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Indispensable private sector
– by Christiane Rudolph, Sabine Balk
© DEG/Thorsten Thor
Women working for a Vietnamese car-component producer that has been co-financed by DEG.
What is the report’s most important message?
In my eyes, it is that the SDGs, the UN’s Sustainable Development Goals, cannot be achieved without strong engagement of the private sector. Its impact is essential. The DEG portfolio currently amounts to € 9 billion. Last year, the companies we supported employed 2.1 million people. Combined, they generated local income of € 92 billion.
How are your clients developing?
There are huge differences, but the data we collect allows us to show the dynamism and the progress made in every single case. We are proud of the data. Only few international institutions are able to provide information like this. Moreover we dare to admit that 40 % of the companies we are financing did not manage to improve their development impact. On the upside, 60 % did so. Many different reasons explain both failure and success. We can give every client precise feedback regarding their performance in various dimensions, and we can discuss options for DEG supporting promising new approaches. Consider a pharmaceutical manufacturer in India. This company is now meeting international labour standards, so its rating has improved considerably. By contrast, poor harvests caused by climate change have worsened the situation of a Costa Rican agricultural company. As a consequence, local income has deteriorated, so the company’s developmental impact has been reduced.
How do you measure impacts?
We use a methodology that we call Development Effectiveness Rating (DERa). We have developed it ourselves (see my essay in Focus section of D+C/E+Z e-Paper 2017/10). We collect quantitative and qualitative data for every client in order to be able to report in five categories:
- decent jobs,
- local income,
- market and sector development,
- environmental stewardship and
- community benefits.
The data serves to make development visible over the years. It also helps to determine what sectors are promising and where action is needed. Resilience to shocks like harvest failures is becoming ever more important, for example. DERa data also shows us how the novel coronavirus is affecting companies. It will be interesting to analyse the potential private sector companies have for pulling national economies out of the slump.
What do you know about Covid-19 impacts so far?
One thing is certain: the pandemic is hitting developing countries and emerging markets harder than prosperous nations. Many of our clients expect serious shortfalls. The International Labour Organization reckons that 2.7 billion jobs will disappear around the world. Our data tell us that about 35 % of our clients’ employment is at risk, and that would affect 830,000 persons. At this point, we can only make rough estimates concerning how serious the impacts will be. In a year or two, our assessment will be more robust. Nonetheless, we have already taken measures in response to Covid-19, and our efforts are supported by Germany’s Federal Ministry for Economic Cooperation and Development (BMZ).
What are you doing?
We have launched additional support programmes regarding health and paid sick leave. Partners include garment manufacturers in Bangladesh and clients in Tunisia. We are also supporting a newly established health centre in Peru. It has been enabled to respond to the novel coronavirus. Moreover, we offer liquidity support, with companies taking additional loans to pay sick leave or act in a similar manner. Our strong point is that we are in permanent touch with client companies and can ask them what kind of help they need precisely. Even when job cuts become inevitable, we can still offer support, so redundancies are handled according to international standards, for example. Our Covid-19 response is ongoing and will continue.
One of your priorities is to promote women’s employment. Why does it matter?
The promotion of women has considerable positive impacts on social development, as researchers have shown again and again. DEG supports an international initiative of the development finance institutions based in the G7 nations. It is called 2XChallenge and was launched in 2018. We did a lot of work in recent months. The goal was to jointly raise, by the end of this year, $ 3 billion for companies that are owned by women, managed by women or specifically promote female staff. The initiative has exceeded the expectations, having mobilised $ 4.5 billion so far. An exciting aspect is focusing on female customers. Many companies do not pay enough attention to this target group and don’t offer specific products or services for women. When we assess investment proposals, we always consider the gender potential. Last year, for example, we subscribed to a gender bond that a bank issued in Thailand. Moreover we have started a successful advisory programme called Gender Smart Opportunity Assessment. The programme’s target group is financial institutions with an interest in improving their outreach to women. We see encouraging results. A Mexican partner has become so enthusiastic that they want to redesign their business model with a stronger focus on promoting women. We are now discussing options for doing that with them.
What is the gender bond?
A Thai bank issued it in October 2019. The idea was to give women-led small and mid-sized enterprises (SMEs) better access to finance. Investors can support that bank’s outreach to women by investing in the bond.
DEG, 2020: Responsible business – adding value.
Christiane Rudolph heads DEG’s Corporate Strategy and Development Policy department.