Trump's aid cuts imperil emerging market investment cash
The United States' decision to freeze and potentially scrap its core aid agency jolted countries receiving its funding and could make it harder for emerging economies to attract private cash, investors said.
The U.S. Agency for International Development (USAID) not only disbursed $44 billion in fiscal 2023, but anchors private investment in everything from healthcare to small businesses, and underpins the creditworthiness of bigger emerging markets borrowing money on sovereign debt markets.
Its elimination could undermine investment in countries from Sri Lanka to South Africa and make it more expensive for them to borrow on international markets.
Money from the agency, investors say, enables start-ups in the world's poorest countries to grow to the point they can lure private investors.
Elsewhere, relatively small amounts of its money help lower the risk for banks and other lenders looking to invest in efforts to expand irrigation, or build hospitals, leveraging the cash into millions more. Its support can boost the ability of governments to repay debts, bolstering their economies.
"They do have implications for the medium and long-term creditworthiness of a country," said Giulia Pellegrini, senior portfolio manager for emerging market debt at Allianz Global Investors, referring to the cuts.
The near-total U.S. foreign aid funding freeze took effect last month and President Donald Trump said he would like to wind down USAID.
For Simon Schwall, chief executive of Africa-focused startup Oko - which is backed by Morgan Stanley and Newfund Capital and facilitates and designs crop insurance for farmers in Mali, Ivory Coast and Uganda - the impact has been immediate.
He said the company is at risk of closure without USAID money which would have accounted, directly and indirectly, for 80% of Oko's cashflow this year.
"We cannot raise the investment we were planning to," without replacing USAID, he said. "We are very much at risk of having to close the business if we don't find any alternative partners."
Alternatives are limited. The United States provided 42% of all humanitarian aid tracked by the United Nations in 2024, and other countries have also sought to cut aid spending.
The rapid pull-back could also knock some struggling nations like Ethiopia immediately and erode other economies.
"It could be a big setback for these frontier markets," said Seaport Global emerging market credit analyst Himanshu Porwal.
IMMEDIATE AND EXTENSIVE
Emerging markets were poised for an investor comeback after years of punishing outflows due to the COVID-19 pandemic, high global interest rates and Russia's invasion of Ukraine.
Debt restructurings in Ghana, Sri Lanka and Ukraine boosted hopes that private cash inflows could help meet growing - and expensive - needs for everything from climate change to infrastructure.
The outlook is now murkier.
Florian Kemmerich, managing partner with impact investment specialist firm KOIS, said the speed and depth of the U.S. cuts could diminish the number of investable projects.
"You need not-for-profit capital... otherwise it wouldn't work, because the mismatch of risk and return is something which makes no sense," he said.
USAID typically offers grants and technical support, but it has also enabled some blended finance, and its $70 million investment fund with Norway aimed to spur hundreds of millions of investment dollars for farmers and agricultural businesses in Africa.
CREDITWORTHY IMPACTS
Bond investors said they were closely monitoring the cuts and implications for countries like Ethiopia, the second-largest recipient of USAID after Ukraine.
The East African country is in the midst of restructuring its sole sovereign dollar bond and working to recover from a punishing civil war.
"In terms of overall financing needs, the U.S. aid is a lot more meaningful for the likes of Ethiopia," said abrdn portfolio manager Edwin Gutierrez, adding that it "doesn't have a lot of funding sources available to it".
Ethiopian officials did not immediately comment.
Ukraine, embroiled in three years of war with Russia, got over $16 billion from USAID last year - nearly 10% of its GDP.
Timothy Ash, senior sovereign strategist with RBC BlueBay Asset Management, noted that former U.S. President Joe Biden front-loaded about $50 billion of funding for Ukraine this year - and Europe also provided money.
"They have a war chest of about $100 billion that should insulate them," Ash said. But "it's damaging, definitely."
Other recipients, such as Nigeria or Kenya, can replace lost aid with borrowing. Kenya's finance minister told Reuters the country would need to reallocate spending if the freeze becomes permanent, while Nigeria increased the size of its 2025 budget to 54.2 trillion naira ($36.4 billion) on Wednesday, from 49 trillion naira.
South Africa, a Trump target over a land expropriation law, gets 17% of its HIV/AIDS programme funding from the United States. Not replacing it risks causing an economic drag if those living productively with the illness fall sick.
Pellegrini noted that borrowing - and building up potentially expensive debt - comes at a cost.
"That will imply, in turn, that they will go to the capital markets, they will issue bonds, perhaps at higher yields, which will in turn again impact their budgets and what they can do with the money," she said. "So it's a vicious cycle."
(Additional reporting and graphic by Marc Jones in London; Additional reporting by Duncan Miriri in Nairobi and Rodrigo Campos in New York; Editing by Emelia Sithole-Matarise)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Zawya
2 hours ago
- Zawya
Afreximbank: 2025 Annual General Meeting - AFRICA24 Deploys Exceptional Coverage
From June 25 to 28, 2025, in Abuja (Nigeria), Afreximbank (the African Export-Import Bank), a leading financial institution on the continent, will hold its 32nd Annual Meetings. This high-profile event will be broadcast live and in full on all AFRICA24 platforms ( This prestigious gathering will bring together Heads of State, top global decision-makers, ministers, leaders of financial institutions, private sector stakeholders, experts, and entrepreneurs to engage in dialogue on major issues related to intra-African trade financing, industrialization, the AfCFTA, South-South partnerships, and the structural transformation of the continent. In a global context marked by profound economic and geopolitical shifts, Afreximbank's Annual Meetings provide Africa with a unique strategic platform to strengthen its economic sovereignty and boost continental cooperation. 360° Multilingual and Digital Audiovisual Coverage To make the decisions and discussions shaping the future of African trade accessible to all, the AFRICA24 Group is deploying an exceptional editorial system featuring: Live broadcasts of plenary sessions, panels, and official speeches Exclusive interviews with key political and economic decision-makers present in Abuja Immersive reports on continental trends and innovations led by African stakeholders In-depth analysis of key issues from top experts Exclusive digital content available on MyAfrica24, the first HD streaming platform dedicated to Africa (available on Google Play) Tune in on myafrica24 app (Google Play), AFRICA24 in French (Channel 170), and AFRICA24 English (Channel 176) on the Canal+Afrique bouquet. With the AFRICA24 Group: Together, Let's Transform Africa Distributed by APO Group on behalf of AFRICA24 Group. Contact: Communications Department – AFRICA24 Group Gaëlle Stella Oyono Email: onana@ Phone: +237 694 90 99 88 Social Media: @ africa24tv Website:
Gulf Today
3 hours ago
- Gulf Today
Trump's curveball at Japan tea giant's US expansion
Kentaro Okasaka and John Geddie, Reuters Top Japanese tea brand Ito En's latest push to win over health-conscious US customers with its traditional unsweetened brew has hit a new road bump: President Donald Trump's trade tariffs. The company, which splashed out on a tie-up with Major League Baseball star Shohei Ohtani and launched a less bitter tea to capture a bigger slice of the lucrative growth market, is now debating whether to hike prices or move some production across the Pacific, executives said in interviews with Reuters. The dilemmas facing Ito En can be found across Japan, the biggest foreign investor in the United States, as Tokyo's trade negotiators return to Washington this week to try and strike a deal to cushion the blow to its fragile economy. Makoto Ogi, Ito En's general manager of international business development, told Reuters the company may raise prices of its products in the US to compensate for Trump's 24% levy on Japanese goods set to come into force next month. The problem is their retailers and distributors may resist for fear of losing sales. "We may not be able to ask them to raise our prices despite what Trump is saying," he said. The last time Ito En raised prices in the US - by approximately 10% in 2022 - sales dropped by around 5%. The company said the decline reflected the price hike as well as factors such as COVID-19 that affected market conditions. The company is also considering making tea bags in the United States, and bottling drinks there rather than in Japan, Taiwan and Thailand as it does presently, Ogi and other executives explained during interviews in Tokyo. These details of the firm's potential plans to counter tariffs have not been previously reported. The executives did not disclose the costs of such moves. In its latest results released this month, Ito En reported its profit shrank by 8.2% in the year to April, but forecast an 11% jump this year. It set a modest 3.7% profit growth target for its US tea business, versus 20.7% growth achieved last year, an outlook partly related to tariffs, a company spokesperson said. Its shares rose to nearly a four-month high in the wake of the results, with its president later telling investors the forecasts were "conservative". Many Japanese firms have set up war rooms to chalk out plans to restructure supply chains or cut costs to offset tariffs and keep their US growth plans on track, said Mizuho Bank analyst Asuka Tatebayashi. A survey of 3,000 Japanese companies by export promotion organisation JETRO late last year before Trump's tariffs found the level of interest in US markets at the highest in nearly a decade, with food and beverage companies like Ito En the most enthusiastic. "When you talk to companies in Japan, the US comes first," said Tatebayashi, adding that they face shrinking domestic demand and are generally cautious about expanding into riskier emerging markets. For Ito En, the US has long been a market it is eager to crack. Five years ago, Joshua Walker, the newly-appointed head of U.S. non-profit Japan Society, hosted Ito En's North America head Yosuke Honjo in his New York office. Honjo gestured to the green-coloured bottles of their flagship 'Oi Ocha' brand lining the shelves and said he wanted them to spread around the world like Coca-Cola's red bottle. "It was refreshing. Japanese companies would not normally have ambition of that type of grandeur," said Walker, recounting the executive's previously unreported remarks. Honjo, via a company spokesperson, confirmed the remarks. Founded in the 1960s by Honjo's father and uncle, Ito En has grown to dominate Japan's tea market, using around a quarter of the country's total crude tea production. Since expanding into the US in 2001, it has dabbled in selling sweet and flavoured tea varieties familiar to Americans. But more recently it has focused on the unsweetened tea popular in its home market, hoping to tap health-conscious customers and a boom in Japanese food and cultural exports. Honjo said growth has also been aided by a sharp rise in Asian Americans, estimated at nearly 25 million in 2023, or around 7% of the U.S. population, according to the Pew Research Center. Japan's exports of green tea surged 24.6% to 36.4 billion yen ($251 million) last year, with nearly half destined for the United States, official data showed. Some equity analysts like Jiang Zhu of Tokyo-based rating agency R&I have highlighted the high marketing cost of Ito En's international push at a time it faces tough competition at home from tea brands such as Coca-Cola's Ayataka. The company said it has around a 2% share of the US market for tea beverages, ranking eighth largest, with Unilever's Pure Leaf leading the sector. But it has a long way to catch up with the 3.9 billion gallons of Coca-Cola's trademark Coke drinks sold in the US last year, at only 3.1 million gallons by comparison, according to research firm Beverage Marketing Corporation. "Kikkoman's soy sauce is probably in every American household now, but it took about 50 years for it to become a part of the culture," said Akihiro Murase, Ito En's public relations manager, referencing the Japanese food manufacturer as a template for success. "We are not there yet but we would like to make unsweetened green tea a part of the food culture," he said.
Gulf Today
3 hours ago
- Gulf Today
As NATO ups defence spending, can Europe produce weapons?
Max Delany, Agence France-Presse NATO leaders meeting in The Hague this month look set to agree to a major increase in military budgets under pressure from US President Donald Trump. But as Europe promises to ramp up defence spending and wean itself from reliance on the United States, a key question looms: can it produce enough weapons? "This is really keeping me up at night, making sure that we not only ramp up spending, but also ramp up defence industrial production," NATO chief Mark Rutte said on Thursday. More than three years into Moscow's war on Ukraine, NATO says Russia's weapons production far outstrips the West's and has warned that the Kremlin could be ready to attack the alliance within five years. The demands on NATO's European members are huge: new hardware targets agreed this month will require the biggest armament spree in decades. Rutte has pushed for a commitment to bolster defence spending to 3.5 per cent of GDP within seven years, plus 1.5 percent on security-related areas such as infrastructure. That would likely work out as hundreds of billions of extra euros a year. While countries seem largely on board, German defence minister Boris Pistorius last week pointed to one challenge "nobody really discusses". "It is about how much money is really able to be spent... if industry is not able to deliver what we ordered," he told his NATO colleagues. The push to bolster output will be prominent in The Hague with NATO hosting an industry forum alongside the summit. After years of underinvestment following the Cold War, the European Union has unveiled a raft of initiatives since Moscow's 2022 invasion. National budgets have increased and Brussels has sought to plug the funding gap with plans that could mobilise a further 800 billion euros ($924 billion). A major focus is making sure most of that money is spent buying weapons in Europe so the continent can stand more on its own two feet. But persistent gripes remain: businesses lack long-term orders, capacity is too low, costs are too high, production times too long and the industry too fragmented. "To some extent, the budgetary debates and the spending debates are behind us. The question is, how do you translate all of that funding into actual capabilities?" Hugues Lavandier, head of aerospace and defence for Europe at McKinsey, told a Brussels conference. Waiting times for new weaponry can stretch for years, and for some key equipment such as longer-range missiles, Europe still relies on the United States. But proponents say the continent has the potential to meet demand — provided governments and defence firms get a move on. "Our assessment is that we can produce 95 plus percent of whatever we need to credibly deter and be ready," said Francois Arbault, a top official overseeing the defence industry at the European Commission. "But we need the orders and we need that manufacturing power to be actually materialised in additional investment, because you need to ramp up." Industry leaders say orders are picking up, if not as fast or for as long a period as hoped, and insist businesses are already putting money into expanding. The CEO of Swedish defence giant Saab, Micael Johansson, told AFP his firm increased its workforce by 6,000 people and quadrupled ammunition in recent years. "Absolutely, we can do more -- and fortunately, many of us have invested at risk to increase capacity," he said. "We're getting the signals that demand will be high, but I can't say that I know exactly what target levels we're aiming for." One fear officials have is that a sudden splurge in spending could lead to price hikes. "There's a real risk that we get, you know, less bang for our buck because of inflation," said Matthew Whitaker, the US ambassador to NATO. "We need to make sure that it's incremental, that it's measured, but that it's sustained." To help smooth out barriers blocking investment, the EU is set next week to unveil a push to strip away red tape. "It cannot be that the defence industry needs to wait five years to have a permit to build a new factory," EU defence commissioner Andrius Kubilius said. "(Russian leader Vladimir) Putin will not wait for us to get our paperwork in order." One way to bolster Europe's capacity long-term could be turning to battle-hardened Ukraine. As Russia's war has raged on, Ukrainian firms have become experts at cost-cutting and the country is now a leader in drone technology. "The Ukrainian industry is very important," said Guntram Wolff at the Bruegel think tank in Brussels. "The products that they produce are actually low cost and very effective."
