I will try to make this as Informal and simple as possible without confusing those of us who did not study Economics.
Here it goes:
When a developing country like Ghana for example is awarded a Foreign Aid grant of something like $300 million to build infrastructures (Hospitals, Bridges etc) the idea is that a local company (In this case a Ghanaian company) should be the one to carry out this project.
Why? – Well first and foremost it leads to Job creation for the nationals, implementation of new skills and most importantly the money involved remains in the economy and could lead to an economic boost.
But in reality, this is not the case. Data from the world bank shows that International companies have been consistently winning these contracts because they have the resources to outbid the local companies.
Let me break it down further ; using our Ghanaian example lets assume that an Indian company wins the contract to build 30 hospitals and 16 Bridges in Accra.
This company will bring its own workers from India to complete the project (Ghanaian’s lose out on potential jobs and new skill sets). Will the Indian company purchase the raw materials from a Ghanain supplier or from an Indian supplier that they are more familiar with? And where does majority of the $300 million for foreign aid go to? Well back to the Indian economy ofcourse!
The World Bank has been trying to tackle this inequality but nothing has come of their actions yet. The International companies are still getting the biggest slice of a cake meant for the local companies.
Below is a table that shows the percentage of these deals won by International companies as opposed to local companies.
As you can see, East Asia and Europe each win 97 and 93% respectively of the deals meant for creating infrastructure in African Economies whilst Sub-Saharan Africa only manages a meagre 56%.
Something needs to be done.