Opinion: What we can learn from USAID’s $9.5B supply chain struggle

What made this recent investigation into a $9.5 billion health supply chain development project that hadn’t “gone according to plan” particularly difficult to read was knowing that regardless of how that project went, its funders and implementers — staff at USAID and Chemonics — would be fine. But those for whom the project was designed, people living in low-income countries with limited access to quality health care products and services, would not. So as I read the joint investigation by Devex and the Bureau of Investigative Journalism, I couldn’t help but ask: How could the people involved in designing and executing this project prevent this from happening in the future? More broadly, what can players in other sectors learn from this experience? It is tempting to attribute the project’s struggles primarily to Chemonics, the private international development firm in charge of executing the project, due to their apparent supply chain inexperience. A former employee of the firm is quoted as saying, “I think the biggest problem was, well, Chemonics not knowing supply chain.” Unfortunately, that assessment doesn’t tell the full story. Regardless of who received this contract, the project was doomed to struggle from the beginning. Here’s why. A push strategy of development First, this $9.5 billion project is an example of a push strategy of development. Push strategies are often driven by the priorities of their originators, typically experts in a particular field of development. Even with the best of intentions and expertise, when resources are pushed into a context that isn’t quite ready to absorb them, mediocrity, or failure, is inevitable. The primary reason for this is the context — high-income countries — in which many push projects are typically designed. According to calculations by Christensen Institute researchers, the average African national government spends around $500 per person annually. This amount covers everything from education and health care to infrastructure and defense. In the United States, the number is close to $30,000, per the calculations, and in Norway, it’s more than $40,000. In health care, the contrast is even starker. Health care expenditure per capita in high-income countries is approximately $6,176. It is $298 and $34 in middle-income and low-income countries respectively. In essence, much of our understanding of what a “good and effective” health care supply chain looks like is informed by supply chains in economies where more than $6,000 is spent on health care per person annually. And so, having staff at Chemonics and USAID, who likely experience a more than $6,000 per person health care system, design a $9.5 billion global health care supply chain initiative for low- and middle-income countries was the wrong strategy from inception. At best, the project was bound to struggle. At worst, it was headed for colossal failure. Where were the local private sector innovators? Second, it wasn’t clear that local innovators had a seat at the table. If they did, their seat at the table was insignificant. Local innovators on the ground respond to the struggles of everyday consumers and are incentivized to find the most efficient and profitable ways to solve problems. Integrating these people into the design and implementation of initiatives like this is critical if project designers are serious about success and sustainability. There were big plans for the project, with a goal of creating a robust supply chain infrastructure where USAID “would never have to fund another project like it again.” Why were more local supply chain innovators (not NGOs) not consulted or contracted by Chemonics or USAID to ensure this initiative’s success? What can the next supply chain projects take from this? Of course, in situations like these, hindsight is a wonderful thing. Clearly the project hasn’t lived up to its expectations and now many critics pounce. So, what can we do to prevent this sort of situation from happening in the future? My recommendation would be to take a page from how the United States invested aid in Taiwan. From the start, the objectives were clear. From 1951 to 1955, it was “economic stability, … joint military effort, and improving the country’s capacity for self support.” After 1955, the dominant goal became “economic development.” From 1960 on, phasing out aid became the primary objective. In phasing out aid, local Taiwanese innovators were at the center of the economic development strategy. For example, Taiwanese entrepreneurs Yung-Chin Wang and Yung-Tsai Wang received a $798,000 USAID loan which helped them start and grow the Formosa Plastics Group. Today, Formosa is one of the world’s largest plastics companies. As USAID designs the $17 billion NextGen initiative, the organization’s Next Generation Global Health Supply Chain Suite of Programs, it would do well to remember these two lessons. First, the organization is designing for economies where the entire annual health care spend per person is a tiny fraction of what it is in wealthier countries. Second, as a result of the different context, NextGen must integrate the work of local innovators such as mPharma — a pan African health care company — into the project. The good news is that more and more people are clamoring for a change in the way the United States executes foreign aid programs like NextGen. The coalition, Unlock Aid, is working to drive policy changes to transform the U.S. approach to global development. Leaders at the helm of the NextGen program would be wise to seek the advice of those in the Unlock Aid community. The only thing worse than a $9.5 billion failure is one that costs $17 billion.