Emerging economies’ increasing engagement in overseas philanthropy, private investment, and government aid is transforming the landscape of international giving, a groundbreaking study reports.
The eighth edition of the Index, funded by Canada’s International Development Research Centre (IDRC), is the first attempt to document and understand this important new trend.
“Donors in the emerging economies are now giving more, and they have an increasing interest in South-South cooperation,” said IDRC President Jean Lebel. “But until now, we believe, nobody has done a serious study of these new patterns of giving.”
Mostly private money
Launching the Index in Ottawa, report co-author Carol Adelman told the Economic Club of Canada that the four emerging economies studied sent $106 billion to the developing world in 2011. (All figures US.) Private capital investments, remittances, and philanthropy made up the bulk of the funds.
The magnitude of the flows was one of the study’s most startling findings, Adelman said. She is Director of the Hudson Institute’s Center for Global Prosperity, which produces the Index.
“Just these four countries represent 15% of all the money going from developed and emerging economies to the developing world. Imagine if we were to measure the other emerging economies, like Turkey, Mexico, and others.” Flows to the developing world from all emerging economies could be as much as 50% of the amount that developed countries send, she said.
That less than 5% of the money flowing from the four emerging economies, or almost $3.7 billion, was similar to official aid “is probably not so surprising,” she said. “It’s hard for them to spend their government funds on overseas poverty when India, for example, has 33% of the poor people in the world.”
The Index also attempted to gauge the emerging economies’ philanthropic contributions to the developing world. Philanthropy is relatively new in all four countries, and information on international giving was particularly hard to find, Adelman said.
IDRC put the researchers in touch with organizations in those countries that could help collect data and other information that provided useful insights. These pilot efforts uncovered $366 million in philanthropic donations from emerging economies to causes in the developing world.
“Private philanthropy is much harder to measure, but we got a start on it,” Adelman said. The researchers hope to provide more complete numbers on the role of philanthropy in future editions of the Index.
As in previous years, the researchers clearly established that “government aid is no longer the major player in global poverty reduction.” Instead, private financial flows “have come to dominate developed countries’ relationship with poor countries,” Adelman said.
Analyzing the 2011 financial flows to the developing world from 23 traditional donor countries, the study found that private funds ($577 billion) far surpassed official assistance ($134 billion). “Government aid, at less than 20%, is now a minority shareholder, the opposite of 40 years ago,” the authors note.
Canada’s international aid budget was in line with the average public-private split seen in developed countries, Adelman said. The traditional donor governments tend to account for about 20% of a country’s “total economic engagement” with the developing world.
The US ratio of 11% public and 89% private sources “reflects the culture of the United States,” she noted. “Even when we give domestically, we give more through private institutions.”
Rise of remittances
Remittances are now widely regarded as “one of the greatest poverty-reduction agents in the world,” Adelman said. “Hometown associations of migrants come together and do fundraising and send this money back to the village they came from to build roads and clinics and schools.” This influx of foreign exchange can also improve a country’s credit rating.
Canada, she noted, is the developing world’s second-largest source of remittances. “The United States is first because we have such a large population, but you exceed every other developed nation,” she said.
Remittances of $14.9 billion accounted for 53% of the money flowing from Canada to developing countries. Official aid ($5.5 billion, or 20%), private investment ($5.7 billion, or 20%), and philanthropy ($2 billion, or 7%) made up the rest.
“Government aid is still very important for many things,” Adelman said, citing examples such as disaster relief and support for development in conflict areas and after crises. But private actors are the main players in what the report describes as “the diverse new world” of international development.
A country’s total economic engagement with the developing world thus provides a better measure of its generosity than aid alone, Adelman said. “Compassion is the work of a nation, not just a government.”
Kelly Haggart is a Senior Writer at IDRC.
Photo (right): IDRC/Poorvi Chitalkar