AID in S. Africa Draws Fire Over Racial Preferences : Policy: Even Pretoria questions channeling funds to black-owned firms in its country and the United States.

Just as South Africa’s black majority was on the verge of winning freedom from apartheid last year, the Clinton Administration decided to spend precious U.S. aid funds to provide them something that U.S. officials apparently deemed important: hair care.

To that end, the U.S. Agency for International Development gave a $300,000 grant--a generous amount by AID standards--to Soft Sheen Products Inc., a black-owned Chicago company, to teach African American hair care techniques to South Africans. The grant coincided with the company’s decision to introduce its products in South Africa.

The money was awarded to Soft Sheen on a non-competitive basis over the objections of many experienced AID officials in South Africa, one of whom said the hair care project was widely viewed within the agency as “a joke.”

Ultimately, Soft Sheen failed to fulfill its commitment to train as many as 2,000 South Africans as hair care professionals. By the company’s own accounting, the program has placed only five persons in jobs.

Considered in the broader context of the multibillion dollar U.S. foreign aid program, the Soft Sheen grant marks only a small failure.

Yet at a time when Pretoria is looking to the United States to make good on its commitment to assist in South Africa’s economic development, the decision to spend $300,000 on a misguided hair care project is viewed by critics--inside and outside the two governments--as emblematic of serious problems stemming from a controversial policy of racial preference that governs U.S. aid to South Africa.

The policy, issued as a directive by top officials of AID’s South African mission three years ago, urges officials to give grants to black-run organizations--not only in South Africa but in the United States as well--and actively discourages grants to white-led groups.

Almost immediately, the directive aroused strong emotions, touching as it did on two volatile issues: affirmative action and foreign aid. To be sure, grants going to black groups in the United States proved to be far more controversial than those awarded in South Africa, where blacks make up a majority of the population.

Agencies Probe Grants

Complaints rose from so many quarters that the directive attracted the attention of a host of federal agencies, which are looking not only at the legality of the policy but at the appropriateness of grants stemming from it. The grants included the award to Soft Sheen, as well as $555,000 given to the Martin Luther King Center in Atlanta, $100,000 to the Congressional Black Caucus Foundation and $1.3 million to Africare, a Washington-based group that helps African nations.

Officials of the Black Caucus and the King Center declined comment, but Africare President C. Payne Lucas strongly defended the propriety of grants received by his group and described the probe as “ridiculous.” Soft Sheen has defended its program.

With so many official inquiries under way, it is too soon to assess what portion of the more than $300 million in U.S. aid for South Africa over fiscal years 1993 to 1995 may have been disbursed inappropriately.

But AID’s inspector general already has concluded in an initial investigation that an unspecified amount of money--generally in the form of non-competitive grants--was disbursed improperly to politically connected U.S. organizations, many without experience in providing foreign aid. One case--involving allegations that an employee of the AID’s South African mission ordered a subordinate to hire his wife--has been referred by the inspector general’s office to the Justice Department, which has declined so far to prosecute.

The inspector general’s office has recently reopened its investigation of the South African program. And the General Accounting Office, Congress’ watchdog agency, is gearing up its own probe in response to charges by Senate Foreign Relations Committee Chairman Jesse Helms (R-N.C.) and House International Relations Committee Chairman Benjamin A. Gilman (R-N.Y.), who have accused AID of favoritism and lack of oversight.

In addition, AID’s efforts to carry out the race-preference policy are being investigated by two other government agencies--the independent U.S. Office of Special Counsel and the Office of Management and Budget’s Office of Federal Procurement Policy.

For their part, top Clinton Administration appointees have acknowledged that some of the grants in question were not up to AID’s usual standards. In an interview, AID Assistant Administrator Larry E. Byrne blamed the problem on “overzealousness” on the part of AID workers committed to social change in South Africa.

Nevertheless, AID officials strongly defend the philosophy of giving preference to black groups in the United States, arguing that African Americans have better rapport than whites with blacks in South Africa. As Byrne put it, “Harry Belafonte has more credibility there than Tony Bennett.”

According to Byrne, the efforts of African American organizations to claim the AID franchise in South Africa are no different than Jewish lobbying organizations’ influence over aid to Israel or the desire of Ukrainian Americans to be involved in bringing economic opportunity to Ukraine.

Indirect Flow of Aid

The debate over AID’s assistance program in South Africa stems, in part, from the unusual history of U.S. aid to South Africa. Typically, U.S. foreign aid passes not directly from one government to another but through non-governmental organizations in both the United States and the receiving nations.

U.S. aid to South Africa began in earnest in 1986. But the amounts remained relatively small and were given exclusively to non-governmental organizations until after South Africa repealed its official policy of racial separatism--known as apartheid--in 1991.

In 1993, President Clinton pledged to dramatically increase aid to help build a “non-racial market economy” in South Africa. As a result, U.S. assistance to South Africa rose to $132 million in 1994, up from $80 million a year earlier.

But even as it broadened and increased aid to South Africa, the U.S. government helped sow the seeds of the current controversy.

While embracing the goal of creating a colorblind society, Congress in 1991 enacted the “Gray Amendment,” named for former Rep. William H. Gray III (D-Pa.), which stipulated that “disadvantaged” persons--commonly interpreted as primarily African Americans--should deliver no less than 10% of all U.S. aid to South Africa.

Even after enactment of the Gray Amendment, the AID mission in South Africa--which supervises the program--generally awarded contracts to both black and white organizations as long as the recipients were committed to goals that furthered a race-neutral society. But in early 1993, Leslie A. (Cap) Dean, the newly arrived director of the South African mission, approved the directive ordering that preference be given to black groups.

Since then, funding figures reflect a dramatic shift from white to black organizations. In fiscal 1995, African American firms received 35% of the $35 million in AID money awarded to U.S. companies working in South Africa--up from 8% in fiscal 1993.

Many AID employees with experience in South Africa--most of them white--saw the new race-preference policy as extreme and contradictory of the goal of furthering a colorblind society.

According to a previously unpublished report issued by the inspector general’s office: “They [AID employees] feel that the Africa bureau and USAID/Pretoria management convey the impression that (1) to want to involve white South Africans in the foreign assistance program is wrong and (2) to want to involve non-African American groups or individuals in the foreign assistance program is wrong.”

Objectors Reassigned

AID employees who objected most strongly to the policy were reassigned to other countries and other tasks. One of them, Paul Neifert, took his complaint to the U.S. Office of Special Counsel, the agency designated to protect government whistle-blowers, which has launched a formal investigation.

In a 15-page memo defending his implementation of the race-preference policy, Dean was hard-pressed to find legal justification for far exceeding the Gray Amendment goal of 10% in disbursing grants to African American groups, which he said was based on the “special interest” they had expressed in helping the black majority in South Africa.

But criticism of the policy was not confined to AID employees. The black South African government was so upset about the race-preference directive, sources say, that Minister of Trade and Industry Trevor Manuel filed a protest with the State Department, complaining that Afrocentrism in U.S. policy was limiting his country’s opportunities for new U.S. investment.

Furthering the anti-preference sentiments were the results of the AID inspector general’s investigation. In a 1994 report, the inspector general found that the agency in pursuing its goal had erred in the awarding of some grants.

Of particular concern were several non-competitive grants, those that do not require competitive bids. Usually reserved for groups with expertise in a particular field, these grants, the inspector general’s office found, had been awarded instead to “poorly qualified” organizations with little or no experience in delivering foreign aid.

Chief among these was the Soft Sheen grant, which was the first such proposal to come along after Dean and his assistant, William Ford, were sent to South Africa.

None of the officials in AID’s Private Sector Division in South Africa favored the grant, according to Daniel R. Rathbun, a former AID manager in Pretoria. They advised Dean that $200,000--the initial sum requested by Soft Sheen--could be better spent to “keep 10 or more grass-roots human-rights organizations operating for a year,” Rathbun said.

When Soft Sheen submitted its proposal through a closely held but technically independent foundation, the firm acknowledged it was also introducing its products in South Africa. About the same time, Johnson & Johnson agreed to manufacture Soft Sheen products in South Africa, to be distributed with a Soft Sheen label.

Michael V. Roberts, Soft Sheen’s senior vice president and chief operating officer, said there was no connection between the company’s grant request and its marketing decision. “This was not the purpose of the project,” he said in written responses to questions submitted to Soft Sheen by The Times.

A year after Soft Sheen received its initial grant, the agency decided to give the company additional funds, even though the project had not yet had any success and the company’s representative in South Africa had been fired. All told, according to agency officials, Soft Sheen was promised $500,000 by AID officials, even though it collected only $300,000.

“In general, we got off to a slow start,” acknowledged Roberts. “We found that it was a very difficult, highly political environment.”

In Soft Sheen’s initial grant request, it promised to train “approximately 300-500 [people] per quarter” in hair care and business management techniques. Jill Buckley, AID’s legislative director, later refined Soft Sheen’s pledge in a letter last year to then-Senate Majority Leader George J. Mitchell (D-Me.), who privately questioned the value of the grant. She said the goal of the Soft Sheen project was to train at least 400 people, who would then set up at least 100 new beauty salons.

According to AID figures made available to The Times, 498 people attended a one-day hair care seminar sponsored by Soft Sheen, but only 23 people participated in a full, eight-week course in cosmetology, and only five of them have successfully completed the course.

Gala Film Screening

Indeed, the only clearly visible accomplishment of the Soft Sheen grant that AID officials in South Africa can still recall was a gala movie screening of Spike Lee’s “Malcolm X” that the hair care company hosted in Johannesburg to raise more funds for its South African venture. The gala drew many famous people, such as actor Danny Glover, but Roberts concedes the event lost $16,000.

Byrne, the AID assistant administrator, acknowledged in an interview that AID was not adequately monitoring the results of the grant. He said it reflected a larger problem.

“I’d like to tell you that was an isolated incident,” he said. “A number of contracts did not have good results criteria built in.”

The results of the Congressional Black Caucus Foundation’s program funded by AID also were disappointing.

Because the Black Caucus cannot legally accept private donations, CBCF was created as a closely related, but legally separate, entity to help fund caucus activities with contributions from lobbyists.

In its grant proposal, CBCF promised to call upon black members of Congress to help provide “a series of exchanges and workshop/seminars to selected South African institutions to develop a system of viable non-racial local government institutions.”

A One-Day Seminar

In reality, according to Darlene Wood Shaw, CBCF’s development director, the $100,000 grant was used to sponsor a single, one-day seminar in Pretoria on housing issues for members of the South African Parliament and to bring a handful of Pretoria legislators to the Black Caucus’ annual convention and fund-raising gala in Washington in September.

Because of recent inquiries into the CBCF grant by Gilman and Helms, AID’s inspector general has reopened its probe of the South African aid program.

In a letter to AID Administrator J. Brian Atwood dated Oct. 30, Helms objected to the awarding of a non-competitive grant to CBCF, which had no expertise in foreign aid. Helms also charged that 37% of the money was spent on salaries and consulting fees, rather than on actual programs.

In a similar letter to Atwood, Gilman charged that AID erred in granting money to CBCF because the caucus members must vote on the agency’s budget. Sources say AID officials agreed to a CBCF grant without consulting any of the agency’s ethics specialists.

“Given the potential conflict of interest, special procedures must be established to ensure that any AID grant or contract that is signed with a [congressional] organization is an arms-length transaction undertaken in the exclusive interest of the U.S. government,” Gilman told Atwood.

As for the King Center, a review of its $555,000 AID grant found a number of irregularities--including the gift of $40,000 in “seed money” to the venerable civil rights group to assist it in writing an acceptable grant proposal. The group’s initial proposal was judged to be below AID standards.

As a result, according to sources, the AID inspector general has authorized an independent audit of the King grant. It is being conducted by OMB’s Office of Federal Procurement Policy.

Likewise, according to sources, investigators have been told that AID provided the $1.3-million grant to Africare, another politically influential group, over the objections of the AID technical staff in South Africa. Officials said the money was used almost exclusively by Africare to open an office in Johannesburg and pay salaries.

Cicily Mango, an AID employee in South Africa, told investigators in a written deposition that Africare officials dealt directly with Ford, the mission director’s assistant, bypassing the grant managers. When grant managers visited Africare’s office in Johannesburg, she said, “They came back saying that the Africare manager did not seem to have any program ideas or know what Africare could offer the disadvantaged South African community.”

Training for 500

In defense of the grant, Africare President Lucas told The Times that the money was spent according to AID guidelines and the program has so far provided training for 500 black South African government officials, either in their home country or in the United States.

Following the initial review of the South African program in 1994, AID officials boasted that investigators had found no evidence of criminal wrongdoing. But the most recent probe turned up criminal charges of nepotism in the South African mission, which were referred to the Justice Department.

The inspector general’s office also has forwarded this report to Atwood, who has not responded to a request by Gilman and Helms to release it.