Executive Summary
The differences in NGOs and for-profits may be the solution to problems in providing sustainable projects to developing countries, if the two entities find ways to merge what they each know how to do best. For-profits and NGOs can be identified by a look at their financial statements. The NGOs have more experience taking on board the methods that ensure resilience and durability in the global marketplace; on the other hand for-profits can make long-term investments pay off. Sustainability is one significant impact and globalization is another.
NGOs based in the United States are regulated for how contributions are recognized, categorized and the value of donated services and funds in terms of revenue (FASB116, 1993). The FASB standards also define the services that must be included on an NGO’s financial statement. The services that “create or enhance nonfinancial assets or require specialized skills are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation” (FAS16 1977). Meanwhile for-profits describe their finances in terms of measured profits against operational costs.
The question arises as to what strategies need to be changed so that for-profits and NGOs can produce long lasting successful projects in developing countries. The financial markets are the problem that challenges NGOs to provide solutions that last in developing countries according to Sawers (2013 But how can those make a difference to providing solutions for developing countries? The answer may be to take advantage of the differences to provide quality services. The solution requires developing partnership frameworks with active negotiations between the entities to provide the needed solutions for the long-term.
Sawers (2013) pointed out that in the olden days competition produced hard driven rivalries. In the new millennium the landscape has changed to the point where “90 percent of global decision-makers in business, government and NGOs” rely on more collaboration in order to experience “significant global growth” (Sawers, 2013).
Solana (2014) sets forward an implementation strategy for three-way partnership building between NGOs, private for-profit businesses, and governmental entities to produce positive change in developing countries. The strategy calls for evaluating the similarities and differences of each group, in particular to identify where to allocate risk. The risk falls to the organization in the partnership that can “avoid or mitigate them and responsibilities to the most capable in order to have a sustainable service delivery to the beneficiaries in a financially sound way” (Solana, 2015 p. 259).
Solanda (2015) proposes a Public Private Not-for Profit Partnership (PPNP) scheme to correct the problems of the traditional Public Private Partnerships (PPP). In the twenty years of investment losses risk allocation determined the shareholders’ ROR.
An example of when partnerships are necessary is when NGOs have not been able to improve water-access to communities due to the disadvantages of the project-based strategy for reaching their goals. (See fig. 1) In many circumstances the NGO can act as the bridge between private and government to provide health care, sanitation or other development projects. The NGOs step out of the picture after the goal is reached to move on to produce another solution for a different community. That is because the NGO has no long term involvement in the functioning of the service. The NGOs find funding to implement the plan and provide the service, but that is where the NGO investment ends. (See fig. 1 bottom right)
Meanwhile a problem manifests itself in many cases that are perfectly suited to the financial structure and processes within for-profit businesses. Solanda (2015, p. 260) describes a case in Kenya where literally thousands of NGOs worked to solve water access problems in the country, some of them “like Kenya Water for Health Organization (KWAHO) have operated for more than 30 years.” The successes are not the whole picture, because the World Bank shows 40 percent of Kenya’s water systems are not functional amounting to losses in investments of over $1.25 billion over the past 20 years (Solanda, 2015, 2014).
Capital = Shareholders’ ROR
The slow down, theorizes Solanda (2015) is due to considering capital as defined by the shareholder’s expected rate of return (ROR). The risk allocation is the defining parameter of the risk allocation and ROR to the various types of shareholders (Solanda, 2015). Importantly, in the traditional practice the cost of capital is the interest rate when the shareholder is the bank (Solanda, 2015). The World Bank’s online database was used to compare changes in the interest rates from 200 to 2012 and then compare those values to the percent of a sanitation improvement for a country’s population that h (Table A-1). Generally, the interest rates were less but the only countries with 100 percent sanitation facilities were developed nations (UK, USA, and Japan). For Uganda the interest rates increased from 22.9 to 26.3 percent with only a 35 percent improvement and in Kenya from the interest rates decreased from 22.3 to 19.7 percent with only a 29 percent improvement for sanitation facilities (Solanda, 2015, p. 261). The examples point out the framework based on interest rates for banks as a ROR does not reflect the success or failure of the projects under consideration.
