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Anna Guggemos

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http://www.studentmoneyandme.com This is just a quick video which will explain the basics about the student loan process, how the money is paid to you and your university, and how to re-apply. For more information please check out The Basics of The Full Works available from Student Money and Me download page.

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Ben Tran

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Ben Tran

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Find out how a personal loan works every step of the way.

Looking to apply for a personal loan but want to know more? Find out how they work and how you can apply. Whatever you're looking to take out a personal loan for - to finance a new or used car purchase, consolidate debt pay for a holiday or even cover wedding costs - there are a variety of personal loans to choose from. Use the guide below to help you choose the right one for your needs and situation.

Personal loans work in very much the same as any other type of loan. You borrow a certain amount of money from a bank or lender so that you can pay for the things you need to. You will have an agreement with the lender to pay back your loan in monthly, fortnightly or weekly repayments.

Essentially, a personal loan helps you fill a short-term or long-term need for finance. You apply for a loan from a lender who then assesses your suitability for the loan, and if you are approved the lender will send you the funds for the loan. Your repayments will include the principal loan amount plus fees and interest. If you make your repayments as set out in your loan contract, your entire loan will be repaid when your loan term ends.

Jump ahead to one of the steps in the personal loan process to find out more about it.

Comparison Eligibility Application Approval Loan funding Repayment Loan closure

Finding the right personal loan is the first step of the process. There are a few parts to this, the first being choosing the type of personal loan you want to opt for. Here is a breakdown of the main types of personal loans available:

Car loans

Secured personal loans

Loan amount. What is the minimum and maximum amount the lender lets you apply for and is it enough?

Loan terms. What are the minimum and maximum loan terms? Usually terms of between one and seven years are available, but terms differ between providers.

Fees. Check for upfront fees such as establishment or application fees and ongoing fees such as monthly or annual fees. These will need to be incorporated into your loan amount.

Interest rate. Is the rate fixed or variable? Is the rate competitive?

Repayments. Once you know your loan amount and terms, you can use a loan repayment calculator to see if the repayments will be affordable on your budget.

Repayments. Can you choose between weekly, fortnightly or monthly repayments? Can you make extra repayments without a fee? Can you repay the loan early without penalty?

Unsecured personal loans

Age. You will need to be 18 to apply for a loan for Australia. Some lenders may require you to be over 21.

Income. You may need to earn over a certain amount to be eligible to apply for a loan. This may be $35,000 or lower, for example, $24,000. Find out more about borrowing on a low income here.

Employment. Most lenders will require you to be employed, but some will consider unemployed applicants. Some lenders will also require you to be out of your probation period or to be employed full-time. You can find lenders that consider casual employees here. Some lenders may also consider applicants receiving Centrelink payments.

Residency. You may have to be an Australian citizen or permanent resident to be eligible for a personal loan, although some lenders consider temporary residents.

Short term loan

Personal overdraft

ID. You will need to provide your driver's licence, passport or a form of photo ID.

Proof of income. Depending on the lender you'll need three to six months of payslips, bank statements and two years' of tax returns if you're self-employed. If you receive Centrelink you will need receipts to show your income.

Other financial documents. If you have other debts, such as loans or credit cards, you will need statements from those accounts.

Personal line of credit

After you've decided what type of personal loan you want to apply for, here's how to compare the personal loan offers from different banks and lenders:

Lenders have set minimum eligibility criteria for their personal loans. This can include any of the following:

However, even if you meet the minimum requirements for a loan you will not be approved unless you can prove you can afford the repayments. Lenders determine this by looking at your income, your debts and the stability of your employment.

The application process for a personal loan differs between lenders. Generally, you will have the option of applying online or in-branch (if the lender has branches) or over-the-phone. You can find a list of documents and information required to complete the personal loan application on finder.com.au review pages and on the lender's website and may include any of the following:

Online applications usually take about 15 minutes to complete.

Some lenders can give you an answer instantly while others may take a few days or weeks to approve you. There are two forms of approval: full approval or conditional approval.

Find out if your lender will charge fees for additional repayments

Check if your lender has restrictions on how much you can repay extra per year (generally fixed rate personal loans have this)

If you're planning to repay your loan early, check if there is a penalty you will have to pay

Conditional approval usually takes less time but is given pending more information from you, such as additional payslips or documents relating to your assets or debts. Lenders may just ask for this information and not offer any conditional approval. This is to help them make a more informed lending decision.
Do I have to pay the application fee before I apply for the loan?
Full approval is given when you have supplied sufficient information for the lender to make a decision the lender has approved you for the loan.
Are there any hidden fees or charges?
Your loan can be funded in a number of ways depending on the type of loan it is and what you are using it for. For example, when you take out a car loan the lender may pay the car seller directly. This is often the same case with a debt consolidation loan as well, with the lender directing funds to your debtors directly rather than to you.
Can you explain what a redraw is?
If the loan is an unsecured personal loan the funds will be sent to an account you nominate. Some lenders can transfer funds on the same day you apply while others might take a few days following approval.
What about a drawdown?
Most lenders will allow you to choose your repayment structure. That is, weekly, fortnightly or monthly repayments. Generally, the more often you repay your loan the less interest you will pay. When choosing your repayment structure you may also want to consider additional and early repayments.
What is the difference between variable and fixed rate loans?
If you are simply making your repayments as set out in your loan contract, then your loan should be closed following your final repayment. However, if you are planning to repay your loan early, it's a good idea to call the lender and get a final payout figure if you're getting close to paying off your loan. This is to ensure the loan will be closed when you make your final payment and you won't be charged any unexpected interest.
Which is better - a fixed or variable rate?
No. If an application fee is charged with the personal loan you're applying for, it will be added to your loan amount once you're approved. It will then be paid off with your current repayments.
How do I make my loan repayments on time?
As with any financial product there will be fees and charges payable by you to your lender. These may include approval fees, repayment fees, establishment fees and redraw fees just to name a few. It's important you read and understand your loan contract before applying. If there is any wording you are unsure of it's important that you ask your lender.
I can't make my repayments this pay period - what can I do?
If you've paid extra funds into your loan account, you may be able to access these funds if you loan allows it. If it does not affect your repayments or your total outstanding balance you could withdraw these funds.
I want to pay out my loan in full. Can I do this?
This is simply a word to describe when the loan funds are actually made available to you by your bank.

When you take out a variable rate loan the interest rate you are charged may change over the term of your loan. A fixed rate loan will have an interest rate that doesn't change.

This will be entirely dependant on your financial situation, goals and needs. If you want flexibility and the ability to make extra repayments and access any extra funds, then a variable rate option is one to consider. If you want stability and the peace of mind knowing your repayments won't change over the life of the loan, then a fixed rate could be for you.

You will need to find out what date your loan repayments are due and work out a budget accordingly. You can usually make payments via BPAY, bank transfer or direct deposit depending on what your lender offers.
Picture: Shutterstock
If you are struggling to make a repayment, you should immediately contact your bank or lender. They may defer a payment for a month or work with you on a solution. It's important to note you may be charged extra interest on top of this.

You may be able to do this, but it is important to contact your lender to obtain a payout figure. You may incur break costs and other fees and charges.

Compare a range of personal loans

HSBC Personal Loan Offer

100% confidential application

Go to site

Further Reading: Same day personal loans

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How do personal loans work? Your questions answered | finder.com.au

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Looking to apply for a personal loan but want to know more? Find out how they work and how you can apply. Whatever you're looking to take out a personal loan for - to finance a new or used car purchase, consolidate debt pay for a holiday or even cover wedding costs - there are a variety of personal loans to choose from.

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Eric hansson

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center for global development (nonprofit organization)

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international development (field of study)

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The SDGs offer a blueprint for innovative, inclusive development. How the world finances them must be innovative and inclusive too. That means thinking beyond aid - to more and different sources of development finance. This event was an open forum for the best ideas to finance development.

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Javen Smith

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Since the Philippines government received its first World Bank loan in 1957, the Bank has financed development projects which have produced significant results for its citizens. In the last three decades, the Bank's assistance has expanded to a wide range of projects and analytical work, policy advice and capacity development in support of the country's development agenda.

The Philippine Rural Development Project(PRDP), started in 2015, has been helping raise rural incomes, enhance farm and fishery productivity, and improve market access throughout the country. It has been supporting provincial planning, rural infrastructure and the development of agriculture enterprise. It uses tools such as geotagging and expanded vulnerability and suitability assessments to help guide public investments toward a modern, value-chain oriented, and climate-resilient agriculture and fisheries sector. To date, 79 provinces have developed provincial commodity investment plans to guide the projects and other agricultural investments in the provinces. Based on these plans, 28 rural infrastructure projects have been completed, 149 are under construction and an additional 185 are nearing approval. These will directly benefit 427,000 households. Construction has generated more than 5,800 short-term jobs so far. Early impacts indicate about a 60 percent reduction in travel time and 50 percent increase in road usage. With support from the project, 452 enterprises, which are at various stages of implementation, are assisting 608 enterprise groups and a total of 88,000 beneficiaries, 45 percent of which are female.

The Participatory Irrigation Development Project (PIDP) has been supporting the improvement of 58 irrigation systems throughout the country. Since it started in 2011, the project has rehabilitated and modernized irrigation infrastructure that serves 110,500 hectares, benefiting more than 162,100 farmers and their families. It has also provided organizational development and capacity building activities to 928 Irrigators Associations.

The Bank's assistance through the Learning, Equity and Accountability Program Support (LEAPS)has been supporting government efforts to improve early grade learning outcomes, particularly for disadvantaged children. To date, the project has helped train more than 20,000 teachers and school principals/head teachers on how to teach early grade reading and mathematics. The project has conducted two early grade reading and math assessments to identify key issues of low learning performance in early literacy and mathematics of students from grades 1-3. This has allowed teachers to adjust their teaching methods and help children who struggle with reading and math. A financial management manual was developed to facilitate and strengthen education service delivery. A related study has identified a number of bottlenecks and provided policy recommendations to improve education quality and efficiency.

The first Social Welfare and Development Reform Project (SWDRP) has been helping bring almost universal enrollment (98 percent) of poor children from ages 6-11 in areas covered by the project. It has also been promoting the increased use of health services for children up to five years old and for poor pregnant women. The project has been supporting the government's conditional cash transfer program (CCT) or Pantawid Pamilyang Pilipino Program, which is helping poor households invest in the education and health of children up to 18 years old. The program has made significant impact on reducing total poverty and food poverty among beneficiaries, and has grown to become one of the largest in the world, supportingmore than 4.4 million households as of December 2016. An important feature of the project has been Listahanan, the national household targeting system for poverty reduction in the Philippines, that reaches three out of four households across the country. The objective selection of 5.1 million poor households in 2015 has helped ensure that government programs are better targeted for those who need it most. Given the project's success, the Bank has provided new funding through a second project ( SWDRP II) that contributes to the government's financing of health and education grants for poor households nationwide from 2016-2019.

The poorest communities have benefited from projects that address their priority needs through a community-driven development approach. The KALAHI-CIDSS National Community Driven Development Project (NCDDP) covers about 5 million households and channels additional resources to support 794 poor and disaster-affected municipalities as of December 2016. Currently, 19,000 projects have been prioritized for NCDDP support, 79 percent of which have been completed. Supported community projects include facilities for flood/erosion control and environmental protection, as well as basic social services such as health clinics, schools, day care centers and water systems.

To manage the risks posed by natural disasters, the Bank has provided a contingent line of credit. This is combined with technical assistance to help strengthen investment planning and regulations to reduce disaster risk. The innovative financing has also helped ensure that resources are available for the government's development programs in the aftermath of a disaster. With its global expertise in post-disaster reconstruction, the Bank has been working with development partners and the government in helping develop effective disaster recovery programs and building back better infrastructure and communities.

The Bank's assistance has also extended to conflict-affected areas in the country, helping support better governance, access to services, jobs creation and enhanced citizen security and justice.The Mindanao Trust Fund-Reconstruction and Development Program has been supported by a range of development partners in providing access roads, farm equipment and post-harvest facilities, water supply systems, and bridges. It has also promoted social cohesion for around 650,000 people in Mindanao - 53 percent of whom are women - since 2006. As of early 2017, 314 conflict-affected communities across Mindanao have benefited from 577 community infrastructure, livelihood and functional literacy projects.

The Bank has also been actively supporting the peace process between the government and the Moro Islamic Liberation Front through technical and advisory services to various bodies set up to implement the March 2014 Comprehensive Agreement on the Bangsamoro. Ongoing analytical work such as the Mindanao Jobs Report supports job creation, while advisory work supports land conflict management, financial inclusion (including Islamic finance), and conflict resolution.

The Bank has also been helping the government achieve its goal of improving quality and access to basic water supply and sanitation services, and institutionalizing integrated water resources management. In Metro Manila, Bank-supported projects have contributed to a dramatic increase in 24-hour water supply from 26 percent in 1997 to 99.9 percent at the East Concession Area and 99.8 percent at the West Concession Area in 2015. Sewerage connections also increased from just over 20,000 connections in 1997 to 176,000 in 2015 in Metro Manila.

Outside Metro Manila, the Bank has been assisting water and sanitation service providers in improving efficiency and sustainability. It has also been helping strengthen local governments' accountability and management systems on water supply and sanitation services for all, while harnessing private sector participation. The Bank has been supporting the National Water Resources Board (NWRB) in professionalizing small water utilities through the Accredited Technical Service Provider Program. NWRB has trained and accredited 78 service providers which facilitated piped water access to about 44,000 Filipinos across the country. In rural areas, more than 1.48 million households have gained access to improved sanitation while 165 municipalities in 75 provinces have actively participated in eradicating the practice of open defecation through the Zero Open Defecation campaign as of February 2017.

Last Updated: Apr 12, 2017

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Growth in the Philippines has been averaging at about 5 percent over the past 10 years, significantly higher than the rate achieved in the previous two decades. In 2010, the Philippines grew by 7.6 percent, the highest in 30 years.

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Foreign Aid for Developmental Assistance

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Foreign Aid for Developmental Assistance

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Anna Guggemos

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Author and Page information

This page: https://www.globalissues.org/article/35/foreign-aid-development-assistance.

To print all information (e.g. expanded side notes, shows alternative links), use the print version:

Foreign aid or (development assistance) is often regarded as being too much, or wasted on corrupt recipient governments despite any good intentions from donor countries. In reality, both the quantity and quality of aid have been poor and donor nations have not been held to account.

There are numerous forms of aid, from humanitarian emergency assistance, to food aid, military assistance, etc. Development aid has long been recognized as crucial to help poor developing nations grow out of poverty.

In 1970, the world's rich countries agreed to give 0.7% of their GNI (Gross National Income) as official international development aid, annually. Since that time, despite billions given each year, rich nations have rarely met their actual promised targets. For example, the US is often the largest donor in dollar terms, but ranks amongst the lowest in terms of meeting the stated 0.7% target.

Furthermore, aid has often come with a price of its own for the developing nations:

Aid is often wasted on conditions that the recipient must use overpriced goods and services from donor countries

Most aid does not actually go to the poorest who would need it the most

Aid amounts are dwarfed by rich country protectionism that denies market access for poor country products, while rich nations use aid as a lever to open poor country markets to their products

Large projects or massive grand strategies often fail to help the vulnerable as money can often be embezzled away.

This article explores who has benefited most from this aid, the recipients or the donors.

On this page:

1. Governments Cutting Back on Promised Responsibilities

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

2. Almost all rich nations fail this obligation

3. Some donate many dollars, but are low on GNI percent

4. Aid increasing since 2001 but still way below obligations

5. 2011: first aid decline in years

6. 2013: aid rebounds

2. Foreign Aid Numbers in Charts and Graphs

1. Aid money is actually way below what has been promised

2. Side note on private contributions

3. Side Note on Private Remittances

4. Adjusting Aid Numbers to Factor Private Contributions, and more

5. Ranking the Rich based on Commitment to Development

6. Private donations and philanthropy

3. Are numbers the only issue?

1. The Changing Definition of Aid Reveals a much Deeper Decline than What Numbers Alone Can Show

2. Aid is Actually Hampering Development

3. Private flows often do not help the poorest

4. Aid as a foreign policy tool to aid the donor not the recipient

1. Aid And Militarism

2. Aid Money Often Tied to Various Restrictive Conditions

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

5. Aid Amounts Dwarfed by Effects of First World Subsidies, Third World Debt, Unequal Trade, etc

6. But aid could be beneficial

1. Trade and Aid

2. Improving Economic Infrastructure

3. Use aid to Empower, not to Prescribe

4. Rich donor countries and aid bureaucracies are not accountable

5. Democracy-building is fundamental, but harder in many developing countries

6. Failed foreign aid and continued poverty: well-intentioned mistakes, calculated geopolitics, or a mix?

Governments Cutting Back on Promised Responsibilities

Trade, not aid is regarded as an important part of development promoted by some nations. But in the context of international obligations, it is also criticized by many as an excuse for rich countries to cut back aid that has been agreed and promised at the United Nations.

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

Recently, there was an EU pledge to spend 0.56% of GNI on poverty reduction by 2010, and 0.7% by 2015.

However,

The donor governments promised to spend 0.7% of GNP on ODA (Official Development Assistance) at the UN General Assembly in 1970-some 40 years ago

The deadline for reaching that target was the mid-1970s.

By 2015 (the year by when the Millennium Development Goals are hoped to be achieved) the target will be 45 years old.

This target was codified in a United Nations General Assembly Resolution, and a key paragraph says:

What was to be the form of aid?

Financial aid will, in principle, be untied. While it may not be possible to untie assistance in all cases, developed countries will rapidly and progressively take what measures they can ... to reduce the extent of tying of assistance and to mitigate any harmful effects [and make loans tied to particular sources] available for utilization by the recipient countries for the purpose of buying goods and services from other developing countries.

... Financial and technical assistance should be aimed exclusively at promoting the economic and social progress of developing countries and should not in any way be used by the developed countries to the detriment of the national sovereignty of recipient countries.

Developed countries will provide, to the greatest extent possible, an increased flow of aid on a long-term and continuing basis.

International Development Strategy for the Second United Nations Development Decade, UN General Assembly Resolution 2626 (XXV), October 24, 1970, para. 45-47

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.

Furthermore, the quality of the aid has been poor. As Pekka Hirvonen from the Global Policy Forum summarizes:

Recent increases [in foreign aid] do not tell the whole truth about rich countries' generosity, or the lack of it. Measured as a proportion of gross national income (GNI), aid lags far behind the 0.7 percent target the United Nations set 35 years ago. Moreover, development assistance is often of dubious quality. In many cases,

Aid is primarily designed to serve the strategic and economic interests of the donor countries;

Or [aid is primarily designed] to benefit powerful domestic interest groups;

Aid systems based on the interests of donors instead of the needs of recipients' make development assistance inefficient;

Too little aid reaches countries that most desperately need it; and,

All too often, aid is wasted on overpriced goods and services from donor countries.

Pekka Hirvonen, Stingy Samaritans; Why Recent Increases in Development Aid Fail to Help the Poor, Global Policy Forum, August 2005 [bullet list formatting added]

The Cold War years saw a high amount of aid (though not near the 0.7% mark) as each super power and their allies aided regimes friendly to their interests. The end of the Cold War did not see some of the savings from the reduced military budgets being put towards increased aid, as hoped. Instead, as noted by the development organization, the South Centre, developing countries found themselves competing with a number of countries in transition for scarce official assistance.

As others have long criticized, aid had a geopolitical value for the donor countries as aid increased when a Cold War had to be fought. (A long decline in the post Cold War 1990s has seen another rise, this time to fight terrorism, also detailed below.)

The issues raised by Hirvonen above are detailed further below. But before going into the poor quality of aid, a deeper look at the numbers:

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 The 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 Note 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.)

See more details for those years

For the change in aid trends in 2001, the OECD noted that:

Most of the United States' increase in 2001 was due to a $600 million disbursement to Pakistan for economic support in the September 11 aftermath.

Japan's ODA fell by nearly $4 billion. A key factor accounting for this was a 12.7 per cent depreciation of the Yen.... Other factors were the timing of Japan's disbursements to multilateral organisations and loan repayments from Asian countries that have recovered from the Asian financial crisis.

For the increase in overall aid in 2002 (by just 5%), the OCED commented that:

The United States increased its ODA by 11.6% in real terms in 2002 ... mainly due to additional and emergency funds in response to the 11 September 2001 terrorist attacks as well as new aid initiatives, especially in relation to health and humanitarian aid.

Japan's ODA fell slightly by 1.8% in real terms in 2002. Most of the fall ... was because the Yen depreciated against the US dollar.

For 2004 trends, the OECD noted that:

Aid rose 4.3% in real terms between 2003 and 2004.

Reasons

Increases in contributions to international organizations, aid to Afghanistan and Iraq, and technical co-operation grants;

This was despite gross debt relief grants and actual net lending falling;

US aid increased due to contribution to the International Development Association (IDA), the grant and soft-loan arm of the World Bank, and because of aid to Afghanistan and Iraq.

EU countries combined represented 0.35% of GNI.

The richest 7 countries, the G7, represented just 0.22%

Inter Press Service (IPS) noted a number of important issues based on a report released April 18, 2005, where U.N. Secretary-General Kofi Annan warned against any premature rejoicing over the rising numbers.

Adjusted for depreciation of the fast-falling U.S. dollar and worldwide price inflation, the 18.4 percent annual increase of ODA reported for 2003 relative to 2002 falls to around a quarter of that figure, [Kofi Annan] notes

Arabella Fraser, policy advisor for the international humanitarian organization Oxfam, is equally guarded noting that Rich country self-congratulation is unwarranted, because Aid levels are still pitiful ... way below the promise of 0.7 percent, which was made 35 years ago.

With only around 40 cents in every dollar spent on overseas aid actually reaching the poorest countries, Fraser said that the recent report shows that aid flows are largely dictated by geo-strategic concerns rather than by efforts to reduce poverty. (Emphasis added)

In his report, Annan says that although ODA is normally expected to provide new cash resources for recipient countries to increase development spending, an increasing portion of the recent increases of ODA has taken the form of expenditures on emergency relief in countries that donors have deemed critical for security reasons. (Emphasis added)

When the large amounts of aid given to Afghanistan and Iraq is taken into account, ODA in 2003 barely increased in real terms, suggesting that the increase in resources available to meet the MDGs has been quite modest.

Like Annan, the OECD was wary about the figures for 2004, and even for future expected increases. For example:

The expected aid boom in 2005-06 is primarily due to debt relief for Iraq and Nigeria and emergency aid to the Indian Ocean Tsunami hit countries

This means that from 2007, the OECD warns, donors will have to increase other forms of aid by around 10% per year, double the rate of recent annual increases.

There was a 13.3% increase ($7.7 billion) in long term development aid, which starts reversing the trend which began in 1985 when donors began to give less long-term aid. While this is positive, it needs to be sustained for many years.

Debt relief accounted for 17% of aid, the highest single item in that two year period (primarily because of debt relief to the Democratic Republic of Congo in 2003);

For 2005 trends, the OECD confirmed the expected rise:

Without those special cases, aid levels were similar to previous years. (And, as explained further below, debt relief was never intended to count as official aid.)

For 2006 trends, the OECD confirmed the expected fall in DAC aid for 2006 from 2005's exceptional high (for which major factors included debt relief for Iraq and Nigeria, humanitarian relief for the December 2004 Asian tsunami victims and aid to Afghanistan).

Aid flows were down 5.1%, representing 0.3% of GNI of countries' combined incomes

Excluding debt relief, aid still fell by around 1.8%, the OECD noted

Despite the fall, it was still the second highest amount after 2005, at USD 103.9 billion

As before, poorest countries were not necessarily recipients of most aid. For example, excluding debt relief for Nigeria, aid to sub-Saharan Africa increased by only 2%

EU countries combined represented 0.56% of their combined GNI, which was an increase, as some members increased their contributions.

For 2007 trends, the OECD confirmed the expected fall in DAC aid for 2007.

It was noted that

Debt relief was down as expected

Other ODA rose slightly

But the rise in ODA was not as high as recently pledged by governments

Donor countries, the OCED said, will need to make unprecedented increases to meet the targets they have set for 2010.

For 2008, the OECD noted that ODA aid was at its highest level ever in dollar terms, increasing over 10% from 2007 in real terms.

However, this aid, as high as it was, was still only at 0.3% of GNI, compared to the 0.7% target). In other words, while aid was almost $120 billion, it was still short by some $260 billion (at 2007 prices).

With the worsening global financial crisis poorer countries are feeling the effects even though they have not caused this crisis. A global recession may result in wealthier nations reducing their development aid in coming years, but the OECD urges that aid be countercyclical. That is, during hard times, increasing aid for poorer countries is important to help them weather the coming economic storm. Reducing it just when it is most crucial may be very harmful, the OECD implied.

Aid cuts at this point in time would place a dangerous additional burden on developing countries already faced with restricted sources of income and increased poverty, and perhaps undo some of the progress already made towards meeting the Millennium Development Goals, says the OECD.

For 2003 trends, the OCED noted that:

The aid increases were modest in 2003.

Reasons

Continuing growth in general bilateral grants ($2 billion);

The start of reconstruction aid to Iraq ($2 billion); and

Offset by a cyclical fall of contributions to multilateral concessional funds (-$1.2 billion) and a small decrease in net lending (-$0.5 billion).

In addition, the OECD admitted this was still not enough, and it underlines the need for developing countries to make efforts on a range of fronts, including by creating an environment where the private sector can thrive.

In parallel, the OECD stresses that OECD countries must do more to promote economic growth in poor countries through coherent economic policies that take account of these countries' needs.

Some positive long-term trends were also noted, for example towards more support for governments that were delivering results, more untied aid, more support for policies owned by developing countries rather than imposed upon them through conditionality, and a greater emphasis on governance and health.

However, there was also a sharp decline in aid for agricultural development, and a rising share in total aid outlays of humanitarian aid in response to emergencies as opposed to long-term development and aid to the poorest countries.

In 2009, the OCED and many others feared official aid would decline due to the global financial crisis. They urged donor nations to make aid countercyclical; not to reduce it when it is needed most - by those who did not cause the crisis.

And indeed, for 2009, aid did increase as official stats from the OECD shows. It rose 0.7% from just under $123 bn in 2008 to just over $123 bn in 2009 (at constant 2008 prices).

In 2011, the OECD noted a 6.5% increase in official development aid in 2010 over the previous year to $129 billion, but it still averaged only 0.32% of the combined GNI of donor countries - less than half of what had been promised long ago. But they also warned about worrying trends for the future; donor countries are expecting to reduce the rate of increased official aid.

The OECD also noted that due to continued failure to meet pledged aid in recent years (some nations have met those pledges, however), a code of good pledging practice was to be drawn up, which might be a first step towards better donor accountability.

2011: first aid decline in years

In 2012, the OECD noted an almost 3% decline in aid over 2010's aid - the first decline in a while. Although this decline was expected at some point because of the financial problems in most wealthy nations, those same problems are rippling to the poorest nations, so a drop in aid (ignoring unhealthy reliance on it for the moment) is significant for them. It would also not be surprising if aid declines or stays stagnant for a while, as things like global financial problems not only take a while to ripple through, but of course take a while to overcome.

During recent years, some developing countries have been advancing (think China, India, Brazil, etc). So if there was declining aid due to many no longer needing it then that would be understandable. However, as the data shows, whether it has been recent years, or throughout the history of DAC aid, the poorest countries have received only a quarter of all aid. Even during recent increases in aid, these allocations did not change. In addition, as industrialized nations' attention will turn towards their own economies, aid will be less of an issue, and as economics editor of the Guardian notes,

(The first comment in the above article also makes a point that despite the predictable aid fall, it is to the industrialized nations' credit that it didn't fall by a much larger amount given the situation most of them are in, economically.)

2013: aid rebounds

In 2014, the OCED noted that Development aid rose by 6.1% in real terms in 2013 to reach the highest level ever recorded, despite continued pressure on budgets in OECD countries since the global economic crisis. This rise was a rebound after two years of falling volumes, as a number of governments stepped up their spending on foreign aid.

However, it was also noted that assistance to the neediest countries continued to fall, which raises worries about the purpose of the increased aid. As the rest of this article has shown, for decades, much foreign aid has been less about helping the recipient, but furthering agendas of donor countries, for example to gain favorable access to resources or markets in recipient countries. It may be too early to tell for sure, but in the context of the financial crisis that has hurt donor countries particularly, some of the increase in aid may be to help with domestic economic concerns.

While the financial crisis does show the reliance on aid is not a good strategy for poor countries at any time, some have little choice in the short term.

Foreign Aid Numbers in Charts and Graphs

As the following chart shows

Donor nations' wealth (GNI) generally increased through the 1990s to 2010

The levels of aid (tied to that growth) should have increased too

Instead, in the 1990s it actually fell, while picking up in the 2000s. (Some of those recent rises, especially the large increases, were almost entirely due to debt write-off for a handful of countries - such as Iraq.)

Aid for the poorest countries remained at a steady dollar amount in this period.

Given overall wealth of donors had increased, this in effect meant that they reduced their aid to the poorest countries.

Despite the loss in GNI in 2009 due to the financial crisis, aid did increase slightly.

It should be noted that in 2009 when donor nations had lower GNI due to the global financial crisis they still increased their aid in % terms, perhaps heeding the OECD's plea mentioned earlier. The expected decline in aid eventually occurred in 2011, as effects from the global financial crisis take time to ripple through in terms of policy impacts. But the decline was perhaps not as sharp as could have been expected.

Source: OECD, September 2014

The charts and data below are reproduced from the OECD (using their latest data, at time of writing. It will be updated when new data becomes available).

Net ODA 2013

Source: OECD Development Statistics Online, last accessed September 28, 2014

And who gets what?

The OECD web site also provides some breakdowns of how the money is given:

All DAC aid

Source: Aid at a Glance 2011-2012, OECD Web Site

From USA

Source: Aid at a Glance 2011-2012, OECD Web Site

Other countries

You can also see a full list of country breakdowns from the OECD web site.

When broken down by region since 1970 the poorest countries have received just a quarter of all DAC aid:

Recent years, however, show a similar trend, with the poorest countries receiving a quarter of all aid:

While aid to the wealthier developing countries has reduced somewhat, the portion going to the poorest countries has hardly changed. In effect, most ODA aid does not appear to go to the poorest nations like we might naturally assume it would:

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.

The Center for Global Prosperity, from the Hudson Institute, (whose director is Adelman) published its first Index of Global Philanthropy in 2006, which contained updated numbers from those stated above. The total of US private giving, since Adelman's previous report, had increased to a massive $71 billion in 2004. Page 16 of their report breaks it down as follows:

International giving by US foundations: $3.4 billion

Charitable giving by US businesses: $4.9 billion

American NGOs: $9.7

Religious overseas ministries: $4.5

US colleges scholarships to foreign students: $1.7 billion

Personal remittances from the US to developing countries: $47 billion.

While the majority of the increase was personal remittances ($18 bn in 2000 to $47 bn in 2004), other areas have also seen increases.

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.
Many economists and others, including Adelman in the article above, point out that personal remittances are effective. They don't require the expensive overhead of government consultants, or the interference of corrupt foreign officials. Studies have shown that roads, clinics, schools and water pumps are being funded by these private dollars. For most developing countries, private philanthropy and investment flows are much larger than official aid.

Unfortunately Adelman doesn't cite the studies she mentions because these private dollars do not seem to be remittance dollars, but private investment. Economists at the IMF surveyed literature on remittances and admitted that, the role of remittances in development and economic growth is not well understood ... partly because the literatures on the causes and effects of remittances remain separate. When they tried to see what role remittances played, they concluded that remittances have a negative effect on economic growth as it usually goes into private consumption, and takes place under asymmetric information and economic uncertainty.

Even if that turns out to be wrong, the other issue also is whether personal remittances can be counted as American giving, as people point out that it is often foreign immigrant workers sending savings back to their families in other countries. Political commentator Daniel Drezner takes up this issue arguing, Americans aren't remitting this money-foreign nationals are.

Comparing Adelman's figures with her previous employer's, USAID, Drezner adds that Adelman's figure is accurate if you include foreign remittances. However, if you do not count foreign remittances then it matches the numbers that the research institute, the Center for Global Development uses in their rankings (see below).

Finally, Drezner suggests that Adelman is not necessarily incorrect in her core thesis that Americans are generous, but lumping remittances in with charity flows exaggerates the generosity of Americans as a people.

UNICEF also notes the dangers of counting on personal remittances solely based on economic value, as reported by Inter Press Service. Latin America alone received some $45 billion in remittances in 2004, almost 27% of the total. At a regional conference, noting a Mexican household survery showing remittances contributed to improved provision of child care, the United Nations children's charity, UNICEF, warned that the importance of family unity cannot be underestimated in terms of child well-being. If a parent is away working in another country, for a child, the loss of their most important role models, nurturers and caregivers, ... has a significant psychosocial impact that can translate into feelings of abandonment, vulnerability, and loss of self-esteem, among others.

In addition, as the global financial crisis starts to spread, private remittances will decrease, as well as foreign aid in general. Some nations rely a lot on these remittances. Remittances to Sri Lanka, for example, make up some 70% of the country's trade deficit, according to the Inter Press Service (see previous link). This raises questions as to whether aid and remittances are sustainable in the long term or signal a more fundamental economic problem, as discussed further below.

Adjusting Aid Numbers to Factor Private Contributions, and more

David Roodman, from the CGD, attempts to adjust the aid numbers by including subjective factors :

Quality of recipient governance as well as poverty;

Penalizing tying of aid;

Handling reverse flows (debt service) in a consistent way;

Penalizes project proliferation (overloading recipient governments with the administrative burden of many small aid projects);

and rewards tax policies that encourage private charitable giving to developing countries.

In doing so, the results (using 2002 data, which was latest available at that time) produced:

You can also view this chart as an image.

Interesting observations included:

Contrary to popular belief, the US is not the only nation with tax incentives to encourage private contributions. (Only Austria, Finland and Sweden do not offer incentives.)

Factoring that in, the US ranks joint 19th out of 21

Japan fairs a lot worse

Roodman also admits that many-perhaps most-important aspects of aid quality are still not reflected in the index-factors such as the realism of project designs and the effectiveness of structural adjustment conditionality.

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:

Source: Center for Global Development, Commitment to Development Index 2006

Adelman, further above noted that the US is clearly the most generous on earth in public-but especially in private-giving, yet the CGD suggests otherwise, saying that the US does not close the gap with most other rich countries; The US gives 13c/day/person in government aid....American's private giving-another 5c/day-is high by international standards but does not close the gap with most other rich countries. Norway gives $1.02/day in public aid and 24c/day in private aid per person. (These numbers will change of course, year by year, but the point here is that Adelman's assertion-one that many seem to have-is not quite right.)

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:

Private charity is an act of privilege, it can never be a viable alternative to State obligations, said Dr James Obrinski, of the organisation Medicins sans Frontier, in Dhaka recently at the People's Health Assembly (see Himal, February 2001). In a nutshell, industry and private donations are feel-good, short-term interventions and no substitute for the vastly larger, and essentially political, task of bringing health care to more than a billion poor people.

Rajshri Dasgupta, Patents, Private Charity and Public Health, Himal South Asian, March 2001

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.

Are numbers the only issue?

The above talks a lot about numbers and attempts to address common questions about who gives what, as for Americans and Europeans, there is indeed a fascination of this topic.

Less mentioned in the media is that some aid money that is pledged often involves double accounting of sorts. Sometimes offers have even been reneged or just not delivered. This site's section on the Asian tsunami disaster and on third world debt has more on these aspects.

It is common to hear many Americans claim that the US is the most generous country on earth. While the numbers above may say otherwise in a technical sense, is who gives the most really the important discussion here? While important, concentrating on this one aspect diverts us from other pressing issues such as does the aid actually help the recipient, or does it actually help the donor.

As we will see further below, some aid has indeed been quite damaging for the recipient, while at the same time being beneficial for the donor.

The Changing Definition of Aid Reveals a much Deeper Decline than What Numbers Alone Can Show

The South Centre, mentioned earlier, notes that when the 0.7% of GNI promise for development aid was made in 1970, official development assistance was to be understood as bilateral grants and loans on concessional terms, and official contributions to multilateral agencies.

But, as they note, a number of factors have led to a large decline in aid, some that cannot be shown by numbers and graphs, alone. Factors include:

Tighter budgetary constraints in richer countries during the 1980s;

More importantly, an ideology shift on governments and markets (see also primer on neoliberalism and structural adjustment on this site);

Increasing number of countries competing for development aid funds;

Donors putting a broader interpretation on what constitutes development assistance.

On the last point above, South Centre notes that the broader interpretation include categories which bear little relationship to the need of the developing countries for long term development capital. (Emphasis Added.) Thus, those expanded categories for official development assistance include:

Debt relief;

Subsidies on exports to developing countries;

Food aid which disposes of agricultural surpluses resulting from government subsidies (see also this site's section on food dumping and how it increases hunger and poverty);

Provision of surplus commodities of little economic value;

Administrative costs;

Payments for care and education of refugees in donor countries;

Grants to NGOs and to domestic agencies to support emergency relief operations; and

Technical co-operation grants which pay for the services of nationals of the donor countries.

An analysis of OECD data over time shows such increases in non-development aid:

In effect, not only has aid been way below that promised, but what has been delivered has not always been for the original goal of development.

The technical co-operation grants are also known as technical assistance. Action Aid, has been very critical about this and other forms of this broader interpretation which they have termed phantom aid:

This year we estimate that $37 billion-roughly half of global aid-is phantom aid, that is, it is not genuinely available to poor countries to fight poverty.

... Nowhere is the challenge of increasing real aid as a share of overall aid greater than in the case of technical assistance. At least one quarter of donor budgets-some $19 billion in 2004-is spent in this way: on consultants, research and training. This is despite a growing body of evidence-much of it produced by donors themselves and dating back to the 1960s-that technical assistance is often overpriced and ineffective, and in the worst cases destroys rather than builds the capacity of the poorest countries.

... Although this ineffectiveness is an open secret within the development community, donors continue to insist on large technical assistance components in most projects and programmes they fund. They continue to use technical assistance as a soft lever to police and direct the policy agendas of developing country governments, or to create ownership of the kinds of reforms donors deem suitable. Donor funded advisers have even been brought in to draft supposedly country owned poverty reduction strategies.

Real Aid: Making Technical Assistance Work , Action Aid, July 5, 2006, pp.5-6 (Emphasis Added)

The above report by Action Aid uses OECD data, as I have done. Their figures are based on 2004 data, which at time of their publication was the latest available. However, they also went further than I have to show just how much phantom aid there is. For example, they note (p.11) that the $37 billion of phantom aid in 2004 included:

$6.9 billion (9% of all aid) not targeted for poverty reduction

$5.7 billion (7%) double counted as debt relief

$11.8 billion (15%) on over-priced, ineffective technical assistance

$2.5 billion (3%) lost through aid tying

$8.1 billion (10%) lost through poor donor co-ordination

$2.1 billion (3%) on immigration related spending

at least $70 (0.1%) million on excessive administration costs.

These figures are necessarily approximate, they note. If anything, they probably flatter donors. Lack of data means that other areas of phantom aid have been excluded from our analysis. These include conditional or unpredictable aid, technical assistance and administration spending through multilateral channels, security-related spending and emergency aid for reconstruction following conflicts in countries such as Iraq. Some of these forms of aid do little to fight poverty, and can even do more harm than good.

Action Aid also provided a matrix (p.14) showing the volumes of real and phantom aid by donor countries:

At the 2005 G8 Summit, much was made about historic debt write-offs and other huge amounts of aid. The problem, the media and government spin implied, was that rich country aid often gets wasted and will only be delivered to poor countries if they meet certain conditions and demands. Yet, hardly ever in the mainstream discourse is the quality of rich country aid an issue or problem that needs urgent addressing. The South Centre noted this many years ago:

Aid is Actually Hampering Development

Professor William Easterly, a noted mainstream economics professor on development and aid issues has criticized foreign aid for not having achieved much, despite grand promises:

[A tragedy of the world's poor has been that] the West spent $2.3 trillion on foreign aid over the last five decades and still had not managed to get twelve-cent medicines to children to prevent half of all malaria deaths. The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families. The West spent $2.3 trillion and still had not managed to get three dollars to each new mother to prevent five million child deaths.

... It is heart-breaking that global society has evolved a highly efficient way to get entertainment to rich adults and children, while it can't get twelve-cent medicing to dying poor children.

William Easterly, The White Man's Burden; Why the West's Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), p. 4

The United Nations Economic and Social Council, when noting that effectiveness of aid to poor countries requires a focus on economic infrastructure, also noted that ODA was hampering aid. Jose Antonio Ocampo, Under-Secretary-General for the United Nations Economic and Social Affairs said that debt, commodities, official development assistance and, in some cases, the risk of conflict is hampering development in the least developed countries.

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:

It is undeniable that there has been poor governance, corruption and mismanagement in Africa. However, the briefing reveals the context-the legacy of colonialism, the support of the G8 for repressive regimes in the Cold War, the creation of the debt trap, the massive failure of Structural Adjustment Programmes imposed by the IMF and World Bank and the deeply unfair rules on international trade. The role of the G8 in creating the conditions for Africa's crisis cannot be denied. Its overriding responsibility must be to put its own house in order, and to end the unjust policies that are inhibiting Africa's development.

It's the 'Blame the Victim' Summit, Action for Southern Africa, June 25, 2002. You can also see the full briefing .

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

Christian Aid weighs in on this with a more recent report noting that sub-Saharan Africa is a massive $272 billion worse off because of free trade policies forced on them as a condition of receiving aid and debt relief. They also note that:

The quantity issue is an input into the aid process. The quality is about the output. We see from the above then, that the quantity of aid has not been as much as it should be. But what about the quality of the aid?

Aid as a foreign policy tool to aid the donor not the recipient

Aid appears to have established as a priority the importance of influencing domestic policy in the recipient countries

Benjamin F. Nelson, International Affairs Budget: Framework for Assessing Relevance, Priority and Efficiency, (Washington, DC: General Accounting Office, October 30, 1997)

As shown throughout this web site (and hundreds of others) one of the root causes of poverty lies in the powerful nations that have formulated most of the trade and aid policies today, which are more to do with maintaining dependency on industrialized nations, providing sources of cheap labor and cheaper goods for populations back home and increasing personal wealth, and maintaining power over others in various ways. As mentioned in the structural adjustment section, so-called lending and development schemes have done little to help poorer nations progress.

The US, for example, has also held back dues to the United Nations, which is the largest body trying to provide assistance in such a variety of ways to the developing countries. Former US President Jimmy Carter describes the US as stingy:

While the US provided large amounts of military aid to countries deemed strategically important, others noted that the US ranked low among developed nations in the amount of humanitarian aid it provided poorer countries. We are the stingiest nation of all, former President Jimmy Carter said recently in an address at Principia College in Elsah, Ill.

Who rules next?, Christian Science Monitor, December 29, 1999

Evan Osbourne, writing for the Cato Institute, also questioning the effectiveness of foreign aid and noted the interests of a number of other donor countries, as well as the U.S., in their aid strategies in past years. For example:

The US has directed aid to regions where it has concerns related to its national security, e.g. Middle East, and in Cold War times in particular, Central America and the Caribbean;

Sweden has targetted aid to progressive societies;

France has sought to promote maintenance or preserve and spread of French culture, language, and influence, especially in West Africa, while disproportionately giving aid to those that have extensive commercial ties with France;

Japan has also heavily skewed aid towards those in East Asia with extensive commercial ties together with conditions of Japanese purchases;

Osbourne also added that domestic pressure groups (corporate lobby groups, etc) have also proven quite adept at steering aid to their favored recipients. And so, If aid is not particularly given with the intention to foster economic growth, it is perhaps not surprising that it does not achieve it.

Aid And Militarism

IPS noted that recent US aid has taken on militaristic angles as well, following similar patterns to aid during the cold war. The war on terrorism is also having an effect as to what aid goes where and how much is spent.

For example:

Credits for foreign militaries to buy US weapons and equipment would increase by some 700 million dollars to nearly five billion dollars, the highest total in well over a decade. (This is also an example of aid benefiting the donor!)

The total foreign aid proposal ... amounts to a mere five percent of what Bush is requesting for the Pentagon next year.

Bush's foreign-aid plan [for 2005] actually marks an increase over 2004 levels, although much of the additional money is explained by greater spending on security for US embassies and personnel overseas.

As in previous years, Israel and Egypt are the biggest bilateral recipients under the request, accounting for nearly five billion dollars in aid between them. Of the nearly three billion dollars earmarked for Israel, most is for military credits.

This militaristic aid will come largely at the expense of humanitarian and development assistance.

The European Union is linking aid to fighting terrorism as well, with European ministers warning countries that their relations with the economically powerful bloc will suffer if they fail to cooperate in the fight against terrorism. An EU official is quoted as saying, aid and trade could be affected if the fight against terrorism was considered insufficient, leading to accusations of compromising the neutrality, impartiality and independence of humanitarian assistance.

Aid Money Often Tied to Various Restrictive Conditions

As a condition for aid money, many donors apply conditions that tie the recipient to purchase products only from that donor. In a way this might seem fair and balanced, because the donor gets something out of the relationship as well, but on the other hand, for the poorer country, it can mean precious resources are used buying more expensive options, which could otherwise have been used in other situations. Furthermore, the recipient then has less control and decision-making on how aid money is spent. In addition the very nations that typically promote free-markets and less government involvement in trade, commerce, etc., ensure some notion of welfare for some of their industries.

IPS noted that aid tied with conditions cut the value of aid to recipient countries by some 25-40 percent, because it obliges them to purchase uncompetitively priced imports from the richer nations. IPS was citing a UN Economic Council for Africa study which also noted that just four countries (Norway, Denmark, the Netherlands and the United Kingdom) were breaking away from the idea of tied aid with more than 90 percent of their aid untied.

In addition, IPS noted the following, worth quoting at length:

[Njoki Njoroge] Njehu [director of the 50 Years is Enough campaign] cited the example of Eritrea, which discovered it would be cheaper to build its network of railways with local expertise and resources rather than be forced to spend aid money on foreign consultants, experts, architects and engineers imposed on the country as a condition of development assistance.

Strings attached to US aid for similar projects, she added, include the obligation to buy products such as Caterpillar and John Deere tractors. All this adds up to the cost of the project.

Njehu also pointed out that money being doled out to Africa to fight HIV/AIDS is also a form of tied aid. She said Washington is insisting that the continent's governments purchase anti-AIDS drugs from the United States instead of buying cheaper generic products from South Africa, India or Brazil.

As a result, she said, US brand name drugs are costing up to 15,000 dollars a year compared with 350 dollars annually for generics.

...

AGOA [African Growth and Opportunity Act, signed into US law in 2000] is more sinister than tied aid, says Njehu. If a country is to be eligible for AGOA, it has to refrain from any actions that may conflict with the US's strategic interests.

The potential of this clause to influence our countries' foreign policies was hinted at during debates at the United Nations over the invasion of Iraq, she added.

The war against Iraq was of strategic interest to the United States, Njehu said. As a result, she said, several African members of the UN Security Council, including Cameroon, Guinea and Angola, were virtually held to ransom when the United States was seeking council support for the war in 2003.

They came under heavy pressure, she said. The message was clear: either you vote with us or you lose your trade privileges.

Thalif Deen, Tied Aid Strangling Nations, Says U.N, Inter Press Service, July 6, 2004

As noted further above, almost half of all foreign aid can be considered phantom aid, aid which does not help fight poverty, and is based on a broader definition of foreign aid that allows double counting and other problems to occur. Furthermore, some 50% of all technical assistance is said to be wasted because of inappropriate usage on expensive consultants, their living expenses, and training (some $11.8 billion).

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:

Commenting on the latest US pledge [of $10 billion], Julian Borger and Charlotte Denny of the Guardian (UK) say Washington is desperate to deflect attention in Monterrey from the size of its aid budget. But for more generous donors, says the story, Washington's conversion to the cause of effective aid spending is hard to swallow. Among the big donors, the US has the worst record for spending its aid budget on itself-70 percent of its aid is spent on US goods and services. And more than half is spent in middle income countries in the Middle East. Only $3bn a year goes to South Asia and sub-Saharan Africa.

Monterrey: US Will 'Seek Advice On Spending Aid', World Bank, March 21, 2002

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:

Thus, status quo in world relations is maintained. Rich countries like the US continue to have a financial lever to dictate what good governance means and to pry open markets of developing countries for multinational corporations. Developing countries have no such handle for Northern markets, even in sectors like agriculture and textiles, where they have an advantage but continue to face trade barriers and subsidies. The estimated annual cost of Northern trade barriers to Southern economies is over US $100 billion, much more than what developing countries receive in aid.

Puppets on purse strings, Down To Earth, (Centre for Science and Environment) Vol 10, No 23, April 30, 2002

As discussed further on this site's section on water issues, the World Development Movement campaign organization reported in early 2005 that the British government has been using aid money to pay British companies to push privatization of water services to poor countries, even though it may not be in their best interests.

The 2005 G8 Summit at Gleneagles in Scotland saw promises of lots of aid and debt relief, but these were accompanied with a lot of spin, and more conditions, often considered harmful in the past.

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:

It is easy to be taken in with promises of bilateral aid, and make seemingly innocuous commitments in bilateral agreements. There is far too much at stake here [with climate change]. To further their interests, smaller, poorer countries don't have aid to bribe and trade muscle to threaten countries.

Pop of the world, Equity Watch, Center for Science and Environment, October 25, 2002.

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

developing countries made the sixth consecutive and largest ever transfer of funds to other countries in 2002, a sum totalling almost $200 billion.
Funds should be moving from developed countries to developing countries, but these numbers tell us the opposite is happening.... Funds that should be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals, are, instead, being transferred abroad.

Kofi Annan, Development funds moving from poor countries to rich ones, Annan says, United Nations News Centre, October 30, 2003

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.

Aid Amounts Dwarfed by Effects of First World Subsidies, Third World Debt, Unequal Trade, etc

Combining the above mentioned reversal of flows with the subsidies and other distorting mechanisms, this all amounts to a lot of money being transferred to the richer countries (also known as the global North), compared to the total aid amounts that goes to the poor (or South).

As well as having a direct impact on poorer nations, it also affects smaller farmers in rich nations. For example, Oxfam, criticizing EU double standards, highlights the following:

Latin America is the worst-affected region, losing $4bn annually from EU farm policies. EU support to agriculture is equivalent to double the combined aid budgets of the European Commission and all 15 member states. Half the spending goes to the biggest 17 per cent of farm enterprises, belying the manufactured myth that the CAP [Common Agriculture Policy] is all about keeping small farmers in jobs.

Europe's Double Standards. How the EU should reform its trade policies with the developing world, Oxfam Policy Paper, April 2002, p.18 (Link is to the press release, which includes a link to the actual Microsoft Word document from which the above is cited.)

And as Devinder Sharma adds, some of the largest benefactors of European agricultural subsidies include the Queen of England, and other royalties in Europe!

The double standards that Oxfam mentions above, and that countless others have highlighted has a huge impact on poor countries, who are pressured to follow liberalization and reducing government interference while rich nations are able to subsidize some of their industries. Poor countries consequently have an even tougher time competing. IPS captures this well:

On the one hand, OECD countries such as the US, Germany or France continue through the ECAs [export credit agencies] to subsidise exports with taxpayers' money, often in detriment to the competitiveness of the poorest countries of the world, says [NGO Environment Defence representative, Aaron] Goldzimmer. On the other hand, the official development assistance which is one way to support the countries of the South to find a sustainable path to development and progress is being reduced.

...

Government subsidies mean considerable cost reduction for major companies and amount to around 10 per cent of annual world trade. In the year 2000, subsidies through ECAs added up to 64 billion dollars of exports from industrialised countries, well above the official development assistance granted last year of 51.4 billion dollars.

Julio Godoy, New Report Reveals Drop in Aid to Developing Countries, Inter Press Service, May 16, 2002

As well as agriculture, textiles and clothing is another mainstay of many poor countries. But, as with agriculture, the wealthier countries have long held up barriers to prevent being out-competed by poorer country products. This has been achieved through things like subsidies and various agreements. The impact to the poor has been far-reaching, as Friends of the Earth highlights:

Despite the obvious importance of the textile and clothing sectors in terms of development opportunities, the North has consistently and systematically repressed developing country production to protect its own domestic clothing industries.

Since the 1970s the textile and clothing trade has been controlled through the Multi-Fibre Arrangement (MFA) which sets bilateral quotas between importing and exporting countries. This was supposedly to protect the clothing industries of the industrialised world while they adapted to competition from developing countries. While there are cases where such protection may be warranted, especially for transitionary periods, the MFA has been in place since 1974 and has been extended five times. According to Oxfam, the MFA is,

...the most significant..[non tariff barrier to trade]..which has faced the world's poorest countries for over 20 years.

Although the MFA has been replaced by the Agreement on Textiles and Clothing (ATC) which phases out support over a further ten year period-albeit through a process which in itself is highly inequitable-developing countries are still suffering the consequences. The total cost to developing countries of restrictions on textile imports into the developed world has been estimated to be some $50 billion a year. This is more or less equivalent to the total amount of annual development assistance provided by Northern governments to the Third World.

Clothes, The Citizens' Guide to Trade, Environment and Sustainability, Friends of the Earth International, January 24, 2001

There is often much talk of trade rather than aid, of development, of opening markets etc. But, when at the same time some of the important markets of the US, EU and Japan appear to be no-go areas for the poorer nations, then such talk has been criticized by some as being hollow. The New York Times is worth quoting at length:

Our compassion [at the 2002 G8 Summit talking of the desire to help Africa] may be well meant, but it is also hypocritical. The US, Europe and Japan spend $350 billion each year on agricultural subsidies (seven times as much as global aid to poor countries), and this money creates gluts that lower commodity prices and erode the living standard of the world's poorest people.

These subsidies are crippling Africa's chance to export its way out of poverty, said James Wolfensohn, the World Bank president, in a speech last month.

Mark Malloch Brown, the head of the United Nations Development Program, estimates that these farm subsidies cost poor countries about $50 billion a year in lost agricultural exports. By coincidence, that's about the same as the total of rich countries' aid to poor countries, so we take back with our left hand every cent we give with our right.

It's holding down the prosperity of very poor people in Africa and elsewhere for very narrow, selfish interests of their own, Mr. Malloch Brown says of the rich world's agricultural policy.

It also seems a tad hypocritical of us to complain about governance in third-world countries when we allow tiny groups of farmers to hijack billion of dollars out of our taxes.

Nicholas D. Kristof, Farm Subsidies That Kill, New York Times, 5 July 2002

In fact, J. Brian Atwood, stepped down in 1999 as head of the US foreign aid agency, USAID. He was very critical of US policies, and vented his frustration that despite many well-publicized trade missions, we saw virtually no increase of trade with the poorest nations. These nations could not engage in trade because they could not afford to buy anything. (Quoted from a speech that he delivered to the Overseas Development Council.)

As Jean-Bertrand Arisitde also points out, there is also a boomerang effect of loans as large portions of aid money is tied to purchases of goods and trade with the donor:

Many in the first world imagine the amount of money spent on aid to developing countries is massive. In fact, it amounts to only 0.3% of GNP of the industrialized nations. In 1995, the director of the US aid agency defended his agency by testifying to his congress that 84 cents of every dollar of aid goes back into the US economy in goods and services purchased. For every dollar the United States puts into the World Bank, an estimated $2 actually goes into the US economy in goods and services. Meanwhile, in 1995, severely indebted low-income countries paid one billion dollars more in debt and interest to the International Monetary Fund (IMF) than they received from it. For the 46 countries of Subsaharan Africa, foreign debt service was four times their combined governmental health and education budgets in 1996. So, we find that aid does not aid.

Jean-Bertrand Aristide, Eyes of the Heart; Seeking a Path for the Poor in the Age of Globalization, (Common Courage Press, 2000), p. 13

In other words, often aid does not aid the recipient, it aids the donor. For the US in the above example, its aid agency has been a foreign policy tool to enhance its own interests, successfully.

And then there has been the disastrous food aid policies, which is another example of providing aid but using that aid as an arm of foreign policy objectives. It has helped their corporations and large farmers at a huge cost to developing countries, and has seen an increase in hunger, not reduction. For more details, see the entire section on this site that discusses this, in the Poverty and Food Dumping part of this web site.

For the world's hungry, however, the problem isn't the stinginess of our aid. When our levels of assistance last boomed, under Ronald Reagan in the mid-1980s, the emphasis was hardly on eliminating hunger. In 1985, Secretary of State George Shultz stated flatly that our foreign assistance programs are vital to the achievement of our foreign policy goals. But Shultz's statement shouldn't surprise us. Every country's foreign aid is a tool of foreign policy. Whether that aid benefits the hungry is determined by the motives and goals of that policy-by how a government defines the national interest.

Frances Moore Lappé, Joseph Collins and Peter Rosset, World Hunger: 12 Myths, 2nd Edition, (Grove/Atlantic and Food First Books, Oct. 1998), Chapter 10, p.130.

The above quote from the book World Hunger is from Chapter 10, which is also reproduced in full on this web site. It also has more facts and stats on US aid and foreign policy objectives, etc.

As an aside, it is interesting to note the disparities between what the world spends on military, compared to other international obligations and commitments. Most wealthy nations spend far more on military than development, for example. The United Nations, which gets its monies from member nations, spends about $10 billion-or about 3% of what just the US alone spends on its military. It is facing a financial crisis as countries such as the US want to reduce their burden of the costs-which comparatively is quite low anyway-and have tried to withhold payments or continued according to various additional conditions.

And with the recent financial crisis, clearly the act of getting resources together is not the issue, as far more has been made available in just a few short months than an entire 4 decades of aid:

But, as the quote above highlights as well, as well as the amount of aid, the quality of aid is important. (And the above highlights that the quality has not been good either.)

But aid could be beneficial

Government aid, from the United States and others, as indicated above can often fall foul of political agendas and interests of donors. At the same time that is not the only aid going to poor countries. The US itself, for example, has a long tradition of encouraging charitable contributions. Indeed, tax laws in the US and various European countries are favorable to such giving as discussed further above. But private funding, philanthropy and other sources of aid can also fall foul of similar or other agendas, as well as issues of concentration on some areas over others, of accountability, and so on. (More on these aspects is introduced on this site's NGO and Development section.)

Trade and Aid

Oxfam highlights the importance of trade and aid:

Some Northern governments have stressed that trade not aid should be the dominant theme at the [March 2002 Monterrey] conference [on Financing for Development]. That approach is disingenuous on two counts. First, rich countries have failed to open their markets to poor countries. Second, increased aid is vital for the world's poorest countries if they are to grasp the opportunities provided through trade.

Meeting the Challenge of Poverty Reduction, Oxfam, March 2, 2002

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:

Looking beyond agriculture, it is difficult to avoid being struck by the discrepancy between the picture of US trade policy painted by [US Trade Representative, Robert] Zoellick and the realities facing developing countries.

To take one example, much has been made of America's generosity towards Africa under the Africa Growth and Opportunity Act (AGOA). This provides what, on the surface, looks like free market access for a range of textile, garment and footwear products. Scratch the surface and you get a different picture. Under AGOA's so-called rules-of-origin provisions, the yarn and fabric used to make apparel exports must be made either in the United States or an eligible African country. If they are made in Africa, there is a ceiling of 1.5 per cent on the share of the US market that the products in question can account for. Moreover, the AGOA's coverage is less than comprehensive. There are some 900 tariff lines not covered, for which average tariffs exceed 11%.

According to the International Monetary Fund (IMF), the benefits accruing to Africa from the AGOA would be some $420m, or five times, greater if the US removed the rules-of-origin restrictions. But these restrictions reflect the realities of mercantilist trade policy. The underlying principle is that you can export to America, provided that the export in question uses American products rather than those of competitors. For a country supposedly leading a crusade for open, non-discriminatory global markets, it's a curiously anachronistic approach to trade policy.

Kevin Watkins, Trade hypocrisy: the problem with Robert Zoellick, Open Democracy, December 12, 2002

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

The United Nations notes that effectiveness of aid to poor countries requires a focus on economic infrastructure. Furthermore, to aid development requires, for example:

Targeted investment

Productive development strategies to attract currency and sustaining economic growth.

For least developed countries (LDCs) to minimize their disadvantages-such as the small size of their economies-regional integration would help.

Countries giving aid could help by providing:

Greater investment

Greater debt relief

Actually practice free and fair trade

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:

Do Not Give the Needy Money: Build Them Industries Instead

With the record of corruption within impoverished countries, people will question giving them money. That can be handled by giving them the industry directly, not the money. To build a balanced economy, provide consumer buying power, and develop arteries of commerce that will absorb the production of these industries, contractors and labor in those countries should be used. Legitimacy and security of contracts is the basis of any sound economy. Engineers know what those costs should be and, if cost overruns start coming in, the contractor who has proven incapable should be replaced-just as any good contract would require.... When provided the industry, as opposed to the money to build industry, those people will have physical capital. The only profits to be made then are in production; there is no development money to intercept and send to a Swiss bank account.

J.W. Smith, Economic Democracy; The Political Struggle for the 21st Century, Second Edition, (1st Books, 2002), pp. 300-301 (also available in full online)

Use aid to Empower, not to Prescribe

The approach which J.W. Smith hints to-and which has often been argued by progressive and developing world activists and experts-is that aid needs to empower local people. There may be some form of aid that is best delivered to (and via) governments, but there are many types of assistance that can be given directly to the people who need it, thus also avoiding the risk of governments withholding, diverting or delaying those funds.

Professor William Easterly, mentioned earlier, tries to provide a simplified view of these two general approaches, using the following definitions:

Planners

Those who go for a top-down, prescriptive, imposing approach

Searchers

Those who try to look for alternative approaches, often working at the grass-roots, or from the bottom up

A Planner believes outsiders know enough to impose solutions. A Searcher believes only insiders have enough knowledge to find solutions, and that most solutions must be homegrown.

William Easterly, The White Man's Burden; Why the West's Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), p. 4

Easterly also notes that Searchers have had little chance to deliver in the area of global poverty because foreign aid has been dominated by the Planners (p.7), which is also detailed further above in the rest of this page.

Rich donor countries and aid bureaucracies are not accountable

Furthermore, a fundamental issue Easterly also notes is that the Planners are rarely accountable for all the grand promises they make. For example, at the G8 Summit in July, 2005, there was much promised, such as over $40 billion in apparent debt write-off, plus further aid promises. While much of this and previous promises have included spin and fancy accounting, these promises have rarely been delivered upon, or if they have and subsequently failed, no-one has been held accountable. (It could be added that Searchers too have thus far largely been unaccountable, too.)

A major problem Easterly also sees is that the Planners have a modern version of the paternalistic attitude prevalent during colonial times; that the powerful know what is best for the rest, and should try to shape them in their image:

The new military interventions are similar to the military interventions of the cold war, while the neo-imperialist fantasies are similar to old-time colonial fantasies. Military intervention and occuptation show a classic Planner's mentality: applying a simplistic answer from the West to a complex internal problem in the Rest.

... But if rich people want to help the poor, they must face an unpleasant reality: If it's so easy to end the poverty trap, why haven't the Planners already made it history?

William Easterly, The White Man's Burden; Why the West's Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), pp. 10-11

Donors therefore, are not neutral actors as a review of NGOs questions:

Also problematic is the donors' image of themselves as neutral actors, brokering relations between the state, business, and civil society, and indeed separate and hidden from the triadic unity.... Yet this begs the question from where international agencies derive their authority to act as broker and to pose as neutral observers. Indeed, the prior assumption of a broker role-unnegotiated, uncontested, and unlegitimate-in itself is revealing about the balance of power. The notion of brokering suggests that the broker has no interest of its own, no ideological preferences, no intrinsic values and goals.

Apart from the question of neutrality, which services to mask the distribution of power, there is also the larger question of the morality of interventionism. Is donor support to civil society another manifestation of neocolonialism in the post-Cold War era, aimed at controlling the nature of political regimes and extending global markets? Do donors have the right, let alone the capacity, to shape other civil societies? By projecting their own visions and understandings of civil society, do they not undermine the ability of local organizations to set their own priorities and agendas, to vocalize their own imaginations of social and political change?

Jude Howell and Jenny Pearce (David Lewis and Tina Wallace, Editors), New Roles and Relevance; Development NGOs and the Challenge of Change, (Kumarian Press, 2000), p. 83

Interestingly, Easterly notes that politicians are often Searchers at home but Planners abroad because at home they have constituencies to whom they are usually accountable; they are not accountable to people in other countries. There is therefore no way for a feedback mechanism to have clout.

Without accountability and feedback, there is little chance for success Easterly feels. Feedback guides democratic governments towards supplying services that the market cannot supply, and toward providing institutions for the markets to work, while, at a higher level, accountability is necessary to motivate a whole organization or government to use Searchers. (P. 16)

Democracy-building is fundamental, but harder in many developing countries

Another aspect of accountability (especially when it comes to providing public services that free markets are not intended to provide for) is democracy. Politically, democracy is supposed to provide a feedback mechanism so that politicians are held accountable and react to needs. If a road needs repairing, water systems need improving etc, we should be able to demand that our local politicians act, for example.

As Easterly and many other writers have acknowledged, however, the struggle for democracy in the developing world is much harder because of the legacy of colonialism-the artificial borders, unnatural movement and displacement of people, etc-which means that either powerful minorities (e.g. European settlers), or powerful majorities may not always represent the interests of everyone in that nation. There may have been historic tension amongst people who are now confined to the same borders, for example, making positive democratic changes extremely difficult, further compounded by poverty and other related problems.

Failed foreign aid and continued poverty: well-intentioned mistakes, calculated geopolitics, or a mix?

These, and so many other factors all interplay, making foreign aid less useful than it should have been. Certainly trillions have been spent with little to show for it.

To oversimplify ... the needs of the rich get met because the rich give feedback to political and economic Searchers, and they can hold the Searchers accountable for following through with specific actions. The needs of the poor don't get met because the poor have little money or political power with which to make their needs known and they cannot hold anyone accountable to meet those needs. They are stuck with Planners. The ... tragedy [of failed foreign aid] continues.

...

To make things even worse, aid bureaucrats [from rich donor countries] have incentives to satisfy the rich countries doing the funding as well as (or instead of) the poor. One oversight in the quest to help the poor was the failure to study the incentives of its appointed helpers. The bureaucratic managers have the incentive to satisfy rich-country vanity with promises of transforming the Rest rather than simply helping poor individuals. Internal bureaucratic incentives also favor grand global schemes over getting the little guy what he wants.

... A big part of the problem originates with the rich-country governments who set the mandates of the aid agencies. Dear rich-country funders, please give up your utopian fantasies of transforming the Rest. Don't reward aid agencies for setting goals that are impossible as they are politically appealing. Please just ask aid agencies to focus on narrow, solvable problems. For example, let them focus on the health, education, electrification, water problems, and piecemeal policy reforms to promote the private sector-where they already had some success-and fix some remaining problems such as the refusal of donors to finance operations and maintenance.

Collective responsibility for the Millennium Development Goals or any other goals does not work. Hold aid agencies individually responsible for what they own program achieve, not for global goals. Letting different agencies specialize in different areas would also lessen the coordination problem.

William Easterly, The White Man's Burden; Why the West's Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), pp. 17, 167, 204-205

Easterly's call to promote the private sector is not as much about foreign private corporation going into a country (as the problems of foreign private sector involvement has been well known in developing countries, e.g. privatizing water services where the poor often can no longer get access to water).

Instead, Easterly, like others such as J.W. Smith, Joseph Stiglitz, etc feel that a local, home-grown private sector would be more responsive to local needs. Searchers are not just of the private sector variety, but also politicians and NGOs who are responsive to local needs. (Easterly, for example, provides numerous examples of this.)

Easterly feels that Planners are generally well-intentioned, but fundamentally miss the point and are nonetheless popular perhaps because of a Western fascination of heroes and heroic stories that stars the rich West in the leading role, that of the chosen people to save the Rest (p.18). Side Note I would suggest that this idea in the West can be linked to the story of Christ and how Christianity has helped shape culture and thought in the West. Similarly, one will find other hero figures in other parts of the world, such that stories of individuals saving the day will appeal to many around the world.

Others, especially from developing countries, are more cynical than Easterly (perhaps understandably, given that they are the ones who have suffered the long history for centuries at the hands of the Planners' ancestors), that perhaps today's Planners are continuing a time-tested strategy, to keep the developing world in poverty so the Planners may continue to dominate.

Yet others may argue that it is not necessarily these Planners actively seek to do this; they may be well-intentioned, but their education, culture, society, whatever, is geared towards perpetuating the existing system, so they cannot think outside of that framework of orientation (a term coined by J.W. Smith). The pressures of globalization affect both rich and poor nations, and so can (understandably) drive people that are in a position of power to follow the bad policies that we actually do see them pursue in foreign affairs.

The authoritative Assistant Director of Development Studies at the University of Cambridge, Professor Ha-Joon Chang, for example, looks at the historical context, and just as J.W. Smith and others have noted, finds that today's rich countries developed using different policies than those typically prescribed to today's poor countries:

'How did the rich countries really become rich?'

The short answer to this question is that the developed countries did not get to where they are now through the policies and the institutions that they recommend to developing countries today. Most of them actively used 'bad' trade and industrial policies, such as infant industry protection and export subsidies-practices that these days are frowned upon, if not actively banned, by the WTO. Until they were quite developed (that is, until the late nineteenth to early twentieth century), they had very few of the institutions deemed essential by developing countries today, including such 'basic' institution as central banks and limited liability companies.

If this is the case, aren't the developed countries, under the guise of recommending 'good' policies and institutions, actually making it difficult for the developing countries to use policies and institutions they themselves had used in order to develop economically in earlier times?

Ha-Joon Chang, Kicking Away The Ladder, (London: Anthem Press, 2002), pp.2-3. (Emphasis is original)

Chang also notes that German economist Friedrich List had analyzed the political system in his classic work, The National System of Political Economy (1841), and observed that even the rise of Britain, the hero of free trade and the free-market economy, was actually characterized by protecting infant industries. Chang comments that,

List [argued] that free trade is beneficial among countries at similar levels of industrial development ... but not between those at different levels of development. Like many of his contemporaries in countries that were trying to catch up with Britain, he argues that free trade benefits Britain but not the less developed economies.... To [List]..., the preachings on the virtues of free trade by British politicians and economist of his time were done for nationalistic purposes, even though they were cast in the generalistic languages.... He is worth quoting...

It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations.

Ha-Joon Chang, Kicking Away The Ladder, (London: Anthem Press, 2002), pp.4-5. (Emphasis is Chang's)

Chang is looking at development from the perspective of international trade while Easterly is focused on development from the perspective of internal market development. Chang is therefore implying that for the kind of developments needed locally, international actions do have an impact. Easterly feels that international actions are misguided, though well-intentioned, while Chang sees historical calculation and power acting to conspire against development.

It is likely we will never know which views are correct, and there is perhaps a mixture of reasons; a mixture of bumbling mistakes, calculated statecraft, poor execution by some developing countries, and lack of opportunities for the poor, etc.

Easterly does acknowledge limitations to this oversimplification of Planners and Searchers and that there are reformers and dissidents working at all levels, grass-roots and macroeconomic. For example, many believe macro-economic changes are needed to the global system (perhaps in order to enable Searchers to work more effectively, or just to allow for a more just system where Planners from the rich world do not dictate) and this may indeed require people working at the global level, though this may not necessarily require a prescriptive we know best approach which ultimately Easterly is criticizing.

Turning this debate of foreign aid from an issue of amount given (input and quantity) into one about aid effectiveness (outcome and quality) raises some different questions. For example,

Would filling the $3.6 trillion shortfall help if aid comes with all the above-criticized strings still attached?

Could far more be achieved with far less aid dollars if there was a change in approach with less top-down and more bottom-up?

And if so, how much more could be achieved if the shortfall was filled at the same time?

Although we keep hearing that the fault is of corrupt people in the developing world, should first world countries also be held to account for both the massive aid shortfall and the failed prescriptive, we know best approach to development?

The OECD is also rethinking how to measure development aid to reflect some of the newer realities as noted in a short video:

Rethinking development aid , OECD, April 24, 2014

Whether the hope for effective foreign aid will actually turn into reality is harder to know, because of power politics, which has characterized and shaped the world for centuries.

A risk for developing countries that look to aid, at least in their short-term plans to kick-start development (for becoming dependent on aid over the long run seems a dangerous path to follow), is that people of the rich world will see the failures of aid without seeing the detailed reasons why, creating a backlash of donor fatigue, reluctance and cynicism.

Where next?

Some 40 years ago, rich country governments agreed to give 0.7% of their GNI (Gross National Income) as official aid to poor countries for development assistance.

The average aid delivered each year has actually been between 0.2 to 0.4%. The shortfall has therefore accumulated to just under $5 trillion dollars at 2012 prices, while total aid delivered in that same time frame has reached just over $3.6 trillion.

Read " Official global foreign aid shortfall: $5 trillion " to learn more.

This article has the following parts:

Author and Page Information

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This page: https://www.globalissues.org/article/35/foreign-aid-development-assistance. To print all information (e.g. expanded side notes, shows alternative links), use the print version: Foreign aid or (development assistance) is often regarded as being too much, or wasted on corrupt recipient governments despite any good intentions from donor countries.

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Javen Smith

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The OECD is working to devise a new, broader measure of official support for development to reflect big changes since the concept of ODA -- or official development assistance -- was devised. Private capital flows are now much bigger than traditional aid and there has been a geographical shift in where the world's poorest people live.

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The U.N.'s Discussion on Financing Development

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The U.N.'s Discussion on Financing Development

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Ben Tran

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ADDIS ABABA (Thomson Reuters Foundation) - A major United Nations summit to finance ambitious global development goals, from giving free education to all to dealing with climate change, fell short of developing countries' expectations with few aid pledges.

But a strong focus on tax reforms, the universal right to free basic services and welfare, and support for the poorest were among the significant breakthroughs, aid agencies said.

After three days of negotiations in the Ethiopian capital Addis Ababa, world leaders this week agreed a broad framework for funding the Sustainable Development Goals (SDGs), due to be adopted in September at a cost of more than $3 trillion a year.

The 15-year Addis Ababa Action Agenda emphasizes the need to look beyond aid to increased tax revenues and private financing to foot the bill.

"What Addis was about is: 'Are we going to get more taxes and are we going to use them better?" said Oxfam's Paul O'Brien.

BIG STEP

Better tax systems will bolster budgets and give governments more funds to invest in the SDGs. In many low-income countries, tax is under 15 percent of GDP, against at least 24 percent in advanced economies, IMF data show.

"This is the new priority of the development world and that's a massively big step," said Jonathan Glennie, Save the Children's policy and research director.

Many aid officials welcomed the launch of the Addis Tax Initiative, in which several donors promised to double aid to strengthen tax systems in developing countries.

But some criticized the initiative, and a similar one by the Organisation for Economic Cooperation and Development (OECD), for merely tinkering at the edges of a broken global tax system.

"This is just glossing over the fact that there are fundamental issues to be fixed," said Pooja Rangaprasad, policy coordinator for the Financial Transparency Coalition.

"What capacity and knowledge is there to transfer?" she asked, pointing to rich countries' inability to stop tax dodging at home.

The failure to upgrade a U.N. tax committee to hand it more powers to pressure multinationals to pay more tax in poor countries was a major disappointment to campaigners.

A more robust body would have been better placed to tackle the $1 trillion a year lost to illicit financial flows, according to the research group Global Financial Integrity.

Stemming these leaks is critical for poor countries to achieve the SDGs as they dwarf development aid of around $135 billion a year from OECD countries.

RIGHTS

One of the biggest wins was the adoption of the 'social compact', which means everyone has the right to basic social services such as free healthcare, education and an income.

These rights underpin several SDGs, such as ending poverty and hunger, reducing inequality and achieving universal access to health services and free education by 2030.

"This may well be what the Addis agreement is remembered for," Save the Children said in a statement.

The deal encourages countries to set national spending targets in essential public services for all, including health, education, energy, water and sanitation.

"The language in there is strong," said Romilly Greenhill, a researcher with the Overseas Development Institute think tank in London. "I think it's the first time it's really been expressed in this way."

RHETORIC TO REALITY

But, crucially, the agreement doesn't say where the money will come from to pay for this bold new agenda.

"It's a good first step but what we need to see now is the rhetoric translated into reality," said Greenhill.

Poor countries cannot pay for the social compact themselves, ODI says, even if they collected more taxes. Factoring in current aid levels, they would only have about half of the $148 billion needed each year, leaving a gap of $73 billion.

There were hardly any new pledges made, except for an additional $214 million in support for the World Bank-managed Global Financial Facility, which aims to strengthen healthcare systems to cut mother and child deaths.

Many donors, struggling with austerity and sluggish growth, were reluctant to sign up for fresh targets.

The document merely welcomes the European Union's existing commitment to spend 0.7 percent of GNP on aid, with 0.2 percent of GNP going to the least developed countries, by 2030.

For seasoned aid watchers, this doesn't mean all is lost.

The first Financing for Development conference in 2002 in Monterrey also set a broad direction for financing the Millennium Development Goals. Concrete aid pledges and debt cancellation were only made at the G8 summit three years later.

Governments are tasked with providing detailed national action plans to implement the SDGs at a September summit, which are then likely to attract public and private funding.

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Did the U.N. financing for development conference deliver?

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ADDIS ABABA (Thomson Reuters Foundation) - A major United Nations summit to finance ambitious global development goals, from giving free education to all to dealing with climate change, fell short of developing countries' expectations with few aid pledges.

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Ben Tran

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LATER this year governments around the world will make sweeping commitments in two of the most important areas of global public policy, development and the environment. They will do so by signing up to two compacts: the first a vast wishlist of sustainable-development goals at a meeting in New York in September; the second a global treaty to rein in climate change in Paris in December. These promises will mean practically nothing without money. Hence the significance of a third, far less-heralded conference, on financing development, that is due to be held in Addis Ababa on July 13th-16th.

The Addis event provides a platinum opportunity to move development financing away from a sterile debate about aid. For decades, the test of whether rich countries are serious about improving global welfare has been how much money they are willing to hand over. But aid has long provided a small share of development finance, compared with money raised via taxation or from private investors (see article)-and its share is dwindling further. Developing-country governments are raising more than $10 trillion a year domestically, dwarfing aid flows of about $140 billion. The real question for Addis is what constitutes the right balance between aid, concessional loans, borrowing and taxes.

The guiding principle is that the shift away from aid should be encouraged. Aid has its uses. But it makes countries less accountable for spending decisions and, in the long run, undermines good governance. In many poor countries, public revenue accounts for less than 15% of GDP, compared with an average tax take for rich countries of 34%. At such low levels, it is impossible to provide even basic education, health care or law and order. These are areas where the government has to play a big role, either directly (running schools and hospitals) or through co-ordination, regulation and the provision of funds. These things are also vital to growth. So, counter-intuitive though it may sound, poor countries often need more, not less, government. At the conference, they should set an informal target for themselves of raising and spending 20% of GDP.

Western countries can help make that threshold achievable. Poor and middle-income countries fear that foreign firms operating on their territories run rings around naive and inexperienced taxmen. Encouraging corporate transparency, especially by piercing the murky layers of beneficial ownership, would help. But developing countries must bear the main burden of improvement themselves. They need to simplify their tax systems and broaden the base, to make tax collections easier, perhaps using aid money for technical assistance (at the moment only 1% of aid goes on tax systems).

Developing countries' biggest financing need is for infrastructure. But the match between their huge unmet demand and sources of private capital needs to be improved. To encourage a bigger market for infrastructure bonds, governments at Addis should urge development banks (such as the World Bank) to offer a wider, more standardised menu of credit guarantees. Western agencies also ought to develop new financing mechanisms to help municipalities in emerging markets tap capital markets. Given the rate of urbanisation in Africa and Asia, the difference between good and bad development will be largely determined by cities. If the Addis conference can shift the spotlight away from aid and on to these questions, it will be a Cinderella that outshines its Ugly Sisters in Paris and New York.

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LATER this year governments around the world will make sweeping commitments in two of the most important areas of global public policy, development and the environment. They will do so by signing up to two compacts: the first a vast wishlist of sustainable-development goals at a meeting in New York in September; the second a global treaty to rein in climate change in Paris in December.

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Javen smith

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South Asia - Afghanistan Investment Climate HTML

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Home >Countries >South Asia > Afghanistan Investment Climate HTML

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Eric Hansson

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Javen Smith

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All developing countries need funds for the products to function correctly.

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All developing countries need funds for the products to function correctly.

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Ben Tran