development
Simon Maxwell

Keep in touch!

Latest Comments

Maximum Aspiration and Minimum Standards: Driving Change in Business Contributions to Poverty Reduction

 

 

Justine Greening’s speech on 11 March at the London Stock Exchange on business and development repays careful study. It expands on the commitment to growth and jobs that she made in an earlier, agenda-setting speech on 7 February. In that earlier speech, she committed to ‘ramping up’ DFID’s focus on helping to drive economic growth, and to ‘responsible investment’ which creates jobs and financial independence. The second speech sets out in more detail what this might mean in practice – for the world and for DFID. The full text is reproduced for ease of reference at the end of this piece.

My conclusion is the Greening has made a valuable contribution in raising the profile of responsible investment, aligning herself with a large body of thinking on business and development - but that there is more to do in the future. In particular, I would like to see her explore (ambitious) minimum standards as well as maximum aspirations, including using the power of DFIDDepartment for International Development contracting to drive change in business practice.

What did Greening say?

The first part of the speech makes the case for growth and identifies three drivers:

  • ‘Firstly, reducing overall barriers to trade and investment – whether regulatory, infrastructure, legal or institutional.
  • Secondly, unlocking the ability of entrepreneurs and business people in developing countries to themselves drive economic growth through their own businesses being more and more successful.
  • Thirdly and critically, I believe it also means greater investment by business, and I want to see UK companies joining the development push.’

The next part of the speech expands especially on the third leg of this tripod, with a particular focus on business-NGO partnerships which help to develop new products or extend markets: Unilever is name-checked, as are Coca-Cola, and M and S. On the NGONon-governmental organisation side, Fairtrade, Oxfam, CARE, and ColaLife all receive honourable mentions.

Greening then turns to what DFIDDepartment for International Development is doing, including support to the development and sustainability of supply chains (for example, tea in Rwanda or textiles in Bangladesh), and the introduction of new products (electronic money transfer, vaccines, or educational materials). Again, many companies are mentioned (Vodafone, Taylor’s of Harrogate, Waitrose, Tesco, Sainsbury’s, SAB Miller). There is also reference to a raft of DFIDDepartment for International Development initiatives: the Food Retail Industry Challenge Fund, for example, and the Trade and Global Value Chains Initiative. In fact, the DFIDDepartment for International Development website now lists 22 different initiatives for business. Greening makes the point that these and other partnerships should be available not just to large companies, but also to small and medium enterprises, SMEs. She also commits DFIDDepartment for International Development to working across Government to help expand opportunities for British business.

There is an ethical dimension to the work. Greening says that we do developing countries no favours by leaving the economic coast clear to those with corporate governance standards that are far lower than our own.

In the next section of the speech, Greening turns to the local business environment in developing countries: property rights, the legislative frameworks, the tax base, anti-corruption, trade barriers. Trade Mark East Africa is (rightly) praised. Additional funding is announced for the International Growth Centre. And a new Commercial Law and Justice programme is announced (the tender is here). This section deals specifically with the first and second legs of the original tripod.

Finally, there is a section on innovative finance, with approving references to the new mandate of CDC, to investment funds, and to social impact investment. A G8Group of Eight event on impact investment is announced for 6 June.

What to make of the speech?

A first reaction to the speech is: ‘yes’. The positive messaging about the role of the private sector in development is worth driving home. ‘Responsible investment’ is a good phrase. And it is notable that Greening talked about SMEs as well as large multinationals. She also acknowledged the importance of building developing countries’ own private sector.

I don’t know that these ideas themselves are revolutionary. For example, it is worth re-reading Andrew Mitchell’s speech on wealth creation, back in 2010. He talked about bringing business DNA into DFID, and said inter alia that

‘It is my intention to recast DFIDDepartment for International Development as a government department that understands the private sector, that has at its disposal the right tools to deliver and that is equipped to support a vibrant, resilient and growing business sector in the poorest countries.’

Of course, the ideas go further back even than the election of 2010, which brought the Conservative-led Coalition to power. Anyone remember Shriti Vadera being made a minister in 2007, and the subsequent launch, in 2008, of Gordon Brown’s Business Call for Action? How about the White Paper of 2009 (esp paras 2.54-2.63 on ‘stronger partnerships with the private sector)? Or go further back, to the White Paper of 2000 on Making Globalisation Work for the Poor (esp paras 197-215), or the 2005 Report of the Africa Commission (esp Chapter 7, Section 7.4.3, on ‘What Business Should Do’). DFIDDepartment for International Development has had a series of policy papers on the private sector, for example this one in 2008 and this one in 2011.

This suggests two things. First, that there has been strategic consistency in DFIDDepartment for International Development on this issue for at least a decade. And, second, that we need to look more closely at what Justine Greening might mean when she says that

‘. . . what I’ve set out today is intended to signal a real shift in my department’s work – driving economic growth alongside core work on basic services, working hand in hand with business to do that’.

Does a ‘real shift’ mean additional funding for the International Growth Centre and the creation of a Commercial Law and Justice Programme? Or should we expect – or hope for - something more? That’s a question to come back to.

Taking the analysis further

Before coming back to DFID, it is worth observing that the various initiatives launched by DFIDDepartment for International Development since 2000 did not happen in a vacuum, and reflected thinking in the wider world. This is important, because it tells us where we might look for the ‘something more’.

There has been influential work by people like C.K. Prahalad (the Fortune at the Bottom of the Pyramid), Jane Nelson, Michael Porter (‘Creating Shared Value’) and Klaus Schwab (‘Corporate Global Citizenship’). Apart from the World Economic Forum, which has had many programmes on this topic, organisations like the Prince of Wales’ Business Leaders’ Forum, now the International Business Leaders’ Forum, or Business Fights Poverty have been sources of inspiration and innovation over many years.

ODI has had work on business and development since the early 2000s (see, for example, a Briefing Paper by Michael Warner in 2004, on ‘The Business of Poverty’), with work in sectors such as oil and gas, logistics, tourism and agriculture. There is now a fully-fledged programme on The Private Sector and Markets, led by Karen Ellis. A recent paper by Paola Lucci provides an overview of how business might contribute to the post-2015 global goals.

(Just to declare my own interests, involvement in the topic has involved collaborations with many of the above, including ODI, of course, a long engagement with the WEF, including on humanitarian issues and agriculture, and the public meetings of Business Fights Poverty (on whose Circle of Advisers I sit).  ODI had a close association in my time with IBLF, on the Partnership Brokers programme. CDKN, which I chair, has a strong interest in business contributions to climate change mitigation and adaptation.)

In 2008, I identified a four step ladder of business contributions to poverty reduction. These were:

Step 1: Business engagement in the community, mainly through philanthropic activity (‘painting the orphanage’);

Step 2: Taking corporate social responsibility into the heart of the company, and signing up to the ten core principles of the UN Global Compact, for example free association and a commitment not to use child labour;

Step 3: moving beyond CSR, and reconfiguring the core business to increase development impact, for example via new products, or new relationships with small producers in supply chains.

Step 4: working with others to produce global public goods, for example via collaboration on early-stage research and innovation (e.g. second generation biofuels) or measurement and bench-marking (e.g. water use by soft drink companies).

There are many examples of good practice in all these areas. The Business Fights Poverty website contains an archive of nearly 500 events, most presenting two or three different cases. Many sets of principles have been established, for example the Equator Principles on the social and environmental effects of project investments, or the OCHA-WEF Guiding Principles for Public-Private Collaboration for Humanitarian Action.

There has also been a large investment in qualitative and quantitative measurement of the impact of business innovation on poverty: see, for example, this brief produced by Caroline Ashley for the Business Innovation Facility, distinguishing between livelihood assessments, value chain mapping, economic modelling and indicator-based tracking.

In terms of monitoring the work of individual companies, rather than projects, useful approaches include GRI, GIIRS and IRIS.

The first of these, the Global Reporting Initiative, ‘has pioneered and developed a comprehensive Sustainability Reporting Framework that is widely used around the world. The Framework enables all organizations to measure and report their economic, environmental, social and governance performance – the four key areas of sustainability.’

The second initiative, the Global Impact Investing Rating System, describes itself as a ‘comprehensive and transparent system for assessing the social and environmental impact of companies and funds with a ratings and analytics approach analogous to Morningstar investment rankings and Capital IQ financial analytics. It seeks to spark the impact investment movement by providing a tool that is intended to change investor behaviour and unlock the potential of this new asset class’. Companies evaluate performance on up to 180 different measures of performance, for example the provision of health insurance for workers or the use of renewable energy. More than 2500 companies have participated so far.

The third initiative, Impact Reporting and Investment Standards, is described as ‘a set of standardized metrics that can be used to describe an organization’s social, environmental, and financial performance. . . . IRIS metrics span an array of performance objectives and include sector-specific metrics for areas such as financial services, agriculture, and energy among others. Like financial accounting standards, IRIS provides a basis for performance reporting and organizations need only use relevant metrics from the IRIS library.’ IRIS has many partnerships with other standards initiatives, for example on SMEs.

Fair trade, of course, provides a complementary and comprehensive approach to certification – with the Fairtrade Foundation certifying products from over 500 companies, and reaching total sales in 2012 of £1.5 bn in the UK.

 

Now, obviously, it is not the case that business activity has no costs, nor that it is always good for the poor (for example, see critiques of the Bottom of the Pyramid business model). Nor is it the case that ‘responsible investment’ will happen on its own: there are market failures here, as everywhere. That is why, summarising progress so far, in 2009, I wrote that

‘scaling up remains a problem in many sectors, a question of organisational learning and transformation, but also, in many cases a result of market failure. Hence the need for Government or donor support, through challenge funds like the Financial Deepening Challenge Fund or the Business Linkages Challenge Fund. Investment in infrastructure and ‘aid for trade’ are common themes. Hence also the need for NGONon-governmental organisation and private sector intermediaries with expertise in brokering and supporting new partnerships and initiatives. Public campaigning also has a role to play, as with conflict diamonds or fair trade. ‘Making markets work’ is the title of the DFIDDepartment for International Development policy paper, with a commitment both to work with business and support Governments.’

I went on to suggest that

‘business may want to report on and be held accountable for:

• Continuing to engage in charitable activities;

• Committing to the UN Global Compact and maintaining, for example, good labour standards;

• Designing and delivering products which benefit the poor and the environment;

• Reworking the supply chain to increase the participation of the poor and benefit the environment;

• Widening the range and deepening the impact of spill-over effects – technology, skills, management practices, legal and accounting standards – perhaps working with industry associations or chambers of commerce;

• In general, contributing to innovation and transformation, as economies recover from the financial crisis and confront new challenges posed by urbanisation and climate change.

  • Engaging in equitable partnerships which change power relationships in the value chain;

• Contributing to national policy-making, through industry associations and otherwise (but being careful to avoid regulatory capture or rent-seeking, for example by supporting open and participatory policy processes); and

• Contributing to the production of national, regional and global public goods, through research, participation in global fora.’

 

Revisiting DFID’s next steps

All this marks out important territory for DFID. The least we might expect is some re-prioritisation of spending. More ambitiously, we might hope for further elaboration of the concept of ‘responsible investment’, along the lines laid out above, and for demanding targets when it comes to implementation.

As to prioritisation, DFIDDepartment for International Development has established for itself a clear results framework, based on the outcome of the bilateral and multilateral aid reviews. This is summarised in the Annual Report and Accounts 2011-12 (table A, Pg 11), with 27 specific outcome targets, grouped under 7 headings (for example, ‘helping people prosper’, or ‘feeding the world and helping the poorest’). These do not provide clarity on the role of the private sector. Probably, we need to go down a level in the logical framework, and seek more information about outputs and activities, globally, and in DFID’s 28 priority countries. It would be useful to have a review – also of the 22 business-focused initiatives listed on the DFIDDepartment for International Development website. Is this a task for the Independent Commission on Aid Impact? It has a report planned for 2013-14 on DFID’s work with the private sector.

As to targets, the main observation I have is that Greening’s speech celebrates the best, but could have gone further in castigating the worst. Politically, celebrating achievement may well be the best way to play a business audience, but it would be useful in the future to explore (ambitious) minimum standards as well as maximum aspirations. For example, how would it be if DFIDDepartment for International Development were to announce that in future it would not contract any company that had not signed up to the Global Compact, or had not achieved a satisfactory score on GIIRS or IRIS? In January 2013, DFIDDepartment for International Development published a ‘Statement of priorities and Expectations for Suppliers’. This contains one sentence which relates to the current discussion, viz that contractors should ‘demonstrate clear, active commitment to Corporate Social Responsibility’. This seems an incomplete attempt to encourage a different way of doing business.

One practical idea. Is it time to revive Karen Ellis’ proposal for a Good for Development label?

________________

Investing in Growth: How DFIDDepartment for International Development works in new and emerging markets

Speech by Justine Greening at the London Stock Exchange – 11 March 2013

Welcome, and thank you all for coming. And thank you Xavier for hosting us today.

It’s great to be here at the London Stock Exchange in the heart of the City to talk about economic development in developing countries and the role of businesses in that.

I would like to thank all the officials who’ve worked hard to help pull together today’s event.

I’ve said from the word go in this job that Britain’s investment in International Development isn’t just the right thing to do – and it is, but that it’s the smart thing to do too.

I've been clear that I want to see our investment in the right places, on the right things, in the right way.

So, I've started driving better value for money within DFID, by strengthening Ministerial oversight of business cases and contracts, and improving our supplier procurement.

But I’ve also taken a close look not just at how we go about our development work, but what that work comprises.

Today I want to talk about why I will be shifting DFID’s work to include a much stronger focus on economic development and the steps we are taking to get that strategy in place.

I also want to more broadly address the argument from those people who fundamentally don’t buy into international development in principle.

International Trade Works

Having listened to many of the arguments, I’ve reached the conclusion that for some people, any spend on international development is the wrong priority. Obviously, our government is committed to reaching the 0.7% of GNI investment target.  We will achieve that this year, as we host the G8.  There are some who think that focussing 99.3% of Britain’s Gross National Income on Britain isn’t a big enough proportion.

I can understand those arguments. In part, they come from a sense that the UK’s national interest matters, and I completely agree with that. I went into politics because I care passionately about this country's future too.

But I'm arguing today that our investment in international development is in our national interest – in fact, I believe it's critical.

We are market making – ultimately, if we approach international development effectively.

Trade between nations creates growth, jobs and prosperity for both countries and people.  It drives down prices and increases choice. Some estimate that the current proposed free trade deal between the US and EUEuropean Union might raise our combined GDPGross Domestic Product by nearly 150 billion euros.  We're rapidly growing our exports to emerging economies like China and India, including with our Prime Minister led trade delegations, but if only the last government had been more effectively working with industry and nascent emerging markets a decade ago, how much more trade would we be being doing in those countries by now.

Here in the UK we're setting about rebalancing our own economy.  We know that an economy overly reliant on the South East, or on construction and financial services isn't resilient.  It’s like a car with only part of the engine working one piston firing.  So, we're rebalancing our economy, but we need to see the same thing happen globally too. International Development is in our interests not just because it creates new markets, but because it can deliver a more balanced, resilient global economy.

Sustainable Business Model

So, international trade works in creating prosperity, but what about individual countries?

Domestically, Britain is grappling with a situation that, when you boil it down, saw us inherit a public sector and welfare state that the public simply could not afford.  It is driving some difficult structural decisions to rebalance from public to private sector to help build a sustainable business model for our country.  And so far we’ve seen 1 million private sector jobs created.

But just as we cannot continue here in Britain with an unsustainable business model, neither can the developing countries DFIDDepartment for International Development works with.

Over the last 10 years my department has done some very effective work, generally helping to build vital basic services – health, education, water and sanitation.  That work has have helped to make a difference to millions of people’s lives.  And we're going to keep doing it.

But I believe you can’t build a sustainable public sector without building a private sector.  Sustainable public services need a funding stream of tax receipts and that means a thriving private sector.  A strategy to do one without the other risks a short term improvement for people in poverty without a long term plan to make sure those gains are locked in.

Yes, we need to work to put in place core services – they are vital, but they must go hand in hand with the building of wealth and an economy to sustain them.

So, I want to work tackle poverty and see an end to aid dependency, through jobs.

The facts are compelling – wherever long-term per capita growth has been higher than 3%, we have also seen significant falls in poverty.

Look at China – in 1981, 84% of China’s population lived under $1.25 per day.  By 2008, this proportion had dramatically fallen to 13%.  This was principally driven by the tenfold increase in per capita GDPGross Domestic Product over the period.

Look at Vietnam – a near threefold increase in per capita GDPGross Domestic Product resulted in poverty levels falling from 64% in 1993 to 17% in 2008.

DFID used to have country programmes delivering aid in both countries.  Now our relationship is significantly different – it’s no longer aid, it’s trade. The shift has happened.  As the Indian Finance Minister said of his own country, "Aid is the past and trade is the future."

Economists may argue about many things, but not about this.

Economic development is what leaders want too – it makes political sense.  Here's what President Ellen Johnson Sirleaf of Liberia said in October last year:

"Aid is not an alternative to self-sufficiency."

As she sees it, it's about  "how best to create new, stable trading partners that can create opportunities and jobs in emerging and donor countries."

Her words, and she’s right.

But it's not just good for them, it’s good for us too – it makes business sense as well.

As 28 top CEOs write in a joint letter to the Financial Times today,  "This isn’t about corporate social responsibility; we know that developing countries will be major markets and important sources of supply in the future, in fact many already are. Developing countries become emerging economies and emerging economies become the engines of future global growth and prosperity."

That's what they say.

And investing to drive economic development as well as to put in place basic services, isn’t just good for politicians, or businesses....


If you ask people in developing countries what they want, they’ll give you one top priority – it’s a job. It doesn’t matter whether they’re men or women. People, wherever they are, want the opportunity to be financially independent, and to have the dignity of being able to provide for themselves and their family.

And it’s more than that even.  It’s about the right and the need that people have to find out and reach their potential.

I believe we have to directly respond to the jobs challenge.

As I've said before, my department is called International Development, I'm going to take the Ronseal approach to our strategy because the evidence is clear.  Economic growth is essential for sustained poverty reduction.

So how can we do it, how do we drive economic development?

I think it boils down to 3 different aspects.

Firstly, reducing overall barriers to trade and investment – whether regulatory, infrastructure, legal or institutional.

Secondly, unlocking the ability of entrepreneurs and business people in developing countries to themselves drive economic growth through their own businesses being more and more successful.

Thirdly and critically, I believe it also means greater investment by business, and I want to see UK companies joining the development push.

I believe British businesses – not just those led by the 28 CEOs who signed their letter to the Financial Times today, not just those listed here, but more broadly across our country, have a key role to play.

As the PMPrime Minister has said, we’re in a global race.  But if you want to be ahead of the game, be at the front, you can’t simply follow the crowd, you've got to lead it.  And I think it means being in emerging market countries – not just those of today, but those of tomorrow too.

It's about spotting when those markets can move from the “too difficult and risky” category to an “emerging opportunity”.

And Africa has some of the most impressive growth stats in the global economy.

Last year, 6 out of the 15 fastest growing economies were in Africa. 
Sub-Saharan Africa averaged 5.8% growth over the last decade and South Asia, 7.3%.

So, I believe that many of the countries in which DFIDDepartment for International Development works are in that "emerging opportunities" box, but many of you can see that too – you’re already there.

By 2020, Unilever expects developing markets to account for 70% of total sales – that’s huge. Through an innovative partnership with the NGONon-governmental organisation Care, Unilever is using a rural sales force comprising 2,800 of the poorest women in Bangladesh who now sell the products of 7 major companies including Unilever, and 12,000 more women are expected to be reached by the end of 2014.

Coca-Cola is extending its distribution network and transporting medical supplies in Cola Life packing on its trucks.

I know that the London Stock Exchange is building financial services infrastructure through forming exchange partnerships, and giving companies in developing economies an international capital raising platform.

M&S, who work hand in hand with Oxfam and other key NGOs on their Sustainable Retail Advisory Board.

These companies know that consumers care about corporate values and behaviour more now than ever before, they vote with their money. Just look at the continuing success of Fairtrade – over £1.3 billion worth of Fairtrade goods were sold in the UK in 2011.  It was just £50 million a decade earlier.

Having spent nearly 15 years in industry before becoming an MP in 2005, I recognise that although there are opportunities to be involved, for many companies, successfully crystallising them can be a really complex challenge.

It's complex for my department too.  As I was very clear on last month in a speech on DFIDDepartment for International Development priorities, I am not talking about tied aid.  I do not believe that is the way to achieve good, sustainable development.  It means what’s good for companies comes first, rather than what’s good for developing countries. It’s the wrong way to go about things.

And of course, there may always be companies who don't care about behaving responsibly when they invest, but DFIDDepartment for International Development works to try to tackle those risks with work on transparency and governance.

But as I said recently, we can’t just see business as a risk to developing countries.  We must also see it as an opportunity.  Business interests and developing country interests can align far more often than not.

As the last UN Secretary General Kofi Annan said: “It is the absence of broad-based business activity, not its presence, that condemns much of humanity to suffering”.

DFID work with Business

There's a lot we're already doing.

DFID's work on technology investments has already helped to unlock smart business investment in developing countries.

Look at Vodafone and the hugely successful M-PESA mobile banking phone service. DFIDDepartment for International Development match-funded Vodafone's initial investment  and there are now 17m users in Kenya and a third of the Kenyan GDPGross Domestic Product is expected to pass through the M-PESA system. A mobile bank account for millions who otherwise wouldn't have one; one that they can do business and trade with.

Value chains

We've worked on developing innovative value chains which  have the potential to transform markets and communities.

Our Food Retail Industry Challenge Fund of just over £7m has helped Taylor’s of Harrogate transform how Rwandan tea is produced and sold to them, and generated new products.

We’re also building local capacity through supply chains. With DFID's support the Waitrose Foundation are working in South Africa, investing in improving the skills and job prospects of tens of thousands of young people in the communities that support Waitrose supply chains.  It makes good business sense to keep supply chains sustainable.

Waitrose is  the first partner in our new Trade and Global Value Chains Initiative that we've kicked off and I'm delighted that we've had expressions of interest from other major retailers like M&S and Sainsbury’s who are eager to get involved.

In Bangladesh, we are working with Tesco to establish an Apparel Skills Foundation to equip the industry with training, expertise and tools to improve productivity and working conditions.  It will train staff in over 100 factories, reaching 250,000 garment workers.

In South Sudan we have partnered with SAB Miller so that 1200 farmers to supply SAB Miller’s brewery in Juba.

On the health agenda we're working with a wide range of pharmaceutical companies such as GSK on the supply of vaccines to the Global Alliance for Vaccines and Immunisation, a public-private initiative to fund vaccines for children in the world's 70 poorest countries, and GAVI’s partnership with Vodafone is exploring how mobile technology can help increase vaccination coverage.

On education, we are exploring with Pearson how we can work together to develop innovative, sustainable solutions for quality education for millions of children, with real accountability for parents.

Lots of individual projects in different sectors, but I think we've only just scratched the surface.

I want to see far more businesses joining the development push with DFID. We all have a huge opportunity to help build up responsible trade with the emerging economies of developing countries.

We're not doing anyone a favour leaving the economic coast clear to those with lower standards than our own, and I believe British companies can have a real role in growing developing economies through trade.

Today I can announce that DFIDDepartment for International Development has already begun to develop the comprehensive and responsible strategy we need for working with businesses interested in responsible investment in developing countries.

We want to do more with the companies we're already working with, but I don't just want to reach out to the largest companies in our country.  I want medium and smaller companies to get involved too.

Take Reid Steel in Christchurch, Dorset – designer and manufacture of two 120m bridges in Nepal which should be able to better withstand earthquakes and flash floods.  One bridge was opened in January 2013 and the second is due to open in June.

And we can do so much MORE.

Britain is open for business and I want DFIDDepartment for International Development to be open for business too.

We are already working with the CBI.  I want to get together with industry bodies across different sectors, NGOs and business schools.

I want an ambitious approach that sees DFIDDepartment for International Development as a hub for knowledge sharing and advice and providing support in-country, where projects have a clear development gain for the countries concerned.

I want your help to do that.  DFIDDepartment for International Development will lead this work across government, linking up with BIS, UKTI and FCOForeign and Commonwealth Office to deliver it.

As I said before, for the countries we all want to see develop, we do them no favours by leaving the economic coast clear to those with corporate governance standards that are far lower than our own.

We have those standards.  Britain has those standards.  One thing I’ve learnt in this job is those standards, our British approach is recognised and valued across the world.  That's why so many international companies list right here in London.

They know we are people who stick to our word.  The London Stock Exchange motto is "Dictum meum pactum", "my word is my bond".  Let us use that  approach for good.

And if your company simply wants to do something practical that isn't anything to do with your core business at all, but you just want to make a difference, I’d like to see how DFIDDepartment for International Development can better provide a framework for industry to know how to go about it in the right, responsible and sustainable way.  I hope I can get our world class NGOs to help on this too.

Local Business Environment

So there's lots of work to do with you, but alongside that, I want DFIDDepartment for International Development to do more to help build up strong and investable business environments in the developing countries themselves.

That means helping countries build their own tax base, squeezing out corruption and providing the technical advice that means when economic growth does happen, countries are well placed to reap and then reinvest the gains.

Last week, with the PM, we hosted the Afghanistan Mining, Oil and Gas Investor Forum at No 10.  It brought together the Afghan Mining Minister – a man who has, with DFID’s help and the excellent pro-bono advice of former head of KPMG Michael Wareing, delivered a Mining Law to pass through the Afghanistan Parliament.

Afghanistan sits on an estimated $2-3 trillion of oil, gas and mineral deposits.

With the safeguards in place, consulting with communities, ensuring jobs stay local, and the chance for tax receipts from mining to in part  to be reinvested in health and education, it’s going to ultimately be business investment that unlocks Afghanistan’s future.

And DFIDDepartment for International Development has also provided support to help the Afghan government to improve its tax base and tax collection.  With technical advice, we have seen their tax base grown from $250m in 2004 to $2bn in 2012.

We're going to do more of that. Today, I can announce that DFIDDepartment for International Development will be setting up a Tax Capability Building Unit within HMRC to provide us with an in-house team of tax experts dedicated to working in developing countries with DFIDDepartment for International Development teams.

I want to put on record my thanks to David Gauke, my former colleague at Treasury and Exchequer Secretary, for his work on this with DFID.

As we have seen in Afghanistan, the returns on this sort of investment can be enormous.  Our first joint DFID/HMRC country projects will start this April and I expect that once we've built the unit up, by April 2017 we will have teams working in 6/7 countries.

It also means reducing regional trade barriers.

African Union leaders have signed up to creating a free trade area by 2017.  That's an ambitious plan that we want to see succeed. So dismantling the barriers for trade is vital.

The Economist recently cited the example of a car from China, which would cost more to take it from Tanzania to neighbouring Uganda than it did to ship it from China in the first place.

The DFIDDepartment for International Development supported Africa Free Trade Initiative is dramatically speeding up border crossing between Zambia and Zimbabwe, and by 2015, DFIDDepartment for International Development aims to help cut by half the average crossing time at ten major border crossings between countries in East and Southern Africa.

DFID's project, Trade Mark East Africa, aims to increase trade from the East African Community overall – our work with the revenue authority in Burundi has directly led to revenue up around 40% year-on-year for 2012; and even in South Sudan, the new customs service it's helped establish has seen customs revenues increase substantially.

Technical assistance matters and I can announce today a £51 million investment in DFID’s International Growth Centre to expand its work to Burma, Malawi, Liberia and Nigeria, providing expert, independent growth policy advice direct to governments in developing countries.

DFID is also launching a new £5m Commercial Law and Justice programme to support the improvement of the legal environment for business and investment in developing countries. It will also increase the transfer of world class commercial legal knowledge, skills and support, much of it based here in the UK, to where it is needed.

We're also working to strengthen property rights.

You wouldn’t buy a house without checking the land registry, yet in most of the developing world, the people who occupy and farm land, don’t have any legal rights to it. This matters for economic independence, because in particular for the many women who have small farms, if you don't have land, you don't have collateral, and if you don't have collateral – you can't get a loan. And if you can't get a loan, you can't expand your business.  We're already doing work in Rwanda on this, so far helping to register 8 million parcels of land onto a new land registry – half of those benefitting were women.

Investing in women is hugely powerful because we know that women will reinvest 90% of that income back into their families and communities, so there's a double bonus. And we know that it changes attitudes towards women in a beneficial way too.

Some NGOs have rightly raised the issue of Land as part of their campaign on food and hunger.

And we will pursue this at the G8Group of Eight alongside the transparency we want to see, protecting legitimate investors and the rights of local communities, and exposing those who acquire land unfairly.

Innovative Financing

Finally, expect to see my department looking at innovative financing approaches to help support this new style of development investment.

CDC’s remit has changed to better focus on the countries and sectors where we know development investment will make the biggest difference to poverty alleviation.

And I want to look at other innovative ways to do more direct investment, including more projects based on returnable capital, which sees an investment fund, invested in local companies, creating jobs, generating a return that can itself be reinvested.

So the UK will also be taking a lead on developing the global market for social impact investment which is estimated at over £1 billion. In December I launched a new £112m programme where, for the first time, DFIDDepartment for International Development will support investments that are designed to benefit the poor whilst offering a financial return to investors.

This is good for investors, who earn a financial return. Good for the poorest, who receive jobs and support. And good for DFIDDepartment for International Development as it allows us to leverage far more private sector finance, meaning each pound of our budget has even more impact.

I’m also pleased to announce that on 6 June the UK will be hosting an event on impact investment as part of our Presidency of the G8. This event will help catalyse this growing global opportunity and enable the market to operate effectively on a global scale.

Conclusion

So there is much to do.

I know that nothing changes overnight.

But what I’ve set out today is intended to signal a real shift in my department’s work – driving economic growth alongside core work on basic services, working hand in hand with business to do that.

The countries where DFIDDepartment for International Development works will be the growth markets of the next 20, 30 years. I believe Britain can be a force for good in this world.  I also believe British business can be.

My objective for developing countries is an end to aid dependency through jobs.

Every time Britain has been at its most successful, it’s been when we’ve been out in the world, trading, doing business.  We've never stood on the sidelines. And we can't afford to start now.

Thank you.

______________

Source: http://www.dfid.gov.uk/News/Speeches-and-statements/2013/Justine-Greening-Investing-in-growth-How-DFID-works-in-new-and-emerging-markets/

 

 

 

Comments  

# DirectorGuest 2013-04-19 00:28
Thanks Simon for a good reminder of how we got to this point in DFID's approach to the private sector contribution to development.
Like you, I see that thread of strategic consistency through the years, though a reinforced message and stronger set of initiatives is no bad thing. And like you, I am intrigued by the possibilities of 'something more'.

There are three things I would look for in the 'something more'.
1. A stronger exposition of the logic, from a development point of view, of why engaging with the private sector is a good idea. The statements about jobs and growth are important, but in current UK development debates, not challenging. I think there is a stronger logic. It's about innovation, dynamism and taking things to scale based on business drivers. So long as we recognise there are something that the private sector cannot do for development, we should recognise that there are some things it has a good chance of doing better, faster bigger or more cheaply. Once the overlap between development gain and private return is clearer and bounded, then so is the logic that guides where development partners focus.

Secondly, the talk of 'responsible' business is welcome, along with good practice and standards, but responsibility can represent a minimum. As you say, let's go for maximum aspiration. This means a much stronger focus on business that positively engages low-income people: on the Practitioner Hub on Inclusive Business www.businessinnovationfacility .org (IB) we define IB as business that seeks a commercial return and specifically engages low income people somewhere in the value chain. It's not the only type of business that is good for development, but this blend of commercial and social return is ideal from a donor perspective: the commercial returns drive scale, while the business model is one that drives development. And it is one that donors can certainly be effective in facilitating, as experience in the Business Innovation Facility is showing.

My final point is not something I'd expect to be reflected in any political speech, but is important for DFID's evolution in its partnership with business. It's about the results that are expected and measured. You mention DFID's own Results Framework. My experience on a number of donor projects that partner with business is that it involves more of a change in mindset than is sometimes realised. This also means a change in Monitoring and Evaluation, and has implications for results reporting. The first issue is that when you issue a contract, you specify deliverables. The same when you issue a grant to a charity. Bednets or services, get delivered and logged. But when it's a partnership it's different. A donor partner can help catalyse good business practice and pro-poor business models. But catalyse is the opposite of a contract. What follows is less certain. A good contractor will stick to plan. A good entrepreneur will definitely change plans to match changing markets. If the aim is to spark innovation, then for sure the outcome is less certain. Writing log-frames and tracking results in a way that support nimble innovation but still ensure value for donor money can be a challenge.

The other aspect of the M&E challenge is the risk of an excessive focus on jobs. You mention Prahlad's work on the Fortune at the Bottom of the Pyramid. This is about businesses that sell to the poor, rather than those that procure produce or labour from them. Healthcare, energy appliances, clean water and much more are made affordable and accessible for BoP consumers. These businesses support livelihoods but the number of direct jobs they generate to serve thousands of customers may be less than 50. So we must avoid the mistake of assuming all private sector benefits are measured in jobs. Something less tangible, around enhanced livelihoods, is core.

Ironic isn't it? I thought I had moved far away from my work on livelihoods, so central when you and I were both recent joiners at ODI in the nineties. And here as we debate our respective thoughts on private sector in development, the results-measure r in me brings us back to livelihoods of the poor!
Reply | Reply with quote | Quote

Add comment

latest pollVote now: 

Do we need to make a                   new case               for aid?

 

Follow me on Twitter