We all know economic growth in emerging economies is outpacing that of developed economies. But readers might be surprised to learn that emerging countries have become a model for private sector giving and investment in developing nations.
A forthcoming study from Hudson Institute’s Center for Global Prosperity shows that total financial flows from four emerging economies – Brazil, China, India, and South Africa – are $106 billion. Of these financial flows, 95% are private and only 5% are government financed. The money moving from these countries to the developing world is almost exclusively from private capital investment, remittances sent back home from migrants, and philanthropy.
In fact, the four countries are outpacing their more developed cousins not only on economic growth, but on the important metric of private financial flows. Of all capital moving from developed to developing countries, 80% is private and 20% is government aid. Remarkably, the four emerging economies we looked at account for a disproportionate $103 billion in private financial flows to developing countries, compared to $577 billion from the 23 developed donor countries!
There are three key reasons. First, emerging economies still have pockets of extreme poverty. In cases like India, with 33% of the world’s poor, it is understandable why governments focus on the welfare of their own rather than sending foreign aid.
Second, emerging nations understand the reason behind their own successful development, namely, private sector-led growth. They are bringing this proven method to less-developed countries. Of private financial flows, the largest is private capital investment at $88 billion, followed by remittances at $14.2 billion, with global philanthropy trailing at $370 million.
The final reason is that just as emerging nations leap-frogged over telephone landlines with cell phones, they are now jumping over traditional models of giving. Surveys by local philanthropic institutions and interviews with social entrepreneurs indicate a preference for social innovation, local ownership, transparency, and results-driven projects.
A prime example is South Africa, where donor-advised funds and wealth management services have started. Shelagh Gastrow, Executive Director of Inyathelo, a South African institute for advancing philanthropy, believes that interest in South African philanthropy is growing. “However, the context may differ somewhat from North America and Europe,” says Gastrow, “with South Africa’s fast-changing society needing more cutting edge and innovative thinking within philanthropic and other civil society sectors.”
Such cutting-edge projects have already begun in South Africa. Greenpop, a South African self-sustaining social enterprise, sells trees to be planted for clients who want to offset their carbon imprint in Africa. Some estimates predict that 30% of forests will vanish by 2030. Using these funds and other donations, they carry out reforestation projects with volunteers and non-profit organizations. After planting 23,000 trees in 245 locations in South Africa with 3,000 domestic and international volunteers, Greenpop has now exported its “treevolution” into Zambia.
More innovative thinking is the Hippo Water Roller Project, a South African social venture that distributes a 24 gallon barrel-shaped container allowing users to transport more water over longer distances with less effort. It is estimated that 40 billion hours are wasted in collecting water in developing countries every year. The Hippo Water Roller allows an African woman to move five times more water than the 20 kilograms she normally carries on her head. Using profits from selling these rollers in the developed countries for gardening, this for-profit organization then acts like a not-for-profit and distributes the life-changing rollers for free. So far, 40,000 free rollers have been distributed to needy people.
Examples of philanthropy and social entrepreneurship in Brazil follow this same model of innovation, results-driven programs, local ownership, and transparency. Based in Rio de Janeiro, CDI was launched in 1995 by Internet entrepreneur Rodrigo Baggio. He wanted to train people to use technology to solve community problems, crossing the digital divide between the poor and rich. Rodrigo is a fellow of the Ashoka Foundation started by American Bill Drayton in 1981. Brazil’s CDI program has helped over 1.5 million people since it started in 1995 in 700 community centers spread across nine Latin American countries and some developed countries as well.
The Philippines typhoon shows just how critical government aid is in mounting early disaster response. The carrier U.S.S. George Washington, supported by Navy helicopters, is transporting vital supplies to remote areas of the most devastated regions. However, private giving from all countries to the Philippines, both received and pledged, at $191 million, far surpasses individual government’s aid. Private support is two times higher than the most generous government, the U.K , at $95 million. This tremendous outpouring of private assistance is an reminder that compassion is the work of a nation, not just a government.
Western philanthropic and development communities should take note of what emerging economies are doing in the ever-changing landscape of foreign assistance. Being closer to the challenges of economic growth, emerging economies may also be better at helping poor countries overcome them. So far the new kids on the block are doing a good job empowering people to help themselves.