CONFIDENTIAL
18 Triangular deals can also bring commercial benefits. These involve the provision of aid funds to a recipient from which a UK firm can secure orders. The prime source of untied funds in the past has been IBRD/IDA and Regional Development Banks. New and important sources for British firms are the various Arab funds and the European Development Fund and also in some circumstances private banks. It is clearly in the UK's commercial interests that HMG's policy should be geared to take advantage of such funds. It is ODM's present policy to encourage deals of this nature. A major area of activity is the Middle East, where British capital aid is not warranted (precisely because of the vast Arab financial sur- pluses) but the Middle East Development Division (MEDD) has the responsibility for identifying projects in the poorer Middle East countries which are of interest to the Arab funds and which present a commercial opportunity to British firms. ECGD also encourage deals involving the use of ECGD-backed commercial credit coupled with Arab funds. Practical achievements, particularly with the Arab funds, have however been disappointing so far. We therefore propose that the general instructions to posts following this review should emphasise the promotion of projects favourable to UK commercial interests with the recipient governments.
IV
PROJECT SELECTION
19 Project aid is the provision of aid needed to finance a specific investment project in a developing country where the investment can be identified and subjected to a detailed appraisal by ODM.
Procedures
20
The way in which projects are initially selected as candidates for aid finance varies with the circumstances of the recipient country. Some have relatively sophisticated administrations with long experience of dealing with aid donors. Such countries are likely to have a number of potential projects as part of their own forward planning and to know which types of projects appeal to different donors. These countries tend to be selective in the types of project they canvass in the light of what they understand to be the preferences of donors.
21 In some cases, particularly where there is an aid consortium, there is in addition a broader shopping list of projects perhaps taken from the countries' published development plans. In such circumstances, especially if the donor does not have a long historical connection with the recipient, there is not only the opportunity but also a need for the donor to take more positive steps to indicate which projects it would like the recipient to put forward.
22 In many other cases, where the recipient has relatively little development planning capacity, a more active project identification role is required on the part of the donor extending beyond the relatively simple process of selection from a shopping list, into detailed working up of new projects. Advisers from ODM headquarters or from Development Divisions often play an important part in this. This type of activity is also frequently undertaken as part of technical co-operation funded by the UK, especially by consultants whom we provide to work on pre-feasibility studies.
23 The Post plays an essential part in the initial selection of potential aid projects. In many cases, aid and commercial activities are the responsibility of the same officer. And even where this is not so, co-ordination within the Post to ensure that commercial interests are taken into account at the very earliest stages of