The Truth About Foreign Aid

…That could be the title of a new 3-part BBC podcast, “The Truth About NGOs“. This documentary explores whether and how should NGOs be politically involved, as well as the consequences of having a large international NGO sector in a developing country. The first episode begins with a focus on Malawi, and how the LGBT rights movement has been buoyed by NGOs and their foreign donors. It’s an interesting piece, though this is not about “NGOs”, per se – it is also about the powerful influence of donors on their grantees, and even in this podcast, the politics of state-level aid are discussed. NGOs, the actors on the ground, are only one part of the puzzle.

The podcast is probably nothing new for NGO policy wonks – the discussion of whether organizations are influenced by or beholden to their funders and donors is an age old discussion. Same goes for failed, poorly designed and implemented development projects that never see the light of day and/or disappoint and anger communities. Or the notion that some NGOs only pay lip service to the notion of “participation” (the podcast actually defines “dragonfly skimming” and “helicopter consultancy.”)

In spite of going down some already well trodden paths, the podcast raises some interesting points concerning the role of NGOs in perpetuating the poverty they seek to alleviate. (I can already hear my aid/development colleagues’ feathers getting ruffled, but bear with me.) While this probably merits much more than a few sentences on this blog or a few minutes in a podcast, one of the more interesting notions explored by the podcast is the idea that international NGOs are “depoliticizing” poverty. ” I thought this line, by Firoze Manji, editor in chief of Pambazuka News, was spot on: “If the NGOs participate in the process of alleviating the nasty parts of becoming poor, they are actually colluding. It comes back to saying being brave enough to take on the “politics of impoverishement”. Either you fight that, or you’re part of the problem.”

The question posed at the end of the podcast is whether NGOs should focus on “on advocacy, on leverage, rather than delivery of aid.” What do you think? There are obviously circumstances where this might not make sense, in particular in emergency situations where NGOs provide life-saving aid. But beyond that, is advocacy, rather than aid delivery, the future of NGOs?

Listen to the podcast here.

Is EDUN a success?

In 2008, as part of a conference goodie-bag, I received an EDUN t-shirt. The shirt’s tags indicated my shirt was made in Peru, from organic Peruvian cotton. The small pamphlet attached to it noted that the company, started by Bono and his wife Ali Hewson, was focused on sustainable, ethical and eco-friendly fashions. I remember liking the shirt and the story behind it, especially because my job at the time had me focusing on economic development for small-holder farmers in rural Peru. I liked the idea that not only was the organic cotton produced in Peru, but instead of being exported as a raw material, the value-added product was created there in Peruvian factories, thus enhancing economic returns locally.

Me and my Peruvian-made EDUN shirt

EDUN’s mission though, according to Ali Hewson is to make a profit — not because the executive board needs the money but to demonstrate to other entrepreneurs that it’s possible to do so in developing countries, paying fair wages and relying on local raw material entirely processed and manufactured by local labor, from start to finish.

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An article entitled “Out of Africa, Into Asia” in Friday’s Wall Street Journal explains how the company decided to move a majority of the production to China because of various issues with the manufacturers in the developing world, particularly in Africa. Delivery delays and quality problems were affecting the clothing line to the point where the company hosted “a party in the dark, at the chic cabaret venue The Box, to draw attention away from the clothes.”

According to the WSJ:

After putting around $20 million of their own money into the still-unprofitable brand, Bono and Ms. Hewson sold 49% of the company last year to LVMH Moët Hennessy Louis Vuitton for about $7.8 million. LVMH, the world’s largest luxury conglomerate, helped the company recruit new management and a new designer (Mr. Gregory left in 2007), and then tried to convince the founders to expand their sourcing horizons.

Currently, 15% of EDUN’s products are manufactured in Africa; this particular point led to an interesting conversation on Twitter about whether this means that EDUN is succeeding in its mission, or if in fact it has failed to accomplish what it set out to do. Some argued that EDUN was proving that it was possible to run a for-profit enterprise with a strong commitment to fair and ethical practices. Others – myself included – questioned whether EDUN could be considered successful given how much it seems to be deviating from its original intent.

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I can relate to both sides of the argument here. Bono and his wife set out on a creative enterprise which they hope can become a model. As Hewson told the WSJ in 2009, EDUN is supposed to demonstrate that a for-profit business can be successful and ethical at the same time. This in turn can encourage other businesses to adopt new practices: sourcing products (and not just raw materials) from factories with strong labor and environmental standards in developing countries. These are obviously laudable goals that should be supported. However, my concern lies with the fact that Bono and Hewson didn’t actually prove that this was possible through EDUN, given all the issues they encountered in making their vision a reality.

In EDUN’s “mission” section of their website, it seems rather obvious that the focus is strongly on Africa. A rather tedious and unoriginal video of schoolchildren dancing in a school in the slum of Kibera and a slideshow of nameless organic cotton farmers adorn the webpage, along with a “Made in Africa”section, ominously subtitled “coming soon…”

The mission statement talks about about two partnerships: one with the aforementioned school in Kibera, and the Conservation Cotton Initiative in Northern Uganda with Invisible Children (everyone’s favorite advocacy organization) and the Wildlife Conservation Society. Leaving aside the merits of these two initiatives, they do speak to the rather small-scale scope of EDUN’s impact on African manufacturing. Which is precisely why I find it difficult to construe EDUN as a success: they have only very partially achieved their goal of having their fashion clothing line produced in African factories.

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In the WSJ article, Ali Hewson makes it clear where EDUN’s priorities lie: “we focused too much on the mission in the beginning. It’s the clothes, it’s the product. It’s a fashion company. That needs to be first and foremost.” Now this makes perfect business sense – a good company sells quality, in-demand products at the lowest possible cost in order to maximize revenues. What this suggests, though, is that the fair trade aspect of the mission – while still present – is not a priority. This is reflected in the decision to source a majority of products from China, with only a nominal portion coming from Africa. Furthermore, as EDUN’s website suggests, their efforts in Africa seem to be informed by somewhat vague principles and guidelines.

The problem is that EDUN, under these circumstances, is hardly demonstrating that “doing good while doing well” is a viable way to run a business. In fact, I’d argue quite the opposite. Their initial focus on product marketing (through celebrity ad campaigns and thanks to Bono’s superstar status) rather than on developing a viable, sustainable business model eventually forced them to rethink their model. This is particularly frustrating because EDUN could have easily sought to do its homework properly and anticipate the predictable problems they ran into. Saundra Schimmelpfennig wrote about this exact topic last year, and there are hundreds of entrepreneurs in the same space whose counsel could have been sought.

EDUN failed to learn the lessons of their predecessors’ mistakes in order to make their model succeed has they originally intended. Instead of proving that their business model was viable, they seem to have proved exactly the opposite. If it Bono hadn’t had the ability to throw $20mm of his own money into the company when it was suffering financially, if he didn’t have the kind of prestige that would make LVMH purchase the flailing, unprofitable company, I highly doubt EDUN would still exist today.

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I’m one to be supportive of daring entrepreneurship, both social and commercial, and I do have a lot of respect for people who have the courage to throw their energy into creating a successful enterprise. That said, when it comes to EDUN, I feel that the efforts were superficial, in more ways than one. Had EDUN done better research, they might have come up with a better model than what led them to be pretty much ashamed of the clothes that came from Africa (cf. the party in the dark to draw attention away from the clothes – for a fashion company!?) I don’t think anyone considering investing in African business would look to Bono and EDUN’s example as a model for success… In fact, I would imagine that looking at EDUN would discourage potential investors.

It seems that we don’t hold Bono to the same standards we hold non-rock star entrepreneurs. His mere trying to succeed appears to be enough to endear him to his supporters. Frankly, I feel Bono doesn’t deserve much praise here. If he was truly committed to supporting African cotton farmers, sellers and manufacturers, he could have invested in a few small or medium size clothing factories, for example. Industry in the developing world needs capital and improved operational standards, and there are several organizations which focus precisely on achieving this. The Grassroots Business Fund, for instance, makes equity, quasi-equity, and debt investments in the $250,000 – $1,000,000 range in agricultural and artisanal businesses, as well as access to finance and BoP services.

I understand: EDUN is a fashion clothes line, not an aid project. Fair enough. But then let’s see this for what it really is: one among many lines of clothing designed and marketed by a celebrity, with an ethical “twist.” To say that EDUN is a “game-changing” initiative is giving much too much credit to an enterprise which essentially failed to accomplish the mission it set out for itself.

Wonk love

‘Tis that time of the year again: long weekends and celebrations of national holidays, fireworks and hot-dogs. As I suspect many of you will be traveling this weekend (and throughout the summer), I thought I’d recommend one of my all time favorite podcasts: the Center for Global Development’s Global Prosperity Wonkcast. Usually hosted by Lawrence MacDonald, the podcasts usually last about 20 minutes and feature Center for Global Development (CGD) fellows, as well as other prominent guests. The themes discussed are always salient and topical, and the expertise is spot-on.

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Last week, the Wonkcast had an excellent episode on the Gulf of Mexico gusher and Africa’s oil boom (mostly about the latter topic, really), with Todd Moss and Vijaya Ramachandran. The New York Times reports that “as many as 546 million gallons of oil spilled into the Niger Delta over the last five decades, or nearly 11 million gallons a year.” Unlike the outrage sparked by the Deepwater Horizon catastrophy, the response to the relentless flow of oil into the Niger delta has generated little action. There are different factors affecting the situation: criminal activity by rebel groups, which illegally tap pipelines and fail to cap them, is one major issue. But one point which the experts in the Wonkcast insist on is the responsibility of corporations.

Nigeria has a weak regulatory environment, and many of the companies drilling for oil do so out of sight – literally. With offshore platforms left unmonitored by the government or other independent bodies, the safety and security precautions taken by companies are determined internally. This leads to several issues related to poor maintenance of facilities (corroding and unsecured pipelines), environmentally destructive practices (gas flares, which are the result of burning off natural gas recovered during the extraction of crude oil), and a general lack of accountability and responsibility for the social and environmental impact of natural resource extraction activities.

The Nigerian authorities – both federal and local – and natural resource companies share the responsibility for what is occurring in the Niger Delta. If they are not directly responsible, they are at the very least guilty of omission. Todd Moss speaks of the need to drastically improve the regulatory framework that governs natural resource extraction in Nigeria. I would add that companies also need to adopt much stricter standards, and embrace good corporate citizenship. As we are seeing with BP in the Gulf of Mexico, the practice of putting profits and the bottom line ahead of any other concerns has to change.

Efforts to promote the value of corporate social responsibility have been gaining in importance in recent years. The notion of “triple bottom line” (people/planet/profits), for instance, is becoming the dominant approach to full cost accounting, which takes into account the full economic, social and environmental cost of operating a business. The Dow Jones Sustainability Index “comprises the leading companies in terms of sustainability around the world. It captures the top 10% based on long-term economic, environmental and social criteria out of the biggest 2500 companies worldwide.” The Extractive Industries Transparency Initiative, as well at the Global Reporting Initiative, are other examples of new accountability systems that are changing the way in which companies report on their activities. What ties all these initiatives together is the move towards taking into account all of the dimensions – economic, social, environmental – which a business necessarily impacts.

Another initiative, this time led by executives in the natural resource sector, is the International Council on Mining and Metals (ICMM). The ICMM’s mission is to help its member companies make their social and environmental commitments in line with sustainable practices, and to increase the overall sustainability of their operations. Having worked with the ICMM in the past, I can attest to the quality of the organization’s work. As far as I know, there is no similar initiative for the oil and gas industry.

Because of the nature of the natural resource extraction business,  negative externalities caused by these activities are often not on people’s radars. It took a massive disaster in the Gulf of Mexico for the general public in the United States to question the practice of deep-water, offshore drilling. In our day to day lives, we are not exposed to the environmental and social consequences of natural resource extraction – out of sight, out of mind.

For the estimated 30 million people living in the Niger Delta, however, the effects of poorly regulated oil extraction have very tangible consequences: destroyed ecosystems, depletion of fish stocks and wildlife (impacting the livelihoods of local fishermen and farmers), hampered agricultural production, pollution (leading to many health issues), insecurity (due to the presence of armed criminal groups), etc. Amnesty International released a comprehensive report last year, where these issues are explored in depth.

One of the solutions discussed by Todd Moss to decrease poverty in the Niger Delta is the institution of direct cash transfers to the local population. Under this scheme, the Nigerian government would redistribute 10% of its annual dividends directly to individuals in the region. By by-passing state coffers, and thus the possibility of funds being misappropriate or mismanaged, direct cash transfers are seen as a way to beat the “oil curse”, which has plagued natural resource rich countries with poor governance. This method of redistributing revenue is being used in Alaska since 1982, and Moss has been advocating for this approach to be adopted by West African nations such as Ghana and Nigeria.

In the podcast, Moss notes that this direct cash transfer proposal is creating strange bedfellows: on the one hand, progressive liberals believe that this allows citizens to have a stake in the wealth of their country, and, on the other hand, libertarians love the idea of cutting out the government middle man. Moss points out that the dividends paid to citizens should still be taxed by the government, in an effort to keep accountability loops. Nevertheless, I wonder about the indirect effects of such a system.

For example, under this system, the incentives for government accountability in terms of natural resource wealth management are reduced. In other developing nations, the approach has been to strengthen both the regulatory framework and redistribution channels, and to build the capacity of government agencies to manage natural resource wealth. While direct cash transfers may be a good short term solution, in the long term, it does not help resolve the overarching challenge of poor governance.

In my mind, building the institutional capacity of resource-rich countries is the most critical element of turning the “resource curse” into a blessing. Chile and Peru are examples of countries that, not very long ago, were struggling with poverty. Both of these nations have instituted reforms and focused on attracting and managing foreign investors and natural resource companies. The government of Peru has a complex taxation and redistribution system in place, which seeks to ensure that the wealth generated by mining is shared based on principles of equality.

A study by the Fraser Institute supports this view (emphasis mine):

“The authors of the report, after considering new and existing data, come to the conclusion that whether a country benefits from natural resources depends largely on the integrity of its institutions and economic freedom — government bureaucracy, legal structure, property rights, monetary policies and international trade. Simply put, the higher the level of economic freedom a country enjoys, the greater the benefit from resources.”

For Nigeria, direct cash transfers can probably help alleviate poverty to some degree. Nevertheless, I don’t think the egregious violations of human rights, the environmental destruction and insecurity will subside unless: 1. the government of Nigeria improves governance and regulation, and 2. natural resource companies self-impose stricter standards for safety, security and work much harder on mitigating the negative social and environmental impact of their activities.

These aren’t short term projects, but they should accompany any initiative that seeks to diminish the negative impact of natural resource extraction in the region.

On global hunger & food security

I just wrote a two-part series on the changing landscape of international food aid for UN Dispatch – you can read part one here and part two here.

Rice fields in Bong County, Liberia

Only a few hours after I filed my posts on food aid, I found out that Owen Barder’s latest podcast for Development Drums was an hour-long interview with Roger Thurow and Scott Kilman, about their new book “Enough: why the world’s poorest starve in an age of plenty“. I was a bit nervous to listen to this after having written for UN Dispatch, but I was relieved that I seemed to have covered some of the main points these experts make in their book.

If the Development Drums podcast and my recent posts aren’t enough to satisfy your hunger on this topic, here are a couple links of interest:

Ending Africa’s Hunger, September 2009, The Nation. This well-researched, in depth article is a searing critique of the Gates Foundation’s work on agriculture in Sub-Saharan Africa. It’s an interesting take on the way in which agricultural development is being pursued by philanthropic and private sector actors, and the implications of current strategies. I frequently refer back to this article, which I find offers a unique perspective on hunger and food security in Sub-Saharan Africa.

Smallholder farmers hold the key to food security, February 2010, Business Daily. Great piece on how smallholder, rural farmers have historically been overlooked by national agricultural and development policies, and how they could be leveraged to increase food security.

The podcast is here. You can also subscribe to it for free in Itunes. These hour long, in-depth discussions led by Owen Barder are highly recommend for anyone interested in development policy.