Australian Foreign Minister Julie Bishop has called for greater private sector investment in the foreign aid program, offering 6.35 million Australian dollars ($4.53 million) in support as incentive for corporates to do business in developing countries.
“Harnessing the power of business to drive prosperity and reduce poverty has never been more necessary or more possible than now,” Bishop said Monday, Aug. 31, at the launch of Australia’s new private sector engagement strategy, which was attended by business leaders, nongovernmental organizations and government representatives.
The strategy will see funding provided to the private sector through:
● Matched funding of up to $200,000 for proposals from the private sector that support development. Beginning Oct. 1, $5 million in funding will be provided.
● A $350,000 partnership with the U.N. Global Compact Network Australia to support Australian businesses working toward sustainable development goals in Asia and the Pacific.
● A $1 million partnership with Global Reporting Initiative to support business to measure the effectiveness of work in developing countries.
Funding provided to the private sector will focus on Australia’s six priority areas for the aid program: agriculture, fisheries and water; building resilience; education and health; effective governance; gender equality and empowering women and girls; and infrastructure, trade facilitation and international competitiveness.
The initial proposals are expected to be driven by problems identified at Department of Foreign Affairs and Trade posts requiring innovative solutions.
“This is a moment of grand importance because it’s the first time a foreign minister of Australia has articulated across the entire aid program the necessity to ensure that the development community embrace the private sector,” Mark Ingram, CEO of Business for Millennium Development, told Devex.
Risks worth taking
Bishop told the audience the announcement may face criticism — a recent suggestion that Coca-Cola could partner to deliver medical supplies in developing countries was condemned for potentially creating problems of obesity and chronic disease. But Bishop was prepared to face further criticism and potential failures, saying they were important risks to take to eliminating poverty among Australia’s neighbors.
Ingram however said there are still important questions to be answered as to how the scheme would work and the outcomes that would be sought.
“Companies will hear about this announcement and there will be a long queue to get involved,” he said. “But how are they going to manage expectations? We also need to know who is going to broker the quality of deals to make sure it satisfies both commercial and community interests.”
Small business to be included
An absent sector from the launch was small and medium enterprises, which Ingram said have an important role to play as part of this new scheme.
“SMEs may only be able to impact a few hundred lives, but they have the ability to impact them deeply and eliminate poverty,” he said. “Research from the U.N. Development Program suggests that roughly half of the initiatives they are tracking are SMEs that are purpose-built to create a social impact. Because they are purpose-built, they are likely not to have mission drifts. In comparison, the other half are multinational corporations who have impact at scale but often we see mission drift.”
Stronger ties are expected to be created between the Australian aid program and the Australian Trade Commission, whose role is to contribute to Canberra’s economic prosperity by the country’s businesses and organizations develop international markets and win productive foreign investment.
“The Austrade clientele are often SMEs that are trying to enter new markets,” Ingram told Devex. “Traditionally they have focused on high and middle-income markets, but given that Austrade covers SMEs, there should be a legitimate role for Austrade here.”
Marc Purcell, executive director of the Australian Council for International Development, said small businesses within developing countries also need to be considered as part of the strategy.
“In welcoming the strategy, ACFID emphasizes the need to focus efforts on supporting the local private sector in developing countries,” he said. “Small and micro businesses are the main drivers of job creation in developing countries but are often constrained by a lack of access to credit, financial services and markets.”
Opportunities for NGOs
Despite the focus on the private sector, even NGOs can contribute toward the effective implementation of the new strategy.
“NGOs bring a great deal to this space, including contextual knowledge and development expertise,” Tim Costello, CEO of World Vision Australia, told Devex. “NGOs like World Vision have a global footprint across 90 countries, but at the same time develop deep connections with local communities. As the minister’s statement acknowledges, these are valuable assets to shared-value partnerships. Crucially, our commitment to the poor also ensures a rigorous focus on the social goals of any partnership.”
A new report ACFID released Monday reveals that 85 percent of Australian NGOs are already currently engaging or intend to engage the private sector in partnerships. Partnerships formed so far have delivered health, education and agricultural solutions in developing countries.
“Encouraging private sector organizations to consider development impacts as part of their core business activities can be a powerful catalyst for reducing poverty and promoting sustainable development in Australia’s region and beyond, and is fertile ground for increasing private sector engagement in development,” Purcell said.
And he said it will also be an opportunity to NGOs to expand their understanding of the private sector.
“While partnerships between Australian aid organizations and the private sector are alive and well, ACFID’s research identifies a need to further build the interest and understanding of private sector organizations in international development,” Purcell said. “It is also important that work be done to build skills and understanding within Australian aid organizations of how they can more fully engage with private sector organizations.”
Advice for the private sector
Costello said there are important considerations for the private sector to make when deciding to expand into a developing country.
“Shareholders aren’t the only stakeholders good businesses should worry about,” he told Devex. “Employees, the environment and supply chains are all important considerations.”
He urged businesses to think carefully about the impact they want to make.
“Think about how you can benefit the poor through your supply chains, employment and end-product,” he said. “Engage NGOs to go beyond the good you’re able to do acting alone — identify areas of shared business and social value and partner with those whose business is development.”
And his door is open to any business wanting to discuss their options.
“We have a team forging these innovative partnerships — so talk to us,” the World Vision chief concluded.
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