Eastern Europe Enterprise Funds

Millennium Partners was a subcontractor to DevTech Systems for the purpose of conducting a multi-country evaluation for USAID of Enterprise Funds established by the Support for Eastern European Democracy (SEED) Act of 1989 and the Freedom Support Act (FSA) of 1992, and Legacy Foundations set up in the host countries between 2000 – 2015, funded with some of the proceeds from the investments of the Enterprise Funds. The period of performance for the evaluation is September 27, 2016 to July 27, 2017 with work locations in the United States and Albania, Bulgaria, Romania, Hungary, Ukraine, and Moldova. The overall purpose of this evaluation was to provide USAID and other stakeholders, including the American public, with an account of the experience, successes and shortcomings, and accomplishments of the Enterprise Funds and Legacy Foundations. The evaluation also aimed to assess the effectiveness of the Enterprise Funds and Legacy Foundations as development tools in practice and to make recommendations for adaptations, should policy makers consider using these mechanisms in other settings in the future. 

The evaluation team began the analysis with a recognition of the turbulent times in which the Enterprise Funds began operating in Central and Eastern Europe. The unpredictable political and economic local dynamics necessitated maximum flexibility in the Boards decision-making and Funds management teams. After all, the first Funds were making private equity investments while the Russian Army was still in Central Europe. In rapid succession between 1991 and 1995 Enterprise Funds started operations in economies faced with much steeper learning curves than that of Central Europe during the transition – from Central Asia to Ukraine, Belarus and Moldova, to Albania. In the 1990s and 2000s, these countries went through the deep convulsions of the transition to democracy and market economies – shock therapy in Poland and Bulgaria, severe crisis in Albania in 1997, collapsing banking sector in Bulgaria and the introduction of a Currency Board, similarly Currency Boards in some of the Baltic republics, the Russian crisis, the global financial crisis, two revolutions and a war in Ukraine, and more. 

Despite the enormous challenges of the transition from planned to market economy, the former Soviet bloc countries were very different from today’s developing countries in several important ways: they had an educated workforce and urbanized populations, fairy modern industrial and service sectors with well-structured value chains, and functioning bureaucracies. These countries did not have, however, a private sector, and in particular, a diversified private financial sector that could support the financial investments needed to transform the economy into a market-based system. This is the gap that the Enterprise Funds were designed to help to address. They were a solution to a problem in a very specific context. Policy makers deliberating potential replications of the Enterprise Funds should take into consideration the contexts in which new Funds would operate and determine how their models, structures, investment and development strategies, operations, and governance practices may need to be adapted to address effectively different sets of challenges, while protecting adequately United States Government (USG) interests. 

The data and information collected as part of this evaluation will provide policy makers with a richer understanding of the likely effects of investments and grants for private sector development in each country where the Enterprise Funds and Legacy Foundations operate. Interviews with current and former Directors of the Boards and staff of the Funds and Foundations, current and former USG policy makers, investees and grantees, and third party stakeholders as well as the applications of a corporate governance assessment tool with several Legacy Foundations re-invigorated internal discussions among Foundation staff and conversations with stakeholders about the role the Funds and Foundations have played in the local context and the importance of governance and measuring results, among other things. The findings of this evaluation and the lessons learned should add value to the deliberations of policy makers tasked with the assessment of the effectiveness of these mechanisms in different contexts and with the design and implementation of future interventions building on the successes and avoiding some of the challenges faced by the Enterprise Funds and Legacy Foundations.