Thank you very much, Chairman Allison and members of the committee. I am honoured to join you today from the United States Agency for International Development to discuss the role of the private sector in achieving Canada's international development interests.
I am, as the chairman said, the chief innovation officer as well as the senior counsellor to the administrator of USAID.
As someone who hails from the private sector and has, among my responsibilities at USAID, oversight of global partnerships, I am particularly pleased to be here. I will humbly share some of our collective wisdom that USAID has garnered over the last decade and that I have gained working in the small business start-up private sector, focused on crafting profitable solutions to ameliorate social problems. I hope to provide insight into the benefits we believe can accrue and are accruing to development when the private sector and donors align their goals.
Also, with respect to time, in my written testimony I have proffered three recommendations. I won't actually go over those in my prepared remarks, but I'd be happy to respond in the question and answer or at some other point. I commend you to those, if you want to dig deeper into how we have done some things and what lessons we might pass on.
Let me start by putting public-private partnerships in the context of our foreign assistance and foreign policy objectives.
Investment in development is a key part of our U.S. foreign policy, along with defence and diplomacy. When President Obama issued his policy directive on development, the first we've had in our country in 50 years, he challenged us to imagine the conditions where AID or aid are no longer needed. He underscored the importance of economic growth. He believed that is actually how it would happen. He said, “Economic growth is the only sustainable way to accelerate development and eradicate poverty”, and called for a new operational model based on partnership.
Secretary Clinton has also been a leader in understanding the essential role that economic statecraft must play today in our foreign policy. The Obama administration recognizes that domestic jobs and economic prosperity at home are increasingly tied to the developing world as well.
According to the global bank HSBC, two-thirds of all global economic activity in the next 40 years will occur in the emerging markets in the developing world. Yet we know this will not happen if there are not stable governments and adequate infrastructure of water, power, and Internet, and if people in those countries are ravaged by disease.
We also know that no one host country, one company, NGO, or donor, however large, can afford to do this alone. That is the basis of what we believe partnership is about: using the assets of each of us in a smart way that accelerates development goals cheaper and faster.
USAID has continued to steadily increase its involvement in public-private partnerships over the last decade. Many corporations over this same period have developed very comprehensive social responsibility programs, led by committed and innovative executives who see the value of investing in developing countries both socially and operationally. Most significantly, the private sector is recognizing the value and need for partnering with donor agencies, foundations, and non-government organizations in order to expand their businesses and meet the growing demands of global customers.
I will say at this point something that's in my recommendations. I am not here to defend every single public-private partnership and development that has ever been done, or every corporate social responsibility program of any company. Sometimes we get involved in an all-or-nothing debate that doesn't understand that there are bad companies and there are great companies. What we're looking for is where our development interests overlap with their profit goals or other goals of their company.
We have discovered that aid can unlock local capital and encourage economic growth in countries that lack the resources to incentivize economic growth without assistance. Aid cannot serve as the sole substitute for private capital, nor should it be used only as a tool for humanitarian assistance.
Throughout the world, the most crucial forms of economic engagement involve not only official development assistance, but instead private capital flows, such as remittances and foreign direct investment. In fact, sending money home is now the second-largest financial flow to developing countries. In 2009, remittances amounted to $307 billion worldwide—an amount two and a half times larger than total official foreign aid flows. We know that if we can partner with these flows towards development we can accomplish more, faster, and improve cost-effectiveness.
The business community also faces operational challenges overseas that are symptomatic of the development obstacles that agencies like CIDA and USAID are attempting to address. Where USAID is interested in guaranteeing access to clean water, major beverage producers see the need to protect the source of their needed product input. That's where our development goals and their profit goals overlap. When a company is concerned with supply chain stability, or when global demand requires a company to dramatically increase its sourcing, USAID seeks to improve opportunities for smallholder farmers or youth entering the workforce.
We see that in our work in Indonesia, where the Consumer Goods Forum, which is a trade association of the largest manufacturers and retailers in the world, has made a commitment to not source their products by deforesting lands by 2020. They've put out that demand, yet supply hasn't caught up. We want to make sure that the benefits of that kind of pull are felt more broadly in countries, so the smallholder farmers have the ability to participate and bring their products up to world-class standards.
Let me tell you a little bit about our history in public-private partnerships, and some of the statistics.
In 2001, USAID recognized that the development landscape was evolving. In the 1960s, U.S. resource flows to the developing world totaled collectively about $5.1 billion, with 71% of that coming from the public sector and 29% sourced from the private sector. We've now seen those numbers completely flip around, where official development assistance is only about 17%, and the private capital flows are 83%. So our ability to accelerate demand has us looking at those flows as potentially leverageable against our goals. Thus, USAID created our Global Development Alliance Office. That's what we call our public-private partnerships, so you'll hear me sometimes refer to GDAs, which is just another acronym for PPPs.
We wanted to encourage collaboration with all these significant new actors, so USAID standardized the approach to PPPs. We didn't say, “Just go out there and do public-private partnerships”. We said good public-private partnerships that are easy for the private sector to do and retain our goals have a certain set of protocols and a certain way so we can ensure quality and due diligence, but also make it extremely easy for the private sector. So we are the preferred partner for them, rather than a partner of last resort. We created a combination of incentives and directives to jump-start the program nationwide. We trained the staff around the world so we could allow for innovation and the ease and speed of execution of public-private partnerships.
I can give you a quick overview of how the process works.
If you're a private company and you have an idea, we can engage in some preliminary conversations, but we have an open call 365 days of the year for a five-page concept note. That tends to separate the people who are serious players and really want to partner with us from those who are just trolling for opportunities. We ask in that five-page paper what development outcome you might share with us, how much money and other resources you're willing to put up, and what you would like from us. That gives us an opportunity to start from where they're at. Sometimes that is far from where we finally negotiate a deal, but it actually gives us a point of contact. We understand at the front end what's important to them, what they are willing to do as part of this partnership, and what they are expecting from us. I have this watchword in my life that conflict occurs when there's a violation of expectations. So we want to get those expectations up on both parts.
Our partners must match our investment at least one to one through cash and in-kind services, although we are proud to report that on average our leverage over the last decade has been four to one.
Through the use of these GDAs and other partnership models, USAID has generated a thousand partnerships over the last decade with 3,000 different partners, and we've leveraged $8.8 billion. We've leveraged about $9 billion or $10 billion against our development goals. Currently we have 283 active partnerships, for which have an estimated value of about $8.8 billion.
So as you can see, we believe this is a significant part of what we do. Particularly in a tight budget climate, we strive to get the best development results for the taxpayer dollars that the American public has given us the privilege of deploying. We have garnered and appreciated bipartisan support and thoughtful input from Congress.
Partnerships at USAID are more than dollars leveraged. We know that these private sector partners have big value in terms of supply chains, logistics, and the ability to imagine the conditions where we are no longer needed.
I'll use the example of the Arab Spring. We all care deeply about that becoming an even more stable and modern part of the world, so we care deeply about fair and free elections, but the fact of the matter is that one of the underlying factors around the Arab Spring was the vast majority of young people who saw no economic opportunity.
We're not going to be the employer in the Middle East, but if we work with private companies that have an interest in investing and if we can reduce their risk in some way, we believe that we not only help stabilize the government and our government in democracy work, but we also provide an economic future that provides us more safety in the U.S. and a more prosperous world for our companies as well as others.
Also, we know that in conflict zones the private sector can often assist in the sourcing and delivering of humanitarian assistance where we can't. In the Horn of Africa famine this last year, we were not allowed to go into the southern parts of Somalia. People were dying in the tens of thousands. We worked with private sector partners and others. They were able to get into the supply chains and the traders, and we know that we saved tens of thousands of lives.
So again, if you want to think about public-private partnerships, we recommend that you think about it more broadly than just as dollars that are invested. What other assets can they bring that can help?
It was because we had a long history that we could call up these companies on a moment's notice, whether it was in Haiti or the Horn of Africa. Because of our past relationships, we could lean on them to say that we were having a huge and immediate problem in the Horn of Africa and to ask them if they had operations there, or distribution channels, or food or water anywhere close to the Horn of Africa that they could divert there. We were successful at having them come to the table.
Lastly, I'd like to share with you two examples of public-private partnerships. Today I've chosen ones that we've done with Canadian companies that you know well.
The first one is in the extractive industry in Peru. USAID's poverty reduction and alleviation project in Peru is premised on the belief that poverty is best overcome by helping small businesses—mainly the family-run farming operations that dominate the country—produce quality products that are in high demand. This project has helped small businesses in Peru generate $300 million in additional sales that would not otherwise have been achieved.
This was measured by collecting baseline estimates of annual sales that a business generated before working with our projects, and then measuring how much sales increased after the relationship. This is really critical, because we believe that monitoring and evaluation are critical factors. Not only do we want to agree on the development outcome at the front end, but we want to be smart and honest with ourselves and our partners—are we achieving the end goals, and how would we know?
What sets this project apart from a typical development project is its relationship with the private sector. The project has 11 private partners that have helped provide the financing to set up 10 economic service centres currently operating in Peru.
Your mining industry leader Barrick signed an agreement in 2011 with us to create two economic centres in northwest Peru, where 30% of the residents are living below the poverty line. We had operated this project successfully in other parts of Peru, and our public-private partnership with your mining company gave us the opportunity to expand it into a place that is struggling with extreme poverty.
Barrick matched our investment of $590,000 over a three-year period to establish an economic centre in La Libertad, and in Ancash they contributed another $270,000. Our target is the creation of 800 permanent jobs and $4.8 million in incremental sales. But most importantly, long after we've gone, long after the mining company's gone, the kind of infrastructure that will allow long-term sustainable markets for these farmers will remain.
The second example is in mobile banking, which we are already seeing as perhaps the most important development game-changer in decades. To give you some sort of context, there are 500,000 bank branches worldwide, and there are five billion mobile phones. Almost two billion people have access to a phone but no bank account, so they have no ability to participate in the formal financial sector or to start businesses that have access to a bank in order to grow over time. If we could turn every mobile phone into a bank branch or a cash register for small businesses, we believe the economic benefits of financial inclusion could be transformative for poor countries in the world. We're already seeing quantifiable results of this hypothesis in Kenya. Within five years, 70% of the country's adult population has gained access to the financial and banking system through MPesa, the mobile operator's money market.
Now I'm going to switch and tell you about our public-private partnership with Scotiabank in Haiti. My first day of work was the day of the Haiti earthquake, so I hardly went home for a month. But after a month I did board a plane.... I was responsible for anything that was weak or broken in our response efforts and for coordinating our public-private partnership. You can imagine that all of us were extremely busy during that month, because we knew the logistics problems of getting things into the country on a moment-by-moment basis made a difference as to whether people would live.
We went down there after a month, and we realized that not only did 80% of Haitians have access to a cellphone, but 90% of Haitians lacked access to a bank account. We knew again that if we could turn that mobile phone into a bank account, it could really help the infrastructure.
The earthquake destroyed almost a third of the country's bank branches, ATMs, and money transfer stations. We know, as you might expect, that chaos often occurs when you close banks or you don't have access to your money. Here we had 90% of the Haitians who didn't have access to a bank account. For those who did, most of the ATMs or local bank branches were closed, so we said maybe this was the time to accelerate mobile money.
We and the Bill and Melinda Gates Foundation put up a challenge grant. There were two major mobile money operators. We said we would give $2.5 million to the first one that could get an operational mobile money market up and running. We also said we would give $1.5 million to the second one, because we wanted both of them to be running for the big prize and not actually standing on the sidelines. Digicel and the Canadian bank partner Scotiabank received the first market award of $2.5 million for their mobile money product. It allows Haitians complete banking functions, such as cash withdrawals, deposits, and transfers, securely through their mobile phones.
Currently there are 800,000 registered users in Haiti and over 960 agent locations available to serve these clients. In a country where there were fewer than two bank branches per 100,000 people, we've seen nearly a doubling of accessible financial services in less than two years. Scotiabank also told us they are now processing 300,000 transactions per month.
So, yes, development is a long-term business, and it's a complicated business, but we think there are opportunities to really seize the moment and be game-changers. We think this is an example. Mobile money systems serve as a building block for subsequent financial services, and a lot of people who send money home are not so thrilled at what their relatives are spending the money on.
We're working on a project with the Filipino diaspora. On average, Filipino migrants in Canada spend about $15 Canadian a year on sending money home. We're setting up an operation where they could, through mobile money, send the money directly to the schools in the Philippines so they could pay the school fees. Rather than send it to their brother or their sister or their cousin and hope that the school fees are paid, they actually just pay that directly. So this is an idea of the innovation that we have.
With that, I'd like to thank you very much for the opportunity to share these opening remarks and I commend you to my written testimony for recommendations.
I welcome any questions.
Thank you, Chairman.
