Aid Effectiveness

Policy Brief
Summary: Economic growth,
favorable demographic trends,
and lower costs have driven com-
panies to invest in the developing
world. Although some firms have
made advances in formulating
core-business-aligned strategies
for tackling the development
challenges that these countries
often face, there is a lack of widely
agreed and disseminated best
practices for business in support
of development and efforts to date
have mostly occurred in isolation.
Based on a symposium convened
in Chicago on May 15-16, 2008
and organized by GMF, the
Chicago Council on Global Affairs,
the Initiative for Global Develop-
ment, and Business Action for
Africa, this policy brief seeks to
inform the wider business and
development communities about
the challenges and opportunities
of pursuing long-term development
objectives in business strategies. It
aims to contribute to greater knowl-
edge in this field through a robust
transatlantic dialogue.
Development as a Strategy: A U.S.-European
Business Dialogue
How can companies best contribute to tackling today’s challenges,
including world poverty? How are companies effectively engaging poor
people in the “bottom four billion” as consumers and producers? What
are the mechanisms for deepening partnerships between the private and
public sectors and mainstreaming development into business strategies?
by Zahid Torres-Rahman, Director, Business Action for Africa and
Jonathan White, Program Officer, The German Marshall Fund
of the United States1
New challenges, new strategies
The markets of the future are in the
developing world. The smartest foreign
investors have already recognized the huge
investment and supply chain opportuni-
ties that these markets represent. They
realize prospects for business growth rest
upon their willingness to move beyond the
mature markets to which they have become
accustomed.
Yet developing markets are often
marked by weak governance, challenging
investment climates, and impoverished
populations. These present risks that
must be managed by corporations if they
are to successfully operate in markets with
significant upside potential. The result is
that issues—such as poverty and climate
change—that have traditionally been the
domain of governments, donor agencies,
and civil society organizations, are now
boardroom issues for business. Yet, there
are currently few broadly accepted
practices or systematic approaches for
business on either side of the Atlantic in
addressing these challenges.
At the same time, there has been a
surge in expectations—among current
and prospective employees, investors,
governments, and the general public—
around what business can and should
be doing to tackle today’s international
development challenges. The evidence
suggests that the international commu-
nity is significantly off-track in meeting
the internationally-agreed UN Millen-
nium Development Goals (MDGs),2 which
include halving world poverty by 2015.
The current food crisis has likely further

1744 R Street NW 1
On May 15 and 16, 2008, the German Marshall Fund of the United States (GMF), the Chicago Council on Global Affairs, the Initiative
for Global Development (IGD), and Business Action for Africa (BAA) hosted 30 U.S. and European senior business representatives
Washington, DC 20009 and policymakers in Chicago, IL to share perspectives on the contribution of business to international development. GMF Senior Trans-
T 1 202 745 3950 atlantic Fellow and former U.S. Congressman, Jim Kolbe, chaired the event, alongside Sally Jewell, president and CEO of Recreational
F 1 202 265 1662 Equipment, Inc., and chair of IGD; and Andrew Bone, head of international relations for the De Beers Group and board member of BAA.
This report summarizes the key themes that emerged from the discussion.
E info@gmfus.org 2
www.undp.org/mdg
Aid Effectiveness
Policy Brief
undermined progress on the MDGs, revealing policymakers’
long-standing neglect of productivity-enhancing investments in
agriculture in the poorest countries. The private sector can play a
positive role in helping reverse this trend.
As a result there is renewed interest in the role that business
can play, as part of a broader restatement of the importance of
economic growth, trade, enterprise, and employment in lifting
people out of poverty. The recent “Business Call to Action,”3
driven by the United Nations and the United Kingdom, seeks to
galvanize the expertise and efforts of the business community in
support of the MDGs, and reflects a growing recognition in the
United States and Europe that business is part of the solution,
not part of the problem. Encouraging greater levels of foreign
and domestic investment and a vibrant private sector offers
the most sustainable route out of poverty. No social program
can rival the business sector when it comes to job creation and
growth.4
Eight years ago, there was a move within the United States Agency
for International Development (USAID) to find new ways to
engage business. USAID recognized the dramatic shift in the
composition of financial flows: while in the 1960s around 70
percent of U.S. resource flows to the developing world came from
the government, now less than 20 percent do. Today, over 80
percent are private flows—including foreign direct investment
(FDI) and remittances. U.S. business engagement is also seen by
many as offering opportunities for leveraging soft power in
support of national and international security objectives.
What can business offer the poor? FDI to developing countries
reached a record level $536 billion in 2007—a 20 percent increase
from 2006. Driven by the global commodity boom, growth
opportunities, privatization, and other market access reforms, these
investments have led to increased trade, job creation, and industrial
development. With the tapering-off of high debt relief, total foreign
assistance declined by 8.4 percent hitting $103.7 billion in 2007 and
remains well below the vast sums poured into developing markets
by global companies. In addition to far outweighing aid flows,
these corporate investments bring international business practices,
technical expertise, and knowledge that can spillover into the local
economy. Recognizing the important role they can play in devel-
opment, companies are providing training, access to finance, and
other capacity building programs that connect local enterprises
with the global economy, supporting local health and education
3
www.business-call-to-action.com
4
Michael Porter and Mark Kramer, “Strategy and Society: The Link between Competition Advantage
and Corporate Social Responsibility,” Harvard Business Review, December 2006.
systems and partnering with others in the process. Such efforts can
be aligned with long-term business strategies, and also beneficial
to the societies in which companies operate. Aid flows into health,
education, and physical infrastructure can complement FDI and
have a catalytic effect, enhancing the overall business climate.
“We are very interdependent; the more we
can understand these interdependencies,
the more we can relate to what is happening
in the world and learn how to cope with
problems. All companies are affected by
the cost of energy, rising commodity prices
—what are the political consequences of
these crises?”
- Jim Kolbe, Senior Transatlantic Fellow, The
German Marshall Fund of the United States; former
U.S. Congressman
Different corporations have varying perspectives on how to
approach and prioritize development objectives. Views vary fur-
ther when U.S. and European firms are compared, taking
into consideration proximity, colonial history, and cultural dif-
ferences. Yet, there is a new consensus emerging among forward-
thinking companies on both sides of the Atlantic: businesses need
to engage in thinking about development, for their own benefit,
but also if today’s complex challenges are to be successfully tack-
led. Climate change, water scarcity, food insecurity, and environ-
mental degradation are challenges that threaten our mutual pros-
perity and security and the developing world is acutely vulnerable
to them. Business leaders increasingly recognize that their future
success is indelibly linked to how they adapt and address the issues
reshaping the global business landscape.
Beyond philanthropy
Philanthropy represents one significant way in which businesses
2
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Policy Brief
can contribute. The top 50 corporate foundations are giving
as much as the entire UN Development Programme (UNDP).
Experience suggests that philanthropy can be particularly
effective when competency-led—reflecting the donor company’s
own specific skill set and business focus. Companies are
aligning cash donations and capacity building more closely to
their business focus, including through corporate volunteer and
exchange programs and leadership training.
At the same time, there is a growing recognition in Europe, and
now increasingly in the United States, that the most powerful
contribution that a business can make is through its core business:
through its products and services, and the opportunities it creates
for employees, suppliers, distributors, and the communities where it
does business. Recent studies have demonstrated the strong, positive
direct and indirect employment benefits that larger companies can
have through their value chains. An INSEAD study of Unilever’s
economic footprint in South Africa found that for every job at
Unilever, another 22 workers depended upon the company for some
part of their livelihood—equivalent to around 100,000 people.5
Moving beyond philanthropic, and often PR-driven, corporate
social responsibility is seen as a more sustainable and effective
strategy for tackling development challenges. Philanthropic
donations can change unpredictably, making it hard for donors
and civil society organizations to develop long-term programs.
In some cases, hybrid funding models have proven effective, with
up-front philanthropic support, in the form of cash, skills or
access to intellectual property, kick-starting a business model.
Business models for engaging with poor people as consumers
and producers vary from industry to industry, but there are
some emerging lessons: know and stick to core competencies;
understand local needs and barriers and work to address these;
engage with local stakeholders; and take a long-term view.
There has been a recent wave of innovation—from harnessing
micro-entrepreneurs in distribution chains to engaging local
small and medium-sized enterprises (SMEs) through franchising
arrangements, access to capital, and capacity-building.
The power of partnership
In the face of the complexity and scale of international develop-
5
Ethan B. Kapstein, Measuring Unilever’s Economic Footprint: The Case of South Africa, 2008.
ment challenges, governments and businesses are recognizing
the importance of partnership. Governments are forming part-
nerships with businesses, and businesses are forming partner-
ships with each other to address issues as diverse as conflict
diamonds (Kimberley Process6), water sustainability (Watershed
Partners Program7 between USAID and The Coca-Cola Com-
pany), farmer productivity (Starbucks Alliance8 between USAID
and Starbucks), access to medicines (Medicines Transparency
Alliance9), and transparency in the construction sector (Con-
struction Sector Transparency Alliance10).
While businesses and governments work in different ways, they
often are seeking the same outcomes with regards to develop-
ment. Partnerships can be powerful in leveling the playing field
and tackling industry-wide issues such as corruption, increasing
the legitimacy of each individual actor in tackling the issue, and
leveraging impact by taking initiatives to scale. Partnerships with
local governments, nongovernmental organizations (NGOs), and
civil society can help add credibility, accountability, and alignment
with local needs to ensure the long-term sustainability of develop-
ment efforts.
“Businesses can accomplish a lot by
focusing on their supply chains.”
- Richard Morgan, Communications Director for Africa,
Middle East, and Turkey, Unilever plc
Yet it is complicated to make partnerships work on the ground.
There is caution about private sector innovation within some
elements of the government and civil society, and a concern that
governments should not subsidize the private sector to invest in
areas that it would have invested in anyway. Competition
between businesses can also be a real barrier to forming partner-
ships. Case in point, the cocoa industry, where there are clear
industry-wide wins such as strengthening the capacity and
productivity of poor farmers.
Critical to the success of partnerships is a clear understanding of
what each partner’s interests and core competencies are, along
6
www.kimberleyprocess.com
7
www.usaid.gov/our_work/global_partnerships/gda/resources/coca-cola_watersheds.pdf
8
www.usaid.gov/our_work/global_partnerships/gda/resources/starbucks.pdf
9
www.medicinestransparency.org
10
www.constructiontransparency.org
3
Aid Effectiveness
Policy Brief
with an open, trust-based relationship. The private sector can
provide much expertise in areas such as supply chain manage-
ment, business planning, marketing, exporting, and other
business practices.
Measuring impact for greater effectiveness
There is a strong view that businesses need to move beyond
anecdotes and case studies and do a better job of measuring
the development impact of their core business operations.
By doing so companies get credit for the development impact
of their operations and can share this information with employ-
ees, shareholders, and other stakeholders. Businesses need to
develop a few vital measurements—as many as are needed, but
as few as possible. The World Business Council for Sustainable
Development has recently led the creation of a framework for
facilitating impact measurement.11
As important as conducting these impact assessments is the
commitment of companies to learn from them, with the
leadership required for taking the company in a new direction
if necessary. Continued evaluation and verification reinforces
the culture of change and helps move a company in the
direction of effective promotion of sustainable development.
Measurement is not just about numbers, but effective decision-
making too.
Central to the learning process is the development of reposito-
ries of experience and information—including examples of what
works, but also of what does not. Businesses should also share
“worst practices” so that they do not duplicate others’ mistakes.
Challenges remain though. There is a lot of passive resistance
to measurement among corporations and reluctance to expose
their blind spots to public scrutiny and peer review. There is
already so much mandatory oversight and compliance that
companies are adverse to engage in additional voluntary evalu-
ations. There are different types of quantifiable data, but some
impacts are qualitative and more difficult to measure. There is
also tension over how much to disclose. Keeping information
out of the public domain could play into the hands of activists:
a bold, transparent and honest approach is needed. There is
also debate over who should define what the common measures
are. Different companies have different measurement tools, and
NGOs might have entirely different standards. There will be
different measurements in different sectors and industries, but
11
www.wbcsd.org/web/measuringimpact.htm
to the extent that it is possible, it would be beneficial to have
common standards for measuring similar impacts.
Engaging in policy dialogue
There is an emerging recognition within both the business and
the development communities of the important and positive role
that business can play in the policy space: engaging in
national strategies for generating economic growth; helping
foster an enabling environment for business and trade at the local,
regional, and national levels; and acting collectively to promote
good governance and tackle corruption.
“Business cannot thrive alone—business,
government, and civil society all have to
work together. Governments cannot create
wealth. But they can work with business to
create a place for wealth creation to thrive.”
- Andrew Bone, Head of International Relations,
De Beers Group
Given its understanding of Africa’s diversity, business offers a
valuable perspective on how countries in that region can unlock
their potential for growth and unlock the entrepreneurial energy
of the continent—as measured by indicators such as the World
Bank’s Doing Business Report, which measures the ease of doing
business on an annual basis.12 Getting behind strong reform-
ers can send important signals to other investors and to other
countries. Donors often have influence over developing country
policy, more so than any individual company, yet companies have
in-depth knowledge of the barriers to growth and can contribute
to a policy dialogue as well.
Business can also play an important role in promoting
international trade—often more important than aid in generating
growth and development. This should include advocating for a
better alignment of OECD trade and development policies, and a
dismantling of trade barriers and distortive agriculture subsidies ad-
versely impacting the poorest countries. The United States has the
highest effective trade barriers against the lowest income countries,
12
www.doingbusiness.org
4
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Policy Brief
“Business has a responsibility to contribute
to social and government policy to support
growth and equality. Every low-income
country should have a growth strategy, and
it should be informed by business. How do
you put that in place? Most countries have
business councils, but they are not always
and everywhere injected with the dynamism
that they need.”
- William Kingsmill, Director (Acting), Policy and Research
Division, Department for International Development, U.K.
such as Bangladesh and Cambodia. It collects more in tariffs than it
gives in aid to a whole range of countries; it collects more in tariffs
from Vietnam and Bangladesh than from the United Kingdom and
France. U.S. and European policies have made agriculture one of the
world’s most distorted sectors in the international trading system,
despite the fact that incomes of most poor people in developing
countries are linked to farming. The current food crisis further re-
veals the critical need for long-term agriculture investments in these
countries and a serious rethinking of the negative impact of U.S.
and European trade and agriculture policies on the developing
world through the prism of our national security. Despite the recent
collapse of the WTO Doha Development Round negotiations, both
companies and the poor would benefit from new disciplines and
the strengthening of a rules-based, open trading system.
There are also numerous barriers to trade within developing
countries—from weak infrastructure to inefficient customs
administration—which can be at least as damaging as interna-
tional trade restrictions. Businesses can play an important role
in advocating for the appropriate policies at the national and
regional levels that foster conditions that enable entrepreneurs to
invest and take risks, and help the private sector thrive by linking
them to the global economy.
Corruption is another international issue inhibiting economic
growth, but it is particularly problematic in low income
countries where the institutions responsible for fighting
corruption are weak. It takes two to be corrupt, and there is
clearly an obligation on the corporation to avoid corruption.
Initiatives that enhance transparency on both sides offer
promising ways to address the issue. For instance, the Extractive
Industries Transparency Initiative (EITI)13 sets a global standard
for companies in the extractives sector to publish what they pay
and for governments to disclose what they receive.
Getting civil society organizations involved is a good way to
hold both sides accountable. Donor agencies also need to
engage as they are likely to have significantly more leverage than
an individual company in preventing corruption. Deepening
partnerships across business, donors, and NGOs, as mentioned
above, in support of policy engagement can help to overcome
this collective action problem. As U.S. and European firms
engage in development policy discussions, there are a number of
emerging lessons.
First, by working collectively, they can be more effective in
tackling complex issues. Second, business can play an important
role in building the understanding of development issues, and
the rationale for business engagement, among the general public.
Corporations need to get better at highlighting domestically their
contribution to international development, as well as the success
of programs such as the U.S. Millennium Challenge Corporation,14
which focuses on private sector development and infrastructure.
Developing effective messages among employees, investors, and
the broader business community is an important starting point.
Getting a broader consensus on the importance of trade is
particularly important: when people hear “development” they are
supportive, but in the context of “globalization” they are fearful of
the economic implications. Business can make a powerful
contribution to building a constituency for the policy changes
needed to advance poverty reduction in the world’s poorest
countries.
Lastly, there is a need for establishing more formal and strategic
approaches to development by business. Many businesses on
both sides of the Atlantic are keen on more fully understanding
their impact on societies—not just recording anecdotes—and
embedding development perspectives into their operations as
well as long-term strategic planning. The isolated nature of
most current development efforts undertaken by multinational
13
www.eitransparency.org
14
www.mcc.gov
5
Aid Effectiveness
Policy Brief
corporations and the lack of widely agreed and disseminated
best practices makes a dialogue among American and European
business leaders particularly relevant. An on-going transatlantic
discussion among companies, donors, and NGOs will help to
foster better practices, forge innovative collaborations, and help
generate private sector opportunities for all.
Summary
Based on a series of breakout sessions and panel discussions in
Chicago, a number of policy recommendations were developed
to support better practice in development for business:
 Embed development practices across the entire
organization, through strong corporate leadership
engagement.
 Align development-focused activities with core business
strategy to ensure long-term sustainability and maximum
impact.
 Proactively engage and partner with local stakeholders
including government, business, NGOs, and civil society to
support legitimacy and leverage efforts.
 Make an investment in and adopt practices for measuring results
and foster learning from failures and a culture of change.
 Invest in the “policy space” necessary to hold governments—
at home and abroad—accountable for trade, development,
and other policies impacting the poor.
Organized by the German Marshall Fund of the United States, the Chicago
Council on Global Affairs, the Initiative for Global Development, and
Business Action for Africa, the symposium convened American and
European companies along with donors and development experts in Chicago
on May 15-16, 2008. Participating organizations and businesses included:
Baxter International, Cummins Inc., Caterpillar, Inc., De Beers Group,
CSR Initiative at Harvard University’s Kennedy School of Government,
Hills & Company, International Business Leaders Forum, Miller
Brewing Company, Monsanto, Pfizer, Recreational Equipment Inc. (REI),
SABMiller, Symetra Financial, TechnoServe, Underwriters Laboratories,
Inc., Unilever, U.K. Department for International Development, the Office
of the U.S. Trade Representative, the U.S. Department of State, and the
World Business Council for Sustainable Development.
About the Organizers
The German Marshall Fund of the United States (GMF) is a
nonpartisan American public policy and grantmaking institution
dedicated to promoting greater cooperation and understanding
between North America and Europe. GMF does this by supporting
individuals and institutions working on transatlantic issues, by
convening leaders to discuss the most pressing transatlantic themes,
and by examining ways in which transatlantic cooperation can
address a variety of global policy challenges. In addition to its head-
quarters in Washington, DC, GMF has seven offices in Europe: Berlin,
Bratislava, Paris, Brussels, Belgrade, Ankara, and Bucharest.
www.gmfus.org
The Chicago Council on Global Affairs is a leading independent, non-
partisan organization committed to influencing the discourse on global
issues through contributions to opinion and policy formation, leadership
dialogue, and public learning. The Chicago Council brings the world to
Chicago by hosting public programs and private events featuring world
leaders and experts with diverse views on a wide range of global topics.
www.thechicagocouncil.org
The Initiative for Global Development (IGD) is a national alliance of busi-
ness leaders across the United States that champions effective solutions to
global poverty. It has grown to a national network of more than 300 part-
ners in 11 cities. IGD works to promote poverty reduction by advocating
for effective U.S. policies and advancing innovative private sector solutions
that expand opportunities for people living in poor countries.
www.igdleaders.org
Business Action for Africa (BAA) is an international network of over 200
businesses, business organizations and development partners, working
collectively to accelerate growth and poverty reduction in Africa. BAA
catalyses business-led collective action in three areas: Advocacy on the
international and national policies needed to drive development in
Africa; joint projects on the ground across the region; and sharing and
showcasing good business practice.
www.businessactionforafrica.org