Is USAID taking the right approach on localization?

Earlier this month, USAID released a long-awaited progress update on local funding. The update has been welcomed by development professionals for its transparency and openness. But some also wonder whether the agency is going far enough to transfer power to communities. USAID revealed that in the fiscal year to September 2022, it gave $1.6 billion of direct funding to local entities or around 10.2% of eligible funding. This was a significant increase, and the highest level of direct local funding in at least a decade, but still far less than the target of 25%. The update followed a series of moves by USAID policymakers to reorient the way the agency funds development. Over the past few months, USAID has introduced a new acquisition and assistance strategy — the approach it uses to fund the bulk of its contracts — and a local capacity strengthening policy that it hopes will anchor the vision of locally led development articulated by Administrator Samantha Power in November 2021. USAID said the numbers showed that it had made good progress, but that it still had a long way to go. What’s at stake here for USAID and its localization efforts is the future of what global development will look like. As one of the world’s top foreign aid agencies, USAID can inspire other aid agencies to follow suit in pushing for local organizations to take over the leadership of foreign aid, development experts say. Debating “local” in local funding Development experts Devex spoke to lauded the move by USAID to publish the underlying data that informed its progress on local funding. “It’s a really good sign that they're committed to being accountable there,” said Meghan Armistead, a senior advisor for research and policy at Catholic Relief Services. Gary Forster, CEO at Publish What You Fund, an aid transparency advocacy organization, agreed. “Putting out the report, providing all of the data underneath — that's been really useful for a lot of stakeholders to interrogate how USAID’s approach is working, understand who’s included, who’s not,” he told Devex. “It’s a lot further than other institutions have gone.” Gunjan Veda, a director at The Movement for Community-led Development, also appreciated that USAID has now defined what makes up a local organization. “We all have different definitions and understandings of what constitutes a local organization,” she told Devex. But while Veda praised the existence of USAID’s definition, she and several others had questions about whether it was the most suitable one. The Modernizing Foreign Assistance Network, which campaigns for more efficient spending in aid, said in a statement that it “raised questions about the extent to which international actors are included in the 25% and the adverse incentives that might create.” In its report, USAID acknowledged it was hard to determine precisely what a local organization is. It suggested that an entity with an international brand can be deemed local if it is registered and legally operates in a “developing country” where it spends the funding received from USAID. The agency gave an example of Deloitte Tanzania as a possible illustration of a local organization with an international brand that has long roots in the country of its operations and is distinct from its international brand parent. But Veda said USAID’s definition of a local organization is too broad. “I don't think local and community-based organizations will agree that Deloitte Tanzania falls in the same category as they do,” she said. Armistead said USAID should look at the definition and ask if it was achieving the agency’s fundamental intention — to shift power to local communities. “[It is] maybe helpful to just say, ‘is this the intent? If we’re looking at these, are the recipients of this local funding, is this who we’re targeting? Is this going to shift the power in the way that we said we wanted to?’” she said. Forster suggested that when tagging organizations as local, USAID could additionally ask whether they were affiliated with an international brand and how that affiliation works in practice. “You want these institutions to be wholly free to self-determine what they think is right in that environment,” he said, referring to local organizations. A USAID spokesperson said that the agency aimed to work as close to a proxy for local partners as possible as it works to reduce the reporting burdens on staff and local partners. “We are not, with our localization goals, urging international partners to spin off local partners,” the spokesperson told Devex in an emailed response to questions. “But we know that genuinely local organizations can cultivate transnational ties, take on international board members, register in other countries for fundraising or security purposes, associate with international brands, or adopt any number of other strategies to ensure their effectiveness and resilience.” The agency acknowledged that the complexity of localization may lead to “errors of inclusion and exclusion” but said that they believe the progress report was clear about the definition of what it means to be local. “USAID is committed to localization; we are also committed to burden reduction,” the spokesperson said. What’s in the denominator? The “denominator” — the thing being divided — is a keyword in the local assistance report. Power’s speech in 2021 promised that 25% of all funds would go to local partners over the course of the next four years, but that has since been clarified. Rather than all USAID funds, the target is 25% of total development and humanitarian funds obligated in USAID’s Global Acquisition and Assistance System, or GLAAS, the procurement system that automates the procurement processes from planning to award closeout. This denominator excludes personal services contracts, or PSCs, interagency agreements, government-to-government assistance, or G2G, and agreements with public international organizations — a term for multilaterals such as the U.N. agencies. How much of USAID’s spending is excluded from the target will vary from year to year, but it is likely to be a lot. Publish What You Fund estimates that only about 43% of USAID spending could be included in the denominator. This isn’t in the spirit of what was originally announced, Forster said. And he said it needed to be made clearer exactly what would be counted. “It would be nice to see in future a breakdown and an explanation for what’s in and what’s out otherwise I think there will be frustrations,” he told Devex. The USAID spokesperson told Devex that the agency was using the same baseline of funding to calculate its progress that Power used when she announced her vision of localization in 2021. It comes from the agency’s acquisition and assistance funding, which is about 85% of grants and contracts awards that leave the agency’s walls. The spokesperson said that “represents an ambitious target — more than tripling the amount of funding going to local actors.” They added that “with the exception of PSCs, these implementing mechanisms are not — or not fully — recorded in GLAAS, the datasource on acquisitions and assistance that we used for direct local funding. Since G2G is an important type of direct local partnership, G2G funding is reported separately.” Local leadership One other key plank of Power’s localization agenda is to have half of USAID’s programs be led by local actors by 2030. In its update report, the agency for the first time provided guidelines on how it will measure this part of its localization mission starting by the end of 2023’s fiscal year. The administrator said recently that aspect of her vision is crucial to determine whether development will come to be truly led by local actors. Veda said USAID had made a concerted effort to elicit feedback from local organizations, as it tries to think about how it will implement this 50% target. Earlier this year her organization, along with Peace Direct, invited USAID to a consultation with nearly 200 local entities. But she raised questions over what she perceived was a shift in USAID’s chosen terminology, from “communities” to “local actors”. The latter, she said, could refer to a national organization that may not fully understand local communities. “I can guarantee you that organizations sitting in New Delhi absolutely are not aware of the needs of a small local community in Kerala or in Nairobi are not aware of the needs of a small community in Taita-Taveta county,” she said. The USAID spokesperson said that as part of measuring whether organizations are meeting this target, they will want to see how the agency and its partners work with communities directly, through listening tours and co-creation of projects with those communities in addition to being open to receive feedback and to being accountable to those commitments. Distance traveled Veda said the agency has made a lot of progress over the past two years in putting in place what she described as incremental changes that will help reach its targets. But she warned that hitting the target would not necessarily mean success. “Targets are super important but I think we need to think beyond meeting the tick mark of a target to what does this actually mean if we want to make this change,” she said. “The target exists because there is a goal and the goal is locally led development, right? The target should not become the goal." The agency’s strategy was informed by past efforts of success, the USAID spokesperson said and pointed out that the U.S. President's Emergency Plan for AIDS Relief, or PEPFAR — which the agency said had contributed to more than half of all direct local funding measured last year — had committed to spending 70% directly to local funding. “Ambitious targets for direct local funding can be powerful motivators,” the spokesperson said. The agency was learning from PEPFAR and others on how to better its localization efforts, they said, and was going through a policy and cultural change to realize that ambition. “USAID’s localization goal is to shift funding and decision-making power to the people, organizations, and institutions that are driving change in their own countries and communities,” the spokesperson insisted. Armistead, meanwhile, stressed that there were positives in the process as captured in the progress report and now it was time to ensure the agency invests in executing on its plans. “I think that they’ve got some good elements there that they can build on,” she said. “It is an important moment because I think other donors are looking towards USAID to provide some key leadership.” UPDATE, June 27, 2023: This story has been updated to clarify that earlier this year, The Movement for Community-led Development along with Peace Direct invited USAID to a consultation with nearly 200 local entities to discuss localization efforts.