How US Foreign Aid Policies Affect Global Business Operations

Universities, tech startups, and mature companies often generate new knowledge that enhances business productivity and value creation. For example, small and medium-sized companies that are integrated into the global supply chains of mature companies — such as local bottlers of Coca-Cola and country distributors of Pfizer pharmaceuticals — greatly benefit from advanced concepts and technologies in areas such as logistics, manufacturing, and working capital management. But for companies in Africa, Asia, and Latin America that have not always been integrated into global value chains, access to such knowledge, to some extent, has come directly or indirectly through programs supported by USAID.

However, in the absence of U.S. foreign aid platforms, knowledge transfer will be reduced for SMEs and other, less-integrated businesses. This could result in supply chains becoming less efficient in these developing regions unless alternative mechanisms emerge for knowledge transfer. Further, U.S. advantage in the AI race depends on the quality and extent of knowledge pools and diverse data sets that are the basis for deep learning. Access in each of the many and varied markets is key to having optimal applicability and influence in regional economies.

Business and Social Norms to Stabilize Working Capital

In many developing countries, the entire business ecosystem is negatively affected by the commonly accepted practice of late payment. Late payments can result in high SME churn, which destabilizes markets and undermines profitability. These problems are particularly acute when SMEs do business with the governments of their countries in sectors such as health care and agriculture.

With the Prompt Payment Act of 1982, the United States became one of the world’s leaders in enforcing payment timeliness in federal and state governments and in private businesses. USAID’s payment terms for its implementing partners — who then passed them on to their subcontractors — helped maintain strong payment discipline across the business ecosystem. Many of those contractors, supplying a range of products and services, regarded USAID and its implementing partners as their preferred anchor customers, which in turn fostered overall economic development. Our research indicates that SMEs working with USAID contractors tended to grow faster than their counterparts due to timely payments, knowledge transfer, and improved business practices. Over time, these SMEs began demanding similar payment terms from other clients, influencing broader market standards and shaping an ecosystem more conducive to business. It is not yet clear which entities might step into this void in order to keep payment insurance and working capital requirements low.

Business and Government Relationships to Sustain Growth

Promoting long-term growth in developing countries requires companies and government agencies to understand the complex cultural, governance, and structural differences that shape business relationships in emerging and frontier markets. For example, our research combined the structural study of business systems with longitudinal data to identify opportunities, such as facilitating growth in agricultural markets through credit extension to relevant actors. USAID was an important source of this type of market intelligence that companies can ill afford to lose. Moreover, the agency’s economic incentives and assistance programs provided a model that local governing authorities could emulate in extending market intelligence and amplifying market potential. Together, such efforts facilitated healthy horizontal relationships that had high potential to support various tiers of the supply chain, ranging from raw material supply to last-mile distribution.

In contrast, Chinese foreign investment pours into vertically integrated relationships that benefit only the actors directly involved. In the vertical model, sector insights and growth potential are severely constrained and skewed toward Chinese interests. As a result, the potential for U.S. businesses to understand markets and identify business partners for new ventures is diminished by the absence of direct USAID efforts and the multiplier effect of local authorities.

Understanding Dependency on Foreign Aid

While every company operating in developing countries generally benefits from aid investment in these and other ways, the nature and urgency of adapting current business strategy to uncertain foreign aid depend on how a company benefits from such investments. We propose three high-level categories of these degrees of dependence: companies whose revenue relies directly on foreign aid investment, companies that depend on the infrastructure and ecosystems facilitated by foreign aid investment, and companies that derive value from spillover benefits.

Rely on aid for revenue: These companies contract with foreign aid agencies for goods and services in markets that those agencies serve or for the direct provision of services to such agencies. These include:

• Companies that have been direct contractors of USAID and have provided services to aid agencies (such as Catholic Relief Services, Deloitte, and Tetra Tech).
• Pharmaceutical companies (such as Johnson & Johnson, Merck, and Novartis) that supply medicines and health products to countries in Africa through health programs that were run by USAID but are now run by the State Department.
• Agricultural technology companies (such as Corteva, Monsanto/Bayer, and John Deere) that leveraged USAID activities to support smallholder farmers with resources such as seeds, chemicals, and equipment.

Rely on aid for infrastructure and systems: These companies and organizations depend on foreign aid investment to build infrastructure and/or strengthen the systems in which they operate.

Moving Toward Collective Action

While U.S. foreign assistance for key global development areas has not been entirely dismantled and may, in fact, now place greater emphasis on engagement with the commercial sector, some aspects of the aid architecture have changed irreversibly. Leaders of companies operating in developing markets that rely heavily on aid must assess their companies’ exposure to direct and indirect foreign assistance across product lines and business units. They should evaluate how aid-driven investments and institutional capabilities affect their supply chains — and, in turn, their suppliers, customers, and service providers.

This analysis can help companies adapt strategically to an evolving and uncertain aid landscape. Building the networks, institutions, and shared resources that enable businesses, suppliers, and customers to operate and grow more effectively is complex and resource intensive — no single company can solve it alone. Yet, relying on traditional aid programs to fill these gaps is no longer a pragmatic solution. Perhaps a renewed aid architecture that is still evolving will prioritize how aid programs help create the foundational infrastructure and systems that low-income country markets need to function effectively.

Regardless, collective engagement by business leaders is necessary in shaping the course of global competitiveness; collective-action platforms that unite multiple companies around shared goals offer the most viable path forward. U.S. foreign aid in its newer forms, along with other bilateral and multilateral agencies and private philanthropies, should prioritize funding these collective-action platforms.