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Welcome to the Era of Good — Part II

By - Feb 19 2015

Good News IIDiplomatic crises, terrorist attacks, lost planes. A news alert buzzing your phone or a scan through headline news makes you likely to find reports on the negative. But just last week we proved that for development in Latin America and the Caribbean (LAC), there’s a great deal of good news to celebrate instead. Though the new realities of development financing naturally come with ups and downs, a look at the most traditional source of development funding (Official Development Assistance, or ODA) and the most innovative financing showed us there’s much more good than bad to look forward to. Today, we invite you to walk through the private sector side of things, looking first at the bad news and then at the good associated with both philanthropy and corporate social investment. Though fully tapping into these development financing sources will require some work, the new realities defining them both reassure us here at the Inter-American Development Bank (IDB) that the future of LAC’s development looks promising.

Philanthropy

Bad news: Philanthropy is an essential element of development funding, as private giving represents 43% of all ODA. A look at the bad in LAC’s philanthropy will show that in the region, philanthropic flows remain below the world average. Biggest giver lists are topped almost uniformly by developed country-based philanthropists, and LAC’s portion of the greater North-South giving pie remains relatively small. Additionally, while private donors in Asia, the Middle East, and North America commit between 8 to twelve percent of their assets to philanthropic giving, their Latin American counterparts commit roughly 3 percent, with words like “philanthropy” and “foundation” carrying mixed connotations throughout LAC.

Good news: But the good news? Fortunately, there’s a great deal of it.

  1. First, the good news is that despite lacking a culture of philanthropy, philanthropic flows to LAC are growing. Between 2007 and 2011, flows from private donors, corporate donors and non-governmental organizations to LAC averaged $4 billion, boasting an annual growth rate of 7 percent in this period. While flows within LAC remain below global averages, the good news is that they are increasing as a whole, and forecasted to continue doing so.
  2. Even better news would have it that the oft-discussed generational shift is slated to only enhance this growth. Millennials, widely acknowledged as more generous than their predecessors, will (alongside Generation X) inherit an estimated $41 trillion from Baby Boomers over the next 40 years. Moreover, these youth are already testing the philanthropic waters. The 2014 Millennial Impact Report reveals that 87 percent of millennials made financial contributions to nonprofits (or good causes) last year, while the Charities Aid Foundation indicates that they´re already giving $3,000 more than older givers on average.
  3. And the best news? That many actors have emerged to push this new philanthropy agenda in LAC. Organizations such as Filantropia Transformadora in Colombia, the US-Mexico Foundation, and Brazil’s Instituto para o Desenvolvimento do Investimento Social (IDIS) are working actively in this space, joining corporate and social investment associations including the Asociación de Fundaciones Empresariales (AFE) in Colombia, CEMEFI in Mexico, Grupo de Fundaciones y Empresas (GDFE) in Argentina, and Grupo de Institutos Fundações e Empresas (GIFE) in Brazil, among many others, in teaming up with the IDB and each other to foster a regional culture more conducive to and inclined toward more strategic giving. The private sector is keeping up with these efforts, with corporate philanthropy in Brazil alone amounting to contributions of $1.2 billion as early as 2011, and national cooperation agencies emphasizing the importance of private giving to development financing. Together, these actors stand to revolutionize philanthropy in LAC, giving it more importance than ever. We simply need to encourage and connect them to keep philanthropy on the up and up.

Corporate Social Engagement

Bad news: Most visible in contrast to Europe, LAC sees lower levels of corporate investment in socially and environmentally focused initiatives than average developing regions with long traditions of corporate social responsibility (CSR). As LAC companies are more prone to engaging in grassroots philanthropy, where they invest in communities at the local level, those most actively improving their social and environmental impact are often greeted by only limited recognition as a result. Additionally, trust of companies among consumers in the region remains low, with a 2013 Edelman study identifying a 33-point gap between global trust in multinational companies based in developed markets (76 percent) and those in emerging markets (43 percent).

Good news: But the good news? Is that this “bad” isn’t very bad at all, as the current corporate climate in LAC is ripe for increased private sector engagement in development. In particular:

  1. A cultural shift is pushing global companies to think beyond the bottom line, with businesses increasingly interested in not just financial, but also social and environmental returns. A look at some of our own partners indicates just how true this is, with The Coca-Cola Company integrating Haiti’s mango growers into their value chain in a both financially and socially beneficial venture; Visa promoting financial inclusion through its electronic payment services and other community based programs in favelas; and PepsiCo building capacity in Mexico’s sunflower growers while simultaneously improving their product, among others.
  2. As LAC businesses continue booming, we see this beyond-the-bottom line approach catching on in the region as well. Multilatinas, which employed about 2.1 million individuals and saw approximately $780 billion in annual revenue as early as 2012, are already following suit. Primarily working to boost the region’s subpar education, Brookings reports that two-thirds of the largest multilatinas make social investments in this sector, with projection totals ranging from $224-569 million annually. Additionally, the generational shift expected to transform regional philanthropy is set to also revolutionize the role of business in development, with both the Deloitte and Telefonica millennial surveys reinforcing their commitment to making business accountable for development challenges.
  3. Lastly, the region’s growing middle class and social media use will further drive this new reality. According to recent IDB studies, 10 million people will join LAC’s middle class each year between 2014 and 2025, eventually reaching a total of 460 million. Given the aforementioned lack of trust in corporations and surging middle class, LAC businesses have an opportunity to target this demographic early on. By bringing affordable products to these communities as their purchasing power grows and engaging them in a development-focused way, these companies stand to establish brand loyalty in a culture where trust of, and loyalty to, business is sparse to say the least. Moreover, growing digitalism in LAC means that stories of business doing “good” are likely to go viral, while tales of business doing “bad,” or negatively impacting the communities in which it operates, can go even more viral. Specifically, the research firm eMarketer projects the active social media user pool in Latin America to expand to 254.5 million in 2015, representing over one-third of the region’s population, and Teradata reports that Latin American social networkers are the world’s most active, spending an average 8.67 hours a month on social media. To effectively draw in these new consumers and to stay on the right side of social media, LAC business should operate with an eye toward fulfilling its business mandate in a way that well aligns with the region’s development needs.

Despite our tendency to broadcast the bad, the cultural, generational and economic shifts driving these new realities give us reason to be optimistic about the region’s development and the financing sources that are helping to accelerate it. While LAC’s philanthropic and corporate actors have some catching up to do, we see wisdom in the Chinese proverb that says “the best time to plant a tree was 20 years ago. The second best time is now.” While we have work ahead of us as we nurture cultures of philanthropy and corporate investment in the region, now seems the second best time to ramp up our efforts. And with the transformational impact both these realities stand to make on LAC’s development, we think second best will be just fine.

 

For a look at the good in ODA and innovative finance, check out Part I of this post.

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One Response to “Welcome to the Era of Good — Part II”

  • Vanel :

    *- Women business leaders and entrepreneurs with expertise in strategic leadership and organizational effectiveness in the Latin American and Caribbean Regions : – I acknowledge and recognize my MOM as one of the greatest Women Entrepreneurs, Business Leaders and Women Philanthropists for motivating, inspiring and developing potential leaders and executives. – As a leader, my MOM has promoted development and economic growth in the Latin American and the Caribbean regions.

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