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The Role of the Private Sector in Poverty AlleviationThe responsibility of providing solutions for global poverty has traditionally fallen to governments and international aid agencies. Increasingly, however, the private sector is being singled out as another important player in achieving this task. Given that development is already a key interest of private sector organizations, it seems reasonable to assume that the attention being given to the private sector is justified. Going forward, then, it is important to understand exactly what the role of the private sector in poverty alleviation should be.

The ways in which the private sector can benefit the lives of the poor have been well documented. From creating jobs and enhancing education to producing the goods and services used by those in poverty, it is clear that the private sector is a part of many, if not all, areas of development. As such, governments should be seeking to foster a business environment through which the benefits of the private sector can be harvested.

The main problem with this, however, is that across much of the developing world, such conditions do not exist. Often, new market entrants find the environment to be hostile and difficult to navigate, which can lead to proposed initiatives collapsing or being withdrawn. As such, the role of the private sector in poverty alleviation is contingent on external conditions. In such cases, it is the role of government to attempt to make these more favorable, or at least competitive; otherwise, no progress will be made.

Government action should not stop at this point. With increased private sector activity comes increased growth, which allows for further opportunities for more traditional methods of combatting poverty. As such, it is perhaps easier to look at the public, private and charity sectors as three heads of one entity when it comes to alleviating poverty. Through collaboration, rather than separation, it is far more likely that the goal of poverty reduction can be achieved.

Gavin Callander
Photo: Flickr

On July 10th, a consortium of development banks—the Asian Development Bank, the European Bank for Reconstruction and Development, the African Development Bank, European Investment Bank, the Inter-American Development Bank, the World Bank Group and the International Monetary Fund—released a statement laying out plans to “extend more than $400 billion in financing over the next three years.” They are also committing to working “more closely with private and public sector partners to help mobilize the resources needed to meet the historic challenge of achieving the Sustainable Development Goals (SDGs).”

$400 billion over the next three years averages out to slightly more than $133 billion per year, not significantly more than the $127 billion in available financing for 2015. The World Bank recognizes that much more is needed. Infrastructure investment alone is estimated at $1.5 trillion per year for developing economies.

One strategy that the multilateral development banks, or MDBs, will employ for bridging the investment gap is capacity building: working with developing nations on devising smarter tax systems and improving government procurement processes. These will make better use of existing money, and open up new sources of national revenue.

It may seem counterintuitive to tax poor nations to fund development, but the high levels of informal sector employment and low tax collection by developing nations, relative to developed ones, suggest otherwise. A study that looked at a sample of 31 low-income and 32 high-income countries put informal sector employment 20% higher in the low-income group. The low-income sample posted government revenue as a percent of GDP at 18%, while the high-income countries averaged 33%.

Although the negative correlation between tax collection and informal sector employment seems to work both ways, development economists agree that boosting national tax revenues in developing countries, if done correctly, will provide a source of necessary development financing and reduce poverty.

These development banks are also increasingly looking toward the private sector to raise the level of financing. Five of the seven heads of the banks spoke about the role that the private sector needs to play, and how they plan on engaging with it.

The proposals include investing more in private enterprises, connecting private investors with opportunities and helping countries make investments more attractive, effectively opening the tap for foreign capital flows.

More than a feel good story of throwing money at the SDGs to help them meet their laudable goals, the statement released by the MDBs hints at a more systemic change to how the SDGs will be financed. More technical assistance for capacity building and a greater inclusion of the private sector will change the landscape of development financing and the field of development itself.

These new changes are coming just in time for rigorous debate at the set of international conferences taking place this year, and their potential to reduce poverty and help meet the SDGs is hopeful.

John Wachter

Sources: Chatham House, World Bank
Photo: KAREN BLEIER/AFP/Getty Images

PEPFAR
The U.S. President’s Emergency Plan for AIDS Relief, started by President George W. Bush in 2003, has tried to tackle the global HIV/AIDS epidemic. The program has been tremendously successful, providing treatment for two million people and care for 10 million, including four million orphans and vulnerable children. Below are three major lessons the world of development and poverty alleviation can learn from the successes of PEPFAR.

1. Country Ownership

One of the unique components of PEPFAR is the role host countries play in the design and implementation of interventions. Ninety percent of the partner organizations that work with PEPFAR in the field are local. There is not a blanket approach, meaning that governments have to take ownership for the programs that are executed in their countries. Each country has a different approach that fits the needs of the HIV/AIDS epidemic within its borders, making the interventions more successful.

2. Focus on Results and Accountability

Even with criticism that development goals cannot be boiled down to pure numbers, PEPFAR’s intense focus on results has proved to be successful, especially when trying to build monitoring and evaluation capabilities country-to-country. A focus on results helped keep countries accountable to the goals of PEPFAR. With better monitoring and evaluation capabilities, governments can be kept more accountable and transparent when working on development projects.

3. Engagement of All Sectors

PEPFAR was one of the first projects to try to engage all sectors of the economy, not just national governments. The project included civil society, non-governmental organizations, faith-based and community-based organizations and the private sector in the implementation of specific interventions. This inclusion helps to address underlying and periphery issues that prevent or hinder interventions, like government stability, personal freedoms and development standards.

Caitlin Huber

Sources: PEPFAR, Avert, Smith
Photo: Huffington Post

Business for Social ResponsibilityBusiness for Social Responsibility
Large-scale factories, especially in developing countries, are infamous for their dangerous working conditions and lack of respect for their employees. Fortunately, this is taking a turn for the better, with businesses taking steps to ensure a bright future for their employees. There is even an organization dedicated solely to this purpose: Business for Social Responsibility (BSR).

BSR is a nonprofit that works with companies in order to improve the lives of their employees, and has so far partnered with over 250 organizations. Their goal is to work with these organizations in order to create a “systematic progress toward a just and sustainable world.”

The company states on their site that, “The role of business is to create and deliver products and services in a way that treats people fairly, meets individuals’ needs and aspirations within the boundaries of our planet and encourages market and policy frameworks that enable a sustainable future.”

One of the company’s main values is transparency and they heavily stress how important it is within any organization. BSR is hosting a conference in November focusing on this point and how transparency can improve supply change, climate, consumer engagement and impacts on a community.

Another main focus of BSR is keeping the earth clean through environmentally friendly business tactics. The company states on their site the belief that, “integrated, far-sighted planning can create resilient low-carbon emission transport networks, particularly in new urban areas.”

BSR works directly with farmers on sustainability training to keep the farming practices safe and environmentally friendly. They also do work reducing supply chain GHG emissions and work with ecosystem services to ensure all around sustainable businesses.

To make the safe and fair practices come full circle, BSR takes care of partnered companies’ employees by creating HERproject (HER=Health Enables Returns). This is a life skills training program for the factory workers, particularly the women, in BSR-partnered companies.

HERproject holds classes on health education to teach about general health knowledge, reproductive systems and preventative care. The group also has a finance curriculum, filled with modules about formal savings account and budgeting techniques.

HERproject works in the field with local NGOs, clinics and even governments to personalize the training given to each group. Beginning in Bangladesh, it has expanded to include Cambodia, China, Egypt, Haiti, India, Indonesia, Kenya, Pakistan and Vietnam; it has plans to begin projects in Brazil, Ethiopia, Mexico and Myanmar.

USAID headed a global health research project that showed when employees are better taken care of, their company is better off economically. When workers feel well, they are able to perform well. They do not need as many sick days, they become more productive and therefore more easily meet production goals.

Some notable corporations that have proven the success are J.Crew, Abercrombie & Fitch and Colombia Sportswear, and since the incorporation of BSR practices, they have strengthened their global supply chains. Sandra Cho of Colombia Sportswear states about HERproject:

“HERproject shows great return on investment numbers, but that’s not what’s inspiring about the project to me. What is inspiring is seeing the women excited about the knowledge they’re gaining and sharing, and the sense of empowerment that gives them, that’s exciting for consumers, too.”

BSR is making a global impact for business practices, and in turn they have helped the world move towards a more responsible, cleaner, more ethical future.

– Courtney Prentice

Sources: Global Envision, BSR 1, CSR Wire, Global Hand, BSR 2
Photo: CSRTimes

Corporations Fight Poverty
Private companies recently have been making global poverty a priority, squeezing their way into the realm where charities and governments once operated alone. Corporations fight poverty on a much larger scale and with greater resources. 

Western countries like Britain and the United States, as well as Australia and other countries, have started to put their faith in the private sector to develop economies and alleviate global poverty. IKEA is the largest donor to the United Nations refugee agency.

“There must be a major role for the private sector in the development sphere,” Julie Bishop, Foreign Minister of Australia, stated a few weeks ago. She said that a sturdy private sector promotes more jobs and growth and helps to reduce global poverty.

Private individuals, especially those who are wealthy, can play a large role in reducing global poverty through impact investment and philanthropy.

“The profit motive is viewed by many to implicitly mean ‘exploitation’. But that is not necessarily the case,” says Mark Ingram, owner of Business for Millennium Development, an organization that links big corporations with small markets in developing countries. “Business engagement with the poor can be designed with intentional mutual benefit.”

Impact investing, which is investing in socially responsible offers, funds poverty alleviation efforts and other social projects that may not be funded otherwise.

Impact investing needs to offer incentives to potential clients if it wants to encourage global poverty reduction. Mark Haefele, global chief investment officer at UBS Wealth Management, suggests using stronger policy and tax incentives, education-related initiative and social impact bonds.

Considering how much wealth is concentrated among individuals, the scale of poverty-related philanthropy will probably increase in the next years. Haefele also points out that corporations need to recognize that attempts to fight global poverty are more effective when funds are invested sustainably, and when they partner with other corporations or the government.

Banks also play an intermediate role between capital and social programs that can help alleviate global poverty.

As long as investors’ standards continue to shift towards reducing global poverty, the fight against poverty will strengthen even more as social and financial profits become more aligned with each other. At this point, no investor will be able to afford to ignore socially responsible investing.

– Colleen Moore

Sources: Sydney Morning Herald, FTAlphaville
Photo: Foreign Policy

Public_private_sectors
One of the main concerns about foreign aids is how to allocate the resources to get the best result.  Both private sector and public sector have to work together to end global poverty to achieve maximum effectiveness. To understand the importance of the joint effort between these two entities, one first needs to understand what effect these two sectors have on the economy.

In the book “A Life Half Lived: Surviving the World Emergency’s Zone”, the author, Andrew McLeod, discussed the differences between these two sectors and proposed the solution for their cooperation.

The private sector has many constraints to enter the developing countries. The first constraint is the high risk of investment.  The second constraint is the policies in developing countries in welcoming potential investment from international firm.

The developed countries do not want to invest in developing countries because they do not see that their helps are making improvement in the developing countries; therefore, the diplomacy between developed countries and developing countries need to be improved to create better opportunities for the private sectors to enter the poverty countries.

To achieve this objective, public sector should work together with the private sector to discover private sector’s needs and understand its structure. When international firms see the potential positive return on the investment, they will want to create branches in the developing countries. When these firms enter the countries’ market, they bring along jobs, expertise and capital. With these available resources, developing countries can spur their economic growth and the foreign aids from developed countries will reach the maximum potential.

For example, if an international company wants to enter China, the United States can direct its fund toward getting favorable policies from Chinese government. At the same time, the foreign aids can be guided toward improving education level for Chinese citizens so that they will become skilled labor to fit the needs of the industrial revolution.

In “A Life Half Lived: Surviving the World Emergency’s Zone,” the author expressed his opinions after the half of the life time in his foreign aid campaign and went into detail about the importance of the cooperation between public and private sector in the war against global poverty.

– Phong Pham

Sources: Goodreads, Booktopia, CSIS
Photo:
UTest

Private_Sector_For_Common_Good
In the wake of the destruction following Typhoon Haiyan, reconstruction strategies in the Philippines are starting to gain headwind. Budgets, however, remain limited. In fact, proposals for funds from the Philippines’s Congress are still inconclusive and critically slow to respond to relief efforts.

But there is some good news: the cooperation between private sector and international aid funding has provided a combined supplementary budget to the Philippines government at an estimated $5.8 billion. The Philippine Disaster Recovery Foundation, headed by private sector donors, raised $310 million for the recovery effort.

The World Bank Group has recently adopted a new strategy in ending the problem of world poverty by its goal of 2030: reaching out to the private sector. According to Bank Group estimates, expunging social inequality and closing large infrastructure gaps in developing countries will cost $1 trillion per year through 2020. Currently, official development assistance (ODA) from NGOs and agencies such as the Bank Group reach $125 billion per year.

At a meeting at the United States Chamber of Commerce, President Kim of the World Bank stressed the private sector’s necessary role in global development: “There is no way ODA is going to be anywhere near adequate. If you have high aspirations for poor people in the world, you have no choice but to embrace the private sector.”

The anxieties associated with private sectors invested in low to middle-income countries are astounding thanks to the high risks involved — so high as to turn most investors away from seeing the potentialities of opening up new markets. Private sector investments are responsible for 90% of the world’s economic growth. Focusing money into a developing country’s infrastructure would create new classes of middle-range consumers in the poorest of countries.

The World Bank, IFC (the Bank Group’s private sector arm), and the Multilateral Investment Guarantee Agency will work together to mitigate the risks involved in private sector ventures into global development. The organizations aim to act as financial advisors between public and private sectors of business in developing countries.

– Malika Gumpangkum

Sources: The World Bank Group: Private Sectors, Voice of America, The World Bank Group: Support the Philippines, International Finance Corporation
Photo: WordPress

Brooksings
Last Sunday, the Brookings Institute held its 10th annual Blum Conference on global development. This year, the conference emphasized the increasingly significant role of the private sector in lifting the world out of poverty.

Currently, 1.2 billion people still languish in extreme poverty, which is defined as living on less than $1.25 a day. The head of the World Bank, Jim Yong Kim, recently made sweeping promises that by 2030, that number will have dwindled to less than 300 million. And, by all appearances, Kim’s claim has a solid basis: in the past decade, global extreme poverty rates have been cut in half.

The recent Brookings conference in Aspen, Colorado confirms that hope. And, more importantly, it lays out the path to achieve it: by engaging the private sector on a large scale. World leaders like Partners in Health co-founder Paul Farmer, UN Human Rights commissioner Mary Robinson, and former U.S. Secretary of State Condoleezza Rice used their voices on Sunday to reinforce this principle. Major development agencies have already been operating with this idea, including USAID which leveraged over $525 million in private investment last year alone.

The road forward, however, contains many obstacles. Homi Kharas, the author of Brookings’ policy brief, “Reimagining the Role of the Private Sector in Development,” lays out three major hurdles for partnerships between the private sector and the public, academic, and civil sectors.

The first is the massive project of adapting to private funding in development. As part of the process, Kharas recommends that development agencies project “leverage ratios” that link public dollars to private dollars. He applauds the Power Africa Act for using $7 billion in government spending to guarantee $9 billion in private investment pledges.

Secondly, innovation is the key to increasing agricultural productivity and improving access to necessities like water and medicine. Kharas argues that public subsidies for private-led innovation in these areas need to increase to harness the creative power of for-profit businesses.

Finally, Kharas suggests that perhaps the greatest obstacle to engagement is mistrust of private companies by public and civil actors. To build confidence and pave the way for future partnerships, companies need to make their footprints and supply chains more transparent.

“Every high-level development report and project now has private sector involvement,” wrote Kharas. “The time is ripe to systematize this approach and experiment with new forms of partnerships.”

– John Mahon

Sources: Devex, Brookings
Photo: Carnegie

MDG_opt
As the Millennium Development Goals come to an end in 2015 the international community is asking what next? Before there can be definite goals set the international community needs to take a look at 5 issues.

1. The changing poverty map

While there have been a huge number of people lifted out of poverty, it has not been a global phenomenon. Most people elevated out of poverty were in large emerging countries such as China that saw a decrease in poverty rate from 85% in 1981 to 13.1% in 2008. However, to eradicate extreme poverty the international community will need to focus on countries afflicted by conflict and instability since this is where poverty is most extreme.

2.  Private sector catalysts

There must be more focus on the creation of tools to encourage the private sector to invest in developing countries. While tools such as impact investing and risk mitigation exist these tools must be developed.

3. The power of technology

Technology has completely reshaped how our world communicates and it cannot be forgotten when it comes to the question of poverty. Technologies can allow citizens, experts and officials to collaborate in new and exciting ways. It must be utilized in the next 20 years to fight back against poverty.

4. Demography and climate change

Demography and climate change are changing the way our world looks. Climate change must be taken into account when creating new solutions and programs; they must be long lasting. In many countries, the majority of the population will be under 25 so policies must focus on jobs and skills.

5. Politics and reform

Currently governments as well as development actors are weak when it comes to implementing new policies as well as they have a heavy reliance on multiple chains of contracting. There will need to be greater transparency, inclusion of civil society, and new financial models to prevent this in the future.

– Catherine Ulrich

Sources: WE Blog, UN
Photo: Hearts and Minds

BetterWorld

What comes after the Millennium Development Goals? In the UN High Level Panel held recently, an agenda was set to cover the process that will take place after the UN Development Goals come to an end in 2015. The three key points in the agenda included: women/gender equality, the role of the private sector, and global partnerships and governance.

With regards to women and gender equality, the main objective centered on raising women’s status. Henriette Kolb states, “Women constitute the majority of the world’s poor, but they also reinvest 90% of their income into their families.” It was highlighted that the financial independence of women is crucial to their well-being because it allows them to leave abusive and violent households/relationships. As for the private sector, the panel emphasized that private sectors are responsible for almost 90% of jobs in developing countries. Thus, it is important for corporations to be a part of global partnerships in order to address large-scale complex challenges quickly and efficiently. On a different note, the panel asserted that the private sector must be held more accountable for labor and environmental standards, gender equality, and governance in order to assure true sustainable development.

When it comes to global partnerships and governance, Kolb asserts, “developed economies need to be more serious about designing a robust international financing framework.” There must be a commitment to addressing climate change and a reform to tax and trade policies. It cannot be that only aid organizations and communities are aware of the UN Development Goals, pressuring their governments and holding them accountable for cooperation and contribution. Instead, the global community as a whole, including people living in developed countries, must come together in order to achieve the desired sustainable development.

With technology advancements  today, it is easy to reach people all over the global community. Thus, in Kolb’s words,”Let’s not wait until 2015 to get started…let’s start now with dreaming big and acting fast.” The cooperation and participation of all governments equally is needed today to end global poverty and reach the ultimate goal of another world with sustainable development.

Leen Abdallah

 

Source: Huffington Post
Photo: Climate Stewards