Article

Is Business the New Aid?

2011-10-07 · By Zahid Torres-Rahman

Recently I had the opportunity to join a panel discussion organised by the Institute of Development Studies (IDS) held in the margins of the just-completed series of UK Political Party Conferences (I spoke at the Liberal Democrat Party and Labour Party Conference Fringe Events; Sue Clark, Corporate Affairs Director of SABMiller, and board member of…

I argued that we need to start by reframing the question, if we are to get a useful answer.

First, by “aid” what we actually mean is “development”. In Korea in just over a month, world donors will be coming together to discuss how to improve “aid effectiveness” – but in fact what they really should be talking about is how to improve “development effectiveness.” And the donor agencies participating should not see themselves as aid agencies, but as “development agencies.”

Second, by “business” we should really be thinking about the private sector in all its diversity from small-holder farmers, microenterprises, small and medium enterprises, and large domestic and international companies. All have an important role to play in promoting development.

Is business the new aid? Of course not. Is business—in all its diversity—central to development? Of course it is.

While donors have been slow to come around to this view, national governments have not. In my travels around Africa, I do not pick up the same unease about the private sector and profit that I do in Western capitals.

Even more importantly, when poor people are asked what they see as their key strategies for escaping poverty, they overwhelmingly say getting a job or growing a business.

The Western-dominated development community has—where it has thought about business—tended traditionally to focus on “obligation” (controlling a fundamentally “problematic” private sector), rather than on “opportunity” (thinking about how business can contribute to core development objectives). Yet enterprise—the private sector and the opportunities it creates—is the only long-term strategy for development. It is the only sustainable and scalable option for improving livelihoods for poor people around the world.

Things are changing. Last year at an event we supported, a group of bilateral donor agencies from around the world issued a statement about the importance of working with business. Last month, I spoke at an event in Berlin hosted by Germany’s BMZ which was aimed at translating this statement into concrete action. And along a similar vein, at the first of the events in the 2011 “Harnessing the Power of Business for Development Impact” Event Series, the UK’s Department for International Development (which has emerged as a pioneer in this area) talked about its new Private Sector Department and strategy.

The NGO sector is making this shift too. Oxfam, CARE and FARM-Africa, are just three stand-out examples of NGOs that have been proactively engaging in this agenda, from supporting small farmers and micro-entrepreneurs to partnering with large companies to advance development goals.

So let’s move on from the question of why business should be involved. It is a distraction, and our energy needs to be directed at the two more pressing points.

The first is around moving on from the “why” to the “how”. At Business Action for Africa, we have been getting into detailed questions around how we can increase the development effectiveness of business. For example, looking at how businesses can create inclusive business models that are both commercially viable and that involve poor people as suppliers, distributors, employees and as customers.

How do we make progress on “the how”? The Event Series we are running this year with IDS, and which many members of this community have attended, is attempting to answer that question. The current questions in many ways are more detailed, more mundane, but so much more important. In fact, it was with this in mind that I originally set up Business Fights Poverty. BFP is a diverse community of practice for professionals from business, government, NGOs and academia applying their collective knowledge and experience to the really tough practical questions around harnessing the power of business for development impact.

The second point, looking forward, is about needing to move beyond the question of “how” to the question of “how much.” That is, how can we measure and scale the impact of business on development.

On measuring impact—a great deal of progress has been made. Ethan Kapstein, from INSEAD, for example, has conducted numerous studies on the socio-economic impact of business. But while we are collecting useful company-level data, what we need is multi-company, multi-year data.

The other part of this is how to achieve scale. Greater scale requires business-to-business as well as business-donor-government-NGO partnerships. Perhaps the most exciting developments are around what are known as “systemic change partnerships,” which endeavor to bring about massive change at the national or even regional level (such as around intra-African trade, or health systems reform).

So rather than debating whether business is the new aid – an artificial and I think unhelpful framing of the real challenge – let us think more deeply about how best to engage business at scale.

In our own research, we have found a number of things that different organisations can do:

Donors: You should focus on getting the right investment climate and infrastructure in place generally, but also specifically for agriculture (where most poor people are located). Help drive regional trade. These things are good for business, and we have found that in their absence can be key impediments to the scaling of inclusive business models. Co-invest alongside business to scale the impact and reach of inclusive business models, for example by enabling small-holder farmers to produce the right quality and quantities needed for taking advantage of value chain opportunities. Donors can also play an important role in showcasing and spreading best practice, including on how to measure impact (for example, the Business Innovation Facility). They can also help build the capacity of national governments to put in place the right policy framework to encourage and engage with the private sector.
NGOs: You have a vital role to help enable poor people to access markets. That might mean aggregating small scale suppliers or helping larger companies think through their development impacts (see for example this webinar with Oxfam America, The Coca-Cola Company and SABMiller).
Academics: You need to inject intellectual rigour into what all too often can be an ideological and emotional debate (the work that Jane Nelson is doing at Harvard Kennedy School is a great example).
Companies, investors and entrepreneurs: You need to help drive the move away from philanthropic CSR towards deeper questions about how you do business—how you can innovate around business models that are both profitable and that have a development impact. Think about how you can partner with your peers and development actors to scale your impact. The Business Call to Action has some great examples.

There will, for the foreseeable future be a vital role for aid, and I am not arguing against it. What I am arguing for is a more effective strategy for development—one that requires the active engagement of the private sector.