Most U.S. foreign aid flows through U.S. organizations

President Donald Trump’s budget director Mike Mulvaney confirmed recently that foreign aid is on the chopping block. In an interview before the president’s address to Congress, Mulvaney said Trump would help pay for an increase in defense spending with "fairly dramatic reductions in foreign aid."

Critics of programs that aim to boost economies, increase education and otherwise give poorer nations a leg up often say such aid is wasted through corruption and poor design. While Trump himself indicated during the campaign that some aid was warranted, in 2013 he tweeted, "Every penny of the $7 billion going to Africa as per Obama will be stolen - corruption is rampant!"

The former head of the U.S. Agency for International Development Raj Shah wrote recently that such concerns about fraud and theft are way behind the times.

"Aid and development practitioners know how to set smart targets, engage private-sector partners, adapt to changing circumstances and make sure taxpayers get the most value for their investments," Shah wrote in a Feb. 24 Washington Post op-ed. "Most U.S. foreign assistance no longer even goes to foreign governments. It is given to U.S. companies and nonprofits in the form of contracts and grants; these organizations then implement projects in other countries, employing a combination of American and foreign staff members and often partnering with institutions of civil society."

We wondered if, in fact, most American aid goes to private companies and nonprofits, which then run programs in foreign countries.

According to the Congressional Research Service, Shah is correct by a whopping margin.

The nonpartisan research arm of Congress reported in 2015 that only 4 percent of USAID assistance goes directly to foreign governments.

"Most USAID funds go through U.S. partners — universities, NGOs, and contractors — although their efforts may directly assist a government’s ministries of education or health, for example, in providing educational and health programs to their public," the report said.

The report said that, collectively, 49 percent of aid flows through American nonprofits, for-profit companies and American educational institutions. Another 29 percent goes to international organizations such as the Global Fund and various United Nations agencies.

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The domestic share is likely even higher. Shah is a fellow at the aid advocacy group Results for America. Staff there cited a specialty trade publication article that found that in 2015, the top 20 recipients of USAID funding were American organizations and "these transactions account for 70 percent of the total USAID spending for obligated contracts for the year."

Not all assistance flows through USAID, but it accounts for over 60 percent of the total.

This pattern began to take shape in the mid 1970s as Washington shifted from financing large infrastructure projects to programs more directly aimed at helping the poor. Technical assistance replaced bricks and mortar. There has been a growing emphasis on health, most significantly the President’s Emergency Program for AIDS Relief (PEPFAR). According to a 2013 report on all PEPFAR funding streams, as of 2008, 22 of the top 25 contractors were based in the United States.

In 2016, the United States spent about $3.4 billion on health-related programs and about $2.9 billion on humanitarian assistance, according to the government’s website on foreign aid.

Scott Morris, a senior fellow at the Washington-based Center for Global Development, told us the general pattern of working through the private sector holds across all of the agencies that oversee the aid budget, including the State and Agriculture Departments.

"The checks and controls in the procurement system are quite sound," Morris said. "There is this culture of measurement and transparency that is more common today. Our foreign assistance programs are much more steeped in trying to measure what are we getting for our money. We’ve gone beyond protecting against corruption."

Our ruling

Former USAID administrator Shah said that most U.S. foreign assistance goes to private companies and nonprofits in the form of contracts and grants. According to the Congressional Budget Office, USAID, the government’s largest agency for non-military aid, spends about 4 percent of its funds on direct aid to foreign governments. A trade publication reported that 70 percent of the agency’s money ran through U.S.-based organizations.

The use of contracts and grants has grown over the past three decades. An independent aid analyst said the general pattern at USAID applies across the other government offices that oversee foreign assistance.

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"Most U.S. foreign assistance ... is given to U.S. companies and nonprofits in the form of contracts and grants."

Raj Shah

President of the Rockefeller Foundation

In a Washington Post op-ed

Friday, February 24, 2017

02/24/2017

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