While global development is about much more than aid, US foreign assistance is, and will remain, one of the most visible tools for US development policy in many countries. The US government spends less than 1 percent of its annual budget — about $23 billion — on nonmilitary foreign assistance across the globe. These programs have consistently come under fire for failing to achieve measurable and sustainable results, ignoring local priorities and contexts, perpetuating bureaucratic inefficiencies and inflexibility, and repeating mistakes over time. A paradigm shift within US aid agencies is needed. In this brief, we outline concrete proposals that would address many of the traditional shortcomings of US foreign aid approaches.
The future of development policy is in development finance. Developing countries need aid less and less as their incomes rise and economies grow. What they need now is private investment and finance. US development policy, however, has failed to bring its development finance tools in line with this reality. Related US efforts have not been deployed in an efficient or strategic manner because authorities are outdated, staff resources are insufficient, and tools are dispersed across multiple agencies.
Other players are doing more. Well-established European development finance institutions (DFIs) are providing integrated services for businesses, and these services cover debt and equity financing, risk mitigation, and technical assistance. Moreover, emerging-market actors — including China, India, Brazil, and Malaysia — have dramatically increased financing activities in developing regions such as Latin America and Sub-Saharan Africa.
US development policy was built for a world that no longer exists. When the US Agency for International Development (USAID) was created in 1961, foreign aid was by far the most important flow of resources to developing countries. Today, aid is a relative sideshow. International migrants send roughly four times more money home to developing countries (close to $500 billion per year) than all donors disburse in global aid (roughly $130 billion per year). Remittances sent from the United States to Latin America and the Caribbean ($32 billion per year) are more than five times the combined US economic and military assistance to the same countries (less than $6 billion per year). Individuals earn much more in the United States than in their home countries, and they develop valuable skills through migration, often transmitting useful ideas and technologies back to their home countries.
Weak institutions are both a cause and a consequence of underdevelopment. Improving governance is widely regarded as critical to accelerating economic opportunities, democracy, and security. This is especially important for fragile states and countries emerging from conflict. Despite this, the United States and other donor governments have few financial tools that are demonstrably effective at stimulating and delivering improved governance.
As late as 1930, only 1 in 10 rural Americans had access to electricity. In subsequent years, rapidly increasing power generation and growing the electrical grid across the country became major pillars of the American battle against domestic poverty and a foundation for decades of economic growth and wealth creation. Today, energy access is universal in the United States. Reliable and affordable electricity is considered a basic necessity of life, an indispensable input to almost every aspect of modern living.
That same transformation is possible today in large parts of the developing world, where lack of access to modern energy harms quality of life and constrains economic growth. A concerted policy effort by the United States could help unleash tremendous human and market potential around the world. Pushing to promote electricity generation and access could significantly contribute to doing good in developing countries — and doing well for the United States.
Remarkable progress has been made in the global fight against HIV/AIDS. The number of people receiving treatment in low- and middle-income countries increased from 300,000 in 2003 to 13.7 million in 2015, including 7 million supported by the United States. These gains are primarily attributable to a 2003 US government initiative called PEPFAR (the President’s Emergency Plan for AIDS Relief) that provided major new multiyear funding for global HIV/AIDS and created a new entity, the Office of the Global AIDS Coordinator, headed by an ambassador-rank Global AIDS Coordinator who is authorized to allocate PEPFAR’s resources and coordinate all US bilateral and multilateral activities on HIV/AIDS.
However, without dramatic changes to PEPFAR, the next president risks being held responsible for the failure of a program that until now has been one of the United States’ proudest foreign assistance achievements. And because PEPFAR is a major component of US foreign assistance spending, the next president’s choices about PEPFAR will heavily influence any subsequent assessments of his or her humanitarian foreign assistance policies.
US leadership in multilateral institutions such as the World Bank and regional development banks is flagging. These institutions, rated as some of the most effective development actors globally, provide clear advantages to the United States in terms of geostrategic interests, cost-effectiveness, and results on the ground. Restoring US leadership in institutions like the World Bank will mean giving a greater priority to MDB funding, which today accounts for less than 10 percent of the total US foreign assistance budget and less than 0.1 percent of the total federal budget. Prioritizing multilateral assistance in an era of flat or declining foreign assistance budgets will necessarily mean some reallocation from other pots of foreign assistance money, as well as an effort to address the structural impediments to considering reallocations.
In this project, we analyzed whether mobile phone-based surveys are a feasible and cost-effective approach for gathering statistically representative information in four low-income countries (Afghanistan, Ethiopia, Mozambique, and Zimbabwe).
On March 19, 2015, senior fellow and director of CGD’s Rethinking US Development Policy Initiative Ben Leo testified before the Senate Foreign Relations Committee Subcommittee on Africa and Global Health Policy at a hearing about the potential for greater US trade and investment with S
Bringing US Development Finance into the 21st Century: Proposal for a Self-Sustaining, Full-Service USDFC
The imperative for US development finance has increased significantly due to a number of factors over the last decade. There is growing demand for private investment and finance from businesses, citizens, and governments in developing countries. Given the scale of challenges and opportunities, especially in promoting infrastructure investments and expanding productive sectors, there is an increasingly recognized need to promote private sector-based solutions.
The need for infrastructure improvements is a top-tier economic, political, and social issue in nearly every African country. Although the academic and policy literature is extensive in terms of estimating the impact of infrastructure deficits on economic and social indicators, very few studies have examined citizen demands for infrastructure.
When MCC was founded, there was widespread skepticism about the effectiveness of foreign assistance. Many observers, both external and internal to development institutions, agreed that too much aid was being spent on poor projects in service of poorly defined objectives with correspondingly little understanding of what these funds were achieving.
The Millennium Challenge Corporation (MCC), an independent US foreign assistance agency, was established with broad bipartisan support in January 2004. MCC has a single objective—reducing poverty through economic growth—which allows it to pursue development objectives in a targeted way. There are three key pillars that underpin MCC’s model: that policies matter, results matter, and country ownership matters.
This brief reviews the MCC’s focus on country ownership. A longer discussion can be found in the full paper, “Focus on Country Ownership: MCC’s Model in Practice.”
This brief reviews the MCC’s focus on policy performance. A longer discussion can be found in the full paper, “Focus on Results: MCC’s Model in Practice.”
This brief reviews the MCC’s focus on policy performance. A longer discussion can be found in the full paper, “Focus on Policy Performance: MCC’s Model in Practice.”
A key pillar of MCC’s model is its focus on policy performance. One of MCC’s defining characteristics is that it provides funding only to countries that demonstrate commitment to good governance and growth-friendly policies.
One of the key pillars of MCC’s model is that country ownership matters for results. In broad terms, the idea of country ownership is that donors’ engagement with developing countries should reflect the understanding that partner country governments, in consultation with key stakeholders, should lead the development and implementation of their own national strategies and that foreign aid should largely serve to strengthen recipients’ capacity to exercise this role.
The Millennium Challenge Corporation (MCC), an independent US foreign assistance agency, was established with broad bipartisan support in January 2004. The agency was designed to deliver aid differently, with a mission and model reflecting key principles of aid effectiveness.