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MDGs in the just ended UN Summit
The role of the private sector in achieving the MDGs


SARPN Summary of contributions from the Reference Group (RG) e-discussion on the role of the private sector in the achievement of MDGs held during 24 August – 4 September 2005

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The main objectives of the RG were twofold:

  1. To help SARPN shape its ideas and content for its upcoming half a day round table discussion (19th October 2005) with some selected Private Sector/business entities. The idea was to deepen the discussion on how the private sector can play a key role, if any, in the fight against poverty.


  2. To draw from the reference group, through their valued experience in working with or in the Private sector, information on whether their operations/core activities have really made a difference to the economy of South Africa and the lives of the ordinary people (In line with the 8 UN MDGs).
The RG, which constituted 11 people (including 4 SARPN staff members), was carefully selected to include, private sector, UNDP and CSO representatives in South Africa.

SOME REFLECTIONS FROM THE GROUP MEMBERS

  1. Case for private sector's role in MDGs: can or should they play a role?

    There is a clear case for private sector involvement to support the goals of MDGs. C. K. Prahalad's book titled " The Fortune and the Bottom of the Pyramid" provides a good basis on the case for private sector involvement in MDGs. However, the interesting angle suggested by Prahalad is that probably the best way of dealing with poverty is to look at business practices and strategies and how these in themselves could really deal with poverty reduction in a much more systematic and non-patronising way.

    Some examples of private sector involvement would fall under the following aspects:

    Philanthropy
    Big business may donate capital to launch projects such as construction of a physical facility, or may also commit regular consignments of consumables such as food, medicines, books, etc.

    Public-private partnership
    This denotes more risk sharing. Private sector may enter into formal arrangements where the private partner accelerates investment into urgently needed infrastructure or facilities, with provision for the private partner to recoup a return from government over time. The government compensates the private partner via pay-backs in tranches, cession of revenues related to the provided infrastructure, or delayed transfer of the infrastructure to government after a concession period in favour of the private partner.

    Operation and Maintenance
    Oftentimes government finds sufficient capital through savings, tariff collections, division of national revenue, etc, and manages to construct an asset. However for the maintenance of that asset over time, government often do not possess the specialized skills necessary or else do not make enough budgetary provisions to meet operational and maintenance costs. In this instance private sector providers are well-placed to take over operation and maintenance of assets on behalf of government. In this way they assist government in meeting environmental efficiencies, cost efficiencies, etc.

    Improvement of ability of government to qualify for loan finance
    Sometimes the only challenge for government, particularly municipalities providing tariff-based services, is to improve its balance sheet to make it more possible to borrow from the capital markets. Private sector can offer management and administrative expertise to establish and/or improve collection systems for revenues that are owed to a municipality. Improved revenue streams dramatically improve a municipalities' credit worthiness and ultimately opens up financing options for the municipality.

    Favourable credit terms
    Private lenders can develop a range of financial instruments that makes borrowing more forgiving for public sector borrowers. In South Africa, the Financial Sector Charter is a useful launch-pad to incite lenders to move down market, take on more risk and service less credit-worthy borrowers.

    Regardless of these factors, the overarching concern is that people may be expecting too much from business if they think that it will "save the day" and play a crucial role in achieving the MDGs. There are three inter-related points to be made in this respect:

    1. The so-called "business case" for sustainable development - i.e. contributing to development will enhance profits, at least in the medium to long term - is patchy. There are some instances where the business case is relatively strong, particularly for companies with significant brand exposure, but this is most effective in encouraging companies to do no harm, rather than contributing proactively to development. On the other hand, there still remain many instances where core business imperatives in fact mitigate against pro-poor development outcomes.


    2. An overly enthusiastic reliance on corporate responsibility may have negative or unintended consequences. For one, it may detract emphasis on the need for more effective and accountable state governance. Furthermore, as argued by John Sharp in a paper to be included in a forthcoming special edition of "Development Southern Africa" on corporate responsibility and development, the discourse of corporate responsibility is in many ways a revision of the development debate of the 70s and 80s, including some of the same potential pitfalls.


    3. The business case for development depends on the public policy context in which companies find themselves. Examples of PPPs and SA companies' position in the rest of Africa, the state, in particular, have a crucial role to play in providing relevant incentives and the requisite accountability framework. Considering that the state faces such prescient constraints in this regard, there is an interesting challenge of developing multi-stakeholder negotiations and collaboration structures, whereby the actual process provides for some measure of accountability and simultaneously develops organizational capacities. This is emerging in some instances, such as in local development planning in some areas dominated by mining and others etc.


    In addition, it is important to note the need to look at how far the private sector can go in fighting poverty. And this is where the whole issue of Public-private partnerships (PPPs) comes in. PPPs well structured and implemented by both the public and private sectors can go a long way in achieving some of the MDGs. PPPs will right enough not work if both parties are not ready for the partnership and there is not trust and transparency about the whole relationship.

    However, the experience in implementing or assessing PPPs, the emphasis is on how important the internal and external accountability measures are, and how rarely these are adequately in place. Reference is made to a recent edition of the internet-based journal of the SA Inst of International Affairs, "Making Partnerships Work for Africa" - can be accessed via the SAIIA website: http://www.saiia.org.za (click on eAfrica logo). The journal is generally optimistic on these issues, but it warns, "If Africa cannot create and obey a transparent, effective system for keeping corruption out of the purchase of school books; it has little hope of keeping corruption out of PPPs."


  2. What has the private sector done already to advance the ideals of MDGs in SA and in the African region at large?

    Looking at the role that private sector has played in SA post 1994, there is no doubt that there has been some increase in CSI expenditure and also support for other good causes aimed at promoting development in SA. The research project on "The State of Social Giving in South Africa" which was conducted by the Centre for Civil Society, the Southern African Grantmakers Association and the National Development Agency provides some insight on how much as be given by business in this area.

    Other examples have some pertinence or counterpart in South(ern) Africa, but there are some particular instances in which South African companies or initiatives are mentioned, including the following:

    • Eskom is mentioned as a utility company that "can participate in public-private partnerships to increase access to clean water, energy and communications" (Goal 1 - page 7).


    • Anglo American "has developed a comprehensive small business outreach programme" (Goal 1 - page 8).


    • The National Business Initiative's EQUIP programme involves business working with "education authorities and other NGOs to improve the quality of education in government schools" (Goal 2 - page 10).


    • "Business coalitions dedicated to tackling HIV/AIDS have been established in… South Africa" [SABCOHA] (Goal 6 - page 18).


    • "Sustainability Indices, such as those established by the… Johannesburg Stock Exchange" (Goal 7 - page 20)


    • Under Goal 8, the report mentions the UN Global Compact (page 23) - the Global Compact has recently established a Regional Learning Forum for Sub-Saharan Africa based in Pretoria. The contact person is Ellen Kallinowsky ().


    • Goal 8 also includes the need to promote investment in Africa (page 23) - this has become especially prominent in the wake of the Commission for Africa, which has also spawned a dedicated business initiative called Business Action for Africa (http://www.businessactionforafrica.org).


    • Goal 8 includes "access to affordable drugs": "Anglo American was the first company to announce that it would provide anti-retroviral drugs free to all its employees who needed them" (page 25) - indeed, De Beers was a finalist in a dedicated award for business contributions to the MDGs because it provides such drugs not just to employees, but also their families (see http://www.iccwbo.org/awards).


    • Under "access to… ICT", the report mentions the Hewlett Packard E-inclusion initiative. This initiative includes the Mogalakwena HP i-community project, which was also a finalist in the above mentioned awards.


  3. Financing MDGs: prospects and challenges

    The discussion on the potential role of business in providing funding support to MDGs attainment is an important one. On that note, there is a recent edition of the journal International Affairs that focuses on this issue, including articles by Jeffrey Sachs and others. There is also the paper by Kapoor and Kapoor for SARPN. One of the issues that jump out clearly is the role of taxation. Interestingly, tax payment is rarely considered an integral aspect of the corporate responsibility agenda, though it should be.

    There is a notion on how companies that pride themselves on being "good corporate citizens" go to great lengths, often pushing the boundaries of legality, to minimize tax payments. It seems that the relative success of South African Revenue Authority (SARS) in increasing state income, for example, is a positive lesson other developing countries can learn from SA. With respect to the CSR debate, the likes of PWC et al should be encouraged to display greater consistency by refusing to give spurious advice on tax avoidance while simultaneously waxing lyrical about their "sustainability services".

    African Governments are facing an overwhelming capital requirement in light of achievement of the MDGs. The provision of adequate resources such as shelter, potable water, food, medication, schools, transport, communications, etc presents a tremendous financial burden on the coffers of government. The role of the private sector is particularly important for MDG financing at the national level, principally because the primary sources for MDG financing and other national poverty-related initiatives will come from - economic growth; tax revenues; and domestic borrowing - areas where economic policy tends to be particularly sensitive to the needs of the private sector. As such, the extent to which MDG and poverty reduction targets will be reached will depend on the performance of the economy and the types of policies in place aimed at addressing poverty-related challenges, tax collection and how public resources are distributed to target poverty, as well as, the extent to which incomes are rising at the household level so that individuals can afford MDG attainment. Linked to these issues one can then tailor questions for countries in SADC region. For example, is monetary policy in the SADC region poverty reducing? Do current exchange rate policies favour protecting the private sector at the expense of poverty reduction? At the social level, one can ask what percentage of the population is in the bottom income quintile and what has been the trend in the last five years?

    By and large, there are two fundamental reasons why government should consider partnering with the private sector to achieve any of its aims:

    1. Governments lack sufficient capital to efficiently acquire and maintain the resources mentioned above
    2. Governments have the capital, but may find themselves not well placed to manage one or more key risks related to provision of those resources. The range of risks is wide, from commercial to political to environmental.


    There are various ways in which government can find relief for the two scenarios mentioned above, by partnering with the private sector. Although there is almost always a cost implication arising from government relying on the private sector to shoulder certain responsibility, the benefits gained in terms of efficiencies, skills transfer, customer satisfaction, etc go a long way in improving sustainability of investments, which underpins the objectives of the MDGs.

    The nature of private sector is simply that, if it is given a task to undertake in exchange for a financial incentive, it usually delivers with efficiency. Sometimes governments are committed to a goal such as gender equality, but fail to honour it, due to a constraint such as ideological resistance to affirmative action within government itself. In this instance political interference gets in the way of delivery. Private sector might be able to focus on the goal of increasing numbers in women employment and deployment for a small fee, but may yield exponential returns as a result of sitting outside the shackles of ideological correctness.


  4. Social Corporate Responsibility

    On the issue of pricing and provision of goods and services, it is important to note that this is what business is about and ostensibly this is why we adopt a market economy (so that independent businesses can compete for the most efficient allocation of resources). One of the problems of the corporate responsibility debate is that it may deflect attention from these core aspects of business. Hence, for instance, we have retail companies conducting "feel good" public relations campaigns in the name of corporate responsibility, while simultaneously implementing dubious pricing policies for essential products, like maize. Another example is anti-competitive practices: many self-professed "corporate citizens" have fallen foul of anti-trust legislation and people rarely seem to see the contradiction in this.

    Eskom also referred to the interesting case of SA companies operating in the rest of Africa. As part of the African Institute of Corporate Citizenship, under a project on promoting SA companies' corporate responsibility in the rest of Africa, they assert that the state has a crucial role to play in promoting responsible business conduct beyond SA's borders (whereby "promoting" is a key word in this respect, denoting something in between regulation and business voluntarism).




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