Defining a New Development Framework that Strengthens the Contribution of Business

Since 2000 and the launch of the Millennium Development Goals (MDGs), Sub-Saharan Africa’s citizens have experienced growing stability and security alongside a sustained and widespread economic transformation that has lifted millions out of poverty. Despite these advances, progress across a broad range of MDG indicators remains frustratingly slow and uneven.

At a time when aid budgets are under mounting pressure and private sector growth and investment in Sub-Saharan Africa is on the rise, there is a growing consensus that harnessing the transformative power of enterprise to create jobs and prosperity offers the region the most sustainable long-term route out of poverty.

Economic growth, driven by markets and private enterprise, raises living standards, generates decent jobs and incomes and enables the poor to access essential social and economic infrastructure and affordable life-enhancing goods and services.

A growing number of businesses are moving beyond traditional philanthropic and CSR approaches to find new ways to do business that benefit both the poor and their core business. Many of the key investments and innovations to tackle the spectrum of development challenges from health, education, nutrition and food security, climate change and infrastructure derive from the private sector. At the same time, businesses that fail to integrate the imperatives of social inclusion and environmental protection will not succeed.

Against this changing context, we believe there is an opportunity for a new development framework to widen development priorities beyond the imperatives of peace, security, health and well-being and education to embrace an agenda that places greater emphasis on the creation of prosperity, underpinned by responsible, equitable and sustainable economic growth.

As the engine of economic growth, the private sector recognises the key role it can play alongside governments and development partners to help shape a new development agenda to further release Africa’s huge untapped economic potential.

As a group of companies committed to investing in Africa’s development, we offered the following recommendations (including as an input into a joint business letter) to the High Level Panel on the Post-2015 development Agenda, due to issue its report imminently, on how a new development framework can further unlock business’s contribution.

1. Stay focused on delivering, and build from, the MDGs

Although discussions are currently focusing on the Post-2015 agenda, it is vital that all stakeholders remain fully focused on doing everything possible to achieve the current MDGs over the next two years.

A great deal of progress in understanding how business can contribute to development has been made using the current MDG framework. In defining a new agenda, we must build from these strong foundations and successes.

The strength of the MDGs lies in the fact that they established a set of clearly structured, quantifiable and time-bound goals and indicators. A new set of development goals should continue to adhere to this approach and focus clearly on the efficacy of the outcome they are trying to achieve.

A new set of development goals should also have at their heart a stronger recognition of the importance of sustainable, responsible and inclusive economic growth, job creation and trade as key drivers of poverty alleviation and development.

It is critical that we do not have separate sets of goals established by the post Rio+20 process and the post MDG process. Rather we should have one set of global Post-2015 goals covering both development and sustainability. The need to manage and preserve scarce resources and to enable economic and social development can easily become competing priorities if they are not considered in an integrated way.

2. Underpin goals with a greater focus on local delivery and accountability

Underpinning a refreshed set of global development goals, there is also an opportunity to establish more detailed and practical frameworks that help to translate global commitments into local action, providing greater clarity on how stakeholders can best contribute, deliver, and be accountable for new development goals. From a business perspective, a supporting framework could focus on three key areas:

A. Scope: Recognise and encourage business’s contribution more explicitly

A new development framework requires a more specific articulation of how and what business can contribute to development goals, with a clear focus on identifying businesses’ key competencies and building from approaches that work. To further unlock the private sector’s contribution, a new framework needs to recognise the following:

• Prioritise jobs and livelihoods: Unemployment is one of the most pressing global development priorities and a new global development framework needs to explicitly focus on creating meaningful jobs, building skills and employability, and the goal of achieving full employment. Unemployment in Sub-Saharan Africa, especially amongst young people, threatens stability, suffocates economic growth and represents a huge personal tragedy for the millions unable to realise their full potential in life.

• Recognise the importance of core business to scaleable and sustainable development impact: The fundamental lesson from business’s contribution to the MDGs is that core business is the private sector’s comparative advantage in development. Business activity is financially self-sustaining and therefore has the potential (if the economics and framework conditions are right) to generate impact at scale. The contribution of core business as a potential means to reduce poverty, support development and address environmental challenges will help to unlock a huge untapped opportunity, especially if a new development framework emphasises the importance of creating a supportive enabling environment for business.

• Create more incentives for business to engage in development through core business: To fully enable business to make transformational breakthroughs, more ways need to be found to help business overcome risk considerations and more easily access risk capital. Finding ways to share the burden of risk will ensure innovative business ideas have a much better chance of reaching the marketplace. Innovative financing instruments like the Africa Enterprise Challenge Fund (AECF), pioneered by DFID, have a key role to play in helping companies to scale inclusive business models and to maximise development impacts.

• Prioritise support for SMEs and strengthen enablers for business: Whilst large companies can leverage their value chains to create jobs and build capacity, it is small and medium enterprises (SME) that hold the key to unlocking the potential of the private sector’s contribution to Africa’s development. An estimated 95% of African businesses and 85% of all jobs in Sub-Saharan Africa are in the SME sector. SMEs are also key drivers of economic diversification and innovation, especially in African countries largely dependent on their natural resources. Despite their critical role, SMEs, many of which still operate in the informal economy, face a broad range of constraints in the enabling environment that smother this potential. These constraints include poorly functioning hard and soft infrastructure and regulatory environments, alongside a lack of access to finance, skills and markets. To enable SMEs to thrive, policy makers need to focus on supporting the enablers of business, with a particular focus on: strengthening infrastructure, especially energy, technology and transportation to boost intra-African trade; establishing effective legal and regulatory frameworks; and enabling greater access to finance.

• Engage Africa’s new entrants to align business investment with development outcomes: Emerging economies are increasingly prominent sources of FDI in Sub Saharan Africa. In 2012, the African continent received 11% of FDI projects by BRIC economies, up from 9% in the pre-crisis period. Emerging partners account for 50% of sub-Saharan Africa´s exports and 60% of its imports. As the balance of private sector investment continues to shift towards emerging economies, more must be done to encourage new business entrants to align their business goals and strategies with local development priorities.

• Collectively invest in agriculture to address hunger and malnutrition: In the Sub-Saharan context, transforming the agriculture sector is the key to addressing the interlinked challenges of poverty, population growth, hunger and malnutrition. A new development agenda needs to emphasise the need for all stakeholders to commit to increased and sustained investment in agriculture to enable Africa’s producers more access to markets, to improve productivity and to benefit from strengthened infrastructure.

B. Delivery: Make local delivery of global commitments more effective through partnership

A new development framework should emphasise the need for stakeholders to create mechanisms and platforms capable of translating global commitments in to local action. We would suggest that donors and governments focus more resources on public-private partnerships that can deliver sustained economic growth and development through stronger market linkages. In the context of smallholder farming for example, the focus should be on guaranteeing a market for smallholder outputs whilst building overall capability to enhance food security.

• A focus on transformational partnership to ensure irreversible impact at scale: To ensure greater impact at scale, more permanent and larger scale local engagement platforms in the form of transformational partnerships are required to bring together all stakeholders around long-term shared objectives. A new development framework needs to emphasise the need for transformational partnerships that have at their core: an ambitious shared vision that all stakeholders can contribute to; a clear focus by each stakeholder on their area of competency; and a commitment to establishing strong accountability mechanisms.

• More emphasis on interconnected thinking and solution: Many of Sub-Saharan Africa’s development challenges are interconnected and need to be tackled collectively to ensure effective and sustainable solutions. For example, as natural resources become increasingly scarce, understanding and managing the relationship between water use, food production and energy consumption will become increasingly important. Governments and businesses must start to address these issues collectively rather than in silos to ensure sustainable and effective long-term solutions.

• Building capacity to partner: Greater emphasis by governments and businesses needs to be placed on building their collective capacity to partner more effectively. This requires a sustained commitment to training and capacity building to increase the quality of partnership outcomes.

C. Accountability: Strengthen accountability by all stakeholders

Although it should remain the responsibility of governments to prioritise and deliver development goals, a new development framework needs to emphasise the need for greater accountability in the delivery of goals amongst all stakeholders, and greater transparency in reporting their impacts – both positive and negative.

Businesses must be more transparent in reporting their impacts to ensure a greater level of accountability. A clear understanding of impacts should be accompanied by firm commitments to mitigate risks and to enhance positive impacts.

Whilst there is a growing evidence base on the positive impact that businesses are having on development we need to know much more about how different businesses and business models deliver development impact at the local level. Measuring and understanding that impact provides greater clarity for businesses, governments and donors on how to invest and target resources most effectively, and how to develop a supportive policy environment.