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In July, United States Global AIDS Coordinator Deborah Birx made a striking commitment: under her leadership, the President’s Emergency Plan for AIDS Relief (PEPFAR) would direct at least 40 percent of its funding to host country governments or organizations by the end of 2019—rising to 70 percent by the end of 2020.

Ambassador Birx has a long history of setting bold and ambitious goals—and these local funding targets are no exception. According to PEPFAR, the Centers for Disease Control and Prevention (CDC) channels over 65 percent of its funds to local entities but implements just 40 percent of bilateral PEPFAR funding. USAID, on the other hand, is the largest implementer of PEPFAR funds but directs less than 20 percent to local entities. In total, around 30-something percent of PEPFAR funds currently go to local partners. This suggests that the first target—40 percent local by end-2019—should be within reach. But the 70 percent target will be a stretch. . . and the big lift will have to come from USAID.

The bottom line: PEPFAR’s local targets are commendable in theory, but we suspect their application in practice will prove complicated. Below is our take on the related issues—and some recommendations for PEPFAR to forge the most effective path forward.

The spirit of the proposal is spot on

As its name would suggest, PEPFAR was originally established in 2003 as an emergency response to an extreme and urgent epidemic, requiring an extraordinary mobilization of resources and effort to save lives. Yet HIV is a lifelong disease, requiring lifelong antiretroviral treatment—and local systems that can manage HIV prevention, care, and treatment over the long term. Not only that, a growing consensus has emerged about the importance of local ownership in foreign assistance. Ownership is now considered critical for achieving and sustaining program results, building local capacity to help countries transition from aid, and shifting accountability for results to local actors.

In recognition of these realities, PEPFAR has shifted its approach over the past decade, paying greater attention to sustainability, local control, and long-term epidemic trajectories. The announcement of local funding targets suggests a deepening of that commitment, with PEPFAR clearly recognizing that a sustainable response to the HIV epidemic must be led by local systems—not international NGOs.

The targets can help PEPFAR get there. When backed by high-level leadership, targets push missions to proactively seek opportunities they otherwise might not. They also shift how staff weigh the additional risk and management costs that can come along with local implementation.

But local funding targets can be a tough nut to crack

While the spirit of the local funding commitment is commendable, recent experience suggests that such targets can be difficult to meet in practice. In 2010, USAID committed to channeling at least 30 percent of mission program funds through local entities by the end of FY2015, up from 10 percent in FY2010. The agency made progress toward its “Local Solutions” goal, but more slowly than originally hoped, reaching only 19 percent.

CDC has also taken meaningful steps to enable more direct local partnerships, but progress has been slower than originally envisioned. One of CDC’s key changes was a shift to smaller awards—going from 90 cooperative agreements to 600—and supporting several large US-based partners to set up entirely local affiliates, many of which now receive their own direct awards. Even so, CDC’s early visions of shifting most or all clinical program funding to these new local organizations hasn’t panned out in practice.

When it comes to sustainability, not all local implementation is equal

Protecting public health is a core responsibility of national governments. Real sustainability will ultimately require host country leadership on all aspects of planning, budgeting, implementation, and oversight. PEPFAR money funds NGO implementers to help governments build capacity to fulfill these roles, but less frequently directly funds governments to exercise—and thereby strengthen—these capacities themselves. In FY2015 and FY2016, just 1 percent or less of locally implemented USAID HIV funds went to government institutions. Simply shifting money and responsibility to nongovernmental local implementers—similar in function to US-based implementers and implementing (largely) US-planned programs—is still a partial approach to strengthening government capacity.

Shifting funds to local implementers quickly will likely run up against several roadblocks

  • From the USG perspective, local partners are “riskier.” USAID, whose budget and spending are often closely scrutinized, is typically quite risk averse. A departure from business as usual can open the agency—and the individuals who sign off on awards—to new forms of fiduciary or programmatic risk.

    USAID has processes to assess and mitigate risk, but these take time, which can both slow new partnership development or even create a disincentive for staff to pursue new local partners in the first place. Missions will also need time to adjust their staffing mix and/or build the necessary staff skills to manage and oversee more, smaller grants.

    USAID, through its “Effective Partnering and Procurement Reform” process, is focused on how the agency can work better with local partners. But any technical changes that facilitate direct local funding will have to be accompanied by a culture shift that enables different thinking about risk. This is a longer-term prospect.

  • Local entities have varied capacity. USAID reported that some local organizations lack the administrative and financial infrastructure to manage the size and scope of the agency’s projects while complying with USG regulations. The local affiliates that CDC helped get off the ground have done well—after all, their associated US-based implementers set them up with top technical capacity and continue to provide technical assistance. But even they often lack the reserve funds or capacity needed to compete for business opportunities or deal with fraud or other unexpected risks. Host country government partners may have higher absorptive capacity, but implementation and financial management capacity vary by country—and are often weaker at the local levels that are closer to actual service delivery.

    In general, it appears that more local entities with sufficient capacity to take on direct funding are in middle-income countries. Looking at USAID’s progress under Local Solutions, in FY2016, 90 percent of direct local partnerships (in bilateral programs) were in middle-income countries. However, only about half of PEPFAR’s bilateral program funds (57 percent in FY2017) go to middle-income countries, suggesting that to meet its targets, PEPFAR will also need to pursue local partnerships in low-income countries, where there may be fewer prospective local partners.

    This is where targets can be tricky. On the one hand, they can helpfully motivate staff to work in different ways; on the other hand, they can prompt rushed decision making. Reflecting on their experience with Local Solutions, some USAID staff found that the push to meet the target led, in some cases, to giving money to partners unable to effectively manage it.

  • Programming changes take time. For PEPFAR to meet its targets, it must start making changes now, affecting business processes that are already underway. They may be hard to change quickly. PEPFAR is currently in the middle of implementing its FY2018 Country Operational Plan (COP), which was written in close coordination with implementing partners and includes their work plans. Granted, PEPFAR was undoubtedly thinking about greater localization when COP18 was developed. But even so, a mid-course transition will require shifting funds to new partners who weren’t as directly involved in the initial planning process. Even where the plan is to transition an existing sub awardee to prime, the process is unlikely to be fast or seamless.

Direct USG funding can be a mixed blessing for local NGOs

Currently, awards to US-based organizations often involve local NGOs as subcontractors for some or much of the work. In this relationship, local organizations can take on project implementation without having to specialize in the extensive organizational machinery needed to fulfill the US government’s elaborate procurement, accounting, and reporting requirements. Ambassador Birx has stressed that this relationship needs to change—that local entities should be the prime awardees, not just (mainly) subs.

For some government partners and local organizations, this would be a welcome change. But decisions about when and under what circumstances this is the right relationship should not be made based primarily on a target set in Washington. Instead they should be jointly made with the local entity in question, taking into account the requirements of different roles. If the ultimate goal of increasing direct local partnerships is to increase the sustainability of PEPFAR interventions by supporting local entities to improve health services, how important is building capacity for supporting service delivery vis-a vis capacity for (sometimes onerous) donor management, the latter of which falls heavily on primes?

What about results?

It seems intuitive that increasing local implementation would increase local capacity and the sustainability of program results. This remains, however, an under-tested hypothesis. Despite anecdotal successes, there have been limited efforts to more systematically or rigorously understand the sectoral or organizational capacity outcomes of these efforts.

There’s also the cost effectiveness question. Along with the purported benefit of more sustainable results, it’s common to hear cost savings mentioned as a reason for moving to local implementers. Indeed, the lower overhead costs of local partners can be attractive. But overheard alone is not a particularly meaningful metric—nor is it inherently bad—because it says nothing about value for money. Fortunately, PEPFAR is keen on using data to understand efficiency. For years, it’s been honing how it uses expenditure and costing analyses, tools that can help quantify the value implications of transitioning to direct local partnerships, rather than relying on assumptions and intuition.

In the end, local implementation is only part of the picture for getting to sustainable local ownership

Notably, PEPFAR’s new targets were announced just as USAID had walked away from its own local implementation targets. USAID’s choice to downplay the Local Solutions goal wasn’t just a reaction to coming up short; there was also something more fundamental behind it. The agency and others increasingly acknowledged that focusing on a simple output (dollars given to local organizations) glossed over the need for deeper thinking about how to work with local actors—often through complex, multi-stakeholder systems—throughout the program cycle. That is, to really move toward sustained, locally owned development, you need more than local implementation. You also need more local ownership over priority setting, program design, and choice of implementer, not to mention more local “skin in the game” via co-financing arrangements. How do you get there?

The Millennium Challenge Corporation provides one model. In contrast to PEPFAR’s (or Local Solutions’) local implementation targets, MCC doesn’t focus at all on the implementer’s country of origin. Instead it emphasizes host country agency, giving the host country government primary responsibility for identifying priorities for funding, conducting the (open international) procurement, and managing the resulting agreements. If PEPFAR is serious about sustainable local ownership, it will need to expand its efforts to give host country governments agency around a range of programming decisions, rather than focusing narrowly on who implements. While it will be harder to identify an easy-to-measure target to track the success of this approach, it is fundamental to achieving the broader goal.

The path forward

  1. Keep working toward the targets. We’re skeptical of their achievability in the proposed timeframe, but PEPFAR shouldn’t abandon them. Targets can help focus risk-averse agencies on hard but important changes.

  2. Seek more opportunities to channel funds through governments. While country ownership shouldn’t be limited to government ownership, a sustainable public health program will ultimately require host country governments to raise revenue and directly manage financing, planning, and oversight responsibility—even if they ultimately contract out some implementation and oversight functions. This means that money will eventually need to flow directly through their coffers, even if doing so seems more challenging or “riskier” in the short term. Of course, direct funding to country governments may not always be appropriate or acceptable, but PEPFAR should seek to pursue more of this as a central plank of its sustainability agenda.

  3. Be explicit with staff about acceptable risk and tradeoffs. When making decisions about whether to form a new local partnership, staff will need to weigh potential additional risk and management burden against potential value added in terms of sustainable program outcomes and strengthened capacity. They will need to—in partnership with local governments and other organizations—consider the balance of responsibility for service delivery with responsibility for dealing directly with USG reporting and regulations. Staff will need explicit guidance on how to think through these tradeoffs, including clarification on risk tolerance.

  4. Be a better partner to local implementers. Talk to any US-based implementing partner and they will note the unpredictability that comes with working with USAID or CDC. The agencies are known to require mid-project changes to accommodate new targets, guidance, or other directives from Washington. This is hard enough for large and experienced implementers; local partners with less USG experience and more constrained planning capacity may be more likely to struggle. PEPFAR agencies should consider how to phase new requirements into awards with local entities in a way that minimizes upheaval. USAID and CDC should also consider—through USAID’s “Effective Partnering and Procurement Reform” process, for instance—how best to structure awards to emphasize the capacities important for sustainability and minimize the need for capacities specific to donor management.

  5. Create a learning agenda around direct local partnerships. USAID and CDC should evaluate how local partnerships demonstrate progress toward HIV outcomes, program sustainability, and capacity building, and assess their value for money.

  6. Don’t let the focus on ownership and sustainability be confined to meeting implementation targets. In addition to pursuing more local implementation, PEPFAR should continue to think through how to work better with local actors—particularly host country governments—to identify priorities, design programs, choose implementers, and co-finance shared priorities. PEPFAR has made advances in these areas. For instance, missions increasingly involve country governments and local organizations in the COP process. Continuing to advance and expand these efforts will be an important complement to increasing local implementation.

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Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.