What if development aid helped countries finance their own development? | Associate Writer

As development budgets shrink, much of the current debate focuses on which programmes donors should protect and which they should cut.

There is another question worth asking: how much of today’s development assistance is building the economic capacity that could finance tomorrow’s development?

See also: Which development programs should donors keep and which ones to reduce? | Experts’ Opinions

Health, education, food security, social protection and humanitarian assistance remain essential. In emergencies, international assistance saves lives. But if development assistance is meant to support long-term progress, part of it should also help countries become progressively better able to finance their own priorities.

This means taking business creation, employment and self-employment more seriously as part of how development is financed and sustained.

Income changes what households can do

Development programmes often address education, healthcare, livelihoods and emergency response through separate interventions. Yet a common factor cuts across many of these areas: income.

A household with reliable income has more room to keep children in school, seek healthcare and recover when a shock occurs. That room to manoeuvre is one of the least visible forms of resilience.

The same principle applies at a larger scale. Businesses create employment, purchase from suppliers and generate economic activity. When this is accompanied by better-quality jobs, effective institutions and a fair tax system, a more productive and inclusive private sector can also expand the domestic resources available to finance public services.

This is not automatic. A business may remain informal. Jobs may be insecure or poorly paid. Economic growth may benefit only a small part of the population. That is precisely why the type of businesses, jobs and economic systems that development financing supports matters.

Enterprise development and employment should therefore not be seen only as one development sector among many. They can also help build the capacity to finance development.

From recipients of development finance to contributors

There is also a second possibility worth exploring.

When development resources help businesses through grants, concessional loans, guarantees, technical assistance or other forms of support, could some financing arrangements also help businesses contribute to social priorities as they grow?

This should not transfer responsibility for public services from governments to private companies, nor should every entrepreneur receiving development support be expected to become a donor. Such arrangements would need to be selective and appropriate to the enterprise. Any contributions would also need transparent rules, local participation and public accountability so that they complement, rather than substitute for, government responsibility.

Where they make sense, contributions could be proportionate to the business’s size and maturity, agreed when financing is provided, and designed so they do not undermine its ability to grow. They might include creating decent jobs for disadvantaged groups, providing apprenticeships, purchasing from small local producers, supporting education or health initiatives, contributing to emergency preparedness, or allocating a modest share of profits to a locally managed social investment or community resilience fund.

Consider a development-financed loan to a local food-processing company. If the company succeeds, it might create jobs, purchase crops from local farmers and increase household incomes. Once profitable, the financing arrangement could also provide for apprenticeships or a modest contribution to a community resilience fund supporting locally identified priorities.

The investment would leave behind not only a viable business, but also an economic actor capable of contributing to development in the future.

From local delivery to local financing

We often talk about localization as shifting resources and decision-making from international organizations toward national and local actors. But perhaps localization should eventually include not only who manages development resources, but where those resources come from.

When a school needs support, a community health initiative requires financing or a disaster occurs, external assistance can be an important part of the response. But the first circle of resource mobilization could increasingly include businesses, professionals, citizens, foundations, community organizations and governments.

This cannot happen overnight. It requires stronger businesses, decent employment, appropriate financial systems, effective public institutions and public trust. International assistance would remain essential when needs exceed domestic capacity.

Over time, raising resources for social priorities could increasingly begin at home, with international assistance complementing domestic efforts when local resources are insufficient.

Employment is also resilience

A hurricane, earthquake, conflict or epidemic can overwhelm even a strong economy. Business development and employment will never eliminate the need for humanitarian assistance.

But households entering a crisis with reliable income and some savings have more options than households already struggling to meet basic needs. Local businesses that survive a shock can preserve jobs, restore supply chains and contribute to recovery.

Creating businesses and better employment is therefore not only an economic objective. It can also strengthen people’s ability to absorb shocks and recover faster.

What remains when the programme ends?

In evaluation work, we often ask whether a programme is effective. We should also ask what remains when the programme ends.

Too many programmes are evaluated mainly by what they deliver during the grant period. We should pay more attention to the economic and institutional relationships they leave behind.

Development assistance can finance today’s needs while helping to build the businesses, jobs, institutions and domestic financing systems that make tomorrow’s needs less dependent on external resources.

The test for future assistance should not be only whether it produces results during its funding period. It should also ask whether it leaves behind greater capacity to develop and finance national priorities.

That is the shift from financing development indefinitely to financing the capacity to develop.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the position of DevelopmentAid.