USAID and localization:
A progress report

In 2021, USAID Administrator Samantha Power announced two targets: By 2025, 25% of USAID funding would go to locally led organizations, and by 2030, 50% of USAID projects would have local leadership.

But the agency is struggling to hit its targets. In 2023, it spent just $1.5 billion with local partners, according to a report published this week. And the percentage of eligible funding that went to local organizations actually fell to just 9.6%, from 10.2% the previous year.

It’s slow progress on an issue that the USAID administrator has made her flagship policy.

Nor is this the first time that the U.S. Agency for International Development has announced plans to increase its funding to local leaders. More than a decade ago, a previous administrator, Rajiv Shah, also announced similar targets. But at that point, USAID saw relatively little change in how much money went to local organizations.

Since Power’s announcement, USAID has implemented many changes in order to deliver on these goals. But once again, the agency has found that there are stubborn internal and external barriers, which have proved challenging to overcome.

What progress has USAID made on localization so far? What has it done to try to solve the problem? How does it compare to its peers? What barriers remain? And how does it overcome them?

Devex reporters have been exploring these questions intensively. Let’s take a look at what they found.

USAID started slowly in its attempt to localize, but has made some gains. According to its own progress report, the total amount of funding that goes to local organizations has more than doubled in cash terms over the past five years — to $1.5 billion in the financial year ending September 2023. Unfortunately, progress seems to have stalled in 2023, with USAID’s total spending down on its 2022 progress report.

In context, USAID’s local funding is still a small amount of its total spending. USAID’s Office of Acquisition and Assistance, responsible for most of its external funding, spent a total of $38.1 billion in FY 2023.

It’s important to note that USAID isn’t measuring its success against that total spending figure. Its commitment is only to spend 25% of eligible funds locally — money that it says might reasonably be expected to be committed to local organizations.

That excludes around half the agency’s total funding, including direct spending with other governments and money that went to multilaterals, such as the United Nations.

Others question USAID’s measures on two counts. First, they take issue with USAID’s definition of a local organization. And second, they take issue with USAID’s definition of eligible funding. The percentage of local spending would be much lower, they say, if local affiliates of international companies and INGOs were excluded from the amount of funding counted as local, and money such as noncore funding to multilaterals was included in funds that reasonably could be local — on the basis that local NGOs could, in theory, deliver services the U.N. is being contracted to provide. 

But while there are clear measures of progress on USAID’s first target — local funding — there is much less clarity on its local leadership target, which aims to have 50% of projects be locally led by 2030. USAID announced 14 measures to track its target last year and said that a project would count as local if it met any two of those measures across at least two categories — a proposal met with some skepticism by local leaders.

In a pilot project, however, USAID found that more than half of USAID projects already qualify, even if they do not appear to be locally led across most of their life cycle, and thus vowed to make changes to the measure.

“The bar applied in the pilot is placed too low,” the report said.

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USAID has implemented a number of changes to improve local engagement, many of which, at least at first, focused more on helping potential partners engage with USAID, rather than changing the agency itself. It set up workwithUSAID.gov, a website intended to help potential partners understand the agency better. It also introduced a set of measures to strengthen local organizations’ capacity in its Local Capacity Strengthening Policy.

As time has gone by, USAID has talked more about internal reform. In particular, it’s stressed that it is facing what it calls a staffing crisis. In particular, it’s upping its hiring to increase the number of contracting and awarding officers. But it is also attempting to slash red tape and address a two-tier culture that has grown up over time.

Several key strategy changes were laid out in the acquisition and assistance strategy, often known as the A&A strategy, which governs how USAID will distribute the lion’s share of its funds. The strategy sets out ambitious reforms, including in the important area of staffing. But a year on, there are question marks over how effective it has been. “I’m still not seeing the needle move,” one expert tells Devex.

But USAID also isn’t alone in needing to change. The whole ecosystem that surrounds it is also looking at how it can adapt.

A dozen years ago, when Rajiv Shah made his attempt at increasing local spending, there was pushback throughout the aid community, with Republican lawmakers mobilizing to undermine it. This time, anyone opposed has kept quiet, lawmakers have been busy asking why it isn’t going faster, and large NGO leaders have been keen to stress to Devex that they are not just bought in, they are down to accept lower levels of income if that’s what it takes to deliver.

We’ve even seen measures from the White House to cut red tape and proposals from Congress to make local funding easier for USAID. Although there is still plenty more to be done.

Check out:

🖥️ Watch: Inside USAID's new local funding plan.
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While USAID has set high-profile targets, other donor agencies have been less enthusiastic about putting their heads above the parapet. Publish What You Fund, while ready to critique USAID, has observed that they cannot even get the necessary data to do the same with other major donors, presumably because those donors just do not want to know how they’re doing.

Only three of the world’s largest donors can provide data on localization at all, according to a recent report. And generally speaking, European leaders appear limited to talking a good game. Even the Dutch government, widely regarded as among the most forward-thinking donors before recent aid cuts, was regarded with skepticism by its own NGO community.

Meanwhile, the Grand Bargain, a 2016 commitment from major donors, INGOs, and U.N. agencies, which promised to deliver more humanitarian aid via local organizations, is largely viewed as having failed to deliver.

However, there are pockets of excellence throughout the development landscape. Within the United States, the Centers for Disease Control and Prevention and the President’s Emergency Plan For AIDS Relief are working toward delivering 70% of their funding locally. Indeed, much of USAID’s success with local delivery has come from programs it delivers on behalf of PEPFAR. Health funding within USAID is far enough ahead of the pack that Atul Gawande, the agency’s global health bureau chief, feels able to aim for 30% local funding by the 2025 deadline.

Similarly, smaller U.S. funders, such as the Inter-American Foundation, have had success in providing significant amounts of funding at a local level. But these funders are far smaller, more nimble, far less encumbered by scrutiny from Congress, and were designed to fund locally in the first place.

Read more:

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USAID faces many barriers, both internal and external, but one of the greatest is inertia.

The agency simply isn’t set up to fund in the way that local leaders need, and a formidable logjam of laws, customs, and cultural norms gum up all attempts to make changes, imperceptibly dragging every attempt at reform to a dead stop.

In an in-depth analysis of why progress had been so slow, Devex identified a number of barriers.

One issue is the legal and financial environment in which USAID works, which is largely defined by Congress. Funding arrives late but has to be shoved out of the door early, and it’s often earmarked for particular projects. Meanwhile, lawmakers have been eager to scrutinize and criticize USAID’s work.

Partly as a result of that scrutiny, USAID has developed a risk-averse and compliance-heavy culture, with onboarding requirements that challenge all but the biggest and most knowledgeable partners. In particular, USAID’s procurement function has been identified as a bottleneck. Because USAID procurement staff answer to rules laid down by the government, rather than directly to their bosses, administrators have limited control over them.

Within this environment, doing things differently appears extremely difficult. Working with local partners takes longer and requires more work, and USAID staffers have struggled to find the time and resources to deliver programs in the way they would want.

Lawmakers have historically also not been eager to commit funds to pay for USAID staff — for example, a recent proposal includes a $485 million cut to operating expenses — which has meant that each USAID awarding and contracting officer manages a far larger portfolio than comparative figures in other agencies and departments.

To give just one example of the legal inertia hampering the agency, the law that established USAID has not been comprehensively updated since Mikhail Gorbachev became ruler of the Soviet Union.

The level of red tape involved has left engaging with the agency “out of the question,” according to local experts who spoke to Devex about the situation in Central America.

In Haiti, even an organization that USAID directly asked to apply for a grant found it was not able to interact with what it called the USAID “freight train.”

USAID has repeatedly tried to find ways to cut back on the paperwork, but it remains a difficult challenge. Policy experts close to USAID liken it to an oil tanker — powerful but slow to turn and unresponsive to the hand on the helm.

In addition to the current barriers, there is also one more possible future problem: The next incumbent of the White House. Under the current Democratic government, there have been significant increases in USAID funding, although most of that has been directed at support for Ukraine and Gaza, potentially to the detriment of traditional programs. Under Donald Trump, there might be less enthusiasm for USAID’s agenda, although localization does enjoy a degree of cross-party support.

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According to local leaders, one important step is to engage people in the global south.

Despite USAID’s best efforts, many people in local communities and organizations feel they have been excluded from the agency’s attempts to localize. Those efforts, they say, are “missing the mark.” Too many of the discussions, they add, are instead taking place in offices in Washington.

Local leaders said that when they have offered feedback on consultations, their voices disappeared into the void. In the view of those interviewed by NGO networks, the largest barrier was their potential engagement. Where, asks one report, are the local voices in localization?

Local leaders say that beyond simple engagement, what’s needed is a change of approach. Right now, they say, USAID views local organizations as vendors who exist to deliver the services USAID decides on. Instead, what’s needed is an approach that asks local people what they want. And crucially, local leaders told USAID, that those local people need to be paid to help create the service, not just to deliver it.

USAID has already been working to shift its risk appetite, but more is needed, local leaders say. Right now, the agency’s primary risk focus is around fraud and mismanagement, they say. The risk that a program might not work — might not deliver impact for its intended beneficiaries — is viewed as less important.

A crucial part of the process could be convincing American lawmakers of the need to do things differently. USAID has been careful not to blame its paymasters for any of its problems, while some former USAID staffers say that the agency already has the powers it needs to make changes, but is just too cautious to use them. However, it seems clear that more staff funding from Congress would undoubtedly make life easier.

But even if Capitol Hill undergoes a sudden change of heart, it may prove difficult to get USAID to budge. Staff in the agency have done things one way for a long time. It delivers most of its funding through open competition, for example, and existing partners who’ve worked with the agency for a long time will always be better positioned to win.

To tackle this, some experts say USAID may need to try to fund very differently. Rather than try to persuade Congress it needs to spend more on staff, and then persuade those staff to use very different contracting tools, they suggest outsourcing the whole process of giving money away locally.

One former contracting officer said that instead of chasing perfection in which thousands of direct awards are made to small local organizations, USAID should try a “good enough” approach: Give large grants to INGOs or similar partners, and task them with delivering money to local organizations. By transferring responsibility for grant-giving and compliance to outsiders, USAID might be able to circumnavigate its own staffing shortages.

Additional content:

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🖥️ Watch: What does effective local funding look like?
🗞️ USAID Africa head: Development has to be owned by Africans.

Written by David Ainsworth
Copy edited by Sheri-kae McLeod
Production by Mariane Samson