Case study: U.S. foreign aid
Few federal agencies are as reliant on a palmful of government contractors and intermediary actors as the U.S. Agency for International Development (USAID). Annually, Congress sets aside approximately $60 billion for U.S. international affairs spending, directing a substantial share of those investments for global development priorities. Congress determines how much funding should go to which sector, with approximately $10 billion for global health, $8.5 billion for humanitarian work, $2.9 billion for democracy, $1.2 billion for basic education, and $475 million for water projects, for example, in addition to set-asides for many other accounts, such as funds for environmental programs, trafficking in persons programs, and more. These figures and the analysis that follows does not count military aid or “supplemental funding” packages approved by Congress for shorter-term and emergency needs.
USAID manages or partially manages most of this funding — approximately $30 billion every year — with the rest divided up among other U.S. federal agencies like the State Department, Centers for Disease Control, U.S. Department of Agriculture, U.S. International Development Finance Corporation, and the U.S. Millennium Challenge Corporation, among others. The U.S. also makes contributions to multilateral institutions and international organizations that are part of the United Nations system.
Foreign aid dollars are propping up the aid industrial complex
The open secret in Washington, DC is that too little of American foreign aid ever leaves America’s capital city. As a Foreign Policy headline summed it up in 2022, “Biden’s Foreign Aid Is Funding the Washington Bubble.”
According to a June 2023 report, nearly nine out of every ten dollars that USAID spent in the 2022 fiscal year went to its international contracting partners, most of which are based in or around the Washington, DC area. Just one out of ten went to directly to frontline, local groups, and maybe even less than that. USAID measures less than half of its total spending to evaluate how much funding flows to local partners, using a denominator that skews overall performance reporting, according to Oxfam and Publish What You Fund.
(and maybe even less than that)
The aid industry is highly consolidated, too. As of 2017, 60 percent of all USAID funding went to just 25 groups. In 2022, according to Devex, just 10 contractors won more than 50 percent of every USAID contract dollar.
Note: USAID spends money primarily in two ways: grants and contracts. In its public reporting, USAID commingles grants to international organizations with grants to other recipients. It also reports grants information separately from contracts, so it’s hard to tell the overall percent of funding that flows to which prime implementing partner. USAID also just reports who their biggest contractors and grant recipients are, not how much they receive.