The role of business: a development perspective (Engels)
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Introduction
Good afternoon ladies and gentlemen, young professionals,
I’m delighted to be speaking to you today. On the website of the InterCompany Association, the organisers of today’s event, you describe yourselves as young, ambitious, innovative and socially conscious members of the business community. You are the rising stars of the professional world. Professionals with passion, distinguished by your drive and enthusiasm for new ideas. Professionals who dare to think outside the box. You sound like a promising group! Which is great news for me, because your drive, inspiration and creativity can help us achieve the Millennium Development Goals.
Every year a Young Professional of the Year is chosen. I was delighted when I learned these key assessment criteria. Of course, the Young Professional of the Year is highly successful and performs exceptionally. And quite right too. But besides these qualities, candidates are evaluated on the contribution they make to the world around them. Do you do voluntary work, for example? Are you involved in promoting corporate social responsibility in your organisation? How does it change the mentality in your organisation?
Corporate social responsibility is what I want to talk to you about today. And I would like to invite you to come with new ideas, interesting suggestions, but above all concrete plans concerning the role of business in developing countries. As Minister for Development Cooperation, I want to sit down at the table with you – the business world’s young professionals, today or at other moments. Because reducing poverty is only possible with economic growth. And economic growth comes mainly from the business community. And sustainable economic growth requires new ideas and proposals.
Influence of social trends and crises
Ladies and gentlemen, when it comes to economic growth, many interesting challenges exist. There is enormous potential in many developing countries. Things are already moving in the right direction: in the last two years, trade between developing countries has grown almost twice as fast as their trade with rich countries. Slowly but surely, developing countries have become the growth engine of the global economy.
But we also face the challenge presented by a number of crises: the [economic crisis, the] climate crisis, the food crisis and the energy crisis. Crises that are closely linked: low prices for raw materials can be a temporary boon for some countries, but they hold back investment in alternatives and can seriously impact on exporters of primary products, especially in Africa.
The price of food remains historically high, while credit and insurance to protect the next, possibly more productive, harvest are drying up. Short-term measures to regulate and stimulate the world economy in a period when global demand is low have to be tied to longer-term effects. That is not easy.
In London recently, the leaders of the G20 nevertheless agreed on an initial common agenda to help get the global economy back up and running. Yet a great deal remains unclear: there will be a new crisis if deficit countries bring in stimulus packages while surplus countries – except perhaps China to some extent – hold back. We still do not have international reserve management, and with the growing shortfalls, dollar prices cannot remain high indefinitely.
I have the feeling that some people don’t realise how serious the economic crisis we are facing is. It is not simply a crisis of the global financial system, but a total collapse of credit. A crisis of confidence at every level. A crisis caused in no small measure by the fact that, in the West over the past few decades, the balance between public and private interests has been lost. Short-term interests have prevailed over longer-term considerations, while many have become slaves to unbridled greed. As a result:
- our democratic institutions are less able to defend collective interests and curb excesses;
- and our model for economic growth is characterised by severe imbalances that are simply not sustainable.
Let me start with the first of these effects. For years, sociologists have been observing the process of individualisation taking root in many Western societies. This process has brought us many good things. But compared with only twenty years ago, our circle of loyalty is shrinking in every respect.
We are all increasingly focused on ourselves and those closest to us. Our sense of community involvement has grown more abstract. In many cases it has been replaced with resentment. If you want to see the results of this process, you need only read the anonymous posts on message boards online. Or look at the inroads being made in the opinion polls by the populist parties.
This process of individualisation has taken place against a backdrop of many years of deregulation and unrestrained belief in the free market. The combination of the two has damaged our traditional structures of consultation and accountability, and has shifted power away from the citizen towards the investor and consumer. Democracy is at stake here.
The second major impact is on the global economic order as we know it. If the present crisis has taught us anything, it is that thanks to the inherent instability of the financial markets, the economic model that has delivered such prosperity over the past few decades is not sustainable in all areas in the long run. It is a model rife with imbalances, not only economic, but also political – or geopolitical. Imbalances that emerging countries are no longer so willing to tolerate. Imbalances we must eradicate if we truly want a more just and sustainable world. The world can only be governed more effectively if it is governed more legitimately. These two concepts – effectiveness and legitimacy – are closely related. They will probably form the cornerstone in the IMF-meetings I will have this weekend.
The financial crisis has thrown a spanner in the works. And now we are left with a geopolitical poker game in which the two biggest players – the US and China – are engaged in a complex power struggle over trade, investment and monetary policy. It is a game whose outcome is uncertain at best and in which the ultimate position of every player – Europe included – is up for discussion. It is a game, finally, which the world’s poorest countries will almost certainly end up losing.
The poorest countries have been hit hardest by the crisis. What was sparked (though not caused) by the collapse of the US sub-prime market became a broad-based financial crisis as credit markets around the world began to freeze up. It soon became an economic crisis, as liquidity dried up and world trade stopped flowing. And then, as consumers and companies alike stopped spending, many in the poorest countries lost their jobs to a social crisis that they had not caused. Countries, in fact, which before the crisis had been doing better, thanks to reforms, investment and effective development cooperation.
It may have taken a while, but the effects of the crisis on developing countries are very big indeed. Effects that have more or less discredited the decoupling theory that has been part of the academic discourse for years. Everywhere, companies, mines, jobs and lives have been decimated. Even emerging economies like China and India – which were once widely assumed to be decoupled from the Western economies – are starting to slide. And they are unintentionally dragging the world’s poorest countries down with them. This process is visible at regional as well as global level.
As well as falling exports and remittances, which are higher than the amount of development cooperation and bonuses awarded in the financial sector, many African economies have been hit by the growing shortage of liquidity in the international financial markets. But the effects of the crisis are not only being felt in Africa. Indonesia is facing a drop in imports and exports of more than 25 per cent; Mongolia is teetering on the edge of bankruptcy, and Bolivia has lost five per cent of its GNP in remittances alone.
According to IMF statistics, economic growth in Africa this year will drop to under three per cent: substantially lower than the seven per cent needed to make gains in the fight against poverty. Three per cent, ladies and gentlemen, is little more than the annual population increase in many countries. Per capita, this is zero growth. In many cases this means more poverty, rather than less; and an increase, rather than a decrease, in social unrest.
Dutch efforts
To my mind, development cooperation in recent years has not devoted enough attention to creating opportunities for economic development. I believed this before the present crisis began. But now the need to invest in green and sustainable economic growth is becoming even clearer.
A country and its people can only escape – and remain free – from poverty, if there is sufficient investment in the capacity and infrastructure that make economic growth possible. This, ultimately, is the way to achieve progress. To build an engine that can keep itself running. We are not helping people, we are helping people to help themselves.
Fortunately, this government is working to achieve not only economic growth but also the fair distribution of that growth. So there is change in sight. In the past year I have announced and pushed through an intensification of these efforts. First by giving attention not only to the social sectors, but also to the productive sectors. Second by working more closely with businesses, both here in the Netherlands and in developing countries. After all, the private sector is the main provider of jobs, which is why it is so crucial.
Involvement of young professionals essential
One of my other central policy priorities is sustainable development. We must ensure that the current emphasis on climate change and biomass helps create new opportunities for developing countries but does not lead us back to shortages of food and other resources. I would like to hear your input on this issue. In the financial sector for example, Rabobank already works together with the ministry in a public-private partnership in building the engine of the agricultural sector in developing countries. But a lot more can be done. This requires thinking outside the box. Let me offer a few examples.
- I already mentioned that Dutch banks are playing a positive role in rural areas in developing countries. Rabobank, for instance, is involved as a shareholder in helping develop rural banks in China, Mozambique, Paraguay, Rwanda, Tanzania and Zambia. Since lack of credit mainly affects entrepreneurs in rural communities, special priority has been given to improving financial services in the countryside. In these areas, higher productivity depends on access to credit and banking services. So introducing financial services here has a particularly positive impact on economic growth and poverty reduction.
- That brings me to the Currency Exchange Fund, or TCX, which is another success story. TCX was established with the aim of limiting currency risks for banks in developing countries, so that they can continue to offer local SMEs credit in local currencies. In the present financial and economic climate, a fund such as TCX is vital for companies and entrepreneurs in developing countries.
- Dutch energy company Nuon has also shown real innovation with the establishment, in 2004, of the independent non-profit organisation, the Foundation for Rural Energy Services. FRES provides rural families in developing countries with clean energy by setting up small energy companies that generate electricity from solar energy. FRES is currently managing three Nuon joint ventures: Yeelen Kura in Mali, Yeelen Ba in Burkina Faso and NuRa in South Africa. Energy is the bottleneck in developing countries. So many people cannot work in the evening because there is no light, or are cooking from wood.
Existing partnerships between government and private sector
The government is already working in various ways with civil society and the private sector. Triangle cooperation is very important in my view.
- Take public-private partnerships. I myself have worked to intensify this kind of cooperation through the Millennium Agreements, until recently known as the Schokland Agreements. The Nuon-FRES partnership I just mentioned came out of one of these agreements. Another example is the cooperation between the Dutch government, Heineken and the non-profit organisation EUCORD. It concerns a beer-brewing operation in the Democratic Republic of the Congo and Burundi which uses local products like sorghum and rice. The project is commercially attractive for Heineken and provides jobs locally. The result for the countries concerned is economic growth, from which the local population benefits directly. These are the kinds of innovative ideas I’m looking for. We are also working with insurance companies in setting up innovative insurance systems.
- Or take the MDG business club I have established. This is an open network comprising a number of businesses and organisations, large and small. Some have pledged to encourage their own young professionals to start a partnership based on food chains. A partnership that contributes to the Millennium Development Goals and uses the core competencies of the businesses in question. The first exploratory meeting of young professionals took place at the end of March, and there seems to be enough enthusiasm to get things moving and start looking closely at where the added value lies.
- Then there are the government’s private-sector instruments, such as ORIO, PSI and PUM. In basic terms, ORIO – the Development Related Infrastructure Facility –supports the planning, implementing and operation of infrastructure in developing countries. As I have said, one of the negative effects of the crisis is that crucial investment in infrastructure in developing countries is being put on the backburner. We hope that ORIO – whose 2009 budget I have increased by 40 million euros to 180 million euros – will change that. We aim to harness the kind of innovative private-sector capability that is indispensable to modern development cooperation and we work with the governments concerned.
Another instrument, PSI – the Private Sector Investment Programme – helps develop innovative project proposals for partnerships between Dutch or international companies and companies from developing countries. And finally, under the PUM – the Management Cooperation Programme – , which may not be so relevant for you, senior Dutch experts carry out short assignments, such as supporting companies in developing countries. A retired Dutch accountant, for example, travels to Nigeria to provide consulting services to a factory there. Every year, in this way, hundreds of companies get involved in economic development and poverty reduction. We also help with setting up business associations and chambers of commerce, the software of the private sector.
The role of the private sector and reaching the MDGs
Ladies and gentlemen, starting from their core business and recognising the importance and advantages of sustainable business practices, companies can make a real contribution to development cooperation. You can help:
- educate the labour force in developing countries;
- promote local economic development (such as employment and infrastructure);
- set the right example when it comes to social policies and labour standards;
- and develop products aimed at the ‘BOP’ – that’s the ‘base of the pyramid’ – and in doing so, contribute to improved food quality and poverty reduction.
Role of the government
Besides its traditional role financing organisations and projects, it is also up to the government to stimulate, facilitate and follow up. The government can’t support every initiative going, nor would it wish to. But it can bring parties together. It can act as a broker; it can supply knowledge and promote the exchange of experience and expertise. It can also help companies resolve the dilemmas they run up against.
Because any company that works in a socially responsible manner is going to face dilemmas. Corporate social responsibility is also the hard-core of your business, it is not only about adding a social element to it. A lack of CSR was at the basis of the crisis, that is way it is so important. I travel a lot with the minister for Foreign Trade during trade missions and we address these dilemmas, for instance:
- Is your car hire firm accountable for the origin of the rubber used in the tyres on its cars? Can customers address such issues with the firm?
- What do you do if you know that labour standards or human rights are being violated in the country you are working in? Legislation and rules may have been adopted, but they aren’t always being applied in practice.
- Or how about the thorny issue of complicity? How do you avoid being accused of cooperating with a regime that violates human rights? If a conflict breaks out on your doorstep, how do you respond? Think about the position of Heineken in Rwanda when the genocide began, or of Shell in the Niger Delta.
Such dilemmas need to be considered and evaluated as individual cases. And the government can help in that process, providing support and advice on the best approach to take.
Conclusion
Ladies and gentlemen, the private sector already contributes a great deal. It has launched countless initiatives and is working more and more with local parties and NGOs. I applaud that. In fact, it’s why I’m here. To all you young professionals here today, I would say this: think about how – in the context of your core business – you can contribute to achieving the Millennium Development Goals. To increasing sustainability. To reducing poverty. It is crucial. More than one billion of people live from less than one dollar a day. Share your ideas! Use the experience of the older generation, but above all, be innovators. Develop new forms of partnership in the service of the MDGs. Dare to take the initiative. Make your plans and try to get them under way! I am sure there will be a lot of support in your company.
You all have a chance to develop your talents and to profit from economic development. We have a shared responsibility to ensure that everyone in the world can live in a healthy environment, with opportunities for personal and economic growth. And actually, it is in our enlightened self-interest. Growth that everyone can benefit from, without cost to the environment or to other communities.
Ladies and gentlemen, thank you for your time. I’m very curious to see what comes out of the workshops!