By now, most in the development community have realized the potential impact that profit-driven companies have on the world’s poorest.
The private sector can achieve that Holy Grail of development—scale—by creating large numbers of jobs, which can result in poverty reduction for large numbers of people. If governments can create the right conditions, the private sector can drive equitable economic growth.
Of course, change the argument slightly, and private-sector engagement can look all wrong. Some ask if government agencies are simply using taxpayer money to subsidize private companies’ expansion into the emerging markets.
For those of us who actually work on the frontlines of private sector engagement, we know that the key is to find the areas were the goals of business overlap with those of development.
That’s when the synergy happens. Development money, well spent, can reduces risks for the private sector and incentivize their investments, resulting in new services to the poor and previously unreached segments of the economy.
The difference between success and failure in private sector engagement lies in execution.
I work with a 54-year-old Swiss nonprofit, Swisscontact, originally founded by Swiss business and academic leaders. Working directly with business is a major part of our mission to “help people help themselves.”
For us, private sector engagement begins early in the planning process. While some companies are beginning to understand the business case for development, it is a new concept for most. Therefore we work with individual companies to develop a business case that adds to their overall bottom line on the one hand but also has a development impact.
How do we do this?
To develop this business case, we engage the company around three issues: their company’s long-term objectives; constraints to investing in new business ventures; and, finally, how our development goals overlap with their commercial goals. The “deal” we are seeking is not a co-financing opportunity but a mutually beneficial partnership.
Reaching this level of understanding can be time consuming. But the up-front investment of time ensures long-term sustainability of the mechanisms we seek to develop. We have learned from experience that companies are most likely to continue an initiative that adds value to its overall business and positively affect its bottom line.
Without those core business drivers, such initiatives can devolve into a convenient co-financing of private sector’s promotional expenses by the development sector. That type of oft-misused “corporate social responsibility” or CSR activity is clearly not the right investment for public funds.
Successfully executing an effective private-sector partnership requires a certain set of professional skills. Development practitioners need to understand business realities on the one hand while still having the academic rigor necessary to conduct the robust analysis that underpins any long-term development impact.
Economic analysis and due diligence are required to ensure that a business proposal is beneficial both to the private sector company and the target population identified by the development organization. Development professionals must have the know-how to ensure that the business has the incentive to continue in the long term. There should be no planning on the basis of the infinite involvement of donor funds into some unknown future.
Here’s how this theory has worked out in practice for us in Bangladesh.
One of our goals as a development organization is to make critical market systems more inclusive of the poor, who often lack information or access to markets. When the market systems function better, they involve the poor as producers, consumers, or employees, and ensure large-scale and sustainable impact. This allows development organizations to pull out, which is the oft-stated, little-realized goal of development cooperation.
In Bangladesh, one of the major obstacles to increased productivity for smallholder farmers is their low access to quality inputs and current agricultural information. Government extension services are inadequate. However, there is a wide network of input retailers and seed companies with quality products that are competing to increase their market shares among these farmers.
Swisscontact worked with these seed companies to train their input sellers to add value to products by providing advice to farmers on how to better use inputs.
Through this mechanism, the farmers get the information they need to increase productivity right when and where they buy inputs. At the same time, input retailers are perceived as more valuable by clients because they are not only offering a product but a product bundled with advice.
This partnership with the seed companies and their input retailers yielded positive results for both business and development.
Farmers increased their yields, and therefore their incomes, by applying the information they got from the retailers. Input suppliers increased their sales and profitability because they attracted more farmers. And finally, seed companies increased their sales through their network of retailers, incentivizing them to continue the training of retailers.
The development investment was quite small in financial terms. This contribution covered the conceptual work, development of training materials and training of trainers. After the success of the first batches of 500 retailers, seed retailers reused the trainers and materials to train many more batches of input suppliers, thus multiplying the effect of the initial development investment.
This successful approach to reach out to farmers was replicated and finally culminated in the inclusion of university courses on rural marketing. A recent external evaluation in the north of Bangladesh has shown that retailer training is now a common tool applied by all serious input companies to promote their products.
I believe one of the key roles development professionals can play today is identifying and structuring these types of deals, where overlapping interest drive both business results for the company and meet the development organization’s objectives of lifting people out of poverty.