We spend a lot of our time trying to convince skeptics that they should care about development. Bill Gates made the case very convincingly in his report to the G20 delivered last November. He argues from the supply side: successfully developing countries can keep the price of key commodities low by boosting production – important in ensuring food security. And he argues from the demand side: successfully developing countries can keep markets humming by boosting consumption. In the U.S., exports to developing countries are growing six times faster than exports to developed countries.
At the foundation, we also spend a lot of our time trying to convince a very different kind of skeptic that the private sector must play a central role in development. Members of Business Fights Poverty will agree on both points—that meeting the MDGs is good for business, and that business is essential for meeting the MDGs.
What we need, and why this community is so important, is a conversation about the specifics of how. There are some exciting examples of innovative financing mechanisms that are making a real difference and doing a great job of engaging the private sector. GAVI matching funds is one such example. It’s not just about developing new vaccines, it’s also about delivering the vaccines we do have. The funding available to GAVI quite literally makes the difference between children dying of preventable diseases, or not. DFID and our foundation have partnered to offer matching funds to any private sector group that contributes to GAVI. Anglo American recently took us up on the offer, because they understand how important healthy populations are to future prosperity. If any corporate members of Business Fights Poverty would like to speak with me about matching funds, please get in touch.
But the larger question is one of strategy: How do we tackle the obstacles that systematically keep the private sector from engaging in development as much as we’d all like?
When I think about these issues, I think about what it really means to be poor. What, really, is the problem we’re trying to solve? The world’s shorthand is $1/day, or $2/day. But this definition doesn’t analyze the causes of poverty or provide ways to think about solutions.
I think in terms of “access to productivity”. You can neither create nor seize opportunities if you don’t have basic necessities like nourishment, health, and education. In Africa, most of the people who live on $1 or $2/day are farmers. Their seeds have not been bred for maximum productivity. They don’t have key inputs like fertilizer or irrigation. They don’t have any reliable way to sell surplus at market. Meanwhile, it’s likely that they and their children are sick for long stretches. As a result, they get about one-fifth or one-quarter of the yield that farmers in Europe or the United States get. That’s how they wind up at $1 or $2/day. Once you understand the key barriers to productivity, the root causes of poverty, you can start targeting poverty with strategic interventions.
This idea that you can analyze poverty and attack it systematically brings me to the key question: What can we do about it? We start from the same first principle: We believe the private sector is the key driver of economic growth and source of innovation. To make sure that people have access to productivity, the private sector has to get involved.
But when it comes to the private sector and development, there is the problem of market failure. Poor farmers desperately need better seeds, especially as climate change takes hold, but there is no incentive for seed companies to develop varieties for the areas where poor farmers live. Poor children need drugs and vaccines for the diseases that affect them, but they can’t pay for them, so pharmaceutical companies make objectively less important products that they can turn a profit on, like baldness cures.
At the Gates Foundation, a big part of our job is identifying those failures and filling the gaps. We aim to catalyze the invention of solutions that other sectors can take up. Foreign assistance, by the way, can play a very similar role, and that is why we have been telling everyone who will listen to follow the UK’s example by sticking to their aid promises.
We have found that philanthropy, the private sector and government can play important complementary roles. Catalytic philanthropy takes risks to create transformational solutions. The private sector drives scale where there is a market. The public sector drives scale and provides an enabling environment.
Let me give an example: Our fruit juice partnership with TechnoServe and The Coca-Cola Company. There are tens of thousands of small fruit farmers in Uganda whose products don’t meet international buyers’ specifications. We’re funding a group called TechnoServe to work with 50,000 farmers to increase their productivity and quality. The Coca-Cola company has agreed to source mango and passion fruit from these farmers for its fruit juice products. Ultimately, philanthropy can fill this gap in productivity and quality to give farmers a better living and companies better options for sourcing raw materials.
This concept is being applied in many of the grants we make to support key crops, including cashews, cocoa, coffee, and cotton. By supporting these crops, hundreds of thousands of small farmers can be brought into the global economy with catalytic investments that become self-sustaining.
I think these examples from our foundation’s work are helpful in thinking about the kinds of interventions that can clear the way for private sector involvement in development. In Bill’s G20 report, he outlined even more ideas – such as leveraging remittances (the African Diaspora alone is sitting on $50 billion in savings; cutting transaction costs for remittances from 10 percent to 5 percent would unleash $15 billion); directing a small proportion of Sovereign Wealth Funds to create infrastructure funds; and using “pull mechanisms”, such as the Advance Market Commitment that our partners and we have used to encourage investment in new vaccines, and applying this to new areas such as agriculture to provide incentives for the private sector to innovate around the problems poor farmers face.
If we continue to be creative, we can have a huge impact. By creative, I mean all of us. The Gates Foundation needs to keep thinking about ways to be catalytic. Businesses need to keep thinking about ways to do well by doing good.
Africa is already home to a deep-rooted culture of giving and mutual support, though it operates mostly at the family and community levels.I would like know more about the matching funds..How can I contribute?
Managing Business Director
Africa Business Communities
Jeff you have raised very pertinent issues on how business can reduce poverty. However, the one major missing part is that we do not have any credible venture capital for the missing middle rank of SME’s in Africa particularly. The biggest problem is that it is very easy to raise micro financing of between 500 dollars to about 2000 dollars but when you talk of projects requiring between 50-300,000 dollars as capital you get a roadblock. One thing your foundation should be doing is finding a way to catalyse funding innovations that will enable the bulk of SME’s access affordable finance to expand their businesses. Furthermore we shoul;d be doing more work developing vertical and horizontal supply chain based integration between large and small businesses. We should be seeing major companies like Microsoft and Apple outsource to SME’s in Africa rather than shift all focus to China. Harvard University have recently pioneered a simple tool for loan approvals which Standard bank of South Africa is currently rolling out across Africa. We need more innovative research that reduces the cost of doing business and at the same time enables new technology reach a wider audience. Philanthropy must move away from creating further dependence and must actually promote self reliance and make business sense. I would hope your foundation blazes the trail in this regard. What better way to help people by teaching them to fish rather than giving them a fish!!
Isn’t a safe almost undestructable and affordable house the seed to prosperity for the next generation? I posted a simple technology where people can purchase for example with microcredits and other finance possibilities their own safe homes. Have a look.
Jeff, we have just been informed that we have been selected to present moladi as a tool to “alleviate poverty through housing.” What we do is train the unemployed to build for the homeless – but as Trevor Simumba rightly points out – there is no funding to allow these entrepreneurs to get into the main stream or BOP business. And YES, affordable housing is the seed to prosperity – Maslow’s hierarchy of needs depict fundamentals of life as Food and SHELTER – Read more at Alleviating Poverty Through Housing – Business Fights Poverty – http://goo.gl/g7dWC – We will apply funding to Africa’s needs for entrepreneurs and artisans creating employment building for the homeless – creating sustainable villages http://www.moladi.com