[Editor’s note: This is the third of a series of posts based on 5 think pieces prepared for the evaluation of pilots for the Indonesian Knowledge Sector Initiative.This was prepared by Stephen Yeo, Chief Executive Officer of the Centre for Economic Policy Research (CEPR). The views expressed in these publications are those of the author(s) and not necessarily those of the Commonwealth of Australia. The Commonwealth of Australia accepts no responsibility for any Loss, damage or injury resulting from reliance on any of the information or views contained in this publication.]
The macroeconomic impact of the oil shocks of the late 1970, combined with slow macroeconomic adjustment and large imbalances, gave rise to a massive recycling of surpluses from the OPEC countries to Latin America and Africa via the US and European banking systems. The resulting macro imbalances followed proved to very difficult to manage, and were soon followed by programmes of “structural adjustment”. A popular conception of how these programmes were designed involved a delegation of technicians from Washington, who arrived at the Ministry of Finance, briefcases and laptops in hand, and told the Minister and Permanent Secretary what was happening in their country and what needed to be done. The Minister and the Permanent Secretary were essentially on their own, with few well-trained economists to advise them, either within their Ministry or in local universities or think tanks. One result was a strong reaction against policies imposed “from outside”.
During late 1980s a consensus began to emerge that a different approach was needed – “Policy is better if it is made locally”. Donors in North America and Europe responded with programmes to build capacity in economics, especially in Africa (Latin America had more human capital and seemed to be better able to retain it). Here some of the key actors were the Ford and Rockefeller Foundations, IDRC in Canada, and some bilateral donors such as USAID. Three specific initiatives are worth mentioning: the African Economic Research Consortium, the Secretariat for the Institutional Support for Economic Research in Africa, and the African Capacity Building Foundation.
The African Economic Research Consortium (AERC) was launched in 1988, growing out of an earlier IDRC initiative in East Africa designed to improve macroeconomic management. It was led Jeffrey Fine (a former IDRC Programme Officer), and Benno Ndulu, a Tanzanian academic who is now Governor of the Central Bank. They established AERC as a network of individual researchers, with a strong focus on research training at the individual (not institutional) level. The network is still expanding and active today, and commands support from a wide range of donors and foundations. It focuses on MA and PhD programmes run in collaboration with African universities, and biannual training workshops for established researchers. University-based researchers were the target audience for most of AERC’s initiatives: this was understandable, given the collapse of many African universities in the 1970s and 1980s.
The Secretariat for the Institutional Support for Economic Research in Africa (SISERA) had a very different focus. Launched in 1997, like AERC, it was initially supported by IDRC (more information on SISERA). Unlike AERC it focused on building capacity in institutions, not individual researchers, by providing a combination of medium-term core funding and technical assistance to policy research institutes across Africa (many of whom had been established and supported by ACBF, as noted below). Other donors, for example USAID and the EU, later joined IDRC in supporting SISERA. Unlike AERC, which has expanded steadily since the 1980s, SISERA’s activities were wound down after 2006, when IDRC decided to devolve SISERA to an African institution but was unable to find a suitable host institution.
The African Capacity Building Foundation (ACBF) was launched in 1991 as a multi-donor initiative led by the World Bank. Its mission (not surprisingly) was capacity building in Africa, but its focus was on capacity within government, and it funded training programmes and established training institutions (“civil service colleges”) for the public sector. In addition, during the 1990s it began to set up think thanks in many African countries. These were typically rather “technocratic” research institutes, set up as part of a partnership with the Ministry of Finance or the Ministry of Planning to provide economic analysis to government. These think tanks were typically independent of the government, but had senior civil servants on their boards. ACBF provided untied, core funding to these think tanks in four-year tranches. The intention was that there would be three or four funding tranches, at which point the think tank would (in some unspecified sense) be self-sustaining. In practice, ACBF has found it difficult to end its support even after the fourth tranche, and instead seems to decided instead to provide levels of support that gradually diminish over time.
This cohort of African think tanks, many of them initially supported by ACBF (and subsequently by SISERA), faced serious challenges as a result of the demise of SISERA and the uncertainties of ACBF funding. The arrival of the Think Tank Initiative (TTI), launched in 2008, was therefore very opportune. The model TTI adopted was broadly similar to SISERA: a combination of technical assistance and medium-term, untied or core support awarded on a competitive basis to existing think tanks. Unlike SISERA, TTI operates in East and West Africa but not Southern Africa. To a some extent this gap in Southern Africa has been filled by bilateral donors such as DFID, with its recently launched Economic Advocacy Programme (EAP), designed to strengthen think tanks and the policy dialogue process in Zambia; and (in a very different way) the International Growth Centre, which is active in a number of countries in the Southern Africa.
In making these investments in institutions donors have faced a dilemma: How to ensure organizational effectiveness of think tanks while still respecting their autonomy and independence, which is important in allowing them to develop as credible players in the policy arena. All institutions need to put in place systems to ensure effectiveness and good performance. In the private sector the pressure to adopt these systems comes ultimately from customers and shareholders. Non-profits, which do not face the same market pressures, rely on their “stakeholders” – in practice a combination of clients (users of their services), financial supporters (often donors), and the institution’s own formal governance structure. In practice is it often the financial supporters who play the most active role in this respect. But if the financial supporters are “external” and play such an active (and visible) role, this may undermine the think tank’s credibility among its domestic audiences and render it less effective in the long run. This dilemma is not easy to resolve.
Compounding the Dilemma
There are a number of factors that make the challenge even more difficult to solve:
- Lack of funding isn’t the only problem for think tanks, and perhaps not even the most important problem, though donor’s short funding cycles do make life difficult, especially in retaining staff.
- A think tank needs active and well qualified researchers to perform well. In practice this seems more often to be an issue of cost rather than of availability (though this varies across countries). PhDs in economics have tended to emigrate, often attracted by job opportunities in international financial institutions or donor agencies (though this has begun to change in the past decade, as growth has taken off in Africa). Those that remain in their home country often work for consulting firms or as independent consultants, or they combine a university teaching career with consulting activities. As a result, they also find themselves working for much the same set of institutions or donors. These organizations represent a large proportion of the “local” demand for economists, and (other things being equal) this is likely to have resulted in higher overall salary levels than would otherwise be the case. Since for most think tanks, their largest cost is their salary bill, this has a significant impact on their financial sustainability.The paradox is most evident when think tanks try to hire research staff (especially senior researchers): they often find themselves competing with the same organizations that provide them with financial support. In order to pay competitive salaries think tanks need funding from the organisations that have such a large influence on the level of these salaries. As a consequence a high level of dependence on donor funding is very hard to avoid.
- Size can be a problem: many countries in SSA are very small. Even in medium-size countries it is unusual to find more than one economics think tank. Only in the larger countries (Kenya, Nigeria, South Africa) does there seem to be a multiplicity of economics think tanks, but even in these larger countries economics think tanks are not that numerous. Donors (e.g. the Think Tank Initiative) have inadvertently compounded this problem through their reluctance to fund new think tank “start-ups”. In industrial organization terms, there are surprisingly few “new entrants” into the think tank industry. This is unfortunate, because evidence from other industries suggests that new entrants are an important source of innovation and improved performance.
- Too little is done to support the leaders of think tanks. Leading a think tank is a difficult job. Leaders are often isolated: if there are no other think tanks in town, it is not even possible for a think tank leader to informally exchange experiences with his or her peers. More formal benchmarking is even more difficult, since it requires identifying the right benchmark: this may involve looking at think tanks in other countries, but differences in the policy environment may make comparisons uninformative. Ensuring good performance is not easy when you have no obvious comparators!
Even if useful comparators can be found, benchmarking is mainly useful for the more “operational” aspects of a think tank’s performance. Benchmarking becomes even more difficult if one moves beyond these operational issues to examine a think tank’s “effectiveness” or “impact”. This is very difficult indeed, since it involves measuring its influence on policymaking. This is inherently a difficult exercise, and one where comparisons with think thanks in other countries may be of little or no use.
The dilemma identified above is difficult to resolve. Funders of think tanks will find it difficult to avoid having some influence on the think tanks they support. However careful they may be to support good governance structures and maintain an “arms length” relationship with a think tank, ultimately the funder is responsible for ensuring that their funding is used effectively, and this entails being willing to have some influence on the recipient of the funding. But if they exercise too much influence, they may undermine the think tank’s long run effectiveness, by reducing its credibility among its domestic stakeholders.
Most think tanks have only a few funders, and some have only one major funder. Such concentrated funding is undesirable, not only for the think tanks but also for their funders. It is bad for the think tanks because it exposes them to large and significant risks, especially when funding comes up for renewal. It is also bad for funders, since (as discussed above) they need to ensure their money is being well spent by the think tank but may be reluctant to exercise influence, lest in the process they undermine the think tank’s credibility and effectiveness.
This suggests that a wise strategy for both think tanks and their funders is to move towards a more diversified system of funding, in which think tanks no longer rely on only one or two sources of support. But in order to pursue a strategy of diversification, there need to be alternative sources of funding available to think tanks.
National governments are an obvious potential source of funding: in particular their support (either in cash or in kind) has in the past been necessary to secure ACBF support. But diversification in this direction may be problematic. Government funding tends to be very unpredictable, being dependent on the vagaries of the national budget process. More important, though is the problem of independence: a think tank heavily reliant on financial support from its own government is unlikely to endanger this funding through outspoken criticism of government policy. This may discourage the think tank from playing one of its most valuable roles: that of opening up policy debates by putting policy alternatives “on the table” for public discussion. So while government funding may be part of a more diversified portfolio, think tanks would be unwise to rely on it too heavily.
In this respect it is worth noting that central banks may represent an interesting funding opportunity for economics think tanks, at least those that focus on macroeconomic or monetary policy. Since they typically employ well trained economists, central banks are relatively sophisticated and committed users of economic research. More importantly, they tend to be relatively independent of the government of the day, and such support may be to preserve the perceived independence and credibility of a think tank. More generally, if national governments were to provide more funding for think tanks, it would be important to put in place an “arms length” funding mechanism that minimizes the potential for political influence while providing some stability of funding.
Such arms length support may be unlikely, at least in the short run. So if there is to be significant diversification other funding sources must be pursued. Think tanks in the global north have managed over time to tap two other sources –the private sector and the philanthropic sector. These are the directions in which African think tanks will need move as well. But neither is likely to yield quick results.
The private sector in Africa ranges from small informal enterprises to large multinationals. Small firms are unlikely to fund policy research (except through chambers of commerce or other representative bodies) and there are not that many large local enterprises (though there number has grown in the past decade). There are, of course, the multinationals, but these are often concentrated in the extractive industries, which have their own policy agenda and are often the focus of public controversy and suspicion. If a large proportion of funding were to come from this sector, it might bring with it perceptions of undue influence and bias that would damage the think tank’s credibility. As a result, while support from the private sector might be desirable as an addition to an already diversified portfolio, in other circumstances it might undermine the think tank’s effectiveness.
What think tanks produce is knowledge – evidence and analysis to inform public policy. This is essentially a public good, and the challenges involved in funding the production of public goods are well known. It is unrealistic, for example, to expect the private sector to pay for the costs of producing public goods. The philanthropic sector is, however, a more natural and promising source of support, at least in the longer term. As noted above, African think tanks have already received significant support from international foundations and so are already accustomed to dealing with the philanthropic sector.
The challenge is to tap “local” philanthropy. Over the past decade such philanthropy has emerged as a significant force in Africa, as a new cohort of “high net worth” individuals has arisen across the continent. In some cases these individuals provide funds on a personal basis, but in most cases a foundation is the preferred route. One well-known example of an individual philanthropist is Mo Ibrahim, whose Foundation has launched a number of high profile initiatives. At the moment, most philanthropy is organized along these lines, but if philanthropy in Africa develops as it has in North America and Europe, it will evolve into something more formal and institutional, via professionally managed foundations. The African Grantmakers Network (AGN), a network of established and emerging African philanthropic institutions, gives some indication of where this might lead. The emergence of philanthropic institutions in Africa offers the most promising opportunity for think tanks to diversify their sources of funding, but nurturing such philanthropy in Africa will require a patient and concerted effort by existing funders – both donors and international foundations – over the longer term.