Amid DfID's pullout from South Africa, will other donors follow?

South African flags. Photo by: gillstrawberry / CC BY-NC-SA

In a move that stunned many observers, U.K. Secretary of State for International Development Justine Greening announced last week that the United Kingdom would end its bilateral aid program in South Africa by 2015. Only two years ago, the U.K. Department for International Developmentnamed South Africa as one of its 27 focus countries as part of its reform drive.

“I have agreed with my South African counterparts that South Africa is now in a position to fund its own development. It is right that our relationship changes to one of mutual cooperation and trade,” Greening said.

DfID has committed to finish its ongoing projects in South Africa before it focuses solely on technical assistance and knowledge sharing activities beginning in 2015. The U.K. aid agency’s annual budget for its program in the country currently stands at 19 million pounds ($22.5 million).

In recent years, South Africa has recorded significant and sustained economic gains — a key consideration for DfID in its decision to wind down its programming in the country. In a bid to bolster its regional and global standing, Pretoria has even followed its BRICS peers in taking steps to set up its own traditional donor-style aid agency.

Yet despite South Africa’s increasingly bright prospects, the country continues to face an array of serious development challenges. The highest burden of HIV and AIDS in the world, stark social inequality, and an underfunded education system are just some of the roadblocks to the middle-income country’s progress.

With the aim of helping Pretoria address these obstacles, most of South Africa’s other major bilateral and multilateral donors have pledged to continue their programming in the country. The United States and the World Bank, however, have joined the United Kingdom in reducing their footprint in South Africa.

United States

While the Obama administration has reaffirmed the United States’ development engagement with South Africa, it has also set in motion plans to significantly reduce assistance to South Africa through the U.S. President’s Emergency Plan for AIDS Relief over the next five years. Contingent on continued increases in HIV and AIDS spending by the South African government, PEPFAR funding for South Africa is expected to gradually fall to $250 million in fiscal 2017, down from $484 million in fiscal 2012. PEPFAR accounts for the vast majority of U.S. foreign assistance to South Africa, which is currently the third-largest recipient of U.S. foreign aid in sub-Saharan Africa. The United States is South Africa’s largest donor.

On the other hand, in line with the Obama administration’s commitment to promote trade in its development engagement with Africa, the Export-Import Bank of the United States is ramping up its activities in South Africa. The United States’ official export credit agency, Exim Bank has named South Africa as one of nine focus countries. In August of last year, Exim Bank announced its intent to support the transfer of up to $2 billion of U.S. clean energy technologies, products and services to South Africa. Exim Bank’s credit and insurance activities are designed to facilitate U.S. exports of manufactured goods and services.

European Union

Despite ongoing budget pressures in Brussels, the European Union is likely to maintain its standing as South Africa’s second-largest donor over the next EU financing period of 2014-2020. The European Commission has exempted South Africa from its proposed aid differentiation policy, which would end grant-based bilateral aid to 19 middle-income countries beginning next year. Cuba is the only other middle-income country which the EC has exempted from its proposed policy.

For the years 2007-2013, the European Union allocated roughly €980 million ($1.3 billion) in development assistance to South Africa, representing its largest bilateral aid program over the current financing period. The European Union has earmarked €250 million in support for South Africa’s national development priorities, which include the creation of decent jobs, skills development, public service delivery and public sector reform. In 2007, Brussels and Pretoria entered into a strategic partnership — the only such agreement between the European Union and an African country.

World Bank

One of South Africa’s largest donors over the past decade, the World Bank’s most recent lending activity in the country was fraught with much controversy. Against the objections of the U.S. and U.K. governments, in April 2010, the World Bank approved a $3.75 billion loan for a coal-fired power plant from the International Bank for Reconstruction and Development, its lending arm for middle-income countries. Influential critics — including then-U.S. Senator and current Secretary of State John Kerry — charged that the World Bank’s approval of the loan called into question its commitment to sustainable development.

Citing South Africa’s sizeable revenues as a large middle-income country, the World Bank has since refocused its engagement with South Africa from lending to technical cooperation. Currently under preparation, the multilateral lender’s 2013-2016 country partnership strategy for South Africa is expected to support a knowledge hub in the country aimed at incubating development solutions that can be brought to scale across Africa. During a visit to South Africa last year — his first overseas trip as World Bank Group president — Jim Yong Kim pledged to deepen the bank’s relationship with Pretoria.

African Development Bank

In March, the African Development Bank revealed its plans to substantially increase lending to South Africa this year. AfDB anticipates that its financing for South Africa will reach at least $529 million in 2013, including $227 million for a skills and youth development program. In 2012, AfDB programmed $151 million in financing for South Africa, the entirety of which was allocated to a power supply project. According to AfDB’s 2013-2017 country strategy paper for South Africa, the multilateral lender will support programming in the following sectors: energy; transport; natural resources, water and agriculture; and education.

France

The French government remains committed to robust development engagement with South Africa, at least until next year. On the sidelines of South African President Jacob Zuma’s state visit to France in March 2011, the French Development Agency announced that it would provide over €1 billion in assistance to South Africa through 2014. French aid to South Africa is currently targeting three priority sectors: infrastructure development, urban development, and energy efficiency and renewable energy development. Notably, in 2011, France awarded a €70 million loan to South Africa to secure the Durban region’s water supply.

Germany

According to its forward-spending estimates, Germany’s bilateral aid to South Africa in 2014 is expected to reach $86 million, representing a jump of 8 percent from 2013. During talks with South African Finance Minister Pravin Jamnadas last May, German Development Minister Dirk Niebel reaffirmed Berlin’s development partnership with Pretoria. Germany’s marquee aid engagement in South Africa is its support for Pretoria’s efforts to expand the use of renewable energy in the country. The German technological cooperation agency, the German Society for International Cooperation, or GIZ, is currently soliciting proposals for a governance support program in South Africa.

Japan

Japan disbursed nearly $9 million in official development assistance to South Africa in 2011, the latest year for which official statistics are available. Kenichi Shishido, senior adviser to the director-general of the Japan International Cooperation Agency’s Africa department, told Devex last week that Japan has no plans to wind down its aid program in South Africa. Shishido stressed that gaps in the South African government’s capacity as well as in the national education system continue to pose challenges to the country’s development. Human resource development, health and promoting South-South cooperation are priority areas of engagement for the Japanese aid program in South Africa.

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About the author

  • Piccio

    Lorenzo Piccio

    Lorenzo is a contributing analyst for Devex. Previously Devex's senior analyst for development finance in Manila, he is currently an MA candidate in international economics and international development at the Johns Hopkins School of Advanced International Studies in Washington. Lorenzo holds a bachelor's degree in government and social studies from Wesleyan University.