Updating Foreign Aid

By CAROL ADELMANJuly 11, 2007

As the newest president of the World Bank, Robert Zoellick, is settling into the first month of his five-year term, his greatest challenge will be figuring out how to best give foreign aid since the world we are in now is much different than when the World Bank was founded in 1945. Even as rock stars and G8 leaders call for increasing government aid as key to helping Africa prosper, it continues to decline in importance for developing countries. Private capital flows and private philanthropy — including remittances from immigrants sent back to the developing world — dwarf government assistance. Today, foreign aid constitutes less than 25% of all financial flows from developed countries to poor nations.
In 2005, the latest available data, Americans gave $95 billion to the developing world through foundations, corporations, private and voluntary organizations, universities, religious institutions, and remittances. This is nearly three-and-a-half times American official aid of $28 billion. American companies invest and lend another $69 billion in private capital. Official aid constitutes just 14% of America's total economic flows to developing countries. Traditional foreign aid is outdated, delivering assistance primarily through host governments via expensive consultants. The conventional assumption that foreign aid counts only when it comes from governments is caught in the time warp of Marshall Plan-era thinking when both private investments and charity abroad were minimal. [Read more]