Bicentina Auma, chairperson of a small farmer's cooperative, harvests finger millet in northern Uganda, where the U.K. Department for International Development provides match-funding for the private sector to help kickstart the local economy. The private sector plays an increasingly important role in advancing the development agenda. Photo by: Pete Lewis / DfID / CC BY

EDITOR’S NOTE: The aid community is paying increasing attention to how the private sector can help move forward the development agenda, but what can donors do to engage business? Overseas Development Institute research fellow William Smith believes discusses ways donors can engage companies so the latter can play a pivotal role in delivering development outcomes.

There is huge interest now within the international development community on the role of business in development, including how business can contribute to achievement of the Millennium Development Goals or to a new post-2015 development framework.

Often, this debate is framed in terms of how governments or international bodies should stop businesses doing bad things — through regulation, standard setting, or transparency initiatives. Or, alternatively, in terms of how businesses could improve their impact through partnerships with donors or governments. These discussions are valid but tend to lose sight of the fact that it is businesses, not the U.N. or government departments, that actually generate development: creating jobs, buying goods and services from poor people, generating government revenues, manufacturing medicines, building roads. The development community should perhaps approach the issue of private-sector engagement with heightened realism and humility. Don’t ask what business can do for your development agenda. Ask instead what your agenda can do for business. It is in this spirit that ODI’s Business Development Exchange program, funded by AusAID, seeks to approach the question of how donors should engage with business.

Our recent paper, ”How donors engage with business,” outlines ten forms of engagement — examples that highlight the pivotal role of business in delivering development outcomes.

We suggest that donors’ roles as brokers and networkers on behalf of businesses can be equally as important as their role as funders and financiers. Donors have supported the process of dialogue between business and governments to help inform government decision-making on creating a conducive investment environment. Donors have also supported networking and information sharing between businesses and civil-society organisations and donors to promote action on specific issues such as gas-flaring reduction , food-staple fortification or health and safety at work. Donors have supported company-to-company relationships, from SME-lead firm linkage, to farmer-lead firm linkage, to export promotion and value chain programs — all of which emphasize the role of donors as facilitators. Donors also act as advocates for good business practice through the validation of positive models of inclusive business — such as DfID’s Business Call to Action.

Donors also leverage private-sector activity or investment to multiply development gains. This may involve actions to mitigate risk, thereby promoting greater business innovation. A variety of traditional and newer mechanisms have been used, such as loan guarantees, matching grants, advanced market commitments and social venture capital funds. Donors have also co-invested with businesses, in order to boost the private investment in activities deemed to have shared value for both the company and society, for example, in farmer outreach programs designed to improve productivity and quality established by agricultural trading firms. Donors such as USAID have also leveraged greater corporate social responsibility spending by companies through their global development alliance program.

Supporting private-sector research for product development is another widely used donor tool. Product-development partnerships have been used for vaccine development against diseases prevalent in low-income countries. Donors have also supported development costs of innovative financial products, such as weather derivatives and index-based insurance, which have subsequently been underwritten by private insurers and financial institutions.

Donors continue to engage with business in more straightforward ways — providing technical assistance and finance to small businesses, contracting private companies to implement or manage development programs. However, the clear message is that, as donors grasp the scale, breadth and diversity of private-sector activity and its impact on the lives of poor people, the opportunities for more varied means and arena of engagement are wide and unprecedented.

Drawing on this wealth of international experience, the Business Development Exchange program will identify the best models for engagement. In addition, it will examine specific issues, experiences and opportunities for donor–business engagement in a number of AusAID priority countries in Southeast Asia, where the interactions of the private sector will play a large part in determining development trajectories in coming years. Vietnam and Indonesia are two large markets where private-sector growth has already driven remarkable reductions in poverty since the 1980s. Burma is a fragile state where the current process of radical government reform provides opportunities for significant growth and poverty reduction. Papua New Guinea is a very poor country heavily dependent on mining, oil and gas revenues, where a small number of large multinational companies play a crucial, and growing, role in the national economy and society.

Over the next three years, ODI’s Business Development Exchange programme will work with businesses in each of these four countries to examine opportunities for AusAID or other donors to engage with business on a range of issues, including how to:

  • Maximize the local economic development impact of large-scale mining operations.

  • Increase economic benefits to smallholder farmers from agricultural production.

  • Increase the provision of high-quality and relevant skills development and vocational education.

  • Tackle social issues, such as the impact of gender- and family-based violence against women.

The private sector already plays a dominant role in all these issues. The question now is how donors, and the development community, can help.

Edited for style and republished with permission from the Overseas Development Institute. Read the original article.

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