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New Approach to Foreign Aid in the New Era of Global Economy

In recent years, BRICS countries have been experiencing significant growth rates because they have been attracting more investmentsby lowering their taxes and tariffs, and stepping in more initiatives to protect their growing emporium. However, this economic burst brought them many responsibilities on international arena because there are many low-income countries (LICs) which are in need of foreign aid.[1] Therefore, BRICS countries brought their own foreign aid agenda which promises much different things from the traditional approach and could be arguably more beneficial than it. The reason why it could be more beneficial is that their new agenda has no ambition to interfere in the internal affairs of recipient country, and is promised to be motivated by mutual partnership idea.[2] To strengthen the impacts of their agenda on infrastructure building in LICs, they have been acting multilaterally in international financial institutions to push every country to focus on foreign aid in these countries. Also, they have established new banks to fund their infrastructural aid projects in many countries. On the other hand, BRICS developed a health aid agenda to bring technological advancement to these countries to build healthy demographics by taking into consideration the recipient governments’ lacking of financing the basic human needs of their people. Moreover, failure of traditional donors in reaching sustainable poverty reduction in LICs led BRICS countries to build closer ties with these countries to invest in their private sector and build mega projects upon them to solve their poverty issues.[3] All in all, differences of BRICS countries’ new approach to foreign aid make it more beneficial in terms of its efficiency in infrastructure constructions, its utility in global health agenda and more importantly its direct aims about sustainable poverty reduction.

Difference of New Approach to Foreign Aid

Extraordinary growth rates of BRICS countries have been very influential about their perspective in the world and their ambitions on every region in the world. To intensify their growth rates and fulfill their responsibilities as international citizens, they introduced a new perspective to foreign aid which is different in many ways from foreign aid approach of Development Assistance Committee (DAC).[4]This approach differs from the traditional foreign aid programs of DAC because BRICS countries are not under the rule of regulations in their foreign aid projects, they do not interfere in the fiscal policies of countries or their internal politics in any ways and most importantly they do not simply donate money to LICs but act like development partners by conducting mutual projects.[5]

Foreign aid from the countries under DAC goes under certain procedures which were determined in 2005 Paris Declaration on Aid Effectiveness and this process ensures the right place where foreign aid must go but results in consuming much time which people living under awful conditions could not afford to wait.[6] However,BRICS countries new approach to foreign aid do not have to undergo a regular peer review by the DAC and because of that their foreign aid became more efficient regarding the time and resource waste.[7]

Moreover, unlike foreign aid of DAC countries; BRICS countries, with the exception of Russia, are trying to reach their national objectives by conducting foreign aid projects under mutual partnership idea.[8]In other words, new approach of these countries emphasizes the principles of equality, solidarity, mutual development and complementarity. With these principles, what BRICS countries try to do is to oppose the idea of hierarchical donor-recipient relations.[9] That is why BRICS countries have been developing a common sense to label themselves as partners in South-South Cooperation.Thus, partnership idea forms another reason why new approach is more beneficial than the traditional since it is conducted through investment rather than donations.

Most importantly new approach of BRICS is different from traditional one because of their principle of non-interference to subject country’s fiscal policy. They argue that conditionality could undermine the principle of respecting national sovereignty and especially China argues that the long-term development of recipient country is ultimately the responsibility of itself, not the development partners.[10]Although this approach is criticized because of the high possibility of corruption and financial mismanagement, it is ensured that the donor country would not use its aid program for only the sake of its own benefits but rather pursues mutual benefits.

On the upshot, BRICS countries’ new approach to foreign aid is different and more beneficial than the traditional one since it is rather freer in terms of processes, does not have any ambition to interfere in the countries’ fiscal policies and is motivated by the pursuance of mutual partnership.

Implementations on Infrastructure in LIC

It is indubitable that the large-scale impact of BRICS countries’ new perspective in foreign aid was manifested in the change of infrastructure services in LICs. Underlying reason for that is their multilateral effort in conducting proactive diplomacy toinvest in infrastructureofLICswithin the international financial institutions and also establishing new banks like Asian Infrastructure and Investment Bank (AIIB) and New Development Bank (NDB) to finance these countries’ infrastructure spending.[11]

BRICS countries’ concerted action within the international financial institutions became very influential for developing countries because their collective agenda has been motivated to address special treatment to LICs. First example of political cohesion of BRICS was occurred in the Doha Round of World Trade Organization when they decided not to follow developed countries’ agenda by focusing on free market economy and offered special and differential(S&D)treatment to developing countries.[12]Since the members could not agree on a political framework in Doha Round, negotiations continued in Cancún Ministerial Meeting in which BRICS countries achieved to indicate their agenda to focus on investment to agriculture and infrastructure in LICs.[13]In the aftermath of Doha Round, India, Brazil and South Africa together brought Brasilia Declaration in which they stated that the huge part of the world could not benefit from globalization and free-trade inasmuch as developing countries lacked infrastructure constructions.[14] By doing so they have denoted beforehand what their priorities would be in the CancúnMinisterial Meeting. Starting from Cancun Ministerial Meeting, BRICS countries have followed their own agenda in every round of WTO to achieve beneficial amendments for the infrastructure construction in developing nations.[15]Besides, BRICS highlighted their primary concerns to infrastructure construction in LIC not only in WTO but also in G20 Summits. In 2012, BRICS pointed out their desire to define the economic agenda in the G20 Summit in Los Cabos as investment in LIC to improve their infrastructure.[16] Although Mexico did not focus on this subject, this event demonstrated the aim of BRICS countries in the G20 summits. Moreover, in the Hangzhou Summit of G20, China, together with other members of BRICS,focused on the global infrastructure investment gap and demanded from the countries to invest in LIC.[17] All in all, BRICS countries seem to be having changed their policies in the international institutions to build infrastructure in developing countries and to request the same behaviors from other countries to fasten the process.

On the other hand, BRICS also established new banks like NDB and AIIB to invest in their own infrastructure and also in LICs of Africa. Since BRICS countries are struggling with socio-economic problems, they have established NDB to fund their own needs. However, NDB’s purpose of the establishment is also to fight with poverty in Sub-Saharan countries by funding the infrastructure projects and by designing new infrastructural projects.[18] Ever since its establishment in 2015, NDB contributed to reduce infrastructure funding deficit in Africa by almost $10billion and accomplished several bankable projects in the continent.[19] Moreover, China established AIIB in 2016 to invest in the infrastructure of many developing countries and achieved to carry out many projects in the world. AIIB invested more than $5billion in several countries but the most significant projects are maritime infrastructure investing in Oman and investing in the Indonesia’s national slum upgrading project.[20] The reason why investments in Indonesia is important is that AIIB approved $216 million for the slum upgrading in Indonesia and aimed to improve socio-economic conditions of Indonesian people by advancing infrastructure in Indonesia.[21] On the other hand, maritime infrastructure in Oman would give a chance to country to improve its trade relations with other countries while giving China a chance to distribute its products among the world with the Oman’s ports.[22] Apart from unilateral investments, AIIB also participate in joint initiatives to invest in infrastructure of LIC with other organizations. For instance, AIIB together with European Bank for Reconstruction and Development invested $55million to road project in Tajikistan.[23]To sum up, BRICS countries aimed to close the funding gap of LIC to their infrastructure by conducting proactive diplomacy to change the agenda of international institutions and by also establishing AIIB and NDB to provide loans to infrastructure constructions.

Implementations on Global Health Agenda

Since many LIC in Africa are struggling with sanitation problems because of their inability to reach water and to satisfy basic human needs, every other nation have responsibility to help the people in these countries. That is why growing share of BRICS countries in the global economy brought many responsibilities to them as international citizens. In a world that the aid flow to African countries has been decelerated by traditional donors, BRICS countries’ health aid became more important for the recipient countries. Their new agenda on health aid became more helpful than the traditional one in many ways because rather than just donating money to the countries, BRICS countries have been spending money on research and development (R&D) for the cure of infectious diseases, participating in joint initiatives and more importantly building factories and hospitals to help the continent to satisfy basic health needs.[24]

Countries of DAC have been conducting health aid programs by donating money to the legitimate governments in Africa but it is proved not to be beneficial about finding solutions infectious diseases by looking at the recent history of the continent.[25] To put an end to this problem, BRICS countries are mostly focusing on investment in R&D and trying to bring technological advancement into Africa. For instance, China invested $5billion in health-related R&D projects on disease prevention and drug development while Brazilian investment in R&D has increased steadily and reached to $2.1 billion.[26] Apparently, BRICS have scaled up investments in academic R&D to accomplish transition of global health agenda from being manufacturer to innovator.

Moreover, BRICS countries are also supporting the efforts of private sector by investing in their health projects in Africa. Most prominent joint initiative could be the China’s partnership with Bill & Melinda Gates Foundation in which they together invested more than $200 million to satisfy the health related needs of the continent. Initial priorities of this joint initiative were to support the academic researches on drug development and to compensate the urgent needs of African people.[27] Moreover, Brazil’s aid finance is channeled through a number of agencies to establish joint initiatives tofollow more health aid projects. For instance, Brazilian Development Bank(BNDEP) offers privileges on loans to companies which are planning to conduct health projects in Africa.[28] It can be said by looking at these joint initiatives that BRICS countries have been following their new policies multilaterally to execute more efficient plans for LIC.

Also, it was observed by Goldman Sachs that traditional western donors have slackened their money flow to health aid infrastructure and projects in the Africa.[29] In other words, DAC donors reduced the amount of money that goes to Africa and that is an incident that African people cannot stand. In the absence of Western aid, BRICS countries started to rebuild the health infrastructure of Africa by building factories to supply necessary drugs and by constructing new hospitals to ensure that the continent has enough amounts of personnel.[30] Recently, Brazil have built an ARV factory in Mozambique because the country was lacking these tablets and also ensured that this factory is eligible to produce several other drugs which could cure many diseases in the continent.[31] What BRICS are trying to do with these health infrastructure constructions is that they are planning to free these countries from donor dependencies and to make African countries prepared for the interruption of money flow from traditional donors.

To make the long story short, it could be said that BRICS countries have been increased their health aid to the countries in need by  investing in R&D and bringing technological advancement, participating in projects of joint initiatives and building infrastructure of health facilities in the countries.

Implementations on the Pursuance of Sustainable Poverty Reduction

Despite the fact that many countries are trying to put an end to issues related to poverty in LICs, they could not manage to achieve sustainable poverty reduction. However, BRICS countries have introduced a new agenda to foreign aid which could eventually bring welfare to many developing countries. The reasons why this agenda could be successful in maintaining sustainable poverty reduction are that BRICS countries are preparing mega projects to bring jobs to LICs, establishing forums to cooperate with the LICs to build prosperous everyday life and directly invest in these countries to lower the unemployment rates.

In 2013, China has launched the “One Belt, One Road” (OBOR) project which is planned to pass through the many harbors of the Africa continent.[32] When the construction of the maritime road is completed, it would carry out a huge percentage of world’s trade from the seas. With this project, China would wage a huge investment in the Africa continent and this mega project could help LICs in the continent to plug their infrastructure deficit, accelerate their economic growth and speed up their industrialization.[33]

Apart from these projects, BRICS countries have been setting up international forums to strengthen the ties with the LICs and also to eliminate the reasons that impoverish the Sub-Saharan countries’economy.[34]Forum on China-Africa Cooperation (FOCAC) and India-Africa Forum Summit (IAFS) are some examples to the efforts of BRICS countries to develop good relations with countries in Africa to help them in their struggle with the awful living conditions.[35]Moreover, except from Russia, all BRICS countries are trying to sound their opinions and priorities as developing countries within United Nations by conducting defiant policies in G77 summits.[36] By doing so, these countries are trying to attract the attention of developed nations to invest in LICs and fight together with them against the poverty.

Above all, as a result of their growing presence in international economy, BRICS countries have been increasing their foreign direct investments (FDI) to Africa and supporting companies which are interested in building more employment in continent. BRICS’ FDI to Africa and other LICs have been increasing and reached to 26% within all FDI that these countries are receiving.[37] These countries are investing more on manufacturing and service sectors which help invested countries to improve living conditions by decreasing unemployment rate. So, FDI is another important factor for African countries to reach their sustainable poverty reduction aims with their development partners.

In short, Africa’s long-lasting unresolved poverty problem is somehow being dealt by BRICS countries because they follow ambitious mega projects which would be beneficial for Africa, form alliances with the countries in the continent to solve their problems and they directly invest to the private companies of African countries.

Consequently, growing presence of BRICS countries in the international global economy put them in a position that they must take responsibilities in the international arena and propel them into building a new agenda of foreign for many developing nations. Building the expected foreign aid agenda bring them many development partners because their new agenda was not pursuing a hierarchical system and it was rather motivated by mutual partnership idea. This new foreign aid agenda applied to many developing countries and proved to be helpful in their infrastructure constructions because BRICS’ banks and proactive diplomacy in international institutions. Moreover, it also became successful in lowering the child mortality, increasing life expectancy and improving living conditions by bringing technological advancement to these countries rather than just donating money. More importantly, many LICs have been struggling with famines and poverty because of their unsuccessful financial situations. BRICS have brought sustainable solutions to these countries by conducting high-scale projects in them and also forming economic alliances with them. All in all, BRICS countries’ distinctive new agenda has went far ahead of the traditional approach in terms of infrastructure building in developing countries, providing these countries healthy demographics and more importantly assuring sustainable poverty reduction.

References

-Alden, Christopher. “China and Africa: the relationship matures.”Strategic Analysis 36.5 (2012).

-Asmus, Gerda, Andreas Fuchs, and Angelika Müller. “BRICS and Foreign Aid.” (2017).

-Baracuhy, Braz. “Rising powers, Reforming Challenges: negotiating agriculture in the WTO Doha Round from a Brazilian perspective.” (2011).

-Bliss, Katherine Elaine, ed. Key players in global health: how Brazil, Russia, India, China, and South Africa are influencing the game. CSIS, (2010).

-Bry, Sandra H. “Brazil’s Soft-Power Strategy: The Political Aspirations of South–South Development Cooperation.” Foreign Policy Analysis 13.2 (2016).

-Charlton, Andrew H., and Joseph E. Stiglitz. “A Development-friendly Prioritisation of Doha Round Proposals.” The World Economy 28.3 (2005).

-Chin, Gregory T., and Hugo Dobson. “China’s presidency of the G20 Hangzhou: on global leadership and strategy.” Global Summitry 1.2 (2015).

-Declaration, Brasilia. “Retrieved April 13, 2011.” (2003).

-Goodlife, Gabriel, and Stephan Sberro. “The G20 after Los Cabos: Illusions of global economic governance.” The International Spectator 47.4 (2012).

-Hallding, Karl, et al. “Rising powers: the evolving role of BASIC countries.” Climate policy 13.5 (2013).

-Hu, Shanlian, et al. “Reform of how health care is paid for in China: challenges and opportunities.” The Lancet 372.9652 (2008).

-Inoue, Cristina Yumie Aoki, and Alcides Costa Vaz. “Brazil as ‘Southern donor’: beyond hierarchy and national interests in development cooperation?.” Cambridge Review of International Affairs 25.4 (2012).

-Kragelund, Peter. “The potential role of non-traditional donors’ aid in Africa.”ICTSD Issue Paper 11 (2010).

-Mlachila, Mr Montfort, and MsMisa Takebe. FDI from BRICs to LICs: Emerging growth driver?. No. 11-178. International Monetary Fund (2011).

-Mwase, Nkunde, and Yongzheng Yang. “BRICs’ philosophies for development financing and their implications for LICs.” (2012).

-Rampa, Francesco, Sanoussi Bilal, and Elizabeth Sidiropoulos. “Leveraging South–South cooperation for Africa’s development.”South African Journal of International Affairs 19.2 (2012).

-Russo, Giuliano, et al. “On the margins of aid orthodoxy: the Brazil-Mozambique collaboration to produce essential medicines in Africa.” Globalization and health 10.1 (2014).

-Sachs, Goldman. “BRICs and beyond.”The Goldman Sachs Group/Global Economics Department, London (2007).

-Sun, Yun. “Inserting Africa into China’s One Belt, One Road Strategy: A new opportunity for jobs and infrastructure?”.”Brookings Institute (2015).

-Victora, Cesar G., et al. “Health conditions and health-policy innovations in Brazil: the way forward.” The Lancet 377.9782 (2011).

-Wang, Hongying. “New Multilateral Development Banks: Opportunities and Challenges for Global Governance.” Global Policy 8.1 (2017).

-Wilson, Jeffrey D. “What does China want from the Asian Infrastructure Investment Bank?.” (2017).

Postscripts

[1]Mwase, Nkunde, and Yongzheng Yang.”BRICs’ philosophies for development financing and their implications for LICs.”(2012) p. 17.

[2]Rampa, Francesco, Sanoussi Bilal, and Elizabeth Sidiropoulos.”Leveraging South–South cooperation for Africa’s development.”South African Journal of International Affairs 19.2 (2012) p.251.

[3]Kragelund, Peter. “The potential role of non-traditional donors’ aid in Africa.”ICTSD Issue Paper 11 (2010) p.46.

[4]Walz, Julie, and Vijaya Ramachandran. “Brave new world: a literature review of emerging donors and the changing nature of foreign assistance.” (2011).

[5]Gu, Jing, John Humphrey, and Dirk Messner. “Global governance and developing countries: the implications of the rise of China.” World development 36.2 (2008) p. 278.

[6]Chaturvedi, Sachin. Emerging patterns in architecture for management of economic assistance and development cooperation: implications and challenges for India. No. 22092.East Asian Bureau of Economic Research, 2008 p. 21.

[7]Ben-Artzi, Ruth. “IOs and Peer Pressure: An Examination of the Development Assistance Committee (DAC).” 10th Annual Conference on the Political Economy of International Organizations, Bern, Switzerland, January.(2017) p. 17.

[8]Bry, Sandra H. “Brazil’s Soft-Power Strategy: The Political Aspirations of South–South Development Cooperation.” Foreign Policy Analysis 13.2 (2016) p. 301.

[9]Inoue, Cristina Yumie Aoki, and Alcides Costa Vaz. “Brazil as ‘Southern donor’: beyond hierarchy and national interests in development cooperation?.” Cambridge Review of International Affairs 25.4 (2012) p. 511.

[10]Mwase, Nkunde, and Yongzheng Yang.”BRICs’ philosophies for development financing and their implications for LICs.”(2012) p.19.

[11]Wang, Hongying. “New Multilateral Development Banks: Opportunities and Challenges for Global Governance.” Global Policy 8.1 (2017) p. 116.

[12]Charlton, Andrew H., and Joseph E. Stiglitz. “A Development-friendly Prioritisation of Doha Round Proposals.” The World Economy 28.3 (2005) p. 297.

[13]Hallding, Karl, et al. “Rising powers: the evolving role of BASIC countries.” Climate policy 13.5 (2013) p. 611.

[14]Declaration, Brasilia.”Retrieved April 13, 2011.” (2003).

[15]Baracuhy, Braz. “Rising powers, Reforming Challenges: negotiating agriculture in the WTO Doha Round from a Brazilian perspective.” (2011) p.14.

[16]Goodliffe, Gabriel, and Stephan Sberro. “The G20 after Los Cabos: Illusions of global economic governance.” The International Spectator 47.4 (2012) p. 2.

[17]Chin, Gregory T., and Hugo Dobson. “China’s presidency of the G20 Hangzhou: on global leadership and strategy.” Global Summitry 1.2 (2015) p. 154.

[18]Asmus, Gerda, Andreas Fuchs, and Angelika Müller.”BRICS and Foreign Aid.”(2017) p. 26.

[19]Ibid. p. 28.

[20]Wilson, Jeffrey D. “What does China want from the Asian Infrastructure Investment Bank?.” (2017) p. 21.

[21]Wilson, Jeffrey D. “What does China want from the Asian Infrastructure Investment Bank?.” (2017) p. 22.

[22]Ibid. p. 23.

[23]Ibid. p. 25.

[24]Bliss, Katherine Elaine, ed. Key players in global health: how Brazil, Russia, India, China, and South Africa are influencing the game. CSIS, (2010) p. 11.

[25]Ibid. p. 14.

[26]Hu, Shanlian, et al. “Reform of how health care is paid for in China: challenges and opportunities.” The Lancet 372.9652 (2008) p. 1849.

[27]Asmus, Gerda, Andreas Fuchs, and Angelika Müller.”BRICS and Foreign Aid.”(2017) p. 26.

[28]Victora, Cesar G., et al. “Health conditions and health-policy innovations in Brazil: the way forward.” The Lancet 377.9782 (2011) p. 2043.

[29]Sachs, Goldman. “BRICs and beyond.”The Goldman Sachs Group/Global Economics Department, London (2007) p. 14.

[30]Ibid. p. 17.

[31]Russo, Giuliano, et al. “On the margins of aid orthodoxy: the Brazil-Mozambique collaboration to produce essential medicines in Africa.” Globalization and health 10.1 (2014) p. 71.

[32]Sun, Yun. “Inserting Africa into China’s One Belt, One Road Strategy: A new opportunity for jobs and infrastructure?”.”Brookings Institute (2015) p. 2.

[33]Ibid. p. 5.

[34]Alden, Christopher. “China and Africa: the relationship matures.”Strategic Analysis 36.5 (2012) p. 704.

[35]Ibid. p. 18.

[36]Asmus, Gerda, Andreas Fuchs, and Angelika Müller.”BRICS and Foreign Aid.”(2017) p. 26.

[37]Mlachila, Mr Montfort, and MsMisa Takebe. FDI from BRICs to LICs: Emerging growth driver?. No. 11-178. International Monetary Fund (2011) p. 121.

 

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Enes Emre Karataş / TESA Siyaset Masası Araştırmacı Yazarı

İstanbul Üniversitesi

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