43273 PHILANTHROPIC FOUNDATIONS AND THEIR ROLE INTERNATIONAL FINANCE BRIEFING NOTE IN NTERNATIONAL I DEVELOPMENT ASSISTANCE OLGASULLA New Series--Number 3, Februrary 27, 2007 MC4-373 89737 A product of DECPG designed to monitor and analyse global financial markets and their implications for development. Philanthropic Foundations and their Role in International Development Assistance The role of private philanthropic foundations in international development has drawn significant public attention over the past year, much of it centered on Warren Buffett's donation of $31 billion to the Gates Foundation.1 Many speculate on the development potential of private foundations, comparing it with the official development assistance (ODA) provided by donor countries through bilateral aid and multilateral development institutions. Total international giving by private foundations remains small compared to official development assistance. The scale of the development operations of the world's foundations is roughly $5 billion annually,2 with U.S foundations playing the major role and European andAsian foundations contributing to a much smaller extent. By contrast, ODA amounts to more than $100 billion.3 The main messages of this note are: · International development represents a small share of overall foundation giving, and foundation giving for international development is small compared with official aid. · Philanthropy for development is dominated by U.S. foundations, which channel their giving prima- rily through global funds rather than directly to developing countries. Few foundations have offices in the world's poorest countries. · Worldwide, procedures for gathering data on foundation giving differ greatly, making comparisons difficult. Outside the United States, Europe, and a few other countries, data are hard to come by. Foundations are nongovernmental, nonprofit · organizations that possess a principal fund of their own The degree of involvement in implementation of the and are self-managed by a board of trustees or directors. development agenda varies from grant-making to They promote social, educational, charitable, religious, decentralized and fully staffed in-country offices. or other goals that serve the common welfare, either · Foundations are generally more specialized in their domestically or internationally (Fink 2005). scope than bilateral official aid agencies. Fewer than 1 percent of the world's 100,000 foun- dations conduct activities that touch on developing coun- · Foundations' attitude to publicity and accountability tries. Among that 1 percent, there is great heterogene- varies widely. ity. · Spending for international development as a share U.S. foundations are by far the most important in of total foundation activities varies widely, but in all the field of philanthropy for development but a few cases accounts for a small portion of The first interventions by U.S. philanthropic foundations total expenditures. in the area of international development date back to 1 INTERNATIONAL FINANCE BRIEF NOTES the 1920s, when the Rockefeller Foundation took U.S. foundations are by far the most important ground-breakingactioninthefieldofpublichealth.More philanthropic institutions in the development field owing recently, U.S. foundations have raised their profile in to their size and age--foundations tend to start locally development assistance. and to extend their geographic outreach as their resources and expertise grow. The number of Figure 1 U.S. Foundations: Total and international philanthropic foundations in the United States rose from grant-giving,1999­2005 30,000 in 1993 to 68,000 in 2005, with grant-giving US$billions International Grants growingfrom$10billionto$33billioninthesameperiod 35 Total Grants 33 33 (Figure 1). 30.5 30.4 30.3 Comparing total grant-giving by U.S. foundations 30 27.6 (more than 30 billion annually) with international grant- 25 23.3 giving (3.8 billion), it is clear that close to 90 percent of the foundations' funds are spent for domestic purposes 20 within the United States (Figure 1). Slightly more than 10 percent of U.S. 15 foundations' grant-giving goes to international 10 development; most of that is channeled through global funds (such as GAVI), international institutions (such 5 3.2 3.3 3.2 3.2 3.5 3.8 2 as WHO), or NGOs in Europe and the United States, rather than directly to developing countries 0 1999 2000 2001 2002 2003 2004 2005 Source: Foundation Center 2006. Figure 2 Grant-giving channels used by U.S. foundations US foundations annual total grant- giving ($33 billion) International giving Domestic giving (10 %, $3.5 billion) (90 %, $29.5 billion) Foreign recipients US-based recipients (40%, $1.5 billion) (60%, $2 billion) Developed countries/organizations (45%, $600 million) Developing countries (55%, $800 million) 2 PHILANTHROPIC FOUNDATIONS AND THEIR ROLE IN NTERNATIONAL I DEVELOPMENT ASSISTANCE U.S. foundations' international grant-giving has Figure 3 Destination of direct cross-border doubled since 1998, rising to 3.8 billion in 2005 (Figure international grants from U.S.foundations. 1). After declining in 2002, international giving rebounded, increasing nearly 11 percent in 2004 and 8 percent in 2005. Creation of a few large foundations and significant giving by the Gates Foundation for global health and the Moore Foundation for environment IDA Other 3% contributed to the increase.4 countries About 60 percent of international grants by U.S. 12% foundations are channeled through U.S.-based international programs, mostly global funds (figure 2). Large Western In 2005, out of the $2 billion awarded to U.S.-based Emerging Europe and Canada, grantees, $750 million came from the Gates Foundation Economies, 45% 40% to the Washington, D.C.­based Vaccine Fund. The rest funded global programs, such as initiatives to reduce global warming, or was channeled through NGOs. Close to 40 percent of international giving by U.S. foundations goes directly to foreign implementing organizations outside the United States (Figure 2), of which some 45 percent goes to organizations in Europe, Source: statistics from the Foundations Center, AFD Australia, Canada and Japan, largely to support the and World Bank staff calculations. major international organizations, such as the World Note: IDA = World's poorest countries eligible for Health Organization5 and the United Nations (including concessionalfinancingandgrantsfromtheWorldBank's UNESCO and the United Nations Development International DevelopmentAssociation. Programme), or European NGOs that provide aid to developing countries (Figures 2 and 3). U.S. foundations' direct cross-border giving to The developing countries that receive the most direct developing countries accounts for only about one-fifth international assistance from U.S. foundations are the of the international giving, some $800 million per year top emerging markets--Russia, Brazil, India, China, (figure 2).6 Moreover, direct cross-border giving makes Mexico, and South Africa (Figure 4).8 The poorest up a decreasing share of all international dollars and countries benefit only slightly from foundations' direct grants (Foundations Center 2006). A more difficult international flows, possibly because of the difficulty of environment for funding overseas,7 combined with the accessinginformationandthedifficultyofimplementing tendency of new international grant givers to rely on assistance in the poorest countries. funds and agencies, explain this trend. From 2002 to No country eligible for financing from the 2004, cross-border giving declined 3 percent (and the International DevelopmentAssociation, theWorld Bank number of grants declined 9 percent), while grants to Group's concessional financing arm, is among the 10 global programs increased almost 50 percent, causing top recipients of U.S. foundations' direct cross-border the significant drop in the share of international dollars international aid. Only five IDA countries are among directly targeting overseas recipients. the top 50 (AFD 2006). The 12 largest U.S. foundations active at the The main recipients of direct cross-border grants international level account for more than half of the from U.S. foundations are the top 10 emerging international grant-making.9 The Ford, Kellogg, economies rather than the poorest Rockefeller, MacArthur, and Soros foundations favor countries (figure 3) direct partnerships with developing countries and tend 3 INTERNATIONAL FINANCE BRIEF NOTES Table 1 Offices of U.S. foundations in the poorest Figure 4 Developing countries' recipients of developing countries international grants from U.S. foundations, 2004 Foundation IDA countries with foundations' offices $ millions Ford Kenya, Indonesia, Vietnam, Nigeria 50 Mac Arthur Nigeria, India Rockefeller Kenya 30 Soros Moldova, Kyrgyz 22 21 20 15 Kellogg Dominica Aga Khan Tanzania, Uganda, Tajikistan, India, Pakistan, Bangladesh South Africa India Mexico Brazil IDA Russia Asia Foundation Cambodia, Indonesia, Mongolia, countries (est.) Vietnam, Afghanistan, Nepal, Pakistan, Bangladesh, Source: AFD, 2006 and staff calculations. Eurasia Armenia, Azerbaijan, Georgia, Kyrgyz, Uzbekistan, Tajikistan how their programs are developed or on how their Open Society Nigeria, Mongolia, Armenia, Azerbaijan, Bosnia, Georgia, Tajikistan, Uzbekistan international philanthropic activities are carried out. Source:World Bank, Global Programs and Partnerships Total international grant-giving by European web site, and staff analysis. foundations, now about half a billion dollars annually, has been slowly increasing over the to have offices in the recipient countries. On the other last years hand, the Gates, and Hewlett-Packard foundations and Europeanfoundationshavebeenmuchslowertodevelop the Rockefeller Brothers Fund frequently use than those in the United States. The chief reasons organizations in developed countries to channel aid to include the erosion of private wealth following the two developing countries. world wars, a stronger welfare system, and a greater Overall, few U.S. foundations maintain offices in propensity to state, over private, action. The European the world's poorest countries. Out of 81 IDAcountries, Foundation Center includes about 150 foundations, with only 26 host one or more foundation offices (Table 1). the 10 largest accounting for three-quarters of all expenditures. Sweden is home to the largest share (29.4 The health sector continues to be the main aid percent) of European foundations, followed by Denmark priority for U.S. foundations, followed by education (16.5 percent), Britain (10.3 percent), Germany (9.8 and basic social services percent), and Switzerland (9.4 percent). Some U.S foundations target quasi-political objectives, Little information is available on grant-giving by such as democratization and support for civil society. European foundations to developing countries. Total Others seek to promote basic services and provide global giving by European foundations is roughly estimated at publicgoods,suchaseducation,health,andenvironment $1.4 billion annually (international and domestic). Some protection. The top three priorities of U.S. foundations surveys indicate that about 40 percent of European in international grant-making are health (49 percent), foundations carry out some international activities. education, and basic social services. U.S. foundations Therefore, annual international giving by European also provide limited funding in areas such as public foundations amounts to at most $600 million, but is affairs, religion, social sciences, human services, arts increasing, according to the European Foundation and culture. Center. Although very little is known about European According to a study by AFD (2006), although 77 foundations' international giving by sector of activity, percent of internationally active U.S. foundations state surveys indicate that the main targets are education, that development assistance is a priority in funds research, and health care (OECD, 2003). allocation, 70 percent did not see the Millennium Development Goals as having a direct influence on 4 PHILANTHROPIC FOUNDATIONS AND THEIR ROLE IN NTERNATIONAL I DEVELOPMENT ASSISTANCE Asian foundations play an increasingly important References role in their region AFD (Agence Française de Développement). 2006. "American Phil- International philanthropy by Asian foundations is anthropic Foundations." AFD Working Paper 2006/22, Paris. July. European Foundations Center, website. relativelylimitedowingtoculturalandreligioustraditions Fink, E. 2005. "The World Bank and Foundations: Good Practices for thatfavorlocalphilanthropy.Inmanycountries,nonprofit Partnerships." World Bank, Washington, DC. Foundation Center. 2006. "International Grantmaking Update: A Snap- organizations are struggling to gain government shot of U.S. Foundation Trends." New York. October. recognition as a separate sector. MostAsian philanthropy Japan Foundations Center, website. John Hopkins University Center for Civil Society Studies, website. is directed at local community needs and social welfare. OECD (Organisation for Economic Co-operation and Development. Aid to nonreligious causes is relatively low, according 2003. "Philanthropic Foundations and Development Co-opera- tion." Development Assistance Committee, Paris. to theAsia Pacific Philanthropy Consortium. There has The Economist, July 1st 2006 "Special Report Philanthropy", July 1st been very little research onAsian philanthropy in general 2006 and even less on the activities of Asian foundations in The Giving Game, Bloomberg Markets, February, 2007. developing countries. The countries with the most foundations are Australia, Japan, China, and Hong Kong (China), and Notes 1. With Buffett's donation, the Gates Foundation is currently esti- the Republic of Korea, but foundations are also found mated to posses more than $60 billion in assets. in Malaysia, the Philippines, Thailand, and Vietnam. 2. This area is significantly under-researched owing to the lack of worldwide data collecting system. Australianfoundationsmakegrantsofabout$250million 3. Total net ODA by official DAC donors accounted for $106.5 per year both internationally and domestically, with billion in 2005. Some nongovernmental flows are included in this religion, social services, education, and research as the figure. Bilateral ODA, which consists almost entirely of grants, ac- counted for almost 80 percent of the total (GDF 2006). most active sectors. The Japan Foundation Center 4. The Gates Foundation increased its giving, especially through its reports about $56 million of international grant making Grand Challenges in Global Health Initiative. The Moore Foundation boosted giving primarily through its Andes-Amazon initiative to con- by Japanese foundations.10 In light of the reports of the serve biodiversity. largest Asian donors, international giving by Asian 5. The funding from the Gates Foundation for the WHO and other medical research institutions represents 95 percent of the financing foundations can be estimated at around $400 million allocated by U.S. foundations to Switzerland. annually. 6. The Foundation Center estimates total cross-border giving at $821.6 million in 2004, out of $3.5 billion in international giving by U.S. foundations. Conclusion: Private foundations could play a larger 7. Stricter U.S. government policies aimed at preventing the diver- role in development sion of charitable assets to terrorists created a more demanding regula- tory environment. Reportedly, foundations also perceive increased Despite significant data limitations traceable to the lack security risks abroad since 2001. of a worldwide collection procedure, it is clear that the 8. These tend to be the same countries that receive the largest shares of foreign direct investment and foreign portfolio equity flows. role of private foundations in international development 9. These top 12 foundations include Gates, Ford, Hewlett, Packard, assistance has increased significantly over the last Rockefeller, Mellon, Kellogg, Mott Foundations, Open Society Insti- tute, Rockefeller Brothers Fund, Carnegie Corporation of New York, decade, led by U.S. foundations. However, given the MacArthur. number of the worlds' foundations and the formidable 10.The Pan Asia Fund of Japan, for example, supports training for journalists and research on international economic systems. Sample assets of the largest ones11, there is an enormous grants include capacity building for development in Central Asia and potential for their increased role in development, Caucasus, Center for Effective Economic Policy in Uzbekistan etc. 11. particularly if the trend toward greater international The Economist, July 1st, 2006. giving continues. At the moment, the international development activities of foundations remain highly concentrated in few sectors, with the vast majority of direct cross-border assistance going to the largest emerging economies. Thus, the aid provided by philanthropic foundations is significantly different from ODA (as well as much smaller), both in its nature and in the way it is implemented. 5