Promising African Development Fund Collapses

from The New York Times..

By Barry Meier and Ron Nixon

May 30, 2013

The initiative began two decades ago, with the best of intentions, after apartheid fell and southern Africa’s future brightened.

Today that program, the Southern Africa Enterprise Development Fund, is in its death throes, apparently victimized by mismanagement, insider dealings and a lack of oversight by federal officials. Current and former fund officials are fighting over money, and the eventual cost to American taxpayers of the fund’s missteps could run into the tens of millions of dollars, public filings indicate.

On one level, the plight of this obscure fund is a common tale involving the hazards of foreign aid. But on another level, experts say, it points to wider problems bedeviling the federal agency that financed the fund, the United States Agency for International Development, or U.S.A.I.D. In fiscal 2013, the agency had a budget of $1.6 billion and helped administer more than $40 billion in foreign assistance.

“There is a primacy on getting money out of door and there is less urgency on how it is spent or how well it is spent,” said Jake Johnston, a research associate at the Center for Economic and Policy Research, a policy institute in Washington.

The Southern Africa fund was long led by the American civil rights leader Andrew Young. Its mission was to help start or expand businesses in Southern Africa in sectors including finance, manufacturing, communications and drilling by providing loans or other types of financing. Many of its current problems began in 2009 when agency officials approved a plan under which the organization was to transition into a private equity fund.

Since then, millions of dollars in management fees, legal expenses and other costs have been spent pursuing the failed plan. The fund’s value has plummeted by more than 60 percent since 2009, to $18 million from $48 million, the group’s tax filings show.

A spokesman for the aid agency, Raphael Cook, declined to make officials of the agency available for an interview about the Southern Africa fund. “We require all our grantees to use sound business judgment and uphold their fiduciary responsibilities,” Mr. Cook said in a statement.

The current chairman of the fund, Carlton A. Masters, and a director of the group, Peter V. Emerson, did not respond to interview requests. However, in a statement issued through a lawyer, John Q. Kelly, the fund said that the organization had succeeded in its mission. Agency officials called its track record “mixed.”

Three former top fund executives are claiming in an arbitration proceeding that the fund owes $1.4 million in fees to a management firm they had founded to pursue the privatization effort. The firm, Inflection Capital Partners, received some $4 million from the fund under a deal that a former fund director described as too lucrative. The fund is claiming in the arbitration proceeding that the former insiders violated the fund’s agreement with the aid agency by overpaying themselves more than $840,000.

Lars Liebeler, a lawyer in Washington who represents the former fund executives, described the fund’s claim as groundless. He declined to make them available for interviews.

The current fight is far from the first time that the fund has been involved in controversy or internal disarray. Over the years, government auditors have criticized its operations, and the group has chosen to deal with management problems in unusual ways.

Around 2008, for example, fund directors learned that an official of the group had solicited $100,000 in personal loans from the developer of the Mount Meru Hotel, a resort in Tanzania underwritten by the fund. The official then allowed the developer, a local businessman, to withdraw unauthorized funds from the hotel’s account.

But even after an internal investigation determined the officials’s actions had violated federal regulations and fund policies, he was not fired. Instead, Mr. Young decided to overlook the man’s actions and left him in charge of another fund-financed project in Tanzania.

“I am a pastor and I believe in giving people another chance,” said Mr. Young, the former congressman, United Nations ambassador and mayor of Atlanta, in an interview in 2009.

For years, Mr. Young and Mr. Masters, while directors of the fund, were also partners in a lobbying firm based in Washington called GoodWorks International that represented some African countries including Tanzania, a nation in which the fund did business.

Mr. Young, who did not respond to interview requests, retired last year from both the fund and the lobbying firm.

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Link to the entire article:

http://www.nytimes.com/2013/05/31/business/southern-africa-development-fund-mired-in-debt.html?ref=africa

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