Bill Gates’ recent presentation to the G20 was an important opportunity for government leaders to engage with some new ideas about where the efforts of the private and public sectors might coalesce for the global good (see this blog post for a full account of the report and its G20 take-up). This seems timely for AusAID, as it continues to grapple with how its development efforts can better engage with the private sector. And it’s a theme which is set to predominate at the High Level Forum on Aid Effectiveness in Busan, where a special “building block” will focus on the private sector’s contribution to development.
Despite his enthusiasm for partnership between the public and private sectors, you really have to dig into Gates’ report to find innovation for donors, particularly if you are looking for ideas about how to engage corporations. This is perhaps because Gates was directing his remarks largely at G20 governments rather than their development assistance agencies, as well as the private sector. But one senses a lost opportunity to engage world leaders on how to move multinational and other corporations toward a business model that is developmental. The implication is that donors will need to do more work to convince the private sector how and why it should partner with them.
It’s important to note at the outset that Gates is a big fan of publicly-funded aid, or overseas development assistance (ODA). Gates argues that more, and better spent, ODA is needed. He points to the innovation that ODA enables, for example by funding pilot projects that poor communities can’t, and the research on which innovation is reliant. If all donors reached 0.7 % of GNI as an ODA target, as many European countries have, it would generate an additional $170 billion in funding for development. He sees real-time analysis, and evaluation, as among the keys to greater aid effectiveness.
In essence he urges the G20 and other donors to meet their ODA pledges to spend more, and to spend more effectively. Gates largely eschews the debate that more aid can actually worsen development outcomes, and his focus on innovation for development impact to some extent answers this dilemma. More funding for innovative development is his key message – and you can understand why, noting the scale and achievements of the Bill and Melinda Gates and other philanthropic foundations.
But what is the private and public sector partnership that Gates is encouraging, and what is the role of donors in it?
In his G20 presentation Gates sets out ways that ODA-private sector partnerships can help increase the capture of developing country private sector-driven resources and encourage the creation of business-friendly investment environments. For example, Gates considers a range of potential taxes (which governments would need to implement) and public sector incentives to raise more funding from successful financial instruments in the private sector, to increase the flow of funding for essential services to the poor. He describes public sector reform efforts that better collect and direct private sector revenue for critical services among examples of innovative donor-funded work.
But what I’m really looking for from Gates’ report (and actually, the G20) is an engagement with the some of the big issues that the corporate and public sectors face. Among these is the crisis of legitimacy that has resulted in part from an inadequate consideration of developmental and other social and ecological imperatives on the part of government and big business. I’m also looking for some ideas about how the more enlightened players in these sectors might pull together for improved developmental outcomes.
Gates does cover a range of corporate social responsibility approaches in his report (though he doesn’t call them by name), for example, small business initiatives that are having a social impact and providing a rate of return on investment, including in schools and health clinics. But Gates doesn’t address CSR efforts aimed at increasing the developmental potential of multinational companies, some of which famously have bigger budgets than many of the countries they operate in.
This CSR approach, as Harvard’s Michael Porter and Mark Kramer explain it, sees companies working with communities to address social problems in ways that benefit both the company and society. As an example:
“By tackling the AIDS pandemic in Africa, a mining company such as Anglo American would improve the continent’s standard of living and the productivity of the African labor force it needs to succeed” (Source: Redefining CSR).
Porter and Kramer further argue that business engagement with the creation of social value will actually spur economic growth globally.
This understanding is needed regionally: Australian environmental and corporations laws have not succeeded in curbing the excesses of some Australian-based extractives operating in fragile political and ecological spaces, with often disastrous consequences for local communities and their habitats. Engaging early with corporations seems essential, both as a preventative and developmental strategy.
Recent Australian PhD research in Latin America by Maria Beamond nominates three main challenges to the effectiveness of oil, gas and mining company CSR efforts there:
- ineffective government development plans for remote communities, and therefore a reliance on multi-national corporations for community development;
- a corporate focus on public relations, aimed at improving reputation only, and which doesn’t focus on community needs; and
- lack of engagement with local governments on improving the long-term sustainability of CSR initiatives.
You don’t have to look very hard to see the niches for donor engagement here.
The potential for improved development through engagement with CSR is unlikely to be news to AusAID — its own recent background research [pdf] by Bruce Jenks for the Independent Review of Aid Effectiveness suggested there are opportunities in CSR for strengthening engagement between the aid community and the private sector. But neither the Review — nor AusAID’s response — ran with it. At this point, one begins to wonder who is going to take forward a potentially game-changing private-public sector CSR agenda — if not to win back some legitimacy for business and government, then at least to better engage the region’s poor in the wealth-creation processes going on around them.
As Jenks points out, most western donors are making some effort to reach out to business.
Among its other private sector engagement initiatives, for example, DFID has established a Business Innovation Facility to help companies link their core business to development priorities, match finance for initiatives that scale up local development, and measure the impact of local partnership efforts. Australian natural resource companies could no doubt use similar encouragement — Jenks estimates their current and prospective investment in Africa (where development needs are, as we know, acute) at about AUD$20 billion.
To be fair, AusAID is doing some good work to engage directly with business. Examples include the Enterprise Challenge Fund (which supports small businesses in developing countries), and, of particular relevance to this discussion, AusAID’s strong support for the Extractive Industries Transparency Initiative (which requires participating extractives and governments to be transparent about payments they make to each other). AusAID is also contributing significant funds to the multi-donor Rural Primary Health Services Delivery Project in PNG, which includes engagement with the private sector to improve the supply and distribution of medical supplies for rural health services.
But as noted earlier, there is significant scope for a much greater donor engagement in the CSR agenda.
To this end, you’d be hoping to see an AusAID private sector engagement policy that includes some outreach and assistance to corporate players. It would have a sizeable budget attached, and commission, consider and consult on a range of good practice research (some already available) identifying where donors can add value to, or shape, private sector development efforts. AusAID may then begin to convince big business how and why it should partner with it.
Gates’ focus on harnessing more money for innovative development from the private sector is important and necessary. But to date, it elides the enormous potential of multinationals, in partnership with donors, to work developmentally in poor communities.
Marianne Jago-Bassingthwaighte is Principal at Kencho Development Consulting and an Adjunct Lecturer and Research Fellow at James Cook University. She is a former AusAID employee.
I agree with Tess that it is “difficult to get ‘big business’ to be able to operate at the (small) level that can really make a difference” and “engaging with the private sector needs to be a much more localised ‘home grown’ activity.” At Jacana (jacana.org) we are trying to build an SME investment industry in Africa, SMEs being the backbone of all economies and SME funding being the biggest obstacle to their develoment. Key partners in this are the publicly funded Develpment Finance Institutions such as the UK’s CDC or Netherlands’ FMO. But we also need philanthropic (including Programme Related Investment from major foundations) or grant funding to seed this activity in frontier markets such as Mali or Ethiopia where this sort of venture capital and the associated infrastructure barely exist. So this is a partnerhsip between public, private and philanthropic sectors.
Investment in SMEs needs this mixture to become established because the cost of executing small investments, and providing the hands-on suport that small businesses need, is too high and risky for purely commercial investors. But the goal is to bring in these investors once a track record is established. The potential from pension funds, insurance companies etc dwarfs the amounts available from aid and philanthropic sources. That in our view is the long-term way of tackling the root causes of poverty.
A few thoughts re big business and aid:
It is hard to see much opportunity for any real progress within the currently prevailing paradigms of business and government. However, we seem to be on the threshold of collapse for a number of these ideas and there are some interesting new approaches that may find an opportunity to be tried as the failure of the old ones becomes increasingly apparent.
A new book by Richard Branson sounds interesting in this regard. See: How can we go from THRIVE to thriving? December 6th, 2011, http://theconversation.org/
Also, Charles Eisenstein, the New World Order, and THRIVE , December 2nd, 2011 on the same site
A thought provoking book on declining birth rates and the coming demographic crash is also very relevant to the aid situation – How Civilizations Die: (And Why Islam Is Dying Too) by Goldman, David (The collapse in birth rates across much of the Muslim world was a real surprise to me.)
Another very informative book is Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Shaxson, Nicholas
These books are available via Amazon and both have Kindle editions as well.
Thanks Marianne, this is a really interesting discussion on partnerships between public and private sector. I work for Coffey International Development as Manager for AusAID’s Enterprise Challenge Fund (ECF), which has some interesting lessons for PPP in development.
The engagement of private sector in development should be encouraged to go beyond Corporate Social Responsibility – the Business for Millennium Development (B4MD) team calls this expanded role ‘creating value’. Market development programs such as ECF are working in partnership with the private sector to create opportunities for the poor in employment, as suppliers and accessing goods and services as customers. This leads to communities engaging with companies in a meaningful way benefiting both the company and society with a higher likelihood of sustainability, poverty reduction and economic growth.
For example – last week I travelled to the Philippines to visit the Cagayan de Oro Handmade Paper Company – a handmade paper factory that uses a naturally occurring fibre called abaca. In 2007 the company was growing rapidly and wanted to develop a secure supply of abaca available locally so applied for an ECF grant to support the set-up costs for abaca plantations with the indigenous people of Claveria, Misamis Oriental. The grant also funded improved transportation system, agricultural training programs and stripping machines to increase yields and creation of a locally run buying station. In the last four months the farmers have harvested and sold 7,000 kilograms of abaca through the buying station at a higher than market price, and this is providing an average additional US$450 for each family in an area where most families are living on around US$2 per day. All farmers I spoke to were planting more abaca. So this way, as the business grows the farmer’s sales and incomes will also grow.
The ECF is also providing other grants funding innovative products through private sector ingenuity specifically targeted to poor and remote communities such as mobile banking, micro-insurance and off-grid renewable energy. In all these cases rural communities make up a majority of the customers so this benefits both the company and society.
This is one of a number of areas where donors can (and do) support private enterprises – working with national governments and private sector agencies to reduce barriers for the poor to participate, improving the business enabling environment, supporting programs that build capacity and skills in rural communities and funding partnerships with private firms to support the outreach to the poor.
This is a very informative piece, many thanks. It is rightly cautious in optimism about the role of the private sector in development. Bill Gates advocacy for innovation in development is welcome, but it is also important to consider the implications for outcomes of the most marginalised. See my blog on these issues related to education:
Thanks for a great post that addresses some of the issues around fostering public-private sector partnerships. I particularly like how you address the role of donors, which seems to be under-thought. However, I was wondering where you see corruption within this topic, and how much of a barrier it is to these relationships you discuss. What is the role of donors in addressing corruption?
There is a very apparent correlation between corruption and human development, and you can find many of AusAID’s recipient countries (and those in which the resource industy has operations and interest) in the lower end of corruption perception. http://www.economist.com/blogs/dailychart/2011/12/corruption-and-development?fsrc=scn/tw/te/dc/corrosivecorruption
Hi Brendan, thanks for bringing out the corruption issue. I’ll be mindful to avoid bias here, and confess it’s an issue I worked on very closely at AusAID and elsewhere. It’s actually how I became interested in the role of the private sector in development: in short, I think anti-corruption is among the better entry points for donors into private sector partnerships. Why? Because the private sector has a growing mass which you could now call critical, which is increasingly placing companies between a bribe request and very hard place. Ethical investors and discerning shareholders (quite apart from the Concerned Public) are pressuring companies to operate without the business and dividend advantage which corruption can seem to bring – at least in the short term. Here’s where donors come in. They can help broker a middle way by helping change the rules of the game, and supporting local politicians/businesses engaged in this effort. Of course I’m thinking about the Extractive Industries Transparency Initiative (EITI – see blog proper) which gives companies and the governments who licence and benefit from their activities an opportunity to build transparency and therefore political and business credibility. Supporting options that appeal to the better natures of all players seems to work here (surprise), and it allows the honest as well as the ambivalent the opportunity to point to a better business model.
What is the role of donors in addressing corruption? That’s a big question! I think the best they can do is make sure their policies and practices are aligned with the best knowledge available – which leads you back to the communities where the corruption is felt. Finding local change champions (like Mums who want to know what happened to the government money that was intended for their children’s schooling) and engaging local notions of accountability seem to be among the best long-term investments that donors can make. And engaging small and large businesses who want to see a cleaner operating environment, though here is where donors have tended to get stuck.
Yes, the correlation between corruption and human development is pretty clearly made out – Italy seemed to be the exception but perhaps less these days.
Hope this is useful.
As a former country manager for the Enterprise Challenge Fund, I have had some experience of how AusAID has moved towards greater engagement with the private sector and I agree there is a whole lot more to be done in this area. As I understand it, It remains undecided whether the ECF will continue beyond its present status of a pilot and there is plenty of learning there to inform whatever might come next (see here for the 2011 portfolio report:http://www.enterprisechallengefund.org/ecfund/Uploadfile/ECF%20Annual%20Portfolio%20Report%202011%20web%20version(1).pdf).
I would make a couple of points about aid agencies engaging with the private sector, with a Pacific island perspective. One is that in PIC economies, the private sector is already ‘doing’ development even though it may be calling it something else. There still remains the need for meaningful dialogue between agencies such as AusAID and private sector operatives to arrive at a shared understanding of not only the relevant development issues but also the culture(s) of aid agencies and the private sector in order to maximise convergence and minimise misunderstanding and conflict. The other is that in small economies such as those of the Pacific Island countries, it is sometimes difficult to get ‘big business’ to be able to operate at the (small) level that can really make a difference. With a couple of exceptions PICs are not going to be welcoming global miners to their shores and are (and will remain) very small markets making them unattractive to many ‘big’ businesses which means that engaging with the private sector needs to be a much more localised ‘home grown’ activity.