Investing in Fair Trade Versus Donor Aid
Lisa Zaslow is a guest blogger and the views expressed herein are her own and do not necessarily represent the views of Shared Interest Society.
Lisa is a passionate fair trade and microfinance activist currently living in North Carolina, USA. She is the founder of Blue People Fair Trade Ltd., an online store that specializes in fair trade and environmentally friendly accessories from all over the world. If you would like to be a guest blogger, please contact us with your interest.
While riding in my car doing the usual boring errands, I came across a radio show featuring a young, outspoken Kenyan named Binyavanga Wainaina speaking about his views on the “Ethics of Aid”. My ears perked up. What could this young Kenyan have to say about donor aid and where his country was headed?
All too often, we assume that we know what is best for Africans. Yet, after 50 years of aid, half the population of sub-Saharan Africa is still living in extreme poverty. According to figures from the World Bank, the number of poor people in Africa has doubled from 200 million in 1981 to 380 million in 2005. Although the numbers are staggering, Wainaina has discerned that prolonged donor aid sometimes has a debilitating psychological effect on the very people it is seeking to help. He says, “a lot of people arrive in Africa to assume that it’s a blank, empty place and their goodwill and desire and guilt will fix it. And that to me is not any different from the first people who arrived to colonize us.”
Wainaina maintains that “the single thing that has changed the lives of millions of Kenyans in the last ten or fifteen years has been the rearrangement of the banking capital to serve the small Kenyan….the micro-lending banks, scaling up the idea that somebody who earns a thousand shillings a month is bankable and someone to invest in and be able to create a model for that person to acquire credit in a reasonable way and grow, that has mattered more than a donor or all of the donor things, because it believes in the idea that the person on the ground has an idea and that idea can be serviced.”
And if there is one thing that Wainaina wants people in the West to know, it is that “where these things work is where people do it themselves…you go back from 1940 until now. Any countries that have done well for themselves and have managed to do positive things and that have changed the lives of the large parts of their countries have done so on their own effort.”
He goes on to say that the projects that DO tend to work are “…projects where you have a very long relationship with people and you understand their value. And they do things themselves, very much on the ground, very sensible….they get the community participating….it’s very cost-effective and it’s very natural and it’s a part of our lives.”
When you invest in Shared Interest, you are investing in a lender that has been involved and on the ground for over 20 years. They work extensively with community based businesses in Africa and other countries to make the most of fair trade by providing capital up front for producers and longer term loans to support the purchase of infrastructure such as machinery, buildings and vehicles for growing businesses.
So when you are trying to decide whether to invest or to give…think about investing, because in the end we need to see Africa’s promise alongside its problems in order to participate attentively in its future.
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Comments
Hi Lisa,
Many thanks for sharing these interesting insights and perspective on what those at the coal face in Africa see as the benefits of micro finance.
Just picking up on the twitter discussion that followed your posting. Joe Turner from the Freedom Clothing project seemed to be critizing the lending policy of SharedInterest as it was directed primarily to making loans for export (international trading). Is this policy linked to SharedInterests’ connections with supporting fair trade?
He seemed to be suggesting that there was more value in mcro financing lending policies focused on small local trading?
Does he have a valid point?
Many thanks
Scott
Hi Lisa,
Completely agree with your post. Local people understand their situation much better than outsiders and the only way to make sustainable changes is for people to do things for themselves.
Re Scott’s comment re local trading.
One of the issues with local trading is that in many remote areas there is a very limited cash economy. If no one earns any money (subsistence farmers) there is no money to buy locally produced products, so exporting to the city or internationally can be a vital way to increase the cash economy in the area. Once that’s been stimulated local trade is also increased. There’s always a balance to be reached and that’s different for every community.
Lesley
Hi Scott,
As Lisa is a guest blogger for Shared Interest and not an employee, I thought it would be more appropriate if I addressed your question.
Let me start by providing a bit of company background information. Shared Interest is a co-operative lending society and world’s only 100% fair trade lender that aims to reduce poverty in the world by providing fair and just financial services. We work with fair trade businesses all over the world, both producers and buyers, providing credit to help them trade and develop.
So by the very nature of our business, I would agree with Joe’s statement that our lending is for those businesses that are exporting their products. However, I don’t understand why Joe thinks that lending to those businesses that are focused on local trade is better than lending to businesses that are export focused? I would argue that it doesn’t matter where the money comes from (local vs export). Moreover, receiving hard currency ($ € £) from an export sale is actually preferable to receiving payment in a local currency because hard currencies maintain their value while local currencies fluctuate significantly over time.
Patrick Dodd
Many thanks to both Lesley and Patrick!
Your information and perspectives are a great help in clarifying the ‘right’ from the ‘right’…Once again as with many aspects of fair trade and development support there are multiple possibilities resulting from multiple variables and contexts. It would seem that in the area of micro financing context is key in the decision making process.
Once again thank you for your thoughtful sharing!
Cheers
Scott
Hi Scott,
I think the common thread here is ‘trade not aid’. There is certainly a place for all types of business lending which facilitate trade (both local and for export) in developing countries.
Cheers,
Patrick
Hi Patrick, Hi Scott, Hello Lesley, Hi and thanks for the piece Lisa.
Let us be totally clear – I’m just asking whether it is time to question our (and as a long term investor in Shared Interest, that includes me) preoccupation with lending for exports.
Anecdotally, I perceive a drop in the market for handicrafts. This is a big problem when the market is saturated with many kinds of different fairly traded products. Maybe I’m wrong here, but along with the reduction in the exchange rates, it is entirely possible that we have exposed vulnerable groups to the international market at a time when that market has collapsed. Where the money comes from might not ‘matter’ in one sense, but surely it ‘matters’ what extent we’re exposing the poor producer groups to excess risk.
We are often fed the line that there is a binary choice between development based on exports and nothing. Yet it strikes me that this is actually a very unhelpful way to think. Rather than relying on exports, which are extremely inefficient ways to aid development, I’m postulating that more effort should be made on finding more local markets. You’re totally right that many areas have limited markets. Then maybe we need to consider assisting ‘exports’ to other parts of the same country or neighbouring countries.
And isn’t Oikocredit also a ‘100% fairtrade lender’ Patrick?
Joe,
You questioned whether we should be exposing producers in the developing world to excess risk coming from export trade. Not to be cheeky or snide, but business is inherently risky and markets and currencies will always fluctuate. Fair trade helps to mitigate these risks by establishing a price floor and mandating that a certain percentage of each order be prepaid. Fair trade is probably not the solution, but it certainly helps. The vast majority of the markets in the developing world are so small and immature that without export trade, there would be no trade at all. I just dont see a sustainable solution to eradicating poverty without export trade leading the way.
That’s not to say that there shouldn’t be effort placed on developing local economies so that they can eventually develop sufficiently so as to help support those producers who currently rely on export credit. And this is where micro credit organisations such as the Grameen Bank and Oikocredit really shine. It shouldn’t be an either or proposition, but it is the export trade that will lead the way in international development.
Oikocredit does not limit their lending to only those companies in the fair trade industry, so by definition they are not a 100% fair trade lender.
Thanks for joining the discussion Joe; I always like reading your opinion. The offer to be a guest blogger is always open to you.
Patrick
Hi Patrick,
I don’t agree that “it is the export trade that will lead the way in international development”. It has up to now, but I’m not convinced in will in the future – past performance is no indicator of future performance.
I know – and appreciate – how fairtrade has a minimum price guarantee. But, I think, the real issue is actually how much far fairtrade will enable a community to develop, given there is a limit to how much people in wealthy countries will pay for the product. Fairtrade producers are normally better off than non-fairtrade producers, but I don’t believe we should be satisfied with the conditions of their lives even then. They are still far below the standard you and I would consider acceptable for our own families. The fairtrade minimum price guarantee is worthless if it doesn’t meet the expectations of the partners who depend on it, particularly if the market for their product collapses and they’ve spent a lot of time and effort in getting the fairtrade certification.
We need to find better ways.
I wonder what you’re defining by the fairtrade industry here. Doesn’t Shared Interest sometimes make loans to products which are uncertified and/or produce to be sold in-country?
Not picking an argument, just trying to understand…
Joe,
We can agree to disagree on whether “it is the export trade that will lead the way in international development” – time will tell. But we do agree that we need to find better ways.
Shared Interest only lends to companies that are certified by the WFTO or whose products are Fairtrade certified (FLO).
Cheers,
Patrick
Hi Joe and Patrick,
I LOVE a lively discussion, so I couldn’t resist getting involved!
There HAS been what they call South to South trade development. The producers know that they cannot depend solely on South to North trade, so they have been developing their own markets. Also, there is a HUGE fair trade market that, I feel, is un-tapped in the USA. Especially for produce. People here think “organic” instead of “fair trade” and I think that’s because of lack of education. I have read posts on blogs where some guy is ranting that fair trade is taking away American jobs (honestly), so there’s a lot that can be done. And each of us should be doing their part, whether it’s selling on the High Street, exporting or lending to people who need it. Fair trade and the producers need all of it.
Thanks for this great discussion! It would be awful if we all thought exactly the same!
Cheers,
Lisa
Lisa, I’ve been thinking about this over the weekend.
In a sense, I think those that argue fairtrade is taking away USAmerican jobs could be correct. In Europe, we are very restricted by our climatic zones and urbanisation as to the products we can grow. In the USA you can grow far more products yourselves that might be imported as fairtrade here.
So then the question is whether it makes any rational sense to import products from developing countries produced by very poor workers when they could have been produced at home (hopefully in better conditions… though of course that is a difficult issue in itself).
To me, importing things which you can (and do) produce yourself isn’t sustainable. On the other hand, how does that add up when there are many things we import on a European scale which we could grow ourselves (eg FT orange and apple juice). Personally, I wouldn’t buy those products.
Joe,
You’re completely overlooking the economic law of comparative advantage.
From Wikipedia –
David Ricardo explained it in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal. In Portugal it is possible to produce both wine and cloth with less labour than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good that it has comparative advantage in and trading that good for the other.
Not exactly overlooking, no – just disagreeing that it applies in this case.
If you had entirely level trading relationships where everyone is paid on the same level, that might be entirely reasonable. You’d go where the conditions are best suited. But we’re not in that situation. Almost everywhere is cheaper to produce things than the USA, hence the level of subsidies needed to keep their industries going.
And why are products cheaper from other countries? Mainly because they lack basic healthcare, infrastructure, have poor wages etc etc etc.
Applying this rule would mean that you’d never produce anything in the USA surely.
Another very interesting perspective on challenges confronting mico finance generally in latest “Nextbillion” blog post (http://www.nextbillion.net/blog) entitled “Anecdotes and Analysis: The Microfinance “Bubble”
This post not only raises some important questions about ‘in-country’ issues that might be created by an overabundance of mico- credit, but also highlights the importance of using well substantiated research data to support generalizations, as opposed to the common (used in some of these comments) anecdotal/case-study approach.
What a great post Lisa! Reading this I was nodding along as there is a resounding message here which has driven me towards the values of fair trade, having attempted to be the ’saviour’ by volunteering overseas, as a way in which we can help people help themselves. Showing that we value what others can do for themselves is vital for those others to develop in a way which sees them in control of that development, what their priorities are – such as how they use the social premium from the sale of their fairtrade produce. However, it is also about us supporting them where they need it, such as in access to credit which can be extremely difficult if not impossible for some. Where we can support and encourage rather than direct we will see lasting change.