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  • Report
  • 16 February 2021

Supporting longer term development in crises at the nexus: Lessons from Somalia: Chapter 6

Financing tools

chapter 6
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Crisis financing modalities to strengthen development actors’ engagement

The World Bank and other multilateral development banks have established a range of crisis financing modalities that are now benefiting Somalia. Somalia has received funding through the World Bank’s IDA Crisis Response Window, which is funding the Somalia Crisis Recovery Project and the Emergency Locust Response Programme. It also received funding through the Crisis Response Window for the Emergency Drought Response and Recovery Project, implemented by the FAO and International Committee of the Red Cross, which supported the immediate needs of drought-affected people following the 2017 drought and recovery through the provision of livelihood opportunities and restoration of agricultural and pastoral production. An impact evaluation in 2019 found that this approach strategically addressed gaps in the immediate and early recovery response and helped to avert a potential famine.[1]

The World Bank also established a Window for Host Communities and Refugees. This window is only available to refugee hosting countries, however, and not for IDP situations, meaning Somalia is not eligible to access it to support durable solutions to internal displacement. Nonetheless, there are clear parallels between refugee and IDP situations and, based on learnings from refugee contexts, the World Bank might consider developing a vehicle based on similar principles for IDP contexts.

Multilateral development banks have also recently established financing vehicles to respond to Covid-19, dramatically scaling up their response. Existing grants have also been modified in response to unforeseen needs, for example the Somalia Crisis Recovery Project was originally established to address flooding and the locust crisis and was adapted to address Covid-19 with additional funding from the global Covid-19 facility.

Overall, interviewees see the World Bank’s engagement through these vehicles as filling a gap in larger scale funding to address the medium- to long-term issues that increase vulnerability to disasters. For example, the Somalia Crisis Recovery Project includes objectives on rehabilitating flood control and water and sanitation systems, measures to control the locust population, investments in flood and drought preparedness and risk management, and the establishment of national social safety net and social protection programmes to help manage shocks. The role of development actors here complements that of humanitarian actors, whose focus is on addressing acute and immediate needs. In addition, development actors also have a role in developing national capacities and systems to respond to shocks and peaks in need through safety net programmes. Notably, the World Bank finances government-managed projects with service contracts to UN agencies to provide support with delivery of safety net programmes where government capacity is lacking. Given the nascency of many of these mechanisms, further evidence on their impact is needed to generate lessons and assess areas of success for broader uptake.

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Flexibility of development funding

The volatile context in Somalia has pushed development actors to fundamentally consider the way they work in fragile, conflict-affected contexts, including embedding risk and adaptability into programming. In line with principles for aid effectiveness in fragile states, donors have established a number of pooled financing mechanisms that aim to increase coordination and alignment among donors. In addition, although development planning and budgeting is generally long term and lacks flexibility, Somalia is a context in which donors have trialled contingency financing mechanisms and have used crisis-financing windows to scale up responses to unforeseen crises.

Covid-19 has pushed donors to offer greater funding flexibility than previously experienced, highlighting lessons for broader uptake

Responding at short notice to Covid-19 has demonstrated how flexibility takes place in practice (Box 4). The main donors in Somalia (the UK, Germany, EU, World Bank and USAID) have all, according to partner agencies, requested that they repurpose existing development plans to make them more responsive to Covid-19. The SomReP programme is an example of timely adaptations to the Covid-19 response. Other examples include: UN agencies reprioritising humanitarian response plan priorities; the UK’s encouragement of partners to give some programmes a greater health and nutrition focus, looking at preventing the spread; and World Vision International adapting programmes to focus on water provision and building resilience to the longer term socioeconomic impacts of Covid-19, working with village savings and loans associations.

While repurposing has demonstrated how funding can be flexible in response to a rapid-onset crisis, it may also reflect that little new funding was available to respond to Covid-19, and the delivery of many existing programmes was likely to be negatively impacted by Covid-19 and the restrictions imposed.

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Box 4

Adapting to Covid-19 through flexible programming

The well-established SomReP programme (see Box 2) has adapted in response to Covid-19, which is encouraged by its donors. Through the Somalia Response Innovation Lab, SomReP is working with various partners to develop public health messaging in Somalia and deliver accurate public health information with endorsement from the Somali government. Additionally, the lab has been working with sector partners to undertake local assessments, identify challenges and gaps in the Covid-19 response, and source solutions to meet those challenges. Such assessment identified the need to quickly address rising levels of misinformation driving stigmatism and gender-based violence resulting from Covid-19. Efforts are underway to document and share learnings in responding effectively to Covid-19 at the local level, to mobilise the private sector to scale up messaging and make links to longer term resilience. Delivery agencies report that donors were quicker at approving programme changes because of Covid-19 than for other crises. This demonstrates that flexibility (and the overriding of bureaucratic systems) is possible where there is political motivation, as with Covid-19 and its implications in donors’ own countries. For example, IOM reported that it was able to adapt programmes funded by Germany in response to Covid-19 in a much faster timeframe than was previously the case, where it would often take four or more months for a decision to be made.

At the onset of Covid-19, FAO transitioned fully to mobile money cash transfers and dissemination of livelihood input entitlements through e-vouchers sent by SMS. FAO, however, report that even though there has been flexibility in responding to new crises, as a result of Covid-19 and travel restrictions there is a gap in terms of personnel to deliver. Learning from the timely and flexible responses accelerated by Covid-19 could encourage such an approach to be systematised and scaled up in response to all unforeseen crises.

Impact of donor practices on the partner’s ability to be flexible

Interviewees report that certain UN and international NGOs agencies can adapt their budgets more than others, but this is largely a result of differing practices of their donors (e.g. where the UK’s and the Federal Ministry for Economic Cooperation and Development’s partnership agreements enable greater flexibility than others, notably USAID). This depends on a variety of factors, including whether:

  • Decision-making on budgets is decentralised enabling a timelier response or subject to a slow and bureaucratic process involving central teams. Covid-19 has demonstrated that this depends on whether pre-agreements for responses are in place with partners on the basis of risk assessments, whether stockpiling is underway and if supply chains pre-identified.[2]
  • There are demarcations between humanitarian and development activities within country budget allocations restricting joining up and flexibility in response to contextual change.
  • Internal risk financing facilities are in place and embedded in partnership agreements (see below).
  • Funds are earmarked or not, with vulnerability-based targeting enabling greater flexibility than sector-based targeting.

While flexing existing funds is one way to scale-up responses, re-allocating resources alone may not be sufficient to deal with the rapid onset of a crisis and may divert funding away from other urgent priorities, highlighting the need for additional financing in parallel.

Contingency financing mechanisms have been trialled in Somalia; the challenge now is to systematise them into development programmes

Contingency mechanisms have enabled international actors to be flexible and scale up in response to unforeseen events, most notably with regards to the 2017 drought and perceived prevention of a famine. This has largely been through the scale up of humanitarian assistance, given the history of Somalia as a largely humanitarian context until recently, and because contingency or reserve financing rooted within humanitarian assistance is a lifesaving and time-sensitive mechanism.

There is a variety of donor and UN reserve and pooled funds that humanitarian actors can draw on in the case of unforeseen events to scale up responses. Examples include the UK’s Crisis Reserve Fund, the Central Emergency Relief Fund, the Country-Based Pooled Fund, and UNHCR’s emergency reserve, which paid out US$5 million in May 2020 enabling a timely response to flooding. Crisis modifiers are also embedded in ECHO, USAID and Swiss Agency for Development and Cooperation humanitarian programmes and partner agreements up to a threshold. BRCiS and SomReP programmes also include crisis modifiers, enabling members to scale up activities in response to peaks in needs.

At the donor level, the UK’s Internal Risk Facility (IRF) provides the option to embed contingency financing into programme design and is available for humanitarian and development assistance; however, our research on the UK’s approach to the nexus found the IRF is largely used in humanitarian programmes, with great potential to widen uptake in development programmes.[3] The IRF worked quickly and effectively to scale up responses to the 2017 drought demonstrating the ‘no regrets’ approach in practice, responding to triggers flagged through the FAO Early Warning Dashboard.[4] The IRF also enables the BRCiS programme to scale up community safety nets programming in collaboration with the cash consortium in response to peaks in needs identified through this Dashboard.

Development programmes traditionally have not had the flexibility to re-allocate funding to address surges in need. Contingency funding mechanisms, such as crisis modifiers, can allow development actors to better respond to them, helping to bridge the gap between development work and humanitarian responses. This is particularly important in fragile contexts such as Somalia, where contingency financing mechanisms enable development actors to invest in programming to address the root causes of vulnerability while being able to respond flexibly to anticipated shocks and short-term needs.

In addition to the UK’s IRF, other development actors in Somalia are making progress in this area. The World-Bank-funded Baxnaano Shock Responsive Safety Net and the Shock Responsive Safety Net for Locust Response programmes are recent examples of mechanisms embedded at the national level. Lessons from the expansion of these programmes are valuable for the World Bank and other development actors.

While these are examples, contingency financing mechanisms are not currently systematised in development programming. Although interviewees are not specific about the barriers preventing wider uptake or use of these mechanisms, other research has indicated a pressure to ensure such funds are fully allocated and a lack of understanding or willingness to use these mechanisms outside of humanitarian programming.[5]

Contingency financing mechanisms are vital for a timely early response to crisis and should be a standard feature of development programmes. The actions needed are firstly to generate widespread buy-in and commitment to the establishment of internal risk financing mechanisms by development actors; secondly to provide advice and learning on the technical aspects of doing this effectively; and thirdly to establish systems to broaden uptake. It is important, however, to recognise that early and effective responses are not solely about money. For contingency financing mechanisms to work quickly and effectively, there must be pre-arrangements in place for decision-making processes on who can be funded, within what time scale, and via which delivery mechanisms.

Operationally, interviewees feel adaptation and scale up of development activities to address recovery and development needs of crisis-affected communities is more effective within (e.g. multi-mandate organisations) than between agencies. There are many examples of where programmes implemented by development teams in multi-mandate organisations are complemented by humanitarian teams who scale up assistance for the same target group considering heightened needs. For example, during the 2019 drought in Sanaag, CARE drew upon contingency financing from the EU to scale up school feeding programmes with support from humanitarian teams to expand the number of pupils reached and address risks of heightened food insecurity in rural areas.

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Pooled development funds for coordination and flexibility

As part of the 2013 New Deal Compact for Somalia, the FGS and development partners established the SDRF as a mechanism to enhance donor coordination and country ownership. The SDRF aims to address the legacy of fragmented and project-based aid, providing a common governance framework for three aligned funds set up to pool donor contributions: the UN MPTF, the World Bank MPF, and the AfDB’s multi-partner SIF. Total contributions to SDRF funds have increased year on year since 2014, rising from US$47.8 million in 2014 to US$225.0 million in 2019.[6]

The UN MPTF aims to enable collective and coordinated programming, with oversight from the government helping to ensure strategic alignment with national priorities and greater coherence across funding sources. The fund also seeks to facilitate the integration of the UN system within Somalia. Up until recently, it has been used as a conduit to fund joint programmes but lacked the dedicated management capacity at country level to play a more strategic role. Interviewees noted challenges with the UN MPTF, including the reluctance of some donors to provide unearmarked funding, instead reportedly earmarking funds to specific projects as pressure mounts in home countries for greater accountability, or a desire for greater visibility leading some donors to fund more bilaterally. There is also a sense among donors that the UN MPTF is not operating effectively or at the strategic level and is constrained by bureaucracy, ‘clunky’ approval processes and weak delivery and monitoring. The recent appointment of a dedicated manager raises hopes that the fund can gain greater donor confidence and deliver on its potential by improving its strategic direction, facilitating increased coordination between the SDRF funds and better aligning programming.

Donor contributions to the UN MPTF dropped from US$91.1 million in 2018 to US$75.5 million in 2019, before a further decrease to US$72.6 million in 2020.[7] There are reports that donors are beginning to shift and channel funds through bilateral aid programmes as opposed to the UN MPTF to enable greater control over how funds are spent and reduce levels of bureaucracy. This has implications in terms of transparency and accountability and raises questions on the effectiveness of existing UN trust fund management systems and how to strengthen value for money and localise responses. Some interviewees allude to a likely scale up of alternative funds channelled through the government for greater sustainability or managed nationally or by IFIs, especially given Somalia’s new status as a HIPC and qualification for debt relief. Established in 2013, the World Bank MPF was the primary source of financing for the World Bank’s early re-engagement in Somalia. The fund has focused on strengthening both federal and state government systems through financial governance, oversight and advisory services, as well as economic opportunities. The MPF has experienced an increased volume of funding and a number of supporting donors since its inception, and the 2019 mid-term review of the MPF indicated that the fund has been a catalyst for building and strengthening government institutions and enabled harmonisation of policy dialogue.[8] While the World Bank MPF has made significant progress in strengthening government capacity and aligning international assistance with government priorities, as with the UN MPTF, it has been identified as needing greater capacity to respond dynamically and flexibly to the fragile operating context.[9]

The AfDB’s multi-partner SIF became operational in 2016 and supports and accelerates Somalia’s inclusive and sustainable economic recovery, peace and state-building, with a focus on infrastructure rehabilitation and development. Recent examples of SIF contributions include improvements in water, sanitation and roading infrastructure; improved economic and financial governance through the establishment of a Debt Management Unit in the Ministry of Finance; and helping build government capacity through supporting the recruitment of civil servants at both FGS and federal member state levels.[10]

The Somalia Stability Fund is another multi-donor instrument, which was established in 2012 and entered a second phase in 2016 to strengthen local governance and mitigate conflict. While much smaller in scale than the above funds, it has been effective and offers lessons regarding the management of pooled development funds and improving development practice through adaptive, bottom-up and decentralised ways of working. The Somalia Stability Fund’s governance model places the Secretariat’s office, a separate entity from the donor committee, at the centre of decision-making, enabling management decisions to be driven by the local context and knowledge of local staff based within the Secretariat (prompter than if led from outside the country).[11]

A key challenge for pooled development funds in Somalia is maintaining a focus on addressing the structural causes of vulnerability while supporting responses to emerging or short-term crises. This could be done through increasing funding to existing programmes financed by pooled funds while working with donors to address concerns around transparency and accountability. Further decentralising the management of these funds through nationally situated and staffed mechanisms is also likely to enable greater alignment to local needs, understanding of the context, flexibility and cost effectiveness.