    Foreign Assistance: USAID Faces Challenges Implementing Regional Program
    in Southern Africa (Letter Report, 09/30/1999, GAO/NSIAD-99-237).

    Pursuant to a congressional request, GAO provided information on the
    Agency for International Development's (AID) Initiative for Southern
    Africa program, focusing on the: (1) specific activities AID's Regional
    Center for Southern Africa conducted to implement the Initiative; (2)
    extent to which this regional program complements AID's bilateral
    programs in the region; and (3) challenges the Regional Center faces in
    implementing the Initiative.

    GAO noted that: (1) since it was created in 1994, the Regional Center
    has undertaken a number of activities designed to achieve the Initiative
    for Southern Africa's three strategic objectives; (2) these activities
    included efforts aimed at achieving a more integrated regional market
    through reducing trade barriers, development of model national transport
    and telecommunications laws that improved and helped standardize
    national regulatory frameworks across the region, and efforts to improve
    the supply of higher-yielding seeds and new agricultural products for
    consumers; (3) in addition, the Regional Center provided grants to
    southern African organizations to increase their capacity to advocate
    for democratic practices in the region, to advance regional linkages
    among key organizations, and to further define democratic norms in the
    region; (4) at the broadest level, the Initiative for Southern Africa
    complements AID's bilateral programs in that the activities are focused
    on similar development objectives; (5) GAO did not find instances where
    there were conflicting objectives; (6) recently, AID has taken several
    steps to encourage closer coordination between bilateral missions and
    the Regional Center; (7) the Regional Center faces several important
    challenges in carrying out the objectives of the Initiative for Southern
    Africa; (8) it must work with 12 different countries, each with
    different political systems and levels of economic development; (9) in
    addition, regional data necessary to measure program impacts are
    lacking, and regional groups that must play a critical role in the
    program have limited human and institutional capacity; (10) based on the
    evidence available, it is not clear to what extent the Regional Center
    will be effective in addressing the issues of economic development,
    agriculture and natural resource management, and the lack of strong
    democratic institutions in the southern Africa region; and (11) given
    that solutions to many of the problems facing southern Africa go beyond
    what can be done by any one country and that outcomes from any
    initiative are highly dependent on cooperation among the countries in
    the region, the Initiative for Southern Africa seems to be a reasonable
    approach.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  NSIAD-99-237
         TITLE:  Foreign Assistance: USAID Faces Challenges Implementing
    	     Regional Program in Southern Africa
          DATE:  09/30/1999
       SUBJECT:  Foreign aid programs
    	     Foreign governments
    	     Developing countries
    	     Agricultural assistance
    	     International relations
    	     Political activities
    	     Economic growth
    	     Foreign economic assistance
    IDENTIFIER:  AID Initiative for Southern Africa Program
    	     Southern Africa Regional Democracy Fund
    	     Southern Africa Enterprise Development Fund

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    Report to Congressional Requesters

    September 1999

    Foreign Assistance

    USAID Faces Challenges Implementing Regional Program in Southern
    Africa
    *****************

    *****************

    GAO/NSIAD-99-237

    Letter                                                                     3

    Appendixes

    Appendix I:Objectives, Scope, and Methodology

                                                                             22

    Appendix II:Comments From the U.S. Agency for International Development

                                                                             24

    Appendix III:GAO Contact and Staff Acknowledgments

                                                                             27

    Figure 1:  Africa: Countries Covered by the Initiative for Southern Africa6

    Figure 2:  Intensive Care Unit at the Eerste River Medical Center, Cape
    Town, South Africa10

    Figure 3:  Leaders of an ISA-Supported, Community-Based Natural Resource
    Management Project in Chobe, Botswana13

    Figure 4:  Founders of the Media Institute of Southern Africa, an ISA
    Grant Recipient                                 15

    USAID   U.S. Agency for International Development

    ISA     Initiative for Southern Africa

    SADC    Southern Africa Development Community

                                                         National Security and
                                                 International Affairs Division

    B-283457

    September 30, 1999

    The Honorable Jesse Helms
    Chairman, Committee on Foreign Relations
    United States Senate

    The Honorable Benjamin A. Gilman
    Chairman, Committee on International Relations
    House of Representatives

    To support U.S. strategic and economic interests in southern Africa and
    recognizing that many of the problems facing the countries of the region
    transcend national boundaries, the U.S. Agency for International
    Development (USAID) created the Initiative for Southern Africa in 1994.
    The initiative is designed to address problems from a regional rather than
    a country perspective and to identify solutions that go beyond what can be
    done by any one country./Footnote1/ The Initiative for Southern Africa is
    implemented by USAID's Regional Center for Southern Africa. Programs under
    the initiative are carried out with African partners, primarily the
    Southern Africa Development Community./Footnote2/ The Initiative for
    Southern Africa has three strategic objectives: (1) to promote an
    integrated regional market,
    (2) to accelerate adoption of sustainable agriculture and natural resource
    management approaches, and (3) to strengthen indigenous southern African
    organizations to promote democratic values and institutions in the region.
    You expressed concern about the efficacy of the initiative to address the
    problems facing countries in the region.

    Specifically, this report outlines (1) the specific activities USAID's
    Regional Center conducted to implement the Initiative for Southern Africa,
    (2) the extent to which this regional program complements USAID's
    bilateral programs in the region, and (3) the challenges the Regional
    Center faces in implementing the Initiative for Southern Africa.

    In completing this review, we met with officials and collected and
    analyzed information from USAID, the U. S. Department of State, and
    several multilateral and research organizations. In addition, we gathered
    information from African government and nongovernmental sources during our
    March 1999 trip to Botswana, South Africa, and Zimbabwe. See appendix I
    for a detailed description of the scope and methodology of this study.

    Results in Brief

    Since it was created in 1994, the Regional Center has undertaken a number
    of activities designed to achieve the Initiative for Southern Africa's
    three strategic objectives. These activities included efforts aimed at
    achieving a more integrated regional market through reducing trade
    barriers, development of model national transport and telecommunications
    laws that improved and helped standardize national regulatory frameworks
    across the region, and efforts to improve the supply of higher-yielding
    seeds and new agricultural products for consumers. In addition, the
    Regional Center provided grants to southern African organizations to
    increase their capacity to advocate for democratic practices in the
    region, to advance regional linkages among key organizations, and to
    further define democratic norms in the region.

    At the broadest level, the Initiative for Southern Africa complements
    USAID's bilateral programs in that the activities are focused on similar
    development objectives. We did not find instances where there were
    conflicting objectives. Recently, USAID has taken several steps to
    encourage closer coordination between bilateral missions and the Regional
    Center.

    The Regional Center faces several important challenges in carrying out the
    objectives of the Initiative for Southern Africa. It must work with
    12 different countries, each with different political systems and levels
    of economic development. In addition, regional data necessary to measure
    program impacts are lacking, and regional groups that must play a critical
    role in the program have limited human and institutional capacity. Based
    on the evidence available, it is not clear to what extent the Regional
    Center will be effective in addressing the issues of economic development,
    agriculture and natural resource management, and the lack of strong
    democratic institutions in the southern Africa region. Given that
    solutions to many of the problems facing southern Africa go beyond what
    can be done by any one country and that outcomes from any initiative are
    highly dependent on cooperation among the countries in the region, the
    Initiative for Southern Africa seems to be a reasonable approach.

    Background

    With the end of the apartheid system of racial separation in South Africa
    in 1994, U.S. policy in southern Africa shifted from opposing this system
    to supporting economic growth and the movement toward democracy in the
    region. However, the countries of southern Africa face political
    instability, weak economies, and degradation of natural resources.
    Recognizing the growing U.S. political and economic interest in southern
    Africa and that many of the problems facing the region transcend national
    boundaries, USAID created the Initiative for Southern Africa (ISA). The
    ISA's overall goal is to promote equitable sustainable growth in a
    democratic southern Africa. Since ISA was created in 1994, USAID has spent
    $247 million on the ISA's three strategic objectives: $129.1 million on
    activities to increase market integration among countries in the region;
    $112.2 million to accelerate adoption of sustainable agriculture and
    natural resource management approaches; and $5.4 million to strengthen
    indigenous African organizations to promote democratic values and
    institutions in the region (see fig. 1 for a map of the region.) The ISA
    is implemented by USAID's Regional Center for Southern Africa, located in
    Gaborone, Botswana.

    Figure****Helvetica:x11****1:    Africa: Countries Covered by the
                                     Initiative for Southern
                                     Africa
    *****************

    *****************

    Source: GAO analysis based on information provided by USAID.

    The ISA includes two funds: the Southern Africa Regional Democracy Fund
    and the Southern Africa Enterprise Development Fund. USAID established the
    Democracy Fund to encourage and sustain regional efforts to promote the
    democratization of southern African nations. Through the Democracy Fund,
    the ISA awards grants to southern African organizations and networks that
    work to strengthen democratic values, processes, and institutions. The
    Democracy Fund has a 22-member project advisory committee that is
    comprised of Africans prominent in civil society and living throughout the
    region. The project committee assists in planning, implementing, and
    overseeing the fund, and it recommends grantees, while the Regional Center
    is responsible for overall program management, including monitoring grant
    performance and providing final approval of grantees. U.S. embassy and
    mission staff located in southern African countries nominate the project
    committee members and evaluate grant applications from the country in
    which they are located.

    The Southern Africa Enterprise Development Fund, incorporated in December
    1994 and located in Johannesburg, South Africa, is a U.S.-sponsored,
    private, not-for-profit investment company. The Enterprise Fund is
    designed to increase participation in the regional market--an ISA
    objective. The fund provides capital to help strengthen and expand the
    number of small- and medium-sized enterprises in the region owned by
    previously disadvantaged southern Africans. In March 1995, USAID and the
    Enterprise Fund entered into a grant agreement that capitalized the fund
    with $100 million. USAID provided an additional $8 million for
    administrative expenses. The Enterprise Fund's 14-member Board of
    Directors is composed of distinguished members of the U.S. and African
    business communities. USAID's primary responsibilities are to monitor the
    grant agreement and act as a nonvoting observer on the Board of Directors.
    At the end of its grant agreement with USAID in 2003, the Enterprise Fund
    is charged with developing a liquidation plan that will transfer the
    Fund's assets to other nonprofit entities, return the assets to the U.S.
    government, or perform a combination of the two actions.

    Most of the Regional Center's activities are developed and implemented in
    collaboration with African partners. The Regional Center's key African
    partner is the Southern African Development Community (SADC). SADC is a
    regional organization that was formally organized in 1992 by southern
    Africa governments to bring economic prosperity, development, and
    stability through regional trade liberalization and political and economic
    integration./Footnote3/ SADC implements some ISA projects, particularly
    those dealing with market integration. SADC is organized into 19 sector
    coordinating units, each located in and headed by a different SADC member
    state. The units are responsible for leading SADC efforts in specific
    sectors such as industry and trade, or water. A small Secretariat, located
    in Gaborone, Botswana, is responsible for overall coordination and liaison
    activities.

    The Regional Center Has Undertaken Many Activities in Pursuit of the ISA's
    Objectives

    In the 5 years since the ISA was announced, the Regional Center has
    undertaken a number of activities under each of its three strategic
    objectives: promoting an integrated regional market, accelerating adoption
    of sustainable agriculture and natural resource management approaches, and
    strengthening indigenous southern African organizations to promote
    democratic values and institutions in the region. These activities have
    included providing technical assistance, funding, advocacy, and capacity
    building. The Regional Center has also worked behind the scenes to resolve
    disputes between countries. African government officials and others we
    interviewed in the region believed that the Regional Center has made
    important contributions related to its strategic objectives. However,
    given the scope and complexity of this effort, achieving the ISA's overall
    goal of promoting equitable sustainable growth in a democratic southern
    Africa will be a long-term effort.

    The Regional Center Has Taken Initial Steps to Develop a Southern Africa
    Regional Market
    ---------------------------------------------------------------------------

    The Regional Center has worked to develop a regional market by providing
    support to reduce trade barriers and increase participation in the
    regional market, to improve the regional infrastructure, and to build
    consensus for regional integration. African government officials and
    others we interviewed in the region believed that the ISA program has made
    important contributions in these areas. However, integrating markets is a
    long-term process involving a myriad of specific steps to remove
    long-standing impediments to free trade among countries in the region,
    such as a lack of standard banking, accounting, and customs procedures;
    insufficient energy, telecommunications, and transportation
    infrastructure; and established restrictive trade and investment policies.
    According to USAID, removal of trade and investment barriers and movement
    toward a more integrated market will enhance the prospects for economic
    growth because a larger, more open market will be more attractive to
    investors and will enhance economies of scale.

    To reduce trade barriers and increase participation in the regional
    market, the Regional Center helped write the SADC Protocol on
    Trade,/Footnote4/ an agreement that establishes an overall framework for
    regional economic integration. The agreement addresses the reduction and
    eventual elimination of import and export duties, customs procedures,
    trade laws, and intellectual property rights, among other issues. The
    Regional Center is working to secure its passage by SADC member
    governments by the end of 2001./Footnote5/ In addition, the Regional
    Center financed the development of a legal and policy framework for
    finance and investment that is a first step toward harmonizing central
    bank policies and regulations, as well as audit and accounting standards,
    throughout the region. The Regional Center is also helping countries
    standardize customs procedures and has helped implement a regional
    truckers' insurance payment mechanism to ensure that truckers pay trucking
    insurance only once instead of each time a border is crossed. Once fully
    implemented, these activities are expected to facilitate more efficient
    and speedier border crossings. In addition, the ISA broadened
    participation in the market through the Southern African Enterprise
    Development Fund by making capital available to indigenous entrepreneurs
    who could not obtain long-term financing from commercial sources. From
    March 1995 through June 1999, the Enterprise Fund had invested over $18
    million in 16 indigenous enterprises in seven countries. (See fig. 2 for a
    depiction of an enterprise that received funding--the Eerste River Medical
    Center in Cape Town, South Africa.)

    Figure****Helvetica:x11****2:    Intensive Care Unit at the Eerste River
                                     Medical Center, Cape Town, South
                                     Africa
    *****************

    *****************

    To improve the southern Africa regional infrastructure, the Regional
    Center helped write SADC's Protocol on Transport, Communications, and
    Meteorology. This agreement is a first step toward reducing costs and
    enhancing the efficiency of these sectors by harmonizing the policies,
    rules, and procedures among participating countries. For example, the
    agreement addresses truck axle load limits (which will extend the life of
    the regions' roads, thereby reducing costs); and cellular phone standards
    (which will improve customer service and simplify operations for phone
    companies, thereby improving their bottom line and efficiency). The
    Regional Center assisted in writing and implementing model national
    transport and telecommunications laws and provided technical assistance to
    establish independent national telecommunications regulatory authorities
    in eight countries. These activities were designed to promote private
    sector investment and to harmonize policies necessary for regional
    integration. Also, the Regional Center provided funding, equipment, and
    technical assistance to establish a computerized rail tracking system that
    will enable railroads in the region to operate as a single, integrated
    system.

    To build consensus for regional integration, the Regional Center conducted
    advocacy activities with national governments and private sector
    associations. These activities included holding workshops and providing
    training to explain the benefits of privatization and integration and
    supplying analyses of the impact of integration on countries' economies.
    According to the Regional Center, its advocacy efforts have resulted in a
    shift from a regional debate over whether integration should be pursued to
    a debate over how integration should occur, when it should occur, and
    under what institutional arrangements it should develop. For example, the
    public and private sectors in Mozambique were not supportive of the
    government's signing the SADC Protocol on Trade. To persuade them to do
    so, the Regional Center brought these sectors together to discuss the
    issue and provided information about the benefits of the agreement to the
    country. Ultimately, the public and private sectors changed their
    positions to support the trade agreement.

    Activities to Improve Agriculture and Natural Resource Management
    ------------------------------------------------------------------

    The southern Africa region is faced with the need to balance the
    conservation of its natural resource base while at the same time feeding
    and providing jobs for a rapidly increasing population. Nearly two-thirds
    of the region's population is dependent on agriculture for income and
    employment. However, most countries in the region lack the necessary
    infrastructure in rural areas, investment in agriculture research, and
    policies and regulations to increase production and protect the natural
    resources. The Regional Center sought to address these challenges by
    helping southern Africans manage their environment in a sustainable way,
    while increasing their income and employment. To accelerate the adoption
    of sustainable agriculture and natural resource management approaches, the
    Regional Center helped establish systems for transferring improved
    agricultural technologies and disseminating best practices across the
    region. It also helped establish the policy frameworks necessary for
    putting new approaches in place and for providing incentives for their
    adoption. The Regional Center's activities in each of these areas included
    the following:

    To establish systems for transferring technologies and disseminating best
    practices across the region, the Regional Center supported regional
    research partnerships such as the Sorghum/Millet Improvement Program and
    the Southern Africa Root Crops Research Network. These programs developed
    high-yielding and increased drought- and disease-resistant seeds and crops
    like cassava that will improve crop sustainability and food security. In
    addition, the Regional Center funded the successful efforts of the
    Heartwater Regional Research Project to develop a vaccine for a
    tick-borne disease that costs the region $80 million annually in livestock
    losses and pesticide purchases./Footnote6/ In addition, the Regional
    Center contributed to capacity building of agriculture institutions in the
    region by supporting the training of over 300 agriculture research
    scientists and technicians in crop production, insect and disease control,
    and other key disciplines like research planning and management. According
    to Regional Center officials, training has resulted in a new focus on
    results and improved definition of agricultural research priorities that
    reflect farmer and consumer needs. Because of the critical role that rural
    people play in the stewardship of wildlife and the environment, the
    Regional Center helped form 13 community-based organizations in Botswana,
    covering more than 50 villages, and trained them to conduct income-
    producing, sustainable activities like photo safaris and harvesting
    grassland products, such as thatching. For example, according to the
    Regional Center, the income of 400 women in one area of Botswana rose by
    500 percent between 1996 and 1998 as a result of their harvesting and
    marketing of grassland products. The Regional Center is playing an
    important role in transferring this best practice approach to natural
    resource management across the region. (See fig. 3 for an illustration of
    the leaders of a community-based natural resource project funded by the
    ISA.)

    Figure****Helvetica:x11****3:    Leaders of an ISA-Supported, Community-
                                     Based Natural Resource Management Project
                                     in Chobe,
                                     Botswana
    *****************

    *****************

    To help establish the policy framework necessary to implement new
    programs, the ISA funded the development of national, community-based,
    natural resource management policies in Namibia, Zambia, and Zimbabwe. For
    example, with ISA support, Zambia passed a Wildlife Act that created and
    empowered community resource boards to manage wildlife in game management
    areas. These new policies will enable villagers to stay on their land and
    earn income in an environmentally sustainable way instead of being forced
    to migrate to urban areas to find employment. The Regional Center helped
    the government of Botswana to draft a unified set of policies and
    legislation for community-based natural resource management that clarified
    the existing conflicting policies, laws, and guidelines. Regional Center
    officials expect the legislation to be passed next year. In addition, the
    Regional Center helped draft the SADC Protocol on Wildlife Management that
    provides a framework for managing the region's wildlife, and supported
    studies that contributed to the development of Namibia's policies on water
    conservation, marine fisheries, and land degradation.

    Strengthening Organizations Working to Improve Democratic Practices in the
    Region
    ---------------------------------------------------------------------------

    The Regional Center's democracy program is predicated on the view of USAID
    officials that stable democracies are promoted by focusing on promoting
    rule of law and respect for human rights; fair and open political
    processes; free and active civil societies; and transparent, open, and
    accountable government institutions. According to the Democracy Fund
    Project Committee, many citizens in southern Africa do not fully
    understand their rights and responsibilities. In addition, they note that
    in some countries, human rights continue to be violated; elections are not
    always free and fair; governments are not accountable and intimidate the
    media; and judiciaries, legislatures, and civil society are weak. The
    executive branches and the ruling parties are often indistinguishable.
    Even when there is a genuine commitment on the part of these entities to
    increase the participation of civil society in governance, nongovernmental
    organizations are often uncertain how to play a role because of their
    limited experience with democratic processes.

    The ISA's Southern African Regional Democracy Fund makes grants to
    southern African organizations and networks to strengthen their ability to
    advocate for democratic practices, to increase regional linkages among key
    organizations and institutions, and to further define African democratic
    norms. Government officials and others we interviewed in the region agreed
    that the ISA's approach, which is primarily targeted at strengthening the
    capacity of civil society, is making a positive contribution in this area.
    Through June 1999, the Fund financed 24 grants totaling $4
    million./Footnote7/ Grantees have included human rights, media,
    educational, governmental, research, and labor organizations. The
    activities of these organizations have included training of
    parliamentarians and election monitors on democratic norms and conflict
    mediation; promoting regional standards and values related to ethics,
    democratic governance, and accountability; improving access to information
    by civil society organizations through electronic networking, publishing
    newsletters, and disseminating uncensored regional news; providing
    equipment and training; and funding research, for example, on the
    administration and fairness of elections in the region.

    To increase regional advocacy for democratic processes, the Democracy Fund
    provided a grant to the Media Institute of Southern Africa, which funded
    the successful defense of journalists against charges of character
    defamation in Lesotho, Tanzania, and Botswana. These cases established
    legal precedents and helped to define acceptable standards for press
    freedom in other countries in the region. For example, in Zimbabwe, a
    Member of Parliament brought charges against a local newsmagazine for
    defamation regarding a story that questioned the Member's accumulation of
    property. The charges were upheld, and the magazine faced liquidation. The
    Media Institute's Legal Defense Fund supported an appeal that eventually
    overturned the initial judgment, and the magazine survived. The Media
    Institute also assisted its national chapters in Botswana, Namibia, and
    Zambia in organizing protest marches against the arrest and alleged
    torture of two Zimbabwean journalists and in presenting petitions to the
    Zimbabwean ambassadors in those countries. The authorities ultimately
    released the journalists. (See fig. 4 for an illustration of the founders
    of the Media Institute of Southern Africa.)

    Figure****Helvetica:x11****4:    Founders of the Media Institute of
                                     Southern Africa, an ISA Grant
                                     Recipient
    *****************

    *****************

    To increase linkages among key organizations to strengthen their ability
    to influence democratic practices, the Fund financed organizations, such
    as the Botswana Center for Human Rights, to develop networks. This
    organization pulled together 72 member organizations and established the
    first Regional Southern African Human Rights network. By working together,
    Regional Center officials believed that these organizations would become
    stronger and more effective at advocating for democratic reform and
    holding governments accountable.

    To further define African democratic norms, the Democracy Fund supported
    the Cooperative for Research and Education in its efforts to develop a
    training manual for election monitors and trained 160 monitors in four
    countries. Regional Center officials expected that this training and
    information would contribute to the development of election norms in
    southern Africa.

    The Regional Center Undertook Other Activities to Promote Regional
    Cooperation
    ---------------------------------------------------------------------------

    In addition to the Regional Center's activities to implement the ISA,
    Regional Center officials said that they worked behind the scenes with
    government officials to resolve several disputes between countries. While
    not directly related to the ISA program, the activities were intended to
    facilitate cooperation among countries in the region. For example, the
    Regional Center helped mediate a dispute between Botswana, Namibia, and
    other stakeholders regarding customs and transit charges on the
    Trans-Kalahari Highway. This mediation, according to Regional Center
    officials, resulted in a dialogue that is leading to an acceptable
    solution to the disagreement. The Regional Center also helped mediate a
    border dispute between Botswana and Namibia that resulted from Botswana's
    erection of a fence at the border to keep out diseased cattle. The fence
    also prohibited the migration of wildlife--a danger to the wildlife's well-
    being and reproduction. Working with government officials, the Regional
    Center was instrumental in Botswana's decision to remove critical portions
    of the fence.

    The ISA Program Complements Bilateral USAID Programs in the Region

    The ISA complements USAID's bilateral programs/Footnote8/ in the region
    because they have similar development objectives. Seven of USAID's eight
    bilateral missions in southern Africa have ongoing democracy and
    governance activities,/Footnote9/ seven missions conduct activities
    related to trade and investment, and six have activities in the area of
    agriculture and natural resources. As a result, the ISA's activities for
    market integration, agriculture and natural resource management, and
    increased democratic performance complement ongoing, national-level
    activities of USAID's bilateral missions. In some cases, the Regional
    Center and bilateral missions have worked together on specific projects.
    For example, the Regional Center and the USAID mission in Mozambique
    collaborated on a project designed to improve the efficiency, reliability,
    and competitiveness of the surface transportation infrastructure. The
    project was funded by the Regional Center and implemented by the bilateral
    mission. Because of the positive outcomes when the Regional Center and
    bilateral missions have worked together, USAID's Africa Bureau has taken
    steps to increase coordination. In the last 2 years, USAID has initiated
    biannual meetings of mission directors to bring together all the directors
    in Southern Africa. The last such meeting, in April 1999, was held jointly
    with the U.S. ambassadors from the region. In addition, USAID has
    discussed the possibility of adding "support for regional programs" in the
    mission directors' management contracts.

    USAID's Regional Center Faces Challenges in Implementing the ISA

    The Regional Center faces several important challenges in carrying out the
    objectives of the ISA. One is the challenge of working with 12 different
    countries to implement its programs, each with different political systems
    and levels of economic development. Another is the limitation of the
    Regional Center's African partners in human and institutional capacity
    such as experience, training, skills, financing, and equipment. These
    limitations made it difficult for the Regional Center to work through
    existing southern African organizations to achieve its goals. In some
    cases, there were no appropriate institutions with which the Regional
    Center could partner. Finally, regional economic data frequently have not
    existed, and national level data have generally been inadequate to develop
    baselines and performance indicators that are necessary to determine
    program progress and impact.

    Working With Multiple Countries Is Complex
    -------------------------------------------

    Unlike bilateral mission programs, which focus on one particular country,
    the ISA's portfolio covers 12 different countries--each with different
    governments, political systems, national economies, natural resource
    endowments, and civil society networks. Regional Center staff must keep
    track of political and economic activities in all 12 countries and face
    the logistical difficulties of dealing with multiple host governments and
    numerous other governmental and nongovernmental organizations. The absence
    of a single, authoritative entity to represent the region, like a national
    government, means that there is no common development plan. There also are
    limited mechanisms through which regional stakeholders can coordinate
    programs and exchange ideas. While USAID officials said that SADC has the
    potential to provide such leadership, they noted that its current
    organizational structure, staffing, financial resources, and operational
    policies do not support such a role. As a result, the Regional Center has
    to play a major role in coordinating and conducting ongoing consultation
    with a disparate set of regional stakeholders--each with different
    priorities and ideas--in order to plan and develop programs. Furthermore,
    the Regional Center has to establish working relationships and communicate
    on a continuing basis with the 12 U.S. diplomatic missions in the region,
    in addition to other donors.

    The challenge of investing in multiple countries in the region has
    contributed to the Southern African Enterprise Development Fund's
    inability to disburse its loans to indigenous entrepreneurs within the
    time frame established by USAID when it created the Fund. For example, to
    learn of promising investment opportunities, investment staff and the
    Board of Directors need to be familiar with the local business cultures
    and operating environments and must establish relationships with local
    entrepreneurs. Conducting these activities in multiple countries has been
    extremely complex and time-consuming and even more difficult in countries
    that did not have a well-developed market economy. Furthermore, according
    to a 1998 Coopers and Lybrand, L.L.P., evaluation prepared for USAID,
    hiring and retaining qualified and knowledgeable investment staff has been
    challenging because there are few people who have had experience in
    investment banking, and those that did have been in high demand. These
    difficulties have contributed to the Enterprise Fund's slow start--26
    months elapsed between the announcement of the Fund's formation in 1994
    and its first investment in June 1997. Due to the delays and difficulties,
    Fund management believed they would be unable to invest all of its capital
    by the expiration of the grant agreement with USAID, so they have
    negotiated a 4-year extension. Consequently, the administrative costs
    associated with managing the Fund will be more than the $8 million USAID
    originally predicted.

    Limited Capacity of African Partners Hinders ISA Activities
    ------------------------------------------------------------

    Another challenge faced by the Regional Center was the limited human and
    institutional capacity of its indigenous partners to deal with complex
    regional issues. According to Regional Center officials, nongovernmental
    organizations and private sector associations lack financial resources,
    experience, and technical skills, which has hindered their ability to
    effectively influence government policies. For example, one of the key
    elements of the ISA's goal to promote integration of regional markets is
    to encourage private sector participation in national economies. However,
    according to Regional Center officials, industry associations did not have
    the resources to commission research that could have provided them with
    the information and data they needed to show governments the impacts of
    their policies and regulations on industry.

    Regional Center officials suggest that national ministries, the judiciary,
    and other national government bodies have often lacked experience and
    technical and administrative capabilities to implement government reforms
    and carry out other functions like negotiating regional agreements. For
    example, they noted that national officials have had limited background in
    handling problems that have had to be solved in order to achieve market
    integration such as reducing tariffs, enabling privatization of state-
    owned enterprises, and establishing regulatory authorities. In some cases,
    these issues involved important national tradeoffs in the short term to
    achieve longer-term gains.

    In some cases, there have been no institutions with which the Regional
    Center could partner. For example, the Regional Center had originally
    wanted to locate the Democracy Fund within an indigenous organization
    promoting democracy in the region, but it found no organization with a
    suitably broad mission and the required capabilities.

    SADC, the core institution responsible for implementing regional
    development and a key partner to the ISA, has also had a lack of human and
    institutional capacity such as technical expertise, experience, and
    resources. As a result, Regional Center officials note that SADC was
    unable to take the lead in advocating for passage of regional agreements
    in the face of inertia from national governments. These agreements
    establish the framework for cooperation among governments in particular
    economic sectors. Because SADC members agreed to establish a small
    Secretariat in an attempt to avoid a large and expensive bureaucracy, the
    Secretariat consisted of only a few people with very limited resources for
    the policy analysis or data-gathering activities that were necessary to
    advocate change among its members. SADC's sector-coordinating units, led
    by national governments, were only as strong as the resources that were
    available in the particular national government. These resources differed
    significantly among countries. For example, according to Regional Center
    and African officials we spoke with the industry and trade
    sector-coordinating unit, located in Tanzania, was weak institutionally
    and did not have the financial and human resources to promote passage of
    SADC's agreement on trade. The coordinating unit's capacity was so limited
    that the unit could not afford to compensate its staff. As a result, the
    Regional Center decided to provide advisors directly to the SADC
    Secretariat to support its efforts to establish a trade policy unit.

    Lack of Quality Regional Data Impedes Assessment of the ISA's Impact
    ---------------------------------------------------------------------

    Regional data to develop baseline and performance indicators for the ISA
    program have, in many cases, been nonexistent, and national level data,
    when they existed, were often not consistent, reliable, or comparable. As
    a result, the Regional Center has had to conduct primary data gathering in
    all 12 countries. For example, in order to measure national product price
    convergence--a yardstick of progress toward achieving regional economic
    integration--the Regional Center had to obtain consumer price index data
    from each country. Not only was this logistically difficult and expensive,
    but also countries in the region used different price structures to
    compile their consumer price indexes, which made comparability impossible.
    Some countries used retail prices and some used wholesale prices. Adding
    to the complexity, the items that make up the "national baskets" did not
    contain identical goods. These problems have contributed to delays in the
    Regional Center's efforts to develop baseline and indicator data and to
    finalize its overall performance-monitoring plan. As a result, 5 years
    after the ISA was announced, there still is limited empirical evidence to
    quantitatively measure the Regional Center's progress toward achieving the
    ISA's strategic objectives.

    Agency Comments

    USAID provided written comments on a draft of this report. USAID stated
    that the report clearly describes the complexities of working regionally
    and added that our observations needed to be considered within a broader
    perspective. USAID stated that the benefits of regional integration in
    southern Africa outweighed the inherent difficulties in achieving that
    goal and that many transboundary issues can only be addressed at the
    regional level. USAID also provided information on progress that has been
    made toward achieving an integrated regional market and noted continued
    improvements in the effectiveness of their regional partners. We did not
    revise the report because we believe that it provides sufficient context
    and accurately reflects the progress that has been made toward market
    integration in southern Africa and the capabilities of USAID's regional
    partners. USAID's response is reprinted in appendix II.

    We are sending copies of this report to appropriate congressional
    committees; the Honorable Madeleine K. Albright, Secretary of State; the
    Honorable J. Brady Anderson, Administrator of USAID; and other interested
    parties. We will also make copies available to others on request.

    Please contact me on (202) 512-4128 if you or your staff have any
    questions about this report. Other GAO contact and staff acknowledgments
    are listed in appendix III.

    *****************

    *****************

    Benjamin F. Nelson, Director
    International Relations and Trade Issues

    --------------------------------------
    /Footnote1/-^The Initiative for Southern Africa covers Angola, Botswana,
      Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa,
      Swaziland, Tanzania, Zambia, and Zimbabwe.
    /Footnote2/-^The Southern Africa Development Community is an organization
      representing 14 nations in southern Africa with a total population of
      200 million.
    /Footnote3/-^SADC's member states are Angola, Botswana, Democratic
      Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia,
      Seychelles, Swaziland, South Africa, Tanzania, Zambia, and Zimbabwe.
    /Footnote4/-^The trade agreement has been ratified by over half of the
      SADC member states needed for enforcement.
    /Footnote5/-^Activities are taking place toward implementation of the
      trade protocol. For example, a key provision of the agreement is the
      removal of tariffs within the region. Toward this end, SADC member
      countries meet once a month to negotiate tariff reductions, and the
      Regional Center's ISA program provides technical assistance to aid
      countries in this process.
    /Footnote6/-^USAID support for these research activities preceded the ISA.
      For example, USAID has supported the Sorghum/Millet Improvement Program
      since 1984, the Southern Africa Root Crops Research Network since 1993,
      and the Heartwater Regional Research Project since 1985.
    /Footnote7/-^Funding primarily takes the form of grants, but cooperative
      agreements and purchase orders are also occasionally used.
    /Footnote8/-^USAID has bilateral missions in Angola, Malawi, Mozambique,
      Namibia, South Africa, Tanzania, Zambia, and Zimbabwe.
    /Footnote9/-^The USAID mission in Zimbabwe has proposed a "democracy"
      objective as the cornerstone of its new strategic plan.

    OBJECTIVES, SCOPE, AND METHODOLOGY
    ==================================

    At the request of the Chairman of the Senate Foreign Relations Committee
    and the Chairman of the House Committee on International Relations, we
    reviewed the U.S. Agency for International Development's (USAID)
    Initiative for Southern Africa (ISA). In particular, we examined (1) the
    specific activities USAID's Regional Center conducted to implement the
    ISA, (2) the extent to which the ISA program complements USAID's bilateral
    programs in the region, and (3) the challenges the Regional Center faces
    in implementing the ISA program

    To examine ISA activities conducted by the Regional Center, we visited
    three countries in southern Africa: Botswana, South Africa, and Zimbabwe.
    We selected Botswana because the Regional Center is located there and
    South Africa because it received the largest amount of U.S. assistance of
    all countries in Africa in recent years. In addition, it is the location
    of the headquarters of the Southern Africa Enterprise Development Fund. We
    selected Zimbabwe as the third country at the suggestion of congressional
    committee staff. We interviewed officials from USAID's Africa Bureau and
    the Regional Center, including the Director and teams managing activities
    under the strategic objectives for market integration, agriculture and
    natural resource management, and promotion of democratic values in the
    region. In addition, we met with the ISA's African partners, including
    officials from African governments, nongovernmental organizations, the
    Southern Africa Development Community (SADC), and members of the Southern
    Africa Democracy Fund Committee. We also met with field-based officials
    from the European Union and the World Bank. We reviewed various documents,
    including USAID program documents for each strategic objective, USAID's
    congressional presentations, strategic objective reporting cables from the
    field to headquarters, quarterly monitoring reports, strategic planning
    documents, the grant agreement that codified the relationship between
    USAID and SADC, USAID's annual reports, "Regional Center's Results Review
    and Resource Requests," the ISA/Regional Center Strategic Plan for 1997-
    2003, and cost data for the ISA. We also made on-site visits to two ISA
    projects-the Heartwater project in Harare, Zimbabwe, and the Community
    Based Natural Resource Management project in the Chobe Enclave, Botswana.

    We also reviewed the activities of the Southern Africa Enterprise
    Development Fund. We reviewed the Enterprise Fund's program documents such
    as its business plans, annual reports from 1995-99, investment
    information, articles of incorporation, financial statements, and external
    evaluations done by Financial Markets International in March 1999 and
    Coopers and Lybrand, L.L.P., in February 1998. We also discussed the
    Enterprise Fund's operations with members of the Board of Directors and
    the management team and with USAID's Center for Development Information
    and Evaluation. We visited two companies in which the Enterprise Fund had
    invested: PASH Stores (located in Soweto, South Africa), and the Eerste
    River Medical Center in Cape Town, South Africa

    To determine the extent to which the ISA complements the activities of
    USAID's bilateral missions, we interviewed Regional Center and USAID
    Africa Bureau officials and USAID bilateral mission directors in Zimbabwe
    and South Africa and their mission teams for democracy, natural resource
    management, and economic development. In addition, we reviewed USAID's
    "Results Review and Resource Requests" from eight bilateral missions,
    strategic planning policies, a cable outlining bilateral mission support
    for the regional program, and an external study entitled The Southern
    African Regional Trade and Investment Strategic Framework Study prepared
    in 1998 by Coopers and Lybrand, L.L.P.

    To examine the challenges the Regional Center faces in implementing the
    ISA program, we met with experts on regionalism and African development in
    the U.S. government and international organizations. We interviewed
    officials from USAID, the Department of State, and the Council on Foreign
    Relations. We also met with officials from the World Bank, the European
    Union, SADC, and African non-governmental organizations. In addition, we
    reviewed ISA program documents from 1995 to 1999, a USAID Inspector
    General report, and external evaluations of the program conducted by
    Coopers and Lybrand, L.L.P.

    The information on foreign laws in this report does not represent our
    independent legal analysis but is based on interviews and secondary
    sources.

    We performed our review from January to August 1999 in accordance with
    generally accepted government auditing standards.

    COMMENTS FROM THE U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT
    ===========================================================

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    GAO CONTACT AND STAFF ACKNOWLEDGMENTS
    =====================================

    GAO Contact
    -----------

    Lynne M. Holloway, (202) 512-4612

    Acknowledgments
    ---------------

    In addition to Ms. Holloway, Mark Dowling, Aleta Hancock, Tracey
    Hebert-Barry, Rona Mendelsohn, and Tom Zingale made key contributions to
    this report.

    (711392)

    Figure 1:  Africa: Countries Covered by the Initiative for Southern Africa6

    Figure 2:  Intensive Care Unit at the Eerste River Medical Center, Cape
    Town, South Africa10

    Figure 3:  Leaders of an ISA-Supported, Community-Based Natural Resource
    Management Project in Chobe, Botswana13

    Figure 4:  Founders of the Media Institute of Southern Africa, an ISA
    Grant Recipient                                 15

    *** End of document. ***