Thursday, March 13, 2008

Word of the Day: donor-dumping

donor-dumping (n.) - This is when a donor or development agency introduces products below the market price in competition with local businesses. Due to their financial resources, donors are able to out-compete local businesses and force them out of the market. Examples of products that are commonly “donor-dumped” on developing markets are: EU/US clothes donations, EU/US food aid, policy consultancy services, financial services and UNIDO infrastructure projects. Donor-dumping is widespread amongst all development aid organisations. In simpler, grass-roots development initiatives, donor-dumping tends to be directly visible in the form of goods or services sold at dumping prices. In more complex development projects, such as grants for infrastructure, donor-dumping can only be seen in the indirect effect on the price of services delivered by the subsidised infrastructure.

Donor-dumping not only leads to competition with local businesses. In cases where subsidies go to social infrastructure such as health centres and hospitals, donor-dumping can also lead to unfair competition with state-run infrastructure. In a heavily donor-funded state, this leads to a parallel state-system run by donor/NGO funding and management structures.

Almost all donor-funded projects have activities which can be classified as donor-dumping. This is a result or poor project design and the Mittelabflussproblem (the use of cash disbursement as the main success indicator for development projects).


bankelele said...

Another one is donor lending at below market rates i.e from the IFC to sectors such as private schools, SME's, women loans.

Maurice said...

Indeed. Low interest loans and indeed any form of significant financing that by-passes the local banking sector is a form of "financial services dumping" that undermines that local financial sector.

Fortunately, more sophisticated development banks are (slowly) finding ways to work through the local banking sectors, such as setting up universally accessible credit lines at a central bank.