Sir Richard Feachem, chair of the Australian aid agency’s Malaria Reference Group, looks on as staff take a girl’s blood slide on the island of Tanna, Vanuatu. Australian firms can now bid on European contracts in Vanuatu and several other countries. Photo by: Jim Tulloch/AusAID

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Australian firms can now bid for procurement contracts in 18 Asian countries financed by European development assistance following the completion of mutual untying of aid.

On March 24, the European Commission officially granted Australia reciprocal access to contracts - save for grants - for the next three years under the Development and Cooperation Instrument. Australia's overseas aid program was completely untied in April 2006.

The instrument aims to eradicate poverty in partner countries and regions; pursue the Millennium Development Goals; and promote democracy, good governance, human rights and rule of law. It has a total budget of 10.057 billion euros ($13.382 billion) from 2007 until 2013. Over half of this, 5.187 billion euros, is dedicated to Asia for the same period.

DCI can fund actions in 10 areas: poverty alleviation; human development; social cohesion and employment; governance, democracy, human rights and support for institutional reforms; trade and regional integration; environment and sustainable development of natural resources; water and energy; infrastructure, communication and transport; rural development, territorial planning, agriculture and food security; and post-crisis situations and fragile states.

For the next three years, Australian companies can engage in service, supplies and works contracts with the European Commission in the following countries: Afghanistan, Bangladesh, Bhutan, Cambodia, China, India, Laos, Malaysia, Maldives, Mongolia, Myanmar, Nepal, North Korea, Pakistan, the Philippines, Sri Lanka, Thailand and Vietnam.

Indonesia is the exception because the A$1 billion ($755 million) Australia-Indonesia Partnership for Reconstruction and Development is restricted to Australian, Indonesian and New Zealand companies from 2005 to 2011.

In addition, development assistance from the European Development Fund targeting Africa, the Caribbean and the Pacific will not be accessible to Australian firms.

"Australian firms have followed Australia's request for reciprocal access to European community development assistance programs in Asia with some interest, but see this as one opportunity among many," Emma Rooksby, manager of the Australian Agency for International Development's Procurement Policy Group, said in an e-mail.

Opportunities at AusAID

Australia began untying its aid programs in 2003, when foreign nationals were allowed to participate as team members in AusAID activities.

In January 2004, Australia fully untied bilateral technical assistance, excluding food aid, to least developed countries. In November of the same year, Australia permitted local firms in countries receiving bilateral aid to participate in AusAID tenders.

Full untying of aid was achieved when all restrictions were lifted and organizations regardless of their country of origin were allowed to bid for Australian aid contracts.

Rooksby pointed out that even before untying was initiated, firms from New Zealand were eligible to bid for AusAID tenders.

Based on figures provided by Rooksby, about 500 non-Australia/New Zealand firms have won AusAID contracts valued at A$10,000 or more each between July 2006 and March 2009. Companies from the U.K. have been awarded more 100 contracts, while those from Canada, Fiji, Indonesia, Papua New Guinea, Philippines, Switzerland, Thailand, Vanuatu and the U.S. have snagged between 10 and 100 tenders. Firms from 47 other countries have secured less than 10 contracts. Several thousand non-ANZ firms likewise walked away with contracts valued below A$10,000.

Since July 2006, some 10 percent of all AusAID contracts worth more than A$10,000 have gone to non-ANZ companies. Rooksby noted that this share has been on the rise since the aid program was untied.

AusAID is quite keen to increase participation of non-ANZ firms in its tenders. Rooksby said AusAID procurement specialists traveled to Washington and London in 2007 to apprise interested firms on how to do business with the agency.

"AusAID is happy to provide briefings to non-ANZ firms about procurement opportunities under the Australian overseas aid program when these are requested," Rooksby noted.

Why tie or untie aid?

Donors tie aid for economic and political reasons, according to the Organization for Economic Cooperation and Development.

Aid is a financial outflow and governments concerned with their balance of payments may offset outflows by increasing exports through tying aid. In addition, tying aid is, in a way, a subsidy to firms in donor countries.

Donors also tie aid to strengthen public and business support for the aid program itself.

So why untie aid? OECD said that according to estimates, tied aid hikes up the cost of goods and services by 15-30 percent. It can also be seen as a form of protectionism as it may be considered an expensive way to subsidize jobs in donor countries.

Untied aid is generally believed to be "a more efficient way to deliver development assistance," OECD has concluded. It clearly promotes global trade and competition, according to the organization.

Meanwhile, the benefit for companies is quite obvious: Reciprocity multiplies opportunities for business several times over.

"Complete untying of the Australian aid program increases opportunities for Australian industry to compete for other aid donors' contracts," AusAID said on its Web site.

Rooksby noted that Australian firms are certainly supportive of efforts to untie aid.

"They have adopted strategies such as partnering with complementary non-Australian firms," she said. "They are actively seeking more work internationally and expanding their overseas presence, for example, by acquiring international subsidiaries."