Three rules for donors: making sure public-private development finance actually works

Last year’s Sustainable Development Goals (SDGs) and Paris Agreement on climate change represent a significant political shift away from a dependency on fossil fuels towards an era of development more in harmony with the environment. They broaden the previous focus of tackling poverty to include leaving no-one behind and tackling inequality.

Both will require billions, if not trillions, of pounds to implement.

With limited aid budgets, donor governments and global institutions have quickly set their sights on leveraging private sector investment as a way of plugging this finance gap. Aid budgets are increasingly directed towards participating in private sector projects, such as big infrastructure projects like roads, ports and hospitals; service provision such as schools; energy and healthcare.

But if public-private partnerships (PPPs) are to be used effectively to implement both the SDGs and the Paris Agreement, donors need to keep three key rules in mind.

Definitions matter

Attempting to pin down the (seemingly) secret ingredients of ‘inclusive growth’

When it comes to policies and strategies, definitions matter. They provide the boundary lines for what will be tackled. They set the objectives that will determine spending choices. Importantly, they are a vital step towards greater transparency and accountability.

Inclusive Growth is a widely used term. In 2014 the IMF, European Commission and DFID have all used this term in their work plans or strategies and the Open Working Group on Sustainable Development Goals has included it as a part of the post-2015 development agenda.

For such a ubiquitous term, the meaning of inclusive growth is incredibly hard to pinpoint. There are also surprising differences in approach amongst organisations and institutions. At times, the word ‘inclusive’ is inserted before ‘growth’ but the approach looks unexpectedly similar to a standard economic growth package.

What’s so inclusive about growth?

Franklin Roosevelt once said “We are trying to construct a more inclusive society…. We are going to make a country in which no one is left out”.

Fast-forward to 2014 and it would seem that an ‘inclusive society’ is harder to achieve than hoped with US inequality levels soaring.

So back to the question – What’s so inclusive about growth?

Historically? Well as the case of the US shows(along with many other experiences from around the world) nothing really. As the OECD highlights, there are three problems that even the record levels of growth of the 1990s and decade of 2000s failed to tackle: poverty, unemployment and inequality.

What makes a green economy a fair one too?

Guest blog post by Kate Raworth

Kate Raworth is a Visiting Fellow in Economics at IIED. Her research focuses on rethinking economics in the faces of extreme social inequalities and planetary boundaries. She blogs at www.kateraworth.com and tweets @KateRaworth

Ask any country’s leaders about their nation’s strategy for the next decade, and chances are, its colour will be green. ‘Green economy’ and ‘green growth’ policies are moving to centre stage in a surprising number of countries, including many low- and middle-income ones. From Vietnam and Barbados to Ethiopia and Mozambique, there’s a new focus on combining environmental sustainability with economic growth – particularly by cutting or curbing greenhouse gas emissions, while ensuring a rising GDP.

For the sake of ecological integrity, that’s good news – but what about social justice? Green policies to transform key sectors – ranging from energy and transport to infrastructure and agriculture – bring many implications for women and men in vulnerable and low-income communities. And it would be dangerous to assume that they will automatically bring benefits. Indeed, without care, green policies could well do the opposite.

Trademark Southern Africa – what could be done differently?

 

By Paul Spray (Traidcraft) with inputs from Sarah Montgomery (CAFOD)

Paul is the Director of Policy and Programmes at Traidcraft. CAFOD and Traidcraft have been working together for a number of years on the aid for trade and small business agenda (see the footnotes below). It is great to welcome Paul as a guest

This month, DFID for the first time cancelled a programme as a result of a review by the government’s Independent Commission for Aid Impact (ICAI). It was a flagship programme called Trademark Southern Africa, whose purpose was “to improve southern Africa’s trade performance and competitiveness for the benefit of poor women and men”.

Private Sector and development at the World Bank

Written by Tina Chang with inputs from Anne Lindsay and Sarah Montgomery

“Engaging the private sector is not about how we feel about business; it’s about how high our aspirations are for poor people. If we rely only upon foreign aid, then our aspirations are far too low.” (Jim Yong Kim)

President of the World Bank Group, Jim Yong Kim made the above statement in a recent Oxfam blog. Similar statements were made at this year’s annual meetings in Washington and the Bank is increasingly seeing a central role for the private sector in the fight against extreme poverty.

It may be stating the obvious to say that the impacts of the private sector on development are as diverse as the private sector itself but it does bear repeating. Ultimately this understanding is important for unlocking the (we would agree with Dr Kim) significant role of the private sector in development.

Setting the post-2015 development compass

Last Tuesday, CAFOD launched its new report at the Commonwealth Foundation in London. The report presents the findings and implications of a uniquely participatory research grounded in CAFOD’s work with people who are marginalised or living in poverty. It addresses key issues in the post-2015 policy discussion. 1,420 people in 56 poor communities across Bolivia, Philippines, Uganda and Zimbabwe participated.

CAFOD lead post-MDG policy analyst, Ms. Neva Frecheville, and lead Ugandan community researcher, Mr. Ben Boham Okiror, presented the research. Ms. Gunilla Carlsson, Minister for International Development Cooperation, Sweden and member of the UN High Level Panel of Eminent Persons on the Post-2015 Development Agenda commented the report. Mr. Paul Ladd from UNDP also presented his observations, with astute analysis of the political process (and pitfalls!) ahead. The event was chaired by Mr Vijay Krishnarayan, Director of the Commonwealth Foundation and co-organised by the Foundation, CAFOD and Participate.

What would ‘thinking small’ look like in global value chains?

The challenges I face are obviously affected by being a small business. Middlemen buy my product and sell it to the big company. They impose their price. (Jose Luis, Nicaragua)

Big business only rarely listen to our needs because they don’t need us (Abdul, Afghanistan)

Whilst it is never as simple as “big” versus “small”, small businesses do describe a view that they are often exploited in their supply chains. The above two views were expressed by small business owners that we talked to in our (second) Think Small research that’s currently underway (see our first Think Small research here). The question is, can Global Value Chains (GVC) ever be beneficial?

The promotion of GVCs has become a hugely popular approach to enterprise development and one which is becoming a bigger focus for donors. The argument for inserting small businesses into GVCs is that this will help them to develop as businesses and thus provide jobs and benefit the economy overall; and ultimately, be good for poverty eradication.

But, given the views of small and micro enterprise (MSE) owners, we think this enthusiasm needs some tempering. It is clear, that the lived experiences of small businesses in GVCs are not automatically positive. Fairtrade research, for example highlights how value does not reach the ‘bottom’, stating;

“…there is clear desire among some to get more value out of their product. From experience, this desire comes from producers’ experience of long-term declining farm gate prices, their sense of powerless in the face of this decline, and, for those with access to the information, a painful knowledge of how their income represents an ever smaller fraction of the final retail price.”

So the question should be how can GVCs be made to benefit MSEs (who generate most of the jobs and a significant proportion of the GDP of developing countries)? Our research has highlighted 3 things that are important to consider towards this end;

1) POWER

The relative power in GVCs can determine whether these will be a negative or positive experience for MSEs. All too often, small business’s lack of voice and power leads to market marginalisation or unfavourable terms on which to do business.

In Zambia small businesses often found that they had to do business on poor terms because they needed customers and had limited options. They were also in a precarious position when things went wrong as they lacked resources, (especially financial) skills and expertise to enforce contracts when agreements were broken. Ultimately, their lack of political, social and economic power kept them trapped in this weaker position.

It’s essential to consider voice and power when inserting MSEs into GVCs to avoid exploitative relationships. Initiatives which seek to improve the bargaining position of MSE suppliers, to reinforce their rights to land and water or to tackle social and political exclusion rather than simply ‘integrating’ them into supply chains have lead to greater benefits for those participating in these GVCs.

2) RISK & VULNERABILITY 

Being included in global markets and supply chains can result in higher risks for MSEs (as the example from Zambia highlights). MSEs are often the most risk sensitive and vulnerable and short term risks can have long term impacts for them. Unfortunately, in some cases, buyers are able to pass risk down the chain, so that the MSE can bear the majority of risk in the bad times, whilst reaping a smaller portion of the gains in the good times. (Vorley & Fox write an interesting, if slightly dated, paper on this).

Initiatives which consider risk and vulnerability, on the other hand, can mean that GVCs can have a much more positive impact on MSEs. There are various activities which could help people cope with risk and so mitigate their vulnerability, for example;

• Social protection schemes can provide a safety-net when times are difficult.
• Macro-economic policies can reduce risk and decrease vulnerability of small-scale traders and businesses. Small scale producers and traders in our research talked about the importance of price stability as a tool to help in managing and planning their finances.

3) SUPPLY and DEMAND
Demand is a key consideration which is often neglected in livelihood development programmes but which our research found is a major issue for many MSEs. GVCs can potentially be a really good mechanism in addressing this demand challenge by providing stable and good buyers for MSEs (provided issues of risk and power have been addressed!).

However, GVCs are not the only solution and other, often more appropriate options, should not be neglected.

Focussing on local and regional markets can bring more widespread benefits. MSEs often produce goods and services that are more locally appropriate and are better able to compete at a local than global level. Inserting small businesses into global markets requires intense efforts to meet standards and other demands, and only benefits a small proportion of MSEs. Improving access to and conditions in local and regional markets is more likely to have more widespread benefits more easily. A critical problem in many of these is a lack of demand – quite simply it is harder to sell when most of your customers are poor. Again, social protection can be a way of injecting cash and boosting demand in these local markets. [See footnote: 1] 

Another useful tool in this regard would be encouraging countries to use public procurement to support local businesses or encouraging countries or localities to develop trade and investment strategies that support MSEs and have a local and regional focus and which prevent enclave development.

Supply issues are also a major concern for small businesses. The supply constraints that most MSEs face can make it difficult for them to be inserted into GVC as they can’t provide the goods or services in sufficient quality or quantity to meet the demands of the buyer. Helping MSEs to meet these supply constraints requires comprehensive and proactive support, based on local needs and context. This is often inadequate or neglected in favour of size-blind policy reforms.

These three considerations are essential to making sure that the effects of GVC are positive for small businesses.

With these three considerations in mind, the role of Government can’t be ignored; government needs to play a proactive role if we’re going to see GVCs being more positive for MSEs. They need to play an important role in guiding national development and trade and investment strategies so that MSEs are able to benefit. They also need to play a role in supporting MSEs and facilitating discussions between big and small business to ensure that MSEs are not marginalised.

And so we come back to the voice of a small scale entrepreneur…

Those representing small-scale fishing to the government are the big companies, not us fishermen… and that’s when the fisherman loses. (Edmundo, Nicaragua)

For GVCs to work for small businesses there needs to be change around the three issues raised here. The role and contribution of MSEs in these systems needs to be valued and rewarded fairly. Power, risk and vulnerability need to be addressed and strategies to include them fairly need to consider issues of supply and demand. The benefits of GVCs may not be automatic; but with some work and careful consideration the benefits can be there.

——

[1] These can be beneficial because that injection of money into local markets is likely to stay within that local economy – through people buying local goods and services.  These transfers can stimulate and support the local economy during difficult times and also have significant multiplier effects – the cited Malawian study for example, found that for every $1 transferred; at least an extra $2 was generated within that community. (Davies, S & Davey, J. 2008. “A regional approach to estimating the importance of cash transfers on the market: the case of CTs in Malawi.”)

A day in the life of an advocacy accompanier

As an Advocacy Accompanier, I probably have one of the strangest named, but most interesting jobs in CAFOD. I support CAFOD’s partners to do advocacy on issues like children’s rights, economic justice, land grabs, extra-judicial killings and climate change and in the last year I’ve worked in six different countries. But how can you be an expert on so many different places and issues, my friends often ask me? The short answer is that I’m not. And nor do I need to be. The local organisations on the ground have a wealth of knowledge gained from the work that they do every day that is different from mine. My role is to support them think through the how of advocacy and together we grapple with questions such as: How can you make sure that your land grabs report lands you in the Minister’s office and not in jail? How can make the public buzz about budgets? Why would a sceptical politician choose to attend Stakeholder Dialogue meeting at your community centre and not steak barbecue lunch at the 5* hotel corporate lobbying fest ? I ask these questions because effective advocacy always requires a strategy: it’s not enough to be passionate about a cause, to publish a lengthy report or spend your time convincing those who already agree with you.

The kind of support I give varies: workshop facilitator, mentor, critical friend, sounding board, or researcher – everyone has different needs so there is no one size fits all approach to this job! Perhaps it would be a lot less work and cheaper to run a generic advocacy course in order to disseminate a CAFOD approach to advocacy. However, I suspect that this would be ineffective, out of touch with local reality and risky in the long-run.

So, why this word accompaniment in my job title?

Who’s leading the charge against corruption?

Photo of an anti-corruption protest "Enough filth!" at Brazilian Congress by Flickr user The World Wants a Real Deal

A year ago, I wrote a post called “The ‘middle income’ poor and corruption” about campaigns in India and Brazil against corruption. Lessons we learned from campaigns in Brazil, and the unfolding of a dramatic anti-corruption movement in India have me questioning: just who is leading the “charge” against corruption in these middle income giants?

Clearly, the key to sustainable, lasting change in corruption will be strong coalitions between rural and urban people, and across class lines.

Both Indian and Brazilian campaigns have shown how different groups have different interests and favored means of communication, and holding together a lasting coalition of them is no small feat.