Remarks by Andrew S. Natsios, USAID Administrator
Business Solutions for Alleviating Global Poverty
December 2, 2005
Harvard Business School
Boston, Massachusetts
It is only through free markets and seizing the opportunities of trade in the global marketplace that the developing world can lift itself out of poverty and achieve sustainable levels of growth. This is the clear lesson that the experience of the United States teaches. And it is a lesson that has been repeated time and again in countries in Europe, the Far East, and Latin America over the last 50 years or so, and more recently in Africa and the Asian subcontinent.
I have been asked to talk about "business solutions for alleviating global poverty" and will emphasize 3 key elements of my Agency's strategy to help bring this about: trade capacity building, microeconomic reform, and our Global Development Alliance initiative.
During the 1990s, developing countries that successfully integrated into the global economy enjoyed per capita income increases of 5 percent annually on an average. On the other hand, those countries that protected their domestic markets with tariff barriers and other measures that limited their participation in the global economy saw their economies decline.
The magnitude of trade and investment far outweighs foreign assistance in the broader context of international capital flows. At the 2002 Monterrey Development Conference, it was pointed out that developing countries receive $50 billion a year in aid, while foreign investment inflows total almost $200 billion and annual earnings from exports exceed $2.4 trillion.
It goes without saying that investment and trade flows, tapped into, can be a critical source of development finance. Harnessing global market forces-competition, human resource development, and technology transfer-can help generate the growth that has eluded large swaths of the developing world. As evidence, trade opportunities created by the African Growth and Opportunity Act (AGOA) alone boosted African exports to the United States by $3.5 billion, which is a 22% increase in non-oil exports to the U.S.
The United States is the largest single-country donor of Trade Capacity Building (TCB) assistance. And that commitment has grown significantly since the Monterrey Conference. Total U.S. funding for TCB activities was $902.8 million in fiscal year 2004, up significantly from the $760.1 in 2003, which, in turn, was more than double the efforts in 1999. USAID provides the lion's share of this effort in a broad array of programs around the world designed to prepare countries for participation in trade negotiations, help them implement trade agreements, and respond to trade opportunities.
We've come to realize, however, that an effective response to trade opportunities entails more than an isolated project that exploits a country's comparative trade advantage. It requires a assembling a cluster of firms and support activities that allow producers to effectively compete in the global marketplace. And this ultimately requires a significant deepening of reform, affecting the business and investment environment within which firms operate and entrepreneurial risk-taking occurs. In other words, to take full advantage of external trade, significant changes must take place internally, within the borders of a developing country.
Sound macroeconomics is a part of this. But as the Latin American experience of the 1990's illustrates, without reform at the so-called "micro" level, poverty will stay entrenched and growth will remain elusive. Microeconomic reform refers to regulations and policies that affect the ability of firms to access credit, hire and fire employees, enforce contracts, process goods through customs, and meet environmental and health standards. It includes addressing the tax burden under which firms operate and a leveling of the playing field among competitors. And it refers to individuals and their right to own property, register businesses, and the myriad other everyday activities that, cumulatively, create the environment for human enterprise.
Last year, I ask the 80 missions around the world where USAID operates to inventory all the commitments they were making to microeconomic reform. I did this for a number of reasons. First, to signal my own commitment to such endeavors; second, to focus minds in the field; and third, to stimulate cross-fertilization of successful programs and projects around the world. We found more than 600 activities have been supported by USAID field missions and the staff of USAID will continue to expand and accelerate this work.
I would like to illustrate what I am talking about by referring to one such reform effort, ongoing in Jordon. In 1998, USAID, in collaboration with the Foreign Investment Advisory Service of the World Bank, made a diagnostic of administrative barriers to foreign direct investment in Jordan, entitled The Investor Roadmap.
The study examined thirty-two specific procedures, including business registration and licensing, property registration, site inspections, customs procedures, work permit approvals, import and export procedures, and income tax registration and payment. It indicated the steps involved to complete the selected procedures, what submissions are required, what the associated costs are, and how long each procedure takes. The study made 83 recommendations, which constituted a comprehensive and detailed microeconomic reform agenda. USAID subsequently addressed 36 (43%) of those recommendations through a variety of activities, including workshops, legal drafting, capacity building, and issue papers.
I single out Jordan's promise for other reasons, more strategic in nature. In clearing the ground for sustainable growth there, we can give the lie to those who depreciate this region of the world and dismiss our efforts to bring modernization there as misspent and unrealistic. We must demonstrate the value of friendship to the United States and show peoples that a more prosperous future awaits those, like Jordan, that eschew terror and war. Though poor in natural resources, Jordan can show the way to its more richly endowed neighbors that it is investments in the health and education of its citizenry that unlocks the real wealth of a people.
I mentioned that economic reform has to deepen. It also has to broaden. And this is as much a matter of equity as it is a way to generate wealth. This means ending the informal economy in which these people are forced to operate in scratching out their existences.
An essential first step in such a project is granting these people recognizable and legally enforceable property rights to the meager plot and possessions they now tenuously hold. This will give them a fungible stake that they can begin to use in a wider world of economic opportunity. Again, reform at the "micro" level, if you will.
We underestimate the potential of such people. Society as a whole can only benefit from tapping into the drive, ingenuity, and energy of such people when channeled into more productive enterprise. The World Bank's Doing Business report estimates that improvements in business environments such as we are pursuing at USAID could yield as much as a 2.2% increase in annual economic growth.
There is, of course, a political and even a strategic consideration to all this, once again. The marginalized places these people now occupy are the nurseries of grievances that the demagogues and enemies of this country now exploit.
Lastly, I would like to briefly talk about new ways we are engaging businesses - in particular, the Global Development Alliance (GDA) program at USAID, which was recently honored by this university for its innovation.
In 1970, the US Federal Government was the largest source of funds flowing to the developing world. As a result, USAID normally defined a development problem and its solution internally, implementing activities through grants and contracts. In 2004, the majority of US funds flowing to the developing world come from the private sector: business, nongovernmental organizations or NGOs, universities and others. This fundamental shift led to the creation of the GDA and to changes in USAID business processes to encourage these alliances as a new way for us to alleviate poverty and achieve key foreign policy goals.
These partners have provided market access, purchasing power, technology, and funding that is otherwise not readily available to USAID. In turn, these partners have tapped into the Agency's 43 years of development expertise and strong overseas presence in 100 countries.
As a result of the GDA initiative, USAID created 290 alliances with 1,065 different partners. We have invested 1.1 billion dollars of our own money while leveraging 3.7 billion dollars in additional private sector funding.
One such example is an alliance that was formed between USAID and Cisco Systems. The alliance was formed to address the lack of IT skills in the labor force of many developing nations by forming Cisco Academies in Africa, Asia, and the Middle East. Students in the academies master basic computer networking skills and earn Cisco certification credentials. The alliance aims to accomplish its goals of educating a computer-literate work force by putting special emphasis on mainstreaming gender, developing a job placement program, and designing a financial sustainability toolkit to ensure future success of the program.
The results have been noteworthy. The Alliance program has established 237 individual academies within colleges, universities, technical schools and community based organizations across 59 countries; 700 associate instructors have been trained; 30% of the students have been women - which is a considerable achievement considering the regions the academies were in; and academy participants have found jobs where they could not before. In Africa, about 77 percent had found employment in the IT industry after completing their Cisco certificates.
I want to emphasize two things about the GDA.
- This is not a charitable enterprise. Through these alliances, for-profit partners gain a better understanding of how their investments affect local communities and how to structure their investments to improve people's lives, while also increasing their bottom line.
- This is not this is no trendy adjunct to USAID's traditional programming. I hope my brief remarks today make clear that the GDA has already proven itself and that is why it is being mainstreamed into the overall development mission of the Agency. It is seeking new partners, tapping into new sources of funding, and developing new tools and mechanisms that broaden development partnerships while expanding development resources. Its future is auspicious because it matches needs with opportunities in a world that has changed dramatically in the course of only a few decades.
In conclusion, I will simply reiterate what has been discussed here throughout the day: by creating a positive business environment, providing the right tools for entrepreneurship and trade, and offering private sector partnerships, you open the door to people to pursue their own development. There is no development approach which is more edifying to a person, and in turn durable in its results, than this.
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