDevelopmentAssistanceCommittee(DAC)NetworkonDevelopmentEvaluationandthereportingrequirementinthe2001DACRecommendationonuntyingODAtoLDCs.

PhaseTwooftheprojectisintendedtoprovideevidence-basedconclusionsabouttheimplicationsofuntyingaidanditsimpactonaideffectivenessinselectedcase-studycoun-tries,forpresentationtotheDACbyDecember2009.ThisreportprovidestheresultsoftheLaoPDRCountryStudy.

ThisstudyaimstohighlightthekeyissueoftheimplicationsofuntyingaidforaideffectivenessinthecontextofLaoPDR,throughashortstatisticalandeconometricreviewoftheavail-abledataandthroughananalysisoffourprojectcasestudies.Thefocusofthecasestudieswasplacedonprocurementpracticesofthedonors,governmentalexecutingagenciesandimplementingagents,thatmayhaveasignificantimpactonhowgoodsandservicesarepurchased,withimplicationsforaideffectiveness.

Thefourprojectsselectedascasestudieswere:• SIDAfundedroadproject• EUfundedruraldevelopmentprojectwithawatersector

component• AFDpart-fundedhydroelectricpowerproject• JICAfundedwatersupplyproject.

Statistical and econometric analysisBilateralODAtoLaoPDRoriginatedintheearly1960s,andmultilateralODAwasfirstrecordedinthelate1970s.Sincethen,totalODAhasshownastrongincreasingtrenduptothepresent,althoughtherehasbeensomefluctuationyearonyear,withbilateraldonorstraditionallycontributingthelargerproportionofODA.TotalODAin2007stoodatUS$280mn,whichisapproximately7%ofGDP–alargepercentagerela-tivetootheraidrecipients.Japan,France,andSwedenareLaoPDR’slargestbilateraldonors,contributingrespectively40.1%,16.8%and11.8%oftotalbilateralaidbetween2005and2007.TheaimoftheeconometricanalysisistodeterminewhetherODA,thetyingstatusandtheinstrumentsbywhichaidisprovided(loansandgrants)haveanysignificantimpactonaggregatedonorexportflowstotherecipient,inthiscasetoLaoPDR.Overall,theresultsshowthataggregateODA,andgrantsinparticular,havesignificanttradedistortingeffects

88 The study was undertaken by Adam McCarty and Alex Julian (2009) ([email protected]).

throughtheincreaseindonor-recipientexports.Thisempiri-calevidencesuggeststhataidflowscouldbeinformallyorde factotied,whenanalysisofdatafromacrosssectionofdonorstoLaoPDRisperformed.However,asoutlinedintheecono-metricsinvestigationsthisanalysishassomecaveats.

Aid modalities and tyingLaoPDRisclassifiedasanLDCandis,therefore,coveredbythe2001DACRecommendationtountieaid.Between2005and2007DACdonorcountriesformallyuntiedover70%oftheirODAcommitmentstoLaoPDR(CRS).Meanwhile,forthesameperiod,22%ofbilateralODAremainedunreportedwithregardtotyingstatus.Theprocessofuntyingaidhasimprovedoverthelastdecade,despitethehesitationofsomedonorstomovetonon-projectbasedaidmodalities,suchasbudgetsupportandpooledfunding,whichareoftenassociatedwithuntying.LaoPDRreceiveslargelygrantaidasaninstrument(98%ofDACODAin2007)andprojectbasedaidmodalities.Severaldonorsalsoprovideprojectbasedorfree-standingtechnicalco-operation,inmanycasesalongsidegrantfundingforprojects,whichisoftentied.Forexample,grantswhichinvolvednofree-standingtechnicalcooperation(FTC)reporteda96.8%untiedshare,whereasgrantswhichhadawholeFTCcomponentreportedanuntiedshareofjust27.8%(CRS,2005-07).ThethreelargestdonorstoLaoPDR,Japan,FranceandSweden,allreportedahighproportionoftheirODAasuntiedfor2007:68.9%,62.3%and98.5%respec-tively.LaoPDRalsoreceivessubstantialaidfromnon-DACdonors,thatisconsideredtobelargelytiedandnotnecessar-ilyconformingtoOECDdefinitionsofODA(TableD.5).


Annex D

Project analysisFourprojectswereselectedfromthetopactivebilateraldonorstoLaoPDR,tobeusedascasestudiesfortheprojectanalysis.Althoughwaterandsanitationwasthetargetsec-tor,exceptionshadtobemadeinthiscountrystudyduetolowactivityinthatsector.Anin-depthreviewofthefourinfrastructureprojectswasundertaken,torevealmethodsofaiddeliveryanddonorpracticeswithrespecttountying.Theapproachusedinvolvedtrackingdonorfundsforeachproject,fromcommitmentbythedonortodisbursementbytheleadimplementingagencydowntogroundlevel.Fromthisaccount,procurementandfundingprocedureswerecloselyinvestigatedtodeterminetheexactoriginofgoodsandservicesemployedfortheproject,andwhetheranysourc-

ingrestrictionsonthebasisofnationalityoccurred.Thecasestudiesalsoattemptedtoassesstheimpactofthesourcingofcontractsonthecosteffectivenessanddevelopmentalef-fectivenessoftheoriginalaiddisbursement.Allfourprojectswereimplementedusingdifferentfundingchannels,practicesandimplementationstrategies,allowingasuitablerangeoffactorstobeinvestigated.Thefourcasestudyprojectsaresummarisedasfollows:

1. TheLao-SwedishRoadSectorProjectPhaseIII(LSRSP3)isaSidafundedproject,designedtoprovidebasicroadaccesstoremotevillagecommunitiesin26ofthepoorestdistrictsinLaoPDR.ThisprojectphasecommencedinOctober2005,af-terthegovernment,throughtheMinistryofPublicWorksandTransport(MPWT),requestedcontinuedsupportfromSidafortheroadsector.ThetotalfundingforthefouryearprojectperiodisaUS$20mngrantfromSida(70%)andaUS$9mncontributionfromGovernmentofLaoPDR(30%).TheMPWTisresponsibleforthemanagementandprocurementontheproject,whereprocurementwasconductedusingcountrysystems.

2. TheIntegratedCommunityBasedRuralDevelopmentProjectinNamorandXayDistricts,OudomxayProvinceisathreeyearECprojectwhichstartedinJanuary2007,withanoverallobjectiveofmakingapositiveimpactontheimprove-mentofthefoodsecurityandsocio-economicsituationofthetargeted20communities.TheprojectwasimplementedbyaGermanInternationalNGO,whichalsocontributed25%ofthetotalEUR1,098,678grantfunds(75%fromEC).TheINGOwasselectedbyinternationalcompetitiveselectionbytheEC,andallprojectprocurementrequiredECrules.

3. TheNamTheun2HydropowerProjectisoneofthelargesthydropowerprojectsinLaoPDR,withatotalvalueofUS$1.5billion,whichbegantheconstructionphaseinJune2005andhasanexpectedcompletiondateofDecember2009.Thefundingarrangementsoftheprojectinvolvebothprivateandpublicsources,whichincludepartloanandgrantfundingbyAFD,WorldBankandADB.

4. TheProjectforVientianeWaterSupplyDevelopmentisanurbanwatersupplyproject,undertakenintheLaoPDRcapitalfromFebruary2006toMarch2009,withthemainob-jectivestoattainastablewatersupplyandimprovethewatersupplyserviceratioinVientianeCapital.JICAfundedUS$30.2mnfortheproject,intheformofgrantaid.TheexecutingagencywastheMPWT,andtheprojectutilisedthedonor’sprocurementguidelines.

Investigationofthesefourprojectcasestudiesproducedthefollowingkeydescriptiveresults:

• Overall,contractsintheseprojectswerefoundtobecom-petitivelysourcedthroughstandardbiddingprocedures,withthemajorityof(butnotall)contractsforconstruc-tionwork,groundlevelworkersandmaterialsusedfor

Table D.5 Lao PDR: bilateral ODA disbursements by source, 2005-061

Donor

CRS data Local data

US$ mn % US$ mn %

DAC bilateral donors (including EC)

Australia 12.8 6.8 17.2 7.7

Belgium 2.7 1.4 5.3 2.4

Canada 1.9 1.0

Denmark 3.4 1.8

EC 8.8 4.7

Finland 2.0 1.1 1.7 0.8

France 15.9 8.5 17.7 7.9

Germany 18.3 9.8 6.3 2.8

Ireland 2.4 1.3

Japan 66.2 35.2 62.2 27.8

Luxembourg 6.8 3.6 6.3 2.8

Netherlands 0.1 0.0

New Zealand

2.5 1.3 1.8 0.9

Norway 11.4 6.1 14.7 6.6

Sweden 23.7 12.6 19.8 8.9

Switzerland 4.5 2.4

UK 0.3 0.1

USA 4.3 2.3

Non - DAC bilateral donors

Vietnam 24.9 11.1

China 21.2 9.5

Thailand 18.8 8.4

Korea 5.9 2.6

Total 187.8 100.0 223.5 100.0

Source: OECD CRS database and Lao PDR Ministry of Planning and InvestmentNotes: 1. Aid from non-DAC donors does not necessarily satisfy DAC criteria to qualify as ODA.


Annex D

constructionoriginatingfromLaoPDR–thelowestcostandeasiestavailablesource.

• Someotherprojectcomponentsremainedsourcedfromthedonorcountry/regioninpractice,evenwhensourcedcompetitively,suchastechnicalassistance,projectcon-sultants,largeheadcontracts,andprojectimplementingINGOs.

Cost and developmental effectivenessTheimplicationsofdonorpracticesonthefourcasestudyprojectsforcost,aidanddevelopmentaleffectivenesscanbesummarisedasfollows:

• Byreviewingandground-truthinguntiedprojects,infor-mationandpricedataobtained(whereavailable)showedthatcostsavingsweremadeonthepurchaseofequip-mentitemsandconstructionmaterialsrelativetomarketreferenceprices.Thisimpliesthatuntyingledtomorecost-effectiveuseofaidfunds,atleastforequipment.

• UntyinghasbeenassociatedwithashiftawayfromdonorprioritiesandtowardstheLaoGovernment’sneedsandobjectives(alignment),supportedbythefactthatmoregovernmentagenciesarenowresponsibleforprojectimplementationandmanagement.

• Localsourcingofcontracts,consultants,workersandmaterialsasaresultofuntyingcanhavepositivedevel-opmentaleffects,byprovidingincreasedemploymentopportunitiesandrevenuesforlocalmanufacturersandsuppliers.However,asdiscoveredfromtheaccountofprojectpractices,itisnotalwayspracticaltoprocureallgoodsandservicesdomestically.Severalequipmentitemsorskillsareunavailablelocally,somustbeimported.Qual-itystandardsmayalsorequiregoodsandservicestobeimported,fortheendproducttobesufficientlyeffective.

Conclusions and recommendationsTheLaoPDRuntiedaidcountrystudyprovidesvaluablein-sightintothepracticalfunctioningandprocessesofdifferentdonorfundedinfrastructureprojectsinthecontextofaSouthEastAsianLDC–ausefulcontributiontoanareawithverylit-tlepreviousinvestigation.Thebenefitofthestudyisthatithasenabledtheidentificationandseparationofthecomponentsofaprojectwherebothuntyingandtyingareoccurring.Asoneofsixcountrystudies,theLaoPDRstudywillcontributetoacrosscountrycomparisonofdonorpracticeswithrespecttountyingandthecorrespondingimpactonaideffectiveness,whichwillassistintheunderstandingoftheinternationaluntyingprocessandrecommendationstofurtherimproveuntiedaiddeliveryandaideffectiveness.

Fromthein-depthprojectcasestudyprojects,threeoutoffourwerefoundtobelargelyuntied.Someareasofde factotyingwerestilluncovered,includingtheareasofTA,headcontractorsandequipment.Interestingly,noequipmentor

materialsintheEU,SidaandAFDprojectswerefoundtobetied–atypicalareaoftyinginthepast.Theanalysisshowedthatprojectcasestudyprojectsthatwereoveralluntiedalsodisplayedcharacteristicsofbeingcostanddevelopmentallyeffective,therebyprovidingevidencesupportingthebenefitsofuntiedaid.

ToimprovetheuntyingprocessfurtherinLaoPDR,andtoin-creaseaideffectivenessingeneral,itisrecommendedonthebasisofthisstudythatfurtherstepsaretakentoencouragetheuseof‘newer’aidmodalitiesamongdonors(e.g.budgetsupportandpooledfunding)andincreaseduseofcountryprocurementsystems.FurtheractionshouldbetakentountietheservicecomponentsandTAofprojects,bydevelopingtheskilledlaboursectorthrougheducationandtrainingactivities,andbyincreasingthesupplyofqualifiedconsultancyservicesinLaoPDR.Encouragingparticipationofnon-DACdonorsinuntiedaidpoliciesisanotherpotentialchanneltoexplore,forachievingfurtherprogressinuntyingaidwithrespecttobothLaoPDRandinternationally.


Annex D

d.5 vietnam Country study89

IntroductionInthe2008PhaseOnestudyTheDevelopmentalEffectivenessofUntiedAid,itwasfoundthataidtoLDCsisnowoverwhelm-inglyuntied(excludingexemptcategories,technicalco-operationandfoodaid).However,itwasalsofoundthatthereexistedverylittleformalanalysisofboththedonorpracticesinpartnercountriesandtheactualconsequencesofuntyingaidatacountrylevel.ThePhaseTwostudyisinresponsetotheproposalsoftheWorkingPartyonAidEffectivenessandtheDevelopmentAssistanceCommittee(DAC)NetworkonDevelopmentEvaluationandthereportingrequirementinthe2001DACRecommendationonuntyingODAtoLDCs.

PhaseTwooftheprojectisintendedtoprovideevidence-basedconclusionsabouttheimplicationsofuntyingaidanditsimpactonaideffectivenessinselectedcase-studycoun-tries,forpresentationtotheDACbyDecember2009.ThisreportprovidestheresultsoftheVietnamCountryStudy.

ThisreportprovidestheresultsoftheVietnamCountryStudyandispartoftheLDCSouthEastAsianLaoPDR-VietnamCountrypair.Usingasampleoffourprojectcase-studies,combinedwithabriefstatisticalandeconometricreview,thisstudyaimstocontextualisethekeyissuesofaideffective-nessandimplicationsofuntyingaidinVietnam.Theselectedprojectcase-studiesfocusonprocurementpracticesofthedo-norsandgovernmentalexecutingagencies,whichmayhaveasignificantimpactonhowgoodsandservicesarepurchased,withimplicationsforaideffectiveness.

Thefourselectedcasestudieswere:• twoirrigationprojectsfundedrespectivelybyLux-Devel-

opmentandJICA• awatersupplyandsanitationprogrammefundedby

AusAID,DanidaandtheNetherlands• afloodpreventionconstructionprojectfundedbyAfD.

Statistical and econometric analysis ODAcommitmentstoVietnamhaveincreasedsteadilysince1993,withlargercontributionsinthepastdecade.InanoverallreviewofOECDODAtoVietnam,donorcountrieshadby2007formallyuntiedover70%oftheirODAcommitments.From2005to2007,Vietnamreceivedaidthroughbothgrants(41%)andloans(59%),withdonorsprovidingasignificantamountoftechnicalassistance.Approximately65%ofallODAcommitmenttoVietnamwasuntiedfrom2005to2007.AlargeproportionofdonorODAtoVietnamisintheformoftechnicalco-operation(TC)(TableD.6),andthetyingstatusofmuchofthisformofODAisnotreportedtotheDAC.

TheaimoftheeconometricanalysisistodeterminewhetherODA,thetyingstatusandthedifferentmodalitiesthroughwhichaidisprovided(loansandgrants)haveanysignificant

89 The study was undertaken by Adam McCarty et al. (2009) ([email protected]).

impactonaggregatedonorexportflowsatthecountrylevel,inthiscasetoVietnam.Theresultssuggestthatgrantsfromdonorcountrieshavetrade-distortingeffectsondonorexports,andpossiblyalludetoinformalorde factotyingofgrants.However,theanalysisforVietnamisnotconclusive.

Aid modalities and tyingAlthoughthemajorityofdonorsinVietnamcontinuetoprovideODAthroughaprojectbasedapproach,thereisanin-creasingtrendtomovetowardsnon-projectbasedmodalitiesandusecountrysystems,throughgeneralorsectorbudgetarysupportandpooledfunding.DonorsprovidingODAthroughprojectbasedapproachesareprogressivelytailoringprojectstoensureuntyingstatusthroughgreateruseofcountrysys-tems,bydecentralisingprojectimplementationandexecutionatsub-nationallevelsand,insomecases,ensuringgovern-mentagenciesremainthemaincontractingauthorityforprocurement.Asof2008,‘untiedaid’represented74.3%ofallcommittedaidreceivedbyVietnamfromDACcountries.

Table D.6 Vietnam: aid commitments and disburse-ments by type of assistance 2006-07

Type of Assistance Commit-ments

Disburse-ments

US$ mn

% US$ mn

%

Emergency and Relief Assistance 167 3.2 61 1.7

Free-standing Technical Cooperation 683 13.0 697 19.1

Investment Project Assistance 1841 35.0 1252 34.3

Investment Project Assistance with a TC Component

1538 29.2 1240 34.0

Investment-related Technical Cooperation

36 0.7 30 0.8

Programme/Budgetary Aid or Balance of Payments Support

467 8.9 308 8.5

Unspecified 533 10.1 58 1.6

Total 5264 100.0 3646 100.0

Source: DAC database Vietnam

Project analysisThefourselectedcasestudiesconsistedofthreeactiveprojectsandoneprogramme,alllocatedwithinthewatersupplyandsanitationsector.Aidmodalitiesvariedacrossthecasestudies,yetallfourweresimilarinthattheylargelyinvolvedprocurementofservices,whiletheprocurementofequipmentandmaterialswasrelativelysimilar,allowingforcross-comparison.

1. TheSaigonRiverLowlandsFloodPreventionProjectwashandedoverforfinancingtoAfDin2007,aftertheGov-


Annex D

ernmentofVietnamdecideditwasnolongerabletocontinuefundingtheproject.AfDiscontributingUS$11.8mn,throughgeneralbudgetsupport.TheexecutingagencythroughMARDistheHydraulicProjectInvestmentandConstructionManage-mentBoard9(ICMB-9),responsiblefortheprojectsalongtherightbank,andtheHoChiMinhCityPMUforprojectsalongtheleftsideoftheSaigonRiver.

2. TheRuralWaterSupplyandSanitationNationalTar-getedProgrammeII(RWSSNTPII)isafollowupprogrammetotheRuralWaterSupplyandSanitationprogramme(RWSSNTPI),whichstartedintheearly1990sinco-operationwithAustraliaandDenmark,withthegovernment.TheRWSSNTPIIisapooledfundingprogrammebetweenDenmark,Australia,theNetherlandsandthegovernment,anditisexpectedtorunfrom2006to2011.TotalfundingfortheprojectisUS$315mn,ofwhichAusAIDhascommittedUS$34mn.DanidacontractedtheDanishcompanyMercerEwertoassistintheprocurementoftheinternationalTAs,whileAusAIDcontractedtheAustraliancompanyURStoprocurenationalconsultantsandTAsforthisprogramme.

3. TheNam-TuanIrrigationprojectisasingle-donorprojectwhichcommencedinApril2006,andisexpectedtocompleteinApril2010.LuxembourgDevelopmentissupport-ingtheproject,attherequestofthegovernment,throughanon-reimbursablegrantofEUR3,293,100.TheinternationalTCisofBritishnationality,directlyappointedbyLux-Dev.Lux-Devremainsthecontractingauthorityforallservicesandconstruc-tionworkscontracts,buttheexecutingagencyresponsibleforprocurementistheDARD,specificallythePMUoftheNam-TuanIrrigationproject,ledbytheinternationalTC.

4. ThePhanRi-PhanTietIrrigationprojectisbeingfundedbyJICAthroughaloanagreement,andwasintendedtobeim-plementedfromMarch2006untilDecember2012.JICAisthesoledonor,committingatotalODAloanofUS$51.9mntothegovernment.Theaidmodalityisprojectbasedaidassistance,andtheprojectisexecutedthroughthe‘CentralProjectOffice’(CPO)underMARD,whichisresponsibleforitsmanagement,includingholdingresponsibilityforprocurementofcontrac-torsandtheemploymentofconsultants.BCEOMCompany(France)wasawardedthecontracttoprovideconsultancyservicesforprojectimplementation,andwasprocuredthroughshortlistedmethod.AllconstructioncontractswereawardedtoVietnamesefirms.

Cost and developmental effectivenessAtthesub-nationalandnationallevel,developmenteffec-tivenesswasimprovedthroughknowledgetransfers,firstlybetweendonorsandthegovernment,andsecondlybetweentheinternationalTAsandnationalconsultantsorprojectowners.LocallabourandlocalsourcingofgoodsincreasedtheincomesandemploymentofsomeofVietnam’spoorestprovinces,wherethesedevelopmentinitiativestakeplace.Yetproblemsofseasonalortemporaryemploymentquestionthesustainablelong-termdevelopmentimpact.Difficultiesalso

lieindeterminingwhethertheeffectonlocalemploymentisadirecteffectoftheuntiednatureoftheprojects,i.e.thereislittleevidencetoassumethatiftheseprojectsweretiedthattheywouldsourcelabourfromforeignmarkets.Intermsofcosteffectiveness,certainprojectsindicatedacleartrade-offbetweentime-efficiencyandcosteffectiveness,suchastheNamTuanIrrigationProjectandtheAfDSaigonRiverFloodPrevention,bothofwhichusedVietnamesegovernmentagenciestoprocureconsultingservicesandconstructionworks.However,theprojectssuffereddelaysduetobureau-craticproceduresoroftenineffortstopreventcollusion.Bycomparison,AusAIDoutsourcedtheprocurementofnationalconsultantstoanAustralianfirm,whichledtothetimelypro-curementandawardingofnationalconsultancycontracts.ThefourcasestudiesindicatedthatpricespaidforequipmentandmaterialsprocuredthroughtheGoVprojectimplementa-tionunitsislikelytohavebeenaboveorequaltothemarketpriceduetotheeffectofdirectcontracting,localsupplyconstraintsandsocialnetworks.

Conclusion and recommendations Inactualpractice,theprocurementofgoodsandservicesforallfourprojectssuggestslittleevidenceofimplicitorde factotyingofaidbydonors,sincethedecentralisationofallfourprojectsensuredextensiveuseoflocalsuppliersforbothservicesandworkscontracts.ThebiggestobstacletountyingaidcompletelyinVietnamisthegovernment’scurrentcapacitytoprocurequalitycontractsinatimely,effectiveandtransparentmanner.EffortshavebeenmadebyallfourdonorstoenhancetheVietnameseProcure-mentLaw(VPL)invariouswaystoimprovethis.However,thiscanleadtoconfusionandoverlapping,inevitablyresultinginanineffectiveprocurementsystem.FurthereffortsneedtobemadetoensureanimprovedVPLisappliedtoalldonorprojects.Furthermore,thestrongdonorfocusonmonitoringandevalu-ationconstrainsODAfrombeingcompletelyuntied.Basedonthefindingsfromthecasestudies,policieswhichstrengthengovernment’scapacityininternationalprocurementandenhancethegovernment’sfinancialandprojectmonitoringsystemswouldperhapsbringaboutsomeimprovement.

ICBisthepreferredmethodofselection,sinceitisconsideredthemostopenandmostcompetitive,andisstronglyrelatedtountying.IfICBisnotpractical,thisencouragesuncom-petitiveselectionanddirecthire.Therefore,asinternationalcompetitorsincreasetheirpresenceinVietnamandhavegreatermarketaccess,thiswillalsoenablemoreICBselectionproceduresandgreateruntying.Regardlessoftheaidmodality,fromthecasesreviewed,asig-nificantefforthasbeenmadetoensurethatownershipoverODAliesinthehandsofthegovernment,throughtheuseofcountrysystems,nationalTAsandthegreaterinvolvementofgovernmentexecutingagencies.Althoughcounterfactualsarenotavailableforcomparisonforthisreport,untyingaidisjudgedtohavecontributedtoimprovingaideffectivenessondevelopmentinVietnam.Furthermore,despiteVietnam’sfast


Annex D

approachingmiddle-incomecountrystatus,donorprovisionofODAcontinuestoplayasignificantroleinthecountry’seconomicandsocialdevelopment,whichcouldbeacceler-atedbycontinuingtoopentheprocurementprocessandenablemorerecipientcountryownership.


Annex E

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AnnEX E: rEfErEnCEs


Annex E

Brakman,S.andvanMarrewijk,C.(1995)‘Transfers,returnstoscale,tiedaidandmonopolisticcompetition’,Journal of Devel-opment Economics47(2):333.

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Clay,E.J.,Geddes,M.,Natali,L.,Mensah,E.J.,andQuartey,P.(2009)OECDDAC–PDEThematicStudyonUntiedAid:Ghanacountrystudy,ODI,London.

Clay,E.J.,Geddes,M.,Natali,L.andteVelde,D.W.(2008)The-maticStudy,TheDevelopmentalEffectivenessofUntiedAid:EvaluationoftheImplementationoftheParisDeclarationandofthe2001DACRecommendationonUntyingODAToTheLDCs,PhaseOneReport.Copenhagen.

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Clay,E.J.andTurner,E.(2007)‘ImpactofOverseasDevelop-mentAssistance(GrantsandLoans)onTrade’ReporttoKfWEntwicklungsbank, OverseasDevelopmentInstitute,London,April2007.

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Helleiner,G.(2000)‘Towardsbalanceinaidrelationships:donorperformancemonitoringinlow-incomedevelopingcountries’,CISWorkingPaper,UniversityofToronto.

Hendra,J.(1987)‘Onlyfittobetied:AComparisonoftheCanadianTiedAidPolicywiththeTiedAidPoliciesofSweden,NorwayandDenmark’,Canadian Journal of Development Stud-ies8(2):261-281.


Annex E

Hopkin,A.(1970)‘Aidandthebalanceofpayments’,Economic Journal80(370):1-22.

IDD,&Associates.(2006)Evaluation of General Budget Sup-port: Synthesis Report. Birmingham:UniversityofBirmingham,InternationalDevelopmentDepartment.www.oecd.org/da-taoecd/25/43/37426676.pdf

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Jepma,C.J.(1991)The tying of aid,Paris,OECD

Jepma,C.J.(1994) Inter-nation policy co-ordination and untying of aid.Brookfield(USA)Avebury.

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Johansson,L.M.,andPettersson,J.(2009)TiedAid,Trade-FacilitatingAidorTrade-DivertingAid?Working Papern.5,UniversityofUpsala.

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Khilji,N.M.andZampelli,E.M.(1991)‘ThefungibilityofUSas-sistancetodevelopingcountriesandtheimpactonrecipientexpenditures:acasestudyofPakistan’,World Development19(8):1095-1105.

LaChimia,A.andArrowsmith,S.(2009)‘AddressingTiedAid:TowardsaMoreDevelopment-OrientedWTO?’Journal of Inter-national Economic Law12(3):707-747.

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Massa,I.andteVelde,D.W.(2009)‘Thetradedistortionim-plicationsofloansandgrants:aneconometricexamination.’ReporttoKfWEntwicklungsbank. OverseasDevelopmentInstitute,London,May2009.


Annex E

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Natali,N.,Geddes,M.,andClayE.J.(2009)“Econometricanalysisoftheimplicationsofbilateralaidfordonorexports:theroleoftyingstatusandotherinfluences.”(BackgroundPaperforPDE-DACThematicStudyonAidUntying.)London:OverseasDevelopmentInstitute(ODI),London.Draft.

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OECD(2008f )2008.SurveyonMonitoringtheParisDeclara-tion,CountryChapters,Vietnam.Availableonline:www.oecd.org/dataoecd/55/34/42056862.pdf

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Annex E

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Evaluation

of the implementation of the

Paris Declaration

Thematic Study

The Developmental Effectiveness of Untied Aid:

Evaluation of the Implementation of the Paris Declaration

and of the 2001 DAC Recommendation on Untying

ODA to the LDCs

Ownership, Alignment, Harmonisation, Results and Accountability

This report presents the results of a thematic study undertaken within the framework of the Evaluation of the Paris Declaration and in response to the request by the DAC for an evaluation of the effects of untying of aid to LDCs.The report builds on extensive research carried out in a first phase, pub-lished in October 2008 and subsequent case studies in Burkina Faso, Ghana, Laos, South Africa, Vietnam and Zambia.

Untying aid: Is it working?

Evaluation of the Paris Declaration

Untying aid

: Is it wo

rking?D

ecemb

er 2009

Documents

Untying Aid