Ukrainian local organizations are 15.5% more cost-effective than international NGOs - the study
These data are shown in the study “Passing the Buck: The Economics of Localizing Aid in Ukraine” by The Share Trust and Refugees International, which can be found here: https://www.refugeesinternational.org/reports-brie...
We joined the study in consultation with Refugees International. This study shows the financial aspect of the country's localization situation. This is important information for advocacy because we need to know the exact figures to move towards the desired 25%.
For more details on why 25%, follow the link https://philanthropy.com.ua/program/view/give-the-...
Cost-effectiveness or cheap labor?
For the study, the Ukrainian Humanitarian Fund provided its actual budgets for 2023 and the budgets of international and Ukrainian organizations. The UHF directly allocates 20% of its resources to local NGOs, which makes the 25% target a realistic aspiration. On the other hand, comparing the budget structures of UN agencies became possible only thanks to the cooperation of the UGF, not the agencies themselves. Thus, once again, we see a problem with transparency that prevents effective progress measurement.
The study shows that if more funds for staff and overheads were transferred to local organizations, they could work 15.5% more efficiently than the UN or INGOs. This is because local organizations use money more efficiently, have lower staff salaries, and have administrative costs that are budgeted for. The most significant difference in cost-effectiveness is between UN agencies and local Ukrainian organizations. The latter spend 72% more efficiently than the UN and 47% more efficiently than international organizations.
As Daria Rybalchenko noted during the presentation of the study:
“I am not surprised by these data, nor are many working in the public sector. I did not know the exact numbers or percentages, but everyone generally knows that the situation looks like this”.
UN agencies use these cost efficiencies more as cheap labor, hiring local organizations to distribute humanitarian aid under their own brand. This reduces
project costs and allows them to be called “localized” without covering their local partners' administrative costs. This is not localization but subcontracting. Local NGOs have no say in the design of these programs.
Shocking wage gap
The report shows that the cost of international staff in both the UN and INGOs is significantly higher than that of local staff. The total cost of international staff, which includes not only salaries but also all the funds needed to attract people, is two times higher at the UN than the cost of international staff at INGOs, five times higher than the cost of national staff, and 17 times higher than the cost of national staff in local NGO offices, in all cases comparing similar job responsibilities at senior levels. The study compares salaries for managerial positions.
A UN agency can offer a Ukrainian specialist in a managerial position $3,000 per month and an international NGO—$2,777 per month.
If the local organization is a sub-grantee of the UN agency, the Ukrainian specialist will already receive $1,857 per month, and if the grant is issued by an INGO, $1,567 per month. If the local organization has received a grant from a national organization, the salary drops almost twice and becomes $879 monthly.
These indicators once again prove the ineffectiveness of the strategy of UN agencies and INGOs to open full-fledged offices and fill them with international staff.
Firstly, this destroys the domestic labor market, as Ukrainian organizations cannot compete with the level of salaries and, accordingly, cannot access qualified specialists. The most unethical manifestation of this trend is international organizations' 'hunting' of specialists. When people who already hold certain positions in Ukrainian organizations are offered higher salaries with a proposal to move to an international organization.
“How many organizations have worked in the East (since 2014 - ed.) and left nothing behind? Almost all of them. And this is a big problem. Local organizations serve international organizations as volunteer forces and as human resources from which they take people,” Stanislav Chornohor, representative of the Community Development Foundation. ()
Secondly, international staff in critical positions only exacerbate communication problems, creating a language barrier and a loss of contextual understanding in crucial decision-making.
It is worth noting that the study does not consider the salaries of staff with less than managerial qualifications (drivers, loaders, warehouse guards). Local organizations usually bear these costs and are likely to be rated even lower.
Recommendations for donors
At the end of the study, the authors make several recommendations for donors that could improve the situation.
First of all, it is proposed that funding for local organizations be increased. It is 25% that the world's largest foundations have pledged to localize by signing The Grand Bargain (https://interagencystandingcommittee.org/grand-bar...)
20% of localized resources from the USGF is a sure victory, which shows that the percentage can be increased. However, the $256 million that could have been saved and transferred to local organizations if UNOCHA's localization rate had been 25% in early 2023 is now lost to us.
Second, it is essential to change the cost structure. Local NGOs received only 1.7% of funding for general operating expenses and 8.2% for project support costs.
However, there is no separate funding for contingencies. Local organizations often need to receive funding for administrative costs that could remain in the organization after the project is completed. At the same time, UN agencies can easily keep up to 7% of the total project budget in their accounts. If we note that a UN project's total budget and a local organization's sub-grant are ten times different, this figure becomes even more outrageous. Covering administrative costs, insuring equipment, and setting aside funds for the organization's development should become the new project norm.
In addition to financial recommendations, the report notes that large donors and UN agencies must be transparent in their activities and expenditures. We also emphasize the need for transparency and draw attention to the fact that donors primarily distribute their funds to intermediary structures that should demand transparency.
If the UN agencies and international organizations implement at least some of the recommendations in the study, by the end of 2024—mid-2025, we will have at least an additional $200 million channeled through the accounts of local organizations.
We also invite you to watch the video of the study presentation: