This past week has seen a wave of uncertainty wash over the development sector, following US President Donald Trump’s directive freezing foreign aid for a period of 90 days, as the new administration re-evaluates its donor policies.
Subsequently, a stop-work order by the United States Agency for International Development (USAid) putting all non-humanitarian programs and projects on hold, has resulted in what can only be described as a domino effect, as employees are furloughed and contracts with implementing partners voided, leaving ecosystem players grappling with how to navigate this significant shift.
I have been following the conversation on various news channels, online papers, independent blogsites and yes... even Tik-Tok! Indeed, right now it’s all confusing, messy and painful for beneficiary countries and their people. However, I do hope that we can begin to shift our focus.
This an exciting moment for us to shore up local capital and invest in building our own capacity to solve social problems whilst generating revenue.
You may think of me as being naively optimistic, but these are the cards we have been dealt and the only way to move through a storm is not freeze but push through it to get out of that storm. A tough pill to swallow but dare I say the much-needed cure for the normalised “Dependency Syndrome”.
With traditional donor flows slowing down, this just might be the catalyst needed to explore other financial instruments and strategies like impact investing.
Sustainability: Impact investing is the deployment of capital with the intention to create a positive change in our planet and societies, with the expectation of a measurable financial return.
Innovative solutions: Impact investing focuses on creating financially viable solutions that generate both social impact and financial returns, resulting in long-term sustainability.
Empowerment: Impact investing often focuses on empowering local entrepreneurs and businesses, creating jobs, and fostering economic growth. The positive ripple effects of impact investing are far reaching than donor aid, which can sometimes bypass local systems.
Underserved sectors: Impact investing often target sectors where a need exists but are underserved by traditional markets, such as renewable energy, affordable housing, and healthcare in low-income communities. This reduces the instances where there is a mismatch between what is needed on the ground versus donor expectation
Scalability: Impact investments generally scale more effectively than donor-funded projects. Successful models can attract additional capital from private investors, pension funds, and other institutional investors, amplifying their reach and impact.
Measurable outcomes: Impact investors prioritise measurable social and environmental outcomes alongside financial returns. This results-oriented approach ensures accountability and transparency, which can sometimes be lacking in traditional aid programs.
Reduced bureaucracy: Donor aid is often tied to complex bureaucratic processes, political conditions, and conditions precedent not to mention the relatively slow disbursement timelines. Impact investing on the other hand operates more efficiently, as it is driven by private capital and market dynamics.
Don’t get me wrong, while impact investing is a promising direction, donor aid still plays a critical role in the short term and in certain contexts such as Humanitarian Crises (e.g. conflict or natural disasters), Derisking High-Risk social impact investments in sectors that are not yet attractive to private investors and Capacity Building of underlying infrastructure and systems needed to attract impact investments. Regulatory frameworks, education, and healthcare systems are just a few examples.
A lot is still unfolding, and as global leaders deliberate on the new shape of donor aid, let us also take that leap of faith and start building resilience by investing in our own. Adulting is hard, but growing up is not an option.
