Local businesses and entrepreneurs have the potential to stimulate economic growth in conflict-pronecountries, but are quelled by a lack of access to buyers and a lack of financing to increase production. Scott Gilmore is creating a new market for these producers, linking them to international aid organizations and multinational corporations by creating the processes, connections and trust needed to get these organizations to buy locally. The local purchasing power of aid organizations and multinational corporations is channeling more funds to rebuild local economies.
The New Idea
Scott is regenerating local economies in the poorest and most conflict-prone countries in the world by building the market for local entrepreneurs, sellers, and service-providers. Working primarily with international aid and humanitarian agencies and multinational corporations, Scott is changing the buying practices of foreign missions to support local economies.
Scott is connecting small business entrepreneurs from emerging economies to new business opportunities, creating jobs and opening new markets for them. He is connecting them to international consumers such as the United Nations and its agencies, citizen organizations (COs), embassies, and multinational corporations that make up significant portions of the local purchasing power in conflict-prone areas.
Scott is changing these institutions’ approaches to economic development in conflict-prone countries, focusing on their ability to rejuvenate economies simply by feeding into them. He is using economic development as a way to ensure peace. Scott’s three-pronged approach involves: (i) helping to create jobs by connecting international buyers to local suppliers (ii) conducting research to increase understanding of the local impact of peace and humanitarian operations and (iii) increasing the efficiency of aid operations. Scott’s organization, Building Markets (formerly know as Peace Dividend Trust), has operated in fourteen countries, including Afghanistan, Timor Leste, Liberia, and Haiti. Through an analysis of where he can achieve highest social impact, he is spreading his model to eight countries over the next three to five years.
The international community’s increasing involvement in conflict resolution and post-conflict recovery is evidenced by the increase in foreign aid, peacekeeping operations, and the number of international players. For example, UN peace operations, designed to help restore peace in war-torn countries around the world, spent about US$5 billion in the UN fiscal year 2005 to 2006. Armed with data from the UN, which shared its budgets and related documents with Building Markets, Scott found that 95 percent of mission budgets are spent outside of the local economies. Of the funds that are spent locally, one-third is spent on staff salaries, one-third on staff meals, and one-third (or 1.7 percent of total aid dollars) on local procurement. This is primarily due to the fact that peace and humanitarian missions rely on imported goods and services (such as bottled water, food, and uniforms) rather than local ones. Importing goods and services is both more expensive and fails to support the local economy. For example, prior to working with Building Markets, the U.S. mission in Afghanistan was spending US$80 million per year on bottled water. Scott’s team helped them cut this bill in half, create jobs, and support the local economy. International aid and peacekeeping missions have generally neglected to seek out solutions to lower their procurement costs and support local supply chains.
In addition, there is asymmetric information flow between international buyers and local sellers, creating an inefficient marketplace. Local entrepreneurs don’t know how to find international tenders, how to understand them, and how to bid on them. In addition, procurement officers are not able to connect to the local economy. Moreover, until recently, there was a conventional wisdom that local procurement was either impossible or unwise. No organizations are challenging this orthodoxy in a significant way. The continued reliance on imported goods and services means that post-conflict nations experience low job creation and slow GDP growth despite the influx of aid dollars, rather than leveraging post-crisis investment to build local economies.
After spending five years as a diplomat, Scott realized that a significant portion of inefficient spending in aid work was due to importing goods and services. He saw a need to change behaviors and policies around procurement for missions and to change these, research and resources were required. In 2004, Scott left the Canadian Foreign Service to launch what is now Building Markets.
Although he knew intuitively and through experience that local procurement would have the most significant impact on regenerating conflict-prone countries, in order to get the international aid players onboard, Scott needed to launch a pilot of his idea to have the research to back this up. He launched a pilot project in Kosovo and with the results in hand, he approached the UN and convinced them to open their financials to him in order to understand the economic impact of peacekeeping. Scott found that most aid funds don’t enter the economies they’re meant to help rebuild. When international humanitarian and aid organizations purchase locally where they are stationed, they contribute significantly and lastingly to local economic growth, accelerating economic recovery. Through such high-level research, Scott demonstrated that peace and aid operations have not been effective in reviving conflict-prone economies, largely due to their logistical practices that rely on sourcing imported supplies. As Scott is filling an important gap in the field, he decided to dedicate a division of his organization to research. Armed with research that is verified by a third-party organization, Building Markets builds the case for aid groups to buy locally, providing the rationale for local procurement. Scott has created an online platform, the Sustainable Marketplace Initiative (SMI) to help organizations access competitively-priced local goods.
Scott also builds both supply and demand. He works with local teams to create online directories of reliable local businesses on the SMI and also advocate among aid organizations to buy locally. Building Markets has operated in fourteen countries, with offices in Afghanistan, Haiti, Liberia, Timor-Leste, and with headquarters in Ottawa and New York. Building Markets hires local staff in the countries to visit, review, and map local companies. The local companies need to meet a long list of criteria, including seemingly simple ones such as paying taxes and maintaining credibility. Scott’s local teams check up on them by phone and in person every six months to ensure that they are legitimate. The teams then distribute and translate tenders, create a reliable online business directory of capable local businesses, and train local entrepreneurs on how to compete for international contracts. All this supports local entrepreneurs to market their companies to procurement officers working for humanitarian missions and multinational corporations. They are not involved in the implementation of buyers’ procurement models and they do not provide technical or budget advice to suppliers. Building Markets focuses its effort on helping the local entrepreneurs and the international buyers, which are most likely to address high unemployment, low tax revenue and low GDP growth. For example, Building Markets will prioritize a contract or an SME which is likely to create large numbers of jobs and which is manufacturing goods (as opposed to importing them). This approach results in job creation, tax revenue generation, and the development of a local marketplace. At the same time, Building Markets develops campaigns targeting aid agencies and multinational corporations operating in conflict-prone countries, encouraging them to buy locally, especially for their logistical needs. It also trains staff of international organizations on how to engage with local entrepreneurs.
Further, Building Markets’ training services for staff members of the aid organizations and the SMI provide the aid industry with the tools to shift their operational behavior and make it conducive to economic growth via local procurement. Scott’s team also works with global COs—such as Care Canada, B-Peace, UNDP, UNICEF, UN Assistance Mission in Afghanistan (DPKO-Afghanistan), and UN Stabilization Mission in Haiti (DPKO-Haiti)—supporting them to purchase their goods locally.
For example, Afghanistan, Britain, and the U.S. adopted a Building Markets-inspired Afghan First policy as a central pillar in their stabilization strategy. This policy was subsequently endorsed by NATO and OECD. The UN Security Council recently instructed the new peacekeeping mission in South Sudan to prioritize local procurement. Building Markets continues to encourage large aid organizations to change their organizational behavior. Scott has been successful in collaborating with groups such as USAID and OECD through discussions with senior leaders. In 2005, along with the UN Peacekeeping Best Practices Section, Building Markets published the Mission Start-up Field Guide, which includes a standardized model for start-up and management of new peacekeeping operations.
To date, Building Markets has created more than 120,000 jobs and has helped redirect more than $1.1 billion of new spending into some of the world’s poorest economies. Scott plans to double this impact over the next five years. Among its other successes, Building Markets has assisted the UN to improve and standardize its procedures for launching new peacekeeping missions. Through its “Buy Local” program efforts, Building Markets has helped expand the economic impact of international aid and investment in Haiti, Afghanistan, Iraq, Timor-Leste, and Africa. Since 2006, Building Markets has facilitated more than $364 million into the Afghan economy. Since 2007, their business matchmaking services have facilitated US$5 million in procurement contracts for the poorest regions in Timor-Leste.
Scott has created an algorithm to decide which countries he will expand to next in order to have the highest social impact. He has identified Central America and Western Africa as immediate priorities for scaling. In the medium term, Building Markets plans to increase local entrepreneurs’ capacity to win large contracts by providing line of credit guarantees so smaller SMEs can bid on larger contracts, unleashing more aid money locally. For this idea, called the Factor Finance for Procurement, Scott won the Ashoka Changemakers G-20 SME Finance Challenge competition in 2010. Over the next three years, Scott will create a social business to fund his work in the world’s poorest countries. He plans to consult to wealthier country governments (such as UAE) and increase the fee-for-service component of his model in order to fund the non-profit work in post-conflict economies.
Born in the small mining town of Flin Flon, Manitoba, in a family of entrepreneurs, Scott always had an urge to launch his own initiatives. His grandfather, a gold prospector, and his father, a professional hockey player-turned lumber entrepreneur, had a huge influence on Scott. His mother was a sounding board for him and encouraged him to take risks. From 16 to 19-years-old, Scott launched and ran a landscaping company, employing his classmates and servicing the local community.
At the age of 18, Scott traveled around Europe and took a detour to the Middle East, where he was struck by the economic inequalities he saw. Scott pursued a degree in international business, and thought he wanted to be a foreign news correspondent. He wrote letters to the top foreign news reporters at fifty of the world’s biggest newspapers asking how he could be like them. Nearly all of them wrote back with the same advice: don’t go to journalism school; get a degree in international relations. After completing a bachelor of arts at the University of Alberta and M.Sc. at the London School of Economics & Political Science, in 1998 Scott joined the Canadian Foreign Services, to gain international experience for a few years. He was posted to the Canadian Embassy in Jakarta, where he covered the collapse of the Suharto regime and regional unrest. Three years later, he advised the UN peacekeeping mission in Timor-Leste.
Scott had an epiphany while in Timor-Leste, when he saw his landlord become an employer. He looked out his window and saw his landlord using his rent money to hire young people in the neighborhood to repair burnt buses. Scott learned that his landlord would later sell the buses, generating income for families, rebuilding local economies, and reshaping the transportation infrastructure in Timor-Leste.
Amazed by this business and frustrated with the inefficiency of the aid industry, Scott knew he had to quit his job as a diplomat. He believed, and saw with his own eyes, that the biggest social impact he could create would result from creating opportunities for local entrepreneurs in emerging economies to access bigger markets.