USAID: Remarks by USAID Administrator Andrew S. Natsios, 05/30/02

This is an archived USAID document retained on this web site as a matter of public record.

Remarks by Andrew S. Natsios
Administrator, U.S. Agency for International Development

U.S. Chamber of Commerce
Three Sector Conference
May 30, 2002
Text as Delivered

I have to say it's a real delight to be in this building. I was Secretary of Administration, Finance, and State Government in Massachusetts and one of my proudest, though least-known things, was to begin the process for historical restoration of the statehouse. It was designed by Bullfinch in the late 18th Century. There were two parts of it that had never been touched in 110 years and were falling apart. The building literally had stuff falling off it. But no one wanted to do it because they thought the media would criticize them. But I'm very big in historic preservation, so I did.

This building is a gem. I have to say that I wouldn't mind coming back here once a month just to be in the room [the Hall of Flags], regardless of what the subject is, because it is a stunning room.

USAID Administrator Andrew S. Natsios
speaks at the Three Sector Conference

So it is a pleasure to be here, besides the fact that it's the Chamber of Commerce, and I'm sort of on the right and conservative. I don't have any problems saying that. I'm a sort of conservative internationalist. I believe deeply in foreign assistance, although I take it from a slightly different perspective than some people do.

I believe we have an important role in the world in development but we need to make some changes. That is what I'm going to talk about today.

We are in a unique period in world history, a unique period. Usually, when you're in the middle of it, you don't know what's going on. Dean Acheson's memoirs, Present at the Creation, were, of course, extraordinary, elegantly written, too. In them, he details that critical period from 1945 to 1950 when the Cold War and post-World War II institutions were created, that remain with us.

Now, I think we're living through a similar historical period. We were living in a post-Cold War world since 1990. But it is really not a historical period, it is a transition. The question is what's it a transition to?

One of the reasons the 1990's were a confusing time for AID, and for our foreign policy, is that there was no measurable, clear threat to the survival of the United States as a country.

For the first time since the early 1920's, that has not been the case. Of course, what happened in Europe in the 1930's, and then when we had the Soviet threat -- we had a whole period where it was very clear we were under threat, and there was a dispute as to what we should do about it.

Well, it's pretty clear now we've got some other problems. Some people predicted this would happen, in the sense that allowing failed states to fail, and not doing something about it might eventually lead to international criminal syndicates or terrorists doing something bad. But the notion of an actual attack on the United States is something that was difficult to contemplate.

In the debate now that's going on about foreign assistance and our role in the world, there has been a whole discussion which I think is actually very healthy, about what development is and what works and what does not work.

I just want to say one critical thing: we need to repeat five times a day to those people who do the work in the private profit-making sector, the philanthropic sector, the NGO sector, and elsewhere. The only way countries get out of poverty is through high rates of sustained economic growth over a long period of time. That's the only way. There's no other.

I was in the NGO community; I was a senior executive of the largest NGO in the world. No country has left poverty as a result of NGO programs, no matter how good the programs are. NGOs essentially provide public services. That's what they do, and they do it either with the government or in opposition to the government. But they don't create jobs permanently, in large numbers, at high wages, that eventually lead to the ending of poverty.

So the private sector is the engine of growth. The question is what do you do to get the private sector involved in changing a society that's very poor to help it become prosperous?

I'd like to talk about, to begin with, a shift that's taken place that has not been as focused on as I think it should have been. That is the shift in developed resources that has been taking place over the last generation, which involves tens of millions of dollars.

Over 30 years ago, 70 percent of all money flowing to the Third World from the United States came from official development assistance. In other words, the kind of funding that we get in AID. Government to government aid was the order of the day. Seventy percent of all aid, all capital growth in the developing world, 70 percent, in 1970, came from ODA. Thirty percent was private.

Today, the situation has reversed itself. ODA accounts for only 20 percent of capital flows to the Third World. The rest comes from a variety of private sources, some of which have not been carefully analyzed.

Private sector capital has increased dramatically. It's not because ODA has declined; in fact, in absolute terms, it has not.

A Commerce Department study issued last year showed that total U.S. resources flows to developing countries have been steadily increasing since the 1960's. ODA rose from a total of 34 billion -- this is worldwide for all of us -- in the 1960's to 96 billion in the 1990's, roughly comparable to the cost of living increase.

During the same period private capital flows jumped from $15 billion to $326 billion, a twenty-fold increase. Direct investment in developing countries climbed from just under $10 billion to $196 billion. Securities and bank credits grew from $5 billion to $121 billion, and grants from non-governmental organizations, NGOs, grew from $8 billion in the 1970's to $27 billion in the 1990's.

Although these private sources of development capital have been building for years, many people seem unaware of them. "ODA," as Hudson Institute's Carol Adelman -- who served in the first Bush administration -- wrote recently "is still the single measure to demonstrate America's concern for the less-advantaged people throughout the world." And, she says, "a better understanding of international private giving, whether it's profit-making institutions or charitable institutions, is needed to fairly represent the generosity of Americans to poor countries."

One person who understands this change is, of course, the Secretary of State and another is the President himself.

In remarks in the House of Representatives last year, last May, Secretary Powell said, and I quote, "Over the last 20 years a growing number of new actors have arrived on the scene--NGOs, Private Voluntary Organizations, foundations, corporations, the higher education community, and even individuals are now providing development assistance. As a result, the U.S. Government is not the only, or perhaps even the largest source of American funding and human resources being applied to the development challenge."

Given these facts, it only makes sense for us to work with these new actors. When I say "we," I mean USAID. To do so, we created a special pillar last year - one of the four pillars of AID's work when we developed a new vision for AID -- and that pillar is called Global Development Alliance or GDA.

This is what Colin Powell said about the Global Development Alliance:

"It is USAID's business model for the 21st Century, a fundamental reorientation in how USA sees itself in the context of international development assistance, and how it relates to its traditional partners, and how it seeks out and develops alliances with new partners. USAID will use its resources and expertise to assist strategic partners in their investment decisions. It will stimulate new investments by bringing new actors and ideas to the overseas development arena. USAID will look for opportunities, for relatively small amounts of risk, where starting capital can prudently be invested to generate much larger benefits in achieving overall goals."

That's Colin Powell's quote.

The Millennium Challenge Account

The GDA is not the only innovative approach to foreign assistance in this period of change. The second, of course, and actually far more important, is the President's announcement before the Inter-American Bank a couple months ago - as a matter of fact, March 14th - of the Millennium Challenge Account (MCA).

Three times in the past 55 years, the President of the United States has gone to the people of the United States in times of peril and launched a major development initiative. The first was Harry Truman's 1947 address to Congress that would lead to the Marshall Plan.

The second was in 1961, at the height of the Cold War, when Jack Kennedy announced the creation of the Alliance For Progress, and then set in motion a process that led to the creation of AID by an executive order. We just had our 40th birthday, at which Colin Powell spoke. Interestingly enough he is the only Secretary of State who has ever directly addressed the entire Washington staff of AID and, I might add, to a tumultuous welcome.

The third time that a President proposed a new initiative was this March, in the midst of the war on terrorism, when the President announced the MCA.

And what the President said in his speech is quite profound. He said there are three areas that will link our foreign assistance, particularly in this MCA account, to specific actions that governments take. We will look at how they perform in three areas. The first is governing justly, the second is investing in health and education, and the third is promoting economic freedom.

For those countries that demonstrate their adherence to these goals, the President has pledged up to $5 billion a year that will come in over a 3-year period, and that will increase our assistance from about $10 billion a year, where it is now, to $15 billion. This amount of money is in addition to what we spend now. It's also in a separate account; it'll be treated separately, and the discussion as to how that will happen is now being debated, hotly, I might add, through the Inter-Agency process. I'm not going to discuss this, except to tell you it's going on, what that debate is. It's not my role to do that.

So while we are naturally pleased at the prospect of higher funding, we know that public dollars will never be enough to meet the needs of the developing world. That is one of the primary reasons we are hoping to join forces and marry our talents and expertise to the corporations, nonprofits, private universities, et cetera.

Forming these alliances is something that the business world has been doing for years, for it enables groups of like-minded organizations to pool their resources, share their employees and their technology.

This is a very exciting idea for us and we're extremely interested in talking to organizations like the ones represented here about ways in which we can work together to our mutual advantage.

I want to just say that all alliances are not necessarily going to work -- in other words, all discussions. We have to share the same objectives. An NGO or corporation can be moving in a very different direction, and if we do not share objectives with them, an alliance in that case will not work.

This is not an attempt, either, to take AID money, and give it to the private sector, because we do that now. That's what we do with our budget, essentially. Most of our money goes through private organizations in the United States to the Third World. Very little of our money goes anymore to direct government assistance, and there's been a profound shift in the last decade. Where money used to go through government ministries, very little now goes to any ministries anywhere in the world.

But when we do have shared objectives, then an alliance makes great sense, and it means spending money in parallel to each other, on an agreed set of objectives, so that we can dramatically increase the size of the, and the power of, the results.

New types of alliances

I would like to discuss several different kinds of alliances that we are involved in. The first is the Global Alliance to Improve Nutrition, or GAIN, announced at the U.N. General Assembly Special Session on Children on May 9th of this year. GAIN's purpose is to fight malnutrition and micronutrient deficiencies by expanding two food fortification programs.

Eight hundred million people are chronically undernourished in the world; 2 billion people suffer from some form of malnutrition. Left unchecked, this can lead to illness and death, mental retardation, stunted growth, and hosts of health problems like birth defects and blindness.

GAIN has a very compelling purpose, and we are discussing it with several major corporations with proven food fortification capabilities. Among them are Kraft, Procter & Gamble, Heinz, BASF, and Roche Pharmaceuticals. It is not just U.S. companies that will be involved. Host country flour millers, sugar refineries, salt miners, and dairy producers will also play a key role in the developing world.

What USAID brings to GAIN is 40 years of experience, and an unmatched record of managing complex human health programs in the Third World. The companies that joined GAIN have demonstrated on many occasions that they're good global citizens. This is one example. GAIN can help them learn more about new markets, where much of their new business may come from. It can help them focus their philanthropy and highlight their most precious assets, their people, their products, and their expertise.

GAIN will issue its first request for applications this summer via AID, with the first round of grants available to developing countries expected in late fall.

The second example is the Alliance To Save Energy which features a number of major U.S. corporations such as Honeywell, Johnson Controls, Whirlpool, Trane, Osram-Sylvania, and Armstrong, combining more than 75 manufacturers of energy-efficient products, service providers, utilities, environmental organizations, and state energy offices.

I might add, we have been doing alliances for a long time, and a question is whether we can put them into the fabric of the organization in such a way that it's a general model for doing business, as opposed to what it is now, which is something that we do occasionally when we think of something that will work.

With funding from AID, the Department of Energy and several foundations and private sector grants, the Alliance has focused on disseminating information on energy efficiency technology. This program was developed in the first Bush administration. It's kept going because it's been so successful through the 1990's.

The way the process works is that companies provide their own labor and travel costs, at no expense to the Alliance or AID, in return for the opportunity to meet potential customers.

Another kind of alliance is working with foundations, many of which stem from the corporate sector. The Water For The Poor Alliance is just such an example. Despite the best efforts of aid agencies in donor countries, more than a billion people lack regular access to fresh water. Water-related diseases kill as many as 30,000 children a day.

In response to this need, work began last year on the Water For The Poor Alliance. One of its key backers is the Conrad Hilton Foundation, which has committed $17 million over five years to the Alliance. Other members, thus far, whose contributions total more than $22 million, are WorldVision, Water Aid, the World Chemistry Council, UNICEF, Desert Research Institute, Winrock International, the Cornell International Institute for Food, Agriculture and Development and the Lions Club.

In its initial phase, Water For The Poor will invest in small-scale potable water supplies and sanitation management with a view toward introducing a more efficient integrated system of water resource management in West Africa. We are seeking potential partners to expand the focus of this project to urban areas and other regions.

Another important and growing source of private capital are remittances from the ethnic diasporas in Western countries that have immigrated from the Third World. According to data from a Inter-American Development Bank study, remittances have been growing by 7 to 10 percent a year in Latin America and the Caribbean. Remittances now exceed ODA and represent one-quarter of total foreign direct investment in the Latin America region. By some estimates, remittances from the United States to Latin America and the Caribbean will exceed $300 million over the next ten years. As Carol Adelman reports, remittances from workers in U.S., Japan and Western Europe to developing countries now exceed Japan's total annual development budget.

In response, we have been exploring programs that can build on this capital. We're talking to some of the leading U.S. commercial banks and other financial intermediaries that handle remittances about joining forces with us. We hope to find ways to link hometown associations and financial institutions here and in the region.

A fourth kind of alliance involves NGOs. Virtually every alliance we've talked about today includes NGOs, and I'd like to use Winrock International as an example.

Through a USAID program that matches funds from companies like Cargill and foundations like McKnight, Rockefeller, and Rabo Bank, Winrock's Partnerships for Economic Growth initiative focuses on technology transfer, micro financing, and helping small farmers establish stronger links to domestic and international markets.

As a result some 200,000 people in Guinea, Mali, Senegal, and Indonesia, have benefited from increased yields in millet, sorghum, peanuts and potatoes. Winrock is also introducing mosaic-resistant cassava, a particular parasite that infects cassava, which is a root crop in Africa, to western Kenya and working with Tanzanian farmers to improve their cotton crop.

A fifth type of alliance highlights universities and colleges, another very important sector in American philanthopric institutions. I was surprised to learn, for example, that in the year 2000, U.S. colleges and universities gave more than $1.3 billion in foreign scholarships. This is more than countries like Australia, Belgium, Norway, Spain or Switzerland give in ODA.

I might add that the philanthropic sector in the United States is much more robust here than it is anywhere else in the world. Other countries do not have the tradition of foundations that we have, and many of the European NGOs get virtually all their support from the government. And so we go to meetings. My friends and my counterparts, the ministers of development in Europe, really don't have a context for understanding that in America we do it a little differently. There's a large private sector component here which is completely unrecognized in Western Europe.

But I've had some Americans, too, criticize comments I've made, when I argue that we need to look at this private sector giving, because it is profoundly important, not just in terms of its size, but also because it provides a different kind of technology transfer than AID or other ODA-like mechanisms.

One of the most important university-led development alliances is the Partnership To Cut Hunger and Poverty in Africa, headed by Michigan State University and spearheaded by Peter McPherson, one of my predecessors, who is the president of the university. USAID has been involved with the project, very closely, helping to plan and shape it.

There are many groups that are involved in it at this point: I can read them all, but it would take a couple of pages.

The purpose of the Partnership To Cut Hunger is to strengthen agriculture and rural development in Africa via trade, technology transfer, food aid training, and infrastructure.

A lot of the expertise we had in agriculture has left the Agency, because when Peter left, the budget, which had been $1.3 billion for agriculture a year, went down to $300 million. There's been a massive retreat from agriculture that we led and was followed by the banks, and then by Western Europe. Even though our funding is not equal to the size of the Europeans and the banks combined, the fact is people follow the United States. Even if they don't like us very much, they follow us, even when we're making the wrong decisions, and I think we made a terrible decision to leave agriculture some years ago.

Other examples: GAVI, coffee, and IYF

Unfortunately, it's going to take a while to rebuild that but we're working on it. There are other examples of alliances. One is GAVI, the Global Alliance for Vaccines and Immunizations. The other is the coffee alliance, and the third is the Global Youth Alliance.

GAVI is an international fund of 50 governments, the Center For Disease Control and Prevention, UNICEF, the World Bank, the World Health Organization, the Rockefeller Foundation, but also one big star, and that's the Gates Foundation.

Our own contribution is just over $100 million to the fund. GAVI has been given $750 million, more than by any donor in the world, by the Gates Foundation. What they really want from us is not our money, but our expertise and our knowledge.

We have the Gates Foundation health officer whose office is in AID, full time. The person's there, he coordinates, because they like what we do. They don't give us money, we don't give them money, but they invest in parallel in a lot of our health programs around the world.

Another interesting opportunity concerns coffee workers. Coffee prices have been falling and this has ruined millions of small farmers. I was just in West Africa where the coffee crop collapsed, and it has affected farmers in Tanzania in a big way. It's also affected Central America. So there's a coffee alliance that we're working on now, too.

And we have the Balkan Children and Youth Foundation Alliance (BCYF) to which the AID is contributing $3 million. Other supporters are the Soros Foundation, the Danish Ministry of Foreign Affairs, the Swedish International Development Cooperation Agency, and two major European multinationals, France's Schneider Electric and Finland's UPM Kymmene, a major paper and pulp producer. BCYF is designed to help young people in the Balkans overcome the terrible legacy of the last decade, to train them in information and communications technology, help them find work when it's done.

We are also signing a youth alliance agreement with the International Youth Foundation whose partners this time are the Multilateral Investment Fund of the Inter-American Bank, and which has provided a $10 million challenge grant, as well as Cisco Systems, Lucent Technologies and Microsoft. America's contribution will be $3 million to this alliance.

There are many other alliances that I can talk about but these are a few examples of what we're looking at today.

I think this is an exciting new initiative by the President, by the Secretary, and I solicit your support and interest in this.

I might add, I see nothing wrong in self-interest when there are mutual goals and mutual objectives. I asked some business people visiting me from a major corporation who's invested a very large amount of money in training people in communications technology and e-mail systems, and that sort of thing in the developing world, working with us very closely, and I said: "Are you doing this just for charity?" And they said "no, it's helping us develop markets over the next 20-30 years. The fact that we're doing something that has a socially useful purpose, is also helping; but there's also a little self-interest to us." And I said: "that's fine." As long as we know, transparently, what that is, we don't have any problem with that, because they are serving our purpose as well in introducing this very important technology to the developing world.

Thank you very much.