Is Business the New Aid?

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 Business Action for Africa spoke at the Conservative Party event). The provocative question we were asked to address was “Is Business the New Aid?”

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:

  1. 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.
  2. 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).
  3. 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).
  4. 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.

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7 Responses

  1. Thanks for this great summary of where we all are Zahid – and where we need to go.   I will just pick up on two of your forward-looking points.

    As you say, we need multi-company multi-year data on the results of business.  Thanks for referring to the Business Innovation Facility as one donor-funded project that is trying to get to grips with impact. Indeed we are trying.  But I have a confession:  we (in BIF, but also in ‘inclusive business’ generally), are light years behind.  The Impact Investment community already have a set of standard indicators and have just produced their first aggregted report, the 2011 Iris Data Report.  It’s not yet multi-year, but it certainly is multi-company, drawing on 463 businesses plus thousands of micro-loans. 

    The report is my ‘Editor’s Choice’ for October on the Business Innovation Facility Practitioner Hub.   Join here, and then once a member, see Editor’s Choice here.

    As you have pointed out before, impact investment and inclusive business are just different ends of the telescope:  both focus on enterprise that delivers commercial and social return.  So, while these indicators and aggregated results are not perfect, nor appropriate for all, there is a lot to learn from impact investment.


    Secondly, you urge us all to get into more details of the ‘how’ to build business models that work, socially and commercially.   BFP and your events are one way to share experience.   In the Business Innovation Facility and our sister project, Innovations Against Poverty, we have a portfolio of inclusive business projects that is approaching 40 selected so far for support (details of those that are contracted and are public are on the Practitioner Hub).     And we have a mandate to share what works – or doesn’t – and why.  But we are currently debating HOW to share these lessons.  

    Short one pagers, case studies with photos, and 1 minute videos are ever popular, but very challenging ways to share real insights on alternative distribution channels to cover the ‘last mile’ to base of pyramid consumers; invoicing and credit systems that support fair transactions with smallholders, or how to set up governance structures in a ‘blend business that combines commercial and social investors.  

     We could produce 5-15 page documents that really share the detail of what was done, or 10-20 slide Powerpoints that go through the options, just as the company or consultant go through them.  But the investment is not worth it if the potential users don’t want material in this depth, or do not have the tools or habit to access it.  We could summarise the key lessons in one page checklists:  the half dozen issues to consider, based on experience of x y z project.  But does a list with no backbone behind it really offer support?   So does that bring us back to one pagers or to face to face meetings with a limited audience, plus those with sufficient bandwidth to watch online?

    There are many options for sharing lessons.  But prioritising them depends on the balance between the effort that is put into turning project lessons into public form, and the value gained by what might be a relatively small audience for each specific topic.

    I would love to hear what kind of HOW material people would like – in what form and what depth?  On what topic, and reaching you through what channel?  And what would you actually think worth the time to find, read/watch/listen and use?

    There is momentum now to better understand the ‘how’ of inclusive business. The question on my mind is how to share the how?



  2. Business has a huge role to play in poverty alleviation. Unlike Aid business  places money in peoples pockets and  communities- the access to personal income gives people choices too.  We saw this first hand in Masindi Uganda last year- development seemed to happen from business ideas and not from having access to donor funding- this is not to say that there is no role for Aid.

  3. Great piece Zahid

    I think it would be really helpful if development agencies of all kinds – donors, NGOs etc did an asessment of the impact of their initiatives on the local, indigenous private sector, esp on SMEs. Indisriminant subsidies or freebies can put the local private sector out of busines. One impact investor told me recently of a situation where they were investing in a seed company that was put out of business by a short-term NGO project. This is criminal. I believe that just as project proposals need to look at social and environemental impact there needs to be some assessment of the likely impact of interventions on ‘the market’ locally, including impact on local input suppliers, traders etc. Short-term indiscriminant subsidies even for worthy humanitarian reasons can do a lot of damage to building longterm local capacity.

  4. Good innovative idea Zahid. But the basic question is how do we inculcate Entrepreneurship culture at the bottom of the Pyramid in Africa.

  5. I agree. Business does have an important role to play in the development of the local areas in which it operates. I believe there should be more emphasis on them to contribute to the process and support such initiatives for  its customers, communities and indigenous sectors. Business and industry can certainly afford to invest in such programs and projects and it would surely improve the economy which in turn would surely improve their future business opportunities.  However, that input must be committed, long-term and sustainable.

  6. I find it interesting the list of ‘shoulds’ that you see donors; NGOs, academics and companies
    need to do so that all will be well in the world. First of all—how can “should” even be in the lexicon of development pracitioners? Things are as they are and we need analysis, relationships with local people to understand the root of why things exist as they do and and then create inovations to shift things. 

    Starting with donors—you say donors “should” focus on getting the right investment climate
    and infrastructure in place….. This seems a bit colonialistic. We might as say there shouldn’t be poverty. Donors lend money to governments—and there are ties to those loans. Governance and accountability are becoming part of that bilateral exchange. Although the Chinese donors are not interested in accountability—they are interested in getting the money to the recipient countries via loans and getting the resources out. In Africa, current literature is showing that LDC countries are enjoying being recipients of Chinese money rather than DFID, USAID, EU, CIDA, etc money.

    At this point in time it is not in the interest of recipient governments to set the right
    investment climate now because skimming will be harder, and that is the purpose
    of getting elected in many countrties—access to the money pot—Franz Fanon’s
    book wretched of the Earth presents so well why country’s who are independent
    hold on to the ugliness of colonialism and replicate it within their relationship
    between the power brokers in the new country that has just become independent.

    Simple answers started by shoulds illustrates that our deeper understanding of socio-historic context is very shallow. And woe to us all. Look at Bill Gates \Foundation. Rich man,
    wanting to help the world. Started buying ARTs (antiviral therapy for HIV/AIDS)
    and distributing them in Africa—then his foundation learned that consumers of ART
    drugs needed nutrition three times a day to take the drugs or they got sicker—so
    then the focus came to low technology and food production, and then an
    understanding that you need water for irrigation so now the foundation is
    looking at water supply potential like rain water harvesting. The things that
    is so mind blowing, is that there was no awareness that people in poverty
    actually do not have enough food to eat—but give them drugs and they will be
    ok. The Bill and Melinda Gates Foundation have come a long way since they
    opened their doors and presently supported much needed research in our field. I
    share this to provide an example of how effective businesss ideas do not work
     as stand alones in the complexity of poverty alleviation.

    Micro enterprises make up 80% of the worlds economic engine. Big business getting
    involved with aid—is great, but overlooking the complexities of poverty can
    actually lead to business failure, and dash the hopes of potential participants
    yet one more time. The simplistic agenda mentioned in this posting (for donors,
    NGOs, Academics and companies) need much more filling out to be effective on
    the ground in a multi regional and contextual arena.



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