The business of foreign aid

Published November 16, 2009

WHEN Prime Minister Gilani tried to convince two key US officials on September 7 to shun the system of disbursing aid money through NGOs and private firms, and instead use the federal government channels for providing it, he was only making a futile effort to seek a change in the concept and practice of US aid that has drastically metamorphosed in recent years.

The US officials he talked to were Deputy Secretary of State for Resources and Management Jacob J. Lew and the acting administrator of USAID, Alouso L. Fulgham. The prime minister told them that since the NGOs or private firms usually incur heavy administrative expenses the actual amount to be spent may come down to $300 million from $1.5billion. He asked the US officials to hold talks with the finance minister and finance secretary for working out some kind of mechanism to prevent waste of aid money. Receiving aid money in full, however, doesn't ensure it will be fully utilised by bureaucrats for the intended purpose because the government itself holds an enviable record of misuse and plunder of aid money. What happened to World Bank's SAP projects in the nineties is unforgettable.

Foreign aid is no more a humanitarian or friendly gesture by the donor countries. Over the years it has evolved into a for-profit, lucrative activity and in the case of the US it is part of a well-conceived strategy to create markets in poor countries, promote exports and help local businesses.

In an innovative move, President Bush had privatised foreign aid during his tenure, “turning the outskirts of Washington into a sea of private firms that live off public contracts”, according to Newsweek. And it's not only the privatised security services that arouse controversy, there are big firms in the business of foreign aid which had been labelled “the new Beltway bandits” by their non-profit rival organisations.

Beltway bandit is a term for private companies located on the Beltway or ring road near Washington, D.C, whose major business is to provide goods and services to the US government and are always on the hunt for winning similar contracts abroad. The phrase was originally coined in bad sense to imply that the companies preyed like bandits on the largesse of the federal government, but it is now used as a descriptive term.

The privatisation of aid originally took place in the 1970s when some conservatives led by Senator Jesse Helms launched a campaign against USAID and the NGOs it hired for committing misuse or waste of aid money and demanded cuts in its budget unless it produced results. The USAID, which handles most of American aid money abroad, turned to private firms which focused more on meeting contract terms. This trend of engaging private firms accelerated dramatically under Bush, as contracts for work in conflict zones like Afghanistan, Sudan and Iraq multiplied.

Blackwater became more prominent and more notorious private foreign-aid provider. Others in the field such as the Louis Berger Group, BearingPoint and Chemonics International became known for brisk efficiency rather than the compassion the NGOs like CARE were known for. Their plus point is that they can execute aid contracts more cost-effectively than NGOs or the federal government. Rather than working, for example, to rally tribal chiefs behind a new education plan in some Afghan province, private contractors are more willing to build a certain number of schools to USAID specifications.

In 2004, the then Afghan Finance Minister Ashraf Ghani felt so frustrated by the poor performance of private firm consultants that he asked a number of them to leave the country. In fact, it is the well-heeled consultants and companies which are the beneficiaries of the global aid system. According to a report of charity ActionAid, about 61 per cent of aid flows are often “phantom” rather than “real” — rising to almost 90 per cent in the case of France and the United States.

The report accused rich countries of “political grandstanding” and highlighted the ways in which they were disguising how real aid flows were even lower than they appeared to be. “Failure to target aid at the poorest countries, runaway spending on overpriced technical assistance from international consultants, tying aid to purchases from donor countries' own firms, cumbersome and ill-coordinated planning, monitoring and reporting requirements all deflate the value of aid,” the charity said.

The report quotes a DfID official as saying that foreign experts giving technical advice in Vietnam, for example, were paid $18,000-$27,000 a month, compared with $1,500-$3,000 for local experts.

It says only 11 per cent of the French aid is genuine. Of the US aid, 86 cents in the dollar is phantom, largely because it is tied to the purchase of American goods and services. Of Japanese aid to Vietnam, 86 per cent is spent on infrastructure projects because Vietnam is a key market for Japanese exports. These projects are located in areas where Japanese firms operate. In Cambodia, donors spent between $50-70 million on 700 international consultants in 2002 — equivalent to the wage bill for 160,000 Cambodian civil servants.

Rangeen Dadfar Spanta, the Afghan foreign minister, commenting on the aid's utility in his country recently told a magazine that in his estimate only $10-20 out of every $100 reached its intended recipients.

On October 26, special US envoy Richard Holbrooke said he was looking at profiles of 1,000 NGOs many of which may be hired to carry out projects in Pakistan. The huge figure was given by the envoy himself at a recent US State Department briefing. He has been running three NGOs until recently, one of them in Pakistan.

After the end of World War II, food aid had become central to the Marshall Plan and a major purpose of Public Law 480 (PL480), passed in 1954, was to lay the basis for a permanent expansion of US exports of agricultural products. To accomplish this, the law stipulated that American food aid be actual food, not cash, and that the food be purchased exclusively in the United States. This requirement created a powerful alliance among the constituencies that stood to profit from this arrangement, the so-called Iron Triangle of farm multinationals, shipping companies and humanitarian groups or NGOs that distribute the food.

The Iron Triangle was the nickname given to the coalition by critics. Big agribusinesses and shippers earn above-market profits from selling food aid and providing shipping services to the government. As reported by the New York Times, the food delivered by NGOs and the UN's World Food Programme in 2004 cost only 40 per cent of the US food-aid budget. The rest was pocketed by suppliers. The NGOs provide political cover to big farm companies and shippers, giving a humanitarian look to private profits.

Opinion

Editorial

Misery and despair
Updated 12 Jul, 2024

Misery and despair

Is a life lived happily and respectably too much to ask for from your country?
Temporary extension
12 Jul, 2024

Temporary extension

THE cabinet’s decision to allow ‘legal’ Afghan refugees — meaning those with Proof of Registration cards —...
Anti-smog strategy
12 Jul, 2024

Anti-smog strategy

BY acknowledging that smog is a year-round problem, and not just a winter issue, the Punjab government has taken the...
Population crisis
Updated 11 Jul, 2024

Population crisis

Moreover, successful programmes, such as Lady Health Workers, can be utilised to provide information and reproductive health services to women.
Taxing agriculture
11 Jul, 2024

Taxing agriculture

OUR inability to collect sufficient tax revenue is resulting in persistently high fiscal deficits, forcing ...
Negligence at PHOTA
11 Jul, 2024

Negligence at PHOTA

THE impression that the state is being careless towards aspects of organ trade control is damaging. Recent news ...