Who should implement the foreign aid development programs? Should it be the U.S. for-profit consulting firms? Or should it be the local governments, entrepreneurs, educational institutions, non-governmental organizations from the developing countries?
The chief of USAID, Rajiv Shah believes that it should be the latter. “The theory behind relying on local institutions is simple and compelling: If the goal of development is to build sustainable local capacity and ownership, why not have countries play a larger role in helping help themselves?”.
The Coalition of International Development Companies, which represents 55 U.S. firms, obviously thinks otherwise. The coalition argues that by giving aid directly to foreign governments and local organizations, you open yourself to “threat of waste and corruption by local governments.”
But the international development firms can’t really make this argument when they don’t necessarily have a clean slate themselves. Louis Berger, an engineering and infrastructure development firm which is among the top five USAID contractors, had to pay close to $70 million in settlement in November 2010 for deceiving and overcharging USAID on overhead costs. In December 2010, Academy for Educational Development, or AED, another international development consulting firm was suspended from receiving any further funds from USAID for almost the same reasons – corporate misconduct and concealment of the fraud through its projects in Pakistan.
Foreign Policy magazine wrote a piece recently titled “Hired Gun Fight” detailing this debate. Rajiv Shah wants to shift one third of USAID’s assistance directly to foreign governments and local organizations in the developing world by 2015. In theory it sounds like a great idea. While this wrench of change needs to be worked extra hard to start opening the pipe for effective and sustained development, what we need more urgently is transparency and better oversight in the international aid community.