Soft power curtailed

Benefits for the donor country

It has always been understood that official development assistance is provided in part to serve the national interests of the donor country and promote its economy. Early development policies, back in the 1960s, focused for example on access to raw materials and the opening of new markets for the products from the industrialised country.[1] In 1962, US political scientist Hans Morgenthau also noted that foreign aid always had a positive effect on the reputation of the donor country.[2] Today, the granting of aid in this context is usually justified with reference to the “soft power” gains accruing to a donor country. In March 2013, the then development minister Dirk Niebel (FDP) gave a vivid cost-benefit assessment of development cooperation for the donor country. Newly appointed to the Federal Ministry of Economic Cooperation and Development (BMZ), he stated in an interview with the tabloid Bild-Zeitung that, “If we pursue a clever development policy we will raise money for Germany. With every euro spent on development cooperation two euros will flow back to us in the long term.”[3] German business would benefit “through economic contacts” forged in the context of development cooperation. Indeed, “it is by far cheaper to trade with peaceful countries than to fight hostile ones.” Niebel himself, however, quickly moved to a post with the German arms manufacturer Rheinmetall after his transactional term as Germany’s development minister.

Trade and political concessions

A recent analysis of the political and economic benefits enjoyed by the donor country was published in June by the Kiel Institute for the World Economy (IfW). According to the study, benefits occur in three different areas. The first concerns the economy. There is clear evidence that development aid can “stimulate trade and foreign direct investment”.[4] Advantages can also be achieved “in the geopolitical field”, it says. For example, development aid recipients can be encouraged to support the donor country in “multilateral consultations” and, occasionally, agree to “specific political concessions”. Moreover, there are also benefits in terms of “security and stability”, a factor “often not fully appreciated”. Grants to assist development can, under certain circumstances, help to defuse conflicts and reduce the numbers of refugees trying to make their way to Europe. The analysis indicates that assistance in the health sector, not least programmes to combat infectious diseases and pandemics, has proven particularly successful for both recipients and donors. According to the IfW, the monetary benefits of establishing a vaccination infrastructure in developing countries – and effectively stemming the spread of diseases and, above all, their transmission to Europe – are often ten or more times greater than the funding invested.

Aid without development

The IfW study is noticeably more sceptical about the benefits of development aid for recipient countries themselves in the Global South. It finds that, based on all the available information, the impact on economic growth of development aid is assumed to be always positive but turns out to be rather “modest” in recipient countries.[5] The study also advises caution when a donor government chooses to provide grants only on condition that recipient buys goods or services from the donor country. Expectations to this effect are widespread in the industrialised world. The problem is, the IfW warns, that while this approach may bring “short-term economic benefits” to donor countries it often results in “limited and sometimes even negative returns for recipients”. The recipients are well aware of this self-seeking condition and loud criticism is often voiced internationally, which means “damage to the reputation and political influence of donors”. Donors should therefore review their development strategy. As for the ongoing donor cuts in development funding, the impact on the donor countries themselves is, according to the IfW study, very clear: “It weakens their soft power, reduces their global influence and forfeits strategic opportunities in areas such as pandemic preparedness and security cooperation.”

Humanitarian funding halved

Most wealthy donor countries are cutting their international development spending. In many cases they are shifting huge funds into their military budgets. The most radical cutbacks have already been made by the US administration. The United States had been the largest development donor until Trump opted to dissolve the USAID on 1 July. Only a small number of programmes are now being run under a different umbrella. The United Kingdom and France, previously relatively strong donors, are also slashing development funding. The Netherlands and Sweden made earlier budget cuts. The new German government (CDU-CSU, SPD) is likewise preparing some tough cuts, seeking to further reduce a development budget that had already been systematically squeezed by the previous coalition government (SPD, Greens, FDP). While the Federal Ministry of Economic Cooperation and Development (BMZ) could still dispose of 13.5 billion euros in 2021, only 10.3 billion euros are earmarked for 2025.[6] Further cuts are expected in the coming years. The German government has also made unprecedented cuts to the humanitarian aid budget, which is allocated to the Foreign Office. It is being reduced by as much as 53 per cent.[7]

Shifts in power

The comprehensive cuts in development assistance, including Germany’s contributions, will first of all hit the populations of impoverished countries in the Global South. Some of them are already facing a situation in which essential supplies, such as food and medicine, are collapsing. The consequences will be catastrophic. In addition, the squeeze on financial transfers to the Global South will lead to a shift in the international balance of power. In Germany, there has been speculation for some time as to whether the de facto withdrawal of the United States from the development assistance field might, in future, enable Germany to take on a “leading role” as the largest donor left standing, despite its own cutbacks.[8] Whatever else happens, Western countries are facing a massive decline in their development policy-driven influence in many developing countries in Africa, Asia and Latin America. In the Western media complaints are already being regularly voiced that other countries, especially China and Russia, are expanding their influence in the developing world. With the retreat by Western countries from significant development assistance, this shift in influence is likely to intensify. If the transatlantic powers do not want to accept this decline as a fait accompli – and there is no indication that they do – then they will have use other means to regain their influence in the Global South going forward. Just what these means will be is unclear. And that goes for Germany, too.

[1] 20. August 1964: Erstmals deutsche Entwicklungshelfer im Ausland. bpb.de 19.08.2024.

[2] Hans Morgenthau: A Political Theory of Foreign Aid. In: The American Political Science Review. Vol. 56, No. 2 (1962). 301-309.

[3] S. Haselberger, H. Kautz: “Ich hole Entwicklungspolitik aus der Schlabberpulli-Ecke”. bild.de 04.03.2013.

[4], [5] Tobias Heidland, Maximilian Michael, Moritz Schularick, Rainer Thiele: Identifying Mutual Interests. How Donor Countries Benefit from Foreign Aid. Kiel Working Paper No. 2291. Kiel, June 2025.

[6] Haushaltsentwurf 2025: Deutschland bleibt verlässlicher Partner in der globalen Zusammenarbeit. bmz.de 24.06.2025.

[7] Klaus Boldt: Etatentwurf: Humanitäre Hilfe soll um 53% gekürzt werden. epo.de 24.06.2025.

[8] Berit Uhlmann: “Die Welt schaut auf Deutschland”. sueddeutsche.de 29.04.2025.