Go to content

5 Relevance

Relevance of B2B should be considered in relation to the Danish development priorities and policies, including the objectives for the programme, the development issues and priorities of the targeted countries and the development constraints of the private sector specifically in the targeted countries. Relevance is not only a question of intentions, but also of reality, i.e. whether the outcome of a programme is consistent with solving the development problems, or whether the underlying theory behind the intervention needs to be modified.

5.1 Relevance for Danish PSD policies and B2B objectives

Danish development cooperation considers support for private sector development as a means of achieving the overriding objective of Danish aid: reducing poverty. Danish aid policies adhere to a common view in the donor community seeing PSD as a means of stimulating economic growth, of creating jobs and of enhancing productivity. Specifically, the B2B Programme is based on the assumption that by engaging Danish enterprises in collaboration with local companies, there will be transfer of Danish experience, technology and investments which can help local enterprises to overcome constraints and obstacles. The partnership is a key design feature of the B2B, from which a number of development benefits will be realised.

A first test of relevance along this assumption is thus to determine to what extent B2B stimulates Danish companies to engage in collaborations which they otherwise would not do. If Danish enterprises are not initiating any collaboration, the relevance of the business alliance programme and the programme theory can be questioned as the programme in its current design entirely depends on active Danish company involvement.

The Evaluation’s conclusion is that the relevance of B2B differs from country to country. As a means of stimulating collaborations in French-speaking West Africa, the B2B has not proven its relevance. The reasons for the outcome might be a combination of factors, including a cultural distance, language problems, and overall marginal markets with perceived limited opportunities, and potentially low promotional activities by the embassies and other stakeholders. Should B2B seek relevance for such countries, a different approach than the current is required.

On the other hand, relative to the overall interest in the Danish business community manifested in direct commercial investments, B2B has been particularly effective to mobilise Danish enterprises to engage in Kenya, and also in Bhutan and Nepal, although the numbers of projects in the latter two countries are small, as described earlier, which would verify the relevance. Countries which attracted most of the engagements under B2B, i.e. Vietnam, Egypt and South Africa, also received considerable Danish and other foreign investments and Danish trade took place from a purely commercial point of view, hence the relevance of B2B as adding value requires to be tested.[32]

A hypothesis from the above is that the relevance of the B2B Programme for Danish companies through engagement is varying between the countries involved. Below is an attempt to classify the 19 B2B countries in four relevance categories.[33]

Table 5: Relevance of the B2B Programme in different countries
Potential high
relevance
Potential medium
relevance
Potential low
relevance
Irrelevant
Kenya
Bhutan[34]
Nepal
Bangladesh
Bolivia
Ghana
Mozambique
Nicaragua
Uganda
Burkina Faso
Egypt
South Africa
Tanzania
Vietnam
Zambia
Benin
Mali

A conclusion from the above is that a programme such as B2B should have a differentiated approach dependent on the country context to be relevant as a development cooperation mechanism. In the concluding chapters examples of such a differentiated approach are given.

Knowhow and technology transfer

The transfer of knowhow is relevant to developing a private sector, and in improving productivity, thus raising the value of labour, and indirectly wages. As will be further discussed in Chapter 7, the B2B has been effective as a mechanism in providing know-how and technology transfers to the local partners in the majority of collaborations. The engagement of some 420 Danish enterprises in delivering training and general business skills over often several years in a down-to-earth and practical manner to an equal number of enterprises is a strength of B2B. Many partner companies express that the skills transfer meant a lot for their company development and enhanced their competitiveness. Even if formal partnerships did not continue or materialized, a significant number of Danish firms continued to deliver technical skills to their former partners on an informal basis. As a knowhow and technology transfer programme, B2B is relevant in countries where the B2B relative to commercial market forces play some role as elaborated above.

Competitiveness

Strengthened competitiveness is one of the objectives of the B2B Programme. However, strengthened competitiveness in one firm as a result of significant subsidies cannot per definition be seen as a desired outcome of the B2B as a development programme. As B2B is dealing with companies in competitive local markets, increase in competiveness in one company through subsidies, might have a market distortion effect, which in its turn have negative implications on efficient use of scarce economic resources. Best practices in micro oriented private sector development are to assure that the interventions are not having market distortion effects. Overall, the B2B Programme has been largely negligent of such potential unintended effects and they have not been assessed in the application process. To be fully relevant, a programme such as B2B must assure that distortion effects are not present.

Employment

Employment and employment for women is a priority objective in most PSD Programmes and also in B2B. As further discussed later in this report, B2B is estimated to have been associated with the creation of 9,000-10,000 jobs and a substantial number of indirect jobs and earning opportunities. It must be stressed that figures for job-creation should be taken with high levels of precaution due to methodological issues. While seemingly a significant number, the relevance of the programme must be placed in the context of the labour markets in the 19 countries which, excluding China, has a demand of the creation of about 10 million jobs per annum. As further discussed in Chapter 7, B2B is in relative terms a high cost programme per job created, hence scaling up of the programme has limitations. While the job-contribution relative to the needs is bound to be marginal in any business alliance programme, the relevance of B2B as a mechanism to stimulate the creation of jobs could be considerably enhanced, especially in terms of indirect jobs. This could be done through the focus on sectors and the type of projects promoted, whether a partnership has the potential of creating spin-off effects in the economy, or if the results largely will be within the parameters of the company. This is further discussed in the concluding chapters.

In the B2B Programme, there may be a conflict between competitiveness and employment. In some businesses, increasing productivity implies less employment – not more. This is an inherent problem in modernisation of economies based on market systems. The forces of ‘creative destruction’ to use a classic term of the economist Joseph Schumpeter means that low productive and traditional companies are destroyed and new are created through the market forces. A B2B Programme cannot avoid being part of such processes.

5.2 Relevance for addressing country private sector constraints

The ToR included the question to which extent the B2B Programme was relevant for addressing the constraints of private sector companies in the partner countries.

A meaningful analysis of what are the constraints in the 19 B2B countries is beyond what the Evaluation can achieve. Nevertheless, there are some key tools available in identifying perceived major constraints by the business communities across countries. The Evaluation has used two instruments of this nature:

  • World Economic Forum’s Global Competiveness Report which assess the most problematic factors for doing business using 15 predetermined categories, and
     
  • World Bank and IFC Enterprise surveys, carried out over the last five to six years, assessing a number of dimensions in the business environment and using 11 specific constraints categories.

Both these tools are based on surveys of enterprises in the countries. The following ‘problem index’ has been established by the Evaluation for the 15 criteria used by WEF for the 19 B2B countries:[35]

Figure 11: The most problematic factors according to WEF reporting in the 19 B2B countries

Figure 11

A similar procedure gives the following distribution of major constraints in the 19 B2B countries identified by the World Bank:[36]

Figure 12: The major constraints in the 19 B2B countries according to World Bank surveys

Figure 12

Access to finance takes top position for almost all the countries as the most problematic factor for doing business in the World Economic Forum’s assessment, while in the World Bank’s survey it is placed number two. From this perspective, the B2B Programme seems to address a critical constraint by its liberal supply of funding especially to smaller enterprises, which tend to be more or less excluded from formal financial markets in many of the B2B countries. However, B2B is a temporary measure aimed at a selected few enterprises engaged in the programme. B2B does not address systemic constraints related to finance in the targeted countries. Furthermore, the finance delivered by B2B is largely controlled by the Danish firms and in line with B2B Programme intentions, which might not necessarily be the priorities for the local companies. Furthermore, in the B2B portfolio very few projects are in the financial sector. Another aspect is that the provided capital comes in the form of grants, and thereby might contribute to skewing the financial markets by providing scarce capital to bad business ideas, i.e. the capital could have been better used in more productive enterprises. In summary, the programme’s relevance in addressing financial constraints must be termed as not relevant, and possibly even counterproductive in some cases.

Corruption is the second most essential problem in the 19 B2B countries according the WEF and third most critical according to the World Bank survey. As discussed in Chapter 4, corruption appears not to have played a role in Danish enterprises’ choice of destinations, nor that corruption seems to impact whether the firms continue to the Project phase or not. The question is to what extent the B2B Programme has impacted or could impact on corruption in the eligible countries, hence if the programme is relevant to address this constraint in the business environment. The design of B2B has taken the risk of corruption seriously. Many Danish companies have also applied zero-corruption policies. Engagement by a Danish firm might to some extent reduce corruptive practices both by the local partner and at the market place through transfer of values, improving accounting systems and application of non-corruptive practices in partnerships; hence the programme could be relevant in this respect. Overall, the B2B can be considered marginally relevant in terms of addressing one of the most critical constraints in business.

Supply of infrastructure, the third most common perceived problematic factor in the B2B countries according to the World Economic Forum, and fourth most significant according to the World Bank survey, is very marginally addressed by the B2B collaborations. In the World Bank survey the major infrastructural constraint is access to electricity. The B2B portfolio has a significant number of collaborations with a focus on (renewable) energy supply and energy efficiency services. However, these projects are small and none of these assessed had more than a highly marginal impact as discussed later. There are a few B2B projects in transport, but the same is true for them as for energy. There is probably no inherent issue in a business alliance programme preventing the programme to more effectively address infrastructure issues, hence being more relevant. However, it would require a different targeting, and possibly stronger linkages to relevant sector programmes. A comparison can also be made to other forms for private-public sector programmes focussing on solving infrastructure constraints, such as the Private Infrastructure Development Group with its profound impact particularly in Africa.[37]

Competition from the informal sector is in the World Bank survey the perceived most common key constraint in the 19 B2B countries (The WEF does not have this category). The issue is related to the perception that the informal sector is undercutting in price, delivers sub-standard products and services and overall creates unfair competition by avoiding regulations, permits, paying taxes and so on. The B2B Programme is only engaging formal sector companies; hence there is a certain relevance of the programme to address problems with the informal sector in the sense of strengthening formal sector enterprises. However, due to scale the impact is minimal and, furthermore, the programme does not address issues of underlying factors of the reasons for the large informal sectors in the economies.

In summary, the key constraints in the business environment as defined by local companies in global surveys are of a nature where business alliance programme such as B2B has inherent limited relevance in addressing these issues. On the margin, the relevance could be enhanced, for example in targeting specific sectors such as financial institutions and companies engaged in infrastructure, and more strongly linking the B2B to sector programmes carried out by Danida or by other actors such as multilateral finance institutions. The conclusion is, nevertheless, that the underlying theory is overstating what a business alliance programme possibly could achieve.

5.3 Relevance for partnership creation

Long-term sustainable and commercially viable partnerships is in the underlying theory of B2B not only seen as a means to an end, but as an objective in its own right with the dual purpose of addressing private sector development in targeted countries and also providing benefits to Danish enterprises. As further discussed in Chapter 6 the evaluation estimates that the B2B Programme has been instrumental in creating some 120 sustained partnerships out of about 445 attempted efforts (excluding the Contact phase). While the efficiency and effectiveness of the B2B in stimulating the creation of sustained partnerships will be discussed in subsequent chapters, the programme is relevant, especially as most of these partnerships would not have happened without the programme. The Evaluation has based on the case country studies and also interviews in the random sample, concluded that in most cases, the Danish firms engaged in B2B would not have sought business opportunities in these countries without the B2B support and the active promotion by the programme. On a country-by-country basis, the statement of relevance must, however, be qualified, in view of the inability to engage any Danish enterprises in some of the 19 countries due to their lack of demand.

5.4 Relevance to Danish companies’ competitiveness

The B2B Programme like other business alliance programmes has an explicit objective that also the Danish companies should benefit. In the B2B this is expressed in the formulation of objective as the companies “may gain access to new markets, raw materials and reduced production costs.” In Chapter 7 the Evaluation discusses the benefits to the Danish companies, and concludes that financially, the B2B has only marginally been useful for the Danish enterprises as a collective. However, many companies express appreciation of the programme as a means of exposure to different business cultures and see the engagement as significant learning. Few, if any Danish companies seem to regret having engaged in B2B even if it financially has not paid off. As a means of engaging the Danish business community in cooperating with often marginal countries in the global economy, providing their knowledge and as such contributing to the solidarity with poorer nations, B2B has been an important and relevant programme. As a means of strengthening the Danish companies’ competiveness, the relevance is more questionable. There is an opportunity cost to the Danish firms for their involvement. Engaging in non-core markets in complicated business ventures such as joint ventures with to some extent unknown partners takes away energy that could be devoted to ‘lower hanging fruits’ in other markets. In short, the relevance of B2B as a means gaining access to new markets, raw materials and reduced production costs is doubtful for all except a limited number of Danish companies.

5.5 Relevance for economic growth, social development and poverty reduction

As will be further discussed in this report, the contribution of B2B to economic growth and poverty reduction overall in the 19 countries is, not surprising, negligible due to scale both in number of viable partnerships and the size of most partnerships. There are, however, examples of projects in B2B which at least in a local or regional context are such that an impact on growth and poverty can be manifested. Some of these projects are potentially outstanding in terms of their potential development impact on markets engaging the poor, hence might in the long term have a significant poverty impact. But these are a small minority and whether they eventually will make up for the large number of projects without such effects is not possible to determine at this stage. The impact of such ventures will not be evident in the short-run.

Relevance towards the broad, overriding objectives cannot be isolated from the question of efficiency and effectiveness. Has B2B provided value for money in terms of contributions to economic growth and poverty reduction, which justifies a cost to the Danish development cooperation of about DKK 1 billion, or could the relevance of the programme be enhanced with a different design? As will be further discussed in this report, the answer of the Evaluation is that a business alliance programme such as B2B could be considerably more relevant for Danida’s overriding objectives than the B2B has been.


[32] Theoretically, the commercial FDI by Danish firms might have been triggered by B2B. However, the time lag required makes this this likely for B2B, but perhaps more likely from the previous PSD Programme. This has not been tested by the Evaluation.

[33] The classification is based on the relative importance of the B2B in terms of initiated collaborations relative to overall FDI inflows, Danish FDI and trade with the countries. Note, the assessment is not addressing whether the collaborations deliver quality inputs, nor if the collaborations are sustained or not.

[34] Danida is phasing out Danish development assistance to Bhutan.

[35] The Evaluation has based on these reports constructed a ‘Problem index based on problem ranked as 1, given the index 3; ranked as 2 the index 2, and ranked as 3, the index 1. These figures aggregated for the 19 countries.

[36] Basic data from http://www.enterprisesurveys.org/Data/ExploreEconomies for each of the 19 B2B countries. The key constraints have been ranked based on number of companies reporting a particular issue as a problem. In the aggregation 3 points were assigned for the most significant problem according to the enterprises (most companies claiming a problem), 2 points for the second most important, and 1 point for the third. These numbers were aggregated to form the ‘problem index’ used.

[37] See various evaluations in www.pidg.org

Top

This page forms part of the publication "Evaluation of Danida Business-to-Business Programme 2006-2011 – Evaluation 2014.05" as chapter 5 of 11.
Version no. 1.0, 2014-11-14
Publication may be found at the address http://www.netpublikationer.dk/um/14_danida_btb_programme_2006_2011/index.html