Private Sector and International Development – Part II
Monday, October 22, 2007
The growing acceptance that the private sector has a key role to play in international development raises some major challenges for the traditional actors in this sector, argues Director of the Shell Foundation Kurt Hoffman.
International development is experiencing an exciting and relatively new trend ? a growing acceptance that the private sector has a key role to play in poverty alleviation. Bill Clinton is evangelising his brand of ?business philanthropy?, private equity gurus compete to be the best ?venture philanthropist? (rather than the largest yacht owner) and the wider private sector has woken up to the opportunities at the so-called Bottom of the Pyramid. For more on this trend see my recent editorial for eGov monitor.
The traditional development sector ? NGOs, rich country government development agencies, major foundations and international organizations are also getting in on the act. Partnerships with large corporations are a dime a dozen and many organisations have established ?Private Sector Development? and ?Corporate Relationship? teams.
We are delighted with this trend, having long-argued (see our report Enterprise Solutions to Poverty) that Africa?s entrepreneurs need to be at the heart of the poverty equation and that it is possible to apply ?Business-DNA? ? business thinking, models and disciplines – to find solutions to poverty.
A logical next step in this trend is to ask the question: Who is best qualified to deliver these business-based solutions.
This raises some serious challenges for the traditional development sector because the answer is likely to be that they are not even close to being the best qualified.
Gene-Pool is wrong
More and more people with business experience are choosing to shift career focus to more socially-oriented endeavours, often putting the two sectors together as evidenced by the 55,000 social enterprises in the UK alone. But the reality is that most traditional development actors remain dominated by staff who are either issue experts, generalist managers of aid-financed poverty programmes or fieldworkers with very intensive local experience in administering aid funded programmes. What they lack is practical, relevant and real business experience (working for or as a development consultant does not count as business or private sector experience). Just check the biogs of the staff members of these development actors and you will see what I mean. Moreover, many people in this sector still tend to be ideologically opposed to big business, and even though accepting the importance of livelihoods creation find it really difficult to swallow the notion that market-based solutions are the answer to the problems of poverty. Unfortunately, the gene-pool of the international development community is just wrong for delivering business-based solutions to poverty.
Admittedly, there are few statistics to prove this but a look at where entrepreneurs and business feature in the activities of most international development actors quickly illustrates their low priority. A quick look on one leading development NGO?s website reveals 253 positive words about the private sector, followed by caveats totaling more than 1100. The painful way in which they are written also illustrates, I suspect, the pain and angst the organisation went through to agree the text.
The success of the Clinton Foundation?s work in changing the dynamics of the drugs industry so that hundreds of thousands more AIDS victims are receiving anti-retroviral drugs is also instructive.
It took a sharp-minded former McKinsey management consultant in the shape of Clinton?s number two, Ira Magaziner, to identify how the ARV market could be changed in a way that made a profit for the pharmaceutical companies and helped millions of people. He saw that the ARV market was one of high-price, low volume and uncertainty. He got the drugs manufacturers to adopt a low-price, high volume model ? and guaranteed they?d get orders. In other words, crudely, he went from a ?Harrods? to an ?Asda?. NGOs, governments and international organizations have been working in this sector for years yet failed to spot this relatively simple application of business thinking.
Experienced, business-minded people are likely to be much better placed to spot business-based poverty solutions (i.e. solutions that are financially sustainable over time within subsidies, are scaleable because of that and delivering products or services that poor people want and are prepared to pay for. Such ideas will not emanate easily from NGOs packed with ?development professionals? with limited business acumen and only experienced in operating in a risk free environment (because the NGO?s or Development Agencies? costs and salaries are already covered by their grant based funding) that is also free of the pressures of having to listen to what their customers (i.e. poor people) really want ? in order to produce a service that really meets their needs.
Where does all of this leave NGOs? My hope is that they firmly grasp the challenges this new business-poverty paradigm is producing.
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