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USAID: From The American People
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CORE REPORTS OF THE NEW PARTNERSHIPS INITIATIVE

July 21, 1995

THIS DRAFT DOCUMENT IS FOR DISCUSSION PURPOSES ONLY. IT DOES NOT REPRESENT APPROVED AGENCY POLICY.

CONTENTS:
EXECUTIVE SUMMARY - The Policy Framework - The Development Rationale - The Program - Managing for Results: Agency-Wide Performance Indicators - New Management Vehicles - Donor Partnerships - Implementation Guidance and Mock Case Studies - Summary of Next Steps

ANNEXES:
1. Mock Case Studies: Leading Edge Missions - 2. NPI Inventory - 3. The NPI Process: Participatory Design - 4. Recent USAID Management Reforms - 5. General NoticeGuidance on Consultation and Avoidance of Unfair Competitive Advantage

RELATED REPORTS:
NGO EMPOWERMENT FOCUS REPORT - Executive Summary
SMALL BUSINESS PARTNERSHIP FOCUS REPORT Executive Summary
DEMOCRATIC LOCAL GOVERNANCE FOCUS REPORT - Executive Summary

NPI RESOURCE GUIDE

Executive Summary


USAID's New Partnerships Initiative (NPI) was announced by Vice President Albert Gore on March 12, 1995 at the World Summit for Social Development.

The goal of NPI is to stimulate lasting economic, social and political develop-ment by building local institutional capacity, thereby accelerating host country "graduation" from U.S. government assistance. Development efforts must work not only to eradicate poverty, but to leave countries with the capacity to sustain their own growth and to become full partners in the global community of free markets and societies. NPI embodies recent advances in development theory -- advances that recognize the critical economic and political role of civil values and of the rich variety of voluntary associations that constitute civil society. NPI will focus significant resources on strengthening civil society and helping to restructure the relationships between states and civil societies.

Civil societies are built from the ground up. Communities' understanding of local conditions and their ability to organize and mobilize local residents are vital to sustainable development. It is in local communities that we find organizations that defend human rights, support varied community services, regulate community use of natural resources, structure public policy debate, and facilitate access by the poor to technology, markets and credit.

Civil society thrives in a dynamic and competitive economy and in an open, democratic political environment. At the local level, economic requirements translate into an expanding small business sector that stimulates employment, entrepreneurship, and a spirit of independence and self-help. Democratic local governance provides a political environment that is responsive to local needs, stimulates participation, and can be held accountable to citizens. NPI focuses on three sets of local institutions--nongovernmental organizations, competitive small businesses, and democratic local governments--that together can significantly enhance the effectiveness of private and public development efforts and can help re-duce the distortions and inequities found in closed economies and political systems.

NPI will use two approaches to advance USAID's existing sustainable development goals: through building grassroots capacity and enhancing national enabling environments.

Grassroots Capacity Building. NPI is an Agency-wide effort to make local capacity building a central concern in all Agency programs. By focusing on three areas--NGO empowerment, small business partnership and democratic local governance--NPI will strengthen the direct contributions of local organizations to development, and will help increase their professionalism, efficiency, accountability, and transparency. USAID also willwork to: establish mutually beneficial partner-ships among the three sectors; improve cooperation between local organizations and national development programs; and promote the advocacy and watchdog roles of local groups in national politics.

Enhancing the National Enabling Environment. In cooperation with our development partners, USAID will work in host countries to provide strong leadership to foster the national policy, regulatory, and resource environments in which private and community action can flourish. A national enabling environment rests on the guarantee of basic human rights, an effective and democratic national government, and sustained growth supported by sound economic policies. Since local organizations are assets to governments in the pursuit of development goals, policy dialogue must include reforms specifically related to enhancing partnerships between civil societies and states.

Why Now?

The dramatic increase in market-oriented democracies has created new opportunities for USAID's sustainable development efforts. In many countries, nongovernmental organizations (NGOs), small businesses and local governments are attempting to fill the gaps created by economic liberalization, downsized national administrations, privatization, and expanded personal and political freedom. If USAID can help empower citizens to take advantage of their new environments, adding their energies to development efforts, there are very real prospects of enabling a new generation of countries to achieve a level of self-reliance that will free them from dependence on foreign aid.

How Will It Work?

NPI includes three phases: (I) participatory conceptualization and design, just concluded; (II) a 12 to 18 month "learning phase" concentrating on (but not limited to) five to seven "Leading Edge Missions"; and (III) an expanded application of the NPI conceptual framework and methodology.

During Phase II, missions--along with their local and U.S. partners--will create and implement country-specific strategies and activities designed to develop grass-roots capacity and national enabling environments. These efforts will focus on the empowerment of local NGOs, development of small business partnerships, and democratic local governance. From the beginning of Phase II, USAID will share with its staff and development partners lessons learned in planning and implementing capacity building, as well as developing national enabling environments across each of the three focus areas.

NPI is a significant departure from "top-down," government-to-government development approaches. It builds on the growing international consensus that development results from investments in people and institutional capacity in a supportive policy environment, and it expands ongoing Agency work in support of civil societies. Since people learn best by doing, the most effective way to support local capacity building is to establish direct links between local organizations and others with similar experiences. NPI will encourage such partnerships.

NPI will begin to structure the relationships the U.S. hopes to continue when countries graduate from U.S. foreign assistance. Under NPI, USAID will support partnerships between local U.S. organizations (NGOs, small business associations, and local governments) and their counterparts in developing countries. These relationships will support current development efforts, contribute to the emergence of self-sufficient local organizations, and provide the basis for long-term cooperation among the partners.

NPI relies on USAID's unique ability to work simultaneously on grassroots capacity building and the national enabling environment. To play these dual roles, USAID will strengthen its relationships with a range of development partners, both in the U.S. and developing countries. These include, for example, U.S. private voluntary organizations (PVOs), U.S. and local NGOs, coops, associations of municipal officials, the business community, universities and community colleges, think tanks, foundations, and other bilateral and multilateral donors.

Program Support

To accomplish the NPI objectives, field missions will:

At the central level, USAID/W will:

Agency Reforms

The implementation of NPI depends on fundamental changes in the ways USAID manages development activities--changes that are already underway. USAID's management reforms rest on a recognition of the diversity of conditions in the developing world. Development decisions must be sensitive to circumstances of time, place, and culture. The keys to good management of development activities are decentralized management, responsiveness to local partners, flexibility, and building long-term partnerships. The key is local participation in mission programming activities.

NPI will help to consolidate USAID's recent innovations in results-oriented management. USAID's partners will be fully engaged in the development of performance indicators and in the NPI learning and evaluation process. Through NPI, USAID will strengthen partners' authority to design and implement programs, and will share with them the responsibility for mobilizing resources and accountability for results. All of USAID's partners will be expected to share the Agency's management principles of accountability, transparency and participation.

USAID will focus on managing for results and on enhancing the enabling environment, not on micro-managing programs. USAID's experience with small NGO grants and local development activities is that they are information and staff- intensive. However, under NPI, most of these responsibilities will be transferred to USAID's development partners, by focusing on capacity building of local organizations early in the process and encouraging the development of intermediary organizations that can provide economies of scale. Once the initial start-up tasks (assessments, development of indicators and implementing new management systems) are completed, USAID's direct management role will be reduced, providing considerable cost savings.

To continue streamlining its management procedures, USAID will:

Next Steps

This report brings to a close the first phase of NPI. Following review by the Agency's senior management, NPI will move from the initial design process into Phase II--a 12 to 18 month "learning phase" that will focus on activities in five to seven "Leading Edge Missions.

Rather than waiting until the learning phase is complete, "best practices" will be immediately shared throughout the Agency and with external partners. Similarly, steps will be taken to ensure that management reforms emanating from the NPI effort are rapidly embedded in Agency practice. Finally, pending review of the results achieved in Phase II, Phase III will see an expanded application of the NPI conceptual framework and methodology throughout the Agency.

A. The Policy Framework


Background

USAID's New Partnerships Initiative (NPI) was announced by Vice President Albert Gore on March 12, 1995 at the World Summit for Social Development in Copenhagen. Following intensive consultations with a broad cross-section of Agency staff and preliminary discussions with a number of external groups, a draft prospectus for the initiative was made public on April 12, 1995. At that time, USAID Deputy Administrator Carol Lancaster announced the formation of a steering committee and three task forces to develop policy and program guidance for the new initiative by mid-July.

The ensuing process of public consultation to help elaborate the initiative has encompassed an array of development partners, including U.S. private voluntary organizations (PVOs), U.S.-based and local nongovernmental organizations (NGOs), coops, associations of municipal officials, the business community, universities, community colleges, think tanks, foundations, and other bilateral and international donors. Staff from all of USAID's central and regional bureaus, as well as a significant number of field staff, have been active participants in the Agency-wide effort to develop the NPI framework.

In order to make the process as broad-based and inclusive as possible, a variety of different venues for public participation were established--direct involve-ment in the task forces and steering committee, two major public consultations, numerous talks with groups inside and outside the Agency, and the establishment of an electronic network and discussion group, NPI-NET.

Each task force prepared an in-depth analysis of one particular aspect of NPI: NGO Empowerment, Small Business Partnership and Democratic Local Governance. These NPI Focus Reports are a key complement to the NPI Core Report, providing policy guidance, program descriptions, and new management vehicles specific to work in that area. Given the cross-cutting nature of this initiative, special emphasis is placed upon mutually reinforcing relationships among the three components.

The process by which NPI has been developed (detailed in Annex 3) reflects a fundamental principle underlying the initiative itself: the need to both recognize and foster the emergence of a new social compact between government and civil society which underscores shared rights, risks and responsibilities. Government cannot "do it all," nor can private citizens. Both can do far more if they work in partnership.

What Is the New Partnerships Initiative?

The goal of NPI is to stimulate lasting economic, social and political development by building local institutional capacity, thereby accelerating host country "graduation" from U.S. government assistance. This will be accomplished by concentrating disparate Agency activities, and developing new ones, within an integrated framework for local empowerment--using USAID's most cost-effective, flexible, and responsive ways to deliver results. In this context, NPI is:

Why Now?

Two factors argue forcefully for the adoption at this juncture of a framework of local empowerment. First, the dramatic increase in market-oriented democracies has created new opportunities for the success of USAID's sustainable development efforts. The prospect of "graduating" a new generation of successful countries is now very real if we can empower citizens to take advantage of this new environment--adding their energies to the overall development effort.

Second, USAID is in the midst of "reengineering" the way in which it does business to ensure that progress toward sustainable, measurable results is realized in the most cost effective and timely manner possible. Potentially deep cuts in USAID's budget give these steps added urgency.

With Whom and Where Will USAID Work?

NPI is predicated upon a central role for U.S. PVOs, U.S. and local NGOs, coops, universities, community colleges, think tanks, foundations, small businesses, local government officials, and other donors working in partnership with USAID. The initiative is purposefully broadly inclusive in defining the notion of development partners.

Clearly, it is not just a question of who USAID's development partners are, but also how USAID works with them and to what end. Those entities with which USAID will work on NPI will be those that share two important criteria:

Local empowerment rests on the assumption that the local community best understands local conditions and incentives for change NPI is designed to be applicable to all of the countries in which USAID works, spanning different regional settings and countries at varying levels of economic development. NPI is not, however, a one-size-fits-all blueprint for development, nor is it the intention to replicate U.S. models in the field. As the NPI strategy of local empowerment rests on the assumption that the local community best understands local conditions and incentives for change, NPI will be shaped to fit the special requirements of particular regions, individual countries, and/or categories of countries.

What Does Partnership Entail?

The concept of "partnership" is often invoked, seldom examined, and easily misunderstood. It is not a one-sided relationship, but a two way street--USAID's vision of partnership is not limited simply to making its own procedures more accessible and less burdensome. In an effective partnership, there is both mutual respect and a commitment to a common vision. Each partner brings different--but complementary--skills, experiences, and interests to bear on a common objective, building on areas of comparative advantage.

Central to NPI is an evolution in the relationship between USAID and a wide range of development partners both in terms of the diversity of the actors and the nature of their interaction. NPI builds upon USAID's extensive partnership experience and adds some new dimensions:

NPI is a challenge to the nongovern-mental community to share the risks and responsibilities of full partnership with USAID.

NPI is a challenge to the nongovern-mental community to share the risks and responsibilities of full partnership with USAID. This is not business as usual. Partners in the initiative will--as is the case elsewhere within USAID--be responsible for their own results-based performance. By the same token, USAID is committed to restructuring its relationship with its partners: engaging them in the definition of performance goals and indicators, and in country and sectoral level planning; strengthening their authority to implement programs; and sharing with them the responsibility for the mobilization of resources and for results achieved.

Not only does NPI strive to foster active working partnerships between governments and nongovernmental actors, it also underscores the benefits of cross-sectoral networks of nongovernmental actors (encompassing, for example, the environment, human rights, women's rights, business, labor, and academics) and of cross-border networks of nongovernmental actors. It signals the involvement of a broad community of actors in the common pursuit of sustainable, tangible development results.

One of the challenges inherent in such a partnership is the achievement of the right mixture of collaboration and independence between the public and private spheres. Nongovernmental actors must decide for themselves the appropriate degree of autonomy they require from government. A healthy degree of separation between the two is essential to the integrity of each, but cooperation is also critical to the vitality of both. This balance--at the heart of the USAID's partnerships--can be constructive and mutually beneficial if respect for the principles of privateness and independence are combined with clear, results-oriented standards of accountability in the joint pursuit of agreed upon objectives. NPI is designed not only to recognize and foster the important development role played by nongovernmental actors in society, but to demonstrate to both governments and the nongovernmental sector how to work together more effectively.

In sum, public and private actors are in the process of a fundamental restructuring of their relationship and are reassessing the costs and benefits of joint action. There is an emerging consensus that more can be accomplished through cooperation. NPI underscores the point that nongovernmental actors are a necessary, valuable and legitimate partner to government both in terms of service delivery and in the promotion of a healthy civil society. In this regard, cooperation, not competition, is key. It is in the interest of governments to complement, foster, and enhance the impact of the enormous energy, creativity, and dedication of the nongovernmental community. At the same time, nongovernmental actors bear a responsibility to move their organizations toward the same accountability, transparency and participatory structures that they demand of their government counterparts.

How Does NPI Relate to Other Ongoing Agency Activities?

NPI grows out of and is closely linked to a number of ongoing Agency acti-vities, particularly USAID's reform efforts under the National Performance Review. A number of these efforts, and their relationship to NPI, are discussed below.

Reengineering

USAID has committed itself to radical reform of its operating systems and processes through organizational reengineering. The core values guiding USAID'S reengineering efforts are: customer focus; results orientation; teamwork and participation; and empowerment and accountability. Comprehensive, wide-ranging changes in the way USAID does business are intended to produce more efficient and sustainable development results, and to allow the Agency the flexibility to respond to rapidly changing development circumstances.

The development hypothesis underlying USAID's reengineering effort is that a more empowered staff, following streamlined procedures, collaborating with customers and partners to identify the former's needs and priorities, and complementing each other's views and skills through good teamwork, will be better able to listen, to learn, to innovate, and hence to achieve better, more sustainable development results.

Under NPI, collaboration between USAID and local communities is premised on the empowerment of all parties to decide and act, as well as to accept account-ability for development results. NPI's emphasis on customers and participation is underscored by the systematic involvement of development partners in the implementation of activities as well as in determining the demand for development services by USAID's ultimate customers--the socially and economically disadvantaged people in countries receiving U.S. foreign assistance. Through the partnerships envisaged by NPI, USAID will broaden and deepen its relationships with its ultimate customers and will involve them more extensively in defining and carrying out development activities.

Participation Initiative

NPI also is a direct outgrowth of the Administration's commitment to "putting people first." The NPI framework emphasizes a participatory approach to develop-ment and highlights the importance of the deepening involvement of a broad range of stakeholders, particularly women. In this regard, it is closely linked to USAID's Participation Initiative. As stated by USAID Administrator J. Brian Atwood, "...development assistance works best when it contributes to efforts that people in the recipient society are already attempting to carry out," emphasizing that USAID must "...strengthen the capacity of the poor to take the next steps in their own and their community's development."

While the Participation Initiative deals with the attitudes and systems with which USAID staff approach their work, NPI commits the Agency to program its activities in a way that reflects this commitment--in particular to dedicate significant resources and attention to local citizens and their ability to serve as development catalysts.

USAID/U.S. PVO Partnership Policy Guidance

NPI reflects the values underscored in the recently issued policy guidance on the USAID-U.S. PVO partnership, which articulates the Agency's renewed commit-ment to a partnership relationship with U.S. PVOs and community development organizations (CDOs), and provides practical guidance for making that commitment operational. It includes guidance on consultation, participation, program integration and managing for results, independence, support for relationships with local counter-parts, capacity building, cost sharing, and administrative simplification. The policy guidance stresses transparent, open communication and the participation of partners and stakeholders at all levels and stages of the development process.

CDIE Studies

NPI also is informed by two recent Agency studies. The first, which examines USAID's management relationship with U.S. PVOs and local NGOs, is entitled "Strengthening the PublicPrivate Partnership: An Assessment of USAID's Management of PVO and NGO Activities." The second CDIE study explores approaches to the development of civil societies, and is entitled "Constituencies for Reform: Strategic Approaches for DonorSupported Civic Advocacy Programs."

B. THE DEVELOPMENT RATIONALE


Amid growing demands for improved government efficiency, a much-needed reallocation of the relative division of labor between public and private actors is underway. NPI builds upon a new notion of partnership between government and civil society.

"Civil society" emphasizes the importance of a public arena that transcends private interest and mediates between the market and the state. It is an arena that embodies basic principles of open dialogue on public affairs, individual rights, voluntarism, and a sense of public responsibility. In the process of sustainable development, an efficient civil society is as important as efficient markets or good governance. Civil society organizes political participation and collective action in the same way that markets organize economic behavior. Like markets, civil society can function more or less effectively depending on government policies, the cultural values of the society, and levels of technology and infrastructure.

1. Strengthening Local Capacity

Developing Social Capital

The central concept of NPI is social or institutional capital. The concept of social capital is of growing importance in both the political development and institutional economics literature. It refers to the capacity of society to organize in diverse and efficient ways to undertake development tasks. It is rooted in a common understanding of the tasks to be performed, and in rules of behavior that increase predictability both of the behavior of others and of outcomes. Thus, social capital builds on experience, success, trust, and the rule of law (formal or informal). Like other forms of capital, social capital does not occur naturally nor is it a free good. Local organizational capacity takes time, resources and ingenuity to produce and maintain, but it is an investment with high payoff.

Local communities have considerable potential for local problem solving and institutional adaptation, when empowered to do so. Although they may lack technical knowledge or resources, they have experience in working together which, added to their knowledge of local conditions, is a considerable resource. Authoritarianism and an expansive bureaucratic state frequently combine to distort institutional development -- crowding out voluntary local organizations, forcing entrepreneurs either into the informal sector or into rent seeking activities, increasing the political risk of local initiative. Where this happens, civil society atrophies.

Even in favorable policy environments, however, local organizations do not automatically respond to development opportunities. Ethnic conflicts, historic mistrust of the public (or private) sector, and severe class divisions can create conditions in which trust, broad-based participation and cooperation are difficult. Organization is based on resources, leadership, communication, and clearly defined common interests, often requiring substantial time and effort on the part of citizens. Individuals thus weigh their participation on the basis of costs, benefits and risks involved. While these factors can vary enormously between groups, women and the poor are typically more universally disadvantaged.

Time, Place and Scale in Development.

Development problems differ greatly from place to place as do the resources for dealing with them. Equally, problems differ in scale and in their sensitivity to the timing of interventions. A poor hinterland with rapid out-migration of the young workforce has very different problems than the urban center to which they migrate. The problems of managing community grazing land are very different from the difficulties of managing a regional aquifer on which the community's farms depend. Medical care, police protection, and the delivery of agricultural inputs are very sensitive to good timing.

Because of these differences, the effectiveness of development efforts declines rapidly when they are designed as blueprints which are administered rigidly and in ignorance of local conditions. Experience suggests that institutional arrange-ments should be shaped to the characteristics of the problem. Those closest to the problem have the advantage of better information, strong incentives for assuring good performance, and lower transaction costs in bringing resources to bear. The development of social capital involves expanding the diversity and richness of institutional arrangements to address this diversity of local conditions. It requires the capacity to identify and consult all the stakeholders, particularly those groups whose contributions to community-level welfare are under-recognized or constrained because of socioeconomic biases. It demands matching the scale and structure of organizations to this diversity.

Local organizations also tap different sets of incentives and institutional norms in addressing local problems. Profit motives and price signals, public regulations and authority, and relationships of trust and reciprocity are all important institutional principles. Local institutions tend to combine these principles in creative ways. Effective water user associations, for example, work best when water is properly priced, clear rules and standards are ultimately enforceable by the Water Department, but management and monitoring is in community hands and governed by community norms. NPI focuses on the contribution and interactions of the public sector, the market, and the voluntary sector in providing the necessary institutional diversity.

Resource Mobilization

Development practitioners have continually been surprised by the volume of resources available for development in even the poorest communities. Rural credit schemes, properly designed, have demonstrated the availability of savings. Land and labor is frequently forthcoming for the right project. Entrepreneurial and management talent is far more prevalent than anticipated. In development practice, the difficulty has been one of mobilizing and integrating these resources with government and donor efforts.

The requisite for local resource mobilization is that the activity address a clearly identified local problem in which the population has a stake. Management of the activity must be transparent and subject to the control of the affected popula-tion. Above all, authority, responsibility, and accountability must be combined locally. This arrangement combines ownership, full participation in decision-making by women and men, incentives, and the predictabilityof outcomes necessary for community participation.

Cost Efficiencies and Developmental Impact

In a time of budget austerity, NPI provides management savings and increased development impact by working in partnership with nongovernmental actors. To attain these savings, however, USAID's organizational culture must change.

USAID must combine "management by exception" and "management for results." Operationally, that means that USAID focuses its attention on analysis and assessment to identify local conditions and problems, specification of objectives, and the development and monitoring of performance indicators. Day-to-day management and responsibility for results rests with our partners. USAID should not micro-manage and should intervene only in exceptional circumstances.

There will be start up costs to developing assessment methodology and performance indicators, but even that should be a shared task with partners. There will also be a learning period as the new procurement mechanisms and management procedures are put in place. Start-up costs and time will vary from mission to mission depending on the nature of the mission portfolio and the strength of local organizations, but if there is not a net reduction fairly quickly, reengineering will have failed.

Local organizations can tap local resources, especially human and institutional capital. Their investment decisions are better informed and performance is better monitored through local participation. The management costs of local organizations are considerably lower than alternative vehicles for delivering services and managing infrastructure. This, in turn, permits U.S. assistance to leverage local energies and initiative.

The relationships put in place by NPI will be the basis for sustaining development beyond graduation. U.S. nongovernmental partners--tapping into a wide range of practical experience--provide a flexible and low cost management structure, the ability to relate to local actors on the basis of common interests and perspectives. The NPI strategy also emphasizes the development of local intermediary organizations that can service grassroots organizations and provide economies of scale. Most important, these international partnerships build for the future. Today, problems, as well as technical and institutional solutions, move rapidly across borders.

USAID's major operational responsibility under NPI will be policy dialogue on the enabling environment and managing program analysis and evaluation. Both of these tasks require a high level of professional skill and intense interaction with both the local government and local partners. Local participation in USAID activities is a labor-intensive--but indispensable--aspect of NPI.

The Strategy

The NPI strategy requires interventions at three levels:

Grassroots Capacity Building

Complemented by improvements in the national enabling environment, these efforts together strengthen civil society, the economy and governance at the grassroots.

NGO Empowerment. NGOs are defined broadly as private and voluntary organizations that contribute to development, either through delivery of services, advocacy, or direct economic activities. In the process of sustainable development, an effective and efficient civil society is as important as effective and efficient markets. The insti-tutions of civil society organize both political participation and economic activity. Like the firm, which is a non-market institution interacting with markets, NGOs can play a vital economic role. NGOs have been highly effective in technology transfer and institutional innovation. In consequence, they are often an efficient alternative to government bureaucracy for the delivery of both social and economic services--to citizens, businesses, and the government administration itself.

Nongovernmental actors also offer a viable alternative to government in areas where public participation is essential--areas such as neighborhood associations, PTAs, water user associations, or special districts. In civil education, NGOs are commonly far more effective than public agencies. In contrast with either private or public service agencies, NGOs are uniquely positioned to play both a public information and advocacy role. They are central to a demand driven strategy of policy reform. However, this synergy can only be effective in a context of decen-tralization of authority and democratization of citizen participation. Sustainable development is most likely to occur where both civil society and markets are free and open to broad-based participation.

Small Business Partnership. Small businesses are defined as firms that employ between five and one hundred employees, a range that reflects the need to encompass diverse country settings. Small businesses make an important contribution to real incomes, economic growth, and equity in developing countries. They tend to be in sectors that use labor-intensive production techniques, which reduces entry costs into the market and tolerates a less-skilled labor force. They are particularly important in underdeveloped economies where high information costs and fragmented markets favor firms with an intimate knowledge of local conditions and clientele that can use this information to produce and market for local needs. Finally, the flow of entre-preneurs emerging from a vigorous small business sector can greatly add to the economy's overall flexibility and growth potential.

Small businesses foster a culture of individual initiative and responsibility. A large entrepreneurial class produces a large class of self-reliant, independent citizens that will guard their freedom. Recent experience in developing countries indicates that the growth of small businesses in the economy is closely correlated with the growth of effective democracy. Bringing the business community into active participation in the political and associational life of the community is a critical goal of a civil society program.

The markets and politics of many developing countries have been plagued with rent seeking by powerful elites, entrenched in state enterprises or favored large firms. The net result has typically been to limit competition and distort public policy, resulting in growing inefficiency and widespread corruption of the regulatory process. In contrast, small businesses are, almost by definition, numerous and competitive. To influence government policy, they must organize and enter the public policy debate. In consequence, the expansion of the small business sector and their political mobilization tends to transform the political economy.

Democratic Local Governance. Democratic local governance is defined here as the process of bringing democratic principles into the conduct of sub-national governance activities. For strategic reasons, NPI will focus on municipal governments. Democracy is the most reliable way we have for addressing collective issues, as its inherent inclusiveness gives it sustainability. Through deliberation and advocacy, citizens manifest their individual concerns as well as their perception of the broad public good. Through electoral mechanisms they legitimize state policy. Through civil society they tell the state how they wish their public concerns addressed, or may take upon themselves to act to directly address others.

NPI seeks to develop democratic local governance, not as a substitute for national government but as a key complement of a national development strategy. Democratic citizenship is learned best and most effectively when citizens address pressing, immediate issues -- jobs, housing, street safety, clean air and water. Strong local governments both motivate and facilitate citizen participation, especially by the poor and marginal groups who find the organizational costs of national politics prohibitive. The cost of developing a credible alternative to the current government are reduced, providing a safety valve for political opposition.

Strong and democratic local government empowers those most familiar with the problem and with the strongest incentives for efficient remedies to take the initiative. Rent seeking and corruption is reduced, maintenance and sustainability of investments is improved, investments are allocated more efficiently. Democratic local governance promotes and protects women's rights, their full participation in all levels of decision-making and equal access to related resources. To accomplish this, citizens require rule of law accessible at the local level, with relevant and non-discriminatory rules devised and adjudicated locally. All key stakeholders must be included in the governance unit (city, county, water district, etc.). This implies that a viable system of democratic local governance must include not only general purpose governments (e.g. municipal government), but also a capacity to create new special purpose authorities at various levels that can bring program costs and benefits under the control of the affected population.

Improving the Enabling Environment

The capacity for local initiative--entrepreneurial, voluntary, or local governance--requires a supportive national environment to flourish. Undoubtedly, the local community will always find a way to cope, but unleashing the full development potential of the community and channeling it in productive directions depends on a positive environment.

Civil society does not operate in a vacuum--it operates under the political conditions set by the national government. Without a minimal level of basic human rights, individual security, free participation and association, security of property rights for men and women, and open public debate, local empowerment is an illusion. Further, civil society will be most effective in the context of national demo-cratic institutions that assure political competition, rule of law, and transparent and accountable administration. Finally, sound economic policies and the reorientation of the state's economic role create space and price signals that induce efficient choices at the local level.

Within this generic set of enabling conditions, however, each of the three components of NPI has its own requirements.

NGO Empowerment. NGO empowerment rests on fundamental rights of association, as well as freedom of the press and expression. The economic functions of NGOs are also heavily influenced by the general economic climate. However, NGOs require a specialized and differentiated (by sector and function) regulatory structure to thrive. This may include special tax codes, registration and incorporation laws, liability rules, codes of conduct and management.

Small Business Partnership. Small business partnership requires a strong macro-policy environment that stimulates growth, stable government stability, and a competitive market structure. A transparent and efficient rule of law is also essential to enforce contracts. More specifically, the small business sector is significantly affected by a competitive and efficient banking system, labor regulations, sectoral policies, land use and zoning regulations, transaction costs in dealing with government, and licensing and permit arrangements that inhibit entry and competition in a sector.

Democratic Local Governance. Democratic local governance requires the establishment of democratic institutions of political competition, rule of law, public accountability, transparency and open public debate, and the protection of minority rights characteristic of national democracy. Empowerment of local authorities requires above all a level of fiscal independence, combined with administrative and regulatory authority for assigned functions. The constitutional structure of local authorities must permit diversity, and innovation in institutional arrangements. Further, local authorities require supporting services and performance standards from higher authorities.

The components of an NPI policy agenda differ greatly among the three sectors. They are also scattered widely among different national ministries. It is unlikely that traditional, top-down reform, induced by donors, will be effective. Rather, it is the strategy of NPI to stimulate "demand driven" reform led by local actors. Local empowerment must emerge from the domestic political process, highlighting the importance of a viable national democracy. The strategy also suggests that emphasis be given in local capacity building to developing vertical and horizontal associations of key actors and advocacy groups that can project local problems and pressures for reform onto the national agenda.

The success of local empowerment also requires a thorough reorientation of the central bureaucracy to make it more transparent and accountable to citizens. The bureaucracy needs to shift from a control orientation to a partnership with civil society--providing space for local initiative as well as support services for local gov-ernment and service NGOs. While bureaucratic reorientation will not be a significant focus of NPI, the international banks are already actively engaged in the moderniza-tion of the state in a context of decentralization and increased participation. NPI's strategy will be to coordinate USAID's local empowerment and policy reform efforts with multilateral governance activities.

Expanded Linkages and Development Partnerships

As the role of the state, of civil society and of the local community is redefined, the institutional arrangements for a new partnership need to be defined and put in place. NPI will place considerable emphasis on the development of national and intermediate associations of local groups--mayors, business groups, advocacy and civic groups, service organizations, and functional groups (e.g. water associations). The argument is that these aggregates of local groups are essential to project local interests into national policy debates, providing both pressure for reform and a partner for dialogue. Further, these groups are critical as "wholesale" intermediaries for the provision to individual organizations of technical assistance and information.

International partnerships and linkages are also important to NPI. Institutional and technical innovation is central to dynamic and sustained development. The motivation, initiative, resources, and demand for change must all be generated locally. But new ideas (technical and institutional) come as often from another region, city, or country as from the locality in question. It stands to reason that those who have successfully tackled a development problem elsewhere will have something to share with those just starting.

This argument does not in any way underestimate the enormous entre-preneurial task of recognizing and specifying the local problem, searching for new ideas, and adapting them to local conditions. Quite the contrary, NPI focuses on empowering local development entrepreneurs (in business, NGOs and local government) in all three sectors to search for new solutions to local problems. But NPI will also further empower those development entrepreneurs by integrating them into networks of information and support--internationally.

C. THE NPI PROGRAM


This section elaborates the three central program components of NPI--NGO Empowerment, Small Business Partnership, and Democratic Local Governance--in terms of activities at both the mission and USAID/W levels. In addition, the section discusses the cross-sectoral linkages which give NPI its integrative power.

NGO Empowerment

The program which USAID and its PVO partners will pursue builds on the new USAID/PVO Partnerships Policy and on activities already underway in several missions while integrating NGO development efforts more systematically with other NPI components.

The focus of this effort must be the field. NPI will not succeed unless missions see NGO empowerment as the most efficacious way to achieve USAID's sustainable development objectives and begin to adjust the way they implement their programs accordingly. To facilitate the successful implementation of the NGO empowerment component of NPI, USAID/W will put in place a number of support instruments. While much can be accomplished through rigorous application of current Agency reform processes--especially as envisioned under reengineering--modest additional resources will be required to bring the NGO empowerment component to fruition.

Field Activities

Working with host governments, local NGOs, U.S. and other international PVOs, and other donors, USAID missions will:

USAID Central Programs

Working with PVOs and other donors, USAID/W will:

Small Business Partnership

The Small Business Partnership component of NPI will build on donor experience and the wide range of current Agency activities that relate to small businesses and the business environment. The Small Business Partnership will build on macroeconomic reform efforts by working to identify and help remedy policy and regulatory distortions that particularly constrain small businesses and to bring NGOs, business associations, local governments and policy institutes into the reform process. The initiative will seek to create new links between developing country and U.S. business associations to promote the transfer of technology, information, skills and other resources necessary to expand the role of small businesses in the development process.

The Partnership will focus on capacity building at the country level to provide citizens with the ability to represent their interests before national and local rule-making bodies, accelerating the demand for policy reform. The ability to press for change requires that local groups build new relationships among private groups that do not rely on donor funds and that accelerate the flow of information necessary to support change. For example, global networking can speed the spread of information on markets, technology, and best practice, lowering the cost of capacity building. It can also result in self-sustaining, private-to-private relationships that need not go through the filter of governments that now provide the assistance. Increased involvement of a broad range of developing and U.S. nongovernmental actors with relevant knowledge and skills (e.g., cooperatives, universities, business associations, PVOs) will be a key focus of the Partnership.

Policy Guidance

Policy guidance on small business development within USAID needs to be strengthened. To be successful the initiative requires that Agency policies reflect strong support for small business as a key component of USAID's development strategy. The March 1994, "Encouraging Broad Based Economic Growth" needs to be revised and reissued with a focus on small business and building on the work of the microenterprise.

While there is no current "small business program" in USAID, there are hundreds of projects in the sector, including a dramatic expansion in the ENI region. Other donors have similar programs. The conceptual framework for small business development is well established and its lessons evident. With clear guidance the Agency should be able to move fairly quickly to a focused small business program of considerable impact. A long-term strategy is suggested, including revision of policy/ strategy statements, a PPC/CDIE led sector-specific impact analysis (especially in ENI), country-specific sector reviews as part of the budget process, further reengi-neering of the USAID-nongovernmental sector relationship and the continuation of the current NPI Steering Committee/Working Group structure to champion the process.

New Programming Ideas

New programming ideas include, inter alia, 1) a capacity building initiative aimed at increasing the effectiveness and scope of business associations, think tanks, universities, and other groups promoting market oriented advocacy roles; 2) a model women's business/political/volunteer network; 3) expanded use of credit guaranty authority to promote commercial efforts to stimulate a competitive private banking system; 4) a multi-country small business environment ranking report; 5) a mechanism to expand NGO support to small business; and 6) expansion of existing experiments in health, population, agriculture and environment sectors to encourage small business activity and links to NGOs.

To obtain the increased impact and efficiency sought by NPI, USAID has to adopt the mechanisms necessary to link the three NPI components. Capacity building, information sharing, common clients, and other areas hold much promise. For example, capacity building in business associations should be linked with any local democracy program or program to build participation and policy advocacy.

A system for evaluation and feedback already exists in USAID, but a special effort to build on that system is suggested. Performance indicators are currently being developed for democracy, economic growth and other programs, and the Agency should take advantage at this early stage in their development to build in NPI indicators. This will be a challenge as NPI indicators are cross-cutting in nature.

Democratic Local Governance

To be successful, democratic local governance must develop on two discrete levels: the national government must create laws and policies that empower localities to practice self-governance; and local actors--government officials, NGO leaders, and entrepreneurs--must acquire the requisite skills, institutional capacity, and material resources to exercise the political authority granted, or otherwise not assumed, by the national government. In the specific context of democratic local governance, the first level refers to the "enabling environment" and the second level to "capacity building." USAID's NPI programs, therefore, should offer assistance for both the enabling environment and capacity building simultaneously, while recognizing the iterative nature of the reform process.

Enabling Environment

In terms of the enabling environment, USAID programs will vary according to the particular political conditions of the targeted country. Two general approaches, "top-down" and "bottom-up", illustrate opposite extremes. Actual USAID country experience should fall somewhere in between, with elements of both approaches incorporated in an overall strategy.

A top-down approach is appropriate to countries that have experienced a democratic transition at the level of the national government, but that have limited or no experience of democracy at the local level. In such countries, USAID can coordinate with other international donors in initiating a policy dialogue with the national government. The policy dialogue will allow for a discussion of the merits of and avenues for deepening democracy by spreading its practice to localities.

In contrast, a bottom-up approach applies to countries that have not yet experienced a democratic transition at the national level. By pursuing such an approach, donors would attempt to create the demand for democratic local governance. Such an approach would entail the following steps: identification of reformist government officials and NGOs at the local level; design and implemen-tation by these reformers of modest pilot projects in democratic local governance; and the forging of nationwide political alliances (such as associations of mayors or civil society organizations interested in decentralization) to bring reformist pressure to bear on the national government.

Once the national government has become truly committed to supporting a policy of democratic local governance, USAID's focus shouldshift to assisting the national government in creating the laws and policies necessary for the devolution of political power to the local level. Specific efforts might assist with revision of the national constitution, passage of new legislation, formulation of new policy, or the establishment of new forms of taxation. The underlying purpose of all these measures would be twofold: 1) to institutionalize the transfer of political power, and 2) to ensure that the transferred power is exercised in a democratic way.

Capacity Building

Apart from supporting a conducive enabling environment, USAID's NPI programs would also concentrate on capacity building. This would ensure that local governments, NGOs, and small businesses could effectively participate in demo-cratic local governance. The following are some of the types of programs directed at this goal:

First, USAID could provide assistance to local government officials in order to increase their ability to conduct the myriad tasks of local government. Such assistance would pertain not only to the technical aspects of providing social services, but also to the political aspects of collaborating closely with the citizenry, with particular attention to those not traditionally included in the decisionmaking process, in determining the nature of those services. In the latter regard, USAID can catalogue "best practices" of formal collaborative mechanisms consisting of representatives from local government, civil society, and the private sector. This assistance can also include identifying existing and underutilized local authority for revenue generation and service provision, and discretionary powers to engage citizens in participatory processes.

Second, USAID can assist NGOs in acting as representatives of the citizenry to local government officials or in providing the citizenry with relevant information about how to participate more actively in the decisionmaking process (i.e. a civic education component). Alternatively, USAID can support NGOs and local media in ensuring that local government is accountable and transparent, or in providing appropriate technical assistance.

Third, USAID can help nongovernmental actors provide an alternative source of social services at the local level. However, caution must be exercised in this respect not to substitute NGOs for the provision of services that are the responsi-bility of local government (e.g., road maintenance, primary health care, land tenure recordkeeping, etc.). Many NGOs simply do not have the capacity to deliver such services and therefore their failure may ironically result in the contraction of civil society organizations from the political process.

Fourth, central governments also have "capacity building" needs in a new era of decentralized political and service delivery authority. The process and roles of intergovernmental relationships, responsive channels to address local issues of national import, and the need for reliable and transparent resource transfers require that national governments perform in a new and different manner. Failure to assure central government capacity to fulfill these responsibilities may doom the entire decentralization effort.

Finally, there are linkages between the capacity building needs of local governments and the ability of central governments to meet those needs. Local governments, for example, require access to technical, financial and information services. Also, local level political actors often are linked to national political parties and appeals from local level dispute resolution mechanisms are addressed at national levels.

With respect to promoting synergies across the NPI components, USAID should encourage local small businesses to advocate for a hospitable economic and regulatory environment. In a like manner as civil society organizations, small businesses need to participate in decisionmaking about community infrastructure and can be candidates for privatization of municipal services. NGOs, meanwhile, play an important role in facilitating communication between local governments and their citizens, and in educating citizens as to their rights and responsibilities.

In summary, the program elements of the democratic local governance component of the NPI include:

Cross-Cutting Programs

In the abstract, the three NPI areas represent three distinct principles of social organization--voluntary associa-tions, market oriented for-profit firms, and the local organization of public authority. In practice, development depends on effective partnerships among the three.

The three components of NPI were selected because in combination they form the basis for a dynamic civil society at both the local and national level. In the abstract they represent three distinct principles of social organization--voluntary associations, market oriented for-profit firms, and the local organization of public authority. In practice, development depends on effective partnerships among the three.

Cross-Sectoral Linkages at the Local Level

Each of the three NPI components makes a specific contribution to local empowerment, which in turn reinforces the other two. Local authorities, for example, establish the legal and regulatory environment upon which small business and local NGOs commonly depend. Land use patterns, permits, court systems, police protection, infrastructure development, public utilities, regulatory standards and tax systems all impact directly on both NGO functions and small business. Part of the reason for devolving these functions to democratic local governance is to assure that they are performed in partnership with local civil society, informed by local needs, and benefit from strong local support.

For their part, small businesses can play a crucial role in transforming the political economy of developing countries. As a large and highly competitive sector, the interests of the small business community are fundamentally at odds with the pattern of privileged access and restricted competition characteristic of closed economies. Further, small businesses must organize to affect public policy and the act of organizing brings them into a public political process. Thriving local business, in the formal sector, also supports local NGOs and government by providing a financial base--as well as entrepreneurial talent, management skills, and leadership.

Similarly, the NGO community plays a critical role in the provision of social services, often in partnership with both government and the business community. NGOs are particularly effective in extending services to poor and marginal communi-ties and in bringing such groups into the mainstream of economic and political life. Through organization, they compensate for the individual political and economic weaknesses of the poor. Equally important, NGOsprovide a mechanism for both businesses and local authorities to pursue common interests that cannot be attained individually or through official channels. In this capacity they play a critical role in policy advocacy, program advice, and as watchdogs. Aggregating at higher levels, they can project the needs and power of local groups into national policy and politics.

Hybrid Institutions

There are some very effective local institutions that combine the organizing principles of all three types of institutions. Cooperatives, for example, combine many of the principles of commercial marketing and financial institutions with the management and non-commercial services characteristic of NGOs. Special tax districts combine public tax authority with voluntary agreements among citizens and local business to provide (finance) public goods. There are a growing number of examples of public sector entities contracting to NGOs and private firms for the management of public facilities or the provision of public services. These innovative institutional arrangements, mixes of public authority and civil society, are typically invented at the local level and disseminated rapidly.

Encouragement of this type of institutional diversity and experimentation at the local level is an important part of local capacity building. Typically, national governments have imposed uniform blueprints for the provision (financing) and production of a variety of goods and services. Innovation has been discouraged. NPI provides a context in which USAID can work with its nongovernmental partners to support such innovation in sectors in which the Agency operates.

What follows is an illustrative list of program ideas that focus on the inter-action of the three NPI components (NGOs, small business, and local governance) and serve to build civil society.

Policy Advocacy. Although the policy and regulatory requirements of small business, NGOs and local authorities undoubtedly differ, they also share many common and reinforcing interests related to local empowerment, the protec-tion of civil society, and a range of national development issues. Therefore, support for a range of local associations with an advocacy or watchdog function is fundamental to reform of the enabling environment and to parti-cipatory governance. Intermediary organizations that provide information and analysis, which link organizations on issues common to advocacy and service groups, and which provide economies of support services can be particularly important.

Citizen Boards. Citizen advisory boards, planning boards, ombudsman institutions, and other devices that link citizens directly to the governance process are important innovations. The key is to establish the right and an institutionalized mechanism for participation. Sectoral programs should explore the possibility of support for such institutional arrangements.

Financial Intermediaries. Access to financial markets has been a critical constraint for local action. Local governments commonly lack both borrowing authority and access to financial institutions. Small businesses and NGOs face many of the same problems. A competitive banking structure and specialized intermediary financial institutions can be critical to the expansion of the development role of local organizations.

Tax System. The tax system, national and local, is critical to the success of local initiative. National stabilization programs frequently ignore the issue of the vertical distribution of revenue authority. Tax relief for community organi-zations and NGOs may be inadequate. A system of national grants reduces incentives to seek fees for services, and hence the incentive to move to private or NGO production of services.

Human Rights Groups. The protection of basic human rights would appear to be fundamental to a dynamic civil society. Support for local human rights groups linked to national organizations operating within a system of constitutional guarantees supports all local organization.

Local Media. Local media are an important source of information, communication, and dialogue for civil society that serve all local groups.

The Public Interest. There are a wide range of development programs in which private and public interest interact. These include environmental protection, services to the poor, public utilities, civic education, and public health concerns. All of these invite creative arrangements for cooperation among small business, local government, and NGOs. Indeed, the evidence is clear that sustainability depends on just such hybrid vigor.

Electronic Networking. One way to strengthen the general infrastructure of the nongovernmental community and foster cross-cutting linkages is to build upon growing networks of development partners through electronic net-working. One possible NPI activity is the expansion over time of USAID's NPI-NET to include an even broader-based network of nongovernmental actors. Fostering cross-border and cross-sectoral linkages among partners might contribute to economies of scale and facilitate an exchange of lessons learned.

Focused upon the expansion of shared learning, NPI-NET would help even the playing field among countries and regions where nongovernmental actors are strong and those where they are weak. Through a "best-practices" data bank and expanded access to electronic networking services (perhaps with the establishment of Internet access in intermediary service NGOs), participants would share experiences, methodologies, training materials, and other information related to ways in which citizens can participate in and contribute to the life of their communities.

D. Agency-Wide Performance Indicators


Tracking NPI Results

Tracking NPI results not only requires much clearer measures of our performance in each of the three NPI focus areas, but also more analysis and evaluation of how strengthening partners and partnerships contributes to USAID's sustainable development objectives.

USAID's goals and objectives--the broad changes in developing country conditions to which we contribute--are outlined in USAID's Strategies for Sus-tainable Development and Agency Strategic Framework. NPI activities contribute to all of these goals and objectives, but are particularly relevant to "strengthening civil society" and "promoting more accountable governance" under USAID's Democracy goal, to "strengthening PVOs and NGOs" as part of our Humanitarian Assistance goal, and to "expanding economic opportunities" under our Economic Growth goal.

Agency-wide indicators are being developed to track progress towards these goals and objectives in every country. These will be coupled with analyses and evaluations that link broader development results to Agency activities. NPI will require new indicators to measure progress in strengthening partners and partner-ships both as key intermediate results and as a consistent cross-cutting theme.

One approach to measuring "strengthened partnerships" would be to develop a single set of common "partnership indicators" that would be reported for every country. An alternative would be to summarize and synthesize operational-level partnership indicators, even if they remain somewhat different from country to country. This latter approach would be more feasible to the extent that operating units use similar performance indicators for similar NPI activities and results.

Simply tracking selected performance indicators, however, tells us little about why results are occurring or how strengthened partnerships contribute to development. The Agency's ability to learn from the NPI experience depends fundamentally on an active program of evaluation and research that explicitly explores these questions. This should focus not only on the NPI Leading Edge Missions, but also be a significant element in USAID's broader research and evaluation agenda.

USAID is committed to restructuring its relationship with its partners: engaging them in the definition of performance goals and indicators, and in country and sectoral level planning; strengthening their authority to implement programs; and sharing with them the responsibility for the mobilization of resources and for results achieved.

Substantial work also remains in developing indicators to measure the results of NPI activities at the operational level, and universities may have an important role to play in this process. Every USAID operating unit identifies performance indicators to measure progress and "manage for results" in their particular development setting. Many of the "intermediate results" associated with NPI activities are, however, both difficult and controversial to measure. How, for example, do we assess whether the "capacity" of an NGO has been strengthened? Is there a simple indicator of "an improved enabling environment" for small business? And, how do we tell whether "civil society" has been strengthened? Many of the dimensions of strengthened partners, moreover, such as "independence," "policy influence," "responsiveness," and "innovativeness" involve fundamentally qualitative distinc-tions. Equally difficult is the establishment of interim benchmarks. An increased emphasis on partners and partnerships may require a substantial rethinking of objectives and strategies for some operating units.

Some of the issues and options involved in selecting the most appropriate "partnership" indicators and analyzing performance at an operational level are discussed in more detail in the Focus Reports. Additional help will be provided through feedback from Agency indicators' workshops, the Office of Women in Development, supplemental performance measurement and evaluation references, feedback from the Leading Edge Missions, and feedback from a possible NPI indicators workshop.

USAID's ability to analyze NPI results also depends on our ability to track NPI activities and budgets. New activity codes are currently being developed as part of USAID's reengineered budget and financial management systems to more accurately report funding and expenditures associated with NPI activities.

E. NEW MANAGEMENT VEHICLES


What new management approaches are needed in order to accomplish the NPI objective of developing local capacity?

Management Reforms

Over the past year, USAID has simplified a number of administrative and grant-making requirements to help achieve an effective, results-oriented partnership (see Annex 4 for greater detail). The Agency continues to work to identify and implement measures to rationalize and stream-line administrative, procedural, and contractual requirements across the spectrum, from registration and negotiation to implementation and audit.

Recent policy reforms include updated guidance on the USAID-U.S. PVO partnership and a statement of procurement principles for awarding grants and cooperative agreements to PVOs and NGOs. Administrative reforms include streamlining the registration requirements for U.S. PVOs; allowing greater flexibility in cost-sharing arrangements; simplifying approval and reporting requirements for grants and cooperative agreements; and relaxing audit requirements for local NGOs.

USAID needs to continue grappling with other management issues, however, such as impediments to organizational reform. How can the Agency effectively implement changes in its development philosophy to reflect NPI's emphasis on local capacity building? After years of primarily government-to-government interaction, how can USAID's development practitioners learn to work in partnership with local business and civic organizations?

One of the most critical areas for reform is to reorient Agency culture from one that is hierarchical and process-focused to one that actively encourages hands-off management, teamwork, prudent risk-taking, a customer focus, managing for results, participation, and partnership.

In the near future, USAID will need to devote substantial time and resources to disseminating infor-mation on the Agency's reforms and in training staff in these new ways of doing business. One of the most critical areas for reform is to reorient Agency culture from one that is hierarchical and process-focused to one that actively encourages hands-off management, teamwork, prudent risk-taking, a customer focus, managing for results, participation, and partnership.

New Management Approaches

Progress in achieving NPI's central objective will require changes in USAID's enabling environment -- the policies and procedures that govern the way the Agency conducts business. For example, USAID's reengineering efforts and application of procurement reforms will greatly enhance the Agency's ability to work with local organizations.

NPI activities are expected to involve minimal U.S. direct hire (USDH) management requirements; nevertheless, some reallocation of resources will be required. USAID's current resource constraints have implications for the way NPI activities will be managed. For example, the Agency may turn increasingly to activities requiring minimal USDH oversight, such as umbrella (sub-agreement) mechanisms. Since this initiative does not detail human and financial resource requirements, resource allocation decisions will need to be considered as various NPI activities are developed.

In addition to recent Agency reforms, there are other changes, outlined below, which would enhance USAID's enabling environment for local capacity building activities.

Local Registration

A recent CDIE study on USAID's management of PVO/NGO activities noted that many missions and local organizations find it difficult for local not-for-profit organizations to become registered with USAID as PVOs. (Registration is a legal requirement for U.S. and foreign organizations meeting the criteria defining a "PVO.")

To assess the extent of registration problems at the mission level, USAID/W will gather information on obstacles commonly encountered by local nongovern-mental actors and mission staff, and will assess the impact on USAID funding of local organizations. Data also will be collected from missions where the registration process seems to run more smoothly. This information will be used to develop a plan for resolving local PVO registration problems.

Depending on the results of the survey and assessment, USAID may need to clarify the general requirements for PVO registration and explain the recently streamlined procedures. In addition, the Agency may explore reforming local PVO registration requirements through legislative action.

Access to Funding

In addition to exploring reforms for local registration requirements, USAID needs to develop ways to improve the access of capable local organizations to USAID funding.

Currently, a sufficient variety of funding vehicles exists to implement NPI activities; the challenge lies in using existing mechanisms in innovative ways. For example, USAID long has used "umbrella" agreements, in which a lead organization makes sub-awards to other, typically smaller, implementing organizations. These agreements remain a viable funding option under NPI, but should be structured in ways that will meet NPI's capacity building objectives while minimizing USAID's management burden. The Agency also should work to develop creative, experi-mental mechanisms and to modify existing mechanisms such as endowments and debts swaps, which are infrequently used due to administrative impediments.

Other steps and approaches to increase access to USAID funding include:

Other Management Reforms

There are numerous additional reforms the Agency can undertake to improve its enabling environment for local capacity development. Some of these include:

F. Donor Partnership: Leveraging Resources and Engaging Other Players


USAID does not work alone. To advance an effective local empowerment initiative on a global basis, the cooperation of other bilateral and multilateral donors is required. From the outset, therefore, USAID has engaged other donors in the development of the initiative. Consultations have been held with several aid programs and Canada, The Netherlands, the World Bank, and the Inter-American Development Bank have been active participants. The NPI implementation strategy depends on continued cooperation.

Both the bilateral and multilateral donors are devoting increasing attention to issues of democratization, reorienting government, decentralization and increased participation, and the strengthening of civil society. Some of these programs, such as the bilateral donors' grants to NGOs, have a long history. But for other activities (e.g. the democracy programs) and for some donors (e.g. the international banks) this is new ground. A number of private foundations (e.g., Inter-American Founda-tion and Ford Foundation) also have extensive programs related to NPI and have recently requested involvement in the consultative process. Efforts to involve inter-national PVOs will follow. The range of accumulated experience within the donor community as a whole is extensive.

A first step, therefore, must be to explore and advance donor consensus on the development priority of a program of local capacity building and empowerment and to draw on both donor and developing country experience on how it can be accomplished. There are also a number of multi-donor fora which might lend themselves to a donor dialogue. These include:

The complexity and scope of the enabling environment needed to support local empowerment is sufficiently great that it will be impossible for NPI to deal with it in its entirety. However, discussions with other donors have already revealed considerable consensus that an ad hoc collection of micro-level interventions is unlikely to produce significant structural changes in the state-civil society partner-ship. At the country level, therefore, it will be necessary to work with like-minded donors to structure a policy dialogue with the government and to support restruc-turing efforts. It would also be desirable to engage local nongovernmental actors in such a dialogue.

The multilateral institutions currently have limited capacity for working with civil society, predominantly working with and through national governments, but that is beginning to change. The IDB's program of "modernization of the state" and the World Bank's participation initiative move both organizations in new directions. Both institutions are also starting to reach out to nongovernmental actors as part-ners in the development effort. As a member of these international organizations the United States has an opportunity, in collaboration with other donors, to support and shape these new initiatives. However, much of the attention of the interna-tional banks has been focused on local participation at the project level, not on structuring a systematic expansion of the role of civil society. USAID can usefully encourage this broader strategic vision.

The growing interest in the international banks in support of governance reform and decentralization affords an opportunity for closer cooperation with the NPI. We have already indicated the critical importance of reorientation of the state and the development of diverse intermediary structures to facilitate the new state-civil society partnership. There is a natural partnership between the banks' interest in improved governance and the NPI focus on local empowerment.

Many of the nongovernmental sector programs of the bilateral donors have a strong poverty focus and are structured in small grants. The task of a sustainable development program, however, must be to systematize the rights and access of the poor to the economy and to the political system. It is particularly important that this participation be afforded in areas which directly affect their lives -- environment, infrastructure, economic regulation affecting the small scale sector, social services, and the rights of minority communities. NPI can provide a valuable complement to these donor programs by working to structure institutional relationships that organize and integrate the poor into a system of local governance and an active civil society fully empowered to exercise its rights. Again, this is best done at the country level.

Although NPI is a single initiative focused on local empowerment, related donors' programs are often organizationally scattered. Although local empowerment is typically a common goal of such programs, initial cooperation may be most effective if organized by component. NGO capacity building will undoubtedly be the easiest. The recommendation that NPI start with a focused pilot effort in a few countries, if accepted, will provide an arena in which to focus institutional cooperation.

Many donors are already active in these areas and some have broader and more recent experience than USAID. Thus, both the opportunity and initiative for such cooperation will be at the country level and will be a mission responsibility under the NPI. In each area, cooperation on assessments and policy dialogue is a priority. For each NPI component, therefore, there are priority issues for donor dialogue:

G. IMPLEMENTATION GUIDANCE AND MOCK CASE STUDIES


USAID is already implementing activities consistent with NPI throughout the geographic regions in which it operates and across the development sectors. Local institutional capacity building has been a strength of USAID since its formation, but past and existing projects and programs do not always emphasize the importance of creating "partnerships" among and between institutions. NPI does build on a sub-stantial base of activities and experience, however, and through a series of short-, medium- and long-term interventions, the New Partnerships approach will eventually become an integral part of the way the Agency does business.

There are incentives for participation in NPI in addition to the fact that it makes good development sense. These include special recognition within the Agency, which may translate into supplemental funding, pending budget decisions. It most certainly will help provide programmatic protection during future funding cuts. Missions have further incentive to adopt NPI activities in that they may contribute to the Agency's target to program at least 40 percent of its resources through PVO/NGOs within five years.

Over the course of the next several months (August through October 1995), the NPI Learning Team in Washington (a transformation of the Steering Committee that will include members from within and outside USAID) will work closely with regional bureaus and field offices to identify and select five to seven NPI Leading Edge Missions. In collaboration with their development partners, USAID mission personnel in these pilot countries will carefully examine their existing portfolio from an NPI perspective. The objective will be to design and implement a plan of action that puts new emphasis on building local capacity and strengthening partnerships. The NPI Learning Team will assist in the formulation of methodologies for country-level NPI baseline assessments and in the elaboration of performance indicators. While all USAID missions are encouraged to begin to adopt a NPI strategy, the selected group will take the lead during the initial learning period (NPI's Phase II).

It is not expected that NPI will entail a rapid, radical transformation of mission activities or strategic objectives (SOs), which many missions have recently developed in line with Agency directives and in collaboration with their development partners. Mission SOs make sense in each country context and NPI is not intended to undo or repeat the planning process. However, missions will be expected to tailor their specific programs to the NPI conceptual framework to the extent that it makes good developmental and programmatic sense in each country. Experience has shown that the most effective and sustainable institutions are those that blend new activities with existing structures. The particular social, economic and political structures found in different country contexts are thus the concrete building blocks of new partnerships.

The adoption of NPI activities by missions will begin in earnest at the conclusion of Phase II and will advance over the course of the next several years. Transitional periods, such as the development of a new country strategy, offer the most obvious opportunity to introduce NPI activities. But missions may also take a more step-by-step approach where existing programs are gradually modified to integrate NPI more formally into the mission's strategic plan.

Implementation of NPI will require that missions and the relevant technical offices in Washington work more closely with U.S. grantees to ensure that part-nerships with various local institutions have empowerment and capacity building as fundamental goals. Ad hoc consultations with local organizations and stakeholders fall far short of the relationships envisioned under NPI. It also must be recognized that these initial efforts are likely to be quite labor-intensive. It is anticipated that USAID missions will need to work with a variety of intermediary partners to take on much of this added management responsibility.

To create the most favorable learning situation for the eventual Agency-wide incorporation of NPI, a broad cross-section of countries are sought to become NPI Leading Edge Missions. The objective of the Leading Edge Mission approach is to continually monitor and evaluate NPI activities so that this important development theme is as effective as possible. This learning exercise will be enhanced by selecting countries based on a wide mix of criteria. In addition to seeking countries from different geographic regions, other variables will include:

Categories of NPI Leading Edge Missions

The list below provides categories that encompass most of the countries where USAID works. Leading Edge Missions will be selected so that as many of these categories as possible are represented. This diversity will help speed the identification and testing of NPI-related options in a number of different country contexts.

  1. Anticipated graduation from current U.S. assistance to more self-sustaining development capacity within five to ten years:
    • Countries with relatively high per capita GDP and some existing local capacity in NPI areas;
    • Countries with relatively high per capita GDP, but weak local institutions in the NPI areas.

  2. Countries with sustainable development programs requiring longer-term assistance:
    • Countries with some existing capacity in all NPI areas;
    • Countries with some existing capacity in one or two, but not all, NPI areas;
    • Countries with weak local institutions in the NPI areas, but high potential for improvement in these areas.

  3. Special cases:
    • Countries in transition from failed state to sustainable development with high potential in the NPI areas;
    • Countries with conflict situations (current or in the recent past);
    • "Global Interest" countries where USAID programs concentrate on issues of global concern or where the situation is highly favorable for increased society-to-society partnerships.

The process to select five to seven Leading Edge Missions will begin imme-diately following the fast-track review of the NPI reports by senior management and the communication of NPI objectives and operational parameters Agency-wide and to USAID's development partners. Missions and their development partners will have an opportunity to discuss the applicability of NPI themes and programs in each particular country. Further dialogue between the NPI Learning Team, the Regional Bureaus and individual missions will eventually lead to a discrete group of NPI Leading Edge Missions.

Programmatic decisions about NPI implementation in any particular country will be the result of a field-based exercise, involving the NPI team, the bureaus, the missions and their development partners.

At the mission level, part of the selection process will entail the elaboration of specific NPI results indicators, as well as the design of a monitoring and evaluation structure to provide data and analysis for ongoing corrections and the future expansion of NPI programs. In Washington, the NPI Learning Team will strengthen both its advisory and support role vis-a-vis Leading Edge and other missions through research and analysis on local capacity building and successful partnership models. A wide variety of USAID's development partners will be engaged in all implementation and evaluation efforts.

Over the next 12 to 18 months, the NPI Learning Team and Leading Edge Missions will continue to monitor NPI progress to learn more about successful NPI implementation in order to facilitate the experience of other USAID operating units. An active outreach component will reinforce efforts to compile and widely dissemi-nate lessons learned and best practices. One important activity of the Learning Team will be to guide and assist all USAID operating units to perform a Partnerships Assessment before the end of FY 96. This assessment will allow missions to take a critical look at their current programs, highlight the NPI-related activities already underway, and give missions an opportunity to identify further NPI opportunities.

Within three to five years, it is anticipated that NPI will have developed into a coherent, comprehensive framework with a broad range of programmatic options. At that time, every USAID operating unit will be implementing country programs that are consistent with NPI objectives.

NPI Implementation

Illustrative Examples Based on Existing Mission Programs

The following examples are purely hypothetical. They are intended to assist missions already juggling multiple competing demands and to move the abstract discussion of NPI to the concrete realities of the field. The goal is to provide a vision of the ways in which NPI might be of use to missions in a variety of different country settings. Rather than "inventing" a hypothetical country and risk estab-lishing self-fulfilling parameters, it was decided to apply the NPI framework to a series of real world contexts. Country selection resulted from informal consultations with bureau and/or mission staff, a number of whom have met with the NPI team.

Of course, actual programmatic decisions about NPI implementation in any particular country will be the result of a field-based exercise, involving the NPI team, bureaus, missions and their development partners. These illustrations are intended to ground the NPI framework in the real-life circumstances of USAID missions.

The cases presented below are abbreviated--see Annex 1 for greater detail.

Illustrative example #1: MALI

A popular revolution in 1991 reinvigorated prospects for democratic gover-nance and economic growth in Mali. There is a broad consensus among donors, international and local NGOs, the Malian government and the Malian people on the need for decentralization, local institutional capacity building and partnerships.

Current USAID Country Strategy and Program. USAID/Mali is in the process of developing a new, eight-year strategic plan with three SOs and a cross-cutting, Special Objective. The unofficial strategy proposes:

Illustrative NPI Country Program. USAID/Mali has initiated the creation of a Maximum Center. The center will serve as the program nexus, providing ongoing monitoring and evaluation of results. It would be the obvious location for a concentrated emphasis on NPI implementa-tion. A small amount of additional funding could go a long way in helping the Maximum Center to operationalize its many ideas and plans. Some possibilities include:

Without additional funds, the adoption of NPI activities beyond what is already part of the mission program will be slowed considerably. Research on building local capacity and empowering local communities will continue, but specific studies may have to be staggered over a longer time period. Assistance for the transitions from the informal to the formal economy will need to be incorporated into the mission's microenterprise lending programs as they are renewed and redesigned.

Illustrative Example #2: ROMANIA

Like most countries in Eastern Europe and the former Soviet Union, Romania is grappling with the challenges attending the transition from central planning and authoritarian rule to a market-based economy and democratic polity. Democratic institutions and practices have begun to take hold, but they remain fragile. The NGO sector continues to grow yet many organizations, institutes etc. appear to lack staying power. A tradition of centralized control combined with the adoption of a prefecture system akin to the French model has prevented the diffusion of political power to the local level.

Current USAID Country Strategy and Program. The animating logic and principal goals of NPI dovetail well with USAID's present strategy in Romania. U.S. assistance under the SEED program has focused on increasing the role of the private sector, including the creation of small busi-nesses, developing and strengthening the NGO/PVO sector, and enhancing the administrative capacity and commitment to democratic norms of local government. At the same time, the mission is working at the national level to create an environ-ment conducive to political and economic pluralism and to encourage devolution of decision-making authority to local institutions.

Illustrative NPI Country Program. As a Leading Edge Mission, USAID/Romania might consider some dditional activities designed to build on the existing "beyond Bucharest" focus to expand local capacities. One idea is a modest social investment fund which would make small grants to local organizations for community projects and thereby address some of their common weaknesses such as poor management and strategic planning skills.

Other new or expanded activities include:

A number of these prospective activities could be implemented even in the absence of additional NPI-related funds. For example, USAID could support the establishment of associations of private enterprise owners in the manufacturing and service sectors to complement ones it helped bring to fruition in agribusiness. Similarly, the mission could broaden its efforts to facilitate town meetings bringing together community representatives, local authorities, NGOs, local small business operators and relevant national government officials to discuss critical issues confronting municipalities.

Finally, another way to advance the goals of NPI without the benefit of extra resources is to collaborate more closely with other bilateral and multilateral donors who share USAID's perspective on strengthening local capacity. Although European donors tend to view USG assistance strategy in the ENI region as bordering on anti-statist, they recognize the importance of small business development, grassroots empowerment, and local government administrative competence.

Illustrative Example #3: BRAZIL

Brazil is a country of great contrasts - a world class industrial economy in the south along with severe poverty in the Northeast and Amazon regions. After decades of military rule, the country still struggles to establish and consolidate an effective democracy, while the economic downturn of the past ten years has constrained the ability of the national government to deliver social programs. As a result, local government and private organizations have had to greatly increase their program and financial responsibility.

Current USAID Country Strategy and Program. USAID returned to Brazil in 1986 when it became apparent that the Agency could not address global problems such as population growth, global warming, and HIV/AIDS without a Brazil program. The mission's three SOs (environment, family planning, and AIDS prevention) directly address these three global problems. The mission also has small programs in two special problem areas, Street Children and Democratization.

Due to certain legislative prohibitions, the USAID program does not deal with the Brazilian government on a bilateral basis, rather the program is designed with and implemented entirely by PVO/NGOs, universities, and contractor/grantees. These intermediaries, however, often work with Brazilian state and local govern-ments to address problem areas in the targeted regions.

Illustrative NPI Country Program. USAID/Brazil's programmatic approach of working with nongovernmental actors, who, in turn, are dealing with state and local governments, has provided substantial experience in building partnerships in the NPI areas. This experience provides the mission with a number of opportunities to expand NPI activities. The examples below relate only to the mission's special program for At Risk Youth (street children), but similar elements can be adapted to build local capacity in each of the other areas of USAID's portfolio. Program opportunities include the following:

Other NPI activities that could be initiated with little or no additional cost to the mission include: (1) the identification and dissemination of models or "best practice" examples of successful partnerships; and (2) coordination with other donors to increase their involvement in NPI activities.

Illustrative Example #4: PHILIPPINES

The Philippines has benefited recently from positive economic and political trends, but equity is still an overarching issue. The government enacted a decen-tralization program in 1991. Since the fall of authoritarian rule in 1986, Philippine civil society has seen remarkable growth, marked by an expansive nongovernmental sector of over 20,000 NGOs. Economically, USAID and other donors find a large number of capable private sector organizations.

Current USAID Country Strategy and Program. USAID's strategy to support the Philippine drive for growth with equity has four strategic objectives, each based on crucial partnerships with U.S. and local organizations. The specific strategic objectives are:

Illustrative NPI Country Program. SOs 3 and 4, in particular, already have strong NPI components that can be built upon. The economic growth strategy works with communities in 10 provinces. This strategy would ideally be extended horizontally, both within Mindanao and possibly to one or more other regions.

For the local governance strategy, the timing will soon be ripe to join the work with Local Government Units on a "deeper," demand-side approach to local democracy-building. Programmatic support for local NGOs and membership-based associations will enable greater public participation and discussion on the use of resources made available to local governments. There are also possible synergistic impacts for a democracy strategy that looks to parliamentary and local elections, scheduled to take place in two years, to promote new policies and candidates. Possible activities include efforts work to organize women, and women candidates, via one or more of the coalition efforts.

Even without additional funds, USAID/Philippines and its partners can carry forward a program in line with NPI concepts. New issues and approaches are already being identified and enacted at the local level and these will continue, albeit at a slower pace than would be possible with financial support.

SUMMARY OF NEXT STEPS


This report brings to a close the first phase of NPI, which has been devoted to participatory conceptualization and design. Following review by the Agency's senior management, NPI will move into Phase II--a 12 to 18 month learning phase concentrated upon (although not limited to) five to seven "Leading Edge Missions."

During Phase II, the results of NPI activities in the Leading Edge Missions will be widely shared. There will be an extensive outreach effort to ensure that NPI's "lessons learned" are disseminated immediately throughout the Agency and to outside partners, and that management reforms which emanate from the NPI effort are rapidly embedded in Agency practice. Pending review of the results achieved in Phase II, Phase III will see an expanded application of the NPI conceptual framework and methodology throughout the Agency.

There are a number of immediate tasks to be undertaken at the beginning of Phase II. These are grouped into several task categories, and are discussed below.

Information Dissemination

Consultation

Implementation

Management

A fundamental principle of NPI is that local communities best understand local conditions and incentives for change. For this reason, NPI is intentionally designed to be flexible and responsive to specific country settings, and requires a proactive commitment from field missions to tailor NPI to local realities.

To ensure that NPI is a cross-cutting initiative focusing on local empowerment (rather than on isolated activities in the three NPI focus areas), the learning phase requires team management. In keeping with NPI's emphasis on participation, NPI management will include USAID/W, the field (both Leading Edge and other missions), and the full range of NPI development partners discussed in the Core Report. Working groups devoted to further exploration of the three core NPI components may be formed.

A variety of mechanisms will be used during the learning phase to consult with NPI partners and to provide information on NPI developments. Quarterly Agency-wide meetings, public consultations, expansion of the NPI electronic network (NPI-NET), and a monthly NPI-NET newsletter are some of the communications mechanisms under consideration.

Resources

There are two important aspects of NPI related to Agency resources: the overall target of increasing the share of resources allocated generally to PVOs and NGOs over a period of five years, and the potential allocation of seed money for the NPI initiative itself (which would not be limited to PVOs and NGOs).

First, as announced by Vice President Gore in March 1995, NPI includes a target commitment to make the necessary shifts in USAID programs and management to assure that within the next five years USAID will channel 40% of its development assistance funds through U.S. and local PVOs and NGOs (as traditionally defined). As noted in the inventory (Annex 2), in FY 1994, 27.7% of USAID's development assis-tance (i.e., $590 million of a total $2.127 billion) was through PVOs and NGOs (including Cooperating Agencies). Thus, one aspect of NPI is this targeted increase in Agency funding through U.S.-based and local PVOs and NGOs (whether or not they are engaged in NPI-related activities).

Second, the New Partnerships Initiative itself will involve Agency work with a broad range of development partners--not just traditional NGOs and PVOs--working on local governance and small business, as well as NGO capacity building. This would include an expanded definition of "NGO" (to include, among others, universities), as well as small business actors and associations of local officials engaged in NPI's local capacity building and partnership activities.

The Agency has identified an extensive existing portfolio related to NPI objec-tives. A first task will be to conduct a thorough review of this portfolio to bring it into compliance with NPI strategies and proposed management systems. In addition, seed money is requested to support a learning program and pilot efforts.

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Last Updated on: December 22, 2000