Demand for Private Capital Draws USAID Units to INVEST Program
U.S. Agency for International Development (USAID) units around the world are increasingly asking for specialized support to mobilize private capital—requests now being met by the agency’s new INVEST program. In less than one year, USAID missions, bureaus, and other operating units have hired the INVEST team to support 17 initiatives to develop market opportunities. These initiatives—to address demand for energy, food, health care, water, and other global needs—are under way or already completed in Afghanistan, Asia, Haiti, India, and North and Sub-Saharan Africa.
The combined commitments of $37 million by USAID units to pursue these initiatives represent 40 percent of the INVEST goal set by USAID. A two-year project with three option years, INVEST’s success has already spurred USAID to green-light a third year.
Based in Washington, D.C., the INVEST team facilitates the expertise in finance and investment, technical subjects, and local knowledge required to generate investment pipelines and mobilize investment capital. INVEST orchestrates a network of specialists—more than 130 firms so far—that fill various niches to help USAID explore these opportunities. This network includes strategy advisory firms such as Tideline and Dalberg, transaction advisory firms including CrossBoundary and Open Capital Advisors, and innovative finance firms such as Kois Invest and Third Sector. These and other partners provide the appropriate mix of financial rigor and technical specialization required to tailor assistance.
“[USAID is] embracing the ingenuity and the entrepreneurship that private enterprise offers and harnessing the efficiencies and effectiveness that private-sector competition and market forces can unlock. And this is something private enterprise is eager to do alongside us.”—USAID Administrator Mark Green June 20, 2018
Recent “buy-ins” by USAID units for market assessments and pipeline development, design and structuring support, and transaction advisors exemplify the early demand for INVEST’s services. They include initiatives to:
- Facilitate trade between Afghanistan and India;
- Create a first-of-its-kind investment mobilization platform in Haiti for sectors such as agriculture, housing, sanitation, and water;
- Analyze capital opportunities that benefit women in Ghana, Kenya, Nigeria, Senegal, and South Africa (USAID’s Office of Gender Equality and Women’s Empowerment); and
- Accelerate the solar off-grid energy marketplace in Uganda, building on the accomplishments of the Center for Development Innovation project under the Scaling Off-Grid Energy Grand Challenge.
These and other USAID investments reflect growing determination in the donor community to enhance development impact by means of “blended finance”—blending private capital with donor-funded local expertise and risk-mitigation measures. The goal is to achieve development objectives by creating profitable partnerships while advancing countries on their journeys to self-reliance.
Bull Market for Global Needs
Born in mid-2017, INVEST has grown from a lean start-up to managing a growing portfolio of partners and activities. As manager of the INVEST network platform, DAI convenes and facilitates buy-ins by helping USAID units refine their “ask,” identify and engage the appropriate advisors through competitive procurements, and support implementation, including monitoring, evaluation, learning, and thought leadership.
INVEST is designed to operate in locales that have less-than-ideal investment climates yet have growing populations that require products and services. In addition to the initiatives cited above, the INVEST team is pursuing:
- USAID missions in India, Liberia, and Tanzania worked with INVEST to deploy an investment roadmap and guidance tool to address high-priority health objectives in areas such as community and maternal health, nutrition, and tuberculosis.
- The USAID Global Health Center for Innovation and Impact engaged INVEST to assess and recommend financial models for tackling cholera in Haiti.
Local Investment Platforms
- USAID/India engaged INVEST to assess the energy, health, tuberculosis, and WASH sectors and design a new, blended finance-focused funding vehicle.
- USAID’s Office of Private Capital and Microenterprise, Bureau for Food Security, and USAID/Tunisia have partnered to better understand and leverage the strategic corporate investment trend, including: favorable models and structures in agriculture, energy, and water; appropriate support for these models; structures to attract investors and ensure replicability and additionality; and suitable corporate investment and partnership opportunities already in existence.
Initiatives in Energy
- USAID/Haiti and the Government of Haiti are pursuing a public-private partnership for Caracol Power Utility’s operations, maintenance, and management; INVEST is providing transaction advice, including due diligence and transaction structuring, transaction implementation, and bidding.
- USAID/Kenya and Power Africa are working with INVEST to help household solar systems and off-grid companies attract investment and expand connections.
- USAID/Democratic Republic of the Congo engaged INVEST to explore opportunities and constraints associated with blended finance and the approaches and tools available to support investment in agricultural value chains and responsible mining in Eastern Congo.
Training and Learning
- USAID’s Office of Private Capital and Microenterprise and Center for Transformational Partnerships are developing a learning strategy on private sector engagement to deepen USAID’s capacity in market-based solutions.
Developed for Business
Capitalizing on unexplored economic opportunities in developing countries requires partners—ones with local knowledge, financial resources, and entrepreneurial spirit, just for starters. The co-creation team that conceived INVEST in 2017 sought a long-term solution that will enable USAID to quickly engage new partners and mobilize private capital.
Businesses and investors seek capital supply, investment-ready projects, access to affordable and appropriate risk-mitigation instruments, and reasonable firm-level transaction costs. Locally, however, capital mobilization can be inhibited by a lack of skills among and imperfect information from financial intermediaries and advisors, immature market conditions, and lack of connective tissue among market actors, even where demand is strong for necessities such as energy, food, health care, and water, not to mention the jobs these sectors create. Meeting these demands can increase economic activity at scale and deliver the benefits that come with it.
As it enters year two, INVEST is testing and scaling up approaches to blended finance, creating value for its USAID clients while using inclusive procurement and contracting mechanisms adapted for private sector partners. Meanwhile, INVEST’s Washington-based team is aggregating the experts, experiences, data, and best practices on blended finance that were previously scattered around the world. Together, these successes and activities are positioning USAID for the long term to facilitate the blended finance solutions necessary for sustainable, inclusive economic growth.