Economic Leakage in Disaster Relief

Key Messages

1. 37% average leakage in major disaster responses means over a third of donor contributions never reach beneficiaries
2. Procurement represents the largest leakage point at 18% of total funds
3. Local procurement reduces leakage by 8-12 percentage points compared to international procurement
4. Coordination inefficiencies account for 9% of leakage through duplication and gaps

The Leakage Problem

When donors contribute to disaster relief, they expect their funds to help affected communities. Yet tracing funds from donation to delivery reveals significant losses at multiple stages.

Our analysis of five major disaster responses (2019-2024) found:

Root Causes

Procurement Inefficiencies (18%)

• International procurement adds shipping, customs, and handling costs
• Emergency procurement bypasses competitive bidding
• Supplier relationships favor speed over value

Coordination Failures (9%)

• Duplication of services across organizations
• Gaps in coverage requiring costly corrections
• Information asymmetries leading to misallocation

Administrative Overhead (6%)

• Reporting requirements from multiple donors
• Compliance costs for various regulatory regimes
• Internal organizational bureaucracy

Transfer Costs (4%)

• Currency conversion fees
• International transfer charges
• Banking fees in recipient countries

Policy Recommendations

For Governments

1. Streamline regulatory requirements for relief imports to reduce procurement delays and costs
2. Pre-position emergency supplies to reduce urgent procurement needs
3. Harmonize donor reporting requirements to reduce administrative burden

For Humanitarian Organizations

1. Prioritize local procurement where quality and availability permit
2. Invest in coordination during preparedness phases, not just response
3. Adopt cash-based programming to reduce supply chain leakage
4. Publish detailed expenditure breakdowns to enable accountability

For Donors

1. Allow flexible funding that enables efficient procurement decisions
2. Reduce earmarking that constrains organizational efficiency
3. Fund coordination activities as essential infrastructure
4. Accept harmonized reporting formats to reduce duplication

Conclusion

Reducing economic leakage in disaster relief requires action by governments, organizations, and donors. The potential gains are significant: implementing these recommendations could direct an additional 15 cents of every donated dollar to intended beneficiaries.