How Should Canada Spend Aid?

Three weeks ago, I was in Montreal for a very interesting meeting on the future of Canadian foreign assistance, hosted by Global Canada and CanWaCH, the Canadian Partnership for Women and Children's Health. I’m grateful to them for inviting me, even though it was a somewhat depressing discussion. Participants suggested Canada is in a “me” moment, lacking confidence, worried about global security, and wanting to channel money away from aid toward defense. And that provoked a common reaction from some aid advocates: that we should justify and prioritize aid as a “tool of statecraft,” making the selfish case, and redirecting assistance to short-term diplomatic uses. I don’t think that’s a good strategy: it would be better to have less aid well spent than more aid spent chasing “statecraft.”

I think you can justify global development spending on the grounds that it builds future markets, reduces the risk of conflict, and helps control pandemics. Two oft-cited examples in CGD blogs:

• PEPFAR is a US aid-funded project to supply HIV drugs and other support to reduce the burden of AIDS. The total death rate from all causes in PEPFAR countries was 20 percent lower than what would have been expected had PEPFAR been absent. That works out to approximately a million avoided deaths a year.

• IDA is the World Bank’s soft lending arm that provides resources to the world’s poorest countries. You graduate from IDA if your income per capita goes a little above $1,000 a year, (or about one fortieth the level of Canada’s income per capita). It’s a successful program, and partly as a result lots of countries have graduated—about 35 at last count. But when countries graduate, and lose IDA support, their growth slows down. The amount it slows down suggests that providing aid worth one percent of a country’s GDP raises per capita growth by about 0.35 percentage points. That’s more than a 35 percent rate of return, which is pretty awesome. (And when it comes to the risk of conflict, making poor countries rich considerably reduces the chance they’ll end up in civil war.)

That said, total overseas development assistance globally is worth $220 billion in 2023. While that sounds like a lot, it is 0.5 percent of developing country GNI. And if you take out the official development assistance (ODA) that is spent in rich countries or on humanitarian relief, the bit that’s spent on actual long-term development in developing countries is less than 0.2 percent of developing country GNI. Canada’s contribution amounts to about one twentieth of that.

That tells you two things: First, Canada’s aid is only going to make a difference if it is targeted very well—on challenges it can address and in (poor) countries where it is significant enough to have an impact. And second, even while Canada’s leadership has created some fantastic aid-funded programs including the Elsie Initiative, Canada’s aid will do better if it is part of a partnership: the country’s aid isn’t big enough to tackle big problems alone. Take Canada’s tenth largest bilateral aid relationship in 2022. It was with Burkina Faso. Canada provided $83 million in support, about 0.5 percent of Burkina Faso’s GDP. There are 121 developing countries where Canada’s support is less sizeable than that, compared to just nine where it is larger. The chances Canada can have a significant impact alone in those 121 countries is just pretty small. Instead, Ottawa should back effective collaborative international aid programs like IDA (and as it happens, now would be a great time to do that, as it is replenishment season).

Even if a future government wants to cut aid, better that the remaining resources are used in partnership, and in the poorest countries, than it is redirected to “statecraft” in an effort to preserve volumes. First, it probably won’t work to preserve volumes—administrations that have emphasized using aid as a tool of short term diplomacy have often cut budgets nonetheless.

Second, it probably won’t work as a tool of diplomacy. Take one example of aid for statecraft suggested at the meeting: score points with the US by spending aid to reduce migration out of Central America. How much goodwill such a Canadian program would generate in the US is open to question.  It would be small compared to the half-billion-dollar US effort to do the same thing. And that US effort itself  has had an uncertain impact in part because development can spur larger migration flows. Dealing with the flow of guns out of US factories and gang members out of US prisons into the region would be a far better way of reducing forced displacement, but it isn’t something Canada can help with.

Third, bilateral spending in middle income countries in Central America is simply likely to be a less effective use of grant assistance in terms of development impact than using it in low-income countries. And that matters for the political sustainability of assistance because citizens in Canada primarily back aid on the moral grounds that it works to reduce poverty—if it isn’t effectively directed to deliver that, public support for it will fall (even) further.

In partnership, Canada can use ODA to help create a world of less poverty and premature death. That’s a better world for Canadians. Or it could use ODA in a futile effort to curry favor—one that, based on past record, may lead to scandal and embarrassment. I hope the next Canadian government increases the ODA budget, but even if it is cut, what remains should be spent where it can make a difference.