Claims about USAID's localization agenda

USAID lacks the capacity to effectively fund and work with local organizations in developing countries

I: Why does the US help others by mostly spending money on itself?

Whether one looks at civilian and security-related foreign assistance, the United States mostly helps others by (over)spending money on itself. Here is Justin Sandefur of CGD (emphasis added):

Foreigners don’t receive much of America’s $35 billion annual foreign aid budget, at least not directly. Less than ten percent goes to local charities, companies, or governments in developing countries. Instead, big American aid contracts tend to go to big American companies and non-governmental organizations (NGOs). The biggest beneficiaries—known in Washington as “beltway bandits”—each win hundreds of millions of dollars in federal awards every year.

Source: Center for Global Development

Most of the cash goes to a concentrated group of awardees. For example, in 2017 60% of USAID funding went to just 25 organizations. According to Devex, “[o]f total contract spending [in 2021], almost $5.4 billion out of $5.5 billion goes to American bidders.” Meanwhile USAID works with more than 4000 organizations in over 100 countries.

Beyond possible policy capture by powerful implementation firms, arguments in favor of this clearly suboptimal state of affairs (more on this below) are legion, including the alleged lack of local capacity in local organizations, inability to comply with onerous US reporting regulations, specific US laws mandating tied aid, fear of corruption, likely program delays, etc.

II: The “locals” aren’t the problem

To remedy the situation, USAID Administrator Samantha Power has pledged that at least 25% of funding will go to local organizations (who will also be allowed to have a say in project initiation). USAID also plans to invest in capacity building for local organizations in order for them to be able to absorb the increased funding.

Patrick Fine doesn’t buy explanations that blame local organizations in low-income countries. Instead, he argues that it is USAID and other US agencies that lack the capacity to effectively collaborate with local organizations in countries that receive US assistance:

The Biden administration has made localization—generally defined as shifting contracts and grants from U.S. organizations to local non-governmental organizations (LNGOs)—a centerpiece of its foreign assistance policy. Just months into her role as USAID administrator, Samantha Power set up a working group to operationalize localization policy and announced targets to increase funding to LNGOs to at least twenty-five percent of USAID awards by the end of 2024.

Following up on this commitment, in October 2022 USAID launched a new localization policy titled, “Strengthening Local Capacity In USAID Programming And Partnerships” to “guide USAID decisions about why and how to invest in the capacity of local partners to better achieve inclusive and locally-led development.”

… It is not local organizations that lack the capacity to work with USAID. Instead, it is USAID that lacks the capacity in its operating systems and organizational culture to work with local organizations.

This sounds about right.

In addition, research shows that too much control from Washington is likely a hindrance to project success. Aid projects are more likely to succeed when implementing field agents have agency and room for maneuver in their work. By extension, the success of aid projects is likely to improve if both design and implementation are sufficiently localized (with attention to the empowerment-of-field-management-for-efficiency lessons even within in-country organizations).

Funding local organizations would also smoothen USAID operations in times of crises. For example, in 2021 USAID contract spending declined by 9%, yet local spending collapsed by a whopping 35%.

Like with all initiatives, the real test of USAID’s localization initiative will be in implementation. Smart minds have already pointed out a number of challenges, including the standard arbitrary limitations on overheads for local organizations (no more than 10%, US organizations can get up to 40% or more) and the presumption that local organizations should always be cheaper.

There are also likely to be political/statutory hurdles. By law, “at least half of U.S. humanitarian food aid must be carried on privately-owned, U.S.-flag registered vessels, in accordance with the Merchant Marine Act of 1936 and the Cargo Preference Act of 1954.”

Dr. Peter Githinji of AMREF raises two important points:

For USAID, localization means local people leading local legal entities. The implication is that when you are applying for certain grants, you will be penalized if you are not a local legal entity. There are two questions here:   

When you are a local country legal entity, are you cheaper than when you are international? The challenge we face is that USAID thinks that you should be cheaper when you are a local country entity, yet the same quality and rigor is expected from both. It’s an issue that needs to be addressed – local is not cheaper. The cost is the same because you are doing the same work but with better and sustainable results. It’s the Return on Investment that’s higher for the same money. 

The second question is – what is local in terms of definition and approach? If USAID insists that the only way to be local is to have a local country board and local legal entity, then this takes away the strength of shared regional resources which built on existing capacity to multiply local capacity. 

Currently, regionally strong approaches share trademarks as well as institutional capacity, reduce duplication and increase efficiency. 

If the definition of local is forced down to a legal country entity only, it means the only existing relationships that would remain with regional capacity would be trademark related only – a franchise of sorts – which then asks the question as to how to retain shared resources and avoid duplication country by country, increasing costs and reducing efficiencies. 

This will result in every country replicating a very complex structure, increasing cost, reducing efficiencies and also losing big on cross country learning. 

One hopes that folks are USAID will be open to listening and learning from their local partners who know where the shoe pinches.