Devex Invested: Europe takes note but no action amid USAID collapse

If you thought Europe might step up as the United States steps away from foreign aid, think again.

Devex has seen the “lines to take” — Brussels-speak for what European Union officials should say when someone asks them a curly question — following the U.S. decision to terminate 83% of its USAID foreign assistance programs. The key message is blunt: “The EU cannot fill the gap left by others.”

A note of regret

The European Commission is the world’s third-largest aid donor behind the U.S. and Germany, but the internal document suggests it is positioning itself as mostly an observer to the current carnage.

The EU “takes note with regret” of U.S. Secretary of State Marco Rubio’s announcement last week about the 83% cut, the document states. “As we await the details of which programs will be terminated, the EU continues to monitor the situation, with particular emphasis on key EU interests and life-saving humanitarian assistance.”

Remember, when it comes to EU interests and foreign aid, the commission recently argued that it is perfectly possible to be charitable and self-interested at the same time.

ICYMI: Remaining USAID programs now under State Department, 5,200 programs canceled

Related reading: Is Germany the next leader in ODA, and how will it spend its money? (Pro)

Background reading: European aid is both 'self-interested' and 'generous,' says official (Pro)

+ Join us tomorrow, March 19, at 9 a.m. ET (2 p.m. CET) for a candid discussion with Dean Karlan, former chief economist at USAID, as he joins Devex President and Editor-in-Chief Raj Kumar to examine the fallout from USAID funding cuts and more. Register now.

No step back

“The EU cannot fill the gap left behind by the U.S., but it will not step back from its own commitments,” according to the communications brief, which added that the EU — i.e. the commission and 27 EU member states — provide 42% of global development aid and 28% of humanitarian aid.

Though, remember: A recent midterm review of the commission’s 2021-2027 budget saw it slash €2 billion from development spending on the instructions of EU leaders, with the poorest, least strategically interesting countries, particularly hard hit. The commission’s humanitarian aid department tried unsuccessfully to block that approach. And ​between 1990 and 2022, the share of European Commission aid going to least developed countries, or LDCs, dropped from 52% to 19%.

ICYMI: EU aid’s losing internal battle to halt spending cuts

Plus: EU aid to least developed countries is trending way down (Pro)

And: EU to shun ‘less performant’ countries under new strategy (Pro)

+ Not yet a Devex Pro member? Start your 15-day free trial now to access all our expert analyses, insider insights, funding data, events, and more. Check out all the exclusive content and events available to you.

Never waste a crisis

The document does end with an interesting kicker though. 

“The EU is the strongest supporter of the rules-based global order and an inclusive multilateral system, with the UN at its core,” it states. “At the same time, we believe this is the moment to accelerate reform and modernisation of the multilateral development aid system and put in place structural reforms in UN agencies.”

What kind of reforms? It doesn’t say.

Getting DFC done

Who remembers bipartisanship? It was back for a brief moment last week when U.S. lawmakers launched the process last week to reauthorize the U.S. International Development Finance Corporation, or DFC.

Republicans and Democrats agreed that DFC, which finances private sector development solutions, can help provide an alternative to Chinese investment.

Now it just needs reauthorization before its current mandate expires in October.

DFC committed more than $12 billion across 181 transactions last year. So far, reauthorization discussions have recommended at least doubling lending capacity to $120 billion, if not more.

Among other topics up for debate:

• Whether to count equity investments as grants as currently, requiring full appropriations, or as loans, which would allow less money to be held back to offset potential losses.

• Expanding investments to strategic upper-middle- and high-income countries, such as Panama.

Devex Senior Reporter Adva Saldinger will be watching developments closely.

Read: Congressional hearing kicks off DFC reauthorization efforts

OSF’s new look

The Open Society Foundations underwent a major restructuring last year and is now making changes, the organization’s President Binaifer Nowrojee tells Devex’s Ayenat Mersie.

Shift 1: Longer-term funding — previously, OSF operated on one-year budgets, limiting grants to short-term projects. Now, the foundation is allocating $2 billion over the next decade through five- to eight-year grants.

Shift 2: New anchor grantees — rather than restricting funding to organizations that fit predefined program areas, OSF is prioritizing impact, even if partners fall outside traditional funding categories. Plus, “We never ever gave a long-term core partner grant in the global south,” Nowrojee says. “We are changing that now.”

Shift 3: Streamlining grantmaking — past recipients now get faster renewals. Compliance requirements have been eased and applications are available in multiple languages to improve accessibility.

Read: As aid dwindles, can philanthropy rewrite the rules of giving? (Pro)

Can philanthropy save the day?

Now more than ever, organizations that have long relied on traditional grants must rethink their financing models.

Blended finance and philanthropic investments are one way to diversify. During a recent Devex Pro event, Chris Clubb, managing director at Convergence, and Naina Subberwal Batra, CEO of the Asian Venture Philanthropy Network, or AVPN, discussed how to engage with these new forms of finance.

One key piece of advice? Rather than trying to become financial experts overnight, organizations should lean into their strengths — deep contextual knowledge, technical assistance, and risk mitigation — and partner with financial institutions that understand structuring deals.

Watch: Philanthropy, blended finance, and the evolving role of NGOs (Pro)

‘Blending from the Ground Up’

A new report from Boston University’s Global Development Policy Center argues that there is an “incipient revival” underway of work between multilateral development banks and national development banks.

The former “have a wealth of experience in tapping into capital markets, managing the resulting risks, and supporting project management,” notes Richard Kozul-Wright, one of the report authors, in an opinion piece for Devex. While, the latter “have the potential to take the lead in making green finance work because of their position at the intersection between international climate and development finance, and local financial institutions and private investors.”

Part of the answer, the researchers say, could be:

• NDBs playing the role of a financing anchor for country platforms by coordinating resources around country-owned plans.

• MDBs and bilateral agencies supporting portfolio guarantees to bolster the financing capacity of NDBs.

Opinion: On climate, multilateral institutions must work with national banks

Erratum

Last week, we wrongly wrote that the European Bank for Reconstruction and Development does not yet operate in any African country. It is now exploring a shareholder-approved expansion into sub-Saharan Africa but is already active in Egypt, Morocco, and Tunisia. 

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What we’re reading

Seventeen organizations, including CONCORD, have jointly called on European heads of state to adopt innovative methods for raising the EU's own resources. [CONCORD]

With government funding drying up, all eyes are on philanthropy to step up. [Devex]

USAID staff instructed to shred and burn classified and personnel documents. [Devex]