WASHINGTON — The U.S. Agency for International Development launched a new private sector engagement policy Wednesday designed to change the culture and operations of the organization as it works to help countries develop.
“Private enterprise is perhaps the most powerful force for lifting lives out of poverty, strengthening communities, and building self-reliance,” USAID Administrator Mark Green wrote in a message to staff.
“The PSE policy is a call to action for all USAID staff and our partners to increase and strengthen our work with the private sector, and embrace market-based approaches to achieve more-sustainable development and humanitarian outcomes.”
The new policy outlines how USAID should engage with the private sector, and the basic message is that it should happen early and throughout all USAID processes. The policy defines private sector as “for-profit, commercial entities and their affiliated foundations; financial institutions, investors and intermediaries; business associations and cooperatives; micro, small, medium and large enterprises that operate in the formal and informal sectors; American, local, regional, and multi-national scale businesses; and for-profit approaches that generate sustainable income (e.g., a venture fund run by an NGO or a social enterprise).”
“This is not us delivering things, it is us incentivizing reform, building capacity, and finding ways to help families, communities, and countries lead themselves.”— Mark Green, administrator, USAID
Private sector engagement will look different at USAID: It will not be defined by public-private partnerships of old — at a launch event Wednesday, Green even said he despises the term. While some engagement with the private sector will be through working on enterprise-driven development and market-based approaches, engagement with the private sector will also be about co-designing potential solutions and tapping their innovative thinking to try and solve some of the greatest challenges, according to Green.
The policy is the culmination of a roughly yearlong process that included consultation with more than 20 missions, every USAID bureau, implementing partners, and more than 100 companies of various sizes in the United States and in countries where USAID works. It is an effort to mainstream some of the work that USAID has done in the past so that it becomes fully integrated as a regular part of the agency’s work.
This policy is a key component of the agency’s broader “transformation” efforts and its reorientation around the idea of helping countries along a “journey to self-reliance,” where they no longer need aid. Economic development is key to helping countries get there, according to the policy.
While it will be a central part of how the agency operates, private sector engagement will not have a specific budget behind it. Money for PSE is expected to come from other earmarks rather than having dedicated funds, to help lead to broader integration and ownership, said Sarah Glass, acting director of USAID’s Center for Transformational Partnerships and PSE project lead on the Transformation Task Team.
The policy outlines a set of question that USAID and its partners should ask every time they look to engage on a development or humanitarian issue: Can the private sector solve this problem alone? Could there be a market-based approach to address the challenge? What are the roles and interests of the private sector in addressing this challenge? Are there factors limiting private sector involvement and investment, and can USAID play a role in mitigating those constraints?
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The policy says that USAID commits to engaging with the private sector early and often, incentivizing engagement throughout planning and programming processes, expanding the use of different tools and approaches for engagement and building a body of evidence to drive how it operates.
Much of what USAID will do is work to create an enabling environment for businesses, working on regulatory capacity, rule of law, and “creating a policy framework that opens the door for private business to go in.”
“This is not us delivering things, it is us incentivizing reform, building capacity, and finding ways to help families, communities, and countries lead themselves,” Green said at the event.
The cultural and organizational change that USAID aims to embark on with this policy is significant. Today, about 2 percent of funding is programmed in collaboration with the private sector, which is far too low, Glass said.
USAID will not have one centralized PSE team, but rather people across missions and bureaus who are dedicated to the work and bring sector experience, she said. A cross-sector team in Washington, D.C., can support and bring together that group of PSE professionals at USAID.
The agency will need to ensure that it has the right people in place to execute the new policy. Early next year, the agency’s human capital team will work on a PSE talent strategy to lay out both the best ways to train and educate existing staff and what it should hire for in the future so that the agency will have the skills and talent it needs, Glass said.
A key part of that team’s work will also be how to incentivize working on PSE, she said. Whereas today most people at USAID get promoted on the basis of the amount of money or number of people they manage, someone working on PSE might not deploy a lot of agency funds and might spend much of their time convening external actors, not managing internal staff. Ensuring that the system at USAID values relationship building will be critical, Glass said.
Glass acknowledges that culture change doesn’t happen fast and it will take time to develop the policies and systems to change how the agency works. The agency will work to write new policies and guidelines to help partners and staff figure out how to best partner and use the full set of tools USAID has, Glass added.
There will be a new learning strategy and work to develop the right metrics across sectors — today much of PSE is measured by dollars leveraged, which “has no relationship to development impact,” Glass cautioned.
While the private sector has told USAID that relationship managers are important to their engagement, and the relationship managers program coordinated by the U.S. Global Development Lab has been successful, it is hard to scale. That is another issue USAID will look at as it implements the policy and tries to figure out how to best manage and support relationships with companies.
New effective partnering guidance and multistakeholder partnership guidance will be released, along with work on a blended finance and impact investing window as a way to help codify some of USAID’s approaches so they can be more widely applied. USAID will also work with implementing partners on how to implement the policies and issue guidance on solicitation and award language.
A parallel effort to reform some of USAID’s procurement policy may also create some flexibility, and while the teams have worked closely, Glass said, the PSE work has been separate, in part because it doesn’t always involve a USAID financial contribution.
But there is certainly a need to focus on procurement reform and help contracting officers “understand PSE and embrace it in their work,” Glass said. There are existing tools that could be more broadly used to engage private sector early including preselection conferences and requests for information, but there needs to be education and greater flexibility in order to make use of them more regularly.
While the PSE policy is broad, it definitely does indicate a greater focus on market-based approaches, and with that, Glass said, a greater focus on how USAID will exit an investment and planning for how future grants will not be necessary.
“The reason it is so important is that the challenges we’re facing in development and in the humanitarian setting are as complex and difficult as we’ve ever known,” Green said.