Nielson joins calls for end to ‘tied aid’

Date: 21/11/02

By David Cronin

EU GOVERNMENTS were told this week they should cease restricting development aid contracts to companies from their own countries.

The call came from both the European Commission and a coalition of anti-poverty activists. On Tuesday (19 November) Poul Nielson, the development commissioner, presented EU foreign ministers with a proposal to cease 'tying' contracts for food aid and its delivery.

Meanwhile, charities including ActionAid and Caritas Europa have written to the Danish EU presidency, arguing that tied aid is detrimental to the world's poor. 'We are convinced that you share our view that the ultimate purpose of aid is to reach poor and marginalised people, thereby making a sustainable difference to the lives of people in poverty,' they said in a letter to Danish Foreign Minister Per Stig Moller. 'This can only be achieved if accompanying measures to build private-sector capacity in developing countries to bid for and win EU aid contracts are envisaged.'

The UK is alone among the EU-15 in untying its aid, according to a new ActionAid study. The agency states that Denmark, Italy and Portugal invite foreign companies to tender for contracts only when there is insufficient interest from domestic firms or when items required are not available in home markets.

In 1999 the group filed a formal complaint against Italian practices to the European Commission, alleging that they breach EU directives on competition and public procurement. As a result the Commission has started infringement proceedings against Rome.

ActionAid is now turning the spotlight on other states. For example, it says that Sweden's attorney-general has found that domestic procurement is favoured by its government's development ministry, even though this limit on competition contravenes both national and EU law. Stockholm has decided to revise its policies as a result. And the agency reports how the German Bank for Reconstruction (KfW) allows tendering to be restricted to German firms. In 2000, more than 60% of all external aid contracts handled by KfW went to companies from the country.

Furthermore, ActionAid contends that tied aid can be bad value for money. In April, Denmark cancelled a €45 million contract for repairing Bangladeshi ferries. Initially, it planned for the repairs to be carried out in Denmark but changed its mind after pressure from Dhaka which demanded the job should go to Bangladeshi firms.

The Bangladeshi branch of ActionAid has calculated that the contract could have been four times lower if all the work was done locally or in surrounding countries.

• Suspending EU aid to Nigeria in protest at a death sentence handed down to a young woman might do more harm than good, according to Poul Nielson.

The Commissioner said that taking such action would be only a 'measure of last resort'. He was responding to a parliamentary question about Amina Lawal, who was condemned in August to die by stoning, for having a child out of wedlock. The court's decision, taken under sharia law, is currently being appealed.

Nielson said the Commission has urged Nigeria to abolish the death penalty. He pointed out that the EU's agreement with the African state includes a clause demanding respect for human rights. 'Suspension of the agreement is possible,' he added. 'However, suspending aid to a country would normally be more detrimental to the poorer sections of society.'

Development Commissioner Poul Nielson told EU governments on 19 November 2002 they should cease restricting development aid contracts to companies from their own countries.