Foreign Aid for Development Assistance

Rich Nations Agreed at UN to 0.7% of GNP To Aid

The aid is to come from the roughly 22 members of the OECD, known as the Development Assistance Committee (DAC). [Note that terminology is changing. GNP, which the OECD used up to 2000 is now replaced with the similar GNI, Gross National Income which includes a terms of trade adjustment. Some quoted articles and older parts of this site may still use GNP or GDP.]

ODA is basically aid from the governments of the wealthy nations, but doesn’t include private contributions or private capital flows and investments. The main objective of ODA is to promote development. It is therefore a kind of measure on the priorities that governments themselves put on such matters. (Whether that necessarily reflects their citizen’s wishes and priorities is a different matter!)

Almost all rich nations fail this obligation

Even though these targets and agendas have been set, year after year almost all rich nations have constantly failed to reach their agreed obligations of the 0.7% target. Instead of 0.7%, the amount of aid has been around 0.2 to 0.4%, some $150 billion short each year.

Some donate many dollars, but are low on GNI percent

Some interesting observations can be made about the amount of aid. For example:

• USA’s aid, in terms of percentage of their GNP has almost always been lower than any other industrialized nation in the world, though paradoxically since 2000, their dollar amount has been the highest.
• Between 1992 and 2000, Japan had been the largest donor of aid, in terms of raw dollars. From 2001 the United States claimed that position, a year that also saw Japan’s amount of aid drop by nearly 4 billion dollars.

Aid increasing since 2001 but still way below obligations

Throughout the 1990s, ODA declined from a high of 0.33% of total DAC aid in 1990 to a low of 0.22% in 1997. 2001 onwards has seen a trend of increased aid. Side NoteThe UN noted the irony that the decline in aid came at a time where conditions were improving for its greater effectiveness . According to the World Bank, overall, the official development assistance worldwide had been decreasing about 20% since 1990.

Between 2001 and 2004, there was a continual increase in aid, but much of it due to geo-strategic concerns of the donor, such as fighting terrorism. Increases in 2005 were largely due to enormous debt relief for Iraq, Nigeria, plus some other one-off large items.

(As will be detailed further below, aid has typically followed donor’s interests, not necessarily the recipients, and as such the poorest have not always been the focus for such aid. Furthermore, the numbers, as low as they are, are actually more flattering to donor nations than they should be: the original definition of aid was never supposed to include debt relief or humanitarian emergency assistance, but instead was meant for development purposes. This is discussed further below, too.)

Aid money is actually way below what has been promised

2006 onwards is typically regarded as years of high aid volumes. However, at around 0.3% of GNI, if all DAC countries had given their full 0.7%, 2010’s aid alone would have been almost $284 billion (at 2010 prices), or an increase of almost $159 billion.

Considering the typical aid amount at around 0.25 to 0.4% of GNI for over 40 years, the total shortfall is a substantial and staggering amount: just under $5 trillion aid shortfall at 2012 prices:

The numbers are probably flattering donors too much, for (as detailed further below), a lot of development aid today includes items not originally designated for this purpose (such as debt relief, emergency relief, etc.)

Averaging this data since 1970, when the target of donating 0.7% of national income was agreed, shows the following:

Between 1970 and 2013, the shortfall in aid has been 58%:

Taking data since 2000 up to 2013, the shortfall increases to 61%:

While dollar amounts of aid increases, the gap between the promised amount (0.7% of GNI) and the actual given seems to be increasing.

This gap was quite small during the 70s, and got smaller in the 80s, but has since widened considerably. (But even when the gap was close, the average ODA aid was around 0.35% of GNI at best, still far below the promised 0.7%.)

Taking just the latest figures (at time of writing), many nations, while seemingly providing large quantities of aid, are far below the levels they had agreed:

(See also the side note, Official global foreign aid shortfall: $5 trillion for more details.)

Side note on private contributions

As an aside, it should be emphasized that the above figures are comparing government spending. Such spending has been agreed at international level and is spread over a number of priorities.

Individual/private donations may be targeted in many ways. However, even though the charts above do show US aid to be poor (in percentage terms) compared to the rest, the generosity of the American people is far more impressive than their government. Private aid/donation typically through the charity of individual people and organizations can be weighted to certain interests and areas. Nonetheless, it is interesting to note for example, based on estimates in 2002, Americans privately gave at least $34 billion overseas — more than twice the US official foreign aid of $15 billion at that time:

• International giving by US foundations: $1.5 billion per year
• Charitable giving by US businesses: $2.8 billion annually
• American NGOs: $6.6 billion in grants, goods and volunteers.
• Religious overseas ministries: $3.4 billion, including health care, literacy training, relief and development.
• US colleges scholarships to foreign students: $1.3 billion
• Personal remittances from the US to developing countries: $18 billion in 2000
• Source: Dr. Carol Adelman, Aid and Comfort, Tech Central Station, 21 August 2002.

Although Adelman admitted that there are no complete figures for international private giving she still claimed that Americans are clearly the most generous on earth in public—but especially in private—giving. While her assertions should be taken with caution, the numbers are high.

Side Note on Private Remittances

Globally, private remittances have increased tremendously in recent years, especially as a number of developing countries have seen rapid growth and economic migration has increased amongst these nations.

In 2005, private remittances were estimated to be around $167 billion, far more than total government aid.

In 2008, the World Bank estimated private remittances between 350 to 650 billion dollars were sent back home by 150 million international migrants.

Ranking the Rich based on Commitment to Development

The CGD therefore attempts to factor in some quality measures based on their commitment to development for the world’s poor. This index considers aid, trade, investment, migration, environment, security, and technology.

Their result shows the Netherlands first, Japan last, and the US ranking thirteenth, just behind the United Kingdom, out of 21 total. As David Roodman notes in his announcement of the 2006 Commitment to Development Index, As in the past, the G-7 leading industrial nations have not led on the [Commitment to Development Index]; Germany, top among them, is in 9th place overall.

Recent claims of some leading industrial nations being stingy may put people on the defensive, but many nations whom we are told are amongst the world’s best, can in fact, do better. The results were charted as follows:

Private donations and philanthropy

Government aid, while fraught with problems (discussed below), reflects foreign policy objectives of the donor government in power, which can differ from the generosity of the people of that nation. It can also be less specialized than private contributions and targets are internationally agreed to be measurable.

Private donations, especially large philanthropic donations and business givings, can be subject to political/ideological or economic end-goals and/or subject to special interest. A vivid example of this is in health issues around the world. Amazingly large donations by foundations such as the Bill and Melinda Gates Foundation are impressive, but the underlying causes of the problems are not addressed, which require political solutions. As Rajshri Dasgupta comments:

As another example, Bill Gates announced in November 2002 a massive donation of $100 million to India over ten years to fight AIDS there. It was big news and very welcome by many. Yet, at the same time he made that donation, he was making another larger donation—over $400 million, over three years—to increase support for Microsoft’s software development suite of applications and its platform, in competition with Linux and other rivals. Thomas Green, in a somewhat cynical article, questions who really benefits, saying And being a monster MS [Microsoft] shareholder himself, a Big Win in India will enrich him [Bill Gates] personally, perhaps well in excess of the $100 million he’s donating to the AIDS problem. Makes you wonder who the real beneficiary of charity is here. (Emphasis is original.)

India has potentially one tenth of the world’s software developers, so capturing the market there of software development platforms is seen as crucial. This is just one amongst many examples of what appears extremely welcome philanthropy and charity also having other motives. It might be seen as horrible to criticize such charity, especially on a crucial issue such as AIDS, but that is not the issue. The concern is that while it is welcome that this charity is being provided, at a systemic level, such charity is unsustainable and shows ulterior motives. Would Bill Gates have donated that much had there not been additional interests for the company that he had founded?

In addition, as award-winning investigative reporter and author Greg Palast also notes, the World Trade Organization’s Trade-Related Intellectual Property Rights (TRIPS), the rule which helps Gates rule, also bars African governments from buying AIDS, malaria and tuberculosis medicine at cheap market prices. He also adds that it is killing more people than the philanthropy saving. What Palast is hinting towards is the unequal rules of trade and economics that are part of the world system, that has contributed to countries such as most in Africa being unable to address the scourge of AIDS and other problems, even when they want to. See for example, the sections on free trade, poverty and corporations on this web site for more.

The LA Times has also found that the Gates Foundation has been investing in questionable companies that are often involved in environmental pollution, even child labor, and more.

In addition to private contributions, when it comes to government aid, these concerns can multiply as it may affect the economic and political direction of an entire nation if such government aid is also tied into political objectives that benefit the donor.

Aid is Actually Hampering Development

See also, for example, the well-regarded Reality of Aid project for more on the reality and rhetoric of aid. This project looks at what various nations have donated, and how and where it has been spent, etc.

Private flows often do not help the poorest

While ODA’s prime purpose is to promote development, private flows are often substantially larger than ODA. During economic booms, more investment is observed in rapidly emerging economies, for example. But this does not necessarily mean the poorest nations get such investment.

During the boom of the mid-2000s before the global financial crisis sub-Saharan Africa did not attract as much investment from the rich nations, for example (though when China decided to invest in Africa, rich nations looked on this suspiciously fearing exploitation, almost ignoring their own decades of exploitation of the continent. China’s interest is no-doubt motivated by self-interest, and time will have to tell whether there is indeed exploitation going on, or if African nations will be able to demand fair conditions or not).

As private flows to developing countries from multinational companies and investment funds reflect the interests of investors, the importance of Overseas Development Assistance cannot be ignored.

Furthermore, (and detailed below) these total flows are less than the subsidies many of the rich nations give to some of their industries, such as agriculture, which has a direct impact on the poor nations (due to flooding the market with—or dumping—excess products, protecting their own markets from the products of the poor countries, etc.)

In addition, a lot of other inter-related issues, such as geopolitics, international economics, etc all tie into aid, its effectiveness and its purpose. Africa is often highlighted as an area receiving more aid, or in need of more of it, yet, in recent years, it has seen less aid and less investment etc, all the while being subjected to international policies and agreements that have been detrimental to many African people.

For the June 2002 G8 summit, a briefing was prepared by Action for Southern Africa and the World Development Movement, looking at the wider issue of economic and political problems:

As the above briefing is titled, a common theme on these issues (around the world) has been to blame the victim. The above briefing also highlights some common myths often used to highlight such aspects, including (and quoting):

• Africa has received increasing amounts of aid over the years—in fact, aid to Sub-Saharan Africa fell by 48% over the 1990s
• Africa needs to integrate more into the global economy—in fact, trade accounts for larger proportion of Africa’s income than of the G8
• Economic reform will generate new foreign investment—in fact, investment to Africa has fallen since they opened up their economies
• Bad governance has caused Africa’s poverty—in fact, according to the UN Conference on Trade and Development (UNCTAD), economic conditions imposed by the IMF and the World Bank were the dominant influence on economic policy in the two decades to 2000, a period in which Africa’s income per head fell by 10% and income of the poorest 20% of people fell by 2% per year

Aid Money Often Tied to Various Restrictive Conditions

In their 2000 report looking back at the previous year, the Reality of Aid 2000 (Earthscan Publications, 2000, p.81), reported in their US section that 71.6% of its bilateral aid commitments were tied to the purchase of goods and services from the US. That is, where the US did give aid, it was most often tied to foreign policy objectives that would help the US.

Leading up to the UN Conference on Financing for Development in Monterrey, Mexico in March 2002, the Bush administration promised a nearly $10 billion fund over three years followed by a permanent increase of $5 billion a year thereafter. The EU also offered some $5 billion increase over a similar time period.

While these increases have been welcome, these targets are still below the 0.7% promised at the Earth summit in Rio de Janeiro in 1992. The World Bank have also leveled some criticism of past policies:

In addition, promises of more money were tied to more conditions, which for many developing countries is another barrier to real development, as the conditions are sometimes favorable to the donor, not necessarily the recipient. Delhi-based Centre for Science and Environment commented on the US conditional pledge of more money that:

Another aspect of aid tying into interests of donors is exemplified with climate change negotiations. Powerful nations such as the United States have been vocally against the Kyoto Protocol on climate change. Unlike smaller countries, they have been able to exert their influence on other countries to push for bilateral agreements conditioned with aid, in a way that some would describe as a bribe. Center for Science and Environment for example criticizes such politics:

This use of strength in political and economic arenas is nothing new. Powerful nations have always managed to exert their influence in various arenas. During the Gulf War in 1991 for example, many that ended up in the allied coalition were promised various concessions behind the scenes (what the media described as diplomacy). For example, Russia was offered massive IMF money. Even now, with the issue of the International Criminal Court, which the US is also opposed to, it has been pressuring other nations on an individual basis to not sign, or provide concessions. In that context, aid is often tied to political objectives and it can be difficult to sometimes see when it is not so.

But some types of conditions attached to aid can also be ideologically driven. For example, quoted further above by the New York Times, James Wolfensohn, the World Bank president noted how European and American farm subsidies are crippling Africa’s chance to export its way out of poverty. While this criticism comes from many perspectives, Wolfensohn’s note on export also suggests that some forms of development assistance may be on the condition that nations reform their economies to certain ideological positions. Structural Adjustment has been one of these main policies as part of this neoliberal ideology, to promote export-oriented development in a rapidly opened economy. Yet, this has been one of the most disastrous policies in the past two decades, which has increased poverty. Even the IMF and World Bank have hinted from time to time that such policies are not working. People can understand how tying aid on condition of improving human rights, or democracy might be appealing, but when tied to economic ideology, which is not always proven, or not always following the one size fits all model, the ability (and accountability) of decisions that governments would have to pursue policies they believe will help their own people are reduced.

More Money Is Transferred From Poor Countries to Rich, Than From Rich To Poor

For the OECD countries to meet their obligations for aid to the poorer countries is not an economic problem. It is a political one. This can be seen in the context of other spending. For example,

• The US recently increased its military budget by some $100 billion dollars alone
• Europe subsidizes its agriculture to the tune of some $35-40 billion per year, even while it demands other nations to liberalize their markets to foreign competition.
• The US also introduced a $190 billion dollar subsidy to its farms through the US Farm Bill, also criticized as a protectionist measure.
• While aid amounts to around $70 to 100 billion per year, the poor countries pay some $200 billion to the rich each year.
• There are many more (some mentioned below too).

In effect then, there is more aid to the rich than to the poor.

While the amount of aid from some countries such as the US might look very generous in sheer dollar terms (ignoring the percentage issue for the moment), the World Bank also pointed out that at the World Economic Forum in New York, February 2002, [US Senator Patrick] Leahy noted that two-thirds of US government aid goes to only two countries: Israel and Egypt. Much of the remaining third is used to promote US exports or to fight a war against drugs that could only be won by tackling drug abuse in the United States.

In October 2003, at a United Nations conference, UN Secretary General Kofi Annan noted that

And as Saradha Lyer, of Malaysia-based Third World Network notes, instead of promoting investment in health, education, and infrastructure development in the third world, this money has been channelled to the North, either because of debt servicing arrangements, asymmetries and imbalances in the trade system or because of inappropriate liberalization and privatization measures imposed upon them by the international financial and trading system.

This transfer from the poorer nations to the rich ones makes even the recent increase in ODA seem little in comparison.

Trade and Aid

Oxfam highlights the importance of trade and aid:

In addition to trade not aid perspectives, the Bush Administration was keen to push for grants rather than loans from the World Bank. Grants being free money appears to be more welcome, though many European nations aren’t as pleased with this option. Furthermore, some commentators point out that the World Bank, being a Bank, shouldn’t give out grants, which would make it compete with other grant-offering institutions such as various other United Nations bodies. Also, there is concern that it may be easier to impose political conditions to the grants. John Taylor, US Undersecretary of the Treasury, in a recent speech in Washington also pointed out that Grants are not free. Grants can be easily be tied to measurable performance or results. Some comment that perhaps grants may lead to more dependencies as well as some nations may agree to even more conditions regardless of the consequences, in order to get the free money. (More about the issue of grants is discussed by the Bretton Woods Project.)

In discussing trade policies of the US, and EU, in relation to its effects on poor countries, chief researcher of Oxfam, Kevin Watkins, has been very critical, even charging them with hypocrisy for preaching free trade but practicing mercantilism:

Watkins lists a number of other areas, besides the AGOA that are beset with problems of hypocrisy, and concludes that nihilism and blind pursuit of US economic and corporate special interest represents an obstacle to the creation of an international trading system capable of extending the benefits of globalisation to the world’s poor. (See also this site’s section on free trade and globalization, where there is more criticism about northern countries exhibiting mercantilist, or monopoly capitalist principles, rather than free market capitalism, even though that is what is preached to the rest of the world.)

In that context then, and given the problems mentioned further above about agricultural and textiles/clothing subsidies, etc. the current amount of aid given to poor countries doesn’t compare to aid given to wealthier countries’ corporations and industries and hardly compensates for what is lost.

Both increasing and restructuring aid to truly provide developing countries the tools and means to develop for themselves, for example, would help recipients of aid, not just the donors. Aid is more than just charity and cannot be separated from other issues of politics and economics, which must also be considered.

Improving Economic Infrastructure

Trade not Aid sounds like decent rhetoric. As the economist Amartya Sen for example says, a lot that can be done at a relatively little cost. Unfortunately, so far, it seems that rhetoric is mostly what it has turned out to be.

In addition, as J.W. Smith further qualifies, rather than giving money that can be squandered away, perhaps the best form of aid would be industry, directly: