In an article entitled “43% of Donor Pledges Disbursed, But Where? To Whom?” the Centre for Economic Policy Research (CEPR) examines the effectiveness of the aid spent by development agencies in Haiti. A large portion of the posting, reprinted with permission below, discusses Peace Dividend Trust’s support for the private sector, both in Haiti and Afghanistan, and notes that it differs from the traditional approaches of aid agencies. The article also previews an upcoming PDT research report on Haiti’s all-important construction sector. The text below is extracted from CEPR’s posting on September 22, 2011. The full post is available on the CEPR website at www.cepr.net/index.php/blogs/relief-and-reconstruction-watch/43-of-donor-pledges-disbursed-but-where-to-whom.
Support to the Haitian Private Sector – Spending the Development Dollar Twice
In addition to supporting the Haitian public sector, the idea of accompaniment pertains to supporting the Haitian private sector. One of the most direct ways to stimulate local production is through local procurement practices. Peace Dividend Trust (PDT) has been working in Haiti since 2009 to increase the amount of aid that enters the local economy. The Peace Dividend Marketplace is a forum that connects local businesses with development agencies, NGOs, and foreign governments. Forthcoming research from PDT shows that their database contains over 2,200 local businesses, over 600 of which are in the construction sector.
PDT describes the benefits of local procurement as “spending the development dollar twice.” Previous PDT research, predominantly focusing on Afghanistan, revealed that “only a small portion of the aid money pledged and spent in the aftermath of a disaster or conflict will actually be channeled through the host government and local economy.” PDT was instrumental in creating the “Afghanistan Compact,” in which “donors agreed to channel an increasing proportion of their assistance through the core government budget, either directly or through trust fund mechanisms. Where this was not possible, the Compact acknowledges the significance of three things: using national partners rather than international partners to implement projects; increasing procurement within Afghanistan; and using Afghan goods and services wherever feasible rather than importing goods and services.” Yet in Haiti, no such explicit policy exists.
PDT research in Afghanistan showed that “funds provided through trust fund and budget support arrangements” had the greatest local economic impact, calculated by PDT at 80 percent. This means that 80 percent of the funds enter the local economy and generate local economic impact. In comparison, funding provided to international NGOs and contractors provided just 15 percent local economic impact. Although not an exact science, it is reasonable to assume a similar breakdown in Haiti. As mentioned earlier, the OSE report in June found that some 75 percent of recovery funding went to international NGOs, contractors and multilateral agencies where the local economic impact is much lower than direct budget support.
The HRF, although much of its funds remain unspent, is an example of how trust funds can have a greater local impact than contracts with NGOs or for-profit companies. According to the HRF annual report, the Haitian government is the implementing partner for 88.4 percent of HRF funds. Based on PDT research, this will likely lead to the most significant local economic impact of aid allocation.
As was previously mentioned, over 600 of the Haitian businesses listed by PDT are in the construction sector, a key area for development projects. A forthcoming report from PDT on local procurement within the construction sector surveys local business and international organizations, and reveals that at least in the construction sector, many organizations are already doing business with Haitian firms. This is especially important because as PDT found in Afghanistan, “[i]nternational construction contracts are approximated at a 10-15% local economic impact,” an especially low rate. The forthcoming report finds that 32 of 33 international organizations surveyed had used local construction companies, but were much more likely to use larger Haitian firms. Over 60 percent of the companies PDT interviewed had fewer than 10 employees, but these firms were much less likely to have done work for an international organization.
Although PDT has found that many aid organizations are contracting with Haitian businesses, it is unclear what the economic impact is. As PDT explained in Afghanistan, the reason why international construction contracts have such a low economic impact is that “[t]he vast majority of funds are used to pay for international staff and the procurement of international materials – including capital equipment as well as inputs. These companies use a considerable amount of local labour, but since local wages are often much lower than wages paid to international staff, this figure does not represent a large portion of the overall expenditures.” Further research from PDT may shine more light on this issue.