NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

This post is Part 5 of a 5 part series.

A.H.: How does the Shell Company view your activities? How do they see them in a strategic sense?

K.H.: What matters most inside a big company is performance. In the early stages, we got help, but no real interest. It was hard to get the business guys to listen because frankly, we didn?t have a track record. Once we had a track record that changed, but it’s been a justifiably hard slog to get the experience to prove ourselves.

From a strategic sense, Shell faces a challenge: exploration and production are not big employment generators, but governments want local jobs generated, and so there’s a lot of pressure to contribute that way. However, there’s also a set of market pressures moving us away from local sourcing; using smaller, local suppliers is more risky and often less efficient. So in a sense, the Shell context is not one that would lend itself naturally to local SME development.

This changed with our success in South Africa, which unexpectedly coincided with South Africa’s push towards black-empowered capitalism and supply-chain diversification. There was legal pressure to diversify our sourcing and empower more local businesses. The Fund was in a position where it could help, and it did, and so suddenly our Foundation was scratching a very real business itch for the company.

When the numbers came in, the ROI began approaching 20%, which also got a lot of attention within the company. It created an environment where Shell is able to provide the risk capital. And that is precisely what is now happening with Shell Venezuela. They will take the model and provide the risk capital to demonstrate local supply-chain diversity and achieve the same social goals. Another positive aspect is that we were growing the local market, and creating the capacity to consume?which, in the end, should benefit Shell too.

Summing up the Shell Foundation experience
What’s interesting about the Shell Foundation model is that it uses a business investment strategy to achieve both social/philanthropic and investment goals. It blurs the lines. Shell Foundation feels comfortable with that?and it’s hard to argue with its success–but will other foundations or development agencies or NGOs support this approach? At the very least, the model is one that deserves careful attention by other SME funds, because it addresses the problem of creating deal flow and explicitly addresses the need for technical assistance or capacity building. And if the model also works for Shell Venezuela and possibly other local Shell businesses, why wouldn?t it work for many multinational companies as a way to make their social investments or local philanthropy? If you can catalyze delivery of needed services, help create jobs, and get a 20 % ROI?so that you not only get your money back, but you have even more to re-invest, that’s pretty effective.