02 September 2011

Internally Driven Aid: A New Component of the Aid Effectiveness Agenda?

The following is a guest post by Nathan Yaffe.

Last week, I discussed the work of several creative internally driven aid models in Haiti. In this post, I argue that supporting actors like these both reflects current thinking on best practices in aid, and simultaneously could help USAID contend with new budget realities.

The New Aid Effectiveness Agenda

The currents of change carry us toward greater decentralization of aid. Evidence of this shift is everywhere: aid agency initiatives, recent delivery innovations, the academic research agenda, and the universal adoption of buzzwords such as “empowerment” and “ownership.”

Bilateral Aid Agencies (Try To) Evolve

This shift can be seen within both DfID and USAID. For instance, DfID began an “innovative and ambitious program” earlier this year called Accountability in Tanzania. The program supports Tanzanian civil-society organizations (CSOs) seeking to monitor their government to ensure accountability and responsiveness. The goal of ensuring “transparency in the use of the UK development budget” is familiar, but empowering CSOs to do the work rather than British bureaucrats is a welcome sign of change.

Even USAID, which is weakest in the arena of “fostering [local] institutions, (see below)” recently signaled its intention to work on this very issue. The first goal listed under the USAID Forward initiative is to increase “contracting with and providing grants to more and varied local partners.”

Wonks Lead The Decentralization Push

Dfid and USAID are catching up to international aid and development thought leaders, whose work has pointed in this direction for several years. For example, the Center for Global Development’s (CGD) “Innovations in Aid” collection is filled with talk of social accountability, empowering citizens, and supporting local institutions. 

CGD’s headline-making proposal from last year for “Cash-on-Delivery (COD) Aid” epitomizes this evolution toward decentralization. The idea behind COD is that donors pay recipient governments per unit of progress (e.g. each additional child who takes a standardized test), rather than imposing a program to attain the same goal.

During a presentation last year, aid expert Owen Barder borrowed a classification scheme from Wired to summarize dead, dying, and emergent ideas in aid (see below). Of the 15 categories, 6 represent evolutions toward empowering citizens rather than large organizations (e.g. imported food aid & cash transfers), or recipient rather than donor institutions (e.g. project aid & COD aid). 

Source: Aid Effectiveness After Paris (presentation)

Enter Congress: Budget Constraints Limit Innovation

For USAID, these positive trends may be jeopardized by massive funding cuts under the Budget Control Act. The OECD 2011 peer review documented that USAID already has serious staffing problems. Specifically, since the 1990s, staff levels have fallen even as aid flows have witnessed “massive increases.” 

According to the OECD, the consequence of this is that USAID must “rely extensively on external aid contractors” rather than local partners. As some commentators have noted, further cuts means less technical capacity, which likely translates to even greater reliance on contractors. Even those who speculate that reduced resources might spur innovation acknowledge that USAID Forward reforms, such as increasing local partnerships, will be hampered by these cuts. 

Internally Driven Aid Actors: Appropriate for a World of Scarce Resources

Finding a way to operate on a reduced budget without sacrificing aid effectiveness goals poses a serious challenge for USAID. I argue that part of USAID’s response to these circumstances should be dramatically increasing the share of overseas development assistance going to local CSOs and internally driven aid actors.

Isn’t That What Staff Shortfalls Prohibit?

Not exactly. Increasing the share of funds to internal actors would likely entail increasing the share of grants relative to contracts. While there’s an efficiency gain from working with international contractors present in dozens of countries, contracts are more time-intensive because they incorporate detailed criteria for what a program entails. Therefore, on balance I suspect that grants to local actors are less administratively costly (but would welcome insight from someone with more insight). 

Moreover, project proliferation within aid agencies (presentation) consistently evokes the ire of aid effectiveness gurus precisely because it’s so costly. In the EU, for instance, 22,000 new aid projects are registered every year, which cost $4.32 billion simply to design. Relying more on local actors, rather than continuing to design new projects and programs, would free up operating expense account (PDF) funding. 

Why Internal Actors Are A Good Choice

This approach has the added benefit of reducing the twin efficiency terrors of tied and conditional aid. The former reduces up to 30% of the value of aid, and the latter can result in programs inappropriate for the local context.

But Owen Barder offered what I think is the best argument in favor of local aid actors in a speech last year (presentation):
The new aid effectiveness agenda isn’t about how to design, as bureaucrats, who should do what and how to do it better. It’s about … empowering citizens to decide for themselves, for them to be able to put pressure on governments and aid agencies to do a better job.
When he made those remarks, he was arguing that increased transparency could lead to social accountability, and therefore better aid outcomes. However, I think it’s a logical extension of his words – of the notion that citizens know best – that we should funnel resources directly to local aid and civil society actors whenever possible. 

If USAID wanted to pursue this option, I see a few options for how to give such an initiative teeth. While seemingly reluctant to establish binding requirements, the Procurement Reform Group could mandate that a certain portion of overseas development assistance go to grants for local actors. Or perhaps a new criterion could be included in the procurement process that mandates assessment local capacity to accomplish a certain aid objective before contracting external.

Whatever path would best take us from here to there, supporting internally driven aid efforts seems to be an idea suited to our times.