Speakers:

Varda Shine - Managing Director, The Diamond Trading Company

Douglas Alexander - Secretary of State for International Development

Q&A Chair:

Simon Maxwell - Director, Overseas Development Institute

Simon Maxwell

ODI  has been running a series of meetings on growth facilitated by  Karen Ellis and we have learned a few things:

• Growth doesn’t just happen.
• There are active debates about

• Whether growth benefits the poor. Indeed we have seen that it doesn’t always. Especially when it is driven by investments in natural resources. In fact in this case, we may end up with a resource curse.
• We have learned that there are active debates about whether growth is compatible with an environmental agenda. Hillary Benn spoke to us in the House of Commons the other day. His view is that we can reconcile the two.
• We have learned that growth can happen in unexpected ways. We had Governor of the Central Bank of Tanzania, who said that it’s not agriculture that is driving growth in Tanzania. Actually it is transport services to great lakes region, tourism and minerals.
• We have found that the story is not finished therefore. Often we open up meetings at ODI and then find we have further work to do. Which is lucky as otherwise we would have to close down!

Varda Shine

It is a privilege to be given the opportunity to speak on behalf of De Beers and as a member of the Business Forum for Action in Africa.

We are here this evening to hear the Secretary of State launch an exciting initiative which will foster Economic Growth and a responsible and sustainable private sector. De Beers welcomes this given our experience in Africa.  Business has an important part to play in driving sustainable development. As some of you know, we are in 50:50 partnerships with the governments of Botswana and Namibia. In both those countries, state revenues from diamonds have contributed enormously to national income and development. We recognise that translating natural resources to sustainable national development depends on a stable government able to work constructively with a responsible private sector.

From experience, we know this is mutually beneficial, as it provides a predictable business environment in which to operate. For governments, it has meant that more than 80% of very significant mining revenues generated in Southern Africa stays there. That in its own right is a very significant economic contribution. A kind of fair trade story on a very big scale.

Developing nations want to move away from reliance on natural resources and diversify their economies. We support this aspiration 100%. This is why we have been working closely with partners in government to set up local diamond trading companies to sell rough diamonds to local cutting and polishing companies. We want to see as much value-add as possible made to rough diamonds in-country. We are trying to do this through programmes that incentivise both international investment and local value-add. By 2010, we will achieve 1.5 billion dollars of rough diamond sales in Southern Africa annually, generating in excess of 5000 new jobs in Namibia and Botswana alone. All of this is taking place in the context of a very tough international competitive market.

We continue to work with the Namibia, South Africa and Botswana governments to help develop the right policies, systems and processes that will help these new businesses to become competitive and sustainable.

Our experience shows the benefits of the government and private sector working together, where each party shares both the risks and rewards. De Beers is convinced that this is the right approach to ensure socio-economic development, particularly where we operate in Southern Africa as it provides these countries with a greater degree of control and accountability in defining their own future.

It is now my pleasure to introduce the right honourable Douglas Alexander. He was appointed Secretary of State for International Development as part of Gordon Brown’s first cabinet. Combined with his previous experience in the FCO and in DTI, he is well positioned to understand the challenges of doing business in the emerging economies and how best to overcome the problems of poverty and social injustice via collaboration between the private sector and government.
  

Rt Hon Douglas Alexander

The Speech can be downloaded from the DFID website.

Douglas Alexander announced that there would be at least £37 million over the next three years to establish a new International Growth Centre.
The new growth centre - a virtual network of experts - would provide practical and tailored advice to stimulate economic growth in the world’s poorest countries.

Question and Answer Session

Douglas Alexander had to leave during the Q&A session in order to attend a vote at the House of Commons. Questions answered by him are denoted by (DA). After his departure, DFID’s Chief Economist, Tony Venables (TV) and DFID’s Acting Head of Policy, William Kingsmill (WK) responded to questions.

• How do we analyse how growth occurs? We shouldn’t be squeamish of the phrase pro-poor growth. Because, for all of the countries growing in Africa, those levels of growth are having a different impact on poverty reduction. We should integrate that analysis of how poverty reduction happens through economic growth. I hope that the new centre will be doing that in their work.

DA: As a labour politician I am committed to the politics of distribution in the same way that I am committed to the politics of production. However, that very experience as a labour politician over the last twenty years, including hearing the endless speeches that John Smith made in the 1980s and early 1990s arguing that economic efficiency and social justice were not enemies but allies teaches me that it is far easier to make the case for an equitable distribution of growth. Putting it boldly, economic growth is a necessary but insufficient condition for development.

A second point I would like to make is that as we approach 2015, I want to protect the case for increased aid flows from the charge that could be made in 2015 that if you look back retrospectively to 2000, the big gains in development were made from economic growth in East Asia and not in Sub-Saharan Africa where we saw significant aid flows being spent. Because I do believe that there is a powerful case for increased aid flows from the international community on a range of different services including basic health and education, whilst at the same time I want to see many people being lifted out of poverty as a result of economic growth. In that sense, we need to start building the intellectual defenses now in relation to the critical contribution that aid makes to the broader cause of development. Otherwise we are potentially vulnerable in the years to come, to some in the international community saying that we tried giving a lot of aid after Gleneagles. However if you look at the evidence, it was more likely that we should just have supported economic growth in South-East Asia. I think that is wrong. However, it is an argument we must anticipate and head-off. It is important that those of us in Development keep highlighting the importance of aid flows in terms of basic health and education, whilst also acknowledging the importance of economic growth, so as not to make the case for aid to become redundant in the years to come.

• We (Unilever) have been working on business footprints. Two studies, one with Oxfam in Indonesia and one with INSEAD in South Africa. How much should it be factored into the thinking that business should be judged on its overall impact, not just work on the side such as corporate social responsibility. Our study with Oxfam in Indonesia looked at the wider impact of jobs created both on supply-side and distribution side. It found that business has an impact on social, economic and environmental levels. So when we think as businesses, perhaps it has been thought that businesses can’t be part of the pro-poor discussion. But business impact needs to be looked at beyond CSR.

DA: I had some responsibility for CSR whilst at DTI. I have watched with interest the journey that CSR has been on in recent years. It started about being basically philanthropic and then migrated into how companies actually generated wealth from sales. I think the best companies have made that transition but are still struggling to turn CSR from a concept to a culture. In that sense this is the next place that CSR goes. However, even whilst I was at DTI six or seven years ago, and even today, one of the biggest challenges is identifying appropriate metrics against social, economic and environmental criteria that can be measured. This means that reporting is more than a few pages in the CSR brochure. My sense is that move from concept to culture is still continuing.

• Concept to culture is a nice phrase, but could you talk us through a little bit what we might expect to find in a company ‘with the acceptable face of capitalism.’ What are they doing differently?

DA: Instead of CSR being a bracket on its own, which you think about once you have generated profits, the mechanism by which a company generates the profits is informed by a value set. And this value set is able to be recognised by the employees and stakeholders beyond the company as being identifiable in the way that company does business. And there are a large number of companies searching to find that way forward.

ODI has done lots of work on how firms can improve their developmental impact through competitive differentiation (by improving their bottom line). In ODI’s Business Development  Performance  Programme, we have looked at how the extractive industries can improve their chances in a bidding war by explaining how it will engage with local community. This has been very successful and been adopted by a number of companies.  Could you say a bit about how donors could engage in creating those kinds of incentives? Also if you could say a bit about the private sector declaration on the MDGs and how that might contribute to creating those incentives as well.

DA: We are having a meeting in London later in the Spring, relating to the private sector declaration on the MDGs, which will acknowledge and recognise those companies that are willing to make commitments to poverty reduction in terms of their core business practices, as opposed to simply CSR and philanthropy. The Development Community must realise that the private sector can make a big contribution towards the attainment of the MDGs and that Governments, NGOs and charities alone can not achieve this.

In terms of the incentives and stimuli that need to be used for effective private sector engagement, I know that ODI have obviously done a large amount of work on this and DFID is keen to work with you, and we are keen for best practice knowledge to be taken forward in the work of the Growth Centre.

• I think that some of the research DFID has done shows a declining confidence in the general public regarding what aid can actually achieve. Could you say something about that link between that intrinsic understanding we have between jobs and progress towards the MDGs? Linking that to the point you made about metrics - how might we tell a different story that public can engage with around growth that contributes to jobs and is backed up by solid metrics?

DA: I have looked quite carefully at the public polling on aid since coming to the Department. There is obviously a degree of concern about how aid money is spent and the fact that larger sums of money via tax bills may be going towards aid.

People want to see value for money with aid. If there is an opportunity to change the terms of the debate, it is important to step outside the bilateral aid sector and look at what has happened in terms of fair trade in recent years. There has been a huge growth in fair trade. The Fair Trade Labelling Organisation has tapped into a sentiment that the public has engaged with. The feeling that buying a fair trade product one is not doing this out of charity alone. Rather because it gives a community of farmers in developing countries the ability to stand on their own two feet. A respect for partnership rather than patronage.

There is also a parallel with the current generation of people coming into the labour market in the UK and elsewhere. People want to feel good about the place they work. They want an alignment between their values and the work that they do. This is an increasing feature of the employment market. Hence major companies are not just taking forward fair trade labelling because it will be an asset for their products in the market but also because it can help in recruiting and retaining employees, as employees can say that they have an alignment between their values and the values of the company they work for.

• The recent increase in food prices are expected to continue into the medium to long term. What is the likely effect on African nations?

TV: The current food price issue is critical for many countries. It is important to recognise that countries are different in terms of how they will be impacted. Some countries will benefit whilst others suffer (the net importers). Agricultural yields have been struggling for some time now. However, there is now an opportunity for countries to develop a supply response to the higher food prices whilst also aiming for agricultural self-sufficiency.

• How much of an effect will the high oil prices, food prices and the global credit crunch affect Africa?

TV: When you look at the numbers it is alarming. For a medium African  Oil importing nation – every $10 rise in oil is about a 0.75% GDP loss. These are large and scary numbers. At the same time, we are all surprised that the real economy in the UK and elsewhere has not been impacted too much. There is also continuing growth in India and China occurring and not a major slowdown in African nations. All African nations are not homogenous, some will gain from the higher commodity prices also. So there are huge risks but so far there does not seem to have been such a large affect on the real economy.

WK: It is important to look at metals and minerals prices also. A very differentiated response across the continent has happened. Some countries in Africa produce metals and minerals, and others do not. We need to do some work to look into which countries are benefiting and which are losing out, so as to know where to direct external support. We also need to look at how these price increases not only impact national or regional economies but also on households.

• I was in Vietnam recently, which is experiencing strong economic growth. Can it be explained why the South-East Asian nations have done so well without aid whilst huge amounts of aid have been pumped into Africa but with limited benefits? 

TV: We can learn a few things from the Asian experience.
Firstly, the possibility of unbelievably rapid economic growth. This is a great message for Africa.

Secondly, it points at the necessity to get some basic conditions right, such as the returns to investment being secure.

Thirdly, that there is not a one size fits all approach - different nations followed different routes.

Fourthly, the fantastic importance of international trade and export growth. It is a sector of activity that can be quite labour intensive and can be expanded with out running into diminishing returns.

Throughout the 1980s/90s, Africa missed out on the export market, whilst Asia capitalised on it. The interesting thing now is that wages in Asia are going up fast. Is Africa going to be ready to be the location where some of these sectors move to? Maybe some necessary conditions need to be put in place for this coupled with some unorthodox policies.

WK: The availability of good quality advice is also important. China, South Africa and other middle income economies have assertively gone out to get good quality advice from the best sources in the world and this has in turn helped their economies grow. The Chinese, for example, are keen to go out and see what they can learn from other societies and economies.

The Secretary of State’s conviction is that the growth centre
should provide advice on economic, governance, human development or institutional issues to smaller countries with smaller networks so that they can develop their own policies and strategies that will lead to growth. The growth centre will provide a network of experts who will be able to tailor the appropriate advice to these countries.

Final Remarks: Simon Maxwell

There are three takeaways from today’s seminar:

• The progressive case for growth is something which is still being grappled with and refined by the Development Community.
• Announcement of a £37 million growth centre, which will provide research and advice to African economies on the issue of how to foster economic growth.
• The important role that business has to play in development. For example, the fact that Debeers is doing good work to keep value-adding activities within Botswana rather than taking it to developed countries.