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Reshaping Global Giving One BRIC at a Time

August 10, 2012

For more than half a century, Western DAC donors have monopolized foreign aid to the developing world. However, at the turn of the 21st century, this traditional flow of aid has begun to shift dramatically. According to a recent article, the four BRIC countries (Brazil, Russia, India and China) are increasing their foreign aid at an astounding rate. Western aid is no longer the only foreign aid that is alleviating global poverty and promoting economic development. Even though the traditional DAC donors are still the largest contributors to foreign aid, the BRICs have started to reshape the distribution and philosophy of foreign aid.

High and Low Estimates of BRICs ODA Per Year

Estimates of ODA dispersed by the BRICs range from $3.1 billion to S31.3 billion per year. The biggest swing factors are China, where ODA estimates range from $1.5 billion to $25.1 billion and Brazil, where ODA estimates range from $356 million to $4 billion.  There are many reasons for the different estimates. First, there tends to be lack of transparency in foreign aid spending by these emerging donors. In addition, emerging donors such as Brazil and China see foreign aid differently than the traditional DAC countries. ODA, as defined by DAC, includes grants and highly subsidized loans. They do not include Foreign Direct Investment (FDI) and in-kind transfers. There is no standard system for reporting ODA among the BRIC countries. China, for instance, doesn’t even define its foreign aid as “aid,” and describes it as “external assistance.”

The BRICs are seeing tremendous growth in their foreign aid expenditures. Between 2005 and 2010, both India and Brazil have seen growth rates of over 20% and China has seen growth of over 10%. Russia has seen similar trends in this period. According to a recent study, the BRICs have played a key role in the economic growth and sustainable development in the Low Income Countries (LIC). These benefits are in the areas of trade, and development financing. In addition, as a result of the BRICs engagement with the developing world, they have lessened the effects of the financial crisis on these developing nations.

The BRIC nations are changing the landscape of international development, presenting many challenges the traditional DAC countries. The BRIC countries’ philosophy on foreign aid differ from the DAC countries in many different ways. First, BRIC engagement with the developing world, with the exception of Russia which like the traditional DAC countries still sees poverty reduction as an important part of it aid, is based principles of mutual benefits, equality and solidarity. Brazil, India and China see themselves as “development partners” instead of “donors.” Second, BRIC countries such as China tend to provide non-cash financing for projects without attaching policy conditions. They view this as respecting national sovereignty and cite the principle of non-interference in domestic affairs. BRICs believe that the long term development of a country is the responsibility of the recipient and not of the donor.  In contrast, DAC donors view policy conditions and institution building as crucial in the effective use of aid.

BRICs to Reshape Global Giving

Does the BRIC model of foreign aid threaten the traditional DAC donors’ ability to promote economic growth, democracy, human rights and long term institutional development? Is the traditional DAC model of foreign aid becoming obsolete? According to a recent report, the BRICs are not necessarily in competition with the traditional DAC donors and can be included into aid effectiveness policies and development strategy dialogues.

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