Passing the Buck: The Economics of Localizing Aid in Ukraine

Despite commitments to re-direct international assistance to local actors, the localization agenda has seen slow progress globally, with 1.2% of humanitarian funding going directly to local and national actors in 2022. This trend has been echoed in the response to the Ukraine crisis, where 0.07% of funding has gone directly to local actors.

Deploying funding to local organizations has been shown to have a very high cost efficiency – allowing more funding to get to those most affected by crises. The global ‘Passing the Buck’ study published in November 2022 found that local intermediaries could deliver programming that is 32% more cost efficient than international intermediaries, by stripping out international overhead and salary costs, equivalent to cost efficiency gains of $4.3bn annually.

The aim of this study is to ground truth the global findings, using actual data for the Ukraine response. The Ukraine Humanitarian Fund (UHF) is the largest pooled fund in the world at $181.2m in 2023. It has made important strides in shifting resources and leadership toward Ukrainian responders over the past year and a half, and this analysis is based on a representative sample of actual budgets from the UNOCHA Country Based Pooled Fund (CBPF) for 2023, representing 30% of total funding across UN, INGOs and LNGOs.

Summary of Findings

A comparison of budgets shows that the average UN project uses a different cost structure and has significantly higher costs when compared with INGO and LNGO budgets. 

• The UN budgets indicate that Project Support Costs (PSC, or overheads) are not passed through to any of the UN’s sub-grantees. The only exception was a UN project that passed through PSC to its INGO sub-grantee; all LNGO sub-grantees were not allocated passthrough in budgets. By contrast, all INGO and LNGO projects indicated that overheads would be passed through in full to sub-grantees. 

• The UN maintains a large portion of its budget for procurement of supplies, and tends to sub-contract delivery to staff at LNGOs. However, LNGOs also do high levels of procurement for the UN for comparable content and cost, suggesting that greater procurement could shift locally.

Significant efficiencies are noted comparing both UN and INGO budgets to local budgets. 

• The average grant size is larger for LNGOs than INGOs, suggesting that LNGOs have the capacity to take on larger grants (noting that the LNGOs that are eligible for direct funding from the CBPF are larger, well established organizations). 

• International staff costs at both the UN and INGOs are significantly more than local staff costs. However, the UN is notable in that international staff costs are more than twice international staff costs at INGOs, 5x national staff at the UN, and 17x national staff at LNGO subs (in all cases comparing similar job specifications for more senior positions).

The analysis looked at the cost efficiencies that would be realized by funding local intermediary partners directly, calculating the change in cost structure as a result of shifting overheads and staff costs to local rates. Based on an evaluation of actual project data representing 30% of total funding via the CBPF, local intermediaries are delivering programming that is 15.5% more cost efficient than international intermediaries, leveraging significant resources critically needed for ongoing humanitarian and development needs. The analysis uses equitable metrics throughout.

Figure 0.1: Cost Efficiency Analysis*

While these recommendations are drawn from this analysis specific to Ukraine, they are highly relevant for better delivery of global humanitarian and development assistance.

• Donors and international multilaterals such as the UN should establish full transparency on cost structures for delivering assistance. In a global context where humanitarian needs are increasing year on year, and donor funding is failing to keep pace, delivering cost efficient and effective programming is critical. This study was able to compare budgets through the UHF – this is a very compelling start, but budgets should be transparent across all components of the response.

• Donors should stipulate/mandate that all UN agencies and international NGOs operating in Ukraine are required to pass through full overheads to their Ukrainian partners. Full pass through of overheads will provide critical resources so that local actors have sufficient funding to build the systems and capacities to address systemic issues around risk and operate on a level playing field with international actors.

• Donors should fund innovation and scale up pooled funds as a mechanism to shift more funding directly to local actors. There is a significant opportunity to introduce innovation for a “Pooled Fund v2.0” that can help to provide more balance in humanitarian responses through local actors. Based on the analysis presented here, this could include migrating the CBPF to a Ukrainian host organization (noting that timing and choice of host will require careful thought), using mechanisms such as coalitions or anchor organizations to get more funding to smaller organizations that may not be eligible for pooled funds, offering multi-year grants for humanitarian response that also accounts for early recovery and building back, and offering pooled funds that include equitable terms on staff costs and overheads.

• The analysis presented here should not be used to support arguments to defund the international aid architecture; rather, a significant rebalance is required, bringing to bear the key strengths and trusted networks of local actors alongside the comparative advantages of international actors. The whole response can be made significantly more efficient, effective and sustainable by engaging in a complementary response. 

• Identifying, strengthening and building local intermediary structures is key to realizing these gains, and investment in this area is critical. For example, there could be large local “anchor” organizations that impartially allocate funds based on capacity of the many local actors or coalitions that register to receive funding. The data is clear that distributing many individual local grants is very expensive – alternative intermediary structures are essential for realizing the cost efficiencies estimated in this study.

• Further work to assess the benefits of local response is needed. This study adds a very important contribution to the localization conversation by comparing the costs of different implementing partners; more work is required to understand the benefits realized through local action in Ukraine.