The New Faces of Foreign Assistance

What do homework on a Kenyan smartphone, a debit card in a refugee's hand and a solar-powered spotlight atop an Indian elephant have in common?

They all represent a trend that began sweeping across the developing world a generation ago, and is now accelerating and transforming the way foreign assistance is delivered.

The trend is the rapid introduction of new technologies that are commercially viable in poor nations, capable of providing profound development impact and, perhaps most surprisingly, so inexpensive that they can tap geographic and demographic markets that were considered beyond reach as recently as a few years ago.

As late as the 1980s, governments throughout the developing world owned and managed huge swaths of their economies: not just roads, ports, trains, bridges, hospitals and utilities, but telephone companies, banks, manufacturing, farms and even hotels.

The idea that private companies and the jobs they provided might help society or the environment over the long run, at least among global development economists, was regarded as far-fetched. The general idea was that the private sector was predatory, not creative; it was begrudged and mistrusted.

Fast forward to 2016, and the consensus could not be more different.

Governments of developing nations compete for foreign investment, and they keep a close eye on rankings that gauge their friendliness to business, especially start-ups and small and medium enterprises. Rather than risk political capital and currency stability on massive public sector spending, political leaders increasingly prefer to let the private investors risk their capital.

This trend began, of course, with privatization of large, established state-owned heavy industries--often manufacturing--across the developing world. However, it has morphed into something much more far-reaching.

Microfinance, from a few seedling-sized ventures in a few villages, has grown exponentially for decades, and has now become a sprawling and sophisticated industry that is introducing savings programs, mobile banking, insurance schemes and other financial services into scores of countries. The degree of involvement by national governments is comparatively small and, in many cases, entirely hands-off.

Solar energy prices, on average have dropped more than 60 percent in the past 16 years, and quite dramatically in the past five. This has created opportunities for the U.S. solar industry, manufacturers and service providers alike, to invest abroad with a "win-win-win" result.

Through the Overseas Private Investment Corporation, the U.S. government's development finance institution, clean energy companies have been able to secure comparatively small amounts of public sector financing and risk mitigation (at no cost to the taxpayer) that allow them to leverage much larger amounts of private sector co-investment.

That's good for development in poor nations (win), good for the growth prospects of an American company (win) and good for the foreign policy objectives of the U.S. government (win).

These are all types of investments, from small, mobile off-grid power sources--hence, the solar lamp on the Indian elephant--to utility-scale projects in, say, the Atacama desert of Chile.

At OPIC, we have seen this phenomenon expand and multiply the world over.

The DISI water project in Jordan that the agency helped finance is providing roughly 25 percent of the water serving Jordan's capital and the Syrian refugee camps in northern regions of the country. With OPIC support, private investors have built world class hospitals in very poor places such as Angola and Pakistan. And, even in education, the projects that OPIC currently supports are educating over 120,000 students in primary and secondary schools, and over 25,000 students in higher education.

This is more than an OPIC lens on the world. "Development finance" - the use of small amounts of public sector financing to catalyze larger amounts of private investment - has grown so fast that it now totals more than $80 billion per year. At current growth rates, it will actually equal direct aid spending via grants toward the end of this decade.

That is quite a transformation in one generation. The role of private companies, especially American companies with their world-changing technology, has evolved from an afterthought, to a serious alternative, to the next leading edge.

The most important story, however, is not about governments versus companies, or aid versus financing. They will always be interdependent to varying degrees and in often complex ways. The most important story is about what happens to the poor and dispossessed as a result of these activities. By cellphone, a teacher encourages a student to believe in her writing ability. Or, by solar lamp, the son of an Indian farmer becomes fascinated with the science of photovoltaics. In an Angolan hospital, a doctor taps into newly available global databases and learns a surgical technique that saves an infant's life.