The Pipeline

From Foreign Assistance Recipient to Democratic Trading Partner

To be clear, democratic elections are a not an instant recipe for a booming economy.  But take a look at America’s trading partners, and you’ll discover that “11 of our top 15 used to be beneficiaries of U.S. foreign assistance,” as Secretary of State John Kerry emphasized during his first foreign policy speech from his new Foggy Bottom perch.

Why would the Secretary of State tout this statistical success and what’s foreign assistance got to do with trade, you ask?  For starters, trade, by definition, pretty much requires a trading partner, not to mention U.S. exports need some place to go (e.g., new markets).

Enter foreign assistance.  Promoting rule of law, transparency, and regulatory systems in developing countries – in addition to improving things like health, education, gender equality, and more – helps to foster a more enabling environment for private sector investment and trade.

And trade supports U.S. jobs, A LOT of jobs.

In fact, the U.S. Chamber of Commerce estimates that trade supports 38 million American jobs, boiling down to more than 1 in 5 jobs right here in America anchored to international trade.  Dive in a little deeper, and you’ll discover 1 in every 3 manufacturing jobs is dependent on exports and 1 in 3 acres of American farms are “planted for export.”

Trifecta of Trade, Exports, and American jobs

The coolest part about this trifecta of trade, exports, and American jobs is that it is rooted in U.S. global leadership.  But let’s not forget the flip side.   Failing to engage in the world can lead to disastrous results.  In fact, USAID reports countries with “ineffective government institutions, rampant corruption, and weak rule of law have a 30-to-45% higher risk of civil war and higher risk of extreme criminal violence than other developing countries.”

You don’t have to be a sage to understand that such a mix does not a likely U.S. trading partner make.

But such a fate can be reversed.  Take for example Colombia and our security assistance package, Plan Colombia, which included supporting the country’s “democratic pillars.”  The rebel group, known as the FARC, “has been fighting to take power for a half-century.”  They are, however, currently engaged in peace talks with the Colombian government, recently announcing “a major breakthrough on a complex issue — land reform.”  Oh, and Colombia also is on track to hold presidential elections next year (its 3rd since 2006).
This South American country may not make the Top 15 Trading Partners List, but our exports to Colombia are up a whopping 288% since 2000 – the date Plan Colombia started.  Coincidence?  I doubt it, especially since May marked the one-year anniversary of the U.S.-Colombia Trade Promotion Agreement taking effect.  And the results speak for themselves: exports of U.S. goods to Colombia were up 20% from the previous year alone.

Cross the Atlantic, and you find several African nations – and their leaders – that demonstrate a “link between good governance and prosperity.”  For the West African country of Sierra Leone, the last few years showcase this “link” in action for a country once defined by an 11-year civil war, which  “decimated the country’s infrastructure and knocked back many of its political, social, and economic development gains.”

Today’s Sierra Leone is no longer defined as “country of blood diamonds,” as President Ernest Bai Koroma described his country’s development at a recent U.S. Institute of Peace event.   “Democracy and stability,” President Koroma asserted, “will open investment opportunities,” one of which came this past December in the form of eligibility to create a MCC Compact proposal.

Sierra Leone’s “hard work” and efforts “to adopt policy reforms and strengthen institutions” is also paying off economically.  Home to one of the fastest growing economies in the world, the International Monetary Fund (IMF) projects Sierra Leone’s economy will grow by more than 35% this year.   I can see why President Koroma believes, “Sierra Leone is on the move.”

Colombia and Sierra Leone have made significant democratic strides, but both still have a long way to go to cement their democratic reforms and ensure their people’s stability and equitable growth.

And while helping to strengthen democracies may require time, effort, and resources, standing behind our democratic values also makes for one heck of a case for the business of doing good.

As we move forward, we also thought it would be useful to note the milestones that brought us here:

Read the Report

Also supporting American jobs are three agencies funded by the International Affairs Budget that help U.S. businesses create jobs here at home: The Export-Import Bank, The Overseas Private Investment Corporation, and the U.S. Trade and Development Agency.

The President and Mrs. Obama are slated to visit Senegal, South Africa, and Tanzania from June 26 – July 3.  According to the White House, the trip will focus on “expanding economic growth, investment, and trade; strengthening democratic institutions; and investing in the next generation of African leaders.”  With 7 out of the 10 fastest growing economies in Africa, it’s no surprise to see the focus on opportunities, rather than challenges in Africa.

In this year’s State of the Union, the President called for ending extreme poverty through a number of initiatives that might be part of his legacy:  “by connecting more people to the global economy and empowering women; by giving our young and brightest minds new opportunities to serve and helping communities to feed, power, and educate themselves; by saving the world’s children from preventable deaths; and by realizing the promise of an AIDS-free generation.”  These are ambitious, potentially transformative goals that have a policy foundation to build on.  Might the Administration choose to focus on Africa?

Strengthening agriculture and reducing hunger is one area where the Administration could make an impact by reducing the number of people who live on less than $1.25 a day.  The Administration’s Feed the Future initiative and New Alliance for Food Security and Nutrition have already shown signs of progress.  Is the Administration ready to scale up its work for a broader impact?  Last week the Chicago Council on Global Affairs released its latest report, “Advancing Global Food Security:  The power of science, trade, and business,” which focuses on the likely elements of such a plan:  partnering with the private sector on innovation, leveraging trade agreements, and focusing on nutrition not just increased production.

The Administration’s recent budget request includes a modest increase in funding for Feed the Future.  At the Chicago Council’s conference last Tuesday, Administrator Shah flagged USAID’s efforts to be more selective and focus their efforts in countries where they can be most effective.  He noted that USAID shut down 22 agriculture programs to focus on 19 countries where governments are ready to work with the U.S. to increase agriculture productivity.  He also previewed an upcoming progress report on Feed the Future, saying 7 million farmers have already adopted new technologies to increase their harvests, poverty rates have fallen by 5%, and stunting of children due to poor nutrition is down by 6%.

Or might it be a focus on energy, building on current USTR-nominee Mike Froman’s trip to Africa last year?  More than 550 million people in sub-Saharan Africa don’t have electricity, or about 70% of the population. Without reliable power, many things we take for granted are extremely difficult, especially in health.  Women give birth in under-equipped hospitals, and vaccines for children requiring refrigeration are at risk.  Routine business transactions beyond cash exchanges are hard.

It’s unlikely this would mean the United States is committing to provide electricity directly, but energy might be a sector where targeted U.S. policies could help set the stage by improving the enabling environment for private sector investment.  The Overseas Private Investment Corporation, which joined Mr. Froman on his trip last year, has already begun to work with American businesses to bring sustainable energy to the developing world.  And OPIC, which returns a profit to the U.S. budget through its investments each year, also saw an increase in the President’s FY14 budget to enable it to do more.

Focusing on food security or energy need not come at the exclusion of the other, especially given the comprehensive nature of the challenge of ending extreme poverty.  But the near certainty of leaner budgets given sequestration means the Administration will have to make choices.  The countries the President and Mrs. Obama will visit are places where the United States has already invested in effective, targeted development assistance, from the PEPFAR to the Millennium Challenge Corporation.  The potential is there to capitalize on these successes and define the Administration’s global legacy of reducing extreme poverty by promoting economic growth.   Let’s see what we hear.

International Day of United Nations Peacekeepers, celebrated each year on May 29, honors the service of UN Peacekeepers in creating stability around the world.  At UN Headquarters, Secretary-General Ban Ki-moon held a wreath-laying ceremony and presented the Dag Hammarskjöld medal to those who lost their lives serving in peacekeeping missions this year.  Currently, over 113,000 men and women from 114 United Nations member states, including the United States, risk their lives to promote peace in 16 different missions across 4 continents.

A ceremony marking the handing over of power from the UN mission in Timor-Leste to local forces

While this day provides an opportunity to honor the men and women who lost their lives over the past year, it should also be a time to acknowledge the key role of UN peacekeepers abroad.

Take Timor-Leste for example. On December 31, 2012, UN peacekeepers departed the country after 13 years of service.  Over those 13 years, UN peacekeepers helped transition the conflict-ridden country to a successful democracy following its bid for independence from Indonesia in 1999 and its formal realization of nationhood in 2002.  Although the UN peacekeeping mission in Timor-Leste faced bumps along the road, the UN is leaving behind a fully functioning democracy.  The country has held two largely peaceful elections and today has the region’s highest participation of women in parliament at 38 percent.

Cases like Timor-Leste highlight the importance of peacekeeping forces to U.S. engagement abroad. Responding multilaterally to national security threats and humanitarian crises strengthens missions and significantly lowers the cost of a U.S. unilateral mission.  At a UN committee meeting last November, Undersecretary-General for Peacekeeping Operations Hervé Ladsous highlighted the importance of peacekeeping to global development:

“The relative stability peacekeeping offers has also helped restore a measure of confidence of local and international investors in post-conflict zones, increasing economic activity and raising the GDP of these same countries. Put plainly: peacekeeping works.”

Peacekeeping results in new markets for U.S. businesses, greater opportunity in emerging democracies, and an overall safer world.

So, let’s take a moment to recognize the contributions of Americans and many others who risk their lives to protect our peace and prosperity around the world each day.

Head to the Better World Campaign for an opportunity to send your thanks to peacekeepers in the field. 

Bolivia and Russia highlight the challenges facing development assistance in today’s world, when the governments in some countries see foreign assistance is meddling in their internal affairs.  Unfortunately, it’s often not just USAID that is being targeted, but local civil society actors in these countries that also face these repressive policies as part of a broader pattern of domestic control.

USAID helped Bolivian quinoa farmers gain access to improved equipment resulting in higher incomes for the farmers and their families, and a sustainable future.

Why is this happening now?  In the past development agencies often said they avoided anything to do with politics, but concerns about corruption and transparency led to a shift toward promoting good governance and accountability.  Bolivia shows that this can be hard.  USAID had already shut down its democracy and governance programs in country several years ago and were only working in what were thought to be uncontroversial areas like health and environmental conservation.  In Russia, much of USAID’s work focused on global health and AIDS treatment.

Does this mean aid agencies should pull back from their work in governance?  No, according to Thomas Carothers and Diane De Gramont.   In their recent book, they say though that aid must be “politically engaged and politically smart,” that we look at “how all aid programs in a country fit into and affect the broader political environment.”

Our commitment to promoting freedom and democracy and protecting human rights is at the heart of America’s global leadership, and it is a top principle of the State Department’s work to “create a more secure, stable, and prosperous global arena in which the United States can advance its national interests.”  Take the Marshall Plan.  In his famous commencement address at Harvard in 1947, George Marshall said “the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.”

The heart of this strategy is that, after winning the war in Europe, the United States saw a national interest in helping European countries recover by helping their economies, which “provided markets for American goods [and] created reliable trading partners,” which in turn created jobs at home.  The Marshall Plan was the first example of a return on investment of our foreign assistance, particularly when you look at how far Germany (our 5th largest trading partner to date) has come since the end of the war.  From America’s post-war rebuilding efforts in Japan, Europe, and South Korea, to supporting Colombia’s “democratic pillars” as a part of Plan Colombia, and more, foreign assistance has bolstered democratic governments, while also strengthening our own economy through job creation.

Or look at Liberia.  Since 2003, the United States has provided assistance and engaged with Liberia on numerous programs in order to lift that country from a violent civil war by focusing on improving democratic processes and governance. One of those programs is the Millennium Challenge Corporation (MCC) compact, which focuses on a results-oriented approach to ensure that Liberia is following through with its commitments to good governance, investment in its citizens, and economic freedom.  Right now, Liberia is an example of democracy in Africa and how using development to focus on improving democratic processes can reap benefits.  

Carothers and DeGramont say the insight that governance is at the key to effective development “is the most important advance in the overall aid paradigm in decades.”  While it may be discouraging to see countries suspend our engagement, it is not a reason for America to pull back from the world.  Helping promote transparency and accountability is a prime example of the values that Americans hold dear and believe creates a safer world.  By using our effective tools of global engagement, America can support positive change that will advance our interests and help out our friends and partners.

When executed properly, the partnering of public and private forces to solve critical development challenges can produce a “win-win” for all parties involved.  Alright, so maybe the Power of PPPs (public private partnerships) isn’t much of a secret.  After all, they’ve been used by U.S. foreign assistance agencies for more than a decade to successfully leverage private sector expertise and multiply government resources – and to create economic opportunities overseas and right here in the U.S. of A.

Partnering to Build a Better World

Some of America’s biggest corporations (really big – as in household names such as Walmart, Coca-Cola, PepsiCo, Cargill, General Mills, GE, Nike, and more big) have partnered with the U.S. government on a whole range of issues.  And these companies aren’t just doing it to feel warm and fuzzy. The benefits to the private sector can extend well beyond public relations kudos.  In fact, there is growing recognition that PPPs are becoming more important to success and sustainability.

Think you have to be a global giant to qualify for this “expand your business and build better the world” package?  Well, think again.  Small and medium sized companies, including diaspora-owned businesses, are an increasingly important part of the PPP Equation, which looks a little something like this:

PPPs + Diaspora Groups = impactful change + increased economic opportunities (at home and abroad)

Take for example this year’s IdEA* Global Diaspora Forum.  Themed: Where Ideas Meet Action, the Forum starts today in DC, Dublin, Silicon Valley, and Los Angeles. In 2011, Secretary of State Clinton launched the forum as a way to try and tap into the enormous investment potential of the 60 plus million first and second generation Americans, whose remittances alone “dwarfs any foreign aid that our government can give.”

The Role of the Diaspora

Partnering with America’s Small Businesses on Development

Let’s start by looking at the Overseas Private Investment Corporation (OPIC), India, an Indian American, and Ohio.

DLZ Corporation is a successful Ohioan architectural and engineering firm that was founded by an Indian-American, who in the late ‘90s saw an opportunity to expand his company into India via the country’s underdeveloped energy sector.  With a $5 million loan from OPIC, this American company rehabilitated a hydropower plant in India which has been providing “clean energy and green jobs to the local region” for well over a decade now.

Why OPIC?  Well, according to the founder’s son and DLZ’s Vice President, Shyam Rajadhyaksha, it was simple, really.  One, “there were no other sources of funding available to us at the time,” and two, OPIC gives American small businesses “instant credibility in a foreign market.”

Right, so I’m starting to understand the incentive from the diaspora side, but what about for OPIC?

The fact of the matter is that global development and business development are hard work.  OPIC views diaspora-owned businesses as potential partners who (1) “have a better understanding of the risk assessment capability” of their country of origin and (2) as “investors with a longer-term outlook.”

1-2 PPP Punch, anyone?

This is just one story of many – too many, in fact for this post.  So I’m afraid we’ll have to stop here.

What’s that?  You’d like more 1-2 PPP Punch examples?

Deal!  Tune in next time to find out Where (and how) the Ideas part of the 2013 Global Diaspora Forum met the Action, and we’ll even discuss why diaspora groups make “natural partners for USAID.”

*IdEA is a non-partisan, non-profit organization managed via a public-private partnership between the U.S. Department of State, the U.S. Agency for International Development (USAID), and the Migration Policy Institute (MPI).

Chris Policinski and Dan Glickman accepting the award

On Monday, May 6^th the University of Minnesota’s  Hubert H. Humphrey School of Public Affairs  awarded the U.S. Global Leadership Coalition with its 2013 Public Leadership Award for Responsible U.S. Global Engagement. Given for “promoting the common good in a diverse world”, the USGLC is proud to join previous recipients of the Public Leadership Award like Walter Mondale, Bill Richardson, and the Bipartisan Policy Center.

We are equally proud to have been surrounded by such good company at the Public Leadership Awards dinner.  It seems that support for a robust International Affairs Budget has netted us friends in every state we visit, and Minnesota was no different.   On Monday, many Minnesotans were alongside us including former Senator Norm Coleman, Vice President Mondale, and Minnesota-based corporations Cargill and Land O’Lakes.

Receiving an award recognizing our ability to build bridges while surrounded by such a varied group of business leaders and policy makers speaks to the truly bipartisan nature of U.S. global engagement.  In these hyper-partisan times, it’s truly remarkable that so many people from so many different industries, political backgrounds, ideologies and locations have agreed that America must be an engaged leader in the world today.  As our Chairman, Dan Glickman, said on Monday, “believe it or not, this is actually one issue Democrats and Republicans do come together on.  They see the challenges and threats our country faces across the globe.  Whether it’s terrorism, extremism, hunger, poverty, or instability, what happens in one country affects us here at home.”

Those aren’t just talking points either.  Leaders in all sectors agree American leadership is critical, not only to the safety of the nation, but to the success of our economy.  Chris Policinski, President and CEO of Land O’Lakes, took the stage to lend a more personal example of the importance of American leadership on Monday night.  “In this interconnected global society, our collective future is increasingly tied to the health and stability of local economies all over the world. Food shortages, like any other resource shortage, can cause, exacerbate or prolong conflict and unrest around the globe.”

Indeed our increasingly interconnected world leads to increasingly interconnected challenges and opportunities.  While we here at the USGLC are honored and humbled by the Humphrey School’s generous award, there is still much to do.  The United States must continue its commitment to global leadership, and we will continue our commitment to educate Americans, and especially our leaders in Washington, about how important our tools of development and diplomacy are to our national security, our economy, and in demonstrating the best of who we are as a country.

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When thinking of our partnerships with Latin America, Plan Colombia is often the first item for discussion, which used “smart power” engagement to enhance the security and economic situation in a country mired with conflict from the drug wars.  We have a history of cooperation with Latin America, particularly through recent free trade agreements with Colombia and Panama that are already reaping significant benefits.  While the president only made stops in Mexico and Costa Rica during this trip, these two countries are key partners of engagement with the United States.

In Mexico, President Obama signed a new agreement between USAID and the Mexican Foreign Secretariat’s Agency for International Development Cooperation that demonstrates how previous aid recipients can become donors and partners.  This collaboration includes building economic growth, promoting environmental change, disaster and relief management, as well as assisting with governance and rule of law projects.  Country partnerships like these continue to bring a positive element to our global development and are another example of the power of partnerships to do good around the world.

One does not have to look too far to see common areas of interest for the U.S. and Mexico.  President Obama pointed out that the U.S.-Mexico relationship “must be defined — not by the threats we face — but by the prosperity and opportunity we can create together. And if we are serious about being equal partners, then both our nations must recognize our mutual responsibilities.”  Faced with national security threats from the drug wars, both countries still work together through the State Department’s Merida Initiative, which serves as a vehicle for assisting Mexican authorities with implementing justice sector reforms by using police training and promoting the rule of law in prosecuting drug traffickers.  The president committed to continuing the Merida Initiative, as well as pursuing other opportunities for greater economic engagement, utilizing agencies such as OPIC and the USTDA to continue powerful economic development projects.

Following the visit to Mexico, the president and leaders from eight Central American countries met in Costa Rica where they reiterated their support for the Central American Regional Security Initiative (CARSI).  Through CARSI, the U.S. government assists Central American governments to improve their citizen security. Components of CARSI include the U.S. using programs through the Millennium Challenge Corporation (MCC), Feed the Future, and Pathways to Prosperity to support “economic development, combat poverty, hunger, and malnutrition, and promote greater opportunity for all Central Americans.” Programs like these utilize many tools of American diplomacy and development in order to improve the quality of life for Central American citizens.

Our engagement is already serving to help citizens of Latin America with economic growth and security.  President Obama indicated during the summit meeting with Latin American leaders that, “As governments, our job is to make sure that we’re doing everything we can to provide security and opportunity and ladders for success and prosperity for our people.  Economic growth that creates jobs, security for people so that they can be safe in their own neighborhoods and development that allows people to live in dignity.  And so that’s why we’re here.”  This trip served as a stepping stone to this commitment of engaging Latin America on these key issues, which could be only a taste of things to come in the future.

“You can’t build a country without concrete.”

The statement has particular relevance in Haiti, where, more than three years since a 7.0 magnitude earthquake resulted in extensive death and destruction, the country is still working to repair and rebuild and assume a path of sustained economic vitality.

Haiti 360 – one of multiple OPIC-supported projects that were initiated after the 2010 earthquake – has used a $6 million OPIC loan to support startup costs of two plants producing high-quality concrete used to rebuild homes, roads and even an airport runway. In 2012, more than 500 homes were built with concrete from the new plants. Some of the homes, like those pictured below at the Cabaret housing settlement, were built to tap into the country’s sunny climate. They have solar panels on the windows and come with ATM-like machines, where residents can swipe cards to keep track of the power they use. Haiti 360 is now one of Haiti’s largest concrete producers, and is establishing a series of micro-mixing sites around the country so it can better meet the demands of local builders in different regions. The company is also planning to donate a percentage of its profits to local charities.

My work in international development has led me to Haiti several times but when I visited the country in February with an OPIC delegation led by OPIC President and CEO Elizabeth Littlefield, it was my first visit since the earthquake three years earlier. Today there are about 300,000 Haitians living in tents, down from almost three million who were left homeless after the earthquake. Long a poor country facing multiple development challenges, Haiti today faces the immediate challenge of housing and feeding a large displaced population, and is hoping to do so in a sustainable manner.  Construction underway throughout the country is aimed not just at repairing damage, but extending roads, bolstering infrastructure and fostering new industrial development beyond the capital city of Port au Prince, which is overcrowded with displaced people and job seekers.

The work I witnessed during my visit in February also underscored how governments, private businesses and NGOs all have an important role in this country, which U.S. Ambassador Pamela White has described as “too rich to be poor.” Indeed, Haiti is rich in talent, youth, innovative spirit and land. All of these resources were on display when our delegation visited the Cabaret Housing Settlement, where about 156 houses will be built with the support of Development Innovation Group (DIG). A Maryland finance and development firm, DIG is using a $17 million OPIC loan, together with grants from USAID and the Clinton-Bush Haiti Fund, to support lending in amounts as small as $1,000 for mortgages and home repairs for low-income borrowers. Builders at the Cabaret site are sensitive to the urgency to construct more housing and have organized a friendly-yet-fierce competition between two construction teams to see who can complete the most homes.

Development Innovations Group offers a good illustration of OPIC’s ability to form partnerships to achieve a greater developmental impact. As the U.S. Government’s development finance institution, OPIC helps private businesses invest in frontier markets and often collaborates with other agencies or NGOs to channel additional investment into projects addressing major social and environmental needs.  As the builders’ contest illustrates, DIG and other OPIC-supported projects have responded quickly to the need in Haiti.

While it was immensely gratifying to see the ways that OPIC investments were having positive results on the ground, one of the best endorsements of our work came from Haiti’s President, Michel Martelly, who flew by helicopter to meet with our delegation and Ambassador White to discuss the ways to further engage the private sector to advance development. Much of the business activity currently planned is focused around the Caracol Industrial Park in the North, where a power plant, water treatment facility, housing communities and others are planned and are expected to create thousands of jobs and an economic hub outside of the capital city of Port au Prince.

For me the trip helped me to understand the business of development and think about ways OPIC could work with the private sector and the NGO community to achieve more. I met with people from the Clinton Global Initiative as well as 60 NGOs to discuss ways they might expand their work beyond basic relief to support economic growth and stability, and the ways OPIC could support those efforts. Relief work is important, especially in the wake of a natural disaster, but more longstanding benefits can be gained by turning over projects to local people or scaling them into sustainable businesses with the help of critical tools such as OPIC financing and political risk insurance.

This post originally appeared on The OPIC Blog.