Are Private Sector Actors in Uganda Transmuting to Capture MSD Cash?
Until recently in Uganda, most development actors especially those engaged in economic growth interventions were deeply suspicious of the private sector. We think this is due to the charity mind-set with which such actors viewed development. No wonder, the first attempts to conduct market linkage with the indigenous private sector – we call this ‘Private Sector Engagement 101’– were not very positive. These were instances when linking farmers to businesses was deemed exploitative, partly because of one-off relationship focus of private sector and the huge information asymmetries that was at play in the markets then. This distrust was re-enforced by the self-righteous believe by development actors to be doing what is ‘right, just and moral’. The charitable cause pursuers strongly believed that the private sector was a greedy and uncaring machine that could not be trusted with the ‘noble’ responsibility of poverty alleviation. With this mindset, development actors viewed profit motive and poverty alleviation to have ‘oil and water’ relationship and henceforth did not mix well.
However, these suspicions were short-lived because there were too many documented international experiences and learning that already challenged its vert premise. For example, in The Business Solution to Poverty, Paul Polak and Mal Warwick presented an alternative to relying primarily on the work of nonprofits for development. They argued that ‘conventional approaches to end poverty have largely failed, and as Einstein taught us, to continue believing they’ll succeed would be madness’. Similarly, in The Fortune at the Bottom of the Pyramid C. K. Prahalad and Stuart L. Hart presented over 400 pages of evidence on how new business models targeted at providing goods and services to the poorest people in the world were able to generate development progress. With such evidence developing internationally, it was therefore only a question of when rather than if the development paradigm would change in Uganda. The 2008 DFID and SDC M4P Operational Manual and approach were adopted by projects and charitable agencies as they struggled to transition fast into the new thinking of development. To date, platforms such as BEAM Exchange continue to support this transition.
We were lucky to be among the early adopters of MSD and we piloted the approach in an extremely thin and recovering market in Northern Uganda. Not much was known about the MSD approach amongst the donor-funded projects, private sector players and local governments in Uganda. Even most of us were not sure of the end result. Most times we wondered whether the managerial energy required to implement the approach was justified. We saw opportunities for growth in the thin market, but we weren’t sure if these opportunities were attractive enough to the targeted large firms to warrant the disruptive changes in their internal systems and processes we were suggesting. In the end, that attempt proved that the social and developmental benefits that can accrue from well implemented MSD project are substantially enough for every development project throughout Uganda to give priority to market-based approaches.
Unsurprisingly therefore, in every corner of Uganda currently, projects (contractors, NGOs and donors) are advocates of this approach because of its ability to catalyze development process long after the donor-funded projects are phased out. This exodus to MSD is not necessarily out of conviction. To the most part, it’s a condition. Like the golden rule states ‘the one who owns the gold makes the rules’, some donors now explicitly indicate ‘traditional direct delivery approaches will not be acceptable’ in calls for proposals. The development facilitators thus find themselves pushed to the wall and are left with no choice but to transition into MSD implementation in order to survive in the ever-competitive donor-funding space.
The metamorphosis
During its pilot years, the MSD approach shocked all the stakeholders with its radically different modus operandi. Perhaps the most radical of them was the nature and form of partnership; local NGOs (which of course were abundant, but had already gone through a period of reduced funding opportunities) found themselves having reduced roles and instead businesses were the preferred partners! Also, not all businesses were considered for partnership, but rather, those that had ‘inclusive business models’ for engaging the poor. Such businesses had their risks bought down to incentivize them to either introduce new products or expand in new market frontiers that were not immediately in their plans. Suddenly, these supported businesses captured new markets and provided opportunities to the poor in a manner that was not observed before. The businesses especially seemed to have been shocked by how easy it was to access the funds, with no repayment obligations! The encouraging results at the end of this pilot round set the stage for more development money to pour in, and as they say, ‘more money, more problems!’
Convinced with the promise of the first round of MSD projects, donors ring-fenced more monies for MSD initiatives. The few ‘early bird’ companies positioned themselves even better to attract more of these monies from the array of MSD practitioners who started ‘fighting’ to get the attention of the businesses. It did not help matters that most of the market facilitators spoke almost a standard language, making it easy for the businesses to develop generic messaging answering the major questions in the facilitators’ pitches. The businesses were armed with such information as the number of farmers they could reach and additional value they would ‘embed’ in the process. These propositions would be quickly followed by a proforma indicating how much the development organization would have to pay in order to ‘risk-share’, ‘de-risk’, or ‘buy down risks’ associated with such an undertaking. At this point, indeed questions started arising whether MSD projects were not changing these businesses into NGOs. These questions were inevitable, as the language used by the businesses focused more on social causes and less on business efficiency- even though it was clear they were not social enterprises! However, it seems these warnings were not at least seriously considered by the development fraternity because another funding round later, we were firmly in the current situation. Currently, even with increasing discussions about the ‘dependency syndrome’ being exhibited by private sector, there seem to be a few, if any, changes in implementation procedures. Indeed it seems we are in a catch-22 situation.
How exactly did we get here?
There are many possible explanations on how we ended in this situation, but in our view the following are the most potent ones: First of all, as more donors took interest in and commissioned MSD projects in Uganda, competition, or should we rather say politics, set in and with it the need for ‘quick wins’, ‘low-hanging fruits’ or ‘photographic moments’. Even when it has always been abundantly clear that MSD projects need to be multi-year undertakings, many 2-3 year projects have been commissioned. The implementers responded by targeting businesses with ‘fitting’ business models, and ‘buying down more risks’ to enable such businesses reach many more poor(er) within the given time. To the businesses, more projects meant more cash and they didn’t mind ‘renting a partnership’ to the development practitioners. Some emerging developments paradigm such as aid-for-trade which requires partnership with businesses from donor-countries are also promoting this partnership for hire behavior. Implementers must play along to fulfill these requirements to be in good books with the ‘money bag’. We don’t deny the fact that there is a need for a win-win situation, but the shape that most project-business relationships are taking bothers us. Increasingly we see that projects are partnering with businesses not to bring a desired transformation but rather to fulfill donor obligations. Because businesses are also aware of this, it is how the ‘hooks get deeper in the jaws’ of projects.
Secondly, as we mentioned earlier, the increase in MSD funding has propelled even actors that were previously almost exclusively in emergency programing to venture into MSD program implementation. Not that we think MSD should be ring-fenced for a few, but most times these changes are not backed by the required strategic buy-in, enhancement in institutional capacity and institutional will to learn, which are necessary to support and shorten the learning curve associated with such pivots. As a strategy for catch-up, the local branches of NGOs and contractors simply hire whatever ‘technically-ready’ people they can find. Interestingly, most times the hires are ‘smarter’ than the institutions, this then forces the institutions to rely entirely on ‘strategic’ direction offered by these staff. In an event that the staff/workforce have not developed enough (most of these staff are still in earlier days of their MSD learning journeys), it becomes easier and more convenient to give money to private sector and task them to implement on the project’s behalf, while the team waits for numbers and ‘success stories’. It is also worth noting that businesses have learnt the development practitioners’ work tactics and they can never fail to impress project staff, at least if they want to.
Successful businesses are naturally shrewd ones, and most act like ‘rent collectors’ especially in an economy with infant financial markets where government, bigger businesses and SMEs all go to for money. The shrewd businesses have therefore targeted development money as an alternative financing source. This observation is supported by the increasing presence of ‘grants’ as alternative financing sources in businesses’ fundraising plans. The businesses also seem to increasingly view themselves as offering ‘consultancy services’ to the development projects and thus, sign with the highest bidder. A bigger grant kitty is rewarded with bigger numbers of poor reached and more attention to the interests of the project staff. It is currently not uncommon for businesses to cut short meetings with staff of a development project that has provided little grants, or has not provided any at all, in favor of a more ‘urgent’ meeting with staff of that which has provided ‘heavy cheques’. As a result, development practitioners in Uganda are now slowly coming to terms with the fact that there are no ‘virgin’ private sector actors anymore, all have been visited by one project or the other. Indeed some private sector actors view their partnership with MSD projects as inevitable and therefore accessing the cash is their “right”. This mentality, re-enforced by poor work methods among some of the current development practitioners, has turned partnership into a typical rent collection situation- where the terms of payment are dictated by the ‘land lord’ who in this case are the business owners
Is there any hope of a way out?
Indeed there is a hope of finding ways out; Operationally, MSD practitioners should learn from the money markets. In these markets, access to money is a reward for success, and due diligence is done to ensure only business that have sound models and are able to pay back get the money. Currently in the development arena, due diligence is rarely intended to elicit the level of exposure of businesses to donor cash (and obligations) but rather to establish whether the business can provide accountability. In financial markets, an investor or funder often requires to at least be notified when a business accesses more capital, whether through debt or equity, and this is critical to avoid over exposure. Operationally in Uganda, credit records are shared as a pre-requisite for accessing money; perhaps we should do the same before businesses access development money.
Secondly, a number of disconnected projects have shown that addressing the constraints that hinder the emergence of start-ups with the right business models to address the challenges being confronted by MSD projects can indeed yield results. In some of such results, businesses have demonstrated viable ways of addressing the poor’s problems through: i) providing products such as re-usable sanitary pads, affordable water for urban poor; ii) business process management tools tailored for small businesses; iii) enhancing value gained by farmers for their commodities; and iv) providing in-house skills building to provide equal opportunities for the poor to get hired by the companies. Most importantly, these businesses are observed to be opened with the right/genuine problem-solving mind-set. MSD initiatives can therefore collaborate strategically with such projects to generate businesses tailored to address difficult challenges in their strategic sectors of interest. It is equally critical for such disconnected projects to strategically synergize to amplify their impact in the economy. This is however a medium to long term strategy. Indeed some organizations now have in-house incubators and/or investment funds for such.
There is also increasing attention and interest to ecosystem level interventions. Initiatives such as Uganda Entrepreneurship Ecosystem Initiative by Aspen Network of Development Entrepreneurs (ANDE) provide a good opportunity to address or generate more insights into that dark world. Donors should build more synergies with or fund such initiatives to enable the development of an ecosystem that produces businesses with right orientation. Good enough, Uganda is also now seen as the second preferred destination (after Kenya) in East Africa for off-shore capital and is thus attracting new kinds of equity and debt financing for SMEs. A recent example is the announcement by Nigeria’s United Bank of Africa (UBA) that Uganda is part of the countries targeted for its $100M fund, reserved for SME financing. This is an opportune moment for donors to build on the momentum and catalyze the macro-level entrepreneurship climate.
In conclusion, we are not writing-off MSD approach in Uganda because we are strong proponents for it, having observed the powerful transformation it can yield when implemented intently. Rather, we seek to draw attention to the distortions that are silently becoming the norm for MSD implementation. We question mostly ‘how’ development practitioners are currently partnering with businesses, because the rent collecting behavior is exhibited in the ‘how’ and less in the “what” or “why” of such partnerships. Like we did in our past article, we again sign-off by highlight the increasing difficulty in finding the right talent for steering MSD projects in these difficult times.