Aid 101

Understanding the basics of foreign aid

Through our taxes and the donations we make to NGOs, most of us are involved in giving aid, even if we don’t realise it. Aid can help people in developing countries, and it can also help people in donor countries through promoting stability in neighbouring countries, or by helping with global issues that affect us all, like controlling infectious diseases. Yet the world of aid is complicated for the outsider. In this section, we explain some of the basics.

What is aid?

Aid is money given by the people and governments of wealthier countries to help poorer countries deal with sudden humanitarian disasters, or to improve the lives of their citizens over longer timeframes (what we refer to as development).

In some instances, governments will also give aid to promote their own political or economic objectives. This is something that changes over time and varies from country to country.

Aid has two main sources: the private donations of individuals, and government revenue. While many Australians do make donations to NGOs, the bulk of the aid Australia (and most other countries) gives is through the government. To learn more about Australian government aid giving and NGO donations, see our Trends page.

Historically, almost all government aid was given by wealthy OECD countries (and sometimes by the Soviet Union in the Cold War); however, the changing global economy has seen the rising importance of non-OECD donors. The largest and most important of these so-called ‘emerging donors’ is China. Others include India and Brazil.

Definitions

  • Foreign aid: on this site, when we have referred to foreign aid, we are talking about the aid provided by governments.
  • Private donations: these are the donations made by individuals to assist developing countries. These donations are usually made to NGOs.
  • NGOs: non-government organisations. NGOs are neither a part of a government nor a conventional for-profit business. This group includes large international NGOs, like CARE, Oxfam, World Vision, etc., or smaller national NGOs.
  • ODA: official development assistance. This is foreign aid provided by OECD Development Assistance Committee (DAC) members that meets internationally-agreed criteria.
  • Emerging donors: these are aid donors that are not members of the OECD DAC. Many of them used to be aid recipients. Examples include China, India and Brazil.
  • Aid donor: a country that gives aid to another country.
  • Aid recipient: a country that receives aid.

Different types of foreign aid

There are many different ways of giving aid, and many different mechanisms for getting aid from donor countries to recipient countries. Here, we have summarised some of the main types.

Aid from governments vs private donations

Aid given by governments is funded government revenues (which usually come from people’s taxes) given by governments to help poorer countries. Private donations are the donations that individual people make to help people living in poorer countries. Often these are the donations that individuals and families make to NGOs like Oxfam, CARE, Save the Children and World Vision to help with their development work. Private donations also include larger grants given by wealthy individuals to existing foundations or to establish their own foundations. In recent years another form of private aid has emerged in which individuals in wealthier countries give money straight to people in developing countries. GiveDirectly is an example of an NGO which facilitates this sort of giving.

You can see how much aid is given by the Australian government, and how much is provided by Australians’ private donations, on the Trends page.

Bilateral vs multilateral aid

Donor governments tend to give aid in one of two ways.

  1. Bilateral aid – where money is given by a government to help a recipient country. It might go to that country’s government but is more likely to be given to an organisation (like an NGO or private company) that is funded to work in the recipient country.
  2. Multilateral aid – when governments give aid money to a multilateral organisation to fund their work in a range of countries.

Multilateral organisations are different from NGOs. Some examples of multilateral organisations are the World Bank, the Asian Development Bank, and United Nations agencies such as the United Nations Development Programme (UNDP) or UNICEF. Sometimes when a donor government gives its aid to a multilateral organisation it will be on the condition that the money is spent in a particular country or on a particular project. Other times, the multilateral will be free to spend the funds in any developing countries or on any area of its work. You can see how much aid Australia channels through multilaterals on the Sectors & partners page.

Development aid vs humanitarian aid

Development aid is aid that is given to help poorer countries (or people living in poverty in poorer countries) to become wealthier, or healthier. It can also be given to help meet a range of longer-term development objectives, such as promoting human rights, reducing violence against women, or fostering economic growth. Though aid can also be given for political reasons, development aid is intended to promote positive change that will ultimately become self-sustaining.

Humanitarian aid is aid given to help poorer countries and their citizens to cope with disasters or conflict. This can include natural disasters (floods, earthquakes, droughts and so on) and their consequences (such as famine, property damage, displacement), or to help groups affected by conflict and war. This aid is usually given to provide emergency relief and to help people resume their normal lives. You can read about Australia’s humanitarian contributions on the Sectors & partners page.

How much aid is given globally?

Data limitations make exact estimates of global aid difficult but, very approximately, about US$180 billion was given in aid from OECD governments and private donations in OECD DAC donor countries in 2013. This seems like a lot of money, but it is only 0.4% (less than half a percent) of the total GNI of those countries. In 2013 the median aid recipient country received just $US61 per person (17 cents per person per day) from OECD donor countries and multilateral organisations.

To learn more about how much aid Australia gives, and how Australia compares with other global givers, see the Trends and Comparisons pages. You can also see how Australia’s humanitarian contributions compare on the Sectors & partners page.

Does aid work?

Whether aid works or not is something that is hotly debated, with critics of aid claiming it does nothing to assist poorer countries and may even harm their development. On the other hand, sometimes those who support aid make it sound like it always works. The reality is more complicated.

Several different factors can influence the effectiveness of foreign aid, such as the quality of the recipient country government, the quality of the aid donor, and the way in which the provision of aid is organised (Howes 2013).

It would be impossible to summarise all the literature on whether aid works. A recent, balanced overview was provided by renowned aid expert Roger Riddell in his 2014 Australasian Aid Conference keynote speech and paper “Does foreign aid really work?” See the paper here, speech here and a blog post here.

Riddell concludes that foreign aid doesn’t work as well as it could or should, and that often expectations are too high. But, against all that “much aid has had a positive impact” and “there is still an important role for aid to play”.

The Australian aid landscape

Government aid in Australia is largely delivered through the Department of Foreign Affairs and Trade (DFAT). Small amounts of aid are delivered through other government departments for some specific programs (for example, the Australian Federal Police, Australian Electoral Commission, Treasury).

Up until November 2013, Australia had a standalone aid agency called AusAID, but the Coalition government led by Prime Minister Tony Abbott made an early decision to integrate this standalone agency into DFAT.

The current Australian government strategy for aid can be found here. It places a heavy emphasis on the private sector, gender and innovation.

DFAT delivers Australia’s government aid in a variety of ways. You can see the sectors that Australian government aid supports, and the channels it is delivered through, on the Sectors & Partners page. On the DFAT website, you can also see the aid projects that DFAT is funding in each country.

There are many development NGOs operating in Australia – the Australian Council for International Development (ACFID) is the peak body for Australian international development NGOs, and has a Code of Conduct that its members must comply with.

Development contractors are private sector companies that deliver aid programs, and there are many companies doing this work with Australian aid funding. The industry body for international development contractors in Australia is called IDC Australia.

Domestically, there are also groups campaigning and lobbying the government to increase its commitment to aid and development issues. Some of these groups include the Campaign for Australian Aid, Oaktree, and Micah Challenge.

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