In January of 2020, the new U.S. International Development Finance Corporation (DFC) opened for business following the passage of its authorizing legislation, the BUILD Act, in October of 2018. On the eve of both its fifth birthday and the return of the administration that created it, the moment is ripe for an assessment of its progress-to-date towards achieving its legislatively defined goals. Perhaps more significantly, the agency is up for reauthorization in 2025. A simple analysis of its commitments in Fiscal Years 2020-2024 reveals a varied report card.
Background
The DFC was inspired by a desire to consolidate and streamline the constellation of agencies that make up the American trade and foreign assistance apparatus. From a foreign policy perspective, to combat China’s growing influence in the global south–which it derived from the sheer breadth of its Belt & Road Initiative (BRI)–the United States needed to rethink its approach to aid, trade, and development. (See Paul Collier’s book, The Bottom Billion, 2008, critiquing the ‘Washington Consensus’ as characterized by the model employed by the Bretton Woods organizations). Distilled, the theory was that by injecting the monetary wing of the U.S. diplomatic machine with enhanced private sector capabilities, the U.S. could better deploy resources and more easily partner with private investors, with the end goal of providing both superior development outcomes and an alternative to the debt-laden ‘Beijing Consensus’ model.
Benchmarks
Of course, the agency should be assessed against its self-prescribed benchmarks. Such goals, as announced in various publications, can be disaggregated into any number of different categories: e.g., sector-based goals, progress towards administration-wide initiatives, realpolitik (actual results in repelling Chinese influence), demographic focus, etc. Given the scope and brevity of this medium, this brief will focus one concrete indicator that is explicitly mandated in the BUILD Act.
Section 1412(c) of the BUILD Act (H.R. 302, 115th Cong. (2018)) requires that the DFC “shall prioritize the provision of support…[to] less developed countries with a low-income economy or a lower-middle-income economy.” These two designations (LIC and LMIC, respectively) are pegged to the World Bank’s indicators in Gross National Income (GNI). In its “Inaugural Development Strategy,” the DFC interpreted the (unquantified) mandate in § 1412(c) to mean >50% of its projects (i.e., discrete investments) should be based in LIC/LMIC economies “and fragile states” (more on this later). Specifically, it set a goal of 60%.
A Brief Note on Methodology
The analysis below relies on three data sources: (1) the latest LIC/LMIC list from the World Bank, (2) the DFC’s quarterly-updated ‘Active Projects’ database, and (3) population by country, as published by the CIA World Factbook. The author combined the sources to determine a few data points, each disaggregated by LIC & LMIC when discussed in the forthcoming section: total population; quantity of projects; and aggregate funds ($) deployed since Fiscal Year 2020. This quantitative analysis is limited in two respects worth noting. First, the DFC often (86 times, in fact) invests in regional initiatives, rather than those within a specific country. For example, an investment in ‘Southern Africa’ could reach LIC/LMIC states Mozambique and Zimbabwe, but could also reach Botswana, Namibia, and South Africa, which are all upper-middle-income countries (UMIC). As such, the character of that investment would be mixed as it relates to the 60% goal. Such regional investments were thus not considered in this analysis. Second, the DFC continues to administer many long-term engagements initiated by its predecessor, the Overseas Private Investment Corporation (OPIC). Such initiatives may have ongoing annual disbursements to recipient states. Given that these projects were initiated before the creation of the DFC and its Inaugural Development Strategy, these investments have also been omitted in the ensuing analysis.
Findings
To-date, the DFC has made 470 country-specific investments. Of these, 60.6% (337) were to LIC/LMIC recipients. Of those, 22% of projects were allotted to LIC recipients and 78% to LMIC recipients. Between the LIC and LMIC groupings, 19% of the aggregate population lives in an LIC nation and 81% live in an LMIC nation.
Pivoting to budget, the 337 LIC/LMIC investments account for 36% ($10.89B) of the $29.69B committed by the DFC to-date. Specifically, 9% to LIC and 27% to LMIC. Within the combined LIC/LMIC budget, 25% ($2.76B) is programmed to LIC states and 75% ($8.13B) to LMIC states.
Analysis & Discussion
When looking at just the count, the DFC has met its goal of programming 60% of its projects in LIC/LMIC nations. Better yet, the DFC appears to have slightly prioritized the 26 lowest-income countries (LIC), given that only 19% of the combined human population living in LIC or LMIC countries live in the former yet receive 22% of the LIC/LMIC projects–worth 25% of the LIC/LMIC budget. The World Bank’s LIC benchmark is characterized as any country with a per capita annual income of $1,145 or less, whereas LMIC can be anywhere up to 4x that amount ($4,515). Prioritizing LIC economies, albeit only slightly, is reflective of the agency’s mission and of global aid objectives generally.
Notwithstanding the DFC facially achieving its benchmark, the underlying financial figures belie a different narrative. The DFC has successfully programmed 60% of its investments into LIC/LMIC economies, but those 337 investments only amounted to 36% of the value of the DFC portfolio since its inception. Upper-middle-income and high-income recipients shared $18.8 billion in DFC investments since Fiscal Year 2020, whereas $10.89 billion has been split across 49 LIC/LMIC recipients.
While objectively concerning and perhaps indicative of a policy loophole, the dollar-value of an investment does not necessarily have a positive correlation with its results, and a one-time GNI snapshot does not fully represent need. For example, a $3.3M investment in a COVID vaccine manufacturer in Senegal (an LMIC) may have more impact than a $20MM investment in an investment bank in Liberia (an LIC). Further, while Ukraine is statistically a UMIC, a fair argument can be made that it has a higher need at present than stable, tourism-heavy LMIC economies like those of Kenya or Jordan.
Perhaps this is precisely the reason that the DFC snuck “fragile states” into its 60% goal. Although § 1412(c) explicitly and only mentions “LICs” and “LMICs”, critics would be hard-pressed to find a legislator who would not be amenable to accepting “fragile states” under that clause. If the DFC’s value proposition is private sector-like flexibility, then it should be allowed to flex its portfolio to meet adverse geopolitical needs.
Summary
Considering all the above, this taxpayer would prefer that the dollar-value of DFC investments more closely tail the 60% LIC/LMIC goal over the next five years. In an event celebrating the agency’s five year anniversary, USAID Administrator Samantha Power urged the agency to maintain global development as its primary focus. While the DFC is superficially achieving its § 1412(c) requirement, the data illuminates the character of the DFC’s balance sheet and its disconnect from the developmental spirit behind § 1412(c). As the DFC enters its reauthorization year, legislators should consider the above dichotomy and look to strengthen § 1412(c). Perhaps the project count and total project value don’t need to align precisely in a 1:1 manner, but 60% and 36% (respectively) are too adrift.
Nevertheless, Congress should also restrain from overcorrecting and undermining the independence of the DFC. The United States must continue to reduce red tape in its foreign development apparatus, and the DFC has exemplified that initiative. The ‘Washington Consensus’ is tired, anachronistic, and almost certainly destined to lose to Beijing without continued support for initiatives of the DFC’s archetype.
Author Biography: Alex Fulling is a contributor to the International Law and Policy Brief (ILPB) and is a J.D. candidate at The George Washington University Law School. He also is an Associate on The George Washington Journal of Energy & Environmental Law (JEEL). Before matriculating at GW Law, he spent four years in monitoring & evaluation and strategy with the Federal Government, including at the Department of State. He holds a Bachelor’s Degree in Political Science & International Affairs from Wake Forest University.
Editors: Starshine Chun, Albert Anderson