A Life Half Lived

by Andrew MacLeod

  Brian and I shared a number of frustrations and visions. In running the IOM operation in Pakistan, rather than looking to the traditional government donors, Brian persuaded both Dow Chemicals and AIG to donate money and expertise into rebuilding houses and schools in some of the most remote parts of Kashmir.

  During 2006 and 2007 we became more and more disillusioned at the lack of effectiveness and efficiency in the public-sector delivery mechanisms for aid and development. We both felt a degree of frustration when dealing with some in the political classes in developing countries.

  We began to think that it is too easy to call for the doubling of foreign aid, when that merely represents more of the same thing but with the expectation of a different result. Self-serving government ministers, the ‘Paris Declaration’ impact and the failure of genuine UN reform, are just three key indicators that there is something desperately wrong with the whole system. What’s more, even if it were to reform and change, it is, to paraphrase the Bobby Kennedy quote at the front of this book, a system that yields most painfully to change.

  For half a century the international community has pumped billions of dollars into many developing countries with negligible results in the quality of life improvement for the poorest of the poor. The Democratic Republic of the Congo (DRC) provides a very good example of this. If you cut off 100 per cent of foreign aid to the DRC tomorrow, what would happen to the poor people there? Given that the vast majority of aid goes through the government of that country, and that many officials in that country are there to protect their own land or financial interest, how much of that 100 per cent do you think really trickles down to the poor? The answer is very little. If you cut off all foreign aid tomorrow there would be very little negative impact on the poor.

  What is worse, the government of DRC receives about 70 per cent of its revenue from foreign aid and uses much of that revenue for repression of the poor through the use of violence by the police and security forces. Cutting off that aid might, in fact, reduce the government’s ability to repress their own poor people by reducing the amount of money used to fund police and army forces. In a perverse way, cutting off aid may, in fact, help in the short term.

  That’s not to say that we should cut foreign aid. We just need to find ways of making it work better by being ruthless in cutting the inefficient programs, and supporting the efficient. The same would go for countries. If at a national level the impact of aid was demonstrably a net negative, or incredibly ineffective, why would we not cut it off?

  We should, in addition, look at channelling the goodwill and finance available in the private sector. Brian’s experiments with AIG and Dow Chemicals proved that it can be done if the investment climate is right. Brian and I often spoke about Rwanda. In 2006 there were 21 tradable commodities on the infant stock exchange. The government seeks to transform Rwanda from a low-income agriculture-based economy to a knowledgebased, service-oriented economy by 2020. It also recognises the key role of the private sector in accelerating growth and reducing poverty, and is looking for innovative ways to finance its development beyond traditional partners and instruments. It has been undertaking reforms to improve the business environment and to reduce the cost of doing business. Rwanda’s growth performance has been remarkably strong over the past two years. Real growth accelerated to about 7.2 per cent in 2010 and 8.6 per cent in 2011 from 4.1 per cent in 2009. Production of non-tradables, such as construction and other services took off. We need to be careful not to overstate the change though. Rwanda was ranked as one of the poorest countries in the world in 1990 with a Human Development Index score of 0.232. By 2011 that had nearly doubled to 0.429 moving Rwanda up in the rankings in a positive trend. It is, however, still among the lowest quartile countries.

  The country is moving up the rankings in the transparency international indexes from one of the most corrupt in the mid-1990s, to a Transparency International ranking of 5 in 2011, putting Rwanda in the middle of the league table. Rwanda is in a process of creating the macro and microeconomic variables so business can thrive.

  We often thought that one thing that made Rwanda different from the DRC, or even Pakistan, was Rwanda’s framework for development. The critical differences between DRC and Rwanda included an approach that liberalised the exchange rate mechanism, allowed for the repatriation of profit, ensured enforceability of contracts under local laws to allow businesses to invest with certainty, and from fostering mind-set of ‘development investment’ rather than ‘development aid’. Critically, Paul Kagame was the key difference because he worked for the benefit of his country not himself.

  It was at the same time in our discussions about trying to create a better mechanism than pure aid, that we met two senior staff from BHP Billiton, the world’s largest miner. The company had then and still has a number of gas assets in Pakistan, and readily offered assistance when floods struck that country. The senior staff in Pakistan put me in touch with Ian Wood who was head of BHP Billiton’s community engagement programs worldwide, and based in their headquarters in Melbourne. When I went to Melbourne in 2007 for the World Swimming Championships and my brother’s wedding I also met with the staff of BHP Billiton to get more of an idea of the company’s approach.

  I was deeply surprised, and perhaps a little shocked, when the company shared their internal documents (not their external marketing documents) stating why they invested in the community. The company listed four aims of its strategies:

  • The key beneficiary of the investment is the host community, and the primary reason for supporting the program is to contribute to sustainable community development, including projects with environmental outcomes.

  • Key benefits to the company can include the promotion of a good company reputation, community goodwill, and stronger, more stable and supportive communities.

  • The area in which support is provided is generally an area of mutual interest between the community and the company.

  • The investment should aim to make strategic and sustainable improvements to the livelihoods of the communities where (the company) operates or may operate.

  Brian and I began to look further into the approach of some of the leading multinationals including AIG, Dow Chemicals, BHP Billiton, Rio Tinto and some of the banks. We had been sceptical, but clearly something was changing. Perhaps our scepticism was based on naïve populism. Why would a large multi-national list in their internal documents the principal reason for doing community investment was to contribute to the sustainable community development of a country? This is the sort of objective that you expect to see of a UN agency or an NGO.

  We saw continued anecdotal evidence in country after country that the aid mechanism was not working. There were rare examples of countries such as Rwanda, and perhaps now China, India, Brazil, Mozambique and Botswana, all improving their Human Development Index rankings, that have taken private sector investment rather than the public sector aid to begin to pull themselves out of poverty. They may not have yet fully succeeded, but they are to differing degrees, on the right track. Surely, we could change our mind-set to think that maybe the future is about building collaborative partnerships between private and public sector?

  I met an interesting person during this time by the name of Matthew Hornibrook. Matthew came from a very famous building and construction family in Australia and had come to Pakistan together with Australia’s former Prime Minister Bob Hawke, so he came with a degree of authority and credibility. He had an idea to build lightweight, aerated, concrete prefabricated housing structures in part of the earthquake reconstruction. While his product wasn’t cost-effective for the Pakistan environment, the idea of a private sector solution was an interesting one.

  I first met Matthew in General Nadeem’s office when he and former Prime Minister Hawke were making a pitch for their product. Later that same day Zorica McCarthy, the Australian High Commissioner, hosted a dinner at the High Commissioner’s residence in honour of former Prime Minister Hawke.
Matthew and I began to speak in more detail about one of the interesting shelter challenges in the post-disaster environment.

  A family-sized tent, delivered to a post-conflict environment, once you take into account the cost of storage and transportation to remote environments, costs about US$1200 per unit. Within that cost paradigm the manufacturing of the tent is a small component, the storage and transportation being the larger cost. Tents usually last three to six months, and are followed by a transitional shelter solution for up to two years, which may cost between $1,500 and $2,500 per unit. What usually follows is a permanent housing construction solution that, in the case of Pakistan, cost about US $3,500 per unit.

  The difficulty post-disaster then is that you have a three-stage shelter process costing approximately US $7,500, but the beneficiary family only receives a net long-term benefit of about US $3,500 in value. The challenge I threw to Matthew was to see if we could design some type of housing solution that would drop a three-stage process into a two-stage process. Would there be a way to drop the transitional shelter stage either by making an emergency shelter last longer or bring a permanent solution faster?

  Matthew and I would spend the next couple of years discussing these issues of emergency and transitional shelter. I looked to Matthew with some degree of hope that perhaps the private sector did have some good people in it who could provide interesting solutions. Hornibrook would show me though that not all is rosy on the private sector side.

  There were clear changes happening in the world and Brian and I wanted to be part of them. We just didn’t know how.

  A Private Sector Warning While working in The Philippines in 2008 and 2009 I was offered a role with UNICEF in their headquarters in New York to oversee their Early Recovery work in global emergencies. I’d always wanted to work in New York, but I had come to a decision to leave the United Nations post 2009.

  I had been continuing a dialogue with Matthew Hornibrook since our meeting in Pakistan during 2006. We were discussing some very interesting designs for stronger emergency shelters that could last right through the transition period. I was already thinking that it would be interesting to see if more ‘good’ could be done in a well-motivated and well-run private sector company. Hornibrook seemed like he may provide a viable option.

  Matthew had invited me to attend the Hornibrook 2008 annual dinner in Jakarta with former Prime Minister Bob Hawke in attendance. I took a couple of days leave and flew to Jakarta and began to talk seriously with Matthew about joining his business when my time in The Philippines finished. If there was any naïveté at all that the private sector would always be better than the public sector, Matthew Hornibrook removed that from me. I was to start in his Dubai-based operation in July 2009, which would allow me to be home for my father’s 75th birthday.

  As my departure date approached Hornibrook stopped answering phone calls and didn’t return emails. On the day I was due to fly out to Dubai, he finally returned one of my calls and told me he was not going ahead with the contract due to financial constraints.

  By late 2009 I found myself in Melbourne without a job and with no real desire to return to the aid world. Ian Wood from BHP Billiton asked me to conduct a global review of the company’s community investment programs. He wanted me to look at two key questions: Was BHP Billiton holding itself accountable according to global best practice, and could ‘quality of life’ indicators be used as key performance measures in their community investments?

  I found it interesting that a well-motivated company asked about the results of its community investment in a much more rigorous way than the UN ever did, rather than an evaluation of the ‘process’. In reviewing the company’s global programs, a number of things came to mind. Resource companies have a growing recognition that they will be present in an economy for many generations and it is in the company’s best interest to help the economy develop.

  The Olympic Dam mine reserves in South Australia are estimated to last more than 700 years. The world’s second largest miner, Rio Tinto, has reserves in Mongolia that should last well over a century and BHP Billiton’s aluminium smelter in Mozambique has a life expectancy of between 50 and 100 years. Long term, equitable and sustainable economic growth is in the interest of companies. Community development is now seen as an element necessary for the overall success of a business in the long term.

  In reviewing internal documentation of the company I saw BHP Billiton was committed to do the best it could to help achieve the Millennium Development Goals (MDGs). I was genuinely surprised that the company knew of the MDGs and saw a role for the company in helping achieve them. In Mozambique BHP Billiton was also responsible for a number of primary school education programs. Programs are carried out in the company’s best interest as there is recognition that the children will, in due course, be the company’s second-generation workforce. The better educated the children are, the better the quality workforce they will make. Both the company and the people win in that scenario.

  It is interesting that in the minds of some of the best business leaders there is a search for genuine ‘shared value’, where community returns and company returns can work in harmony. Community and company returns do not have to be mutually exclusive; in fact community return and commercial return can be mutually assisting objectives. A good community makes a better business environment.

  Good corporate management are beginning to see themselves as a temporary custodian of the company’s presence, brand and the employees. This is a radical change in corporate thinking. It is embryonic and a mindset that is yet to fully mature.

  When I reported back to Ian Wood, I was able to give him a mix of good and bad news. Firstly, BHP Billiton far exceeded global best practice in the way the company held itself accountable. That was the good news. The bad news was that the company could not look to UN agencies and NGOs for guidance on how to measure the impact of community investment programs as BHP already did it better. I also reported that he could, in fact, use quality of life indicators as key performance measures for some of the company’s programs, but that such measures are usually measured against ‘baseline data’ on the current situation of community well-being, provided that a government has that data.

  The first step in using the quality of life indicator as a key performance measure for a community investment program might therefore be in the creation of that baseline data. This takes time to gather, often a number of years. When looking at a two-year UN program, it is not worth understanding the baseline or ‘starting point’ if it would take you two years to figure it out. If you are a mining company with a 50 to 100-year vision, spending a couple of years gathering data makes perfect sense.

  The scale of community investment was also of interest and surprise to me. Companies like BHP Billiton set a target of 1 per cent of pre-tax profit to engage in community investment programs. For BHP Billiton that investment in the community equates to US $220 million a year. This makes BHP Billiton the world’s largest miner, in the top 10 companies in the world but also the third largest international development agency in Australia. This measure, though, understates the full impact.

  In the case of Rio Tinto, their 2011 global spend of US$294 million in discretionary community programs makes them one of the larger donors to developing communities. It would rank Rio Tinto fifth in Australia behind the Australian government, World Vision, BHP Billiton and just behind the Australian Red Cross, and have two of the top five being private companies, two being aid organisations and one being government. But this is measuring only their community spend.

  Committee for Melbourne As 2009 drew to a close, a friend, Sally Capp, let me know that she was leaving an organisation called Committee for Melbourne. She suggested that I should throw my hat in the ring for her role as CEO. Committee for Melbourne is a not-for-profit, non-partisan member network that unites Melbourne’s corporate leaders and organisations, who work together to enhance Melbourne’s economic, social and environmental future. For
me this was an interesting challenge.

  Committee for Melbourne (CfM), at a local level was, on the surface, a good example of the private sector coming together for the good of the community. Could it be a model for a ‘Private Sector OCHA’ aimed at coordinating private sector contributions to the community? In my two years in the role member companies put time and effort into encouraging government to think differently about housing density, social cohesion, infrastructure planning and financing: all without charging anybody for their time, energy and personnel. The motivation: a good community is good for business, and it is simply the right thing to do.

  Critically though, I learnt it is common for business leaders to join Notfor-Profit Boards, such as CfM to 'give back' to their communities. There is a danger though, that in joining a board to 'do good', business leaders may not use their business skillsfor which they are employed. George Pappas, Chairman of CfM Board, once said to me 'Sometimes when business leaders join boards like this they leave their 'business brains at the door'.

  George and I were having the discussion in the context of three very poor years of growing financial deficit at CfM. Governance had slipped. As part of the reform we needed to institute, business thinking needed to return. Establishment of standard board sub-committees such as nominations, audit and risk, and renewed focus on the business model began with visible results.

  The critical lesson is this: if business leaders join not-for-profit boards, they must keep their business brains focused. Indeed, business focus on effectiveness and efficiency is what is needed in not-for-profit organisations and the aid industry as a whole. A business leader can 'do good' by maintaining financial ruthlessness.

   12.

  Aid Effectiveness

  Effectiveness and efficiency are two words often incorrectly used synonymously. In reality they mean very different things. ‘Effectiveness’ looks to results and if you have achieved change. ‘Efficiency’ is all about how much that change costs and if the cost is worth the result. To achieve long-lasting change and bring the world out of poverty, one needs to develop programs that are both effective and efficient.