Capacity Building: Challenges and Directions
for International Industries

Dean Slocum, President
Acorn International, LLC

Capacity Building Challenges for International Industries and Investors
Strengthening the capability of institutions in developing countries to deliver world-class services capacity building – is critical to the sustainable success of investments in major development programs. Multi-lateral finance institutions, such as the World Bank/International Finance Corporation, private financial institutions such as ABNAmro, and non-government organizations, such as UNESCO, have invested heavily in capacity building as a means of helping to effectively and sustainably manage the risk and return of investments in certain countries. The Equator Principals commit financial institutions to EHSS practices that are best deployed with the services of qualified in-country experts.

International industries are increasingly required to maximize the hiring and contracting of local content within host countries, and at the same time face significant pressure to maintain outstanding environmental and social performance, backed by consistently world-class science and planning. In response, like the development banks, international companies in the oil, mining, and other industrial sectors have begun to make substantial commitments in building the capacity of host country workforces and regulators. However, significant shortcomings need to be addressed to meet public and private institution expectations in this area. These gaps include:

Investment – Capacity building takes time and requires sustained investment, often with little measurable return over the near term. This makes it difficult for organizations to justify the level of investment that may be needed. A 2005 assessment by the World Bank found that this institution, widely considered to be a leader in capacity building, should be doing much more to ensure that it builds the capacity of its borrowers to manage its investments in an effective and sustainable manner (World Bank Operations Evaluation Department. Capacity Building in Africa – An OED Evaluation of World Bank Support. 2005. www.worldbank.org/oed

Public vs. PrivateThe overwhelming focus of capacity building in developing countries has been on strengthening public sector programs and staff to responsibly manage developments made possible by outside financing. As a result, aid is helping countries begin to build sufficient capability to encourage and regulate development, but not to build the internal infrastructure needed to perform the qualified investigations, assessment, planning, and design needed for that development.

Export vs. In-country Service Focus – What little focus has been dedicated to improving the capacity of developing country work forces tends to be on improving the training and infrastructure for small businesses to manufacture and export products. To date, very little investment has been made toward readying in-country private sector service providers to deliver the consulting and contracting services required by international industries operating in these countries. The World Bank and associated organizations have sponsored some environmental assessment service training classes for in-country experts, and certain oil companies (e.g., Chevron in Nigeria) have made isolated investments in developing in-country capacity in this area.

Measuring Effectiveness and Improving PerformancePublic and private institutions involved in capacity building lack a consistent means to measure or manage performance. In line with the 2005 evaluation referenced above, the World Bank and its International Finance Corporation arm are considering how to better measure and to improve the effectiveness of its investment in capacity building. International oil and gas companies measure “performance" in capacity building by accounting for the number of in-country staff hired, or the amount of hours or dollars invested in training in-country staff. At a recent Society of Petroleum Engineers meeting on Sustainable Development, some of the industry’s social responsibility leaders acknowledged that they are still searching for means of consistently measuring the effectiveness of their investments in developing a qualified workforce that can deliver world-class services while optimizing local content. (Society of Petroleum Engineers International HSE Conference, Social Responsibility Panel, Abu Dhabi, April 2005.)

As they seek the delicate balance between maximizing local content and assuring consistently world-class EHSS performance and services, international industries and investors will need to make substantial progress in overcoming these and other challenges to help fill in-country service delivery gaps through capacity building.

Why is Capacity Building Important to Acorn International, and What Are We Doing About It.
Acorn International was formed to help international industry and investors manage the balance between the need for local content and world-class assurance in EHSS services. Our service model is distinct from other international consultancies: we deliver world-class EHSS services by providing
structured tools and guidance to qualified host-country teams, facilitating the link with international clients and building capacity in the host-country team. To help ensure quality work, Acorn International maintains partnerships with locally-owned consultancies in 30 countries worldwide that are attracting foreign investment in natural resource (including oil and minerals) development. Working with Acorn assures industry and investors that they are investing not only in reliable services and results, but also in demonstrable capacity building in a workforce that can be better poised to deliver world-class services with each assignment.

We are working hard to ensure the capacity building realized through every assignment delivers value to our industrial and investment clients as well as to the host countries. At the outset of every assignment, we work with the in-country partner to identify mutual objectives for building capacity through the work experience. We then set targets and agree to mechanisms by which certain knowledge or “technologies" can be transferred to the in-country teams. Finally, at the end of each assignment, we evaluate whether the objectives and targets have been met, and explore what additional needs may exist to build further capacity in the identified areas.

For example:
• In Brazil, we helped our local partner learn a semi-quantitative environmental and social risk assessment method;
• In Venezuela, we made our partner aware of a “next generation" Risk-based Corrective Action (RBCA) technique being used in the US and Europe and evaluated together how to apply the technique in-country
• In Nigeria, we guided our local partner in applying and practicing the use of ASTM standards for due diligence assessments.

While much of the capacity building delivered by Acorn International is part of projects contracted and paid for by our clients, we also invest our own time and resources to help our partners continually strengthen their services. We do so because it will help us over time to build stronger, more sustainable partnerships that deliver value to our clients and thus strengthen our company in line with its mission.

Examples of internally-directed capacity building include:
• In India, we provided our partner with references to help understand how to apply advanced organizational change management principals to the development and implementation of a corporate EHSS management system for an Indian oil company.
• In West Africa, we are helping our partner select, obtain and apply software to model the effects of discharges from offshore oil and gas drilling activities.
• In Bolivia, we linked our partner with an organization that monetizes and finances carbon credits developed in association with the Kyoto protocol “clean development mechanism" so that they can offer this opportunity as a package to industries in Bolivia wanting to economically reduce greenhouse gas emissions.

We still have much to learn about capacity building as we continually improve our ability to deliver on our mission of helping our industrial and investment clients meet the delicate balance of maximizing local content and world-class quality assurance in EHSS services. Among other challenges, we continue to look for a reliable and broadly accepted means of measuring the success of capacity building – a precursor to helping our clients and their host-country sponsors better understand, track, and articulate the return on their investments.

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