The first step for philanthropic organizations, foundations and corporations, said Mercy Corps CEO Neal Keny-Guyer during a panel discussion at the Global Philanthropy Forum in Washington, D.C., is to “up your risk profile and focus on fragile states.”
Working in emerging countries like India is great, he said, but “there are tremendous opportunities now in South Sudan, the Central African Republic, the Democratic Republic of the Congo and northern Nigeria, for example.”
Development donors are increasingly drawn to partnerships with the private sector, which is seen as a more dynamic source of expertise and action on technology, entrepreneurship, and research and development.
Devex spoke with government officials, foundation leaders and corporate executives about how the private sector can better leverage its unique skills in fragile states, specifically in improving institutions, financial inclusion and local crisis response.
1. Incentivize long-term institution building
Whether philanthropists want to get political or not, their money — and what they do with it — affects political agendas in fragile states.
To capture votes, politicians want to put together the most popular development agenda. But when another election rolls around, the political powers-that-be shift their attention to the next biggest thing, whether or not the old development goals reached fruition. Private sector philanthropy isn’t as bound by election season, and can marshal its funds and expertise to take on certain priorities, like telecommunications, off officials’ hands for the long haul.
“We probably don’t need a lot of aid for telecommunications for cellphones,” World Bank President Jim Yong Kim said in response to a question at the forum.
“Those things tend to be handled better by private companies on their own,” Kim said, adding that the private sector can offer their funding and expertise in order to “show leaders that if you work to improve institutions, you can get re-elected.”
Working with a fragile state to build up institutions like the telecom sector sets a precedent for good governance in the minds of current and future leadership, the bank president explained.
2. Financial inclusion
In a fragile or post-conflict state, beneficiaries can better access aid dollars when they are part of a strong, transparent financial system that can distribute funds effectively.
But beyond helping to distribute aid through mobile payments and e-vouchers in the aftermath of a humanitarian crisis, the philanthropic operations of credit card companies like Visa have found that banked citizens create more economic opportunity for themselves in both the post-crisis period and in the long run.
“People who trust in the transparency of their finances are more engaged economically and socially,” Douglas Sabo, vice president and head of global corporate philanthropy and responsibility at Visa, told Devex. “We’ve found that in group banking situations — like families with a bank account — most women also opt to open private accounts to manage their own finances, if given the option.”
Corporate philanthropies like Visa working in the banking sectors in fragile states, Sabo told Devex, also work alongside local banks to increase their outreach, he said, which increases accountability and decreases reliance on financial intermediaries to support small and midsize enterprises.
One of the most consternating sticking points in financial inclusion is the problem of financial intermediaries — the organizations, sometimes local banks, that serve as middlemen between large financial institutions and local beneficiaries for loans or other financial benefits. In a different forum session, Kim acknowledged the ambiguity involved when the World Bank chooses to fund FIs in its operations.
“We’re often the only ones willing to go to that level and provide funding to financial intermediaries,” he said. “Our critics ask — and rightfully so — whether we know everything [the FIs] are doing, and the answer is that we try, but we really can’t.”
He added that the World Bank “simply cannot process that many transactions of $5,000 or less” without the help of FIs.
Sabo noted that with the growing role of SMEs in fragile economies, he expected “a lot of opportunities for local and regional banks to improve operations through corporate partners” that could improve the function and transparency of FIs.
3. Crisis response
In order to react quickly in the wake of a natural disaster, development organizations must be reactive and sensitive to circumstances that could rapidly shift at any time.
“I actually think the private sector’s not a good source of money. What they’re a good source of is operational capacity,” Zia Khan, vice president of the Rockefeller Foundation, told Devex.
Khan cited the example of Nigeria’s response to the Ebola crisis, noting that the Nigerian health ministry “mobilized logistics companies to move supplies quickly,” which led to a swift and comprehensive containment of the disease.
In a fragile state, that capacity under pressure can be useful in the wake of a crisis.
“Hotels are fairly resilient by nature,” Khan pointed out. Large chain hotels — like the Movenpick hotel in Accra, Ghana, or the hotels in South Sudan or Myanmar, all funded at least in part by the International Finance Corp. — typically come standard with backup generators and spacious ballrooms that can easily be transformed into community feeding centers.
And those companies have an interest in the outcomes of disaster response because their workers are local, Khan explained.
“When their workers’ homes are flooded that’s what they’re going to pay attention to,” he said.
While the World Bank and IFC have come under fire for lending to such ventures under the auspices of combating poverty and increasing shared prosperity, the practice could be worthwhile, Khan argued, if hoteliers are required to open their doors in the midst of crises. While critics contend that international conglomerates could finance their own hotels without the help of poverty-fighting multilaterals, hotel investments in fragile states not only create jobs but could provide a crucial failsafe in the event of a natural or civil disaster when government and international aid fall short, he added.
Corporations’ growing role could shift the way philanthropy functions in development, especially if — as with the case of hotel conglomerates — donors remain focused not only on the safe bets, but on the areas where both risk and need are greater.
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Molly is a global development reporter for Devex. Based in London, she covers U.K. foreign aid and trends in international development. She draws on her experience covering aid legislation and the USAID implementer community in Washington, D.C., as well as her time as a Fulbright Fellow and development practitioner in the Middle East to develop stories with insider analysis.
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