Achieving USAID's 30 percent local spending goal

In 2010, the United States Agency for International Development formulated a bold, new agenda for modernizing U.S. foreign assistance. Christened USAID Forward, one of its most notable features was an objective to program 30 percent of development assistance directly to local governments and civil society organizations.

At the time, only about 10 percent of USAID’s funding was awarded to local organizations. Earmarking U.S. assistance for local organizations was cheered by developing country partners and U.S. advocacy groups, such as the Modernizing Foreign Assistance Network and the Center for Global Development, who had long argued that international NGOs, however well-intentioned, crowded out local actors and limited the growth of local capacity.

By setting a clear target and time frame, USAID signaled a serious, businesslike approach to the policy agenda set out in the high-level forums on aid effectiveness. And, as the saying goes, “What gets measured, gets done.”

However, targeting the type of implementing partner without also addressing the type of work they are being asked to do (i.e. the job specifications) carries an inherent assumption that implementers, like standardized machine parts, are interchangeable. They aren’t.

The local procurement goal has encountered resistance not only from U.S. for-profit and NGO implementers, who fear losing market share, but also from Congress and, most importantly, USAID officers accountable for delivering results and assuring good stewardship of public funds. This opposition has tended to be viewed as either careerist resistance to change or a desire to safeguard established relationships with preferred U.S. providers.

A more accurate explanation is that USAID’s front-line managers understand that the success of a project is intimately linked to the people and organization carrying it out. They know that not all implementers are created equal and that the U.S. government’s standards and peculiarities often require their partners to take on unpredictable financial and program risks ill-suited for most local implementers, including government partner institutions.

In many cases, these are risks that could do a local organization real harm. By measuring only the funding managed by local implementers without also changing the type of work to be done, the reform inadvertently shifts risk away from the implementing organization to USAID’s career officers who, without any additional resources, must exert much greater effort to help local partners manage risk and meet USAID’s challenging financial and results reporting requirements.

USAID’s traditional U.S. partners have built expertise, and financial and management systems, tailored to the U.S. government’s unique requirements for compliance, financial risk management and measurement of results. These organizations tend to be tooled to manage the large, technically sophisticated projects that characterize USAID program design.

Conversely, most (although certainly not all) organizations in least-developed countries are equipped to implement programs that are smaller in scale, place less financial risk on the implementer and have less rigorous compliance, audit and reporting requirements. These organizations often do terrific work but are suited more for philanthropic financing or as sub-recipients to a larger organization that can carry the program and financial risk.

An alternative to the current metric that focuses on measuring funding to local organizations would be one that targets program design. For example, a metric requiring that 30 percent of USAID’s financing must be designed to be implemented by local organizations would achieve the goal of increasing local implementation, but in a way that recognizes the key variable is not who does the work, but what kind of work is being done. This approach would allow USAID to align risk with organizational capacity and so would likely encounter less resistance from USAID program managers.

But such an approach would bring its own challenges. USAID designs large, technically complex programs for good reason. First, internal staff and resource limitations require USAID to control its own overhead costs by limiting the number of management units (i.e. projects) in its portfolio. Second, USAID Missions design their strategies and programs in consultation with partner governments, who tend to want large-scale, technically sophisticated interventions aimed at strengthening systems and institutions. After all, part of USAID’s value proposition is that it can mobilize international expertise and technology transfer. And finally, USAID is under tremendous pressure to show that foreign assistance achieves significant, life-changing results.

These factors require organizations with the capacity to mobilize technical expertise on a global level and manage complex financial and program requirements.

In contrast, a portfolio with a 30 percent set-aside for programs designed to be implemented by local organizations could be expected to be composed of smaller activities resulting in more management units. It also would probably tilt toward a philanthropic model of supporting organizations to do good work, as opposed to purchasing technically complex solutions with rigorous metrics that advance national strategic and institutional priorities.

When I was a technical officer in USAID, our standard practice was to evaluate programs at the three and five year marks. We are five years into USAID Forward. Now would be a good time to look at the trade-off between greater use of local organizations to build long-term capacity and the generation of near-term results that respond to the strategic priorities of least-developed countries and donor governments. Good starting points would be to look at what kind of metric will best incentivize greater use of local organizations and for USAID to discuss with bilateral partners the implications this policy has for program strategies and design.

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