The answers to these questions are complex and dependent on numerous factors, such as poverty, resources, logistics and geography. But among the most important and frequently overlooked reasons is the simple reality that the design and delivery systems for high social-value products and services typically ignore the role that the private sector might play in their supply.
This is rooted in a deep mindset among development planners and agencies, which view markets generally, and the private sector in particular, as part of the problem: opposed to the interests of poor people, and at odds with the goal of poverty reduction.
What this mindset fails to recognise is that key drivers of the private sector — profit, opportunism and self interest — are powerful tools that can be harnessed to address exactly these problems.
With this in mind, consider an alternative scenario for the roll-out of a malaria bed net programme in a remote corner of Africa. This scenario (drawn from experience in Malawi and documented by William Easterly in his book, The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good) goes something like this: with initial donor funding and logistical support, an incentivised supply chain is constructed, whereby bed nets are sold for the equivalent of R5 to mothers through remote antenatal clinics.
The nurses who distribute the nets get R1 per net for themselves. This approach acknowledges, in the same way that distributors of soft drinks do, the role that incentives can play in delivering results.
The outcome? Mosquito nets get to those people (that is, children and pregnant women) who both value them and use them, and they tend always to be in stock. This is hardly surprising, as clinic staff, and all those up and down the supply chain, acquire an interest in ensuring this outcome.
Consider the contrast to the conventional approach which relies on donor or public sector channels for the nets' distribution and local supply, and offers little or no reward for people's effort. All too often, there are leakages and inefficiencies along the supply chain. Consequently, there are no stocks of mosquito nets in the clinics that need them.
This kind of supply failure is perfectly reflected in the widespread use of free mosquito nets, distributed to a passive population, as fishing nets or wedding veils. It is important to recognise that for markets to work sustainably, a degree of regulation by governments is required. Indeed, in many poor areas the social and economic services provided by the state offer vital support for markets, as well as sustaining the local population. The devil is in the detail, and it is only intelligent regulation that really catalyses innovation and markets.
Where a market-conducive environment is coupled with carefully targeted funding, the private sector can become a heavy lifter in driving growth and development.
Mercifully, and thanks to the mountains of false starts and failed outcomes of well-meaning state-based and donor-driven development “projects”, there are signs of an emerging appreciation of the role that the private sector — the visible hand of the market — can play in realising high social-value outcomes across all sectors.
This emerging acceptance is best demonstrated in the growing use of the challenge fund instrument to incentivise pro-poor innovation by private companies. Challenge funds share risk with the private sector through the granting of matched funding for projects with social impacts.
The success of this instrument has been demonstrated in the developed world and throughout Africa. The developing world has many examples of the private sector, in the normal course of business, delivering invaluable services and products which have the potential to transform the prospects of the poor. Think of cellphones and cellphone banking. Think of agricultural supply companies and the myriad services they provide to poor farmers, often in the vacuum left by the failure of state extension services.
It is precisely these relationships which challenge funds hope to foster.
In SA, corporates have organised their efforts to address poverty in “corporate social responsibility” (CSR) initiatives. Aimed at ameliorating the causes and consequences of poverty, such initiatives are far removed from the corporate donor's core business.
However well-meaning or effective, the impact of CSR interventions will be diminished, if not entirely undermined, by the absence of sustainable incentives. All too often, CSR transactions rely on continued grant funding or the (often heroic) commitment of the corporate CSR officer to sustain themselves. When, as is inevitable, these scarce and short-lived ingredients disappear, such initiatives will fail, regardless of their inherent merit or their social effect.
The key ingredient missing from this kind of CSR is the very thing which determines the sustainability of any commercial relationship, namely the mutual self-interest that drives each party to continue to engage and transact with one another. This ingredient can, somewhat simplistically, be defined as “profit”.
While the organised private sector in SA increasingly understands this approach, the high costs, uncertainties and perceived risks of doing business in poor and historically dislocated markets make them less attractive to established businesses, even those that might normally be strong innovators. Yet it is precisely in these markets that more investment and commercial transactions are needed to achieve more effect in poverty reduction and growth.
To address the causes of this “failure”, the Business Trust has just launched its Shared Growth Challenge Fund. This pilot project is a competitive funding instrument which aims to catalyse innovation and investment in weak markets and products which have historically been considered too risky, uncertain or insecure. Essentially, the fund uses matched grants to incentivise pro-poor innovation, and to provide profitable ways of improving market access for the poor.
The fund will seek to improve the alignment between business strategy and development outcomes. In the process, it aims to show that high-impact social outcomes can be delivered by established business in pursuit of profit. With luck this will yield greater sustainability and bigger “bang for buck” than conventional approaches to poverty eradication which rely on corporate welfare.
Source: Business Day
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