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.
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.
