What Does Localization Look Like In USAID?

The reforms needed to achieve more effective and more equitable aid.

On November 4, USAID Administrator Samantha Power celebrated the agency’s 60th anniversary by announcing a series of reforms focused on increasing inclusivity and localization within USAID. Citing the fact that only 6% of USAID funding currently goes to local organizations, Power emphasized the need to increase funding flows to local organizations, develop a more robust infrastructure within USAID to support partners, and include local organizations earlier in the proposal design process. These reforms would be a positive development for the sector if implemented successfully, but they are likely to face stiff internal and external resistance. How Power and her team address the obstacles that have stymied similar past localization reform efforts will be critical to the initiative’s success. Overall, localization is not simply about adjusting procurement procedures and providing support services, but rather is dependent on changing attitudes and authority structures.

This is not the first time USAID has attempted to localize its programming. In 2011, then-Administrator Rajiv Shah announced a similar goal of increasing USAID’s funding to local organizations to 30% of total funds. The initiative ultimately largely failed due to backlash from development contractors, bureaucratic obstacles, and opposition in Congress. International development contractors and NGOs felt threatened that a primary source of funding would get cut, while Congress believed that increased funds to foreign governments and institutions would inevitably lead to corruption and waste. Meanwhile, USAID staff expressed concerns that budget cuts had limited the staff time available to process and approve increased funding opportunities, especially for partners that USAID views as “higher risk.”

Power’s reform strategy shares a number of commonalities with that of Shah 10 years ago. The 2021 initiative similarly has a target of increasing funds to foreign governments and organizations to 25% of USAID’s total funding. In addition to increasing localized funding flows, Power’s strategy also focuses on local ownership and sustainability for eventual handovers of project implementation, which was a core pillar under Administrator Shah.

Initial outlines of Power’s strategy, however, demonstrate that she has made a point of learning from her predecessor’s mistakes. Alongside the push for localized funding, Power emphasized the need for increased staff to manage grants and contracts, particularly Foreign Service Nationals. Furthermore, Power seems to have more support in Congress for her initiative, with explicit support from both members of the Senate and the House involved in overseeing USAID’s budget proposal.

Will this be enough to avoid internal and external opposition? Likely not. In an attempt to avoid barriers that faced previous attempts at reform, this new initiative may find itself in a number of pitfalls that will hinder true localization efforts. First, there are no published regulations on what “local” means when USAID refers to local voice or local partners. A common shortcut taken by international NGOs when facing restrictions like the ones implemented by USAID is to independently register offices in the country of operation under the guise of a “local NGO,” which then makes the organization eligible for USAID’s funding that is earmarked for local organizations. Alternatively, international NGOs will form consortia with local NGOs where the local organization is the prime contractor, in order to get the “local” status, while the international NGO retains much of the funding. This practice is not likely to change when NGO staff and leadership performance is in part measured by the quantity of funding they bring into the organization.

Localization is not simply about adjusting procurement procedures and providing support services, but rather is dependent on changing attitudes and authority structures.

Additionally, as long as USAID views local institutions and organizations as “higher risk” with “lower capacity”, there will always be a preference toward micro-management of local awards. In her November 4 speech, Power specifically highlighted how risky it is working with local partners because they lack the internal accounting and legal expertise that USAID contracts require. As a result, a key tenet of the 2021 reforms is to provide additional capacity-building support to local NGOs regarding award management.

Yet, capacity cannot be uniformly defined. As ODI discussed in a 2019 report on localization, there are two overarching understandings of capacity: management capacity (accounting, legal structure, governance, etc) and implementation capacity (program delivery). Both are equally important to the success of programming, but the discussion on capacity in the localization debate focuses almost entirely on the lack of management capacity of local organizations, while overlooking the often-stronger implementation capacities of local organizations compared to international NGOs. Furthermore, the discussion on “capacity” often ignores the fact that there have been repeated instances of major USAID implementing partners who have demonstrated a lack of financial oversight, evaluation, and corruption of project funds, yet continue to receive billions of dollars of USAID funding annually.

Finally, in order to reach targets of local funding promised by the Administrator, USAID may prioritize funding to particular countries or institutions that do not necessarily require the most assistance. For example, similar reforms under Administrator Shah saw 90% of USAID funding to local partners be distributed to partners in middle- or high-income countries because they are viewed as institutions that have a greater capacity to program the funds. This creates an inherent bias against localization in low-income countries, which may need more assistance and where local partners may have the greatest implementation capacity, because it is viewed as higher risk. This is especially true when a country’s government has a track record of corruption that may dissuade investment through aid.

Administrator Power and USAID staff should take a number of steps to avoid falling into these traps. Power’s announcement that she will continue the expanded role of Foreign Service Nationals in the award management process after its initial roll-out during COVID-19 is a good first step, but that expansion of responsibilities should come with the ability of Foreign Service Nations to achieve higher pay scales and access benefits equal to those of international staff. Increasing staff to process awards to local partners is critical, but staffing should prioritize promotions and responsibilities for local staff who have more capacity to manage relationships with local institutions than international staff.

Improving independent access to USAID funding opportunities is also critical to the success of localization. Funding opportunities should be available both in English and in the local language to expand access, and particular attention should be paid to how opportunities are shared within restricted groups. For example, funding opportunities are often circulated in INGO-dominated, or even INGO-exclusive, coordination mechanisms and networks can be critical for securing opportunities. Additionally, USAID should provide more smaller award opportunities to increase access for local organizations that cannot act as prime contractors in multi-million dollar projects. This could be aided by reducing the number of Indefinite Delivery, Indefinite Quantity Contracts or Indefinite Quantity Contracts that limit competition to a select number of large, often international, NGOs.

Finally, when considering how to reduce the potential for corruption when directing funds toward foreign state institutions, there is evidence that a Fixed Amount Reimbursement Agreement (FARA) approach can allow for funds to go directly to local institutions, while also ensuring programs are implemented. USAID’s FARA approach provides payment to partners based on outputs, which incentivizes institutions to have strong financial management systems and to complete projects on time.

Incorporating these recommendations into USAID’s new localization strategy will be an effective step toward avoiding the pitfalls that befell Power’s predecessor a decade ago. Localization, although not a panacea to all of the challenges facing the development sector, is a critical reform approach to achieve more effective and more equitable aid.

Rachel Furlow is an MSc Candidate at Georgetown University’s Edmund A. Walsh School of Foreign Service focused on post-conflict development and humanitarian aid policy in the Middle East and East Africa.