The Aid Procurement Market: Humanitarian and Development Procurement: A Vast and Growing Market

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Throughout the world, international aid agencies implement development or relief assistance programmes aimed at fighting disease. reducing poverty and fostering economic and social development. In doing so, they procure an estimated US$ 50 billion worth of goods and services from companies worldwide. Today changing procurement trends by these agencies are opening huge opportunities for developing country enterprises.

Several important trends are shaping the way international aid agencies operate procurement. Firstly, the World Disasters Report of the International Federation of Red Cross and Red Crescent Societies cites an overall decline in Official Development Assistance (ODA). This is forcing aid agencies to devise strategies to make shrinking budgets meet growing demands. Secondly, the development community's emphasis is increasingly on supporting local "participatory" initiatives in order to bring about sustainable development. Finally, due to calls from non-governmental organizations (NGOs) and institutions such as the Organisation of Economic Co-operation and Development (OECD) to end the policy of "aid tying", donor government are reconsidering the practice.

The OECD defines "aid tying" as when "the procurement of the goods or services involved in ODA is limited to the donor country or to a group of countries". The OECD says that "untying [aid] in a multilateral context will align the aid business with the free trade principles of the World Trade Organization Agreement on Government Procurement. As such, it will constitute an important step towards creating a level playing field for procurement."

These three factors are pushing aid agencies to devise strategies that support broad-based cost-effective development objectives. An increasingly popular option is to procure goods and services locally in the regions where programmes are implemented, rather than importing them. In addition to reducing costs, buying locally in developing countries has development benefits: it strengthens the private sector, increases the skills and expertise of people and encourages regional trade.

Aid procurement: two different markets

The market represented by procurement operations of international aid agencies can be divided into two segments: procurement for short-term relief or humanitarian operations and procurement for medium to long-term development assistance programmes. The segments share some common characteristics, but also have fundamental differences that suppliers should note.

In humanitarian relief operations, the primary emphasis in procurement is on speed and access. In order to save lives, this means delivering the goods to affected areas as quickly as possible. However, these areas are often difficult to reach and/or have security issues. A key concern for international aid agencies is supplying goods to remote areas while ensuring the security of both aid workers and beneficiaries. This issue is crucial in their procurement decisions.

Although subject to competitive bidding, items procured for relief operations tend to be more expensive since quick delivery is the main concern. The goods most commonly procured are relatively simple in design. The generic specifications of such items have been identified by an inter-agency technical committee and are described in a compendium called "Emergency Relief Items" issued by the United Nations Development Programme (UNDP) and its Inter-Agency Procurement Services Office (IAPSO).

The other market segment is development assistance programmes aimed at sustainable social and economic development. Working in more than 100 developing economies, the World Bank Group is the world's largest source of development assistance. Its primary focus is helping the poorest people and the poorest countries in projects focused on basic health and education, social development, good governance, environmental protection and private business development. …