Saturday, October 20, 2012

Why is so much UK aid money still going to companies based in Britain?

'Untied' aid is thought to benefit local firms in developing countries, but the lucrative DfID contracts end up in UK hands
Cash in hand
Many of DfID's most lucrative contracts still end up in UK hands Photograph: Graham Turner for the Guardian
Claire Provost and Nicola Hughes, Fri 21 Sep 2012 06.59 BST
There has been a lot of drama this week about how UK aid money is spent. The Sunday Telegraph set the ball rolling, highlighting just how lucrative the UK aid business has been for a group of primarily British consultants, several of whom take home six- or seven-figure salaries and are former civil servants. The UK international development secretary, Justine Greening, has called for an internal inquiry into how her new department brings in technical experts.
For some, the nearly £500m spent by the Department for International Development (DfID) on consultants last year is a useful new hook on which to hang the well-worn arguments that UK aid is, and always will be, a waste of money. Lord Ashcroft suggested it's proof the time has come to switch off the"golden taps". Others will, no doubt, be ready to defend UK development spending at all costs.
But the real question is why, more than 10 years after the government's commitment to "untie" British aid and open up contracts to developing country firms, so much of DfID money is still going to UK companies?
For developing countries, "untied" aid should offer local companies a larger share of aid-funded business, bringing the promise of new taxes, jobs, and the development of local manufacturing and expertise. "Buy local" campaigners argue that it's hard to imagine aid "exit strategies" if most money effectively stays in the donor country, with little entering local economies.
The UK fully "untied" its aid budget in 2001. Previously, a share of UK aid-funded contracts had to go to British firms. Upon coming to power, the coalition government was quick toreaffirm its commitment: "We will keep aid untied from commercial interests, and will maintain DfiD as an independent department focused on poverty reduction."
But data compiled by the Guardian shows that the vast majority of DfID's contracts are going to companies based in the UK and that the share going to UK firms seems to have risen in recent years.
Of the 117 major DfID contracts and procurement agreements (together worth nearly £750m) published on the government's contracts portal since January 2011, only nine include non-UK firms among the grantees. An Indian company, Kran Consulting, is the only firm from a developing country on the list to win a full contract.
A previous OECD-commissioned studyfound that in 2007 18% of DfID contracts went to non-UK firms. From the data published below, it seems that share has only dropped.
It's possible that not all DfID contracts have been published – the department reserves the right, for example, to withhold some for security reasons. It's also uploading contracts on an "ad hoc" basis, and it's unclear how many are yet to be published. Some contractors, meanwhile, might sub-contract work to developing country firms. But the picture that emerges from the data available raises questions about whether the government's much-flaunted "untied" aid commitments are delivering on their promise.
There's a longstanding image, peddled by both left and right, of UK aid as a direct transfer of income from British taxpayers to poor people overseas. Perhaps this is what Justine Greening had in mind when, upon taking over from Andrew Mitchell as development secretary, she allegedly exclaimed: "I didn't come into politics to distribute money to people in the third world!" But a look through the department's accounts reveals a labyrinthine list of intermediaries. Many of the larger chunks of UK aid spending are channelled through big multilateral organisations and British firms.
Last year, the European Network on Debt and Development (Eurodad) noted that developing country companies areoften little match for the big donor country firms that still dominate the global aid business. In the UK, "big four" auditor and one of DfID's top contractors, KPMG, has an entire department dedicated to working with development groups. And UK Trade and Investment seems only too happy to help, running workshops and offering advice to British companies eager to win lucrative aid contracts.
Even as she announced the "untying" of UK aid in 2000, the then development secretary Clare Short was quick to note:"British industry has nothing to fear … UK consultants are consistently successful at winning contracts from the fully untied funds of international organisations such as the World Bank."
In contrast, the US – the world's largest aid donor, and well known for its policy of "tied aid" – seems to be significantly rethinking its approach. Earlier this year, USAid announced it would not only open up its contracts to competition from non-US firms but would spend at least 30% through governments and developing country organisations by 2015 – despite mounting pressure from some big American contractors, uneasy about losing business.
Unfortunately, DfID's accounts are extremely messy, and it's difficult to get a full picture of where exactly UK aid money goes. UK aid, for example, also buys goods – everything from antimalarial drugs to textbooks – but those purchases often go through big procurement agents, and getting that data is even harder. Lacking better-quality information, we're left with little more than snapshots. The £500m spent on consultants, for example, represents less than 8% of DfID's expenditure last year.
If anything is clear from the drama this week, it's that the multibillion-pound UK aid budget demands more scrutiny, and that DfID needs to be much more transparent about who it works with, where its money goes, and how exactly contracting big UK firms is good for development.
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