Report outlines how new DFC and USAID will work together

WASHINGTON — One of the final steps required before the opening of the new U.S. International Development Finance Corporation is now complete. The administration has submitted a coordination report to Congress outlining how the new institution will work with the U.S. Agency for International Development and other government agencies.

“As the DFC increases its ability to mobilize private capital, and USAID places more emphasis on its engagement with the private sector, coordination between USAID and the DFC to pursue U.S. development objectives is essential. The DFC and USAID must forge and maintain strong linkages for the United States to maintain its leadership in international development,” USAID Administrator Mark Green and Overseas Private Investment Corporation Acting CEO David Bohigian wrote in a letter that accompanied the report.

The report addresses the importance of links between the two agencies as key to the U.S. maintaining its leadership in international development and says that access to the DFC’s financing tools will be “critical” to USAID’s “journey to self-reliance” framework aimed at helping countries move past aid.

The report outlines how the new agency will be structured and how it will work with USAID and other agencies — one of the issues that has most concerned development experts throughout the formation of the new agency.

Structure

The most significant differences between the way OPIC is structured today and the way the new DFC will be structured, center around the creation of a new chief development officer and an office of development policy.

The chief development officer will lead the DFC’s interagency work, manage measurement, and assessment of development impact and be responsible for coordinating the agency’s new technical assistance capabilities, according to the report. Hiring for this position is expected to begin in earnest soon, and one development expert who requested anonymity in order to speak freely told Devex that informal conversations with prospective candidates are already underway.

The chief development officer will report directly to the board and will be charged with ensuring that the DFC prioritizes investments in low-income or lower-middle-income countries. The chief development officer will be a member of the Development Advisory Council.

The Office of Development Policy, which the CDO will lead, will “focus on the development impact of each transaction,” drawing on expertise from other agencies. The office will likely be staffed in part by USAID and State Department employees who will join the agency on a long-term rotating basis. The office will have four primary units: the development coordination unit charged with working with USAID, State, and the Millenium Challenge Corporation; a development assessment unit that will evaluate the impact of transactions; a policy assessment unit focused on evaluating projects on environmental and social impact, labor and human rights issues; and a technical assistance and feasibility studies unit.

The report also offers some insights into how the transaction side of the agency will be structured. It will have three departments focused on different types of transactions: structured finance and insurance; investment funds; and development credit, which will be the new home of USAID’s Development Credit Authority and OPIC’s small and medium enterprise finance division.

Coordination

The plan is for the new DFC to leverage existing staff at U.S. embassies and USAID missions around the world to help create a pipeline of deals, monitor them, and otherwise support the expanded development finance institution.

The U.S. government will create a Development Finance Coordination Group to improve interagency coordination, according to the report. The group is somewhat modeled after the Power Africa Working Group, and will be an opportunity for different agencies to learn about the DFC’s transactions and priorities in an effort to capture expertise and “ensure policy coherence across the entire USG,” according to the report.

There are a number of ways that the DFC and USAID, along with other agencies will work together, according to the report. On the origination and structure front, the DFC will develop investment deals that support U.S. national security, commercial and development objectives. And USAID will help manage, monitor and evaluate the transactions so they align with foreign policy goals and deliver development results. The report doesn’t go into details about how exactly that will be funded or delivered.

Among the concerns about merging the DCA into OPIC was that it would disrupt the deal pipeline. Most credit guarantees came out of work at USAID missions around the world and the report says the new DFC will work to make the new process easy for USAID missions and create incentives.

“USAID is working to reduce significantly the many internal steps required to make mission-level funding available for a DCA transaction, and will incentivize USAID mission directors to access the DFC, as appropriate through their performance plans,” the report said.

There will also be coordination around relationship management, with country teams helping to build relationships with new partners, particularly with those in developing countries that OPIC might not have been able to invest in but the DFC will be able to. The DFC will provide USAID support in these efforts as well.

USAID will work with the DFC to target some of its technical-assistance programs focused on building better business environments to support DFC deals, and USAID will help monitor DFC transactions, which the report says “will enable the DFC to provide a deeper level of monitoring of development impact on its projects than previously possible.”

Much of this work will be coordinated through newly created DFC liaisons, which will be appointed in each USAID mission and at U.S. embassies and will be the primary link to the DFC.

While the report includes a fair amount of language about ensuring development impact, it also focuses on the agency’s role as a tool to advance foreign policy objectives. The report outlines how the DFC will relate to ongoing initiatives including Power Africa, Prosper Africa, the Women’s Global Development, and Prosperity Initiative.

Development experts following the new DFC have told Devex in the past that they will be watching how the agency balances foreign policy and development objectives.