Behind on 30 percent local spending target, USAID eyes '100 percent sustainability'

By Lorenzo Piccio 22 June 2015

A beneficiary of the U.S. Agency for International Development Agribusiness Project, which aims to enhance the competitiveness of agricultural value chains in Pakistan. Pakistan and Afghanistan are among the only 12 countries that already exceed USAID's 30 percent local spending target. Photo by: USAID Pakistan

Early in his tenure as administrator of the U.S. Agency for International Development, Rajiv Shah told a Washington audience that the agency was “no longer satisfied with writing big checks to big contractors and calling it development” — biting words that augured a new way of doing business for the world’s biggest bilateral donor.

At about the same time, Shah set the ambitious target of channeling 30 percent of USAID’s mission program funding to local organizations by the end of fiscal 2015, nearly tripling the agency’s local spending share in just five years.

A major pillar of Shah’s USAID Forward reform agenda, USAID’s aid localization drive — now called Local Solutions — drew lukewarm reaction among U.S. implementers, many of which claimed the 30 percent target was arbitrary and unrealistic.

Standing behind the 30 percent target, aid effectiveness advocates meanwhile made the case that USAID’s long-running reliance on U.S. implementers left little room for local partners to take charge of and sustain development outcomes on the ground.

Now, that Shah has left the stage and just months away from the end of fiscal 2015, will USAID meet its 30 percent local spending target on time? The agency’s just released fiscal 2014 data on USAID Forward suggests that USAID may well fall short of the goal post for now.

According to the data, USAID channeled 16.9 percent of its mission program funding to local organizations in fiscal 2014, down from 17.9 percent in fiscal 2013.

Previously, USAID had recorded steady increases in its local spending share each year since fiscal 2010, which USAID officials have commonly cited as the baseline year. Since fiscal 2010, the agency’s local spending share has recorded an overall increase of 7.3 percentage points in its local spending share.

USAID’s local spending share. Click here to view chart’s larger version.

To meet its 30 percent target by the end of fiscal 2015, USAID would have to hike its local spending share by 13.1 percentage points in just one year — an improbable, even unlikely, scenario.

“In terms of reaching 30 percent by fiscal 2015, I think it will be quite difficult to do that,” Casey Dunning, senior policy analyst at the Center for Global Development, said. “It was probably overly ambitious to think that within a very short amount of time we’d reach that 30 percent goal.”

In an exclusive interview with Devex, Elizabeth Warfield, USAID’s coordinator for Local Solutions, stressed that that the agency did not consider the 30 percent marker a hard target. She also hinted that “100 percent sustainability” — the end goal where USAID is using all of its resources to build and sustain local systems — was now the principal driver of Local Solutions.

“The 30 percent had already been messaged as aspirational even before I took this position,” said Warfield, who assumed her post in 2013. “But it is not the sole measure of our progress or the most important measure of success. The measure of success is by making a given set of investments in countries, the 100 percent investments — are we sustaining our investments in X, Y and Z country.”

Even as they commended and acknowledged USAID’s marked progress in boosting its local spending share over the past four years, several U.S. aid experts Devex spoke to suggested the agency’s 30 percent target may have overestimated the adsorptive capacity of local organizations.

“I don’t think they fully thought through the challenges of getting the 30 percent within the time frame that they were talking about,” John Norris, executive director of the Sustainable Security and Peace Building Initiative at the Center for American Progress, asserted. “And I think it was probably a more complex endeavor than they imagined.”

It’s worth noting that were USAID to adhere to a more inclusive definition of local spending, which would count cash transfers and certain trust funds, the agency would have recorded a 22.2 percent local spending share in fiscal 2014 — putting the 30 percent target within striking distance. In fact, USAID would have just exceeded its 30 percent target in fiscal 2013 if the agency adhered to that more inclusive definition of local spending. Warfield seemed to leave the door open to the possibility that USAID would do so in the future.

“It has always been USAID’s intention to include every obligation that meets the definition of ‘local’ in calculating the indicator. To be considered ‘local’, funds have to be directly managed by a local entity,” Warfield said.

Some aid advocates believe, however, that counting cash transfers and certain trust funds would be akin to moving the goal posts. USAID did not begin to identify trust funds contributions as local obligations until fiscal 2012, two years after the agency’s oft-cited baseline year for the 30 percent local spending target.

Norris, for one, urged USAID to more clearly define what counts toward the 30 percent target. He added that if USAID regarded the 30 percent target as an aspirational one all along, the agency could have set more realistic expectations among its stakeholders and partners by conveying that message from the get-go.

“If folks in the outside community and the media, think tanks and civil society were led to believe it wasn’t aspirational — that it was an actual hard target — there really didn’t seem to be a whole lot of effort by AID to disavow us of that notion,” said Norris, who also serves on U.S. President Barack Obama’s Global Development Council.

Bright spots and not so bright spots

Deeper analysis of the USAID Forward data reveals that a 29 percent drop in USAID’s total obligations to Afghanistan and Pakistan — where USAID programs have been battered by allegations of corruption and mismanagement — accounted for an outsized share of the slight decrease in USAID’s local spending share in fiscal 2014.

Both Afghanistan and Pakistan, whose governments are considered strategic partners in Washington and received direct U.S. aid even prior to USAID Forward, are among only 12 countries that already exceed USAID’s 30 percent local spending target. Previously, the two large-scale recipients of U.S. foreign aid seemed to skew USAID’s progress toward that goal post globally.

While USAID’s local spending share in Pakistan dropped 4.9 percentage points to 45.5 percent in fiscal 2014, the same figure in Afghanistan rose 6.7 percentage points to 38.1 percent.

In large part due to a sharp, election year reduction in USAID obligations to the Afghan government, nonprofits and for-profit groups saw their combined share of USAID’s local spending worldwide rise to 60 percent in fiscal 2014, up from 43 percent in fiscal 2013.

USAID local spending by recipient type. Click here to view chart’s larger version.

Andrew Natsios, the Bush-era USAID administrator who presided over the first phase of the U.S. reconstruction in Afghanistan, argued that the Obama administration’s strategy to concentrate U.S. aid engagement in the war-torn country’s insurgency-prone areas has made USAID’s efforts to channel funding locally in the single-biggest recipient of U.S. development aid all the more challenging.

“That area is the most violent, the most hostile, and therefore the most difficult to do aid programs in. So once they made the decision to put 80 percent percent of the money in the least likely area of the country to spend that money wisely, they were ultimately going to be faced with serious problems,” Natsios said.

Excluding Afghanistan and Pakistan, USAID’s local spending share would have risen each year from 9.9 percent in fiscal 2012 to 15.1 percent in fiscal 2014, as USAID’s Warfield pointed out.

USAID missions exceeding 30 percent local spending target (FY14)

1. Paraguay
2. Jordan
3. South Africa
4. Pakistan
5. Georgia
6. Barbados
7. Afghanistan
8. Macedonia
9. Jamaica
10. El Salvador
11. Nicaragua
12. India

In fact, despite the overall reduction in USAID’s local spending share in fiscal 2014, 38 of 76 USAID missions still recorded an uptick in their local spending share. That figure is down, however, from the 45 missions which saw an increase in fiscal 2013.

Strikingly, among the 12 USAID missions that exceed USAID’s 30 percent local spending target at the country level, all but one — Afghanistan — are in either middle or high-income countries.

“That’s quite impressive. That’s the kind of trend we want to see. These middle-income countries really starting to do their own development and their own programs,” CGD’s Dunning observed.

One of a handful of missions that have set its own country-level local spending targets, USAID South Africa channeled 65.4 percent of its program funding to local organizations in fiscal 2014 — meeting its highly ambitious 65 percent local spending target a full year ahead of its deadline.

Despite its emergence as a poster child for the Local Solutions initiative, USAID Philippines, on the other hand, seems to have fallen behind in its 40 percent country-level local spending target for fiscal 2015. Last fiscal year, the mission’s local spending share stood at only 10.6 percent.

From 30 percent to 100 percent

As USAID sets its sights on “100 percent sustainability,” USAID’s Warfield indicated that the agency was not moving away completely from its 30 percent local spending target, but only placing it within a broader, systemic framework.

“To address development challenges, you need to shift from an org-centric to a system-centric focus when engaging through multistakeholder alliances and other approaches. The implicit assumption is that there is a need for direct use,” Warfield said.

The lingering question on the minds of many U.S. aid experts and implementers, however, is where the 30 percent target lies on the agency’s laundry list of strategic goals and priorities, which now also includes “100 percent sustainability.”

“I don’t think it’s something that USAID is using to kind of drive their funding because it’s not really discussed and we don’t hear about it anymore,” Dunning said. “So it’s kind of more in the collective memory around the history of this and I’m not sure that USAID will ever banish that ghost.”

Most U.S. aid experts and implementers Devex spoke to welcomed USAID’s pivot to “100 percent sustainability,” but also urged the agency to stay the course on the 30 percent target even beyond the fiscal 2015 deadline. In fact, the two lofty goals go hand in hand, they argue.

“I agree with setting an aspirational [30 percent] target to move the field, but I also agree with supporting the foundational structures, mechanisms and infrastructure. They have to be in place to do this well. And I think the agency is now really tackling that and focusing on that,” observed Linn Dorin, founding principal of Global Finance Strategies.

Critical of the 30 percent target, former USAID administrator Natsios, on the other hand, argued the agency should keep a laser focus on sustainability as its end goal.

“In my view, that’s a much wiser course of action, focusing on sustainability,” Natsios said. “The biggest problem with AID programs is not whether you have a lot of people participating locally or not. It’s whether or not it makes any permanent change that’s sustainable after the funding stops.”

Also a top foreign policy adviser to Mitt Romney’s 2012 presidential campaign, Natsios pointed out that the strategy of channeling U.S. aid money to local organizations was hardly the consensus view within the Republican ranks — an early indication perhaps that a Republican administration in 2017 would not be predisposed to recommit to the 30 percent target.

“Oh, I think there’s widespread skepticism, more than I have. Some of them say absolutely not at all,” Natsios said.

Where there is little disagreement, however, is on the need for USAID to develop concrete and practical metrics for “100 percent sustainability,” including how exactly the 30 percent target could fit into that framework. Warfield told Devex the agency’s external consultations on those metrics are forthcoming. Already, U.S. aid experts and implementers are beginning to weigh in.

“Currently USAID tracks whether local NGOs are managing funding appropriately. But that metric in and of itself is fairly meaningless. We should be asking — are they technically competent? Who are they helping? What are they doing? How are they achieving impact?” suggested Claire Starkey, president of Fintrac, a leading USAID contractor.

A comprehensive evaluation and assessment of Local Solutions was also high on the wish list. USAID last issued a progress report on USAID Forward, including its Local Solutions component, in March 2013. The agency has, however, released tracking data on USAID Forward every year since.

“We think [Local Solutions] is potentially a transformational initiative, but it will only be transformational if they evaluate how they’re doing, reflect on how they’re doing and figure out the lessons learned along the way, so we think that kind of assessment is critical and we really hope that they will undertake it,” said Nora O’Connell, associate vice president for public policy and advocacy at Save the Children.

Be sure to check out our in-depth interview with USAID Local Solutions coordinator Elizabeth Warfield. On Friday, stay tuned for our analysis of USAID’s country-level local spending — exclusive for Devex executive members only. 

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About the author

Lorenzo Piccio@lorenzopiccio

Lorenzo is a contributing analyst for Devex. Previously Devex's senior analyst for development finance in Manila, he is currently an MA candidate in international economics and international development at the Johns Hopkins School of Advanced International Studies in Washington. Lorenzo holds a bachelor's degree in government and social studies from Wesleyan University.

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