Privatizing foreign aid
Supporters of foreign aid criticize governments for devoting too little of their budget to sending aid to poorer countries. Yet monies sent by private individuals, usually to their families back home, dwarf those sent by governments. Such remittances are more than three times as large as total global foreign aid. In 2021, $780 billion was sent to 800 million people, while foreign aid totalled $200 billion.
By total volume, the United States leads by a wide margin, with migrants sending an estimated $103 billion abroad in 2024. Saudi Arabia ranks second at $47 billion, followed by Switzerland at $40 billion, and Germany at $24 billion.
The US figure is enormous partly because it has a huge population and economy. A different figure is remittances as a share of national wealth, and by that measure, the Gulf states are the standout story. Saudi Arabia, the UAE, and Kuwait have relatively small citizen populations but host millions of migrant workers who collectively send staggering proportions of those countries' economic output abroad.
Since 2015, remittances have been the largest source of external finance flows to low- and middle-income countries, surpassing official development assistance in every World Bank estimate since 2000, and exceeding foreign direct investment flows to those countries by more than $270 billion in 2023.
The conventional rankings of ‘generous donor nations,’ which tend to feature Scandinavian countries, the UK, Germany, and the US based on foreign aid, look very different when you count private transfers. The Gulf states shoot up the list, as does Switzerland. And the workers sending the money are often not wealthy individuals donating to charity, but relatively low-income migrants sacrificing a significant portion of their own earnings to support families back home, an act of generosity that is rarely acknowledged in international development discussions.
An important factor is that this private aid tends to be spent on the things that count, things that raise living standards, including food, housing, healthcare and education. Government to government aid can be spent by the recipients on prestige projects, and some undoubtedly finds its way into the Swiss bank accounts of their leaders.
There is a strong case for the UK to cut back, or even abolish, direct foreign aid, and spend the money instead of giving tax relief to those making private remittance to their families back in their countries of origin. This would hugely boost the amount of aid being transferred, and would direct it to where it would make most difference. The UK could announce that it was greatly increasing foreign aid by giving incentives to private individuals to provide it.
Madsen Pirie
