Economic Growth Approaches in U.S. Foreign Assistance

Economic Growth Approaches in U.S. Foreign Assistance

Economic Growth Approaches in U.S. Foreign
January 12, 2022
Assistance
Nick M. Brown
U.S. assistance for economic growth has declined as a share of total foreign assistance for
Analyst in Foreign
international development over the course of the 21st century. However, several high-profile
Assistance and Foreign
foreign aid initiatives continue to attract congressional support and interest in economic growth
Policy
as an element of international development. These include the food security-focused Feed the

Future initiative, the energy-focused Power Africa initiative, and the innovation-focused
Development Innovation Ventures program, among others. Furthermore, the two newest foreign

assistance agencies, the Millennium Challenge Corporation (MCC, created in 2003) and the U.S.
International Development Finance Corporation (DFC, established in 2019) were created with a major legislative mandate to
address economic growth.
USAID is the largest U.S. provider of economic growth assistance, making 81% of total obligations in 2019. The chief aim of
the agency’s economic growth efforts is to enhance firm-level productivity. USAID projects commonly target small-scale,
often unofficial activity known as the “informal economy” and do not necessarily seek to displace traditional economic
activity by fostering large, efficient, high-capacity firms. USAID also seeks, where possible, to strengthen local systems
rather than assuming direct responsibility for the economy, with the expectation that such an approach will lead to more
sustained development impact. To that end, these projects target “inclusive” growth: not simply enabling economic activity,
but ensuring that poor and vulnerable populations, particularly women and youth, share in economic gains stemming from
U.S. foreign aid. Through agricultural production, private sector development, trade, energy, and economic policy programs,
the agency carries out a “market systems” approach. This approach seeks to better connect buyers and sellers along a value
chain, encourage producers to adopt income-maximizing practices, and improve the “enabling environment” (the laws, social
norms and behaviors, public infrastructure, and services that facilitate the functioning of market activities in developing
countries). Agriculture is the primary sector for U.S. economic growth efforts, with programs under the innovation, trade, and
energy sectors often oriented ultimately toward agriculture-led growth.
The MCC and DFC, the two other major U.S. economic growth agencies, have distinct models for implementation. MCC,
created in 2003, seeks “poverty reduction through economic growth,” which it aims to achieve through large-scale grants for
energy and transportation infrastructure projects, as well as for agricultural production activities, such as land reform and
irrigation infrastructure. Such grants go to countries that demonstrate a commitment to democratic governance and the
capacity to manage programs effectively. MCC’s program design model is founded on identifying the primary constraints to
economic growth, whether traditionally considered economic growth activities or not. Programs targeting health or sanitation
are thus considered economic growth promotion efforts, though their immediate objective is advancing health outcomes. The
DFC, the newest foreign assistance agency of the United States, delivers loans, political risk insurance, and equity
investments, among other tools, in part to achieve economic development progress in less-developed countries. A new DFC
development strategy sets performance benchmarks in technology, critical infrastructure, energy, food security, and financial
inclusion by 2025.
Economic growth is a multifaceted and evolving field in U.S. foreign assistance. Congress may consider several factors in
evaluating programs, including the following.
 Whether certain sectors deliver better value than others—and whether projects can be shown to add value,
rather than simply operating in already-improving sectors.
 Whether agencies have the requisite tools and policies in place to address the unique economic growth
issues in fragile states, where agencies’ activities are increasingly focused.
 New evidence that reflects a changing consensus on the effectiveness of certain approaches to
microenterprise and microfinance programs.
 Whether existing activities to promote women’s role in economic growth are displaced by new initiatives.
 Long-standing concern over the risk of assistance activities displacing U.S. jobs or commercial interests.
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Contents
Introduction ..................................................................................................................................... 1
Funding ............................................................................................................................................ 4
Key Strategies and Sector Approaches by Agency .......................................................................... 7
U.S. Agency for International Development (USAID) ............................................................. 7
Strategic Overview.............................................................................................................. 7
Agricultural Production ...................................................................................................... 9
Trade ................................................................................................................................. 13
Private Sector Development ............................................................................................. 17
Energy Supply and Services ............................................................................................. 20
Economic Policy Reform .................................................................................................. 22
Millennium Challenge Corporation ........................................................................................ 25
U.S. International Development Finance Corporation ............................................................ 27
Policy Issues .................................................................................................................................. 30
Cross-Program Evaluation ...................................................................................................... 30
Adding Value for Beneficiaries ............................................................................................... 31
Fragile States ........................................................................................................................... 32
Evolving Approaches to Finance for Development ................................................................ 32
Micro, Small, and Medium Enterprise Orientation ................................................................. 34
Gender in the Economy ........................................................................................................... 34
Tensions with U.S. Commercial Interests ............................................................................... 35

Figures
Figure 1. U.S. Assistance for Economic Growth ............................................................................. 4
Figure 2. U.S. Economic Growth Assistance by Sector, FY2015-2019 .......................................... 5
Figure 3. U.S. Economic Growth Assistance by Region, FY2015-2019 ........................................ 5
Figure 4. Model Value Chain ......................................................................................................... 12
Figure 5. Growth Diagnostics Methodology ................................................................................. 26

Contacts
Author Information ........................................................................................................................ 35

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Economic Growth Approaches in U.S. Foreign Assistance

Introduction
Sustainable, inclusive economic growth has been a goal of U.S. foreign assistance since the
Marshall Plan, the first large-scale U.S. foreign assistance program, which funded the rebuilding
of Europe after the Second World War. The Foreign Assistance Act of 1961 (P.L. 87-195, as
amended), the primary source of authorities for U.S. bilateral development assistance programs,
sets among its principal purposes equitable growth and increased incomes for the poor in
developing countries. Although contemporary foreign assistance priorities have broadened to
include other objectives, such as promoting global health and countering violent extremism,
policymakers in the 21st century have continued to focus on advancing U.S. foreign policy goals
by fostering prosperous societies that can finance their own ongoing development needs.1
Consecutive administrations have highlighted the centrality of economic growth to that aim. The
George W. Bush Administration called economic growth “the surest way for countries to generate
the resources they need to address illiteracy, poor health, and other development challenges on
their own, and thus to emerge from dependence on foreign aid.”2 The Obama Administration set
economic growth as a “top priority” that was “the only sustainable way to accelerate development
and eradicate poverty.”3 The Trump Administration set USAID’s development mission as ending
the need for foreign assistance through “self-reliance”—creating the conditions for sustainable
economic growth so that countries would have the resources and capacity to address their own
challenges in the future—and called economic growth “central to reducing poverty and
dependency.”4 The Biden Administration has signaled its intent to revise USAID’s economic
growth policy, to “elevate” economic growth programs, and to satisfy economic infrastructure
needs in developing countries through a new “Build Back Better-World” initiative. Additional
initiatives may be forthcoming, as the Biden Administration has yet to release strategic plans and
policy frameworks that often articulate new Administrations’ priorities.5
Congress has worked with each of these recent administrations to shape economic growth
programs as part of its role in designating funding, authorizing or amending aid programs, and
conducting oversight of U.S. foreign assistance programs. Often, congressional attention and
agency actions may focus on specific sectors within economic growth programming (notably in
recent years on energy, agricultural production, and trade capacity building).
This report provides a comprehensive overview of the structure, rationale, and implementation
approaches of economic growth programs in U.S. foreign assistance. In particular, this report
focuses on U.S. economic growth programs administered by the U.S. Agency for International
Development (USAID), the Millennium Challenge Corporation (MCC), and the U.S.

1 USAID policy documents and statements ranging across several recent Administrations have consistently set
economic growth as a core goal. See for example USAID, Policy Framework for Bilateral Foreign Aid, February 6,
2006, p. 1; The White House, "Remarks by the President to the Ghanaian Parliament," press release, July 11, 2009;
USAID, Policy Framework: Ending the Need for Foreign Assistance, April 10, 2019.
2 USAID, Securing the Future: A Strategy for Economic Growth (Securing the Future), April 2008, p. 3.
3 National Security Council, Presidential Policy Directive 6, U.S. Global Development Policy, September 22, 2010, p.
5.
4 USAID, Policy Framework: Ending the Need for Foreign Assistance, April 10, 2019; USAID, Economic Growth
Policy, January 2021, p. 4.
5 State Department, Congressional Budget Justification FY2022, May 2021, p. 78.
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International Development Finance Corporation (DFC), which are the three primary U.S. foreign
assistance agencies responsible for such assistance.6
While many foreign assistance programs contribute to economic growth goals, this report adopts
agencies’ common definition of economic growth programs as those that support the functioning
of markets and the governance of economic activity to make societies more prosperous. The
report also covers
 recent funding trends for economic growth programming by sector and by
region;
 the legislation, policies, strategies, and guidance that shape economic growth
programs;
 the primary units within foreign assistance agencies that design and administer
these programs;
 common characteristics of economic growth programs by sector, including
agricultural development, economic policy reform, energy access, trade capacity
building, private sector development, and policy reform; and
 issues for congressional consideration.
Key Terms in Economic Growth Programming
Market system: A dynamic space—incorporating resources, roles, relationships, rules, and results—in which
private and public actors col aborate, coordinate, and compete for the production, distribution, and consumption
of goods and services.7
Agricultural value chain: The set of actors and activities required to bring agricultural products from
production to consumption, including processing, storage, transportation, marketing, and retail. As a product
moves through an agricultural value chain, each step adds monetary value to the product.8
Business enabling environment: The customs, laws, regulations, international trade agreements and public
infrastructure and services that either facilitate or hinder the movement of a product or service along its value
chain, including at the global, regional, national, and local level.9
Extreme poverty: The inability to meet basic consumption needs on a sustainable basis. People who live in
extreme poverty lack both income and assets and typically suffer from interrelated, chronic deprivations, including
hunger and malnutrition, poor health, limited education and marginalization, discrimination, or exclusion. The
current international standard defining extreme poverty by income at or below $1.90 per person per day was set
by the World Bank in October 2015.10

6 Other agencies, such as the Inter-American Foundation, the U.S. African Development Foundation, the Peace Corps,
the Trade and Development Agency, the State Department, the Treasury Department, and the Labor Department,
engage in economic growth efforts but are not addressed here because of their varying priorities. For example, the
Inter-American Foundation, the U.S. African Development Foundation, and the Peace Corps focus on community-
based development and enhancing mutual understanding between the United States and partner communities—
differing considerably from the large-scale, systemic impact that USAID, MCC, and DFC seek. The Trade and
Development Agency and the State Department focus respectively on advancing U.S. commercial interests and
promoting U.S. foreign policy, rather than development outcomes.
7 ACDI/VOCA, USAID Leveraging Economic Opportunities Project, Brief: A Framework for Inclusive Market
Systems Development, July 18, 2014, p. 2.
8 USAID, U.S. Government Global Food Security Strategy FY2017-2021 (GFSS), September 2016, p. vii.
9 USAID, Value Chain Development Wiki 2.2: Business Enabling Environment, https://www.marketlinks.org/good-
practice-center/value-chain-wiki/business-enabling-environment, accessed January 7, 2022.
10 GFSS, p. viii.
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Theory of change: How a development project expects its activities wil result in the project’s goal, via a series
of causal linkages.11
Livelihood: A set of activities performed to live—to meet the requirements of an individual or household on a
sustainable basis, with dignity, by working either individually or as a group, using endowments (human and
material) to earn income for acquiring necessities.12
Formal firms: Private firms that are registered with the central or local government.13
Informality: A measure of the share of economic activity conducted outside of such government-regulated areas.
Many firms in developing countries, including microenterprises and smallholder farmers that are common targets
of U.S. assistance, are not required to register with the government and are termed “informal.” Other firms, such
as those conducting il icit activity, may also not be registered. Formal firms may engage in informal activity,
including il icit activity and use of labor without a formal employment agreement, such as paid-in-cash services.
Micro, Small, and Medium Enterprises: USAID has varying definitions but largely categorizes these by
number of employees, including micro (1-10 workers), small (11-50), and medium (51-100 or 51-250).14 USAID
defines microenterprise more precisely as enterprises with 10 or fewer workers, including the entrepreneur and
unpaid family members. Microenterprises are typically informal and owned and operated by poor people.15
Blended finance: The strategic use of development funds, such as those from government aid and philanthropic
sources, to mobilize private capital for social and environment results.16
Sustainability: The ability of a local economy to continue to produce desired outcomes over time.17 Agencies
measure sustainability in part by the extent to which the outcomes of a project are maintained after project
closure—to include continued use of new approaches, local communities maintaining equipment first supplied by a
project, or sustained improvements in community incomes five to ten years after project closure.
Inclusive growth: Economic growth that benefits all segments of the population and reduces poverty
significantly.18 Inclusivity is measured to ensure that economic growth moves populations out of poverty rather
than benefitting only a small segment of society. A principal focus of agencies’ measures of inclusivity is the extent
to which women, youth, vulnerable populations, and marginalized communities benefit.19
Enterprise-driven development: Alignment of development projects with private enterprises in pursuit of
market-oriented approaches.20
Fragility: While there is no single U.S. definition, the Global Fragility Act highlights a country’s exposure to
conflict and atrocity risks, overall levels of violence, and vulnerability to natural and other human-caused disasters.
It also notes the Organisation for Economic Cooperation and Development’s fragility framework, which defines
fragility as “the combination of exposure to risk and insufficient coping capacities of the state, system and/or
communities to manage, absorb or mitigate those risks.”21
Resilience: The ability of people, households, communities, countries, and systems to mitigate, adapt to, and
recover from shocks and stresses in a manner that reduces chronic vulnerability and facilitates inclusive growth.22

11 GFSS, p. 7.
12 USAID, Getting Employment to Work for Self-Reliance: A USAID Framework for Employment Programming
(Employment Framework), November 2019, p. 47.
13 USAID, Employment Framework, p. 46.
14 U.S. Government Accountability Office (GAO), Micro, Small, and Medium-Sized Enterprise Development, GAO-
21-269, March 2021, p. 1; State Department, “Foreign Assistance Standard Indicators IRS Category 5 Economic
Growth,” 2021, EG.5-3 and EG.5-12.
15 USAID, “Automated Directives System (ADS) Chapter 219: Microenterprise Development,” March 10, 2021, p. 13.
16 USAID INVEST, Blended Finance Starter Kit, March 2020, p. 2.
17 USAID, Economic Growth Policy, January 12, 2021, p. 11.
18 Ibid.
19 USAID Democracy, Human Rights, and Governance Center, Suggested Approaches for Integrating Inclusive
Development Across the Program Cycle and in Mission Operations: Additional Help for ADS (Automated Directives
System) 201, July 2018, p. 4.
20 USAID, Economic Growth Policy, p. 11.
21 Global Fragility Act, Title V, Div. J of P.L. 116-94.
22 USAID, Policy and Program Guidance: Building Resilience to Recurrent Crisis, December 2012, p. 5.
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Funding
U.S. foreign assistance for economic growth fluctuates year-to-year as a result of competing
sectoral priorities, congressional and administration objectives, and project openings and
closures. Funding in current dollars peaked at $6.86 billion in fiscal year (FY) 2004, declining to
a low of $1.87 billion in 2018. From FY2010 to FY2019, assistance for economic growth has
averaged $3.28 billion annually. Funding for economic growth as a sector has fallen as a share of
U.S. foreign assistance: economic growth assistance averaged 13.8% of all nonmilitary assistance
between FY2002 and FY2008, declined consistently from FY2009 to FY2014 and settled at an
average of 5.10% from 2015-2019 (see Figure 1).
As with other nonmilitary U.S. foreign assistance, USAID implements the largest share of
economic growth programs, obligating more than three-quarters of all such funding from FY2015
to FY2019. MCC is a distant second, with a 14% share. Other agencies, all amounting to less than
$100 million annually over the same period, include the U.S. Departments of the Treasury, State,
Labor, Agriculture, and Energy, as well as the Peace Corps, U.S. Trade and Development Agency,
the U.S. African Development Foundation, and the Inter-American Foundation, among others.
Figure 1. U.S. Assistance for Economic Growth
Billions USD, as share of total nonmilitary foreign assistance, by fiscal year

Source: explorer.usaid.gov
Notes: Vertical axis represents obligated funding in bil ions current U.S. Dol ars (USD). Percentages reflect
share of total nonmilitary foreign assistance dedicated to economic growth, by fiscal year. Economic growth
includes infrastructure, energy, non-emergency agricultural assistance, trade, and private sector development. It
does not include general budget support to governments.
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The State Department’s Office of Foreign
Assistance (the “F” Bureau) classifies
Figure 2. U.S. Economic Growth
economic growth programs under various
Assistance by Sector, FY2015-2019
sectors within its standardized program
structure. This analysis tabulates and profiles
data classified as economic growth under that
framework over FY2015-2019, the latest data
fully reported.23
 Agriculture is consistently the sector
with the greatest funding (Figure 2),
comprising 44% of economic growth
assistance over the period.
Agriculture funding includes both
long-term market systems programs
under Feed the Future, and resilience
programming for fragile and disaster-

prone areas under the Food for Peace
Source: ForeignAssistance.gov.
Program.24
Notes: Data reflects obligations according to U.S.
 Infrastructure was the second
government sectors.
largest single sector, comprised
primarily of energy ($2.552 billion of
Figure 3. U.S. Economic Growth
funding in this category) and roads
Assistance by Region, FY2015-2019
($663 million). MCC grants and

USAID infrastructure projects in
fragile states (Pakistan, Afghanistan,
Haiti, and West Bank/Gaza) were
common uses of this funding. In
recent years, facilitation of energy
investments and a focus on energy
market regulation has been a theme,
such as under the Power Africa
initiative.
 Private Sector Competitiveness is a
broad category of programs largely
oriented toward support to non-
agricultural firms. Such programs are
typically in higher-capacity countries

with more professional firms—14%
Source: ForeignAssistance.gov.
of funds in this category are allocated
Notes: Data reflects obligations reported by region.
in low-income countries. Projects

23 This analysis uses data classified under “U.S. Category: Economic Growth.” While the F Bureau has historically
reported environmental assistance (including aid to promote biodiversity, sustainable landscapes, and climate resilience
and adaptation) under the economic growth category, ForeignAssistance.gov does not do so, nor does this report. This
analysis also omits direct cash transfers to foreign governments and direct provision of agricultural commodities.
Further information on environmental programs can be found in CRS Report R46493, U.S. Funding for International
Conservation and Biodiversity, by Pervaze A. Sheikh et al.
24 For further information on Food for Peace, see CRS Report R45879, International Food Assistance: Food for Peace
Nonemergency Programs, by Emily M. Morgenstern.
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include assistance to strengthen the business enabling environment (including
financial services, business associations, and governments), and firm-level
assistance to either formalize or become export-ready.
 Economic Governance consists largely of public sector capacity-building
programs (excluding trade assistance, which is categorized separately).25 The two
largest categories of other programs in this area are domestic resource
mobilization and public financial management programs (see “Domestic
Resource Mobilization and Public Financial Management”).
 Trade and Investment includes assistance to ease goods flows across borders
through assistance to customs and border agencies; and broader support to
governments, business associations, and firms to expand cross-border trade. As
with business and services, these programs are primarily in higher-capacity
middle-income countries. Certain trade programs, such as the African Trade and
Investment Hubs, implement some funds under this category but are largely
funded as agriculture programs.
 Financial Sector comprises programs to strengthen access to credit, such as
through digital payments and improved access to banking. It also includes
USAID’s Enterprise Funds in Ukraine, Tunisia, and Egypt, which comprised
over half the funding in this category over this period.
 Labor Policies and Markets consists primarily of Department of Labor
international programs (88% of funding in this category), with over half of
funding in the Western Hemisphere. These programs are not a focus of this
report, as Department of Labor programs comprise a small share of total U.S.
economic growth programming.
The allocation of economic growth aid by region, and among program areas within a region,
varies significantly:
 Sub-Saharan Africa received more than twice the economic growth assistance
of any other region over this period (Figure 3). Over half of economic growth
funding in sub-Saharan Africa was for agriculture programs, and infrastructure
(largely under MCC) comprised over a third.
 South and Central Asia is a distant and diminishing second in the wake of
declining of U.S. engagement in Afghanistan in recent years. More than 40% of
funding was in agriculture, with half in Afghanistan and Pakistan and 38% in
Bangladesh and Nepal, both Feed the Future-focus countries. One quarter of aid
to South and Central Asia went to energy programs, comprising 23% of all
assistance for energy worldwide.
 Western Hemisphere programming consists in large part of agricultural
development—comprising 46% of economic growth assistance in the region.
Although Haiti was a large recipient early in this period, its funding has declined,
while aid to Colombia has escalated significantly, from less than $10 million over
FY2015-2017 to $142 million over FY2018-2019.
 Middle East and North Africa was the fourth largest recipient of economic
growth aid in this period, although the single largest transaction (not included in
this analysis because it is not a project) was a direct cash transfer to the

25 USAID terms this sector “Macroeconomic Foundations for Growth.”
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Government of Jordan.26 USAID funding focused on private sector
competitiveness in Egypt, Lebanon, and West Bank/Gaza and Jordan, and
Morocco received a large MCC compact.
 Europe and Eurasia programs, for which Ukraine, Kosovo, Georgia, and
Moldova comprised 65% of aid over the period, consisted primarily of private
sector competitiveness (47% of aid), energy (28%), trade (10%), and financial
services (6%). These sectors are consistent with the Europe and Eurasia foreign
aid program’s long focus on moving these previously planned economies toward
market-driven principles.27
 East Asia and Oceania aid focuses especially on agriculture (28% of funding,
over half of which went to Burma), private sector competitiveness (25%), trade
(19%), and energy (10%). Trade has become a growing focus in the region,
which was the largest single recipient of trade programs in FY2019, driven in
part by a multi-year effort of the United States to reduce barriers to trade among
Southeast Asian countries and strengthen global value chains that run through
them. Burma, Vietnam, Indonesia, and the Philippines were the largest recipients.
Key Strategies and Sector Approaches by Agency
U.S. foreign assistance agencies’ authorities, goals, structure, and competencies have led each to
adopt a distinct approach to planning and implementing assistance. Congress authorized differing
tools and scopes for each foreign assistance unit profiled in this report, and those units’
approaches to economic growth differ as a result. MCC’s limiting of awards to well-governed
countries allows it to entrust implementation to partner governments, leaving the agency to focus
on the tools it uses to evaluate those countries and negotiate their projects. USAID’s stabilization
bureau, by contrast, targets regions with weak or nonexistent government institutions,
necessitating more direct implementation.28 DFC’s provision of debt financing makes assistance
in countries without robust financial sectors more challenging, and the agency has noted the need
for added resources to expand lending in less-developed countries and fragile states.29 USAID
grants are often the preferred vehicle for assistance in such contexts, since grants require less
local business capacity than loans to manage, and are less reliant on modern accounting practices.
U.S. Agency for International Development (USAID)
Strategic Overview
USAID’s current economic growth policy, updated in January 2021, characterizes effective
governance as the foundation of economic growth, and competitive markets that enhance firm-

26 This report focuses on approaches to economic growth programming. Because a direct budget transfer involves no
technical programming, such funding is not included in this data analysis.
27 See e.g. Section 2(b) of the Support for Eastern European Democracy Act of 1989, P.L. 101-179.
28 Development in non-stabilization settings is often implemented according to entirely different principles than
stabilization environments. The 2008 USAID Economic Growth Strategy, for instance, oriented itself toward stable
developing countries, with a separate guide for post-conflict countries. USAID, A Guide to Economic Growth in Post-
Conflict Countries, January 2009.
29 Winrock International, Feed the Future Knowledge-based Integrated Sustainable Agriculture in Nepal (KISAN) II
Project Annual Workplan Year 1, September 27, 2017, p. 6.
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level productivity as its primary driver.30 USAID economic growth projects thus often
complement governance programs that seek to enhance the rule of law and institutional
capacity.31 USAID has also long emphasized that while strong government institutions are a
foundation for growth, open markets are essential to enhance productivity.32 The firm is the focus
of economic growth programming, while other actors, such as the workforce and consumers, are
generally a programming focus only to the extent they enhance firm-level productivity.33 The
2021 policy set four objectives.
 Support well-functioning market systems;
 Strengthen economic governance;
 Bolster the competitiveness of American companies; and
 Enhance access to productive opportunities ... for low-income people and
socially disadvantaged groups.34
The policy notes the fundamental importance of economic growth but also emphasizes inclusive
growth. In part, USAID’s focus on agriculture is a component of inclusivity concerns, given the
disproportionately large share of the poor working in agriculture in developing countries.35
The 2021 policy adds the objective of bolstering the competitiveness of American companies,
which was not a feature of past policies. It also removes an objective of strengthening
international frameworks for policies and public goods. Economic analysis in program design is
also a new feature, as is expanding the use of evaluations of systemic impact.36 This focus
reinforces ongoing congressional interest in enhancing aid effectiveness, as reflected in the
Foreign Aid Transparency and Accountability Act of 2016 (FATAA, P.L. 114-191).
Supporting the 2021 policy are a set of analyses and standing policies that set several guiding
principles for USAID. First, while creating modern, efficient firms may be the long-term goal of
developing countries, USAID’s focus on poverty reduction has prompted it to target the informal
sector, which employs a large majority of the poor in developing countries.37 Not only are most
workers in developing countries employed informally, but they are often at greater risk of
economic distress because they may work outside of government social safety nets.

30 USAID, Economic Growth Policy, January 12, 2021, p. 5.
31 Some programming classified as economic growth may focus on government capacity as well—most notably under
trade facilitation and economic policy reform.
32 USAID, Vision for Ending Extreme Poverty, September 2015, p. 14.
33 A workforce development project in Jordan, for example, states, “This combined experience shows that a supply-side
approach will not help reduce the issue of unemployment with any significant relevance, nor is it sustainable.
Therefore, USAID/Jordan would like to take a demand-driven approach.” USAID/Jordan, Creating Economic and
Employment Opportunities (CEEO) Pre-Solicitation Document, March 15, 2017, accessible at https://sam.gov/.
34 USAID, Economic Growth Policy, p. 53. The competitiveness of American companies is not explained at length in
the policy, and a draft policy did not include it as an objective (USAID, Economic Growth Policy for Comment,
December 2019, p. 3). This policy’s objectives differ from the 2008 policy, which set three objectives: 1. Develop well-
functioning markets in developing countries; 2. Enhance access to productive opportunities for the poor, women, and
other disadvantaged groups; and 3. Strengthen the international framework of policies, institutions, and public goods.
USAID, Securing the Future: A Strategy for Economic Growth, April 2008, p. 6.
35 USAID, Economic Growth Policy, p. 42.
36 USAID, Economic Growth Policy, p. 8.
37 In low-income countries, 80% of workers are in the informal sector, as are 45% in middle-income countries. USAID,
Getting Employment to Work for Self-Reliance, p. 27.
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Second, women’s economic empowerment has been a chief consideration since Congress enacted
it as a priority in 1973.38 Women make up a disproportionate share of the global poor, and some
analysts estimate that eliminating gender disparities in employment could add $12 to $28 trillion
to global GDP by 2025.39 While women’s economic empowerment is not a discrete sector in
USAID programs, USAID mandates consideration of gender equality across its programs, such as
through gender impact analyses, monitoring practices that collect data on beneficiaries by gender,
and tailored programming to reach women.40
A major principle of USAID programming has also been to foster the capacity of local
businesses, in part by both seeking their input in planning and channeling funds through them.
USAID argues that such practices build local capacity to sustain good business practices after aid
ends.41 Also to encourage sustainability, USAID seeks to support overall reform to a market,
rather than substituting for that market by supplying products directly.42 For instance, USAID
may fund a local seed supplier to design trainings that market improved seed varieties in a new
market, instead of delivering the training themselves.43 USAID considers this approach to
promote sustainability by establishing new local service providers that may permanently support
behavior change.
Agricultural Production
USAID’s agricultural production activities are guided by the principles laid out in the Feed the
Future Initiative’s Global Food Security Strategy, which was released as directed by the Global
Food Security Act of 2016 (P.L. 114-195).44 That strategy, which builds on decades of work in
agricultural development prior to the initiative’s launch, emphasizes the importance of
“agricultural-led economic growth,” arguing that growth in the agricultural sector can be more
effective than growth in other sectors in achieving poverty reduction.45 USAID’s Bureau for
Resilience and Food Security leads the technical design of projects in this sector and guides
development and implementation of the Global Food Security Strategy.

38 §102 of P.L. 93-189.
39 DFC, DFC’s Roadmap for Impact: DFC’s Inaugural Development Strategy, January 2020-December 2025
(Roadmap), October 15, 2020, p. 19.
40 See e.g. USAID, USAID Policy Framework: Ending the Need for Foreign Assistance, April 10, 2019, p. 19; USAID,
Automated Directives System (ADS) Chapter 205: Integrating Gender Equality and Female Empowerment in USAID’s
Program Cycle,
41 USAID, Local Systems: A Framework for Supporting Sustained Development, April 2014, p. 4. For instance,
USAID/Nepal’s agricultural development efforts seek to support the national government’s Agricultural Development
Strategy. USAID, Request for Proposal (RFP) No. SOL-367-17-000001: Feed the Future Knowledge-Based Integrated
Sustainable Agriculture in Nepal (KISAN II) Project (KISAN II RFP), November 10, 2016, p. 4.
42 USAID, Securing the Future, pp. 6-7. For an example on an agriculture project, see USAID, Sources Sought Notice
RFI-72038819-BAGA USAID's Feed the Future Bangladesh Agricultural Growth Activity Statement of Objectives,
May 6, 2019, p. 4.
43 In Nepal, for example, USAID aims to “facilitate coordination” rather than directly funding infrastructure projects.
USAID, KISAN II RFP, p. 19.
44 For more information on the Feed the Future Initiative, see CRS Report R44216, The Obama Administration’s Feed
the Future Initiative, by Marian L. Lawson, Randy Schnepf, and Nicolas Cook.
45 USAID, U.S. Government Global Food Security Strategy FY2017-2021 Executive Summary, p. 1.
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Why does USAID invest in agricultural production programs?
Given the popular description of wealthy nations as “industrialized,” it may be surprising that the majority of U.S.
assistance for economic growth is directed at the agricultural sector. Indeed, the U.S. experience with economic
growth over the course of the 19th and 20th centuries was associated with a steadily urbanizing populace. In many
of the developing countries USAID targets, a large proportion of the workforce, and particularly the poor, is
concentrated in the agricultural sector. USAID’s poverty reduction mission has led it to focus on the agricultural
sector, which employs 64.6% of those living in extreme poverty and 51.5% of the moderate poor.46 Research cited
across USAID’s agriculture programs indicates that investments in agriculture can result in productivity
improvements that facilitate economic growth in sectors beyond agriculture, as well as shifting agricultural activity
toward higher-return activities.47 Productivity improvements in that sector may both improve livelihoods and
allow parts of the workforce to move into higher-value sectors, including manufacturing. According to the U.S.
Government Global Food Security Strategy, growing productivity in the agriculture sector may facilitate economic
surpluses that allow resources to spil over into new sectors.48
The Market Systems Approach
USAID agriculture development programs have since 2014 adopted an approach known as
“market systems,” which aims to improve competitiveness in the market, enhance the resilience
of the market, and ensure economic gains are inclusively shared.49 Market systems emerged from
and include a “value chain” focus that has been central to agricultural production assistance since
2006.50 This market systems approach targets the underlying constraints in a system, rather than
the symptoms of failure. If USAID identifies significant post-harvest losses in a market system,
for instance, the market systems approach would discourage direct intervention to change post-
harvest handling practices. Rather, USAID would seek to diagnose the primary cause of the
losses and empower local actors to address the problem.51
Broadly, USAID’s process for implementing such market systems interventions may be
categorized as follows:
 Value chain upgrading: The value chain framework, one component of the
market systems approach, seeks to chart how value accumulates from producers
(farmers, in the agriculture context) to intermediaries to an end market. In
Mozambique, for instance, Feed the Future is working with wholesalers to
develop models for rewarding high-performing small-holder farmers with higher
prices, in order to incentivize improved techniques.52 While not all individual
projects employ this framework to structure interventions, the value chain
approach often organizes a USAID mission’s overall agricultural programming.

46 World Bank, “Who Are the Poor in the Developing World?,” Policy Research Working Paper 7844, October 2016,
p.13; USAID, “Mission, Vision, and Values,” https://www.usaid.gov/who-we-are/mission-vision-values, accessed
January 7, 2022.
47 See e.g. USAID, KISAN II RFP, p. 7.
48 U.S. Government, U.S. Government Global Food Security Strategy 2017-2021, September 2016, p. 12.
49 ACDI/VOCA, Framework for Market Systems, p. 1; USAID, Local Systems: A Framework for Supporting Sustained
Development, May 1, 2014.
50 Some USAID projects in 2014 reoriented mid-course to adopt a market systems approach. See e.g. Sarah Wall,
Bangladesh USAID Agricultural Value Chains (AVC) Project Final Report, March 30, 2019, p. 9.
51 USAID, Global Food Security Strategy Technical Guidance: Increased Sustainable Agricultural Productivity,
August 30, 2017, p. 4.
52 Feed the Future Inova, Feed the Future Mozambique Agricultural Innovations Activity (FTF Inova) Annual Report
(October 2019 - September 2020), October 2020, p. 31.
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 Improving farmer practices: Interventions may include working with farmers
to build confidence in adopting improved seed varieties or adjust their on-farm
practices, or to fund research into high-yield or drought-resistant crops. In Kenya,
for example, a USAID project has facilitated expanded use of hermetic storage
bags to reduce post-harvest losses.53 Feed the Future also funds an extensive
research agenda led by U.S. universities, including Feed the Future innovation
labs that identify context-appropriate agricultural practices and promising crop
varieties, among other research angles.54
 Enabling environment reforms: USAID projects may support access to credit
for farmers or assist the government in improving warehousing infrastructure for
post-harvest handling. In Ethiopia, for instance, USAID is seeking to reduce
government control of input supplies and to reform the land rental market, having
identified both as key constraints for farmers.55 USAID often organizes its efforts
to align with international standards, particularly in coordinating with the
national government and other donors (see “Trade” for further information on
global standards).
Agricultural market development often involves challenges that are more fundamental than value
chain issues and policy reforms. Risk aversion and lack of social trust are often barriers to a well-
functioning, self-improving market.56 Subsistence farmers live at the edge of financial distress or
outright hunger and are especially risk averse. Economic actors who do not trust each other could
be resistant to new farming techniques. In especially volatile environments, like areas recovering
from conflict, a market systems approach may not be feasible at all, and the implementer may
focus on restoring belief in the viability of a market, rather than coaxing the few existing
elements of a market to function better.
Value Chain Analysis
While certain interventions, such as regulatory reform or access to finance, may benefit producers
across the entire agricultural sector, many USAID projects hone in on a select few value chains
that analysis indicates will yield a high return on investment. A value chain project begins with
analysis and work planning to identify those returns, usually involving the following steps:

53 Fintrac, Inc., Kenya Agricultural Value Chain Enterprises (KAVES) project: Final Report, 2013-2018, February
2018, p. 2.
54 Feed the Future Innovation Labs, https://www.feedthefuture.gov/feed-the-future-innovation-labs/, accessed January
7, 2022.
55 USAID Ethiopia, Country Development Cooperation Strategy (CDCS) July 2019-July 2024, November 2019, p. 22;
Feed the Future, Ethiopia Country Plan 2019-2023, April 2019, p. 21.
56 Feed the Future Knowledge-Driven Agricultural Development Project, Synthesis of Evaluations Related to the Feed
the Future Learning Agenda, March 2016, p. v.
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1. Screen sectors for potential project activities. This often involves identifying
the growth potential of a sector, or the potential impact of a project on poverty.
For instance, if a large producer dominates a particular value chain with highly
competitive pricing, a project to make smallholders competitive in that chain may
be a losing proposition, while a project that helps shift those farmers to another
value chain may have more growth potential. USAID principles for identifying
promising products for project activities include producer competitiveness, the
potential productive impact of USAID interventions, and the existence of
potential value chain “leaders” who are willing to try new approaches. Other
screening factors may include gender impact, nutritional efficacy, and sustainable
natural resource use.57
2. Map the value chains. This involves identifying and classifying each actor
engaged in bringing a product from concept to an end market. Farmers are
typically situated at the beginning of the value chain. Aggregators, millers, and
wholesalers are in the middle, with consumers identified in the end markets.
Characterizing the relationships between these actors is a key component of
mapping (see Figure 4).58
3. Assess end markets to identify
Figure 4. Model Value Chain
consumer preferences. While a
value chain map identifies the
conduits by which a product
flows from the farm to the
consumer, USAID may seek a
deeper understanding of those
consumers to align farmer
practices with consumer
preferences.59 This may include
research on how the product is
packaged or willingness of
consumers to try a new product
variety.60

Source: Marketlinks, 1.4.2. Value Chain Analysis –
4. Design a competitiveness
Overview, https://www.marketlinks.org/good-practice-
strategy to inform potential
center/value-chain-wiki/value-chain-analysis.
project interventions that match
and resolve key market constraints.61

57 For more information, see https://www.marketlinks.org/good-practice-center/value-chain-wiki/value-chain-selection.
58 Marketlinks, “1.4.2. Value Chain Analysis – Overview,” https://www.marketlinks.org/good-practice-center/value-
chain-wiki/value-chain-analysis, accessed January 7, 2022. In some cases, value chain mapping is completed as a
preliminary step to issuing an implementation contract for value chain upgrading. See, e.g. USAID’s Feed the Future
project in Mozambique. USAID, Request for Proposal (RFP) No. SOL-656-16-000010 – Feed the Future Mozambique
Value Chain (FTF VC) – Revision 01, October 18, 2016, pp. 7-8. In other cases, it is the first activity of an awarded
project. See e.g. USAID/Bangladesh, Request for Proposals: USAID’s Agricultural Value Chains (AVC) Program in
Bangladesh, SOL-388-12-000007, May 1, 2012, pp. 20-21. USAID’s KISAN II Project represents a hybrid approach,
in which rice, maize, lentils, and vegetables were mandated for targeting, but one to two additional commodities could
be chosen by the contractor.
59 Marketlinks, “3.2.2. Conducting an End Market Analysis,” https://www.marketlinks.org/good-practice-center/value-
chain-wiki/end-market-analysis, accessed January 7, 2022.
60 USAID, Value Chain Development wiki 1.3.1. End Markets, https://www.marketlinks.org/good-practice-
center/value-chain-wiki/end-markets-overview, accessed January 7, 2022.
61 Marketlinks, “3.3. Competitiveness Strategy,” https://www.marketlinks.org/good-practice-center/value-chain-
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Trade
USAID’s trade and investment programming is linked with the wider U.S. foreign policy agenda,
in particular the trade policy priorities led by the Office of the U.S. Trade Representative. In the
context of foreign assistance, the focus of U.S. trade policy is to help countries use trade as a tool
to promote economic growth, including through trade liberalization, or reduction of trade barriers.
Historically, trade liberalization efforts focused on targeted reductions in effective tariff rates, but
the diminishing importance of tariffs as a barrier to cross-border trade—due, in part, to significant
reductions in global tariff rates in recent decades—has directed growing attention toward
nontariff barriers.62 In 2017, the World Trade Organization (WTO) Trade Facilitation Agreement
(TFA), which focuses on nontariff issues, entered into force, providing, in part, an organizing
framework for USAID’s ongoing work on trade.63 The TFA highlights major barriers to trade
such as regulatory constraints, inadequate capacity to engage in trade, and logistical or
administrative challenges of reaching prospective consumers. It charts an approach to mitigating
those barriers. USAID programs to support countries’ implementation of the TFA focus on
reducing such barriers, reworking domestic taxation policies, and fostering regional economic
integration.64
Several acts of Congress shape USAID’s trade and investment activities. The Foreign Assistance
Act of 1961 states the policy of the United States as encouraging efforts to increase international
trade flows.65 Similarly, the African Growth and Opportunity Act (AGOA) states congressional
support for reducing tariff and nontariff barriers, regional integration efforts, and reciprocal and
mutually beneficial trade agreements. AGOA directs the executive branch to provide technical
assistance to foreign governments to help liberalize trade and promote exports, among other
initiatives.66 More recently, Congress’ 2015 granting of Trade Promotion Authority (TPA) to the
executive branch requires U.S. agencies to build developing countries’ capacity to comply with
their international trade commitments.67 The 2015 TPA legislation has provided an organizing
framework for much of USAID’s assistance for cross-border trade.68 USAID’s Bureau for
Development, Democracy, and Innovation provides technical advice on trade programs through
its Office of Trade and Regulatory Reform.69 This often manifests as USAID support for

wiki/competitiveness-strategy, accessed January 7, 2022; Marketlinks, “3.4. Design and Implementation,”
https://www.marketlinks.org/good-practice-center/value-chain-wiki/design-and-implementation, accessed January 7,
2022.
62 Molly Hagebock, From Aid To Trade, p. xv; World Bank Policy Research Working Paper, Trading on Time
(Djankov, Freund, and Pham 2008).
63 See CRS Report R44777, WTO Trade Facilitation Agreement, by Rachel F. Fefer and Vivian C. Jones.
64 USAID, TCB Policy, p. 1.
65 §601 of the Foreign Assistance Act of 1961, as amended (P.L. 87-195).
66 §103 and §122 of the African Growth and Opportunity Act, Title 1 of the Trade and Development Act of 2000, P.L.
106-200.
67 The Bipartisan Congressional Trade Priorities and Accountability Act of 2015, Title I of P.L. 114-26, authorized
executive branch trade negotiations (through July 1, 2021) and established U.S. trade negotiating and liberalization
objectives. Section 102(c) of the Act sets priorities of the trade assistance programs described in this report. For more
on TPA, see CRS In Focus IF10038, Trade Promotion Authority (TPA), by Ian F. Fergusson.
68 USAID, Policy for Trade Capacity Building (TCB Policy), September 2016, p. 10.
69 USAID, ADS Chapter 225: Program Principles for Trade and Investment Activities and the “Impact on U.S. Jobs”
and “Worker’s Rights”, Partial Revision Date January 19, 2021, p. 4.
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countries’ use of U.S. concessional tariff programs for developing countries, such as AGOA and
the Generalized System of Preferences, or U.S. support to regional economic integration.70
Why does USAID invest in trade programs?
USAID views trade as a key element of economic development. The agency assesses trade-led growth to have
been a critical contributor to a global reduction in extreme poverty from 35% to 15% percent of the world
population over the period 1990 to 2010.71 Furthermore, recent analyses suggest that the diversity and complexity
of a country’s trade network predicts its future growth more reliably than many other indicators.72 Research
indicates that improved trade may also positively affect other sectors. For example, improved cross-border flows
of cereals have been identified as a potential solution to food insecurity—only 5% of cereal imports into African
countries come from other African countries.73 Studies also suggest that trade capacity building programs result in
clear development impact. A 2010 evaluation concluded that a $1 increase in trade capacity building assistance was
associated with a $42 increase in trade, including in least developed or conflict settings.74 The World Bank and the
WTO also assert that trade capacity building is a critical factor in poverty reduction.75
Trade Capacity Building
Trade capacity building programs are intended to enhance a country’s ability to partake in
international commerce. Programs seek to improve the investment climate, increase awareness
and utilization of U.S. trade preference programs, broker linkages between buyers and sellers,
help firms comply with international standards for their products, and streamline regulatory
processes at borders. Typically, USAID trade capacity building efforts are one component of a
broader economic growth program. USAID asserts that this integration amplifies impact by
focusing on ongoing work while allowing trade gains to spill over to other sectors.76 For instance,
66% of the export value of firms targeted by the West Africa Trade and Investment Hub project
was in Feed the Future-supported value chains.77
Trade capacity building includes a broad set of assistance activities to governments, firms, and
supporting entities like financial intermediaries. Much of the trade capacity building portfolio
targets assistance within countries, supporting small and medium enterprises (SMEs), government
agencies, and regional organizations to expand trade opportunities.
 Support to ministries and regional organizations: Consistent with support in
other sectors to professionalize government agencies’ oversight of the economy,
trade programs support an array of ministries in both regulating and enabling
trade activity. USAID provides technical assistance to both export and
investment promotion agencies to connect buyers with sellers and investors with

70 See CRS In Focus IF10149, African Growth and Opportunity Act (AGOA), by Brock R. Williams and CRS Report
RL33663, Generalized System of Preferences (GSP): Overview and Issues for Congress, by Vivian C. Jones and Liana
Wong.
71 USAID, TCB Policy, p. 10.
72 Several economists asserted that trade complexity predicts future growth better than indicators for governance
effectiveness, human capacity, and business competitiveness. See Ricardo Hausmann, Cesar Hidalgo, and Sebastian
Bustos, et al., The Atlas of Economic Complexity: Mapping Paths to Prosperity, 2nd ed. (MIT Press, 2013), pp. 35-49.
73 World Bank Group, "Africa Can Feed Itself, Earn Billions, and Avoid Food Crises by Unblocking Regional Food
Trade," press release, October 24, 2012.
74 USAID, Policy for Trade Capacity Building (TCB Policy), September 2016, p. 9.
75 Ibid., pp. 10-11.
76 Ibid., p. 37.
77 Multiple authors. “Final Report.” Prepared for the West Africa Trade and Investment Hub by Abt Associates,
Bethesda, MD, January 25, 2018. Revised and submitted February 23, 2018, p. 150.
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potential investees.78 USAID also seeks to enhance regional economic integration
such as regulatory harmonization of former Soviet states with the European
Union through trade agreement and economic integration commitments, and
capacity-building for regional economic communities like the East African
Community (EAC) and the Association of Southeast Asian Nations (ASEAN).79
 Firm-level capacity building: Many trade projects work with businesses to
achieve sufficient scale, efficiency, and professional aptitude to reach export
markets. This often entails supporting local business advisors who can train local
firms directly in improved business practices, often oriented toward addressing
technical barriers to trade such as quality certification. Because the majority of
trade support is directed at the agricultural sector (USAID has estimated that 78%
of value chains supported by trade programs were in agriculture),80 sanitary and
phytosanitary (SPS) compliance is the most common type of support.81
Adherence to the Global Good Agricultural Practices (Global G.A.P.) standard,
which is billed as the most widely accepted standard for the agricultural sector, is
a common objective among USAID projects.82 These types of projects are often
classified as Private Sector Competitiveness or Agriculture rather than Trade and
Investment.
 Buyer-seller linkages: USAID seeks to improve interactions among value chain
actors by directly brokering deals, strengthening business associations such as
grain councils and farmer cooperatives, and funding research on entry into new
markets.83 Increasingly, this support includes linking producers with investors to
expand production. USAID may also work with local organizations to provide
trade finance—working capital to assist firms, particularly SMEs, in moving
goods across the border.84

78 In Ukraine, for instance, USAID has worked with the government to establish an export promotion office to support
marketing campaigns, trade fairs, exporter and buyer missions, and market research. USAID/Ukraine also supports the
transition of the investment promotion office from donor support toward a self-sustaining state ministry.
USAID/Ukraine, Request for Proposals: Competitive Economy Program SOL-121-17-000007, March 13, 2017, p. 17;
USAID, Ukraine 2018 Annual Report, February 27, 2019, p. 6.
79 Such economic integration efforts are underpinned by congressional directives such as Title I, Section 122 of P.L.
106-200 for African economic integration; and Section 303-304 of P.L. 115-409 for ASEAN integration. For example,
USAID’s East Africa Trade and Investment Hub worked with recipient governments to design AGOA utilization
strategies, which assessed sectors eligible for concessional tariffs and laid out action agendas for partner governments
to promote exports to the United States for such products as textiles and coffee. DAI Global, LLC, USAID East Africa
Trade and Investment Hub Final Report, July 24, 2019.
80 Molly Hagebock, From Aid To Trade, p. xvi.
81 For more information on SPS issues, see CRS Report R43450, Sanitary and Phytosanitary (SPS) and Related Non-
Tariff Barriers to Agricultural Trade, by Renée Johnson.
82 See e.g. USAID, KISAN II RFP, p. 19. USAID also recently published a manual for Uzbek farmers on how to seek
Global G.A.P. certification, for instance. USAID, USAID Publishes a Comprehensive Global G.A.P. Manual for
Uzbekistan’s Farmers, May 4, 2020. For more information on Global G.A.P., see https://www.globalgap.org/uk_en/.
83 In East Africa, USAID worked with the East African Grain Council to host business-to-business forums across the
region, in order to broker cross-border business deals. DAI Global, LLC, USAID East Africa Trade and Investment
Hub Final Report, July 24, 2019, pp. 28-32.
84 DAI Global, LLC, USAID East Africa Trade and Investment Hub Final Report, July 24, 2019, pp. 34-37.
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Trade Facilitation
In addition to building trade capacity among firms and government ministries, USAID provides
trade facilitation assistance, which focuses specifically on improving the efficiency of
bureaucratic processes to move goods across borders. As noted above, the goals of the WTO TFA
helps guide USAID work on these issues and USAID advocates for a four-stage “sequenced
approach” for developing countries to implement the 37 commitments under the TFA.85 Below
are illustrative examples of U.S. trade facilitation support under each of these categories:
 Political will and implementation of fundamental principles: This set of
commitments focuses largely on establishing more open information access and
engagement on customs procedures—including by supporting development of
public-private councils to advise on procedural developments. Assistance may
focus on trade ministries, but business associations are also often a primary
recipient of support through such councils.86
 Procedural simplification: While USAID seldom funds “brick and mortar”
infrastructure such as new customs houses or transportation hubs, the agency
may assist in planning such projects. USAID may also support establishment of
electronic portals to submit documents in advance of arrival, facilitating
preclearance or review prior to arrival—often a key constraint to goods clearance
in countries that require paper documentation.
 Compliance management: A significant proportion of USAID support under
this component is assisting developing countries to move toward a risk-based
model for identifying potential customs challenges. This includes providing
rulings on import clearance in advance of arrival at the border, enhancing the
administrative appeal or review process, and reforming penalties to reduce
capricious rulings. Across the clearance process, USAID encourages an approach
that modulates customs scrutiny to areas of elevated risk, including public health
issues like pest and disease risk and toxic environmental risks, rather than
universal monitoring.87
 Interagency cooperation and coordination: In most developing country
settings, USAID supports efforts to improve coordination among the various
regulatory and enforcement agencies involved in monitoring, processing
paperwork, and clearing goods at the border. A critical interlinkage is between
customs agencies, which process cross-border paperwork, and food safety
agencies, which monitor and test for compliance with SPS regulations. USAID
may work with such agencies to establish workflows and checklists for clearance
of goods to pass customs. A common initiative is to establish a “single window”
for all customs documents, rather than requiring firms to submit paperwork to
several agencies.88

85 Robert Holler, Erin Endean, Paul J. Fekete, and Virginia Brown, A Comprehensive Approach to Trade Facilitation
and Capacity Building – Connecting Developing Countries to Supply Chains, Business Environments for Agile
Markets Project, June 2015.
86 USAID, TCB Policy, p. 26.
87 Robert Holler, Erin Endean, Paul J. Fekete, and Virginia Brown, A Comprehensive Approach to Trade Facilitation
and Capacity Building – Connecting Developing Countries to Supply Chains, Business Environments for Agile
Markets Project, June 2015, pp. 35-41.
88 Ibid, pp. 41-45. A trade project supporting the Association of Southeast Asian Nations (ASEAN), for instance,
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Support for U.S. Trade Opportunities
U.S. trade initiatives with a foreign assistance focus can be contentious, given concerns among
some observers that increased U.S. trade with developing countries may lead to greater import
competition for U.S. producers or offshoring of U.S. jobs to foreign countries (see “Tensions with
U.S. Commercial Interests”). In response to these concerns, Congress has established certain
statutory limitations on trade-related foreign assistance (see text box below). In addition, U.S.
trade and development programs seek to increase opportunities for U.S. economic engagement in
foreign markets including through advocacy for U.S. investors and businesses in developing
countries. The Trump Administration made such advocacy a more explicit focus of its foreign
assistance activities, including, for example, through its Prosper Africa initiative, which advocates
alignment with U.S. regulatory and legal patterns under the banner of establishing a level playing
field for U.S. businesses.89
Legislative Requirements for U.S. Industries and Jobs
Since 1993, appropriations measures have prohibited foreign assistance for activities that would directly compete
with U.S. industries or lead to the relocations of U.S. jobs outside the United States, a requirement USAID has
formalized in its internal policy.90 Since 1986, Congress has barred assistance to overseas agricultural commodity
production if it would compete directly with U.S. exports.91 USAID has established strictly prohibited categories
of programming, and it has laid out a procedure for analyzing whether an activity would directly compete with U.S.
producers. In Kosovo, for example, the New Opportunities for Agriculture project conducted an assessment of
ten potential export crops. Six products were determined to pose no issue as they are not produced in the
United States, and the remaining four would not threaten U.S. producers’ market share.92 U.S. producer groups
have challenged agricultural assistance to Morocco as direct competition with them (for instance, USAID has
supported upgrading the Moroccan value chain for berries, which both the United States and Morocco export to
Europe).93
Private Sector Development
USAID private sector development programs share many characteristics, and often overlap, with
USAID agricultural production projects. Many adopt a market systems approach, analyze value
chains and end markets, and design interventions to address inefficiencies among producers,
along the value chain, and in the enabling environment. Much of USAID’s private sector activity
operates under Section 252 of the Foreign Assistance Act of 1961, added in 2004 to mandate

supported ASEAN member states to bring national single windows online for each country and to establish an ASEAN
Single Window that allows electronic exchange of customs documents among ASEAN member states. Nathan
Associates Inc., US-ASEAN Connectivity through Trade, Final Report, January 2019, pp. 4-9.
89 As one example, see DAI Global, LLC, USAID East Africa Trade and Investment Hub Final Report, July 24, 2019,
p. 12. For further information on Prosper Africa, see CRS In Focus IF11384, The Trump Administration’s Prosper
Africa Initiative, by Nicolas Cook and Brock R. Williams.
90 USAID E3, Automated Directive System Chapter 225: Program Principles for Trade and Investment Activities and
the “Impact on U.S. Jobs” and “Workers’ Rights,” revised August 8, 2019, pp. 4-12. For background on reshoring
provisions in annual appropriations measures, see USAID, Brief History on Legislation Governing Trade- and
Investment-Related Activities and “Impact on Jobs in the United States” and "Workers' Rights" Provisions: An
Additional Help for ADS Chapter 225, revised August 8, 2019, p. 3 and footnote p. 4.
91 Christopher F.D. Ryder, Legal and Policy Considerations for USAID Trade and Investment Activities, USAID,
October 22, 2008, p. 3.
92 Tetra Tech ARD, Kosovo New Opportunities for Agriculture Program: Fiscal Year 2011 - Annual Report, October
2011, p. 23.
93 Development and Training Services, Inc., Morocco Agriculture Competitiveness Assessment Report, July 24, 2012,
p. 5.
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USAID to target microenterprises (P.L. 108-484) but expanded in 2019 to micro, small, and
medium enterprises (P.L. 115-428). A key difference is that private sector development programs
often extend into the formal sector, including medium-sized businesses. Such programs are more
frequently found in middle-income countries that are moving beyond subsistence, formalizing
enterprises and employment relationships, and expanding both government and entrepreneur
capacity. Less-developed countries also often have vibrant clusters of high-growth, high-capacity
activity, such as entrepreneurial hubs in Nairobi, Kenya, and in several parts of Nigeria.
Support to Firms
USAID private sector development programs adopt broadly similar approaches as agricultural
production programs, but their implementation scope differs slightly. While USAID agriculture
programs often directly fund research by U.S. universities for application in developing countries,
the wide-ranging scope of private sector development programs, which may address anything
from information technology to tourism to furniture production, typically means that such
research targets cross-sectoral factors: business plan development competitions, workforce
training efforts, and credit access for entrepreneurs.94
In general, assistance to firms often follows a “portfolio approach,” which aims to reduce the risk
of a project’s failure by diversifying the types of firms USAID supports. For value chain projects,
this often entails selecting products that are not dependent on each other, so that USAID retains
flexibility to shift investments should an unexpected disruption occur in one value chain. In post-
conflict settings, USAID may establish grant funds to stabilize and sustain businesses across
many sectors, prioritizing generation of local incomes even at the risk of crowding out private
investment. Similarly, in supporting innovators, USAID may seek a balanced portfolio of
technologies, with differentiated solutions to a single development problem.95
Enabling Environment Reforms
USAID’s dedicated private sector development programs overseas almost invariably include a
regulatory and administrative reform program. These projects often take a wider view of
regulation than trade or agricultural production projects, and they have a set of tools calibrated to
that wider approach. Typical interventions include:
 Assessing regulatory reform. USAID seeks to enable government agencies to
assess the economic impact of regulatory actions in order to shape the business
regulatory environment. Regulatory impact analyses (RIAs) are one tool. These
analyses weigh the costs of a new or existing regulation against the benefits, and
may recommend management of social harms rather than eradication of them.
This type of approach may be novel in some contexts, where historically legal
enforcement has presumed a goal of universal compliance, rather than managing
to the expected cost of enforcement.96

94 For an overview of research in these areas, see SSG Advisors, LLC (dba Resonance), Theories of Change: High-
Growth Small and Medium Enterprise Development, May 2019.
95 Dan Charette, A Portfolio Approach to Value Chain Development Programs, microREPORT #169, Accelerated
Microenterprise Advancement Project (AMAP) Knowledge and Practice II, June 2011.
96 USAID has assisted Vietnamese bureaucrats, for example, to apply tools incorporating not only harm mitigation
from a new regulation, but also the costs of regulatory compliance in an open, free market, in their assessment of
regulatory approaches. DAI, Vietnam Competitiveness Initiative – Phase II Completion Report, June 2013, pp. 15-17.
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 Enhancing public-private dialogue. Many USAID private sector development
programs seek to facilitate engagement between policy-makers and business
associations. Projects often work to strengthen the capacity of business
associations, ensuring they represent the entire business community (rather than
just the politically connected), and subsequently facilitate dialogue between
associations and relevant government agencies, aimed at creating a business
climate conducive to economic activity.97
 Business Advisory Support Providers. To improve the environment for
entrepreneurs and SMEs, USAID projects often work with the support
environment for entrepreneurs—namely, identifying and facilitating partnerships
between business advisory support providers, such as accounting firms and
management consultants.98
Access to Finance
In recent years, USAID programming has increasingly shifted from microcredit toward new
financial inclusion technologies such as digital payments and mobile money. USAID analyses
assert that such electronic money platforms can reduce the often-high costs of transacting
business in cash. USAID supports the U.N.-based Better than Cash Alliance, which seeks to
coordinate efforts across donors and businesses to expand digital payment infrastructure in
developing countries.99 USAID has supported technical development of digital payment
platforms, such as in the Philippines.100 Cryptocurrencies have also been identified as a
potentially promising tool to overcome low levels of trust in developing societies, though USAID
work remains primarily research-oriented to date.
USAID projects also seek to unlock new sources of capital for investments in underserved
sectors. For instance, in Kenya, USAID is working to enable pension funds’ investment in
domestic energy and infrastructure projects.101 USAID has also worked to harness the flow of
remittances from developed countries toward development impact—a significantly greater source
of overseas capital than official assistance. USAID has also stepped up its efforts in recent years
in “blended finance,” a model for joint investments with non-governmental partners to connect
potential sources of capital to investment opportunities in sectors with high potential development
impact.102
Innovation
Innovation cuts across every programmatic sector—Feed the Future, for instance, supports
Innovation Labs that research improved crop varieties, and private sector development projects
often include support to business incubators. USAID also issues open calls for potentially path-

97 In Georgia, for instance, USAID supported a reform tracking system to evaluate the inclusivity and transparency of
stakeholder consultations. Deloitte Consulting, LLP, Governing for Growth in Georgia Final Report, October 31, 2019,
p. 20.
98 The Kenya Investment Mechanism, for example, is intended to maintain a network of business advisory service
providers that can support a pipeline of transactions to advance the project’s goal of upgrading target value chains.
USAID/Kenya & East Africa (KEA), Kenya Investment Mechanism (KIM) Activity SOL-615-17-000006, May 23,
2017, pp. 111-112.
99 USAID, “Partnering for Impact: USAID and the Private Sector,” January 2017, p. 28.
100 USAID, “E-PESO,” March 24, 2021, https://www.usaid.gov/philippines/partnership-growth-pfg/e-peso-activity.
101 USAID, “Kenya Investment Mechanism Fact Sheet,” November 2021.
102 See e.g. USAID CATALYZE, https://www.usaid.gov/catalyze, accessed January 7, 2022.
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breaking innovations, typically to create and nurture a portfolio of innovators. Two major
USAID-wide innovation initiatives cut across several sectors: Grand Challenges for Development
and Development Innovation Ventures (DIV). Grand Challenges focus on a targeted problem such
as water access for agricultural use or expanding off-grid energy access, whereas DIV seeks
innovations to solve major development challenges across sectors. Several field programs, such
as the Feed the Future-funded Kenya Innovation Engine and the Cambodia Development
Innovation program, have similar characteristics. Such programs typically involve a grant fund
alongside a long-term working relationship that includes capacity-building assistance such as
facilitating market linkages, expert advice on product viability, and market research.
Innovation funds typically support three tiers of innovators. Proof of concept, the first tier,
provides seed funding such as to pilot their innovation or develop a business plan. Testing and
positioning to scale, the second tier, includes assistance to expand innovation implementation and
conduct rigorous tests to collect data on effectiveness. One well-publicized example of this is
DIV’s testing of a speed limit warning sticker in commuter buses to reduce traffic accidents.103
Finally, transition to scale provides funding to distribute proven innovations at large scale in
developing countries.104
Private Sector Engagement
A cross-cutting theme more often than a dedicated project, USAID often prioritizes leveraging
private sector partners, either through broad cooperation or direct facilitation of investment.
USAID launched a comprehensive policy on private sector engagement in 2019, seeking to
enable greater cooperation with private businesses in target environments.105 USAID has
expanded its range of tools and initiatives to engage with the private sector in recent years,
ranging from grants co-funded with the private sector to transaction advisors and investment
pipelines.106 USAID has also experimented with “payment for results” models, in which private
sector partners are compensated based on outcomes rather than outputs—increasing household
incomes, for instance, rather than holding a training.107
Energy Supply and Services
Energy access is a critical factor shaping the “enabling environment” in a partner country, and is
thus a consideration of USAID to enhance firm-level productivity. Consistent with USAID’s
long-standing perspective that open markets sustain economic growth better than state-directed
economies, USAID has sought to foster open energy markets in developing countries, many of
which have a history of state-administered electrical production and distribution. For instance, the

103 David Evans and Charles Kenny, “What US Government Initiative Do All Three 2019 Economics Nobel Winners
Like? (Hint: It’s at USAID.),” Center for Global Development, November 1, 2019.
104 See e.g. USAID, “Development Innovation Ventures,” https://www.usaid.gov/div, accessed January 7, 2022; Feed
the Future Kenya Innovation Engine, Contract Completion Report, December 2017, p. 3.
105 USAID, Private Sector Engagement Policy, April 1, 2019. This policy is discussed in greater detail in CRS Report
R45779, Transformation at the U.S. Agency for International Development (USAID), coordinated by Marian L.
Lawson
106 The Global Development Alliance (GDA) initiative is a window for USAID to share costs with a private sector
partner under a joint grant activity. The USAID INVEST project maintains a consortium of business advisory and
transaction advisors that seek to resolve constraints to firms’ growth with market assessments, fund structuring, and
developing investment pipelines. USAID, "INVEST," https://www.usaid.gov/invest, accessed January 7, 2022.
107 Palladium, Pay-for-Results in Development: A Primer for Practitioners, November 16, 2017, p. 12.
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strategy for Power Africa, one of the flagship U.S. energy assistance initiatives, asserts that state
energy sector subsidies can be unsustainable and limit private sector involvement.108
USAID has not issued an agency-wide energy strategy or policy, but USAID’s Center for
Environment, Energy, and Infrastructure in the Bureau for Development, Democracy, and
Innovation maintains a toolkit to assess energy markets and facilitate deals and reforms,
particularly for renewable energy.109 While Congress has not enacted a comprehensive energy
access bill, region-specific energy assistance bills have passed, such as the Electrify Africa Act of
2015 (P.L. 114-121) and the European Energy Security and Diversification Act of 2020 (Div. P,
Title XX of P.L. 116-94). In some countries, USAID employs advisors to support market-based
national and regional energy projects and transactions, as well as to advance energy sector
reforms and capacity building.110 USAID support to the energy sector prioritizes three major
categories.111
 Energy Production and Distribution: This includes both large-scale natural
gas, solar, and wind power generation facilities that feed into national power
grids, and off-grid technologies, such as microgrids and home solar systems. In
some countries, USAID works with utilities to enhance both power generation,
such as by upgrading underutilized power plants, and power distribution, such as
by improving power billing and pricing systems and promoting a role for private
power producers.112 Off-grid investments seek to give energy access to remote
communities that are unlikely to be connected to larger power grids in the near
term. Power Africa’s Beyond the Grid initiative, for example, has run
competitions to identify micro-grid innovations that are financially sustainable,
market-based, renewable, and productivity-enhancing for remote communities.113
 Grid expansion and integration: USAID also seeks to enhance grid access by
assisting ministries and utilities in planning, regulatory reform, and capacity
building. Under Power Africa, USAID advisors support ministries to structure
project financing, build capability to run effective procurements, strengthen
project management skills within utilities, and foster effective collaboration and
decision-making.114 In Ukraine, USAID works to integrate the national grid into
the European energy market by, for instance, helping to model how Ukraine’s
power system would function if separated from the Russian power system.115

108 For further on the structure of Power Africa, see CRS Report R43593, Powering Africa: Challenges of and U.S. Aid
for Electrification in Africa, by Nicolas Cook et al.; and Power Africa, The Roadmap: A Guide to Reaching 30,000
Megawatts and 60 Million Connections (Roadmap hereafter), January 21, 2016, pp. 67-68.
109 USAID, “Energy: Training and Field Support Toolkits,” https://www.usaid.gov/energy/toolkits, accessed January 7,
2022.
110 See in particular the Power Africa initiative: Power Africa, Roadmap, p. 24.
111 These three categories align with those laid out in the Power Africa initiative’s Roadmap, but USAID support in
other regions broadly aligns with these categories.
112 See for example the Power Africa initiative, which has brought at least 134 power generation deals to financial close
for an expected generation capacity of more than 12,000 MW. USAID, Power Africa Generation Projects as of June
30, 2021, https://www.usaid.gov/documents/1860/power-africa-financially-closed-transactions, accessed January 7,
2022. In Pakistan, USAID has both directly funded power projects and channeled private investment to electrical
utilities, in order to expand electricity access. USAID/Pakistan, “Energy Fact Sheet,” 2020.
113 Power Africa, Beyond the Grid Overview, January 2019, p. 16.
114 Power Africa, Roadmap, pp. 50-53.
115 Tetra Tech ES, Inc, Energy Security Project Annual Progress Report, October 2020, p. ii.
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 Energy market promotion and regulation: Restrictive legal structures or low-
capacity utilities and regulators may not only impede the development of new
energy technologies and markets, but also constrain private efforts to modernize
the energy sector. USAID supports legal and regulatory reform at the national
level and efforts to expand regional trade in electricity by working with regional
power pools. USAID also supports regulatory reforms and institutional capacity
building, both at a broad national or sectoral level, and as part of its transaction
facilitation work—such as by supporting targeted reforms necessary to bring
individual energy projects to a successful conclusion.116 Power Africa placed
advisors within the Southern Africa Development Community, for instance, to
provide input on regional integration and energy tariff policies.117
These three categories align with USAID’s approach in other economic growth sectors; one area
addresses support to energy producers themselves, the second centers on the distribution of that
product to end users, and the third addresses the enabling environment shaping the market. Also
as in other sectors, USAID prefers facilitation to the direct supply of services, as by investing
significant resources in a model “first-of-its-kind” energy transaction in a country, premised on
the notion that such a “proof of concept” will lead to organic uptake of similar subsequent
transactions. USAID energy strategies have asserted that the agency’s limited resources would
not allow direct support to many large energy transactions in a partner country, and that such
independent uptake is critical to achieve a large-scale impact.118 USAID also works with other
U.S. trade, investment, and development agencies—including MCC and DFC, but also USTR and
the Department of Commerce, among others—to facilitate similar transactions in multiple
countries.119
Economic Policy Reform
As described previously, many sectoral programs include activities to support growth-oriented
policy reform in developing countries. Agricultural projects often involve standardizing
warehousing policies or sanitary frameworks. Energy programs often assist the government to
reform laws regulating public utilities to enable market-oriented activity, and trade projects
regularly entail reform to customs procedures that ease trade constraints at the border.
Why does USAID focus on economic policy?
Development economics has increasingly come to a consensus that effective governance may be the single
greatest factor determining a country’s long-run economic growth potential, including through reliable, predictable
regulation of the private sector under the rule of law.1 Consistent with its country-led local systems approach,
USAID works with partner countries to advance the economic policy aims those countries have set out for
themselves. USAID programs support such country strategies specifically to foster the conditions—market-led
development sustained by the rule of law—that align with both its economic growth strategy and with broader
stated U.S. foreign policy aims, underpinned by a domestic political consensus about how prosperity is created
that dates to the Cold War era.1

116 In Ethiopia, USAID supported the drafting of a new geothermal law to regulate the energy sector and facilitated the
construction of a new geothermal plant. Power Africa, Roadmap, pp. 12, 19.
117 Power Africa, Roadmap, p. 69.
118 Power Africa, Roadmap, p. 10.
119 See, for instance, the power sector handbook series available from the Power Africa Resource Library
(https://www.usaid.gov/powerafrica/newsroom/resource-library).
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Several USAID economic reform efforts do not fit squarely in these categories, as they extend
beyond a single economic sector. These include “growth diagnostic” analyses to identify major
constraints to growth and inform USAID’s own programming as well as partner countries’.
USAID has also been a prominent voice in promoting renewed attention to and methodologies for
effective tax administration, known as domestic resource mobilization, and implements projects
in several countries to enhance such efforts.120
Data and Analytical Services
USAID leverages many diagnostic tools to assist governments in planning their own development
strategies. Enabling environment assessments, regulatory impact assessments, cost-benefit
analyses, and political economy analyses all drive USAID programming strategies and support
partner governments’ policy reform efforts. USAID monitoring and evaluation also aims to
identify successful intervention approaches for expansion or replication in other contexts.
USAID has especially focused in recent years on the use of the inclusive growth diagnostics
approach. Rather than the sector-specific assessments conducted above, inclusive growth
diagnostics seek to evaluate a country’s economy holistically and identify discrete constraints to
growth, then work with partner governments as well as counterpart assistance agencies like MCC,
the State Department, and DFC to target those growth constraints. The inclusive growth
diagnostic is central to MCC’s compact development process, and USAID integrated it into the
Partnership for Growth initiative under the Obama Administration. USAID continues to conduct
inclusive growth diagnostics, having completed them in 23 countries and regions since 2011.
USAID is also collaborating with the World Bank to pilot a new jobs diagnostic tool meant to
address both sector-specific labor challenges and those stemming from economy-wide
pressures—including the macroeconomic environment, human capacity, and the regulatory
framework for employment.121
Domestic Resource Mobilization and Public Financial Management
Improved tax administration is one of the newest prominent planks of USAID’s economic policy
reform efforts. Framed as “Domestic Resource Mobilization,” these programs assist country
governments to better apply human, natural, and financial resources within their own borders
toward development objectives. USAID has made such efforts central to its “Journey to Self-
Reliance” roadmaps, endorsing the view that governments that can finance their own initiatives
will no longer rely on assistance from international donors.122 Key to this concept is improving
partner countries’ “tax efficiency ratio”—the amount of tax collected compared to how much
revenue would be collected under universal tax compliance. The donor community has endorsed
this view, in 2015 launching the Addis Tax Initiative—a partnership to enhance domestic resource
mobilization efforts in developing countries.123
USAID works with countries to reform their revenue management systems in a variety of ways.
These include:

120 USAID, “Domestic Resource Mobilization,” https://www.usaid.gov/what-we-do/economic-growth-and-
trade/domestic-resource-mobilization, updated September 10, 2019.
121 Mary C. Hallward-Driemeier, Jobs Group: Jobs Diagnostic Guidance - Why, What and How, World Bank Group,
January 1, 2015.
122 USAID, Self-Reliance Metrics FY 2021 Methodology Guide, August 2020, p. 25.
123 USAID, Domestic Resource Mobilization: Financing Country-Led Development, August 4, 2015, p. 5.
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 Reducing the cost of compliance: USAID works with ministries to ease
regulatory burdens to register businesses by reducing fees, simplifying forms, or
shortening registration turnaround times. Often these efforts seek to reform
bureaucratic inefficiencies originally created as opportunities for bribery or
protection of well-connected incumbent firms. USAID may also support
ministries to refocus collection efforts toward taxes that developing countries
have proven capacity to administer, such as value-added taxes.124
 Broadening the base: Many developing country tax administrations fail to
extend their efforts to every portion of the economy. Some businesses may fail to
obtain a business license, so they are unable to file taxes without a tax
identification number. Historical exemptions may have been established for
certain sectors as well, and the informal sector often is exempt from certain types
of taxes.125
 Tax systems modernization: USAID has assisted multiple countries to procure
and institutionalize the use of new software within government ministries, for
data management and to interface with the public through e-registration, e-filing,
and e-payment systems.126 Digitization of records has also eased other tasks, such
as automating certain aspects of tax auditing by ministries.127 Low-tech solutions
have also been deployed, such as creation of a call center for taxpayer assistance
in El Salvador.128 Such efforts often overlap with trade programs when
supporting customs processing reforms.
 Public financial management systems reform: Beyond improvements to policy
and technologies, USAID partners have often led efforts to restructure tax
administrations themselves. In Afghanistan, for instance, USAID helped establish
tax and customs administrations from the ground up and subsequently worked to
professionalize the workforce. These efforts often focus on improved capacity to
collect, audit, and adjudicate tax payments, and to effectively enforce against
non-compliance.129 In Ukraine, USAID provided design support to “Pro-Zorro,”
a new open platform for government procurements.130
USAID implements a variety of other strategies to assist ministries in expanding their tax
base and enhancing their administration of government revenue. For instance, USAID
seeks to enable greater budget transparency and citizen accountability in many of its
fiscal reform programs. Such efforts are typically designated governance programs, rather

124 USAID, Charting a path toward self-reliance: Case Studies of Domestic Resource Mobilization (DRM) Reform,
November 21, 2018, p. 2.
125 In the Philippines, for example, USAID assisted in designing a tax reform package that eliminated exemptions for
value-added tax across a large range of goods. USAID, Domestic Resource Mobilization: Case Study of Philippines,
1996-2016, June 2018, p. 3.
126 USAID, Charting a path toward self-reliance: Case Studies of Domestic Resource Mobilization (DRM) Reform,
November 21, 2018, p. 2.
127 See e.g. USAID, Domestic Resource Mobilization: Case Study of Philippines, 1996-2016, June 2018, p. 3.
128 USAID/ El Salvador Monitoring, Evaluation and Learning Initiative, Ex-Post Performance Evaluation of USAID’s
Fiscal Policy Development Activities Evaluation Report, December 22, 2017, p. ii.
129 Terry Murdoch, Ron Mcmorran, Anton Kamenov, and Johan van der Walt, Tax Administration Reform: A Primer,
November 2012, p. 1.
130 Susan K. Fritz, “Helping Ukrainians Attain the Prosperity They Deserve,” USAID Impact Blog, March 2, 2018.
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than economic growth, though USAID considers them to contribute to economic growth
potential.
Millennium Challenge Corporation
MCC’s primary legislative mandate is to provide assistance “that promotes economic growth and
the elimination of extreme poverty and strengthens good governance, economic freedom, and
investments in people,” making economic growth its chief goal.131 Of the seven sectors MCC lists
as its thematic areas, three—energy, agriculture, and roads and transportation infrastructure—fall
into the U.S. government definition of economic growth programming.132
MCC’s efforts to promote economic growth begin with its selection process for the large-scale
grants, known as compacts, that are its primary implementation model.133 The compact selection
process seeks to utilize a set of objective indicators to identify countries governed well enough to
expect high prospects for growth, given the right conditions. Those indicators are meant to assess
three factors: a free and open market-based economy, effective governance under the rule of law,
and a society that invests robustly in its people. MCC’s limitation to well-governed countries
allows it to partner with recipients in ways many USAID missions cannot. The agency gives
compact implementation responsibility to partner governments and negotiates policy conditions
into its compacts. At the same time, the agency cannot service certain development needs—its
requirement of stable governance conditions precludes humanitarian assistance and prohibits aid
to fragile states, where many of the most impoverished people in the world live.
After selection, MCC compact countries conduct “growth diagnostic” to identify the chief
constraints to economic growth. The diagnostic model stipulates that countries’ growth prospects
are limited by inadequate private investment and entrepreneurship, resulting either from firms’
inability to achieve adequate incomes, or their lack of access to low-cost finance to expand
production.134 Each of these causes has multiple underlying causes as well (Figure 5), which the
analysis seeks to rank as primary constraints.

131 §602 of the Millennium Challenge Act of 2003, Division D, Title VI, P.L. 108-199.
132 The other sectors are education; health; land and property rights; and water, sanitation, and irrigation. See
https://www.mcc.gov/sectors. For a list of foreign assistance categories, see https://www.state.gov/foreign-assistance-
resource-library/.
133 For further information on MCC’s selection and implementation model, see CRS Report RL32427, Millennium
Challenge Corporation: Overview and Issues, by Nick M. Brown.
134 These analyses follow a methodology established in a 2005 article by three Harvard economists. Ricardo Hausmann,
Dani Rodrik, and Andres Velasco, “Growth Diagnostics,” 2005.
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Figure 5. Growth Diagnostics Methodology

Source: Mil ennium Challenge Kosovo Office, Kosovo Constraints Analysis, December 2017, p. 21.
Notes: Adapted from Ricardo Hausmann, Dani Rodrik, and Andres Velasco, “Growth Diagnostics,” 2005, p. 27.
MCC compacts are implemented under a grant agreement that funds a “Millennium Challenge
Account,” a fund administered by a partner country operating unit. The project management
structure varies according to the partner country’s preferences, the country context, MCC’s input,
and the characteristics of the project itself. Compact activities related to economic growth
include:
 Roads and transportation infrastructure: Roughly 30% of MCC’s investments
since the agency’s creation have been in roads and infrastructure. Prior to MCC’s
inception, USAID-implemented transportation infrastructure projects were often
criticized for being popular but unsustainable. They were described as having
straightforward benefits due to the tangible footprint and active use by local
populations, but often at risk of deterioration in countries lacking the capacity to
maintain them.135 MCC’s program cycle seeks to address these concerns by
focusing on well-governed countries. The compact development process
identifies potentially high-impact projects, and a set of “conditions precedent”
seeks to ensure project management and maintenance units are established to
administer the infrastructure after its construction. As such, the construction of
the infrastructure itself is only one component of most MCC compacts.136
 Energy: MCC provides direct funding for power transmission and generation
projects, often to attract additional capital from private investors. This may

135 See e.g. U.S. Government Accountability Office, Foreign Assistance: Actions Needed to Help Ensure Quality and
Sustainability of USAID Road in Indonesia, GAO-12-728, July 19, 2012; USAID Office of Inspector General, Audit of
USAID/West Bank and Gaza Construction Programs, Audit Report No. 8-294-16-001-P, February 22, 2016, pp. 6-7.
136 MCC, Roads and Transportation Infrastructure, https://www.mcc.gov/sectors/sector/transportation-infrastructure,
accessed January 7, 2022. In recent years, MCC has invested additional time prior to compact launch to identify
specific transportation constraints and design high expected return investments to alleviate them. Shreena Patel,
Principles into Practice: Lessons from MCC’s Investments in Roads, March 20, 2018.
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include refurbishment of existing power plants or upgrading of transmission lines
to increase capacity. Generally, such projects include a policy reform plank to
create an open and competitive market with well-managed utilities, in addition to
“conditions precedent” in the grant agreement.137 In high-capacity countries that
can independently attract private funds for new energy investments, MCC
compacts may focus largely on enabling market-oriented investments through
operational reform of utilities or ministries. In Ghana, the Power Compact seeks
to improve efficiency not only of large utility companies, but also on a smaller
scale by establishing new energy efficiency standards for appliances, and
facilitating planning to install new energy-efficient LED streetlights.138 MCC
conditions precedent often require establishment of legal frameworks for market-
oriented administration of the power sector, such as enabling concessions to
private operators.
 Agriculture: MCC agricultural projects include a wide range of activities, often
overlapping with energy and transportation. Some transportation investments link
agricultural production areas to markets. MCC may also invest in improved
warehousing facilities and better irrigation for farmers, as well as agricultural
finance tools to help farmers invest in new equipment and training to enable use
of such infrastructure.139 Policy reform projects in this sector often seek to reform
land tenure policies and administration to secure farming rights for smallholder
farmers, who compose a large share of the world’s poor.140 MCC also partners
with USAID through Feed the Future to develop infrastructure that USAID can
build capacity to use sustainably.141
Beyond these three sectors, MCC compacts often address broad economic growth issues
as well. In Morocco, for instance, MCC sought to stoke entrepreneurship in order to
reduce high unemployment levels. Such projects focused on business ecosystems may
seek to strengthen “soft” infrastructure, such as business support providers, or physical
infrastructure such as physical office space.
U.S. International Development Finance Corporation
The U.S. International Development Finance Corporation (DFC), the U.S. government’s
development finance arm, began operations in 2019 as a successor to the Overseas Private
Investment Corporation (OPIC). Global development is one of the DFC’s primary aims,
alongside supporting U.S. foreign policy and attaining returns for U.S. taxpayers.142 The agency
offers a variety of assistance types, including loans, loan guarantees, support to investment funds,

137 See e.g., MCC, “STAR Report: Malawi Compact,” April 2020.
138 See e.g., MCC, “Ghana Power Compact,” https://www.mcc.gov/where-we-work/program/ghana-power-compact.
139 In Morocco, MCC funded new equipment and landing sites for fisheries, as well as new olive and almond trees for
farms, alongside new technical assistance for more sustainable practices. MCC, “Closed Compact Report Morocco,”
October 17, 2015.
140 In Mongolia, for instance, the MCC compact funded the design of a new model for grazing rights to distribute
grazing under a leasing system for pastures. MCC, Mongolia Closed Compact Report, October 2015.
141 MCC, “Agriculture,” https://www.mcc.gov/sectors/sector/agriculture, accessed January 7, 2022.
142 DFC, “Developing DFC’s New Development Performance Measurement System,” July 2020, p. 2. DFC was
authorized with the passage of the Better Utilizing Investments Leading to Development (BUILD) Act of 2018, Div. F,
P.L. 115-254.
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technical assistance, and political risk insurance, among others.143 The DFC was created in part as
a result of a growing consensus that steering private investment toward developing countries is a
critical component of advancing economic growth in developing countries.144 Congress structured
the agency with several provisions to encourage focus on development impact (BUILD Act, Div.
F, P.L. 115-254).
To quantify the expected development value of a proposed DFC-supported activity, the DFC has
developed an impact quotient tool that projects development impact in a single score from metrics
across three “pillars:” economic growth, inclusion, and innovation.145 Metrics within these pillars
align with many of the goals of USAID and MCC programs, such as increasing local incomes,
creating jobs inclusively, diversifying a country’s economic production base, and prioritizing
investments in SMEs.146
In October 2020, the agency released its first global development strategy, the Roadmap for
Impact (the Roadmap). 147 The Roadmap addresses seven cross-cutting themes for its investments:
 Innovation across the development finance life cycle;
 Women’s economic empowerment;
 Financial systems strengthening;
 Sustainable job creation;
 Protecting workers;
 Bolstering manufacturing and global supply chains; and
 Empowering U.S. and local businesses.148
In addition to these cross-cutting themes, the Roadmap targets six sectors, four of which align
with economic growth aims: financial inclusion and strengthening financial systems, technology
and infrastructure, energy, and agriculture and food security.149
DFC’s focus is, to a degree, dependent upon the applications it receives—unlike USAID and
MCC, which actively engage in their projects’ design and launch. The Roadmap lays out
priorities for DFC project support and aims to guide both how the agency markets its tools and
services, and how it will make project approval decisions.150 The strategy is currently being
revised to incorporate priorities of the Biden Administration. DFC’s selection of qualifying
projects, then, is the chief approach it uses to promote economic growth priorities:
 Technology and critical infrastructure: DFC prioritizes expanding Internet
access to the four billion people currently unable to access it. Support ranges

143 For further information on the DFC’s operations and activities, see CRS In Focus IF11436, U.S. International
Development Finance Corporation (DFC).
144 United Nations, Addis Ababa Action Agenda of the Third International Conference on Financing for Development,
July 27, 2015, p. 17.
145 For a full description of these pillars, see DFC, “Developing DFC’s New Development Performance Measurement
System,” July 2020, pp. 5-8.
146 DFC, Developing DFC’s New Development Performance Measurement System, June 2020.
147 DFC, "DFC Announces New Global Development Strategy to Catalyze $75 Billion by 2025," press release, October
15, 2020.
148 DFC, Roadmap, pp. 17-24.
149 Ibid. The other two sectors are water, sanitation, and hygiene; and health
150 DFC project selection is also guided by the statutory considerations Congress mandated in the BUILD Act.
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from financing large-scale deep-sea cable projects to funding low-cost mobile
devices in poor, remote areas. DFC is supporting installation of a new Trans-
Pacific fiber optic cable from the United States to Indonesia and Singapore
through a loan, for example.151 The focus of DFC’s financing and other
investment support are often similar to MCC compact projects—such as port
upgrading to enable trade in goods, airport upgrading to ease tourists’ entry, and
urban transport like light rail. DFC is also active in the housing sector, including
mortgage finance and land development.152
 Energy: DFC projects also prioritize the 770 million people living without
power in 2019.153 DFC-supported investments in the energy sector align with
many of the priorities laid out in USAID programs, including energy supply and
distribution. While USAID seeks to facilitate transactions leading to expanded
access rather than financing projects directly, DFC may provide financing
directly, through loans, loan guarantees, or equity investments. DFC also seeks to
seed development of new energy technologies, such as new off-grid products,
solar and wind technologies, hydrogen fuel, electric vehicles, and potentially
small-scale nuclear technology.154 In Eastern Europe, Congress has authorized
DFC to fund projects that improve energy transmission or storage, including
“smart grid” and distributed generation models.155
 Financial inclusion: DFC programs also target the 980 million people in the
world without bank accounts—many of whom are women and vulnerable
populations. DFC works through both direct lending, loan guarantees, and
investment funds to support micro, small, and medium enterprises that may lack
collateral or credit history to obtain a loan. DFC, inheriting the approach of the
USAID Development Credit Authority, supports these firms in large part through
loan portfolio guarantees, which are targeted at expanding capital for small
firms.156 Furthermore, the agency works with financial institutions to design
financial technology that supports remote populations, such as online banking,
mobile payments, blockchain-based systems, and digital identity platforms. Such
financial access may help firms transition from the informal to the formal
sector.157
 Agriculture: DFC investments in agriculture are smaller-scale than its energy
and other infrastructure investments, including an Agricultural Finance Unit to
support Feed the Future activities.158 At the producer level, DFC investments

151 DFC, “Public Information Summary: Trans Pacific Networks,”
https://www.dfc.gov/sites/default/files/media/documents/9000093543.pdf.
152 DFC, Roadmap, pp. 26-29.
153 International Energy Agency, SDG7: Data and Projections, October 2020.
154 DFC, Roadmap, pp. 31-34. In Vietnam, for instance, DFC recently announced its potential support to a new liquid
natural gas terminal alongside a new power plant. DFC, "DFC Announces New Initiatives to Support Prosperity in the
Indo-Pacific," press release, October 29, 2020. DFC has also announced revisions to its environmental policies to
facilitate nuclear energy activities. DFC, "DFC Modernizes Nuclear Energy Policy," press release, July 23, 2020.
155 European Energy Security and Diversification Act of 2019, Division P, Title XX of P.L. 116-94.
156 USAID Office of Inspector General, Audit of USAID’s Development Credit Authority, Audit Report No. 9-000-06-
009-P, September 25, 2006.
157 DFC, Roadmap, pp. 36-37.
158 DFC, Coordination Report, July 31, 2019, p. 16.
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often orient toward enabling investments in improved inputs or equipment,
largely through access to credit. Among intermediaries in the value chain,
investments often aim to reduce post-harvest losses, such as refrigeration
equipment to strengthen “cold chain” linkages, or to enable new markets access,
such as investing in new platforms for commodities exchange.159
Policy Issues
Congress has taken particular interest in certain aspects of economic growth programming in
recent years, and aspects of congressional focus may have particular bearing on economic growth
programming. This section profiles those issues and recent congressional action on them.
Congress has passed several measures and signaled support for initiatives to promote women’s
economic empowerment (“Gender in the Economy”), made adjustments to both financial
inclusion (“Evolving Approaches to Finance for Development”) and microenterprise development
programs (“Micro, Small, and Medium Enterprise Orientation”), and sought to avoid negative
impact on U.S. jobs and exports from economic growth programs (“Tensions with U.S.
Commercial Interests”). Cross-cutting issues that have attracted congressional attention may raise
novel issues in the economic growth sector. Recent congressional efforts to expand evaluation
and impact measurement may prove especially challenging in economic growth activities
(“Cross-Program Evaluation”), where some investments may have been accomplished by the
private sector in the absence of aid (“Adding Value for Beneficiaries”). Congress’s interest in
fragile states, both as a unique constraint to development and a risk to U.S. national security, also
bears upon economic growth programming in particular, as implementation best practices may
not be feasible in weakly governed contexts (“Fragile States”).
Cross-Program Evaluation
Congress passed the Foreign Aid Transparency and Accountability Act of 2016 (FATAA, P.L.
114-191) to improve impact measurement among agencies. Partly in response to measures such
as FATAA, agencies have developed worldwide impact indicators such as the number of project-
attributable jobs created and the total income generated by a project, in order to assess agency
progress. Because U.S. economic growth assistance programs are often calibrated to the
implementation environment, comparative analyses of effectiveness may be difficult to make. For
example, job creation targets vary widely from project to project, and Congress may find it
challenging to assess whether funds were spent effectively based only on the unit cost per job
created. One USAID evaluation, for instance, assessed an “efficient use of funds” to be $11,918
per job,160 while another project in Tunisia reported creating new jobs at a cost of $954 each.161
Country income levels or target sectors could affect such costs-for-impact targets significantly.
DFC, for instance, has set a target of supporting the creation of 100,000 new jobs in developing
countries by 2025, though such jobs could be easier to create in countries with strong financial
sectors where investments are easy to find.162 Agencies could be incentivized to select sectors
particularly primed for growth, leading to artificially elevated figures for jobs supported, created,

159 A cold chain is a supply chain through which transportation and storage facilities regulate temperature of the
product between producer and end market.
160 USAID, Accelerating Entrepreneurs: Insights from USAID’s Support of Intermediaries, March 8, 2018, p. 5.
161 Chemonics International, Championing Economic Growth Best Practices in Asia and the Middle East: Asia and
Middle East Economic Growth Best Practices Project, September 30, 2017, p. 13.
162 DFC, Roadmap, p. 6.
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or preserved. Agencies may launch activities in pursuit of strong metrics at the expense of more
valuable efforts in order to meet the indicators and demonstrate immediate results. Alternatively, a
“proof of concept” project may register only a small number of jobs supported, but could result in
an outsized impact that is not strictly captured in performance indicators. Similarly, while
agencies set a policy of targeting the poorest populations and the most difficult constraints to
growth, targeting those areas may also depress an agency’s performance or increase the costs of a
development investment.
As Members of Congress evaluate not only agencies’ compliance with FATAA but also the
findings emerging from that data collection and research, they may seek standardized benchmarks
for performance of foreign assistance programs, subject to the considerable variety of
implementation contexts. MCC, for instance, assesses impact using a single economic rate of
return, and the DFC’s impact quotient aggregates multiple indicators into a single score. Congress
may evaluate the feasibility of similar standardized metrics for USAID, while considering the
elevated diversity of its project portfolio. Members may also take careful note of the context in
which development impact targets are achieved, whether set by agencies or by Congress, and take
account of possible negative incentives created in such worldwide indicator targets.
Adding Value for Beneficiaries
Agencies generally seek to ensure their activities are additional to the private sector (a concept
known as “additionality”), meaning they avoid activities that the private sector would likely
provide in donors’ absence. Such “crowding-out” of private activity is considered harmful
because establishing a vibrant private sector is considered a key priority of U.S. economic growth
programs. This may mean agencies appear to be more prone to failure than strictly private
investments: in the words of one USAID evaluation, if a firm’s business plan were assured of
success, “the commercial sector would handle it and foreign aid programs would be
unnecessary.” DFC, for example, requires investors to certify that private sector financiers have
declined to provide adequate support for their project.163 This approach helps to ensure that
projects add value for beneficiaries, but also increases the propensity of projects to fail when
compared with private sector investments, since the private sector may refuse to engage in those
activities due to high perceived risk.164
In recent years, this has also led agencies not to directly provide goods and services, but to prove
demand for such products so that the private sector will provide them. Demonstration plots (in
which a farmer uses a new seed variety on only a small portion of land) are often small-scale, and
they may require considerably more resources to execute than to distribute those same seeds
widely. However, seed distribution without proof of those seeds’ superiority in a local market
may cause local farmers not to use them, for fear consumers may dislike the new product or
concern about other unexpected factors reducing sales. Running a business plan training may
require fewer resources than fostering a dynamic market of local training providers, but foreign
assistance experts often prefer the latter because the development gains, even if smaller in the
short term, could be more permanent (“sustainable,” in development experts’ terms). Agencies’
mandate not to directly intervene for risk of crowding out private actors may limit the immediate
apparent impact of project interventions but secure more reliable gains over the long term, as they

163 DFC, Eligibility Checklist, https://www.dfc.gov/what-we-offer-eligibility/eligibility-checklist, accessed January 7,
2022.
164 Development & Training Services, Inc., Evaluation of West Africa Trade-Related Projects, May 8, 2012, p. 18.
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lead to improvements to the system as a whole, not just individual beneficiaries.165 Such “local
systems” thinking, which takes into consideration broader ripple effects of an implementation
approach, has been a major theme of new aid strategies, but it may be difficult to easily measure
through traditional monitoring and evaluation.
Congress may consider scrutinizing how agencies measure project impact by taking account of an
intervention’s additionality. The MCC, for instance, scores its compacts strictly on the direct
economic returns of its investments but does not appear to calculate indirect benefits, such as
enabling environment reforms that spill over into other value chains or the consequences of the
conditions MCC places on providing funds. While development economists highlight the benefits
to economic growth of reliable governance, USAID governance programs are seldom evaluated
on their economic growth impacts. While USAID agriculture projects increasingly focus on
strengthening local systems rather than directly intervening in a market, measuring the economic
gains from fostering a new training provider market could require novel economic analysis
techniques. Such an analysis may facilitate congressional consideration of the relative efficacy of
governance activities compared to economic growth investments.
Fragile States
Congress has given particular attention to the challenge of fragile states in recent years, such as
through passage of the Global Fragility Act of 2019 (Title V, Div. J of P.L. 116-94). USAID has
set its attention to these environments under the umbrella of promoting “resilience,” or the ability
of societies to cope with external shocks and avert development backsliding.166 USAID’s 2021
economic growth policy identifies fragile states as a particular challenge for economic growth but
does not provide an implementation methodology tailored to the concerns of fragile states, unlike
previous iterations of the policy.167 Resilience programming differs in important respects from the
approaches laid out in the new economic growth policy, which seek to foster open markets in
relatively stable countries. The policy does highlight the particular importance of building social
capital in fragile states to foster the proper conditions for an open market.168
Congress may evaluate whether USAID is effectively tailoring its economic growth programming
to the unique considerations of fragile states, and whether adequate investments have been made
in producing implementation methodologies designed for these contexts. Congress may also
consider whether economic growth is a proper focus at all in these contexts, or whether resources
should be directed at the more foundational work of enabling stable, reliable, effective
governance and social capital, rather than economic production.
Evolving Approaches to Finance for Development
USAID has a long history of seeking to leverage credit programs to transform poor societies.
Microfinance gained significant favor among policymakers in the early 2000s, with Congress
describing it as a low-cost tool to both dramatically expand incomes and reduce reliance on
foreign aid (Microenterprise for Self-Reliance and International Anti-Corruption Act of 2000,

165 Agencies often refer to this concept as “additionality,” the principle that U.S. assistance should be additional to
private sector activity, rather than substitute for it.
166 USAID, Building Resilience to Recurrent Crisis: USAID Policy and Program Guidance, December 2012, p. 5.
167 The 2007 Economic Growth Policy included a companion guidebook on economic growth programming in fragile
states.
168 USAID, Economic Growth Policy, p. 47.
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§102, Title I of P.L. 106-309). In 2006, Muhammad Yunus, an early pioneer in microfinance, was
awarded the Nobel Peace Prize for his work to fight poverty by giving credit access to the
unbanked.169 The World Bank assessed microcredit to have led 5% of borrowers of his Grameen
Bank out of poverty each year.170
Even as microfinance grew in popularity, however, new analytical approaches threw its
effectiveness into question. In 2003, the U.S. Government Accountability Office (GAO)
determined that USAID’s microfinance programs helped with some of the consequences of
poverty but seldom moved beneficiaries above the poverty line.171 Scientific analyses beginning
in 2009 determined that microcredit programs in India and in the Philippines did not affect
poverty indicators.172 Reports of suicides by overindebted microfinance customers led one Indian
state to shut down microfinance activities altogether in 2010.173
A recent survey by the World Bank summarizes a new view among many development experts on
microfinance: it has not succeeded in bringing millions out of poverty, but it has a consistent,
modestly positive impact on incomes. Other factors, such as an onerous regulatory environment,
may be a greater constraint to growth.174 Moreover, many of the microenterprises U.S. assistance
supports do not seek to grow: they are often doing business while seeking jobs and thus are
primarily concerned with subsistence, not expansion.175 A recent USAID report to Congress
suggested that access to credit is most beneficial for growth-oriented firms, not the extreme poor
whose financial needs are often savings, rather than credit.176
Congress has played a central role in promoting U.S. support to microenterprises, including
through annual appropriations and periodic revisions to the Foreign Assistance Act of 1961 to
encourage development finance efforts. Members of Congress may monitor both the growing
body of research on financial inclusion and the expanding range of tools under consideration to
achieve sustainable financial access, such as facilitating credit access through mobile money or
leveraging remittances toward sustainable investments. Given that the research on effectiveness
of development finance approaches is evolving considerably, Congress may track this emerging
research to ensure legislation incorporates new findings. Congress may also commission analyses
that evaluate some of the guiding principles of economic growth programs. For instance, the new
economic growth policy sets the firm, rather than the household or the workforce, at the center of
USAID’s approach—an approach that may implicitly reduce emphasis on the household impacts
of economic improvement.177 Congress may assess whether to evaluate program impact on
household-side indicators in addition to enterprise promotion.

169 The Nobel Prize, The Nobel Peace Prize 2006: Grameen Bank,
https://www.nobelprize.org/prizes/peace/2006/grameen/facts/, accessed January 7, 2022.
170 David Roodman, "Microcredit doesn’t end poverty, despite all the hype," Washington Post, March 10, 2012.
171 U.S. Government Accountability Office, Microenterprise Development: USAID’s Program Has Met Some Goals;
Annual Reporting has Limitations, GAO-04-171, November 2003.
172 World Bank Group Independent Evaluation Group, Financial Inclusion: A Foothold on the Ladder toward
Prosperity? An Evaluation of World Bank Group Support for Financial Inclusion for Low-Income Households and
Microenterprises (Financial Inclusion Evaluation), 2016, p. 11.
173 David Roodman, "Microcredit doesn’t end poverty, despite all the hype," Washington Post, March 10, 2012.
174 World Bank, Financial Inclusion Evaluation, p. 12.
175 M. Shahe Emran, A.K.M. Mahbub Morshed, and Joseph E. Stiglitz, “Microfinance and Missing Markets,” Social
Science Research Network Electronic Journal, March 2007, p. 29.
176 USAID, “Report to Congress: Microenterprise and Pathways out of Poverty,” August 2018.
177 §252 of the Foreign Assistance Act of 1961, as amended, P.L. 87-195.
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Micro, Small, and Medium Enterprise Orientation
Congress has long emphasized the role of microenterprises in development. USAID’s traditional
focus, moreover, has been in the informal sector, given its large role in low-income economies.
However, such entities comprise a small share of the economy in certain regions, and a 2018
USAID report suggested such microenterprises, often focused on subsistence rather than
expanding production, may not be the optimal programming target to help countries prosper.
Accordingly, Congress amended the Foreign Assistance Act of 1961 in 2018 to include small and
medium enterprises as well as microenterprises (P.L. 115-428). In middle-income countries such
as Ukraine and Vietnam, where formalization is ongoing, or in resource-rich countries with large
extractive sectors, large employers may comprise a significant share of the workforce. In such
countries, Congress may consider whether development impact is maximized by supporting
micro, small, and medium firms, or by changing the behavior of and the policies regulating large
firms, who may set wages and workplace conditions for value chains across developing countries.
Such labor policy projects are usually led by the Department of Labor, which may lead USAID
missions with a lack of perspective on such formal labor market issues.
Furthermore, USAID’s traditional focus on small and medium firms may divert attention from
sources of economic distress among consumers. Recent USAID analyses have noted that
constraints to growth may be driven by lack of consumers, as high rates of poverty limit viability
of end markets, and consumer spending is commonly cited as one of the major factors driving
growth among developed countries.178 Congress may evaluate whether foreign assistance
agencies are facilitating countries’ transition to fully developed consumer economies.
Gender in the Economy
Women’s economic empowerment has long been a consideration of U.S. foreign assistance
programming for economic growth, often due to guidance given by Congress. Agencies have
highlighted research that identifies a relationship between women’s economic empowerment and
economic prosperity generally.179 Traditionally, Congress has identified it as a “cross-cutting
issue” that agencies required partners to address through their sectoral programming. Section 113
of the Foreign Assistance Act of 1961, as amended, mandates “particular attention” to activities
that would advance women’s economic prosperity, rather than dedicated programming. The
Women's Entrepreneurship and Economic Empowerment Act of 2018 (WEEE Act, P.L. 115-428)
mandates gender analyses and considerations to be integrated across USAID’s program
development processes. By contrast, standalone projects focused on women’s economic
empowerment have recently launched in several areas—such as the Women in the Economy
project in Afghanistan. The DFC launched the 2X Women’s Initiative to specifically target
women-owned and women–led enterprises, and the Women’s Global Development and Prosperity
Presidential Initiative (W-GDP) has sought to specifically advance women’s economic
empowerment across agencies. In the past such targeting has been a component of existing
initiatives—USAID programming policy requires gender considerations to be integrated
throughout all programs, as in the WEEE Act, rather than a separate program area.180

178 USAID, Economic Growth Policy, p. 14. For an analysis of the importance of consumer spending in developing
countries’ growth, see e.g. Mitra Toossi, “Consumer spending: an engine for U.S. job growth,” Monthly Labor Review,
November 2002, pp. 12-22.
179 USAID, Economic Growth Policy, p. 48.
180 USAID, ADS Chapter 205: Integrating Gender Equality and Female Empowerment in USAID’s Program Cycle,
January 22, 2021.
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Congress may evaluate whether such dedicated gender programs may duplicate efforts ongoing
within existing projects, as well as whether the establishment of such dedicated projects could
reduce pressure to prioritize women’s issues among other programs within a country. For
instance, Congress in FY2021 designated $200 million for a W-GDP Fund, and $265 million for
“micro, small, and medium-sized enterprises that benefit the poor, especially women.” Congress
may monitor the extent to which W-GDP programming displaces targeting of women under the
micro, small, and medium enterprises funding, through which a GAO report had already noted
that USAID was not separately tracking female beneficiaries.181 Additionally, Congress may
monitor whether deployment of USAID’s gender expertise to W-GDP reduces resources for
existing cross-cutting efforts and the rigor of gender analyses.
Tensions with U.S. Commercial Interests
While development advocates have long emphasized the benefits of foreign aid for the U.S.
economy, many observers also highlight potential tensions between U.S. foreign assistance
activities and domestic economic priorities. In response to these concerns, multiple legislative
restrictions prohibit programs that may harm U.S. businesses or U.S. jobs (see text box
“Legislative Requirements for U.S. Industries and Jobs” in “Trade”). USAID and DFC each make
efforts to illustrate benefits of programming to the U.S. economy and the American people,182 and
MCC highlights that compact funding is open to U.S. contractors.183 However, tensions between
foreign assistance goals and U.S. economic interests may persist. U.S. efforts to promote
integration of regional trading blocs could provoke concerns if such blocs adopt standards
misaligned with U.S. business practices. For instance, U.S. policy in Eastern Europe is to
encourage integration of former Soviet states into the European Union (EU). However, the United
States has long disputed an EU prohibition on certain antimicrobial rinses of poultry, which has
effectively resulted in a ban on U.S. poultry products.184 U.S. agencies promoting harmonization
with EU standards, then, could ultimately facilitate prohibiting U.S. poultry exports in the region
if precautions are not taken. Similarly, EU-funded aid projects may seek codification of such
standards counter to U.S. commercial interests, creating challenges for USAID efforts at
coordinating with EU donors. Congress may wish to review the approaches agencies adopt to
ensure foreign assistance efforts do not conflict with U.S. commercial interests, particularly as the
private sector comprises a growing share of overseas direct investment.

Author Information

Nick M. Brown

Analyst in Foreign Assistance and Foreign Policy

181 §7060(e), Div. G, of P.L. 116-94. GAO, Micro, Small, and Medium Enterprise Development: USAID Needs to
Develop a Targeting Process and Improve the Reliability of Its Monitoring, GAO-21-269, March 2021.
182 USAID, Shared Interest: How USAID Enhances U.S. Economic Growth, May 15, 2018;
183 MCC, “Do Business With MCC Partner Countries,” https://www.mcc.gov/work-with-us/mcc-partner-countries,
accessed January 7, 2022.
184 For further information on this dispute, see CRS Report R40199, U.S.-EU Poultry Dispute on the Use of Pathogen
Reduction Treatments (PRTs), by Renée Johnson.
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