Select Committee on International Development Minutes of Evidence


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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