Will government agencies let business take lead?

Supplies from the U.S. Agency for International Development. Photo by: USAID / CC BY-NC-SA

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Government agencies are more in tune with the private sector when it comes to development priorities, according to Megan Bowman, vice president of the Seattle-based Initiative for Global Development, a network of CEOs and other high-ranking executives focused on Africa.

“Things are definitely trending in the right direction,” she said. “Compared to just five years ago, there’s a real desire on the part of government agencies to have on-going, regular dialogue with companies.”

Previously, engaging with the private sector “felt like a box that got checked at the eleventh hour,” said Bowman.  “That’s not a good way to make sure your strategy is aligned with what business is doing.”

In-depth engagement with the private sector is exactly what IGD’s recent working paper ”The Business Case for Development“ prescribed. According to the paper’s authors, corporations should not only take part in development projects, they should take the lead.

“The alignment between corporate interests and donor initiatives is most likely when projects are business-driven, which suggests a different paradigm for donors,” wrote the authors of the report, which was published in July, 2012.

Describing business as “most reliable engine” of reducing poverty worldwide, the report outlined how development objectives can be tied to three central business drivers: achieving growth, improving efficiency, and enhancing the operating environment.

As companies seek out new markets, these core business interests lead them to engage in development-aligned activities like training new workers, creating market linkages and supporting local security. Precisely because the development outcomes stem from core business needs rather than philanthropic sentiments, the development outcomes of this work happen at a greater, more sustainable scale than traditionally conceived development projects, the report suggested.

“Some companies have found that business-driven development programs that effectively flip the traditional model by asking the government to leverage business investment strategies (rather than the reverse) are more successful in achieving optimal alignment between corporate and donor strategies,” the report authors wrote.

At a recent public discussion, officials from the U.S. Department of State, U.S. Trade and Development Agency, Overseas Private Investment Corp., and U.S. Agency for International Development described how and when they engage with the private sector to further their economic statecraft agenda.

Eight of the OPIC’s 15 board members are from the private sector, said Don Scott De Amicis, vice president and general counsel of OPIC. As a result, projects are “vetted and reviewed” by board members from the private-sector perspective, he said at the discussion, hosted by the Woodrow Wilson Center in Washington D.C.

The USTDA goes a step further, said Nathan Younge, the agency’s regional director for Latin America and the Caribbean, and makes the potential for private sector engagement a necessary precondition for any project.

“Our service is very demand-driven. Before we provide funding for any activity we ask ourselves, does [the project] have a strong likelihood of involving U.S. exports, goods, or services?” he said. “We turn to U.S. industry and ask them, ‘Is this the type of project you would be interested in?’ If the industry is not interested, the project is unlikely to gain agency approval,” said Younge.

Deborah McCarthy, acting assistant secretary for the State Department’s Bureau of Economic and Business Affairs, however, defined the limits to private sector influence in government development initiatives.

“It’s not just about booking deals for American businesses,” she said. “It is about doing good overseas with American companies.”

The varying levels of private-sector engagement on display at the Wilson Center panel, however, differ from the recommendations of the IGD paper. Arguing that the government agencies and other donors should follow the lead of companies, which can identify areas where government action would be most catalytic, the paper presents a specific but limited role for public-sector action that may feel unfamiliar to government agencies used to setting the development agenda.

The most helpful role for the public sector and large private donors is in “buying down” transactions costs and financial risks for companies who want to invest in needy communities but can’t bear the full burden of investment, according to the report.

The report offered the example of Coca-Cola, which sought to source fruit from East African small-holder farmers in a financially sound way. It was only with the support of the Bill & Melinda Gates Foundation and TechnoServe that Project Nurture came to life, providing financing and training to 50,000 small-holder farmers as they joined the company’s supply chain.

Such examples “suggest the most effective alignment between public and private development strategies comes when projects are business-and demand-driven, or when government initiatives are designed to build upon and enhance the development impact of existing corporate strategies.”

As donor agencies re-orient their strategies to best leverage private-sector resources, the report offered four recommendations for more effective partnership, suggesting that donor agencies should:

  • Identify corporate partners with the greatest potential contribution and incorporate business needs and strategies from the front end of the project;

  • Provide opportunities for business partners to contribute throughout the project lifespan, to help keep corporate strategies and development priorities aligned;

  • Directly target the constraints in the areas of capacity building, development financing, and procurement, to unleash specific investments from the private sector;

  • Work internally to create incentives that encourage staff to employ the business-driven approach to partnerships for development.

For Bowman, the goal is of the private-sector engagement process is to have partners ask: “Where do our interests align?”

“That is not something you can do in one meeting,” she said. “It takes people who are committed to understanding where companies are coming from. It’s a much longer-term conversation, and it results in dynamic relationships that really have significant impact.”

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