Cuts in international aid mean investing in development has never been more important

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it’s investigating the financials of Elon Musk’s pro-Trump PAC or producing our latest documentary, ‘The A Word’, which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

The historic aid contract between the world’s richest countries and less developed nations is irreversibly changing. But what comes next could eventually produce better long-term outcomes for all concerned.

Official development assistance (ODA) is falling steeply across the world. OECD projections show a 9-17 per cent fall in 2025, on top of a 9 per cent decline already recorded in 2024. That means the total amount of global ODA could be $60 billion less than in 2023.

The US will reduce its ODA in 2026 to less than half the level of 2023. In a European context, the UK is cutting the amount of ODA from 0.5 per cent to 0.3 per cent of gross national income (GNI) by next year. The situation is mirrored in Germany, France, Switzerland, Sweden, the Netherlands and Austria. The UK has pledged that ODA will go back to 0.7 per cent of GNI when it is fiscally possible to do so.

Reductions to ODA budgets are a direct result of the absolute requirement to increase defence and national security spending in response to the turmoil in Ukraine, the Middle East and elsewhere.

The UK government and British International Investment (BII), the UK’s development finance institution, is evolving its approach to ODA to transition from aid to a more investment-led approach with a stronger emphasis on partnerships, and an enhanced commitment to the least developed countries.

As Yvette Cooper, our foreign secretary, has clearly indicated, international development spending does not stand in opposition to bolstering our defence and national security capabilities. The reverse is true. Striving to create economic stability in the most fragile parts of the world provides a security dividend for us in the UK.

Britain has a proud history of acting as a global leader in international development. Having fewer resources at our disposal does not mean abdicating that leadership role. Far from it. BII is committed to demonstrating that a new, mutually-beneficial path exists that creates secure jobs and stable economic conditions in the countries in which we invest, while providing value for money for the UK taxpayer.

The UK recognises that this is not just what we require in this country, it is also what many historically aid-dependent nations are calling for. A growing bloc of African leaders, including those from Zambia, Ghana, Rwanda and Uganda, are using this moment to argue for fiscal sovereignty, domestic financing and regional integration, signalling a move away from aid-led development models. These leaders want investment in their private sectors to build thriving economies, generate tax revenue and reduce aid dependency.

It is against this backdrop that BII will shortly publish its new five-year strategy.

Crucially, BII will remain financially sustainable without compromising our core development mandate. Any fresh capital we do receive from the UK government will be a much smaller amount than we have historically received. This is entirely appropriate and allows for the smaller ODA budget to be focused on recipients of grant aid.

Over the last decade, BII has generated a portfolio level return of £1.6 billion. Making a profit means we are not only supporting successful businesses that deliver real impact but also acting as custodians of taxpayer money.

Being financially resilient means that the return we make on our investments is recycled over and over again – supporting more businesses to alleviate poverty, combat the climate emergency and backing the aspirations of millions of people in less developed countries.

As ODA budgets are reduced we must ensure our capital works harder. Attracting private investment is a big part of that ambition. We will aim to crowd-in more private capital than before for every dollar of concessionary capital that we commit for climate finance and development.

We will do this by identifying new opportunities for private investors in our markets while underwriting their risk where appropriate. BII, with almost eight decades of investing in the least developed countries in the world, is uniquely positioned to play this role.

And we have already taken key steps in this direction. In January we anchored the $1 billion (£744 million) Allianz ACE Fund – a climate finance vehicle which aims to secure nearly $7 of private capital for every $1 of publicly provided concessionary capital.

Secondly the new strategy will contain a renewed focus on reducing carbon emissions as quickly as possible. We will provide climate finance to support developing economies with coal-based power generation and rapidly growing emissions to transition to renewables. These countries will include the likes of India, the Philippines, Indonesia, Vietnam and other Southeast Asia economies. The rapid economic growth and industrial transformation we see in these countries provides BII and our private sector partners with the opportunity to decouple that growth from carbon emissions.

We will also continue to commit climate finance to frontier markets (the Least Developed Countries as defined by the UN) in Asia and Africa. In Africa alone, nearly 600 million people do not have access to reliable and affordable electricity. In our current strategy period, we said that at least 30 per cent of our new investments would qualify as climate finance. We are on track to meet that goal. Expect our new number to be even higher.

And thirdly, we will enhance our commitment to frontier markets – those countries that are deprived of commercial capital because of the inherent risks of investing – and where the development need is greatest. We will open the door for private investors to commit capital alongside us in places such as Sierra Leone, DRC, Zambia and elsewhere.

We will also increasingly identify investments that support wider shifts in how markets operate, rather than just making investments in individual companies. By being more selective about the sectors we invest in, we aim to spark deeper, more lasting change.

We cannot solve the global challenges we all face – poverty, instability, conflict and global public health – without bringing the least developed countries with us on the journey to shared prosperity.

Falling budgets mean the development finance community is compelled to act, to evolve and to create genuine partnerships that lead to long-term economic and environmental outcomes that benefit us all. The changing international development landscape can be successfully navigated with innovation, invention and ideas.

BII is committed to playing its part.

Leslie Maasdorp is chief executive of British International Investment, the UK’s development finance institution

This article has been produced as part of The Independent’s Rethinking Global Aid project