Should more foreign aid be spent locally?

by Jonathan Glennie 
Orignially posted the Guardian 

Should more aid money be directed to organisations and institutions in the recipient countries, rather than via international NGOs and companies? Even though some progress has been made since untying aid became a core part of the Paris aid effectiveness agenda, vast amounts are still given to organisations based in donor, not recipient, countries.

Whether they are technical consultants, or implementers of large-scale services, the complaint has been that bypassing local systems means they remain poorly developed. While short-term results may be achieved, is long-term institutional development being sacrificed?

That's the issue we have been trying to solve at the Overseas Development Institute (ODI) over the past year as part of our localising aid research programme, which I have led and USAid has funded. The final papers will be launched next week in Washington, with a public event in London in July.

The Paris agenda was mostly concerned with the "use of country systems" by donors, but it was never entirely clear what that meant. And the almost-exclusive focus on government institutions, while understandable after decades of neglect, was nevertheless an unhelpful straitjacket – what about the private sector and civil society, key pillars in any developing society? If it is true, as claimed, that using state systems can help strengthen them, might it not also be the case that these other sectors would benefit similarly from localised aid?

We decided to cut through the ambiguity with a new category, "localised aid", by which we simply mean money going to national rather than international entities, be they in the state, private or civil society sectors.

In the reports, we provide ideas on how to localise aid successfully, and we challenge the notion that localising aid is necessarily more risky than alternatives – it depends how you define risk.

But perhaps our most salient message is that the evidence behind the push to localise aid is not as strong as some people might think. It's not that aid shouldn't be localised – in many contexts, much more aid should reach national organisations and ministries because localising aid can lead to systemic strengthening, in all three sectors we studied. But there is little evidence that changes will produce the decisive shift in impact that some hope for, and there is evidence that other ways of giving aid, including parallel projects, can produce positive outcomes.

One of the dangers in the world of aid is the constant invention (and sometimes reinvention) of mechanisms that development practitioners convince themselves will overcome the perennial challenges and problems associated with delivery. For example, a decade or so ago budget support was hailed by some as the answer to blockages, while today cash on delivery is similarly feted.

But our reports show that the factors that make up successful development interventions are complex and political, involving trade-offs and wise decisions from thoughtful decision-makers – don't expect rulebooks.

Our equivocation over the impact of localising aid is likely to perplex, and possibly surprise, some developing countries, as well as donors such as USAid, which are setting out to localise a higher proportion of aid.

But they will be mollified by our argument that donors should generally be increasing the proportion of their aid that is localised. Is that a contradiction? No. In many situations, localising aid is the most useful for strengthening systems, and current levels of localised aid are far lower than would be expected if donors were planning optimally. That implies that most donors should localise more aid.

Furthermore, and surprisingly for some, we found that localised aid is likely to play a positive role even in the most "fragile" situations (where weak institutions are more common), as well as in middle-income countries (where donor relationships are less dominant). There are only a handful of countries where localising aid won't work – donors should stop looking for excuses and get their hands dirty.

There was a time when supporters of specific ways of distributing aid would line up against advocates of other approaches to battle out the evidence. But our research recognises the usefulness of manifold approaches, each with pros and cons for different situations.

Our findings challenge one of the implications of the Paris list of aid effectiveness to-dos – there may not be one strategy to improve aid effectiveness after all. Long-term objectives, including system-strengthening, may sometimes be in conflict with short-term results. Trade-offs exist and compromises need to be made. It all depends what donors are trying to achieve, and in which countries.

While our research does not provide the clear-cut answers that many crave, it is commensurate with the evidence and with a new era of aid and development in which flexibility will be a premium attribute for success.

Posted on March 27, 2015 .