USAID inches closer to local spending goal

In 2010, the U.S. Agency for International Development launched USAID Forward, an agency-wide reform agenda aimed at strengthening aid mechanisms, improving the impact of development programs and fostering innovative solutions for the most pressing development challenges. One key component of this strategy involves allocating 30 percent of agency funding to local partners by 2015. Five years on, USAID remains below that target. But while the aid agency fell short of its ambitious goal, recent years have shown a steady increase in the percentage of funding channeled to local institutions. Devex takes a closer look at the most recent data to see how aid spending for local solutions has taken shape under USAID Forward. The big picture Excluding cash transfers and qualifying trust funds, program funds implemented through local systems have been fluctuating over the past few years, but the share of funding allocated for local partners has steadily grown, nearly doubling from 9.7 percent in 2010 to 18.6 percent in 2015. Financing for local entities also peaked last year, reaching $1.84 billion — roughly $500 million more than the previous year. Local spending by region Apart from Asia and Latin America and the Caribbean, USAID’s regional spending for local solutions has seen a lot of movement in recent years, and 2015 was no exception. Spending for Europe and Eurasia boomed, increasing from just $55 million in 2014 to $485 million in 2015. This launched the region from the bottom of the list into the top three. Following a sharp dip in 2014, USAID local spending for Afghanistan and Pakistan rebounded by over $100 million taking it just above the $500 million mark, with Africa staying closely behind at $497 million. Meanwhile, local spending in the Middle East suffered a $100 million decline. Mission-level localization As with previous years, a number of USAID missions surpassed the 30 percent mark in 2015, with Paraguay reaching 100 percent localization — up from 91 percent the previous year. Ukraine, meanwhile, reached 90 percent thanks in large part to substantial USAID contributions supporting the country’s troubled financial sector. Nine other countries surpassed the agency’s localization target, including Jordan (64 percent), South Africa (59 percent), the Dominican Republic (52 percent) and Armenia (52 percent). Twelve other USAID missions exceeded 20 percent localization last year, including two missions that crossed the 30 percent threshold in 2014: India, previously at 31 percent dropped to 28 percent, and Macedonia, formerly at 36 percent, also dropped to 28 percent. Meanwhile, six USAID missions — Bolivia, Brazil, Ecuador, Russia, Sri Lanka and Yemen — recorded zero localized funding last fiscal year. In 2015, six more countries were added to the USAID Forward list: Botswana, Burkina Faso, Burundi, Ivory Coast, Djibouti and Niger, taking the total number of missions targeted for the initiative to 85. For-profits attract a bigger portion A review of USAID Forward’s five-year history shows local funding shifting away from government institutions to local for-profit organizations. In years past, government institutions have absorbed the majority of USAID funding for local solutions, peaking at $882 million in 2013, or 53 percent of the total funding for local solutions that year. Gradually, however, the proportion of local funding to for-profit institutions increased and exceeded government funding in 2015. While USAID is diversifying its partners for locally managed projects, two very large programs account for nearly 42 percent of the total allocation for local solutions, or $777 million of the $1.84 billion in local spending. Of the nearly $732 million spent on for-profit organizations last year, $447 million, or 61 percent, went to loan subsidies for strengthening financial sector capacity in Ukraine. This accounts for the spike in funding for local solutions in Europe and Eurasia. Whether this level of funding for local solutions in the region will be sustained in the coming years remains to be seen. Meanwhile, of the $482 million spent for government institutions, $330 million, or 68 percent, went to the government of Afghanistan for a power transmission expansion and connectivity project. USAID has stated previously that the 30 percent target is aspirational and that ensuring the impact and sustainability of aid programs remains the top priority. Stay tuned to Devex for more news and analysis of U.S. aid, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.