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IMPRIMER

Proposals to Untie Canadian Aid
A CCIC Policy Briefing Note

September 2001

1. The Context for Tied Aid

CIDA’s Strengthening Aid Effectiveness (SAE) points to the long-standing debate on the tying of donor aid and its impact on aid effectiveness. The document proposes options for further untying Canadian aid, either in concert with multilateral donor discussions at the Development Assistance Committee (DAC) of the OECD or bilaterally with like-minded donor countries or through unilateral Canadian action. The Minister for International Cooperation challenged participants during the recent Consultations on the SAE to clarify their positions on untying Canadian aid.

Canada has supported a recent agreement at the DAC (April 2001) to untie aid for least developed countries in a selected number of categories (excluding capacity building technical assistance and food aid for example). Because of these exemptions and thresholds on the size of projects, this agreement affects less than 1.5% of Canadian aid to least developed countries. Discussions to reach even this limited agreement were very difficult at the DAC due to resistance from major donors such as the Japanese. While CIDA officials were not pro-active promoters of extensive untying during these DAC negotiations, Prime Minister Chretien made a commitment at the 2000 G-8 Summit to work towards greater aid untying.

Earlier this year, the British government announced that British ODA would be fully untied for all recipients. Since the announcement DFID have been rigorously reviewing all contract language with aid recipients to assure that it conforms to the policy. DFID has also reviewed their NGO "partnership program agreements" (the equivalent of CIDA’s program funding agreements) and project funding through their Department of Civil Society. DFID concluded that the importance of exclusive partnership funding with British NGOs over-rides any benefits from untying these programs and that an untied civil society program would be impractical to manage. DFID bilateral country programs fund southern civil society organizations as appropriate to their country program goals.

Up until the DAC agreement goes into effect (January 2002), government policy for Canadian aid, established in CIDA’s 1987 Sharing our Future, requires that overall Canadian bilateral aid is 66% tied to Canadian goods and services, except for 50% for Sub-Saharan Africa and least developed countries, and 90% for Canadian food aid. Sharing our Future also explicitly untied all "partnership programs" for International Humanitarian Assistance, International Financial Institutions and the Voluntary Sector. As far as we are aware, there are no accessible statistics that reveal the true degree of tied aid for Canada in terms of these proportions, or even what is to be included or excluded in the calculation.

Since the early 1970s, CCIC and many of our members, along with many academic and other policy analysts, have called for the untying of Canadian aid. In its 1999 policy paper, A Call to End Global Poverty: Renewing Canadian Aid Policy and Practice, CCIC called upon the government to untie at least 80% of bilateral aid allocations, while promoting aid procurement policies that strengthen and take advantage of local skills in developing countries. Our January 2001 Commentary on strategies for CIDA’s aid effectiveness calls for a full review of technical assistance in the context of strengthening recipient-led programming.

2. Where does Canada stand in relation to other donors?

The DAC statistics for the 22 donor countries only compare the degree of tied aid for DAC’s definition of bilateral commitments, exclusive of technical assistance, in a given year. The latest DAC report for 1999 puts the proportion of Canadian bilateral aid tied to Canadian goods and services at 70%.

While only Spain, Italy and Greece have a higher proportion than Canada (among 19 reporting countries), these comparative figures are misleading and very incomplete. At least 10 donors (out of the 19) have a much higher proportion of bilateral aid devoted to technical assistance than Canada, and this technical assistance is currently excluded from the calculation. For example, Germany reports only 15% of its bilateral aid as tied in 1999, but if one assumes all technical assistance as tied, this proportion for Germany grows to 51%! Canadian tied aid would rise to 75% under these assumptions.

The figures reported by CIDA to the DAC are not those that relate to CIDA tying rules noted above; they relate to more narrow rules agreed by DAC members to be the basis for the comparison. In Canada’s 1999 report to the DAC, the tied status of only 72% of bilateral geographic program commitments were reported. A significant proportion of Canadian "tied aid" is also the Cdn$150 million in support of refugees in Canada for their first year, which DAC rules permit, but which is included in ODA on a donor discretionary basis (Canada began to include these amounts only after 1994). (see details in the endnote)

The focus of multilateral (DAC) donor discussions on tied aid relates almost exclusively to the contractual terms for bilateral aid disbursement and on multilateral and bilateral food aid. There are two dimensions to the untying of bilateral aid. The first relates to rules that tie to the donor country the procurement of goods and services required to implement a given bilateral project. Here the assumption is that untying procurement will give the project access to the most appropriate and cost effective tools for the project. The second centers on to contracting process itself, that is, who is eligible to bid for the right to implement a CIDA bilateral project. This second element is consistent with ongoing WTO negotiations for the liberalization of trade in services, whereby businesses (and not-for-profit organizations) from any country seek the same rights as pertain to Canadian businesses to compete and win a government contract to implement a given Canadian tendered project. Much of the recent DAC discussion on aid untying among donors focuses on issues of "a level playing field" and fair competition among developed country donors in the liberalization of contract bidding and technical assistance, and very little on the implications of aid untying for developing country partners.

Technical assistance is a central issue for untying Canadian aid. Canadian technical cooperation includes CIDA-funded experts for both the management and implementation of projects overseas and the placement of Canadians by Canadian volunteer sending organizations. Given CIDA’s interest in developing country ownership, the trends are worrying:

  • The numbers of Canadian technical assistance persons supported by CIDA has increased from 7,474 in 1993/94 to 9,287 in 1999/2000, an increase of 24%.
  • CIDA also employs technical experts from developing countries. However the number of these technical experts in CIDA programs has decreased from 13% of total technical assistance in 1994/95 to 11% in 1999/2000.
  • Close to 30% of bilateral program resources are spent on technical assistance components.
  • Serving very different purposes (see below) the placement of Canadians by Canadian volunteer sending organizations makes up only 4% of the total CIDA technical assistance budget, while bilateral technical assistance takes 65% of this budget.

In summary, CCIC proposes that CIDA undertake an analysis of the current extent and mechanisms of Canadian aid tying and technical assistance as an essential foundation for a realistic assessment of the benefits to be received by untying Canadian aid for developing country partners and for the goal of reducing poverty in Canadian aid.

3. Changing Implications of Aid Untying for CIDA and Developing Countries

Since the 70’s and 80s, Canadian NGOs have been concerned that aid tying was a mechanism for promoting Canadian commercial interests in the provision of goods to large-scale development projects. NGOs were challenging both the purpose of this aid being allocated to large donor-directed infrastructural projects, and not the poor, as well as the provision of more expensive and sometimes inappropriate goods and food aid in Canadian development projects.

The assumptions behind the proposal to untie Canadian aid was 1) that developing country partners would have greater flexibility in the choice of appropriate development projects to put to donor and 2) that developing country partners would be able to access materials and services at the least cost and best suited to their needs.

In the 1990s these assumptions about the impact of aid untying remain, but it is also true that the nature of Canadian aid relationships have changed since the 1970s. While Canadian aid continues to support infrastructure services, large dams, highways or rail equipment form a very small element of Canadian aid in the 1990s. Bilateral aid is much more concentrated on the provision of services for education, health, or government capacity building (and hence the importance of technical assistance in Canadian aid). It has been repeatedly demonstrated that effective poverty eradication strategies, focusing on social development and livelihood issues, require long term engagement between collaborating partners, that are not easily reduced to two or three year implementing contracts.

The mechanisms for aid delivery have also evolved.

  • CIDA does not, for the most part, undertake its own country-to-country development activities; rather it employs "Canadian executing agents" to manage development projects. Since 1997, not-for-profit civil society organizations (NGOs, universities etc.) or private sector firms may bid for the chance to implement CIDA bilateral projects based on established "request for proposal" rules to evaluate bids. Bilateral projects managed by the for-profit sector have build-in biases towards use of Canadian personnel, in that the numbers and costs of the latter are the basis for determining "overhead" for the executing agency.
  • There has also evolved a "responsive mechanism" (until recently the country focus mechanism) within bilateral programs where Canadian organizations and firms can bring project proposals consistent with CIDA’s country strategies for sole-sourced funding.Support for multilateral institutions, with the exception of food aid, remains untied, although at times CIDA has worked with multilateral institutions and with Canadian consultants, commercial firms and NGOs to improve their access to multilateral bidding and contracts.
  • Since the mid 1980s, Canadian Partnership Branch has shifted its support to Canadian civil society organizations from a series of one-off projects to multi-year core program funding based on both institutional capacities and demonstrated long term partnerships with southern counterparts for these organizations.

For developing countries, particularly the poorest, to reap direct benefits from aid untying, concerted efforts must be made to retool aid procurement policies and practices as a resource to support economic and social development goals in developing countries. Aid untying by donors must be accompanied by policies and criteria that given preference to building and accessing local developing country private sector and civil society capacities, enhancing the local skills base and expertise for development goals, orienting the choice of goods and services, particularly labour intensive approaches and locally appropriate technologies. Aid untying without directing aid procurement and terms of contracting towards supporting poverty eradication efforts in developing countries, may simply open access to Canadian aid resources for large institutions in other developed countries, with global bidding capacities, while preserving existing patterns of aid that diminish ownership in developing countries. (See Actionaid, Purchasing Power, Aid untying, targeted procurement and poverty reduction, 1999)

4. What do we propose?

Untying Canadian aid is not an end in itself. Just as one-size-fits-all policies for economic liberalization do not address the needs of strategies for pro-poor economic growth in developing countries, the liberalization of the aid regime do not necessarily benefit poor people. The only rationale for untying aid is its efficacy for improving the effectiveness of Canadian aid as it contributes to poverty eradication. Implementing a policy to untie aid must therefore be guided by the purposes of aid.

In elaborating our call for untying Canadian aid we would make the following proposals relating to the various programming mechanisms for CIDA:

  1. Developing country partners (both government and non-governmental actors) must have complete freedom of choice with respect to the procurement of goods and services to realize the goals for bilateral projects and programs.
  2. CIDA should collaborate with like-minded donors and developing country partners to improve the capacities and skills of local experts and identify in-country linkages to further country ownership of strategies and programs to end poverty. Donors and the executing agents for their bilateral projects should give special preference to these developing country or regional sources for technical skills and goods in their aid procurement.
  3. The competitive bidding process for CIDA bilateral branch projects should be significantly untied, with exceptions due practical considerations for a dollar threshold and timeline for these projects. This policy affects all Canadian executing agents for bilateral projects, whether they be NGOs, universities or private sector firms. In 1999/2000, the private sector implemented 33% of bilateral projects, NGOs, 20%, universities and other institutions, 19%, and government and multilateral organizations, 28% (based on a distribution of bilateral project disbursements for that year).
  4. Untying CIDA aid should include a review of the content of its bilateral contracts and contribution agreements to make them consistent with locally-directed development processes, including more flexible timeframes, access to local knowledge, mutually determined of results rather than externally imposed conditions, and methods for calculating overheads for executing agents.
  5. The current tying status for Canadian food aid should be reviewed and substantially reduced, with a clear food aid policy that first directs financial resources to the purchase of locally or regionally available and appropriate food products in developing countries, before accessing Canadian food stocks.
  6. Untying Canadian aid should apply to the allocation of technical assistance for the management and activities of bilateral projects, with policies and mechanisms to strengthen CIDA’s engagement of southern expertise in its bilateral programs.
  7. The purpose of CIDA core program support for Canadian volunteer sending organizations is not only the transfer of technical skills relating to locally managed overseas programs, but also, and equally important, the engagement of Canadians in development cooperation and their formation in life-long global citizenship. CIDA support for volunteer sending should continue to rely on Canadian volunteer sending actors, who are in the best position to promote global citizenship in a Canadian context. Canadian volunteer sending organizations root their voluteer placement programs in long standing partnerships with local organizations in developing countries, where the latter determine job descriptions and the choice of volunteer(s). CIDA policies affecting Canadian volunteer sending organizations should be changed to permit them to draw upon southern expertise as well as Canadians to fill these positions.
  8. The purpose of CIDA support to Canadian civil society organizations, through the responsive mechanisms of Canadian Partnership Branch, is to promote civic expression of Canadian public commitment to development and global citizenship. These organizations involve Canadians in sustained partnerships for reducing poverty with civil society counterparts in developing countries and motivate Canadians to further their support for international cooperation in Canada. In responding, CIDA recognizes the intrinsic value of organizational partnerships, rooted in Canadian society, which cannot be reduced to short-term contractual relationships open to international bidding processes. Nevertheless, the content of work undertaken and the resources transferred by Canadian NGOs should be largely untied to Canadian sources.
  9. Expanded opportunities for southern civil society organizations to access CIDA funding should be provided in the context of bilateral country programs that give priority to roles for civil society in development priorities for poverty reduction.

Endnote
1. In Canada’s 1999 report to the DAC, the following aid categories are reported as tied to "Canadian financing of imports", with procurement limited to Canadian goods and services:

Reported as Tied Aid:
Geographic Programs
Food Aid
IHA
Refugee Costs in Donor Country
Other Bilateral
Industrial Cooperation
Misc.
Total Tied

 
$321 million
$113 million
 $88 million
  $158 million
$45 million
 $ 31 million
$ 62 million
 $818 million


Reported as Untied Aid

Geographic Programs:    
Canadian Partnerships (PVOs)
Debt Forgiveness
Misc
Total Untied

 
$159 million
$97 million
$85 million
$  3 million
$344 million

 

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