How can organisations tackle a global recession and ensure long-term sustainability?

By Rowena Warren, Director of Finance and Resources, Ripple Effect

The International Monetary Fund has declared that we are on the brink of a global recession and the African Development Bank is warning that the combined effects of Covid and the war in Ukraine could last for a decade. Across the world, struggling economies are further exacerbated by food and fuel price increases.

As with many crises, the effects are felt most strongly in the most vulnerable areas, including the sub-Saharan countries where we work. Furthermore, the monetary policy in advanced economies like Europe to rein in inflation will likely lead to an increase in inflation in Africa.

Today, inflation is over 30% in Ethiopia, and around 10% in the other countries we operate in. This has a three-fold impact:

• The cost to deliver our projects has sharply risen
• Our project participants are less able to buy the food and supplies they need
• Our staff have also been struggling with basic living expenses

We are committed to ensuring that our staff are not having to worry about how they will feed themselves and their families. We have given staff in Ethiopia a 20% salary increase to help them manage through this crisis.

The pressures on our projects created by inflation and the continuing weakness of the pound need to be urgently addressed. We must be up front with our donors that it is costing more to deliver the same level of impact. Restricted funding sources do not cover inflation or the level of foreign exchange fluctuations that we are currently experiencing. This means that we are having to employ limited unrestricted funding to ensure that the level of impact in our projects is reached.

In the short term, we are mitigating this risk by holding funds in both sterling and dollar accounts and transferring funds to country operations when the rate is favourable. If rates continue at a similar level for the next 12 months, we expect that foreign exchange losses will mean our operations cost us an extra £250,000 which is currently unfunded.

In the longer term, our strategy is to increase the funding that we receive from African based institutions and organisations, so the donation is received in local currency or dollars. This eliminates the foreign exchange risk and allows the country teams and local donors to have meaningful conversations about the impacts of inflation on our programmes.

At Ripple Effect, we need to review our operating model, what we budget for, and how we recover costs. And donors need to be realistic about how much programmes cost. Across the sector, the conversation needs to be open and expectations reset.

We are in a strong position for financial sustainability. We have registered offices and local Boards in our country programmes which allow us to fundraise from those regions, both increasing funding opportunities and mitigating against foreign exchange.

We have a varied stream of income which is not reliant on one source. For example, governments in advanced economies pledge 0.7% of their GDP (now 0.5% in the UK) for development but as economies shrink, so does the amount available for INGOS like ourselves. If we were wholly reliant on government funding, we would be feeling the effects of this more acutely. Similarly, if we were reliant solely on public funding, we would be under extensive pressure from the cost of living crisis.

During the Covid pandemic, these strengths stood us in good stead. We have proved that we can deliver under extreme pressure. Our income held up, and our impact remained strong. We are an agile organisation with the structure and support needed to maintain our financial health through difficult times. Despite the challenges, we are forecasting growth in the year ahead.

However, our costs are rising, and we must remain cautious and vigilant so that we can respond to the ever-changing economic environment and maintain our financial sustainability in the long-term.

We invite our supporters to speak to us about the challenges we face and how their valuable donations can best deliver the impact that, together, we want to see for communities.