A Growing Share of Aid is Spent by Private Firms, Not Charities

By , Communications and Advocacy Associate

The 2010 earthquake in Haiti devastated the island, killing thousands of people and destroying infrastructure. In the years that followed, billions of dollars in aid flooded into the country, but in a way most people might not expect.

In this  Economist article, Haiti is one example of a growing trend: aid being funneled through consultancies and other private sector contractors that profit from the work. In fact, nearly a quarter of USAID spending in 2016 went to for-profit firms according to the article. Two reasons are given for this shift:

  1. The changing nature of aid – a smaller share is made up of traditional projects, such as building schools or handing out food. The focus has shifted to more technical assistance.
  2. Even as aid budgets have grown, governments have sought to make aid departments smaller and more nimble. As aid agencies struggle to handle larger budgets with less staff, they have turned to the private sector.

While little research has been done on the impact of this new trend, according to the Economist, what is known is that:

“For-profit and non-profit groups work differently. A non-profit body typically has large bureaus in the countries where it works, or forms long-standing partnerships with local charities that do. It will consider whether a proposed project fits with its charitable purpose, and whether it has suitable in-house expertise; only then will it decide whether to bid. Firms, by contrast, tend to have fewer staff, and to rely on subcontractors and freelance experts who can be flown in for as long as a project lasts. Tim Midgley of Saferworld, a charity, argues that this model means that firms may be less likely to understand local cultures, build relationships with governments and monitor long-term results. But it can also be more flexible, with firms matching expertise and staffing to each contract.”

A case for diversifying streams of aid can be made, however it seems that the sector is only consolidating further as larger firms merge to protect their interests. The article argues that, “A smaller firm’s best chance to pick up some of this work is to join a consortium,” but to be wary of consortiums run by larger firms that use a smaller nonprofits expertise as “bid candy” and then keeps the work in-house.

The article goes on to mention that private sector firms are now also bidding on grants, “One way to keep going during leaner times is to bid not only for contracts, but for grants—that is, to do some aid work at cost, without making a profit from it.”

To read more from the article, click here.