In this podcast Gem Clark (Funds Portfolio Manager, UK Aid Match) and Noeleen Advani (Senior Learning, Monitoring and Evaluation Specialist, UK Aid Match) discuss the current global economic crisis and inflation challenges facing civil society organisations and share learnings from the UK Aid Match portfolio with our grant holders and civil society.
0:01 – 0.40 Noeleen:
Hello, and welcome to The Learning Post, a podcast dedicated to sharing insights and learnings from the UK Aid Match fund.
My name is Noeleen Advani, and I'm the Senior Monitoring and Evaluation Specialist for UK Aid Match, as well as your host for this episode.
Today, we are speaking to Gem Clark, UK Aid Match Portfolio Manager, to discuss the current global economic crisis and inflation challenges facing civil society organisations - particularly those delivering in countries with ongoing conflict or economic fragility – and to share some learnings from the UK Aid Match portfolio with our grant holders and civil society more broadly.
Morning, Gem. How are you doing today?
0:40 – 0:44 Gem:
Very well Noeleen thanks, excited to be doing our first podcast together 😊
0: 45 – 0:59 Noeleen:
So, Gem, you oversee the UK Aid Match portfolio of grants. Perhaps you could set the scene for our listeners around how grants have been impacted by the recent global economic situation.
0:58 – 1:37 Gem:
Yes so throughout 2022 and into 2023 we have been seeing the deepening economic crisis evolving globally. This is a crisis fueled by combined and prolonged impacts of different forces - Brexit, the COVID-19 pandemic, the war in Ukraine, and increasingly climate and security emergencies.
And these combined forces… inflation, currency exchange fluctuations… increases in the cost of living…. Are all having a range of impacts on UK Aid Match grant holders ability to deliver their projects as originally designed, as they navigate shifting local, national, and global contexts.
1:30 – 1:45 Noeleen:
Thanks Gem. So let us take a look at these issues in a bit more detail… starting with inflation…
1:46 – 2:45 Gem:
Yes, so there is something called Effective Inflation which describes the combined impact of increasing costs of goods and services and fluctuating exchange rates.
All international development projects will be impacted by the national rates of inflation in the countries in which they operate, but it’s important to note that for UK Aid Match grant holders, because the funds are coming from FCDO, the grant value remains in British Stirling Pounds.
So where a country is suffering from severe inflation this may be offset somewhat by the value of the pound appreciating against local currency… What this means is that while costs on the ground, of goods and services - so fuel, food, medicines, labour costs, etc these are going up, in some cases, the grant holder may also be receiving more local currency for each pound it is bringing in.
What this means is that currency movements in some cases may be acting to offset the rising inflation costs… which means the project’s actual inflation rate is likely to be significantly different from the recorded national inflation rates.
2:47 – 2:50 Noeleen:
Interesting…. So is this what we have been seeing?
2:50 – 3:27 Gem:
No actually. From analysis of exchange rates from January of 2022, to January of 2023, we looked at national inflation rates within the 27 countries where UK Aid Match is delivering, and we are seeing quite a difficult picture… so with all countries affected in some way by these market forces, and many to a significant degree, as we might expect, this is most extreme in countries with ongoing conflict and/or economic fragility such as South Sudan, Mozambique, the DRC, Nigeria, Afghanistan, and Ethiopia… however the data suggests it is affecting all countries to some degree.
3:28 - 3:34 Noeleen:
Ok, that paints a challenging picture… What are some of the other influencing factors for grant holders?
3:35 – 4:08 Gem:
Yes, so these effective inflation rates only give a partial view and somewhat macro view of things… Other influencing factors, most notably are the project’s design and its key cost drivers…. And key cost drivers determine a project’s budget and scope, and unstable key costs can impact a project’s ability to deliver as planned.
For example, something that we have seen causing a lot of issues for grant holders are the rising costs of consumables like cement, medicines, food, and fuel… Many projects are dependent on procurement of these items as an ongoing part of the project design.
4:09 – 4:12 Noeleen:
So how are organisations and projects coping with this?
4:13 – 5:06 Gem:
Well, many are adapting their project design to accommodate these increasing costs. As a last resort, this may include a reduced scope of activities or reduced number of project participants however this has been an absolute last resort option.
This has already been noted to varying degrees with several grant holders. For example, one organisation reported that associated costs of surgical care and outreach in its project have doubled in the last six months, and this has meant fewer surgical interventions are being performed. This is a project operating in a country where violence has been escalating, which has added further demand for vital medical services, which the organisation and its partners cannot meet due to the increased financial cost… and this cycle has put staff and target communities at risk both in terms of both reputation and safeguarding. These secondary impacts of increased costs are less obvious to see, but are having a real impact on people and projects.
5:07 – 5:15 Noeleen:
Interesting. What about projects specifically working to improve income generation or savings – how are they being affected?
5:15 – 5:59 Gem:
For projects with income generation and economic outcomes, approaches like Village Savings and Loans Associations, what we are seeing is that the cost-of-living crisis is reducing the real value of any gains in income or savings for individuals and households. So for example, in one Match project, the goal is to increase the household income to above £1.50+ per day to enable greater purchasing power for food security, however the rising cost of food means that £1.50 is no longer buying as much, and food security is not only not improving, but in some cases is reducing further.
Projects with economic outcomes will need to review and revise their project approach and assumptions in their theory of change to ensure they are adapting effectively to deliver on their goals.
6:00 – 6:04 Noeleen:
And what about cases where this financial instability is adding to insecurity?
6:06 – 7:20 Gem:
So many UK Aid Match projects are delivering in conflict-affected areas, where increase in cost of fuel and goods (including food) makes planning difficult and increases the risk of violence and instability…. And really all of the projects are delivering in resource-scarce settings, where tensions and stressors are multiple and compounding. This is a really difficult time for projects to be delivering, but what we see in the fund management team are organisations and in-country partners who are resilient and are making the necessary adaptations.
I can give another example; we have a grant holder currently delivering in the Central African Republic against a backdrop of intense insecurity. There are fuel shortages and price increases. In one particular location, this has been combined with seasonal lowering of the river’s water levels – predicted, and drought – a little less predicted. And these river beds are the route which fuel is transported along, and this has further compounded fuel supply issues.
To work around this, through an arrangement with the logistics department, the grant holder was able to secure a continuous, albeit reduced, fuel supply, as well as pooling travel with other projects, and prioritising activities that require less movement. This is resilience and adaptability…
7:19 – 7:29 Noeleen:
Interesting. And could you speak a little about what projects are reporting in terms of assumptions about people’s needs, priorities, and behaviours and how the economic crisis is challenging these patterns.
7:30 – 8:14 Gem:
Yes, so in many cases, these changes in the economic environment are challenging assumptions about behaviour which have been built into project design and theories of change, based on evidence from other projects.
For example, at a household level, just as it has been for many in the UK, the increased cost of basic goods in project communities is leading people to reprioritise household spending – and projects that have goals that sit a bit further away from what we might consider absolute essentials - food and medicines, for example - are going to have a harder time convincing project participants to engage. Building on this, people’s time is becoming more valuable, and some projects have been reporting that participants have been less willing or able to physically show up, due to their increased financial burden.
8:15 – 8:34 Noeleen:
Thanks, Gem – you have given us plenty to think about here… If you were to give organisations some clear guidance to mitigate against the challenging economic climate, what would it be?
8:25 – 11:05 Gem:
Firstly, I’d say that it’s important for organisations to explore other funding streams before reducing the scope of any planned activities for a project. Whether that’s through additional funds or an emergency appeal. Another common way is to find additional funds through savings within the existing budget.
Another route we have seen some success with is encouraging renewed and increased stakeholder commitments, particularly where government partners are set to take over project ownership as part of a sustainability strategy and might be able to bring some aspects of this forward. This is challenging of course as government partners may not be ready to take over or take on additional responsibility yet, and indeed in some cases the crisis may be adding secondary challenges that further delay or complicate original strategies. These are important conversations to be having as part of adaptive approaches.
If the project is a cohort model, meaning it plans to work with one group of people before moving onto another group with the same activities, OR if the project has not yet recruited all its participants, it may be feasible and necessary to reduce the target reach and invest more intensively in a smaller group. However, this will depend on the project implementation stage, and the extent to which community members have been engaged – and it comes with reputational and safeguarding risks if not managed responsibly. It is vital that a do no harm approach is maintained where commitments have already been made.
Bulk procurement is another key strategy which has been taken by several UK Aid Match grant holders. There are risks to consider of course – including greater risk of fraud, additional safe and appropriate storage needs, and use-by dates needing to align with activity implementation, especially for items like medicines, food and cement, which can have a limited shelf life.
A rephasing of activities has been another approach where some projects have been able to bring forward or push back activities as necessary and feasible, to mitigate against the current financial challenges.
Although I would say this might be a risky strategy as a more stable point in the future is not guaranteed, and the situation may worsen instead.
And, risk management is key to all projects. So for UK Aid Match, organisations need to consider how inflation and exchange rate fluctuations will affect their ability to deliver, and manage this through their project risk register, and keep changes in agreement with their original budget.
A project’s approach to exchange rates will also impact the extent to which national inflation rates and trends are experienced at a project level and ongoing interrogation of these forces as part of risk management will support good budget management and financial forecasting.
11:06 – 11:08 Noeleen:
There is a lot to consider!
11:08 – 12:07 Gem:
Yes and can I mention value-for-money too? For UK Aid Match, it is important grant holders understand what the key cost drivers of the project are, and to conduct regular and ongoing Value For Money and economic analyses of these, considering historic trends and projections.
So for example, monitoring cement price fluctuations over time will help to inform predictions on when to buy at the best price.
And finally I would like to mention staff and investment. As most people know, a project’s team is a key cost driver, and many staff members will be experiencing the cost-of-living crisis directly themselves. They may need to be making difficult decisions about taking a second job, moving jobs, or working reduced hours to accommodate care and other household responsibilities.
We would say that organisations need to consider cost-benefit analysis of investing in additional resources for staff to ensure retention, balanced against the cost of additional recruitment or replacement.
12:08 - Noeleen:
Thank you Gem, for your time today and I am in no doubt, our listeners will find your insight and thoughts really useful as we all navigate our way through this challenging time.
To find out more about UK Aid Match and learnings from the fund, head over to the learning and resources page on the UK Aid Match website at www.ukaidmatch.org/resources
Thanks for listening.