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         HELPING
      SOUTH AFRICAN
      MUNICIPALITIES        8 10 13 14 17 19
                         TIMOR-LESTE
                           BUSINESS
                         ENVIRONMENT
                                           NEW HORIZONS
                                            FOR RURAL
                                             CAMBODIA
                                                                TACKLING
                                                                POVERTY
                                                                IN BRAZIL
                                                                                   BIG BUSINESS
                                                                                     AND SME
                                                                                   DEVELOPMENT
                                                                                                           REGIONAL
                                                                                                            BANKING
                                                                                                           IN RUSSIA
                                                                                                                                 FROM THE
                                                                                                                                CEO’S DESK




                 developments                                           A quarterly newsletter of Development Alternatives, Inc.
fall 2005



                 BY JAMES CHAPMAN AND TIM ASTON



                 Clearing the Way to
                  Sustainable Farming in Haiti
                 On September 18, 2004, 17 straight hours of
                 torrential downpours brought by Hurricane Jeanne
                 caused flashfloods, mudslides, and horrific destruc-
                 tion in northwestern Haiti. The floods killed 3,000
                 of the region’s 300,000 inhabitants, destroyed
                 4,500 houses, and damaged roads, bridges, and
                 irrigation systems.

                 USAID contracted with DAI
                 to help repair infrastructure
                 around the Gonaives Plain
                 and the Trois Rivières basin,
                 including cleaning and
                 repairing irrigation canals
                 and intakes, repairing pumps
                 and electrical generators, and
                 organizing water users to ensure
                 that the systems continue to func-
                 tion properly after they are repaired.
                 Because DAI was already in Haiti,
                 working on a hillside agricultural development
                 project, we were able to mobilize and begin recon-
                 struction work immediately on contract award in
                 late November 2004.

                 What was not well understood at the time of the
                 storm, or during development of the scope of work
                 for reconstruction, was the dysfunctional state of
                 the irrigation systems before the floods. During the
                 initial stages of implementation, we discovered that
                 many of the systems were not working properly—
                                                                            A rehabilitated pump house (top) and a Scotch Bonnet pepper nurs-
                                                              PAGE 18       ery in northwestern Haiti.



       development alternatives, Inc.
                                                                                                                        Fall 2005          1
-



    Developments is the quarterly
                                             SELECTED NEW DAI CONTRACTS
    newsletter of Development
    Alternatives, Inc. (DAI). Founded    Indonesia—Enterprise and Agriculture         West Bank and Gaza—Strengthen
    in 1970, DAI is an international     Development Activity (2005–2009).            Legislative Capacity and Processes
                                         Under this USAID contract, DAI is work-      (2005–2008). Under this USAID con-
    consulting firm that provides
                                         ing to increase national competitive-        tract, DAI is working with the Palestinian
    economic development solu-           ness by building stronger coalitions of      Legislative Council to create a stable
    tions to business, government,       public, private, and civil society sectors   system of self-governance by helping
    and civil society worldwide.         to advocate for legal, regulatory, and       members, staff, and civil society organi-
                                         policy change.                               zations build parallel, practical capabili-
    The newsletter highlights the
                                                                                      ties for policy making and reform.
    achievements of the firm’s            Nigeria—Restructured Economic
    overseas projects and the            Framework for Openness, Reform, and          Worldwide—Building Recovery and
    activities of staff based in         Macroeconomic Stability (2005–2009).         Reform through Democratic Gov-
                                         Under this USAID project, DAI is deep-       ernance (2005–2010). Through this
    Bethesda, Maryland. It also
                                         ening budget reform, expanding it to         USAID IQC, DAI provides expertise
    summarizes the work of               selected states, preparing key institu-      to promote democratic governance
    DAI operating companies:             tions in government and civil society        in countries in all stages of political
    Bannock Consulting, ECIAfrica,       to be more effective, and supporting         development.
                                         policy reform to make it easier for
    DAI Brasil, and DAI Palestine.
                                         private enterprise—primarily small and       Worldwide—Decentralization/Local
                                         medium-sized enterprises—to respond          Governance Strengthening (2005–
                                         to new opportunities and challenges.         2010). Through this USAID IQC, DAI
    Subscriptions to Developments                                                     promotes an integrated strategy that
                                         Peru—Policy and Institutional Develop-       creates a supportive national environ-
    are free. To be added to the mail-
                                         ment Component of the Alternative            ment for decentralization, builds
    ing list, please contact the Office   Development Program (2005–2007).             capable local governments, strengthens
    of Publications. Developments        DAI supports USAID’s principal policy        civil society, and expands economic
    also may be downloaded from          objectives of strengthening control of       opportunities.
                                         the licit coca market and of precur-
    DAI’s website at www.dai.com.
                                         sor chemicals used in processing coca        Worldwide—Instability, Crisis and
                                         into coca paste and cocaine, and better      Recovery Programs (2005–2010).
    Director: Kurt Olsson                enforcing money-laundering controls.         DAI will contribute directly to USAID’s
    Editor: Steven O’Connor                                                           increasingly important work in fragile
                                         Pakistan—Legislative Strengthening           states, transition assistance, and conflict
    Associate Editor: Kitty Stone
                                         Program (2005–2007). USAID has               programming. It covers key sectors
    Designer: Joanne Kent                contracted DAI to enhance parliamen-         including demobilization of combatants,
                                         tary processes through improved rep-         disaster recovery and reconstruction,
                                         resentation, lawmaking, oversight, and       conflict mitigation and peace building,
                                         management.                                  community-based recovery and recon-
    Development Alternatives, Inc.                                                    ciliation, and institutional strengthening.
                                         West Bank/Gaza—Palestine Enterprise
    7250 Woodmont Avenue, Suite 200
                                         Development (2005–2008). Under this          Worldwide—Short-Term Technical
    Bethesda, Maryland 20814 USA         USAID contract, DAI is stimulating           Assistance in Biotechnology (2005–
                                         economic growth, improving employ-           2008). Under this USAID contract, DAI
    Tel.: 301-718-8699                   ment opportunities, increasing access        provides technical assistance to build
    Fax: 301-718-7968                    to markets, and expanding Palestinian        the capacity of local institutions to make
                                         exports to international markets.            decisions on issues relating to cotton,
    www.dai.com
                                                                                      food aid, trade, and biosafety, and the
                                                                                      regulation of biotechnology. d



    2         DAI Developments
BY PAUL JACKSON



ECIAfrica Helps South African
Municipalities Deliver the Basics
In 1994, all South Africans were promised “a                Strengthening Local Government
better life.” For most people, this better life             To Fulfill Its Mandate
meant receiving the necessities they had been
                                                            Recognizing the size of the task facing
deprived of under the previous regime: water,
                                                            South African municipalities, the European
sanitation, electricity, healthcare, and housing.
                                                            Commission and the Department of Provincial
Local government in South Africa has a criti-
                                                            and Local Government developed a six-year,
cal role to play in this regard, and the national
                                                            €13.4 million Programme to Strengthen Local
government identified a range of service levels
                                                            Government in Limpopo and Mpumalanga. In
for local governments to achieve, including a
                                                            1999, ECIAfrica and Gruppo Soges (Italy) were
basic level representing the minimum required to
                                                            assigned to manage the program, which is now
maintain health and safety (Table 1).
                                                            drawing to a close.
TABLE 1: DEFINITION OF BASIC SERVICE LEVEL
                                                            The program worked in four district and 22 local
Service Type           Basic Level
                                                            municipalities in the two provinces, funding 21
Water                  Communal standpipes, within          infrastructure projects, building the capacity of
                       200 meters
                                                            local government to operate and maintain infra-
Sanitation             Ventilated improved pit latrine or
                       equivalent
                                                            structure, and training municipal officials. The
Electricity            5-8 Amp or nongrid electricity
                                                            infrastructure projects were a mix of design and
Solid waste disposal   Communal refuse dump with
                                                            construction: roads, reservoirs, water networks,
                       weekly collection                    sanitation, and drainage. Some 7,000 house-
                                                            holds will benefit from the roads projects, 4,700
                                                            from improved water supply, 27,000 from more
Despite the modest aspirations reflected in                  sustainable water supply through a water meter
basic-level services, municipalities have struggled
to deliver services to this minimum standard.
Among other factors, the redrawing of municipal
boundaries in 2000 brought large numbers of
poorer consumers into the municipalities, redis-
tributive transfers from the central treasury
failed to meet municipal financial needs, and
old municipal management structures struggled
to meet the new demands, while their newer
counterparts lacked the embedded systems to
do so. Infrastructure investment planning for
service delivery was weak, leading to insufficient
capital works expenditure and inadequate budget-
ing for maintenance.

                                                            Dendron, Molemole Municipality, Limpopo Province—
                                                            drainage works to combat a perennial flooding problem.

                                                                                                             PAGE 4




                                                                                                            Fall 2005   3
    SOUTH AFRICA CONTINUED FROM PAGE 3                                         registers, operation and maintenance plans,
                                                                               and financial forecasts. An asset management
                                                                               planning tool helps municipalities understand
                                                                               the day-to-day and long-term management
                                                                               requirements of their infrastructure.
                                                                           ■   A capacity assessment tool, which identifies
                                                                               priorities in improving administration.
                                                                           ■   The National Capacity Building Frame-
                                                                               work, a district-level initiative providing an
                                                                               integrated capacity-building structure that
                                                                               enables municipalities to fulfill their constitu-
                                                                               tional duties.
                                                                           ■   Roadmaps to Financial Sustainability, which
                                                                               analyze municipal revenue management,
                                                                               lay out steps and procedures to achieve finan-
    eThandakukhanya, Mkhondo Municipality, Mpumalanga                          cial sustainability, establish milestones to
    Province—sewerage works.
                                                                               measure progress, and allocate responsibilities
                                                                               to ensure accountability.
    scheme, 1,600 from improved sanitation, and
    22,000 from better effluent treatment.
                                                                           Mookgophong Municipality:
                                                                           A Case Study
    The program also funded training and mentor-
    ing to build sustainable capacity in infrastructure                    Mookgophong Municipality received intensive
    management, financial management, general                               program support. A B3-type municipality (see
    management, and generic skills, with four                              Figure 1) composed of six towns—including
    key outputs:                                                           Mookgophong Town, its economic hub—
                                                                           Mookgophong saw its population double between
    ■     Infrastructure asset management planning,                        1996 and 2001, from 14,549 to 30,759. In 2001,
          which yields asset management plans, asset                       roughly 19 percent of the municipality’s labor
    FIGURE 1: SUMMARY OF HOUSEHOLDS WITHOUT
                                                                           force was unemployed and 45 percent was “not
    BASIC SERVICES (2004)                                                  economically active.”
    80%
                                                                           Phomolong, a disadvantaged informal settlement
    60%                                                                    of 850 households, was the site for the program’s
                                                                           support of water-borne sewerage infrastructure
    40%
                                                                           in Mookgophong. Because of limited funds,
    20%
                                                                           only 115 households felt an immediate benefit.
                                                                           However, the program did complete design work
    0%                                                                     as well as a household survey for the whole settle-
               A           B1          B2          B3                 B4
                             Municipality Type                             ment. This infrastructure project helped formalize
          Water supply          Sanitation              Electricity        the settlement, alleviated poverty, and revived a
                                                                           housing plan for Phomolong—temporarily put
    Key to municipal types                                                 on hold by the Limpopo government—unlocking
    A     Metropolitan cities (6)                                          11 million rand in provincial funding.
    B1    Secondary cities (21 local municipalities with the largest
          budgets)
    B2    Municipalities with a large town as core (29)
    B3    Municipalities with relatively small population and significant   The infrastructure capacity-building component
          urban population but with no large town as core (111)            in Mookgophong was comprehensive. It helped
    B4    Mainly rural municipalities with, at most, one or two small
          towns (70)




4   DAI Developments
the municipality develop infrastructure asset man-
agement plans covering water, sanitation, roads,
stormwater drainage, waste management, and
electricity, which in turn helped Mookgophong
achieve Municipal Infrastructure Grant (MIG)
Programme Management Unit status. The
MIG is a conditional grant awarded by the
national government in support of municipal                                           d
capital budgets to fund and upgrade municipal
infrastructure, primarily benefiting the poor.
Mookgophong will now manage its own MIG
funds through a unit within the municipality.

Mookgophong also received capacity-building
assistance in finance (see text box) and in generic
skills such as integrated development planning,             Phomolong, Mookgophong Municipality, Limpopo Province—
                                                            bulk sewerage works.
HIV/AIDS policies, workplace skills, human
resources, management and training, training of
trainers, municipal powers and functions, and               With regard to infrastructure asset manage-
basic computing.                                            ment planning, the program found that one-off
                                                            training is not a long-term solution and should
Lessons Learned                                             be supplemented with medium- to long-term
The program revealed that municipalities’                   mentoring. But participants certainly had their
most pressing needs are often the most basic.               eyes opened to the interconnected impact of
Municipalities were earnestly requesting basic              asset management planning on service delivery,
assistance with bank reconciliations, and the               sustainability, and local economic development.
training in basic accounting proved the most suc-           Program managers recommend that infrastructure
cessful and popular course in the finance com-               development components focus less on isolated
ponent, along with computer literacy (municipal             works than on the broader issues of delivering
employees sometimes feared using computers).                basic services—namely, cost recovery and how
Program managers recognized that it is important            infrastructure contributes to economic develop-
not to be over-sophisticated in one’s technical             ment. Simply funding the design and determin-
support and that junior consultants are some-               ing the feasibility of infrastructure projects
times more appropriate for skills transfer than             can sometimes be sufficient to unlock govern-
highly qualified colleagues.                                 ment funding.

FINANCIAL CAPACITY BUILDING IN ACTION                       As for the bigger picture, national budget alloca-
                                                            tions have increased consistently over the past
In 2004, the Programme to Strengthen Local
                                                            few years, and service backlogs are rapidly being
Government in Limpopo and Mpumalanga helped the
new Mookgophong Chief Financial Officer prepare             reduced. The ECIAfrica program has made its
her first budget. In 2005, she constructed the entire       contribution to that trend and has added substan-
budget without assistance. “The insights we have            tially to institutional learning in South African
gained have made us more sensitive to the technicali-       municipalities. As the municipalities continue
ties and practical constraints our officials have to cope   to extend their services, municipalities and the
with and make it easier to communicate with them,”
said the Speaker of another assisted municipality. “We
                                                            development community must ensure those ser-
have told ourselves budgets are difficult and have          vices are sustainable. d
the mindset that we are not competent enough. But                        PAUL JACKSON IS A RESEARCH ASSOCIATE
this programme has confronted us with the need to                               IN ECIAFRICA’S GOVERNANCE AND
                                                                          PUBLIC SECTOR MANAGEMENT PRACTICE.
become more comfortable with financial statements.”




                                                                                                         Fall 2005   5
             BY JERRY MARTIN AND KRISTA JONES BAPTISTA



            Market Access Workshop in Croatia—
                    Lesson Learned
            DAI prides itself on being a learning company.                 Agriculture and Agribusiness practice to collabo-
            For decades, we have taken knowledge genera-                   rate so successfully on a recent workshop in
            tion as a guiding principle: part of our corporate             Brela, Croatia.
            mission is to share our learning across the DAI
            companies and with others in the development                   The impetus for the workshop came from
            field. In the last year or so, we have formalized               practice manager Jerry Martin. In conversations
            that commitment in the shape of a dedicated                    with market access and enterprise development
            Knowledge Management unit that helps us refine                  professionals in his practice, Jerry began to pick
            ideas through practice and feed them back into                 up on themes, challenges, and opportunities
            technical applications.                                        common to at least four USAID projects within a
                                                                           reasonable distance of each other. Why not bring
            It was particularly gratifying, then, for the                  them together?
            Knowledge Management team and the
                                                                           Jerry immediately enlisted Krista Jones Baptista,
                                                                           a facilitator with DAI’s Knowledge Management
                                                                           team, and—with input from the Chiefs of Party
                                                                           concerned (see text box)—they put together a
                                                                           tightly focused agenda for a two-and-a-half-day
                                                                           workshop.

                                                                           Form and Substance
                                                                           Held in September, the workshop generated a
                                                                           host of lessons learned, not the least of which
                                                                           was how best to share lessons learned. The size
                                                                           and structure of the meeting were crucial: just 10
                                                                           people and, most important, a trained facilitator.
                                                                           A thoroughly prepared agenda—anchored in con-
                                                                           crete issues pertinent to all four projects—meant
                                                                           participants were rarely listening to conversations
                                                                           in which they had no stake, and the fact that
                                                                           each project is at a different stage in its life cycle
                                                                           enabled participants to learn from one another.
                                                                           An up-tempo pace orchestrated by Krista kept
                                                                           participants focused on solutions and, although
                                                                           workshop organizers favored open discussion
                                                                           rather than lengthy project presentations, they
                                                                           emphasized the importance of keeping anecdotes
                                                                           tied to key ideas.

                                                                           With respect to substance, the first morning
                                                                           focused on conducting market studies, trade
Zlatko Janecic and other workshop participants visit the greenhouse of a   shows, and study tours; addressing food safety
Croatian tangerine producer.
                                                                           and quality, particularly for European Union

6           DAI Developments
(EU) markets; accessing high-value niche mar-
kets; and tackling policy issues through associa-
tions, trade groups, and government ministries.

ASME’s Gary Kilmer and Mkrtich Ayvazyan, for
instance, shared a case study of a successful tour
to Georgia—a nearby market that held surpris-
ing opportunities for Armenia. Food safety and
quality issues generated a dynamic conversation:
lessons learned in Croatia about certifying firms
in preparation for EU accession, for example,
were immediately relevant to the Armenia and
Albania projects.

In the afternoon, the workshop tackled ways to
                                                         Joe Welsh (center, in cap) shares ACE/RIEDA approaches.
select and develop business clients and to deliver
financial products to small, medium-sized, and
large producers and firms. Mary Miller of DAI’s           and fruits and vegetables. The impact of upcom-
Finance and Banking practice presented the               ing EU accession—a dominant theme of the
latest trends in rural finance, including use of the      meeting—became clear during the discussion of
Development Credit Authority mechanism and               Croatia’s dairy sector, where ACE and RIEDA are
the benefits and challenges of using remittances to       assisting firms in narrowing their product lines
finance agribusiness investments.                         and improving quality in preparation for joining
                                                         the EU in 2007. In a similar vein, Tom Rulland
                                                         shared insights into how EDEM is succeeding in
Think Globally, Partner Locally
                                                         the leather industry, building national demand by
All projects recognized the importance of identi-        educating Albanian consumers on the high qual-
fying and linking up with in-country talent, both        ity of domestic leather goods. Gary Kilmer related
project staff and partner organizations. Indeed,         ASME’s experience helping a major Armenian
one of the great achievements of the meeting was         tannery build a state-of-the-art effluent treatment
that Chiefs of Party were able to identify local         facility, experience that EDEM may be able to
experts, evaluate their performance, and build           build on in Albania.
a collective appreciation for and database of
resources in the region.                                 The workshop culminated with a field trip to the
                                                         Neretva Valley and visits to project clients and
The second day of the workshop focused on four           beneficiaries to see DAI’s innovative approaches
sectors: dairy, leather and textiles, specialty foods,   in action. But the learning process—a process
WORKSHOP PARTICIPANTS
                                                         that began by discerning connections among dis-
                                                         parate phone calls, progressed through carefully
■   Tom Rulland—Chief of Party, Albania Enterprise       coordinated planning, and came to fruition in
    Development and Export Market Services (EDEM)
                                                         two and a half days of intense discussion—con-
■   Joe Welsh—Chief of Party, Croatia Agribusiness
    Competitiveness Enhancement Project (ACE) and
                                                         tinues: in the intelligence gathering DAI has set
    Raising Incomes in Economically Distressed Areas     in motion to build its roster of local consultants,
    (RIEDA)                                              in the infusion of new ideas that will inform
■   Gary Kilmer—Chief of Party, Armenia Agribusiness     project planning for 2006 and beyond, in the
    Small and Medium-Sized Enterprise Market             documentation of proven approaches, and in
    Development Program (ASME)
                                                         the network of personal connections established
■   Zlatko Janecic—local Croatian partner, FLAG
                                                         under the blustery skies of Brela. d
    International d.o.o.
                                                                 JERRY MARTIN LEADS DAI’S AGRICULTURE AND
■   Six long-term project staff and sector experts          AGRIBUSINESS PRACTICE. KRISTA JONES BAPTISTA IS
                                                                 DAI’S MANAGER OF KNOWLEDGE MANAGEMENT.




                                                                                                        Fall 2005   7
      BY PAIGE SNIDER



      Corals, Coconuts, and . . .
        Business Environment
      Flying into Timor-Leste will lift the spirits of       the beachfront property is owned by the govern-
      even the most jaded international traveler. Yes,       ment, which prefers to grant year-to-year leases
      it takes three days to get there from the United       rather than sell the land or sign multiyear con-
      States, but it’s well worth the effort. The last leg   tracts. Recent government decisions (for example,
      of the flight—from Denpasar, Bali, on Merpati           to build a casino near an ecotourist guest house
      Air—is two-plus hours of sheer spectacle, an           on the island of Ata’uro) make investors question
      endless chain of volcanic islands (that would be       the government’s commitment to private sector-
      Indonesia) surrounded by intense blue and              led growth. And government reluctance to permit
      green water.                                           rebuilding and reconstruction on the beachfront
                                                             leaves property owners wary of its commitment to
RECENT GOVERNMENT DECISIONS MAKE                             honor private land ownership.
INVESTORS QUESTION THE GOVERNMENT’S
COMMITMENT TO PRIVATE SECTOR-LED GROWTH.                     Similarly, the coconut industry—like much of
                                                             the agricultural sector—has difficulty generating
                                                             investment in plantations because of uncertain
      That vivid water is more than just a pretty post-      property ownership. The government is still
      card. Timor-Leste has some of the world’s best         bogged down in the process of restitution, in
      diving—miles of untouched corals and a myriad          some cases dating all the way back to its days
      of marine life. A tourist industry is emerging         as a Portuguese colony. Lack of clear land title
      around adventure and diving tours, anchored by         depresses interest in replanting an aging stock of
      a Professional Association of Diving Instructors       coconut, palm, and sandalwood trees.
      center that draws divers from around the world to
      see Timor’s underwater treasures.                      A Recurring Theme
                                                             The business environment clearly holds back
      Timor also has the potential to develop a coco-        Timor’s development, but Timor is far from
      nut industry (unsurprising for an island covered       unique in that regard. Increasingly, DAI’s
      in coconut trees). The fighting of the past 40          projects include major components address-
      years virtually ruled out the use of pesticides,       ing the business environment. The most recent
      making the nation an organic food marketer’s           is the Bolstering Agriculture and Sustainable
      dream. Exporting high-grade organic coconut            Agribusiness/Private Sector Reform Project, a
      oil is already a growing industry, with established    three-year, $6 million USAID effort to improve
      markets in Australia and Germany.                      the movement of Timorese agricultural and non-
                                                             agricultural products to market, while increasing
      Limiting the growth of both the tourism and            jobs and incomes.
      the coconut industries, however, is a little thing
      called the business environment. A program of          New USAID projects in Morocco, El Salvador,
      land titling and registration following indepen-       and Nigeria likewise entail major efforts to
      dence from Indonesia remains unfinished, leaving        address the environment in which businesses
      investors cold when it comes to putting money          compete. DAI is working with the Moroccan
      into tourism. Restaurateurs, hoteliers, and other      government on a five-year, $10 million project to
      service providers along Dili’s main “Beach Road”       reform the judicial system (primarily in com-
      find themselves on uncertain ground. Much of


8     DAI Developments
Photo courtesy of James Grall (DAI)




                                      Crocodile Beach in East Timor.

                                      mercial and bankruptcy law) and the financial sector.     Betsy Marcotte joined DAI this fall as Vice President
                                      That work includes integrating multiple credit           of the Agriculture and Natural Resources Group,
                                      databases and establishing a movable and immovable       following 25 years working in the environmental sector
                                      property registry. In El Salvador, DAI’s four-year,      for private and public organizations around the world.
                                      $3.5 million Tax Policy and Administration Reform        For the past 15 years, she has worked in international
                                      project modernizes tax administration, upgrades          development, managing large global projects for
                                      information technology systems, and improves audit       USAID in environmental policy, waste management,
                                      capacity—securing the business environment and
                                                                                               and integrated water resources management. She
                                      allowing businesses to plan future expenditures. And
                                                                                               has worked in more than 20 countries and recently
                                      in Nigeria, the four-year, $9 million Restructured
                                                                                               managed a project for the World Bank focused on
                                      Economic Framework for Openness, Reform, and
                                      Macroeconomic Stability project is working with the      building the capacity of institutions in Indonesia’s
                                      Ministry of Finance and other ministries to improve      water sector.
                                      fiscal governance and enact policy reforms in support
                                      of the nonoil economy, particularly agriculture.         At PA Consulting until 2004, Betsy led the Interna-
                                                                                               tional Environment practice and directed PA’s EPIQ
                                      The common denominator is the private sector:            II and Water IQCs with USAID. Before switching to
                                      each project intervention is driven and gauged by its    international development in 1992, she was a Vice
                                      potential impact on businesses and how businesses        President at ICF, Inc., where she directed projects for
                                      will be better served by reforms.                        the U.S. Environmental Protection Agency covering
                                                                                               almost all environmental programs, including hazard-
                                      Recognizing the importance of the business environ-
                                                                                               ous waste management, Superfund site clean-up,
                                      ment—and building on the continuing successes
                                                                                               acid rain regulation, groundwater protection, and safe
                                      of DAI business environment projects in Brazil,
                                                                                               drinking water.
                                      Croatia, Moldova, Uganda, Ukraine, and else-
                                      where—DAI is devoting the next issue of its journal,
                                      Developing Alternatives, to business environment         Betsy will now lead one of DAI’s largest groups, cov-
                                      reform: new trends, recent experiences, and chal-        ering service areas ranging from community-based
                                      lenges for the future. In the new year, DAI will host    natural resource management to agribusiness and
                                      a debate on the business environment and a series of     market development. With a current staff of 40, she
                                      one-day conferences in Washington, D.C., followed        will be responsible for hiring, training, mentoring, and
                                      by regional events in Asia, Africa, and the New          developing the next generation of agricultural and
                                      Independent States. d                                    environmental specialists at DAI.
                                          PAIGE SNIDER IS A SENIOR DEVELOPMENT SPECIALIST IN
                                              DAI’S ECONOMICS, BUSINESS, AND FINANCE GROUP.



                                                                                                                                     Fall 2005       9
BY PIERS BOCOCK



New Era Signals New Horizons
    For Rural Cambodia
Home to one of the past century’s worst totalitarian regimes, Cambodia is better known these
days as host to some of the world’s most socially responsible textile factories. Name brands
such as Gap and Nike have set up shop outside Phnom Penh, due in part to labor rights best
practices. But with the end of the quota-driven Multifiber Agreement, donors are turning their
attention from the textile industry—a shining star in Cambodia’s otherwise murky economic
development portfolio—toward other private-sector growth opportunities.




USAID, for instance, has traditionally assisted Cambodia in    manner—could dramatically increase opportunities for
governance and human rights, education, and healthcare.        micro, small, and medium-sized enterprises (MSMEs),
But as conditions improve in Cambodia, USAID is begin-         which comprise 99 percent of all Cambodian businesses.
ning to focus on economic growth, initially through a three-   On the surface, indicators suggest that Cambodia is making
year effort to be implemented by DAI, the Strengthening        significant progress: rising gross domestic product (GDP)
Micro, Small, and Medium Enterprises in Cambodia               per capita, increased exports, positive economic growth,
project. The $4.4 million award reflects DAI’s strength in      World Trade Organization membership, a model program
value chain development, finance, and regulatory reform,        in the hypercompetitive global garment market, and what
and DAI is proud to partner with two Phnom Penh-based          seems like genuine government commitment to regulatory
organizations, The Asia Foundation and the Economic            and policy reform.
Institute of Cambodia.
                                                               But scratch the surface and a different picture emerges.
Cambodia’s turbulent history is slowly giving way to a more    Economic activity clusters around the capital. In 2003,
open and dynamic economy and business environment.             per capita GDP in Phnom Penh was more than $1,000,
Such changes—if supported in a positive, market-driven         while in the provinces it was a mere $208. More than


10        DAI Developments
5 million people—36 percent of the population—live below          Kampong Cham, Kratie, Prey Veng, and Svay Rieng. All
the poverty line. Outside of garments (concentrated in and        are situated along the Vietnamese border, which offers an
around Phnom Penh) and tourism (mainly in Siem Reap,              opportunity to spur trade and development through inter-
home to the temples of Angkor Wat), economic growth               ventions that exploit this location. Kampong Cham has the
is anemic. Most of the population survive on subsistence          most potential: a broad selection of value chains (including
agriculture and most added value for rural products is lost to    cashews, peanuts, cassava, soy, garments, livestock, silk, and
Cambodia’s neighbors, Vietnam and Thailand. Ninety per-           rice) and good roads to Vietnam. Kratie offers diverse prod-
cent of businesses are informal, making them more difficult        ucts (including rice, fish, rattan, and livestock) and—as
to track, less likely to pay taxes, and less able to access the   one of the few places in the world where one can glimpse
business services and finance required to grow. And smug-          a freshwater dolphin—potential for ecotourism. Prey Veng
gling between Thailand to the west and Vietnam to the east
decreases revenues for regional and national governments
and makes export activity difficult to track. Finally, the lack
of supply of and demand for commercial and financial sup-




                                                                                                                            KRATIE




                                                                                                               KAMPONG
                                                                                                                 CHAM


                                                                                                                 PREY
                                                                                                                 VENG

                                                                                                                        SVAY
                                                                                                                        RIENG




port services limits MSMEs’ ability to improve and thereby
to break out of the cycle of poverty.
                                                                  and Svay Rieng are both extremely poor, rice-dominated
The contrast between the hustle and bustle of Phnom Penh
                                                                  economies, but fruits, vegetables, and bamboo are potential
and the poverty of the rural provinces is stark. The capital is
                                                                  growth crops.
vibrant, its roads awash with scooters zipping between cars
and bicycle-taxis and lined with Internet cafes, travel agents,
                                                                  Led by a team of experts in the Cambodian MSME environ-
restaurants, hotels, clothing stores, and training institutes.
                                                                  ment, DAI’s project will help create a more open, dynamic,
Outside the city the landscape shifts to country lanes lined
                                                                  and opportunistic environment for small businesses to
with stands selling everything from bread and tombstones to
                                                                  explore these economic opportunities, working in selected
building materials and old tires. Dirt-floored shacks and stilt
                                                                  value chains, improving access to finance, and increasing the
houses overlook flooded fields grazed by emaciated cattle.
                                                                  availability of (and demand for) paid commercial services. d
                                                                    PIERS BOCOCK IS A SENIOR DEVELOPMENT SPECIALIST WITH DAI’S
This is the challenging rural environment DAI’s MSME                                        ENTERPRISE DEVELOPMENT PRACTICE.
project will address, focusing on four southeastern provinces:


                                                                                                             Fall 2005               11
       BY JEREMY KANTHOR



       Wolf Fellow Supports Projects
         In Conflict Environments
       Projects in conflict areas must work quickly to      particularly difficult to monitor grant effective-
       disburse grants, often without access to adequate   ness and collect information across activities
       information on where funding is required or         over time.
       which activities are successful and why. It is
                                                           Through the Wolf Fellowship, and in partner-
                                                           ship with the Supporting Peaceful Democratiza-
 DAI’s Jim Wolf Fellowship was established in 2001 to      tion project (SPD) in Indonesia, I developed
 honor the memory of a long-time DAI employee. Jim         a method for rapidly collecting and analyzing
 Wolf was a passionate and charismatic agricultural        information on grantee and beneficiary experi-
 engineer, and the Fellowship program seeks to con-        ences, and recording their perceptions of project
 tinue his legacy of mentorship and learning. Through      activities. Although the system does not provide
 the program, each year a junior or mid-level staff        a comprehensive impact assessment, it does offer
 member is provided with up to $10,000 in funding to       a level of analysis helpful in making program-
 expand his or her professional knowledge and skills       matic decisions.
 by working on a DAI project or by conducting inde-
 pendent research on a leading development topic.
                                                           I first helped the SPD staff develop impact indica-
                                                           tors. SPD’s Chris Felley and I then traveled to
 Andrew Iappini (DAI/Economics, Business, and
                                                           Central Sulawesi to collect associated data on
 Finance Group) and Frances Bundred (ECIAfrica/
                                                           recent activities to support peaceful local govern-
 Development Finance) were awarded the 2005 Jim
                                                           ment elections. Using off-the-shelf software, we
 Wolf Fellowship for their proposal, Building Credit
                                                           coded the data based on variables important to
 Symmetry Through Collaboration: Guidelines for
                                                           measuring the impact of election activity: timing,
 Best Practices in Credit Registries. Their objectives
                                                           degree of collaboration with government and
 are to shed more light on the successes of DAI/
                                                           civil society partners, transparency of funding
 ECIAfrica projects working in credit information and
                                                           mechanisms, activity location, and perception of
 to assemble tools that will help technical staff imple-
                                                           change. The Central Sulawesi analysis provided
 ment credit information activities. The Fellowship will
                                                           information useful for planning election activities
 be guided by an advisory committee composed of
                                                           in other regions earlier in the election cycle and
 industry experts, in-house development staff, and
                                                           for ensuring that activities target communities at
 the Fellows’ mentors, Nate Bourns and Bill Grant.
                                                           greatest risk for conflict, not simply those where
                                                           nongovernmental partners are already working.
 Frances and Andrew will work with the Uganda
 Financial Sector Deepening Project and the new            SPD is using the system in Aceh to analyze
 Improving the Business Climate in Morocco proj-           56 community development activities support-
 ect to field-test their Fellowship deliverables. Both     ing tsunami recovery, with a focus on how
 projects are designing nationwide credit registries.      activities affect women and men differently and
 Frances and Andrew are committed to providing             how they help communities and government to
 an end product that will synthesize experience            work together. d
 and theory into applied tools that help our projects       JEREMY KANTHOR IS A DEVELOPMENT SPECIALIST WITH
 expand credit information.                                   DAI’S DEMOCRACY AND GOVERNANCE PRACTICE AND
                                                                    THE RECIPIENT OF THE 2004 WOLF FELLOWSHIP.




12     DAI Developments
BY MARIO RUBENS



Engaging Small Firms to Tackle
   Deep Poverty in Brazil
Brazil is home to the largest pocket of poverty       In the Northeast, micro, small, and medium-sized
in the western hemisphere. Forty-six percent of       enterprises account for 49 percent of employment.
the Northeast region’s 48.3 million inhabitants       The USAID/Brazil program is working to improve
are poor, and the region has the country’s lowest     the export capacity of four clusters in the Northeast
United Nations Human Development Index                region—açaí (a Brazilian Amazon fruit) in the state
score (0.68) and income per capita (US$70). The       of Pará, honey in Piauí, cashew nuts in Ceará, and
region’s mean wage is 57 percent of the Brazilian     swimwear in Bahia. The program encourages micro
average, much of its population is rural, and         and small producers to form producer associations,
much of its labor force works without remunera-       strengthens horizontal and vertical relationships
tion—producing for its own consumption—or is          among enterprises, and improves their export sales
self-employed.                                        positions, all in an effort to increase the likelihood
                                                      that these producers will survive in the long term.
Trade and investment are key elements in fighting
poverty, creating jobs, and generating sustainable    Beginning in 2004, the program enlisted an expert
economic growth. And micro and small enter-           consultant team, established a steering commit-
prises (MSEs) are a crucial and underexploited        tee for MSE and trade enhancement (with rep-
source of economic growth and employment              resentatives from the private and public sectors),
opportunities. Implemented by DAI Brasil,             conducted a diagnostic study, identified key export
USAID/Brazil’s Micro and Small Enterprise             challenges by sector and cluster, and designed the
Trade-Led Growth Program is set to rectify this       intervention now being implemented.
situation by building an export-led growth strat-
egy squarely on the energy and entrepreneurialism     The ultimate objective of that intervention is to
of smaller firms.                                      create an environment conducive to MSE exports.
                                                      DAI Brasil consultants are assisting MSEs and
MSEs already make important economic contri-          associations to access better financial services, make
butions to Brazil’s economy: they represent 20        systematic use of market information and analyses,
percent of the total gross domestic product. Of       build links to export markets, and adapt products
Brazil’s 4.7 million registered businesses, 96.8      for foreign markets. In the longer term, they hope
percent are MSEs and—along with the other 9.5         to reform national regulations hindering trade.
million informal enterprises—they employ 59
percent of the economically active population.        The program expects to boost exports (and jobs)
However, although the MSE sector accounts             by an average of 30 percent at the cluster level,
for a large proportion of Brazilian businesses, it    representing more than $500,000 in the first year
contributes only 3 percent of Brazil’s exports. (In   of implementation. More broadly, in assisting
countries such as China, Denmark, Italy, South        residents of the Northeast to find a sustainable path
Korea, and Taiwan, the MSE sector represents          to economic and social development, it will lay the
more than 40 percent.) Approximately 4,000            groundwork for reforms and technical interventions
industrial MSEs export, to the tune of $800 mil-      that constitute a roadmap for MSE export success
lion annually.                                        replicable in other countries. d
                                                             MARIO RUBENS IS A COMMUNICATIONS SPECIALIST
                                                                  ON THE MSE TRADE-LED GROWTH PROGRAM.




                                                                                                  Fall 2005    13
     BY JONATHAN BERMAN AND FELIPE VALDEZ



     Big Business Building Small Business
     In the Indonesian fishing village of Marang            purchase locally. Local content mandates are particu-
     Kayu, a factory is being built that will turn         larly relevant for natural resource companies. While
     waste from the local catch into fishmeal.              requirements vary depending on the country and
     Wholesalers in the surrounding province of East       project, local content targets of 25 to 45 percent of
     Kalimantan and elsewhere are ready to purchase        total expenditures are common. Meeting these tar-
     the fishmeal, and the logistics, finance, and feeder    gets means that international mining and petroleum
     industries needed to make the business work are       companies must support enterprise development
     all coming into place.                                activities in their supplier base.

     Usually the domain of donors, this local enter-       Local content imperatives are not limited to the
     prise development project is funded by Unocal         natural resource sector. In Armenia, for example,
     and Unocal Foundation, one of several invest-         local produce often fails to meet international stan-
     ments that the international oil and gas corpora-     dards, which has led major international hotel chains
     tion expects to continue over the next 20 years.      to import nearly all of their raw food ingredients.
     The company’s recent review of socioeconomic          Improving local suppliers’ food quality, processing,
     prospects for the region indicates that both the      and distribution can enhance a corporation’s business
     company and the nearby communities will be            environment, improve its relations with the local
     well-served by economic diversification. Unocal’s      community, and lower its costs.
     business unit manager considers it critical to his
     operation’s success.                                  Political Mandates
                                                           In countries where legacies have led to the need for
THE BENEFITS OF ASSISTING LOCAL ENTER-
                                                           economic empowerment of a dispossessed group,
PRISES ARE SIGNIFICANT FOR BOTH THE                        global corporations will fund enterprise development
CORPORATIONS AND THE COMMUNITIES IN                        programs to fulfill that mandate. The most signifi-
WHICH THEY OPERATE.                                        cant developing-country market driven by political
                                                           mandate is South Africa. In the wake of apartheid,
                                                           the government encouraged, and later mandated,
     DAI helps global corporations connect with local
                                                           companies operating in the country to achieve
     businesses throughout the developing world. We
                                                           sector-specific targets for black ownership and pur-
     have found that the benefits of assisting local
                                                           chasing from black-owned enterprises. As intended,
     enterprises are significant for both the corpora-
                                                           the Black Economic Empowerment mandate has
     tions and the communities in which they operate.
                                                           stimulated the largest companies to invest in build-
                                                           ing the capacities of their black-owned suppliers.
     Primary Business Drivers

     Corporations are increasingly strengthening their     Socioeconomic Development
     businesses in developing countries by drawing on      Not all enterprise development programs funded
     the skills of local enterprise specialists. DAI has   by corporations are designed to fit into their own
     identified three primary drivers:                      supply chains. Global companies with long-term
                                                           investments in a region will invest in programs that
     Local Content Requirements                            create economic opportunity and social stability,
     Global corporations routinely seek local suppliers    even if those programs are unrelated to the firms’
     to meet their operating needs in developing           specific purchasing needs. Unocal’s investment
     countries. Cost savings coupled with social or        in the Marang Kayu fishmeal operation is a
     contractual requirements drive companies to           good example.


14   DAI Developments
New Areas of Opportunity                                  COMPANIES CAN ADDRESS LONG-TERM BUSI-
Enterprise development programs implemented               NESS SUPPLY NEEDS BY HELPING A TARGETED
by global corporations vary in their goals and            SET OF HIGHLY MOTIVATED LOCAL ENTERPRISES
approaches. Three forms of intervention are               MEET THE STANDARDS REQUIRED BY INTERNA-
most common: facilitating access to procurement           TIONAL FIRMS.
opportunities, helping enterprises meet required
standards, and building technical capacity.
                                                          world: logistics, supply chain infrastructure, and
Global companies develop local enterprises in             the political power of established competitors.
their supply chains by increasing the enterprises’
abilities to access the procurement process. At           Supplier Aggregation
their most basic, these services include holding          One of the most significant challenges to
public meetings and workshops to ensure that              increased purchasing at the local level is the size of
local businesses are aware of public tender offers        local enterprises relative to the global firm. Scale
and can provide the necessary documentation               matters, especially in developing countries. Global
to reply.                                                 companies have neither the human resources nor
                                                          the expertise to build effective associations of
Companies can address long-term business                  suppliers. At first, some corporate managers find
supply needs by helping a targeted set of highly          it an odd activity to support, because it transfers
motivated local enterprises meet the standards            power from buyer to seller. Nonetheless, global
required by international firms. DAI is assisting          companies committed to increasing local purchas-
a global hotel chain in Armenia to raise the stan-        ing find that working with supplier consortia
dards of local food suppliers to the level required       enhances their ability to communicate their needs
by the hotel’s kitchens. Even in cases in which           and their ability to have those needs met at a scale
international standards are not a formal prerequi-        manageable for global and local enterprise alike.
site, global companies will invest in the technical
capabilities of local suppliers for critical inputs, or   Organizational Capacity Building
in regions critical to the company’s success.
                                                          When we speak with companies seeking to
                                                          increase their use of local suppliers, we ask them
While the above interventions are most common,
                                                          what inadequacies they find among their current
global companies should consider the value they
                                                          suppliers. Organizational deficiencies such as fail-
can create by taking advantage of the following
                                                          ures to make timely delivery or to provide accu-
new areas of opportunity.
                                                          rate billing and invoicing are at least as common
                                                          as technical shortcomings. Programs that build
Value-Chain Analysis
                                                          enterprises’ managerial capacity (including pro-
Many global companies support local enterprises           grams that build effective business development
based primarily on the companies’ sense of what           service providers) could bring substantial benefits
the community needs or is asking for most.                to global companies and complement the work
Analyses of demand, competition, critical linkages        already being done on the technical side. For
in the value chain, and obstacles to those linkages       example, Unilever Corporation increased its local
would greatly enhance the return on social invest-        purchasing in Africa by working with DAI to
ments made by global corporations. In a region of         strengthen the business planning skills of black-
Peru where repeated efforts have failed to create         owned enterprises in its supply chain for soap
sustainable enterprises, a leading international          production. More recently, mining and energy
mining company is designing a program—driven              company BHP Billiton has turned to DAI to help
by demand in local and national markets—that              increase the billing and project capacity of BHP
addresses challenges typical of the developing            Billiton’s suppliers in South Africa.
                                                                                                     PAGE 16




                                                                                                       Fall 2005   15
             BIG BUSINESS CONTINUED FROM PAGE 15                           New Technical Staff

                                                                           Christy Owen, a Development Specialist in DAI’s Natu-
             Conclusion
                                                                           ral Resources practice, recently returned to Bethesda
             Increasingly, corporate managers are finding their success
                                                                           after a one-year assignment as Deputy Chief of Party in
             tied to the success of local enterprises in the developing
                                                                           Venezuela for an Office of Transition Initiatives program.
             countries where they operate. Strengthening local suppli-
             ers in these countries must be driven by the corporation’s
             overall strategy and should be held to the same rigorous      Kirsten Spainhower joined the Agriculture and Natural
             standards as any other element of its business. Targets       Resources Group in 2005 from the World Bank, where
             should be set, managed, and reported against to ensure        she worked on environment projects. Kirsten has lived
             that they are met. In all cases, these investments must       and worked in Uganda and Thailand, and served in
             create value for the business as well as for the local com-   Benin as a Peace Corps volunteer doing agroforestry
             munities.                                                     extension.
                              JONATHAN BERMAN IS A DIRECTOR OF DAI’S
                        BUSINESS ADVANTAGE GROUP. FELIPE VALDEZ IS AN
                        ASSOCIATE WITH THE BUSINESS ADVANTAGE GROUP.       Omar Hopkins recently joined DAI’s Water practice as
                                                                           a Development Specialist. Omar is a civil and environ-
                                                                           mental engineer and has worked in the private sector, for
THE TÄLLBERG FORUM 2005                                                    nongovernmental organizations, and most recently as an
                                                                           American Association for the Advancement of Science
The globalization of the world’s economy, environment, and
                                                                           (AAAS) Science and Technology Fellow with USAID’s
culture increasingly demands that we discuss such issues as
                                                                           Energy Team.
poverty and terrorism in a global sense. The Tällberg Forum
2005—organized by the Tällberg Foundation, an independent
                                                                           Beth Gertz is a Senior Program Manager with the Busi-
nonprofit organization set up to enhance understanding of
                                                                           ness Advantage Group. Beth has corporate business
transformational leadership, values, and institutional change—
                                                                           strategy and operations experience from her work with
focused on the topic How on Earth Can We Live Together?
                                                                           The Boston Consulting Group and Deloitte Consulting in
Exploring Frameworks for Sustainable Global Interdependence.
                                                                           Southeast Asia and Pakistan.

Among the 450 participants in the Forum were seven DAI
staff members: Tony Barclay, who led the DAI contingent;                   Patrick O’Mahony joined the Crisis Mitigation & Demo-

George Asatiani, Chief of Party of the project to Support the              cratic Governance Group with 14 years of experience in

New Government of Georgia; Danylo Kushnir of the Ukraine                   international development and public sector reform. He

Municipal Budget Reform Project; Ogujiuba Kanayo Kingsley,                 has led programs in the Balkans and the Middle East

deputy team leader of our economic reform project in Nigeria;              related to post-conflict reconstruction and state building.

Denisa Sarajlic-Maglic, policy director for the Governance                 He manages the Decentralization/Local Governance

Accountability Project in Bosnia and Herzegovina; Thangavel                Strengthening Technical Assistance IQC.

Sakthivell of the Sri Lanka Transition Initiative; and Priska
Munthali from our sustainable resource management project                  Joe Siegle is an expert on the political economy of

in Malawi.                                                                 democratic transitions whose 20 years of experience
                                                                           integrate fieldwork in 25 countries, academic research,
These staff members, whose backgrounds are vastly dissimilar,              and policy analysis. He is coauthor of the recently
all found inspiration from their discussions with other Tällberg           published The Democracy Advantage: How Democra-
participants and with one another. Not only were they able to              cies Promote Prosperity and Peace. He joins the Crisis
view their work from the perspective of global interrelation-              Mitigation & Democratic Governance Group from the
ships—something that some of them found difficult to do in the             University of Maryland’s School of Public Policy and the
throes of daily activities—they also rediscovered that they are            IRIS Center. d
part of the DAI team, all working toward the same end.




16           DAI Developments
BY GRETA BULL, NEIL RAMSDEN, AND SWATI SAWHNEY



Sibacadembank – Bannock Helps
   Build a Regional Bank in Russia
Sibacadembank (SAB), a private bank based in               current trajectory is sustainable. Recruiting,
Novosibirsk, focuses on lending to small and               developing, and retaining capable staff to
medium-sized enterprises, entrepreneurs, and               manage and sustain SAB’s growth will
individuals. Since its modest beginnings in                be crucial.
June 1990, SAB has grown into a major player
                                                       ■   Staying ahead in an extremely competitive
in the Russian regional market and has a strong
                                                           environment: Management must develop
market presence across Siberia, the Urals, and
                                                           a coherent strategy to deal with increasing
the Far East.
                                                           competition, particularly in the retail lending
                                                           sector where competition is stiffest. The criti-
SAB’s capacity to address the challenges brought
                                                           cal elements of a competitive strategy include
on by its rapid growth is a concern for the bank’s
                                                           developing and implementing procedures and
management and for the European Bank for
                                                           systems comparable to international banks’,
Reconstruction and Development (EBRD),
                                                           maintaining client orientation and responsive-
which acquired a 25 percent holding in SAB
                                                           ness, and integrating SAB’s operations with
in December 2004. Following this investment,
                                                           other banks in the “Bank Alliance” (an infor-
and given the bank’s growing regional presence,
                                                           mal group of five banks in Russia) to create
the EBRD implemented a project to help SAB
                                                           the critical mass needed to rival such banks
build its institutional capacity, particularly its
                                                           as Sberbank.
risk management and credit processes. Bannock
Consulting’s broad experience building the capac-      ■   Accessing international markets: Encouraged
ity of banking institutions in the Commonwealth            by consistently strong growth, SAB is confi-
of Independent States positioned it well to aid            dent of its ability to increase its longer-term
SAB in its development plans.                              funding. Like other large Russian banks, SAB
                                                           plans to use its developing credit history and
SAB management attributes the bank’s success               ratings to access international capital markets,
to the quality of its people and the superior-             an obvious next step that will strengthen the
ity of its procedures, systems, and technology.            bank’s position but could also be a source of
SAB’s immediate priority is to establish itself as a       vulnerability. Management must ensure that
leader in full-service banking, with a diversified          appropriate risk processes and systems are in
corporate and retail portfolio that meets interna-         place to protect the bank from external shocks
tional standards. In addition, SAB plans to access         as it ventures into international markets.
international capital markets, with a possible
eurobond issue in three years.                         Bannock consultants outlined several steps to help
                                                       SAB achieve its goals:
As it expands, the bank will face three primary
challenges:                                            ■   Institutionalizing robust credit procedures:
                                                           SAB has made progress in updating its credit
■   Managing rapid growth: Between December                procedures, but Bannock will identify any
    2004 and June 2005 alone, SAB’s total asset            remaining gaps to strengthen the credit
    value rose by 67 percent, its total income by          appraisal and monitoring system. This process
    nearly 60 percent, and its net profit by 400            will include regular observations of credit
    percent. Management must ensure that the               committee sessions and helping SAB add
                                                                                                   PAGE 18


                                                                                                   Fall 2005   17
     SIBACADEMBANK CONTINUED FROM PAGE 17                        HAITI CONTINUED FROM PAGE 1
         a judgmental-based scoring tool to its scoring          including the generators, the pumps, and the systems of
         system to improve its decision making.                  canals and drains. In fact, many systems had been idle for
                                                                 several years because of lack of maintenance or fuel. The
     ■   Developing a coherent risk control strategy: In
                                                                 benefits of huge prior investments in irrigation systems
         an increasingly competitive environment, SAB’s
                                                                 had been lost, and farmers were for the most part plant-
         ability to analyze and manage its risk is key to
                                                                 ing low-value, drought-tolerant crops such as sorghum
         sustaining growth. Bannock will help SAB ana-
                                                                 and maize.
         lyze the risk rating of credit portfolios to identify
         weaknesses and strengthen information flows.
                                                                 The reconstruction project called for “building back
         Given SAB’s aspirations in international capital
                                                                 better” the original system. DAI staff quickly realized
         markets, Bannock will examine existing struc-
                                                                 that if we just did what was called for in the scope of
         tures and recommend areas where risk control
                                                                 work, without changing the underlying relationships that
         can be strengthened, particularly with regard to
                                                                 governed the functioning of the irrigation systems, what
         the Treasury function. The team will also exam-
                                                                 we repaired in the short term could very well fall back
         ine SAB’s oversight of financial risk, advise the
                                                                 into disrepair in the longer term.
         new Internal Audit Division, review membership
         of the Assets and Liabilities Committee to ensure
                                                                 Adapting lessons learned from the hillside program, DAI
         appropriate representation, and make sure the
                                                                 developed a two-pronged strategy to build sustainability
         committee’s function is understood throughout
                                                                 into the systems we are rehabilitating. First, we are intro-
         the organization.
                                                                 ducing new, higher-value crops such as peppers, onions,
     ■   Constructing an organizational plan to meet             shallots, papaya, beans, and plantains, and we are build-
         SAB’s staffing needs: Bannock will help SAB              ing local and international market relationships to make
         manage its staffing and human resource func-             sure that the produce is sold and that a fair share of the
         tion, reviewing job descriptions for new hires and      proceeds reaches the farmers. The extra funds generated
         recommending changes as needed. Working with            by the new production and marketing system will allow
         current post holders, the team will clarify roles       farmers to help maintain the irrigation systems. Second,
         and responsibilities and how those roles fit within      we are encouraging water user groups to take greater
         the overall organization.                               responsibility for irrigation system management—per-
                                                                 forming operation and maintenance functions such as
     Bannock’s ultimate goal is to add the most value            cleaning canals and drains and repairing or providing fuel
     possible in a way that meets both EBRD’s and SAB’s          for generators and pumps.
     objectives. An approach based on close cooperation
     with bank management—supported by knowledge                 These elements are critical for maintaining the flow of
     of international best practice and an understanding         benefits from the original investments in the irrigation
     of the local environment—is the best way to achieve         systems. However, the production, marketing, and water
     this goal and ensure that positive changes become           user group development will not be completed before
     part of the institution’s culture. d                        the storm reconstruction project ends, and agricultural
         GRETA BULL IS THE DIRECTOR OF THE PRIVATE SECTOR        and institutional development are longer-term processes.
          DIVISION AT BANNOCK CONSULTING. NEIL RAMSDEN IS        Therefore, DAI is working with USAID to make sure
      BANNOCK’S LEAD CONSULTANT AND CREDIT EXPERT. SWATI
                     SAWHNEY IS A CONSULTANT AT BANNOCK.         that the work we have begun will continue under our
                                                                 hillside program and will be included in future rural
                                                                 development programming. d
                                                                 JAMES CHAPMAN IS A SENIOR AGRICULTURAL ECONOMIST AT DAI.
                                                                    TIM ASTON IS CHIEF OF PARTY OF THE HILLSIDE AGRICULTURE
                                                                         AND HURRICANE JEANNE RECONSTRUCTION PROGRAMS.




18   DAI Developments
FROM THE DESK OF THE CHIEF EXECUTIVE OFFICER




                      A New Era of ESOP
Tony Barclay
                      Ownership Begins at DAI
On January 1, 2006, the Employee Stock              Each path contained a commitment that
Ownership Plan (ESOP) became DAI’s                  anyone buying stock, or receiving it, would be
sole shareholder. This change cements a             made whole by being paid out in cash when
35-year tradition of employee ownership,            their employment came to an end. Supported
and will enhance the company’s long-term            by conservative financial practices, this inter-
sustainability.                                     nal market mechanism has worked extremely
                                                    well, accommodating the entry and departure
Employee ownership has been a core prin-            of many employee owners. And ownership
ciple since DAI was established, so it is fitting    certainly has had its rewards: the value per
that it should be an integral part of our future.   share has increased from $2.15 in 1981 to
Several months ago, I wrote a column in this        $201.60 at the end of 2004.
space about our aspirations to be a “living
company” that grows stronger and con-               The story up to this point is a very positive
tinues to prosper over many decades. The            one, but bigger challenges and opportunities
ESOP provides us with a strong foundation to        lie ahead, which is why DAI has moved to
accomplish this goal.                               100 percent ESOP ownership.

Stock ownership at DAI began with three             The challenges result from both our record of
founders in 1970, and expanded to a dozen           profitable growth and our confidence in the
staff purchasers of stock 10 years later and        future. Steady increases in stock value rep-
more than 70 owners by the year 2000. The           resent excellent news for employee owners,
individuals who’ve bought stock have done so        but eventually, all of those owners expect and
at a price determined annually by an inde-          deserve to receive that value in the form of
pendent appraiser and approved by the Board         cash. The more successful we are, the larger
of Directors.                                       those future obligations, which makes more
                                                    urgent the task of planning for the day when
In 1981, the company contributed some               they will come due.
additional stock to its profit-sharing retire-
ment savings plan, which extended partici-          Facing up to these challenges, our Board
pation in ownership to a broader group of           has searched for the best way to sustain
employees. This plan was converted into an          employee ownership, which has given DAI
ESOP in 1995. By the beginning of 2005,             the freedom to adapt, learn, and grow, while
the ESOP’s ownership stake had grown to 65          maintaining a strong sense of community and
percent, and the number of participants in the      common purpose.
plan had reached 340.
                                                    After an intensive review of alternatives, the
By opening two paths to ownership—pur-              Board concluded that with an ESOP in place
chasing stock and receiving stock through           that already owned two-thirds of the outstand-
profit-sharing (and more recently, ESOP)             ing stock, DAI’s best option was to achieve
contributions—DAI’s Board and founders              100 percent ESOP ownership. This process
made it clear that the returns from profitable       involves having the company borrow funds to
growth would go to the employees who build          buy back all individually owned shares, and
the value of the company.
                                                                                           PAGE 20


                                                                                           Fall 2005   19
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     Development Alternatives, Inc.                                                          Permit No. 7802
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        CEO’S DESK CONTINUED FROM PAGE 19                  ■   As the company succeeds, we will be able
                                                               to create greater long-term financial secu-
        then converting to Subchapter-S status under           rity for our growing community of ESOP
        the Internal Revenue Code, which will elimi-           participants. Increased enterprise value
        nate federal corporate income tax liability.           will translate directly into higher value
                                                               of the stock held in employees’ ESOP
        The transformation to full ESOP ownership              accounts. Healthier cash flow will reinforce
        creates an efficient way to generate increased          our ability to make timely distributions to
        cash flow from the resulting tax savings. In            those who retire or leave.
        the next few years, most of the additional
        cash will be used to repay the debt used for       DAI employees have always been fiercely
        stock repurchases.                                 proud of the work that we do, our reputation,
                                                           and the people with whom we work. It’s my
        There are two longer-term benefits, however,        hope that this change will provide an addi-
        that are much more important:                      tional motivation for us to share our enthusi-
                                                           asm with our clients, our partners, our future
        ■   The additional cash generated will give DAI    employees, and the development community
            greater capacity to invest in new markets      at large. d
            and new lines of business. We will need this
                                                                                             TONY BARCLAY
            capacity as new development challenges
            arise, public- and private-sector clients
            adjust their priorities, and competitive
            forces reshape the global marketplace.




20      DAI Developments