The emergence of the private sector as a development actor is a potentially game-changing trend. The reason for its emergence is clear: Official development assistance to the least developed countries continues to decrease and international human development is increasingly becoming part of the core business of corporations. But what remains open for debate is the scope of the private-sector involvement in global human development and whether corporate money should play a role in global development at all.
Partnerships between nonprofits and businesses already exist. They range from corporate philanthropy, to corporate social responsibility, to shared value partnerships. Over the past several years, USAID has established an office for transformational partnerships as part of its Global Development Lab, while organizations such as the U.K. Department for International Development have taken an approach that focuses on poverty reduction through market development and catalyzing private enterprise.
Many large nonprofits are heavily dependent on one donor stream. This means that their systems, processes and tools are geared toward providing services to their largest client, making it potentially difficult to adapt to other partners.
However, a diversified funding base can make an organization more secure, flexible and responsive. The private sector has expertise that can be leveraged to increase the impact of development programs.
How can international development organizations and businesses effectively become partners? One option is to create hybrid nonprofit/for-profit organizations. While some have attempted to develop this model, others have been put off by legal fears and complexities involving costs, governance, intellectual property rights and conflicts of interest between the entities. Laddering funders, which means convening funders with varied interests to lead different components of a program, is another option. The rise of social/development impact bonds and impact investing may also offer alternatives.The private sector has expertise that can be leveraged to increase the impact of development programs. Click To Tweet
In practical terms, international development organizations usually have years of experience within several countries and an understanding of local and regional needs. On the business side of the equation, consumer goods companies are hungry for a leaner, more productive supply chain. Financial institutions are looking for sustained patronage from their customer base, and extractive companies are interested in improved community partnerships. With experience in these markets, international development organizations can bring unprecedented value by playing a convener role across business sectors.
The evolution of global development compels all actors to reassess their business models and form alliances that once seemed unlikely. It will be a complicated and challenging process: There is no one-size-fits-all model, and no one organization or sector is the panacea. However, one thing is certain. Human development practitioners should embrace businesses as our partners while remaining true to our core missions. There will always be cultural and economic challenges when varied organizations begin to work together, but the reality of today’s funding climate demands that we overcome these obstacles and work together to achieve financial and operational sustainability. This will result in the development and prosperity of our beneficiaries and customers.
This blog by FHI 360 Senior Relationship Manager Olumide Elegbe is part of a special blogging series for InterAction Forum 2015. The blogs, authored by Forum 2015 speakers, will be published June 10–24. Elegbe is speaking at Catalyzing Multisectorial Partnerships: A Private Sector Approach on Tuesday, June 23 at InterAction’s Forum 2015. Check back for more blogs in the series, and join the conversation with #InterActionForum.