BRICS and foreign aid: new challenges amid a changing economic order

Brazil, Russia, China, India and South Africa: the building BRICS of a new world order in economics and foreign aid. Blog do Planalto

On 29 March, the BRICS nations – Brazil, Russia, India, China and South Africa – will meet in New Delhi for their fourth annual summit. Representing 40% of the global population, 25% of global GDP, and a set of economic growth rates that are outstandingly robust when compared with the EU and the US, the BRICS have the weight to substantially re-align the international political economy. They are starting to do just that.

A key proposal to be discussed in Delhi is whether the BRICS establish a global development bank and investment fund in opposition to the World Bank and the International Monetary Fund. Motivating this push is frustration on the part of large developing countries at the slow pace of change in the governance of the Bank and the IMF – exemplified by the unwillingness of major Western donors to alter the practice that World Bank presidents are nominated by the US and IMF managing directors by European members.

BRICS nations also have long-running concerns about the nature of foreign aid sourced from established multilateral and “northern” bilateral donors. From the perspective of many developing countries, the insistence by northern donors that developing countries agree to good government, human rights, and social and environmental impact conditions before they receive aid is seen as restrictive and patronising. The not always public alignment of northern foreign aid with the political and security national interests of the donors is regarded as neocolonial.

Aid from major developing countries such as China comes with fewer conditions and tends to accepts that recipient governments will use the aid in a variety of ways, sometimes placing economic development over human rights, and sometimes supporting local political elites rather than the citizenry as a whole. Northern donors increasingly – and understandably – have problems in assisting such governments, but they also have an underlying assumption that there is a “best practice” of development that must be followed by all. Given that the level of south-south transfers of aid, while still only around 10% of global aid transfers, have increased markedly over the past decade and give every indication they will continue to grow, a contest over the “world order” of foreign aid is emerging.

This global realignment collides head-on with a recent shift within the Australian foreign aid program.

Last year’s Independent Aid Review and government response argued that the program needed to get better at showing Australian aid represented good ‘value for money’ (VfM). The initial response by AusAID has been to establish a VfM unit focused on improving procurement models.

The implications of VfM, however, go far beyond demanding increased contractor output per cost unit. Recent VfM reviews conducted by the UK’s Department for International Development have highlighted that it is impossible to get away from deeper questions such as how value can be measured and when value manifests itself. Most importantly, it is impossible to avoid the question: “Value” for whom?

AusAID has yet to tackle this question in a comprehensive way, although there are signs some of its country and sectoral programs are beginning to engage with it. Given the nature of the international aid environment, it will be a challenging process.

If the answer to “value for whom?” is taken simply to be “value to the Australian taxpayer”, then the capacity of the Australian aid program to respond to the BRICS-instigated changes in the international aid environment will be limited. For one thing, this narrow interpretation of “value” assumes that there is an ideal type of “development” – which happens, in the short to medium term, to benefit Australia in some way – and a known pathway for achieving that goal. On this basis, value for money means attaining such development at the lowest possible cost. What developing country governments (and especially communities) consider to be valuable is not taken into account.

The reality – that both defining and achieving development is inordinately complex – is ignored. The opportunity to undertake difficult negotiations with developing country governments and communities in order to reach agreement on value, and thereby attempting to avoid both neocolonialism and the entrenchment of local elites, is lost.

The evidence thus far is that there is considerable goodwill on AusAID’s part to embrace a broad notion of value for money, but it will inevitably run up against organisational inertia and the low level of understanding among Commonwealth legislators of the complexity of development and aid.

One can only hope that the move by the BRICS to directly challenge the dominance of the World Bank and the IMF will concentrate the minds of Australian policymakers on the need to show how Australian aid provides value to all stakeholders.