Overseas Development Assistance on the Rise – 8 Things to Know about ODA

Official Development Assistance (ODA) designates the funding provided by public entities in the most developed countries to improve living conditions in countries with low or intermediate income. But the kinds of assistance and sheer range of options are not well known. 

What follows is a summary in eight points.

This article was originally published in April, 2019 and updated on 13 April, 2023. 

Official Development Assistance (ODA) 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

In 2022, donor countries of the Committee for Development Aid (CDA) of the Organization for Economic Cooperation and Development  (OECD) committed $204 billion (€185 BN) for recipient countries that fulfil ODA criteria. The increase was primarily due to a sharp rise in spending on processing and hosting refugees within donor countries to $29.3 billion.

Aid to Ukraine rose sharply following Russia’s invasion and ongoing war, with ODA to Ukraine totalling more than $16 billion in 2022 – up from just $918 million the previous year.

The majority of aid took the form of grants or "grant equivalent" aid, or highly concessional loans. 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 2021, grants accounted for 88.1% of global ODA allocated directly by donor countries to recipients, known as “bilateral” aid, with loans and equity investments amounting to 11.9%. But taking into account all public aid agencies, bilateral and multilateral, whose figures are known to the DAC, as well as all their disbursements to beneficiary countries in gross terms, the loan/grant ratio is about 50-50.

Bilateral French ODA was 64.8% in the form of grants (5.1 billion euros), and 35.2% in the form of loans (2.8 billion euros) in 2021. Expressed in gross disbursements, and including all public loans to developing countries beyond ODA in the strict sense, the ratio is inverted: 56.3% loans and 43.7% grants.

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’s ODA rose to $15.9 billion, making it the world’s fifth largest donor, and at 0.56% of GNI, French aide surpassed the government’s target of 0.55%. 

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 allows for a response to the broadest number of situations possible, from social emergencies to economic needs, including issues tied to the environment and governance,” says 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,  the Global Fund to Fight AIDS, Tuberculosis and Malaria and the Green Climate Fund.

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 88.5% 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 $186 billion distributed worldwide in 2021, ODA constitutes a large part of international public financing intended for developing countries, which amounts to an order of magnitude of $300 billion in gross disbursements, not counting Chinese external financing.

Alongside this funding of public origin, there is international funding of a private nature which arrives in developing countries: private investments, actions by foundations and NGOs, remittances from expatriates to families back home - these alone represented $626 billion worldwide in 2022, according to an estimate by the World Bank.

But the main financial resources that fuel countries' development, particularly middle-income countries, are domestic: gross fixed capital formation amounts to about $10 trillion per year, significantly more than the approximately $2 trillion in international inflows. Small compared to these astronomical figures, ODA mainly has a role of reorientation, on the one hand towards the poorest or most vulnerable countries, on the other hand towards an economic activity benefiting the climate, biodiversity and SDGs.

It focuses on Africa

In 2021, the three countries most assisted by DAC members were India ($3.4 billion of ODA as defined by the DAC), Afghanistan ($3.4 billion also) and Bangladesh ($3 billion). All African countries received about 30% of ODA.

Around 45% of Official Development Assistance goes to the least developed countries (LDCs), a category coined by the United Nations in 1971 to designate the most fragile countries on the planet. In 2023, 46 countries belonged to this category.

Among the top ten countries receiving AFD grants in 2021 are logically several of these LDCs, such as Senegal, Mali, Burkina Faso, Niger, Chad, Sudan and Haiti. Added to this are Côte d’Ivoire, due to major debt reduction and development programs, as well as Lebanon and the Palestinian Territories.

It contributes 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.

Further reading:

Five Solutions for Fairer Societies

Choose Africa—the French Initiative to Accelerate Growth for Small Businesses in Africa

Hélène N’garnim-Ganga: “If We Want To Speed up Democratic Transition, There’s No Time to Lose.”