The era of a stable global aid architecture has ended. For decades, foreign aid played a central role in advancing economic development. USAID assistance alone is estimated to have helped prevent more than 90 million deaths between 2001 and 2021 through investments in global health and nutrition.[1] Yet the financial and institutional foundations of this system have been steadily eroding under growing fiscal and political pressure across major donor countries. The dismantling of large parts of USAID’s global assistance infrastructure in 2025, removing more than $27 billion in financing almost overnight,[2] has pushed an already fragile system toward a tipping point. This downward trend is expected to continue into 2026 and beyond.[3],[4] What is emerging is not simply a smaller aid system, but a fundamentally reorganizing one, as new actors, instruments, and capital flows reshape how development is financed.

The disruption of the aid system is also forcing a more uncomfortable reckoning: traditional aid has long shown structural limits of its own. Heavy reliance on external financing has sometimes weakened domestic fiscal accountability, skewed national priorities toward donor agendas, and sidelined local institutions.[5] In 2021, half of Sub-Saharan African countries relied on foreign grants and loans for more than one-third of their health expenditures,[6] and a growing body of evidence suggests that aid can, in some contexts, substitute for domestic public financing rather than strengthen it.[7] As traditional aid funding contracts, the central question is how the development community will engage with emerging sources of capital and direct them toward more sustainable, country-led development.

Three shifts are redefining who controls development capital and how it is deployed: the rise of Southern capital providers, the expansion of South-led multilateral lenders, and the growth of regional and domestic financing systems.

SHIFT 1: The rise of Southern bilateral capital

Southern capital providers are playing a rapidly expanding role in global development finance. Emerging donors such as China and Gulf Cooperation Council (GCC) countries are playing a larger role in direct state-to-state financing, often linking capital to infrastructure, industrial development, and broader economic cooperation. Dalberg analysis suggests their share of official development assistance could more than double, from roughly 4% today to between 8% and 10% by 2030. These actors increasingly bring not only financing but also infrastructure capabilities, technology, and industrial partnerships that link development investments to broader economic cooperation.

China is moving to the fore and transforming its development finance to align partner-country growth with its own priorities.In the first half of 2025 alone, Belt and Road Initiative (BRI) construction in Africa reached $30.5 billion, up from $6.1 billion during the same period in 2024, a nearly fivefold increase.[8] This surge has coincided with the contraction of Western aid programs, positioning Chinese institutions as some of the most prominent actors filling the financing gap in real time. Beyond infrastructure, Chinese development finance increasingly supports connectivity, technology, and industrial capacity aligned with partner-country growth strategies, often delivered through concessional loans and state-backed financing.[9],[10]Together with institutions such as the Asian Infrastructure Investment Bank and partnerships with national development banks, this model reflects a distinct form of South-led cooperation built around state-to-state alignment and co-financing.

Similarly, the Gulf region is rapidly increasing its development finance and brings a distinctive ability to align capital across the full continuum, from philanthropy and official development assistance to sovereign wealth and private investment. In 2024, the United Arab Emirates spent about 0.32 percent of its gross national income on official development assistance, broadly in line with the OECD DAC average of about 0.33 percent and higher than several traditional donors.[11] In parallel, the UAE’s and Saudi Arabia’s Public Investment Fund (PIF) controls roughly 40% of global SWF assets, totaling more than USD 5 trillion.[12] This allows players to deploy capital across multiple instruments in a coordinated way, combining long-term investment with development priorities in high-growth markets across Asia and Africa.[13]

At the same time, environmental, social, and governance (ESG) principles are reshaping Gulf investment strategies: by 2022, 75% of SWFs had adopted formal ESG policies, up from 46% in 2017.[14] Flagship initiatives illustrate how this model operates in practice. Masdar, Mubadala’s renewable energy platform, pairs long-term infrastructure equity with commitments to expand grid access and create local jobs, while the Mohamed bin Zayed Foundation’s USD 500 million fund for maternal and newborn health channels Gulf capital toward nationally determined priorities in ten African countries.[15] Together, these approaches signal a shift away from traditional donor–recipient dynamics toward co-investment partnerships that share risk, align with national strategies, and integrate financial returns with development outcomes.

While China and the Gulf are the clearest large-scale examples of the shift in bilateral South–South engagement, it is also broadening through regional channels. India, for example, has operationalised its “Neighbourhood First” policy through direct financing and infrastructure support in countries such as Nepal, Bangladesh, and Sri Lanka, including cross-border energy projects, transport connectivity, and post-crisis financial assistance.[16]

The expansion of South–South capital also introduces new risks alongside its opportunities. Several African countries, including Ghana, Zambia, Ethiopia, and Chad, have entered debt restructuring processes in which Chinese institutions are among the largest creditors. [17]This tension lies at the heart of the evolving development finance landscape: the same actors providing new pools of capital may also create new forms of leverage and debt vulnerability if not structured carefully.

SHIFT 2: Expansion of Southern multilateral development finance

Alongside these capital flows, new Southern-led multilateral development banks are expanding the institutional architecture of development finance. Institutions such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) are scaling rapidly and directing most of their financing toward developing economies. AIIB’s commitments, for instance, have grown substantially faster than those of traditional institutions such as the World Bank’s International Bank for Reconstruction and Development, reflecting how quickly these newer lenders are gaining operational weight.[18]

Southern-led and regional multilateral institutions are also increasingly working through national development banks and domestic financial institutions, helping strengthen local financing systems rather than relying solely on large cross-border lending programs. Institutions such as the African Development Bank and the Islamic Development Bank are increasingly working through national development banks and domestic financial institutions, helping strengthen local financing systems rather than relying solely on large cross-border lending programs.[19]

Yet despite their different governance structures, these institutions still operate within many of the same structural constraints that shape the traditional development finance system. Much of their lending remains denominated in U.S. dollars, exposing borrowers to exchange-rate volatility and tying development finance closely to global capital markets. They also lack the deep concessional financing windows that allow institutions such as the World Bank to support the poorest countries at scale. Local-currency lending is often cited as a potential solution, but progress remains gradual. The NDB, for example, has set a target for roughly 30% of its lending to be denominated in member-country currencies, though today the share remains closer to one-fifth of its portfolio.[20] In this sense, while South–South institutions are expanding the supply of development capital, there is more work to be done to further center the financial architecture through which that capital flows in the Global South.

SHIFT 3: Stronger regional and domestic financing ecosystems

A third shift is the strengthening of regional and domestic financing ecosystems across the Global South, reducing dependence on volatile foreign aid flows. This is not only about governments raising more revenue. It is also about mobilizing domestic private capital, deepening local bond and equity markets, and channeling household savings through pension funds, insurers, banks, and other intermediaries into productive investment.

Across Africa, capital market development is increasingly seen as critical to closing financing gaps, while pension funds and insurers are emerging as an important source of long-term capital. Local currency bond markets in Africa are becoming a more important part of that shift: annual sovereign debt issuance rose from USD 70 billion in 2007 to USD 350 billion in 2024, and around 60% of Africa’s marketable debt is now denominated in fixed-rate local currency bonds.[21] In Kenya, retail participation in domestic sovereign debt has also expanded through the M-Akiba mobile bond platform, with retail investors holding about 17% of domestic sovereign debt as of June 2024 (c.f 13% just 12 months before).[21] This trend is not unique to Africa. In Latin America, local-currency bond markets have also expanded significantly, with domestic debt rising as a share of GDP.[22] India shows a similar shift, with stronger market financing and new institutions such as the National Bank for Financing Infrastructure and Development aimed at deepening long-term domestic capital.

Africa is also emerging as a capital actor in its own right. Ghana’s Accra Reset Initiative, launched in 2025, reflects a broader push toward health sovereignty through domestic resource mobilization and regional co-financing. Backed by more than USD 1 billion in pledged African capital, the initiative signals a continental shift away from externally driven aid toward country-led investment models.[23]

These developments are particularly important in addressing one of the central vulnerabilities of the current development finance system: the mismatch between how countries borrow and how they generate revenue. Many governments still borrow in U.S. dollars while earning revenue primarily in domestic currency, leaving them highly exposed to exchange-rate shocks. Expanding local-currency financing—through regional development banks, domestic financial institutions, and new financial instruments—will therefore be critical to strengthening financial resilience and economic sovereignty.

Engaging the new capital ecosystem

The shifts described above are not only changing where development capital comes from. They are also reshaping how decisions about that capital are made. Traditional aid systems have historically been fragmented, with funding decisions spread across multiple bilateral donors, multilateral agencies, and implementing partners. In many emerging capital ecosystems, by contrast, financing is deployed through closely connected networks of sovereign wealth funds, development agencies, philanthropic foundations, and investment vehicles.

In parts of the Gulf, strategic priorities are often aligned across these platforms by a relatively concentrated set of decision-makers, allowing governments to deploy grants, concessional finance, and commercial investment in tandem. In China, while decision-making is more distributed across state banks, ministries, and corporate actors, development finance is still guided by overarching national strategies that shape how capital flows internationally. For organizations seeking to mobilize resources for development, engaging these ecosystems therefore requires navigating institutional systems that operate very differently from the fragmented donor landscape that historically defined global aid.

Drawing on Dalberg’s work across these evolving capital ecosystems, four practical lessons stand out for engaging rising bilateral funders, emerging multilateral institutions, and stronger domestic financing systems:

1. Develop a clear continuum-of-capital strategy

Development challenges rarely require a single source of financing. Increasingly, they require coordinated capital stacks that combine concessional funding, public investment, and private finance. This is particularly important when engaging emerging capital ecosystems where multiple financing vehicles, such as sovereign wealth funds, development agencies, philanthropic foundations, and investment platforms, operate alongside one another.

Effective proposals therefore need to demonstrate how different forms of capital can work together: how early-stage philanthropic or concessional funding can de-risk innovation for markets or government to scale, how blended finance structures can crowd in private capital, and how these external sources of funding connect to domestic financial systems that can sustain scale over time. Organizations may also need to rethink what they are offering to funders. Proposals designed for traditional Western aid programs often assume narrowly defined project funding, while many newer development actors evaluate opportunities through a broader strategic lens that links investment, infrastructure, technology, and economic partnerships. Blended finance models illustrate this approach. In energy access across Africa, concessional capital from development banks is often used to provide first-loss guarantees or partial risk coverage, allowing private investors to participate in projects that would otherwise appear too risky. These structures have helped mobilize private investment into off-grid solar and mini-grid markets where public funding alone would have been insufficient to scale infrastructure.[24]

2. Approach emerging funders as strategic partners

Many rising development actors bring capabilities that extend well beyond financing. China’s development engagement, for example, frequently combines capital with technology transfer, infrastructure delivery, and industrial partnerships. Gulf institutions often pair investment with logistics capabilities, global convening power, or access to major capital markets.

Organizations that approach these actors solely as sources of funding risk overlooking the broader strategic value they can offer. More effective engagement frames development initiatives around shared economic and institutional priorities—identifying opportunities for collaboration in areas such as technology deployment, infrastructure development, market access, and institutional capacity-building.

3. Invest in long-term relationships and local presence

In many emerging capital ecosystems, particularly in China and the Gulf, decision-making is shaped by institutional trust, personal networks, and sustained engagement over time. These systems often sit outside the traditional development “echo chamber,” and may be misunderstood by actors accustomed to more formal, process-driven donor environments. As a result, approaches that rely on global convenings, standard proposals, or transactional engagement often fail to gain traction.

Part of the challenge is not just access, but understanding how these ecosystems operate. Common assumptions can be misleading. Priorities that appear misaligned are often framed differently rather than absent altogether. In some cases, outcomes that development actors might group under headings such as gender or rights may instead be articulated through education, employment, entrepreneurship, or family wellbeing. This can lead actors to talk past one another, even where there is substantial alignment on the outcomes they want to achieve. In practice, engagement is often more pragmatic, shaped by a focus on what will work, align with national priorities, and deliver tangible outcomes.

Organizations that succeed in these contexts invest in understanding how trust is built, how decisions are made, and how priorities are framed. This requires sustained engagement, local insight, and a willingness to move beyond traditional donor engagement models. Those that do are far better positioned to access, align with, and help shape emerging pools of development capital.

4. Engage early with emerging institutions to shape how capital is deployed

A new generation of development finance institutions is forming, including the Asian Infrastructure Investment Bank and the New Development Bank. As noted above, these institutions are scaling rapidly, but many still operate within legacy models, including reliance on hard-currency lending and limited concessional tools. This creates a risk that parts of the existing system are replicated rather than improved.

This wave of institutional innovation extends beyond multilateral banks. New platforms are emerging with distinct governance models and stronger links to domestic financial systems — from the Accra Reset Initiative’s cross-regional presidential council and deal-room architecture for syndicating financing on country-led terms, to the Africa Finance Corporation’s privately capitalized infrastructure model, to Alterra, the UAE’s $30 billion catalytic vehicle designed to mobilize private institutional capital toward the Global South at scale. Many of these players are still defining their instruments and deployment criteria.

This moment of flux also creates a window of opportunity. As these institutions continue to evolve their instruments, partnerships, and operating models, there is clear appetite to do things differently, particularly around how capital is structured and deployed. At the same time, domestic financial actors, from national development banks to pension funds and local capital markets, are becoming more central to how development is financed.

Organizations that engage early can help shape these systems as they develop, influencing how financing approaches, partnerships, and delivery models evolve. This is not just about accessing funding. It is about helping define the next generation of development finance.

The geography of development finance is shifting decisively toward the Global South. Just as importantly, the rules governing how development capital is mobilized and deployed are changing as well. For organizations seeking to finance development impact, the challenge is no longer simply securing resources from traditional donors. It is navigating a more complex and politically diverse capital landscape, one in which new actors, institutions, and financial models are reshaping the system itself.

Those that adapt their strategies to engage these new capital ecosystems will help shape the next era of development finance. Those that do not risk becoming spectators to it.

Read more about our growing presence and work in these markets here.

---

^{[1] D. M. Cavalcanti et al., Evaluating the impact of two decades of USAID interventions and projecting the effects of defunding on mortality up to 2030: a retrospective impact evaluation and forecasting analysis, 2025}

^{[2] Politico, Documents reveal scope of Trump’s foreign aid cuts, 2025.}

^{[3] ALNAP, Global Humanitarian Assistance (GHA) Report, 2025}

^{[4] Development Aid, The US$11 billion void: How the world is entering 2026 without a humanitarian safety net, 2026}

^{[5] UNCTAD, How dependence on external development finance is affecting fiscal policies, 2019}

^{[6] Democracy in Africa, Africa relies too heavily on foreign aid for health – 4 ways to fix this (2025)}

^{[7] Health Policy and Planning, Making development assistance work for Africa: from aid-dependent disease control to the new public health order, (2024).}

^{[8] Griffith University, China belt and road initiative BRI investment report 2025, (2025)}

^{[9] D. M. Cavalcanti et al., Evaluating the impact of two decades of USAID interventions and projecting the effects of defunding on mortality up to 2030: a retrospective impact evaluation and forecasting analysis, 2025}

^{[10] State Council Information Office, China’s International Development Cooperation in the New Era (2021)}

^{[11] Deloitte Middle East report: Gulf Sovereign Wealth Funds lead global growth as assets forecast to reach USD 18 Tn by 2030 (2025)}

^{[12] Deloitte Middle East report: Gulf Sovereign Wealth Funds lead global growth as assets forecast to reach USD 18 Tn by 2030 (2025)}

^{[13] Fiker Institute, Gulf Philanthropy in International Development (2025)}

^{[14] Invesco, Global Sovereign Assets Management Study (2022)}

^{[15] Gulf News, Abu Dhabi launches $500 million fund for maternal and newborn survival in Africa}

^{[16] The Secretariat, India’s ‘Neighbourhood First’ Policy Needs To Be Carefully Recharted, (2025).}

^{[17] FurtherAfrica, Chinas crucial role in Africa’s external debt restructuring, (2025)}

^{[18] Dalberg Analysis}

^{[19] IsDB and AfDB climate finance commitments to LMICs exceeded those of comparable Northern peers by 150% in 2024, with both institutions increasingly intermediating capital through domestic financial institutions and national development banks. Invesco, Global Sovereign Assets Management Study (2022)}

^{[20]  NBD, New Development Bank General Strategy for 2022–2026,  (2022)}

^{[21] OECD (2025), Africa Capital Markets Report 2025 , OECD Capital Market Series.}

^{[22] IDB (2023) Developing Domestic Bond Markets for Growth and Stability}

^{[23] GhanaWeb, ‘President Mahama Secures $1 Billion Investment Boost to “Reset” Agenda – Ablakwa’ (2025)}

^{[24]Further Africa,  Scaling up electricity investments in africa through blended finance, (2025)}

---

<< BACK TO THE DALBERG OBSERVATORY