4. What is the Real Value of ODA to Recipients?

OECD (1972: 45). The definition “relate[s] to the ‘1969 Terms of Aid Recommendation’ [which] defines the concessional element of ODA on the basis of a 25 per cent grant element threshold’”.

In the 1977 development review (OECD 1977: 240), ODA was defined as “grants and loans, undertaken by the official sector; with promotion of economic development and welfare as main objectives; at concessional financial terms (if a loan, at least 25 per cent grant element). In addition to financial flows, technical co-operation is included in aid. It comprises grants (and a very small volume of loans) to nationals of developing countries receiving education or training at home or abroad, and to defray the costs of teachers, administrators, advisers and similar personnel serving in developing countries”.

See Hynes and Scott (2013) for an overview of the evolving ODA concept and its adaptations to changing environments and demands, beyond administrative costs. Refugee costs in developing countries were accepted as ODA. However, the inclusion in ODA of costs for refugees staying in the donor countries (in-country costs during the first year), was questioned at first in some DAC countries. For a discussion, see also Renard and Cassimon (2001).

For the process, see OECD (2016b).

The assumption was that, removed from the self-interests of the donor, ODA would be directed towards the real needs of recipients. As an indicator of an altruistic policy, however, it has obvious shortcomings. During the early years, more practical concerns explained a large multilateral component, such as a limited delivery capacity, particularly for the newcomers. The major powers may be more able to influence the use of their ODA channelled through multilateral agencies than smaller countries. When the EEC/EU emerged as a major/the major agency for multilateral ODA, another shortcoming of the multilateral share as an indicator of altruism became apparent: obligatory contributions to the EEC/EU aid programmes were included in the member countries’ multilateral ODA (in addition to their contributions to the “traditional” multilateral agencies—the UN and the international finance institutions), boosting the multilateral share on the part of EEC/EU countries. In some cases, these obligatory contributions may even reflect a small total ODA of the country concerned, making any comparison problematic. For overviews, see Tables A4 and A6 (Appendices).

For an overview and discussion, see Stokke (2009: Part 1).

See, in particular, Supplement to the 1965 Recommendation on Financial Terms and Conditions, adopted by the DAC 12 February 1969 (OECD 1969: 267–270 [Annex III], for the way the DAC tackled the issue during the formative years). It noted (p. 270): “[S]everal members are still far from the standards of the original 1965 Recommendation, in most cases reflecting their domestic financial and structural difficulties together with a lower per capita income. These Members are urged, while keeping the new objectives in mind, to concentrate their efforts on first meeting the original objectives.”

The average grant element of ODA credits was slightly below 60% until the mid-1990s and somewhat above 60% during the years 1999–2009 (OECD 2011: Fig. B.7).

In a short-term perspective, tying of aid may be favourable—especially in a strained economic situation. Double or even triple tying of aid may be used as emergency assistance to domestic firms in structural or temporary economic crisis. However, studies assessing the impact of aid tying on employment in exporting industries in Western Europe have concluded overall that the net employment created both directly and indirectly amounted to not more than a few percentage points of the employment associated with exports to LDCs, and therefore a few tenths of a percentage of overall employment (inter alia, Jepma 1996: 241). The long-term effects—for the national economy as well as the individual firms involved—may be more dubious. The tying may add to the problems and create new ones, since the industries might adapt to the conditions of a protected market resulting from the tying. Short-term relief may, therefore, be bought at the price of long-term problems for economies integrated into the international market economy. It should, however, be added that most economies have pockets that are protected from international competition.

Stokke (1989: 294–295, 1984: 37ff).