Foreign aid support is waning in many of the developed nations which includes Canada. This is evident in an recent poll revealed that 59 percent of Canadians are in favor of reducing foreign aid for developing countries.

It is striking considering the fact that Canada’s foreign assistance, in the amount of 0.38 percent of its GDP and is currently lower than the goal set by the OECD of 0.7 percent which puts Canada at middle of the in the middle range of donors.

The reduction of foreign aid from developed countries does not just hamper international development, it could also impact the international performance of a country’s domestic companies.

While aid to foreign countries must always be focused on reducing global inequality in order to reduce poverty and improve the health of those living in countries where it is received but it’s equally important to recognize the positive of aid for the countries that provide it.

This will help to keep international aid at the time that nations and their people are increasingly looking inward.

Not only an act of kindness

Despite the evident lack of foreign aid among the population at large, the Canadian government promised to increase the amount in the budget for 2024 after the cut of 15% in the previous year, which drew massive critique from the assistance industry.

It’s important to be aware that aid from abroad isn’t just an act of charity but also a benefit to the countries that offer aid.

A number of governments are now communicating the importance of international assistance to the citizens of their countries. For example Australian government Australian Government has introduced the new development strategy in 2023 insisting on the necessity of lifting the poor in the developing countries, bringing peace and prosperity to Australia.

In the same way the Canadian government highlighted that it was crucial for Canada playing a more active position on the global scene with the Budget announcement for 2024. Promoting national interests and protecting Canadian values requires active involvement and participation in international issues.

Foreign direct investment decisions

As experts and researchers in the field of strategy We were particularly interested in the possibility of foreign aid creating positive spillover effects for companies of the donor countries.

If positive results are present and the reduction of foreign aid will not only affect countries that receive aid as well as harm the economic wellbeing of the countries that provide aid. The reduction in foreign aid, for instance, could lead to Canadian companies losing their competitiveness abroad and this could result in decreased job opportunities and a decrease in economic growth in Canada.

Our study examined the role played by Japanese foreign assistance in decision-making of foreign direct investments by 1,451 Japanese companies operating in 76 of the developing countries from 1991 until 2002. Foreign direct investment is the investment made by a business or other entity that is based in one country to another.

We excluded construction and infrastructure firms because their investment decisions might be influenced by execution of aid-related projects and not tied to spillovers of aid.

Aid to development was a key foreign policy instrument for Japan especially in those years. As of 1991, Japan had become the world’s largest aid recipient, but its aid budget was drastically cut in 2003.

The initial Official Development Assistance Charter, promulgated in 1992, was a favor of aid with a low tie -and Japan mostly stopped the practice of tying aid to Japanese businesses or products. After the charter was rewritten to reflect the needs of Japanese companies in 2003 permitted the easier access to aid-related contracts for Japanese companies.

New insights gleaned from research

Our research showed that all types of foreign aid could positively impact the direct foreign investment by donor countries in the countries of recipients. This includes social and economic assistance to infrastructure (for roads as well as telecommunications and education health) as well as non-infrastructure assistance (such such as emergency aid).

Both kinds of aid could lower the risks and costs of foreign direct investment that creates new opportunities for donor countries’ firms in countries that are recipients of aid.

Infrastructure aid helps improve access to networks and information in the countries of recipients, improving the overall market conditions. In addition, aid that is not infrastructure-related can help reduce political and market risks, making it more convenient for businesses to work.

In Northern Vietnam, Japan supported the development of roads as well as port facilities in the 1990s. Interviews conducted by The Japan Bank for International Cooperation reveal that, without the modernized infrastructure for transportation, the majority of the investment made by Japanese firms would never be made throughout the country. Utilizing these facilities was crucial for these firms since they depended on imported components and raw materials, making fast cost-effective transportation between ports and port handling essential.

Our study also revealed that not all businesses benefit in the same way from aid from abroad. Certain companies, such as those that had less experience in the aid-recipient country were more dependent on foreign aid to tackle local issues they were unable to overcome on their own.

The national interest is at risk

Our findings from research show the fact that cutting aid to foreign countries from developed nations doesn’t just slow international development but could also affect the interests of the nation.

Although the main goal of aid from abroad is to boost the wealth of people who live in countries that are developing It is important to consider the positive benefits aid may be able to have on countries that receive aid too.

A deeper understanding of aid from abroad is crucial for Canadians when they consider the impact of aid policies on the economic wellbeing of Canada as well as its global impact.

A robust international aid program isn’t just a moral obligation and an essential strategic requirement for countries such as Canada. In continuing to aid efforts to develop international relations, Canada can safeguard its economic interests while demonstrating its commitment to equity in the world and stability.