One-third of UK aid cash 'is swallowed up by costs'

Almost one pound in three of UK taxpayers' money intended for poverty relief is swallowed up by costs that do not benefit the world's poor, a campaign group claims today.

ActionAid says 29 per cent of UK aid in 2004 went on "phantom" aid. This has risen from 27 per cent in 2003 and contrasts with a fall in the global average.

The report, published to coincide with the first anniversary of the 2005 G8 summit in Gleneagles, highlights money spent on Western consultants to fly out to poor countries to offer advice. It says more than 10p in every pound of the Government's aid budget is spent on "ineffective and overpriced" consultants, research and development - known as technical assistance - that make up a large part of the phantom aid budget.

Its report shows that 12 per cent of the budget administered by the Department for International Development (DfID) goes on consultants' costs. At least 80 per cent of the contracts awarded by DfID in the 2005-06 financial year went to UK firms. A total of £101m was awarded to the big five accountancy firms - PwC, KPMG, Deloitte, Ernst & Young and Accenture - between 2000 and 2005.

One organisation, Adam Smith International, a London-based development consultancy, was paid £22.56m in 2005 alone, according to DfID figures.

Romilly Greenhill, the report's author, said consultancies often failed to give the right advice because they ignored local knowledge and imposed hi-tech solutions. The report highlighted a case where foreign advisers insisted on the use of diesel irrigation pumps in Tanzania, which were now too expensive for local farmers to use because of the surge in oil prices.

"Aid needs to help the poorest, not line the pockets of Western consultants," Ms Greenhill said. "Too much aid continues to be identified, designed and managed by donors.

"It is tied to their countries' own firms, is poorly co-ordinated and is based on a set of assumptions about expatriate expertise and recipient ignorance."

ActionAid said the cost of an expatriate consultants was as much as $200,000 (£110,000) a year. By contrast, a third of this is spent on school fees and child allowances, according to the Organisation for Economic Co-operation and Development, an international think-tank. In Cambodia, consultants' fees were £9,300 a month, while government salaries were £22 for the same period.

ActionAid's calculations of "phantom" aid also included administration costs, double counting interest payments saved thanks to debt relief, aid tied to contracts with Western firms and aid linked to geopolitical priorities. ActionAid said almost half of the world's total aid spending in 2004 - 47 per cent - failed to target the poor directly.

DfID yesterday rebutted the report's conclusions, insisting Britain did not "force" technical assistance on developing countries.

"ActionAid's claim that debt relief and advice from technical experts is not real aid is absurd. Both debt relief and technical assistance show real results," a spokesman said. "In Rwanda, consultants have helped the government to improve its tax collection so that more money can be spent on schools and hospitals. In the mid-1990s, before debt relief, only 2.5 million Ugandan children were in school - now, after debt relief, there are 6.5 million."

DfID said that its spending on consultants in proportion to total aid had been halved to 5 per cent since 1997. "United Kingdom aid is not conditional on specific policies in developing countries, and our aid has been untied from UK suppliers since 2001," he said.

ActionAid's own accountants show that of the £116.4m it raised in 2003, the most recent figure available, £36.5m (31.4 per cent) was spent on administration, fundraising and support costs.

A separate report showed that money given to sub-Saharan Africa by Britain last year was outweighed by all the funds coming into the UK from that region. Christian Aid said in the 12 months since Gleneagles, the UK economy had gained more than £11bn.

How the aid money is wasted

The wrecks of well-meaning aid projects are scattered across the African landscape, a reminder thatthe foreigners' money does not always help.

In Nairobi, a set of high-rise buildings sit on the edge of Kibera, Africa's biggest slum. With crumbling plasterwork, broken roofs and no windows, the buildings blight an already ugly street. A German charity put them there in an attempt to solve Kibera's housing shortage; the European well-wishers hoped the slum dwellers could move into these purpose-built blocks. But even though the flats were warm, the lifts didn't work and the local authorities never provided electricity and water.

Within a few months, the slum dwellers decided that living in a shack was better than traipsing up to a sixth-floor flat in pitch darkness. The blocks were abandoned.

A few hundred miles north, on the shores of Lake Turkana, the Norwegian Development Agency built a fish-freezing plant in 1981 and then persuaded 20,000 nomadic cattle herders to give up their livestock and become fishermen. Many reluctantly did, just before a drought killed off most of the fish in 1984. Any basic study of Lake Turkana's water levels would have shown that the lake dries up every few decades.

And even if the aid projects are properly thought out by the donors, the governments that receive them often do not have the will or ability to administer it properly.

In 1980, the World Bank lent the Tanzanian government £22m to open a shoe factory. It did not produce a single shoe but stayed open for 10 years, costing £277,000 a year to maintain. Finally, its managers admitted they could not find suitable shoe leather in Tanzania, and closed it.

Meera Selva