Despite tempered outlook, BRIC countries stay the course on foreign aid

Brazilian President Dilma Rousseff, South African President Jacob Zuma and Indian Prime Minister Manmohan Singh. Initially expected to exceed the G-6 countries in economic power and size by 2040, Brazil, Russia, India, and China are showing signs of slowing growth rates. Photo by: Dilma Rousseff / CC BY-SA

Twelve years since the acronym BRIC was coined by Goldman Sachs Chief Economist Jim O’Neill to describe the world’s largest and fastest emerging-market economies, the optimism surrounding their projected rise has been tempered.

Initially expected to exceed the G-6 countries in economic power and size by 2040, Brazil, Russia, India, and China are showing signs of slowing growth rates. (We realize that South Africa can also be included as a member of the BRICS — see special analysis here.)

Devex analysis reveals that BRIC countries’ commitment to foreign aid, however, is not tied solely to economic growth and there are clearly other strategic and durable drivers behind these foreign contributions. For example, despite the significant reductions in growth ofgross domestic product  brought about by the global financial crisis in 2007, BRIC foreign aid spending still increased substantially.

Even as traditional donors still massively outspend their BRIC counterparts, there is no doubt that the BRICs continue to make an impact on the foreign aid landscape, both in terms of expanding the aid budget and challenging traditional aid philosophies.

According to the most recent data from the Organization for Economic Cooperation and Development and other official sources, foreign aid expenditure of the BRIC countries increased from about $1.5 billion in 2005 to approximately $4.2 billion in 2011.

While these figures are helpful to appreciate BRIC foreign aid growth, there are other factors that must be taken into account. Specifically, these countries still do not follow the same foreign aid and development cooperation models as more traditional donors, resulting in an extremely fuzzy and imprecise distinction between what constitutes aid and what represents trade or investment.

The BRICs are also not bound by internationally mandated and accepted administrative, project management and reporting standards so the scale and nature of their foreign aid activity is not nearly as well-understood as that of the more established donors.

This is why estimates of official development assistance provided by BRIC countries per year may vary vastly, from $3 billion to $30 billion per year, largely depending on China, where ODA estimates range from $2 billion to $26.4 billion.

Further, using foreign aid as a tool to help capitalize on other geostrategic interests or facilitate engagement and cooperation in other areas is nothing new and there is some evidence that BRICs are doing just that. For example, currently it appears that the BRICs are choosing a more concentrated, closer to home and region-focused approach to development, where programs are more easily controlled and results are more observable and valued.

At the same time, the BRICs prefer to regard themselves as “development partners,” with a stated commitment to principles of non-interference and respect for the territorial integrity of their partners.

Below are summaries of the BRIC countries’ aid approaches and activities that can help shed light on the scale and nature of their individual and collective involvement in international development.

Brazil

Brazil, a country well-known for confronting its own internal inequities and socio-economic strife, appears to be applying lessons learned in the global arena by focusing on social programs such as agriculture and HIV and AIDS prevention and treatment. The country has gained international recognition as an aid donor through its humanitarian response to the Haiti relief effort, where it conducts a $350 million peacekeeping mission. The mission was slated to end in 2010, but was recently extended for at least another year.

While the top recipients of Brazil’s foreign assistance have been located in Latin America and the Caribbean, such as Haiti, Paraguay and Guatemala, the country’s development model has also been effective in Mozambique, East Timor and Guinea Bissau — nations with cultural or linguistic ties.

Embracing aggressive economic expansion and shrugging off the effects of the global economic crisis, Brazil experienced 129 percent foreign aid growth from 2005 to 2009. Officially, the Brazilian Cooperation Agency reported a budget of $400 million in 2010, but there are several estimates placing the country’s foreign aid spending at around $1 billion, surpassing smaller Development Assistance Committee donors such as Finland, Ireland and Portugal. By some accounts, Brazilian foreign aid spending and assistance amounts to $4 billion a year.

India

India, the country traditionally identified as the world’s largest recipient of foreign aid, is now becoming a consequential donor. The Indian government spent $1 billion for foreign aid in 2012-2013 and set aside nearly $1.3 billion for foreign assistance in 2013-14, a fourfold increase from 2003-04. Indian foreign aid spending has grown annually by an average 32 percent since 2009.

In Afghanistan, India is positioning itself to provide significant assistance as U.S.-led forces aim to withdraw in 2014. As the fifth-largest aid donor in Afghanistan, India is investing in public-private partnerships and providing financing for small and medium enterprises — activities that have won some good will with local communities and elders.

While clearly India’s aid efforts have diplomatic undertones vis-à-vis longtime foe Pakistan, India’s investment of more than $2 billion, as well as practical focus on infrastructure development such as building highways and hospitals and rural electricity projects, capacity building for police forces and judiciary and diplomatic services, and humanitarian assistance are sending the right messages to the Afghan government. This is likely to translate into considerable business opportunities for Indian firms willing to take on the risk of operating in Afghanistan.

India is also assisting the greater South Asian and African regions, including giving to the top recipient nations of Bhutan, Bangladesh, Nepal, Sri Lanka and Myanmar. It has publicly acknowledged its intention to buy back electricity generated through its hydropower assistance to Bhutan. Extending its reach beyond Asia, India provided $43 million in technical cooperation to African countries in 2012-2013.

India is reportedly creating its own foreign aid agency, the India Agency for Partnership in Development, which will have a spending envelope of $11.3 billion at its disposal for the next five to seven years. The government says that the agency would increase accountability over India’s expanding foreign aid spending, which is currently operated by a few officials in the Ministry of External Affairs. It would also engage the Indian private sector to participate in the country’s steadily growing development program. According to some sources, the IAPD will be modeled after the U.S. Agency for International Development.

Russia

Unsurprisingly, there is less known about Russia’s aid program. A large portion of Russia’s development assistance is provisioned through conventional mechanisms such as debt relief and the cancellation of debt under loans lent by the former Soviet Union.

The only country in the G-8 that is a non-DAC member, Russia still receives aid from international and financial institutions and is a major recipient of aid from the European Bank for Reconstruction and Development. In 2012, however, Russian President Vladimir Putin asked USAID to cease operations in the country.

Russia could be considered a “re-emerging donor.” When it held the G-8 presidency in 2006, the country was pushed to make development cooperation a priority. This helped the country understand more traditional donor practices and aid models, which, to this day, separate it from the other BRICs. In 2007, the country committed to providing $500 million in ODA annually. In 2009, that number jumped to $785 million, but then fell in 2010 to about $472 million and rose to $479 million in 2011.

Russia’s core focus areas are food security and health. Russia has made considerable investments in health care and other areas in developing countries, including Nicaragua, Kenya, Congo, Yemen and Guyana, and neighboring states such as Belarus, Tajikistan and Armenia.

As a permanent member of the U.N. Security Council, Russia channels much of its development assistance through the U.N. system’s development agencies. OECD reports that in 2011, Russia contributed $400 million to U.N. peacekeeping and $28 million to humanitarian assistance.

China

And then there’s China.

China’s foreign aid reportedly dates back to the 1950s, but the country’s international development capacity was recently highlighted by the humanitarian assistance it provided to Indonesia during the 2004 tsunami. Since that event, the Asia-Pacific region has begun to look to China for relief and rehabilitation during and after natural calamities, shifting the balance of power away from traditional and better known regional emergency assistance providers such as Japan.

China leads the BRICs in both the size and scope of foreign aid and assistance, but the international community remains largely in the dark when it comes to the true scale and nature of Chinese foreign aid.

To emphasize this fact, OECD contends that Chinese development assistance ranged from $2 billion to more than $3 billion in 2011. Factoring in the concessional loans and state-sponsored or subsidized investments through the Export-Import Bankof China at very low commercial rates, New York University’s Wagner School estimates Chinese economic assistance in 2009 stood at about $26.4 billion — about $10 billion more than the total 2010 expenditure of the Asian Development Bank. In its 2011 White Paper, China reported $40.5 billion spent in foreign assistance since 1950.

China established an interagency foreign aid coordination body in 2011. Led by the Ministry of Commerce, with the Ministry of Foreign Affairs and the Ministry of Finance in deputy director positions, it has 30 member ministries that administer China’s multilateral aid.

>> Special Focus: China’s Foreign Aid Strategy

Indeed, in today’s global economy China appears to be pioneering the unique convergence of ODA and trade/investment and using it to its geopolitical advantage. This is no secret by now and there is no indication that China’s development tactics will cease or desist in countries desperate for capital and low-cost support services.

Case in point is China’s activity in sub-Saharan Africa, where China itself says 45.7 percent of its foreign aid was directed in 2009. Africa has made no mistake that infrastructure is a top priority and approximately 61 percent of Chinese loans went to financing infrastructure and construction such as the building of schools, dams, hospitals and roads.

Considering China’s principle on noninterference, the absence of conditionality on deals between Chinese and less-developed country governments, as well as no obligation to comply with international laws and standards such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, China is in a unique position to support many of the world’s developing countries.

Sharmila Parmanand and Aileen Cruz contributed to this report.

A version of this article was originally published by Devex in October 2011. This revised and updated version contains the latest information and analysis. Join the Devex community and gain access to more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.

You have 2 free articles left
Log in or sign-up to unlock all of the free news on Devex.

About the author

  • Troilo pete%2520head

    Pete Troilo

    As director of global advisory and analysis, Pete manages all Devex research and analysis operations worldwide and monitors key trends in the global development business. Prior to joining Devex, Pete was a political and security risk consultant with a focus on Southeast Asia. He has also advised the U.S. government on foreign policy and led projects for the Asian Development Bank and International Finance Corp.