TOP-10 facts about foreign aid that you probably did not know

By Ion Ilasco

TOP-10 facts about foreign aid that you probably did not know

Foreign aid is the voluntary transfer of capital, goods, and services from one country to another. In the midst of recurring crises, this term is omnipresent in the public arena and policy-making agendas. But, as clear as the term appears to be, foreign aid hides multiple aspects that make it unique and quite complex. DevelopmentAid has prepared a list of the top 10 facts about foreign aid that you probably didn’t know.

1️⃣ Foreign aid is not really a ‘modern’ trend

Foreign aid refers to the voluntary transfer of capital, goods, or services from one country or international organization for the benefit of another country. It usually takes the form of social, economic, military, or humanitarian assistance. More details on the aspects of military aid are described under point six.

In the midst of recurring crises, the term foreign aid appears frequently in the public arena. Government officials, international organizations, NGOs, and civil society actors use their resources to facilitate and advance foreign aid flows to those in need. But this is not a new phenomenon. The earliest forms of foreign aid emerged in the 18th century involving military and financial assistance provided by rich countries (e.g., Germany, France, Britain) to their allies and colonial enclaves.

See also: Foreign aid and top donor countries in 2020

2️⃣ Official Development Assistance – tiny part of resource flows

Although the amount of Official Development Assistance (ODA) climbed to a record US$178.9 billion in 2021, it is still a small fraction of financial flows to developing countries. ODA is defined as development assistance provided by governments or executive agencies to developing countries to promote economic development and overall welfare. While the ODA flows have grown steadily since 2019 reaching US$178.9 billion in 2021, these are surpassed by Tourism (pre-pandemic levels), Foreign Direct Investments, and Remittances flows.

Fig.1. International resource flow to developing countries (2019 – 2021)

Source: DevelopmentAid intelligence presented during a thematic webinar on 2 December 2021.

3️⃣ Donors prefer bilateral channels for aid delivery

When it comes to transferring funds, donors have several options available. Bilateral and multilateral funding are the core methods of transmitting money to the intended destination. Bilateral aid involves the direct transfer of capital, goods, or services between a donor and a recipient country. Multilateral aid, on the other hand, refers to the transfer of capital, goods, or services between a multilateral organization (e.g., UN, World Bank) and one or more recipient countries. In most cases, donor countries prefer bilateral channels to deliver aid because it offers more control over aid funds and allows for better accountability and oversight.

4️⃣ Foreign aid is less than 1% of rich countries’ income

The world’s largest 24 donor countries that make up the Development Assistance Committee (DAC) directed only 0.33% of their combined Gross National Income towards total aid in 2021. This translates into US$178.9 billion including grants, loans to sovereign entities, debt relief, and contributions to multilateral institutions. It is worth mentioning that G7 donors provided 76% of the total ODA while the European DAC countries delivered 45%.

5️⃣ Net ODA flows are projected to grow

Net ODA has more than doubled in real terms since 2000, increasing by 118%. DevelopmentAid’s recent analysis predicts that the flow of net ODA will grow over the next four years reaching a maximum of US$194.1 billion by 2025. This growth represents a 20% increase compared to 2020. It should be noted, nonetheless, that unpredictable events, similar to the Russian-Ukrainian war, could further influence the evolution of ODA.

Fig.2. Net ODA from 2014 to 2020, with projections to 2025, US$ billion

Source: DevelopmentAid intelligence presented during a thematic webinar on 2 December 2021.

6️⃣ Military aid is ‘still aid’, but not ODA

Military aid refers to the weapons, ammunition, equipment, or dedicated capital sent to foreign governments to defend themselves or to retain sovereignty over their territory. This type of aid is not reported as ODA. However, the costs incurred for delivering humanitarian aid or performing development services by using military means provided by donor countries are considered ODA-eligible.

7️⃣ Consulting services – central pillar of aid

Foreign aid is delivered to those in need via specific projects, programs, or relief operations implemented by various public, private and civil society organizations. Implementing entities are often selected through public tendering procedures based on predetermined requirements. In this context, consulting services play a crucial role and involve providing advisory and support services to governments, international agencies, or non-profits on specific projects. In the case of the Asian Development Bank, about 84% of all tenders issued in 2021 involved the provision of consulting services.

Fig.3. Asian Development Bank’s tenders overview by category (2019 – 2021)

Source: DevelopmentAid intelligence presented during a thematic webinar on 2 December 2021.

8️⃣ U.S. and the World Bank – the largest donors

The United States of America continued to be the largest bilateral donor contributing US$42.3 billion in ODA in 2021. This represents a growth of 14.4% compared to 2020 and was caused mainly by the increase in contributions to multilateral organizations and the purchase of vaccines for donation to developing countries.

The World Bank Group is one of the world’s largest sources of financing and knowledge operating in 146 countries. In 2021, the Bank delivered record levels of financing through loans, grants, equity investments, and guarantees which amounted to US$98.8 billion.

9️⃣ Sub-Saharan Africa is the largest beneficiary of net ODA

Sub-Saharan Africa is considered the poorest region in the world and as such it receives the highest volumes of aid compared to other areas. Preliminary data presented by OECD highlights that the net bilateral ODA from DAC countries to Africa rose to US$35 billion in 2021, of which about US$33 billion were ODA flows to sub-Saharan Africa.

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