The rise of new foreign aid donors: why does it matter?

Boy receives a box of food from UAE Red Crescent in Afgoye, Somalia (AMISOM Public Information/Flickr)
Boy receives a box of food from UAE Red Crescent in Afgoye, Somalia (AMISOM Public Information/Flickr)
Written by Nilima Gulrajani

In 1960, the world had 20 states providing foreign aid to developing countries. In 2014, this number more than doubled to 48 official donors, which is an underestimate as it doesn’t include donors like India, China and Brazil that do not report to the Development Assistance Committee (DAC).

This donor expansion occurs even as many observers worry about the relevance and impact of Official Development Assistance (ODA). This form of aid is increasingly a dirty word, synonymous with lack of innovation, dependency and corruption.

How should we make sense of the paradox of high donor growth in this loveless environment?

Figure 1: Number of donor countries reporting ODA through DAC, 1960-2014

Figure 1: Number of donor countries reporting ODA through DAC, 1960-2014

World history has ingrained donorship as something that is good, desirable and appropriate for all modern states. American President Harry Truman’s inaugural speech presented aid as an obligation of all ‘developed’ states. Even states emerging from colonial subjugation saw the potential for identity as a donor, albeit framing their role as a ‘partner’ respectful of state sovereignty. This association between advanced nationhood and donorship has carried over into recent times, for example, with prospective EU members assessed by their capacity to participate in European development initiatives.

In a recent ODI paper with Liam Swiss of Memorial University, we suggest that becoming a donor is muscle-flexing on the world stage, a display of a state’s financial wealth and bureaucratic capacity to assist weaker nations. This is an important reason why western democratic liberal countries are donors, why new EU members must become donors, and why even states that continue to receive aid increasingly provide it as well.

But if foreign policy status is the prime motivation for ‘donorhood’, what kinds of aid providers are new donors becoming in practice? Are these new players more than just donors in name? Are they adopting the donor organisational form as well as adhering to its mission critical functions?  Or is the gap growing between new donors’ organisational form and their functions?

 The mismatch between donor form and function

We paint a sobering picture of the kinds of new donors the world is getting. In an analysis of 26 new donor countries (NDCs) over the 2010-2014 period (the best possible sample, though admittedly a restricted one), we highlight a growing gap between old and new donors’ commitment to development as proxied by quantity of aid, allocation to the poorest and most fragile countries, and commitment to multilateralism.

For example, few NDCs have yet to attain the levels of generosity achieved by more established donors. NDCs that are DAC members have a median ODA/GNI ratio of 0.125% over 2010-2014, while NDCs that are not DAC members but report to the DAC have a median ratio of 0.09%. Except for Liechtenstein, Turkey and the UAE, established donors exhibit greater development largesse.

Figure 2: ODA as % of GNI by donor category, 2010-2014

Figure 2: ODA as % of GNI by donor category, 2010-2014

NDCs also allocate less aid to the neediest nations than established donors. New donors saw less than 8% of their aid go to least developed countries and only around 10% dedicated to fragile states over 2010-2014. In contrast, established donors provided nearly 20% of their aid to LDCs and roughly the same to fragile states.

It is only in their allocation through multilateral channels that we might view NDCs expressing a stronger commitment to global development. Nonetheless, disaggregating donors by EU membership status illustrates a more nuanced allocation pattern. Non-EU NDCs provide less than 20% of their ODA through multilateral channels, in contrast to EU NDCs that disburse more than 70% of their aid multilaterally. Obligatory contributions to the EU are the main culprit for this discrepancy, suggesting restrained support for multilateralism among the wider group of NDCs.

That new donors are very different from established ones is not surprising. NDCs tend to invest bilaterally within their region, with poverty and humanitarian needs and multilateralism very much secondary objectives. They are also climbing a learning curve of unknown steepness. Nonetheless, the fact that we see little variance in aid investment or allocation patterns (with perhaps the exception of Turkey and the UAE) suggests that even as NDCs gain experience and capacity as donors, their expressed commitment is path dependent.

These results show it is plausible that NDCs are assuming the donorship mantle without a strong commitment to development in terms of ODA spending, allocation to the neediest nations and support for multilateralism. Admittedly, this analysis cannot be interpreted as suggesting that DAC donors are complying with their collective responsibilities either, where rhetoric is known to exceed reality. Nonetheless, what we observe is a decoupling between adopting to the donor form and adhering to core donor functions.

What should be done?

More donors and more aid should be a win-win for development and the aid community, especially if rumored cuts to some of the largest DAC donors’ aid budgets materialise. New donors can increase the viability of the aid project and revitalise the field with new actors, instruments and forms of engagement.

And yet, more donors exhibiting less commitment to development is worrisome. Beyond the obvious risks of fragmentation and duplication, the growing gap between form and function undermines important donor obligations for which no distinction between old and new actors should be made.

Concerns are also real that the responsibilities of established donors will be downgraded to the lowest common denominator or result in a real decline in their bargaining power. A shared standard of performance could militate against such a possibility. Unfortunately, global benchmarking exercises are caught in a global politics trap, with no acceptable site for either regulating or monitoring the expanded universe of bilateral donors.

Good global citizenship on the part of all donors will clearly not happen overnight. Established donors must model behaviours and reduce the gaps between their intentions and implementation. NDCs will need to self-regulate more, ensuring their search for reputational legitimacy is not always decoupled from a strong commitment to some of the mission-critical functions of a donor. And the DAC will need to move quickly to reform along the lines of what DAC Chair Charlotte Petri Gornitzka has described as “going from being a club to a hub for development.” No state should forget the ultimate purpose of becoming a donor is to act like one.

Nilima Gulrajani is a Senior Research Fellow at the Overseas Development Institute. Download the ODI paper on which this post is based here.

Nilima Gulrajani

Nilima Gulrajani is a Senior Research Fellow at the Overseas Development Institute in the Development Strategy and Finance team. She currently leads research focused on the structure, management, performance and organisation of bilateral donors. She has an extensive publication record of both peer reviewed and policy research and currently serves as Associate Editor at Public Administration and Development. She was previously Assistant Professor of Public Management and International Development at the London School of Economics and Political Science.

6 Comments

  • Interesting piece, thank you Nilima. In answer to ‘what should be done’, I think the role of civil society in donor countries is an important part of the solution. Donor’s domestic politics may have a greater impact upon their government’s actions than global standards. Or at least the two can work in tandem more powerfully than either alone. Domestic NGOs were active policy influencers in my research into ODA policy change in New Zealand, and Svant Ivanyi and Lightfoot (2015) found similarly in their study of the Czech Republic (and other new European donors).

  • Nice piece Nilima, and nice comment Patrick.
    I’d tend to agree that there should progressively be no more distinction between old and new actors in terms of donor obligations, the first of which being to report on financial volumes on a standardized way. This is what the DAC has been primarily about from the beginning.
    Just one point : I’m not very comfortable with the beginning of the article, stating that “many observers worry about the relevance and impact of Official Development Assistance (ODA). This form of aid is increasingly a dirty word, synonymous with lack of innovation, dependency and corruption.” Personnally, I put myself in that category of “observers”, but I do not share this judgment. Do you ? And what about you Patrick ?

    • I don’t think that ODA is dirty word it is just that some donors such as the current US government (and even Australia to some extent) doesn’t see it its important role as soft diplomacy which China certainly does. The other problem is the DAC monopoly of the definition of ODA and other foreign debates, which Southern donors roundly reject.

    • Hi Hubert,

      Thanks for your comment. Both you and Patrick quibble with the claim that aid is a ‘dirty’ word. And while I agree I may have taken some literary license in my usage of ‘dirty’, I do see donors deliberately positioning themselves as engaged in a project that goes well ‘beyond’ aid and rejecting the terminology of aid. Their strategy documents talk about them as ‘development actors’ and pitches the importance of moving aid away from a charitable model to something that embraces innovation, flexibility and policy coherence. Nonetheless, there are others for whom the business model of aid is perceived as a failed social experiment that needs to end, now (consider Moyo, Easterly and other notable right-of-centre aid sceptics including the editorial board of the UK’s Daily Mail newspaper though there is also a notable group on the left-leaning scholars arguing the same thing). If you want to read more check out my article here.

  • Nilima, this is very interesting and thank your for entering the debate: but of course most of the so called new donors are not new donors at all. Emma Mawdsley notes that in 1977 OPEC provided 30% of all bilateral aid. China has been in the game since 1956, and even earlier if you counted its support to its communist neighbours. The other point is about burden sharing. China is probably the most generous donor which adjusted to per capita GDP, a figure that get lost in the debates. The amount of aid China provides is a research field in itself. China likes to downplay it to avoid a domestic backlash, but when the more or less commercial FDI is washed out, and technical assistance, students, and loan forgiveness factored in and valued it sits around $12-14b per annum.

    The commitment to development is interesting. South-South donors are very much invested in notions of mutuality as against ‘charity’, and reject many of the DAC principles on the grounds they are paternalistic among other things. It is hard to argue against China’s eight principles of foreign aid from 1964 (which it still more or less follows or claims to), which may have more resonance than the DAC principles of 2004. Southern donors are driven by quite different world views. So on your last point ‘the ultimate purpose of becoming a donor is to act like one’. Then does that mean the DAC donors should move to China’s eight principles. China (and the South) has roundly rejected the DAC view of the world and how donors should ‘act’.

    • Hi Patrick,

      Thanks for this comment. Agreed, our paper defines ‘new donors’ in quite a restrictive sense (post-2009 accession to the DAC) and many of these donors have a long history providing aid (see our Table 1 where we acknolwedge this). But we also believe they might be viewed as ‘new’ to the extent that there is a more forceful and coherent articulation of their identity as aid providers on global and regional platforms. In other words, this donor identity is now projected internationally and with strategic intent that makes these donors ‘new’ as compared to Northern donors (the latter having exploited this identity for diplomatic advantage for much longer).

      Our sample didn’t look at China per se, mainly due to the data issues you allude to but also because the paper was meant to offer a high-level view of the new donor landscape rather than a detailed exploration of any actor. From what I know, I have no doubt the achievemnets are many and the standards different. But while this may be the case, our argument is there has to be some intrinsic essence to ‘being a donor’ (or aid provider if you prefer that language) that transcends the various distinctions between Northern and Southern provider, old vs. new, etc. While I know the politics are tricky, this is where we have to get to. Just like the declaration of human rights, I think there are critical core functions that should be the ambition of all bilateral donors if their real aim is to serve the world’s poor. This paper attempted to define such a standard from our (admittedly Western-centric) perspective and while not perfect (we are limited in terms of data) it provides an opportunity to kickstart a conversation. Acting like a donor is not meant to be about conforming to either DAC standards or any other donor’s standards for that matter but about recognising an essential shared purpose across the entire universe of aid providers and holding donors accountable for achieving it.

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