International development has long been focused on the role that governments can play in increasing economic growth, particularly with regards to liberal values of trade, open economies and free markets. However, there is now a growing recognition of the impact that private sector investment has on growing economies. Here, Vanessa Thevathasan provides critical insight into the relationship between development, poverty and corporations.
In the last two decades of globalisation, the private sector has played an increasingly important role in advancing human development through partnerships with governments and civil society organisations. In contrast to the formation of the Millennium Development Goals, the post-2015 Agenda has included business leaders, entrepreneurs and major corporations. The private sector is the engine to sustain and complement activities in development to drive economic growth, investment, offer employment and meet basic human needs. While greater accountability within the private sector is needed, overall they contribute widely to poverty reduction and this recognition should encourage greater participation and coordination in human development.
Economic growth is the primary driver of poverty reduction. While foreign investment often bypasses the poorest nations, the World Bank statistics show that the net private flows to developing countries in 2010 amounted to $542.8 billion (UNCTAD, 2011), whereas the net Official Development Assistance (ODA) expenditure by the 22 member countries of the Development Assistance Committee of the OECD amounted to $128.7 billion. FDI continues to dwarf the flow of ODA.
The corporate sector is a valuable asset in international development primarily because companies often have access to large finances. This means that they can invest with wider scope and scale than that of NGOs and the public sector. The greater monetary leverage means that the private sector is better able to bid and obtain the facilities, equipment and tools needed to generate successful development programmes. Moreover, the private sector can easily invest in technological innovations, can deliver skills-based knowledge programmes and is well suited to deliver pro-growth economic policies. Therefore, there is certainly a need for businesses to have an enabling environment for investment and encourage economic activity.
Corporate impact is not just financial. Scaling up investment levels by the private sector connects with wider developmental issues, giving more people in some of the poorest countries greater opportunities for economic security and break the cycle of poverty. For example, Unilever’s business in Indonesia provided 5,000 people with jobs and a further 300,00 jobs in the company’s value chain. Such positive outcomes has influenced DFID’s Business Call to Action on the Millennium Development Goals “to mobilise companies to use their core business and skills to create jobs and stimulate growth.”
Many businesses, including Standard Chartered, Cadbury, Vodafone, Unilever and Anglo-American are seeking to set their agenda on development through projects related to mobile phone technology in Africa, creation of banking services, and providing access to clean water and sanitation, education and infrastructure.
The corporate sector involvement in international development is not a cure-all and has indeed attracted some controversy.
The EU has voiced its concern that private sector engagement in aid risks compromising development objectives by placing profit over poverty reduction and highlighted the need for greater corporate responsibility in their practices. The G8-sponsored New Alliance for Food Security and Nutrition, a partnership between donors, multinational companies and 10 African states was established to accelerate responsible investment in African agriculture and lift fifty million people out of poverty by 2022. However, the alliance has attracted criticism citing neo-colonialism and deepening poverty and inequality by encouraging African governments to ease export control and tax laws as well as placing investors’ objectives over that of millions of smallholder farmers.
The World Bank estimates that 45 million hectares of farmland were bought and sold in the last decade, compared to 4 million before this. This industry has largely been created by speculation of big corporations. Risks around tenure for small and poorer farmers, which could damage the economic and social structures of rural societies have increased and led to widening food insecurity.
The focus on corporate policy development must not draw attention away from the needs of micro, small and medium-sized enterprises. Policymakers should recognise that smaller local businesses and agricultural producers contribute directly to the generation of new employment opportunities and reduce poverty.
NGOs must work with the private sector to ensure that developmental change reaches the poorest communities. Rather than turning their backs on one another and regarding them as the enemy can coordination between sectors occur and thus increase the chances of greater economic development.
The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.
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