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A risky numbers game

Fluctuating currencies wreak havoc on African research

When Jonathan Blackburn, a biochemist based in South Africa, heard that his R17.5 million grant proposal to set up a centre for proteomic and genomic research had been accepted, he was overjoyed. Finally, his lab at the University of Cape Town would get the new equipment it sorely needed.

But the money landed in his account with a nasty surprise. When he had submitted his application to the South African Department of Science and Technology, the R17.5m would have bought him US$2.5m—enough to buy the kit he wanted from its overseas suppliers.

But by the time he received the money some months later the rand’s value had plummeted against the dollar. The grant was equivalent to only US$1.9m, meaning he could not buy all the equipment for which he had budgeted.

Blackburn’s story is not unique. Many African researchers face challenges caused by fluctuations in their currencies against major international denominations such as the euro, US dollar or the pound. Since most African researchers order supplies from overseas, even grants in the local currency can end up being worth less than budgeted for.

On the flipside, the value of a grant in the local currency can vary hugely if grants are won from international funders. Blackburn says he and his colleagues had to reduce the number of experiments in a tuberculosis project, funded by the European and Developing Countries Clinical Trials Partnership, after the rand appreciated.


A growing headache

Fluctuating currencies are a growing headache in Africa in the wake of the financial crisis. The turmoil is making exchange rates more volatile, according to the Impact of the Global Financial Crisis on Exchange Rates and Policies in Sub-Saharan Africa, a study published by the International Monetary Fund in 2009.

Although this is a major issue for African researchers, few institutions have strategies to deal with it, says Blackburn. “Institutions don’t have foreign currency policies, which seems short-sighted. There is no logical basis for choosing an exchange rate,” he says.

Nelson Ijumba, deputy vice-chancellor for research at South Africa’s University of KwaZulu-Natal, says universities should set aside a float of funding that they can draw on when researchers experience losses from currency fluctuations.

Some institutions keep their overseas grants in US dollar or euro accounts, believing this is a safer bet than trusting the local currency.

However, this can be a gamble, as the African Population and Health Research Centre learned. The Kenya-based institution keeps its grants in US dollars. But the dollar value of a pound grant it won from the UK’s Wellcome Trust to fund fellowships decreased between application and payout, meaning it could afford fewer fellowships—which it had priced in US dollars.



Getting too much

Of course, currency fluctuations can also leave grant recipients with more money than they asked for. But when this happens, the lucky researchers don’t always get to keep the windfall.

Blackburn experienced this first hand when a weak rand meant more money from a Grand Challenges Canada grant that he received in 2011. Toward the end of the multi-year grant, he was told that the last payout would be smaller than expected, due to the earlier over-payment. Luckily, Blackburn had not spent the extra money, and so did not feel the shortfall as a loss.

In the end, it might be safest to add an overhead into project costs at the application stage to cover potential currency fluctuations. A 10 per cent surcharge to the project is reasonable, says Peter Sundin, director of the International Science Programme at Sweden’s Uppsala University.

Few funders will agree to meet any funding shortfalls that occur as a result of exchange rates. The Wellcome Trust, a British medical research charity, says it might do so in “exceptional circumstances” where the research outcome is at risk. Canada’s International Development Research Centre says it is “possible” to issue such bridging money, but that it is rarely asked to do so.

However Jimmy Whitworth, the Wellcome Trust’s director of international programmes, says researchers must be quick to highlight their plight in order to stand a chance of getting help.

“We have little sympathy for researchers who come to us after the event to say they have overspent on their grant and can we cover the shortfall,” he says.



How to beat the currency blues

• Add 10 per cent to the project budget for unforeseen costs such as foreign currency fluctuations

• Speak to donors about which currencies they issue grants in, as many are happy to issue money in different currencies

• Ask the funder to release the funding only when needed—this could cut devaluation losses and hedge against inflation

• A foreign currency account is a good option for hedging against weak domestic currencies if your country allows it

• Notify funders of shortfalls or over-payments as early as possible