Widespread poverty reduction can be achieved only by improving access for the world’s most impoverished people to the goods and services they need, as well as by creating employment opportunities. Business investment in developing countries can drastically improve livelihoods by establishing infrastructure, delivering access to basic necessities and generating local economic development.
However, such corporate investments are often challenging and frequently perceived as high risk, causing interested companies to place promising opportunities on the ‘too complicated’ pile. UNDP’s Growing Sustainable Business (GSB) initiative was developed to help to reduce the risk for companies and make such investments worth their while.
Inspired by the 2002 Global Compact policy dialogue on ‘business and sustainable development’, UNDP developed the GSB to facilitate business-led enterprise solutions to poverty in order to help achieve the Millennium Development Goals (MDGs). It is designed to assist companies throughout a potential investment cycle, from identifying opportunities and developing business models to financing and implementation. In each of these steps, challenges and risks arise. For instance, a company may lack the resources to actively unearth local business opportunities or the market intelligence to inform the business model; or it may face obstacles in establishing partnerships with local stakeholders or in financing a venture in commercially untried terrain.
How can GSB help?
In the face of such challenges, GSB helps companies identify and develop investment opportunities; ‘bridge access to finance’, ie identify sources of finance and broker access to it so as to make the business case viable – for example where the commercial returns are uncertain yet the development case is clear, targeted public finance can be important to share costs during the feasibility assessment phase as well as to support certain elements of implementation (eg to pay for specific activities carried out by an NGO or technical experts); broker partnerships; and resolve political barriers to successful implementation. At the core of the programme are full-time GSB ‘brokers’ in each country, drawn largely from the ranks of the private sector, who help solve problems and keep things moving forward, as well as a national steering committee where information can be shared, issues raised and solutions found.
The main goals of GSB are to create pro-poor investments – ie to increase the access of poor people to the goods and services they need – and to build or strengthen small and medium enterprises (SMEs) in developing countries by ensuring that they participate in the value chains of global companies, for example by sourcing inputs for their products.
Other important results of these initiatives are increased employment and mitigation of key disparities in economic development (eg rural vs urban). Importantly, GSB investments must be relevant to local contexts, they must not distort the market, and they must respect the Global Compact principles. What is crucial, and what is worth stressing, is that GSB is not simply a business brokerage. It does not just make it easier for companies to invest where otherwise they would fear to tread. It will become involved only where the business initiative in question will lead to development as well as commercial value. Aligning private investment with national priorities for achieving the MDGs is also a key part of GSB’s mission.
Ericsson in Tanzania
Ericsson has initiated an innovative business model that will reduce the required monthly average revenue per cellphone user from approximately US$20 to below US$5 per month, thus making their core business product affordable and relevant to rural Tanzanians – and indeed to poor people throughout the world. This investment project is being developed with technical input from local partners, including companies, governments and entrepreneurs. Financial support for research into the needs of rural Tanzanians came from UNDP, SIDA and Ericsson. The development partners were critical in further refining an innovative ‘shared use’ model, to bring costs down even further to ensure accessibility by the poor.
e7 Fund in Madagascar
e7 Fund has a US$19 million rural electrification project under way in Madagascar. New technology and a new business model allow for the delivery of electricity at 60 per cent lower cost than current government delivery, and in a cleaner manner that also taps into slower moving rivers. The model has been developed in partnership with the intended beneficiaries – namely, CAPE, the SME association representing local vanilla and other agricultural producers, local communities and municipalities – and the relevant government ministry. NGO involvement has ensured that environmental issues are addressed. GSB support also involves bridging access to finance – particularly important given that the investment is financed by a combination of resources from private sources and public concessionary finance.
GSB in action
GSB began operations in Ethiopia, Tanzania and Madagascar approximately two years ago, beginning work in Kenya and Zambia in early 2005. The programme will be expanded to include El Salvador and potentially Malawi, Egypt, Turkey, Kyrgyzstan, Serbia and beyond. Across the current five countries, investment projects being pursued include:
- Rural telecommunications (Ericsson)
- Rural electrification (e7 Fund and EDF)
- Value chain development for milk production (Tetra Pak) and for Allanblackia Oil (Unilever)
- SME co-financing (Société Générale)
- Wind Energy Centre (Mad’Eole) and biomass energy (Holcim/Tanga Cement)
Companies in the GSB portfolio are leading the way in making good their obligations under the Global Compact and contributing to the MDGs. At the same time, they are ‘first movers’ in tapping new business opportunities and expanding markets for their business.
The GSB Delivery Mechanism
To meet the programme’s objectives, a GSB Delivery Mechanism is established in selected developing countries, where stakeholders agree that there is a need for such a programme and where the UNDP Country Office is committed to supporting it. The GSB Delivery Mechanism consists of three components: a full-time GSB broker who acts as convenor, problem-solver and intermediary for various stakeholders in the sustainable business investment projects; a research arm that can provide co-funding for socio-economic and feasibility studies; and a technical assistance arm which helps build the capacity of relevant local stakeholders in the implementation of a given GSB investment.
Equally important, GSB engages key local stakeholders (government, civil society, local and foreign private sector, donors, IFIs) through a national launch, a national steering committee chaired by the UN Resident Representative, and working groups that ensure investments are thoughtful, well grounded and relevant to local needs and priorities. As such, the GSB investment projects are part of a transparent and open process.
This Delivery Mechanism has proved to be flexible and able to facilitate a large number of investments ranging from rural telecommunications to agriculture supply chains to provision of finance for SMEs. It is equally flexible in terms of investment size, with the current portfolio supporting investments ranging from US$ 200,000 to US$20 million.
UNDP is the ideal platform for the GSB. Over the last few years, UNDP has become experienced in engaging the private sector to help advance the MDGs, and has concluded more than 30 partnerships with companies. We are increasingly finding that sustainable social impact is greatest when there is an overlap between commercial and development interests. The GSB programme captures this spirit by engaging the private sector in innovative partnerships, often around new business models.
The GSB welcomes more companies – large or small, foreign or domestic – to join us!
Will Day is Special Adviser to the Administrator at UNDP. He represents UNDP in the UK and advises the GSB programme. Sanjay Gandhi is GSB Global Manager and Jonas Giersing is Global Coordinator. They can be contacted at email@example.com, firstname.lastname@example.org and email@example.com, respectively.
This article is based on an earlier article that appeared in the Global Compact Quarterly newsletter in August 2005.
For additional information on GSB, see http://www.undp.org/business/gsb