Tuesday, May 20, 2008

What is business doing in development?

In April, Friends of Europe discussed the role of business in development at the second Development Policy Roundtable held in Brussels.

In the first session, three speakers - from the business sector, the European Parliament and the UN - showed the realities of business involvement in development, particularly the need to follow a structured process and to take an holistic view of the value chain when intervening in a country.

Sean De Cleene from Yara International opened by observing that we face a crisis of leadership and imagination in development. To alleviate poverty he stressed that we need to work across sectors and work together. According to De Cleene, there have been four revolutions affecting development:
  • Technology - the opportunities of mobile phones and payment technologies;
  • Markets - globalization effects;
  • Demographics - common problems facing the planet such as food security, climate change and hiv/aids;
  • Convergence - the roles of states and corporations are changing, we need to rethink the landscape and look at whole value chains, not just raw materials.
De Cleene believes we should think big. He talked about an international effort to ensure an African green revolution. He pointed out the role his own company plays in the Tanzania partnership where they look at the whole value chain essentially from field to port. While there is much partnership in small initiatives at community levels, this is often not scaled up, as brokerage organisations in countries often don't exist.

Richard Howitt of the European Parliament focused on Corporate Social Responsibility. In his experience, companies adopt CSR for two reasons: to develop future opportunity for business; and to manage their social and environment impact.In his view, each business needs to follow a 5 step plan:
  • Screen activities against Millennium Development Goals and become part of this partnership;
  • Engage more fully with different actors in development;
  • Develop products and process to meet MDGs;
  • Become a corporate citizen - add value in the country it is working in, by for example supporting the fair trade sector;
  • Take core standards such as the Kyoto protocol, the universal declaration of human rights, and the MDGs, and participate in global reporting initiative.
Christian Thomas of the UNDP pointed out that foreign direct investment is now 5 - 10 times the amount of aid to developing countries. Growth is due to business, but despite this economic growth, one third of the planet (2.7 billion people) still lives on less than 2 dollars per day.

Historically, he recounted how business has gone through three stages of involvement with development:
  1. Philanthropy: Initially businesses contributed through philanthropy. This was primarily risk-free but the business benefit was not clear. The other problem is that development initiatives take 15-20 years, whereas donations are often not sustainable over the same timescale.
  2. CSR: Here the risks are higher - some core business assets are committed with a CSR unit managing the reporting.
  3. Core business in development: This is a high risk. Here the business looks at how business contributes to MDGs. Some companies have seen the opportunity to reach untapped markets of 2.7 billion people.
In the light of this, he felt the whole development community needs a new approach. According to Thomas, business can:
  • Improve livelihoods through selling basic goods and service to poor but this does not empower them;
  • Sell economic tools, e.g. telecoms and microcredit productivity agents;
  • Buy from the poor.
The first and third options need engagement from entrepreneurs. UNDP supports these interventions by supporting entrepreneurs. He finished with the story of the business entrepreneur behind Camelbert, a dairy business working with nomadic traders in Mauritania, that has now expanded worldwide.

The following discussions highlighted the need for the Development Committee of the European Parliament to look at new instruments to support farmers, with an emphasis on production in poor countries, in particular new instruments to support small to medium enterprises (SMEs).

There was a call for businesses to adhere to international law before engaging in developing countries and concern at the level of tax avoidance in developing countries which runs at 255 billion dollars.

At the same time, a number of examples such as the Malawi Business Coalition for aids, showed that the private sector is an active partner in the sustainable delivery of a number of projects.

According to a representative of DG Development of the European Commission, business should follow three steps:
  1. Coherence - must adhere to MDGs and not undermine;
  2. Capacity building - trade at regional level;
  3. Finance - think innovative sources, remittances, climate change payments.
Ericsson, the telecoms business, was perhaps alone in saying that a partnership approach takes too long. 80% of their business expansion has been in emerging markets. Initial risk taking needs to be shared with the public sector but the private sector can then commercialize.

There was also some concrete discussion on how this group could take the issue forward, focusing around:
  • The need to consider a specific global alliance on the green revolution for Africa;
  • The need to have case studies of public private partnerships to examine best practice.
Story by Chris Addison