Issue 2, 2019. April-May

   

USAID PROGRAM ENCOURAGES PRIVATE BUSINESSES TO INVEST IN LOCAL COMMUNITIES

A new push by USAID to involve private businesses in its work to empower local populations is providing benefits for Georgian businesses and communities.


USAID is one of the U.S. government's main agencies for providing development assistance to the country. In 2018, the organization had a total budget of $56 million, an amount that is likely to grow in 2019. This money goes to support work on economic growth, civil society, elections, gender empowerment, conflict prevention and much more.

In 2018 USAID launched a new push to place private-sector engagement at the core of what it does. This might seem strange because the development work of organizations like USAID seems radically different to the goals of the private sector. However, the two are not as far apart as one might think.

USAID Director Mark Green explains the strategy in the organization's new Private Sector Engagement Policy document.

"I believe the future of international development is enterprise driven. 'Enterprise-driven development' means aligning with private enterprises as co-creators of market-oriented solutions, with shared risk and shared reward. It means recognizing the value of engaging the private sector in development and humanitarian assistance to help shape solutions that achieve sustained impact and can carry forward long after USAID's support has ended," he said.

The logic of market engagement is driven by scale, innovation and sustainability. In terms of scale, development aid is significant, but does not come close to the scale of investment that the private sector mobilizes. In Georgia in 2018, the economy generated $5 billion in gross capital formation, which is actually quite a bit less than aggregate investment. Therefore, leveraging this investment to achieve development goals can have far more impact than if USAID just invested the money directly.

Engaging with the private sector can also inject private-sector expertise and innovation to solve social problems, whether that is knowledge transfer to improve supply chains, new technologies to help underserved communities access services or expanding the use of new innovations to improve local healthcare.

Working with the private sector is also assumed to create greater sustainability. If companies can be made to work better, then they will contribute to economic well-being for years. If policies are aligned with market needs, they are more likely to survive in the long-term.

AmCham and Private Sector Engagement on Business Enabling Environment

USAID's Governing for Growth (G4G) project currently focuses on the improvement of the business enabling environment. It works with the private sector, and has worked intensively with AmCham: a reflection of a long tradition of engagement between USAID and AmCham on policy issues.

"We have worked with USAID for many years, working together to help facilitate contact between the business sector and government on policy issues," noted AmCham Georgia Executive Director George Welton.

This work has many different dimensions, he noted.

"We work through our committees and the Investor Council to develop legislation, leveraging the insights and expertise of our members to ensure that changes on policy and law serve to enable businesses and do not create negative unintended consequences."

AmCham has also worked as an implementer on USAID projects directly. In particular, George noted that "immediately after the Rose Revolution in 2004, we worked with the Business Climate Reform project, engaging intensively on the massive tax reform, changes in trade policy, licensing and much more."

More recently, AmCham has run projects under USAID's Judicial Independence and Legal Empowerment Program (JILEP) and Governing for Growth (G4G) Projects

"All of these projects have used private sector knowledge to inform policy and have been effective because AmCham has been able to use its influence and strong government connections to advocate for change. But USAID's partnership has been vital as their resources have allowed us leverage our skill sets to work more intensively on the issues than we would be able to without that support. It has also made us stronger as an organization, which makes our work more sustainable," he said.

Direct Engagement with Business

While engagement with the private sector on the business environment has a long track-record, a newer innovation is for USAID to directly partner with businesses on particular projects.

So, what's in it for the company?

Veronica Lee, Director of Economic Growth, highlights three main benefits.

"We have worked with a number of private sector partners in the past and there are really three main motivating factors for partners to join us in a development program: (1) CSR plain and simple: it improves a company's image and in some cases builds brand loyalty; (2) outgrowth: a company wants to grow its business but there is a systemic problem blocking the way (e.g. not enough skilled labor, suppliers are too scattered, regulatory impediments, etc.); (3) security of investments: this is often the case for companies that own infrastructure - they rely on the stability and security of the surrounding community to help protect their investments."

Driven by a range of these motivations, a number of projects stand out.

Ferrero made a large investment in hazelnut production more than a decade ago in western Georgia. Now Ferrero, working with the G-HIP project, has used its expertise and its skill set to train local farmers and improve the hazelnut value chain. This is a boon for the farmers who can sell their produce for more money, and for Ferrero, which can increase and diversify their source of hazelnuts.

Another example is the Crystal Microfinance Organization/Crystal Fund, which has been running a project with USAID support that works with young entrepreneurs to develop their business ideas.

This project provides zero-interest, unsecured loans to help selected entrepreneurs start their businesses. It also provides mentoring to help ensure that the business succeeds. The project is clearly a great opportunity for entrepreneurs who can utilize it, Archil Bakuradze, Chairman of Crystal Fund, said.

He added that the project also strongly supports the company's "DNA."

"It allows us to engage with young entrepreneurs who are crucial for our future development. It is our ambition to turn this CSR [corporate social responsibility] into a sustainable project," he said.

Similarly, USAID's Development Credit Authority, a loan portfolio guarantee implemented by TBC Bank, helps make up to $15 million dollars in lending available to agribusinesses in Georgia. This kind of credit guarantee scheme is also set to expand under the new USAID PSE strategy.

BP and Anaklia Development Consortium have also developed projects with USAID. Working with USAID's Zrda Project, they are both financing projects in the communities that are located near to their main activities. BP are supporting social and economic projects in communities located next to their main pipelines and Anaklia Development Consortium is supporting projects that will help the economic develop of Anaklia and its surrounding area.

Not all of the initiatives connect to the core business. Many opportunities for partnership with USAID projects have simply helped those companies connect to communities and provide volunteering opportunities for staff.

For example, USAID's G-PriEd project worked with private-sector volunteers to provide business skills classes to schools. Deloitte was a partner in the project and found employees really responded to the project.

"We were engaged with the project for three years and each year, the number of Deloitte participants in the project grew," Managing Partner of Deloitte John Robinson said.

The volunteers, he says, really enjoyed it. "Some of our team put a huge amount of their own time into working at the schools and many of them said that it was one of the best and most rewarding things that they have ever done."

Future opportunities and the journey to self-reliance

Building on these experiences, USAID's new Private Sector Engagement strategy makes the private sector one of the most central partners in their future work. Businesses will be eager to engage, AmCham's Executive Director George Welton says.

"There are almost endless opportunities for engagement. In a business enabling environment, the Investor Council brings together the Prime Minister and government to meet with key business associations and the International Financial Institutions. This is an ideal platform for governance discussions and private sector engagement."

There is also a growing pool of innovating companies that create opportunities for more direct engagement, he said.

"Individual companies are emerging with vision and energy in a wide range of directions, as the Georgian market matures. As a result, more companies are innovating in agriculture, tourism, IT, education, energy, manufacturing and much more. There are plenty of opportunities for engagement to resolve individual company issues and achieve the greatest possible economic and social impact."

And through CSR, there are also opportunities that go beyond the core business. "Opportunities for broader social engagement abound, as patriotic Georgians look for opportunities to not only grow their businesses, but to have a positive impact on the environment, on the education sector, on the lives of the poor and excluded. Through both internal and external CSR, Public Sector Engagement from USAID will be able to tap into this and help it along," Welton added.

Veronica Lee, Head of the Economic Growth portfolio, noted that "engagement is not just about money. Good corporate citizens and the new business models they introduce can also simply drive the development of the wider business community."

The ultimate goal, as stated in the new USAID strategy, is to help ensure that society gradually reduces its dependence on foreign development support.

"Ultimately, development should be about achieving self-reliance, and the private sector is the key partner in achieving that goal," she said.