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National poverty reduction strategies: where are corporations in the PRSP process?

Date
Time (GMT +00) 13:00 14:30

Speakers:
Edward Bickham
, Executive Vice President, External Affairs, Anglo American
Simon Maxwell, Director, Overseas Development Institute
Chair:
Alison Scott
, Social Development Advisor, Department for International Development

1. Alison Scott - The frame for today is the PRSP process and its connection with the corporate sector, in particular the mining and minerals industry.

2. Simon Maxwell - Poverty Reduction Strategy Papers originate from the HIPC (highly indebted poor countries) process begun in 1999 and are the principal vehicles for implementing debt relief. However, it is important to see PRSPs as part of much bigger development initiative:

a) the Millennium Development Goals
b) a strategy for reducing poverty summarised in the World Development Report of 2000/01 and the new DAC Guidelines - a set of technologies for delivering aid in support of PRSPs
c) Poverty Reduction Strategy Papers
d) Sector Wide Approaches (SWAPs), direct budget support, MTEFs, various World Bank and IMF instruments
e) Results Based Management

3. PRSPs capture some key ideas that came out of the aid debate in the 1990s which inspired the HIPC agenda. In particular, poverty reduction strategies should: be country-owned; be based on a high degree of participation to form national consensus; foster strong partnerships between developed and developing countries; be based on reciprocal accountability; be holistic and multi-sectoral; be framed by conditionality that is 'process' rather than 'output' driven. PRSPs are currently 'where it's at' in development.

4. As of mid-2000 there were about 60 countries involved in the PRSP process, about 25% of which have a full, approved document.

5. PRSPs inevitably generate debate. For example: are targets the right approach; are the Millennium Development Goals constructive; are quantitative targets the right way to reform public administration; does the approach focus too much on public expenditure instruments and not enough on wider macro policy; is there such a thing as a national consensus; can you have a partnership with large differences in power between developing and developed countries? But these questions shouldn't detract from the fact that PRSPs provide the main focus for government policy and donor support. Certainly for donors, the PRSP is the key forum in which debate about development and poverty reduction policy takes place.

6. There are some non-HIPC countries with PRSPs, and many others where a PRSP-like process is increasingly becoming the vehicle for discussion. PRSPs or similar processes are shaping the strategic choices of governments.

7. What are the opportunities for businesses in PRSPs? For example, what is business to think when a government says, "We note that most of our poor are in weakly-connected areas. It is our priority to change that tendency." Clearly the implication is that as a business you might not get planning permission to invest in the high-potential area, but you might in a low-potential area. Similar discussions take place in relation to specific sectors. Ethiopia, for example, has a strategy for agriculture-led industrialisation. What does that mean? The idea is to develop the agriculture sector because there are high poverty-linkages, i.e. the chance to build industrialisation on the back of the raw materials and the markets developed by agriculture. If you're a business, it's important to know that this policy exists because it's a completely different strategy to one that aims to emphasise urban development.

8. Just as public policy decisions made in the PRSP affect what business does, business decisions can make a difference to the agenda of poverty reduction. We need to think about the ways that the business agenda and the poverty-reduction agenda can be made to be more compatible. Michael Warner (ODI) has laid out three areas where business contributes to poverty reduction. First, business contributes through its normal operations in the form of employment, taxes and so on. Second, the social welfare and risk management agenda where business makes charitable payments and executes social investment programmes. Third, the approach ODI is pioneering, which is the attempt to create a step-change in the poverty reduction impact of corporate investment by looking systematically at core business competencies and their complementarity with government and civil society. For example, the company that has to build a road to reach its mine does a deal with the local government whereby it builds in more access roads when building it, hands over maintenance of the road to the government and then pays a toll when its trucks use it, maximising poverty-reduction impact without incurring additional costs to the company. There are many examples like this from the Business Partners for Development programme.

9. How can we operationalise all three of these approaches together, and make them more compatible with PRSPs? This table (right) is an attempt to work systematically through the potential synergies between the poverty and business agendas.

10. There are synergies, yes, but there will also be conflicts and we shouldn't try to sweep those problems under the carpet. There is scope here to reduce the conflicts and increase the complementarities. This is about the steps that can be taken on both sides and opening up the dialogue between the two. Business, on the whole, doesn't know enough about PRSPs and perhaps isn't closely involved enough in the process. It should be an objective to help business in this area and to provide resources to facilitate the dialogue. The other half of the agenda is to find out where the synergies can be enhanced and the conflicts limited.

11. Alison Scott - Over the last few years corporations have launched a number of initiatives of a social kind - health services, social service etc. - particularly in geographically remote areas where the state may not have an active presence. There is much that governments can learn from these experiences, even if they are happening in non-PRSP countries. There is also room here for dialogue between governments and the private sector on the content of specific PRSPs.

12. Edward Bickham - Anglo American has not been involved in PRSPs, but thinks there would be merit in involving corporates in the process. The issue for us is how can FDI have a better and bigger impact on poverty reduction than has traditionally been the case. It's a topic that fits well with the World Bank review of extractive industries and feeds into how we at Anglo American are thinking about the social dimension of sustainable development.

13. This map shows where Anglo American does its business. Peru (where we currently have only a project rather than active operations) is a country relevant to this discussion, as is Zimbabwe. Anglo American was in Zambia for a while, and we are in the process of withdrawing from there in a way that we hope our social operations can continue there. Mali and Tanzania both host AngloGold operations. The Skorpion Zinc mine in Namibia will start operations at the end of next year and if zinc prices return to normal, will contribute some 4% of Namibian GDP at peak production.

14. Let me list the direct benefits from private-sector investment in mining and minerals: tax and royalties; wages and employee benefits, which can include health-care and schools (and mining is increasingly a skilled industry so education is necessary); capital investment; infrastructure development; knowledge, capacity; technology transfer; the export of international standards; and corporate social investment. Further, despite often being high in the "pantheon of devilry", the evidence suggests that the level of performance and standards on environmental and labour issues is higher amongst multi-national enterprises (MNEs) than large indigenous companies.

15. However, it is the core business and what it can deliver that is perhaps more important than corporate social investment. Why? Because even well-performing operations are rarely devoting more than one or two percent of their profit to social investment. So, the key question is "how can we leverage our core business assets which are fifty times larger?" This is not to say that corporate social investment is not important. In developing countries it can fulfil a particularly worthwhile role.

16. What motivates companies in looking at these issues of corporate social engagement? At the moment, this includes:

a) risk-management;
b) the maintenance of the company's social licence to operate;
c) the desire to have a stable and prosperous community in the area around operations - there are many examples in the industry where this objective has been seriously mismanaged and where disruption, reputational damage, or increased security costs have been incurred. Fortunately, Anglo American have not been involved in any of the 'cause célèbres', but we would do well to learn from them;
d) a desire to be the 'investor of choice' - often some of the better projects come up through privatisation programmes where there is a degree of discretion as to who they give it to;
e) access to relevant skills and a suitable workforce - so, for example, there is some enlightened self-interest in contributing to the erection of a healthy and reasonably skilled workforce as well as a philanthropic impetus;
f) protection of corporate reputation; and
g) the wider framework of sustainable development - in the natural resources industry one is generally depleting a non-renewable resource. Thus there is a need to create some countervailing advances in the social and environmental areas.

17. Against this background there are the changing expectations of what is meant by Corporate Social Responsibility (CSR). For example, within the mining and minerals industry we have had an ambitious programme of stakeholder engagement around the Global Mining Initiative. That spawned an independent, arms-length stakeholder research project, managed by IIED and which produced an independent assessment of the industry. Furthermore, the World Summit on Sustainable Development recognised the development role of the mining industry, which in some quarters had been politically incorrect to concede.

18. One of current issues within the CSR debate is what to do to make sure that social investment initiatives stay active when the mine is no longer there - a key element of which is operating through partnerships with NGOs and local government to ensure sustainability. All of our new operations must undertake Environmental and Social Impact Assessments. For mature operations where we have not carried out such appraisals before we are developing a Rapid Socio-Economic Assessment tool to help managers plan ways for the local community to be left as stable as possible after closure through the creation of SMEs and investment in social infrastructure and human capital.

19. An example of the way we try to manage social issues is the proposed Gamsberg Zinc Project in a very poor part of the Northern Cape of South Africa. Here we are using outsourcing to provide opportunities for small business; putting in place training and support services for new business start-ups; making arrangements for 70% of recruits to be from the local area (and placing similar compliance requirements on our contractors); segmentising tenders to improve access by local businesses, i.e. "bite-size procurement"; and putting in place business liaison and development officers. The project is currently on hold pending a recovery in the zinc market.

20. In South Africa we have managed to increase our expenditure on small, black-owned businesses from about 64 million Rand in 1996 to 1.3 billion Rand today. We are also increasingly looking at incremental local income generation from core business assets. Our forestry operation in Natal have a team of 19 social development facilitators placed in order to help identify opportunities where the interests of the community coincided with where the company has underused assets. This has led to, for example, micro-enterprise opportunities such as woodlots projects, charcoal manufacture, improved access to grazing and bee-keeping.

21. An estimate of 22-23% of our workforce have the HIV/AIDS infection, which is a huge personal tragedy as well as a corporate challenge. Although Anglo American has been involved in education and prevention schemes from very early on in the 1990s, these have run into difficulties because of stigma and denial. We now put more effort on working in the community, because 'sex doesn't stop at the fence'. We have put in place clinics for treatment of STDs, and have acted as a catalyst for multi-sector partnerships in the Western Cape, the Powerbelt and at Carletonville in the heartland of gold mining which enables us to work with government and NGOs. In August we announced that we would make anti-retrovirals available to our workforce. This has encouraged other companies to move towards doing the same. We hope that the move will act as a catalyst for partnerships to make treatment available to surrounding communities including through the public health system and the involvement of international donors.

22. In conclusion, how do we increase the role of corporate operations in poverty reduction when there is a lack of credible regional planning frameworks; dislocation between public and private sector planning; revenue distribution issues; a corporate desire for 'limits to responsibility'; frustrations inherent in partnership models; the need to maintain a clear 'business case' when, in remote areas, this is hard to justify; and the problem of managing expectations where even with a $400m and $1bn level of social investment, this considered by some as a drop in the ocean? Anglo American would like to see more recognition in ethical indices that investing in poor countries could be a force for good, rather than being viewed with suspicion. We also need improved management tools - something I hope will come out of ODI's work. Also, partnerships need to be more cost-effective. The PRSP concept is interesting because if these strategies are realistic they may provide the broad development framework into which we can contribute.

23. Alison Scott - How do we bring these two agendas together? We have governments trying to plan for poverty reduction and companies making a lot of effort in this direction within their areas of remit.

24. Discussion. A number of points were raised:

a) In reference to working with the corporate tourism sector, we have found the policy context in South African favourable to companies willing to try to do more to contribute to a pro-poor agenda, but that this does not seem to stretch to other African counties. Edward Bickham - One of the things that distinguishes South Africa is the vibrancy of civil society and the fact that there is a huge amount of capacity for tackling public policy issues. This is patchier in a number of other southern African countries. Perhaps the more successes you have, the more best-practice models, the easier it becomes.

b) We have all touched on the need to distinguish between philanthropy, the giving of donations, and change based on core business practice. One thing we've been warned about on the latter is that you don't want to talk to the corporate affairs director who deals with the small change that goes to the community, but need to go to the core business people, the people who do procurement. How would Anglo American companies go about mainstreaming such changes in core business practice? Edward Bickham - We like to think that corporate affairs people are about more than "flim flam PR brochures". Core business managers are busy running their businesses and I think the role of corporate affairs is to say from time to time that expectations are changing, this is what investors are expecting from us now and lets look at tools for delivering our social objectives better. In this role, corporate affairs (or similar Safety, Health and Environment staff) may act as champions for change.

c) We welcome the fact that you undertake environmental and social impact assessments of all your new projects, but: (i) are they independent, and if the assessment comes back with negative impacts on the environment or for people, would you actually change your plans; and (ii) where does 'poverty' come into those assessments, or are they simply an analysis of how society will be affected by your plans? Edward Bickham - EIAs and SIAs are not static tools. They aim to create strategies for mitigating problems or circumventing them entirely. Poverty reduction is not a core target of an EIA/SIA. What we would hope to do is to improve the overall social situation.

d) The literature on the relation between extracting industries and sustainable development is not always positive. These industries have consequences on the environment and are not pro-poor. They fuel corruption and conflicts, such as in the case of Chad at the moment; are associated with human rights violations, as in the case of Tanzania; and contribute to the spread of AIDS to areas where they have projects. Edward Bickham - Certainly the resources freed through mining can help to feed corruption and conflict but that is not inevitable and it is not a result of the digging. It is the weakness of governance structures that actually causes that problem. If you look at countries like Chile, Namibia, Botswana, South Africa and, one hopes, Tanzania and Mali increasingly, they have reasonably good governance and real advantages and social development have resulted from mining and, in some cases, oil and gas development. One needs to take a multi-partner approach and look at how you use the World Bank, IFC and donor governments to help to build capacity and improve governance.

e) The specific social programmes these companies develop are not always sustainable, principally because they can pull out from one day to another. There needs to be accountability to the local people, not just to the shareholders of companies. Edward Bickham - in that respect mining projects are no different from other forms of economic activity - they have to be commercially viable to survive.

f) The main issue is the dislocation between the public and private sector planning on social development. What are the barriers to private sector engagement in PRSPs? From Anglo American's point of view, what would it take for you to decide to engage? Edward Bickham - Anglo American is keen to be engaged in the PRSP process because we think that we can learn from it to help us plan social investment and how to maximise the positive socio-economic benefits of our operation. The problem at the moment is that there is really very little attempt to engage the private sector. However, there will also need to be limits to the expectations of what can be delivered. For example, there is certainly a great risk aversion in the City of London at the moment to doing business in Africa. If PRSPs involve governments seeking to direct investment and to attach too many conditions it may increase investor perceptions of risk and make projects unviable.

g) With regard to the PRSP process in Kenya, how do you get a dialogue going when every corporation in Kenya is minding their own business and fighting their own battles in a political environment that is not friendly? The private sector has a tremendous influence on government, but we don't ever bring the two together. How do we work with the private sector to encourage governments to respond to PRSPs in a way that it more than just the preparation of a PRSP document?

h) Interesting to note the shared frustration inherent in partnership models. Are we expecting the private sector to have initiatives of their own such as the AIDS programme of Anglo American, or is the aim to contribute to public programmes? These two states imply very different approaches - the first places the sole demand on the private sector, the second uses what the private sector is doing already but redirects it towards public policy. The two models need to be distinguished with more clarity.

i) The main influence of the mining industry in Bolivia has been its positive impact on regional development through application of its core business competencies, e.g. though linkages and outsourcing. But such linkages don't appear "as manna from heaven", one needs government policy to help create a vibrant private sector. So the question for PRSPs is how do they contribute to creating a vibrant private sector, is it skill upgrading, infrastructure, or something else?

25. Simon Maxwell - Because PRSPs are donor driven they tend to focus on donors priorities, and these tend to be public services. So PRSPs are strong on health and education. As we look at developing countries, it is clear that health and education are very important but the key to poverty reduction has got to be growth, and that's especially true in Africa. What anyone says about the link between growth and poverty reduction, and of course, it varies from place to place, if we don't find a narrative and a set of policies that accelerates growth in Africa, poverty is not going to fall very sharply. How are we going to achieve a set of policies for the private sector which don't turn them away from this whole discussion because it looks so complicated and expensive? You can't just line up a list of demands that are going to cost the private sector money, which will be good for poverty reduction but which will simply destroy the basic partnership with government before you get it off the ground. What I'd like to come out of this series is far more practical examples of ways in which the core competencies of businesses do contribute to poverty reduction - the AngloAmerican work on HIV/Aids, taking health 'outside the fence' - is the kind of example we should identify, analyse, unpick, try to understand and then, if it works, replicate it. That's where we'll get the value added.

26. Alison Scott - It is incumbent on governments to approach the private sector, but it also incumbent on the private sector to organise itself and make clear what it needs from government to carry out its business. The whole business of the institutional environment, enabling institutions and complementary service provision and policies are all part of that agenda. Thank you.

Jon Fowler and Michael Warner, ODI
11th November, 2002

Description

During this event they discussed the Poverty Reduction Strategy Papers (PRSP) simon process and its connection with the corporate sector, in particular the mining and minerals industry.