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Gailyn Portelance is a research assistant for Todd Moss and Scott Morris. Before joining CGD, Portelance worked as a paralegal at the Federal Trade Commission, supporting case teams throughout investigation and litigation relating to domestic and international consumer protection issues. She previously worked as an RA at Pomona College, where she analyzed the relationship between governance and growth in resource poor sub-Saharan Africa, and politician incentive to enact developmental policy in the region. Portelance has also worked in Dakar, Senegal, where she helped to identify effective strategies to disseminate information surrounding women’s reproductive health. She holds a BA in international relations and a minor in French from Pomona College.
Demand for development finance as a key complement to traditional aid is growing, but despite the impressive strength of the US private sector, the US government’s ability to respond—to date— has fallen short. The good news: Congress got the memo.
Last week, a bipartisan group of lawmakers—led by Senators Bob Corker (R-TN) and Chris Coons (D-DE) and Representatives Ted Yoho (R-FL) and Adam Smith (D-WA)—introduced the Better Utilization of Investments Leading to Development (BUILD) Act of 2018, which would create a full-service United States International Development Finance Corporation (USIDFC).
The bill would address many of the obstacles to strategic and efficient deployment of US development finance efforts that our colleagues Todd Moss and Ben Leo have chronicled in detail over the years. (Check out their proposal for a self-sustaining, full-service, US development finance corporation.)
We’re also pleased to see that the BUILD Act imbues the new USIDFC with a strong mandate to promote development, including a directive to focus support in low-income and lower-middle-income countries. Todd and Rob Mosbacher Jr, a CGD board member and former head of the Overseas Private Investment Corporation (OPIC), recently wrote why now is exactly the right time for this idea.
Here’s what we’re most excited about in the BUILD Act’s vision for a new USIDFC:
At $60 billion, USIDFC’s maximum contingent liability limit is roughly double that of OPIC. And the bill provides for that ceiling to adjust with inflation to prevent erosion of the potential portfolio size in real terms. Giving the institution room to grow will allow it to feature more prominently in the US government’s development and foreign policy toolkit well into the future.
The bill grants the new institution equity authority. This is critical because OPIC is currently limited to debt financing—and the inability to make (even modest) equity investments has kept OPIC out of projects and limited its ability to structure deals. Equity authority—sensibly capped at 20 percent of any project—would better enable the new USIDFC to fulfill its mandate and put it on more equal footing with many of its peer institutions, which all use equity when it’s most needed.
In the tough markets where the USIDFC is expected to operate, the BUILD Act gives the agency the ability to initiate and support feasibility studies and technical assistance. Early support for planning and project development can enable more well-planned projects to get off the ground—and may be necessary to realize critical infrastructure projects.
It’s (more) integrated
The full-service USIDFC will be built on the foundation of OPIC and assume its portfolio. But the BUILD Act draws in a few select components of the US Agency for International Development (USAID) too. By consolidating these functions under a single roof, the BUILD Act would create an institution that is much closer to a one-stop-shop—more efficient and better positioned to structure financing packages with fewer coordination-related delays and roadblocks. Specifically, the bill would integrate USAID’s:
Development Credit Authority (DCA): DCA offers partial credit guarantees backed by the US Treasury, which facilitate access to financing for small businesses in emerging markets.
Enterprise Funds: Over the years, Congress has periodically provided resources for the creation of enterprise funds—which have a mixed record, at best.
Office of Private Capital and Microenterprise: This small, relatively new office seeks to mobilize private capital by facilitating partnerships and by deploying a combination of grant funding and advisory or technical support.
Of course, these changes won’t negate the need for strong coordination between USIDFC and other US agencies engaged in development activities—and USAID, in particular.
For US development dollars to succeed in creating inclusive economic opportunities in frontier markets, a full-service development finance institution is crucial. Introduction of the BUILD Act is a vital first step.
As bad as this is, it gets far worse. Sometime around 2045, Nigeria’s population will pass the United States in size. That’s tens of millions of new Nigerian consumers and job-seekers—who will fuel even more demand for energy. As large as the power gap is today, what will Nigeria’s electricity generation capacity look like in 30 years?
The graph below compares the United States’ and Nigeria’s historical and projected populations and electricity generation capacity. The US Department of Energy’s Energy Information Administration (EIA) projects that the United States will have around 1,300 GW of power capacity by 2050. Officially, Nigeria has 12.5 GW of installed capacity today. (In practice, the country is really closer to 4 GW of functional capacity.) The Sustainable Energy for All Action Agenda, developed in partnership with the Nigerian government, targets total electricity capacity of 23.5 GW by 2020 and 45 GW by 2030. Yet one estimate puts peak national power demand as high as 213 GW by 2040. In other words, the gap is already a chasm, and looks to get even bigger.
If these predictions are anywhere near accurate, then the implications are colossal. Economic growth and job creation won’t possibly keep up. Electricity is already among the top constraints to firm growth in Nigeria, as pointed out by our colleagues Vijaya Ramachandran and Alan Gelb and in a new paper from UC Berkeley.
This dystopian jobless scenario also creates repercussions for American national security. As I (Todd) argued in recent testimony to the Senate Foreign Relations Committee, Nigeria is an unavoidable partner in our fight against transnational threats like terrorism, disease, and criminal networks. The specter of a Nigeria that cannot come close to meeting its growing population’s demands for jobs and modern lifestyles—all underpinned by high volumes of energy—should be alarming.
Every year, millions of Americans power up decorative lights to celebrate the holidays. These festive lights invoke the best human aspirations of peace, joy, and generosity.
This time of year, Americans should also celebrate that we can enjoy these traditions because we live in a country with a modern energy system that (almost always) delivers affordable 24/7 electricity.
The holiday spirit is also about remembering the less fortunate. That’s where the lights are doubly useful as a timely reminder of the massive gaps in global energy access. Here in the United States, we have plenty of power for holiday lights, but many countries don’t even have enough electricity for their basic needs. Indeed, some entire countries use less electricity per year than Americans do on holiday lights.
To be clear, we’re not suggesting people stop decorating their homes and Christmas trees. We’re not even calling on people to consume less electricity. In fact, precisely the opposite: billions of people live today in countries that lack the energy needed to create the jobs they need or even to support the everyday lifestyles that we now consider normal.
If every human being will one day have a refrigerator, a computer, and an air conditioner, we’re going to need a High Energy Planet. We shouldn’t try to squash these aspirations. Instead, let’s find a way to meet them. What could be more in the holiday spirit than that?
Note: This is an update to a blog post from 2015. The country figures are for 2015, taken from the Department of Energy’s Energy Information Administration (EIA). The US holiday light estimates are based on a 2008 EIA report, which we adjusted for efficiency gains from LED market penetration growth from 5 percent to an estimated 50 percent.
The World Bank now has three benchmarks for measuring poverty. The “headline” extreme poverty threshold of $1.90/day will stay, but two new international poverty lines were added for lower middle-income ($3.20/day) and upper middle-income ($5.50/day) countries. While it’s great that the World Bank is bringing a little more nuance to the way we define poverty, it's still a repackaging of Lant Pritchett’s kinky development.
Kinky energy is still a problem for international measures of energy access. The International Energy Agency (IEA), in their 2017 World Energy Outlook have maintained the definition for “modern energy access” at a consumption rate of just 100kwh per person per year in urban areas and just 50kwh for people living in rural households. The IEA reports global energy access progress on these figures. Yet this level of energy consumption is far from anything approaching “modern.” It’s about what’s required to charge a cell phone and power a few lights. And it’s farcical to declare success for crossing this low threshold.
The World Bank and SE4ALL's Multi-tier Framework has five levels and is far better, yet this is still misleading because “very high power” is set at 600 kWh per person per year. There are zerohigh-income countries in the world with consumption below five times this rate. The United States is more than 20 times higher.
In the 2016 report, More Than a Lightbulb by CGD’s Energy Access Targets Working Group, we proposed redefining modern energy access and called for three new thresholds that are more meaningful and better reflect energy as development progress: 100 kWh as an extreme energy poverty line, 300 kWh for basic access, and 1,500 kWh for modern energy access.
As with poverty lines, maybe it's finally time the international community revised energy targets too?
The very same week that USAID and the Department of State submitted a joint redesign plan to the Office of Management and Budget, the coauthors of four recent reform proposals packed the CGD stage for a timely debate. With each proposal unique in approach and substance, moderator and senior policy fellow Cindy Huang had the tough task of keeping the event to a strict timeline. Thankfully, with help from a terrific panel—comprising Erol Yayboke and Nilmini Rubin representing the Center for Strategic and International Studies (CSIS), CGD senior policy fellow Jeremy Konyndyk, Jim Roberts of Heritage, and George Ingram representing the Modernizing Foreign Assistance Network—the event featured an engaging discussion and covered a lot of ground in just 90 minutes. Here are a few of the big questions that panel members grappled with as they authored their reports, including areas of consensus and divergence (USAID/State transition teams—and other administration officials—take note!):
Fragmentation: “Form should follow function,” but how ambitious should we be in reorganization?
The panel was unified on the idea that the current system is deeply fragmented, but members took different approaches when specifying the level of reorganization needed to increase efficiency and effectiveness to achieve US development goals. For Rubin, “bigger isn’t always better.” To consolidate and streamline, Yayboke advocated for the USAID administrator act as coordinator of foreign assistance, ultimately deciding which agencies should implement new US development programs. Ingram took this a step further, outlining a vision for the creation of a “bigger and more powerful” new development agency (while leaving development finance functions distinct), bringing the best practices and the main instruments of the wide range of existing agencies together under a single director of foreign assistance with cabinet status.
Inclusive economic growth: How can we better harness tools for catalyzing private investment and economic growth?
One of the more controversial subjects the panel broached was how to approach the roles and tools of the Millennium Challenge Corporation (MCC) and the Overseas Private Investment Corporation (OPIC). Roberts called for the breakup of USAID, the elimination of OPIC, and the shifting of development functions—outside of global health programs—to an outsized MCC. For Roberts, this was driven by a vision that US foreign assistance agencies should be focused primarily on strategies to help improve economic growth, with a greatly diminished focus on non-growth objectives. This was met with resistance from some of his fellow panelists. In response to the idea of an “MCC on steroids,” Rubin countered with the metaphor of the evening, noting that her minivan is great for shuttling her kids to school and activities but would make a terrible lawnmower. In other words, while the small, growth-focused MCC can operate very effectively in certain contexts, that doesn’t necessarily mean the agency is the right choice to take on a very different mission. Most of the proposals envision market-driven, private sector investment as critical to realizing development progress well into the future. Ingram emphasized the need to modernize OPIC to help crowd in the private sector in frontier markets—an idea also championed in the CSIS and CGD reports.
Humanitarian assistance and fragile states: Given a lack of proven methods and tools, how do we develop the systems we need to engage effectively in post-conflict environments?
Speaking from his experience at USAID’s Office of US Foreign Disaster Assistance, Konyndyk noted it was time to apply lessons from US humanitarian response to US development programs in post-crisis contexts. He outlined steps that would allow programming to be more responsive and agile: more aggressive use of competition waiver authority within USAID in certain transitional and insecure environments, a dedicated surge staff mechanism for development surge or post-crisis surge capacity, and earmark flexibility for missions in transition settings. The proposal from CSIS aimed to increase effectiveness and streamline assistance by consolidating programming under USAID, such as the Bureau of Conflict and Stabilization Operations, while keeping policy functions at State. Ingram observed that while these specific suggestions are important, what was missing from all the proposals was an overarching instrument in dealing with state fragility that effectively engages the “three Ds”: development, diplomacy, and defense.
Global health: How can we continue to build on past success?
US global health programs have some of the greatest evidence of effectiveness, so the question is often framed around how to improve coordination and build on existing progress. On the structural side, Yayboke recommended transferring PEPFAR to USAID’s Global Health Bureau to better help address what he sees as the changing face of tackling the HIV/AIDS crisis—one that is less of an emergency initiative and more focused on management and long-term sustainability. Konyndyk focused instead on the haphazard division of labor between PEPFAR’s implementing agencies, USAID and the Centers for Disease Control and Prevention. The current arrangement, which he sees as inefficiently maintaining parallel capabilities at both agencies, is not a functionally driven way to manage a multibillion-dollar aid program. We should move toward a deliberate arrangement where engagement plays to the comparative advantages of each agency. Roberts identified global health as an element of US development assistance worth preserving, but his view is that global health programs should be consolidated under the State Department and sit alongside US humanitarian functions.
Country graduation: How can we better match instruments and programs with country needs?
The panelists agreed that the United States requires a range of tools to address distinct development challenges, and that a broad aim should be to help countries transition away from traditional grant-based foreign assistance over time. USAID Administrator Mark Green has consistently suggested that developing models for strategic country transition will be a top priority during his tenure at the agency. Ingram highlighted the need for a transition strategy with benchmarks and plans to ensure sustainable engagement even after the United States is no longer providing traditional assistance. In a similar vein, Konyndyk highlighted the need for an updated toolkit to leverage private sector engagement and encourage domestic revenue mobilization in partner countries. Yayboke echoed this, and suggested the United States take a hard look at programs and missions that are not central to a newly crafted foreign assistance strategy, with a particular eye toward middle-income countries. Roberts reinforced that countries should be thinking about transition “all the time.”
This event was a great chance to learn more about the motivating factors behind elements of the reform proposals—and an opportunity to identify common ground.
If you missed the conversation, you can still watch the webcast here. And be sure to visit the proposals themselves:
For the US Development Policy Initiative’s inaugural Voices of Experienceevent, three former Treasury Under Secretaries for International Affairs took the stage: Tim Adams of the Institute of International Finance, Lael Brainard of the Federal Reserve, and Nathan Sheets of Peterson Institute for International Economics. The conversation, moderated by CGD Board Member Tony Fratto, revealed the “esprit de corps” of the International Affairs team, and covered everything from the central yet oft under-the-radar role the Office of International Affairs plays in the formulation and execution of international economic policy, to each Under Secretaries’ proudest moments. Interestingly, the event highlighted significant policy continuity across administrations and a nonpartisan approach to key decisions. See for yourself here, and take a peek at a few takeaways:
Global economic success equals success at home
Brainard kicked off the discussion noting that the primary but less understood role of Treasury is to negotiate the interface of US domestic and global economic policy. Panelists emphasized that continued engagement with the global economy serves domestic interests, but in the current political climate, the message must be communicated consistently and clearly. Brainard, who served during the recent US financial crisis, reflected on both sides of the isle coming forward in the wake of the crisis to support the recapitalization of every multilateral development bank. This remarkable feat represented a bipartisan recognition that economic recovery in the US happens only in concert with the rest of the world. Adams added that this engagement can be a difficult sell to the public particularly in times of domestic hardship, but that the case can rests strongly on three pieces: values, economics, and national security.
Strong, continued support of IFIs, but not without US leadership
The Office of International Affairs manages the United States’ engagement with international financial institutions and other financial international fora, such as the G-20 finance ministers and central bank governors process. All three urged that the US must continue to play a leadership role. Reflecting on his own experience, Sheets’ team time and time again turned to the IFIs to tackle some of the most challenging issues facing the international economic system. This meant taking advantage of the all-important leverage attached to every US dollar funneled through multilateral channels, and he asked: If the new administration is not willing to engage multilaterally with global challenges that affect the US, is the American taxpayer willing to foot the bill in its entirety?
Adams explained that not only should the US continue to have strong support for IFIs, but the US must lead in these institutions if they are to effectively confront global challenges and challenges at home. Reflecting on his (somewhat controversial) speech on shaking up the IMF, he noted that it is in US interests to push for more transparency and more accountability in these institutions. IFI’s are already international standard setting bodies, yet must constantly evolve in order to stay relevant for both domestic and global interests.
Policy continuity and collaboration across administrations is at the core of the office
The conversation revealed a remarkable level of mutual respect and policy agreement. This was no more striking than when each Under Secretary highlighted proudest moments on the job. Adams spoke of commencing the glide path from the G-7 to the G-20, and pushing the IMF to pursue its surveillance mandate more vigorously, including exchange rate policies, for which Brainard and Sheets kept the ball rolling. Sheets also spoke to the IMF’s now sound outlook for the next five years, and his office’s work to continue integrating China into the global financial system, which the panelists all agreed was important for global financial markets and growth. Brainard is proud of the US role in getting the world economy on track to recovery after the financial crisis, and seeing a convergence on exchange rate management in the G-20 with a commitment to avoid use as a trade competitiveness tool. After all, she said, Treasury has always been a mission driven organization, focused on putting the American economy first.
This panel was the first in CGD’s Development Policy Initiative (DPI) Voices of Experience series, which will feature discussion with senior officials from past administrations of both parties who shaped international development, economic, and financial policy.
Thanks to Nancy Lee for helpful comments on this post.
Treasury’s Office of International Affairs works with other federal agencies, foreign governments, and international financial institutions to strengthen the global economy and foster economic stability. The United States’ international engagement through Treasury supports our national economic and security interests by promoting strong economic governance abroad and bolstering financial sector stability in developing countries. Through Treasury, the United States exercises leadership in international financial institutions where it shapes the global economic and development agenda and leverages US government investments, while tackling poverty and other challenges around the world.
State Department guidance underscores the importance of its work in furthering development: “The surest path to creating more prosperous societies requires indigenous political will; responsive, effective, accountable, and transparent governance; and broad-based, inclusive economic growth. Without this enabling environment, sustained development progress often remains out of reach.”
The US Agency for International Development (USAID) is the lead US development agency, managing roughly $20 billion in annual appropriations. The agency operates in over 120 countries, including the world’s poorest and most fragile. Its work spans a wide range of sectors, supporting humanitarian relief, economic growth, health, education, and more. USAID’s broad remit reflects the agency’s mission: “We partner to end extreme poverty and promote resilient, democratic societies while advancing our security and prosperity."
With big cuts to US bilateral and multilateral assistance looming, the House Committee on Financial Services convened a hearing to investigate accountability and results at the World Bank. Scott Morris, CGD’s director of the US Development Policy initiative (DPI), was joined by the International Consortium of Investigative Journalists’ Sasha Chavkin, CalTech’s Jean Ensminger, and BIC’s Elana Berger. With the latter three witnesses focusing on project-level failures at the bank, you might have expected the hearing to be driven by finger pointing, but it was a generally thoughtful conversation with everyone on the panel agreeing that it is in the United States’ interest to continue engagement with the World Bank.
Here are my main takeaways from the hearing:
The US is a leader in driving accountability: There was agreement that US leadership in driving accountability at the bank is critical. While Scott emphasized how the United States has effectively leveraged its leadership to shape policy in areas like anti-corruption reform, bank safeguards and procurement rules, and key aspects of program evaluation, the other witnesses spoke to specific examples of US leadership. After project-level failures in Uganda, Berger explained how US engagement played a critical role in leading the bank to produce a comprehensive outcomes document that extends to bank activities more broadly, and in pressing to remediate harms.
Balancing bank engagement with national security: The more “lively” aspects of the hearing surrounded members’ concerns on bank engagement with certain regimes or in more difficult environments, and the impact on US security. While witnesses acknowledged that striking this balance continues to be an underlying challenge for the bank, Morris argued that engagement in these environments is often important, particularly where the US has troops on the ground or if the US still has economic interest. There is often value in the bank being involved in these areas, especially if it allows the US to be influential from a distance. The US in some instances has also been good in pushing the bank to pull back in the face of clear problems of governance.
The bank remains a model of effectiveness…The Quality of Official Development Assistance (QuODA) received a shout-out from Congressman Denny Heck (D-WA), and various committee members acknowledged Scott’s comments that the bank is consistently ranked on this assessment and others as one of the most effective development institutions on cost efficiency, project outcomes, and policy influence. With respect to projects that failed to achieve intended outcomes, the bank’s strength in addressing these failures comes from its mandate to press for transparency, and in its ability to make connections between its projects and failings more effectively than other sources of financing.
…but a need for reform persists: Several bank projects still fall victim to fraud and corruption. Berger supported the need for social and environmental safeguard specialist to be involved throughout project cycles. Congressman Roger Williams (R-TX) cited remarks by CGD non-resident fellow Martin Ravallion at a previous hearing on the “pressure to lend” at the bank and its effect on development outcomes. The panel echoed this observation, but Scott also explained that the bank has taken significant steps in incorporating learning into project design, leading to a more outcomes oriented institution than in the past. He offered practical recommendations for how the bank can “do better” on achieving outcomes, including a greater reliance on results-based mechanisms like the Program for Results, randomized audits of bank projects, and adopting new technologies to improve project accountability and performance. He also urged the Committee to take an active role in oversight and continued US influence at the bank. Check it out below:
Missed the testimony? Watch the full hearing here and read Scott’s testimony.
In the twelve months to June 2016, nearly 1.3 million Kenyan households were connected to the grid for the first time. This impressive feat pushed Kenya’s national electricity connectivity rate to 55 percent from just 27 percent in 2013, one of the fastest connection increases recorded in the region. These latest connections illustrate the Kenyan government’s commitment to a goal of achieving universal energy access by 2020 (at least as measured by number of connections by Kenya Power and Lighting Corporation (KPLC), the national utility that owns and operates most of the electricity transmission and distribution system).
This is impressive. The jump from 27 percent to 55 percent took Kenya a little over three years. That same achievement took the United States about eight years during the height of the push to expand household electrification.
Now, Kenya aims to move from 55 percent to a ‘near universal’ access rate of 95 percent in just four more years—a leap that took the United States nearly twenty-six years. Yes, the U.S. is larger in size and population, but Kenya’s ambitions are still tremendous. In order to reach its goal, Kenya aims to hit 6.5 million connected households by July 2017, their most ambitious annual connections target yet. As of the end of last month, they are just about halfway there and roughly on track.
All this highlights Kenya as an example of extremely fast progress in electrification. So, what is Kenya’s strategy?
Invest heavily: In 2015, the Kenyan government and KPLC announced the Last Mile Connectivity Project, an initiative to connect one million customers per year. The government has already secured over $600 million from various international donors, and aims to connect over 814,000 households, measured as four million Kenyans, over the next four years.
Promote ‘under grid’ connections: Many Kenyans continue to live ‘under the grid,’ meaning the grid infrastructure is near where they live, but they are not connected. In response, many of Kenya’s connectivity programs, including the Last Mile project, have made an effort to leverage existing infrastructure in order to connect nearby populations as quickly as possible. For example, Phase I of the Last Mile project is focused on connecting under grid households within 600 meters of existing KPLC transformers.
Address demand side constraints: Two major policy adjustments in the last year reflect the government’s awareness of demand-side barriers to access. The government reduced the connection charge by over 50 percent and offered customers the option to pay the charge in installments. KPLC also scrapped a cumbersome application process, which was evidently skewed in favor of literate and wealthier households.
Will Kenya reach 95 percent by 2020? Due to KPLC’s remarkable transparency on progress on household connections, we can follow along in nearly real-time. Check it out, here.