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The G8 Business Debate: Aid community cannot make poverty history

THE TIMES: The G8 Business Debate: Aid community cannot make poverty history

By Kurt Hoffman: “Kurt Hoffman is the director of the Shell Foundation, an independent, grant-making charitable organisation that is separated from Shell’s commercial interests”

Thursday 7 July 2005

Business plans – not millions of crossed fingers – are needed to solve the Africa aid debacle

TOMORROW, Tony Blair will announce pledges on behalf of the other G8 leaders that will amount to the doubling of annual aid flows and the total cancellation of debt owed by the poorest countries.

Now, this might prove eventually to be good news for the world’s poor, but it’s even better news for the aid agencies, non-governmental organisations (NGOs), consultants and academics who constitute the international community’s development supply chain. If the billions of dollars are forthcoming, chief executives around the globe will look on in awe at the ability of the aid industry to almost double its $50 billion (£27 billion) annual budget overnight. Which other industry can boast such impressive growth stats? As this newspaper put it on Monday, “a tsunami of fresh money is in the aid pipeline” and the aid business is “waiting with open arms”.

Yet this massive infusion of funds is difficult to justify on the basis of performance. Since the 1980s, the development community has presided over a $600 billion spending spree that has left its principal clients — the world’s poorest countries — considerably worse off.

The International Labour Organisation pointed out last year that between 1985 and 2002 the poorest third of developing countries saw their share of world trade fall by a quarter — 3.6 per cent to 2.7 per cent — their share of world GDP more than halve — 4.5 per cent to 2 per cent — and their share of global foreign direct investment collapse by two thirds — 3.3 per cent to 1.1 per cent.

If the private sector, or for that matter a state-owned enterprise, succeeded in securing a multibillion-dollar handout against this backdrop of absolute and relative failure, it would justifiably attract howls of protest.

Not so with the aid business. And it gets better. Of late, the development community has been producing a good deal of high-quality analysis of what causes poverty, especially in Africa. These analyses go on to make many, many recommendations on how to spend the increased aid to reduce poverty. The United Nations Millennium Commission report alone makes nearly 500 recommendations There are two curious things about this fusillade of magic bullets designed to shoot down poverty. First, the relatively few and modest reforms sought over how the aid agencies operate have not been spelt out, let alone implemented. At best, we’re assured that the aid community has learnt from its mistakes. No question of paying for them, of course.

Nobody has been fired in any aid agency or NGO for the debacle of development assistance since 1980. In fact, it’s a growth industry — many more aid actors have sprung up.

Secondly, the aid agencies’ lists of recommendations don’t even remotely resemble the sort of business plan that a small enterprise would have to produce to borrow $100,000 from a local bank.

There is simply no detail about what the aid community plans to do with the extra funding, how it will manage this spend, who will be accountable for it and how precisely it will achieve the hopelessly imprecise Millennium Development Goals (MDGs).

So there you go: underpinning the aid community’s requests for more cash is a poor track record, zero restructuring of underperforming delivery organisations and sparse details of how the MDGs are going to be attained.

What there is, of course, is a huge amount of good intention and millions of crossed fingers. But all in all, one would have to rate the extra $50 billion a year or so being asked for as a pretty risky investment — if helping the poor to escape poverty is the real objective of the exercise.

There is, however, some comfort to be extracted from the growing engagement of the business community. This week, Business Action for Africa — a group of multinationals active in the compilation of the Commission for Africa’s March report, met to influence the G8 Summit.

At the very least, this group’s engagement will inject some badly needed realism into the aid community’s understanding of what is required to deliver on an investment plan.

More critically, this engagement should highlight just how important a role business thinking and the private sector have to play in overcoming poverty going forward.

This is as important as it is unsung. First, there is simply not enough donor money on the planet to raise the incomes of two billion people living on a buck a day. So whatever deal is hatched at this week’s summit, making poverty history will always be about private capital before public funds.

Secondly — and more importantly — divorcing enterprise from the debate about poverty sentences us to repeat the past failures of the development community.

That is because, fundamentally and unequivocally, poverty is a lack of cash. Virtually everyone, including the poor in Africa, lives in a cash economy. With cash you can access food, clothing, shelter, healthcare and education. Therefore creating millions of new jobs should be at the heart of the efforts of the international community’s endeavours because this is the only thing that offers poor people a chance to escape poverty permanently.

Yet although it is experienced in many things, the development community does not know how to start-up and grow businesses. It is not in its make-up — it has no business DNA to draw upon.

So it is time that Africa’s wealth creators were asked to take the lead in providing the real development insight and expertise that the development community so patently lacks. That means anybody from the biggest inward investors to the smallest African enterprises. Both will tell how to dismantle the obstacles to growth.

More to the point, they would be able to give a fully budgeted plan on how to do it and what returns on investment — in terms of pro-poor jobs and businesses — that this is likely to generate. And finally, they’ll tell you how much of their own money they’re prepared to risk.

Perhaps it is time to ask the aid community to do the same — before we hand over yet more of our money.

Kurt Hoffman is the director of the Shell Foundation, an independent, grant-making charitable organisation that is separated from Shell’s commercial interests

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