New Report Finds Aid Localization Trend Transforming Development Landscape

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Survey by Global Finance Strategies confirms more aid is flowing directly to developing countries, benefitting aid recipients but posing significant operational and reporting challenges

International aid experts gathered today to discuss a growing trend in the development world: the shift by major aid donors toward giving money directly to developing country governments and local NGOs, bypassing traditional international development organizations. According to a new report released today, the “localization” trend, which is designed to empower grassroots organizations and ensure aid reaches its intended recipients, has also created operational and financial difficulties for agencies on the ground struggling to effectively absorb aid.

The report, titled “Going Local: The Promise and Challenge of Aid Localization,” surveyed 52 leaders in the international development field, including 19 donor representatives and 33 representatives of aid recipients. The report found consensus that localization is occurring: 68 percent of aid donors and 94 percent of aid recipients called the aid localization trend significant. The report also found enthusiasm for localization among both major donors, such as USAID, and aid recipients in developing countries.

The report also highlighted several challenges associated with localization. Among aid recipients, 94 percent said increased donor reporting and compliance requirements are a significant challenge. More than 80 percent of aid donors expressed concerns about the operational and systems capacity of their local grantees, while more than a third said they are “very concerned” about grantee capacity to manage their own operations and finances.

“The trend toward localization and utilization of indigenous NGOs comes with risks, but it will ultimately lead to capacity and sustainability within Africa and other developing countries,” said Dr. Alex Coutinho, former Executive Director of the Infectious Disease Institute at Makerere University in Uganda and former Executive Director of The AIDS Support Organization (TASO), one of Uganda’s largest NGOs. “Small NGOs in Africa often face real challenges in managing direct aid, including finding the right people and skills to provide proper oversight and governance by their boards of directors and audit committees.”

Development leaders, including USAID Assistant Administrator Dr. Ariel Pablos-Méndez, Save the Children Executive Vice President Carlos Carrazana, Devex President and Editor-in-Chief Raj Kumar, Global Finance Strategies Principal Linn Dorin, Churches Health Association of Zambia Executive Director Karen Sichinga, InsideNGO Chief Operating Officer Tom Dente and USAID Local Systems Coordinator Elizabeth Warfield, came together in Washington, DC to discuss the report.

The panelists agreed large donors are driving the trend toward localization. In 2011, former USAID Administrator Rajiv Shah called for “accelerated funding to local NGOs” and committed to increasing direct funding for local partners from 9 percent to 30 percent of annual USAID funding by 2015. Some progress has been made to date. In 2014, USAID reported that the share of direct funding to local partners had risen to 17.9 percent.

“The global health landscape has changed immensely in recent years, and local solutions are a priority for USAID,” said Dr. Ariel Pablos-Méndez, Assistant Administrator of USAID. “The mission of USAID Forward is to encourage country ownership and country engagement. To do that, donors need to work together to build capacity, not only for frontline workers, but also for the operations and management staff who are the stewards of this progress.”

“Localization is happening, and we have to do everything possible to prepare now to make sure it fulfills its promise of empowerment and increased efficiency,” said Linn Dorin, lead author of the report and Principal of Global Finance Strategies, which has offices in New York, New Delhi, Beijing, Nairobi and Rio de Janeiro. “New approaches are necessary to help local aid recipients effectively absorb and manage this influx.”

“This increase in direct aid is welcomed by many homegrown, indigenous African organizations, who see it as long overdue,” said Karen Sichinga, Executive Director of the Churches Health Association of Zambia. “Of course, localization brings an increased operational burden, but we can handle it. Rather than saying local organizations lack capacity, donors should ask us what support we need to manage this increased burden.”

The report identified a number of actions that donors are taking to alleviate this operational burden, including directly funding recipients' operations departments, creating regional technical support hubs for aid recipients, and streamlining project reporting requirements. The report also called on donors to do more to harmonize reporting requirements in order to minimize the burden on aid recipients.

The report also identified steps aid recipients can take to meet mounting operational challenges, such as partnering with private-sector accounting firms, or outsourcing operations, reporting and compliance to private contractors. The report also discussed novel strategies that should be further explored, such as the sharing of back-office operations and resources among aid recipients to conserve funds and increase efficiency.

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For additional information on the “Going Local” report and event, please visit http://www.GlobalFinanceStrategies.com/goinglocal.

About Global Finance Strategies
Global Finance Strategies (GFS) is a consulting firm focused on helping NGOs and companies build operational capacity in developing countries. GFS is led by Linn Dorin, who previously served as Chief Financial Officer for the International AIDS Vaccine Initiative (IAVI) and Chief Financial Officer and Chief Administrative Officer for Planned Parenthood. GFS is an affiliate of Global Health Strategies and has offices in New York, New Delhi, Beijing, Nairobi and Rio de Janeiro.

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Gillian Leitch
Global Finance Strategies (GFS)
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