Where Aid Meets Profit: The BCtA
23 February 2011
The following article appeared in the Winter 2011 issue of Public Diplomacy, a University of Southern California publication. The opinions expressed in this article are those of the author.
The traditional business of development aid has evolved considerably from its post-colonial 'official development assistance model' dominated by developed country actors largely driven by bilateral and political interests, into one where a myriad of actors operate on different levels. These actors include new donors from emerging markets and a host of regional and multilateral institutions, such as the United Nations and the World Bank, the European Union and regional development banks. They count single-issue entities such as the Global Environment Facility, which addresses challenges around climate change, or the Consultative Group for Advancing the Poor, which focuses on innovations in micro finance. Not to mention the ever- increasing number of private actors including corporate foundations such as the Gates Foundation, large international non-governmental organizations (NGOs), national NGOs and individual philanthropists coalesced around specific causes and initiatives.
Where is the private sector?
Amidst all these do-good organizations, we hardly ever think of the private sector as an official development actor. Despite the obvious, the private sector has for the longest time been seen as irrelevant or at best a sideshow in the development process, a scene dominated by donor governments and recipient governments.
Cold War politics meant that in many developing countries capitalism and the profit-making objective were seen as suspect; state policies did not actively encourage a thriving private sector and where they did, they too often enabled enclave-type activities in commodity sectors such as extractive industries or agriculture divorced from the needs of local populations, infrastructure and supply chains. The inter-connection between development policy and the role of the private sector was lacking in national development debates and strategies.
The end of the Cold War and the advent of market liberalization in the 80s ushered in a new era of public-private partnerships, privatization, and entrepreneurship. The development world discovered the microfinance movement. Donors, governments and NGOs slowly began to see the poor as economic actors in their own right who could start and run businesses, borrow money and pay it back, rather than as passive recipients of aid.
The MDGs: opening the door
Yet when the member states of the United Nations met in September 2000 and committed themselves to the eight Millennium Development Goals (MDGs) calling for the unleashing the power of local entrepreneurs to reduce poverty in their communities and nations. The report represented a major shift, with the UN and others encouraging and embracing the private sector as an important and legitimate development actor.
The Business Call to Action
The trend toward private-sector-led development quickly gained momentum, resulting in the launch of the Business Call to Action (BCtA) in 2008 by the Secretary General of the United Nations and former Prime Minister Gordon Brown of the United Kingdom. At the launch, Brown declared: the BCtA is a landmark opportunity for global business leaders to come together to develop new and innovative ways to spread growth, prosperity and opportunity across the world.
Indeed, at a time of record economic growth in developing countries covering Brazil across to China and with foreign direct investment (FDI) flows to developing countries including sub-Saharan Africa continuing to rise, can we afford not to prioritize the role of the private sector in development?
As the CEO of Anglo American recently noted, The amount that we spend each year in procurement from emerging market economies is comparable to the aid budgets of the U.K., France or Germany. It's a huge sum of money and a massive development opportunity.
The BCtA is a 'landmark' event in the journey of international development for two reasons. The first is that the BCtA does not approach private sector companies asking for money, nor does it get them to do things that do not come naturally to them. The BCtA encourages companies to do what they are meant to do best: make a profit, innovate and grow their business. The difference is that companies are challenged to implement their business activities in transformative ways that integrate the poor as producers, suppliers, distributors or consumers of affordable and appropriate products and services, or through what is increasingly termed as 'pro-poor inclusive business.'
BCtA companies: who said development doesn't pay?
This proposition lends itself to opportunity. Witness the outrageous success of mobile telephony, primarily a communication and entertainment tool in the global north but now a development instrument in the global south, used for everything from simple payment transactions and tracking health services to making transport payments and providing valuable agricultural information to rural farmers. It is estimated that adding an extra 10 mobile phones per 100 people in a typical developing country boosts GDP growth per capital by 0.8 percent.
Even established multinationals such as The Coca-Cola Company have found ways to increase their market share while investing in development. Coca Cola's 3,000 micro distribution centers (MDCs) employ more than 13,500 people in Africa by replacing expensive fleets of trucks with micro entrepreneurs who know their communities intimately and can mover smaller quantities of inventory more often. The model has increased revenues for Coca Cola, and improved incomes for MDC owners and entrepreneurs, of which 30 percent are women.
In India, LifeSpring Hospitals is tackling MDG 5, which aims to reduce maternal mortality, by rolling out affordable maternal health care to 82,000 women from low income households over the next five years.
Companies that were previously thought to be on the other side of the development fence are demonstrating how they can lead the way through best practice. Anglo American, the mining company, has committed to creating 25,000 new jobs in up to 1,500 small businesses over seven years, by supporting small businesses in mining communities in South Africa, and extending the model to Latin America. Combining training in business management and loans from the Anglo Zimele Fund, the company's investment in local enterprises empowers local communities in a sustainable fashion while creating new opportunities to diversify the company's sourcing; some 20 percent of the small businesses benefit from supply chain contracts with Anglo American.
Coalescing not dividing: a new model for development effectiveness
But the other story behind the BCtA is who is behind it. The BCtA is effectively supported and managed by four historic bilateral donors: the U.K. through its Department for International Development (DfID), the U.S., through the United States Agency for International Development, Australia through the Australian Agency for International Development and the Ministry of Foreign Affairs of the Netherlands. The UN systems main development arm, the UNDP, and three international networks that engage business on sustainability and social change round out the partnership: the UN Global Compact, the International Business Leaders Forum and the Clinton Global Initiative.
The collective action of these eight BCtA partners combined with concrete action by BCtA companies creates an energy and pool of expertise that holds the potential for true and sustainable transformation.
The eradication of poverty through inclusive economic growth is possible. Technology and knowledge are not lacking.
There are still substantive barriers to inclusive growth and it will not be an overnight process. We still need to shift traditional, short-term mindsets of company managers or shareholders; many developing countries suffer from weak policy and regulatory environments; we need to massively increase the availability of innovative financial instruments to stimulate inclusive business models, and improve market knowledge on the habits and needs of the poor.
Unleashing entrepreneurship means recognizing our common potential. Ending poverty is everyone's business. The BCtA demonstrates how under the right conditions, profit and aid can create infinite possibilities.
The opinions expressed in this article are those of the author.
Natalie Africa heads the Secretariat of the Business Call to Action (BCtA), a global partnership initiative aimed at promoting the role of the private sector in eradicating poverty through commercial, core business activities. Africa joined the BCtA from the International Finance Corporation (IFC), where she innovated and ran projects aimed at promoting women in business through access to finance, business training and supply chain opportunities. Africa has also worked in international finance, diplomacy and the non-profit sector. She holds an M.A. in international relations from the Graduate Institute of International Studies in Geneva and a B.A. in history from the University of Lyon III, France.
For more on this subject, see Trends and Issues in Development Aid, Homi Kharas, Brookings Institution, 2008,
ODA is scheduled to reach historic highs in 2010 at $126 billion, while private aid from NGOs could be in the range of $58-68 billion a year: idem
Zahid Torres-Rahman, Developing the Private Sector's Role: http://www.guardian.co.uk/sustainable-business/business-dfid-poverty-development-sustainability
The Millennium Development Goals: http://www.un.org/millenniumgoals/
Unleashing Entrepreneurship: Making Business Work for the Poor, Commission on the Private Sector and Development Report to the Secretary General, 2005
BCtA brochure, 2009
Dialogue on 'Accelerating Progress towards the MDGs through Inclusive Business Models', New York, 2010
The Economist: A Special Report on Telecoms in Emerging Markets, September 26 2009
Vodafone source
Business Call to Action Case Study, 2010
Business Call to Action commitment 2010
The Economist: The World Turned Upside Down, April 27 2010
Business Call to Action commitment, 2009
For more on this see Jane Nelson, Harvard Kennedy School, Expanding Opportunity and Access: Approaches that harness markets and the private sector to create business value and development impact and BCtA: Barriers to Progress: A review of challenges and solutions to Inclusive Business Growth.
The MDGs: Everyone's Business, UNDP 2010