A shared value? The role of the private sector in international development

Written by Priyanka Sunder

Last week, Foreign Minister Julie Bishop released the government’s long-anticipated strategy on private sector engagement for development. It arrived in the form of a Ministerial statement entitled Creating Shared Value through Partnership [pdf] and is effectively an invitation to the private sector to work with the Australian Government to deliver aid and development outcomes. At the same time, the Australian Council for International Development (ACFID) released new research into the way Australian NGOs are already partnering with the private sector, and the extent to which these partnerships reflect the shared value model. This research shows that Australian companies are lagging behind the rest of the world when it comes to shared value partnerships.

The government’s private sector strategy echoes the aid policy and performance framework, which places emphasis on the involvement of the private sector in Australia’s aid program. Engaging the private sector is now one of the ten performance benchmarks for the aid program, and all new aid investments must consider ways to engage the private sector before they can be approved for implementation.

The new strategy builds on this by encouraging the private sector to work with NGOs and other partners to develop projects that build shared value. These are projects that deliver ‘sustainable social impact in developing countries while achieving commercial returns.’

The Australian Government’s focus on private sector engagement within the aid program is not unique. Other donors, including New Zealand and the United Kingdom, have taken similar approaches with varying success, while the US has long encouraged private sector organisations to contribute to aid and development efforts.

These policy shifts reflect a broader recognition across the international development community that the activities of the global private sector have a significant and multifaceted effect on developing countries. The Addis Ababa Action Agenda [pdf], the global financing agreement that will effectively fund the Sustainable Development Goals, emphasises the importance of engaging the private sector as critical development actors. The concept of shared value is interwoven throughout the Agenda. Private sector organisations are urged to play a greater role across many aspects of development, from adopting sustainable development practices, facilitating technological transfer and contributing to gender equality by ensuring equal pay and decent work for women.

To better understand the role of the private sector in development, ACFID surveyed its membership to map existing partnerships between ACFID members and Australian and international private sector organisations. The results of the survey, contained in ACFID’s new report, Partnering for Development: How Australian NGOs partner with private sector organisations in international development [pdf], shows that Australian aid and development NGOs are already actively engaging with the private sector to achieve development outcomes. In fact, two-thirds of ACFID members reported that they partner with private sector organisations, and of those organisations that do not currently partner, more than half indicated that they intend to in the future.

While the survey results show that engagement between NGOs and private sector organisations takes many forms, the most common form of partnership identified was the traditional corporate giving model, where NGOs leverage the funds and resources of their private sector partners. Only 24 per cent of all private sector partnerships identified were focused on improving the core business activities of private sector organisations to achieve development outcomes. These include partnerships to build shared value projects or shift existing business practices to mitigate harm or generate positive development outcomes for developing communities.

Just 12 per cent of Australian companies that partnered with NGOs did so on projects that build shared value or shift business practices to improve development outcomes. By comparison, around 40 per cent of partnerships with international private sector organisations were shared value partnerships.

This hesitance to invest in shared value projects extends to the Australian domestic context. A recent report by the Shared Value Project and Social Ventures Australia found that ‘shared value is still in its infancy in Australia’ with few Australian companies partnering with domestic NGOs to develop projects that both make economic sense and generate social returns for the Australian community.

Supporting Australian private sector organisations to engage in the shared value space is an important opportunity for Australia’s aid and development efforts. According to the OECD [pdf], embedding development considerations as part of core business strategies can be a far more effective and lasting approach to development than funding arrangements through corporate social responsibility arms.

Encouraging private sector organisations to partner with experienced NGOs can ensure that private sector engagement generates good development outcomes for developing communities. Moreover, private sector partners benefit from the networks, local knowledge and expertise of their NGO partners, lowering the business risk of entering new markets. NGOs, for their part, can benefit from the expertise and skills of the private sector, particularly to improve project design and implementation.

ACFID’s survey also shows that there is significant potential to capitalise on synergies between key development areas and the expertise of private sector partners. For example, while financial services firms are common private sector partners, they largely engage by providing financial resources to NGOs. The impact on development outcomes could be compounded if these firms also contributed their financial expertise to build shared value projects that increase access to financial services in developing countries.

Given the potential benefits, why then are Australian companies lagging behind the rest of the world in building shared value? Much of this could stem from a lack of awareness and understanding of international development. Over 20 per cent of ACFID members who did not engage with the private sector reported that private sector organisations were simply not interested in partnering for development projects. NGOs too can often be hesitant to engage with the private sector, for fear that corporate interests will conflict with development outcomes.

Yet, addressing development challenges requires positive and concerted action by all sectors. The government’s strategy may be an important step to help more Australian firms recognise that embedding development considerations in their core business strategy can generate profits, while contributing to broader prosperity and poverty reduction.

ACFID’s research report, ‘Partnering for Development: How Australian NGOs partner with private sector organisations in international development’ can be found here [pdf].

Priyanka Sunder is Government and Policy Advisor at the Australian Council for International Development (ACFID).

Priyanka Sunder

Priyanka Sunder is the Senior Economic Development Policy Advisor for World Vision Australia and focuses on economic development, private sector engagement and development finance policy. Priyanka has a Masters in Public Policy from Georgetown University with a specialisation in development economics. She previously worked for Macquarie Bank as an investment banker and as the Senior Policy Advisor for the Australian Council for International Development (ACFID).

4 Comments

  • Thank you for the interesting piece, which I have only just come across. As several other comments above have noted, private sector engagement is an umbrella term, which captures a wide variety of efforts of development organisations to work with business. For donor agencies, private sector engagement represents a shift away from a focus on bilateral work with developing country governments. One aspect of this that the DCED has attempted to capture (see here) is the internal changes that donor agencies are making to better engage with the private sector. The DCED has recently produced a briefing note on the changes are being made in policies and procedures, staff roles and team structures, in order to pave the way for strategic private sector engagement (which can be found here)

  • Thanks for offering up some comments and thoughts on this important topic. I found the ACFID article a little narrow in its outlook largely because it seems to focus on Australian private sector organisations. What about the private sector in developing countries? That is where there is enormous potential for real economic development, job creation and better service delivery. Too often, donors focus solely on the public sector and overlook the critical role of the private sector and the things that it can achieve in a highly effective way. DFAT has worked in this area a bit (witness the various market development and M4P programs around the place) and is also embarking on private sector development (PSD) programs such as Investing in Infrastructure (3i) in Cambodia. PSD is certainly an area with rich potential to implement aid programs in a different way.

  • It’s really revealing that Aus private sector is legging behind rest of the developed countries in international development partership, Priyanka. In fact, public sector, private sector, ‘third sector’ (NGO’s) and local people together are architects of not only sustainable development but global peace and stability. It is in them interest of private sector to get engaged in the shared values which in turn will facilitate operational activities of the private sector. Mutual learning and thereby generating synergy would make the better development outcomes. Neither private sector itself can flourish in isolation, nor mere corporate social responsibility is sufficient condition of sustainable development. Private sector must contribute a significant portion of its profit to the wellbeing of the people around the world. I am confident your ideas will convince and persuade Australian private sector for parterning with other sectors for promoting the global shared values of international development outcomes with greater zeal and vigour. I think private sector is not that much stubborn to ignore its role in development partnership but one must engage it through convincing and persuasive methods. We must innovate better framework for engagement by learning from the past and continuous mutual learning. Most of private sector players are highly enlightened and having vision of the better world and therefore, I believe that SDG’s will be realised by 2030 with appropriate engagement of all the stake holders.

  • Thanks for this post and for pointing me to the ministerial statement on this which I’ve now read. It highlights a couple of things I have been thinking about for a while. One is that a lot of the work that has been done in this space has been focused on opportunities that arise in large countries/markets such as exist in Africa and Asia (see the case studies at the end of the statement). There is insufficient attention given as to how these approaches may or may not translate into the smaller countries/markets of the Pacific. Bizarrely, the lessons learned from the Enterprise Challenge Fund pilot are not referenced here (disclaimer: I was the Vanuatu country manager for the ECF 2008-2010). A second concern I have (which is reflected more in the ACFID post rather than the ministerial statement) is that there is a lot of attention paid to how NGOs and businesses can collaborate and partner (hopefully to minimise the risk of them bickering over the same pot of money) but absolutely nowhere near enough attention about how relationships with national and sub-national state agencies can be developed, strengthened and maintained. Here in Vanuatu Cyclone Pam threw into sharp relief the gulf between NGOs and government ministries pretty much across the board. Even to the extent of one country manager responding to a comment on a report from a government official with ‘oh we just assumed that people in the government don’t read things’. And I have commented elsewhere on the need for more and better state-business relationships here in Vanuatu and elsewhere in the region.
    And then I have a very simple and possibly mundane question – why can’t businesses apply for grants under the Direct Aid Program?

Leave a Comment

Tweet
Share
Share
+1