Transition from Aid to Trade in Africa
Many sectors that international development donors fund are ready to make the transition from “aid to trade.” Across Africa, Asia, and Latin America, there are thousands of firms and other organizations that have market-based solutions to challenges in sectors like health, food, and power. But international development donors run the risk of displacing these local markets and perpetuating countries’ dependencies on foreign aid if they continue to spend aid dollars the same way they historically have – by flying-in international development contractors to do this work instead of scaling the impact of existing providers with more sustainable, market-based business models. Few sectors are as ready to make the “aid to trade” transition as global health supply chains.
Amanda Arch from Unlock Aid explains how donors can set up a Supply Chain Commercialization Fund to accelerate this transition, which would contribute to Sustainable Development Goals 3, 9 and 17: good health and well-being; innovation, industry and infrastructure; and partnership.
“We were inspired by conversations with dozens of innovators who had devised novel technologies or approaches to address the biggest development challenges.”
~ Amanda Arch, on behalf of Unlock Aid Coalition
UA: What Sustainable Development Goal(s) are you championing?
AA: This idea is aligned with SDG #3 Good Health & Well Being. The world is facing crises of unprecedented magnitude: the Covid-19 pandemic, war in Ukraine, rising food insecurity, and a rapidly warming climate. Low-and middle-income countries are deeply affected, with many having lost decades worth of gains made toward the Sustainable Development Goals in only a few short years. Conventional aid approaches will no longer cut it.
The Biden Administration recognizes this pivotal moment in its new US Strategy for Africa, where it acknowledges the continent’s growing importance to US global priorities and lays out a 21st century partnership that could finally support the long-envisioned transition from aid to trade.
Rather than announcing a new flagship initiative like prior administrations’ Development Finance Corporation (DFC), Prosper Africa, or Power Africa, the new Strategy from the US for Africa focuses on improving the implementation of these initiatives to achieve their full potential. If successful, these efforts will commercialize economic sectors that have long been displaced by aid, potentially igniting a shift in America’s power and influence on the continent.
We lay out a new approach for USAID-DFC collaboration, where the work of both agencies leads to commercialization of sectors and geographies that are ready to transition from aid to trade.
UA: What inspired your moonshot idea?
AA: Our moonshot is a Supply Chain Commercialization Fund, a market-shaping mechanism that supports commercialization of a high-potential sector that aims to accelerate the transition from aid to trade. We propose that USAID pilot this model within the current suite of Global Health Supply Chain contracts by setting aside $300M of the planned $17B to pay for results, and in parallel, DFC could provide established companies with the upfront working capital necessary to achieve the defined performance metrics.
We were inspired by conversations with dozens of innovators who had devised novel technologies or approaches to address the biggest development challenges. They are all delivering remarkable results, but they struggle with accessing revenue to grow their businesses to sustainability. This is a structural problem within the donor-funded development ecosystem. We also observed that there is opportunity for greater collaboration between DFC and USAID.
UA: What impact do you hope to make?
AA: We hope that, as USAID recognizes it is giving work to aid contractors in sectors where an existing market is already willing to do that work, USAID will transition from contracts to Commercialization Funds. Operators will be able to compete for these funds based exclusively on merit, and will be paid exclusively for results. The effort will uncover a pipeline of investment-ready companies for DFC to start growing their level of impact, and other investors will crowd in private capital to support the firms that are now able to compete on an even playing field. Most importantly, technology and innovation will reach frontier markets that stand to gain the most from their ingenuity.
UA: Looking ahead to 2023, what are you hopeful about?
AA: Unlock Aid is offering innovative and practical ideas. The momentum is palpable, with stakeholders across USAID, Congress, and the White House all listening in. We are hopeful that decision-makers are ready to start bringing recommendations to life in 2023!