India’s foreign ministry has recently announced plans to set up a formal foreign aid agency, the India Agency for Partnership in Development. The agency is expected to lend out approximately $11 billion over the next five to seven years, thus putting India on par with other major donors such as Australia and Belgium.
The move serves as a reminder of the pace at which emerging market countries are increasing their foreign aid budgets. India follows the example of other emerging market economic powers such as China, which is now spending heavily on infrastructure in Africa. For the first time in history, Western foreign aid donors are facing true competition. The U.S. and other major donor countries must act accordingly by upgrading their foreign aid agencies and processes to make them more efficient, policy-aligned, and investment-focused.
Foreign aid is central to the West's relationship with the global south. Foreign aid is as related to realpolitik processes as any other policy tool, such as sanctions or military action. The key to foreign aid policy is policy extraction – namely, a government either laying groundwork for foreign investment or providing private goods to hard-line autocratic regimes in order to make trade negotiations, peace agreements, etc. easier to settle.
Policymakers in India and China say their foreign assistance is very different than Western aid, and they present their assistance to developing economies under the attractive guise of "South-South" capacity and relationship building. Given the increasing involvement of rising powers in these foreign aid activities, it is likely that in the not-too-distant future, Western powers will have to compete with these governments to extract policy should it become necessary for geopolitical reasons.
There are numerous steps that the U.S. needs to take to ensure that it is competitive in this new landscape. First, established aid agencies should start putting more emphasis on multilateral initiatives, as this seems to be the strategy with the rising powers. Of course, multilateral efforts can be tricky and so a stronger relationship must be developed between the Department of State and the U.S. Agency for International Development, in order to ensure policy alignment and proper strategic allocation. Currently, foreign aid in the U.S. comes from over 15 different bureaus, each with their own goals and jurisdiction. Allocation needs to be streamlined and control of all aid flows put back under the purview of USAID.
Data and information management systems also should take advantage of cloud computing capabilities and include information on potential as well as existing partners such as non-profit organizations and development contractors. This data can then be used to assess the full impact of programs. And perhaps, in the end, rising competition in the foreign aid sector may finally bring the efficiency and focus on long-term sustainability that the Western foreign aid sector has been so desperately lacking.
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