Foreign aid on the front line

Last year’s Ebola outbreak in West Africa caught the world off-guard. Faced with mounting death tolls, international donors, including the U.S., pulled out their checkbooks and committed hundreds of millions of dollars to fight the spread of the virus. But the donor community came up against a surprising obstacle. As Sean Casey, the Ebola emergency response director of the International Medical Corps, explained, “There are lots of financial resources, but there’s nobody to give it to.” 

The Ebola outbreak highlighted one of the biggest limitations in the world’s current approach to international development: local capacity. Money is critical in an emergency, but it is equally important that a country has the ability to use that money effectively. Plenty has been written about the doctor shortage—before Ebola, the whole country of Liberia had only about 170 doctors, serving a population of about 4.3 million. But a lack of trained medical personnel was only part of the problem. In a crisis like the Ebola epidemic, countries also need accountants, business managers, IT specialists, and other professionals to manage the response.  

{mosads}The question of how to support the growth of local capacity is at the center of a major debate in the development community. In recent years, USAID, the United States Agency for International Development, has taken an approach known as “localization,” scaling up the amount of money it gives directly to local organizations – including governmental institutions and NGOs – based in developing countries. These are funds that in the past would have gone to international NGOs and contractors, many based in the United States. 

In 2011, USAID committed to increase direct funding for local partners from 9 percent to 30 percent by 2015. By 2014, local funding had doubled to 18 percent. Other donors, including large European government agencies, have made similar pledges.  

By channeling more money directly to local partners, donors like USAID hope to ensure governments are in the driver’s seat of their own development, while at the same time empowering grassroots organizations and ensuring more aid reaches its intended recipients.  

But while enthusiasm around localization runs high in some quarters, there is growing recognition that the trend toward local giving brings its own challenges. For example, proposal and reporting requirements – which vary among donors – can be frustratingly complicated for local organizations.   In addition to having to submit more than 10 different types of financial and administrative deliverables, grantees are also required to use proper English grammar, such as active voice throughout reports. Nonetheless, requirements such as these are designed to ensure accountability for the taxpayer or philanthropic funds provided. 

These and other challenges were described in a recent report, titled “Going Local: The Promise and Challenge of Aid Localization,” which surveyed development sector leaders—donors, international NGOs and local organizations. The report found a growing recognition that localization is happening, but also a perception that many recipients of this aid are not prepared to effectively manage the associated growing operational burden.  

In the survey, nearly 80 percent of aid recipients said they struggle to retain qualified staff needed to effectively handle increased aid, especially when finance, IT and management professionals are able to earn much more at private sector companies. Donors raised similar concerns: nearly 85 percent said they are concerned about local grantees’ operational and systems capacity. 

As the localization trend continues, the readiness of local organizations to effectively absorb and manage direct aid will be a critical success factor.   As a result, donors committed to localization should explore strategies such as directly funding recipients’ operations departments, creating regional technical support hubs to help different aid recipients in a single one-stop shop, and streamlining reporting requirements to ensure recipients are not burdened with unnecessary paperwork. 

Existing international NGOs and contractors, who have extensive experience in the field, also play an important role in this shift. Rather than simply acting as service delivery organizations, these organizations are increasingly partnering with local entities and building capacity.  Many have spent decades growing affiliates staffed with locals, not expats, which serve as training grounds and hubs for the local civil society.  Donors should work with these partners to build capacity.

Local aid recipients also play a role in building their own capacity. NGOs in developing countries should explore options such as pooling back-office resources to conserve precious “indirect cost” funds and increase efficiency, partnering with private sector firms to strengthen operational and financial capacity, or using local fiscal agents.  

Of course, all of this requires a choice to invest in the operations and finance capacity of local organizations. Understandably, when it comes to a crisis like Ebola, governments are reluctant to spend taxpayer money directly on finance staff and project managers, as opposed to doctors and medicines.  But to deliver essential aid services today and ensure sustainability in the future, donors and aid recipients must to invest in programmatic priorities in parallel with operational capacity.  

To prevent the next epidemic and solve some of the world’s most challenging problems, we need to do more than just train nurses and build health centers. We need to build the operational and financial capacities of the local institutions that are essential partners in the delivery of effective aid.

Dorin is the principal of Global Finance Strategies, an international consulting firm providing operations and financing services for NGOs, donors and governments. Kumar is president and editor-in-chief of Devex, a social enterprise and media platform for the global development community.