The Role of the Private Sector in International Aid and Development

April 19, 2006  |  New York, NY

On April 19, BCLC convened a forum at the UN headquarters in New York to focus on the barriers to and strategies for cultivating business investment in the developing world. 

The forum was prompted by several developments.  First, 2005 was an unprecedented year for corporate philanthropic engagement overseas.  The U.S. private sector was the fifth largest international responder to the southeast Asia tsunami.  What is less well-known is that the response to the Pakistan earthquake was the second-largest international response in history.  Carol Adelman and her team of researchers at the Hudson Institute released a report to coincide with the forum that showed that total international corporate giving overseas reached $4.9 billion.*  So from the private sector side, given the dollars at stake and increasing international exposure and interest, it is becoming increasingly imperative to analyze the international aid field, understand the key players – particularly the role of the UN, and develop mechanisms to enhance the performance of the sector.

From the UN's side, as well as other multilateral organizations, the numbers are equally clear.  Official Overseas Development Assistance (ODA) is dwarfed by foreign direct investment and private allocations of capital – in fact, the rule of thumb is 20% public sector – 80% private sector exposure in a given country.  In recent years, the United Nations Global Compact, United Nations Development Program, United States Agency for International Development, and other multilateral organizations have developed initiatives to reach out to the private sector, and they are interested in improving this process as well.

The U.S. Chamber's Arthur J. Rothkopf and the United Nations Fund for International Partnership's Amir Dossal opened the conference, and Ann Veneman, UNICEF executive director, presented keynote remarks. Veneman announced that if the Millennium Development Goals (MDGs) are met by 2015, approximately 500 million people will escape poverty and 30 million children will live past their fifth birthday who would otherwise perish. 

One of the biggest challenges for companies, governments, and multilateral organizations is catalyzing development in the poorest countries.  Approximately 90% of the world's foreign direct investment is concentrated in 40 countries.  Meanwhile, the other 150 or so, receive approximately 10% of global private sector investment.  Aid capital barely substitutes.  In 2004, Ethiopia, with a population of 70 million, received $1.8 billion dollars in official development assistance and official aid and of that figure the U.S. contributed $433 million, making Ethiopia the eighth largest recipient of U.S. economic assistance.  This provides context for the aid flows that other countries receive – in the abstract, they may seem like large sums of money, but when looked at in the context of individual countries, these are resources that are stretched very thin. Clearly, as can be seen in the case of Ethiopia, aid dollars by themselves, are not able to create a capital base for sustainable market development.

Another problem is posed by government to government assistance.  Bill Easterly, noted in his book The White Man's Burden that the world's twenty-five most corrupt countries received $9.4 billion in foreign aid in 2002.   There is a significant correlation between high risk countries and a lack of foreign investment, and by definition, corruption is high-risk behavior.  Panelists cited lack of accountability and transparency and broken institutional and governmental systems as impediments to effective business involvement in developing countries.

As the discussion continued, it became clear that public-private partnerships need to be analyzed at four different levels: the project level – where it seems there are some successes, the community or regional level, the country level, and the global level.  Business leaders noted that flexibility and adaptability and focusing on unique areas of expertise are keys to success as defined within the partnership projects they have undertaken.  Mary Franco of GE Consumer Finance discussed a project that had led to 300 new start-ups in Central America.  Nancy Nielsen of Pfizer shared lessons learned from the company's experiences in China, and how it had led to knowledge development and transfer.

Additional sessions covered how businesses can best partner with the UN and vice versa.  Representatives from UN agencies and multinational corporations agreed that increased knowledge sharing between partners, an accessible point of contact within the UN system, a paradigm shift from aid to investment, and realistic expectations are needed to strengthen public-private partnerships.

BCLC will host its next Global Engagement event on September 6 in New York, when it will release a report based on the proceedings from the forum.  It will also include a selection of partnership profiles that illustrate the different ways that companies are currently investing in social and economic development in low income countries.  To get involved with BCLC's Global Engagement working group, sign up here.

*On April 18, the Hudson Institute's Center for Global Prosperity unveiled the first "Index on Global Philanthropy."  The report examines the sources and amounts of U.S. private giving to the developing world and is available for download at
http://www.global-prosperity.org/.

Thank you to our sponsors:
Abbott Laboratories, Booz Allen Hamilton, DaimlerChrysler and Merck & Co., Inc.