My job – as you know – is to seek to mobilise our international systems to systematically reduce poverty and promote sustainable development in the poorest countries.
I want to discuss today the very important role of business in this endeavour, which is the most urgent issue that faces us as we approach the 21st Century.
I would like to start by paying a tribute to the pioneering work carried out by Business in the Community in the UK and by the Prince of Wales’ Business Leaders Forum internationally to promote responsible business practice. For many years it was widely assumed that the interests of social reformers and business interests were antagonistic. In this new era, it is increasingly clear that responsible business practices promote both business success and social progress.
When this Government came into power we put tackling poverty at the heart of all our development efforts. Central to our White Paper on international Development is our commitment to the internationally agreed targets. They include halving the proportion of people living in extreme poverty by 2015 – which means a billion people working their way out of poverty within 20 years – and by the same year to have all children in primary education and access to health care for all. The targets arise from a series of UN conferences in the 1990s from Rio to Beijing. They have been re-affirmed by the Development Committee of the OECD as affordable and achievable. But they cannot be achieved by focusing exclusively on social policy. Poverty eradication requires sustained economic growth that outstrips population growth and this requires a flourishing private sector. Business therefore has a major contribution to make to the achievement of these targets.
There is now a growing recognition that we have a common interest in promoting sustainable development in the poorest countries. And people working in the business sector are obviously as moved by the moral argument as are those working in government, NGOs and international development organisations.
However, the assumption that our moral duties and business interests are in conflict is now demonstrably false.
Globalisation is changing the picture for us all. Technological developments, the integration of financial markets and the enormous surge in trade and investment, with the corresponding movement of goods, people and capital, mean that, in the global economy, the effects of trade and investment do not stop at national boundaries.
Globalisation is undoubtedly generating increased wealth. But its benefits are unevenly spread. One quarter of the world’s population still lives in abject poverty, existing on under a dollar a day. And the gap between those who benefit from increased productivity and wealth and those who do not is widening. This leads inevitably to instability and increased risk. It is in all our interests to ensure that this increase in wealth is spread more equitably.
Your primary aim is to create profit and to make good returns for shareholders. But to do this you need markets. As competition increases in mature markets, developing countries have the potential to account for the greatest share of new market growth. But they will only do so if their economies grow and their people can afford to participate.
You also need a skilled workforce in the countries where you invest. You need a fair and stable operating environment. And you need decent infrastructure and communications. These things can only come about through development. I believe it serves your core commercial interests if you play your full role in contributing to development. And I know that many of you now also recognise this.
You can help developing countries achieve the economic growth they need. Combined flows of imports from and exports to developing countries are nearly a hundred times the size of the UK’s development assistance programme.
Foreign investment outstrips aid flows and will continue to do so. But most private investment goes to the wealthiest developing countries. That is why we are currently steering through Parliament a bill to turn the Commonwealth Development Corporation into a public-private partnership – to boost private sector investment in the poorest countries.
But the role of business in promoting development is much wider than investment , and can have a direct impact on the lives of the poor.
Consumers are increasingly demanding that business puts socially responsible behaviour towards all stakeholders at the core of their activities. Today’s public is much better informed about issues such as supply chains and working conditions. A recent MORI poll showed that 68% of consumers were interested in buying products which offered a better deal to workers in developing countries. You are all aware of how strongly the public react to revelations – such as the use of child labour -in the supply chain.
Businesses are working harder than ever to remain competitive. The best have built alliances with their primary stakeholders – employees, customers, investors and suppliers. But now there is growing pressure to develop new types of consultation with others whose lives businesses affect – local communities, governments, non-government organisations and the public. We have just heard from BP-Amoco about the efforts they go to in stakeholder dialogue and why it is valuable to do so.
This pressure can be turned to your advantage. As trends move further in this direction, a reputation as a business at the cutting edge of responsible practice can lead to longer-term competitive advantage. The concept of the triple bottom line – and those of us who are subject regularly to three line whips may find this concept less odd than others -suggests that sustainable competitive advantage means companies now need to be economically viable, environmentally sound, and socially responsible. And even in the short term there can be practical benefits. Good employment conditions are likely to mean a more committed and productive workforce. A healthier, better trained workforce is more likely to meet production standards. And social investment in the community will give greater knowledge and understanding of the local situation and market conditions. Diageo is a recognised leader in this area and we all can usefully learn from their experience.
If we look at the extractive industries, major companies such as Shell and Rio Tinto are looking to adopt human rights policies. In retailing, Marks and Spencer is the latest company to sign up to the Ethical Trading Initiative, about which I will say a little more later. Much of the business community subscribes to voluntary codes of conduct which guarantee minimum standards. I urge others to follow these examples. The beauty of this movement is that it is both good for business and for sustainable development.
I am very keen that we should maximise the impact of our shared interest I in business and development by working together in partnership.
You bring knowledge of the constraints business faces when dealing with developing countries, and ideas and technical expertise for designing solutions. And you bring the commercial and professional expertise necessary to help strengthen developing countries’ business and institutions.
We bring access to other governments and influence in the multilateral system – such as the World Bank and the IMF. We have knowledge of economic trends and sector reforms or specific development programmes. And, of course, we have substantial experience of working in the poorest countries.
I would like to describe six practical ways in which we can jointly overcome some of the major constraints to business investment and development.
You are well aware of the constraints business faces in the regulatory I environment for investment in any country. The rules themselves can be unnecessarily complicated; or the way they are implemented, often by a weak public sector, can lead to delay and uncertainty. Your ideas on overcoming these constraints can be invaluable when we develop our country strategies.
We can use this understanding to inform our dialogue with governments and the multilateral institutions on the reform agenda. Or to support the civil service reform programmes being undertaken in many countries. Or, as we have done in relation to small businesses in Zimbabwe, Kenya and Uganda, we can assist with efforts to simplify regulations.
Corruption was recently noted as one of the key prohibitive factors in investment decisions in a survey undertaken by the Commonwealth Business Council. It is a major deterrent to trade and investment. It costs money and time wasted in the offices of bureaucrats. It creates uncertainty. And it hinders development. It is the poor who suffer most, faced with unaffordable bribes for basic services and the waste which leads to lost development.
We are giving a higher priority to tackling corruption. We have ratified the OECD Convention on bribery of foreign public officials. And we are helping governments who are serious about dealing with the problem to set up anti-corruption systems.
Business should be prioritising this too. Those of you with ethical codes of conduct against which you are judged have an interest in rooting out corruption; not just within your own organisation, but more widely, so that your ethical stance does not disadvantage you against your competitors. We would like to explore further the scope for working more closely with you in this area.
Power distribution, telecommunications, access to water, the quality of I roads, and the efficiency and reach of transport systems are all key considerations for investors. Private sector involvement in improving or building infrastructure can be held back where the public sector lacks the capacity to design and develop the necessary opportunities.
To help overcome these obstacles, my Department is working with the Japanese Government, the World Bank and other donors on the Public Private Infrastructure Advisory Facility. This will provide technical assistance to governments so that they can encourage greater private sector participation in infrastructure. It will have an initial focus on the poorer countries of sub-Saharan Africa and South Asia, and an emphasis on the key services of electricity distribution, water and transport.
We can work together to improve management and staff skills in all sectors.
For example, earlier this month DFID launched a training scheme designed to strengthen China’s financial sector. Over a three year period we aim to organise 225 work attachments in British banks, insurance firms and other financial institutions for able young Chinese participants. This will improve the operating environment for business, assist trade and investment links with China, strengthen participating businesses’ connections in China and open up new business in the rapidly evolving financial services market.
A second example is the South African construction industry which is constrained by a shortage of local subcontractors with the necessary technical and managerial skills to work on major projects. My Department is providing training subsidies – on a competitive basis – to enable established construction companies to develop the technical and managerial skills of emerging contractors.
Responsible business also means environmental best practice. There are many opportunities for win-win partnerships.
For example, through its pollution prevention work in countries such as Egypt and China, DFID is showing the manufacturing industry that significant financial savings and environmental improvements can be made by relatively low-cost, simple interventions, such as minimising waste and process modification. The many benefits of such interventions include the recovery of valuable materials, reducing the impact of pollution on surrounding communities, and the proven possibility of increased exports from developing countries to Europe and the States of products which comply with increasingly stringent international environmental legislation and eco-labelling schemes.
It is clearly in the interests of business and governments alike to ensure that development is environmentally sustainable.
Business shares responsibility with employees to ensure that conditions of employment, labour standards and their social impact meet human rights. The business case for this is proven. Committed, skilled, productive employees raise efficiency and productivity, have a higher economic impact and produce a chain reaction in social and political conditions. Increasing numbers of companies recognise the value of maintaining and where possible exceeding core labour standards.
The Government has a strong interest in this, and is committed to working at the multilateral level for worldwide observance of core labour standards.
But more directly, for example with the Ethical Trading Initiative, we have helped create a space where different groups are able to work together, often for the first time. New roles and shared responsibilities are being cemented between business, trade unions and NGOs in examining supply chains in poorer countries against the ETI’s agreed code of conduct and improving employment conditions. My Department has provided expertise, financial and administrative support to help the ETI in its early stages.
I will also say a word about fair trade. Large companies sometimes think fair trade, which deals directly with small producers, is not relevant to them. But it is vitally important to some of the world’s poorest farmers, and that is why the Government supports it. And the fair trade movement should be congratulated for helping move ethical trading issues from the margin to the mainstream. The private sector should not feel threatened by the fair trade movement. It is increasingly popular with the public and the ethical trading and responsible business movement is a reflection of the same values in mainstream business.
These are six areas where we can work together. We are looking to develop mechanisms by which we can do so more effectively. We see value in the challenge fund approach, which provides an opportunity for business-led approaches to meeting development objectives of mutual interest.
For example, we have made a commitment to the Medicines for Malaria Venture Challenge Fund. This is a global public/private venture to support the goal of halving malaria-related mortality rates by 2010, and halving them again by 2015. The challenge fund aims to intensify efforts to develop and bring into production drugs to tackle malaria in the poorest countries which would not be developed if market forces were left to themselves, and which are more widely affordable. It will provide incentives to pharmaceutical companies and to academic institutions to form partnerships towards achieving this aim.
Major companies such as Glaxo and Smith Kline Beecham are co-operating in this effort to develop more effective drugs to tackle malaria, which is still the biggest killer of children and cause of ill health in Africa.
Today I want to announce a new challenge fund which will aim to strengthen and extend financial services available to the poor, through support to innovative projects by the UK and local financial services sector. The project will total £18.5 million over five years, and will be launched in July.
The fund aims, through partnership, to encourage commercial financial services organisations to develop new products and markets in Sub-Saharan Africa and South Asia to improve access to financial services for the poor. It builds other work we are doing in financial services, such as supporting micro-leasing. This provides clear benefits for poor people, especially women. By leasing sewing machines, washing machines and food processing equipment, they are able to increase and take control of their incomes and reduce their vulnerability. And leasing companies can cut through the unreliability of local legal systems by simply re-possessing the equipment that has been leased.
We are considering further challenge funds that will we hope encourage a business interest in promoting crucial economic development that would otherwise not be commercially viable.
When we began work in all these areas, we realised that many businesses were interested in the social dimensions of their work but found it daunting to make a start in developing appropriate policy.
So, today, I am delighted to announce a major innovation. A Social Dimensions of Business Practice Resource Centre will be up and running in May, funded by DFID. And I am pleased to say that a consortium led by the Prince of Wales Business Leaders Forum will be running it. The Centre will help business access information and expertise and will pioneer monitoring and improvements of core labour standards. It will help business, trade unions and NGOs form new partnerships to implement socially responsible business, examine and monitor their impact in poorer countries, and conduct social auditing.
There is much to be learnt in this field. We want to draw from the best of your research and expertise to encourage the rest of British, international and domestic businesses to aim for your high standards.
International conventions and the multilateral framework can also exert pressure for responsible business, as can regulatory measures. This is an area where Governments clearly has a role.
A new round of trade negotiations will begin at the WTO next year. We believe it has an important role to play in helping developing countries adjust to a more open, integrated, global economy. The WTO agreements, based on core principles of non-discrimination and transparency, help provide a more stable and predictable climate for business, generating more trade and investment and faster economic growth.
There are major advantages to us all in a rules based trading system. But it is not widely appreciated that nearly three quarters of the WTO members are developing countries. There cannot be a successful new trade round without their support. We need a ‘development round’ that will address the reasonable concerns of developing countries about protectionism and unfairness. We are working increasingly to help strengthen developing countries’ capacity to participate in the WTO and have made available $10 million of technical assistance for this.
We also need to consider developing new multilateral rules on investment after the collapse of the MAI negotiations in the OECD last year. There are important lessons to learn from that process, including the need to involve developing countries fully and effectively.
I hope you will find all these developments of interest. However, I suspect you might fear that this brings yet another government department into your sphere of interest. We are aware of the many pressures you face, and want to make working with the Government as straightforward as possible. We have therefore set up a co-ordinating group across Whitehall to ensure that different departments take a consistent approach and know what each other is doing. I hope this will help.
Within DFID we have established a Business Partnership Unit to maximise co-ordination within my Department and to act as a first point of contact for you. Already many of you arc participating in discussions and initiatives with my staff. I encourage more of you to do so.
Let me conclude by saying that I do understand that you are under great pressures in trying to remain competitive in the global economy. But I strongly believe that your core business interests are advanced by socially responsible policies that help promote increased development in poorer countries. But more than that, I believe that many of you share a sense of moral duty in promoting development for the poorest and genuinely welcome the opportunity to participate in the challenge of eradicating poverty.
Globalisation offers our generation the real opportunity to – within the next 20 years – make significant progress in beginning to eradicate illiteracy and abject poverty from the human condition. Business has a major role to play in this. It is a profoundly noble cause but it is also in our hard-headed self interest.
If we fail to grasp the opportunity, the consequences in population growth, environmental degradation, instability, war and disease will bring growing damage to our planet and to the lives of the next generation, wherever they live.
I hope we will work together more effectively to grasp the great opportunities that lie before us.