Are European donors falling behind the US on localization?

The shift to localization is one of the biggest talking points in global development — and one donor in particular has been in the spotlight. The U.S. Agency for International Development has faced scrutiny for the limited progress it’s made against a target set by Administrator Samantha Power, who wants a quarter of the agency’s direct funding to go to local organizations by 2025. But so far, European donors have been spared similar scrutiny. And a study of some of the biggest players reveals that many are lagging behind the U.S.’s efforts. Devex looked at Germany, the United Kingdom, France, the European Commission, Sweden, Denmark, and Norway to understand the state of play. Several themes emerged. Perhaps the biggest issue is that most of these donors do not have overarching localization strategies, although many of them do have guidance on localization embedded within broader civil society strategies. In almost all cases, with the exception of France, the guidance relies heavily on indirect funding. In other words, the donors are asking their implementers, particularly international NGOs, to pass a share of their funding on to local organizations, rather than providing cash directly. “In my opinion, the main problem … is the lack of direct funding for local NGOs,” said Jens Schwalb, advocacy manager at Johanniter International Assistance, speaking about German aid. In the case of Germany, he said, there are legislative barriers that mean getting approval for grants outside the country is cumbersome and slow. “If you really want to talk about true localisation, the legislation would need to be changed,” he added. “Only this would lead to locally led action, since it creates a direct equitable partnership between the donor and the local NGO/civil society … I think we are at the beginning, but it will be a marathon.” Other smaller donors have suggested that it is difficult to fund local NGOs directly because, unlike the U.S., they do not have staff posted all over the world. However, localization advocates argue that it is more about changing processes to make funding more accessible to smaller and local organizations. In addition, although all the donors surveyed ask their INGO partners to pass on funding to local organizations, only a small number — including the U.K., Denmark, and the European Commission — provide guidance about covering overhead costs for local organizations. This is critical because it helps INGOs to include this in budgets, ensures that they are sharing the benefits of a grant with their local partners, and helps local organizations to build up capacity. Beyond indirect funding via INGOs, two donors mentioned the United Nations’ Country-Based Pooled Funds, which allow donors to pool contributions into single, unearmarked funds to support local humanitarian efforts. Some donors see them as a practical way to meet their localization goals — although only about 36% of the CBPFs’ allocations went directly or indirectly to local and national partners last year. Another key issue that came up is data. As a result of their reliance on indirect funding, none of these donors were able to provide concrete figures on how much of their money ends up with local organizations. Some of them have introduced reporting requirements, however — which means their INGO implementers will need to tell them how much they are passing on to local partners — so there should be some data in the near future. Finally, the emphasis for most of these donors is on humanitarian funding. This is a result of their commitments under the “Grand Bargain,” which requires them to put 25% of humanitarian funding into the hands of local and national partners “as directly as possible.” Unlike the U.S., none of the European donors that Devex surveyed have targets for development funding. Here’s a quick look at each one in a bit more detail. Germany Let’s start with the second biggest bilateral donor. A spokesperson for the German development ministry, BMZ, said that it supports local partners via German civil society organizations and bilateral cooperation. However, the spokesperson acknowledged that “BMZ has not yet published a paper on locally led development” and did not provide any figures about how much of BMZ’s funding is passed on to local and national partners. They did say that the ministry is examining opportunities to provide more direct support to civil society organizations, and that “one of the key aspects of an upcoming new strategy on the cooperation with civil society will be locally led development.” Germany is also by far the biggest contributor to the Country-Based Pooled Funds. European Union Little information is available on the EU’s localization strategy for development funding. However ECHO — the EU’s humanitarian arm — issued a key piece of localization guidance in March this year. The guidance indicates that ECHO “will look favourably” on proposals from its implementers “that recognise and strategically build on existing capacities and strengths of potential local partners.” Specifically, it requires its implementers to report on how much funding is channeled to local and national partners, and says it will “prioritise proposals where at least 25% of the EU contribution” is to be spent in this way. It asks implementers to share overhead costs “equitably” with local subgrantees and tells them to be transparent about local partners’ contribution in any external communication. France France is one of four bilateral donors currently meeting the Grand Bargain’s 25% target for humanitarian funds, based on self-reporting, and is one of the more advanced donors covered here from a strategy perspective. The foreign ministry’s new 2023-2027 strategy for civil society engagement has a specific objective to “support the aid localization process.” That includes a goal to facilitate access to public financing for local partners, with a set of performance indicators to measure its progress. The strategy states that France is already working to increase its direct funding to local civil society organizations through existing schemes in embassies and “certain AFD [French Development Agency] funding mechanisms.” It says it recently opened up its CSO-Initiatives mechanism to local CSOs which, it claims, makes France “pioneering” since “very few partners to date have opened their central funding mechanisms to CSOs within ODA-eligible countries.” Meanwhile, a spokesperson flagged the three-year-old Support Fund for Feminist Organizations, which finances feminist civil society organizations in low- and middle-income countries, as an example of its localization work. United Kingdom A spokesperson for the U.K.’s Foreign, Commonwealth & Development Office told Devex that it is “committed to channelling humanitarian funding as directly as possible to local and national aid organisations,” but the practicalities of this are a little foggy. The only specific information that the spokesperson would provide on the record is that the U.K. has “worked with OCHA country funds to increase their total direct and indirect funding to national and local actors” — this refers to the Country-Based Pooled Funds mentioned earlier. The U.K. was historically the biggest donor to the CBPFs but in the last couple of years has been overtaken by Germany. FCDO’s new guidelines for NGOs applying for rapid humanitarian response funding include a section on localization, which is similar in many ways to the European Commission’s. “NGOs that are funded by FCDO must demonstrate how they work with local actors to support the UK in its international commitments to meet 25% of local/national actor funding, and to demonstrate this in their project proposals and budgets,” it says. It adds that “appropriate visibility” must be given to the contribution made by local and national partners. On top of this, it stipulates that NGOs must provide overhead costs to local partners of at least 10%. Again, though, this only applies to humanitarian funding. Bond, the network for U.K. aid NGOs, says the government has provided “little detail” about how it intends to become “locally owned” and has rebuffed calls to publish a proper strategy. “While there are islands of good practice in the UK at the FCDO, such as their shifting the power programme and a commitment in the International Development Strategy to becoming ‘locally owned’, there remains scant details on how the FCDO will fundamentally change, and it falls short of the big transformation that is needed if they are to truly become a locally led funder,” said Zoe Abrahamson, Bond’s sector transformation manager. She specifically highlighted a need for FCDO to define localization and publish a strategy, to track and publish data on funding flows to local CSOs, and to ring-fence funding for local partners. The Nordics Although the Nordic donors have a reputation for taking a progressive approach to aid, Norway, Sweden, and Denmark are also relying on indirect funding to reach the Grand Bargain target, and only some of them are tracking funding flows. The Norwegian Agency for Development Cooperation said that about 4% of its support to civil society goes directly to local partners. However in 2021, it estimated via a survey that more than half of its grants to Norwegian civil society organizations were transferred to local partners in the global south. Denmark currently serves as the co-convener of the localization workstream of the Grand Bargain, as part of which it says it is “actively engaged in discussions around how to monitor funding to local and national actors and how to report this funding transparently.” The Danish Ministry of Foreign Affairs has a new requirement for its “strategic partners” — consisting of 18 Danish civil society organizations — to report how much funding they pass on to local organizations, and what their plans are for strengthening local leadership. According to Development Today, the ministry expects to publish the first figures by fall, although a spokesperson for the foreign ministry would not confirm this. Like the U.K., Denmark allows a portion of its grants to be used to cover overheads for local partners. It also caps headquarter spending for Danish aid organizations at 20%, in a bid to encourage the flow of funds to the global south. Finally, Sweden similarly relies on its strategic partners to implement the localization of its humanitarian support. But it is planning to experiment with providing direct funding. A spokesperson for the Swedish development agency, Sida, told Devex that it has been “working on the possibility of piloting direct funding to local actors in three contexts this year (Myanmar, Palestine and Bangladesh). This process is ongoing and we will need to review how Sida will manage direct funding either through individual agreements, funding mechanisms [or] consortiums in the future.” Sida is also currently reviewing its overhead policy and piloting a methodology with Oxfam GB to cover overhead costs for local partners. Vince Chadwick, William Worley and Rob Merrick contributed reporting.