Aid-tying and the Real Value of Foreign Assistance: The Case of the Sudan

Abstract

This paper assesses the excess cost which results from aid-tying in some development projects in the Sudan. Tying can be of two types, either by source or by end-use. In the fonner case, restrictions are placed on where the recipients can spend the assistance. In the latter case, assistance is limited to specific items or projects. Thus, aid can be deemed to be doubly tied. In addition, there are other unquantifiable costs of tying. For example, the project to which the assistance will be tied might not suit the recipient's development programme, or the technology used may be inappropriate. Eight foreign-aided projects, which were tied by source as well as by end-use, were analysed to estimate the excess cost which results from the tying of aid. The overall weighted average of tying these projects appears to be 74 percent higher than the international market. In addition, the analysis shows that the tenns of borrowing for these projects were hard; consequently, the grant element was low. Thus, if one takes into account the estimated excess cost of the tied foreign credits, which was greater than the commercial cost of borrowing at which these credits could have been sought in the absence of aid, the real value of these credits, the paper shows by using a shadow grant element approach, was negative.

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