Private Development Initiatives

Mon, 19 Dec 2011

Why there needs to be a strategic rethink of profit in development?

The international development industry is always, when referred to, shrouded in a veil of sanctity. Many believe development is a noble, selfless and great cause and that nothing embodies it more than non-profits. Though this is not to question the integrity and good work done by people and organisations working in this field, many sacred cows need now be slain if the industry (and the world) are to continue implementing efficient solutions to global woes.

The current orthodoxy over international development is that it should be the affair of governments, through overseas development aid (ODA) and international organisations. The only 'competitors', so to speak, in this market are non-governmental organisations (NGOs). One could be forgiven for thinking NGOs include private companies but this is not the case. The term 'NGO' is used synonymously with 'non-profit'.

And here is one of those sacred cows. When an organisation uses 'non-profit' in its title, it somehow conjures a subliminal image of charity in the mind of the reader. The international development industry's aversion to profit is a product of its heritage. Though it may no longer be politically correct to say so, the seeds of today's global development agencies and NGOs alike were sown during the West's Imperial era, and more precisely that of the missionaries that followed suit.

When these Christian missionaries swooped down on the opportunity to 'civilise' Asia and Africa, they packed in their bags morality aplenty. This resulted in the notion of profit being frowned upon. And this has remained the case until today, which seriously hampers the development industry's capacity to pay for its own way.

Moreover, development as an academic subject was born of a certain conception of the world in the post-war era, that of developing nations having been exploited by the imperialism of European states. This coincided with the rise of Neo-Marxism and other left-leaning ideologies which saw the plight of developing countries as an international extension of class warfare.

There is today no dearth of private innovations in the development sector but the mountain of red-tape they face to reach fruition is enough to discourage even the most dedicated of entrepreneurs. Many of the rules and standards they need to meet to be authorised, let alone be funded, are artificially designed by bureaucrats in Western capitals. They are created not so much as with the reality of the field in mind but with the requirements of bureaucracies and their efficiency targets.

Many private corporations exist in the development world but they are dependant on government financed ODA rather than paying for their own way. In doing so, they confirm the idea that 'there is no money to be made in development'. It is believed that as the target markets are so poor, they are incapable of providing a sufficient revenue stream. It also enables these companies to bypass dealing with the often-corrupt governments of developing nations, where much of financial aid ends up disappearing.

In recent years, there has been a rise in philanthropic organisations and charities built on the fortunes of their founders, desirous to help the less fortunate and change the stigma of exploitation often associated with the wealthy. Examples include the Bill and Melinda Gates Foundation, created by the eponymous founder of Microsoft, and the Mo Ibrahim Foundation, by the Sudanese telecoms billionaire, Dr. Mohamed Ibrahim.

The Bill and Melinda Gates Foundation has run a programme for many years that has nearly achieved the eradication of Polio worldwide. Yet, despite it being 99% eradicated , the foundation still pushes for the remaining 1% to be attained through the access to funding.

In June 2011, the work of the Bill and Melinda Gates Foundation hit international headlines when Bill Gates and other leaders of the GAVI alliance obtained increased funding for global vaccinations from global leaders and policymakers. The Global Alliance for Vaccinations and Immunisation (GAVI) alliance is a public-private partnership of charities, aid organisations, pharmaceutical companies, finance organisations as well as the World Health Organisation and UNICEF.

All stand to gain in this kind of organisation. The GAVI alliance obtained a pledge of over £800 million from the UK, £415 million from Norway and substantial funds from other donor countries totalling £2.6 billion. This will no doubt help alleviate the ills plaguing developing countries and increase their vaccination rates to prevent deaths from otherwise curable diseases.

The goal is honourable and few would disagree with it, but the method is flawed. The solution is not through public pockets but through private funding. Raising such impressive funds is only possible through the sheer size of the stakeholders and one question springs to mind: why? Why are the majority of players in the developing world either governments or already established multinationals?

The reason is that they are able to 'play the game' without truly needing to change the 'rules of the game'. In other words, with the influence and money these companies and stakeholders wield, developing nations are only too happy to welcome them. Yet these stakeholders are also able to operate in the corrupt and unlawful legal and regulatory environments of these countries as the alternative of losing this money is too great to the receiving parties.

The true innovations in development are made by people in the field, local entrepreneurs and individuals with vision who know the changes that are best suited to the difficulties faced by the locals. But an incalculable number of these ideas never materialise, dying in their infancy from the repeated blows of corruption, inept bureaucracies and the international community's refusal to push for true regulatory reform in developing countries.

The fault also lays with the current aid system, which not only helps prop up corrupt governments, but also makes matters worse. Many studies have been made proving the inefficiency of aid money. The system is also self-perpetuating, with vested interests pushing for the continuation of this flawed framework. Aid organisations are bent on obtaining greater funds, more for the sake of their financial reports than truly channelling them to those in need.

Meanwhile, charities and non-profits raise funds on which they depend through awareness campaigns and targeting individual donors in the West. A midday walk through London, Paris or Brussels will nearly systematically be met by a charity worker trying to say how you can change the world with only £10 a month, earning their title of 'charity muggers'.

Beggars cannot be choosers and by focusing all their efforts on raising funds, NGOs sacrifice their efficiency. A strategic rethink is needed to enable private organisations to flourish in the field of development. A company standing on its own financial feet, without the need of depending on outside support will be able to better meet the challenges needed by those in poor nations.

Your correspondent once discussed the problem of social housing with a renowned architect in India. He had devised a type of housing made of earthenware for social housing costing approximatively $50. Earthenware had the advantage of keeping the heat out in the summer and heat inside in the winter, also being a commonly available material.

Yet this simple but revolutionary idea was not to be as he faced the wrath of the construction lobby and corrupt real-estate developers, who stood to loose fortunes. On the regulatory side, the Indian government barred him from doing so as earthenware was deemed 'unstable' in a registry of authorised construction materials dating back to the XIXth century era of the British Raj.

This is not an uncommon story, neither in India nor in other developing nations. But it needs to change. The key to solving development issues lays in the hands of entrepreneurs and individuals, not of governments and aid organisations concerned with pushing through their own agendas.

Private development initiatives should be encourage and profit hailed as a solution not a problem. The idea that development is not an ordinary kind of business is a sham. This was illustrated by the scandal surrounding the UK's Commonwealth Development Corportation and its former managers who profited from fund embezzlement in the name of efficiency. Moreover, development managers and consultants are paid comfortably to reflect the difficulty of their positions and the talent required to complete the job.

National governments and aid organisations need to take a backstage position and encourage SMEs and entrepreneurs to fly of their own wings. Where international organisations and the governments can help is in promoting legal and regulatory reform in developing countries, hence offering an adequate environment governed by the rule of law for entrepreneurs to operate in.

Unless this rethink is done soon, this sacred cow is likely to munch through her share of cash, getting ever fatter and more inefficient.

by Pascal Goodman