Side Effects

“So it happened that all Tacis programmes are supervised now by foreign specialists, whose work is paid at the expense of funds allocated for our country. Thus Tacis pays (and rather well!) for the work of its own employees. In fact, Tacis solves the problem of unemployment in the European Union by helping us.” Member of the Federation Council on Economic Policy, Russia

“The ratio between money spent for the programme itself and for the payment of the European specialist is 20 to 80; as for us we would like this money to work for the Russian economy, especially as we have good specialists and we could pay them better.” Member of the Federation Council on Economic Policy, Russia, quoted in a Russian journal

These quotations above illustrate the kind of criticisms of the Tacis programme which are voiced by highly placed public figures in the NIS. They signal that there are serious misgivings in the NIS about the benefits of Tacis for the Tacis

partner states. The argument is that the EU rules on Tacis grant aid ensure that most of the funds stay in the EU and that therefore the NIS barely benefits. This argument is appealing but misleading and false and it is worthwhile to make that clear in this evaluation.

One hundred percent of Tacis money is paid for by European tax payers. The analysis in the next section below indicates that it is true that some 67 per cent of Tacis money is spent in the EU and thus reverts back, in the year of expenditure, to GDP in the EU member states. However, the advice of the EU experts is not given in the EU states and therefore does not have the potential to benefit the EU. The advice is given in the NIS and, unless it proves useless, will increase the capabilities of the partner organisations and contribute to productivity/value added in the NIS countries in subsequent years. In other words, Tacis assistance, whether in the form of advice or in the form of equipment, represents a direct investment for the NIS.

To put a price on the value of this advice is difficult. In principle, the opportunity cost concept could be used. This would imply that the value of EU TA for a country equals the price that the country would have to pay for EU or local experts who can deliver the same advice and have the same impact. In those areas where NIS experts are available to replace EU experts, Tacis has evidently no further purpose. What Tacis is however doing is transferring know-how which is not available or not accessible in the NIS. If the contribution of these experts is effective in providing solutions to problems, then the value of the expert’s contribution is considerably higher than the market price for the expert.

A related issue, which is highly relevant to this evaluation, is the question of whether the cost- effectiveness and impact of the Tacis programme can be increased by reducing the total inputs from EU experts and increasing the inputs of NIS experts for project management purposes and for the purpose of streamlining the transfer of know- how. This issue was raised in all four workshops as well as in many of the interviews. The general view was that this would be an improvement for the future.

Side effects that have been observed by the Evaluation Team include direct contributions to GDP in the NIS, market entry for European Consultants, and the promotion of NIS consultancy abilities.

An unintended but substantial contribution of Tacis to GDP in the NIS is represented by the expenditures of Tacis contractors on NIS goods and services. The Evaluation Team conducted a small investigation based on a small sample of 17 contract budgets. The objective was to estimate the proportion of funds spent in the NIS on goods and services. Such expenditures represent the direct value added to NIS economies. This sample is not representative but it gives an indication.

The finding is that some 40 per cent of total Tacis allocations contribute to GDP in the NIS. For the period 1991-1996, this would amount to some 960 MECU. This sum would be the equivalent of an annual 0.53 ECU per capita.

Table 7.2. Cost items

Budget item Cost share

highest Cost share lowest Cost share average Guestimated share of NIS value added7 EU expert fees 60% 45% 55% 10%

NIS staff fees 20% 5% 10% 9%

Direct costs 17% 15% 16% 12% Reimbursables 8% 5% 7% 3% Equipment 15% 6% 12% 6% Total 100% 40% 7

As indicated in Part 1, more than 3,900 contract components8

were awarded during the period 1991-1996. Of these, 3,000 were separate contracts. A sizeable share of these contracts was won by well known accountancy firms and by banks who have a long-term strategy for expansion in the NIS. There is no doubt that these contracts have lowered the “transaction cost wall” for these companies. Tacis contracts enabled them to become acquainted with the market at low risk. This has promoted their establishment in the main regions and countries in the NIS. The absence of accountancy companies or western banks in some NIS countries, such as Georgia and Armenia, is an indication of the poor investment climate which still exists in the NIS. Unfortunately, the precise number of smaller western companies9 _which have established a representative office or an equity investment in a Russian consultancy company in Russia or Ukraine is not known. The Tacis programme has provided thousands of academics in the NIS with the chance to continue working as academics and to supplement their income with Tacis consultancy or research assignments. A select number of them have taken the initiative to set up local consultancy companies. In 1991-1993, these companies or individual experts were mainly engaged in Tacis or other donor projects. Increasingly, people who gained experience in Tacis projects are now finding highly paid employment in banks and industries. Due to the current Tacis guidelines, which restrict the fee levels which Tacis can pay for local experts, Tacis no longer has access to the best of these. For this group, the Tacis experience has given them the attitudes and skills which are needed for consultancy work in industry. Their sound academic training complements these skills and this has the potential to create highly qualified consultants. Without a doubt, these consultants have an added value to offer to Tacis. More use of them might increase the efficiency and therefore the impact of Tacis projects. The evaluators believe that Tacis should consider paying the local market price for highly qualified experts, even if it is more than the current upper limit approved in the current Tacis guidelines for tenders.