PRIVATE SECTOR DEVELOPMENT IN LDCS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00759R000100100010-5
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: December 6, 2010
• Sequence Number: 10
• Publication Date: July 18, 1985
• Content Type: MEMO

Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
18 July 1985
NOTE FOR: Director of Central Intelligence
FROM: David B. Low
National Intelligence Officer for Economics
SUBJECT: Private Sector Development in LDCs
Attached are the following:
1. A copy of the current version of the summary paper which
Ambassador Keating is using to press his concerns with senior members
of the Administration. For the most part I have drafted this. If
you want to send a letter on this topic to the President or Mr.
Regan, you could draw from this.
2. Talking points which Bob Keating asked be given to you with
the request that you consider phoning Mr. Regan to lay the groundwork
for a visit by Bob Keating and myself.
3. A hilarious/sad example of an attempt by AID to cram the
'entrepreneur' into a preconceived box designed for other purposes.
This illustrates the total lack of understanding by AID of the
private sector and market forces.
4. Another copy of the Heritage Foundation publication on US
Attachments:
As Stated
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
16 July 1985
INTERNATIONAL PRIVATE ENTERPRISE:
WHEN WILL THE REAGAN REVOLUTION BEGIN?
The Setting
We have now had 40 years of foreign assistance and the clear evidence is
that only when capital is made available to the private sector can real and
sustained economic growth take place. America's program to support Third World
economic development is a consequence of fundamental US interest in furthering
its own political and economic goals and security. By promoting self-sustaining
economic growth based on private enterprise and market incentives, the US can
establish a necessary condition for long-term stability and the convergence
of political values.
The President at Cancun in 1981 articulated a positive program of action for
economic development, based on:
stimulating international trade by opening up markets, both within
individual countries and among countries;
-- tailoring particular development strategies to the specific needs and
potential of individual countries and regions;
guiding our assistance toward the development of self-sustaining
productive activities, particularly in food and energy;
-- improving the climate for private capital flows, particularly private
investment; and
creating a political atmosphere in which practical solutions can move
forward.
At Williamsburg there was agreement on the need for convergence of
economic policy and performance, and in particular the promotion of continued
structural adjustment in the industrialized democracies through enhancing the
flexibility and openness of economies and financial markets. There is much to
be done in these countries to emphasize the need for greater labor mobility,
capital formation, shift of resources away from the public sector, etc., but
the mechanisms and policy context for accomplishing this are substantially
different than in the Third World. The same can be said with respect the
Eastern Europe, although there is every reason to believe that US policy and
programs in each case can be mutually reinforcing.
The purpose of this note is to call attention to one of the major unmet
goals of this Administration--encouraging LDC economic growth through the
private sector-and to suggest the options which remain available to effect
real change within the next three years. More than ever we are at a turning
point. The time remaining for a decision and effective initiative is running
out.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
The Challenge
Economic policies in the Third World (and industrial nations) are shifting
toward market-oriented approaches. Many of these countries are just beginning
to initiate practical policies which will gain momentum over the next 10 years.
The President's goals as spelled out at Cancun thus were timely and have the
potential of delivering international economic growth through the stimulation of
private enterprise. The strategy and mechanisms for carrying out the goals are,
however, flawed. Thus, the challenge of implementing the President's program
remains unfulfilled.
The Opportunities
This changing climate presents significant economic opportunities for the
United States:
to increase small- and medium-scale enterprises within LDCs and
the acceptance of new technologies;
-- to enlarge the flow of foreign direct investment, and to help state
enterprises to become more efficient and find ways to relinquish
some functions to the private sector;
to strengthen its trade, finance, and investment links with LDCs
based upon a growing mutuality of economic interest.
The growing American economy is an irresistible example impelling change
in the economies of both the industrial and Third World countries. Many
developing countries now understand that rigid, Marxist-socialist economic
models will not yield economic and industrial growth. In addition, Soviet
economic and financial constraints over the next 10 years will make Moscow even
less able to compete in non-military sectors. Thus:
the changing climate should strengthen the West's position relative
to that of the Soviet Union if we take advantage of it, and
- in specific countries US security interests will often coincide with
opportunities for economic support and can be mutually reinforcing.
The Obstacles
Although the richer LDCs have been able to advance economically by exporting,
the poorer LDCs will have to depend on the emergence of small- and medium-scale,
domestically oriented enterprises as their main engine of growth.
But many Third World leaders are moving slowly because they feel
threatened by a loss of political control caused by the diffusion of economic
power.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
- How does the US encourage a tilt toward free-market policies while
helping reduce the fears as to political instability?
AID, as currently structured, is not the solution. In fact, it is part
of the problem. Western countries have built ponderous bureaucracies of their
own which for the most part administer social welfare programs, humanitarian
aid and security assistance without generating economic growth.
Bureaucratically, AID opposes new initiatives to address this issue
which are beyond its control, as a matter of turf.
AID has an important role as part of the process. It can use its programs
and resources to create leverage for policy change and the dismantling of state
enterprises. However, present developmental assistance efforts are not
philosophically based on the President's goals as stated at Cancun nor
sufficiently directed toward effective stimulation of private enterprise.
The AID understanding of the private sector is limited, and there is little
positive correlation in AID programs with private sector growth.
Thus, we are at a stalemate.
The Crucial Questions
-- Is the President aware that, despite the positive climate for change,
his program to encourage economic growth and more open societies
through the stimulation of private enterprise remains unfulfilled?
Is the Administration satisfied with the current means of
coordination of US policy for economic and security assistance to key
countries and regions?
-- Is it time to refocus existing mechanisms or to structure a new
mechanism to stimulate international private enterprise?
-- Is the Administration willing to commit the political capital
necessary to address this issue through legislative change?
The Proposals for Change
The Peterson Commission in 1972, the Reagan Transition Team in 1980-81,
the Carlucci Commission of 1982, a portion of the President's Task Force on
International Private Enterprise in 1984 and others have concluded that
AID is the wrong institution to carry out the private sector mandate.
These groups have proposed that one or more new institutions be created,
such as:
- a US International Development Bank;
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
a US version of the International Finance Corporation (equity
participations);
a US Development Corporation to support feasibility studies and to
provide management expertise and venture capital for new ventures;
and
a Private Enterprise Institute to be a source of information and
counsel to stimulate international trade and investment.
Some proposals are quite specific about funding as well, for example,
setting aside up to 25% of the AID development assistance budget, or about
$500 million, to capitalize such institutions, and for authorizing borrowing
directly from the Treasury.
Consideration has also been given to the expansion of OPIC, which has two
significant advantages:
OPIC already exists in a form designed to interact directly with and
to promote private investment abroad, and
-- it is the USG agency most closely associated with US business
decisionmakers seeking to invest in LDCs.
OPIC, however, is a relatively small organization with a specialized staff and
its expansion would require legislative change. Some have proposed in addition
that the mandate of the Export-Import Bank be expanded.
All of these proposals have one thing in common: the need to shift
resources away from AID to an environment which understands the private sector.
Unless the Administration is prepared to do this, the President's goals will
not be fulfilled.
The Options
In order to implement an Administration commitment to change, the President
1. Appoint a new head of the International Development Cooperation Agency
(IDCA). This already-established position, which is above AID and which includes
oversight of OPIC, is currently held by the Director of AID.
This position would offer a new incumbent the opportunity to develop
the strategy and the modalities for stimulating private enterprise
in the Third World, including a more effective partnership with the
US private sector.
- This person could lay the groundwork and develop the legislative
framework to shift the necessary resources from AID, and to bring to
fruition the President's goals as stated at Cancun.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
2. Appoint a Special Assistant to the President for International Private
Sector Development. Appointment of a person to this position would be an
alternative which would allow attainment of the goals expressed in option 1.
3. Appoint a new Director of AID. Replacement of the current Director by
someone with a private sector orientation would allow for:
-- a blunting of the current policy drift which is counter to many of the
President's private sector objectives;
-- a shift in focus of development resources and programs toward policy
conditionality and the philosophy of self-sustaining economic growth;
-- release of a portion of AID funding to support new initiatives.
The new AID Director would be confronted with a staff that does not understand
the private sector. There would be bureaucratic inertia or resistance to
overcome and this would consume a great deal of time.
Obviously, any legislation required to shift resources would take time.
But, the goal would be to put in place before the end of this term the proper
mechanism for implementation of the President's Cancun goals.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
17 July 1985
-- Ambassador Bob Keating (Madagascar) has recently been giving this
topic alot of thought.
-- My National Intelligence Officer for Economics (David Low) has been
helping him, with my support.
-- The US has not done enough to carry out the President's program
announced at Cancun in 1981 to stimulate the private sector in
developing countries.
AID is just not doing the job, because it doesn't know how.
-- Several of us in the Administration (myself, McFarlane, Baldridge)
and many in the business community are very concerned about this.
Time is running out in order to make some real impact during the
President's second term.
-- I would like to ask if Ambassador Bob Keating and David Low could
call and arrange to spend 15 minutes with you on this topic.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
AGENCY FOR INTERNATIONAL DEVELOPMENT
WASHINGTON D C 20523
July 9, 1985
Subject: RFP COD/AN-85-005
Research on Entrepreneur Identification
and Development in Morocco
Gentlemen/Ladies:
The United States Government, represented by the Agency for
International Development (A.I.D.), is seeking proposals to
provide the services described in the attached pages.
To this end, A.I.D. is issuing this Request For Proposals (RFP),
which consists of this cover letter, Standard Form 33 with
accompanying sections, and Attachments J.1 through J.2.
This RFP in no way obligates A.I.D. to award a contract nor does
it commit A.I.D. to pay any cost incurred in the preparation and
submission of a proposal.
Any questions concerning this RFP should be lirected to
H. T. Simon, Contract Specialist, of this office who may be
reached at (703) 235-9137.
Sincerely,
Kathryn Y: Cunningham
Contracting Officer
A/N Science and Technology Branch
Central Operations Division
Office of Contract Management
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
SUPPLTS OR SERVIC"S AND PRICES/COSTS
The Agency for International Development (A.I.D.) requires the
services of a qualified contractor, over aL;e,=-per
to undertake a project to increase successful entrepreneurship in
Morocco.
Based upon the results of ongoing entrepreneurial research efforts
in less developed countries (LDCs), the project objective of
expanding the base of successful entrepreneurs in order to promote
the process of small enterprise development shall be accomplished
through a multi-phased approach which includes:
o Entrepreneur Identification - the determination of the
personal entrepreneurial characteristic variables which
are associated with successful indigenous entrepreneurs,
and the development, testing, and validation of a
methodology/instrument for identifying individuals
demonstrating such characteristics;
'Sw
o Behavioral Training - the development, testing, and
evaluation of a behavioral training program which
improves entrepreneurial effectiveness through behavior
change as opposed to formal business skills training.
A three (3) year cost-type contract, reimbursing allowable costs
incurred in furnishing the negotiated level of effort, is
contemplated. Negotiation of a fixed fee will be considered for
profit-making organizations.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
WORK STATEMENT
C.1. Background and Problem Statement
Although estimates indicate thaw--s~,e--30-x% of t-h ~a~ion.=c
activity in urban areas of less developed countries (LDCs) is
attributable to small and informal sector enterprises, only
recently has the economic significance of this sector been
recognized by the development community. While previous projects
have focused resources on efforts (e.g., financial assistance,
business skills training, infrastucture development) to develop
and stimulate such entrepreneurial activities, research indicates
that insufficient attention has been given to the entrepreneurs
themselves.
In response to this deficiency, the Agency's Bureau for Science
and Technology, Office of Rural and Institutional Development,
Employment and Enterprise Division (S&T/RD/EED) has developed the
Entrepreneur Identification and Development Project to improve
techniques for identifying and training small-scale entrepreneurs.
aggEm"N
As used in the'context of the Project, entrepreneurial potential
is defined as the personal characteristics (behavior, values,
dispositions, attitudes, etc.) of individuals which are identified
'
with successful entrepreneurial performance. By identifying thes
characteristics and developing methodologies with which to select
and train entrepreneurs demonstrating such potential, the
effectiveness of the resources dedicated to small enterprise
development is expected to increase significantly.
As contemplated in this solicitation, Project activities are to be
undertaken in Morocco to supplement other Pc'gency-sponsored research
being conducted in Malawi, Ecuador, and India.
C.2. Scope of Work
To achieve the Project objective of expanding the base of successful
entrepreneurs in order to promote the process of small enterprise
development in Morocco, the contractor shall perform the following
tasks:
A. Identify and Validate Personal Enterpreneurial
Characteristics
(i) Pre-Implementation Analysis: In consultation with
S&T/RD/EED, thoroughly review and interpret the
results of Project research activities in Malawi,
Ecuador, and India and prepare a summary report of the
conclusions.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
(ii) Project Planning and Site Selection:
a) Coordinate with S&T/RD/EED personnel and
representatives of the National Science
Foundation to plan Project activities;
Visit country sites to assess the feasibility of,
conducting the research, and to identify -
qualified o'f roccan research-organizations to
perform data collection activites;
Establish contractual relationships with the
Moroccan research organization(s) identified as
having the staff capabilities (e.g., language
fluency, management skills, and administrative/
logistical support) necessary to interview the
target population of entrepreneurs and collect
research data.
(iii) Entrepreneur Identification:
a) Coordinate with the participating Moroccan
research organization(s) to develop a sample
selection with balanced regional, cultural and
social (male/female) considerations;
b) Identify in-country organizations (chambers of
commerce, trade associations, financial
institutions, government ministries/councils,
etc.) capable of recommending superior-
performing entrepreneurs in manufacturing,
marketing, and service industries;
Establish the sample of seventy-two (72)
entrepreneurs, equally,..?divided among
manufacturing, marketing, and service industries,
and including thirty-six (36) clearly superior
performers and thirty-six (36) average performers.
(iv) Interviewer Training:
a) Prepare interview outlines and training guides
for the Moroccan research organization(s);
b) Conduct a four (4) day training program in
Morocco for the local project manager and field
interviewers;
c) Review the initial interviews conducted by each
field interviewer and provide constructive
feedback in effort to improve interviewing skills.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
(v) Ent_epreneur Interviews and DaL Collection:
a) Coordinate with the Moroccan research
organization(s) to conduct tape-recorded
interviews of the seventy-two (72) entrepreneurs
in the initi:l research sample, and to translate
and transcr..,e the results;
b) Review the quality of the interview transcripts
and advise field interviewers of any improvements_
needed in interviewing techniques.
(vi) Transcript Analysis and Identification of Personal
Entrepreneurial Characteristics;
a) Review thirty-six (36) of the interview
transcripts for characteristics that: 1) are
required in all entrepreneurs, and 2) distinguish
superior from average performance;
b) Conduct a two (2) day "concept formation" meeting
to define and organize the identified personal
entrepreneurial characteristics;
c) Use the personal entrepreneurial characteristics
with behaviorally specific indicators to code the
remaining thirty-six (36) transcripts and thereby
determine which characteristics distinguish
superior from average performance;
d) Coordinate with S&T/RD/EED to compare these
findings with those of Project activities in
Malawi, Ecuador, and India,
e) As the result of such comparisons, formulate, as
necessary, in consultation with representatives
from S&T/RD/EED and the National Science
Foundation, any required adjustments to the
research strategy.
B. Develop and Validate Selection Methodologies
(i) Selection Methodology Development:
a) Identify the personal entrepreneurial
characteristics from the pre-implementation
analysis and the field interviews which are to be
utilized in developing selection methodologies;
b) Develop or identify entrepreneur selection
instruments to assess the personal
entrepreneurial characteristics.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
(ii) identification of the Validation
Samples:
a) Plan the cross-validation sample selection with
the Moroccan research organization(s);
Establish the cross-validation sample selection,
including:
1) Forty-five (45) superior and forty-five (45)
less-effective entrepreneurs who were not
interviewed initially;
2) Thirty (30) start-up entrepreneurs who have
been in business less than six (6; months;
and
3) Thirty (30) potential entrepreneurs (i.e.,
applicants to entrepreneurial institutes or
students in entrepreneur-development
programs).
Within each group, the sample should be divided
equally among individuals in manufacturing, marketing/
trading, and retail types of businesses, and should
reflect a proportionate representation of female
entrepreneurs.
(iii) Implementation of Selection instruments:
a) Train the Moroccan research organization(s) to
administer the sei-ction instruments;
b) Coordinate the administration of the selection
instruments to the validation sample and the
translation of the resulting data;
c) Review the initial data obtained using the
selection instruments, and advise the field
research staff of any modifications necessary in
the administration of the selection instruments.
(iv) Concurrent-Validation Analysis: Review the data
obtained to determine the power of the selection
instruments to differentiate superior from average
entrepreneurs.
(v) Longitudinal-Validation Analysis:
a) Develop a follow-up instrument to measure
entrepreneurial success;
b) Train the Moroccan research organization(s) to
administer the follow-up instrument;
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
c) Approximately twenty-four 24) months from the
administration of the initial selection
instruments, locate as many of the individuals as
possible from the validation sample and
administer the follow-up instruments to'all of
those who have businesses.
d) Review the data obtained to determine the power
of the selection instruments to predict:
1) Whether the existing superior entrepreneurs
have continued to be at least as successful
as the average performers;
2) Which of the start-up entrepreneurs are the
most successful; and
3) Which of the potential entrepreneurs
actually established businesses successfully;
e) Prepare manuals and scoring keys for the
selection instruments.
C. Develop and Evaluate Behavioral Approaches to
Entrepreneurial Training
(i) Pre-Implementation Analysis: coordinate with
S&T/RD/EED personnel and review current research
literature to identify prior experiences in using
behavioral training as a mechanism for developing
personal entrepreneurial characteristics.
(ii) Preliminary Training Program Design:
a) In coordination with S&T/RD/EED personnel,
develop the overall course structure, identifying
attitudinal as well as-'nona'ttitudinal components
based upon the pre-implementation analysis and
the results of the field research;
b) Select the indigenous training institution(s);
c) Design and conduct a "training of trainers"/
curriculum development workshop in Morocco;
d) Prepare initial training materials and manuals;
e) Field test the entrepreneurial training program;
revising as appropriate, the program content
and/or training materials and manuals.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
(iii) Development of Program Impact Assessment:
a) Develop objective measures of the entrepreneurial
training program's impact (i.e., relative success
indices);
b) Determine research design, including the
establishment of test and control groups in
association with S&T/RD/EED;
c) Coordinate the collection of baseline data with
the Moroccan training institution(s).
(iv) Entrepreneurial Training Program Implementation:
a) Finalize training program materials and manuals;
b) Supervise the administration of the training
program.
(v) Program Impact Assessment:
a) Coordinate the collection of impact evaluation
data with the Moroccan training institution(s);
b) Analyze the data to assess the impact of
behavioral training on entrepreneurial
performance.
D. Information Dissemination (Reports and Meetings)
(i) Annual Workplans: within two (2) months from the
effective date of the contract, the contractor shall
prepare and submit to S&T/RD/EED five (5) copies of a
draft workplan which outlines the schedule of
activities for the first year of the Project. Based
upon the advice and guidance provided by
representatives of S&T/RD/EED and the National Science
Foundation, five (5) copies of the revised workplan
shall be submitted for final approval within two (2)
weeks after receipt of A.I.D. comments.
A similar annual workplan, subject to the review
process described above, shall be submitted one (1)
month prior to the completion of each project year
over the remaining two (2) years of the contract, and
shall summarize progress to date and describe the
activities anticipated to be accomplished during the
next project year.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
 Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5
(ii) Annual Reports: within thirty (30) days after
completion of each of the first two project years, the
contractor shall submit to S&T/RD/EED five (5) copies
of an annual summary report detailing the
a-complishments of the preceding twelve (12) month
r_riod. Twer-_y (20) copies of the fully-edited final
(third project year) annual report, summarizing the
results of the Project, including analysis of the
Moroccan data relative to the findings of similar
Agency-sponsored projects in Malawi- ECUador-- and
India, shall be submitted to S&T/RD/EED at the final
annual meeting.
(iii) Annual Meetings: concurrent with the publication of
each annual report, and as a component of networking
activities for disseminating the results and findings
of the Project, the contractor will organize a meeting
to evaluate and discuss project activities.
Representatives of the contractor, S&T/RD/EED, and the
Moroccan research organizations and training
institutions are expected to participate. Other
interested individuals/organizations may also be
invited.
Approved For Release 2010/12/06: CIA-RDP87T00759R000100100010-5