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Feature of the Week: Trading Longships for Aid Packages

Magazine

Feature of the Week: Trading Longships for Aid Packages

Iceland’s increasing wealth has enabled it to make an impact on the international community that could hardly have been imagined half a century ago. The question is whether that same entrepreneurial spirit can be applied to the world of international development.

Published in Iceland Review 45.01, the 2007 spring issue. By Greg Bocquet, photos by Páll Stefánsson.

Iceland’s recent growth spurt – well-documented by the chrome wheels of luxury SUVs, the omnipresent cranes on the horizon, and the financial news appearing in newspapers around the globe – has boosted this island nation from the Third World to the First in barely a century. Iceland’s economy has grown almost 50 percent in the last five years. Philanthropy is not in itself a new concept in Iceland, but whereas social programs were once limited to serving domestic ends, in the last five years Iceland’s upper crust has finally begun to direct its largesse outward towards poor countries in Africa and Asia in need of a helping hand.

Icelandic aid today is best looked at as a three-pronged effort, managed by three unconnected sectors currently working largely in isolation from each other: the state, the private sector, and the non-governmental organization (NGO) community. To make a significant impact on world poverty, these three spheres would benefit from improved cooperation and a more supportive government, but it is unclear whether or not there is a willingness to accept this burgeoning sense of responsibility toward the developing world.

The Government

By far the oldest effort for supporting developing countries is the central government’s establishment of the Icelandic International Development Agency (ICEIDA). Since 1981, the Ministry of Foreign Affairs has disbursed taxpayers’ money to international development projects through ICEIDA, a crucial element of Iceland’s foreign relations.

There are no political motivations, however, in choosing the destinations for its budget, which more than doubled from USD 8 million 2005 to nearly USD 18 million projected for 2007. “ICEIDA does very little branding. We don’t want the projects to be ICEIDA projects; we want them to be projects of the governments we work with, where we just support,” Deputy Director General Thórdís Sigurdardóttir said.

In its work with state authorities, ICEIDA may appear to be slightly behind the trend in the international aid community, which has been largely moving away from providing support directly to some countries where corruption is rampant. Among the primary recipients of state funds in 2005 were Mozambique and Malawi, which both ranked 97th in Transparency International’s Corruption Perceptions Index for that year, and Uganda, which placed 117th out of 159 countries covered in the survey.

In other ways, ICEIDA is ahead of the curve, with its adherence to rigorous standards for monitoring and evaluation of the projects that it sponsors and an extensive gender equality policy that has been implemented in every country that it serves, targeting scholarships, job training, literacy, and health programs towards rural women. Its focus on equitable development, to be expected from the country boasting the first democratically elected female president in history, is one that is increasingly being adopted by professional aid organizations from all over the world.

With its expertise and a seemingly endless source of funding (Icelanders will always have to pay their taxes, after all), ICEIDA does not need to use its resources for fundraising and marketing, giving it unique opportunities not shared by the rest of Iceland’s aid community.

The Multinationals

Icelandic businesses, whose initiative and drive have allowed them to grow rapidly into foreign markets, have in the past ten years largely evolved their corporate responsibility programs to match their increased interactions with the world beyond its shores. That is not to say that the private sector acts as a coordinated bloc, and indeed different companies have very different views on how to dispense aid money. Nonetheless, increasingly wealthy individuals and corporations appear to be making a big difference wherever they are active. The challenge will be to bring smaller companies into the sphere of development aid.

Actavis CEO Róbert Wessman believes that it is not just large corporations that have a responsibility to help countries in need. “I think the mindset is the most important thing. Small companies can make a huge difference, just on a small scale.” It may not be so easy, though, as the current infrastructure arguably makes it difficult for small companies to find destinations for their smaller aid packages.

Shortly after initiating its advance into foreign markets, Baugur Group created an endowment fund to institutionalize its philanthropic activities. The fund disburses ISK 300 million a year to a variety of domestic and international projects although few of those projects are targeted at the poor and less-developed countries of the world.

“We look at ourselves as an Icelandic company and focus on our immediate surroundings,” says Hreinn Loftsson, Baugur Group’s chairman. “We will focus on Iceland and where our businesses are.”

Despite this focus, Baugur has been a major contributor, along with investment companies FL Group and Fons, to an education project in Guinea-Bissau with a donation of ISK 45 million. Kristján Kristjánsson, director of corporate communications for FL Group, sees such projects as a test for future efforts. He explains, “We believe in having fewer projects so that we can monitor where the money goes and ensure that it is being used well. After this three-year project, we will evaluate it to see if it works and if it is something we want to follow. The hope, of course, is for a project to be self-sustaining.”

Actavis, one of Iceland’s largest businesses and one of the top five producers of generic drugs in the world, believes in its potential to make significant contributions in the field of health and humanitarian aid by targeting specific projects and committing fully. “In choosing projects, we set our own goals as to where we want to make an impact and where we can. We support specific projects and focus on an area for several years, as well as regularly sending humanitarian assistance to Afghanistan, Indonesia, and tsunami relief in Asia,” says Actavis CEO Róbert Wessman.

Large corporations aside, the ever-expanding pie of Icelandic wealth has empowered some wealthy individuals with the resources and motivation to make a lasting contribution to international development assistance as well. Taking a cue from Microsoft Chairman Bill Gates, Ólafur Ólafsson, chairman of Samskip, has created a philanthropy fund with his wife worth ISK one billion that will dispense 100 to 150 million annually to social programs in Iceland and abroad. In addition to being the first private foundation of its size in Iceland, the fund is unique in that it specifically states a commitment to projects in developing countries and suggests that up to half of the funds will be applied to efforts in these countries.

Non-Governmental Organizations

The newest element of Iceland’s international development contribution is the participation of NGOs in directing aid to countries in need. Until recently, this has consisted of foreign NGOs taking advantage of the favorable economic conditions in Iceland to expand their already established presence in poor countries. It was not until 2006 that an Icelandic NGO began to undertake projects on behalf of Icelandic investors.

The first milestone in the nascent NGO community came with the establishment of the Icelandic National Committee for UNICEF in November 2003. “There was a void for us to fill in Iceland,” says Executive Director Stefán Stefánsson. “There was a culture of charity here already, but few outlets for it. Today there are over 12,000 people giving monthly donations in Iceland, and the country ranks first or second per capita among all UNICEF countries for private donations.”

As an international organization directed specifically at improving the lives of the world’s children, UNICEF provides an opportunity for donations to go to the organization’s well-established networks all over the developing world. Donations from individuals form the backbone of UNICEF-Iceland’s funding, and one half of its 2007 budget is expected to come from such contributions. However, Iceland’s small population implies that private donations will reach critical mass at some point, although the initiative shown by the corporate sector to take advantage of UNICEF’s prominent position in the international community suggests that its role will continue to grow.

Its establishment was made possible with major donations from Baugur Group, FL Group, Fons, Samskip, and Glitnir Bank, who continue to be active sponsors of UNICEF’s work. The project to oversee the construction of 138 schools in Guinea-Bissau is being managed by UNICEF with funds from Baugur Group, Fons, and FL Group, and Stefánsson believes more such projects lie ahead. “There is great potential for Icelandic businesses operating in other countries to fundraise there as well. Capacity is increasing and will continue to do so, and in 20 years we will be a major player,” he says.

The role of domestic NGOs, in contrast, is still at an embryonic stage. In 2006, the first Icelandic NGO, ICEAID, came into being through the efforts of Glúmur Baldvinsson, an experienced aid worker who has worked with tsunami relief in Asia as well as humanitarian projects in West Africa for the UN World Food Programme. The fledgling organization, which has only undertaken one project in Liberia in 2006, has established relationships with the University of Iceland and the Bifröst University to integrate development work more frequently into higher education.

“I want to take advantage of all the clever and intelligent students we have here, using the educational system and the energy we have for development. I also want to use our business energy, which is admirable, to show that we are a country to be reckoned with in the developing world,” Baldvinsson says.

By combining the energies of politicians, educational institutions, and Icelandic corporations such as Actavis, all of whom are represented on the group’s board of directors, ICEAID hopes to tap into the benefits of bringing multiple players to the table to fund and manage projects in the most efficient way possible. A new project with Actavis in Tanzania planned for later this year shows the group’s potential to establish itself as a home-grown player in the global NGO community.

Limited Cooperation

There are many motivated actors in Iceland working toward the same goals, but also an unfortunate lack of cohesion among them. The strongest cooperation exists between the private and NGO sectors, where projects such as that in Guinea-Bissau have demonstrated the benefits of using the significant contributions of successful corporations to capitalize on the expertise of established development organizations. With few such examples of cooperation, however, some private actors seem reticent to take full advantage of this opportunity.

On working with the NGO community, Actavis’s Wessman sees some potential for improvement. “I think aid organizations are too bureaucratic, and I want to see how we can do it better,” he says. “We do work with some organizations, but believe that we can help them improve their efficiency.”

ICEIDA’s involvement with NGOs in Iceland is also limited, mostly due to the shortage of established organizations in the country. In 2005, between seven and eight percent of the agency’s budget went to such organizations, a figure that should increase as the infrastructure develops further.

What the government does to support the activities of private donors comes in the form of tax credits for corporations undertaking charitable activities, though Baugur Group’s Loftsson doesn’t think companies take advantage of these tax breaks enough and that they are “unaware of the possibilities they have,” Furthermore, he does not rely on the government as the primary source of support for aid programs, saying, “The state can’t provide all the funding for things. There must be free groups and companies that are independent and private people must help them.”

What Can the Government Do?

Unfortunately, aid is not high enough on the main parties’ political agendas to ensure that ICEIDA is empowered to meet the country’s stated commitment to the Millennium Development Goals by dedicating 0.7 percent of GDP to foreign aid programs, or to achieve the cooperation that is essential to enable private organizations to work toward these same goals.

Current developments are putting ICEIDA’s role in jeopardy by threatening its status as an independent agency. Recent reports in the media indicate that Minister of Foreign Affairs Valgerdur Sverrisdóttir is considering two options for the future of the organization: integrating ICEIDA into the Ministry of Foreign Affairs or maintaining the agency’s independent status, with changes in its hierarchy that would make it more accountable to the ministry.

“We are upset about these options,” says ICEIDA Deputy Director Thórdís Sigurdardóttir, “We were not considered important in deciding the future of our organization. The legislation is old, so we all acknowledge the need for review, but we don’t want to lose staff or decision-making ability.”

To improve the state’s encouragement of private donors’ aid efforts, more comprehensive tax breaks to individuals and corporations is one solution. As Kristjánsson of FL Group argues, “The government can do more to support corporations in these projects with better tax breaks and more partnerships because in general I think the best results come when you put money through private channels to locals with expertise. Private funds are always more flexible and dynamic.”

The government could also establish standards of matching gifts, by providing a matching donation of, say, five percent of the total budget of an initiative undertaken by any private donor to provide aid to poor countries. This would diversify ICEIDA’s aid portfolio significantly, giving it a stake in the ambitious projects currently being undertaken by private entities, which it does not currently support out of concerns over directing public funds to selected corporations. Such a scheme would also provide an incentive for companies both large and small to contribute more to foreign development assistance.

What Can the Private Sector Do?

Private donors have many opportunities to maximize the impact of their philanthropic activities abroad while simultaneously fostering more participation by Iceland’s small- and medium-sized enterprises, which may feel limited in their capacity to undertake their own charitable efforts.

By partnering more with NGOs, corporations stand to gain legitimacy in the countries they wish to serve, capitalizing on the expertise of groups with experience in monitoring and ensuring the sustainability of aid projects. By turning over management to development professionals, they are also able to fund more projects and therefore increase their impact in the developing world.

Furthermore, smaller corporations can use NGOs to contribute to broader development efforts that they would not have the resources to undertake individually. Bringing this second-tier of Icelandic business together represents a vast untapped resource, one that can be harnessed either through partnerships among the corporations themselves or through NGOs such as ICEIDA that can manage projects funded by disparate actors.

Final Words

As the only entity directed one hundred percent to providing development assistance to poor countries, ICEIDA is the most important contributor to Iceland’s aid effort. Managing an ever-increasing budget for over two decades, the agency has resources and experience at its disposal, and it would be a shame if current developments limit its ability to further increase the scale and scope of its work. Officials must put political concerns aside and support the agency’s work toward fulfilling Iceland’s commitment to reducing world poverty by 2020.

Current trends in the private sector give hope, though, as there is a clear commitment on behalf of Iceland’s largest corporations to share their increased wealth with countries in need throughout the world. This commitment is set to grow even further as more outlets arise for the effective distribution of aid money and as more and more corporations join the community of development assistance.

It is unwise to assume that these trends will continue automatically, as there are clear steps that must be taken in order for Iceland to reach its full potential as an international benefactor. The good news is that the process has already begun, and to proven success. The hope is that the different players will continue to merge their efforts and show the world yet another powerful manifestation of the robust Viking spirit.