Official Development Assistance supports neglected sectors
Improving access to water, healthcare and high-quality education, protecting biodiversity and combating climate change: these are essential goals, both for the populations of the developing countries and for international stability. However, projects focusing on these issues don’t necessarily interest public and private investors, who find them too risky or low in priority. “International finance generally stays away from low-income countries and human services,” observes Hubert de Milly, an expert in ODA (Official Development Assistance) at the Agence Française de Développement (AFD).
This is where Official Development Assistance comes into play. By compensating for the lack of funding in certain neglected sectors and zones—through grants, loans or other forms of support—public aid provides an impetus for change in the most vulnerable populations. Frequently, it also leads to support from other players—banks, companies and foundations—and increases the amounts devoted to development.
The other essential role of Official Development Assistance consists in reorienting the economy of certain countries towards sustainable development goals; namely, towards a fairer, more ecological and more egalitarian world. Like all public actions, this reorientation comes with a cost but brings significant benefits in the mid and long term.
It does not depend exclusively on grants
The donor countries of the Committee for Development Aid (CDA) of the Organization for Economic Cooperation and Development (OECD) earmarked 149 billion dollars (132 billion euros) for recipient countries in 2018. This was essentially in the form of grants. But this is not the only way aid is provided.
Several donor countries have taken out loans that are more or less subsidized. Clearly, the idea is to loan an amount of money at a preferential rate to countries or project leaders that have difficulty borrowing. Because of this preferential rate, the loan costs something to the loaner, even when it is reimbursed. It is the “grant-equivalent” that is calculated as part of Official Development Assistance.
In 2018, grants represented 83% of “bilateral” public aid worldwide that was transferred directly from donor countries to beneficiaries, and loans accounted for 17%.
French foreign aid in 2017 can be broken down as follows: 64.3% in grants (7.8 billion euros) and 35.7% in loans (4.3 billion euros).
The contributions calculated as part of Official Development Assistance also included taking on refugees from developing countries in France (for one year), free tuition for university studies for certain students from these countries, the cost of certain peace-keeping operations and a few debt cancellations.
There is a development assistance “à la Française”
France is a country (along with Germany, South Korea and Japan) that bases foreign aid on both grants and preferential-rate loans. Other countries (United States, Russia, Sweden) essentially nearly only make grants. Above all, loans are the prerogative of so-called “multilateral” banks, such as the World Bank.
“For French aid, this type of financial tool enables responding to the broadest number of situations, from social emergencies to economic needs, by including as nearly as possible issues tied to the environment and governance,” points out Hubert de Milly.
The French development aid policy as defined by the Interministerial Committee for International Cooperation and Development in February 2018 lists five priorities: international stability, climate, education, gender parity and healthcare.
Nations are not the only players
In development aid terminology, a distinction is made between aid given directly by a donor country to a beneficiary country—known as “bilateral”—and aid provided by nations through contributions to the programs of international bodies—known as “multilateral”.
The main sponsoring members of the OECD Committee for Development Aid (CDA) thus have roughly a third of their public aid pass through multilateral institutions such as the World Bank and United Nations agencies (United Nations Development Program, UNICEF, FAO, High Commissioner for Refugees, etc.) or through “vertical” channels, such as the Global Environment Facility and the Global Fund to Fight AIDS, Tuberculosis and Malaria.
Among the multilateral banks, the regional development banks also play an important role. They include the African Development Bank, the Asian Development Bank and the Inter-American Development Bank.
There are many development aid players in France too
As an agency that allocates subsidies on behalf of the French government and a bank that refinances itself on private markets, the AFD is the primary institution for implementing French development policy.
However, it is not alone. Around a dozen other sources participate in financing aid, including several ministries and local governments.
The Ministry of Europe and Foreign Affairs, Ministry for the Economy and Finance, Ministry of National Education and the AFD account for 93% of French aid. The Ministries of the Interior, Army, Labor and Agriculture also play an active role.
Public aid is only one part of development funding
With 149 billion dollars distributed worldwide in 2018, the amount dedicated to Official Development Assistance is only part of what is known as “finance for development”.
This somewhat hazy notion covers all public, private, national and international funding for developing countries: private investments, actions by foundations and NGOs, money transfers by expatriates to families who remained in the country—the latter alone represented 466 billion dollars (415 billion euros) worldwide in 2017, according to the OECD. This varied funding complicates estimating the amounts involved. We are, however, talking about 10,000 billion dollars annually, meaning 8,900 billion euros.
It focuses on Africa...
Half of Official Development Assistance is destined for the Least Developed Countries (LDCs), a category defined by the United Nations in 1971 to designate the world’s most underdeveloped and fragile countries. In 2019, there are 47 countries in this category. Most of them are located on the African continent.
Among the ten countries receiving the most AFD subsidies are, logically, several LDCs, such as Mali, Niger, Burkina Faso and Senegal. There are also Tunisia, Jordan, Palestine and Turkey, which are affected by migration issues and the consequences of the Syrian crisis. In total, the overall financial effort by the French government in support of development is mainly focused on the African continent (Sahel, West Africa, Central Africa, North Africa) and the Middle East.
...And leads to increased growth in beneficiary countries
Although it is difficult to evaluate the impact of Official Development Assistance, three research workers at the University of Copenhagen calculated, in a study published in 2010, that international aid added an additional growth point in developing countries.
The impact of aid to people in these countries can also be measured using more concrete indicators, such as the rates of vaccination and schooling. Donor countries have implemented evaluation mechanisms to measure the role played by their financial support. At AFD, these evaluations are carried out in partnership with research entities in the countries where projects have been implemented. Most often, they consist in sending investigators into the field and using local and national statistics.
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