A Different Way of Doing Business: How We’re Funding Development Today … and Tomorrow

Photo by Jake Lyell, MCC

A half a century ago, the United States and other donor countries were responsible for nearly 75 percent of the financing that helped poorer countries develop their economies and societies.

Today, that percentage has dropped to less than 10 percent — even though foreign aid dollars are at an all time high. That’s the good news in more ways than one. That 10 percent is often the catalyst for additional investments from private enterprise and from developing countries’ own government resources.

No single entity can bankroll all of the solutions necessary for countries to progress and stand on their own. Today, development is a team sport in an increasingly complex world with finite resources. But we are confident that the winning strategy, the way to move our world to greater prosperity, depends on three primary financial streams: Official Development Assistance, domestic resources and private investment.

The most progress can be made when these streams cohesively work together and foreign assistance is used to leverage country and private sector resources.

Creating systems that enable smallholder farmers to succeed in Tanzania

In the next decade, Tanzania is poised for an agricultural revolution. With commitments from its government leaders, millions in private sector investments and aid from the U.S. Government, Tanzania could successfully feed its own 50 million citizens, and also sell excess crops to its neighbors in the region.Tanzania is a focus country of Feed the Future, an initiative launched by the U.S. Government in 2009 to help countries develop their agriculture sectors and reduce hunger, poverty and undernutrition. Earlier this year, Congress approved legislation authorizing this initiative, one of the most significant votes for development aid in a decade.

All told, the United States spent about $31 billion last year in Official Development Assistance, as part of our commitment to help low-income countries advance. That includes not only Feed the Future, but our work in global health, climate change, peace-building and much more.

But to stretch those dollars and make them even more effective, we must work with partners who bring their own funding and expertise to the equation. Official Development Assistance alone will not be sufficient to meet the U.N.’s Sustainable Development Goals for 2030 nor to achieve a food-secure 2030.

For the Government of Tanzania, that means working with the U.S. and other partners to make reforms to its agriculture and food systems, so the country can more strategically use its own budgets and support investment from others.

Agriculture is the main driver of Tanzania’s economy. To help accelerate growth further, Feed the Future is collaborating with leaders in the multiple government ministries responsible for food security to meet their objectives, as well as improve the way those ministries interact with each other. The goal: change the way the government addresses bottlenecks to investment. Keep the wheels of progress grinding forward.

Take seed policy, which is a key part of helping smallholder farmers grow more and better crops. The Tanzanian government has committed to improving the enabling environment by enacting the necessary policies that will increase access to high yield seeds. Recognizing that access to better seeds will result in higher yields for smallholder farmers, the private sector has committed to investing in local processing capacity, which will allow smallholder farmers to earn higher prices for their produce. Addressing policy blockages in the value chain will incentivize private sector companies to invest in the sector, which will lead to improvements in nutrition and livelihood gains.

Already, Tanzania’s Feed the Future farmers have earned an additional $19 million from their work, new private sector investments in the country total more than $1.5 million, and more than 150,000 producers are using new-and-improved technologies or methods they learned through U.S. assistance.

Fast fact: Last year, Feed the Future helped over 9 million food producers use new tools and practices to improve their livelihoods, helping them boost their sales by over $800 million.

Strengthening tax collection in El Salvador to improve infrastructure and education

Photo by USAID/El Salvador

Though they may be universally unpopular, paying taxes can have a transformative impact on communities — from equipping a child’s classroom with new technology to building highways that help farmers and small business owners bring products to market.

Taxes are an essential part of countries’ abilities to provide their citizens with the basic services they deserve. This is why El Salvador began confronting its tax challenges in 2004, aiming to boost the quality of public spending on key sectors like health, water and housing. El Salvador’s actions came more than a decade after the end of the country’s civil conflict and as a new government was coming to power.

The work was mostly behind the scenes, and it took time. USAID helped the government install new software and hardware, train tax agency staff, and institute policies that promoted fair tax rules and closed unfair loopholes. And then there was convincing all those new, would-be taxpayers to open their wallets: 70 percent worked in the informal sector and paid no taxes, while a relatively high number of established businesses evaded paying as well.

These are common refrains heard in developing countries around the world. That is one reason for the Addis Tax Initiative, which was launched in 2015. The United States, along with more than 40 countries and international organizations, has now pledged to substantially increase support for what is officially known as domestic resource mobilization, which boils down to helping individual countries raise more revenue domestically to fund a larger portion of their needs.

El Salvador may well stand as a shining example of the benefits of the dreaded tax collector.

Per capita spending on health, education and other public services has doubled since the 1990s. Revenue has increased by $350 million per year. Roadways have been modernized. And, low-income school children now receive free uniforms and shoes. Overall, extreme poverty has been reduced by nearly 25 percent.

Today, Salvadorans can go online to the fiscal transparency website to track their country’s spending. And, USAID and the Salvadoran Government came up with the EXPRESATE center. Every month hundreds of high schoolers file through its interactive exhibits — including the wonderfully titled “Hall of Evasion” where kids get a dramatic take on what the country would be like without tax revenue.

Will it promote fiscal responsibility in the next generation of taxpayers? Only time will tell. But what is clear is that having the ability to collect taxes and effectively manage the revenue is allowing El Salvador — and other countries like it — to better control its own financial destiny.

Transforming how HIV care is financed in Kenya

An HIV education and training facilitator teaches students how to protect themselves from HIV. / Lanhe Starling Shan, Kwacha Afrika

In 2015, 1.5 million people were living with HIV in Kenya. But, only two-thirds of them were accessing treatment. USAID has worked hard to connect more HIV positive people to care under the Sustainable Financing Initiative through the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) — a U.S. Government effort launched in 2008 to address the global HIV/AIDS epidemic.

The country’s strong political will and economic readiness made Kenya an ideal pilot country for USAID’s Sustainable Financing Initiative. In Kenya, the government provides free HIV tests and antiretroviral drugs to public and private facilities. To further increase access to HIV services and treatment in Kenya, it is important to sustain the public system, while growing a private health care network and the innovations that usually come with it.

In Kenya, USAID is engaging with the public and private sectors to increase investments in HIV care so that all patients have access to quality treatment.

To succeed, USAID recognized the need to obtain buy-in from the Kenyan treasury, health, and finance ministries and other key stakeholders. A USAID study revealed serious economic implications when countries do not invest in HIV prevention and treatment. The study showed that failure to support HIV care and services hinders access to critical healthcare, and also leads to slower economic growth, a reduced labor force, decreased household incomes and diminished direct foreign investment.

With that evidence, the Kenyan Treasury budgeted $20 million for HIV medicines in the first year of the program. USAID provided technical assistance to the national government and 20 Kenyan counties to ensure these funds were efficiently and appropriately used.

Today, Kenya is observing systemic changes that benefit not only people living with HIV, but the entire health system, and local county governments have invested an additional $3 million into HIV care and prevention.

USAID also created a network of 35 certified, private HIV treatment clinics in urban areas across Kenya. This is expected to help expand insurance coverage for HIV services and reduce out-of-pocket spending for the most vulnerable.

Although it is too early to measure the full impact of the Sustainable Financing Initiative in Kenya, USAID is already applying lessons that it learned in Kenya to other programs in the region.

“The Sustainable Financing Initiative is one of the first initiatives that has tried to figure out how one could go from concept to practice,” notes Allyala Nandakumar, chief economist of USAID’s Bureau for Global Health. “I don’t feel this area of work is going away anytime soon. It will only become more relevant for our bureau, our agency and development.”

Fast fact: In FY 2015, PEPFAR supported HIV testing and counseling for more than 68.2 million people, providing a critical entry point to prevention, treatment and care.