By now, most in the development
community have realized the potential impact that profit-driven companies have
on the world’s poorest.
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At this market in Gazipur, on the outskirts of Dhaka,
high-quality
produce is on sale
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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.
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