WISE SAYING BY MUTABAZI SAM STEWART

LIFE HAS NEVER BEEN FAIR, YOU ONLY HAVE TO BE FAIR TO YOUR SELF

WISE SAYING BY MUTABAZI SAM STEWART

LIFE HAS NEVER BEEN FAIR, YOU ONLY HAVE TO BE FAIR TO YOUR SELF

24th August 2009

THE IMPLICATIONS OF THE CREDIT CRUNCH ON NON GOVERNMENTAL ORGANIZATIONS

By Mutabazi Sam Stewart

A credit crunch is an economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers. Usually occurring during a recession, it indicates that banking institutions are unwilling to take on additional credit risk. If things stay bad, then the situation can end up in a depression. A depression is simply a prolonged recession.
It is important for us to first understand the history of recessions and depressions in world history. During the great depression of 1929, unemployment in America was at 25% and wages (for those who still had jobs) fell 42%. Total US economic output fell from $103 billion to $55 billion and world trade plummeted 65% as measured in dollars. A depression on the scale of that of 1929 could not happen exactly the way it did because institutions have been enhanced, the world has advanced in terms of financial management and most central banks around the world are much aware of the importance of a prudent monetary policy to regulate the economy. One question which still puzzles many people especially non economists is how the situation could be allowed for the world economy to degenerate into a credit crunch yet we have the means to forestall it. Didn’t economists have the capacity to roll back the credit crunch before it could cause any financial damage it has done?
The world economy and individual countries’ growth trends will always experience ups and downs. It’s a normal occurrence that only needs to be well managed so as minimize the impact. Once a recession has occurred it takes some time for economies to return to normalcy. That’s why it important that it should be avoided because it sets every sector into panicky mood hence offsetting only negative consequences prominent of which is massive unemployment and decreased production. It is not clear when the crunch will end. Although there seem to be positive projections in USA and Britain that good times are within view.
It is well known that the credit crunch has had a direct effect on the private sector. The sector which has however suffered silently has been that of voluntary and nonprofit making including local and international Non Governmental Organizations (NGOs). This sector has not been greatly affected because it doesn’t depend heavily on the banking industry like the private sector does. Very few NGOs have loans and mortgages from financial institutions because their operations are mainly funded by goodwill and voluntary donations and grants. Ironically this would ordinarily be the reason why they ought to be affected. The fact that the largest chunk of NGO funds are from the private sector, means that when that sector suffers, the resource flow for NGOs becomes unpredictable. Local NGOs in Uganda are mainly funded by Northern NGOs which are essentially found in developed countries. But northern NGOs also get funds from private companies, individuals and governments. The amount of money they collect determines how much they shall pass on to their partners in developing countries in form of grants. Available evidence indicates that although many local NGOs are suffering silently, the situation is not as bad as what the private businesses are experiencing. The only reason why the crunch has not adversely affected Oxfam International for example is because the biggest part of its budget is funded by major institutions such as UK’s Department for International Development (DFID) and the European Union (EU). Voluntary donations from individuals have however fallen drastically in the last eight months, according to the organization’s dossier. In 2006-2007, Oxfam’s total income was £290 million, out of which £61 million was raised from public authorities while £105 million was from donations from various sources.
NGOs have recently become major channels through which official development assistance is passed to developing countries to support various programmes. Their budgets have therefore been increasing steadily since early 1980’s. According to World Bank figures, 12 per cent of foreign aid to developing countries already was being channeled through NGOs in 1994, and as of 1996, the total amount was $7 billion worldwide. Today, NGOs in Africa manage nearly $3.5 billion in external aid compared to under $1 billion in 1990. According to Newsweek Magazine International (5, September 2005), the Comparative Non-profit Sector Project at Johns Hopkins University studied 37 nations and found total non-profit NGO operating expenditures in 2002 of $1.6 trillion.
Most voluntary organizations that deliver services are likely to meet an increase in demand for these services as the number of people affected by the crunch keeps increasing. At the same time most, if not all organizations, will witness increased costs. This is likely to hit humanitarian organizations most. The cost of food, building materials and general cost of living are likely to alter the overall projections of most organizations’ future cash outlay. In some cases NGOs may have no option but to lay of some of their staff to reduce expenses while others may opt to either completely suspend some of their activities and programmes. The challenge may arise when programmes to be put on hold are the core ones that target the poor. Some organizations may even be forced to close. It is important for NGOs to start thinking about the repercussions of the international financial crisis, re-evaluate their policies and plan long-term strategies without necessarily affecting their programmes which affect the poor. They should look for sustainable sources of funds rather than depend on timely short-term ones.

A critical analysis of the situation in Uganda indicates that prominent international NGOs are not recruiting new staff as they were a few years ago. They have suddenly gone “underground” and have not come out to explain the obtaining situation. Apart from press releases issues by their mother organizations back home, the regional and branch offices in Uganda are not willing to state their position and how they are faring. Be that as it may it is generally known that most of them have cut their budgets while others are trimming expenditures which are not considered vital. According to the Head of Public Relations of Oxfam UK Ms Magda Walter, her organization has for instance laid off 5% of its staff and has, in addition not been filling vacant positions for the last one year. The organization has been preparing for the economic down turn for months. In an interview with NGO Media, Walter says they had prepared their staff emotionally, culturally and mentally for the consequences of the credit crunch.

Among the international NGOs that have reportedly been affected are Oxfam GB, and the Catholic Relief Services (CRS). They have confessed that the global market recession was affecting their activities as they could no longer meet their targets. This might in one way or the other affect beneficiaries of interventions from these organizations. Although many organizations are affected, a good number may not actually come out to tell the public about their financial standing for fear that it may affect their performance and image. World Vision, one of the most respectable and largest international organizations operating in Uganda with a presence in more than 30 districts could be among those affected. Its annual budget for 2006 was about $2.1billion. This figure has almost doubled to the current budget of slightly over $3.5 billion almost equivalent to Uganda’s current GDP. Half of World Visions budget comes from private donors. It is not yet clear how the credit crunch has affected the organizations budget given the fact that more than half of its total income comes from institutions and private individuals living in USA, a country most overwhelmed by the credit crunch. In the midst of this gloomy picture, some NGOs are beginning to place emphasis on generating their own funds rather than depending on donor funding. Others are making effective use of available resources, for instance by outsourcing projects in order to save money. Some are using volunteers while a few have sent their staff on forced unpaid leave promising them that they shall be recalled when the situation normalizes. It is a game of trying to keep afloat during unpredictable times like these.

***The writer is a Human Rights Defender