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The Development-Industrial Complex

Given the stated goals of the new administration, it seems inevitable that federal spending will be significantly reduced. Add to this the specter of sweeping State Department cuts, and it also seems inevitable that we will see renewed debates around reductions in U.S. Official Development Assistance (ODA). Although these debates will be divisive, they will not necessarily split along party lines, not least because ODA is one policy area that satisfies every leg of the conservative stool. Religious conservatives see the moral duty to help others in need, while national security conservatives see the urgency to counter potential terrorist threats around the world.1 For economic conservatives, the rationale for aid spending comes from the savings on military expenditures achieved through preventative ODA, or as Defense Secretary James Mattis put it when he was commander of U.S. Central Command, “If you don’t fully fund the State Department, then I need to buy more ammunition.” Combine these motivations with Democratic support for current ODA initiatives, and you potentially have a bipartisan coalition against cuts.

In light of this cross-partisan support—and the fact that ODA accounts for only 0.9 percent of federal spending—it is perhaps necessary to ask why arguments for cutting ODA appear so frequently, and why they are often compelling.2 Regrettably, the answer is that current spending on ODA is incredibly inefficient; a substantial proportion is stolen or wasted; and, in some cases, it is even funding activities that directly oppose U.S. foreign policy goals as well as the interests of the recipients.

Considering the above, it is surprising that those whose very livelihoods are under threat from ODA cuts have not done more to address these issues. The main reason asserted by the development community for this inaction is that the effective implementation of development projects is beset with an array of complex challenges, and the causes of misuse are too many and too disparate to be effectively eliminated. Yet while analysts and industry professionals agree on the challenges, many are beginning to suggest that not only is there another factor underpinning all this misuse, but this factor is being intentionally overlooked.

Although he was referring to the growth of the “Military-Industrial Complex,” President Eisenhower identified the root of the problem long ago when he said that “there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties.”3 By wholeheartedly adopting the same sentiment, ODA practitioners have transformed a system designed to “target technical solutions to specific social problems”4 into a huge “development industry,” an industry that is now dominated by large, inflexible organizations that fallaciously insist on providing universal solutions to every social problem.

In this article, I will attempt to show how the personal incentives of development-industry insiders have contributed to much of the misuse of development aid and created a delivery structure that is poorly aligned with the interests of other stakeholders. The article will conclude with a series of recommendations on how to address these issues. The chief problem with foreign aid is not that the current budget is too large or too small, but that many of the existing incentives for industry insiders do not align with the real needs of either the donors or the recipients.

Inefficient Spending

Despite losing its original Cold War impetus, government spending on ODA has increased from $9.7 billion in 1996 to $33.6 billion in 20155 and continues to grow apace (growing 7 percent in real terms from 2015 despite GDP growth of only 1.6 percent).6 This increase in spending has fueled the growth of a small group of “implementers” that compete for large government contracts. Some of these, such as Development Alternatives Incorporated (overseeing $2.6 billion in U.S. ODA grants and contracts over the last four years) or Chemonics ($4.8 billion) are specialized development agencies, yet many are not. For example, most big consultancies have special divisions active in this market (e.g., Deloitte at $845 million) as do other large companies such as the engineering firm Tetra Tech ($30 million) and agricultural producers best known for their consumer brands, like Land O’Lakes ($264 million).7 Nonprofits have similarly benefited, with several becoming vast multinational organizations almost entirely sustained by government funding. Take, for example, the Save the Children organization, which receives 65 percent of its $700 million annual revenue from government donors.8

To maintain growth, implementers are continually reinvesting in lobbying for increased spending, as demonstrated by the fact that every implementer named in this paper (along with numerous defense companies) is affiliated with the Washington-based U.S. Global Leadership Coalition, which “supports a strong and effective international affairs budget.”9 Although the nominal justification for this lobbying is to “do more good,” it is hard to ignore the fact that greater spending directly benefits individuals in this industry, including those working in nonprofits. (While nonprofits cannot legally pay dividends, their growth in size and stature does support large competitive salaries and provides more visible political platforms for their senior staff.) The most important consequence of this lobbying, however, is that in order to justify the extra funding for which they are so eagerly petitioning, implementers have to ensure that they are spending all the funds that they are currently receiving.

If we turn to the supply side of the industry, a similar set of incentives prevails. First, as described by the rational bureaucrat budget-maximizing model, overseers in donor agencies seek to increase their budgets to increase their own power.10 Add to this the career opportunities in well-funded multilateral development banks, which are available to politicians and career civil servants who prove their management abilities overseeing large ODA budgets, and you have clear incentives for donor administrators to promote greater spending. As budgets are only increased if all funds are completely utilized, however, donors—as much as implementers—have every incentive to ensure that implementers are spending all the funds that they are currently receiving. The perverse end result of this combination of incentives is that the one indicator of an ODA project’s effectiveness which is most valued by both donors and implementers is the rate at which the project spends money.

It would be possible to argue that a focus on what the industry calls “burn rates” was justifiable if and only if increases in spending actually increased the impact of ODA. This is rarely the case, however. The law of diminishing returns suggests that at some point increasing spending no longer increases the effectiveness of ODA. The reality of the aid industry is that this limit is incredibly low. The countries which receive the most aid are among the poorest in the world, and their economies have a very limited capacity to absorb large, sudden inflows of ODA. This is not least due to the limited capabilities of the domestic institutions of the immediate beneficiaries. A notable example occurred during the 2010 post-earthquake relief effort in Haiti: the country experienced such large inflows of aid that the Port-au-Prince airport was overwhelmed, essentially blocking all relief efforts until the U.S. Air Force took over operations.11 Even in less extreme circumstances, the successful implementation of ODA requires extensive planning, iteration, and, above all, time. Herein lies the real conflict for the industry: the requirement to burn money as fast as possible is inconsistent with a measured and intelligent approach to implementing ODA.

The typical response of implementers to these conflicting pressures is to deprioritize the “specialist technical” aspects of development projects—the functions most critical to ensuring success—and instead spend as much as they can, on whatever they can, as fast as possible. Usually this means spending on indirect administrative costs such as housing, food, transportation, and salaries. Such profligacy is not without significant negative effects. It is well documented that when implementers rapidly buy up skilled workers and supplies, they create a “donor economy” that vastly inflates the cost of labor and basic goods in the target area.12

While this rapid inflation assists in burning money, it decreases the value of ODA and tends to negatively impact local employers and consumers. The preferred “cost-plus” basis of ODA contracting (in which overheads and profits are based on a fixed percentage of approved expenses) further incentivizes the maximization of costs. The result tends to be vast and unnecessary capital footprints with projects billing for numerous “field offices,” large pools of vehicles, guest houses, and huge teams of staff to maintain them. These items are expensive, often consuming half of entire project budgets. Moreover, when projects maintain assets for extensive periods despite minimal levels of use, they also tend to be significantly less efficient than local private-sector alternatives, which might otherwise have benefited.13 Furthermore, these footprints are not just maximized in the field but in the donor countries as well. Some would question, for example, why the International Rescue Committee (IRC) maintains its headquarters in midtown Manhattan when its policy work is concentrated in Washington, D.C., and while also maintaining an office in Elizabeth, New Jersey. After all, the latter is closer to a major international airport and is only a short train ride away.14 Perhaps the reason is that—though the New Jersey location is closer to the communities with which the IRC works and though consolidating offices would save considerable amounts of money—it simply would not be as attractive a place for the IRC’s global political leadership to work.

We can now see the incentives for implementers to spend inefficiently, but since unnecessary spending afflicts all forms of contracting, it is important to ask why is it specifically overlooked in ODA projects. The short answer is the inadequacy of the controls employed by donors to combat inefficiency. Although agency overseers generally approve spending, the focus on “burn rates” incentivizes them to overlook inefficiency if projects are hitting spending targets, and doubly so if they are also fulfilling other performance targets.

In addition, when combined with the desire to maximize costs, certain blanket controls perversely contribute to increasing inefficiency. Take, for instance, the U.S. Agency for International Development’s (USAID) rule that overseers must approve implementers’ key personnel, combined with the absurd stipulation that new salaries are fixed to a percentage increase (usually 5 percent) on previous salaries—no matter what the position is, or what profession a contractor previously worked in. The result is that implementers seek to engage industry insiders with “high bill rates” rather than promote promising junior staff or recruit talented graduates.

The damaging impact of employing incompetent staff, whose only real qualification is being known to USAID, was recently highlighted in an audit of the Assistance in Building Afghanistan by Developing Enterprises Program (ABADE) by the USAID Office of Inspector General (OIG). The project’s chief of party was hired because he had previously been a USAID overseer’s colleague, but the audit concluded that he “was an ineffective leader who could not streamline operations, confront poor performers, or provide technical guidance.”15 Nevertheless, the implementers were hardly punished for their decision to employ him. Despite an audit which singled out management failure as the key reason for the project’s extremely poor performance, the implementers still succeeded in charging $13.3 million (36 percent of total spending) for “overheads and sub-awards,” in addition to $7 million (19 percent) for personnel, and $3.7 million (10 percent) for security. In other words, 65 percent of the budget was spent on overhead to deliver only $12.9 million (35 percent) of non-support or actual project spending.16

Other checks and balances intended to limit inefficiency, such as competitively tendering projects, are easily circumvented by the dominance of incumbent implementers. Incumbents regularly leverage existing donor-funded assets to win new bids through practices like business development teams “leasing” staff, offices, and vehicles from existing projects, using the very same overheads they derived from that project. Often such anticompetitive practices limit new entrants to the point where there is only one qualified bidder for tenders. Yet, in these circumstances, rather than cancel “favored” projects, overseers usually award projects even if the bidder has previously performed inadequately.

This situation is exacerbated by the fact that agencies such as USAID have also restricted tenders to preferred bidders.17 Even if there are several implementers with the capacity to bid on a project, incumbents often develop collaborations to stifle competition. Some collaborations do bring together unique partnerships, but many essentially work as cartels with collaborators taking turns as the “prime” bidder on a contract, while those not bidding are guaranteed work as subcontractors. For example, the nonprofit Partnership for Supply Chain Management was established by thirteen organizations primarily to bid for the $586 million USAID Supply Chain Management System health project (SCMS) contract, which it was awarded in 2005.18 It is worth noting that many of the thirteen partners are individually clients of USAID, and the largest happened to be the nonprofit arm of John Snow Inc., a private sector implementer that is also the third biggest recipient of USAID funding in 2015 ($417 million).19 Thus the effect of the partnership was essentially to limit competition between providers and reduce the number of bids.


So far, I have attempted to demonstrate that the budget-maximizing incentives felt by all actors in the development industry, combined with a lack of effective oversight, are responsible for inefficient spending. But I have not yet connected this inefficiency to more serious forms of misuse such as corruption and misappropriation. To explore such a connection, it is necessary to examine the scale of present corruption and understand how it relates to existing incentives.

Although claims that as much as 70 percent of ODA is “stolen off the top” are overstatements, the real figure is still significant.20 In 2014, OIG found through audits of a limited number of projects that at least 1 percent of all USAID funding ($92 million) was “questioned” or not properly accounted for.21 In harder-to-police countries such as Iraq, corruption rates are estimated to be almost 20 percent, with $9 billion missing from the total $50 billion spent (includes expenditures by other agencies).22

These cases are not just outlying examples. The fact that 65 percent of OIG’s 2016 investigations found evidence of missing funds shows that corruption remains widespread. What is striking, though, is that every USAID contractor goes through extensive ethics training and the potential for corruption is widely known, yet nothing seems to change. The same reports of corruption continue to surface, just as the same corruption headlines continue to appear, only with the name of the country replaced. It is hard to spot the difference, for example, between the 2010 headline, “Half of All Food Sent to Somalia Is Stolen, Says UN Report,”23 and the recent June 2017 headline, “‘Half’ of Nigeria Food Aid for Boko Haram Victims Not Delivered.”24 Both stories include nearly identical accounts of extensive, systematic theft from contractors and government officials alike, yet despite the widespread knowledge of the problem in the previous case, the approach to delivering aid the second time remained unchanged.

Why is it that this degree of corruption continues whereas in any other industry such high losses would not be tolerated? The answer again revolves around incentives. Putting in serious controls would vastly slow down the rate at which money is spent. Add to this the fact that the funds being stolen belong to the U.S. taxpayer, not the implementer, and we can see the significant incentives for implementers to overlook the issue.

Thus the existing “controls” are often inadequate to prevent corruption. Take, for example, the requirement that funds discovered as misused in audits are “unbillable” and, therefore, must be repaid. Not every project, however, is subject to an audit. In fact, USAID does not disclose what percentage of all projects are audited or even what percentage of spending is reviewed, reporting instead a percentage of “audits covering high-priority programs and operations, addressing management challenges, or identifying systemic weaknesses.”25 It is unclear how to interpret this confusing indicator, but as long as misuse is not discovered, then there is no direct loss to the implementer.

Beyond this, being caught overseeing a project with significant corruption losses carries little in the way of penalties to implementers, especially with regard to attracting future business. For example, in 2010, the collapse of the Kabul Bank resulted in losses of $900 million of ODA intended to pay the salaries of the Afghan security forces. The actual corruption was perpetrated by powerful insiders who knowingly made bad loans to connected officials, but the OIG report points out that the five “expert” advisers provided by Deloitte (at a cost of $7.8 million)—who were responsible for, among other things, bank supervision and examination support—“had several opportunities to learn about fraudulent activities at Kabul Bank over a span of two years before the run on Kabul Bank in early September 2010. However, they did not aggressively follow up on indications of serious problems at Kabul Bank.”26 Nonetheless, despite this spectacular failure, the only censure for Deloitte was a brief hiatus from the Afghan ODA market. By 2013, Deloitte was again overseeing $14 million of U.S. ODA funds in Afghanistan (and $240 million worldwide) including in good governance and financial sector projects.27

It could be argued that in the above example the implementer was just negligent, but another example highlights how even nonprofits actively seek to avoid identifying the scale of corruption. In 2009, the Academy for Educational Development (AED) had U.S. contracts totaling $640 million when a whistle-blower highlighted serious overpayments related to their Pakistan based FATA Livelihood Project (LDP).28 Yet rather than work with OIG, AED hired Ernst & Young to do an internal audit and simply offered to repay USAID exactly $1 million in overpayments. In response to another OIG investigation of a higher education project in Afghanistan in 2010, AED engaged a legal team to challenge the investigation. Due to pressure from OIG and increased publicity, USAID finally had to suspend working with AED because of “evidence of serious corporate misconduct, mismanagement, and a lack of internal controls,” as well as “serious concerns of corporate integrity.”29 On the face of it, this suspension appears to have been an effective censure on the implementer, but, in reality, it was a very limited act. Virtually all of AED’s roughly 2,700 staff simply transferred to working for Family Health International (now renamed FHI 360), when FHI 360 bought all of AEDs assets and became responsible for most of AED’s programs. In fact, as the nonprofit AED had no shareholders, perhaps the only person to lose from this was AED’s president and CEO Stephen Moseley, who “chose” to retire. Yet after overseeing AED’s operations for twenty years, and with a final annual compensation of over $870,000,30 even he came out rather well.

The incentive to overlook corruption in order to justify more spending is so strong that donors sometimes fail to effectively censure implementers even when the implementers are misappropriating funds themselves. For example, the Congressional Commission on Wartime Contracting (CWC) singled out USAID for failing to suspend Louis Berger Group (LBG) after the OIG found that “senior executives had conspired to charge the government inflated overhead costs” in Iraq and Afghanistan. The company settled by repaying $69.3 million, which represents only 3 percent of the $2.3 billion of ODA awards managed by LBG between 2002 and 2011. By settling, they were then allowed to win further contracts overseeing an additional $100 million of ODA in the two countries.33


Although the incentives in the “Development-Industrial Complex” underpin continuing corruption and fraud, perhaps the biggest area of concern should be wasteful spending. Again, the problem is well known within the industry. The Congressional Research Service highlighted that there are “serious losses due to poor planning, poor execution, and indeterminate accounting of funds and project outputs” in USAID projects.34 Despite this general awareness, it is difficult to discern exactly how much ODA is wasted, but examining individual projects does offer a qualitative insight.

Consider the USAID-funded Alternative Development Program/North (ADP/N), implemented by PADCO (now AECOM) in Afghanistan. The project spent $1 million on an irrigation canal that was one mile too short, while also spending $2.5 million to asphalt a 14-kilometer gravel road with a layer of asphalt that “measured only about an inch thick and within three months the asphalt fell apart.”35 These two failures alone accounted for 30 percent of the ADP/N infrastructure budget.36 Yet the project was riddled with other examples of poor execution. According to a USAID-commissioned report, ADP/N undertook a ludicrous scheme to reduce pesticide use by paying farmers to catch potato beetles. But paying $5 per bottle simply led to farmers breeding them for sale to the project.37

The ADP/N project report concluded that, even with very generously extrapolated results, this $60 million economic development project would only support a maximum of $40 million worth of new economic activity over the long term. In other words, donors spent $60 million in aid to achieve less economic impact than injecting $40 million directly into the economy. Despite essentially wasting at least 33 cents of every dollar, the implementer completed the contract, and its parent went on to be rewarded with further contracts to oversee more than $500 million in Afghanistan alone.38 It is apparent then that no matter how ODA is spent, as long as projects maximize their budget, implementers are rewarded. There are virtually no incentives to invest in better planning or better execution, especially as this could slow down spending.

Of course, even with the best planning, development projects can fail because of circumstances beyond reasonable control. But many projects are doomed from the beginning due to the implementers’ apparent ignorance of the most basic planning concepts or even of their own analysis. For instance, one of the subprojects of the “Feed the Future” initiative, the Liberian Food Enterprise Development project, encouraged cooperatives in the Liberian hinterland to borrow money to grow and process rice, even though the project’s own studies predicted that this rice would be more expensive and lower quality than imported rice.39 The project’s chief of party naively assumed that Liberians (who are one of the poorest populations in the world) would simply pay a premium for low quality rice to “help out” other Liberians. Unsurprisingly, when Liberians did not buy the expensive, lower-quality rice, many of the cooperatives were left facing lawsuits after defaulting on the loans.40

Another project in Liberia displays a similarly shocking lack of awareness. Despite having only 36,000 head of cattle in the entire country, almost no commercial cattle farming, and negligible farming of other livestock, the USDA-funded Food for Progress project, implemented by Land O’Lakes, spent $4 million building a commercial slaughter house with the capacity to process more than 200 cows per day.41 Aside from the basic math—at full operation, the entire Liberian cattle stock would be slaughtered in a few months—the project also failed to take into account that another brand-new, donor-funded, and completely unused slaughter house already existed only a few miles down the same road.

This last example points to another ready source of waste in ODA—the replication of projects. Instead of planning their projects based on the needs of the target area, many implementers just replicate other “successful” projects, expecting a quick win. Usually, due to the limited absorption capacities of host economies, these replica projects only result in adding wasted capacity. Indeed, the World Health Organization (WHO) estimates that only 10–30 percent of donated medical equipment is ever used.42 Often the impact is even worse with replication cannibalizing the initial projects’ success. This outcome is especially prevalent in economic development projects, where implementers completely ignore the devastating distortion caused by repetitively “subsidizing” new entrants into niche markets.

Even more wasteful, though, are projects transplanted into a context where they are obviously not suited, or the replication of projects such as livestock donation programs, which are known to be unsuccessful but are easy to implement. GiveWell, a website dedicated to analyzing aid, has not found a livestock distribution charity that has ever published evidence of impact,43 yet examples abound of their failure. For example, in 2005 the Aga Khan Foundation Afghanistan aimed to enhance local egg production by distributing chickens and chicken feed to a large number of rural, low-income households in one province. This subsidy resulted in a glut of produce on the market. Prices were driven so low that the preexisting egg importers stopped importing. While this was initially seen as a success, the true impact of this distortion became apparent when New Year celebrations resulted in almost all the donated chickens being eaten, which, in turn, resulted in a substantial inflation in the price of eggs.

This discouraging precedent notwithstanding, in 2016 the Bill and Melinda Gates Foundation, with the support of Heifer International, launched a similar-sounding “Coop Dreams” project, a plan to donate 100,000 chickens to low-income households.44 Despite the high-profile publicity surrounding the project launch, there have been almost no reports on the project’s performance since then, with the exception of a high-profile rejection by the Bolivian government. In explaining the rejection, the minister of land and rural development stated, “He [Gates] does not know Bolivia’s reality to think we are living 500 years ago, in the middle of the jungle not knowing how to produce.”45

In addition, because project funding cycles are relatively short (usually a few years), existing assets are constantly becoming redundant, which implementers then seek to reallocate to new projects. Combine this motivation with the fact that many implementers have an ideological agenda, and the implementers are frequently incentivized to do what they have the capacity to do, not necessarily what is needed. As seen before, sometimes this results in the continuation of ineffectual projects. When an organization’s raison d’être is funding gifts of livestock,46 its devotion to the proposition that donating livestock is a universal solution to world hunger is unlikely to waver no matter the results, especially if it wishes to maintain spending of over a $100 million a year.47

But wasteful spending is not limited to duplicative projects. Sometimes it takes the form of astonishingly inappropriate boondoggles such as a 2011 project funded by the Department of Defense Task Force for Business Stability Operations (TFBSO). The TFBSO, with nominal support from Google, contracted IBM to establish a tech start-up incubator, modeled after those in Silicon Valley, along with a data center, in western Afghanistan. Perhaps it is not surprising that both projects were expensive failures in a place where there was limited power and almost no internet coverage.48

Another common example of waste involves the repetitive production of the same studies in order to produce policy documents that are never used. For example, the ABADE project spent $2.1 million over two years developing plans for the Afghan Ministry of Commerce and Industry even though “within the first 3 months the staff realized that the World Bank had already been working on [the same] license and permit issues (We [OIG] confirmed that this information was readily available on the Internet).” What is more, the report concluded that “the usefulness of the plans was also questionable because the previous project had developed similar plans that were not implemented.”49

The interests of donors at times encourage misplaced priorities as well. The incentives for individuals to get noticed often drives development agendas to focus on the latest “hot topics,” whether they are relevant or not. As most projects are conceived and designed in Washington, it is easy to see how junior staff with little or no experience in Afghanistan got excited about a tech incubator simply because they thought they would be getting involved with both Google and IBM. Furthermore, the disconnect between what highly competent “grant-writing” staff based in D.C. want to achieve and what is feasible on the ground leads to the development of grand projects with unfocused and unachievable goals.

One example of this is the Power Africa Initiative. In its simplest form, the goal of Power Africa was to increase access to electricity in sub-Saharan Africa. But the project’s “star power” and its connection to the Obama administration attracted support from many donors, including some that were totally unsuited to supporting the types of distributed connection projects that would connect more people to power. In the rush to accommodate all these partners and their vast spending commitments, the project jumbled together a confusing array of different activities. When it became clear that a focus on smaller projects geared to increasing new connections would limit the capacity to absorb expansive largesse, Power Africa ended up emphasizing large central power generation projects instead (and of course funding the obligatory assessments needed to produce numerous unfunded policy documents).50 As a result, even the supporters of that approach concede that there is little in the way of coordination between the various partners, admitting that “Most groups working in Power Africa countries do not know or fully understand what Power Africa is and which projects are being financed as a part of this initiative.”51 After three years, only 400 megawatts of new greenfield projects are online and about 4,600 megawatts of planned projects have reached financial close (almost all of which were already in progress before the initiative began), versus a target of 30,000 megawatts.52

Again, inadequate controls to assess the effectiveness of projects, and the usual incentives to disregard them, have led to significant waste. In theory, donors monitor and evaluate performance against a set of key indicators which allow them to quantify and report the impact of projects. In reality, however, projects tend to rely on irrelevant, extrapolated, and/or unsubstantiated data; and, consequently, it is practically impossible to evaluate even the most basic results. Consider Power Africa’s two key targets: (1) to add 30,000 MW in new generation capacity, and (2) to “increase access” to 60 million new households and businesses.53 To an outsider, it would seem that the project intends to expand electricity to 60 million households and businesses which were previously without power. Yet this is not the case. While the project does count new connections (and new off-grid access) to people previously without power as part of this target, it also classifies the addition of 0.5 kilowatts of generation capacity anywhere in sub-Saharan Africa as “increased access”54 for an additional household or business. It is, therefore, entirely possible that Power Africa could claim success in increasing access to 60 million new households and businesses despite not actually adding a single new connection to these established grids. Indeed, because of its focus on funding new large generation systems, a significant amount of the power capacity funded through the project will go to already-established power grids.

Power Africa also reports that it has supported distributed connections to around 2.5 million rural homes, but the United States has so far spent, loaned, or guaranteed $2.8 billion to support $14 billion worth of projects. In other words, this computes to a cost per new connection of $5,600 ($1,120 directly from the U.S. taxpayer).55 Bearing in mind that some loans will be repaid and the increased generation capacity will inevitably result in a number of new connections, it is likely that the cost per connection will be considerably lower over time. But the key point here is that, because nobody knows for certain how many connections there will be, it is impossible to evaluate the true cost per connection. In this way, ambiguity can disguise poor performance.

In addition, implementers often make direct evaluations of performance purposely difficult. A notable example is the training performed by the USAID Agro Horizon Project in the Kyrgyz Republic: its website reports a very vague indicator of “21,000 households benefited.”56 Despite billing the U.S. taxpayer for a dedicated monitoring and evaluating (M&E) team, a tailor-made IT recording system, and a series of M&E surveys, the latest report still comes with the disclaimer that “more accurate numbers will be reported next quarter.”57 It is easy to see why another quarter is needed, as the project’s published reports show wildly unexplained differences in performance. The 2016 annual report states that “32,453 (353% of target) unique rural households benefitted directly from training and technical assistance,”58 while the latest 2017 quarterly report states that “actual number of beneficiaries benefiting from the project is already at 18,290,”59 but goes on to say that the M&E “database only contains 6,850 and the number of beneficiaries with GPS coordinates is at 4,000.” If the highest figure is accepted on good faith, the project only spends $252 per beneficiary and seems to offer good value for money on the $8.2 million already spent.60 However, if you do the math with only the beneficiaries that can be located, it seems that the project might actually spend $2,043 per beneficiary—not such good a value, especially since the average annual Kyrgyz salary is $2,150.61

We might also ask why, despite donors’ widespread knowledge of this accountability problem, many implementers repeatedly get away with incomplete record-keeping, irregular project monitoring, and statistics based on assumptions that OIG has described as “problematic.”62 Perhaps because donors are unable to keep accurate accounts of their own spending, they simply do not think implementers can do any better. As of September 30, 2016, USAID had $3 billion in unreconciled transactions with other agencies and a net difference between their general ledger and Treasury’s records of $195 million—$141 million of which cannot be explained.63 More fundamentally, it is clear that overseers are not motivated to question discrepancies, and they are incentivized to highlight the greatest impact possible in order to demonstrate how effective their projects are. A perfect example of this is the USAID Pakistan’s Entrepreneurs Project, in which an OIG study found that “the performance data reported in the implementation plan and quarterly reports were not accurate or consistent and could be misleading.” The audit went further, saying that the USAID mission “overlooked the need for collecting and measuring changes,” which “may limit the data’s value in determining project effectiveness.”64 Yet, ignoring its own significant doubts about basic performance reporting, the very same mission was happy to announce that “the Entrepreneurs Project exceeded all expectations by raising average monthly incomes of 75,000 beneficiaries by an incredible 147%.”65

The very scale of donor agencies also limits closer examination of results at the highest levels, allowing questionable lower-level achievements to be inflated into glowing headlines with the help of a few photogenic “success stories,” meanwhile concealing even the largest examples of waste. (It is worth noting that the opening message of the 2016 USAID financial report quotes figures from the Power Africa and the Feed the Future initiatives, both of which have been shown to be at best questionable examples of success.) Once waste is obscured at this level, it allows donors to launch even larger and more ill-defined projects, without needing to acknowledge potential concerns about implementers’ performance.

Consider one of the largest implementers and recipients of USAID contracts, Chemonics. Chemonics has a history of using extremely vague indicators to measure its performance. To evaluate the results of a road construction project, Chemonics employed metrics such as the “number of reconstructed national governing institutions and systems that receive assistance to incorporate principles that support democracy and government legitimacy.”66 In another example, the implementer evaluated its performance in providing school supplies based on the “number of children who returned to school.” In this case, the OIG concluded that Chemonics’s “performance measure did not correlate to the activity.”67 Despite these concerns, however, Chemonics was awarded the $9.5 billion Global Health Supply Chain Project, the largest ever awarded by USAID, as an “indefinite delivery, indefinite quantity contract.”68

ODA in Opposition to U.S. Policy Goals

Although we have seen above that ODA is beset with inefficiencies, corruption, and waste, it is also true that the development industry supports numerous jobs. The Development-Industrial Complex employs over 300,000 professionals, many from the United States, with around 18 percent based in home offices69 (USAID alone has 3,163 employees based in Washington, D.C.70). This means there are tens of thousands of professional American jobs feeding ODA back into the U.S. economy. It could then be argued that regardless of ODA’s impact overseas, such a large proportion is spent domestically that it should be spared from spending cuts (though when one begins to justify foreign aid as a form of domestic economic stimulus, one is entering strange territory indeed). But this argument would overlook the third and perhaps most disconcerting problem with current ODA spending—the fact that a meaningful amount of ODA ends up funding activities that directly oppose U.S. foreign policy goals.

Such negative outcomes most commonly arise when large amounts of corrupt funds in low-income countries undermine the rule of law, which adds extra costs to U.S. companies operating in these countries. U.S. companies then have to deal with the problems associated with doing legitimate business in places where officials see bribes as the norm. Other highly preventable negative outcomes are cases like the Kabul Bank scandal, which allow rent-seeking politicians to capture ODA to expand patronage networks, thereby undercutting the very democracy that most ODA seeks to promote. But quite often the simple fact that ODA is fungible is ignored. We see the U.S. taxpayer taking over the provision of basic poverty alleviation, health care, and education services in some countries, allowing political elites to spend heavily on vanity projects instead. Sometimes this even results in American taxpayers’ investing in the potential offshoring of U.S. jobs. For example, in 2015, India received $3.1 billion in U.S. and European ODA,71 yet in the same year India spent $1.8 billion on nuclear weapons,72 and $1.2 billion on a space program that eventually aims to undercut satellite communications services provided by companies mainly based in the United States and Europe.73 Or consider the much smaller but seemingly inconceivable fact that in 2017 USAID plans to spend $2 million on economic development aid in China, the second largest economy in the world.74

Most alarming of all, however, are the many cases where the misuse of ODA is directly threatening the security and lives of U.S. citizens, as funds find their way into the hands of groups that directly support terrorism. As mentioned before, 50 percent of the U.S. relief directed to Nigeria is stolen, which means potentially large sums of ODA financing are finding their way directly into the hands of Boko Haram, an al Qaeda–linked terrorist organization.

Although the United States spent $45 billion on ODA and a further $68 billion to support Afghanistan’s army and police force,75 a recent report on the U.S. Experience with Corruption in Afghanistan, compiled by the Special Inspector General for Afghanistan Reconstruction, concludes that “corruption undermined the U.S. mission in Afghanistan by fueling grievances and channeling support to the insurgency.” Ambassador Ryan Crocker summed up this argument more succinctly by stating that “the ultimate point of failure for our efforts . . . wasn’t an insurgency. It was the weight of endemic corruption.”76

This problem was most was clearly demonstrated to me in northern Afghanistan when, at one point, so much aid was being stolen (or distributed to those who did not need it), that it was impossible to buy any cooking oil that was not already stamped “from the American People.” In other words, the situation had become so bizarre that some U.S.-funded implementers were using U.S. taxpayers’ money to buy back the very same aid that they had already paid for, sometimes from the very insurgent groups that were fighting the United States.

Proposals for Reform

If current ODA programs are often ineffective, sometimes counterproductive, and the incentives of the Development-Industrial Complex are essentially the cause of these issues, we are left with one final question: why should the new administration not simply slash ODA budgets? To answer this, we need to return to the roots of the cross-party support for ODA. Aside from the moral calls for intervention that will certainly accompany future humanitarian disasters, such as the ones now starting to materialize in Nigeria, Somalia, and Yemen, these events will continue to constitute clear and present dangers for the United States. Whether the effects of these crises will only be felt through increased costs accompanying a renewed rise in piracy or theft, or worse still through a renewed terrorist threat from extremists finding safe harbor in newly failed states, America cannot fully isolate itself from these crisis regions. And while the physical location of the United States provides a significant layer of insulation from most crises, it is not too much of a leap to see the potential political collapse of a Latin American state—such as Venezuela—causing a migration crisis for the United States comparable the one Europe experienced from the collapse of Syria.

Considering these risks, the moral pressure to act, and the potential costs of not acting to resolve potential security crises, it is clear that spending on ODA is necessary. Therefore, the administration should focus on value-for-money reform, rather than just reducing the budget. The administration is presented with a unique opportunity to turn a potential political battle into a bipartisan effort to make serious and long-lasting changes to ODA. If effective reforms are made now, they will support the long-term defense of the United States while continuing to save the taxpayers money. Or as Defense Secretary James Mattis could have said, If we properly fund the State Department, then we don’t need to buy more ammunition.

Paraphrasing Cicero, to criticize is easy but doing is harder, so it is better to criticize by creation. In this spirit, I will attempt to set out the following series of recommendations that would address the issues highlighted above, while also not requiring increases—and potentially allowing for significant reductions—in spending:

(1) Comprehensive auditing and enhanced penalties. OIG audits have been highly effective and, therefore, OIG needs to audit every project at least once. This can be achieved at a reasonable cost by including a full independent OIG audit in every project budget. The cost of recovering corrupt funds and substantial “penalties” should also be applied to implementers if corruption is discovered through negligence or nondisclosure.

(2) Transparent, standardized reporting for implementers. All projects should start using comparable and standardized indicators (such as the IRIS metrics system). Monitoring and evaluation data should be collected by contractors who are independent from implementers, using standard methods of reporting, and made available on a standard platform which is accessible to all. Finally, implementers should be financially penalized for any major discrepancies found between their project reports and OIG audits.

(3) Implementers should be incentivized to provide better value for money and to compete more. Contracts should not be awarded on a cost-plus approach; profit and overheads should be related to performance against clear and well-defined results. Implementers should be free to manage their projects on the ground but incentivized to save costs by retaining a significant portion of funds saved and be liable for the costs of poor performance. Additional charges for payments to subcontractors should be made unbillable to prevent “cartels,” while still incentivizing collaborations to be formed where combining skillsets make sense.

(4) Support aid that is responsive to fast-changing environments. Projects should not originate in Washington, D.C. Instead national and regional ODA plans should be designed by established missions that have deep institutional knowledge of host countries. Individual projects that are specific in focus and quick to be awarded should be designed and commissioned by the applicable missions and advisors. Separate sectoral “offices” within missions should be replaced, and the functions of agreement officers and agreement officer representatives should be combined so that one representative works with each project. Regional officers assigned to projects should work within the projects to ensure that they have a hands-on understanding of the field-level realities.

They should be supported by a pool of internationally based experts (see no. 7 below) who can travel as required to provide technical support. Individual projects themselves should be staged and flexible, so that if sufficient progress is not achieved or circumstances change, projects can be stopped or modified at appropriate junctures. Vendors who “fail” openly (not as a result of impropriety) and avoid future waste should be compensated for costs (without making profits) and be seen as valued future partners with significant institutional knowledge. Importantly, if no “vendor” is suitable for a project, then it should be canceled, not modified to become more attractive to potential bidders.

Inputs and project feedback should more readily come from beneficiaries. Often local market players can expand more effectively than international agencies to provide services. Missions should not shy away from providing “vouchers” for beneficiaries to use with local private providers to purchase services, even in relief situations, as market forces tend to allocate resources more effectively. These types of systems, while not perfect, cut out unnecessary training when there is no need for it.

(5) Focus on strategic policy areas. National/regional ODA plans should be concentrated and focus on maximizing impact in areas high on the domestic (e.g., mitigating migration) and foreign policy agendas, and in areas where they can leverage significant U.S. political and military support. Regional agency goals should be coordinated with the appropriate assistant secretary of state for the region.

U.S. ODA should leverage, not compete with, ODA from allies. Donors should work together to establish spheres of expertise (e.g., support French efforts to lead ODA in French-speaking nations in the Sahel and focus U.S. efforts on Central America and the Caribbean, Asia Pacific, and in building “hubs” of sustainability in troubled regions (West Africa, Afghanistan, etc.).

(6) Corruption and waste of ODA is worse than no ODA. It is vital that all actors (implementers, donors, beneficiaries, host governments, and even U.S. government agencies) are aware that the U.S. government recognizes that it has a compelling moral obligation to ensure that taxpayer money is spent as intended, which is equal to any other duty, and, therefore, ODA is not guaranteed. It can be removed if misused in any circumstance, no matter what the level of human need for development aid is.

(7) Enhance knowledge sharing through the creation of an ODA Oversight Commission. The most effective short-term solution is to establish a committee composed of a specialized team of independent advisors, perhaps reporting to the assistant secretaries of state, who can support the integration of ODA interventions into foreign policy. The team should balance practical knowledge of implementing projects on the ground with a theoretical understanding of high-level goals and policies. It should, therefore, consist of practitioners with high levels of experience leading projects in theatre. This commission should be independent from donors, but significantly involved in ensuring that new contracts do not fund activities which are not clearly defined, duplicative, or have a high potential for misuse based on past experience, and that they align with foreign policy goals.

Its oversight should also involve the periodic review of existing projects. To enhance the commission’s efficacy, it should be extremely proactive in providing technical advice to improve projects, which would include providing implementers with assistance in renegotiating contracts if required. This assistance role will ensure that the commission is not seen by the industry as purely confrontational despite its function to recommend where cost savings can be made. Importantly, to achieve all of this, the commission should be given wide access to interact directly with implementer’s project staff on the ground, not just with Washington-based HQs or heads of missions.

In conclusion, when evaluating the role of ODA, it is helpful to return to Eisenhower: “each proposal must be weighed in the light of a broader consideration: the need to maintain balance in and among national programs—balance between the private and the public economy, balance between cost and hoped for advantage—balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between actions of the moment and the national welfare of the future.”77

This article originally appeared in American Affairs Volume I, Number 3 (Fall 2017): 132–59.

1 Rich Edson, “Faith Leaders Lobby Congress against Foreign Aid Cuts,” Fox News, March 16, 2017,

2 C. Eugene Emery Jr. and Amy Sherman, “Marco Rubio Says Foreign Aid Is Less Than 1 Percent of Federal Budget,” Politifact, March 11, 2016,

3 President Dwight D. Eisenhower, “Military-Industrial Complex Speech,” Avalon Project (Yale),

4 Ravi Kanbur, “The Economics of International Aid” (unpublished manuscript, November 2003),

5 “Development Aid Rises Again in 2015, Spending on Refugees Doubles,” OECD, April 13, 2016,

6 “Financing for Sustainable Development,” OECD,; Associated Press, “U.S. Economic Growth Slowed in 2016 to 1.6%,” CBS News, January 27, 2017,

7 “,” USAID,

8 “Financial Information,” Save the Children,

9 The author notes that, while the Gates Foundation is not directly a member of U.S. Global Leadership Campaign, it is affiliated with it because its founder and chairman, Bill Gates, is a member through his chairmanship of Microsoft. See “Our Coalition,” U.S. Global Leadership Coalition,

10 William A. Niskanen, Bureaucracy and Public Economics (Brookfield, Vt.: Elgar, 1994).

11 Liz Robbins, “Haiti Relief Effort Faces ‘Major Challenge,’” New York Times, January 14, 2010,

12 Alan Berube, Ron Haskins, and Homi Kharas, “A 21st Century Agenda for Creating Opportunity and Well-Being,” Brookings Institution, February 8, 2011,

13 Janice K. Kopinak, “Humanitarian Aid: Are Effectiveness and Sustainability Impossible Dreams?,” Journal of Humanitarian Assistance, March 10, 2013,

14 “Contact the IRC,” International Rescue Committee (IRC),

15 “Audit of USAID/Afghanistan’s Assistance in Building Afghanistan by Developing Enterprises Program,” U.S. Agency for International Development Office of Inspector General, audit report no. F-306-16-002-P, March 14, 2016,

16 Ibid.

17 “Lieberman Seeks Information on USAID’s Selection of Companies Allowed to Bid on Iraqi Construction Contracts,” Homeland Security and Governmental Affairs Committee, April 1, 2003,

18 “Audit of USAID’s Start-Up of the Supply Chain Management System for the President’s Emergency Plan for AIDS Relief,” U.S. Agency for International Development Office of Inspector General, audit report no. 9-000-07-005-P, February 8, 2007,

19 Ezekiel Carlo Orlina, “Top USAID Contractors for 2015,” Devex, May 27, 2016,

20 Charles Kenny, “How Much Aid Is Really Lost to Corruption?,” Center For Global Development, January 23, 2017,

21 “U.S. Agency for International Development (USAID): Background, Operations, and Issues,”, July 21, 2015,

22 Dana Hedgpeth, “$13 Billion in Iraq Aid Wasted or Stolen, Ex-Investigator Says,” Washington Post, September 23, 2008,

23 Sam Jones, “Half of All Food Sent to Somalia Is Stolen, Says UN Report,” Guardian, March 10, 2010,

24 “‘Half’ Nigeria Food Aid for Boko Haram Victims Not Delivered,” BBC News, June 19, 2017,

25 Office of Inspector General: Annual Plan Fiscal Year 2017, U.S. Agency for International Development,

26 Eliza Villarino, “In Afghanistan, USAID Terminates Deloitte Contract over Kabul Bank Scandal,” Devex, March 16, 2011,

27 “,” USAID,

28 “Posts tagged ‘GAO,’” AED Watch,

29 Christopher Beam, “USAID AED Suspension: Why Did USAID Suspend One of Its Biggest Contractors without Any Explanation?,” Slate, March 31, 2011,

30 Ken Dilanian, “Review: High Salaries for Aid Group CEOs,” USA Today, September 1, 2009,

31 “Transforming Wartime Contracting: Controlling Costs, Reducing Risks,” Commission on Wartime Contracting in Iraq and Afghanistan,

32 Ibid.


34 “U.S. Agency for International Development (USAID): Background, Operations, and Issues.”

35 Ben Arnoldy, “Afghanistan War: How USAID Loses Hearts and Minds,” Christian Science Monitor, July 28, 2010,

36 Jim Phillips et al., “Evaluation Report for Alternative Development Program (ADP) Southern Region by USAID in the Islamic Republic of Afghanistan,” Cheechy and Company Consulting (2010),

37 Arnoldy, “Afghanistan War.”


39 Eric J. Wailes, “Food and Enterprise Development (FED) Program for Liberia,” DAI (October 2015),

40, “Liberia: Was USAID/Fed Setting Our Rice Farmers Up for Failure?,” January 27, 2016,

41 Omari Jackson, “Liberia: New U.S.$4 Million Slaughter House Revamps Meat Value Chain,”, September 5, 2016,

42 Andrew Jones, “Medical Equipment Donated to Developing Nations Usually Ends Up on the Junk Heap,” Scientific American, May 6, 2013,

43 “Gifts of Livestock Programs,” GiveWell,

44 Reuters, “Bill Gates to Donate Chickens to Africa’s Poor,” June 9, 2016,

45 Tessa Berenson, “Bolivia Offended by Bill Gates’s Chicken Donation,” Time, June 17, 2016,

46 “Livestock and Training,” Heifer International,

47 “Financial Information,” Heifer International,

48 S. Rebecca Zimmerman et al., “Lessons from the Task Force for Business and Stability Operations in Afghanistan,” RAND Corporation, January 12, 2016,

49 “Audit of USAID/Afghanistan’s Assistance in Building Afghanistan by Developing Enterprises Program,” U.S. Agency for International Development Office of Inspector General, audit report no. F-306-16-002-P, March 16, 2016,

50 “FACT SHEET: The Doing Business in Africa Campaign,” National Archives and Records Administration, August 5, 2014,

51 Kate Angelis, “4 Ways Power Africa Can Better Achieve Its Energy Access Goal,” Medium, October 25, 2016,

52 “Power Africa: Annual Report,” USAID (September 2016),

53 “Power Africa: Frequently Asked Questions,” USAID,

54 USAID states that “Power Africa makes an inferred access calculation by estimating the average number of households that can be served by additional MW of new generation capacity. The estimate is based on World Bank methodology and takes into account existing residential and per capita consumption, household size, capacity factors for various forms of generation, and other relevant metrics to derive these estimates” but does not publicly state how they make the calculations. As they also state that “Computing inferred access, i.e., estimating how many new connections could result from each new MW in generation, is not an exact science,” the author is assuming for illustrative purposes that the methodology used by the project is that 30,000 MW equals an additional 60 million new households and businesses with increased access. See “Power Africa: Frequently Asked Questions.”

55 “Power Africa: Annual Report 2016.”

56 “USAID Agro Horizon Project,” ACDI/VOCA,

57 “USAID Agro Horizon Project Quarterly Report: Year 2, Quarter 1, FY 2016,” ACDI/VOCA, January 29, 2016,

58 “USAID Agro Horizon Project, Year Two Annual Report: October 1, 2015–September 30, 2016,” ACDI/VOCA, October 30, 2016,

59 “USAID Agro Horizon Project Quarterly Report: Year 2, Quarter 1, FY 2016.”

60 “Foreign Assistance in Kyrgyzstan,”,

61 “Kyrgyzstan Wages, 1999–2017,” Trading Economics,

62 “Audit of USAID/Afghanistan’s Assistance in Building Afghanistan by Developing Enterprises Program,” p. 9.

63 “Annual Financial Statements, Fiscal Years 2015 and 2016,” Colorado High Performance Transportation Enterprise,

64 “Audit of USAID/Pakistan’s Entrepreneurs Project,” U.S. Agency for International Development, Office of Inspector General, April 20, 2012,

65 “United States Increases Incomes for 75,000 Families through USAID Entrepreneurs Project,” U.S. Embassy and Consulates in Pakistan, March 28, 2016,

66 Andrey Panevin et al., “Corporations Are the New Conquistadors: Haiti,” MintPressNews, February 11, 2015,

67 Jacob Kushner, “USAID Contractor Chemonics Cited for Numerous Mistakes in Haiti,” Public Radio International, October 5, 2012,

68 “Cutting-Edge Technologies in Global Health Supply Chains,” Chemonics,

69 “Assessment of Needs in the Humanitarian Sector with Regard to Knowledge, Skills and Competences: Final Report,” ICF GHK, July 31, 2014,

70 “FY 2016 Agency Financial Report: Shared Progress, Shared Future,” U.S. Agency for International Development, November 15, 2016,

71 “Net Official Development Assistance and Official Aid Received (Current US$),” The World Bank, accessed July 10, 2017,

72 Shane Mason, “Military Budgets in India and Pakistan: Trajectories, Priorities, and Risks,” Stimson (2016),

73 K. S. Jayaraman, “India Allocates $1.2 Billion for Space Activities,”, March 9, 2015,

74 “Foreign Assistance in China,”,

75 Tim Craig, “U.S. Will Seek Billions More to Support Afghan Military Efforts,” Washington Post, June 18, 2016,

76 “Lessons Learned from the U.S. Experience with Corruption in Afghanistan,” Special Inspector General for Afghanistan Reconstruction (SIGAR),

77 Eisenhower, “Military-Industrial Complex Speech.”

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