Geopolitical upheavals, shrinking aid budgets and growing calls to decolonise development are prompting African countries to reassess their reliance on traditional funding models. Against this backdrop, companies can play a vital role in reshaping development finance for the future, says Fiona Zerbst.
In January 2025, United States (US) President Donald Trump announced a 90-day freeze on foreign aid funding, citing concerns about wasteful spending and stating that the “foreign aid industry and bureaucracy are not aligned with American interests and in many cases antithetical to American values”. Just a month later, he announced he would terminate more than 90% of the US Agency for International Development’s (USAID) contracts to dodge a court-ordered pause on the funding freeze.
By April 2025, the Trump administration had terminated over 80% of USAID contracts, cutting billions in foreign aid and causing significant disruptions to humanitarian operations. However, following internal and congressional pressure, the administration partially reinstated food aid in Lebanon, Syria, Somalia, Jordan, Iraq and Ecuador. Programmes in Afghanistan and Yemen were not restored, according to the US State Department.
The resulting uncertainty and chaos left nonprofits and contractors unpaid and vulnerable communities without critical food and healthcare aid. As shocking as the disruption was, it unfolded against the backdrop of a changing funding environment. Western donors are rethinking – and in many cases reducing – their commitment to global development.
The G7 countries – Canada, France, Germany, Italy, Japan, the United Kingdom and the US – which together account for around three-quarters of all official development assistance, are set to slash their aid spending by 28% for 2026 compared to 2024 levels, according to Oxfam Canada.
How much aid to Africa has been cut, and what did it cover?
Africa has been hit hard; in fact, the African Development Bank has projected a US$39.84 billion decline in foreign aid funding to Africa during 2025, according to its African Economic Outlook 2025.
Recent global aid cuts have had a significant impact on Africa, especially in health programmes like the US President’s Emergency Plan for AIDS Relief (PEPFAR), which fights HIV/Aids. Approximately 65% of USAID’s PEPFAR awards were terminated, resulting in a 24% reduction in planned funding, as reported by the Center for Global Development.
The impact varies by country:
- South Africa: Over 75% of PEPFAR-funded treatment programmes were cancelled, affecting more than half of the 2.3 million people covered by terminated USAID/PEPFAR awards globally. Professor Linda-Gail Bekker (University of Cape Town) estimated that the withdrawal of PEPFAR funding could lead to more than 600 000 HIV-related deaths and 500 000 new infections within the next decade. South Africa received approximately US$440 million in PEPFAR funding, accounting for around 22% of its US$2.5 billion HIV budget.
- Malawi, Tanzania, Zimbabwe, Uganda and the Democratic Republic of Congo (DRC): In these countries, terminated awards accounted for 25% to 50% of planned resources.
- Uganda, India and Eswatini: Together with South Africa, these countries represent nearly 80% of all treatments associated with terminated awards.
The cancelled awards also included funding for over 200 000 planned circumcisions globally, nearly a third of viral load testing services and over 300 000 new users of pre-exposure prophylaxis (PrEP) – all crucial for HIV prevention.
The African Centre for Disease Control and Prevention (CDC) estimates that two to four million Africans could die annually as a result of the aid cuts. Roughly 30% of Africa’s health spending comes from foreign assistance, and Impact Counter has calculated that 103 people are dying every hour due to US aid cuts. Only 16 African countries have national health financing plans, according to Health Policy Watch, and the Africa CDC predicts that 39 million people will be pushed into poverty because of ODA cuts.
In October 2025, the US announced a PEPFAR ‘bridge plan’ to ensure that HIV service delivery in South Africa would not be affected, allocating R2 billion. The reprieve will save lives, but it is unclear if funding will continue in perpetuity.
Impact on CSI budgets
Corporate social investment (CSI) budgets and practices in South Africa appear to have remained largely insulated from funding shifts.
In contrast to the volatility in donor funding, Trialogue’s 2025 research indicates that CSI budgets and practices in South Africa have remained largely unaffected by the aid cuts (see page 41 for more information).
This suggests that South African companies maintain consistent investment strategies, often guided by long-term social impact goals and regulatory frameworks rather than short-term donor trends.
What is alternative finance?
Alternative finance refers to innovative ways of raising and deploying funds that extend beyond traditional sources, such as government grants or bilateral aid. Instead, it brings in new partners – such as private companies, foundations, impact investors, venture philanthropists, crowdfunding platforms and even local communities – to support public goods, social programmes and infrastructure.
Private companies are increasingly becoming key players, finding new ways to fund public goods, social programmes and infrastructure – and they have the power to transform how we fund global development.
Sometimes, these alternative models don’t just help; they can replace traditional approaches, bringing fresh ideas, a focus on results and shared risk. This marks a move towards flexible, outcome-driven funding that prioritises accountability and collaboration for long-term impact. This is especially vital for significant issues such as climate change or achieving the SDGs.
The benefits of alternative finance
Alternative finance offers several advantages. It can:
- Attract private sector investment for SDG-aligned and ESG-driven investments (while ESG investing has faced criticism, innovative approaches continue to evolve)
- Link funding to measurable outcomes instead of inputs
- Support the co-creation of solutions that benefit society (such as enabling just transition pathways in developing economies)
- Unlock new sources of capital
- Drive innovation
- Strengthen local ownership and resilience in development efforts.
Changing donor dynamics
The suspension of US Government (USG) funding, particularly from USAID and PEPFAR, has had a profound and immediate impact on African civil society organisations (CSOs).
According to Epic Africa’s July 2025 report, From Fragility to Fortitude: Building Resilient African CSOs in the Wake of the US Government Funding Collapse, the withdrawal of USG funding triggered a financial crisis among directly funded African CSOs, exposing the vulnerability of donor-reliant models:
- 38% of USG-funded CSOs lost more than half of their projected 2025 budgets
- 22% lost over three-quarters of their funding
- 55% reported they would be unable to meet most of their 2025 goals
These figures reflect a sector operating without financial buffers, according to Epic Africa. Smaller CSOs – those with annual budgets under US$250 000 – were disproportionately affected due to limited diversification in funding sources. Many relied on single donor channels and lacked reserves or alternative revenue streams, making them especially susceptible to external shocks.
Ripple effects across the ecosystem
The crisis extended beyond direct grantees. Epic Africa noted that one-third of respondents received no USG funds but still reported significant impacts. Among non-USG-funded CSOs, 41% experienced service disruptions due to downstream dependency on frozen projects, subgrants, or shared infrastructure. This underscores the interconnected nature of African civil society. The destabilisation of directly funded CSOs had cascading effects, revealing that aid ecosystems function as tightly woven networks rather than isolated entities.
Can blended finance close the SDGs gap?
Blended finance is the strategic use of public and philanthropic funds to mobilise private capital flows into emerging markets. Although global capital markets hold approximately US$250 trillion, only a small portion of this capital flows into sectors related to the Sustainable Development Goals (SDGs).
Private investors seek high-potential returns in emerging markets but are often deterred by risk, weak regulatory environments and inefficient markets. This is where blended finance can play a role, using public or philanthropic funds to catalyse private capital. Pension funds, sovereign wealth funds, banks and asset managers can be mobilised through these innovative models to target projects with clear social, environmental, or economic benefits.
Blended finance complements public-private partnerships (PPPs) and impact investing, providing a valuable approach to addressing complex challenges. By combining all forms of capital – public, private, domestic and international – it offers a powerful tool to bridge funding gaps and accelerate progress towards the SDGs. However, for this to succeed, governments, donors and investors must collaborate, sharing common goals and managing risks effectively.
Traditional vs Alternative Finance Models
Core categories of innovative finance
Blended/catalytic finance
What is it? It uses public, philanthropic or concessional capital to de-risk and attract private/commercial investment.
Focus: Crowding in private capital to underserved sectors or high-impact areas.
Mechanisms/examples:
- Blended finance structures (Green Outcomes Fund blending Jobs Fund + impact investors)
- Philanthropic venture capital (Innovation Edge putting early risk capital towards both for-profit and non-profit ECD innovations, with a focus on social impact over financial return)
- Diaspora bonds (Diaspora capital for national development, such as the Grand Ethiopia Renaissance Dam in Ethiopia).
Outcomes-based and performance-linked finance
What is it? It links payments or investor returns directly to measurable outcomes or sustainability performances.
Focus: Paying for results, not just activities.
Mechanisms/examples:
- Social impact bonds (SIBs) and development impact bonds (DIBs), Impact Bond Innovation Fund (IBIF), Jobs Boost Outcomes Fund
- Innovative mechanisms like SDG-linked loans, carbon credits, or water funds (e.g. Komati Just Energy Transition using carbon credits and the Cape Town Water Fund to reduce ecological water loss).
Note that SIBs/DIBs are both outcomes-based and often blended, combining public outcomes funding and private investor capital. SDG-linked loans and carbon credits are market tools but are also performance-linked, sometimes overlapping with sustainability-linked bonds. It is anticipated that SIBs will improve service delivery and attract more private investment to social causes.
Sustainability-linked capital market instruments
What are they? They use large-scale debt instruments with earmarked use-of-proceeds for environmental or social outcomes.
Focus: Tapping capital markets for sustainable development.
Mechanisms/examples:
- Green bonds, social bonds, sustainability-linked bonds (Nedbank’s Green Bond funding renewable projects, FirstRand’s Social Bond promoting gender equality by directing proceeds to lending for women-owned micro, small and medium-sized enterprises).
- ESG- and SDG-linked loans or bonds (often structured similarly to green/social bonds but broader).
Note that sustainability bonds are debt market tools, while SIBs/DIBs are private structured deals.
However, both aim for measurable sustainability or social outcomes. Green bonds typically do not have performance-based payouts, which distinguishes them from outcomes-based tools.
Impact investing
What is it? Investment made with the intent to generate social/environmental impact alongside financial returns.
Focus: Impact investing is an umbrella approach, not a specific mechanism, encompassing blended finance, outcomes-based finance, sustainability bonds and philanthropic venture capital, depending on the investor’s goals, risk tolerance and the instruments used.
Examples: SA SME Fund (equity investment in inclusive businesses that combine commercial viability with social impact goals), investors in SIBs, green bond buyers.
Case study
The Greater Cape Town Water Fund: A blueprint for water security
Type
Blended finance
Impact focus
Water security, healthy ecosystems, jobs, climate resilience
Partners
While the City of Cape Town and other municipalities are beneficiaries, they play a dual role as co-investors. Under the fund’s ‘user pays’ principle, certain downstream water users contribute financially to restoring the ecosystems that supply water. This means the City of Cape Town, as both a major water user and funder, invests directly in cleaning upstream catchments to secure future water availability.
Partners include:
- Government: Local government (the City of Cape Town), Western Cape government, national departments such as the Department of Forestry, Fisheries and the Environment (DFFE) and the Department of Water and Sanitation (DWS), the South African National Biodiversity Institute (SANBI) and provincial entities like CapeNature.
- The private sector: Corporate and philanthropic supporters, which co-fund implementation.
- Nonprofit organisations: The World Wide Fund for Nature (WWF).
- Beneficiaries: The City of Cape Town, other municipalities within the Western Cape Water Supply System (WCWSS), the agricultural sector and local communities who benefit directly from increased water security, restored ecosystems and green job creation.
These partners co-designed and co-invested in nature-based solutions, primarily clearing invasive alien plants from catchment areas to restore water flows, improve biodiversity and build climate resilience in the Western Cape.
The challenge: Combat water scarcity in greater Cape Town
In 2018, Cape Town came perilously close to becoming the first major city in the world to run out of water – ‘Day Zero’. However, even before the dams ran low, invasive alien plants had been quietly reducing streamflow in the region’s key catchment areas. Rapid population growth, climate change and economic expansion added pressure to already-stressed systems, according to Louise Stafford, South Africa country director for The Nature Conservancy (TNC).
“A TNC study, the Urban Water Blueprint (2013), identified that one in five cities in sub-Saharan Africa, including Cape Town, could benefit substantially from nature-based solutions such as water funds,” Stafford explains. This insight, along with the urgency of Day Zero, catalysed the formation of the Greater Cape Town Water Fund (GCTWF) – a multisectoral partnership focused on securing water at its source.
An alternative financing model
At the heart of the GCTWF is a blended finance approach: pooling capital from public, private and philanthropic sources to fund upstream catchment restoration. With TNC as the convenor and fund administrator, the model shifted away from siloed project funding towards a shared platform for long-term investment and measurable outcomes.
It was necessary to develop a solid business case that identified who would benefit most – municipalities and farmers – and to quantify the benefits, such as the number of litres of water gained for each hectare cleared. “The outcomes-based structure ensured transparent, accountable and scalable impact,” Stafford notes, highlighting the fund’s commitment to measurable results.
Desired outcomes and measurement
The GCTWF focuses on quantifiable environmental and socioeconomic outcomes. These include:
- Volume of water reclaimed to the WCWSS
- Hectares of catchment cleared of invasive alien species
- Green jobs created, especially for women and youth
- The density and biomass of invasive alien trees, which increase fuel loads and fire intensity
- Improved outcomes in freshwater and terrestrial ecosystems, to track biodiversity.
These outcomes are tracked through a combination of fieldwork, hydrological modelling, satellite data and routine reporting by implementing partners. Dedicated working groups meet monthly to assess progress and adapt as needed.
Project lifespan and tracking
Established in 2017, the GCTWF has attracted R218 million in investment to date. TNC and Rand Merchant Bank (RMB) are now exploring a five-year ‘water bond’ to finance the next phase of work. This will scale the fund’s reach while deepening its impact.
As of July 2025, the fund has cleared over 40 000 hectares, restored up to 18 billion litres of water to the system annually and created 1 376 green job opportunities. The initiative continues to embed resilience and water governance capacity in the region’s water management frameworks.
Why the GCTWF stands out
The GCTWF is South Africa’s first water fund and a leading example of outcomes-based, nature-positive investment. It has successfully translated ecological restoration into measurable water gains, while creating jobs and reinforcing biodiversity.
By adopting a ‘user pays’ principle – where key beneficiaries such as the City of Cape Town reinvest in upstream ecosystem restoration – the fund demonstrates how shared responsibility can align public, private and community interests to address systemic water challenges. As climate change intensifies and water becomes increasingly scarce, the GCTWF provides a replicable model for cities facing similar pressures worldwide.
Case study
Jobs Boost Outcomes Fund: Youth Employment through outcomes-based funding
Type
Outcomes-based funding
Impact focus
Youth employment, social enterprise growth, nonprofit scaling, strengthening social finance systems
Partners
Government and public sector:
- Presidential Youth Employment Intervention (PYEI) via the South African Presidency
- National Skills Fund (NSF), which operates under the Department of Higher Education and Training (DHET) as the outcomes funder, providing the initial R300 million funding in a pay-for-performance model.
Technical assistance and design:
- The Michael and Susan Dell Foundation supported the initial design
- Krutham designed and administers the fund through the employment outcomes nonprofit company Jobs Boost.
Implementors
- Afrika Tikkun, Amazi, Blulever, Business Process Enabling South Africa (BPESA), Cheeba Cannabis Academy, Employment Solutions Management (ESM), Foundation for Professional Development (FPD), Green Riders, Swift Skills Academy, The Collective X, The Tourism and Business Institute of Southern Africa (TTBISA), V&A Waterfront.
The fund uses performance-based funding to incentivise social enterprises and nonprofits to deliver measurable youth employment outcomes, including recruitment, job placements and job retention.
The challenge: Create meaningful youth employment
Youth unemployment in South Africa is severe and input-driven training often fails because it’s not market-driven.
An alternative funding model
The Jobs Boost Outcomes Fund shifts from input-based grants to an outcomes-based model that pays only for actual jobs created. “The worst-case scenario is that money is unspent – but it is never wasted,” says Riyaadh Ebrahim, programme director at Krutham.
“Instead of spending on skills development that may or may not lead to a job, the spending is focused on the job itself – analogous to paying for a pizza instead of paying individually for all the ingredients,” Ebrahim explains. “This removes the human element and any biases, which leads to a drastic reduction in the costs of administration and directs funds into areas where success is guaranteed.”
Risk shifts to implementing partners, who are paid in four tranches: programme enrolment (20%), job placement (40%), three-month retention (20%) and six-month retention (20%). The fund is exploring additional public-sector outcomes funders.
Desired outcomes and measurement
The fund measures:
- Youth enrolled in programmes
- Job placements secured
- Retention at 3 months
- Retention at 6 months
“We structured it in this way so that organisations would receive funds on enrolment, which partially carried them through training,” explains Ebrahim. “We would have liked to look at sustained employment at 12 months rather than six, but there were time limits.” Evidence is independently audited and disbursements are tied to verified milestones.
Project lifespan and tracking
The pilot launched with R300 million in 2023, and implementation began in August 2024. Progress is tracked via a custom-built data portal. As at mid-2025, results include:
- More than 8 100 youth enrolled
- More than 5 600 job placements
- More than 4 000 youth have sustained employment at three months
- More than 2 000 youth have sustained employment at six months
“Our target is 4 500 young people achieving sustained employment over six months and we believe we will exceed this,” notes Ebrahim.
Key challenges and lessons learnt
The project was not without its implementation bumps. “We didn’t really want to go into the ‘gig economy’, but one of our partners created a ‘housing structure’ that essentially houses gig workers in a formal employment structure. We didn’t plan sufficiently around this, and we’ll be a lot wiser in future,” Ebrahim says.
There was a tendency to conflate stipend employment with the authentic employment that Jobs Boost aimed to achieve. “We were clear from the start that all salaries must be fully remunerated by the employing entity, but there was still some confusion that arose,” he points out, adding that there were delays with organisations working with sub-implementing partners. In addition, Krutham had to custom-design an end-to-end data system after realising off-the-shelf products were inadequate.
An unanticipated issue was payment delays, which meant managing expectations. “Implementation partners incurred costs before receiving payment, so we’ll need to include cashflow assistance in future,” Ebrahim notes. He recommends making site visits and “staying close to the programme” as an administrator to understand the story behind the numbers.
Why the Jobs Boost Outcomes Fund stands out
The Jobs Boost Outcomes Fund is one of the largest youth employment outcomes funds globally and aims to raise R1 billion in investment in the next phase. It shows how well-designed outcomes contracts can efficiently allocate public capital, reward real impact and reshape both funding practices and impact measurement.
“The initiative has de-risked public-sector investment and supports the scaling of proven job-creation interventions,” says Ebrahim. “This approach not only improves accountability and efficiency in how youth employment programmes are funded but also strengthens the broader social finance ecosystem, positioning South Africa as a regional leader in outcomes-based and performance-driven development funding.”
“This approach is being considered across the southern and East Africa regions where we are involved in a number of discussions around establishing similar funds,” he says. “This drastically changes the face of public sector expenditure.”
Lessons for companies: how to navigate alternative finance
Alternative finance mechanisms are complex, but they can offer a more flexible, collaborative and results-driven approach to working. Here are eight practical lessons for getting involved in these models.
| 1. Let go of control and focus on results: In traditional funding, donors often try to control every step – how the money is used, what gets done and when. However, you should be paying for results, which means trusting your implementing partners to get the job done. “Funders shouldn’t be implementors – the conflict of interest is just too great,” warns Ebrahim. “Trust your delivery partners to get the job done. Let them use the methods that work best, but make sure there’s a clear way to measure success.” |
| 2. Help build the system, not just the programme: New financing models need more than just funding for service delivery. Nonprofits often require support to establish effective systems for tracking results, managing finances and reporting accurately. Be willing to fund administrators, training, monitoring and evaluation systems and early-stage setup. This is especially important in areas where nonprofits may be under-resourced. |
| 3. Be the first to take the risk: Many private investors are nervous about trying new funding models. However, if early funders, such as foundations or donors, assume more of the risk, it becomes easier for others to join in later. This means using your funding to ‘de-risk’ the investment. You can do this by offering guarantees, accepting lower returns, or agreeing to take the first loss if things don’t go as planned. This helps attract more partners and grow the model. |
| 4. Agree early on what success looks like: Everyone involved needs to understand what counts as a successful result. This could be job placements, improved literacy rates, or better health outcomes – but it must be clear, measurable and agreed upon upfront. Work with your partners to define which outcomes matter, how you will measure them and how you’ll track progress. This builds trust and avoids confusion later on. |
| 5. Keep the evaluation independent: In these models, an independent party must verify that the results have actually been achieved. This helps everyone trust the process and ensures that payments are made fairly and equitably. Don’t be both the funder and the evaluator. “Funders should always be aware that outcomes-based funding requires complete separation and independence between the funder, the implementing partner and the verification process,” says Ebrahim. |
| 6. Expect it to take time (and be a bit messy): These models require more time to set up than traditional grants. They often involve government, investors, nonprofits and other partners, all of whom are trying something new. Be patient and allow time for planning, building relationships and learning through hands-on experience. Think of early projects as pilots that pave the way for better, bigger models in future. Ebrahim recommends that smaller funders bolster the ecosystem through technical assistance. Medium-sized funders (or those with ‘lazy’ capital) can consider offering cash flow assistance to implementing partners, and larger funders should become outcomes funders alongside the public sector. |
| 7. Think about scaling up: If a pilot works, don’t let it end there. Use the results to make a case for scaling up, either to reach more people, attract more investors, or influence government policy. Capture the learning and ensure the systems you’re using (such as data collection and reporting) are robust enough to support larger projects down the line. |
| 8. Be demand-led: The most successful programmes are always those that the market demands. Do not impose programmes, employment or otherwise, that the market isn’t signalling for. This ensures that the market adopts and sustains the outcomes. “The problem with a lot of internship programmes,” notes Ebrahim, “is the high attrition rates due to companies not having the resources to sustain the new employees funded externally.” |
In a world where traditional aid is shrinking and geopolitical uncertainty is the new norm, companies can no longer afford to sit on the sidelines. The collapse of major donor programmes like PEPFAR has exposed the fragility of development finance and the urgent need for new models.
Alternative finance offers a way forward – one that’s more resilient, locally anchored and focused on outcomes rather than inputs. For companies, this means stepping into a more active role: funding what works, sharing risk and helping build systems that can scale. It’s not just about filling the gap left by donors – it’s potentially about reshaping the future of development finance in Africa.
