Week 3: The Roles of Private and Blended Finance in Development

The Role of Private Philanthropy in Development

With Mr. Geoffrey Lamb

So the Gates Foundation, if you were to describe what we do, we have two big
pieces to work. We put out, in total, about $5 billion of so-called charitable expenditure
every year.

And about three quarters of that goes to global development and public health
purposes.

I think what's been happening in maybe the last 15 or 20 years is that with the
enormous growth of private wealth in the world in advanced countries but also in some
developing or emergent countries, there has been a huge addition of capital to private
philanthropy, and there have been some big initiatives to set up foundations or set up
private wealth for philanthropic purposes.

What private foundations are looking for often, and certainly in the case of the
Gates Foundation, is they're looking for where there could be an edge, where relatively
small but maybe more risk tolerant resources can really make a difference to the total
effort.

You know, if the UK or the World Bank or the U.S. are putting a couple of billion
dollars of aid into some country or into some program, the fact that even a large
foundation, like the Gates Foundation, might add 100 million or 200 million is
important. It's an act of solidarity. It's an act of partnership, but for us it's less the 100
million or 200 million or whatever it is, and more what can we do that will help to
change the game.

Can we take some risks about a technology? Can we bet on some rather new
approach to a well-known problem that might unlock new solutions or unlock
something different? Because we don't have skeptical parliamentarians that we're
answering to. We don't have shareholders who are looking at the bottom line. We have
benefactors who are saying, "We want you to take responsible, well-informed, data-
driven risks, but we want you to take risks because we need better solutions than the
ones that we've got.”

I think philanthropy will make an important contribution but measuring it just in

terms of the number of dollars is probably mistaken.

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 If I think 15 years ago to the beginnings of GAVI, the Global Alliance for Vaccines
and Immunization, which was kick-started really by a substantial investment from the
Gates Foundation and from others, including the UK and the United States and so on.
But it was pushed by a philanthropic initiative.

Fifteen years ago major pharmaceutical companies were exiting the vaccine
field. It was a mature market in rich countries. There was perceived to be no money to
pay for new vaccines in poor countries. And so the big pharma companies, answerable
to their shareholders were saying, "This is not a growth business. We need to look
elsewhere."

I think that was an example of having a good business model to spread the
benefits of new vaccines, even to very poor countries much more quickly than it
happened in the past, a scaled up effort of money, including bringing other donors and
contributors together in that common initiative. And the third thing was really strong
advocacy for the cause of vaccines - for their lifesaving capability and for their
importance in public health in very poor or resource-poor settings.

And with those three things coming together, I think we have demonstrated to
the private sector that this is a market that they need to pay attention to, not only
established pharma companies but new entrants.

For example, from India and soon, I think, from China and other countries
entering that market and saying, "We can supply very poor countries and very poor
people with a certain amount of declining public subsidy from entities like GAVI. And we
can do it efficiently and at scale." I think that's a great example of the private sector
being energized and shown an opportunity by a philanthropic-plus-aid initiative working
in a smart way.

Like most foundations, the Gates Foundation mostly uses grants as its financial
instrument of choice. So we give grants. We give grants to non-government
intermediaries. We sometimes give grants to government entities, but that's not so
common. And those are against very specific milestones or mutual expectations of what
the grant is supposed to achieve.

So that's the dominant way we do it, but partly going back to the issue of
energizing private sector involvement, we have also done things like take equity shares
in what are essentially private companies. We've made private investments, in other
words.

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 The difference for us is we do not get any profit. We plow anything that is made
in the form of a loan or an equity participation, any income that comes from that gets
plowed back so that we are strictly, in terms of the law, charitable in our purposes. We
don't make income from it.

So we've done things like that. Occasionally we've done other things, and this
will be familiar to people who know about the World Bank or development banking and
similar things. We have given guarantees where there's a reasonable certainty that
something good is going to be done, but there is maybe a financial gap or a timing gap in
getting the resources together to get that done.

We've also had some experiments where we have worked with, in some cases,
government donors where government donors are in a position to make loans. Actually,
including the World Bank's IDA, for that matter, are able to make loans for an activity
which we think and maybe the countries think ought to be a grant.

An example of that is the eradication of polio where the good to the world of a
given country eradicating polio is very large, even though there may only be a small
amount of polio in that country.

So in that case we think there's a public good's externality argument for the
economists among you to say, "We will buy down the cost of that loan so that it's the
equivalent of a grant if the country or the entity that is the borrower performs what it's
supposed to do in order to get that job done."

So that's an example of a slightly more creative way of using our funds rather
than a straightforward grant.

We try to think of fitting the financial instruments we use to the purposes that
we're trying to accomplish and to the partners that we're working with because they
might need different things.

I do think philanthropy can play a role, again, to go back to my point about risk
appetite in looking for solutions, taking chances about what would work, not taking
changes at other people's expense. But taking technological and scientific risks to find
the solutions that the world is going to need in the next 20-30-50 years.

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