Where does the aid money go?

by Sasha Alyson

In 1970, Western nations agreed on a modest target: To give 0.7% of their Gross National Income (GNI) as Official Development Assistance (ODA), commonly known as foreign aid.

Nobody claimed that this was generous. The World Council of Churches had already won wide support for a target of one percent. But even the lower figure never became a reality, though the rhetoric was often repeated. In 2005, 15 members of the European Union pledged to reach the target by 2015.

Today? Five countries have met that target; most have fallen very short, averaging only 0.3% of GNI.

Even that low figure is misleading, because a large amount of ODA never actually goes to the supposed recipients, or goes and immediately boomerangs back. Where does it actually go? That’s hard to say, because so much it goes into the pockets of people who don’t want you to know where it went.

Here, I’ll address just one question: How much never leaves, or quickly returns, to the country that gave it? A number of people and organizations have attempted to shed light on this. Here, ranging from general to specific answers, if what they’ve found.

Angus Deaton, Nobel laureate in economics: “By some estimates, 70 percent of aid from the United States never reaches the recipient countries, at least not in cash.”(1)

Eurodad (The European Network on Debt and Development) has investigated this question. It found that in 2015, some $55 billion – 44% of Official Development Assistance – went for the procurement of goods and services. This could have benefited the countries that were listed as beneficiaries. But they often never got it. For three big donors — the USA, Australia and the U.K. — “the share of reported contract awards going back to domestic firms was at least 90 per cent.” Overall, “more than half of all reported contracts in 2016 were awarded back to firms in the donor country.” And that’s only part of the story, because “[s]ometimes even when a contract appears to be led by a company based in the global south, the main players are actually based in the global north.”(2)

When an earthquake devastated Haiti in 2010, donations flooded in – into the coffers of Western NGOs that promised to help. Over the next few years, USAID put $1.38 billion into recovery efforts. But an evaluation found that “just 0.9 percent has gone directly to Haiti organizations, while 56.6 percent has gone to firms located inside the beltway (Washington D.C., Virginia and Maryland).”(3)

In the early 2000s, Timor-Leste became the world’s newest nation, and one of its poorest. In the course of a decade, it “received” an estimated $5.2 billion in foreign aid. But La’o Hamutuk, a Timor-based NGO, made a detailed study of where the money went, and found that “only a small fraction… came into Timor-Leste to circulate in our local economy. Nearly 90% of it was spent on international salaries, foreign soldiers, overseas procurement, imported supplies, consultants, overseas administration, etc.”(4) And it went fast: The World Bank paid $215,153 to an Australian, for consulting work in Timor-Leste.(5)

Several factors further cloud the issue.

SECRECY: The aid industry is notoriously secretive about how money gets spent, even as it calls for transparency from third-world governments. Aid funds regularly pass through several agencies, each taking a cut, and leaving less accountability. In Haiti, USAID claimed that some of the money paid to Washington insiders made its way to Haitian sub-contractors – but refused to give “proprietary” details.

TIED AID: For decades, donor countries routinely required that much of their ODA be spent on their own goods, businesses, and citizens. This was so obviously inefficient and self-serving that that many have dropped these legal requirements – but only on paper. The U.K. and Australia claimed in 2015 that 100% of their official development aid was untied – but as noted above, at least 90% of procurements were still tied in practice. In the USA, Japan, and South Korea, much aid continues to be tied to purchases in the donor country.(6)

GOODS IN KIND: Suppose you run a big NGO, and you want show donors you’re efficient. A corporation donates 400,000 unsalable t-shirts, and you assign them an inflated value of $20 each – a total of $8 million. You also receive cash donations of $2 million. You use half of the cash ($1 million) for shipping, salaries, and expenses to dump the shirts, and another million on fundraising and salaries in the USA. Now you can tell the world that only 10% of your donations go for overhead; the other 90% goes to help those “poorest people” – although in reality, not a cent of it helped anyone outside the NGO, and the dumped shirts harmed the local economy.(7)

What about the money that does reach recipient countries? Haitian activist Antonal Mortime found that Western aid efforts had harmed far more than they had helped. Michelle Chen, who interviewed him for The Nation, concluded: “The chaotic rebuilding effort has widened the country’s social rifts, bringing the first emancipated black republic under the yoke of a new kind of imperialism.”(8)

Comments from Twitter

We announced this story on Twitter, where readers contributed these comments:

Gondai Dekeza, @GDekeza: Aid is never aid but a business to the West.
[Bridget Godwin, @brizumachine, adds: More so, as a means to control and milk Africa of its resources.]

Ishaq Ali Folohunsho, @OlarewajuAliy: A must read; this piece unravels the treachery of AID donors and how often the aid is skewed to benefit largely the donor rather than the recipient.

(Flag of Turkey), @mrt1_01: I’ve seen a lot of people starve to death. If there are charities, why do children starve to death?

Allinn (Ada hodl), @RFunzt: neo colonialism at its best…we need cheap …so keep em poor…
Help to learn growing biodiverse crops at small farmership on a local level is true help.

Dios mio orando y pidiendo por tu piedad y clamor, @Sabiduria_sol: La USAID organismo desestabilizador de democracias bajo el sinónimo de ayuda como le hace en Venezuela, y no aportan nada a la población más necesitada.
[Rough translation: USAID is a destabilizing organism of democracies under the name of aid, as it does in Venezuela. It does not contribute anything to the population that truly needs help.]

Notes and Sources

Top illustration: USAID: Lentil oil in Uzbekistan by USAID in Uzbekistan. U.S. food aid is a poster child for bad development policy. American taxpayers subside American farmers to produce a surplus, which the government buys, and pays American shippers to send abroad — thus undercutting local farmers.

1. The Great Escape: Health, Wealth, and the Origins of Inequality, by Angus Deaton. Princeton University Press, Princeton, 2015.

2. Eurodad is a network of some 50 European civil society organizations (CSOs) which “works for transformative yet specific changes to global and European policies, institutions, rules and structures to ensure a democratically controlled, environmentally sustainable financial and economic system that works to eradicate poverty and ensure human rights for all.” My account is drawn from the Eurodad report on untied aid, and from a News-Sky story.

3. Haitian data is from the Center for Economic and Policy Research, as reported by Michelle Chen in her excellent story in The Nation: “How Humanitarian Aid Weakened Post-Earthquake Haiti,” 2 Sept. 2014.

4. The La’o Hamutuk Bulletin, Vol. 11, No. 1-2: February 2010.

5. “Timor: Where Has All the Aid Gone?” by Guteriano Neves, 20 June, 2011, in Foreign Policy in Focus.

6. “Japan leads surge in tied aid,” by Vince Chadwick, 14 February 2020, reports that 39.8% of total bilateral aid from the U.S. was tied; 48.2% for South Korea; and 22.4% for Japan.

7. Our Super Bowl T-Shirts story tells how World Vision and other charities manipulate the Goods In Kind loophole.

8. Mortime is head of the Platform of Haitian Human Rights Organizations; Chen interviewed him for here story in The Nation, cited above.

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