A Sketch of the Development Industry and Its Self-Perpetuating Structure

The global machinery dedicated to international development cooperation, often affectionately termed the “development community” to give it a “cuddly glow,” is more accurately described as a massive, complex, and little understood industry. This classification is not merely semantic; David Sims asserts that understanding the foreign aid ecosystem requires recognizing it as a business enterprise defined by quantifiable financial flows, a vast workforce, fierce competition for funds, and an overriding obsession with self-perpetuation.

This post examines the sheer scale and peculiar nature of this industry, charting its financial architecture, identifying its core players—from multilateral institutions to consulting giants—and detailing the ancillary ecosystem of “pilot fish” that cluster around its massive budget, ensuring that the “show goes on” indefinitely.

Why Call It an Industry? Scale, Scope, and Profit

The label “industry” is justified by the measurable economic dimensions of the foreign aid apparatus. It is a behemoth with an enormous quantifiable turnover. By 2021, the quantified annual turnover of this sector exceeded $200 billion per year.

This volume of funding requires and employs a “cast of hundreds of thousands” globally. Thomas Dichter conservatively estimated the global workforce making a living from the development industry at roughly half a million people in 2002, a number likely larger today.

Crucially, the industry generates substantial revenues for a wide array of actors, including private companies, international non-governmental organizations (INGOs), and individuals. The core of the industry is characterized by competitive procurement processes, through which almost all aid industry expenditures flow. This competitive environment generates intense interest and competition among businesses seeking to acquire portions of these enormous financial flows. A publication from the UK government highlighted the advantages of “aid funded business,” noting that “orders are always backed by funds,” it offers a secure way to establish a presence in new markets, provides lucrative long-term opportunities, and is valuable experience for future project bidding.

The industry is recognized as such by a variety of key stakeholders, including politicians, foundations, academics, and journalists. Furthermore, its existence is underlined by the presence of numerous professional associations, trade publications, career services, trade fairs, and the constant rollout of conferences, colloquiums, and workshops. In fact, few other industries of global reach are surrounded by such strong and growing ancillary activities.

A Strange Industry Indeed: The Lack of Market Feedback

While the aid sector functions as a massive industry, it is a “strange industry” because it lacks the market feedback mechanisms typical of a normal corporate entity. In the corporate world, success is typically measured by market share, profits, or efficiency in cost reduction. In contrast, the development industry is fundamentally in the business of spending already earmarked funds. Its primary measure of success is the ability to spend the money and spend it at least vaguely on time.

To convey a semblance of dynamic change and performance, the industry has built up “whole structures” designed to pretend that there are alternative metrics for gauging performance, such as focusing on outcomes, worrying about effectiveness, measuring results, evaluating impact, and emphasizing value for money (VFM). However, these metrics are often exposed as “hollow artifacts”.

The structure of the industry is heavily focused on the theoretical and bureaucratic aspects of development. More than almost any other global industry, the development sector contains an inordinate number of organizations focused on conceptualizing, measuring results, tracking fund flows, and justifying the myriad of activities undertaken. This contributes to a sense of internal institutional insecurity among donors, an existential angst about securing continued funding. They feel the need to unify as a “development community” to protect the flow of funds against “aid skeptics”. This insecurity leads to constant lobbying and a need for a “new discourse around aid that makes taxpayers proud of what they fund”.

The Financial Architecture: Short Leashes and Competitive Bidding

Development funding flows primarily through competitive procurement processes, covering ninety-some percent of total development expenditures. This encompasses the procurement of expertise, management, and other services for development work.

In earlier times, procurement was relatively simpler, often relying on professional networks and reputation. However, today’s procurement landscape is a “little-known world of bureaucratic rules, regulations, and oversight”. The processes are designed to generate competitive markets but have led to bureaucratization and proliferation.

The typical procurement process for firms involves multiple, lengthy steps:

  1. Preparation of the Tender: The donor or recipient government’s executing agency prepares the tender, usually with consultant aid, focusing on the terms of reference (TOR) and required expertise.

  2. Expression of Interest (EOI): Published by the donor or national implementing agency, this serves as a prequalification step.

  3. Request for Proposals (RFPs) or Requests for Appointments (RFAs): Sent to a shortlist of prequalified bidders, these detailed documents include the TOR, required qualifications, and strict deadlines (often only a month or two), requiring a “huge amount of work” from bidding firms.

  4. Review and Negotiation: Technical and financial proposals are reviewed.

  5. Contract Signing: Often involves signing contracts that may be overly complicated or riddled with contradictions, relying on “naïve faith” that issues can be overcome by goodwill, though cascading disputes frequently result.

Donor-imposed procurement guidelines for recipient governments are typically highly detailed, complicated, and rigid, even when the funds are loans that must be repaid. These procedures place an intrinsic bureaucratic and procedural burden on the recipient country, undermining any sense of real ‘ownership’.

The procurement process is rife with competition. A top ten list of development agencies published over 14,000 tenders in the first quarter of 2020 alone. For a consulting company or contractor to be successful, a considerable portion—often more than half of its staff and management efforts—is dedicated merely to tracking announcements, negotiating consortia, and putting together expert teams to navigate these competitive steps. This leads to consulting firms specializing in “proposal writing and other ‘process’ jobs”.

The Time-Bound Nature of the Money

Contrary to the rhetoric of “partnerships” and “recipient ownership,” development funds allocated by donor governments are strictly time-bound. Financial agreements specify detailed sequencing and completion dates, along with complicated conditions that must be “triggered” before each tranche is disbursed.

The donor keeps allocations on a very short leash, dribbling out funds through “byzantine bureaucratic dances”. Even the simplest payments usually require a coveted ’no objection’ from the donor agency and, if managed by a partner agency, potentially dozens of signatures. Mechanisms that would allow for independent management and multi-year retention of allocations are virtually non-existent, except for small ventures like the USA’s Millennium Challenge Account.

Some funding bypasses intermediaries, such as budget support or policy lending transferred directly to recipient governments. This direct flow, which peaked in 2002, has since declined to less than 6 percent of the total development industry’s annual value as of 2014.

The Key Players: A Diverse Cast of Donors

The foreign aid industry encompasses a complex network of organizations that Sims broadly defines as “donors” (all entities in the West dispensing funds, advice, or knowledge aimed at the “rest”).

1. Multilateral Financial Institutions (IFIs)

Institutions such as the World Bank Group (including IDA, IBRD, and IFC) and regional development banks (ADB, AfDB) are central to the industry, despite much of their funding being repayable loans. They mobilize significant capital and their funds originate from Western country pledges. They are massive users of procurement systems. The IFC, for instance, has been supporting private ventures in developing countries with investment loans, equity participation, and risk guarantees since 1956. The World Bank also relies heavily on technical assistance, generating significant fees.

2. Bilateral Donors and Government Agencies

These include country-specific agencies (e.g., USAID, DFID, GIZ, KfW). Their programs are often influenced by geopolitical and economic self-interests of the donor nations. For example, USAID is the world’s largest bilateral donor, and its procurement contracts are highly sought after by consulting firms.

3. Consulting and Contracting Firms

These firms are the engines of procurement. They generate substantial revenues by competing for slices of the aid flows. They range from large global entities to small specialized groups. Key strategies for firms include “vendorism,” which involves constantly seeking opportunities, assembling teams to match RFPs, and intensive self-promotion. The trend is toward bigger, more complex, and more process-oriented companies. For instance, USAID’s top ten awardees in 2019 captured contracts worth over $6 billion. These large “body shop” companies compete intensely, often resulting in the acquisition or disappearance of smaller, well-regarded firms. The focus on procurement structures and the consultants who staff projects are seen as factors contributing to the “increasing confusions, contradictions, and even dumbing-down of the development industry”.

4. International NGOs (INGOs)

INGOs play a significant role, often acting as service providers or implementing partners. They became important vehicles during structural adjustment periods; for example, the number of World Bank projects involving NGOs jumped sharply between 1973 and 1990. Like donors, they devote immense resources to external communications and fundraising to constantly secure new funds.

5. Philanthropic Foundations

Flows from philanthropic foundations and charities based in the West have become substantial since the 2000s. Sims notes that these foundations, often run by the “super-rich,” often toss “symbolic scraps to the forsaken”. This allows them to accumulate wealth and resist external control, dispensing beneficence toward the rest, often concentrated on causes like health and education.

The Pilot Fish: The Ancillary Economy

Clustering around the donor organizations is an extensive ancillary ecosystem, collectively referred to as the “pilot fish” of the development industry. These actors exist largely to service the needs, conceptualize the work, and manage the communications of the core donors:

  • Clearing Houses: Organizations like UN Development Business (UNDB), Devex International, and DevelopmentAid function as job posting sites and business opportunity networks, publishing thousands of alerts annually for projects and jobs. They provide “business intelligence, development news, and sectoral analyses”.

  • Academia and Think Tanks: There is a “academia-development nexus” demonstrated by numerous scholarly journals focused on development and poverty. Think tanks—such as the Brookings Institution, the Royal Institute of International Affairs, and the AD Institute in Tokyo—are mostly located in the USA and Europe and contribute policy direction.

  • Public Relations and Communications Firms: Donors increasingly rely on public relations firms to generate favorable information and project a benign image. They are professionals who are equally comfortable promoting corporate interests as they are international development.

  • Voluntary Organizations: Groups like the Peace Corps (USA), UK’s Voluntary Service Organization, and UN Volunteers, while ostensibly dedicated to helping others, serve broader functions. For most, helping poor countries seems “almost incidental” to the main purpose of promoting international relations or widening the Western volunteer’s own horizons—a phenomenon sometimes called “voluntourism”.

  • Industry Blogs: The proliferation of development industry blogs, sometimes critical (e.g., Aidnography, Bretton Woods Project), provides commentary and analysis, although many are shifting toward newsletters and podcasting.