Using capital projects to promote economic development and US commercial interests : a synthesis of findings

exporters, the Congress, and the Executive Branch in the use of capital assistance projects to promote both economic development and U.S. commercial interests has been growing. This synthesis evaluation analyzes seven key questions to assess how and under what conditions capital projects can support both objectives, drawing on data from an examination of USAID capital projects experience along with that of U.S. exporters, the World Bank, and other donors, and from an in-depth case study of Egypt, the largest capital projects program in USAID"s portfolio. Key findings are as follows. (1) Capital projects have rarely leveraged other donor or private investor participation in USAID projects. (2) USAID capital projects have not been very successful in generating commercial follow-on sales for U.S. exporters. (3) There are examples of well-designed capital projects, operating in a favorable policy environment, providing a good economic rate of return (ERR) -- but all too many have had low ERRs, due to developing country institutional and policy problems. (4) Capital projects have definitely provided important benefits to developing countries" private sectors, and most have contributed to alleviating poverty or meeting basic needs of the poor. (5) Sustainability of capital projects depends upon appropriate host country institutional reform. (6) While the policy issues critical to the success of capital projects are well understood, it has proven difficult to use capital projects as a vehicle for policy reform. (7) Commercial concerns have not adversely affected the development impacts of USAID projects, mainly because USAID has made sure that projects first and foremost address the developmental needs of recipient countries. In general then, while capital projects are important for development, in most instances they have not helped to increase U.S. exports beyond what the projects need. However, it is unrealistic to expect aid programs to build markets in countries where economic policies restrict growth and the demand for imports; the best opportunities for U.S. exporters are in developing countries possessing a favorable policy environment and an expanding economy, such as Korea and Taiwan. For their part, U.S. exporters should focus on making sure that their products are competitive in their own right.