Funders as the important drivers for change: enable local procurement KPIs in “aid”

Today, more than ever, we need to increase the efficiency and effectiveness of aid. In 2022, 1 out of 28 people globally will be in need of aid and protection (UNOCHA, 2022). Despite increasing budgets, the needs of people suffering are far greater than the available funding. While many efforts have pointed this out, the size and sector require us to take a fresh look into procurement. Since procurement activities are the most significant cost component for humanitarian organizations (in total 65%). After two decades in this sector, I realize donors, philanthropists and funders have the power to change the game’s rules in ‘aid immediately.’ Since reporting obligations, policies, and strategies come with funding and donations, it is about time that they shift their focus towards procurement (and logistics)!

Aid alone is not development, we know. We should strengthen local economies while providing aid and support to ensure it is well spent and does not harm existing economies. Local spending creates jobs and boosts economies, making them more resilient and less reliant on foreign aid. Cash-based programming (CBI) marked a massive step forward in our current aid practices. However, procurement activities are still the most significant cost component (65%) of humanitarian operations. Therefore, we must enhance the role of efficient and effective local procurement and supply. Reaching a minimum target in local procurement (within LMICs – Low and Middle-Income countries) should become the standard.

1 in 28 people worldwide in need of aid and protection

The world needs humanitarian assistance more than ever. According to UNOCHA (UN Office for the Coordination of Humanitarian Affairs), in  2022, 1 in 28 people worldwide need aid and protection from conflicts, natural disasters, and diseases. Issues that the global pandemic has only exacerbated. These will likely increase due to the effects of climate change, with the world’s most vulnerable living in the world’s poorest countries. We all have the moral obligation to address these needs better, faster, and more responsibly. While many initiatives address the same challenge of increasing efficiency and effectiveness, minimal attention is paid to procurement practices. More specifically, the necessity to enable and strengthen local procurement as a driver for change.

Globally, there are 10  million NGOs. In fact,  according to findings from  John Hopkins University,  the spending of non-profits is the world’s fifth-largest economy. Continuous improvement is a high managerial job function in most corporates or multinationals. These managers would immediately look at the most significant cost components to check for changes to consider and improve business. It is about time we would do the same for the aid sector. Since procurement activities are the largest cost component for humanitarian organizations (two-thirds), this sector requires us to take a fresh look into procurement!  

Old wine in new bottles or forgotten?

Procurement has been on the (side) agenda of debates for over 20 years, but nothing seems to have changed. It was debated at the Paris Declaration (2005) and the Accra Agenda (AAA, 2008) (High-Level Forum on Aid Effectiveness – OECD donors). Both laid down blueprints to augment aid efficiency through the increased participation of beneficiary countries. Within this blueprint was an enhanced role for local procurement and supply. Even before, in 2002, the General Assembly (GA) requested the UN system to take further steps to increase procurement opportunities for suppliers from beneficiary countries. Data visualizations from the UN (The UNGM dashboard) show that UN organizations (in line with the 2030 Agenda for Sustainable Development) continued to increase procurement from these countries. However, the envisaged change did not happen if we dug into the current data.

The highly debated localization agenda in aid came after the call during the WHS, World Humanitarian Summit in 2016. Humanitarian action should become ‘as local as possible, as international as necessary.’ Among other things, there was an ambitious commitment to achieve by 2020: “A global, aggregated target of at least 25% of humanitarian funding to local and national responders”. Funding as directly as possible improves outcomes for affected people and reduces transactional costs. But localization is a larger concept and should also merge with other efforts to localize procurement from beneficiary countries!

Playing with numbers instead of changing policies.

Despite great-looking dashboards, local procurement still lags behind aid procurement. Over the last two decades, nothing has really changed. Only 1/3rd of products and services are procured from Low and Middle-Income countries (LMICs). Dashboards, however, sadly reflect different definitions of ‘developing countries to present more positive images. Playing with numbers to adhere to reporting obligations and match statements made at UN assemblies or forums like World Economic Forum (WEF). 

The UN procurement (UNGM) dataset presents a procurement dashboard by ‘development status. It visualizes that in 2020, 58% of UN products and services were procured from the Least Developed and Developing Countries (older reports show ten years earlier, it was also 58%). However, while all major entities (like OECD, DAC, World Bank, and Governments) use the same definition of LMICs, this dataset uses a different composition of developing countries. However, if we used the ‘normal’ composition (and definition) of LMICs, the story would be totally different. Least Developed Countries + LMICs in 2020 sadly only represents 37% of total expenditure, with no fundamental changes since 2002.

Aid alone is not development: funding requirements with Local Procurement KPIs.

My six-year-old self was a first-grader at primary school in 1986. A school teacher explained the great famine in Ethiopia; in the back of the classroom was a poster with two boys holding hands and distinctive round bellies. For me, age six was a no-brainer, we would run for charity, and our supermarkets were packed with food supplies. However, the money raised was probably spent on food in Europe and transported. Even access to the population that needed it might not have been possible. 

The simple solution I envisaged might not have been possible. But it could be today. Direct transfer and market access could be possible in many circumstances (probably not during the Mengistu regime). Local communities can determine their own needs and request support. The simple math logic we learn in first grade (one and one is two) we should not forget when we try solving the world’s most significant problems. As per my introduction, Aid alone is not development. It would be helping nations, regions, and populations grow and strengthen while alleviating suffering. Billions and trillions of dollars are spent in aid. These resources are best spent when invested in supporting local or host economies—making this a default would be the solution for global responsible and sustainable aid systems. With aid, spending can boost local economies, create jobs, and strengthen and enhance local manufacturing, production, and businesses. 

Cash-based programming has shown a massive step forward in our current aid practices. However, procurement, current regulations, and policies are still hampering a fundamental change within the most significant cost component. To truly enable change and ensure sustainable and responsible aid provision, funders should start today to implement KPIs and definitions to strengthen local procurement.