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Kurt Hoffman, director of the Shell Foundation

The Guardian (UK): ‘We are part of the solution’: Kurt Hoffman, director of the Shell Foundation

“From his office 21 floors above central London, the director of the Shell Foundation sets out cogently the argument his organisation is trying to put into practice: that big business can be the solution to global poverty.”

Laura Smith

Saturday August 27, 2005

By his own admission, Kurt Hoffman has undergone something of a conversion. From his office 21 floors above central London, the director of the Shell Foundation sets out cogently the argument his organisation is trying to put into practice: that big business can be the solution to global poverty.

But it was not always this way. Hoffman spent 10 years as a development economist at the University of Sussex, where it is unlikely his present ideas would have received a particularly warm reception.

“I was a radical, head-banger, Marxist economist,” he says, in characteristically frank mode. “I was on the protest lines in the previous era of anti-globalisation. So yes, it was surprising – to me, to my family and to my colleagues – that all of a sudden I turn up here at Shell.”

Hoffman’s road to Damascus is littered with hard-won realisations. Having spent a decade in lecture theatres and libraries, he left academia to work in a series of advisory roles for the World Bank, United Nations, European commission and governments in the developing world. “Working on the inside of the development community I began to see it from the big aid institutions’ perspective as opposed to the academic perspective,” he says.

But it was probably his experiences as a small-scale entrepreneur in the mid-1990s that did most to open his eyes to the needs of small and medium-sized businesses in the developing world. “I had children at the time who were 12 and 13, who were very bored with the toys they found,” explains Hoffman. “So I raised money from a major venture capital investor to make kits to design your own robots or rockets – things that were a little bit techy but not just your normal shoot-’em-up, bang-bang.”

The company was not a success. “It went bust and I nearly went bust so I had the experience of raising money, running a business and then facing the reality of taking the risk and paying the cost and trying to save my house.”

It is an ordeal that obviously had a profound effect on a man who admits he had previously done most of his learning from books. “I guess the combination of those things led me to believe that as a development professional, even though I was very committed, I never really saw results on the ground,” he says. “By that time I was already believing that business, far from being part of the problem, was part of delivering successful solutions on the poverty side.”

Hoffman’s basic thesis is hardly controversial: that economic growth is the only thing that can get poor countries out of poverty. However, unlike those who believe big business exacerbates many of the developing world’s problems by siphoning off resources and taking profits off-shore, he believes big companies like Shell can help generate that growth.

“What is missing in Africa and many other places where there are poor countries is a body of small and medium-sized enterprise,” he argues. “They are very important, but they tend not to be present for a variety of reasons, partly because you have microcredit available for really small household enterprises and you have commercial banks for businesses of £1m up, but there is no capital available to these small enterprises.”

It is this “missing middle” – highlighted last year in a report by the OECD – that the Shell Foundation seeks to encourage. Launched in 2000 with £250m, the organisation, which has a staff of seven on the 21st floor of the Shell building in central London, works in more than 23 countries to help fund small businesses that are desperate for investment, focusing in particular on those in the energy sector.

Loans, not handouts

Beneficiaries so far include dried fruit farmers in Uganda, who bought solar panels to power the ventilators they need, flower growers in South Africa and orange and bean growers in Morocco.

Importantly, funding is not in the form of handouts. The loans, which range from £50,000 to £500,000, have to be paid back – essential if businesses are to be “incentivised” to do well, argues Hoffman. Neither does the Foundation work alone. Part of its raison d’etre is to persuade local banks that small and medium-sized businesses are worth investing in. “They take some comfort from the Shell brand being involved where they wouldn’t take comfort from an NGO who wanted to do the same thing,” he says.

But it’s also about taking advantage of expertise. Companies like Shell have a network of thousands of employees who have deeper local knowledge of what is needed than any aid official or government bureaucrat. If their knowledge can be harnessed to help projects in need of funding, everyone wins.

Hoffman is scathing about aid organisations’ ability to deliver development. Unless they change their approach by adopting business values, they are doomed to failure, he says. Projects intended to change things are too often dictated by what he calls “book-learners” who are distant from the problems and often have little idea of what is needed on the ground. Aid does not encourage economic growth because charities do not understand what it takes to create a successful business.

“They try to do the right thing by funding training programmes for small enterprises. In fact the enterprises need training but they also need money too. Unless you realise that and bring the two together, the entrepreneurs are not going to pay attention.” There is also too little accountability. “I can’t think of one NGO or one development agency that’s ever been fired because it missed a target,” he says.

Hoffman’s ideas, and those of other similarly-minded thinkers, are gaining currency within aid organisations. With studies showing that the $300bn (£170bn) given in aid to Africa since 1950 has accompanied a fall in living standards, that $20bn, or 40%, of development aid is spent on consultants’ fees and that a large proportion of aid is wasted or misdirected, many acknowledge it is time for a change of approach.

But the question remains, is the Shell Foundation – funded by a global oil firm that stands accused of human rights and environmental abuses including gas flaring on a massive scale – the right organisation to spearhead it?

Hoffman is not allowed to comment directly on anything to do with the Anglo-Dutch conglomerate’s business activities. But he balks at any suggestion of a conflict of interest between the Foundation, an independent, registered charity, and the multinational. “We are interested in being a benign parasite on the group, exploiting not just their money but these business assets,” he says. “They provide the funding, sure, but as a charity publicly accountable with independent trustees, we wouldn’t get very far if we had Shell people trying to influence the way we spend money.”

Whatever his views on Shell’s real or alleged misdemeanors, one thing is for sure: Hoffman will not be wearing a white band when the second Make Poverty History campaign begins two weeks today to coincide with the UN summit in New York.

“Bob Geldof and the NGOs have done a very good job and they have inspired hopefully a whole new generation of people,” he says. “But unless there is a way to convert this charity money into the basis for self-sustaining economic growth, they are going to be back next year.”

Despite his changed views and dark business suit, Hoffman’s slightly long hair still betrays some sign of the professor. Surely there must be aspects of academia that he misses? “What I did as an academic was write a paper, get published and edit journals, and that added to knowledge but it didn’t deliver change. It didn’t necessarily make poor people better off.”

The CV

Born New Jersey, September 1950

Education 1969-1972: degrees in economics from the American University in Washington DC and international relations at Georgetown University, Washington DC; 1972-1976: Masters degree and PhD in development studies at the University of Sussex

Career 1973-1986: senior fellow, science policy research unit, University of Sussex; 1987-1997: consultant adviser on various assignments to foundations and international agencies including the World Bank and European commission; 2000-present: director, Shell Foundation

Hobbies: Listening to jazz and blues, gardening, cooking

Family: Married with three children

http://www.guardian.co.uk/business/story/0,,1557513,00.html

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