Page last updated at 22:54 GMT, Sunday, 14 June 2009 23:54 UK

Does Bangladesh use foreign aid wisely?

By James Melik
Business reporter, BBC World Service, Bangladesh

Bangladesh receives about $2bn in foreign aid each year, but it does not always reach the people it is intended to help.

Railway track near Chittagong docks
Bangladesh needs foreign aid for a new railway line to Chittagong

As in many countries where corruption is widespread, some government officials can be swayed to favour firms which offer them personal payments.

But how can the organisations that donate the money ensure that it is used effectively, especially in places where corruption is a major problem?

Syed Ershad Ahmed, president of the American Chamber of Commerce (ACC) in Dhaka, would like to remove the political influence from the process of awarding contracts.

"We have to depoliticise our bureaucracy first if we want to see a free and fair business and tender system in Bangladesh," he says.

"Local companies have an opportunity to pay some money under the table, but the foreign companies try to maintain transparency as much as possible and that actually puts them at a disadvantage," he adds.

Reluctant bidders

The train journey from Dhaka, the Bangladesh capital, to the port of Chittagong, can take up to eight hours.

A new track would cut the journey time in half but that would cost tens of millions of dollars - money beyond the scope of the Dhaka government.

That is why it has asked for help from the Asian Development Bank (ADB), an organisation funded by the governments of Asian countries which aims to raise the standard of living for people in the region.

I've been impressed with the dynamism of the country
Paul Heytens, ADB, Bangladesh

Many construction projects such as new roads and bridges are funded by foreign money.

But the donors rarely pay the contractors directly.

Instead, the cash is channelled through the government and so it's left to civil servants to decide which local companies get the work.

Accountant Attique-e-Rabani believes that creates a risk that the aid money will be mismanaged.

"I know the ADB is sitting with the money and they want to pay for the improvement of the railway, but the project is running very slow," he says.

He believes people are not interested in working with the ADB because they monitor their projets very closely and want to see some transparency.

Poor family in Bangladesh
Foreign aid is a life-and-death issue for poor Bangladeshis

Like most foreign donors, the ADB does not pay local contractors directly.

Paul Heytens, the country director in Bangladesh, says that is because the bank tries to respect the independence of the government.

"I've been impressed with the dynamism of the country," he says.

Despite being hit by cyclones and some serious flooding, the country's economy still grew by 6% against the backdrop of the global financial crisis.

The ADB works through governments and also engages with the broad spectrum of civil society in its member countries.

"Any request for assistance needs to be channelled through government, but ultimately, what we are looking for is bankable projects," he explains.

"We look at the broader impacts, for example on reducing poverty - benefits that may not be readily quantifiable."

Unclear policies

Maintaining political goodwill is clearly important for any organisation to be able to work effectively.

Attique e-Rabani believes there is a risk that aid money will be mismanaged when it is channelled through government officials.

"You have to assume there is a level playing field that is fair," he says.

When that playing field is government-controlled, however, he believes that is a difficult assumption.

"Corruption is a big problem across the world and in Bangladesh too," he asserts, "And we haven't the leadership or the system which will bring it down."

Those who offer their services to the government sometimes lack the expertise to deliver what they promise
Mahbubur Rahman, International Chamber of Commerce

He maintains that the government holds power in the wrong sense.

"They should be the servants to the community. It is not very clear-cut what the policies are," he says.

"They are interpreted by the officers of the government machinery, and they use their discretion."

Mr Ahmed of the ACC thinks things have got better over the past couple of years, however.

Transparency International, which monitors corruption around the world, agrees the situation has improved in Bangladesh since 2007, when parliamentary elections were suspended by military leaders and an interim government imposed.

An anti-corruption drive led to hundreds of arrests and some politicians and business people were given long prison terms for offering or taking bribes.

Slow progress

According to Bangladesh law, every procurement has to be under an open bidding system.

Mahbubur Rahman, the president of the International Chamber of Commerce, says that although the process by which contracts are awarded has become more transparent, companies often seek contracts simply because of the money involved.

"By and large, those who offer their services to the government sometimes lack the expertise to deliver what they promise," he says.

We try to harmonise with government priorities
Paul Heytens, ADB, Bangladesh

He is also concerned about how much money is filtered through what are ostensibly consultants.

Mr Rahman says there is anecdotal evidence that as much as 60% of donated aid is spent on these middle-men.

The ADB's Paul Heytens recognises the challenges of working in Bangladesh, but maintains that success comes through working effectively within the existing framework.

"We try to harmonise with government priorities," he says, "In the case of our current strategy and programme - the government's poverty reduction strategy."

He agrees, however, that the bank's aims might not always be the same as the politicians in power in the countries where the bank operates.

At least 40% of Bangladeshis remain in poverty, although foreign aid money has helped to reduce infant mortality and has funded the fight against malaria.

Foreign money has also provided new roads and bridges and schools but, despite years of negotiations, there are no signs of that rapid new train service to Chittagong.

Not all projects are as slow as the new railway.

Listen and learn more

When all sides are satisfied that contracts can be delivered on time and on budget, things can move rapidly.

But it takes a lot of time and effort to win trust and without that, businesses in Bangladesh will find that lucrative opportunities are passing them by.

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