The power of co-investment

by David Week on 18 September 2010

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Recently, I was advising a client who had the following problem:

Four years ago, they had agreed to fund a project to the amount of USD1.0m. Now, for a variety of reasons, the cost at the commencement of implementation had increased to $1.6m. The question they asked me was:

  • should they provide the extra funds, or
  • should they cut the scope?

My first thought when I encounter dichotomies like this is: Is there a third way, which we’re not seeing? So in addition to giving the strengths weaknesses of choosing either of the options above, I suggested a third possibility:

  • tell them you’ll provide matching funds for the increase: for every dollar they provide, you’ll provide a dollar.

This had the advantage of providing a way for the full scope to go ahead, while at the same time putting some responsibility for carrying the scope creep on the recipient of the grant. (The recipient was the kind of organisation that could conceivably find that kind of money.)

The point here was that as long as the recipient is not a cost partner, there is little incentive to control costs. With a dollar-for-dollar extension, the interests of the donor and the interests of the recipient become aligned.

Budget driven versus scope driven

Some years ago, my small firm was contracted to manage two school expansion projects, one in Papua New Guinea, the other in Vanuatu. The PNG program was written as a scope-driven project. In other words, the promise made to the schools was defined by a set of scope items:

  • we will fund the construction of x classrooms, y ablution blocks, z teachers’ houses, etc. and will disburse until the work is done.

In contrast, the Vanuatu promise was defined by a budget:

  • we will provide $3m for classrooms, ablutions, teachers’ houses, etc. and will disburse until the budget runs out.

What we saw in these two projects was radically different. In the first, the schools were always finding ways of increasing the scope—all defensible, and in a way legitimate—by including more peripheral items, fixing services, upping the specs on equipment, etc—because that was clearly in the best interests of their schools to get as much out of this project as possible. They applied their ingenuity to this end. I applaud their enterprise. However, this set up thus encouraged a strategy that caused some strain between receipient and donor, with us—as implementer—the meat in the sandwich.

In the second project, behaviour was completely different. The schools again applied amazing ingenuity and inventiveness, only this time to finding ways of making things cheaper. They encouraged to use hose instead of metal plumbing, plastic bowls as science sinks, delete paint where not absolutely required, and even sweet-talked passing roadworks contractors into doing some free work on the sports field. They too were engaged in getting the best outcome for their school, which in this case meant stretching the budget as far as possible.

The only slight strain in relationships came at the end of the project, when we had to tell them to stop innovating, because we had a deadline for the final disbursement! Donor, implementer, and recipient were all aligned, all trying to get the same result: best value for money.

This alignment came because the Vanuatu project structure made both donor and recipient winners when money was spent frugally. Both got more bang for this fixed amount of bucks. This alignment was lacking in the scope-driven PNG project.

Kina for Kina

My friend and colleague IJS worked for some years in Bougainville, before the “troubles” there. He designed and managed a rural community works program for the North Solomons Provincial Program. The currency of PNG is the Kina, and it was called the Kina-for-Kina program. Let him describe it in his own words:

…One problem you will have is selecting the sites. My experience suggests that you will be directed to village locations (usually their own) by politicians or bureaucrats with vested interests who will then use it solely as a means to increase status, votes, etc.

Well, you have to put them somewhere so why not? I’ll tell you why. For every successful man there is an army of ‘opposition members’ who will go out of their way, in manners so devious it would be hard to believe, to discredit the project that gave the first man his success. A word, a nod, just a hint of an attitude from a village chief can set the whole village against anything irrespective of whether the majority of thinking persons can see the benefits.

Successful projects happen in villages that want them. Therefore, education is the primary initiator of development. We did this with our projects through a Kina for Kina scheme. We let it be known that limited funds were available for certain types of project. Then we waited till people knocked on our door. We told them more, indicated typical costs of previous projects—no more than 10 minutes of our time, then we bluntly asked them to show us the colour of their money.

If the people come back with the village bankbook or more often with wads of bank notes, it showed us that here was a village where everyone had agreed on what they needed; here was a village that trusted its elders with its hard earned savings; here was a village where local politics had been put aside for the sake of the required development.

In probably nine times out of ten the project would proceed without disruption and with intense interest and support from the villagers themselves. At the end of the day they would claim the project as their own—they paid for half of it, and they built most of it on the ground.

What about outside technical expertise? Gratefully acknowledged, thank you very much, but it was us in the village that were smart enough to attract it.

A successful community effort such as this is the first (and only?) step towards sustainable development. It gives people the essential ‘we can do it’ attitude with which to approach all their needs. In other words, development is a state of mind—a physical project is merely a sign of development.

Just a few more points:

The up front cash has to be sourced from voluntary contributions. Recycling of other local government project funds or political slush funds doesn’t involve the hardship which generates the ownership feeling of the project. (But of course, all additional contributions to the project are welcome.) In PNG where political handouts and official slush funds are continually distributed without any visible results, the people have a saying which typifies their easy come, easy go attitude to hand-out projects that actually get built: ‘samting bilong gavman.’ In other words: don’t worry about taking care of it, let the government buy a new one.

It doesn’t have to be Kina for Kina 50/50. Although North Solomons was a relatively rich province because of the smallholder cocoa cash crop grown, there were mountain and island areas where the only source of funds was remittances from family in town. In these cases were applied the biblical notion of relativity—you may recall Jesus rebuked the rich business men for laughing at the old women who gave only a penny. She gave all she had, whereas the large amounts they gave were of no consequence to them. We funded K2000 projects against a K50 contribution. Note that our project costs only covered direct material, transport, and skilled labour costs. The government covered the cost of our technical input, transport, offices, phones, etc.

Free labour—a great idea, a great help, but it is easy to ask for, even easier to promise but can leave an enormous burden on your people on the ground when it doesn’t materialise and throw your implementation schedules right back. Any skilled labour available from the village should be paid for at the going (village) rate from the project budget. It’s important to give recognition to skills.

Free labour is not a substitute for cash contributions, but as an additional assistance to the project, it can be seen as balancing the free input of technical expertise to the project.

Here are the key lessons I take from this:

  • You’d be surprised at how much cash can be in a village, that only appears when people really support a project: we have a prejudicial view that the “poor have nothing.” I recall remote poor villages in high Lao PDR, with satellite dishes tuned in to Bangkok TV, and thatch huts in slums in Chennai with TV antennae poking through the thatch.
  • The concept of “dollar for dollar” helps sort wheat projects from chaff projects, by asking the community to co-invest, to share the cost, to become a true partner.
  • The “dollar for dollar” ratio need not be 50/50. It can be tuned to the real poverty of the community. It can be 90/10, or even 99/1. But asking to see it in cash, in advance, is a quantum level of commitment over and above promises of future labour—which is sometimes someone else’s, and sometimes fails to materialise.

Gauging community support through co-investment

The lesson learned here, I think, is that to ensure true community support exists for a project, make them co-investors, rather than recipients.

  • Ask for co-investment up front
  • Ask for the investment in cash**
  • Leverage the investment ratio according to the real poverty of the community

**To this I’d make one exception: If there is really zero discretionary cash in the community—and you have to look carefully and without bias to see if that’s really true—then ask for the labour or materials in advance. And in today’s globalised economy, the cashless village I think will be a true exception.

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