Dwindling development aid paves the way for transformative local reform

This article is based on a section from Next Generation’s 2025 trends report:
Every year Next Generation Consultants shares a hindsight, foresight and insight research report
with people and entities interested in the social, solidarity and impact economies in South Africa.
The 2025 report is the 10th edition. This year’s theme – “Creating the future we want” – reflects a
world that has changed fundamentally and continues to be characterised by emerging practices and
growing developments. The reflections and recommendations of founder and impact economy
advisor Reana Rossouw centre around how we can prepare for an unpredictable future by focusing
on building capacity for adaptability and flexibility.

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The gradual but deliberate dismantling of global development aid is the new reality

The USA is the world’s largest provider of foreign aid, contributing 40% of global humanitarian
funding. The executive order in January to halt USAID funding for 90 days has therefore had
immediate and severe consequences for critical aid programmes worldwide, including in South
Africa.

The Trump administration’s action against USAID is not an isolated event. It is part of an ongoing
pattern in the international development landscape whereby donor nations are systematically
dismantling their aid architecture to better serve domestic ideological and economic interests.
Several European nations have announced aid budget cuts since 2024, including the Netherlands (-
30%), Belgium (-25%), France (-37%), the UK (-40%) and Germany (nearly €2 billion). The scale of US
aid, nevertheless, makes this one of the most extreme development aid developments.

The USAID funding freeze, combined with the USA’s withdrawal from the Paris Climate Agreement
and the World Health Organization, will have an enormous impact on humanitarian budgeting across
the globe, leaving critical needs unmet, organisations weakened and under-resourced, and
persistent inequalities in access to basic services. For Trump’s administration, this appears to be part
of a larger push to diminish multilateralism and reduce state responsibility in global development.

Has South Africa’s social development sector been left in the lurch?

Development finance and aid play a particularly crucial role in South Africa’s social development.
According to recent Organisation for Economic Cooperation and Development (OECD) data, South
Africa received approximately $1,09 billion in overseas development aid (ODA) in 2022; in 2023,
$440 million of South Africa’s development aid came from the USA, largely directed towards
HIV/Aids programmes. Following the USAID stop order, the World Food Programme – which
previously received 40% of its funding from the US – was already forced to shut down its SA office in
March.

ODA is of course supplemented by several local financial resources for social development, including
government financing (primarily via the Department of Social Development or DSD), private capital
and remittances. Government is however facing several of its own financial challenges, including a
rising debt burden that is squeezing public funding and declining tax revenue.

In addition, instances of fraud and corruption in government agencies remain rife. One of the most
recent cases that made headlines is the Gauteng DSD, which pays out almost R2 billion annually to
non-profit organisations in the province. In 2019, forensic reports providing evidence of irregular
payments of at least R500 million between 2016 and 2018 from NPOs to for-profit companies that
have not gone through a tender process were finalised. These reports were buried by the
department, re-emerging in 2024 only. Still, those implicated have not been held to account and
funding to several non-profits was delayed in 2024. A fundamental problem with government
funding is the lack of coordination: without a centralised record of which organisations receive
funding or confirmation of their registration on the DSD database, there is little oversight or
coordination, which compromises transparency, accountability and impact.

Destructive competition means funders are becoming fundraisers

As a result of the challenging global landscape and dwindling humanitarian funding, new
competitors for funding are emerging in South Africa. It’s no longer only non-profit organisations
competing against each other to raise funds, or social enterprises competing to attract investors.
Funders are becoming fundraisers and competing against each other.

The South African government has become the greatest competitor for development funding,
adopting two key strategies: 1) engaging the private sector to sustain economic activity and 2)

expecting the non-profit sector to deliver essential services without financial compensation,
requiring organisations to raise their own funds.

Yet, South Africa is not entirely facing a funding crisis, considering the range and depth of
development financing sources. The DSD has been allocated R422,3 billion in the 2025/26 financial
year; private capital allocations to social development exceeded R200 billion per year between 2020
and 2024; and remittance inflows often exceed official ODA and amounted to $803 million in 2022.

The challenges the sector experiences however highlight key questions:

• Are the available resources being used effectively and allocated equitably?
• How can government funding be managed and leveraged more effectively across the social sector?
• How can the sector be strengthened so that communities become more resilient and less dependent on aid and social welfare?
• How can organisations be strengthened so that the sector can operate, distribute, create and manage its own resources optimally?

Both reform and institutionalisation are therefore required to navigate the new world order.
Philanthropy cannot replace government, but it can be a catalyst for innovation and creating
alternatives to existing challenges in society.

The USAID collapse opens the door for transformative change

If there is a lesson in the collapse of USAID, it is this: the Western aid-industrial complex is inherently
fragile, self-serving and unpredictable. Something entirely new is needed. Instead of focusing on
whether Trump’s actions are creating openings for China and other global powers to come to our
rescue, we have the opportunity to create something entirely different and more transformative
that builds a stronger, more sustainable local social economy.

This transformation must focus on:

• Prioritising quality support that aligns with the priorities of South Africa overall and of our communities and strengthens local institutions and organisations. 
• Promoting collaboration among donors and organisations across the sector to reduce duplication and maximise impact. 
• Incorporating social enterprises in SME initiatives such as incubators and accelerators so that they become investment-ready and leverage private capital.
• Encouraging and supporting more organisations to generate their own revenue and building organisational capacity to diversify income streams in order to become financially sustainable. 
• Leveraging aligned development approaches and priorities across sectors to support national development priorities. 

Ultimately, transformation hinges on recognising the social development sector’s contribution to the South African economy. Instead of waiting with bated breath for the next global funder to step in (and hoping their commitment lasts) or for government to get its finances in order, we should focus on building a stronger, more independent local social development sector: bolstering local operational capacity and developing the next generation of leaders, organisations and institutions to serve the country better in the future. 

In a strange twist of irony, we can take a leaf out of the book of global donors who are prioritising domestic needs and become more self-serving ourselves: a South African social development sector for South Africa by South Africa. It will take time, require drastic innovation and demand clear priorities and unprecedented collaboration and coordination. But it can be done, and it must be done. After all, it won’t be the first time we’ve conquered the seemingly impossible.