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The Observer: Can they be sure of Shell?

The Observer: Can they be sure of Shell?

Sunday June 13, 2004

It was hard not to raise eyebrows when the Shell Foundation invited me to check its projects in Uganda. Was this trip a blatant attempt to redress the PR balance after the media mauling the Anglo-Dutch combine has endured, particularly in recent months? Or was something more fundamental going on? Perhaps a quantum shift in the way business deals with society?

Launched in 2000, with £250 million, the sheer size of Shell’s foundation makes it at a stroke one of the most powerful charities in the world. It works by partnering local banks in developing countries. The banks identify small businesses desperate for investment to buy equipment, particularly businesses that are energy-related.

Shell’s model demands that bank loans – which range between $2,000 and $1m – are paid back. Businesses generally stump up 15 per cent of a loan to qualify. The oil giant believes this commitment means projects have a better chance of success.

The approach, devised by foundation director Kurt Hoffman, is markedly different to the traditional aid model. In most cases, international aid amounts to ‘free money’, making business disciplines hard to foster. Once the money tap is turned off, many projects fail.

Meanwhile, funding decisions by donors are generally made thousands of miles away. Not only does this slow the decision-making process but often the wrong businesses get money.

Shell’s $4m Uganda Energy Fund lays emphasis on enabling businesses to access energy. In Africa, this often means harnessing solar power. The continent, after all, should be a solar energy powerhouse. But past schemes have run into the ground because equipment has been poor and after-sales service to maintain equipment virtually non-existent.

A recent report shows that a staggering £3 billion invested in solar projects by international organisations since 1980 has all but failed to improve energy access.

In Uganda, Shell has part nered DFCU Leasing which, since 1995, has made loans to nearly 4,000 Ugandan businesses. In that time, its non-performing loan rate is just 4.5 per cent, with 1.7 per cent declared a loss. This is considered an excellent record.

Businesses that have received loans include dried-fruit farmers, who bought solar panels that power ventilators which suck out moisture from covered drying tables. Uganda’s leading honey firm, Beenatural, received money from the fund for a hybrid power generator that runs on both solar and fossil fuel. Within months, both these businesses could start exporting to lucrative European markets, giving the communities in which they are based a massive lift.

‘Instead of just donating money, we’re using local finance and sustainable business models to create engines of economic growth,’ says Chris West, a former senior environment official at the Department for International Development, now Shell Foundation’s deputy director. ‘This goes beyond corporate social responsibility.’

It’s easy to view Shell’s involvement cynically. Its Ugandan Energy Fund is looked on favourably by the state and this could bring the oil giant benefits. Recent discoveries mean that Shell, the largest business contributor to Ugandan revenue, would be an obvious port of call should the results of testing in three months prove the oil is plentiful and easily accessible.

And what Shell is doing is a drop in the ocean.’ But it’s the small-scale projects which, if scaled up, could be a template for real economic growth in poor countries,’ says West.

Consumer financing mechanisms must also be introduced, principally through micro-finance lenders. This will be the next stage of the foundation’s work. And other multinationals are poised to follow Shell by launching sizeable funds in poor countries.

Hundreds of billions of dollars of traditional aid have failed to make a difference in Africa. Could harnessing of business methods succeed where all else has failed?

http://observer.guardian.co.uk/business/story/0,6903,1237381,00.html

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