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Economic growth

Private sector crucial to Millennium successes

by Heike Bürskens
Affordable medication reduces poverty: Chinese pharmacy

Affordable medication reduces poverty: Chinese pharmacy

When the Millennium Development Goals were adopted in 2000, companies were not the main focus. However, poverty reduction and protection from climate change are inconceivable without the private sector’s involvement. A plea for more cooperation by the private sector, the state and civil society. [ By Heike Bürskens ]

It is ten years since the Millennium Declaration and the Millennium Development Goals (MDGs) were adopted. For a long time, the contribution made by companies towards achieving the MDGs was considered of practically no consequence. However, enterprises are actually key actors. Through new business approaches which view the poor not only as target markets but also as producers, they create employment and generate income. Initiatives to mobilise the contribution made by the private sector in the international debate at the top political level too have only come along since 2008 – for example with the Business Call to Action and the UN Global Compact Private Sector Forum, which were launched that year. Just in the last year, this development has gathered momentum at national, multilateral and bilateral level. The private sector and its contribution to development is of increasingly outstanding importance.

Companies already contribute to achieving the MDGs in many different ways – in as far as poverty reduction is concerned, for example, by
– creating jobs,
– offering further education and training opportunities,
– helping to create and disseminate environmental and social standards,
– offering reasonably-priced products and services such as micro-insurance, affordable medicines and access to energy supply, or
– investing in public institutions such as schools and in infrastructure.
The companies themselves also benefit from these measures: good working conditions prevent disputes with the employees and therefore reduce production risk. By investing in sustainable and innovative business segments, companies can safeguard their competitive ability and improve their capacity for innovation.

The markets of the poor and the climate

The market for products which are especially suited to the needs of poor people has hardly been tapped into so far and offers companies new business opportunities. These include innovative business models for those who live at the “bottom of the pyramid” (BOP), i.e. the lower end of the income pyramid, and approaches which contribute to innovative growth.

New business segments also present themselves within the context of climate change adaptation. Even though for a long time the private sector took a negative view of political climate protection efforts and prevented international agreements being concluded by lobbying, the role of companies operating globally has changed dramatically in the recent past. Nowadays, it is often companies which press for international regulations for climate protection. They anticipate new earning potential, especially in the field of technology development. However, investments in climate-friendly technologies are only worthwhile for companies if they can rely on a stable investment climate and clear climate legislation.

Just as the potential of the private sector was underestimated, the significance of climate change in achieving the MDGs was also disregarded for a long time. Globally active groups of enterprises, small and medium-sized local enterprises and even micro-enterprises can make an effective contribution to climate protection. To quickly change to a low-carbon economy, it is important that the private sector makes these business opportunities a reality.

Companies are dependent on politics

In the fight against poverty and climate change, groups of enterprises have to rely on the support of authorities and civil society. For this reason, governments need to develop regulations to stimulate initiatives from business.

This also applies to the business models on the “bottom of the pyramid” market mentioned above, whereby large groups of companies cooperate with small enterprises, the informal sector or the local communities. After all, the groups usually have an inadequate understanding of the poor, the way their markets work and the cultural conditions. Therefore, in order to tap into these markets, they are often dependent on partners from civil society and the state who are familiar with the structures and unwritten local laws.

During the UN Millennium Summit, where companies, governments and non-profit organisations joined together to reduce poverty, inclusive business models were one of the key topics of discussion. Together, in accordance with the BoP-approach, they are trying to involve poor consumers and producers in global production and value chains.

The final third of the MDG term has begun. At the UN Private Sector Forum, a large number of companies pledged to make a contribution. For this to succeed, politics and business have to cooperate in a spirit of partnership. The International Business Forums run by InWEnt and the World Bank Institute (see text box) want to support this process: They promote dialogue between the private and public sector representatives and civil society.