SDC keen to step up cooperation with Swiss multinationals

In view of the strong presence of Swiss corporations in poorer countries, SDC is pondering how they could help foster local development. The obvious answer would be to observe human rights and environmental standards, pay living wages, and cease tax optimisation tricks. In other words, correcting the mistakes that for decades have reinforced the poor image of multinationals.

SDC is thinking along other lines. The corporations should break down their core businesses such that they also become accessible for people with small incomes, thereby contributing to poverty reduction (see article opposite). Could a globally active insurance group devise micro-insurance for weather-related crop failures that is financially viable for farmers? What bank could design a system of savings for tiny amounts that can be paid in by mobile phone, thus eliminating the need to go to the bank counter in the city far away?

Core business in miniature

The catchphrase is «Market models for the poor». If they are to be profitable, such models must have a broad impact. To quote David Keller, who is responsible for partnerships with the private sector at SDC: «Because such business models entail much smaller margins, they must reach a critical mass if they are to be profitable.»

In other words, the more clients, the bigger the profits – but not just for the multinational. Every micro-policy entered into, every small-savings account opened means an increase in the number of people who are not plunged immediately into destitution by a misfortune, as they have a minimum of security on which to fall back. This minimum security can contribute to poverty alleviation.

What the multinationals want

SDC is not alone in having clear expectations from such partnerships, so too do the multinationals, as some representatives recently explained at a discussion on the subject. SDC is expected to supply them the knowledge they lack: What exactly do the poor need? How does one reach them? With whom should one cooperate? Beyond this, the firms expect SDC to contribute to improved basic conditions for their investments in the South by holding governments to good governance, fighting corruption and training the personnel that they need locally.

Controversial approach

The partnerships are controversial even within SDC, as there are some drawbacks. Let us take the example of micro-insurance. There is much talk about market forces and the pre-eminent role of the private sector, because the state is in no position to implement such models in a broad-based manner. Yet nothing works without the state, as even the multinationals admit. In order to create a an insurance market in the first place, SwissRe (one of the world’s largest reinsurer) for example advocates that governments in poor countries should subsidise premiums initially or even introduce compulsory insurance.[1]

Besides, there are considerable limits to the much touted «Integrating the poor into the markets». Slums, favelas and shantytowns are inhabited not only by very poor people who cannot afford even cheap offers, but by the lower middle classes as well – potential clients of the market models. Yet no one will insure homes against fire where there is no fire brigade. No one signs a policy covering water damage and landslides if the houses are located on unprotected riverbanks or on steep slopes. Millions of people will still be left out in the future.

It is therefore doubtful whether the salvation of the poor really lies in profit-oriented models. Potentially successful alternatives are to be found in collectively organised systems that exist on a small scale in many developing countries and also reach very poor people. It is of course a challenge to build them up on a large scale, but that holds good for any system in poor countries. And there is no reason why cooperative banks and insurers, which reinvest their surpluses or give them back to their clients, should function any worse for the poor than profit-oriented models.

Risk to reputation

Moreover, it is not always clear what added value is generated by a public-private partnership. In Pakistan for instance, Nestlé has been providing small and large milk producers with advisory services for many years now, be they its suppliers or not. Under a one-year pilot project with SDC that ended in 2010, the corporation provided advice to an additional 1000 small-scale milk producers. The SDC picked up 40 per cent of the one million francs in costs. What is still open is what would have gone differently or not been achieved without that cooperation. Would Nestlé not have advised the 1000 farmers even though that was in its interest?

Not least of all, SDC faces a reputational risk. Multinationals may well have improved their conduct in recent years, but that has certainly not turned them into white knights, as shown by the latest accusations against Nestlé in Laos (see box). Where does SDC draw the line? «Human rights abuses rule out cooperation. But they must to some extent be substantiated, through court rulings, for example», SDC expert Keller explains.

Beyond this, SDC does not yet have clear criteria, but these are being worked on. Risks and opportunities are being considered in the geographic and thematic context. Otherwise put, if a multinational infringes labour rights in Asia, that is no reason to forego a partnership in Africa.

Keller too attaches importance to the observance of human rights and other standards. «But if we can get the multinationals to change their core business for the better and make it accessible to the poor as well, then we will have achieved just as large an impact in terms of development goals, if not a larger one, than if we had unilaterally insisted on the compliance with standards.»

Michèle Laubscher, Alliance Sud
Collaboration: Pepo Hofstetter

Article published in: Alliance Sud News No. 68, Summer 2011

See also: SDC and private sector