Public Sector-Private Sector Policy Dialogue Can Benefit Poor
Reprinted from Parliamentary BriefBy David Wheeler and Sahba Sobhani, GMAP'09
September 24, 2008
Mali is one of the poorest countries in the world. Roughly 64 per cent of its 12 million inhabitants live below the poverty line, and only ten per cent have access to electricity. In some regions of the country that figure drops to a mere two or three per cent. For those with access to electricity, the price is higher than in neighboring countries due to infrastructure and natural resource issues.
Seeing an opportunity for wealth creation and social impact the energy giant ƒlectricitŽ de France (EDF) and its partners the French Agency for the Environment and Energy Efficiency, the Dutch energy company NUON and the French TOTAL together set up independent Rural Energy Sectors Companies (RESCOs).
However, when the RESCOs were first created Mali didn’t have a regulatory framework for public electricity provision, let alone private. But through the lobbying of EDF and its partners, with help from the World Bank, the Malian government adopted regulations that have opened electricity provision to private companies.
As a result, competition has been introduced. In 2006 alone Mali’s energy agency signed more than 50 contracts with small energy operators, a few of which are already in operation. Already 24 villages and 40,000 people Ñ increasing figures Ñ have access to electricity through the Malian-run RESCOs. Their low-cost electricity, based on solar home systems or small low-voltage village micro-networks supplied by diesel generators, have led to new income-generating activities.
These in turn have improved the quality of health care and education, increased access to clean water and reduced CO2 emissions by between 80 and 90 per cent when compared with traditional energy sources such as coal. And despite the low tariffs for customers, the RESCOs expect to turn a profit this year.
The RESCOs would not have been possible or successful without engaging the governments of both Mali and France. So effective was that dialogue that EDF won an award from the European Commission for Best Renewable Energy Partnership with Developing Countries.
As part of the global effort to meet the Millennium Development Goals, private and public sectors need business models that include the poor on the demand side as clients and customers and on the supply side as employees, producers and business owners. Such models lay the foundation for sustainable and far-reaching development.
While many businesses have creatively worked around constraints to doing business with the poor, private enterprises cannot overcome all the obstacles by themselves. Governments, civil society, donors and the poor themselves must participate and a policy discussion between private enterprises and government is one of the most powerful tools.
Governments have great control over markets no matter how free they may be. Executive authorities decide regulations and legislation, how tax revenues are collected and spent, and how open or closed their domestic market will be to the international community as well as to the private sector. They can gather and provide market information through household surveys or setting research priorities.
It is therefore in the interest of private enterprises to share priorities and information with the government of their own country as well as that of the country in which they want to operate, if they are a multinational. They can inform the government’s research priorities by highlighting new market opportunities; they can also lobby for improvements in education and other basic services, for legal empowerment of the poor, and for safeguarding human rights and environmental quality.
Policy makers, on the other hand, depend on accurate and up-to-date information to inform their decisions. But they are not always aware of the market dynamics and constraints to doing business with the poor, especially when new market actors or new products are introduced.
Private enterprises can provide this information to governments transparently and with accountability. They can calculate and share the positive effects of infrastructural or legislative changes on their customers, employees, suppliers and business partners.
Once a dialogue is open and active, the public and private sectors can go on to create collaborations and facilitate cross-sectoral partnerships. As Harvard economist Dani Rodrik wrote in his working paper, Industrial Policy for the Twenty-First Century, this communication is ‘an interactive process of strategic co-operation between the private and public sectors which, on the one hand, serves to elicit information on business opportunities and constraints and, on the other hand, generates policy initiatives in response.’
There are many different ways businesses and government can begin this ‘interactive process of strategic co-operation’. These discussions can happen unilaterally or collectively as part of a business association, policy initiative or stakeholder dialogue. At the same time some companies have affected policy simply by being innovative and successful Ñ the demonstration effect.
For the individual company, engaging government alone can be the best available option to address a limited and specific concern such as encouraging the provision of public goods or services that are needed to operate in a particular locale.
Sometimes individual public policy engagement by entrepreneurs and companies can have far-reaching implications, changing market structures and in some cases opening entirely new markets.
For other firms, collaboration is the preferred and often most successful option. These companies work in co-operation with companies that do similar business or with other stakeholder groups to pool their resources, skills and knowledge on specific and systemic constraints that affect the success of inclusive business models.
‘Policy change is most likely to occur when there is a critical mass of institutions and interests with the same concerns that are willing to act together,’ wrote UN Department of Economic and Social Affairs and the UN Capital Development Fund in Building Inclusive Financial Sectors for Development.
An example of a successful collaborative dialogue is the World Business Council for Sustainable Development and SNV Netherlands Development Alliance (WBCSD-SNV Alliance), which advocated Ecuador’s new government of Rafael Correa to put economic inclusion on the social development agenda. Correa took office in January 2007, and the Alliance soon assembled a powerful advocacy network of government agencies, businesses, NGOs and development agencies.
By August 2007, the president announced that in an effort to overcome Ecuador’s high level of poverty he would make economic inclusion a part of his social development agenda. Overall the government set aside credit lines totalling $87m for the next four years, with the aim to create some 250,000 direct and indirect jobs.
As the Alliance states on their website, ‘In order to achieve long-lasting result, the buy-in of the public and private sector, as well as civil society, is indispensable.’
Individual or collaborative engagement is effective, but demonstration effects can also influence policy, particularly when regulatory frameworks or public goods and services are absent or inadequate.
Irrespective of whether obstacles have taken the form of inadequate infrastructure, missing knowledge and skills, or restricted access to financial products and services, thriving enterprises that have used creativity and innovation to overcome them have proved the benefits of removing such constraints. Granted, the government must first hear about a business’s experience in order to learn from it. Either direct or mediated by a third party such as a development agency, communication about a winning inclusive enterprise is vital.
In the Philippines, Smart Communications, whose network covers over 99 per cent of the population, offers low-cost, prepaid mobile phone airtime cards and eases financial transactions through the option to send remittances using short messaging service (SMS) technology. Smart was an innovator, and the success of such products as Padala, the world’s first international cash remittance service linked to mobile phones, gave the company a foundation upon which to pursue more innovations and open discussions with the Filipino government.
Now Smart, other mobile phone operators and banks are in a policy dialogue with the Filipino government to address inadequate legislation on mobile banking, as well as many of the more delicate issues, such as payment systems, customer due diligence, consumer protection, deposit taking, electronic commerce, antiÐmoney laundering and combating the financing of terrorism.
So far, local policy makers have expanded regulation and enforcement to combat money laundering and the financing of terrorism, enabled customer due diligence to be conducted by retail agents and allowed banks to regard prepaid card accounts as accounts payable and not deposits.
In turn, these measures have created a more effective, lower-cost regulatory regime, increasing the ability of operators such as Smart to expand access to the poor.
But businesses and governments cannot create more inclusive markets and combat poverty alone Ñ civil society, donors and non-government organisations should play a role to ensure that these dialogues are beneficial to all.
More than 50 countries were poorer in 2000 than they were in 1990. A private sector actively engaged with governments in creating new opportunities for the poor is necessary if we hope to reverse that trend and meet the MDGs by 2015.
• David Wheeler is Dean of the Faculty of Management at Dalhousie University and the co-chair of the Case Studies Working Group for Creating Value for All: Strategies for Doing Business with the Poor. Sahba Sobhani is the lead author of Creating Value for All and the Programme Manager at UNDP's Growing Inclusive Markets initiative.