Tied aid, industrial dependence and new tactics for negotiations: observations from Kenya

Abstract

Kenya receives much foreign aid especially for agriculture and infrastructure. Despite this, many opportunities are missed for localizing the sources of inputs for these projects. The country has skills and installed capacity to manufacture many of these imported inputs locally but does not do so partly because much of the aid is tied to purchases from the donor countries. In this study, the authors selectively review the literature on the impact of tied aid on the economic structures of recipient countries. Illustrations are given of how more flexible and detailed negotiations for aid could improve the demand for the outputs of some industries. The authors also propose specific ways of improving Kenya's negotiating ability and tactics that may well be applicable to other developing countries.