After years of generally steady gains, foreign aid spending from the developed world has hit a wall. The OECD reported yesterday that net official development assistance (ODA) from 23 major donors totaled $133.5 billion in 2011, a fall of 2.7 percent in real terms from 2010. (The 2011 total actually exceeds the 2010 figure of $128.5 billion, but it is lower with inflation and currency fluctuations taken into account.) This is the first decline, aside from “years of exceptional debt relief,” since 1997. And this could be a new normal. The OECD projects that, after a bump in 2012, worldwide aid will “stagnate” in the coming years.
Despite a real decline of 0.9 percent from 2010, the United States remains by far the largest donor, with net ODA of $30.7 billion last year. Germany, the United Kingdom, France, and Japan come next with over $10 billion each. ODA declined in many EU countries last year; Greece and Spain cut their assistance by over 30 percent because of economic crises. Others managed to boost their spending. Among the 23 major OECD donors, Australia, Germany, Italy, New Zealand, South Korea, Sweden, and Switzerland posted solid gains.
Official aid continues to provide crucial support to many poor countries and their people. Charles Kenny of the Center for Global Development writes that low-income countries, on average, receive aid worth 10 percent of their economies. In some countries the proportion is far higher. But overall, ODA is dwarfed by other capital flows between the developed and developing worlds. The 2012 Index of Global Philanthropy and Remittances, published by Carol Adelman and her team at the Hudson Institute, offers a clear illustration. While the United States gave $30 billion in ODA in 2010, philanthropy from the United States to developing countries totaled $39 billion, remittances $96 billion, and private capital flows (mainly investment) $161 billion. This means that ODA was only 9 percent of the total. Among the 23 major OECD donors overall, the proportion was 18 percent.
Moreover, the major OECD donors are decreasingly dominant on the foreign aid scene. Countries such as Brazil, China, India, and Russia, though still developing themselves, are rising donors. USAID and other traditional players will need to navigate this changing landscape wisely, including through increased collaboration with public and private entities, in order to maximize the effectiveness of their investments.
This is the first of three posts on foreign assistance. Tomorrow I will discuss the foreign aid situation facing the next president, whether Barack Obama or one of his Republican rivals. And next week I will explore the growing role of the BRICS countries as foreign aid donors. Stay tuned!