Here's how USAID plans to direct more funding to low- and middle-income countries
On Tuesday, a senior USAID official told Congress how the agency intends to work more closely with Global South organizations. This is what she said.
Welcome to Unlocking Aid, a new, semi-regular newsletter by Unlock Aid about how we can solve big global challenges by reimagining the future of international development.
Make sure to follow us on Twitter!
On Tuesday, we watched the House Foreign Affairs Subcommittee hearing entitled “Shifting the Power: USAID’s efforts to support locally-led development.” USAID Assistant to the Administrator for the Bureau for Policy, Planning, and Learning Michele Sumilas testified.
This hearing was held because, in November, USAID Administrator Samantha Power said USAID would direct 25 percent of agency funds to organizations based in USAID-supported countries within the next four years. Now Congress wants to know how the agency intends to achieve that goal.
To achieve USAID’s 25 percent target, the agency will need to drive significant internal reforms, including by making changes to agency business practices and HR incentives, increasing agency risk tolerance, hiring more staff, and streamlining contracting and compliance rules, all issues that Sumilas discussed. Quoting Power’s November speech, Subcommittee Chair Joaquin Castro noted that over the past decade, USAID has directed just six percent of its funding to organizations based in USAID-supported countries.
Getting resources to organizations based in low- and middle-income countries is important to achieving the Sustainable Development Goals. Success advancing this agenda will have other important follow-on benefits, too, since so many of the internal reforms that USAID needs to make its “localization” agenda possible are needed to make other agency priorities a reality, such as enhancing USAID’s ability to promote the kind of R&D and innovation needed to tackle immense 21st-century challenges like climate change, food insecurity, and pandemic response.
Here are five of the biggest takeaways from Tuesday’s hearing:
USAID plans to release its definition of what constitutes a "local" organization this spring. How the agency defines what constitutes a “local” organization will matter a lot for who can receive future USAID funding. Sumilas said USAID wants to find a definition that can be “harmonized” across different USAID programs and US government agencies since different offices presently use different definitions.In November, said 25% of $$ would go to "local" Global South organizations within 4 years. How USAID defines what is "local" will matter a lot. During yesterday's subcommittee hearing said USAID will publish a definition this spring.👇
Last week, in Nairobi, we spoke with more than 40 Global South innovators. One of the recurring themes from those conversations was that these social enterprises do not want international funders (like USAID) to use overly narrow, prescriptive language to define what constitutes a “local” organization. This is because organizations look different from country to country. For example, many Kenyan organizations told us they had located their entire executive teams in Kenya and that more than 90 percent of their staff also resided in Kenya or elsewhere in Africa, but for legal, business development, or fundraising reasons they decided many years ago to register their enterprises elsewhere. An overly narrow definition could cut organizations like these out of access to USAID funding, they said.
USAID knows it needs to reduce barriers for new organizations to work with the agency. Sumilas said that USAID is considering increasing its use of Fixed Amount Awards. USAID will increasingly ask organizations to submit short concept notes to get in the door instead of requiring long proposals at the outset. USAID will also soon publish an updated acquisition and assistance strategy that will reflect other changes to make it easier for new organizations to work with USAID, Sumilas said. These are welcome developments that could lower barriers to entry for organizations that want to work with USAID.Earmarking $$ will not be enough to achieve 's goal to direct 25% of $$ to Global South organizations. USAID also needs to change its own internal processes to lower barriers to entry to attract new players. outlines how USAID plans to do that.👇
Among the most important things that Sumilas announced was that USAID is also considering increasing its use of Fixed Amount Awards (FAAs). The FAA is one of the best and most underutilized tools the agency has to work with new organizations. These awards can be set up to provide an initial payment to a USAID award recipient to defray initial startup costs with subsequent payments tied to the delivery of agreed-upon milestones. One reason this tool is underutilized is that it requires a bit of extra effort to define what success looks like on the front-end, but once an FAA is underway the back-end management costs, time, and effort go way down, both for USAID officers and the awardee. This is because the awardee needs only to show proof that it delivered against the intended objectives to trigger payment. Last fiscal year, USAID structured just 1.3 percent of grants using FAAs.
Many of the world-class innovators we speak to routinely avoid “good fit” business opportunities whenever USAID uses contracting vehicles that reimburse for labor and materials because they don’t want to change their business models or invest in systems just to comply with a single USAID award’s tracking requirements. But these same innovators would want to work with USAID if the agency structured more of its awards using much more straightforward FAAs (and their cousin, Firm-Fixed Price contracts). All to say — if USAID does increase its use of FAAs this would be a big deal. It would begin to shift agency funding to favor performance over compliance and enable a more diverse set of organizations to work directly with the agency. (For more information about why Fixed Amount Awards can be such a game-changer see this SSIR article.)
Rather than requiring new and/or local organizations to set up their own compliance systems to work with USAID, the agency wants to set up standalone back-end systems that organizations can buy into/use that could fulfill this role for them.Many orgs opt out of work with because they don't want to change their business models or invest in new compliance systems just to accept a single USAID award. proposes a good idea – USAID partners could buy into existing systems and need not set up new ones.
The details on this will matter a lot but this sounds potentially like a step in the right direction. Many organizations don’t have (or don’t want) internal, complex USAID-specific tracking systems that are required to comply with agency awards, but would be more open to working with USAID if they could work with an organization like a fiscal sponsor to provide these back-office functions for them. For this idea to be successful the organization that provides this back-office function cannot also have controlling interests over the USAID project, such as the ability to assign their own staff to manage the USAID awardee or determine how the awardee spends its resources.
USAID plans to update its risk appetite statement and change promotion criteria to create more incentives for agency personnel to direct more work to organizations based in USAID-supported countries.In response to this question from , 's explains what's different about the agency's current effort to direct more funding to Global South organizations as compared to past attempts.
Sumilas said that USAID needs to update more than just its procurement policies to enable the agency to work more closely with organizations based in USAID-supported countries. More staff and shifts in agency business practices, HR incentives, and risk appetite are also needed. In December, Administrator Samantha Power announced an “anti-sludge” initiative to identify and remove the (unnecessary) barriers that keep USAID from living up to its full potential. It would be great to get an update from the agency where this effort stands as this work will undoubtedly complement USAID’s plans to direct more funding to “local” groups.
Committee Chair Rep. Castro said that Congress supports USAID taking more measured risks.USAID has historically set up most of its awards to favor compliance over performance because Congress has tended to over-index on wanting to mitigate risk at all costs. Great that Chairman signals a new Congressional appetite for appropriate risk-taking.
One of the reasons that USAID has historically structured so many of its awards to favor compliance over performance is because Congress has over-indexed on mitigating risk at any cost. That’s why Subcommittee Chair Castro’s comment at the start of the hearing – that Congress is supportive of USAID increasing its risk appetite – is so important. With support from Congress to take more measured risks, USAID can take more big bets, work with a more diverse set of actors, and drive the kind of innovation needed to confront major 21st-century challenges.
P.S. We’ll be writing soon about how Congress can help USAID achieve its most ambitious priorities by reducing restrictive “directives” that the legislative branch attaches to USAID funding. This exchange between Congresswoman Ilhan Omar and Assistant to the Administrator Sumilas captures how overly restrictive directives can stand in the way of USAID directing resources to where they are needed the most.