'Role of the private sector in peace building is very important,' Advisor - DFID Pakistan

Ross Ferguson, a private sector development advisor at DFID Pakistan, is working across DFID's programming in health, education, nutrition and also in the economic growth portfolio. Prior to joining DFID Pakistan in September 2010, Ross Ferguson was serving as an advisor to the EuropeAid at the European Commission in Brussels.
He has had vast project leadership experience at development agencies such as USAID (Timor-Leste), UNIDO (Beijing) and ICG (Senegal). He has worked for over ten years in the private sector in investment and funds management roles at organisations like HSBC (London) and Barclays (London). Ross achieved from SDA, Bocconi School of Management, Milan his MBA.
Last week, Ross spoke about the private sector's role in peace building at the SDPI-IA Research workshop in Islamabad, and later sat down with BR Research to discuss in detail the private sector development and businesses' role in engaging their communities. Here are a few excerpts:
ROLE OF THE PRIVATE SECTOR
"It is now widely accepted that the private sector has an important role to play in resolving conflict, though we still have some way to go to properly understand that role. When thinking about programmes that contribute to peace building, the emerging evidence suggests that support to the private sector is most effective when integrated with a wider range of governance interventions. It is important to recognise that the private sector can support, but not replace the process of finding a political settlement," Ross started off.
"It will be no surprise to your readers that historically, donors have been less comfortable working with the private sector, and government agencies like DFID have traditionally been more comfortable in working through government and non-state actors such as NGOs. But the importance of the private sector, even in conflict-affected areas, as well as the emergence of new actors who want to work on development mean that the world is changing. Donors, too, must adjust to this changing world," said Ross.
He observed that there is a growing recognition that the private sector is going to be part of the solution to a whole range of development challenges. "The role that the private sector can play - effectively what people do and how they earn a living, the choices they make to keep their family healthy and acquire skills and learning - is going to be central to our understanding of the challenges and opportunities in basic services such as health and education, but also in the areas of peace building and conflict resolution," he remarked.
Ross then went on to highlight how DFID has been bracing up to this new development paradigm. "The private sector development department in DFID is a relatively new department. DFID has put in a lot of resources in building the team in the last few years - both at the HQ level and in the countries where we have our presence. In Pakistan, we now have a range of programmes that partner with public and private sectors because both offer different yet complimentary skills needed in addressing development challenges," he noted.
Involving the private sector
"If you look across the globe, public sector funding for health and education is increasingly becoming a smaller percentage of overall health and education spends. Where is the new funding coming from? Some of it is coming from the families who are willing to pay for their household's health and education, while some is coming from private equity, social capital and philanthropy. For example, the emergence of impact investors as well as entities like the Gate's Foundation, who are willing, able and interested in putting capital at risk for social development outcomes, is something that donors have recognised and going forward with whom we need to deepen our engagement," Ross Ferguson pointed out.
While he is confident that donors have started to recognise this new world that they live in, and have started talking to and working with these private sector actors, he feels that more needs to be done. "To ensure that donor interventions are sustainable once the donor has departed, we must look for new sources of capital to help achieve development outcomes and lasting sustainability. This, of course, has to be a broad partnership that goes beyond plugging the funding gaps. The private sector has a range of skills that can complement what we are doing: often private sector firms are exceedingly well-integrated into the communities they serve. Some companies are particularly good at developing business models and operating in more difficult to reach (from the donor's perspective) rural areas, sometimes where state control is very marginal and where communities are very poor. Their capital is important, but so is their knowledge and expertise on the ground," Ross emphasised.
However, he urged donors to build and forge new partnerships with all the stakeholders: government, civil society, and the private sector. "The donor community recognises that only when we work together, are we going to make substantial progress on the difficult development challenges in Pakistan."
When asked how the private sector could be convinced to play a role in this regard, he cited two strong reasons. "First, many business people recognise that they can be engaged in finding solutions to development challenges, and the importance of improving the lives and well-being of people as a pre-condition to sustainably growing their own businesses. This workshop (on Plural Business Partnerships) was heartening in this respect: hearing business people talk about this not only in terms of corporate social responsibility, but also in terms of a wider recognition that Pakistan will only thrive if its formal and large informal private sector are allowed to thrive," he noted.
"Secondly, we are beginning to see the emergence of business models where companies now understand that it is commercially viable to deliver products and services to communities formerly been neglected by society. We have seen companies like Amul in India, CEMEX in Mexico, Nestle, Engro and Unilever in Pakistan, etc, develop models where they can profitably sell their products to the very poorest communities, often working with microfinance institutions and commercial banks and creating new hybrid value-chains. Businesses are best placed to develop ecosystems of economic activity. That's really important for donors to understand, and to be a part of that," he underscored.
Private sector initiatives at DFID Pakistan
Ross Ferguson shared details of two of DFID's major private sector programmes in Pakistan, which he and his team have been overseeing. "In Southern Punjab, we are working with the provincial government, through the Punjab Skills Development Fund. It is a non-profit company and has a largely private sector Board. PSDF invites proposals from private skills providers to train people from Southern Punjab. This programme is basically about asking the private sector to tell PSDF what skills provision the market wants and what skills training the market is able to deliver.
"The second initiative is the Financial Inclusion Programme, where DFID works closely with the State Bank of Pakistan, to help provide financial access to small and rural businesses in Pakistan. Through the SBP, DFID is providing funding to commercial banks to increase the lending, both to micro finance institutions and to small businesses. Our objectives are to help build institutional capacity in the micro finance industry by supporting some MFIs to graduate from non-regulated, donor funded institutions to become regulated micro finance banks. In part, we have done this by helping banks provide commercial lines of credit to the micro finance sector using a guarantee mechanism. A second guarantee is structured to encourage commercial banks to lend more to SMEs across Pakistan. There is good evidence when a bank knows their customers well, unsecured lending can be very profitable," he elaborated.
Ross sounded particularly optimistic about the future of branchless banking in Pakistan, which he sees a tremendous opportunity for people who previously went unserved by the formal financial sector. "The BB service providers' product line is developing all the time. The challenge for the businesses here is to understand where new commercial opportunities are. The challenge for us as donors is to help this process by identifying developments in social transfers, health and education systems where new products and systems can really help the people most in need. Using technology to cut costs and improve outreach in the provision of government's welfare payments is a fast developing area and donors are ready to work with private sector actors, recognising that commercial interests and developmental outcomes can go hand in hand," he maintained.
The CSR Debate
Ross considers it a positive development that the CSR debate is taking place in Pakistan. "Businesses definitely need to lead in this discourse and recognise that adopting CSR policies can help the bottom line and help society. I don't know if it (CSR) should be enshrined in the law or not, but it's a useful debate to be had," he added. He, however, laid stress on the need for economic policies to do more to address the wider investment climate issues in Pakistan.
"DFID is supporting alternative dispute resolution as an alternative form of commercial justice in Pakistan. The red tape and costs that new businesses incur getting registered, or in seeking redress through the courts need a response from policy makers that drives a truly reform minded business agenda. There is a social contract between state and business too: the private sector should pay taxes and where practicable, be a part of the CSR community, but the state must deliver, too," he said.
When it comes to peace building, Ross acknowledged that the private sector is only part of the solution, and that resolving conflict is primarily about getting the governance right and ultimately about achieving a political settlement. "The private sector can be party to conflict as well as an important part of the solution. Understanding what exactly we mean by 'business' or the 'private sector' and the communities they serve in conflict environments is the key here. In conflict, peace building needs to work on getting the governance right, only then can private sector be a part of the solution," he summed up.