Foreign Assistance:

AID's Private-Sector Assistance Program at a Crossroads

NSIAD-93-55: Published: Dec 11, 1992. Publicly Released: Dec 11, 1992.

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Pursuant to a congressional request, GAO reviewed the Agency for International Development's (AID) efforts to assist private-sector growth in developing countries, focusing on: (1) the extent of the AID commitment to private-sector development; (2) the results, sustainability, and impact of AID private-sector assistance on the poor; and (3) the orientation of AID assistance for the future.

GAO found that: (1) since 1981, AID has become committed to assisting developing countries move away from state-led economic models to private-sector economic models; (2) AID devoted nearly $1.3 billion or 25 percent of its fiscal year 1991 program funds to serve private-sector development programs; (3) private-sector program constraints included the need to address competing priorities, an inability to control allocations, a lack of private-sector specialists, and an agencywide lack of private-sector-oriented skills; (4) host country cooperation, the elimination of institutional barriers, sufficient resources, technical assistance, and staff expertise provided the most positive program results; (5) AID missions were supported by cash grants and technical assistance aimed at privatizing government-held enterprises, increasing competitiveness of indigenous businesses, and improving financial markets; (6) AID has not developed a specific model to replace development financing institutions in addressing the credit needs of underserved populations; (7) AID had difficulty in creating institutions that would continue to support private-sector growth when donor assistance ends; (8) increased AID attention to private-sector growth could detract attention from programs targeted for the poor; (9) private-sector development did not directly or indirectly benefit poor people; (10) AID private-sector programs advanced open markets where all firms had an opportunity to prosper; (11) AID lacked the ability to adequately advance U.S. business interests; and (12) reallocating funds, staff, and mission goals to advance direct U.S. business interests would likely detract from other AID initiatives and goals.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: AID's recently revised strategic planning and project development guidance makes a clear commitment to sustainability as a key concept in AID planning. Among other things, AID planners are required to identify recurrent costs to implementing organizations during and beyond the life of projects and to show how these costs will be covered.

    Recommendation: The Administrator, AID, should further emphasize sustainability in private sector project design and evaluation, particularly the development of self-sustaining institutions.

    Agency Affected: United States Agency for International Development

  2. Status: Closed - Implemented

    Comments: AID's recently revised strategic planning and project development guidance requires that country and program strategies include appraisal of the political feasibility and sustainability of proposed activities.

    Recommendation: Before proceeding with private sector development projects, the Administrator, AID, should ensure that sufficient resources are available to enhance the potential for long-term success and that the host government has demonstrated the political will to cooperate in eliminating institutional obstacles to private-sector operations.

    Agency Affected: United States Agency for International Development

  3. Status: Closed - Implemented

    Comments: Through its recently revised strategic planning and project development guidance, AID has made a clear commitment to addressing institutional impediments to private sector development in order to facilitate the success of more direct interventions.

    Recommendation: To reinforce existing trends within AID that will maximize the impact of the agency's private sector assistance, the Administrator, AID, should focus technical assistance on removing institutional obstacles to private sector development, such as unfavorable regulatory environments, inadequate financial systems, and lack of business expertise.

    Agency Affected: United States Agency for International Development

  4. Status: Closed - Implemented

    Comments: AID had completed a reordering of its priorities which subsumes private sector development under the broader heading of promoting sustainable economic development, which will include agricultural developing and economic restructuring. The agency will continue to hire a few private sector specialists and to provide some training in this area. However, since private sector support was not designated a high priority, GAO's recommendations for commensurate hiring and training do not apply.

    Recommendation: AID has begun a process to gain broad-based consensus and a clear articulation on the agency's role and mission for the post-Cold War era. If, at the conclusion of this process, private sector development remains a high priority for the agency, the Administrator, AID, should make a clear commitment to building commensurate staff expertise by: (1) hiring staff with private sector skills; and (2) instituting a formal training program to increase the private sector orientation and skills of specialists in other sectors.

    Agency Affected: United States Agency for International Development

  5. Status: Closed - Implemented

    Comments: AID's work in promoting sustainable economic growth in developing counties is viewed as complementing other agencies' more direct promotional efforts by creating improved opportunities for U.S. business abroad. The agency is not seen as playing a major,direct role in advancing U.S. export. Current discussions of AID's future direction do not provide any indication that this situation is likely to change.

    Recommendation: The Administrator, AID, should work with Congress and the others members of the Trade Promotion Coordinating Committee, including the Office of Management and Budget, to define the role, if any, that AID should play in directly advancing U.S. commercial interests in developing countries.

    Agency Affected: United States Agency for International Development

 

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