To work, or not to work with the private sector, that isn’t the question….

FROM: Zenebe B. Uraguchi – 30. October 2018

It’s been close to a decade since I shifted my career from working for a multinational private company to a development organisation. In fact, I cut my teeth on development cooperation in the Horn of Africa before working for the private sector. So, the career shift back to development was sort of a “homecoming”.

The trigger to this blog was a recent staff meeting I attended at my employer HELVETAS, an international development organisation. After the meeting, a colleague who has been with the organisation for close to 20 years, reluctantly acknowledged in a private conversation how the organisation has undergone a shift. “Working with multinationals like Coca Cola? It was unthinkable two decades ago”, she recalled. For her, what seemed unlikely bedfellows some years ago is now slowly becoming common.

As the Guardian newspaper declared in 2012, “the question of ‘if’ NGOs should collaborate with the private sector has been replaced by ‘when’ and ‘how’”. The time has arrived, it seems. But we still need to answer the how question…. 

First thing first

Before going into details, I’d like to make two points clear.

The term private sector is a misunderstood one. By private sector most people, I assume, mean big and organised multinational organisations. One of the “the biggest mistakes” that development organisations make when it comes to the private sector is “to see business as a homogeneous entity”. In a stricter sense, the private sector means a whole range of actors (individuals and companies) that are involved in and run initiatives or enterprises with the purpose of making profits. It’s synonymous with businesses.

The other point is about giving credit where credit’s due: businesses have played an enormous part in reducing extreme poverty. Poverty reduction or addressing unemployment isn’t the exclusive field of development organisations, donors and states/governments. The role of the private sector, some claim, is even more than that of development organisations and donors combined! What needs more work, as part of business-development organisation partnership, is addressing rising inequalities and exclusion through more sustainable and scalable initiatives.

Defining modalities of collaboration

Now to the how question…There’re different ways of collaborating or working with the private sector.

It’s beyond access to financing

One key entry point for the role of the private sector is financing for development (both cash and in-kind). The consensus is that implementing the Sustainable Development Goals needs huge financial investment. Official development “aid” coming from governments is in a downward trend – it stands globally at 0.3% of gross national income which is way below the commitment made by many governments to achieve the target of 0.7%.

As a matter of fact, the private sector isn’t the only way to addressing the gap for development financing. I think development financing needs mobilisation of different domestic (improved tax system, better fiscal policy) and international resources (foreign direct investment, diaspora engagement, and development cooperation despite its decline in volume).

Early this year Essam Yassin of IIED and I wrote a book on sustainable financing in a changing world. Not surprisingly we found out the need to shifting the focus from demand-supply relationships to the bigger picture in sustainable financing of development. In practical terms, we need to look at what happens around the demand-supply relations; this is what we call the “financial ecosystem” (which includes services as well as rules and regulations).

Also, the problem doesn’t seem to be just about availability of money. Efficient usage, which is technically called absorptive capacity”, is also important. To make matter worse, despite a growing body of methods that measures sustainable financing of development, different modalities of private sector-led financing haven’t yet been properly evaluated.

From sponsors to partners: strategic engagement of the private sector

Another way of meaningfully and effectively engaging the private sector is to improve its role as an important actor in a system. Every sector that development organisations are in, one way or another, has a private sector actor involved – as a supplier, a buyer or a consumer of goods and services.

We need to do development differently to engage private sector actors in a more strategic and effective way. Perhaps it makes sense to move to an idea of development organisations being “think-tanks” rather than mere implementers. This means that development organisations should increasingly assume a facilitative approach by shifting from doing things by themselves to ensuring and supporting actors in a system to perform their functions in a better way.

Facilitation pays off when one finds the right partners, business models that address their incentives, and when one has the credibility that gets partners to accept that large sums of profits aren’t what they only seek (see below on advocacy). While there is nothing wrong about profits (but how it’s made and shared), it’s also part of our role to offer alternative or improved business models or ways of doing business for private sector actors. What’s in it for them?

Development organisations are more than contract managers of donors

They’ve experts in different fields who hold a host of unique skills and knowledge. Private sector actors seek services from development organisations, ranging from technical assistance to evaluation and other advisory services (including the implementation of corporate social responsibilities of the private sector). Most development organisations pride themselves on context analysis, local knowledge, flexibility, and networking with and trust by other stakeholders. Such qualities help businesses to deliver better outcomes for development and achieve their goals of making profits by reaching more people, including those who’re disadvantaged. So, development organisations should increasingly think about how to identify, assemble and further develop a team of experts with both technical and soft competencies.  

Advocacy works

Environmental and financial scandals as well as reports of exploitative social practices have brought a crisis of public and consumer confidence over the private sector. In the face of hard-hitting activist campaigns, businesses have increasingly opted for dialogue and advocacy to improve their social responsibility and reputation. Often, it’s multinational companies that are the target of fierce criticism. To be frank, I saw small businesses at the local or national levels doing (equally) worse things which are often not reported.  

Most development organisations stand for equality and justice. Such causes have given them public credibility and acceptance. They hold accountable exploitative and harmful private sector practices. The private sector benefits from the positive images that development organisations have accumulated over the years.  

The search for “boundaries” and risk management strategies  

It’s easier said than done. The above different cooperation modalities must be identified and implemented systematically and strategically. In addition to the win-win benefits, there’re also potential pitfalls. It’s unrealistic to always expect happy alliances. Who takes credit and who takes the blame if things go wrong?

Some fear that development organisations may lose their autonomy and trust among public and other fund contributors if their work with scandal-hit businesses comes to light. Or development organisations may just be used as part of private sector marketing departments.

What complicates the collaboration is the proliferation of “foundations” set up by bigger businesses to do development work, or as an extension of the age-old corporate social responsibilities of businesses. While some development organisations opt for working with foundations of businesses, others see them in the same way as their parent companies. To date, the “boundary” remains fuzzy.  

On the flip side, not all development organisations are credible and effective. The reputation of some development organisations is on thin ice. Some development organisations “are great at demanding transparency. They’re not so hot at providing it.” This creates challenges to the “principled actor narrative” of development organisations and may hurt businesses through losing resources and time and worsen reputational risks.  

I can’t fully claim to have a better understanding of both the private sector and development organisations. However, experience shows that an important success factor is a search for shared objectives and values. To say it differently, it’s about managing competing values and expectations. For both development organisations and the private sector, the partnership must be accepted by the whole institution and not few individuals, and that it should be integrated into core business missions – specifically focusing on achieving durable and large impacts.

What’s more, development cooperation is a multi-stakeholder endeavour. Increasingly this is becoming apparent. It involves not only development organisations and the private sector but also public-sector actors. We need to ask ourselves: who is best fit to do under what kind of context? The term “partnership” is not a neutral concept – it disguises complex relationships of power and inequality, often expressed through the control of one “partner” over the other. It must be managed in a systematic way. This involves measuring a mutually benefiting relationship that can add value(s) to each partner.

Additional sources

Senior Advisor Value Chain & Market Development