Breaking Down USAID's Private Sector Engagement Strategy

Although I have had the fortuitous pleasure of dabbling in some of USAID's private sector engagement (PSE) strategy development via a few consulting assignments, I am still super pleased with the results, and believe the end game is only positive for economic development as a whole.

What does the strategy mean for USAID funding recipients? What does it mean for the private sector looking to engage in places of importance to USAID? What does it mean for co-funders or financiers? Finally, what does it mean for the nonprofit community implementing the technical assistance programs that the private sector relies upon to scale their development investments? I break it all down below:

1. USAID is continuing with its theme of self-reliance by recognizing that true long-term self-reliance depends almost entirely on a bustling and successful market system in place. Ambassador Green has encouraged USAID country programs to focus efforts building infrastructure and mechanisms that ensure a true market system can function properly. Don't be surprised to see future funding geared towards government transparency, innovative traceability systems for transport, trade and financial dealings, and programs that improve technology, physical infrastructure like buildings and roads, and access to energy.

Self-reliance will be measured by the eventual lack of USAID funding (i.e. when USAID isn't needed any more to support local governments in country), though the agency does have a number of measures it will be using to officially determine success. Green has even said it's his job to put all of USAID out of a job. In the meantime, USAID will look for private sector engagement in various forms in each of its projects going forward, working to build self-reliance program by program.

As a market idealist (a term I just made up) and someone who believes completely in business' ability to improve economic development (obviously as evidenced by my book, Purposeful Profits) I think this move is a good one for USAID recipients. I've heard from multiple categories of aid recipients (government agencies in E. Africa, farmers in Indonesia, apparel workers in India just for example) that self-reliance is important. There is a dependence on governments for certain measures, but I see a much greater emphasis on the private sector as the beacon on the hill for those keen to work themselves out of poverty. It's a tricky dance, and a greater focus on local private sector growth will help those recipients likely more than the conglomerates may, but we should pay attention and see how this plays out. More on the role of social enterprise below.

2. Ok so what does this new strategy mean for the private sector? It means (1) they better get their wishlist together and figure out what their priorities are in places where USAID works. There will be greater opportunities to partner with governments supported by USAID, as well as more ways to leverage funding, so getting consensus on what social and environmental goals are in place is a critical first step. (2) Get clear on which partners bring the most mutual benefit to the table. USAID will likely want to see full on collaborations in place in order to disseminate funding going forward. This means companies should be very strategic about which nonprofits, academic institutions, think tanks and pre-competitive partners they want to be working with, and also do the right due diligence to ensure those partners make sense given comparative advantage (full disclosure: this is what we do every day at Connective Impact. Let us know if we can help!)

As for the evolving world of social enterprises, as I explore in depth in Purposeful Profits, social enterprises are no longer for the millennial entrepreneur. Big companies are seeing great potential partnering with more nimble and innovative solution providers, particularly those coming from the developing world. Don't be surprised if USAID wants to see more of the locally based, innovative and thought provoking social enterprises at the table. If you are a bigger company, consider how to work with companies of different sizes, different service offerings and in different geographies, and approach USAID with some creative ideas. USAID will be gunning for some "newness" in their approach to working with the private sector, so the more innovative and interesting, the better.

Don't be shy though! This strategy means it's good to start talking to USAID sooner than later about your investment plans. Co-creation is the new buzz word. We can help you get in the door so reach out if you want to discuss.

​3. If you are a funder or financier, this strategy is GREAT news for your investments. Why? Because USAID will be much more focused on return on investment (ROI), both for their self-reliance strategies, and the importance of the same returns for the private sector. See, the private sector will only want to partner with USAID if it means the relationship yields social, environmental AND (not or, but AND) economic gains for their business. You can't deny that a business exists to make money, and yet there is a reality that doing "good", means doing well (or at least it will need to mean this for private sector to act.) Therefore, for co-funders and other financiers, engaging with USAID and its private sector partners will mean a more formidable return. Private sector partners not ready or interested in working with USAID will come your way, too, so be ready. Leverage is the name of the game. This means that USAID will want the private sector to provide match funding almost every time they engage, so for those entities that don't have the full funding to match will be knocking on your door. Time to prioritize your social impact goals if you haven't already!

4. Finally, the nonprofit community is listening intently to the feedback on this new strategy. Why? Because over the last five years, nonprofits have been tweaking their engagement strategies to focus more on shared value, and how partnering with the private sector can both bring in funding, but also help to ensure longer term sustainability for their stakeholders given the mutual benefit for companies operating with those same stakeholders. It's a win-win and for nonprofits that have already figured out how to engage the private sector in their work, going to USAID with private sector colleagues in hand will make the funding flow even faster. Haven't figured out your private sector strategy yet? Time to do so. We can help so reach out any time!

What's the bottom line? You may be in two camps: (1) You may see this strategy as another way for the private sector to influence the outcome of development only to benefit their bottom lines, make more money, and become richer, effectively widening the income gap. (2) If you are more in my camp, then you will find USAID's approach encouraging, recognizing that market systems led by private sector engagement in countries where development assistance is buoying greater transparency and infrastructure development for the benefit of long term economic growth is the answer to development challenges that have plagued us for decades.

For now, USAID has committed to the following:

• Issuing implementation guidance, including appropriate revisions to Agency operational policies (ADS) and a timetable for assessing progress made in the implementation of the policy;
• Developing a fuller suite of PSE training and skills-development resources for USAID staff and partners;
• Adopting a talent strategy to attract and retain an agile and diversely-skilled workforce in support of PSE;
• Adapting operational and performance measurements of success to ensure the creation of incentives and rewards for embracing financial and non-financial approaches to PSE;
• Strengthening the Agency’s tools, advisory services, and resources for Missions to analyze and assess market-based approaches to challenges effectively, map the private-sector landscape, and engage private-sector actors strategically;
• Developing and refining models that focus on both financial returns and development impact through blended public and private capital; 
• Including PSE, especially in the service of self-reliance and the promotion of U.S. economic interests, in all USAID strategies and program design documents;
• Prioritizing procurement reforms that enable flexibility, creativity, and collaborative models for the co-creation of market-based solutions that address development challenges and unlock private investment, including to meet the Agency’s Priority Goal on procurement reform in the U.S. Department of State-USAID Joint Strategic Plan; and
• Advancing learning on PSE across the Agency and among our partners and increase the evidence base of what works, and what does not, when engaging the private sector to achieve development and humanitarian outcomes.

We are always happy to talk through these scenarios as it relates to your organization so reach out any time to chat.

Joanne Sonenshine is Founder + CEO of Connective Impact, an advisory firm aiding organizations in partnership strategy and fundraising diversification to address social, environmental and economic development challenges through collaboration. Joanne is a development economist and has been living and working in the Washington, D.C. area since 2004. Author of Purposeful Profits: Inside Successful Businesses Making a Positive Impact, and, ChangeSeekers: Finding Your Path to Impact, Joanne documents how some of our most promising leaders take risks to truly make a difference and improve our planet. 

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