This report examines whether 'localised aid', by which we mean aid transferred to national rather than international entities, can help strengthen country systems. Crucially, we expand the scope of our research to look at three sectors of society: the public sector (state); the private sector; and civil society. It is based on extensive literature analysis supported by three country studies: Guatemala, Liberia and Uganda.

The authors find that while localising aid is no magic bullet in any of the sectors, it must be considered as a critical element in any aid strategy aimed at strengthening systems.

When it comes to the state sector, the authors provide evidence that localising aid can be an important tool in many contexts, but recognise that different modalities also have a place in the complex business of supporting state capacity and accountability.

The authors then propose a range of ways in which aid providers can work with governments to strengthen the private sector, most (but not all) of which are related to localising aid. The evidence is supportive of a move to localise a higher proportion of aid to the private sector.

With regard to the civil society pillar of our research, the authors found that while localising aid is likely to strengthen large 'apex' partners, it is not clear that organisations further down the pyramid will necessarily be strengthened by such arrangements. Again, a range of other issues, such as the importance of core rather than project support, may turn out to be more important than localising aid per se.

The authors conclude that too much emphasis may have been placed in past aid effectiveness discussions on finding the perfect aid modality, and that all aid modalities can be used well or poorly. However, the inability or reluctance to localise aid should be viewed as a significant weakness in an aid programme portfolio.