Beyond Aid: How the private sector can drive change in global development

The Western world is leaning away from a globalized perspective and leaning inward toward a nationalist point of view. From the UK’s looming Brexit from the European Union to U.S. President Trump’s proposed 28 percent budget cut to diplomacy and foreign aid, global development funding and priorities are due for a profound shift in the two countries that have been the world’s largest aid contributors.

Progress in global health, sustainable livelihoods, universal education, and climate action now requires leadership from the global business community.

As much as this shift threatens the progress of global development, it also offers a rare opportunity for others to step up and fill the leadership void. Now more than ever, private investors and multinational corporations have the opportunity to go beyond business as usual and help lead the way to solve some of the world’s biggest challenges.

Private capital, public good

Can private capital fill the gap? Innovative financing mechanisms are showing that, given the right incentives, commercial investors will invest in sectors critical for development.

Take for instance the Tropical Landscapes Finance Facility and Tropical Landscapes Bond that is intended to address rural livelihoods and deforestation challenges in Indonesia. ADM Capital and ADM Capital Foundation believe they can attract private investors to finance cash-generating projects in smallholder agriculture, rural electricity, and greenhouse gas reduction. The design process was funded by a grant from Convergence, a platform incubated by Global Development Incubator (GDI), to pool together just such financing structures that “blend” public and private funding.

Similarly, the Initiative for Smallholder Finance, which acts as an intermediary between both private and philanthropic investors, helps design new financial and partnership structures that can help close the financing gap for smallholder farmers. That gap between what smallholder farmers and agribusinesses need and what is currently supplied in Latin America, sub-Saharan Africa, and South and Southeast Asia is roughly $150 billion. The initiative was launched in 2013 by GDI, an organization that builds startups and partnerships to tackle global challenges.

GDI has built several organizations to help accelerate the use of blended finance in development. Blended finance is the use of public and philanthropic dollars to attract private capital investment, thereby growing the overall “pie” of capital available. For commercial investors and businesses, such deals open the door to new business relationships, new markets and international brand recognition.

Driving shared value

Companies and investors are incorporating socially responsible practices into their core business operations and theses. Nestle, which buys a substantial amount of cocoa from smallholder farmers, is investing in cocoa farmers’ health and well-being to increase their suppliers’ profitability, secure high-quality cocoa for their business, and address supply chain issues to improve the livelihoods of smallholders.

MM.LaFleur, a women’s clothing company, is partnering with the International Rescue Committee to employ  male and female refugees in their warehouse clerk positions. The company is putting into practice their core ethos of serving women professionals, or what they call “women of purpose.” The partnership provides refugees with basic workplace skills while also filling an integral role in MM.LaFleur’s business operations.

Bain Capital and BlackRock recently stood up impact investing units. Individual and institutional investors are also mobilizing around the U.N. Sustainable Development. The $2 billion Rise fund, from TPG, attracted investment from William E. McGlashan Jr., Pierre Omidyar, Jeff Skoll, and other billionaires who will invest at least half that in inclusive financial services, housing, and education in emerging markets.

If these models are ramped up, might they mitigate the effects of an uncertain era of public funding for foreign and humanitarian aid? By leveraging their autonomy to fill the leadership void and investing in development solutions, the private sector can build on past decades of global development momentum to help the world’s most vulnerable people thrive.

“America first”

Several policy decisions and public statements by the Trump administration have signaled a drastic shift away from global development priorities. Already, the administration's threats to withdraw support around climate change efforts and its revised travel ban leaves global health, security, and general well-being at risk – putting political symbolism above on-the-ground realities.

This shift threatens to halt decades of global development progress supported and facilitated by foreign assistance. American presidents from both parties have recognized the values of such investment; the President's Emergency Plan for AIDS Relief, Feed the Future, and Young African Leadership Initiative have made strides in areas from food security to good governance.

With an “America first” agenda, humanitarian efforts like these may be shelved altogether, or perhaps replaced with a narrow focus on foreign business opportunities.

It’s hard to imagine even a decade ago that the private sector would be expected to take the lead on global development. But with key governments decidedly stepping back, progress in global health, sustainable livelihoods, universal education, and climate action now requires leadership from the global business community. Pioneers have shown it’s possible. Will others rise to fill the void?

Disclosure

The authors would like to extend a special thanks to Andrew Stern, Thomas Carroll, and Jason Wendle for their advisory support; and McKinley Sherrod and Sara Wallace Beatty from GDI’s communications team for their editorial support.

Photo credit: Benny Jackson

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