Transformational Business Network

1. Transformational Business Network 15th November 2008

3. Summary • Challenge of extreme poverty still enormous • Issues and challenges shaping fight against extreme poverty • The challenge of environmental sustainability (Climate change, water, resource wars, disasters, food security, energy) • The challenge of economic slowdown (and credit crunch) • Revisiting the goal of poverty reduction • The growing role of economic enterprise • The improving role of the state and aid effectiveness • The re-discovered role of empowered civil society • Accountability in a complex system • Some issues for those seeking to harness the potential of economic enterprise to tackle poverty

4. The proportion of people in sub-Saharan Africa living on less than $1 per day is unlikely to be reduced by the target of one-half; About one quarter of all children in developing countries are considered to be underweight and are at risk of having a future blighted by the long term effects of under-nourishment; Of the 113 countries that failed to achieve gender parity in both primary and secondary school enrolment by the target date of 2005, only 18 are likely to achieve the goal by 2015; Almost two thirds of employed women in the developing world are in vulnerable jobs as own-account or unpaid family workers; In one third of developing countries, women account for less than 10 per cent of parliamentarians; More than 500,000 prospective mothers in developing countries die annually in childbirth or of complications from pregnancy; Some 2.5 billion people, almost half the developing world’s population, live without improved sanitation; More than one third of the growing urban population in developing countries live in slum conditions; Carbon dioxide emissions have continued to increase, despite the international timetable for addressing the problem; Developed countries’ foreign aid expenditures declined for the second consecutive year in 2007 and risk falling short of the commitments made in 2005; International trade negotiations are years behind schedule and any outcome seems likely to fall far short of the initial high hopes for a development-oriented outcome. Across sub-Saharan Africa as a whole all MDGs are off-track Many MDGs likely to be missed

5. Paul Colliers ‘bottom billion’ • Almost a billion people – 70 per cent of whom live in sub-Saharan Africa – are in economically stagnant or declining countries. In all, 58 countries are in this desperate condition. • Collier remarks: “An impoverished ghetto of 1bn people will be increasingly impossible for a comfortable world to tolerate.” • Average life expectancy for the bottom billion is just 50 years • Around one in seven children dies before the age of 5. • Four traps: • 73% of people in the bottom billion have been through civil war • 29 % are in countries dominated by the malign politics of natural resources • 30 % are in landlocked, resource-poor countries with bad neighbours • 76% are in countries that have suffered long periods of bad governance and poor economic policies

6. Recap - causes of poverty according to Sachs, Easterly, Collier • Protectionism • Corrupt governance, leadership • Incompetent, weak public institutions • No property rights, no rule of law • Local, regional conflict and civil wars • Abundant natural resources Poor governance • Landlocked countries, geographic barriers, no natural infrastructure • Diseases, notably HIV and virulent malaria Natural challenges • Gender inequality • Ethnic and racial inequality • Cultural and historical heritage Cultural issues International failures

8. Challenge of environmental sustainability Environmental issues are undermining efforts to tackle poverty • Hits the poorest hardest • Erratic rainfall patterns, extreme weather events, crop yields in tropics may fall by 30% by 2050 • Political implications, mass migration, 20m environmental refugees Human induced climate change • 505 million living with severe water shortage; rise to 2.4 billion+ by 2025 Water scarcity • Deaths resulting from flooding and cyclones are humankind’s worst natural disasters (2/3 of all deaths) • Droughts every 2-3 years in many parts of Africa; by 2050 12% of land subject to extreme drought Natural disasters • Majority of conflicts rooted in competition for scarce natural resources: oil & gas, diamonds, copper, lead, land, water. 420 million people have insufficient cropland • E.g. Darfur: conflict over land & water, increasing population, deteriorating land productivity Resource wars • Peak oil; dependency on imported oil • Deforestation & growing scarcity of firewood • Need for microscale and renewables Energy • 850m people live in severe food insecurity; similar number chronically malnourished • Causes: Climate impacting yields; biofuels; growing demand from Asia; restrictions on trade; oil price increase Food security

9. Challenge of economic slowdown Poorest countries will be hit hard by the financial & economic crisis • Food and energy price rises (still very high compared to few years ago) • High vulnerability - no savings and social safety nets Life is already tough • 30% decline in flows of private capital to emerging market expected (IIF) • Stock markets in developing countries falling further than developed • Access to credit even tougher in emerging markets Outflow of investment • Italy has already cut ODI by 50%; France is likely to do much the same • Many developing counties are hugely reliant on trade (Vietnam 73% of GDP) • Knock on impact on demand for commodities from Latin America and Africa Impact on FDI and trade • In 2007, remittances were $250bn, twice the figure for ODI • Recorded declines in 2008 vs. 2007 are already as high as 20% Collapse of remittances • Very few resources in developing countries to cope with external shocks • Cuts in public spending • Disproportionate impact on women Weak safety-nets • As economic growth slows, civil unrest increases, and domestic pressure on governments increases Political instability • Impact on poorest countries (notably sub-Saharan Africa) is probably less, since they are less integrated into world trade/financial system • Reform of IFIs may benefit poorest countries However…

10. Many other challenges we could focus on… • Fair trade • Trade & environment clash • International institutional reform • MDGs – implications of success or failure • Changing international power balance (rise of China, India, …) • Population growth • Urbanisation • Gender • HIV and AIDS • Risk and vulnerability • …

12. Economic needs are focus Much of debate is still driven by the premise that economic growth is the objective and key to tackling poverty No doubt economic needs are vital Means or ends? Pre-conditions? (educated & healthy people, stable macro-economic environment, property rights, …) Externalities and unintended side-effects, trading-off other human needs? (social, environmental costs) Economic needs Physical needs Relational needs + Relational + Social + Emotional + Spiritual The ultimate goal is not a narrow economic one Wellbeing debate Sustainability is also key Revisiting the goal of poverty reduction Is goal economic growth? Or something broader? Escape absolute material poverty Build strong relationships and self-worth

13. Five principles of sustainable development (HM Govt. 2005, Securing the Future) Living Within Environmental Limits Respecting the limits of the planet’s environment, resources and biodiversity – to improve our environment and ensure that the natural resources needed for life are unimpaired and remain so for future generations. Ensuring a Strong, Healthy and Just Society Meeting the diverse needs of all people in existing and future communities, promoting personal wellbeing, social cohesion and inclusion, and creating equal opportunity for all. Goals Achieving a Sustainable Economy Building a strong, stable and sustainable economy which provides prosperity and opportunities for all, and in which environmental and social costs fall on those who impose them (polluter pays), and efficient resource use is incentivised. Promoting Good Governance Actively promoting effective, participative systems of governance in all levels of society – engaging people’s creativity, energy, and diversity. Using Sound Science Responsibly Ensuring policy is developed and implemented on the basis of strong scientific evidence, whilst taking into account scientific uncertainty (through the precautionary principle) as well as public attitudes and values. Means

14. Three primary sectors in the development equation need each other Met needs Met needs Economic Enterprise Enabling State E P R E P R Met needs Empowered Civil Society Economic Physical Relational (inc. social, emotional, spiritual E P R

17. Growing role of economic enterprise Reflections • Critical to harness the power of market forces to serve the poor (evidence of China, India, etc) • Economic growth can only be driven by economic enterprise, entrepreneurs, capital, etc • Increasing interest from development community: • Affirming critical role of economic enterprise; • Enabling communities to engage in markets on favourable and sustainable terms; • Advocating for fairer economic policies at national and international level • CSR, remodelling supply chains, philanthropy • Challenges for economic growth • Pre-conditions need to be met • Inequality – making sure that wealth trickles down • Green growth • Critical dependencies: • State brings: stable macro-economic environment; legal & regulatory system; security; access to international markets; resolution of market failures; public infrastructure • Civil society brings: people (whose physical and relational needs are met); means to hold economic enterprise to account on social and environmental externalities; distribution; peer pressure; consumer voice Economic Enterprise Primary human need met: • Economic Including: • Income, wealth creation • Employment • Scientific, economic advances • Consumer goods Problems if given free reign • Exploitation of people, natural resources, commons • Externalities • Abuse of economic power

19. Improving role of enabling state 1/2 Reflections • Aid flows have largely been channelled to the state, and have focused on meeting physical needs • Many success stories: anti-malarial bed-nets, ARVs, mass-immunisation, infant mortality, river-blindness, leprosy, anti-diarrhoea, average life expectancy, primary education enrolment, etc. • However aid effectiveness in meeting economic needs is poor • Empirical evidence suggests that aid has little effect on economic growth – not surprisingly • Aid can undermine economic enterprise through: breeding corruption; ex-rate effect makes exports uncompetitive Enabling State Primary human need met: • Physical (inc. health and education Including: • Justice, security, property rights, regulatory framework • Healthcare and education • Safety-net, wealth redistribution • Freedom of religion, expression • Public infrastructure Problems if given free reign • Corruption • Inefficiency, incompetence

20. Improving role of enabling state 2/2 Reflections • Consensus that systems for delivering aid must improve, in meeting physical needs, and in not undermining enterprise in meeting economic needs • Use market based mechanisms whenever possible • Ensure aid flows to front-line - greater use of NGOs • Focus/link direct ODA on state-building that engages, build front-line civil society (e.g. property rights, local church/community mobilisation), key governance institutions (e.g. office of statistics, judiciary, independent media) • Develop internationally accepted charters, laws, statutues • Bring in voice of front-line civil society into equation, shaping agenda, provision, giving feedback • Introduce more external validation of effectiveness across sector • Measure outcomes, however tough this is • Critical dependencies: • Economic enterprise brings: tax revenues • Civil society brings: people (whose physical and relational needs are met) to work in state sector and to build community capacity to provide services; voice for accountability on social, economic, political and environmental performance; voice on needs; tax revenue Enabling State Primary human need met: • Physical (inc. health and education Including: • Justice, security, property rights, regulatory framework • Healthcare and education • Safety-net, wealth redistribution • Freedom of religion, expression • Public infrastructure Problems if given free reign • Corruption • Inefficiency, incompetence

22. Re-discovered role of empowered civil society Reflections • Empowered Civil Society includes local faith groups, local communities, NGOs (inc. independent media) • Beyond NGOs, this sector is largely forgotten and ignored in development thinking; even NGOs do so • Ignoring this sector implies we: • Fail to tackle relational needs in a sustainable or effective way, with all huge implications for human/social capital • Ignore the enormous potential of community level capacity in: distribution and market access; service provision; peer pressure; and the potential for sustainability this brings • Settle for few checks on power of state or economic enterprise • Fail to give voice and listen to the front-line in shaping service provision, advocating for rights and injustice • In much of the majority world, especially in the poorest areas, the only form of organised front-line civil society is local churches and other local faith groups • Critical dependencies: • The state brings: security, service provision, property rights, rule of law • Economic enterprise brings: employment & income; consumer goods Empowered Civil Society Primary human need met: • Social, emotional, relational, spiritual Including: • Love, mutual support, encouragement, acceptance • Relationships • Voice for justice • Volunteering • Service provision • Source of meaning, purpose, hope • Ethical, moral framework

23. Situation The ‘beneficiary’ (not the donor) is the customer – their voice, needs, perspectives must take priority The development ‘system’ is highly complex and dynamic with many different actors – donors cannot dictate that their input will result in a specified outcome The institutional use of ‘log-frames’ conflicts with community empowerment approaches Implications Beneficiary accountability (vs. donor accountability) inverts approaches to accountability Revisiting use of ‘log-frames’, with moves to ‘outcomes mapping’ (focus on change behaviours, relationships, actions of those programme works directly with) Increasing focus on outcomes (vs. inputs and outputs) without attributing success to ourselves as funding agency or donor Move away from controlling hierarchical approaches to greater organisational risk taking, agility and learning Rethinking accountability in a complex system

25. Issues for those seeking to harness economic enterprise to alleviate poverty • Social venture capital holds out great promise. Yet the volume of such capital remains small. What would it take to attract capital and find SME investment opportunities for $billions as opposed to $millions? What are the blockades? • Is it realistic to invest in sub-Saharan Africa at this stage (vs. Asia), given so many of the pre-conditions for effective economic enterprise are arguably not in place? • What more can be done by protagonists of economic enterprise to reduce the country risk of investing in many sub-Saharan countries? • Given the critical need for efforts across all three sectors to work in partnership, what more can protagonists of economic enterprise do to build the capacity of the enabling state, and leverage the potential of empowered civil society? • In what way is an economic enterprise truly transformational? As opposed to delivering a narrow economic return? And as distinct from a well run business? Is this measurable? Or is it about maintaining defined environmental and social standards? Does simply offering employment constitute an adequate social return? • In order to pursue a true triple bottom line (which most likely involves accepting a lower financial return) is it a necessary condition the the provider of capital maintains a close relationship with the enterprise as opposed to a transactional relationship (as in a stock market). Will this always restrict the available capital for transformational business? • What more should big business be doing to go beyond a narrow PR driven CSR agenda, and corporate philanthropy, to enable transformation wherever its supply chain touches the lives of people in poverty? • What does green economic growth look like in the majority world? • What role does faith play in transformational business?