Supplementary memorandum submitted by
the Department for International Development, Letter from Shahid
Malik MP, Parliamentary Under-Secretary of State
I promised to follow up some points from the
evidence session on 2 June as part of the IDC's inquiry into coordination
for aid effectiveness.
PROFESSOR EASTERLY
RANKING OF
DONORS
I attach a copy of the Permanent Secretary's
letter to you of 12 May 2008 about the recent published research
by Professor William Easterly and Tobias Pfutze. This ranked DFID
as the top bilateral donor. A copy of the article can be found
at:
www.nyu.edu/fas/institute/dri/Easterly/File/Where_Does_Money_Go.pdf
How do we calculate we lift three million out
of poverty every year?
The committee asked how DFID calculates that
we lift 3 million people out of poverty every year. Economic evidence
about the effect of aid on growth and of growth on poverty means
we can estimate the number of people in each country that DFID
pulls out of poverty, based on the amount of aid we give, both
to bilateral and to multilaterals. These estimates are based on
the Collier and Dollar poverty models which have been influential
in allocation decisions of other bilateral and multilateral organisations.
The Collier and Dollar poverty model combines
two relationships. The first is a relationship between aid and
growth whereby aid works better where there are good policies.
The model shows that the value of aid can increase the average
rate of economic growth in countries with good policies by more
than in countries with poorer policies. The second basic relationship
is between poverty and growth; this looks at how sensitive growth
is to the levels of poverty in a given country. Combining these
two relationships allows us to estimate for each country the number
of poor people that are pulled out of poverty for a given aid
allocation. Summed over DFID's entire bilateral and multilateral
contributions yields DFID's annual 3 million people pulled out
of poverty figure.
Has untying DFID's aid reduced the cost of Technical
Cooperation?
Ann McKechin asked this, given the World Bank
estimate that untying global aid would reduce the cost of aid
by 25%.
Untying tends to increase value for money and
reduce costs because it increases competition in procurement of
goods and services. However, DFID's experience has been that untying
alone does not remove business barriers facing developing country
suppliers. Most bids for our business continue to come from suppliers
based within the UK. We are analysing why this is the case and
reviewing our contract terms to make it easier for developing
country suppliers to bid for contracts. We hope this will introduce
more competition for our business and reduce costs in line with
World Bank estimates.
DFID mainly purchases consultancy services,
on which we spent £246m in 2007/8. Consultancy is a generic
term describing our contracts with for profit and not-for-profit
companies, universities and institutes, and self-employed personnel.
Over the last five years, we have been letting fewer but larger
contracts, and consultancy now represents only 10% of our aid
programme.
Since 2001 when aid was untied, about 80% of
our consultancy business has been awarded to developed country
suppliers, mainly from within the UK. Developing country suppliers
rarely bid directly for our business, although they pick up work
as members of consortia headed by international or developed country
organisations.
We want more developing country suppliers to
participate directly in our business. We have analysed the constraints
to direct bidding by developing country firms, including by consulting
firms based in Africa and Asia. We are now reviewing our contract
terms, to introduce greater flexibility in our use of certain
clauses which appear most challenging for developing country suppliers
to meet for reasons beyond their control.
DFID'S CONTRIBUTION
TO THE
PARIS DECLARATION
EVALUATION
John Battle mentioned a query during the IDC's
visit to Denmark about DFID's contribution to the Paris Declaration
evaluation.
The independent consultants' evaluation report
was submitted within the deadline set to enable preparation of
the international synthesis report. The full published version
which includes DFID's management response will be available by
20 June.
I hope this is useful. I look forward to hearing
the Committee's conclusions on this important enquiry.
23 June 2008
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