On Thursday, the U.S. State Department announced a $50 million increase in aid to Sudan to support peacekeeping operations by the African Union. In 2004, the government gave about $1.4 billion to more than 30 African nations via the United States Agency for International Development. When the U.S. government gives foreign aid, how do they send the money?
Through a third party, typically. The $50 million that’s headed for Sudan will support African Union peacekeepers, but most U.S. humanitarian aid gets disbursed to independent contractors and consultants. Private, public, and international groups submit proposals to USAID,which then selects recipients for grants or contracts. The grant recipient uses this money to set up a project, hire staff, and purchase supplies. For example, the group Action Against Hunger got $2.375 million to provide food and drinkable water in Darfur as USAID’S “implementing partner.”
Foreign aid often comes in the form of direct food donations rather than money. These donations either can be given directly to a needy government or distributed by an independent organization under contract with USAID. In the latter case, the foreign aid money would cover both the value of the donated food and the costs of shipping it overseas and distributing it on the ground.
The U.S. government rarely offers aid in the form of a direct cash transfer, although this hasn’t always been the case. From the 1950s until the early 1990s, direct loans and cash transfers represented the dominant form of giving. The U.S. Treasury would transfer money directly to a commercial bank account held by the central bank of a foreign country.
But there’s a danger that direct cash transfers to a corrupt government might end up in private hands. In what was then Zaire, for example, Mobutu Sese Seko stole perhaps billions of dollars in direct foreign aid. To guard against this kind of graft, donors started to request that foreign governments set up independent, state-owned agencies to receive the money.
The use of third-party contractors reduces the risk of theft even more. USAID pays an aid organization to hire independent staffers, who then travel to the recipient country and distribute aid as they see fit. The host government is often minimally involved.
The United Kingdom and the World Bank, among others, do still use direct cash transfers for foreign aid. American officials have considered switching back to direct transfers for certain countries. In theory, a single payment to an honest government would be more efficient than having USAID manage lots of small projects through third parties.
Explainer thanks Steve Radelet of the Center for Global Development, Roslyn Matthews of USAID, and reader Eston Melton for asking the question.