As corporate giving gains clout, bilateral aid expected to decrease

This article is part of The Future of Global Development, a series for Devex Executive Members that explores what development leaders think of the industry’s top issues. Weighed down by intense fiscal pressures at home, many donor governments have been tightening their aid spending since the global financial crisis. After rising sharply in the decade following the adoption of the Millennium Development Goals in 2000, bilateral official development assistance has largely flatlined over the past five years. At the same time, international development giving by the world’s corporations, by most accounts, has rebounded strongly. In 2011, global development giving from U.S. corporations alone stood at $7.6 billion — more than the ODA budget of Norway or the Netherlands. As momentum builds for the adoption of a highly ambitious post-2015 development framework next year, Devex’s 2014 Development Influencers Survey reveals that development executives broadly expect this trend of stagnating bilateral aid and rising corporate giving to persist. Our analysis indicates that executives believe that global development giving by corporations will rise threefold over the next decade, as the budgets of established bilateral aid agencies decrease markedly over that period. “The bull market for official development assistance is largely over. With the exception of a few outliers like the United Kingdom, I expect ODA to be relatively flat for the coming 10 years,” said Dan Runde, the director of the project on prosperity and development at the Center for Strategic and International Studies. The United Kingdom became the first G-7 donor to meet the target of spending 0.7 percent of gross national income on ODA last year. Runde is among the development leaders and experts who we asked to respond to the survey’s findings. Others were slightly more optimistic about the prospects for ODA, even as they also noted that corporate donors are eager to pick up the slack left by sluggish ODA growth. “As the international economic system stabilizes, I am hopeful that we will see a recommitment from the international community to support the development challenges that are seeing so many children still denied their fundamental rights,” said Norman Gillespie, CEO of UNICEF Australia. “However, we are seeing a rebalancing with some of the shortfall taken up by the private sector.” Gillespie elaborated that major global corporations including Ikea and Starwood have been increasing their financial commitments to UNICEF. Goldman Sachs, Chevron and Merck are just some of the other global companies that have hiked their development giving in recent years. In June, Chevron raised its total commitment for the Niger Delta Partnership Initiative to $90 million, the largest social investment in the history of the company. The surge in corporate giving for global development is increasingly true of corporations from developing countries as well. In the Philippines, Meralco, the country’s largest power company, is setting up solar photovoltaic systems in off-grid households and schools across the archipelago. “There is a danger that, in these difficult fiscal times and with the growing role of the private sector in development, we will see ‘public-private partnerships’ as the silver bullet to fixing governance failures.” --— Danny Sriskandarajah, secretary-general and CEO of the South Africa-based CIVICUS “You know you’re able to do a lot because you’re given these resources,” Jeff Tarayao, Meralco’s chief corporate social responsibility officer, recently explained to Devex. “But the role is [deciding] where to bring or invest [these resources] so you can create a positive multiplier effect.” Most people Devex spoke to thought the private sector is coming to view philanthropic activities as a necessary cost of doing business, particularly in unfamiliar and emerging markets. “Corporate financing and new forays into development are often a response to the massive gaps corporations are finding in local financial markets and core infrastructure, which in turn constrain business development,” asserted Tim Docking, who leads IBM’s Emerging Markets funding group. Docking and other private sector leaders stressed that companies’ perceptions of how they can contribute to global development are evolving. By and large, companies now view corporate social responsibility as a complex set of principles that encompasses their interactions with society, from their supply chains to their human resource practices. “On the corporate side, the shareholders are paying increased attention to how corporations interact and contribute to the communities in which they operate,” said Caroline Roan, vice president for corporate responsibility at Pfizer, one of the leading corporate supporters of global health. One of the most recognizable corporate philanthropic programs is Wal-Mart’s 3-year-old Women's Economic Empowerment Initiative, which aims to increase its sourcing from women-owned businesses both in the United States and in international markets. Docking added that he has observed many companies embedding corporate volunteerism and training in their corporate responsibility strategies. According to PXYERA Global, 39 companies worldwide now have international corporate volunteering programs, up from only 26 last year. Amid the broad consensus that corporations will gain prominence, there remains considerable debate about what exactly they bring to the table. While many respondents made the case for corporate engagement being a “win-win” scenario, civil society representatives were more skeptical. “Most corporate giving is closely related to business interests and will hardly replace the spending needed to reduce extreme poverty and promote livelihoods,” said Danny Sriskandarajah, secretary-general and CEO of the South Africa-based CIVICUS. “There is a danger that, in these difficult fiscal times and with the growing role of the private sector in development, we will see ‘public-private partnerships’ as the silver bullet to fixing governance failures.” Amy Dodd, coordinator of the U.K. Aid Network, echoed this sentiment. “I think corporate donors can play a positive role in the global development landscape but, equally, it can be quite negative — it’s all about the quality of that engagement and the effectiveness of that financing in meeting development needs,” Dodd said. Do you believe that the bull market for official development assistance is largely over? Join the conversation by leaving a comment below or tweet us at #futuredev. What do nearly 1,000 senior-level executives from NGOs, donor agencies, corporations and the public sector think about the future of global development? View our complete series — featuring exclusive insights and interviews with top executives — to find out.