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In Switch, Development Agency Welcomes Business and Technology to Poverty Fight

Civic leaders recently broke ground on a lush cricket field here for the Nelson Mandela Children's Hospital, a nearly $100 million state-of-the-art pediatric facility that is to provide care for youth throughout Southern Africa. Donations are pouring in, but not enough.

Enter Rajiv Shah and the United States Agency for International Development, historically known for building primitive health clinics in remote pockets of the globe and more recently for creating a Twitter-like social media site to try to foment unrest in Cuba. Here in South Africa, in one of the signature new deals for the agency, Dr. Shah brought in corporate America -- General Electric -- to guarantee a portion of a bank loan to help buy $30 million in much-needed equipment for the hospital.

"We can't keep funding things and doing what we have done in the past," said Dr. Shah, the ambitious 41-year-old U.S.A.I.D. administrator who is raising the profile of the Kennedy-era agency in more ways than one.

Dr. Shah, who will face tough questions about his $20 billion budget in testimony to Congress on Tuesday, has set off a fierce debate over the way the agency operates and the usefulness of traditional foreign aid. Rather than pouring billions of public dollars into programs to fight poverty, the agency is increasingly using loan guarantees to get local banks to finance big projects, giving its money directly to foreign development groups and embracing projects like the "Cuban Twitter" account, which deliberately hid American involvement and shut down in failure in 2012.

To Dr. Shah, a former officer of the Bill & Melinda Gates Foundation who believes that technology and private business should be marshalled to fight poverty and encourage democracy abroad, the changes are crucial to the future of the agency. The Cuban social media project, which started in 2008, nearly two years before he arrived, was similar to U.S.A.I.D. programs, he said, which help nonprofit groups monitor elections using text messages in Senegal and Kenya.

"It's part of our mandate to support civil society groups with modern communications and access to the Internet," Dr. Shah said in an interview.

To Dr. Shah's critics, the Cuban social media project was an unnecessary sideshow -- Senator Patrick J. Leahy, Democrat of Vermont, called it "just dumb" -- that pales in comparison to bigger objections from American government contractors cut out of millions of dollars of work who say Dr. Shah's changes are opening up the agency to potential waste and fraud.

"You don't throw the baby out with bathwater," said Stan Soloway, president of the Professional Services Council, a trade group of government contractors, which has hired the well-connected Podesta Group to lobby against the changes. "We have years of expertise working in many of these countries and we feel that is being ignored to a degree in the talks about reform."

The agency's traditional partners said that they were the ones with decades of experience building wells in Africa and setting up micro-credit programs in Asia and that local groups often lacked the expertise to run multiyear projects and keep track of millions of dollars.

"Many of these countries have weak institutions, otherwise U.S.A.I.D. wouldn't be working there," said Karl Hoffman, president of Population Services International, a U.S.A.I.D. contractor, which runs health programs targeting malaria and H.I.V. in more than 60 countries. "We have a proven track record, but we are sometimes treated as though we are part of the problem, not part of the solution."

But Dr. Shah has influential defenders.

"Rajiv is a visionary, but deeply practical," said Tony Blair, the former British prime minister and the founder of the Africa Governance Initiative, a foundation that works with African governments. "He realizes that the purpose of aid is for long-term development, not short-term projects that you can point to as successes."

Senator James M. Inhofe, a conservative Oklahoma Republican who has traveled with Dr. Shah to Ethiopia, is another supporter. "I'm a huge fan of Rajiv Shah," Mr. Inhofe said. "I'm not a fan of U.S.A.I.D., which has all these contractors waiting around at the trough. I love this guy because he is willing to take on these contractors. "

Dr. Shah, a Detroit native and the son of Indian immigrants -- his father was an engineer at Ford -- held a number of jobs at the powerful Gates Foundation, including director of agricultural programs and director of financial services for the poor. He has a medical degree from the University of Pennsylvania and served only briefly in government, as an undersecretary at the Agriculture Department, before moving to U.S.A.I.D. Colleagues think that he will run for Congress someday and that his criticism of big contractors, pleasing to Democrats as well as Republicans, is at the very least politically shrewd.

"This agency is no longer satisfied with writing big checks to big contractors and calling it development," Dr. Shah said. "There will still be a role for these contractors, just different than what it was in the past."

Under Dr. Shah, the amount awarded to big contractors for work in other countries has fallen by $400 million, from $9.6 billion in 2010 to $9.2 billion in 2013. In the same time period, the agency nearly doubled the amount it awarded to local groups, from $919 million in 2010 to $1.6 billion in 2013 -- or about 18 percent of total spending for work in other countries. The agency hopes to increase that amount even further, to 30 percent.

As an example of the change, a $90 million agency project in Ethiopia to distribute corn seeds to farmers and help them increase production is now divided among numerous partners. U.S.A.I.D. has brought in the American chemical company DuPont to provide the seeds and the Ethiopian government and local agricultural cooperatives to reach out to 35,000 small farmers. A Washington-based agency contractor, ACDI/VOCA, will coordinate the partners. In the past, the contractor would have run the entire project.

Despite the changes, Dr. Shah faces persistent problems in Afghanistan, where the agency spends nearly $1 billion a year, the most in any single country. The Special Inspector General for Afghanistan Reconstruction has repeatedly found problems of accountability, corruption and waste -- issues certain to come up at Dr. Shah's hearing before the Congress on Tuesday. Last year an audit by the inspector general found that the agency had given Afghanistan's Ministry of Public Health hundreds of millions of dollars but could not account for how it was spent.

U.S.A.I.D. began in 1961, a product of Kennedy administration idealism, and at one time had more than 18,000 workers operating in Latin America, Southeast Asia and Africa. But budget cuts over the years reduced its reach. In the George W. Bush administration, the agency lost its independence -- and policy making and budget functions -- and was absorbed into the State Department. By the end of 2009, when Dr. Shah took over, the agency had downsized to 2,200 employees and was dependent on the contracting companies, many of them run by former U.S.A.I.D. employees, to carry out its most basic functions.

While the agency foundered, private organizations like the Gates Foundation, which awards $3 billion in grants annually to fight global poverty and disease, began moving into the role the agency had previously played in development.

Many of Dr. Shah's changes have been inspired by the approach of Gates. In 2011, U.S.A.I.D. began a program, Grand Challenges for Development, which invites innovators to submit ideas to help solve problems like H.I.V or hunger. The agency has financed nearly 100 products under the program, among them the Pratt Pouch, a ketchup-sized packet of anti-AIDS drugs that does not need refrigeration. The pouch, developed by students and faculty at Duke University, is being used in Zambia and Ecuador and could potentially prevent the transmission of H.I.V. to 400,000 babies a year, according to the agency.

Dr. Shah has also added more than 1,000 new staff members, including finance experts from Wall Street, and increased the agency's private partnerships. Although the agency began using banks to guarantee loans in 2001, Dr. Shah has since brokered deals with insurance companies and pension funds to help finance projects.

In 2012, the agency agreed to guarantee loans made by Cadiz, a financial services company, that allows the firm to invest up to $150 million, including money from pension funds, in about 200 small businesses.

"In the past we didn't spend a lot of time trying to reach out to these kinds of funds," said Michael Metzler, an official at U.S.A.I.D's Development Credit Agency in Washington. "Two years ago, the administrator came in with new marching orders to scale this thing up. Now we are working with financial partners that we have never worked with before."

Among them is General Electric, which hopes to see the new equipment at the Nelson Mandela Children's Hospital when it opens in 2016. "We want to build local capacity in these countries," Dr. Shah said, "and then have them wave goodbye to us."

[Source: By Ron Nixon, The New York Times, Johannesburg, 04Apr14]

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