When All Else Falls, Remittances Rise

After the recent military ousting of president Morsi by the Egyptian military, the US has decided to put a cap on military aid to the tumultuous country. This is not the first time. Back in August, the U.S. had cut some of its economic aid to the Egyptian government. Cutting off military aid may have a louder effect, considering military aid to Egypt greatly  surpasses economic aid. Thus far, the Egyptian government has been expectedly peeved in response to these actions.

With government aid in the news, it’s relevant to look at some of the other financial flows to Egypt. At CGP, we try to get a more complete picture of foreign assistance by looking at investment, philanthropy, and remittances.

With the recent turmoil, investment, the most fickle of the four flows, has subsided after the sharp rise in the spring of 2013. Much of this earlier rise came from neighboring Arab nations, after Europe and the US pulled out. Since the military takeover, sources suggest that all in all FDI has dried up and billions have been lost.

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Did You Say ‘Do away with USAID’?

CGP rarely blogs about U.S. politics, unless something drastic happens. Or rather, unless something drastic is proposed to happen.

Yesterday, the Republican Study Subcommittee unleashed a plan to cut U.S. government spending over the next ten years by as much as $2.5 trillion. Among imposing cuts on things such as the federal travel budget,  Amtrak subsidies, and Obamacare, the RSC also proposes to virtually eliminate USAID. Although the final bill has not yet been released, according the summary, RSC’s plan suggests that cuts to USAID can save $1.36 billion dollars annually.  That’s quite a sum considering that USAID’s budget in 2010 was approximately $1.65 billion.  The plan also proposes to eliminate subsidies to the OECD (saving $95 million annually) and economic assistance to Egypt (saving $250 million annually). The GOP has talked about cutting the foreign aid budget for quite some time. The same budget that the Obama administration has proposed to increase to nearly $37 billion in 2011.  So, it’s no surprise that USAID is on GOP’s list. While USAID, as many bureaucratic organizations, has waste that can be eliminated, passing such a large budget cut for an institution that has been around for 50 years seems unlikely.

A New Year with New ODA Statistics

Every year OECD publishes the Development and Co-operation Report which, in addition to providing trends on numerous aid related topics,  puts out a plethora of aid statistics. While the full report does not surface until April, the statistical annexes are already available for public viewing pleasure.  Among the many tables, CGP focuses specifically on Table 13 of this annex, which covers ODA and other financial flows for 2009.  Below are a few things worthy of note:

Is Canada cheap because it plans to cut its ODA?

Slashing aid budgets during harsh economic times is not a new phenomenon. While President Obama claims to increase aid during the time of his presidency, U.S.’s northern neighbor is slashing its aid, as was disapprovingly reported on by Jeffrey Simpson in the Globe and Mail on Monday. In this piece, Mr. Simpson points to the new 2008 numbers released by the OECD which show that Canada by only providing .33% of its GNI to foreign aid, lags behind most of Europe. The article also does not hesitate to point out that the U.S. and Japan are even lower than Canada at .22%, while Norway has nearly reached the whopping 1%.

So is Canada just being cheap and selfish?

What this article does not pay attention to is the amount of voluntary contributions that Canada gives to developing countries, which in 2008 amounted to $1.5 billion. Furthermore, FDI from Canada nearly doubled from 2007 to 2008, reaching $14.9 billion in 2008, which exceeds the FDI from any of the Scandinavian nations. Sure, grants by voluntary agencies and FDI are not the same thing as government aid, but Mr. Simpson himself points out that foreign has fallen short of its promise. So if that’s the case, then what’s the point of using government aid as the sole measurement of donor commitment, especially in a time when other resource flows are larger in volume and may even be more effective at promoting development.

The Road to International Development, on a Bike

With energy prices rising and the obesity epidemic growing, more and more Americans are getting out of their cars and onto their bicycles. The convenience and affordability of bicycles attracts everybody from college students to CEOs. Ironically, in the US where automobiles were conceived, the population is beginning to embrace the “less developed” form of transportation. And while bicycle popularity is growing in the states, it’s also growing abroad, perhaps even in tandem. The number of international development organizations who focus their work around this two-wheeled locomotive is rising, and rightly so.

CGP recently had one of its interns research the number of bicycle oriented international development organizations. The multitude of these organizations was surprising. Just from a quick search, the intern found nearly 30 non-profits who base their international development work on distributing this method of transportation. Organizations such as the Village Bicycle Project, Bikes without Borders, and Bikes of the World are not only alike in their bicycle oriented development projects, but also these non-profits are largely surviving on donations and volunteer work. The model is quite similar across the board, the organizations collect donated bikes, bike parts and other useful bike related materials, and send them overseas to underserved populations in developing countries. The organizations who collect the bicycles in the U.S. often partner with local non-profits in developing countries to distribute the bikes to populations in need. Depending on the organization, bicycles are either donated to their recipient, or better yet sold at a low cost. Selling the bicycles not only creates sustainability of the programs, but also ownership of the bikes. Some organizations, such as Pedals for Progress partner with local microfinance organizations to sell bikes and link them with business development, while organizations such as Bamboosero have launched entire bicycle based businesses in developing countries by promoting the production and sale of bamboo bikes. Another organization, Pepy Ride, not only provides bicycles for children to ride to school, but is supported through the bicycle tours it gives to tourists in Cambodia, where the organization operates. The bikes provided by all these organizations not only allow kids to go to school and parents to get to work, but some even serve as taxis, ambulances, and cargo transportation.

CGP focuses on promoting best practices in international development, and oddly enough most bicycle related non-profits serve as a good models for such practices. The works of these organizations rely on volunteers, donations, and have low-overhead costs. The organizations in the US form partnerships with local organizations in developing countries. The programs are efficient, environmentally friendly, and promote entrepreneurship. While bikes maybe the answer to the developed world’s obesity problem, they are certainly one of the keys to sustainable economic growth in the developing world.

Beyond Philanthropy, to Social Investment

Last week the Bill and Melinda Gates Foundation announced the launching of a social investment fund which will provide loan financing to both non-profits and businesses. $400 million is allotted to this new endeavor, and investments will begin by the end of 2009. Social investment, put simply, is an investment that has both a financial and a social return. The measurement of social returns is a topic that deserves its own blog post, but the point here is that social investment is on the rise. Other foundations, such as Skoll, have begun focusing on investing in social entrepreneurs or in funding social enterprise funds, deviating from the typical grant giving role of a foundation. Likewise, the Calvert Foundation claims to “focus on investment capital, rather than conventional philanthropy” in addressing social problems.

The recent move by Gates is indicative of an overall growth in socially responsible investing (SRI) which is seen both in the typically philanthropic world of foundations and in the corporate world. The Social Investment Forum in its 2007 annual report noted that SRI has risen from $639 billion in 1995 to $2.71 trillion in 2007, a growth of over 300%. According to the report, a large growth of this trend in the US is attributable to the growing concern over climate change, which has increased investment in green technology and alternative fuel research. The growth in SRI is significant both domestically and internationally.

Internationally, the expansion of microfinance organizations has provided a channel for social investment where a social and a capital return is produced. Beyond microfinance, social investment in international development is also targeting small and medium enterprises. Private equity firms such as SpringHill Equity Partners provide capital specifically in emerging markets where financial returns are lower, however those returns are accompanied by “measurable social benefits”. The Africa Middle Market Fund, while still waiting on capital, aspires to do similar work in by investing in African businesses and producing both a financial return and social improvement.

Development in the past has been dominated by foreign aid, philanthropy, and to a certain degree foreign direct investment. While philanthropy and FDI lie on two opposite ends of a spectrum, and social investment may finally be the long-awaited middle ground.

Is the recession transforming philanthropy?

Yesterday evening, the editor of the Chronicle of Philanthropy, Stacy Palmer, was interviewed briefly on NPR regarding the recession’s impact on giving. While the outlook is fairly grim even for last year when charitable donations decreased, Ms. Palmer did note that the recession is forcing donors to be pickier with their donations. Donors are starting to increase their focus on outcomes when choosing where to give.

Could the financial squeeze of the recession create a new paradigm in giving?
Philanthrocapitalism has been a hot topic after the publication of Matthew Bishop’s and Michael Green’s book by the same title. Venture philanthropists such as Bill Gates have called for philanthropy to become more like for-profit capital markets that yield results on investment. Whether the market model actually works for philanthropy is still a question under debate. Many claim that people give with their hearts not with their minds, and so the need to see impact and a return on giving is less of a worry for a philanthropist as opposed to an investor. Yet during this recession, the reoccurring theme shows that the decline in giving is accompanied by a reassessment of giving, with an increased focus on impact donations. Will the recession transform all philanthropists to philanthrocapitalists on a smaller scale?

While the long-tern impacts of the recession are still to be determined, it will be interesting to see whether certain types of giving will be more dependent on the economic situation compared to others. Recent research shows that tax policy has different impacts on charity and non-profit donations depending on the type of work the organizations do. Specifically, donations to charities that appeal to higher human needs such as the arts, or environmental causes tend to have high tax-price elasticity, meaning that tax incentives increase the donations to these charities. While organizations that cater to basic human needs such as hunger and poverty relief tend to be inelastic to tax incentives. This implies that people still give with their heart, but only to selective causes. Perhaps a similar elasticity trend will surface between the nation’s economic condition and giving, where donations to basic need organization will remain relatively stable, while donations to organizations that provide higher needs will become outcome-driven.