First of all, to be very clear: the private sector cannot replace the thousands of staff members, the billions of grant dollars, and the decades of experience that have made the U.S. Agency for International Development (USAID) the world’s most important government funder of development. The Trump administration’s demolition of USAID is already interrupting clinical trials, not to mention halting demining, anti-trafficking, and violence prevention efforts around the world, to name just a few areas of work.
Especially in the places of greatest vulnerability, such as during disasters and after conflict, “aid is the only large-scale capital option,” emphasizes Aunnie Patton Power, an associate fellow at the University of Oxford, who lectures and advises on impact investing. There is just too much risk for the private sector to take on.
Still, attracting private capital may now be an essential lifeline for many organizations looking to keep the lights on and their critical work humming. The context is complex.
The Razing Of Aid Is Unprecedented, Even In Trump’s World
Years before Project 2025 made the conservative think tank a household name, and before its advisor Russell Vought controversially became the Office of Management and Budget director for a second time, the Heritage Foundation was calling for U.S. foreign aid to be radically reshaped to focus on private-sector economics.
In 2020, the Heritage Foundation argued that USAID’s development assistance should be entirely rerouted into the Millennium Challenge Corporation (MCC), a government aid institution that bases its investment decisions on economic policies and prospects for growth. In 2024, the Heritage Foundation was continuing to press for open markets and the free flow of capital in lower-income countries, with benefits for U.S. corporate and security interests. It perceived the Development Finance Corporation (DFC), a separate investment-based aid agency, as a kind of lender of last resort—operating in countries without private capital markets or where Chinese investment was making inroads.
The first Trump administration actually created the DFC. Ivanka Trump even led a DFC project to encourage women’s economic empowerment. Now, with the current Trump administration’s war on gender programming, this would be a nonstarter.
The vaporization of programs to help women isn’t the only way that Trump 2.0 is breaking with the international development directions of Trump 1.0. The DFC has now become one of the latest victims of the new government’s purging of aid agencies. Last week, massive job cuts were announced at the DFC.
“Nobody saw that coming,” gasps Patton Power. “It is purely a power play,” she believes, from an administration that knows that the people affected most are not American voters. The bizarre rapid-fire decisions coming out of Washington suggest a lack of strategy or coherence to the wrecking-ball approach to U.S. aid institutions.
Some Emergency Funds Can Be Mobilized, But They Aren’t Enough
Critics of conventional foreign aid extend beyond American hardline conservatives. Oyewale Tomori, a virology professor at Redeemer’s University in Ede, Nigeria, argues that foreign aid “tends to benefit the donor, more than it does the recipient.” Emma Mawdsley, a geography professor at the University of Cambridge in the U.K., agrees. “Most Western countries give a tiny fraction as a sort of palliative sticking plaster, and pat themselves on the back, but then they’re complicit in a world economy that’s massively structured against poor people,” such as through transfer pricing to tax havens.
In Nigeria, USAID health spending has focused on HIV, malaria, and vaccines. Nigeria urgently needs emergency funds, including from the national government, to keep these lifesaving programs running. It appears to be one of the countries most affected by the U.S. stop-work orders. In the wake of the U.S. aid cuts, the Nigerian government has approved over $3.2 million to purchase 150,000 HIV treatment packs and $1 billion for healthcare reforms, including primary healthcare and training. These are positive steps, but not enough to make up for the shortfall. And they will take critical time to disburse.
This is one of the most brutal parts of the abrupt shutdown of nearly all U.S. aid, as opposed to an orderly review process. Amidst the chaos, waivers for lifesaving aid are almost moot now, because of both the ambiguity of what counts as lifesaving aid and the insufficient staff and payment systems to process waivers. In the meantime, the NGO Partners In Health points out, people will die.
“When you talk about emergency funds or whatever, nobody has fundable money in one day,” says Joia Mukherjee, the chief medical officer of Partners In Health. “Many programs are just stopping. The countries that we work in, there are no emergency funds.”
To take just one example, “tuberculosis patients who need to be on medicines for six months at a minimum, if they miss a month of doses…they may transmit a much more difficult-to-treat type of tuberculosis. So the ramifications on the health of people are just so material and so profound.”
The Open Road Alliance was set up for crisis moments, although the current one is unheard-of. Open Road provides bridge loans to for-profit companies as well as nonprofit organizations, mostly in emerging markets, in order to weather emergencies. The expectation is that their funding will recover eventually. The recipient organization has to repay the loan (usually between $250,000 and $1 million) within 10 days of when that other money is restored. This typically takes about 7 months, according to Bressan, and interest rates are usually 8 to 10%. Generally investors get a 2–4% return on their investment.
For instance, Open Road supported OnePower, a startup operating minigrids in Lesotho, which provide electricity to places like rural health clinics. After OnePower closed an investment round, it repaid the bridge loan.
Now, “we’re getting a ton of inquiries,” reports CEO Caroline Bressan. They’ve expedited the review process from the usual four–six weeks to two weeks, but they’re struggling with uncertainty given the hit after hit to the aid sector. “This really caught people off guard…the uncertainty is what kills organizations.”
Investors are wondering how to best direct their money, now that basics like malaria programs have been left in the lurch. “There are so many things that we took for granted as being taken care of by the government,” Bressan reflects. “The government has been the place where the most effective projects have been scaled because the government can write larger checks than a lot of philanthropists.” In order to be more strategic, Open Road has been working with ex-USAID staffers to focus the investments, which Bressan hopes to announce soon.
This type of investment isn’t entirely risk-free, Bressan acknowledges. She estimates that one out of ten projects don’t end up repaying the loan. But “I think this is a real moment for impact investors to step up and to take a little bit more risk.”
However, Bressan notes that there are limits to what investors like Open Road’s can do. In terms of operating in the poorest countries that may be abandoned by a State Department that has absorbed USAID, “we can’t build the market ourselves.”
As Open Road suggests, amid the upheaval in the foreign aid system, parts of the private sector have been mobilizing. “The private sector is certainly not sitting back. There is a lot of activity,” says Patton Power. Another type of finance that may help development providers through this tough time is a recoverable grant, where a grant is disbursed but would be repaid if the organization finds an alternative source of funding.
While high net-worth individuals and private foundations may have a more important role as the U.S. government defaults on many of its aid commitments, this also has risks. Private actors tend to be less scrutinized and transparent than U.S. government aid spending, which though imperfect is “actually a lot more accountable than most other parts of government spending,” says Mawdsley. She cautions that though it is doing valuable work in a number of areas, the donor class of the 1% has “an excessive commitment to market-oriented solutions.”
Funding Sources For Development Need To Be Diversified
The U.S. isn’t the only rich country trying to replace public development funding with private sources. Last week, the U.K. development minister announced the provision of about $125 million of seed funding to businesses addressing poverty and climate change. The European Union has also become more investment-driven and infrastructure-focused with its Global Gateway initiative, a counter to China’s Belt and Road Initiative.
And there are many cases of development-related investment between low- and middle-income countries, such as between Colombia and Haiti. However, this type of cooperation can be hard to measure and document. It has also become more pragmatic and strategic, rather than focusing explicitly on solidarity. Mawdsley believes that the only middle-income country with the capacity now to plug a major portion of the void in overseas development spending left by the U.S. is China.
Of course, governments of affected countries will need to prioritize in response to the U.S. aid devastation. Ugandan civil society organizations are urging this, for instance. Gregory Rockson, CEO of the African pharmacy company mPharma, has argued that more equity investments or concessionary loans to healthcare businesses could build more resilient health systems.
As for Nigeria, Tomori says, “Nigeria must and should substantially increase her health budget to reverse years of careless neglect of her health system—facilities, infrastructure and human resources…I believe that Nigeria can provide the resources (human and financial) needed to achieve this through re-ordering her priorities, currently misplaced.”
In the longer term, Tomori and colleagues call for rich countries to move most of their aid from vaccine donations to investment in vaccine infrastructure, from reactive to preventive. This would include “vaccine manufacturing, laboratory diagnostics and some medical countermeasures,” Tomori explains. The African Women Prevention Community Accountability Board (AWPCAB) has also requested that private-sector leaders invest in local pharmaceutical manufacturing. And the Nigerian government has sought investment in clinical trials, with profits to be reinvested in health systems.
“I believe Nigeria needs to commit her local resources to creating the enabling and conducive environment for her trained health workforce to function effectively, efficiently and maximally,” Tomori comments. He says that Nigeria has particular capability in disease prevention and control. But one overall problem is that it’s common for Nigerian elites to travel abroad for healthcare, reducing their incentive to support domestic health systems and workforces. “In addition, Nigeria needs to improve her ease of doing business ranking to attract private investment and make a success of public-private projects,” Tomori says. Big pharmaceutical companies have fled Nigeria in recent years, due in large part to the difficulties of operating there.
Unfortunately, there may be little recourse for development organizations whose only source of funding was USAID. But for those with more varied funding streams, it will be important to think about potential long-term options.
One is generating the funds themselves. Already, some local nonprofits bring in revenue from selling goods or services. For instance, the development organization SEND Ghana has a for-profit subsidiary that runs credit unions and microfinance programs, which helps to fund the nonprofit’s good governance and equality promotion. In many countries, it wouldn’t be necessary to create a separate entity to have a profit-generating element, Patton Power says.
Mawdsley points to the possibility of investment methods that involve less risk and fewer intermediaries, which after all are typically set up to maximize profit. Long-term, low-interest bonds could be helpful. For instance, Mawdsley and Sarah Huges-McLure analyzed the financial flows of the International Finance Facility for Immunisation (IFFIm), an issuer of vaccine bonds. “It said it was innovative. It was actually quite vanilla,” Mawdsley describes the finance vehicle. But more critically, “it was a much more expensive way” of funding vaccines than if donor countries had used government bonds instead.
Private Development Finance Won’t Save The Day
While there is clearly some role for the private sector in financing development, it will be dangerous to overly rely on this. For one thing, many low-income countries in Africa and Asia are already awash in foreign-owed debt. This reached a record $1.4 trillion in 2023. Paying off the interest to public and private creditors abroad limits their ability to spend in essential areas like health and education. Last week, the U.K.’s House of Commons held a debate on debt cancellation for low-income countries, where nobody voted against the motion. (The U.K. has particular influence on debt cancellation because a huge chunk of government-issued debt globally falls under British law.)
In reality, the public sector doesn’t disappear when private capital becomes more involved in development finance, since governments are often still on the hook to guarantee investments like those in IFFIm. “Once you say finance capital is the answer to everything, and the donors say our job is to de-risk investment, you’re de-risking it for the investor,” Mawdsley points out. Risk for the people on the sharp end of increasing volatility, which is associated with deepening financialization, is rarely considered by those in power. “It’s a very partial view of risk.”
Overall, there are grave issues with a private-sector approach, Partners In Health’s Mukherjee warns. “None of these programs have an immediate return on investment in terms of cash.” While investments in the health of children, peasant farmers, elementary teachers, and many other ordinary people have improved the lives of millions, that’s not always captured on balance sheets.
“I worry that what the private sector wants is the return on investment,” Mukherjee continues. She’s interested in a different kind of bottom line: basic humanity, people not dying of malnutrition, children having parents instead of being orphaned by AIDS. “It’s really hard to measure that in dollars.”
Clearly the current aid model is now on life support because of how drastically the U.S. government has politicized it. So everyone, including impact investors and bond issuers, will need to come to the table to protect people’s lives as well as intertwined economies.
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