Archive for July, 2011

Published in The Guardian on July 11, 2011.

In 2003, the UK’s Department for International Development (DfID) awarded Nick Hughes of Vodafone nearly £1m to develop an innovative mobile banking solution for Kenya’s “unbanked” population. Within four years, Vodafone and Safaricom, the country’s largest mobile operator, jointly launched a programme called M-PESA. The concept was simple: instead of setting up bank accounts or traveling long distances to transfer money, M-PESA would allow users to do it using their mobile phones.

M-PESA’s take-up rate was unprecedented. Within two years, more than 20% of Kenya’s population was registered for the service, and the scheme accounted for nearly a third of Safaricom’s £150m profits. Today, DfID officials admit they “widely quote, perhaps even overquote” M-PESA as a shining example of how the private sector can make lasting change in international development.

In May this year, DfID decided to build on M-PESA’s success by formally announcing a new focus on the private sector. In a report, they wrote that they will be devoting significant resources to “stimulat[ing] private investment” and “transform[ing] the business environment” across the developing world, with the ultimate goal of reducing poverty. Specifically, DfID will support the private sector to provide financial services, schooling, sanitation and other basic services in the 27 developing countries in which it works.

“We start from a position that says business doing business is making a contribution to society,” Karen Johnson, private sector adviser at DfID, told me. She and the report’s authors believe the private sector can create new employment opportunities and develop necessary goods for poor people across the developing world. It can also innovate quickly and do things “more efficiently” than other sectors.

DfID’s optimism about the private sector seems absolute, almost unwavering. However, is it entirely warranted? Is the private sector really the most reliable player for supporting DfID’s development targets, perhaps more than government or non-governmental actors? Will investing in the private sector unambiguously help people in the developing world to see lasting reductions in poverty levels?

The report makes only a slight nod to the potential risks of working with the private sector. It acknowledges in theory that private companies can “behave badly” or even “ignore the marginalised” – but does not detail the ways in which this can potentially occur. DfID says almost nothing, for example, about how private companies can create inhumane working conditions, harm the environment, or price goods out of the reach of poor consumers.

More fundamentally, DfID fails to mention how the private sector is not accountable to the public in the way the public sector is (at least in countries with a democratically elected government). In the “shining city” of Gurgaon, India, for instance, where the public sector has given much of its authority to private developers, the poor have been largely underserved. Sanitation and water systems are often not available for poor citizens – and private developers cannot be held legally accountable for not offering them.

Gurgaon is an extreme example, but most businesses will at some point make decisions that do not entirely fit with DfID’s lofty international development goals. After all, private companies are answerable not to the general public but to their stakeholders. If, for instance, M-PESA decided to double its prices one day, the public would have little say in the decision – although they would be the ones most harmed by it.

Gavin McGillivray, head of DfID’s private sector department, disagrees that the private sector is uniquely unaccountable to the public. “Limited accountability is something we encounter constantly,” he told me. “NGOs aren’t accountable to taxpayers, and there are many countries where governments, even democratic ones, aren’t really accountable to the public.” Given this reality, he continued, DfID is just ensuring that its money is being used to deliver “real outcomes”.

Underpinning this attitude is a belief that governments have largely failed citizens in the developing world. “We have to realise that governments in most developing countries have done a miserable job in providing basic services for citizens,” McGillivray said. “We suspect that the development community as a whole hasn’t looked hard enough at non-state provision of services.”

McGillivray’s comments are quite bold given that developing countries were very much forced to look at “non-state provision of services” in the 1980s when the World Bank and the IMF introduced its structural adjustment programme, which actually reversed development progress in some countries.

An example of what DfID might invest in would be a private sector-led water project that provides safe water to ill-served communities. In the report, they give the example of Maji Ni Maisha, a community-based water finance scheme in Kenya. However, they do not mention how, if at all, DfID would ensure the poorest of the poor could afford this water, nor how they would ensure water is equitably distributed. An equivalent public option, while potentially imperfect in many ways, would be responsible for this much.

The private sector certainly has the potential to raise incomes and living standards of people across the developing world. But it also has the ability to exclude many from the benefits of economic growth. In this new approach, DfID must think critically about where the benefits of private sector involvement in international development might be outweighed by its costs.


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