10/04/2012 07:28 pm ET Updated Dec 04, 2012

The Changing Face of Foreign Assistance

The rise of emerging economies - like Brazil, Russia, India, and China, or BRICs - has been the dominant economic story of the past decade. While traditional economic powerhouses like the United States, Great Britain, and the Eurozone countries continue to make up the largest share of total output, even though weakened by financial crisis and recession, developing economies have been growing faster and representing an ever larger share of world GDP.

This reality is also playing out in the sphere of international development assistance, once almost exclusively the realm of the "first world" economies. As Europe and the US enter an era of austerity budgeting, they are being pushed by both fiscal realities and political pressure at home to cut back on ambitious foreign aid goals. Developing countries are increasingly filling the gap, drawing on their increased capacity for foreign aid spending and their newfound geopolitical heft.

A look at gross global foreign assistance numbers shows that the traditional donors still lead the way - although this doesn't tell the whole story. The most recent Index of Global Philanthropy shows the US far out in front with an Official Development Assistance (ODA) budget of over $30 billion yearly. In comparison, the UK, Germany, France, and Japan, the next largest donors, all contribute between $11 and $13 billion in ODA a year.

But the UK, struggling with its own recession, has announced that it will be cutting its overseas aid by more than $1.5 billion over the next three years. The British government has blamed the cuts on shrinking revenues stemming from a contracting economy. Italy, Ireland, and Spain have each reduced their aid budgets. And in the US, Congress is pushing for the biggest cuts to foreign aid in twenty years, on the back of an overall decrease in international affairs spending to $49 billion in 2011 from its 2010 level of $55 billion.

By contrast, emerging economies are pouring more resources into aid than ever before. In 2006, foreign assistance from emerging donors reached nearly ten percent of total global aid flows; by 2011, some estimates, like those of the Center for Global Development, place that share as high as 30 percent. According to an analysis by the nonprofit Global Health Strategies Initiatives, Brazil and India's foreign aid spending grew by more than 20 percent between 2005 and 2010. Over the same period, China and South Africa's spending increased by ten percent.

These countries are not only changing the landscape in terms of funding levels, but also in terms of the underlying philosophy of aid. Emerging economies have developed the skills to make their money go further, and are able to engage on a peer-to-peer level that superpowers like the US have struggled to. India, for example, succeeded in eradicating polio in 2012 after having one of the highest rates in the world. Now, it is working to translate that local expertise into effective, targeted foreign aid: over the past three years, it has spent $100 million on health-related projects abroad.

And Brazil, perhaps even more so, epitomizes the up and coming emerging donors. Its direct aid budget has topped one billion dollars, and if we count subsidized financing from its state-owned development bank, its foreign aid reaches some four billion dollars yearly. Africa is a particular target for Brazilian aid - the continent receives 55 percent of Brazil's aid disbursements. These funds go towards everything from HIV/AIDS clinics in Mozambique to $150 million for road construction in Nairobi. Nor is this funding totally altruistic; rather, it complements growing trade ties and political relations. In 2011, total trade between Brazil and Africa topped $27 billion, up from $4 billion in 2002.

In Washington, policymakers are beginning to make virtue out of necessity by developing ways of reorienting the US aid budget around these new realities. A new report by the Center for Strategic and International Studies (CSIS) entitled "Strategic Foreign Assistance Transitions" outlines the need for the US to transition away from traditional aid and toward mutually beneficial relationships based on peer-to-peer linkages such as trade, investment, science and technology partnerships, and person-to-person exchanges.

This strategy envisions leaning more heavily on institutions like the Overseas Private Investment Corporation (OPIC), the Export-Import Bank, and the Development Credit Authority, which support trade and entrepreneurial activities in partner countries. A focus on investment dovetails, as well, with the leading role that private aid plays in the US: the private sector is responsible for $39 billion dollar a year of philanthropy in the developing world, easily outstripping federal expenditures.

These recommendations are about shifting away from old forms of aid while still remaining positively engaged with lower-income countries. As examples like India and Brazil have shown, these kinds of "aid in order to trade" type of relationships are win-win for both sides. And ultimately, the fact that countries once dependent on foreign aid are now donors themselves is a sign of positive global development. The key for countries like the United States, as CSIS argues, is to intelligently manage the transition.