DFID Minister Mike Foster reflects on private sector development

[Business Fights Poverty]

The economic crisis is a global problem. The effects on developing countries are being felt, and are likely to get worse. Up to 90 million people could remain in, or be pushed into extreme poverty as a result. This means governments around the world are focusing as a matter of urgency on how to attract investment and create the best conditions for growth.

The role of business in development is not new. The private sector is the engine of growth in the poorest of countries, and that growth drives development. Jobs are the best way out of poverty, and nine out of ten jobs in the developing world are in the private sector. The private sector, of course, means not only big corporations, but all those market traders, entrepreneurs and farmers who sell their goods and services in the market economy.

Over the last 30 years more than 500 million people have been lifted out of poverty because of private sector driven growth. This is not just because of increased employment. The private sector also providers the tax revenues that support the health, education and other services that sustain growth and lift communities from poverty.

And so when businesses suffer, as we are seeing at the moment, we all suffer – a painful lesson that is currently being brought home to us.

Businesses and governments realise that their interests are aligned. It is the core business of a company which will create jobs and provide the goods and services that poor people need. It is through the design and application of appropriate, rule-bound institutions and policy, as well as demand driven public services, that governments will create the environment in which the private sector can do this.

We must not forget the principles which lie behind CSR, nor the many initiatives and innovations which have changed business practice and attitudes. But we have learned it is not enough, and that there are bigger prizes for both development and businesses to be won if we work together better.

DFID’s new Private Sector Development Strategy is designed to help business and governments maintain and increase the positive impact of business on development. It focuses on three pillars: Access, Competition and Engagement.

Businesses need access: to markets, to finance, to skills. That is true whether we are talking about a multinational or a small farmer. This is why DFID supported the FinScope surveys in South Africa which demonstrated the untapped markets amongst the poor for banking services. Since 2004, over 2 million people have benefited from accounts designed for their needs, 60% of whom had no previous access to financial services.

It is also why we support the Katalyst programme in Bangladesh, which has helped provide access to better information and inputs to an estimated 1 million farmers - helping them generate around $700 million of additional income and creating over 180,000 new jobs.

Strong businesses also thrive in competitive markets. Where inefficient companies are kept in business unfairly through corruption, regulatory barriers to entry or protectionism, it is the entrepreneurs, the job creators and the consumers who lose out.

That’s why, for example, DFID is helping India and Tanzania and other countries in Asia and Africa to implement effective competition policies. The Competition Assessment Framework that we published last year is now helping developing countries to identify and address critical barriers to competition. DFID is also providing £17 million over three years to the Investment Climate Facility for Africa to support key regulatory reforms across the continent. This work is crucial in the current economic climate, where fear and a short term outlook put past and future gains at risk.

DFID is also serious about engaging with the business community. In 2008 more than 60 businesses joined the Prime Minister’s Business Call to Action. Coca Cola responded with a research programme investigating the development impact of their distribution system in Africa, and have opened 500 new independent distribution centres, creating 2500 jobs.

By August last year, DFID’s Extractive Industries Transparency Initiative had engaged 37 of the world’s largest oil, gas and mining companies, and 23 developing countries rich in natural resources to improve transparency and reduce corruption.

If our new strategy is a good step in the right direction, it by no means represents the end of the journey – or the end of the conversation we will have. That is why the meeting series planned by DFID, Business Action for Africa and the ODI is so important. The meetings will not just be a set of discrete, interesting discussions and case studies, to attend, or not, to remember or to forget. They should instead be seen as a coherent whole, moving the agenda of business in development forwards.

It is incumbent on DFID and its partners to stay at the heart of this dynamic and urgent debate. That is why our strategy and this meeting series are so important, and why the contributions and participation of our partners are so valued.

Post written for Business Fights Poverty by Michael Foster MP, Parliamentary Under Secretary of State at the UK's Department for International Development.

[Blaise_O]

The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. A movie entitled "Slumdog Millionaire" has been a big hit and won as the Best Picture at the Academy Awards. The movie was so inspirational. It has called attention to the terrible poverty that people in other countries experience. Azharuddin Ismail and Rubina Ali, two child actors featured in Slumdog Millionaire, are both to be moved to new homes with their families. The Indian government has agreed to pick up the check, citing that the film, and the two diminutive thespians, has made their country proud. The kids featured in Slumdog Millionaire are both residents of India's slums.

[Pradeep S Mehta]

On 23rd January I wrote about increasing public perceptions on mistrust of business, in the context of the Satyam scandal in India.

This view has been vindicated in a survey done of 200 opinion leaders in India in three metros during November-December, 2008. Please see: http://business-standard.com/india/news/slowdown-satyam-erode-trust-in-business-survey/15/53/348349/. Alas, the survey also shows an equally declining trend of trust in all institutions, such as media, government and NGOs. Much of this reaction could also be due to other factors, such as adverse consequences of economic downturn. The image of NGOs took a hit because of financial improprieties committed by them in the post-Tsunami rehab operations.

On a different note, on Phil's comments about farming communities' disillusionment with the system because of poor and low investments in social sectors in rural areas is bang on the dot. The scene is very complex, as I see in rural India, whose warp and weft is ridden with caste, politics and other extraneous factors to not being able to get the services in a manner in which could be done in an ideal world.

[Phil]

I understand the concerns from the above posts but what we are looking to achieve is for the local community strengthening to be a priority with public sector and private sector funds providing the resource. It is a difficult concept to get over but if rural communities do not see progress and young people just want to get away then everyone loses and business will have to look elsewhere for supplies. This idea is really focused on the provision of social infrastructure that will enable the local community to operate effectively and be able to deliver a thriving community which can take advantage of new technologies to increase productivity and embrace many other aspects of business that have set out elsewhere on this site. I think we are therefore taking a view that until the community is functioning much better in a spirit of optimism and the poor services are being seen to be addressed, the community will not be sufficiently focused on commercial matters which can help them. If people see investment in good education, water, sanitation, health they may be motivated to invest time and effort in improving their community . At present in many farming communities this aspect is missing becuase the sector is starved of funds.

[Pradeep S Mehta]

Engaging and empowering the civil society in the countries through a structured process, rather than ad hoc measures, can help push the reform agenda, which includes private sector development. The process involves demystifying several complex issues, which a public interest advocate may not understand and as a consequence jump into wrong conclusions. Quite often the civil society is wary of private sector, in particularly TNCs. This then results in a xenophobic response to FDI and business generally. It is therefore that many privatisation initiatives and/or public private partnership projects meet with resistance from the person on the street. How the government communicates and regulates the business sector become very crucial. And that people need to have confidence in the system.

As I write this, the multi-billion dollar Satyam scandal in India, like Enron in the US, has really painted a bad picture about business. People are also questioning the sheer lack of regulatory oversight, which could not prevent such a huge scam. Not only that but people are also questioning the role and responsibility of independent directors, who in this case were very prominent citizens and academics. In such situations the public perceptions take a quantum leap in their mistrust of business. These issues too need to be debated.

[Mark Trotter]

How interesting, it is always a positive move to increase transparency, market access and growth. However I am yet to be convinced that this initiative is likely to be any more successful than the other attempts over the years.

Lifting people out of poverty isn't achieved by business and market growth alone, so many other social factors are involved. Profit driven organisations are going to achieve the collective aims if the collaboration is constructed in the terms of the information provided on the website, the infrastructure and support for multi-partner cross sector collaboration, openning up trade and reducing the parachute culture of private enterprise is required.

Surprisingly I am not a cynic I do welcome the initiative the numbers used don't stack up, the stats can be used two or three ways and it is niave for private business to think that there is a universal approach to resolving problems, money and trade really solves very few of the problems as the NGO sector has proved over the years it will take a great deal more than this but it is an interesting place to pick up

[alimerifield]

Like most of the attendees at Tuesday's launch, I support the initiative to bring the private sector into wider development initiatives. I think it is something all parties have wanted for a while - the multinationals and the public sector and NGOs. Having a framework for the international private sector to come together in this way is crucial.
My biggest question is where Africa’s private sector fits in. Discussions start with multi-nationals and then rapidly zoom in to microfinance and entrepreneurs or start-ups, ignoring a huge swathe of African businesses in the middle, many of which are seeing significant growth and success in their own and other African markets.
Perhaps it is beyond DFID’s scope, but it is important to involve them in the discussion and the work being done, on the ground – after all, we are all working towards an African solution. The African private sector, from Nigerian banks to Ugandan software houses, food production companies in Namibia to investment firms in Kenya, should be part of the process, otherwise it is another ‘solution’ coming in from the outside. The international business community has to engage and collaborate with African companies to ensure African businesses are sustainable and contributing to socio-economic development.
As Mike Foster comments, the role of business in development is not new. The role of African business in development is the next step.

[Camilla Flatt]

Hi,
It was great to attend the event last night and hear about DFID's new strategy and other great corporate initiatives to alleviate poverty. There was a call at the event to share experiences and hear about real-life stories.

Diageo have been doing some great work in the field of sustainable agriculture for their barley and sorghum farmers in Africa. They won the UNDP World Business and Development Awards at the UN Headquarters last September during the General Assembly for their local grain initiatives in Africa.

Two decades ago, all the grain for Diageo’s breweries in Africa was imported. The imports required precious foreign currency and represented a lost business opportunity for local farmers. Diageo joined a project to develop the cultivation of a beer-friendly variety of sorghum in Nigeria. The project identified a usable sorghum cultivar and trained farmers to grow the crop. Sorghum farmers reported a 35-50 percent increase in yield from their land. Today, Diageo breweries in Nigeria source 95 percent of their grain from local farms, sustaining around 27,000 jobs.

There were nine other winners. Summaries of these projects can be found at http://content.undp.org/go/newsroom/2008/september/award-winners-prove-that-fighting-poverty-is-good-for-business.en

[Simon Berry]

This sort of builds on what Phil has said although was not written to do so! I was very pleased to get the opportunity, as a private individual to attend the event last night (20/1/09) at the Commonwealth Club near Trafalgar Square. DFID used the opportunity to launch their 'Private Sector Development Strategy' (PDF).

I applaud this initiative - supporting business development to provide employment and pay tax to support social services (I paraphrase) - BUT it does feel a bit like putting all your eggs in one basket. It reminded me when I, like many others, made the mistake of thinking that 'the free market' was the answer to everything. Although we all need to improve our efficiency and effectiveness this, in itself, will not address poverty in Africa and nor will it solve the tragedy of child mortality and other unacceptable social injustices. In addition to doing more, better, we have to innovate.

It is generally recognised that innovation happens at the edges of any organisation or sector, not at its core. I believe that where the edges of the business sector overlaps, or potentially overlaps, with the NGO sector is particularly fertile innovation territory. This is where the ColaLife campaign sits. The campaign was rekindled by the launch of the Business Call To Action way back in May 2008 and is asking Coca-Cola to open its amazing distribution channels to get 'social products' such as oral rehydration salts, malaria tablets, educational messages on hygiene and sanitation, to the places that they are so desperately needed,

[Phil]

Leadership by DFID and indeed the other significant development agencies in encouraging a framework for mainstream business to help deliver action on the ground is vital. Budgetary assistance as currently delivered within Africa has significant limitations when we look at the deficit in social infrastructure outside of the main cities and the resultant urban drift that has been generated without a proper consideration of the need to support rural communities. There is definitely tremendous scope for public private partnerships involving mainstream businesses to contribute to the delivery of health, education, water and sanitation programmes to increase the capacity and generate a vision of a positive future for these communities who are being forgotten as a result of the budgetary assistance model. Monitoring and evaluation of programmes needs to be carefully observed to ensure that farming communities are genuinely seeing the benefits of the programmes and we are just not relying on paper reports which do not give the full picture. Businesses do not want to contibute to central budgetary assistance. They will help and guide without taking responsibility for provision of infrastructure that is the job of governments to provide. It is vital that their assistance has meaning within their supply chains and ultimately with consumers. Mainstream business can deliver way beyond niche markets but the partnerships have to be fair, clear, accountable and designed to operate year on year as part of normal business. A Good for Development label could be achievable in these circumstances. Many people query where is the evidence on the ground of the current £60bn or so aid provided annually which is stated to be 0.3% of GDP of the G20 counties - although it is recognised that there is a substantial amount of humanitarian assistance within this figure. If the amount is to increase to 0.7% of GDP we must make effective use to find sustainable mechanisms. DFID needs to be bold and question the budgetary assistance model. this is not to reject this form of assistance but to talk to mainstream business about options for more direct support to local communities fully integrated within national country plans. DFID are best placed to change minds and approaches on this subject but you do need to create a better forum for dialogue.
When poor farmers experience increased capacities in their social infastructure this will imapct on their ability to take advantage of technologies and participate more fully in markets. Productivity will increase and land usage will be reduced or diversification into other areas facilitated. Meeting the tremendous forward demand for food will be more effectively addressed and the implementation of agro forestry to offset climate change will be achievable. Rural communites are not getting a fair deal in the current allocation of global aid.