The European Commission is reportedly considering a strategic shift in its development aid policy, potentially linking financial support to measures that prioritize European interests such as migration control and industrial promotion. This approach, which resembles a “Europe-first” strategy, marks a departure from the current model of largely unconditional aid and could have significant implications for low-income partner countries.
While the Commission argues this change could make aid more politically defensible, there are strong concerns about its effectiveness. Evidence consistently shows that tied aid—where funds come with conditions requiring recipient countries to use goods or services from the donor nation—reduces the long-term developmental impact of assistance. It limits local economic participation, distorts procurement processes, and shifts focus away from recipient priorities toward donor commercial interests.
In 2023, approximately 20% of aid from major donor countries was tied, and this proportion is expected to rise. Greece led with 95% of its official development assistance being tied, followed by Slovenia, Poland, and the Slovak Republic. Major donors like Japan, South Korea, and the United States reported around one-third of their aid being tied.
Tied aid increases procurement costs by an average of 15 to 30 percent, and in some cases, such as food aid, the cost can rise by over 40 percent. This has direct financial consequences for developing countries, with estimates suggesting that tied aid imposes an immediate cost of at least USD 2 billion, potentially reaching USD 7 billion due to the inability to secure the best prices.
Furthermore, tied aid weakens credibility with partner countries. China’s Belt and Road Initiative (BRI), which often prioritized Chinese suppliers and labor, faced public backlash in several countries. In response, China has begun adjusting its practices to include more local workforce training on BRI projects.
The EU’s Global Gateway initiative was intended to offer a values-based alternative to the BRI, emphasizing transparency and mutual benefit. A shift toward donor-centric conditions would contradict this positioning and undermine the EU’s credibility as a development partner.
Instead of tying aid to donor interests, the EU should focus on improving the effectiveness of its assistance. For example, its current framework for deciding between grants and concessional loans does not adequately consider the actual debt sustainability of recipient countries. Creditworthy nations like Morocco continue to receive disproportionate grant financing, while more vulnerable economies such as Cameroon face loan conditions despite significant debt risks.
In conclusion, tied aid is an ineffective model that circumvents recipient ownership and undermines long-term development goals. With shrinking aid budgets globally, the EU cannot compete with China on scale nor fully compensate for declining U.S. engagement. Instead, it should focus on maximizing the real value of aid by supporting countries in planning, financing, and managing their own development trajectories.
— news from Center for Global Development
— News Original —
The EU’s Ambition to Tie its Development Aid Will Undermine Economic Development
The EU is preparing to tie its development spending more directly to its own domestic priorities, according to recent reports. The European Commission wants to extract greater strategic value from the aid it provides to low-income countries, potentially making financing conditional on measures such as curbing migration or favouring European industry. This would mark a significant departure from the EU’s current model, where aid is largely provided without strings attached.
The Commission argues this approach, which could be likened to a Trumpian, “America-first” foreign policy, would make aid more politically defensible—but it risks undermining development goals, as well as the credibility of the EU as a partner.
The evidence is clear: tied aid is ineffective and undermines long-term development.
Here, we argue that the EU’s return on investment would be higher if it focused on improving the effectiveness and efficiency of its aid, rather than using it to serve its own geopolitical and commercial interests.
What is tied aid and which countries are tying?
Tied aid is development funding that comes with conditions for funds to be spent on goods or services from the donor country. For example, if a country receives aid to build a road, they might be required to hire companies from the donor country to do the work—even if a local firms could do the job better or more cheaply. This stifles economic growth and the long-term self-reliance of lower-income countries.
OECD guidelines advise against it, about 20 percent of aid from major donor countries was tied in 2023—and that share is expected to rise. Since 2012, tied aid has added up to around $175 billion.
Even though OECD guidelines advise against it, around 20 percent of aid from major donor countries was tied in 2023—and that share is expected to rise based on what we are hearing from countries including Sweden, Denmark and the Netherlands.
Tied and Partially Tied Bilateral Commitments and Share of Tied Aid, DAC countries (USD, Millions)
Source: Authors’ computation of OECD DAC7B data: Aid (ODA) tying status and OCED table 24 data: Tying Status of ODA by individual DAC Member countries, 2023 in million USD, bilateral commitments (excluding administrative costs, scholarships and student costs in donor countries, development awareness and in-donor refugee costs).
Greece had the highest share of tied aid in 2023, with 95 percent of its official development assistance coming with conditions. It was followed by Slovenia, Poland and the Slovak Republic. Other major donors such as Japan, Korea, and the United Sates reported around a third of tied aid.
Percentage of tying status of ODA, by DAC country, share of bilateral ODA, 2023*
Source: OECD data: Tying status of ODA, by DAC country, share of bilateral ODA, bilateral commitments (excluding administrative costs, scholarships and student costs in donor countries, development awareness and in-donor refugee costs).
*The graph displays only the countries with the larger share of tied ODA, based on OECD latest data.
The problems with tied aid
By design, tied aid limits local economic participation, distorts procurement, and shifts focus from recipients’ priorities to donors’ commercial interests. Studies consistently show that tied aid is less effective in fostering long-term development. Recent research across 152 developing countries between 1973 and 2013 found that tied aid decelerated development. According to the OECD, tied aid raises the cost of goods, services and works procured by 15 to 30 percent on average, and by as much as 40 percent or more for food aid.
Tied aid has tangible financial consequences for people in developing countries. While the long-term impacts of tying are difficult to measure, estimates reveal that even the immediate cost to recipients—simply from being unable to choose the best prices—amounts to at least USD2 billion, and could reach as high as USD7 billion.
Furthermore, tied aid weakens credibility with partner countries. China’s Belt and Road Initiative (BRI) provides financing for Chinese suppliers, implementers, and labourers to deliver its projects at the expense of building capacity in its local partners. This has been a bone of contention with China’s development partners. China is now rollling this back in light of both the financial and reputational costs it has incurred. Public pushback on the use of imported Chinese labour in some countries has prompted a shift in its practices towards training local workforces on BRI projects.
Still time to change course
The EU’s Global Gateway was supposed to offer an alternative to China’s BRI, distinguishing itself as a values-based model for infrastructure development. A shift toward to promotion of European national industry, at the expense of local partners would contradict the positioning of the EU’s Global Gateway as a more sustainable, transparent and mutually beneficial offer.
The EU should, instead focus on improving the effectiveness of its aid especially given that . For example, the EU’s current framework for deciding when to provide grants versus concessional loans to specific countries does not take into account the actual ability of the countries to sustain debt. Creditworthy countries continue to receive grants, while more vulnerable countries are offered loans despite significant debt sustainability concerns. As a result, creditworthy countries such as Morocco continue to receive a disproportionate amount of grant finance, compared to vulnerable economies like Cameroon.
Conclusion: Aid that builds, not binds
Tied aid is the most blatant model of ineffective development aid; it circumvents recipients’ national systems and undermines the principle of ownership. In this time of shrinking aid budgets, the EU cannot compete with China on volume, nor can it fully compensate for declining U.S. engagement.
With its own post-2027 development budget up in the air, the EU should instead focus on the real value of aid in supporting countries to plan, finance, and manage their own development, rather than undermining their economies. The return on the investment would be much great for the European economy in the longer-term.