Africa must look within to improve resource allocation and promote social impact investments that go beyond just boosting profits.

On the day he took office in January, United States (US) President Donald Trump authorised the freezing of most American foreign development assistance for 90 days. The freeze would allow for an assessment of programmes’ efficiency and consistency with US foreign policy.

US Secretary of State Marco Rubio followed up with a three-way test for future US aid: ‘Does it make America safer? Does it make America stronger? Does it make America more prosperous?’ Nothing was said about the recipient country’s needs, or human rights and values.

While the media is gripped by the US decision, the shifting of aid priorities isn’t new. In 1995, Sweden replaced its Swedish International Development Authority, similar to USAID, with the Swedish International Development Cooperation Agency. Another example among several in Europe is Britain’s 2020 merging of its Department for International Development with its Foreign, Commonwealth and Development Office.

The US process is however different to both the Swedish and UK cases, given the immediacy of the freeze and the dismantling of USAID before conducting a review.

Globally, the upward trend in official development assistance (ODA) started levelling off in 2022. In 2020, the UK reduced its commitment to spend 0.7% of gross national income (GNI) on ODA to 0.5%, with a new target of 0.3% by 2027.

It is estimated that in 2023, the Development Assistance Committee of the Organisation for Economic Co-operation (OECD), which comprises the world’s richest nations, committed only 0.37% of donors’ GNI to development aid –US$196-billion below the 0.7% target.

Two trends are clear. First, countries that administer ODA separate from foreign policy are tending to merge them. In the process, the aid component will be smaller and dependent on foreign policy priorities. Second, ODA funding will likely fall as donor countries respond to post-Covid-19 economic woes, and national and regional priorities such as the Ukraine war. Africa won’t be a priority for the remaining aid.

In 2023, Africa received US$59.7-billion in ODA, representing 26.8% of all aid that year. The US cuts are significant because the country provides about 26% of all development assistance to Africa, and all African countries except Eritrea received some support from the US in 2023.

The US aid freeze impacts African countries in different ways. In Ethiopia, where 16-million citizens depend on donated grain and 50% of children were projected to suffer from malnutrition in 2024, the decision aggravates an already critical condition. Ghana faces a US$156-million shortfall that endangers its healthcare and agricultural sectors. Nigeria’s fragile healthcare system is further strained, diminishing resources for treatments and worsening existing vulnerabilities.

ODA-supported programmes are important. They are typically deployed where government programmes have been absent for decades. They address social issues in public health, climate change, migration, crime, violent conflict, agriculture and food security, among others. Aid also supports civil society and research initiatives that may be impossible without funding.

To respond to the ODA gap (and similar shocks in future), what is most needed in Africa is not a big-dollar cheque, but to look inward with precision and efficiency, at the allocation and use of resources. More efficient government revenue collection and broadening the tax base are also vital.

The Africa Wealth Report 2024 noted that 135 200 people worth at least US$1-million lived in Africa. Furthermore, remittances to Africa reached US$100-billion in 2023, constituting 6% of the continent’s gross domestic product. The assets of high-net-worth individuals and remittances surpassed ODA to Africa, which was US$42-billion, as well as foreign direct investment – US$48-billion in 2024.

Significant resources exist in Africa, and more are coming in through foreign direct investment and remittances. The challenge is to improve resource allocation and promote investments that address communities’ problems, not just boost profits.

Africa’s private sector must be deliberate in allocating resources to causes. A recent example illustrates the current challenge. On 20 February Nigerian elites raised ₦17.5-billion (US$11.7-million) for an 83-year-old ex-dictator to build a ‘presidential library’ in a country where 18-million children are out of school. Better planning could see these funds channelled to more inclusive and sustainable initiatives.

Africans need not be millionaires to drive change. There is already an impressive commitment to crowdfunding in parts of Africa. Despite challenges in existing crowdfunding initiatives, Africans can get more mileage by pooling resources and supporting structured projects such as those currently funded through ODA.

Social impact investments can help Africa match resources to compelling societal needs. As much as US$38-billion in social impact capital was invested in Africa between 2005 and 2015. Other tools could include charitable bonds, and green and sustainability funds.

Challenges include poor awareness, and a lack of regulation and interest among African investors. The interest of the diaspora in remittances and diaspora bonds can also be tapped to fund impact projects on the continent.

African governments can motivate individuals and firms through financial and regulatory incentives. These include tax benefits for charitable contributions, prioritised access to public-private partnerships, and policies that embed philanthropy within states’ and corporations’ agendas.

The continent must rethink its reliance on external aid. African philanthropy can be harnessed to fund critical projects previously funded through ODA. This could be through individual and corporate donations, organised crowdfunding, and subscription to social impact investments and social bonds.

Such funding must go towards projects that are well developed, sustainable, managed by professional teams and consistently evaluated. Awareness programmes that promote a culture of giving are also vital.

In 2023, private sector contributions to the United Nations Children’s Fund (including individual donations) reached US$2.1-billion. People of the world are willing to give if they have confidence in the recipient.

This could be replicated in Africa, where a strong tradition of giving to charitable causes already exists. What remains is to pool this practice and combine it with investments to wean the continent off its dependence on foreign aid.

Written by Oluwole Ojewale, ENACT Central Africa Organised Crime Observatory Coordinator, ISS & Nengak Daniel Gondyi, PhD Candidate, LANDRESPONSE Project, Norwegian University of Life Sciences, Ås, Norway