Abstract

Research in low- and middle-income countries (LMICs) is heavily dependent on international funding. The European Union (EU) has broad funding options for researchers in LMICs (such as African opportunities through the Horizon Europe Africa Initiative and EDCTP), but they bring particular challenges that research managers in European and LMIC institutions may be unaware of. Funds received in foreign currency bring financial risk due to currency fluctuation during the grant. Foreign exchange (forex) risk is typically well understood, and research management/finance teams help mitigate impact. For example, a common risk stems from the rate at which grants are budgeted vs the rate at which funds are received – this risk can be mitigated by budgeting at a conservative exchange rate and spending prudently. However, a forex risk specific to EU funding is less known and can be significant. This stems from the difference in the rate at which funds are received from the EU vs the rate at which spend is reported (with the latter set per current EU rules). If the local currency depreciates against the Euro over the reporting period, the local funds received translate to fewer Euro and there is a forex loss (prudent spending does not help). Where the local currency appreciates against the Euro, any forex gains must be returned to the funder. Therefore, at grant closure the awardee is left either in deficit or cost-neutral. Forex losses may be particularly severe for LMICs with volatile currencies and affect research group sustainability. Unless the current system evolves, LMIC institutions must carefully reflect on financial risk when considering EU grants and plan how to absorb losses. European institutions collaborating with LMICs on EU grants should understand how this may impact long-term partnership. This talk will present examples to demonstrate the risk and impact for LMIC institutions, along with approaches to mitigate risk. Engagement is needed to reduce this risk more substantially and prevent significant losses for LMIC institutions in the coming decade.