The Observer: Think small. Save the world: “The Foundation, an independent body with an endowment of £250 million from Shell, thinks it has an answer: nurturing small enterprise in poor countries”: “What's in it for Shell? In the first place, nurturing small enterprise develops a local supply base. In South Africa, where black empowerment and entrepreneurship are high on the political agenda, doing business with small black firms may become a regulatory requirement. But the same reasoning applies to any country.” (ShellNews.net) 19 Dec 04
The poor don't need charity. They need markets that work, says Simon Caulkin
Sunday December 19, 2004
It seems heartless to say it when the begging bowls are out, but aid doesn't work. Despite the $1 trillion spent since 1950, debt relief on $33 billion of loans and modestly fairer trade, the share of world income of the poorest fifth of the planet's population has halved in the last 40 years. Three billion people still exist on less than $2 a day. Appallingly, Africa is 25 per cent poorer than at the time of the first Live Aid concert 20 years ago.
Yet many of the elements of a solution to the development problem are to hand. It's not the poor's fault. They have to be endlessly ingenious and resourceful to survive. Aid gets to some of them, but not enough. Markets and individual incentives work well in some places (see China and India) but all too often ignore the poorest.
Meanwhile, much-vaunted corporate social responsibility is too small, too impermanent and simply not core enough to make a difference. When companies can't see a business case for developing medicines to cure the diseases of the poor, it is pointless to think that charity will do the trick.
The result is an unjoined-up system that is infinitely less than the sum of its parts, a set of impotently spinning gear wheels rather than a motor of change. In these circumstances, no amount of money will make it work..
One has only to look at the negligible impact of IMF/World Bank lending on the growth rates of developing countries (see graph right) to see that this is so. According to Chris West, deputy director of the Shell Foundation, financial viability must be central to the war against poverty.
'It is the same set of questions about delivery, access and affordability that business addresses every day,' notes West. 'Simply put, how do you deliver basic services that are affordable for the poor but still offer a livelihood to those providing them?'
The Foundation, an independent body with an endowment of £250 million from Shell, thinks it has an answer: nurturing small enterprise in poor countries, thus providing a vital link between the market and the poor. It is hoped that this will connect the gear wheels and release the energy latent in the system.
In the foundation's case, this so far takes two forms. The first is underwriting investment funds (one for $5 million, another $25 million) for small energy-sector businesses in east and South Africa. It is drawing not on Shell's money but on its brand and business clout and deep knowledge of the energy sector to provide forms of collateral.
'The public sector - donors and NGOs - look at the private sector as a set of deep pockets when its real value is in its ability to solve problems and, crucially, go to scale,' says West. The money already exists in African and other banks: connecting it to potential clients through referrals and then supporting the new businesses with mentoring support is key to sustainability.
If the funds work - and West is confident they will - this could be big. There is plenty of money waiting in the wings, and not just in Africa.
What's in it for Shell? In the first place, nurturing small enterprise develops a local supply base. In South Africa, where black empowerment and entrepreneurship are high on the political agenda, doing business with small black firms may become a regulatory requirement. But the same reasoning applies to any country.
Foreign direct investment, in development terms, is another 'spinning wheel'. It hasn't had the anticipated catalytic effect because most of the money flows straight back out of the country to foreign suppliers. 'Engaging the core business catalyses the social returns from FDI,' says West. 'Contributing to pro-poor small business is the key to unlocking growth in the developing world and getting poverty on the run. But it also means big business can contract more local suppliers and boost jobs. This strengthens its licence to operate and reduces costs without incurring unacceptable risk.'
In the longer term, of course, all development contributes to energy demand. Much the same thinking informs the Foundation's other main project, which is applying business thinking to the problem of indoor air pollution. Inhaling smoke from open fires kills around 1.6 million poor people a year. The problem is well-known but so far has resisted NGOs' attempts to address it.
The issue, emphasises Foundation project manager Karen Westley, isn't technology - most of the deaths could be averted by the use of very basic cookers - but a viable market infrastructure in a segment that is way below the radar of large companies.
Accordingly, the Foundation is conducting pilot projects to reengineer the supply chain from the customer's point of view. Poor consumers won't just accept what they're given, says Westley. A robust supply chain giving consumers what they want and can afford is the first essential step to scale.
This is real 'bottom of the pyramid' innovation, linking business and development thinking in a way that challenges both. In particular, it goes well beyond conventional ideas of CSR. Business itself must recognise that sustainability is not about money, West insists.
'If a large corporation is serious about generating societal and developmental returns, it need only look at how its core business solves problems,' he says. 'This is about its ability to organise, launch, develop and scale up successful business operations in all parts of the world.
'So whether it is devising goods and services, mapping supply chains or selling to customers, success rests on financial viability and scaling up. There is a role for big business to play in nurturing small enterprise in poor countries and a business case to support it, but I wouldn't describe it as CSR.'