Company donor collaboration on inclusive business

The mobile phone revolution has disproportionately benefited Africans. 500 million people on the continent use them.  In a region where weak infrastructure means land lines are often unfeasible, mobiles have had a revolutionary impact. Rural farmers can discover the latest market prices for their produce with a simple call, empowering them to strike better deals with buyers.  Pregnant mothers can access reliable information on their baby’s health requirements through text-based services.

When Mo Ibrahim, founder of telecommunications company Celtel, set out to introduce mobile phones in untapped African markets in the late 1990s, he struggled to find investors. Large, international telecoms companies did not appreciate the size of the opportunity or were too afraid of the risk. Yet Celtel succeeded far beyond expectations, creating untold benefits for African businesses. It was partly the support of donors - including investment from UK Government-funded bodies – that made this possible.

The private sector can be a powerful vehicle for reducing poverty. It creates jobs and sells beneficial goods and services. Its taxes fund essential public services.  It can play a powerful role advocating for better governance.

Donors like DFID can help businesses achieve this impact.  Their support can help firms overcome barriers, enabling them to expand their operations in developing countries or improve the social and environmental impact of their investments.

But what is it that donors typically look for in opportunities to work with the private sector? And what makes these opportunities more likely to succeed?

The starting point for DFID is that the activity it supports must help address poverty in one or more of the countries we focus on, particularly in Sub-Saharan Africa, and South and Central Asia.  The firm’s activities must in some way contribute to poverty reduction, by creating jobs for poor people, raising their incomes or otherwise contributing to their well-being.

Importantly, DFID provides support only where it is able to address what, in economic terms, we call market or Government failures.  That is, the support is not intended to benefit just an individual firm- even if that firm’s activities result in poverty reduction.  Rather, it is intended to address some barrier which, if removed, would allow a wide range of firms to succeed. Such market failures are widespread in developing countries and take many forms.

For example, DFID’s “Business Innovation Facility” is providing global experts to train garments factory managers in Myanmar in the most efficient approaches to production and staff management. There is a direct benefit to the firm involved, as they operate more efficiently, treat their workers better and therefore create more and better jobs.  But the real prize for DFID will come if other firms recognise the benefit of this approach and pay for it themselves. The problem in Myanmar is that, before DFID support began, there were too few examples of good practice in factories for other factory managers to realise they could be operating more effectively. If such practice was already widespread, DFID would not be interested in working with just one firm to help it catch up with the existing successful approaches of others.

Surprisingly to many, DFID is usually interested in working with firms on their commercial, core business.  While there is sometimes a role for donors in working with firms in their philanthropic activities, when it comes to creating sustainable economic opportunities for the poor, this is often less relevant.  A business approach that works for the company, delivering profit, and works for the poor, creating jobs or other benefits, is one which will be sustained and scaled up. 

An important point for DFID is that any support to the private sector must create opportunities for the poor that would not have occurred without our involvement. Perhaps DFID support is needed for a project to proceed at all, to happen as quickly or to be designed in a way that will deliver as much benefit for poor people. In Malawi, DFID is working with local firms selling seeds and pesticides used in rice and pea farming.  DFID assistance helped them understand better the needs of poor farmers and redesign their products using smaller packs better suited to those farmers’ needs. Small holders are now buying these packs in large volumes, with big potential to raise their incomes.  There were no signs that this was happening already in the market or was likely to soon.

Another consideration for DFID is whether support will unfairly benefit one firm over others in ways which distort competition unduly.  In Nigeria, DFID is working with farmers to introduce a new type of grass suitable for cattle grazing.  Dairy cows fed on this “napier” grass produce nearly 3 times more milk than those reared on traditional pasture.  But DFID is keen to make sure that other farmers are made aware of this opportunity so we have publicised widely the benefits to encourage the approach to be copied.

DFID’s working relations with the private sector succeeds more often where there are truly shared objectives: where there is a “win-win” of commercial activities supporting development objectives.  Identifying such opportunities is not always easy.  It requires a firm to seek DFID’s support – perhaps because a business opportunity in a new, untested market looks interesting and has benefits for the poor, but the risk is too high for the firm and subsidised finance is needed.  It usually requires a champion within the firm who understands where DFID might be able to help and what its objectives would be in doing so.  In the past, firms have been put off by the difficulty finding donor support designed to meet their needs and to be available quickly.  In response, DFID is creating programmes which are faster and more flexible.

Finding opportunities for co-working between donors and the private sector can take effort. But the Celtel story shows how impressive the results can be.

This blog is part of the January 2017 series on how, and why, donors and businesses work together for development impact. For more candid opinions on what works, and what doesn't, read the full series on demystifying donor-business collaborations.