In Ugandan villages where non-governmental organisations (NGOs) hired away the existing government health worker, infant mortality went up.

This happened in 39%^[1] of villages that already had a government worker. The NGO arrived with funding and good intentions, but the likelihood that villagers received care from any health worker declined by ~23%.

Brain Misallocation

“Brain drain”, - the movement of people from poorer countries to wealthier ones, has been extensively discussed for decades^[2]. But there’s a different dynamic that gets far less attention: “brain misallocation”.

In many low- and middle-income countries (LMICs), the brightest talents are being incentivised towards organisations that don’t utilise their potential for national development. They’re learning how to get grants from multilateral alphabet organisations rather than build businesses or make good policy. This isn’t about talent leaving the country. It’s about talent being misdirected and mistrained within it.

Examples

Nick Laing in northern Uganda describes the talent drain:

Last year, one of our best nurses left one of our rural health centres. With no warning and without telling anyone. It was the 3rd nurse that year who left for an NGO job. We rushed to replace him, but it put the only remaining nurse there under a lot of stress, and I’m sure patients weren’t cared for as well in the meantime. Our replacement wasn’t as good. I didn’t hear the nurse who left again until 6 months later, last week. He came to apologise for leaving abruptly. He said he felt really bad about it, that he had let his fellow staff and the patients down. He’s a great guy and it was good to catch up and reconcile everything. When I asked him why he left for the NGO job, he looked at me as if it was a stupid question.

“The money was too much, of course”

This same dynamic affects would-be entrepreneurs and private sector workers, not just government employees and local health centres.

The wage differential driving this is substantial. Ivan Gayton’s experience with Médecins Sans Frontières in Burundi illustrates the scale. In 2003, MSF paid unskilled labour $1/day when the local market rate was 25 cents.

Ivan: …I mentioned…this back of the envelope calculation that we were 75% of the local economy…we destroyed and distorted the local economy completely; as development practice that would’ve been utterly and completely unethical.

The only justification for doing something like that is an acute emergency, which it was, it was nigh on a hundred thousand people with literally no access to healthcare whatsoever. The amount of avoidable suffering and death that was going on that we could actually alleviate was something that, you know, in sort of humanitarian practice, I guess we arrogate to ourselves the idea that we can, in a sufficiently emergency situation, justify doing things that would be unethical development practice.

Elizabeth: Do you think the village was worse off for having the hospital located in their village?

Ivan: oh yeah. Because we obviously brought this flood of money in, but where does the money go? The doctors and nurses, they’re not even local. They’re from the capital city. So you’re bringing in people from the capitol who then lord it over the local people, price of food jumps up, price of accommodation goes insane. The trickle down opportunities are to be sex workers and cleaners and, you know, servants for these, for these newly created royalty.

Elizabeth: you might hope that if the price of food goes up, but their wages are also going up because they’re working for the hospital or tangentially, then that would compensate?

Ivan: Well yeah. For the people who are already, you know, have access to the labor market and are already able to sort of get in on that. Sure. I mentioned that I actually, I deliberately kind of rotated through the villagers to give lots of people a chance, but still, if you’re not one of the people who gets a chance or even ever had a chance, or was somebody who’s, you know, on the outs with the local powerful people, then we, as these foreigners providing these jobs, we never even see those people.

They don’t even get to apply for a job with us. We never even know of their existence. So those people, now, the price of everything is jumped. There’s a bunch of newly, much more wealthy people around them, and they’re excluded from that. They don’t see any of the benefit and all of the harm. So it’s, it’s terrible.

While MSF could justify this as an acute emergency response, the economic distortion was huge. These wage premiums, sustained over time across thousands of NGOs, fundamentally reshape who works where and develops what skills.

Kenya alone has over 11,000 NGOs employing 70,000+ people. That’s roughly equivalent to staffing 15 mid-sized hospitals, 700 secondary schools or hundreds of larger companies. Instead, it’s distributed across thousands of small projects, many of which are likely less effective than the services they replace.

The Incentive Trap

This isn’t about NGOs being malicious, they’re responding to incentives. So are workers. But rational individual decisions can create collective dysfunction.

No one is making deliberately bad choices. A talented graduate earning $150/month gets offered $600/month by an international NGO. She takes it. Why wouldn’t she? An NGO needs skilled staff and can afford to pay. Why wouldn’t they hire her?

But multiply this by thousands of decisions, and you get a system where the brightest people learn to write grant proposals instead of build businesses and satisfy donor reporting requirements instead of navigating local politics.

When a significant chunk of a country’s most educated young people end up in the NGO ecosystem, several patterns might emerge.

• Accountability runs upward, not downward
  • Staff learn to focus on reporting metrics, not respond to community needs or political/business realities. The skills for navigating aid bureaucracy don’t transfer to navigating citizen or customer demands
• Scattered impact
  • Rather than concentrating intellectual capital in sectors that could drive economic growth, talent gets distributed across numerous small initiatives with limited scale
• Skills mismatch
  • The skills NGOs cultivate such as grant writing, donor reporting, international frameworks, aren’t the ones most needed for building competitive local enterprises or effective public institutions
• Wrong networks for local impact
  • Career advancement in NGOs means building relationships with other international organisations, donors and expatriate staff. The connections that matter for building local institutions are less developed
• Sector hopping following funding waves
  • When donor priorities shift from health to education to climate, talented people follow. There is less deep expertise in one sector because career incentives reward flexibility to chase funding trends

When Help Becomes Harm

A study in Ghana found that when NGOs entered communities, government funding decreased by 6.8% in NGO-active sectors (even as it increased by 7.4% in areas where the NGO was not focused). Money flowed away from government institutions that villagers had previously relied upon and into new programs sponsored by the NGO.

This les to overall villager well-being (measured across food security, education, health, nutrition, environment and economic livelihood) decreased by 0.1 standard deviations after the NGO’s arrival. These villagers had historically relied more on government institutions, so when the NGO displaced those without providing better alternatives, they suffered most.

One theory for the underperformance was that the NGO encouraged citizens to spend more time engaging with relatively powerless local authorities rather than the higher-level political work that could actually improve wellbeing.

Conclusion

This could be wrong. Maybe NGO experience provides valuable skills people later use elsewhere. Maybe in contexts with few good jobs, NGOs are the best available option for keeping talented people in-country and employed.

There are also variations in government pay as well with some countries having relatively high pay for government workers with very little extra productivity to show for it.

But if there’s something to the idea of brain misallocation, it could reframe how we think about development aid effectiveness. Not just “does this project work?” but “what is this doing to local human capital allocation?”

I think NGOs and donors need to ask uncomfortable questions. When you pay staff 2x local rates, where are those people coming from? What would they be doing otherwise? Are you strengthening or weakening regional capacity? What role are you playing in the broader talent ecosystem?

Also job seekers in LMICs facing this choice deserve better options. The problem isn’t that NGOs pay too much, it’s that private sector opportunities pay too little or don’t exist. This is ultimately about governance and economic development failures, with NGO salaries as a symptom not a cause.

1. ^{^}

   Deserranno, Erika, Aisha Nansamba, and Nancy Qian. 2020. “Aid Crowd-Out: The Effect of NGOs on Government-Provided Public Services.”

2. ^{^}

   In some cases, such as Filipino nurses working abroad, it likely creates positive outcomes through remittances, skill development and international networks, but this may not hold for smaller countries or those affected by conflicts.