What you need to know about foreign aid (and why we need to protect it)


Joe Cerrell


Joe Cerrell

These past weeks, the international conversation about aid to developing countries has been heating up. Does Britain’s decision to cut foreign aid to India foretell a shift in the relationship between traditional donor countries and middle-income countries?  Do our notions about the effectiveness of putting aid resources in the hands of local governments need to be challenged?  Is the answer a shift away from ‘aid’ to ‘trade’?

It’s more important than ever that we discuss questions of how to make aid most effective. This week the 27 European heads of government will decide whether or not to protect the €51 billion development aid budget from cuts over the next seven years, as part of the overall European Union (EU) budget for the next seven years.

What we know for sure is that EU aid has been very effective and has saved millions of lives. Between 2004 and 2009, 9 million children enrolled in primary education, 5 million were vaccinated against measles and 31 million people were connected to clean water due to European aid. Now the Council is poised to decide whether it will continue to fund many of these programs.

Beyond the altruistic motive, the evidence suggests that aid benefits us all. We know that aid well spent grows recipient countries’ economies ($1 of aid creates $8 in economic output, according to a 2004 report).But it turns out that aid also benefits the economies of donor countries like Sweden and Norway, which recently increased their aid budgets.

In fact, a new report shows that the proposed EU aid to the poorest countries will give a 20 percent return on investment to the EU economy and a much-needed boost to its GDP by 2020.

Increasingly, aid can spark new, innovative thinking and creative partnerships to solve tough challenges.  Some middle-income countries – once recipients of aid – are now sharing their success with other developing nations. For example, in order to boost its agricultural productivity, Mozambique recently partnered with China to build an agricultural research center and with Brazil to learn from its farmers.

As the economic situation continues to be felt throughout the world, we can’t forget that millions of lives hang in the balance. Maintaining our commitment and increasing the quality of aid towards programs that we know work is simply the right thing to do.

Joe Cerrell is director of the Gates Foundation’s Europe office. This article was first published on the foundation’s Impatient Optimists blog.

Tagged in: global development India International aid

Comments (2)

Joe Cerrell

The National Institute for Economic and Social Research and the Overseas Development Institute – along with the campaigning organization ONE -- published a report late last year that shows for the first time how protecting EU aid would not only have a positive impact on millions of lives in developing countries, it would also boost the European economy. Their analysis shows that: "the €51 billion in EU aid that targets the poorest countries would give a 20% return on investment for the EU economy by 2020 – equivalent to a €11.5bn net gain for the EU and its citizens. The report – the first such study to quantify the impact of EU aid on donor and recipient countries – shows that the development budget of the EU is actually a smart investment. By 2020 the aid spent will give a 0.1% boost to EU GDP, a 0.2% boost to global GDP, and a very significant 2.5% boost to Sub-Saharan African GDP by the end of the same period." The full report is here: http://one.org.s3.amazonaws.com/pdfs/The_effects_of_EU_aid_on_receiving_and_sending_countries_Report.pdf

Caroline Fiennes

Joe, Very interesting - and timely & important. I'm interested in the specifics and data in a key statement here. You say that "it turns out that aid benefits the economies of donor countries" and that "EU aid will give a 20 percent return on investment". That's very surprising, since prima facie aid has a rate of return of minus 100 percent. You mean that the donor country gets back every penny that it gives, and 20% extra in some cases? That's certainly worth explaining - given the concerns about explicitly tying aid to trade. Thanks.

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