USTDA: Good Value for Development Dollars

Often underappreciated and underutilized, the U.S. Trade and Development Agency (USTDA) is an independent federal agency with a big role in the future of international development. Especially critical to consider during the current financial crisis, this agency presents a win-win model: it provides innovative financing for development projects abroad, while simultaneously creating investment opportunities and export markets for U.S. businesses. USTDA’s model of development represents the shift underway in Washington from an official development assistance paradigm of development to a trade and investment paradigm of development.

As Congress debates hard choices about what to cut and what to keep, USTDA is one instrument in the development toolkit which provides good value for its money. The House and Senate have recommended levels of funding for FY2012 at $49.9 million and $50 million, respectfully. Going forward for FY2013 and beyond, with uncertain recovery for the U.S. economy, USTDA funding should remain an important priority for Congress because of this agency’s unique ability to leverage its assets in a multitude of ways: to strengthen the domestic economy, continue international development priorities, and serve diplomatic interests in emerging markets around the world. Additionally, other U.S. government development agencies—including the U.S. Agency for International Development (USAID), the Millennium Challenge Corporation (MCC), and the Overseas Private Investment Corporation (OPIC)—should look to leverage their own unique capabilities and objectives through deeper and more frequent partnership opportunities with USTDA in order to create more cost effective and efficient development outcomes. Of particular note, USTDA should be a first phone call as part of any USAID country graduation and as part of the front-end planning of any new MCC compact.

Q1: What is USTDA? What do they do, and how do they do it?

A1: USTDA works to engage the U.S. private sector in development projects in emerging markets. By linking U.S. companies with export opportunities for their goods and services, USTDA creates both jobs in the United States and sustainable infrastructure and economic growth abroad. This is done through two channels: the International Business Partnership Program (IBPP) and the Project Development Program. The IBPP is responsible for USTDA’s reverse trade missions, conferences and workshops, and other training programs; the main objective is to create markets and other commercial opportunities for U.S. businesses by bringing together foreign buyers with U.S. manufacturers and service providers. The Project Development Program is the traditional arm of USTDA that directly awards grants to international sponsors and encourages the selection of U.S. businesses to carry out project activities, most of which focus on energy, technology, or the environment. Primary activities of the Project Development Program include feasibility studies, pilot projects, and technical assistance.

Q2: How does USTDA present a good return on U.S. dollars?

A2: USTDA is a catalyst for private-sector investment and provides a good value for U.S. dollars by directly strengthening the economy here at home while simultaneously promoting our development and diplomatic objectives abroad. A results-driven agency, USTDA’s small staff manages large results.

First, it strengthens the U.S. economy. For every $1 programmed by USTDA, $58 is created in U.S. exports, culminating in over $17.6 billion of U.S. goods and services over the past decade, supporting around 110,000 U.S. jobs. Focusing a majority of its programming on small businesses, USTDA fosters relationships between U.S.-based companies and opportunities for trade and/or investment abroad in emerging and middle-income countries. As the United States and its allies in Europe seek to climb out of the current financial crisis, globalization marches on and is transforming many middle-income countries into large consumer-based markets with growing “South South” trade. USTDA is an important tool in identifying opportunities for the United States to plug into these new market opportunities.

Second, USTDA promotes economic opportunities in developing and middle-income countries around the world. A task historically done through official development assistance, USTDA directly supports U.S. development priorities through trade and investment in developing areas of the world. By providing direct grants for overseas projects, USTDA promotes infrastructure development and economic growth through open trade systems, effectively matching private-sector-led solutions with development challenges.

For example, USTDA was instrumental in the completion of the transatlantic, fiber-optic cable that has brought broadband access to much of southern and eastern Africa. By funding a ministerial visit, as well as an information and communications technology conference, the agency helped to secure $400 million of U.S. goods and services for use by African project managers to complete this undersea cable system. USTDA has also supported the establishment of a can manufacturing facility in Nigeria, implementation of energy efficiency strategies for the electrical grid in South Africa, and construction of an oil refinery in Vietnam.

Third, USTDA promotes American foreign policy objectives abroad and should be a part of any planned “graduation” strategies. In middle-income countries where USAID is closing missions, USTDA acts as a bridge for the changing relationships between the United States and these emerging economies. USAID is looking to close at least 15 missions over the next several years, and USTDA presents a unique ability to continue U.S. relations through commercial relationships, providing finance for development projects and identifying investment opportunities. Twenty-two of USTDA’s 26 priority countries are middle income, and it is here where this agency is facilitating new and different relationships, beyond those traditionally based on foreign aid. As has been done by USAID in the past in Poland, Portugal, and throughout Eastern Europe, new and innovative efforts must be made to continue foreign policy interests while drawing down aid missions.

Furthermore, USTDA had the ability to quickly respond and identify investment and development opportunities at the start of the so-called Arab Spring. By organizing the “Egypt: Forward Forum,” USTDA brought together American and Egyptian representatives from the public and private sectors to discuss collaborative opportunities for strengthening investment and stimulating job creation and economic growth in Egypt. Such efforts represent USTDA’s unique ability to leverage its funds and expertise to engage with strategic U.S. partners and enhance economic opportunities for both the United States and its allies.

Q3: What opportunities does USTDA present for the future of U.S. development objectives?

A3: In our austere environment, there is less official development assistance to go around, and the need to catalyze private-sector investments for development is increasingly important. USTDA is a model that we should emphasize and is a future-oriented agency that should be leveraged by USAID, MCC, and OPIC more strategically.

As USAID exits middle-income countries, it ought to incorporate USTDA into its exit strategy. And, as efforts are made to spur the private sector in these countries, USTDA should be incorporated in the planning at the front end of MCC compacts. Furthermore, OPIC should strengthen its relationship with this agency by combining USTDA’s technical assistance and reverse trade mission function with OPIC’s investment instruments. USTDA has an excellent relationship with the Export-Import Bank, but it needs to find more strategic ways to deepen its partnership with OPIC and others.

As we emphasize the importance of the private sector’s role in development in this era of funding constraints, USTDA points the way to a private-sector-led development future.

Daniel F. Runde is director of the Project on Prosperity and Development and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Lauren Bieniek is a research assistant with the CSIS Project on U.S. Leadership in Development.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2011 by the Center for Strategic and International Studies. All rights reserved.

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Daniel F. Runde
Senior Vice President; William A. Schreyer Chair; Director, Project on Prosperity and Development

Lauren Bieniek