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How the Private Sector Uses Theory of Change to Great Benefit
Private firms are making a mark on international development assistance well beyond the financial resources they bring to bear. Their solutions to pressing international development problems often reflect a market-driven way of thinking.
Donors and governments use theory of change diagrams to map an expected cause and effect pathway for supporting investments designed to yield desired outcomes. Private firms look at such diagrams to zero in on where things may get stuck along a problem resolution route. Their market-driven approaches may follow the same cause and effect path a donor would take, or they may differ. The bonus from market-driven approaches for bottlenecks lies in their potentially self-funding nature.
Recent UN initiatives encouraging private firms to become more active partners in the development assistance community are laid out in its new partnership approaches as they are in USAID’s private sector engagement policy. Similar commitments have been made by the European Commission and Australia’s AUSAID.
To understand how market-driven solutions to development problems work, examples are a useful aid.
Donors and governments use theory of change diagrams to map an expected cause and effect pathway for supporting investments designed to yield desired outcomes. Private firms look at such diagrams to zero in on where things may get stuck along a problem resolution route. Their market-driven approaches may follow the same cause and effect path a donor would take, or they may differ. The bonus from market-driven approaches for bottlenecks lies in their potentially self-funding nature.
Recent UN initiatives encouraging private firms to become more active partners in the development assistance community are laid out in its new partnership approaches as they are in USAID’s private sector engagement policy. Similar commitments have been made by the European Commission and Australia’s AUSAID.
To understand how market-driven solutions to development problems work, examples are a useful aid.
- For example, in Tanzania, where solutions for combating malaria were known but not widely used, investments in local manufacturing changed the situation, as the adjacent text box illustrates.
- In India, a case in Prahadad’s Fortune at the Bottom of the Pyramid recounts how Unilever and the World Bank got together to reduce childhood illnesses. They demonstrated to school children that a blue light could show where dirt remained when hands are washed only with water. Children understood, but their parents could not afford soap. Unilever solved this problem by making minibars of soap available in local markets.
- When HIV/AIDs was ravaging Africa, Bill Gates spotted the price of drugs as a critical bottleneck in efforts to address the problem. For Gates, the commercial solution to the AIDS drugs’ affordability constraint lay in purchasing such large quantities that he drove the price down and made the medicine affordable for Africans, as Reuters coverage at the time pointed out.
- In war torn Afghanistan, a USAID project managed by Development Alternatives Inc., taught local farmers how to raise quality and volume of their poultry production. In principle, increased production could allow for eggs to be sold to nearby counties where demand was high; however, there was no safe way to package or ship the eggs. Applying market-driven thinking, the project team worked with a local firm to start a cardboard box company that made export shipments possible.
