By Rohit Sudarshan
The future of traditional foreign assistance is in a precarious situation. Over the past five years, Organization for Economic Co-operation and Development (OECD) countries that contribute the largest share of international aid—namely Australia, France, and the U.S.—have seen a downward trend in official development assistance (ODA) as a percentage of gross national income (GNI). Additionally, the United Kingdom’s development agency, DFID, is currently handling a surge of fraud investigations regarding their foreign aid. Countries that are global leaders must promote other financial means for international development. Few options are as important and efficient as remittances.
Remittances are payments made by immigrants to families and friends in their country of origin and represent an effective method for those in developing countries to continue to improve their standard of living. While ODA requires the coordination of government agencies as well as policymakers from many countries, remittances do not face that same constraint. The difficulty in ensuring accountability has meant that governments have misused and absorbed aid money. For these reasons, remittances can be an appealing alternative; they can move expediently and directly to a recipient that needs it.
By Ariel Gandolfo
While the ambitious, 169-point Sustainable Development Goals are still being solidified, the next big question in development will most certainly be how to finance them. Official development assistance (ODA) as a share of national GDP in many developing countries has been steadily shrinking, and identifying other sources of financing is crucial. Already, discussions here at the CSIS Project on U.S. Leadership in Development have focused on Domestic Resource Mobilization (DRM) and the importance of strengthening national tax bases and collection systems to increase the funds available for investment in national economic growth.
Western Union is one of the largest remittance services in the world. Pictured here, an outlet in Angeles City, Philippines.
Another source of overseas assistance with potential to impact national development is remittances. Remittances from diaspora populations are usually sent to families of the migrants working abroad, and as such have a limited, micro level effect. Yet global remittances already triple the value of official foreign assistance. Leveraging these inflows – which total in the millions and billions of dollars per country each year – to invest in public funds for infrastructure and social entrepreneurship may, however, contribute to more long-term, macro level economic growth. Continue reading
By Samantha Prior
South Korea is often viewed as a developmental success story; over the last fifty years it has been successfully transitioning from aid recipient to aid donor. In 2010 South Korea became a member of OECD, marking a significant step in its efforts towards becoming a major aid donor. Here are some notable statistics that give a sense of Korea’s evolution from recipient to donor:
Overall growth is stunning: In the post-war period South Korea was one of the world’s poorest countries with a per capita income of $64, and received large amounts of aid, specifically from the U.S. (12.7 billion between 1945 and the late 1990s, according to the Korean government), to repair its broken economy. The South Korean economy has steadily improved over the last 50+ years (it is currently the world’s 12th largest economy), which enabled it to start giving aid in the end of the 20th century. The Korea Eximbank’s Economic Development and Co-operation Fund (EDCF) was created in 1987, followed by the Korea International Co-operation Agency (KOICA) in 1991.
By Michael Jacobs
In order to provide some perspective on the shifting composition of development related financial flows over the last few decades, we assembled graphs using data from the UN Conference on Trade and Development to illustrate trends in Official Development Assistance (ODA), Foreign Direct Investment (FDI), and remittances. The numbers are compared for developing countries in three discrete regions: Asia, the Caribbean/Americas, and Africa. After a quick analysis of the results, a few common themes are apparent: FDI now exceeds ODA flows for developing countries in all three regions, and ODA flows, long flat relative to FDI in Asia and the Americas, are now leveling off in Africa as well.
This new reality reflects a paradigm shift in how we should view development in Africa, and globally– ODA will continue to play a critical development role, but as a force to mobilize, direct, and augment the substantial financial flows sourced from elsewhere. These snapshots illustrate clearly that the ODA “bull market” is a thing of the past, and development strategy must adjust accordingly.
- In Asia today, FDI far exceeds ODA flows, and while remittances are substantial, remittance flows are also dwarfed by FDI. We have to look all the way back to 1985 to see a point at which ODA flows were greater than FDI– while ODA remained flat and even declined slightly in the 1990’s, FDI exploded.