USAID’s Annual Letter to Share – I mean – Stake – Holders

USAID’s Annual Letter to Share – I mean – Stake – Holders

By Conor Godfrey

This week the highest USAID cadre, Rajiv Shaw, released his annual (2nd) letter. If this second ‘annual’ letter was intended to mimic a private sector letter to shareholders, than I liked Warren Buffet’s letter to Berkshire Hathaway better, but I do appreciate the attempt.

In his very first paragraph, Rajiv and I essentially break up.

He lauds president Obama’s push to make development assistance a core part of U.S. international strategy, right alongside defense and diplomacy.

“…But the President and Secretary both believe that the development work our staff does is just as vital to our country’s interests and national security as the work of our soldiers and diplomats.“

I confess I do not believe this is true.

In fact, when viewed in this light, it is no wonder that we drown Pakistan and Afghanistan (critical U.S. priorities) in development assistance.

It is possible that this cash actually harms people, and at best, I think it is probably a wash.

Read this NYTimes article about development assistance in Afghanistan and cry.

AID workers in these countries struggle to spend the money that has been allotted to them, and set themselves up for horrendous overbilling and corruption.

There are also two other problems with AID money in places like Afghanistan and Pakistan – one, the local economy can be trashed by the influx of foreign currency, and two, the best and brightest in those communities try and get high paying jobs with AID agencies instead of working in local government or starting businesses.

These thoughts are not new; actually, it is very much in vogue to bash development assistance.

I challenge you to go out and find someone that works in development right now, get them out of the work environment, give them two beers, and ask them what they think of either their specific project of development assistance in general.

They will start with a resume-speech that uses words like capacity building and stakeholders, but it will degenerate into a story of waste and frustration.

There are people out there who work on great projects…but I bet you go through four or five of the scenarios I just mentioned before you get to them.

To avoid being charged with too much complaining and not enough suggesting, here is what I see as the future of development assistance.

1) A clearer distinction between humanitarian relief (floods, fires, droughts, conflicts) and development assistance.

The former (staffed by former soldiers and other logisticians), should be given wide latitude to act preemptively, and should make sure the U.S. is the first on the scene and the most generous when they get there.

The U.S. already does a pretty darn good job here.

The latter, development assistance, needs to be reconceived as a social impact investment fund with a high tolerance for risk.

2) They should take on investment worthy projects that are not attractive to traditional investors because the recipients do not have collateral or other assets. (Like our current Export-Import Bank, but with a much higher appetite for risk, and a bent toward micro projects.)

Better yet, they should invest in LOCAL impact investment funds that have a better handle on vetting projects.

Most importantly, this agency should RETURN MONEY TO THE TREASURY!

Now, that might be too strict when lending to entrepreneurs and businesses at this level, so perhaps the rules should be as follows….

The agency will loan out XXX Million USD per year, but only 15% of the loans could be non-performing at any given time.

If we wanted to get really crazy, the agency could take equity positions in these companies and entrepreneurs.

(Moral Hazard alert here, the business might just expect the agency to do everything.)

Yes- this would immediately take some of the least developed countries off the USAID map.

(You could adjust the rules for least developed countries if necessary.) I think that is ok, because I do not believe what these various groups say they are achieving in those countries anyway.

If you added up the stats that various AID agencies and NGOs give you for some countries, and compound those over all the years this assistance has been given out….the problem(s) would theoretically be solved already.

It is a little like the phenomenon whereby all the purported shards of wood from the Biblical cross add up to seven or eight crosses worth of wood.

Ok I am probably getting carried away.

The biggest weakness in my argument is in health. Many health problems are not ‘investment opportunities.’

(Many are though! Check out my favorite company in this space.)

There are other problems too, but I think they pale in comparison to the waste in the current system.