The Institutional Capacity Gap:.....

• Introduction

From our experience as practitioners in the development sector over the last 15 years in Yemen, its complicated writing about the capacity of local institutions in a country suffers from the most prolonged crisis in the world. The protracted conflict in Yemen, entering its second decade, has evolved from a primary humanitarian crisis into a complex landscape requiring many reforms, political stability and unified government to strengthen local institutions to lead development efforts. Lastly many UN agencies and international actors introduced the term "Triple Nexus" approach in the non government organisations sectors to shift from pure humanitarian into development as 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) of Yemen.

As of early 2026, increased IRG territorial control and Saudi Arabian support to the IRG government have created a more unified authority in the South that can be 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 country remains vulnerable to threat multipliers, specifically political instability , fragmented government and climate induced shocks and sea-level rise, necessitating that all future development programming in the South incorporates locally led institutional capacity, peace building and local resilience as a core component of long-term regional stability.

Approximately a number of 179 to 185 Yemeni NGOs are currently active partners within the formal UN-led humanitarian cluster system[1] (participating in at least one sector like Health, Food Security, or Protection). It's worth to note that most of not all those NGOs are greatly dependent on external funds to operate in the country. Given the current funding crisis resulting from cutting of USAID funds, we have noticed a choke in the NGOs scaled down operations, staff and closing of offices in Aden and other governorates. This comes at the time that most international NGOs relocated offices from Sana'a to Aden due to Houthi government escalation in the Red Sea and other factors.

• Institutional Pillars for the NGO Transition

From my own experience since 2010 working with international NGOs, capacity building was one objective in all projects implemented in Yemen. However, nowadays after more than 15 years we are noticing no major role is being applied in the charity aid sector, only implementing partners to project activities funded by UN or INGOs. Nonetheless, local NGOs systems are weak but not institutionalized enough to gain local community trust, attract funds and create change. These organisations could be vanished if not consistent donors' funds flowed. The institutional perspective is that local NGOs stand with immunity for sake of local community welfare and rights, not only pursuing funding for short term projects. Also, would see locally initiated projects to utilize the local young people force by locally diversified finance for sustainable impact. If local ngos could not be resilient in a crisis times, it's difficult for local members.

So to obtain such capacity multi dimension billiards local NGOs need to consider in such a context to build systems rather than founder centered organisations. 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

I believe that in today's global financial crisis and the Yemen decline of funding from the international community, Yemen organizations have to consider alliances with the private sector and diversification of resources. Development leaders are defined by their ability to set independent agendas rather than reacting to donor calls. So in this lens local organizations 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 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

Having strategic oversight and governance is not enough to sustain operations, 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 is not sufficient to guarantee ongoing operations or growth, however, generating income is the real investment. For example, conducting training or building trust with local charitable collections would make a difference which most local NGOs ignore but a focus on international projects funds. Also , a reserve building by establishing "Institutional Reserves" to maintain core staff during the "starvation cycle" between projects from different income sources would help. This approach needs local NGOs to attain high level accountability and gain trust so that many traders and charity givers can donate to people in need in Yemen either locally or those who are in GCC who want to help. We have to learn from the NGOs belonging to private businessmen or business groups as an example that provide donations to local communities. It's worth mentioning from a local perspective in Islam encouraging for Sadakah (charity giving) from many angles that return to givers by Allah but without visibility.

3.3. Technical Specialization

In Yemen I have noticed local organisations specialized in a niche field like medical aid, which in a few years goes to do most if not all clusters food distribution, protection, WASH etc. Moving from generalist relief to technical expertise allows LNGOs to lead "Triple Nexus" (Humanitarian-Development-Peace) programming based on technical expertise. This way will ensure local experts are maintained within organisations with diversified ways of working and innovation partnerships. The local nogs role is not restricted to aid giving rather building capacity for the new generation of young people to markets in technical economics. Furthermore, enhancing research within organisations drives evidence-based programming to gain more funding. 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. Recently as a result of the decline of international donors in Yemen, many technical experts who served with INGOs or UN have lost jobs that could be an asset for building more technical departments or businesses. One example of such business is ATYAF Consulting founders who served for more than 15 years in the sector that could be of value to local organizations and donors as well to enhance development from locally impaled minded set.

3.4. Operational Excellence & Adaptive Compliance

As previous program manager for international organizations in the last 7 years , selection of a local partner has to go through due diligence and capacity assessment to comply with operational requirements. One of the strong demand sections is the finance department followed by procurement and logistics. International donors have to ensure that local partners have strong financial and procurement systems in place in order to be eligible to manage funds. Development leaders must meet international standards without losing their local identity. Meaning that organizations have to present local priorities not changing priorities due to donors priority only but they have to advocate for local needs and priorities based on community and local priorities. This entailed 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. Strong organization operational systems will strengthen donors and donators trust to the local organizations to manage charities and development grants.

3.5. Influence, Visibility & Coalition Building

In a context like Yemen there are many challenges that face the development actors that need strong institutions with proud acceptance from the local community as civil society organizations. Representing civil society is a big responsibility not only acting as a delivery actor. For example advocating for issues related to involvement of women into the labour force which represents only 5 % needs advocacy and influence. Many other issues need civil society to bring up on the table to decision makers for reforms not acting merely for obtaining project funds. Institutional strength is not enough if not backed by solid intention to reforms for positive dignified living for a community that suffers from decades of conflict. Honest purpose based on principals is what we need among the Yemeni civil society organizations to create change. Such kind of Leadership is verified by the ability to influence national and regional policy. Collective Bargaining and leading or participating in NGO platforms .

Some local examples of Collective Bargaining that done in Yemen by some NGOs (like the Tamdeen Youth Foundation initiative and other local CSOs 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[2]

There are variety of tools and frameworks to assess capacity of organizations based on the specific need and specific sector however in general this Maturity Matrix is designed to help ATYAF Consulting assess local organizations to make a shift from phase one to phase two based on general key gaps identified by ATYAF Consulting experts. It provides a clear visual transition from "sub-contracting to "strategic leadership"[3]

• 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:

3.1.1. Governance & Leadership Gap in Yemeni NGOs:

Many local organizations remain centralized around a single founder or director who controls all decisions within the entire NGO, which creates significant institutional risk in a volatile political environment like Yemen 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). 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).

In a study conducted by ATYAF in 2025 among 12 local CSOs in Aden 41.7% of CSOs exhibit moderate capacity deficiencies, whereas 16.7% demonstrate either significant or high-capacity gaps. Governance and leadership capacities are inadequate among approximately one-third of CSOs, particularly in critical areas such as mission statements, codes of conduct, policies, and anti-fraud/corruption measures. This undermines organizational performance, stability, and access to funding, hindering long-term sustainability.

Notable gaps exist in organizational structure (by-laws or charts), hindering role clarity, decision-making efficiency, hierarchical understanding, communication, and streamlined operations, ultimately impacting organizational effectiveness[4].

3.2.1. Financial Gap among Yemeni NGOs:

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[5] . 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).

Local CSOs has capacity gap in financial management as well to run funds, significant portion of CSOs lack adequate financial management systems, in a study conducted by ATYAF studies among 12 local SCOs the majority (75%) had either significant (50%) or high (25.0%) gaps in financial management, jeopardizing governance, supervision, long-term sustainability, and increasing the risk of instability and failure.

It's worth mentioning how the 2025 decline of funding by major donors like the US impacted on the Yemeni non-profit sector and international organizations as well. We are experiencing a huge number of experts who have been working in the development sector either with international NGOs and UN contracts ending without jobs. It is worth noting this category of workforce was the golden jobs holders after the oil companies in the normal days of Yemen before conflicts, now they are jobless due to the catastrophic economic crisis. Yet there are no specific number of job leavers due to the closure of these NGOs or relocation or as a result of projects close, over 69% of aid agencies reported staff reductions or layoffs due to funding freezes.

3.3.1. Technical Capacity Gap:

While LNGOs are 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).

A small proportion of CSOs (16.7%) possess adequate technical capacity, which includes expertise in areas such as livelihoods, income generation, advocacy, and entrepreneurship programs, along with a sufficient number of qualified personnel who have extensive experience or knowledge in these domains and are actively engaged in the EFSL cluster or related workgroups[6]. The same survey reveals that a significant majority of 12 CSOs (66.7%) exhibit considerable deficiencies in their program management capabilities, which adversely impacts their ability to design needs-based interventions, implement them effectively, report accurately, ensure accountability, achieve desired outcomes, and secure additional funding in the future. 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[7] .

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

In Yemen for local NGOs to become true leaders in development, local organizations must evolve in five key areas. First, building stronger governance 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 the private sector and proud partnerships. Also negotiate with donors to pay for flexible overhead per project so NGOs can pay rent and utilities without going broke. Third, building expertise in specific technicality, or 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 strengthening 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 than to 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. Also it is recommended to fund reestablishment of non-profit sector governance units to monitor the performance of local NGOs and donors in utilizing funds and impacts to ensure organizations run away from the dominant decisions of the founders and advocate for additional laws regulating the non-for-profit sector.

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. Creating/reactivating non-profit sector union governance that formed from various stakeholders to monitor the performance of local NGOs and donors in utilizing funds and impacts to ensure organizations run away from the dominant decisions of the founders and advocate for additional laws regulating the non-for-profit sector. 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 strengthening governance for effective decision making and planning long term strategy by Investing in ERP systems and digital tools for better internal management and golden accountability and transparency. 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.