Interview

Really, Really Big Oil

Steve Coll's global tour of how ExxonMobil, the international "supermajor" and world's most profitable company, still rules.

In an era of global turmoil, volatile oil prices, and muscle-flexing state-owned petroleum companies, ExxonMobil still rules the roost. In an exclusive conversation with Foreign Policy, New America Foundation President Steve Coll, author of the new book Private Empire, explains how ExxonMobil has managed to exert such market dominance -- building operations in often sketchy "frontier regions" -- while still keeping its hands (relatively) clean.

Foreign Policy: How did this book come about?

Steve Coll: When I was looking at the big oil supermajors and thinking about how to write about the subject and finding my way towards ExxonMobil, one of the things that attracted me to them as a subject is that their global footprint is very evenly distributed compared to some of the others. They're not so lumpy in the Caspian or the former Soviet Union or elsewhere. They operate in more than 160 countries. In the upstream -- and what's interesting about the dilemma that all of the supermajors headquartered in the West face, but especially an American company like ExxonMobil with its enormous size -- is the huge reserve replacement challenges each year. They pump out 4.5 million barrels of oil 365 days a year, so that's a lot to find and replace on an annual basis. So if you're ExxonMobil, you look out on the world and you ask, "Where can we own oil and gas?" in an era of resource nationalism. It's not a question they asked in the 1970s when they were part of Aramco in Saudi Arabia; they owned more than they knew what to do with in the Middle East in Iran, Iraq, and Saudi Arabia in the early postwar period. Now they look out into the world and say, "Where can we own oil and gas?"

Really, there are two big answers. One is in the free market where property rights are sacrosanct, but the problem is until recently there hasn't been that much growth in oil and gas discovery in the West; the other answer, which is what explains the global map where they operate, is by in large weak states -- which are so weak that they can't build up a state-owned oil company to take prerogative and be the vehicle for resource nationalism. So ExxonMobil ends up disproportionately in West Africa, for example, in Equatorial Guinea, Nigeria, Chad, Angola, and other states that might wish to control their oil for nationalistic reasons but have fallen on hard times. ExxonMobil is knocking at the door, just like Iraq, where they just went into Kurdistan.

And they hold their own -- or they try to hold their own -- against state-owned companies competing globally through technological prowess and by project management. So if you're the emir of Oilstan and maybe you have a state-owned company but it's run by your cousin and it doesn't work very well, it's got a lot of your patronage machine employed in it, maybe some good engineers but not world class, and you want to realize the cash value of your oil and gas holdings quickly, ExxonMobil will turn up with a PowerPoint presentation and tell you pretty reliably that a) they have the technology to extract the most value out of the ground for you of anybody in the world, especially if your oil is in deep water or under ice or in some difficult place, and b) whether your oil is in a difficult geology or not, they'll also say pretty reliably, "We're very good at coming in on time and on budget."

Their competitive edge is project management on a huge industrial scale, and they like to operate these projects independently -- not share them with others. Their case is: "Don't make us partner with inefficient state-owned companies. Let us run the thing, and then we'll make sure everyone gets paid and gets paid on time." That's their world in a nutshell.

FP: But what happens when they come to a place like Aceh, Indonesia, which had enormous political strife at the time?

SC: This company was born of a merger closed in late 1999 between Exxon and Mobil, two "Baby Standards" -- two independent decedents of the breakup of Standard Oil in 1911 that was ordered by the United States Supreme Court. Essentially it was a merger of equals when there were a lot of combinations of big oil companies in the late 1990s when prices fell and the whole industry was confronted with structural problems. They combined to better manage their positions and also to compete with the state-owned companies that were rising in Russia and Brazil and elsewhere, but the merger was really Exxon buying Mobil.

When Exxon bought Mobil, however, it bought a company whose overseas holdings were in far more adventurous places than Exxon's were. So they basically bought a bunch of wars and they bought a lot of Africa and they ended up with a map that had geopolitical risk in it to a much greater degree than Exxon alone had been forced to confront.

Probably the most important property they bought in 2000 was this giant gas field in Aceh, Indonesia, and some liquefied natural-gas facilities next door to the field. At that time, this Aceh field accounted for about a quarter of Mobil's overseas profits; it was an enormous cash cow due to some contracts they had set up with the Japanese and South Koreans. So Exxon buys this thing, and somehow their investment bankers didn't do full due diligence to report to the board of directors, "Oh yes, you're also buying a war."

Their separatist movement really ramped up and started attacking ExxonMobil's gas fields directly, and the Indonesian military, which did not want to see Aceh go after losing East Timor, was determined that that was it -- they were going to draw the line at Aceh. At that point, they were essentially under contract with ExxonMobil to defend these gas fields and they undertook a pretty brutal campaign to put down the Acehnese rebellion. This included  setting up detention centers on the perimeter of Exxon's gas fields where they detained Acehnese men and tortured them, and also conducted sweep operations in local villages that could also be violent and menacing.

This presented Exxon with a series of dilemmas that they frankly hadn't had to reckon with in the previous 10 years when they were operating on their own in places like Australia and or in Europe. They had entered Angola but it had settled down; they had a field in Chad but they hadn't developed it yet. They had a few of these dilemmas in places like Yemen, but nothing of this scale. And the records from the lawsuits that were eventually filed claiming human rights violations that ExxonMobil either had known about or should have known show that the company was pretty much over its head, at least initially and really didn't know quite what to do about this.

FP: So how does a massive company like ExxonMobil set itself up to absorb a significantly higher degree of risk? These are the same sorts of problems that got Chevron in trouble in South America, Shell in Nigeria. How do they reconfigure corporate culture to absorb an entirely different type of business?

SC: They have basically a political risk department that is central to their corporate planning and to their annual strategy discussions at headquarters. It's run by a woman named Rosemarie Forsythe who used to be on the National Security Council, and she basically goes into the management committee -- which is the top group of executives that's looking out over the world from quarter to quarter and year to year -- and she presents political risk analysis, both regional and global. I spoke to her a little bit about what her PowerPoint show sounds like, and basically she describes a world in which more and more of the oil that ExxonMobil is going to be interested in or already owns is in unstable places; that's what the basic map looks like. They color code it and they divide the world into different groups and so forth, but fundamentally the oil they can access is in unstable places. Now an academic might also point out that the oil is in unstable places because oil can be destabilizing in weak countries, but I'm not sure ExxonMobil does that analysis.

FP: That might be a chicken and egg problem. What are some of these other places?

SC: About a quarter of ExxonMobil's liquids production, as they say in the business -- that is oil but also gas liquids, which is the most valuable of the properties that they own -- about 25 percent of that production is in West Africa in basically in four places, Nigeria, where they have large-scale production offshore, and a little bit of an onshore footprint. Compared to Chevron and Shell they're very fortunate to be out in deep water, so when the guerrillas try and attack them they have to go on speed boats and they're not as accessible -- it still happens, though. And then Equatorial Guinea, this tiny but fantastical dictatorship -- a small country, one of the few Spanish colonies in Africa, and they are the major producer offshore there. Chad, where they entered in this radical World Bank nation-building experiment -- building a pipeline across Cameroon to try to create a new model of oil revenue management that would lead to Chad's social development. They started there in 2000; 12 years later, they're the only big operating producer in the country and the World Bank experiment has ended. Chad is still at the bottom of the Human Development Index tables but Exxon is still producing a couple hundred thousand barrels a day. And in Angola they have a very large presence, mostly offshore.

Elsewhere, Venezuela was a very important property to them until they were expropriated in 2007. They and Conoco were the two companies that responded to President Hugo Chavez's confrontational reform plans by leaving. Everyone else compromised. If you count the geological survey numbers on a barrel basis, it's an enormous amount of oil, but it's hard to mine and expensive and not as profitable per barrel as, say, Nigerian crude, which is some of the most profitable in the world. But anyway they got thrown out of Venezuela. They're trying to get into Brazil but it's not clear what they're going to end up with.

Russia is another important story for them. They were in Russia early in the 1990s in the Yeltsin era, way out in the Far East on Sakhalin Island. This is an example of how their technological prowess got them into a place that might otherwise have been difficult to enter because they alone could credibly propose to drill in these Arctic conditions of the Russian Far East, and they have created this pioneering horizontal drilling project under frozen seas. And they used that as leverage to try and get into some of the bigger Russian oil plays. They negotiated to buy the majority of the stake in Yukos before Mikhail Khodorkovsky was arrested in 2003. That failed, but now they've come back as a big partner of Rosneft where they're now up in the Arctic in Russia, which is a big part of what they hope to do in the future.

Another footprint that's really important to their current financial profile is in Qatar, where they basically have a huge liquefied natural gas and chemicals manufacturing operation. They basically are the most important partner of the Qatari government, which is coming into its own because of these gas assets. They're also in the UAE, where they've got important oil fields and they've come back into Iraq over the last two years.

And that's really interesting, because in 2009 when Iraq finally started auctioning off some of its fields in order to get its production up as the war settled down, Iraq went in with the other supermajors and did business with the Baghdad government and ExxonMobil got a piece of the field in the south. It was advertised by everyone at the time as just a sort of beginning of what they hoped would be a long-term presence in the Iraqi upstream. And then this year, they shocked everyone by defying the preferences of the Obama administration and the Bush administration before them by doing business directly with the Kurdish Regional Government. They now have signed an agreement with the Kurds which Baghdad regards as illegal. And these fields in question are not only disputed because the Kurdish Regional Government has auctioned them off, but they're also in areas that are the among the most disputed between the Arabs and Kurds.

FP: But why did they do this? The Kurdish fields are not nearly as profitable as the southern fields and Baghdad has made clear that if they signed these deals they would be kicked out of these more lucrative fields. Plus there's the issue of a nonexistent pipeline to Turkey...

SC: A lot of people are asking that question. I think basically a couple of factors seem to have entered into their thinking. One is that they were disappointed by what actually unfolded in the field that they acquired in the south -- these sort of ambiguous contracts in 2009 where the terms weren't very favorable. And then they got in and started doing the work and found that the Iraqi government's actual performance and delivery on what were already pretty lousy terms (from their perspective) wasn't very good. I think they lost faith in the mainstream Iraqi oil play; that was one factor.

The other was that they got some advice and decided for themselves that, in the long run, the benefits of being an early partner in the Kurdish fields outweighed the costs of Iraqi disenchantment. And they weren't really persuaded that the Iraqis were going to be good long-term partners anyhow. As to what they think about the export routing I'm not quite sure. The Kurds obviously have their stories to tell about how they're going to build out this infrastructure over time and at a certain level of production you can finesse it as they've been doing, as Hunt Oil and others have been doing.

I report in the book this call that the CEO of ExxonMobil, Rex Tillerson, made to Hillary Clinton and her team to tell them that they were going to depart from U.S. policy and make this deal -- and as it was described to me, all he said was ‘I have to do what's best for my shareholders.'

FP: So to what extent do shareholders pressure Exxon's growth strategy? With such legendary quarterly profits, I would imagine the growth pressures are equally hefty. Are they relying on political volatility to keep oil prices high, or is there this constant sense of needing to expand and a life-or-death competition with these big state-owned enterprises that have risen up in the past 10-15 years?

SC: I think that's it. The reserve replacement challenge -- that is the need to find 365 x 4.5 million barrels of oil each year and bring it online when you're that huge -- is just enormously challenging, especially when large sections of world are closed off to you because of nationalism. Plus, where competition is available you have these big state-owned companies that are not only numerous and well-funded but are also run by governments that are willing to deal with host governments in unconventional ways, selling them arms or making them soft loans, inviting them to China, giving them security guarantees, so it's a really hard conundrum to replace the amount of oil and gas they produce each year, which has led to two big things in the recent period.

One is a shift to gas. More and more of what ExxonMobil brings online to replace its production each year is gas. In fact, I think now more than 50 percent of their production is gas. Now, that has consequences for shareholders because, in general, gas is less profitable on a per-unit-of-energy basis than oil. And it's just a more complicated subject than oil.

And then the other thing that it's led them to is more and more risk. It leads them to geopolitical risk of the sort that is operating in weak states, but also to other kinds of technical and environmental risk because, more and more, in order to win these competitions in these relatively narrow and tough environments, they've got to go out on the frontier and develop oil and gas that basically nobody else has the means to do. And that means they're taking on kind of frontier technology projects more and more as a percentage of their total endeavor. So, in Russia, how do they win this deal with Rosneft? Well, they said the polar ice cap is melting; currently, global warming is real after all. So let's go out and try to drill in these forbidden conditions that looked impossible a generation ago or even 15 years ago.

The basic assumption of the global oil industry is that the biggest plays in the world are either in very deep water or in the Arctic -- and the Arctic oil that's known so far is mostly in Russian territory. And the Russians obviously have very large, state-owned, oligarch-run oil companies, but these are typical of state-owned oil companies around the world in that their bureaucracies are politicized and they're often inhabited by patronage machines rather than by the very best and brightest.

And so they need a partner like ExxonMobil that's a really lean, technology-driven, highly efficient partner. ExxonMobil has now struck a deal with Rosneft in which Exxon's technology is supposed to lead the partnership into the Arctic to drill. When seasonal ice melts there are opportunities to drill for a few months and then hold the wells in place in the winter, but they can also use some of these techniques to just drill under the ice in the ways that they've done around Sakhalin Island. But you know, part of the problem with these techniques is that by their nature, they've not really been done before. And as the Deepwater Horizon shows, you make one bad mistake in these environments and it's very difficult to control what happens. So it sort of feels like aviation in the 1930s, when we used to crash planes all the time until it became so routinized that plane crashes became pretty unusual. That's the kind of era that you're in the Arctic and in deep water.

FP: To what extent does ExxonMobil use intermediaries, middlemen like the Eli Calils of the world, to win them business in these challenging frontier regions? Or is their technology so sophisticated that they have market advantage just by what they can bring into play?

SC: I think it's more the latter. I mean, everybody uses these consultants; this information works and ExxonMobil is hardly naive about it. They've stacked their own political risk department in Washington and internationally with former State Department officials, diplomats, intelligence officers, and military personnel. So they've got multiple human networks that they're using for access, drawing from peoples' relationships from time in government. It's not like they're just sending in a bid in response to a request for proposal. They have their own network. But their method tends to be to build things inside, and to try to hire away. I mean, for example, in their Washington office now the head of their Africa portfolio is a guy named Walter Kansteiner who was assistant secretary of state for Africa in the Bush administration -- and belonged to a family of commodities traders all over Africa. You know, he knows everybody in the resource business. He did even before he joined government; now he has the benefit also of a tour of the Bush administration, and you know, at the highest regional levels of the State Department.

And so that's the way they build these human networks. They do it again and again, hiring people from intelligence agencies and out of the military. They've hired out of Gen. David Petraeus's shop to build their Iraq team. But they do it more in-house and they tend to do it in a kind of state-building way, rather than through consultants.

And on the ground in Africa, the one thing that I encountered talking to Africans on the other side of these transactions is that they really do have a reputation of being sticklers, kind of a pain in their neck when it comes to rule-making and the way they play on the ground. In West Africa, everybody I met said, "Oh, we really miss Mobil. They were fun. They would give us a ride on their corporate jets, they would deal, they were loose. And Exxon bought them and now everything is by the book and we can't hop a ride on their plane and we have to go through channels and so forth."

FP: To what extent does that sort of behavior reflect a long play? ExxonMobil intends to be in these countries putting in serious assets in place, exploiting wells over the course of decades. Is this an intentional strategic position whereby they're actually intending to improve governance -- thereby hedging that there's a lesser chance that they'll get screwed in a couple of years?

SC: I think there's some of that too. I also think that the way they win these deals in a place like Chad or Papua New Guinea or Angola is, in effect, they go to the host country and say: "Look, we recognize that you can deal with the Chinese, and you'll get soft loans and guns and things that you think are more valuable than what we can offer you, but what you'll also get is really lousy project management. You'll get less oil pumped, you'll get less royalties, you'll get less taxes, so you'll end up net poorer. Why not come work with us under our rule of law, under a really straightforward contract? And what our record shows is that you'll end up with more cash faster -- and then you can use that cash to buy whatever guns you want? But you'll have the money to carry out what ever plans you have; and we're reliable, we'll come in on time."

It's sort of like if you're buying a new appliance, and you're going to the store and somebody offers you rebates and a free toaster and three other things to incentivize you to buy one brand. Well, you look at that brand and you think oh, that thing's going to break down in a few years. Whereas the other one, it's more expensive, but it's top of the line. And that's kind of ExxonMobil's argument.

FP: How long until the Chinese oil majors and the state-owned firms catch up in terms of technology?

SC: They're obviously already on their way now, but my impression is with all these state-owned Chinese firms, the problem is not their technical proficiency or their human capacity -- they've got the brains, they've got the Ph.D's, they've got the baseline of technical training, education, and no doubt they've stolen a lot of intellectual property over the past few years to speed things along. The problem is politics. Do they really have a system of corporate governance and incentives and a relationship with a party and the state that would create conditions for them to operate efficiently on a global basis? Like the Chinese banks, their role in the world is so distorted by the party, the patronage, and the imperatives of the Chinese state that they're not really in a position yet to take advantage of their own talent, and of the partially indigenous and partially stolen IT. I think, in the long run, the question is what kind of state is China going to become and what will that mean for its big companies.

FP: So Houston is still safe for the time being?

SC: I think for 10 or 20 years. They're still winning some of these big projects, even though the competition looks hard. You know you might think that, in the BRIC world, maybe the Brazilians, maybe Petrobras will rise and escape from this politicized dilemma. But all of these state-owned firms seem to be partially if not substantially constrained by the disease of state ownership. BP used to suffer from it, Total still suffers from it, ENI still suffers from it.

The funny thing about ExxonMobil is that they are a state-owned oil company. There are our Total, our BP -- but they live in defiance of the government. They're truly an independent entity that sees itself as sovereign on its own. And the advantage has been that they operate with a kind of ruthlessness about their own efficiency that's very difficult for politicized companies to achieve. And the disadvantage is that they operate with a ruthlessness which has consequences for the way in which they live in the world.

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Interview

Interview: A Business-Like Approach to Foreign Aid

A conversation with USAID administrator Rajiv Shah on expanding public-private partnerships and integrating development and emergency intervention.

The son of Indian immigrants from Ann Arbor, Mich., and a graduate of the University of Pennsylvania Medical School and the Wharton School of Business, Rajiv Shah began his career at the Bill and Melinda Gates Foundation, where he ran the organization's agriculture program and went on to serve as chief scientist at the U.S. Department of Agriculture (USDA). In December 2009, at the age of 37, he was sworn in as head of the U.S. Agency for International Development (USAID) -- only days before a devastating earthquake hit Haiti.

In an interview for Foreign Policy, Samuel Loewenberg spoke with Shah about how he is reinventing USAID, an often-embattled agency charged with helping the world's poorest countries develop, while at the same time dealing with crises around the globe.

Foreign Policy: Dr. Shah, you've hopscotched your way into running the U.S. foreign aid agency at a relatively young age after a career at the Gates Foundation. How does your Gates experience shape your approach?

Rajiv Shah: What was great about the opportunity to work with Bill and Melinda Gates and their very talented team was this insistence that when we were making financial commitments to address a problem, we were going to be business-like in ensuring that we literally solved that problem over time. Both at USDA and certainly at USAID, I've tried to bring that business-like rigor and the tendency to ask questions -- some would say I ask far too many questions -- to make sure that when we're spending taxpayer resources, we're doing it with that absolute focus that we are making an investment against generating a result.

FP: Fixing the world is a lot more complicated than fixing Microsoft Windows -- and even that usually doesn't go very well. Foreign aid -- and USAID in particular -- is frequently criticized as doing more harm than good. What did you find when you arrived at the agency?

RS: When I joined, we launched a strategy review of our areas of work. We looked at our education investments, for instance, and decided they were not generating as much results as they could. While we got 39 million additional kids into schools over the last 12 years in sub-Saharan Africa, literacy levels hadn't moved up. In some cases, they had even gone down, as schools got more crowded and the quality of instruction waned. So we built a data tool that allows us to, at a very low cost and very rapidly, assess literacy outcomes at grade level for primary school kids. That's why it is important to measure outcomes and develop strategies focused on results.

FP: The Republican-led House of Representatives has been trying to cut the foreign assistance budget. If I'm a congressman, tell me why it is in America's interest to help people overseas when we have so many problems at home?

RS: President Obama and Secretary [of State] Clinton are elevating development and crisis response as part of our foreign policy. At the end of the day, without stability, you cannot get economic development. At the same time, security is ultimately linked to economic stability. [Former Defense] Secretary Gates was right when he said development is a lot cheaper than sending soldiers. Right now, Americans think that foreign aid is 20 percent of our federal budget, but in fact it is less than 1 percent. And for that 1 percent we are able to generate real concrete results.

FP: USAID frequently gets criticized for wasteful practices and spending millions on U.S. contractors without doing much to help the countries you are ostensibly trying to help.

RS: Under the prior administration we saw a 40 percent decline in our staffing coupled with a 300 percent increase in our programmatic responsibilities, especially in war zones like Iraq and Afghanistan. That led to the problem of outsourcing way too much work to contractors and doing it without enough oversight. We will shift $4 to $6 billion annually to local institutions and small-scale efforts that we can manage and document carefully. These efforts will strengthen the private sector and governments, and reduce the need for aid over time.

FP: Some of the $4 to $6 billion is also going toward "partnerships" with big U.S. corporations like Wal-Mart, Coca-Cola, Chevron, and Monsanto. Why does subsidizing U.S. companies help people who are poor?

RS: One of the big failings in food security in particular has been a lack of working with the private sector effectively. For instance, in Honduras and Guatemala our work with Wal-Mart is reaching more than 15,000 farming families. In that case, the farmers are producing potatoes and onions, and Wal-Mart works with farmers on training and preparation. They also provide guidelines that help farmers determine what to grow and when in order to sell to Wal-Mart. This type of engagement has led to a doubling and tripling of farmers' household incomes. Yet over the last several decades, it's been controversial to have companies like Wal-Mart in the development solution. I think it is the kind of long-term development program that is needed to succeed at scale over time. (Note: Regarding the recent allegations of Wal-Mart's widespread bribery in Mexico in a recent New York Times article, USAID press spokesperson Ann Doyle said, "We will not comment on the ongoing Wal-Mart investigation or how it might affect our partnership.")

FP: So you are saying that the United States can do well by doing good?

RS: In the coming years, Africa is going to be a 900 million-plus person common market that is growing three times faster than the global economy. China has been making a big investment in Africa, and we're going to want to make sure that American enterprises are part of the picture as well. Ten of the largest 15 trading partners we have were foreign aid recipients. South Korea was a major recipient of U.S. aid for decades, and today we have more jobs created in the U.S. because of our trade relationship with South Korea than we do with France.

FP: From what I've seen in my reporting, what poor people in places like Kenya, Ethiopia, and Guatemala really need are water and roads to keep them from these recurrent hunger crises. Yet for the last 30 years USAID has largely ignored those issues.

RS: We are now rebalancing and getting back into that, but in a way that's leveraged. We need to partner with the private sector. In our partnership with Pepsi in Ethiopia to reach chickpea farmers, we'll do things like invest in feeder roads, and Pepsi and the Ethiopian government will make parallel investments in things like better technologies and guaranteeing purchase [of chickpeas from Ethiopian farmers]. That helps move 30,000 women-headed households out of poverty. It's those kinds of leveraged partnerships that actually allow us to transform infrastructure. Those aren't things we have the capacity or resourcing to do alone.

FP: In the Horn of Africa last year, you had 13 million people going hungry -- 4 million in Somalia and about 9 million in Kenya and Ethiopia combined. In Somalia, your options to intervene were limited because of the [internal] conflict, but not in Kenya and Ethiopia or in the refugee camps for Somalis in those two countries, which were in woeful shape. You had nearly a year of advance warning about the drought. There were a lot of interventions that could have been done to mitigate the crisis in areas such as water, sanitation, and livelihoods. What happened?

RS: I would argue that a lot of our resources went into these types of activities last year, perhaps not as early as they could have, but they ultimately did, and that's what allowed people to get through the period of hunger. But I agree with you that we can always -- and we should always -- be pushing ourselves to do much better. Part of the challenge is that we are able to use humanitarian resources quickly and aggressively in times of crises, but the core development programs in many of these countries -- and I'm not just speaking about USAID but rather the entire development community -- move on a much different time horizon. To help correct for that, we are making sure that what we call "resilience programs" are being built into core development budgets and are prioritized by both local governments and development partners.

For example, resilience programs are part of national policy in both Kenya and Ethiopia, and without them, last year's crisis would have been far worse. Ethiopia has a program called the Productive Safety Net Program, which USAID has supported since 2005, and that program has effectively kept 7.6 million more people from requiring emergency assistance. Kenya established a Drought Management Authority in 2011, which has helped coordinate efforts to build resilience and has increased funding in its national budget for livestock development and infrastructure in the drylands, which are just the kinds of things that can help protect Kenyans against the next drought. The challenges remain fierce, but we are excited about the momentum we are achieving through our resilience work around the world and with specific countries.

FP: Yet even with those programs in place, the populations in the Horn are already going hungry again; an estimated 8 million people are already food insecure, which is about what it was last year at this time. In total, USAID's famine-monitoring agency projects 13 countries with serious hunger problems this year. Only five of them recently suffered war or natural disaster. Most of the problem is chronic poverty. It seems lots of resources go into dealing with the emergency situation at the last minute and not enough into dealing with the underlying issues. How do we break the cycle?

RS: For too long, development and emergency intervention had been thought of as separate things. We're now working with critical partners like the World Bank and others to create this field of resilience, planning, and investment. For decades, there has been a tendency to think of development as urban industrialization or things of that nature and not recognize that agricultural development, pastoral-community resilience, and building on people's existing risk-management systems are as critical to moving people out of poverty.

FP: If I go back to countries with hunger crises like Kenya and Ethiopia and Guatemala and the Sahel this summer, am I going to see something different than I saw last year and the years before?

RS: I don't want to promise. It wouldn't be honest or realistic to expect the phase of poverty and vulnerability to change in a one-year, two-year time frame. But the track record is that if we stay focused and if we persist with the approach, we have the opportunity to help tens of millions of people move out of that condition of vulnerability.

Look, I wished it happened faster, and I could sit here and guarantee that people won't be worse off next year. But I can't do that. I just have to stay committed to making sure we measure results, we do the things that we believe are correlated with creating the same systems that are effective over time. And that even though it's hard, we bring that kind of business-like approach to this work and do the best we can to help ensure that we're not just putting band-aids on problems but we're actually solving them. Because ultimately, solving them is in our deep national interest.

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