The Institutional Capacity Gap:.....

• Introduction

The protracted conflict in Yemen, entering its second decade, has evolved from a primary humanitarian crisis into a complex landscape requiring a "Triple Nexus" approach, the strategic integration of humanitarian relief, sustainable development, and peacebuilding. This transition is particularly pronounced in Aden, the temporary capital of the Internationally Recognized Government (IRG). As of early 2026, increased IRG territorial control and Saudi Arabian support have created a more unified authority in the South, encouraging a massive influx of international donors who have relocated from Sana'a to Aden due to regional Red Sea escalations and operational constraints in the North. Despite the inherent precarity, Aden’s urban infrastructure and trade networks demonstrate significant resilience, offering a foundation for moving beyond temporary aid toward sustainable job creation. However, the region remains vulnerable to "threat multipliers," specifically climate induced shocks and sea-level rise, necessitating that all future development programming in the South incorporates climate resilience as a core component of long-term regional stability.

• Approximately 179 to 185 Yemeni NGOs are currently active partners within the formal UN-led humanitarian cluster system (participating in at least one sector like Health, Food Security, or Protection).

Figure 1 Note. Adapted from Yemen humanitarian needs and response plan 2025-2026, by UN OCHA, 2025 (https://www.unocha.org/publications/report/yemen/yemen-humanitarian-needs-and-response-plan-2025-january-2025-enar). Copyright 2025 by OCHA.

• Institutional Pillars for the NGO Transition

To move beyond the role of a "sub-contractor" (implementing Partner) and emerge as a "Strategic Architect" (Development Leader), local NGOs (LNGOs) in Yemen must build a foundation across five specific institutional pillars. This transition requires shifting focus from output-based delivery to systems-based impact.

3.1. Strategic Governance & Autonomous Leadership

Development leaders are defined by their ability to set independent agendas rather than reacting to donor calls. To have independent Oversight means transitioning from "founder-led" models to structured Boards of Directors that provide strategic oversight and institutional continuity. Also to develop contextual Strategy by developing 3-to-5-year strategic plans rooted in local needs (e.g., Aden’s urban resilience) that dictate which partnerships the NGO accepts, rather than letting available grants dictate the NGO’s mission. Emphasizes that "genuine participation" requires local actors to have the autonomy to lead design and coordination.

3.2. Financial Resilience & Equitable Cost Recovery

A development leader must survive funding gaps and invest in its own growth. Saving Indirect Cost Recovery (ICR) by moving toward a "10% minimum" overhead standard to fund core departments (HR, IT, Audit) that donors typically ignore. Also , reserve building by establishing "Institutional Reserves" to maintain core staff during the "starvation cycle" between projects.

3.3. Technical Specialization & Data Ownership

Moving from generalist relief to technical expertise allows LNGOs to lead "Triple Nexus" (Humanitarian-Development-Peace) programming . Conducting evidence-Based Advocacy by building internal monitoring, evaluation, and learning (MEL) units that produce primary data, forcing international partners to rely on the LNGO for analysis, not just access. Also, developing specialized technical units in high-demand "Nexus" areas like Climate Adaptation, Digital Governance, or Blue Economy.

3.4. Operational Excellence & Adaptive Compliance

Development leaders must meet international standards without losing their local identity. This entailed by implementing Institutional Frameworks and robust ERP (Enterprise Resource Planning) systems and "Gold Standard" safeguarding and anti-corruption policies. Also, moving from risk-transfer (where LNGOs take all the security risk) to risk-sharing models with international donors.

3.5. Influence, Visibility & Coalition Building

Leadership is verified by the ability to influence national and regional policy. Collective Bargaining and leading or participating in NGO platforms .

Example Collective Bargaining:

(like the Tamdeen Youth Foundation initiative) to negotiate better terms with the UN and the government in Aden . identifies "Policy Influence" and "Leadership" as the pillars with the most "minimal evidence" of progress, marking them as the highest priority for growth.

• The NGO Maturity Matrix

This Maturity Matrix is designed to help ATYAF Consulting assess local organizations in Aden and the South. It provides a clear visual transition from "sub-contracting" (implementing others' ideas) to "strategic leadership" (driving the development agenda.

Figure 2 NGO Maturity Matrix: From Implementation Partner to Development

Pillar Level 1: Implementation Partner (Sub-contractor) Level 2: Development Leader (Strategic Architect)

• Governance & Leadership Founder-centric: Decisions are made by a single leader; Boards are often symbolic or inactive. Institutionalized: Diverse, independent Board of Directors providing strategic oversight and succession planning.
• Financial Resilience Grant-Dependent: Relying 100% on restricted project funds; no reserves; "starvation cycle" between projects. Diversified & Sustainable: $10\%+$ indirect cost recovery; institutional reserves; exploring local philanthropy or social enterprise models.
• Technical Specialization Generalist: Implements any project (WASH, Food, Health) based on available donor calls. Specialist: Known for deep expertise in specific "Nexus" areas (e.g., Urban Resilience or Economic Recovery) with internal R&D.
• Data & Influence Data Collector: Collects data for donor reports; limited internal analysis or public policy voice. Thought Leader: Produces primary research and policy papers that influence donor strategies and local government priorities.
• Operational Excellence Basic Compliance: Reactive systems designed to meet minimum donor "due diligence" for a specific project. Systems-Driven: Integrated ERP systems; "Gold Standard" safeguarding; proactive risk-sharing frameworks with international partners.

Source: HII, & WWC (2025) ; Localization Maturity Model for Humanitarian and Development Actors

• Identifying the Capacity Gaps

Despite the global "Localization Agenda," implementation remains fragmented. Power asymmetries persist, often leaving local NGOs (LNGOs) in Aden and south as mere "sub-contractors" rather than strategic leaders in the nexus framework. Transitioning these organizations into leaders of development requires bridging the gap between their deep local knowledge and the institutional standards required by international development banks and donors (Schmidt, 2024). To bridge the gap between humanitarian aid and sustainable development, it is necessary to move beyond general training toward addressing structural institutional deficits. According to current 2025- 2026 data, the following areas represent the most critical barriers for local NGOs (LNGOs) in Aden and the South:

• Financial Precariousness & The "Starvation Cycle"

A primary barrier to development leadership is the lack of institutional reserves. Most LNGOs in Yemen operate on a project-to-project basis with almost zero percent full cost-recovery from grants. So, the Gap is that donors often reduce or exclude indirect costs like rent, IT, and HR forcing LNGOs into a cycle of "performative professionalism "where they mimic international systems without the core funding to sustain them (ResearchGate, 2025) . Therefore, without income diversification and a "financial buffer," organizations cannot retain senior technical experts during funding droughts, leading to a constant "brain drain" toward international agencies (IOM, 2026).

• Technical Specialization vs. Generalist Implementation

While LNGOs considered as experts in distribution and delivery of aid projects, there is a marked gap in specialized technical capacity required for development oriented "Nexus" programming, such as climate-resilient urban planning or macro-economic stabilization. The gap reflected in many forms for example training Needs Analyses (TNA) for South Yemen consistently highlight a lack of internal expertise in resource mobilization, strategic management, and complex proposal writing (HAD-Int, 2025) . Therefore, this keeps LNGOs in the role of "implementers" of pre-designed WASH or Food Security templates, rather than "architects" of integrated solutions for Yemen's infrastructure crisis (Sana'a Center, 2025).

• Governance & "Founder-Centric" Risk

Many local organizations remain centralized around a single founder or director who control all decisions within the entire NGO, which creates significant institutional risk in a volatile political environment like Yemen in general and in Aden and south in general. This gap exists and there is a widespread absence of active, independent Boards of Directors and formal succession planning. This lack of institutionalized governance often results in "minimal evidence" of LNGOs effectively influencing high-level policy or decision-making processes (ICVA, 2024) . So Institutional fragility makes LNGOs in Yemen less attractive to development banks and donors (like the World Bank or IFC), which require high levels of corporate-style governance for direct funding (Sana'a Center, 2025).

• Data Ownership & Analytical Influence

Leadership in development is driven by data. Currently, LNGOs are often reduced to "data collectors" for international agencies rather than owners of their own analysis. There is a persistent lack of internal Monitoring, Evaluation, Accountability, and Learning (MEAL) units that can produce high-quality, Arabic-English policy briefs (ICVA, 2024). Because the analysis of needs is often conducted by external actors, the resulting programs frequently miss local nuances such as tribal sensitivities in Abyan or specific urban land-tenure issues in Aden (IOM, 2025) .

• Barriers to Bridging the Gap

Even when local NGOs (LNGOs) demonstrate a desire to transition toward development leadership, they encounter a "structural glass ceiling" created by international aid architecture and local instability.

6.1. The "Compliance-Capacity" Trap

International donors have introduced increasingly complex "Due Diligence" requirements (Anti-Money Laundering, Counter-Terrorism Financing, and rigorous Safeguarding). While necessary, these standards require high-cost administrative departments. Donors expect these systems to be in place before funding is granted, but rarely provide the "seed funding" or overheads required to build these systems. This creates a "chicken-and-egg" scenario where only the largest, already-established organizations can compete.

6.2. Talent Poaching and the "Brain Drain"

As soon as a local NGO invests in training a staff member in complex development areas (like GIS mapping or grant management), that individual becomes highly attractive to UN agencies or INGOs offering triple the salary. LNGOs essentially act as "training incubators" for international agencies. Without the ability to offer competitive, long-term contracts (due to project-based funding), LNGOs cannot retain the institutional memory needed to lead long-term development.

6.3. Political Neutrality vs. Local Governance

In the polarized context of South Yemen, moving from "neutral" aid delivery to "development leadership" requires engaging with local authorities and state institutions. LNGOs fear that close collaboration with local government-necessary for sustainable development-might be perceived by donors as a loss of "humanitarian neutrality," potentially jeopardizing their funding.

Case Study A: The Social Fund for Development (SFD); Resilience in Action

The SFD remains a gold standard for Yemen. Despite the war, it maintained its development vision by focusing on four elements: community development, capacity building, small enterprise support, and labor-intensive work. Its independence from direct government control and transparent allocation of financial resources (using separate bank accounts for each donor) has allowed it to remain a "Partner of Choice" for the World Bank and EU (EU Capacity4dev, 2025).

• Conclusion

To become true leaders in development, local organizations must evolve in five key areas. First, building Stronger Leadership by moving away from organizations run by a single founder to those governed by independent boards. Second, gain Financial Stability by ensuring diversification of income and funding sources engaging private sector, in addition donors pay for flexible overhead per project so NGOs can pay rent and utilities without going broke. Third, building expertise in new, vital areas like climate-resilient urban planning or macro-economic stabilization and the "Blue Economy" (maritime resources). Fourth, using high-quality ERP automation and digital systems in finance, procurements, management and global safety standards to protect staff and funds. Fifth, moving from just collecting data for others to producing their own research and solutions by strengthen the R&D and producing high quality research analysis and reports.

Key Recommendations

For Donors: to allocate an appropriate overhead rate for every project to cover LNGOs operations based on case by case to each NGO's capacity rather generalize % ratio for all small and large NGOs so that they can sustain operating. Also move to 3–5-year funding cycles so local groups can actually plan for the future and keep their staff.

For the Government: To create performance monitoring standards and systems to measure accountability, transparency and quality of interventions and creating a registry of high-performing local NGOs. Engaging the private sector in monitoring can be added value to strengthen transparency and trust to help them work directly with major donors like the World Bank.

For Local NGOs: Create Innovative approaches to diversifying income from local businesses, and other sources even though small ones that can help in the absence of international projects funds. Restructuring and strengthen governance for effective decision making and plan long term strategy by Investing in ERP systems and digital tools for better internal management. Also to form coalitions " (like a Green Energy group) engaging private sectors and local potential donors and authorities to have a stronger voice when negotiating with international partners.