Examination of Witnesses (Questions 1
- 20)
TUESDAY 14 FEBRUARY 2006
MR KURT
HOFFMAN
Q1 Chairman: Good afternoon, Mr Hoffman,
and welcome to the Committee. Thank you for taking the time to
come and give us evidence. As you know, we are just at the beginning
of an inquiry into the role of private sector development in growing
out of poverty, if I can summarise it in those terms. Obviously
you from your background have made some statements about the role
of the private sector both within the aid industry and in terms
of growing out of poverty. We have a particular focus on Africa,
although it is not exclusive, and nor does your organisation focus
exclusively on that, but that is an area where it seems the aid
that has been distributed has not delivered alleviation of poverty.
There is evidence to suggest that the reverse might be the case,
or at least you are asserting the reverse is the case. I think
the question that kicks the session off is if we are serious about
achieving the Millennium Development Goals by 2015, or even getting
anywere near closing the gap on them, then we need to achieve
growth rates, it seems to be the general view, of about six or
seven per cent in African countries, which is substantially better
than they have achieved in the past. We are about to launch substantial
additional aid expenditure into those countries, which you are
obviously sceptical about the benefits from. I wonder if you could
say how you think that economic growth could be achieved and poverty
could be alleviated and what is the role of aid and its interaction
with the private sector?
Mr Hoffman: Thank you to the Committee
for the opportunity to engage with you this afternoon. You have
cast the question very broadly but also very precisely. When I
answer I will attempt to answer drawing on my background certainly
as a Director of the Shell Foundation, but that is a job I have
only been doing since 1997. My background goes back before that
where I spent the previous 20 years as a development professional,
so I was very much into the role of the development community,
first as an academic and then working for a number of international
agencies—the UN, World Bank and so on. I also along the
way had a bit of private sector experience of my own as an entrepreneur
raising venture capital here in the UK to launch some businesses;
some that were successful and some that were not. I will be drawing
on that broad perspective in answering the question. I think that
if we look at how best we can now go forward and where we are
in terms of how to use the available aid financing in order to
catalyse economic growth, the positive thing to say is certainly
looking back over the last year I have been, on the one hand,
concerned about in a sense the focus on simplistic solutions to
the problem of development in Africa, but I have also been encouraged
by the increasing focus over the last year on economic growth
as a key driver and on the role of the private sector and the
market and so on as delivering that growth. So, in a sense, I
am much more optimistic than I was a year ago that the focus of
attention about how to go forward from where we are now has shifted
onto the issues that I think are the right issues, and indeed
that is about economic growth and how you make that happen, because
the work of DFID and many others has recently shown that is key
to getting people out of poverty in Africa. I think the first
point that I would make comes from observations that many of us
in this room will have made when visiting Africa which is that
everybody is a businessman. In a sense, the informal sector is
very large and people are forced into the informal sector through
their poverty but when they are in there they have to learn how
to trade and buy and sell and try to exploit the market as they
understand it in order to survive. Secondly, their customers are
poor people and they are poor and impoverished and suffer many
of the problems of poverty but they are customers and they are,
equally, very good at what they do. Having to live on $1 a day
or less forces you to focus pretty well on how you spend the income
that you have. So there is a great starting point I think in Africa
for this challenge that we face. The second point I would make
is that that starting point also means there is a lot of experience.
We have had in the last few years, whilst troubles exist in many
countries, a number of examples of private sector companies and
economies beginning to grow on the basis of private sector actors,
so there is a lot of valuable experience and knowledge to draw
on on the ground in Africa amongst the private sector, of all
characteristics. In my view, that knowledge is far more valuable
than the insights that we have from so far away because you get
local knowledge, local experience, local understanding of risks,
and so on. So you have the fact that everybody is a businessman,
you have sophisticated consumers and you have an increasing amount
of experience on the part of local businessmen, both small, medium-sized
and large enterprises, private and public sector enterprises,
foreign and local enterprises, who are learning how to survive
and grow within African countries. I think that is all very positive.
The challenge in the question that you ask is how do we use public
sector aid money to catalyse economic growth, and that is where
the challenge comes because, in a sense, I have argued in the
things that I have written and I am really seeing with my own
eyes that both the delivery mechanisms and the incentive structures
through which aid is delivered to enhance development and particularly
to enhance economic growth and private sector development are
not nearly as well connected into the local market that I have
just described as the local market is. So the challenge is how
do you harness the finance that is available, the undoubted expertise
in the policy researchers and academics and the local knowledge
of NGOs, how do you harness that so that it is tied and directed
much more efficiently to the needs of growing local enterprise
and getting economic growth underway. That to me is the real unique
challenge that the aid community faces.
Q2 Chairman: But do you not accept
that funding education, funding health, funding infrastructure,
which in a sense the public service providers' prime responsibility
is to facilitate, is where a lot of the aid money will go? Is
that not going to help private sector development?
Mr Hoffman: I certainly think
that is where a lot of the aid money will go. Whether it will
help or not depends, in my mind, to just how closely calibrated
that spend is to increasing the possibility of economic growth
taking place. I think one of the challenges has been in the past
that the development community side has accepted the argument
that if we spend on education, spend on health, and so on that
by magic almost somehow this will create the ideal conditions
for economic growth to happen and private sector enterprise to
emerge. It often has not happened, and that is not because these
social spends cannot generate the income and growth; it is because
we have not had the incentive structure and the mechanisms to
tie them closely enough to the challenge of generating economic
growth on the ground with enterprise. I think that is the challenge.
Q3 Ann McKechin: Mr Hoffman, I have
read your paper[1]
and you made one very interesting hypothesis linking the amount
of aid which has been invested in African countries with the growth
in the economy, and what you have stated is that the aid community
"oversaw and implemented a near quadrupling of aid as a percentage
of GDP for African countries between 1970 and 2000. Regrettably,
over the same period, the per capita GDP growth decreased
on average by 0.6% every year." It is actually right to emphasise
that the official ODA assistance to Africa started to decline
heavily in the 1980s and in fact it is only in the last few years
post-2000 that it has climbed back up to something like the figure
in real terms it was back in the early 1980s, which would seem
to suggest that the less aid that was being poured in actually
resulted in lower economic growth. I am interested in where you
think that correlation relates, or is it simply the fact that
African countries' economies have been going downward for different
pressures, be it conflict, be it trade terms, be it the colonial
legacy that they face which had never been properly dealt with?
Mr Hoffman: I think when you deal
with macro level statistics like that and you are trying to find
a cause and effect you can only go so far in drawing the relationships.
That relationship of the graph in the paper is one that really
posits the problem that there were aid resources flowing in, it
may have been in relative terms they were getting lower, but they
were flowing in and at the same time economic growth was declining,
so if the intention of the aid was to, in a sense, facilitate
economic growth then clearly it was not happening well enough,
it was not working well enough.
Q4 Ann McKechin: I think when you
said it is there to facilitate economic growth it is also the
nature of aid. Would you not accept that a great deal of the aid
in the last 30 years has been disaster relief aid, i.e. just keeping
people alive because of the AIDS disaster or conflict or war or
an earthquake, rather than development aid, and that perhaps we
should be looking more at how the total spend on aid is made and
whether it is more on development rather than disaster relief
or technical assistance?
Mr Hoffman: In a sense, it always
makes sense to separate out the humanitarian side, although there
is always the challenge in the humanitarian spend as to how you
link that to the longer term, how you spend that in a way that
will lay the basis for the longer term, so in a sense you cannot
excuse asking the question of humanitarian aid's contribution
to development. When you are talking about increasing the
use of aid for development purposes, for me it does come back
to the question of looking into how the aid is spent and looking
across the allocation of health and education and so on, from
my perspective, which is that poverty is about a lack of income
(it is about a lack of many other things but it is fundamentally
about a lack of income) and lack of income is about a lack of
jobs, and therefore if the war on poverty is all about doing the
best we can to create as many jobs for as many people as possible,
then the first question you ask about the allocation of aid resources
is how much is being targeted on this particular set of challenges
of job creation and enterprise creation and so on. The second
question is if you then have the money that you have being spent
on that focus, you say how is it being spent and who is spending
it, who is deciding how that money is invested and spent and allocated
in pursuit of economic growth and enterprise creation. And this is
where I have found the years that I have spent in the
private sector, in comparison with my background as a development
policy researcher, very illuminating because what I have found
from the private sector is that there is an equation that operates
when you are in a private company in which the way resources are
allocated, either financial resources or people resources or intellect,
is really driven by the achievement of a set of measurable objectives.
Q5 Ann McKechin: Would you not agree
it is also the ability of states to regulate that investment to
make sure it is of benefit to the people that is also crucial,
and if they do not have sufficient enforcement regimes they are
likely to be very susceptible to abuse?
Mr Hoffman: There is no question
about it, you must have effective regulatory control over the
private sector to make it happen, but the point I was making is
that when you are in a private sector company you have to deliver
the results that you are after, and in a sense many critics of
the private sector say if it is profit that you are after the
pursuit of profit damages many people and many environments, but
what I have discovered is that en route to the pursuit of profit
this focus on giving the customer what they want brings the whole
organisational focus on what does the customer want, how do we
make it better and cheaper and of higher quality, how do we get
it to the customer more effectively, how do we do that in a measurable
way so that more customers are buying more of your products than
the other person's? In the development community the fact that
the links are not often made between the way the money is allocated
and the returns that it is expected to produce is where the weakness
comes because you often get allocation in terms of targets and
various qualitative performance indicators rather than how much
does your development spend on health or whatever contribute to
generating jobs on the ground, and it is that connection that
I—
Q6 Ann McKechin: So keeping people
alive is secondary to health and education spending?
Mr Hoffman: The point is how you
better calibrate that spending so that it gets to the heart of
the economic growth challenge in the private sector. Let me give
you an example that I have used elsewhere from a book called Mountains
Beyond Mountains by Tracy Kidder in which he talks about Dr
Paul Farmer, who is a Havard medical doctor who spent a lot of
time in Haiti focusing on the problem of TB and who put a lot
of effort into pioneering highly-designed intervention mechanisms
to tackle TB patients. He did an experiment whereby he said, "Right,
I am going to have one set of my patients where I will provide
the whole package of TB intervention, the drugs, the education,
the support and so on, and to the other control group I will just
provide the drugs, no support, no education, but I will provide
income, I will provide finance," so in effect they had a
job. And the outcome of that experiment was the recovery rate
of the group who were receiving the income was an order of magnitude
more than those who had just received the TB drugs and all the
education and so on. To me that is striking because it suggests
the power of having income-creating opportunities alongside development
interventions.
Q7 Mr Hunt: I am trying to understand,
if I may Kurt, are you actually saying that investment in health
and education crowds out the development of the private sector
and that when resources go into the health and education sector
of a country in Africa that means that people who are educated
get sucked into where the development money is being spent instead
of helping to develop the private sector? If you are saying that,
what do we do as the developed world when we have a crisis like
AIDS in Africa? Do we stand by and say any intervention by us
is not going to work or do we say we have to take short-term measures
to help alleviate this terrible crisis because if we do not people
are going to die and we just have to be very careful that we do
not hinder private sector development at the same time?
Mr Hoffman: Clearly I am not saying
that one stands aside when confronted with humanitarian disasters,
clearly not, but what I am trying to get at is we know that economic
growth comes from the activities of enterprise. We know that is
what gets people out of poverty. We know there are all sorts of
problems about the control of private sector and economic growth,
often not leading to equitable benefits and environmental damage.
We acknowledge all that. We know the business model for generating
wealth and getting people out of poverty works. We know that and
we have had a history in the development side of spending a lot
of money and in those countries where the needs are greatest of
not having a lot of traction on the economic growth side, so the
thing that I worry about both in what I do as Director of the
Shell Foundation and also in thinking about these things is how
do we in a sense marry what we have learned about the role of
the private sector in economic growth with the demands of providing
more humanitarian development support. So it is not a question
of either/or; it is a question of how you exploit the synergies
between the two. It is a question, for example, of saying, well,
in those regions or countries or sectors where there is absolutely
no money and therefore the market cannot work and the private
sector cannot work you still have the challenge. It caused me
to think of some of the work that we have done, for example, in
trying to find ways to get cleaner stoves into households in Africa
and Asia where the women and children are suffering from acute
respiratory diseases caused by inhaled smoke coming from indoor
cooking fires. This is known as Indoor Air pollution. These are
the bottom-of-the-pyramid households, the $1 or $2 or less. What
we have found looking back over the history of engagement with
it is that there were a lot of efforts to supply technical solutions
of various kinds but there was not an awful lot of effort to understand
what the market wants and whether there was a real opportunity
and a willingness to pay, even at that very poor level, for
these sorts of development interventions and poverty
interventions. What we have discovered, by poking away with non-profit
partners and small-scale enterprises in Africa and India, is that
if you let the market drive the product design and you let
the market drive the marketing message and the customer awareness
message, it is possible to find a combination of a product and
a social benefit that will cause these poor households and poor
communities to find ways to access the product, and that is the
case in these stoves which cost $3 or $4. It is also the case
in sanitation. IDE[2],
the national development group working in Vietnam, have discovered,
equally, with sanitation that by really concentrating on what
poor people understand and the lack of information they have about
the benefits of sanitation, constructing a consumer awareness
campaign that addresses those issues, and then designing products
that meet their needs but address their financial implications,
they have also been very successful in finding ways to develop
products that are affordable at the level of very poor people.
Again, sanitation is a development requirement. So it is not that
one squeezes out the other. It is how do you harness what we know
about business models and business and apply it to development
thinking in order to get the various benefits.
Q8 John Barrett: You mentioned earlier
when you said one weapon in the war on poverty is jobs and clearly
many of these jobs could be manufacturing jobs but given the huge
increase in manufacturing in China—we hear reports that
almost everything seems to be manufactured in China—do you
think there is an opportunity in Africa to produce many manufacturing
jobs? If not, where do you see these jobs coming from now?
Mr Hoffman: Yes I do think there
is an opportunity. We have funds now of approximately $40 million
focusing on small and medium-sized enterprises in East Africa
and Southern Africa. They are not fully committed yet but we probably
have helped 300 or 400 enterprises, for example small enterprises
fabricating wind turbines. We see lots of evidence that with the
right finances and the right business skills it is possible to
get a manufacturing capability going. The challenge is how you
increase the robustness of that incipient manufacturing capacity
so that it can grow, search out international markets, be robust
enough to withstand the threat of competition, and so on, and
that is the challenge. It is not that you cannot do it, it is
how do you increase that robustness? Again, we find that one of
the routes to it is by as soon as you can (and in a sense I am
speaking as a donor intervening) ensuring, as soon as you can,
that the small enterprise you are creating is directly in touch
with the market, not with a donor like ourselves or an NGO or
a not-for-profit organisation, but directly in touch with the
market and getting clear signals about how to become more competitive.
The second point is to ensure that the interventions and the things
that we do as a development donor community are themselves driven
to become financially viable because firstly that means "pressure"
on the small enterprise to meet your business plan, become increasingly
competitive, develop products that are wanted by the market. If
you set the funding determinants right these products are pro-poor
and so on. So you keep the pressure on there but if the intervention
itself is also financially viable you then find that after a short
while that with seed funding, the soft money that we represent,
that you can get increasing amounts of funding from the development
finance community and the capital markets and then you can begin
to grow these interventions in local markets that are supplying
finance and resources to these small enterprises to become more
competitive. So it is not just about getting them started, it
is how you grow them, and again this connection to the market,
as difficult and as rough and as uncompromising as the market
can be, is critical to that. Along with that comes things like
the transfer of technological capabilities and all the things
you need in order to remain competitive.
Q9 Chairman: How does our own Department
for International Development plug into this because they are
giving budgetary support, for example, in order to alleviate poverty
directly through health programmes and education programmes which
you are a little sceptical of because it makes the host government
lazy in terms of stimulating demand and raising their own revenue.
How do you think a large aid provider like DFID should be promoting
a pro-growth, anti-poverty strategy?
Mr Hoffman: Firstly, I would say
that the recent White Paper in terms of capturing the arguments
for private sector-led growth and pro-poor outcomes of economic
growth really is an excellent paper and it captures many of the
critical arguments, and I think that recent interventions by the
Minister have also been spot on. I would say, just looking across
a number of the donor agencies that we deal with, that DFID is
far ahead of its competitors in terms of understanding the importance
of that, so that is the first point to make. I think that is where
the best focus of that is. To be honest here, I do not know enough
about what happens after the budgetary support-type programmes
and how they happen to really offer a view on that, so there is
a large chunk of what DFID does in terms of budgetary support
where I do not know enough about how it works through to supporting
the sorts of things that I have been talking about to offer a
view. My concern on that is that the development community, of
which DFID is a part, and the ministries that it feeds into and
the local development agencies that have been working with the
IMF and the World Bank and all of that, are full of the same breed
of person, very much like me, development professionals who have
spent all their life in a non-market situation and therefore do
not have the experience-based understanding as to how markets
work, as to how businesses work, and how you create growth and
how you assess risk and invest. So my sense, without knowing a
lot about how well it works, is to do whatever we can do to bring
into DFID and into the development community private sector experience
and business experience about how to deliver concrete results.
I think that is a great thing in general and of great value, and
there are a lot people with expertise like that, not consultants
but people who have actually risked their own money and been at
the hard end of creating wealth and jobs in Africa. More specifically,
I think that it has to be in and around the area of getting the
markets to work properly and getting the incentive structures
to work right, to improve the investment climate and so on, the
sort of things that the Committee will know are embodied in the
Investment Climate Facility (ICF) of which the Shell Foundation
is an enthusiastic supporter. That is an intervention that is
clearly focusing at a level where an institution like DFID should
focus because you have the biggest impact on it by getting the
signals right and so on. It is structured in a way with private
sector thinking and private sector drivers and it means that the
initiative will be looking out through the eyes of these people
in identifying where to focus. If, for example, you are going
to tackle corruption. How do you tackle corruption at a very practical
level because small entrepreneurs are afraid to grow too big because
there will be certain penalties demanded of them from the local
crime fraternity? How do you tackle that? Getting private sector
involvement involved in the ICF is a good thing. I think that
the additional value that DFID can bring is in a sense recognising
that to these public-private partnerships it can bring more than
money to the table. It has access to a whole lot of expertise
and skills and so on that, like the private sector, it needs to
put on the table in these partnerships and needs to keep them
dedicated to the problem at hand, and in a sense the way in which
DFID structures itself to participate in these initiatives, the
incentives have to be there so that it is compelled to provide
all the necessary resources that are important to make that initiative
work. Here I am focused on the Investment Climate Facility but
other initiatives are focused on private sector growth. What we
often find in a big part of public-private sector discussions
and so on is that private sector companies get involved in these
partnerships because they see they can get something out of them.
They see that they can contribute something to the broader good
but they see that they can get something out of them. Like a private
sector partnership they put the resources into it in order to
deliver the results. There is one person responsible for it and
they have to deliver the results and, if not, they are in trouble.
Often we find that for public sector participants—and I
am not focusing on DFID here, I am just making a general point—you
get different representatives coming at different times and the
attention span of the public sector partner is often pretty limited.
There should be incentives built into DFID's engagement of these
initiatives to ensure that it stays focused and puts all the resources
that they can into making it work.
Q10 Joan Ruddock: I just wondered
if I might relate back to some of the things you said earlier
about the informal sector being very large and then talking very
specifically about those cooking stoves. You are painting a big
picture of partnerships and creating the right sort of finance
and all the rest of it, but the Shell Foundation also focuses
on the growth of SMEs. I just wonder in practice, first of all,
should any international aid agencies be involved at that level?
Can they? How has your Foundation worked, for example on the cooking
stoves, how did you decide there is a market? What did you put
into it and how sustainable did the local businesses that arose
become? Have they survived and for how long? How much business
are they doing? Are they growing from a one-person operation to
a ten-person operation? Give us a flavour of good practice.
Mr Hoffman: Okay. I think that
I can probably best use an example from India as opposed to Africa
on this, but in trying to find a way into this problem we searched,
first of all, for partners who were represented in the market
so partners who were already there so you did not have to reinvent
the wheel, you did not have to reinvent the distribution mechanism
or the distribution structure. First of all, we looked for a partner
who was already in the market and a partner who understood that
market, which is pretty unique in terms of very small villages,
very low incomes, a great deal of issues, all interconnected with
poverty. These are NGOs that we started to work with. In a sense
we interrogated the short list that we identified in order to
find those who were most alive to the challenge of, "Well,
you are in three or four villages now and that is all very well
but this problem is a lot bigger than that and you have a particular
stove that you have piloted in this village but really you are
only selling 100 a month. Don't you want to have a bigger impact?"
So this is at a human level and you are looking for partners who
are driven by a desire to go to scale. So that is the first thing.
The second thing is we found that if you introduce the requirement
that the demonstration of success and the trigger to providing
more funds is whether or not people will pay for your product,
not necessarily the full price but pay something. That causes
the delivery mechanism to look for a whole different set of ways
to engage the customers than it does if they have the stoves given
to them and the problem is how do you convince the women that
this is good for you. I will give you an example of what happened.
It was a great breakthrough with one of our NGOs, the Appropriate
Royal Technology Institute, working in Maharashtra state. When
we put this kind of "pressure" on them and they went
around and they focused on identifying the women in the villages
who were natural leaders and encouraged them to think about how
they could sell these stoves to other women in the village. In
doing this they came upon a very effective marketing message—not
that using a clean stove was good for you because it will decrease
the amount of smoke you inhale and therefore you will not get
pneumonia and so on; but that using this stove will make your
kitchen cleaner and your pots and pans cleaner. That is a classic
consumer message really. This NGO discovered that the "customers"
were very responsive to that and began then to structure the marketing
around that message. Then they discovered that the finance was
not actually a problem; it was finding a message that worked.
That evolution in thinking came because of the emphasis placed
on getting them to listen to the market. That is one example of
our value add. Here is a second: this NGO worked very well converting
local self-help groups into sales representatives and sold about
65,000 stoves, and that is a fantastic result. But again the bigger
problem is that there are 10 million households in Maharashtra
state that are at risk. So in order to go from where you are now
and to have a much bigger impact they faced a real set of challenges
that we would call from a business side, supply chain challenges.
How do you develop the supply chain? How do you package the product
you are producing in different components? Where do you get them
mass-produced? How do you manage quality? Addressing these issues
require skills they did not have.
Q11 Joan Ruddock: If I may interrupt,
why did the private market not just deal with it?
Mr Hoffman: Too risky. In these
markets the margins are too low to support the private market
coming in and risking capital, it is just too risky.
Q12 Joan Ruddock: Even when you have
got a product you could sell to millions?
Mr Hoffman: Yes, it is still too
risky.
Q13 Joan Ruddock: This is not really
private sector development, is it?
Mr Hoffman: It starts there because
now we have this NGO which has submitted to us a business plan
that means it is going to sell two million stoves inside three
years and they will do it on a financially viable basis. So it
is getting there. They are going to convert themselves into a
non-profit making business. We had to bring in supply chain expertise
from elsewhere, from other businesses, to help the market. That
was another business skill that we helped to introduce into that
market.
Chairman: Obviously we have other evidence
sessions and I have a couple of colleagues who want to come in
with questions so if you could perhaps keep your replies a bit
crisper so we can get to the end.
Q14 Richard Burden: About a year
ago the Shell Foundation published Enterprise Solutions to
Poverty[3]
and this was where you were talking about the question of promoting
competition amongst aid providers and you said: "A re-engineering
of the development supply chain along business lines . . . a new
form of hybrid enterprise that could deliver differentially priced
services to different segments of the poverty market." I
am struggling a bit to know what that means.
Mr Hoffman: I think what I was
trying to get at is when you are dealing in the non-market that
we are dealing with where there is a variety of market failures
and a variety of poverty problems, you need a whole mix of skills
and inputs to overcome them, and they do not come from just one
supplier, so they do not just come from the private sector, they
do not just come from the non-profit sector or the aid sector.
They necessarily come from different sectors and what you need
to do is to find a currency that allows these different blended
value investors, as it were, to get the returns that they seek
from putting in risk capital into these markets but allows it
to exist at the same time so that the private sector role needs
to be able to get a return on capital. We need to find a currency
that allows that aspiration in a particular intervention to exist
alongside that of the social investor who is more interested in
the social benefits gained from developing a market-based solution.
Q15 Richard Burden: So this competition
does not apply to the social investors you are talking about?
Mr Hoffman: Well, the model I
was talking about was where you bring the different investors
together. Where I was talking about competition was between different
agencies, between different donors.
Q16 Richard Burden: It sounds to
me like it is creating a contracting circus which we are expecting
the developing world to somehow cope with when they might have
bigger priorities at the time.
Mr Hoffman: Yes, it is interesting.
The issue of, at a general level, how much control we see in the
private sector in order to deliver and how much monopoly control
we see in the private sector in order to deliver a certain benefit.
Taken down a level, at the level you are talking about, I think
the issue about contracting that you mentioned is one about getting
everyone to agree to a common definition of what the objectives
are, of the returns that you are seeking, what the relative contributions
of the different players are, and how those responsibilities will
be discharged.
Q17 Richard Burden: I am just not
sure on that who is the body or who are the people that are pulling
that together?
Mr Hoffman: Well, there is a new
example in the International Engineering Water Centre called IWEC
which is a group which is indeed trying to combine private sector
investors and NGOs and others in pilot projects to deliver water
and sanitation in urban and rural areas in Africa and elsewhere
where they are trying to make this work. So I think who would
do it depends on who sees the greatest opportunity, I guess, and
the key would be—it is all hypothetical so it is difficult—to
find an actor who has an interest in succeeding in that particular
segment in the market and then to recognise that that actor, whichever
character it is, does not have all the skill sets it needs and
to find ways to link the different partners together in a relationship
that delivers a result. So I think we need to let the market speak
to find someone who emerges who thinks they can solve a problem
and then add on to it different types of support.
Q18 Mr Singh: Mr Hoffman, you are
not a great fan of targets in the public sector although you call
them "measurable objectives" in the private sector.
Your thesis about targets would mean scrapping the Millennium
Development Goals. What would you replace them with? Would you
not also accept that the aid community, the Western community,
the public gives money and allows the governments to spend money
specifically on issues like health and education and other issues
and they want to see some results from that money being spent.
If we scrapped all the targets how would we know if our aid was
effective or ineffective? What would you replace the goals with?
Mr Hoffman: On the first point
about targets, targets need to be set so that you can identify
the link between the investment that you make and achieving those
targets. The problem with the Millennium Development Goals (MDGs)
and many targets in agencies is that they are commonly shared
targets across the development community and you have a collective
responsibility for delivering them and you really cannot trace
the input and output relationship. The development community would
argue that it is a complicated business so you really cannot be
expected to put a dollar in here and get an output there. I think
the first point I am making is that if you use the discipline
of forcing those targets to become ever more rigorous and the
mechanisms and initiatives that you put in place to ensure that
that dollar leads to an outcome that is measurable, you force
those targets to become more realistic and to really stand a chance
of being delivered. So that is my first point. It is not that
targets are bad. It is just that we have a tendency to be too
soft on our targets in terms of the link between our activities
and those targets. On the MDGs, the first MDG is reducing those
living on less than a dollar a day by half and then all the rest
of them follow on from that—water and health and so on—and
here I am truly speculating but it would be interesting to see
how the resources are being allocated to tackle those MDGs, and
I would hypothesise (but I am happy to be proved wrong) that the
vested interests in the development community are such that there
is an awful lot of money going to equally defensible poverty
problems—water, education and environment and so on—and
not enough going on this first one of reducing poverty through
delivering economic growth through generating pro-poor enterprise
activity, so again I would say let us focus on that first one
and unpick it and really focus in on that on the assumption that
if we do better at that we would do better on all the other targets.
Q19 Mr Singh: So you do not believe
in a macro role; you believe in micro roles for specific NGOs?
Mr Hoffman: I do really. Only
because the closer you can get to the suppliers of finance and
deliverers of services to have their futures depend on how successful
they are on generating pro-poor economic growth through enterprise
creation, the more results you will get, but it is a difficult
challenge to do. It does focus the attention in the next round
of money if you say you are only going to get it if you can demonstrate
how many jobs you have created and how many enterprises you have
created.
Q20 Chairman: Thank you very much,
Mr Hoffman. I think you, together with this Committee, have supported
the campaign for more resources to go into developing anti-poverty
approaches, but how we ensure it is spent in a way that actually
delivers the results, what works, is the hard part. We appreciate
you taking the time to share your thoughts with us. We will see
where the other evidence takes us.
Mr Hoffman: Thank you very much.
1 Kurt Hoffman, Director of the Shell Foundation,
Aid industry reform and the role of enterprise, September
2005, http://www.shellfoundation.org/news_rel/Aid_industry_ reform_and_the_role_of_enterprise.pdf Back
2
International Development Enterprises: http://www.idevn.org/ Back
3
Enterprise solutions to poverty: A Report by the Shell
Foundation, March 2005 http://www.shellfoundation.org/download/pdfs/Shell_Foundation_Enterprise_Solutions_
to_Poverty.pdf Back
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