The Shifting Politics of Foreign Aid – Ngaire Woods

An interesting article on how security and geo-strategic interests have shaped aid policy, particularly since 9/11. It is a little bit out of date now but gives some pretty useful information on how overseas development assistance is spent and channelled in the US, Japan, the UK & the EU.

Summarised from International Affairs 81, 2, 2005.

Many economists and policy makers are calling for an increase in aid flows to the developing world, particularly Africa. Since 9/11, the global security agenda shifted and preventing conflict within the least developed states became less of a priority. This has exaggerated the challenges that face the foreign aid regime. Firstly, the goals of aid have changed with increased emphasis on security (aid as a means of control). Secondly, the quantity of aid is at risk – the wars waged by NATO in Afghanistan and Iraq have been extremely costly. The third concern is delivery – donors are failing to co-ordinate programs through multi-lateral institutions and this is hindering the effectiveness of aid and the poor are losing out. This article concerns the emerging aid policies of the US, Japan, the UK and the EU.

The new security imperatives and the risks to foreign aid

Foreign aid has also been susceptible to donor’s geostrategic interests. A range of national and commercial interests heavily influence how much is given and to whom. It was hoped that since the end of the Cold War, genuine moral concerns would dominate the aid regime – it became clear that recipient nations needed greater say in how aid was spent and better relationships were developed between donors and recipients. The links between poverty and security are well understood; ‘poverty is both a cause and an effect of human insecurity’ Hilary Benn, 2004. Civil wars and post-conflict zones pose serious challenges to aid donors. Often they over-ride local institutions in the race to provide emergency relief. This can set a bad precedent in which local officials become dependent on aid relief. Afghanistan is a case in point where 1/3 of aid went on emergency relief and not reconstruction. This leaves the obvious risk of aid drying up and the nation being in a very bad position to move forward. Equally importance has been the poor co-ordination between donors as reported in the work of the OECD Development Assistance Committee (focused on Rwanda and how agencies pursued their own policies to disastrous consequences). Furthermore, policies are often at odds, e.g. poverty reduction vs. fiscal prudence.

The United States: more aid, more security and more institutions

The US is the largest aid donor (23% of development aid in 2002). The top recipients were Egypt, Russia, Israel, Pakistan, Serbia & Colombia. Since 2002, aid flows have tripled – rose from $12.9 billion to $33.2 billion between 2002-4. Most of this can be accounted for by security policies post-9/11. This is highly unsustainable (combined with increased defence and domestic spending). Aid flows to the Middle East (Isreal, Egypt, Jordan, Iraq, Turkey) & Afghanistan and it’s neighbours (Uzbekistan, Kyrgystan & Pakistan) roughly equal flows to the rest of the world combined. Most of this has come through supplemental appropriations (emergency funds not budgeted for due to present importance). The Millennium Challenge Account launched by Bush at the Monterey Conference (2002) on development assistance promised to channel funds for countries with governments that perform well and not those who promise to. The Board makes uses of 16 indicators to assess policy performance of recipients. The most recent list of those eligible includes Bolivia, Honduras, Mozambique and Sri Lanka. This is particularly interesting – most of these countries have not traditionally been eligible for US aid. The MCA is yet another development institution in the already crowded arena. US aid is becoming increasingly delivered via bilateral means; in 2004 only 5% was delivered via multi-lateral institutions such as the World Bank Group. Even USAID, the institution responsible for US foreign aid, has only handled $2.4 billion of the $18.6 allocated to Iraq in 2004. Most reconstruction funding is managed by Project and Contracting Office (part of the Coalition Provisional Authority). Put differently, an institution that did not exist prior to 2002 now manages more money that USAID. The US has increased aid to funding the fight against HIV/AIDS (rising from $0.6 billion in 2002 to $2.2 billion in 2005).

Japan: less aid, more security, more institutions

Japan has absorbed new security challenges in the face of a shrinking aid budget. From 1991 to 2001 Japan was the world’s largest single provides of official development assistance (ODA). It fell by 27% between 1997 and 2003. Largely due to fiscal tightening and ‘aid fatigue’. The government amended the country’s Development Assistance Charter in 2003 to focus aid towards Japan’s foreign policy goals – focus on Asia and targeting poverty reduction. 3/4 of Japanese aid is spent in Asia – China and India are the top recipients. It also provides the muscle to the Asia Development Bank, contributing half the banks $2o billion in Asia Development Fund’s resources. Despite falling spending, Japan has made substantial contributions to reconstruction in Afghanistan and Iraq. Where will this money come from? The Japan Fund for Poverty Reduction (part of the ADB) is one source – it will deliver $27 million of the $35 million being directed towards Afghanistan. Some aid is in the form of new lending through the Japanese Bank for International Cooperation. Japan has long been viewed as taking a more co-operative approach to ODA in comparison to the US however the figures do not support this. Most of the $3 billion in funding directed towards combating infectious diseases through the Okinawa Infectious Diseases Initiative has been channelled through bilateral means to nations such as Haiti, Kenya and Vietnam. Even the funding that it has committed to multi-lateral institutions such as the UN Population Fund, it has managed to find ways to retain control over. Like the US the response to the war on terror has been to over-spent on aid to fund aid in conflict zones. Japan continues to use multi-lateral means but remains in control over how is the money is spent and there is a risk it will continue to pursue its security measures above wider development goals.

The United Kingdom: more aid, more security, whither multilateralism? 

The UK is a major donor; the creation of the DFID set in stone the nations commitment to ODA. The minister for this department is ‘prohibited from directing assistance unless ‘he is satisfied that the provision of the assistance is likely to contribute to a reduction in poverty’. 90% of ODA is also assured to be directed towards LICs and is making efforts to ensure that this figure is increased by European Commission’s ODA from 38% to 70% by 2008. The DFID’s budget increased  by 9.2% from the 04/05 figure of £3.8 billion by 07/08. At the same time the UK has undertaken massive roles in the war on terror, most of which has been funded through the Ministry of Defence. Between 02/03 and 03/04 direct spending in Afghanistan more than doubled. It has also targeted crucial allies – Pakistan’s funding increased fivefold between 00/01 and 04/05. Between 1990 and 2001 40% of UK aid was channelled through multilateral institutions and works very closely with European aid institutions. The UK has also made strides to increase co-ordination between the DFID, the Ministry of Defence and the Foreign and Commonwealth Office.

The EU: more security, more aid; how much coordination?

The EU and its member states together provide the single largest bloc of bilateral and multilateral aid in the world. Individual states are firmly committed to the MDGs and the EU is going to great lengths to coordinate policy between member states. Coordination is already exercised through the common External Trade Policy and the single seat in the WTO pulls states in line. Aid is more difficult however; 15 members have large bilateral programmes. The UK, Netherlands and Nordic states argue for a focus on poverty reduction. Southern states prefer aid given on political grounds (e.g. political issues such as migration or historic ties with Latin America). European action in development and security has traditionally been separate – security goals are pursued by individual members whilst development assistance comes from the External Action budget. In June 2003 significant changes occurred and the new security framework described security as a ‘first condition for development’ (interestingly no mention is made of the reverse). This change represents a global shift in aid policy to incorporate security and can be witnessed in the OECD DAC’s definition of ODA (which has typically restricted changes to the definition) to include the prevention of child soldier recruitment, enhancing civil society’s role in the security system and promoting democratic control of the security system. The EU’s aid is channelled through EuropeAid as of 2001 – it was previously directed through 4 different directorates-general. European aid could soon find itself under foreign policy leadership if constitutional changes are pushed through.


Development assistance that prioritises human development is at risk from a shift towards ODA with foreign policy and security agendas. Fiscal challenges ensure much of recent increases in aid flows will dry up. Rational efforts to ensure greater coordination and cooperation between institutions and governments have been used to justify flows useful in the War on Terror. Donors must move towards multilateral mechanisms which improve the use of ODA, as well as grant more of a role to recipient agencies which play a crucial role once aid flows fall. Development policy has often not only blocked progress, but been detrimental to strengthening governance on the ground. A further area for improvement is the time-scale and predictability of aid flows and donors must band together to provide long-term commitments. The international development community has not yet been swept up in the global War on Terror but it stands on the threshold; donor governments must act quickly to ensure development goals take priority over security agendas.