Country ownership 3.0

This is the sixth of seven parts in the Devex series “Foreign aid effectiveness: A radical rethink,” written by Diana Ohlbaum — a former deputy director of USAID's Office of Transition Initiatives and senior professional staff member of the two congressional panels overseeing U.S. foreign affairs.

Country-owned. Country-led. Country systems. Local solutions. We have a lot of names for development that is aligned with country-identified priorities, carried out by local partners, and reflects the wishes of the beneficiaries. But in practice, the U.S. approach to country ownership has been largely one of grafting our old laws and procedures onto new participants.

This approach is well-intentioned, but fatally flawed. There simply are not enough partner governments and local institutions that can provide the level of financial management to which we are accustomed, and replication of our systems increases partners’ absorptive capacity far faster than it improves their performance capacity — not to mention skewing lines of accountability.

It is thus time for a new iteration of country ownership. The motto of version 3.0 would be, “Don’t do. Facilitate.” Instead of driving change, we support it. To do this, we must:

1. Get out of the driver’s seat.

Ultimately, we have to stop issuing contracts. Completely. The very nature of a contract won through the U.S. Agency for International Development is inimical to developing country ownership: It is a legal arrangement whose principal purpose is the acquisition of property or services “for the direct benefit or use of USAID or another U.S. government entity.” Unlike with grants, USAID is “substantially involved” in implementation of the program under a contract.

Certainly, partner institutions will need to procure goods and services and to issue contracts to do so — but they need to be the ones managing the process. We should help developing countries create accountable government contracting agencies that can administer fair and open bidding processes, and we can use simple and streamlined awards (such as fixed-obligation grants and fixed-amount-reimbursement agreements) where necessary.

Obviously, any phaseout of USAID contracts will need to happen over a period of time. There are many good reasons why contracts are preferable under certain circumstances, as demonstrated in a recent survey of USAID construction activities that spurred a policy of contracts-only for infrastructure projects. The issue is not whether contracts have a place in development, but whether the U.S. government should be the one awarding and administering them. In each of its compact countries, the Millennium Challenge Corp. has established local procurement agencies (with significant U.S. oversight and often under contract to U.S. accounting firms), and USAID could begin by strengthening and building on those entities.

As for grants, instead of designing programs and inviting organizations to compete for awards, USAID and the international donor community should convert to a Kickstarter-style process where individuals, businesses, NGOs and government agencies in a given country propose their own courses of action, consistent with the national development strategy and a few basic ground rules. USAID’s new “Development Innovation Accelerator” appears to be a major step in this direction. Donors would choose to fund the proposals that best meet their own programmatic and budgetary requirements, with an emphasis on long-term institutional support rather than short-term project aid.

Such a common platform would vastly expand opportunities for cofinancing and public-private partnerships. Equally important, it could jolt the international community into creating, at long last, a unified grant application and reporting format that would substantially alleviate the paperwork burden on grantees. Simplifying and streamlining the grant application and approval process would, in and of itself, be a great boon to country ownership.

There are at least two major drawbacks to the Kickstarter approach. One is that, particularly in countries with repressive governments, it would expose the plans and activities of human rights groups and those representing marginalized populations or controversial issues to those who are in a position to harm them. There is no reason that USAID and/or other donors could not create a separate, confidential “window” for applications deemed sensitive, for whatever reasons.

Second, there are the twin problems that some excellent potential partners might not apply, and that many of the applications that are submitted may not be technically sound. In fragile states, in particular, potential partners may be so degraded or preoccupied by crisis and conflict that they have limited capacity to plan, propose and act. But, just as MCC negotiates with countries to convert their wish lists into serious proposals, USAID and other donors could work with would-be grantees to flesh out and firm up their applications. USAID program officers should also be authorized to act as “venture capitalists,” seeking out and investing in organizations that show particular promise — even if those organizations are too small or nascent to have developed fundable proposals prior to the initial meeting. This would put the USAID Foreign Service back in the role originally envisioned — directly collaborating with partners in the field.

2. Turn on the GPS.

Countries need to have a reliable map of where they are, where they want to go and how to get there. In addition to investing in local data collection, national statistical offices, research and training institutions and monitoring and evaluation systems, we should encourage broad-based “constraints to growth” analyses — similar to those conducted under the Partnership for Growth initiative and by MCC — that identify key obstacles to progress (and to entrepreneurship, trade and investment in particular).

We should also help recipient organizations report to the International Aid Transparency Initiative register and recipient governments to publish detailed budgets and “budget identifiers” that enable automatic integration with IATI data.

3. Get out of the way.

To reduce their reliance on aid and put development on a stable trajectory, countries will need to develop and mobilize domestic financial resources. Yet, shockingly, money is flowing out of the developing world far faster than it is flowing in. Africa alone is estimated to lose over $55 billion per year to illicit financial outflows, most of which can be attributed to corporate tax avoidance. The U.S. and Western countries act as enablers by permitting anonymous companies to receive the protection of their legal systems, by failing to pursue and repatriate stolen assets and by turning a blind eye to trade mispricing and misinvoicing. In addition to ending their own complicity in draining the coffers of developing countries, the United States and other donors should support community philanthropy by creating endowments and helping partners to identify sustainable, long-term sources of domestic financing.

These changes will not be easy, and some may require statutory revisions as well as regulatory and procedural changes, not to mention a whole new way of thinking about aid. They will certainly need a strong and persistent advocate within the administration. But we in the development community do the world no favors by avoiding the difficult issues and sticking to familiar, comfortable ways of operating.

Ultimately, Country Ownership 2.0 is simply not sustainable. We can’t go back. We can only go forward.

Should foreign aid donors stop giving out contracts and instead engage with partners in other, perhaps more meaningful ways?

Stay tuned for the last of our seven-part series "Foreign aid effectiveness: A radical rethink," written by Diana Ohlbaum, and share your thoughts by leaving a comment below.

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