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.

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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. ***