The Crowded Aid Sector: Competition for Means at The Expense of the Goal

Introduction and Summary of the Two-Day Training

On the 23rd and 24th of February the AMID trainees in the Netherlands and Kenya attended their first of four two-day physical training sessions of the AMID year, the Dutch trainees in Amsterdam and the Kenyan trainees in Nairobi. In Amsterdam, the students reflected on the most important developments that are taking place in the field of international development and were provided several lenses to recognize and understand the developments within the field through a lecture by Dr. Sara Kinsbergen. Highlighted in this lecture were the (1) rise of new development goals, (2) rise of new actors in the development arena and (3) new financing instruments. When talking about new actors, a few students entered into an interesting discussion about competition in the NGO sector and how there is competition for funding. An interesting topic to shine some more light on in this blog.

Competition and the Aid Market

Public funds of donor countries have, in the last years, increased only a little or have even decreased (Develtere, Huyseand Ongevalle, 2021). Contrastingly, the quantity of actors in the development field has significantly increased. Donations of private individuals and businesses have also not increased significantly. Consequently, an increasing number of actors are scrambling for the same amount of resources, leading to competition over scarce resources between aid agencies, particularly NGOs (Koch, 2011).

Taken from business literature, competition has been described as the constant struggle between firms (NGOs in the case of the aid marketplace) for a comparative advantage in resources that will conquer a position in the marketplace (Hunt & Morgan, 1995). This definition has also been applied in non-profit sector literature (see e.g. Arasa & Kioko (2014)), as the aid sector can be seen as a market with buyers (donors) and suppliers (implementers). This blog shines light on  the effects of competition and advantages and disadvantages of competition, whereby the sector will be analyzed from a market perspective.

Advantages

Let’s start off positively: competition in the aid sector is also accompanied by advantages. Because of the increasing competition, there also is the need to become more efficient. For example, Castenade et al. (2008) find that administrative expenses among NGOs decrease when competition increases while the spending on fundraising seems to be unaffected. In combination, competitions seem to push NGOs towards more efficient aid delivery.

Other scholars show that competition leads to more collaboration. Presumably, NGOs work more together to survive when competition increases. Schwenger, Straub and Borzillo (2013) in their research among NGOs show that as a result of competition “long-term co-operations of more than 3 years with other NGOs have become increasingly important”. NGOs also try to specialize their knowledge to keep their uniqueness. This aspect of competition between NGOs may ensure more efficient development aid, because they have a better understanding of their goal (ibid). By working together and combining specialized knowledge, NGOs can also work more efficiently. Besides working more efficiently, working together as a consequence of competition has more benefits. Firstly, funds can only be granted to a handful of NGOs that apply for them. By applying for grants together, NGOs may have a bigger chance of qualifying for this grant (Glennie, 2012). Secondly, collaborating in fundraising and PR may give a stronger image to the public, which may in turn lead to more donations (ibid). In line, NGOs also agree that sharing resources has become more and more important (Schwenger, Straub and Borzillo, 2013). Noted should be that these statements are mostly applicable for smaller NGOs with less budget.

Disadvantages

Unfortunately, the evidence seems to point to the disadvantages of competition. In line with the thoughts in the previous paragraph, one would expect coordination to be reinforced as the number of actors in the field has massively increased (Egger, 2017). However, the increase of NGOs has, paradoxically, led to more obstacles of coordination (Koch, 2011). One of the effects of the increase in of NGOs is that more organizations have to compete for a restricted bundle of resources and funding. That is, the organizations largely live of similar funding sources, and these sources are assumed to have a finite character. Abbott, Green, & Keohane (2016) speak of zero-sum quality resources as the funding won by one NGO is ultimately lost by another. The subsequent decreased likelihood of obtaining funding causes NGOs to worry about their  institutional survival (Cooley & Ron, 2002), and hence they increase efforts spend towards fundraising (Aldashev and Verdier, 2010). Consequently, this causes them to be too focused on funding priorities and at the expense of addressing needs in the field (Collinson, Duffield, & Berger, 2013; Cooley & Ron, 2002). In the words of Nunnenkamp and Öhler (2012) quoting an article of the Economist:

‘’NGOs under fierce pressure to attract donations may engage in “excessive” fundraising and shift an increasing amount of time and effort ‘from finding solutions and helping needy recipients to pleasing their donors and winning television coverage’ (The Economist, January 27, 2000).’’

The above idea can be illustrated by the circumstances in Zaire, the former Democratic Republic of Congo. During the Rwanda refugee crisis, NGOs carried out PR strategies to attract media and the subsequent donor attention by choosing for more visible forms of aid, causing important needs to be insufficiently addressed. For example, NGOs carried out activities more favorable to media attention, such as managing cholera treatment centers. On the contrary, the less visible activities such as building latrines were neglected, resulting in inefficiency and indirectly more deaths (Seybolt, 2009).

To stay relevant, NGOs have furthermore moved to more out-of-the-box  marketing and advertising strategies (Banks and Hulme, 2014). This has led to controversial ways of branding development aid. One of these ways is using celebrities as advocates. According to Brockington (in Banks and Hulme, 2014) this use of branding has several downsides. Firstly, it promotes the idea of development as ‘entertainment’, making development issues part of the consumer culture. The image of development that celebrities convey is also often over-simplified. Moreover, using celebrities in branding is only privileged to large NGOs with enough money, pushing smaller NGOs to the background. NGO competition can thus lead NGOs to turn to a way of fundraising that sketches development issues as entertaining and over-simplified.

Does the imperfect market cause the disadvantages?

On paper, competition between NGOs may have a multitude of advantages. It can improve the efficiency of NGOs, as they try to decrease their administrative expenses and focus on fundraising. Secondly, to stay unique, NGOs will have to specialize their knowledge. This can also ensure more efficiency. To ensure more funds, NGOs may also improve the collaboration among themselves. By working together, they have a bigger chance of winning grants. Moreover, this may also sketch a stronger image to the public, leading to more private donations. However, if we look at the reality, competition has led to questionable priorities of NGOs. For example, fundraising is prioritized over addressing needs in the field. The new ways of fundraising can also be seen as problematic. Using, for instance, celebrities as PR strategy can lead to an oversimplified and consumable idea of development aid.

This blog does not provide a solution to the adverse effects of NGO competition. However, we would like to highlight an aspect of the NGO market as food for thought. A final observation made when browsing the different papers on competition is that even though the NGO sector shows some characteristics of a market, no attention is paid to what is needed to maximize a market according to basic economic principles. For example, a question that could be raised is why the NGO sector especially is still so populated with many actors that sometimes work inefficiently next to each other?

Thinking of this made us finally understand one of the first lessons in economics in high school where abstract terms like ‘’Pareto Optimality’’ were thrown at us when we were barely old enough to buy our own snacks for recess. Leaving out the other assumptions, in a perfect market, buyers make optimal decisions with a maximum amount of information. In other words the less competitive businesses are pushed out of the market as buyers make more informed decisions. Transferring this idea to the NGO sector, if donors obtains an increased amount of information on the diversity, efficiency and effectiveness of NGOs, donors are better able to make more informed decisions on which NGOs to fund. As a consequence, the NGOs which are less effective and efficient will be pushed out of the field. Therefore, this leads to the question: Shouldn’t we work towards transparency in the sector and provide donors with more information on the diverse NGOs?

Of course, there have been in increased focus on monitoring and evaluation of programmes. There are, for example, initiatives such as the  ‘Top 100 Best NGOs’ list of The Global Journal. Moreover, various websites compare NGO overhead costs. However, the development sector is far from a transparent market with fully informed donors. As indicated this blog does not provide a solution to the adverse effects of NGO competition. However, we would like to end with some questions as food for thought. For example, should we not focus on making evaluations of programmes more public and accessible Should we not also have evaluations of overall NGO effectiveness and efficiency by independent institutions, not only focusing on programs, but also on overall business operations? In that case, when funding organizations have more information at their disposal and the NGO market is a bit more perfect, less efficient actors might be pushed out of the market in an earlier stage with more efficient NGOs and less competition for funding remaining. Until then, the goal of helping vulnerable populations seems to come at the expense of the competition for the means to do so.

References