The first set relate primarily to the role of donors (including corporate foundations and philanthropy programmes) who, because they control the money, are critically important influences on what issues IDC actors focus on and how they work.
1. Don’t give, invest The core proposition is that donors should act less like charities and more like investors. In part, this means allocating more of available resources (such as might be forthcoming from the ‘International Finance Facility’ proposed by the UK government)
towards investment vehicles targeting the pro-poor enterprise sector. However, more fundamentally we also mean that when donors spend aid money through their normal partners – government agencies, NGOs, etc – the primary outcomes they should be after are measurable impacts on the propoor enterprise sector linked directly to the project or activity they are funding.
a. Make it hurt To facilitate this, donors could do a number of things – some of which no doubt more progressive donors are already doing. They could require grantees to make real financial contributions from their own funds to the project. Grant payments could be phased against meeting performance targets. Financial incentives could be built into rewarding the grantee if the project exceeds its enterprise targets (including awarding bonuses or retaining any surplus). And the grantee could face sanctions and be held accountable if it does not deliver on what is promised – perhaps, for example, by having to return a percentage of the grant to the donor.
b. Do as I do And just to demonstrate commitment, the donors themselves could use their own internal incentive structures to ensure staff and managers are rewarded or held accountable for the performance of their projects against what we would argue is one of the few ‘bottom lines’ that should matter in the fight against poverty – measurable growth among pro-poor enterprises and increased benefits flowing to poor people as a result.
These are clearly extreme steps for the donor community, non-profits and civil servants and to be sure even the Shell Foundation does not operate entirely along these lines. And many objections could be raised.61 But we offer them up in such stark terms in order to encourage debate around the following proposition.
c. Put the poor ‘customer’ in charge – not the rich paymaster Our hopeful assumption is that by striving towards the ideal of being held accountable for achieving measurable contributions to pro-poor enterprise and sustainable livelihoods, donors and grantees will be catalysed into becoming more enterprising, innovative and efficient in their search for solutions to poverty.
Why might this happen? Because this approach tackles a costly (for the poor) contradiction at the heart of the aid-poverty equation.
The ‘failure’ of many projects in our portfolio and elsewhere can often be traced directly to the fact that the project partners were not focused on best meeting the needs of their real customers but were responding to other incentives – including donor agendas and their own professional interests (See annex 2).
If one were to apply this ‘who’s the market/who’s the customer’ filter to the aid-funded ‘output’ of the IDC, especially that part of the IDC located institutionally in the rich countries, we expect a very large share of what is done (and certainly the vast majority of what is studied and written) in the interests of development, is primarily undertaken to meet the agendas of the IDC itself rather than the material interests of the poor.
So we are arguing – along with others such as Easterly (2002) – that setting targets and incentives for donors and other IDCs that are linked to customer satisfaction (i.e. measurable success or failure in pro-poor enterprise creation) should ensure maximum effort is focused on delivering results that matter (See annex 2).
The logic of the approach we are proposing is simple. The challenges involved in actually implementing it are obviously not. It requires donors and recipients to think very differently about how they do what they do.More importantly, it would lead them to work within a risk–return relationship and ‘consequence accountability’
structure similar to that which exists between an investor and a start-up business, and between shareholders and management – cultures that are foreign to many donors and grantees.
Nevertheless, our experience and that of others suggest it is possible to structure interventions and incentives that powerfully and successfully focus everyone’s attention on the end game of pro-poor enterprise creation and we suggest the topic is worthy of wider debate and consideration.
2. It’s not the (aid) money that matters This proposition harks back to our arguments that there will never be enough foreign ‘soft’ money to allow pro-poor enterprise financing to go to scale and thus the importance of getting local capital into a lead role in this area.
As argued earlier, using ‘softer’ money from abroad to invest in pro-poor enterprise can play an important starter or demonstration role. And clearly, in regions such as sub-Saharan Africa, it is very important we do everything we can to enhance investor confidence.
But our proposition is that the introduction of pro-poor enterprise aid funding should from the outset complement and catalyse the increasing involvement of local capital and local suppliers of business development services – not substitute for them. It’s possible to do this and it can work as our efforts and those of others in Uganda and South Africa and those of S3IDF in India have shown.
3. Link MDG interventions, debt relief and other macro-interventions to pro-poor enterprise creation We’re conscious that the share of available resources and effort going to pro-poor enterprise creation will always be limited. However pro-poor interventions in other areas can be ‘calibrated’ to help contribute to the enterprise objective without detracting from their core objectives. Debt relief conditions, the way aid financing is delivered and various MDG programmes including the provision of education, health care and clean water can relatively easily incorporate pro-poor enterprise objectives that do not have negative impacts elsewhere.
In the case of MDGs, this would range from ensuring money spent on pro-poor service delivery catalysed local enterprise growth through to the application of enterprise or business thinking to better ensure MDG plans delivered specific measurable outcomes benefiting the most poor people at least cost.
The same logic applies in relation to interventions designed to tackle corruption or strengthening the management capacities of local government. These are very big problems in most poor countries and the resources don’t exist to tackle them everywhere at once. Interventions in these problems areas must be prioritised.
So why not focus on those aspects of the generic problems of corruption or capacity that most inhibit the growth of enterprise? Entrepreneurs and businesspeople can help governments and the IDC map out the ‘value chain’ of activities and stages where corruption or lack of government capacities impinge on enterprise creation. Then, provided the political commitment is present, intervention could focus on tackling the most important blockages.
These are not backdoor strategies for the privatisation of the delivery of poverty services or the imposition of user fees. They are simply suggestions that those designing MDG policies and programmes be aware, competent and incentivised to apply enterprise thinking to what they are doing and to leverage their resources to aid pro-poor enterprise creation.
There are probably some good examples of this happening but as aid flows targeting MDGs increase, many more opportunities will arise. Our concern is that if enterprise thinking and objectives are not mainstreamed now, these opportunities will be ignored at great long-term cost to poor people.
4. Re-engineering the international development supply chain We argued and demonstrated earlier that in our experience the presence of business DNA in our partners – whether they were non-profit or forprofit – was an important ingredient in the success of pro-poor enterprise interventions. This experience underpins our proposition that donors should be considering the following options:
a. Transfer business DNA The first is how they can best use their position and resources to promote the transfusion of business DNA and enterprise behaviour all along the international development supply chain. The examples given in Section 3 of our efforts on this front related mostly to ‘front-line’ NGOs who are traditionally donor-funded and operate in development project mode, insulated from market forces as it were.
Other parts of the development supply chain could probably do with an injection of business DNA as well. Most academics, policy makers, and development agency professionals endeavouring to catalyse pro-poor enterprise don’t have real business-based experience to draw on. Their knowledge of how markets operate and the problems faced by business of all kinds is largely theoretical or conceptual.
Thus they operate on the basis of many partially informed and often downright incorrect assumptions about markets and enterprise. This means the policies and interventions they design and implement, with the best intentions, to catalyse the efficient operation of markets or the creation of enterprise just don’t work or don’t work nearly well enough.
This mismatch between theory and practice, between ‘talking the talk’ of markets and enterprise and actually knowing how to ‘walk the walk’, are obviously not the sole reason why many enterpriseoriented (and growth-oriented) policies and interventions in poor countries haven’t worked as well as intended. But there is a certain logic in the argument that if we want policies and interventions that help pro-poor enterprise grow, it would be useful to be able to inject more experience-based, business DNA into the project and policy design process. It’s not easy62 but it can be done and donors are perfectly positioned to drive this process – perhaps even via new forms of partnership with big business that would facilitate the transfer of their business DNA into the development supply chain (See annex 2).
b. Develop alternative sources of supply The second option is to construct an ‘alternative’
development supply chain by working more extensively and more directly with the for-profit sector on devising and delivering pro-poor enterprise interventions. Our experience is that the efficiency of resource use is higher, the transaction and learning costs lower and the going-to-scale opportunities much greater than when trying to accomplish the same thing with the non-profit sector.
c. Promote hybrids A third route could be to use market principles to encourage the emergence of financially viable, hybrid ‘network business models’ capable of delivering pro-poor services on a large scale.
Donors could facilitate the coming together of private and non-profit entities into a new form of hybrid ‘enterprise’ that could use smart subsidies and commercial capital, best-practice business and developmental skills, to deliver differentially priced services to different segments of the poverty market.
This is an approach the Shell Foundation is piloting in the scale-up phase of its Breathing Space programme in India and elsewhere, where the aim is to achieve significant ‘market penetration’ of cleaner stoves and fuels among poor household ‘markets’ that number in their millions.
The re-engineering of the development supply chain along business lines is happening to a certain extent as some donors and non-profits try to apply business thinking to what they do.63 But these business-like development entities and experiments are still in the minority and largely peripheral to the way most of the IDC is organised and incentivised. We suggest therefore that whether and how to introduce business principles and business DNA into the mainstream IDC is a topic worthy of further urgent debate.
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