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US Aid spending

January 24, 2006 ( Development )

Tho a bit dry, I recommend reading the rest of this Congressional Research Service report on US aid practices, priorities, and so on. It paints a pretty poor picture of our nation's "good will" practices. Of interest, however, is how much money funded to international development programs gets spent on US salaries, services and products procured from US companies and the like.

Let's do a quick quiz. I'm a free user and too lazy to set up a poll over at GriffJon.com, but take a guess and be honest with yourself at least when you get to the cut.

A) under 20%
B) 20-50%
C) 50-80%
D) over 80%


OK, make your guess and proceed...


The answer is D, over 80%. It varies between 80 and 90% depending on the program. Interesting factoid, such a large percentage of multilateral (World Bank, UNDP, etc.) development project funds are spent with American agencies that it's likely that we receive more money in procured services/products than we donate to those funds.

Here's the breakdown, from the Congressional Research Service of The Library of Congress.

How much of foreign aid dollars are spent on U.S. goods?

Most U.S. foreign aid is used for procurement of U.S. goods and services,
although amounts of aid coming back to the United States differ by program. No
exact figure is available due to difficulties in tracking procurement item by item, but
some general estimates are possible for individual programs, though these may differ
year to year.

In FY2004, roughly 87% or $3.7 billion of military aid financing will be used
for procurement of U.S. military equipment and training. The remaining 13% are
funds allocated to Israel for procurement within that country.

Food assistance commodities are purchased wholly in the United States, and
most expenditures for shipping those commodities to recipient countries go entirely
to U.S. freight companies. Under current legislation, three-fourths of all food aid
must be shipped by U.S. carriers. On this basis, a rough estimate suggests that more
than 90% — at least $1 billion in FY2004 — of food aid expenditures will be spent
in the United States.

Because U.S. contributions to multilateral institutions are mixed with funds
from other nations and the bulk of the program is financed with borrowed funds
rather than direct government contributions, the U.S. share of procurement financed
by MDBs may exceed the amount of the U.S. contribution. For example, the $1.88
billion in World Bank procurement from American sources for investment and
adjustment loans in FY2003 (the most recent year for which data are available) was
more than twice the $844.5 million U.S. contribution to the IBRD and IDA, the
Bank’s two largest facilities. The United States accounted for about 18% of all
World Bank foreign procurement in FY2003, the largest of any country. Germany
(7.8%), France (5.4%), Italy (5.1%), and China (4.9%) followed.

Most bilateral development assistance and the ESF, NIS and SEED
components of economic political and security assistance support programs in
developing countries and the new European democracies, respectively. Although a
small proportion of funding for these programs results in transfers of U.S. dollars, the
services of experts and project management personnel and much of the required
equipment is procured from the United States. According to USAID, 81% of total
USAID procurement between October 2002 and September 2003 under these
programs came from U.S. sources.

Although some might argue that a greater proportion of U.S. foreign aid than is
currently the case should be used for procurement of U.S. goods and services, a
100% level of reflows would be difficult if not impossible to achieve. Projects
carried out in the developing world by their nature require a degree of spending
within the recipient country — for local hire personnel, local building materials, and
other operational expenses.

Many argue that the foreign aid program brings significant indirect financial
benefits to the United States, in addition to the direct benefits derived from reflows
of aid dollars. First, it is argued that provision of military equipment through the
military assistance program and food commodities through P.L.480 helps to develop
future, strictly commercial, markets for those products. Second, as countries develop
economically, they are in a position to purchase more goods from abroad and the
United States benefits as a trade partner.


Posted by griffjon at January 24, 2006 12:27 PM

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