Two unsolicited ideas on how to invest some of Melinda French Gates’ $12.5 billion

The case for bold risk taking to boost women-owned businesses and intensify learning on how to improve subnational service provision that targets women

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I: How can private philanthropies improve the practice of international development?

The last two decades has seen the rise of private philanthropies and other unofficial actors (like think tanks, research networks, and consultancies) as key players in international development. These unofficial actors’ influence has grown not just because of the sheer amount of cash they’ve mobilized (see below), but also because they have been able to set the agenda — including through their funding of specific initiatives in multilaterals, sponsorship of research, influence over government officials, and direct programming. For these reasons, it’s important to think about what philanthropies could be doing differently to catalyze transformative economic development in low-income countries.

The Bill & Melinda Gates Foundation dwarfs other philanthropies doing development work. Source: OECD

This post attempts to do this with some suggestions for the latest development philanthropy to be launched — Melinda French Gates’ $12.5b philanthropy. On May 13, 2024 Gates announced her resignation from the Bill & Melinda Gates Foundation. She plans to set up a new philanthropy focusing on women’s rights and gender equality in the United States and around the world. This raises the question, how can the new philanthropy be different from what’s already out there?

Let’s start by asking why philanthropies exist in international development. A possible model is that these are merely personal vanity projects that grew out of tax planning and which have little impact in the real world — a luxury consumption of the super rich (charity donations are tax exempt in many high-income countries). Evidence consistent with this model includes how philanthropies accumulate the accoutrements of prestige such as the hoarding smart talent, seeking association with prestigious organizations/universities, chasing relevance and influence, and being very public about what they are spending money on. Recent years have seen a democratization of this model beyond the super elite to allow “regular” people to support evidence-based philanthropy that maximizes individual donors’ warm glow by quantifying all sorts of impacts on poor people’s lives.

The sectoral distribution of spending reinforces the idea that philanthropies exist in the field of international development and mirror its focus areas. Source: OECD

Another model (which is arguably closer to the truth) is that philanthropies exist in the “field” of international development. Most of their founders/funders are partially driven by a belief that outsiders can help improve human welfare in low-income countries. Consequently, philanthropies have done a lot of good in sectors such as social protection, public health, education, and humanitarian assistance. Unfortunately, being located in the field of international development also means that philanthropies suffer from the same pathologies as “traditional” development outfits — such as ontological solipsism, cynical paternalism, small ambitions, cyclical faddism, obsessive bean counting as an end in itself, and being used by their host governments to advance specific political and ideological agendas.

Ideally, philanthropies ought to have disrupted the “traditional” international development players. The entrepreneurial backgrounds of most philanthropists should have meant greater focus on private sector growth and a much higher appetite for risk taking on project design. Yet the international development “field” completely tamed these impulses, rendering most philanthropies to be just smaller and perhaps slightly more agile versions of DAC development agencies and their multilateral adjuncts.

The fact that the newcomers merely sought to mimic decades-old incumbents foreclosed on any innovation in international development.

A number of factors reinforced the assimilation of philanthropies into traditional development practice. Their staff belong to the same epistemic community of “development workers” as the traditional incumbents, they mostly view their mission to be the implementation of compacts like MDGs and SDGs using the same toolkits, and they typically replicate the operational structures of the traditional players (often with strong elements of tied aid):

… almost all philanthropic giving (97%) was implemented through intermediary institutions, also referred to as ‘’channels of delivery’’. The report shows that a substantial amount of philanthropic funding, especially in the health sector, is channelled through international organisations and large international NGOs, such as Gavi, the Vaccine Alliance, the World Health Organisation (WHO), the Program for Appropriate Technology in Health (PATH), the United Nations Children’s Fund (UNICEF) or Rotary International.¹

But it doesn’t have to be this way. What if, in addition to their support of traditional ways of doing development work, philanthropies also seriously tried to boost private sector growth in low-income countries? And what if they were to adopt a learning model premised on the idea that there is value in intensive knowledge of context as a foundation for both success and scalability?

Low-income countries need massive private sector growth. To this end, private sector players in high-income countries can be partners that not only provide financing, but also enable access to markets, managerial expertise, and strengthening fledgling firms’ leverage over domestic policymakers. And as I argue below, such endeavors need not be caught up in field-mandated performances of feigned ignorance over “what works” in low-income countries. There are countless small and medium businesses that have survived long enough to be potential successful partners for any foreign philanthropies willing to support them.

Beyond private sector growth, low-income countries are also starved of essential public goods and services (especially at the subnational level). How can philanthropies move the needle in this space? Broadly speaking, the current model of doing development via philanthropies involves trying to learn to do one thing in a corner of Malawi with the hopes of being able to scale it globally via NGOs while avoiding governments like the plague. This model needs competition. And the competition should be in the form of a willingness to double down on one case and make it work and then leveraging its demonstration effect to fine tune approaches for other contexts.

Perhaps an example might help. In education, there are lots of studies of how to improve learning outcomes in the classroom with varying results. However, there are few interventions that set out to understand how to run an effective education system in a specific low-income country. The reasons behind this reality aren’t strictly justifiable on the merits. The former approach dominates simply because it yields publishable papers for PIs (including for yours truly), is easy to fit into funding cycles, and can readily be justified with reference to the promise of global scalability. The latter is totally messy and operationally open-ended in absolutely scary ways — basically, a bean counter’s nightmare. Yet it also comes with potentially very high rewards, not just from the possibility of igniting competition and learning among comparable low-income countries, but also the valuable lessons it would teach philanthropies about the complexities of getting things done in low-income countries.

II: Whither (women owned) African firms?

Robust engagement with private firms would be a natural entry point for philanthropies interested in helping accelerate commercial revolutions in low-income countries, including in Africa. However, doing so requires unlearning many internalized ideas about why the private sector isn’t as big as it should be in these contexts. For example, it is true that the typical African firm struggles a lot — from lack of infrastructure (roads, power, water, internet), to bad government policies, to patchy value chains, to a lack of (mid-level) managerial talent.

To many, these may appear as good reasons to not bother trying. But giving up on account of the complexity of the problem (or inventing a meaningless new area of focus) is what the risk averse traditional incumbents do. Philanthropies should try and tackle the problem head on, with the understanding that governments and policies co-evolve with business. Sitting on our hands until policy perfection and ideal business conditions magically materialize is not an option.

It is hard to overstate the importance of investing in private sector job growth in African states (by increasing the number and size of private firms). Non-agriculture formal sector employment is a tiny sliver of jobs in the region (more than three quarters of non-agricultural workers are in the informal sector, often in precarious low-productivity jobs with poor pay). The region only produces 3m formal jobs a year, against a workforce growth of 10m per year. At the same time, a large share of the labor force in the region remains stuck in low-productivity agriculture. Part of the problem is that African firms are stubbornly small:

African firms, at any age, tend to be 20–24 percent smaller than comparable firms in other regions of the world. The poor business environment, driven by limited access to finance, and the lack of availability of electricity, land, and unskilled labor has some value in explaining this difference. Foreign ownership, the export status of the firm, and the size of the market are also significant determinants of employment levels. However, even after controlling for the business environment and for characteristics of firms and markets, about 60 percent of the size gap between African and non-African firms remains unexplained.²

Not only do African firms stay small, they also rarely export. Research suggests that the lack of exposure to external markets dampens productivity improvements in these firms.

Overall, however, the balance of evidence suggests a generally limited depth of international involvement among African firms. The following statistics are instructive: only three (7%) of the South African firms studied by Roberts and Thoburn (2003) exported more than 30% of output; only 6% of Calof and Viviers’s (1995) sample exported over 50% of sales; less than half of Rankin’s (2004) sample exported over 10% of output; 69% of the Nigerian exporters surveyed by Ibeh (2001) exported less than 10% of sales; more than half of the small and medium enterprises (SMEs) in Soontiens’s (2003) South African sample exported less than a quarter of turnover; and Tanzanian firms exported on average 20% of output (Grenier et al., 1999). Söderbom and Teal (2003) further concluded that their study firms tend not to specialize in exporting, either to African or non-African markets.³

The data above may be old, but a quick look at 250 of the biggest firms in Africa suggests that most of them are focused on telecoms, finance, energy, commodities, and domestic consumer goods. There is virtually no export-focused manufacturing.

Now, foreign philanthropies may not be able to solve the myriad problems stunting firm growth in the region at a go. They lack the time, expertise, or even the money to do that. What they can do, however, is pick winners and help them grow even bigger. Across Africa, there are multiple mid-sized firms — a sizable share of which are women owned — that have existed for several years or even decades and learned to operate under the most difficult circumstances. A foreign actor interested in boosting such firms would be able to easily identify the survivors beyond a certain cut-off (say, five years) and work with them to scale up their operations, expand to foreign markets, hire more people, and increase productivity.

Importantly, such an approach would dovetail with the realities of the political economy of reforms and policymaking.

I have always found it odd that when it comes to development people readily dismiss the realities of policymaking — such as the fact that in all jurisdictions policies only succeed because there are interested actors incentivized to make them stick. The best way to improve the business environment in any given country is to ensure that policymaking is tied to actual firms and political coalitions with skin in the game and a grounded understanding of their political economy. Policy without a mobilized interests behind it is useless policy.

Obviously, picking proven winners and helping them become bigger and better is very different from randomizing access to assistance to struggling firms or poor households in order to assess the impacts of specific “bundles of assistance” collectively or in isolation. Yet it potentially offers invaluable opportunities for learning. Governments in the region would learn how best to engage with growing businesses. Other firms would learn from the demonstration effects of thriving (or failing) firms. And philanthropies would be able to concentrate their efforts in a few firms and truly learn (by doing) where the proverbial shoe pinches.

III: Towards a new yardstick of philanthropic success in international development

In line of the above discussion, two important opportunities come to mind when thinking about Melinda French Gates’ stated intention of advancing women’s interests with her new philanthropic outfit.

1. First, the new outfit should strongly consider boosting women owned firms in African countries. The idea here would be to move past the common practice of expecting low-income women to be micro-entrepreneurs, and instead focus on helping midsized to large firms owned by women to become even bigger. The point should not be to silo women owned firms in specific sectors (or force them to only employ women). That would, by construction, limit the growth prospects for these firms. They should be treated as “normal” firms able to compete with the very best.

2. Second, the new outfit should complement the focus on private firms with interventions that incentivize better subnational public goods provision in areas that disproportionately affect women — such as water and sanitation, healthcare, education, and energy access. Women in low-income countries typically bear the brunt of missing public goods and services. Lack of pipe-borne water means backbreaking labor and hours spent fetching water. In many contexts the lack of clean cooking fuels condemns women and girls to respiratory illnesses. Failing hospitals mean no access to gynecological and pediatric care. Bad schools depress female education attainment. Subsistence agriculture tasks women with backbreaking farm work, in addition to all the other uncompensated and gendered work. The list goes on. Ideally, the focus on public goods and services should be targeted at subnational units in order to increase the likelihood of impact and learning opportunities. The work with subnational units would ideally also adopt the same approach of intensive engagement with positive deviants as in the private sector.

I realize that both suggestions go against conventional wisdom within the “field” of international development. How would we know what works? How will we assess impact? How can the proposed interventions be scaled? Some may even question whether it is a good idea to encourage private sector growth (trust me, it is).

These questions are valid, but only to a point. Presently, there is very little innovation in international development. Everyone does their time-bound interventions that are tightly designed to produce measurable impact, regardless of the long-term prospects for transformative improvements among beneficiaries. To be blunt, the perversive bean counting culture has made everyone risk-averse and conservative. There is often no end state in mind. Deep down, everyone just assumes that the beneficiaries will be poor forever and in need of continuing assistance. Underneath all the intellectual gymnastics, the field imposes a lot of rote going through the motions.

Whatever happened to the idea that working in development is supposed to be about being successful enough to go out of business?

This is why we need ever more players in the field (or outside of it) to dare to think and act differently. Obviously, the above suggestions would require a lot more tweaking before operationalization. But the overriding philosophy of a two-pronged approach to boost specific positive-deviant subnational administrative units/governments and successful private sector firms should guide both intervention design and implementation. Above all, this approach should eschew the temptation to NGO-ize everything to death.

IV: Conclusion

It is common to hear people celebrate the fact that Africa boasts the highest rate of entrepreneurship among women in the world — at around 26%. Many also like to mention that women also make up about 58% of the self-employed population across Africa. This post is not of this genre. The high rates of women (micro) entrepreneurship in the region is a direct result of a chronic lack of jobs. Therefore, the goal should not be to turn every unemployed woman into a micro entrepreneur as an end in itself (we don’t encourage blind bean counting on this blog). Ideally, many women would simply be able to find dependable jobs within thriving medium to large (women-owned) enterprises.

A wider push to boost women-owned businesses would not start from scratch. For example, specific interventions could piggy back on existing programs designed to plug women-owned firms into male-dominated procurement networks and supply chains. In other contexts, agricultural cooperatives, SACCOs, or market associations could serve as platforms for building thriving women-owned businesses. Help for these firms should be laser-focused on accessing export markets (including within Africa) and productivity improvements.

Again, a lot of the claims above would need further refinement before operationalization. The overall point, however, is that whether philanthropies are thinking about private firms or improving service provision by (subnational) governments, there is an urgent need for them to get comfortable with “unorthodox” innovations and appetite for smart risk taking. More than ever, the “field” desperately needs their private sector expertise and experience. I hope Melinda French Gates and her team consider putting some money aside to support risky disruption. I believe Pivotal Ventures can help elevate the role of private firms in low-income countries’ development journey.

1. Private Philanthropy for Development: https://doi.org/10.1787/19901372

2. Leonardo Iacovone, Vijaya Ramachandran, and Martin Schmidt, 2014. "Stunted Growth: Why Don't African Firms Create More Jobs?," Working Papers 353, Center for Global Development.

3. Sob Tchanga Paul, Ondřej Dvouletý, African Firms Internationalization: What Can We Learn from the Most Cited Articles Published in the Last Decade?, Studies in Business and Economics, 10.2478/sbe-2023-0059, 18, 3, (281-305), (2024).