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A New Iron Curtain

February 12, 2015

Over the last five years, the Russian Federation has been criticized by international NGOs over the administration of elections, the national ban on “gay propaganda,” and the seizure of Crimea. NGOs are needed now, more than ever, to prevent human rights abuses and independently monitor the actions of Vladimir Putin’s government. Unfortunately, recent amendments to Russian federal law have placed substantial restrictions on the organization and development of NGOs.

Signed on July 20, 2012, Federal Law 121-FZ–colloquially referred to as the “Foreign Agent Law”– requires NGOs that receive funds from abroad and/or engage in “political activities” to register with the Ministry of Justice (MoJ) as an “organization carrying the function of a foreign agent.” According to the federal law, organizations that meet these vague requirements are required to submit biannual activity reports and quarterly expense reports and cooperate with authorities during mandatory annual inspections. In the event that an NGO “carrying the function of a foreign agent” does not voluntarily register with the MoJ and/or fails to comply with NGO regulations, the organization may be fined and/or closed.

In mid-February 2013, President Putin addressed officers of the FSB (Russia’s intelligence agency) and noted that 121-FZ “should certainly be executed.” Shortly thereafter, surprise inspections on hundreds of NGOs were carried out by the MoJ. As the smoke cleared from this fusillade last year, Human Rights Watch reported that 55 groups had received “warnings,” 20 had received official “notices of violation,” and the prosecutor’s office and MoJ had filed 12 suits against the administrators of offending organizations. These NGOs were some of the first victims of the “Foreign Agents Law.”

Among the many groups recently targeted by the MoJ, the experiences of Golos, Rakurs, and Man and Law serve as a kind of representative sample of the types of organizations involved in these investigations.

Ivan Sekretarev Associated Press

Golos Deputy Director Grigory Melkonyants (Source: Ivan Sekretarev Associated Press)

The first organization prosecuted under 121-FZ was the award winning voter rights organization Golos (Voice). In the months leading up to the 2012 election, Golos’ monitors reported multiple violations and rampant voter fraud. Shortly thereafter, the MoJ accused the organization of “receiving foreign funds” and “engaging in political activity on Russian territory.” While Golos received funding from USAID in the past, it has not received foreign funding since the amendments were effected. Furthermore, it argued that it was not involved in political activities, since it works “on behalf of the people rather than specific political forces.” In spite of this, Golos was still fined 300,000 Roubles (~10,000 USD), placed on the MoJ’s registry, and closed for six months in June 2013. Following the decision, Golos closed some of its regional arms and, in September, lost its most recent appeal.

Tatyana Vinnichenko photo by Alexander Borisov

Rakurs Director Tatyana Vinnichenko (Source: Alexander Borisov)

Rakurs (Perspectives), an oft profiled and well-respected LGBT organization based in Arkhangelsk, was founded in 2007 to provide “socio-psychological and legal support to the LGBT community.” According to the group’s leader Tatyana Vinnichenko, the MoJ conducted a nearly month long investigation of Rakurs’ organizational activities in November and December 2014. The final report from the MoJ linked Rakurs to the political activism of Nikolai Alekseev, allegations that Vinnichenko has firmly denied: “We have a community center… We provide advisory services, training and so on. In my opinion, it is impossible to call us [a] political organization.” As in the Golos case, the MoJ ignored these objections and, on December 15, 2014, Rakurs was involuntarily placed on the Registry. Although the organization’s operations continue and it plans to appeal the decision, Vinnichenko is not optimistic: “It is clear that we will probably not be able to work with the label of ‘foreign agent.’ We don’t have much faith. But it’s necessary to use all the legal mechanisms.”

Man and Law, an NGO focused on combating corruption in the Mari-El Republic, has also run afoul of the “Foreign Agents Law.” On April 24, 2013, Man and Law’s leaders received a warning from the Prosecutor’s Office that cited political elements of the organization’s charter including its efforts to “participate in elaboration of policy by state institutions, organize public gatherings, meetings and demonstrations, and come up with propositions for state institutions and to take part in election campaigns.” The warning also explained that foreign funding necessitated registration with the MoJ. Man and Law refused to alter its charter and, on December 15, it was cited with an “Administrative offense under Part 1, Article 19.34 of the Administrative Offences Code of the Russian Federation” which criminalizes activities carried out by an NGO acting as a foreign agent. The local Constitutional Court ruled against the organized and imposed 300,000 Rouble fine. While Man and Law still operates today, it filed an appeal with the Magistrates court on January 12, 2015 in which it condemned the “illegal” actions of the MoJ and the arbitrary nature of the “Foreign Agents Law.” The court has not yet heard the case.

The issue here is clear. With its bureaucratic burdens, mandatory inspections, and hefty fines, the “Foreign Agents Law” handicaps the development of civil society in Russia and strongly discourages international investment. While only a few of Russia’s 220,000 NGOs have been investigated so far, more inspections, fines, and closures will surely follow. Once again, an Iron Curtain is descending, but this time it is falling over Russia’s NGOs.

Landlocked Developing Countries Face Unique Hurdles for Growth

February 11, 2015

Developing countries are often characterized by deficiencies in institutional security, infrastructure, and market openness. Among such emerging states, Landlocked Developing Countries (LLDCs) are set apart by their lack of direct access to the world’s oceans and seas. While landlocked European nations are on average 170 km away from the nearest port, their LLDC peers average nearly 1,370 km, placing them at a distinct disadvantage. The inability to access maritime transportation networks creates additional burdens that most developing countries do not have to face, including additional border crossings and significantly higher costs of doing business and transporting goods.

The plight of LLDCs is not, however, unknown to the international community. In November 2014, the United Nations held its Second Conference on LLDCs in Vienna, Austria. At the conclusion of the conference, the General Assembly adopted a 10 year action-plan for LLDCs, identifying six key priorities that need to be addressed in development efforts:

  • Fundamental transit policy issues
  • Infrastructure development and maintenance
  • International trade and trade facilitation
  • Regional integration and cooperation
  • Structural economic transformation
  • Means of implementation

These priorities may be boiled down into two major issues that need to be addressed vis-à-vis development in LLDCs: transportation infrastructure and trade relations between bordering countries.

While efficient and reliable transportation and logistics are important issues in all nations, they are essential in LLDCs. To date, only nine LLDCs have more than 50% of their roads paved. Recent research conducted by Paras Kharel (of the South Asia Watch on Trade, Economics & Environment) and Anil Belbase (of the Institute for Policy Research and Development) used data from the World Bank’s Logistics Performance Index (LPI) to determine the correlation between LLDC logistics performance and exports. The LPI is determined on a scale of 1 to 5 “based on efficiency of customs clearance process, quality of trade- and transport-related infrastructure, ease of arranging competitively priced shipments, quality of logistics services, ability to track and trace consignments, and frequency with which shipments reach the consignee within the scheduled time.” Kharel and Belbase discovered that, all else being equal, a 1% increase in the LPI performance of LLDCs is associated with an average increase of exports by 2.84% – 3.27%. Similarly, a 1% increase on the LPI in transit nations (nations that lie between LLDCs and port access) is associated with a 1.1% – 1.2% average increase in LLDC exports, all else being equal. However, if LLDCs do not share positive relations with their neighbors, a relatively high LPI score is essentially meaningless.

A common thread between many LLDCs is a lack of positive diplomatic relationships with major neighbors. Ethiopia’s relationships with Eritrea and Somalia, for example, are frosty at best. Newly minted South Sudan shares most of its border with other landlocked nations and Sudan, from which it declared independence in 2011 after a long, bloody conflict. For meaningful and sustained development, improving relationships with border nations is essential in order to allow and obtain greater access to the world’s ports—and by extension the world’s markets. Many LLDCs, such as Tajikistan and Uzbekistan, must use routes that go through more than one transit nation to reach a port. Encouraging trade agreements that knock down tariffs and nontariff barriers should be a priority.

The private sector and civil society can also play major roles in the process of developing LLDCs. Civil society and the private sector can help provide more intimate perspectives of ordinary people who live in LLDCs which can lead to more specific and productive policy recommendations tailored to each nation’s unique needs. Civil Society can also advocate for streamlining procedures and eliminating barriers in order to promote more robust FDI, an important cog in LLDC development. The UN Conference on Trade and Development reported that FDI is significantly more important for GDP growth and capital formation than in developing countries as a whole.

Figure 1. FDI stock as a percentage of GDP, 2004–2013 (Percent)

FDI Stock as a percentage of GDP

Source: UNCTAD, World Investment Report 2014

Figure 2. FDI inflows as a share of gross fixed capital formation, 2004–2013 (Percent)

FDI Inflows as a share of gross fixed capital formation

Source: UNCTAD, World Investment Report 2014

The report found that the share of FDI stock in GDP averages about 5% higher than in other developing countries. The report also found that “In terms of the ratio of FDI to gross fixed capital formation (GFCF) – one of the building blocks of development – FDI’s role was almost twice as high for LLDCs than for developing economies over the previous 10 years.”

As logistics performance, diplomatic relations with immediate neighbors, and engagement with the private sector and civil society improves, LLDCs will be enabled to overcome the unique barriers to development that they face.

China’s Lack of Philanthropic Culture?

February 5, 2015

In November 2014, the Charities Aid Foundation published its annual World Giving Index, which measures and ranks global giving behaviors. In the report, China was ranked 128 out of 135 countries. Last year, China was also criticized by Reuters because few wealthy Chinese citizens donated publicly to fight the spread of the Ebola. And back in 2010, Bill Gates and Warren Buffett’s invitation to charitable giving, known as the Giving Pledge, was turned down by many of China’s millionaires.

At first glance, it might seem fair to say that China, the world’s second-biggest economy, is lacking a philanthropic culture, and that its people are reluctant to donate to  charitable causes. But maybe we should examine what several wealthy Chinese citizens said about their giving behaviors.

givingpledge

When asked for his opinion on the Giving Pledge, Charles Zhang, the Founder and current CEO of Sohu Inc., said he would not follow the same donation model that Bill Gates used. Instead, he preferred to pay more money in taxes to the government, because he believed that this was also philanthropy, and the best way of helping the poor. Charles Zhang is not the only one who feels this way. Last year, the World Food Program called on Chinese firms to donate more to fighting Ebola. Deborah Brautigam, director of the China Africa Research Initiative, said “It’s likely that state-owned firms would prefer the Chinese government to take a lead on this…They’re unlikely to come forward independently and would assume the government, which does have experience in contributing for emergencies, will be better at knowing what to do.”

It is believed that hoarding culture, the absence of religious motivations, and emphasis on family wealth–a tradition from an imperial, agrarian society– collectively make the Chinese give the cold shoulder to charity giving. Nevertheless, that’s not true.

Since childhood, every Chinese citizen has been taught to emulate their ancient role models who would gladly be “the first to bear hardships before everybody else and the last to enjoy comforts.” Showing concern for the country and its society is the essence of Confucianism. It encourages people to commit themselves to the welfare of the society when they are successful, and to stay disciplined when they are in distress. Confucius taught people to contribute to welfare through government. He believed people should “cultivate his personal life, regulate his family, and then govern his state; when all the states are well governed, that person brings peace and harmony throughout the world.” Cosmopolitanism exists in Chinese culture, but there is little initiative on how to help others as a third party outside the government. This phenomenon is rooted in the social structure of China.

The current social structure in China is focused on a strong state and weak society. China’s lack of philanthropic culture is largely due to heavy restrictions on civil society. People are accustomed to relying on the government, resulting from the government’s unlimited power in the past. The public always expects and trusts their government to solve social problems. Such inertia in thinking impedes social engagement. Unlike the “necessary-evil” political tradition in the west, the state is “the good” for the Chinese. Owing to people’s unawareness and inability, civil society grows slowly in this “acquaintance society.” However, is a thriving civil society really necessary to create a philanthropic culture? Myanmar
 was ranked first in the Index with restricted civil society.

Those who help others are always noble, however minuscule their contributions are. But it is equally important to seek out the for reasons behind people’s behaviors, rather than merely criticizing them. Hopefully, there will be changes in China. Jack Ma, the co-founder of Chinese e-commerce giant Alibaba, is pouring much of his personal wealth into the creation of philanthropic trusts, which represents 2% of the company’s current equity (roughly $3 billion). This might be the dawn of a new era of giving among China’s freshly minted billionaires.

 

Spurring Economic Opportunities in the Northern Triangle

November 25, 2014

This past summer, the United States saw a dramatic increase in the number of unaccompanied children crossing the U.S. southwest border from the Northern Triangle nations of Guatemala, Honduras, and El Salvador. According to the U.S. Customs and Border Protection Agency, the present year has so far seen 51,705 unaccompanied alien children from this region, compared to 20,805 in 2013. This phenomenon has been attributed to discouraging economic prospects and violence back home, which in turn begs the question: what are the governments of Guatemala, Honduras, and El Salvador doing to address these issues?

Data source: U.S. Customs and Border Protection Website

Data source: U.S. Customs and Border Protection Website

The solution they’ve developed is the Plan of the Alliance for Prosperity in the Northern Triangle, an ambitious regional strategy that seeks to spur social and economic development in the region. Recently, presidents and dignitaries from Guatemala, Honduras, and El Salvador traveled to Washington, D.C.  to present a draft of The Plan. On November 20th, 2014,the Guatemalan and Salvadorean foreign ministers were at the Atlantic Council discussing the key components of The Plan. Meanwhile, the heads of state of the three Northern Triangle countries, along with the U.S. Vice President, visited the Inter-American Development Bank (IDB) to formally reveal and raise support for The Plan.

The Plan of the Alliance for Prosperity in the Northern Triangle is framed as a medium-to-long-term solution to the outflow of illegal immigrants from the region, particularly children. It centers on four broad objectives: (i) creating economic opportunities, (ii) fostering human capital, (iii) tackling violence, and (iv) strengthening institutions.

In order to spur economic opportunities in the region, the governments of the three countries are betting on cheap energy and adequate infrastructure as the bait that will attract investors. But how will they manage to provide cheap energy? Essentially, the three countries plan to regionalize the production of electric energy through the Regional Electric Market (MER) initiative. In addition, the Central American Electrical Interconnection System (SIEPAC) that currently supplies energy to the three Northern Triangle countries, among others, is expected to operate at twice its current capacity. The idea of natural gas as an alternative source of energy that is both relatively more efficient and environmentally friendly is also gaining popularity among the three governments.

With regards to infrastructure, the focus will be on extending and improving transportation such as roads, ports, and airports. Investments in secondary and tertiary roads will be primarily focused on eight specific corridors that promise to facilitate inter-state trade and commerce. The clamor for infrastructure investments in the Northern Triangle region is validated by the fact that approximately half of the roads in Guatemala and El Salvador were not paved as of 2011.

Data source: World Bank Development Indicators

Data source: World Bank Development Indicators

Another important component of the economic development equation put forth is the promotion of specific industries and geographical areas. More specifically, The Plan seeks to advance the agriculture, textile, and tourism industries through policies that encourage the adoption of technology in production and business management processes, as well as policies that facilitate access to credit.  In the case of the agro-industry, the regional strategy prioritizes investments in irrigation and storage systems, and mechanisms for producers to better access meteorological and pricing information. Insurance schemes against natural disasters caused by climate change are also included. Moreover, through the “special economic zones” initiative, The Plan promises to tap the economic potential of some of the region’s most impoverished areas, especially those that see the largest outflows of immigrants to the U.S. This will be done by courting the private sector with adequate public services and infrastructure in those areas.

But how much will the Plan of the Alliance for Prosperity in the Northern Triangle cost? And equally important, how will the bill get split and among whom? The answers are still unclear. First, when asked about The Plan’s price tag during the event at The Council last week, Guatemala’s and El Salvador’s foreign ministers circumvented the question by saying that too much focus on one (hefty) figure may compromise people’s optimism for The Plan. Their strategy is to first further develop The Plan step by step with the help of the IDB. At the same event, the two ministers said that they had not come to the U.S. just to beg for money. Rather, they are looking to create a sort of partnership with the U.S., as well as other countries like Mexico, under the premise that everyone in the region will eventually benefit from the Plan of the Alliance for Prosperity in the Northern Triangle.

Impact Investing: An Alternative to Meeting Social Challenges

November 14, 2014

The development community has long acknowledged the potential role of the business sector in social and economic development. To complement the efforts of governments and civil society organizations, impact investors have added a business approach to tackling the world’s social challenges, and are driving a revolution that could fundamentally change  how people think about development and investment.

Even before the term impact investing was coined in 2007, the idea gained momentum and attracted the attention of major players across the private sector, civil society, and the public sector. Goldman Sachs and Morgan Stanley  structured and issued bonds worth more than $100 million to provide financing for vaccine campaigns, and microfinance institutions. Philanthropists such as Bill Gates, George Soros, and Pierre Omidyar have also made impact investments with profits reinvested to their foundations. The International Finance Corporation of the World Bank Group has invested in private companies to seek both financial and social return ever since its inception in 1956. The Commonwealth Development Corporation (CDC) of the UK government was also an active impact investor even before the term was created.

According to the Global Impact Investing Network (GIIN), “impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” Impact investors and social entrepreneurs have become impatient with the traditional and bifurcated view that investors should only focus on financial returns, and that only philanthropists and civil society should devote themselves to the purpose of creating social good. Impact investors marry profit and purpose by financing profitable businesses that solve social and environmental problems.

Though this seems like an exciting and innovative way to address the world’s ills, two concerns quickly arise. First, how can we be sure impact investing is more than an advertising gimmick, and that it’s actually making a difference? To address this issue, the Rockefeller Foundation, J.P. Morgan, and USAID launched the Impact Reporting and Investment Standards (IRIS) in 2009 to provide a relatively comparable measure of the social performance of impact investments. Businesses that receive impact investment funds must have an intention to create positive social impact incorporated into the business strateg,y which then must be measured to determine the success of the investment. Furthermore, impact investors are supposed to adhere to the principle of additionality- investments should target businesses for which sufficient private capital could not be obtained on reasonable terms. Impact investments should be made in undercapitalized places, or undercapitalized sectors, or in an asset class that is not readily available.

A second concern that arises is how  profitable businesses can intentionally generate a positive social or environmental impact. In practice, impact is usually generated by expanding access to basic services, such as education and housing for the poor, or through production processes that provide job opportunities, or create other forms of benefits to society. While CSOs might create the same impact, profitable businesses help make the impact more sustainable.  CSOs face uncertainty in their funding, but profitable businesses can always turn to retained earnings and therefore are much less reliant on outside finance.

An example of impact investing done right is the story of the pioneering telecommunications company in Africa, Celtel.  In 1998, an experienced Sudanese entrepreneur and engineer named Mohammed Ibrahim encountered a number of difficulties when he planned to build a telecommunications company that targeted Sub-Saharan Africa. Ibrahim had a hard time convincing mainstream investors for start-up capital because investors felt Africa was too unknown and risky, and there was virtually no infrastructure for telecommunications back then. The UK government’s CDC stepped in and provided $22.5 million of private equity in Ibrahim’s company. The CDC subsequently invested three more rounds of capital to help Celtel reach 6 million customers, and generate annual revenue of more than $1 billion. In 2005, Celtel was bought by the Kuwaiti mobile operator MTC for $3.4 billion, and the CDC received a handsome return on its shares.

Access to mobile technology has created enormous opportunities for the poor on the world’s least developed continent. Mobile technology has transformed Africa, and mobile phones have become an essential part of economic life. On a continent where most people do not even have a bank account, mobile banking has enabled millions of Africans to transfer money, pay bills, or even buy electricity with their cell phones.

Impact investing is still in its infancy, and is far from being mainstream. However, it holds the potential to unlock an enormous amount of private capital to meet the world’s pressing social and environmental challenges in a more efficient and sustainable way.

Community Managed Sustainable Agriculture: An Outline for the Next Step in Development

October 31, 2014

As 2015 approaches, so does the target date for the Millennium Development Goals (MDGs). It is undeniable that the MDGs have seen measures of success, if moderate – there has been an increase in primary education around the world, infant mortality has plummeted, and by 2010 the world had already met the goal to halve extreme poverty.

While the Millennium Development Goals have placed importance on community engagement, the gap between supranational goals and basic needs has been difficult to address. To address this gap, the community institutional platform for sustainable agriculture in Andhra Pradesh and Telangana, India was implemented. Creating similar community engagement initiatives in other projects could create sustainable methods of poverty eradication.

Case Study: Community Managed Sustainable Agriculture (CMSA) in Andhra Pradesh and Telangana

Photo Courtesy of Dr. Vivek Prasad, George Mason University

Photo Courtesy of Dr. Vivek Prasad, George Mason University

Agriculture is a predominant base in the economies of Andhra Pradesh and Telangana and, after the Green Revolution, Andhra Pradesh is one of India’s largest producers of cotton and cereals. However, in the 1990’s crops were failing and agriculture became an expensive and risky occupation. Conventional agricultural methods were labor intensive and required a large investment, often requiring farmers to go into debt to buy pesticides and chemical fertilizers. As farmers used chemical pesticides, the pests started to grow immune and required higher doses of treatment. Farmers were caught in a “pesticide trap”.

In 1995, NGOs such as the Center for Sustainable Agriculture started implementing Non-Pesticide Management to reduce the cost of growing crops and to help farmers get out of debt. Non-Pesticide Management was a system of agriculture that trained farmers in organic methods of eradicating crop pests. The village of Punukula was one of the first to adopt this initiative and, in 2004, saw an increase in both crop yields and profits. From Non-Pesticide Management grew the concept of Community Managed Sustainable Agriculture.

Community Managed Sustainable Agriculture (CMSA) was implemented by the Society for the Elimination of Rural Poverty (SERP) in three phases. The first phase was the creation of an education initiative training farmers in IPM (Integrated Pest Management) technologies – how to observe and understand the behavior and life cycles of crop pests. Farmers learned how to combat pests using physical and biological strategies, such as pheromone traps and bio-pesticides. They then began replacing the chemical pesticides they had previously used with these alternatives. The final stage in CMSA, and the one that separated it from Non-Pesticide Management, addressed issues of soil fertility as farmers gradually replaced conventional chemical fertilizers with composting methods, microbial formulations, and vermiculture (a composting process involving worms).

What has made CMSA so successful has been the community-oriented institutional structure. There are three levels in Community Managed Sustainable Agriculture – Village Organizations (VOs) and Farmer Self Help Groups (SHGs) that allow farmers and community members to collaborate, Sub-District Federations, and District Federations that provide support and assistance. Beyond that, various community based organizations, NGOs, women’s groups, government agencies, and private firms participate in funding and supporting CMSA. After 2005, the World Bank also invested in CMSA, enabling them to expand.

Natural Farming Cycle Photo Courtesy of Dr. Vivek Prasad, George Mason University

Natural Farming Cycle
Photo Courtesy of Dr. Vivek Prasad, George Mason University

Upscaling

With input costs low and profit potential relatively high, farmers had more flexibility to experiment. When they found a specific practice or technology successful, they would collaborate with other farmers and, eventually, technical specialists to create a plan to standardize it. Farmers would then create a micro-plan to present to a commercial bank and, due to CMSA’s reliable framework, investors were willing to participate. Seeing this success, the national government implemented similar structures, emphasizing the inclusion of the Poorest of Poor households and women. Organizations throughout India and other countries, encouraged by this success, introduced their own initiatives – Pro Africa has implemented CMSA projects combined with irrigation in South Matabeleland, Zimbabwe.

Implication

Where conventional agriculture was labor intensive, organic agriculture and non-pesticide management was knowledge intensive, requiring comprehensive community-based institutions and means of knowledge transfer. As this knowledge was transferred, the low input and investment costs created access for the poorest in the region to begin working in agriculture. Farmers who had previously gone into debt were able to profit and reduce their debts. Farmers were also able to tap into the organic and pesticide-free markets, drawing higher prices for goods and, thus, higher profits.

CMSA addressed the causes of environmental vulnerability while adapting methods to benefit the people and the environment. Pesticide-related health concerns dropped and there was a 7-9% state-wide reduction in pesticide use. Even gender inequality was confronted – as women became involved through women’s-only SHGs, understandings of gender roles changed and women became active in leadership.

While the MDGs have taken the first step, implementing structures like CMSA in the post-2015 plan would create a more thorough understanding of needs and how to address them. Going beyond participation and creating inclusive frameworks not only engages communities, but also creates a sense of ownership and a drive to propagate best practices.

Trade, Not Aid

September 2, 2014

Summit

The first week of August marked the inaugural U.S.-Africa Leaders Summit, a meeting of nearly 50 African leaders and American businessmen in Washington, D.C. Though taking place nearly six years after President Obama’s first inauguration, the Summit manifested the President’s longstanding interest in stronger U.S.-Africa ties. During his time in the Oval Office, however, President Obama has often been criticized for his lack of serious involvement in Africa.

Until now.

At the tail end of the Obama Administration, the Leadership Summit briefly silenced critics who claimed the President Obama has ignored Africa. The Summit, the first meeting of its kind, was an opportunity for African leaders, most of whom are heads of state, to convene in one place with a sitting American president. After 3 days, the Summit unveiled its greatest initiative: a $33 billion investment plan to catalyze economic activity on the continent.

Unlike previous financial flows to Africa, the Summit’s investment plan is a departure from traditional Official Development Assistance (ODA), usually in the form of bilateral loans. Instead, the investment plan is set to take three forms: $7 billion to encourage trade and investment in Africa, $14 billion from American multi-national corporations (MNC), and the remaining $12 billion for infrastructure development through the USAID Power Africa initiative. The investment package is designed not only to reduce poverty across the continent but also to encourage investment beyond Africa’s primary resources. As such, the investment package may signal a swing of the economic development pendulum from aid to trade.

This marked shift, though a step in the right direction, is only a step. In comparison to the United States’ previous financial flows to Africa, $33 billion is small. In 2013 alone, the U.S. imported $39.3 billion from Africa and exported $24 billion to the continent. Outside of trade, ODA claimed nearly $7 billion to the continent in the same time period. Despite comparatively meager figures, the forthcoming investments could embody a new trend in development assistance for Africa. By shirking traditional bilateral loans, the new investments emphasize the importance of private sector activity rather than corrupt governments.

Only a few countries will benefit from the package’s key investments. The Power Africa Initiative’s newest investment will only benefit six countries, meaning that each country will receive $2.4 billion over the course of five years. While not a small number, the Power Africa investment will close a small section of the continent’s infrastructure gap, worth an estimated $38 billion annually for the next decade. Some critics are further puzzled by the initiative’s strategy of distributing the money for various projects such as mini-grid and off-grid expansion throughout six counties (Ethiopia, Ghana, Kenya, Nigeria, Tanzania, and Liberia) when it could make a greater impact by devoting the money to one project. The Grand Inga Dam, the Trans-African Highway, and the Lesotho Highlands Water Project are all far-reaching projects aimed at improving infrastructure beyond a limited geographic area. Instead of distributing funds to six countries, Power Africa could focus its invest in one of the aforementioned projects, and perhaps even further reduce the Infrastructure Gap.

Wind

Additionally, MNC investment is unlikely to go to the continent’s poorest countries. One of the investment package’s most notable companies Coca-Cola already has offices is Kenya, Nigeria, and South Africa, making it more likely that these countries will receive greater investments. Targeted investment, however, might not be such a bad thing. Countries likely to receive the majority of the investments are those with more stable governments and more trade-friendly economic policies. If anything, investments toward these countries could incentivize countries to improve their own investment climates.

 Perhaps the most prominent of the criticisms of the investment package is that these efforts are too small and too late for lasting impact. Such criticism is well-taken, but the U.S.-Africa Leaders Summit’s investment plan could signal a transition for further U.S.-Africa investments. Unlike traditional ODA, the Summit’s forthcoming investment recognizes the African continent as a legitimate investment location, corresponding to the continent’s impressive GDP growth rate. The Obama Administration cites Africa’s 5.4% growth rate as a promising sign of Africa’s investment potential. With the upcoming investments, the African continent can sustain an upward growth trend. Though the dust has settled on the U.S.-Africa Leaders Summit, the investment’s real work, still lies ahead.

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