Issuu on Google+

2012

Issue 1

INCLUSIVENESS AND SUSTAINABILITY IN GLOBAL TRADE

CREATIVE INDUSTRIES Where art meets global development... p. 12

ADVISING, EMPOWERING & INSPIRING TRADE

INTERNATIONAL TRADE

FORUM

INSURANCE

Driving trade... p. 24

KYRGYZSTAN

Committing to quality... p. 36


where art meets global development

The International Trade Forum magazine focuses on trade promotion and export development as part of ITC’s technical cooperation programme with developing countries and economies in transition. Published quarterly since 1964 in English, French and Spanish. See the online version at www.tradeforum.org Sign up for email headline alerts at www. tradeforum.org/alerts Reprints, translations We encourage reprints with an acknowledgement: © Trade Forum magazine, International Trade Centre Subscriptions forum@intracen.org Print subscription US$ 50/year (Free to trade support institutions and firms in developing countries) ISSN: 0020-8957 Address International Trade Centre Palais des Nations 1211 Geneva 10 Switzerland t +41 22 730 0111 f +41 22 733 4439 www.intracen.org

ITC editorial direction Jacquelyn Campo Managing editor Sarah Underwood Production manager / editorial assistance & online editor Evelyn Seltier Contributing editor Arran Riddle Design, illustrations & art direction Phoenix Design Aid Copy-editing & proofreading Danielle Carpenter Sprungli Printer Imprimerie Centrale SA Web version International Trade Centre (ITC) Disclaimer Views expressed in Trade Forum are the contributors’ and do not necessarily coincide with those of ITC, UN or WTO. Designations employed do not imply the expression of any opinion on the part of ITC concerning the legal status of any country, territory, city or area, or of its authorities or its boundaries; or the endorsement of any firm or product. Publisher The International Trade Centre is the joint agency of the World Trade Organization and the United Nations.

ITC EMPLOYMENT ITC is recruiting qualified professionals within different areas of expertise. If you want to contribute your skills to increasing export competitiveness for developing economies, and are motivated to work in an international environment that promotes diversity, then please check our jobs website, which is updated weekly: http://www.intracen.org/about/jobs

This Haitian design is the centrepiece of a wooden table, pictured in full on page 3, created by Jean Baptiste Joseph for PROMOBOIS. © Gianfranco Lanzetti


WORLD VIEW

FEATURES

05 NEWS BRIEF

10 Towards inclusive growth: A NEW MODEL FOR CAPITALISM Paul Polman Unilever

06 Inclusiveness and sustainability in global trade: THE SOUTH-SOUTH DIMENSION Supachai Panitchpakdi United Nations Conference on Trade and Development 08 Pinning down policies for INTERNATIONAL INVESTMENT James Zhan United Nations Conference on Trade and Development

12 Where art meets global development Trade Forum Editorial 16 Fair and sustainable development: AID FOR LEAST DEVELOPED COUNTRIES H.E. Bozkurt Aran Permanent Mission of the Republic of Belarus to the UN Office and other International Organizations in Geneva

18 Environmental policy CONTRIBUTING TO POVERTY ERADICATION Achim Steiner United Nations Environment Programme 20 GREEN GROWTH: an imperative of economic development Richard Samans Global Green Growth Institute 22 Sustainable results prove THE POWER OF INCLUSION Rachel Kyte The World Bank

BUSINESS FOCUS ITC IN ACTION

DIRECTORY

27 Breaking barriers: BUILDING BUSINESS Augusto López-Claros World Bank Group

39 ITC PUBLICATIONS Resources on trade and export development for exporters, trade support institutions and policymakers

30 A private sector mandate: THINK REGIONAL Rajesh Aggarwal ITC 32 TOOLS TO IMPROVE PRIVATE SECTOR OPERATIONS Yannis Arvanitis and Dalya Elziniy African Development Bank

34 Opening the door for AFRICAN EXPORTERS Yaya Ouattara ITC 36 Committing to QUALITY IN KYRGYZSTAN Trade Forum Editorial 38 Boosting trade policy IN PAKISTAN Mohammad Owais Khan ITC

24 Using insurance to drive trade Craig Churchill and Sarah Bel International Labour Organization

FORUM ISSUE 1 2012  3


message from PATRICIA FRANCIS

Executive Director, ITC In June, world leaders will meet in Brazil for the UN Conference on Sustainable Development (Rio+20). The conference aims to renew political commitment to sustainable development, assess progress on the implementation of agreements and outcomes of past summits, and address new challenges. The previous two “earth summits” acknowledged the role of trade in sustainable development — in allocating scarce resources more efficiently, in stimulating growth and in raising income levels. What has been found in recent years is that trade liberalization, environmental protection and socially inclusive development need not be at cross purposes. They can be mutually supportive. At ITC, our programmes begin with the assumption that win-win-win scenarios are achievable. Carefully designed export strategies can harness the power of commerce in socially and environmentally beneficial ways. This is an important year for the global trading system as well, as the world’s top trade officials and members of civil society meet at UNCTAD XIII. As Dr. Supachai, Secretary-General of UNCTAD, points out in this issue of International Trade Forum, the conference allows leaders to stress the fact that trade must be at the heart of the sustainable development agenda. One angle on sustainable development that is gaining traction is the concept of the green economy, particularly as the effects of climate change and overpopulation in urban settings become increasingly clear. Achim Steiner, Executive Director of the UN Environment Programme, defines the green economy as low-carbon, resource-efficient and socially inclusive. The demand for environmentally friendly products and services presents tremendous opportunities for developing countries to increase their citizens’ livelihoods and preserve the natural environment. He cites the example of biodiversity-based products such as natural cosmetics, medicines and food ingredients. Demand for sustainably produced goods, through certification, strengthens the economic incentive to preserve the environment while raising the income of families in rural areas. ITC is working directly with exporters and producers to support the green economy. Under the Trade, Climate Change and Environment Programme (TCCEP), ITC is helping Peruvian exporters of biodiversity-based products to overcome regulatory barriers to enter the United States

4  FORUM ISSUE 4 2011

market. In Zambia, the TCCEP is helping 500 women to market their natural products to high-end ecotourism lodges, providing an important income stream for people otherwise dependent on subsistence agriculture. ITC’s work with the Convention on the International Trade in Endangered Species seeks to understand trade in wildlife and how its impact on flora and fauna can be diminished. The programme is also helping tea and fruit exporters in Kenya to implement climate-change mitigation and adaptation strategies. Of course, one must remain realistic about what the green economy can achieve for global development. As the World Bank’s Augusto López-Claros describes so clearly in this issue, developing country governments must create the policies and institutions that allow for sustainable growth and, in most cases, wealth-creation objectives are likely to override environmental ones. Within the Aid for Trade framework, ITC will continue to help developing countries identify opportunities in the green economy. In the meantime, development partners must facilitate collaboration between governments and the private sector to enable socially inclusive economic development and environmental protection.

Patricia Francis


WORLD VIEW

NEWS BRIEF OECD Development Centre celebrates 50th anniversary The Organisation for Economic Co-operation and Development (OECD) celebrated the 50th anniversary of its Development Centre at a high-level meeting in Paris on 1 March 2012. OECD Secretary-General Angel Gurría described the creation and mission of the centre since it was first suggested by President John F. Kennedy in 1961 as a space where advanced and developing countries could work together to help developing countries overcome economic and development challenges. Looking forward, Gurría said that achieving the mission now requires a broader approach to development and outlined the OECD Development Strategy aimed at increasing the coherence of OECD policies and supporting developing countries in designing better policies. Concluding his speech, he invited Development Centre members and representatives from international organizations at the meeting to share their views of the strategy. ‘We are keen on your ideas on how this organization can deliver on its commitment to fight poverty and contribute to sustainable and inclusive economic growth,’ he said.

Companies must step up support for sustainability

to advance environmental and social sustainability based on the initiative’s 10 principles covering human rights, labour, environment and anti-corruption. Speaking in New York in February 2012, Kell noted that 3,000 companies have been delisted for noncompliance with the programme. He said, ‘We are disappointed that the movement isn’t growing faster. Of course, it’s a big movement, but not yet transformative. Our hope is that Rio+20 will deliver strong encouragement for corporate sustainability.’

UNIDO notes role of energy efficiency in sustainable development The United Nations Industrial Development Organization (UNIDO) published a report in January 2012 highlighting the importance of industrial energy efficiency in sustainable development. Entitled Industrial Energy Efficiency For Sustainable Wealth Creation: Capturing environmental, economic and social dividends, the report urges investment in energy-efficient technologies to help achieve sustainable growth and address the challenges of green growth, employment generation, security, climate change, food production and poverty reduction. UNIDO Director-General Kandeh K. Yumkella said, ‘Improving industrial energy efficiency is key to sustainable industrial development worldwide but especially in the rapidly developing countries of the global South. It will help realize the global green economy and green industries. Investing in energy-efficient technologies, systems, processes, training and upgrading of skills must underpin low-carbon green growth.’ The report is UNIDO’s main contribution to the Sustainable Energy for All initiative introduced by United Nations Secretary-General Ban Ki-moon.

Georg Kell, Executive Director of the United Nation’s Global Compact, an initiative designed to foster socially responsible corporate practices, called for more companies to join the Compact ahead of the Rio+20 Corporate Sustainability Forum. The forum is part of the broader Rio+20 United Nations Conference on Sustainable Development that will be held in The first global forum presented by Rio de Janeiro, Brazil in June 2012. More than 10,000 organizations have signed the Finance Alliance for Sustainable Trade up to the Global Compact, including 7,000 (FAST) and hosted by Rabobank was held on businesses in 140 countries, and are working 14 December 2011. It focused on improving

metrics and information systems to strengthen a sustainable small- and medium-sized enterprise (SME) finance sector. It also acted as a seedbed for initiatives based on emerging trends in sustainable SME finance and impact investment, and introduced a Shared Impact Measurement Toolbox including benchmark indicators to measure the social, economic and environmental impacts of sustainable SME finance. In addition to the central forum, workshops covered: financial schemes and innovative tools for sustainable SME finance; strategies to attract investment to sustainable rural SME finance; opportunities for microfinance institutions and local banks to invest in sustainable SMEs; and FAST Financial Fairs and capacity building for sustainable SMEs.

Forum on aid effectiveness drives inclusive development cooperation The Fourth High Level Forum on Aid Effectiveness convened in Busan, South Korea on 1 December 2011. After three days of talks between donors, recipient governments, emerging economies, multilateral lenders and civil society representatives, the forum delivered the Busan Outcome Document. It pledges to ‘establish a new, inclusive and representative global partnership for effective development cooperation.’ The forum hosted not only traditional donors, but also emerging players such as China, India and Brazil, with all endorsing the outcome document, which also referred to the meeting as a reference for South-South partnerships on a voluntary basis. The forum was co-hosted by the Organisation for Economic Co-operation and Development and the South Korean government.

Finance forum focuses on SME sector

FORUM ISSUE 1 2012  5


World view

inclusiveness and sustainability in global trade THE SOUTH-SOUTH DIMENSION ties have increased as inequality and indebtedness feed dangerously off each other. While the causes of the crisis lie in the advanced countries, the economic and social fallSupachai out continues to be felt worldwide. Global trade PANITCHPAKDI contracted sharply soon after the crisis hit in Secretary-General 2009, but rebounded in 2010. However, the imUnited Nations Conference on Trade and pact has varied across regions. In least develDevelopment oped countries, merchandise trade indices suffered a very strong reversal and exports in 2010 were still below 2008 levels. More generally, volatility in the price of commodities as well as he world is still reeling from the worst exchange rates due to increased financial specrecession since the Great Depression ulation has meant that trade activity is increasand the path to sustainable economic ingly separated from economic fundamentals. growth continues to be elusive. The Given the sharp impact of the crisis on the trade tentative recovery remains fragile, particularly prospects of developing countries, increasing in developed countries where high levels of in- attention is turning to the much-touted ‘rise of debtedness are damaging business confidence the South’ as a new source of more inclusive and holding back demand. Concerns about a and sustainable trade opportunities. possible double-dip recession are growing. The origins of this precarious global posi- The rise of the South tion lie in an approach to economic policy that Since the start of the new millennium, the globhas taken hold over the past three decades and al economy has seen the emergence of strong has given precedence to the financial sector. growth poles in the global South and the intenThe process of finance-driven globalization sification of South-South linkages through trade, has resulted in a growing separation between capital, technology and labour flows. The rise of the real and financial economy with the latter the South has resulted in a shift in the balance of increasingly dominant as money moves swiftly the world economy. However, while there has undoubtedly around the globe in search of speculative gains. In this unbalanced world, growth has become been a shift in the world economic order, we dependent on increasing injections of debt that must be careful not to conflate the success of have brought short bursts of prosperity but of- China and India into a wider rise of the South. ten ended abruptly and with destructive conse- Output growth has held out better in developquences. This pattern of boom and bust has fed ing than developed economies over the past into another rising trend, namely a growing lev- decade, but this has been uneven, and high el of inequality. Those at the bottom of the lad- growth does not necessarily indicate producder have gained least and suffered most during tive capacity. For many least developed counthese cycles. At the same time, systemic fragili- tries, economic growth in the 2000s was driven

T

6  FORUM ISSUE 1 2012

largely by rising commodity prices. This situation is therefore unlikely to be sustained and not indicative of gains in productive capacity. The past decade has seen a major expansion in trade between countries of the South. The importance of southern markets has been steadily on the rise as they have become both destinations for exports and sources of imports. South-South trade grew on average by 12% per year from 1996 to 2009, which is 50% faster than North-South trade. In 2010, the share of developing and transition economies in the world’s total foreign direct investment reached that of developed economies for the first time. However, as with economic growth, the expansion in South-South trade has been uneven. Intraregional trade in Latin America and in Africa lags behind intra-Asian trade. Asia alone accounts for more than 66% of all SouthSouth merchandise trade, and it is Asian firms that have taken the lead in interregional trade along a South-South axis. There has also been a large increase in trade across regions. For example, between 2002 and 2005, Brazilian trade with Africa rose by 153% in terms of exports and 149% in terms of imports. Trade with Asia grew by 111%, with exports and imports almost equal. Notwithstanding these advances, exporters in the South still tend to focus on traditional markets in industrialized countries, but there are benefits from trading with other countries in the South. The markets in the North are highly competitive and difficult to enter. They require large volumes, exacting quality control, packaging and corporate social responsibility standards. South-South trade can offer immediate opportunities for exporting at a manageable scale before tackling the markets of the North.


The main constraints to South-South trade are trade barriers that are considerably higher than in developed countries, as well as weaknesses in physical and institutional infrastructure. In addition, there is a perception that developing countries mainly produce similar goods – raw materials and commodities – and therefore do not have much to offer. This perception, combined with the notion that low GDP levels mean there is little market potential, tends to limit trade activity. However, the rapid growth of South-South trade in East Asia has demonstrated not only that these constraints can be overcome by well-designed policies, but also that such trade can bring significant benefits to the region. While South-South trade provides major opportunities for developing countries, it should not be seen as a panacea. Many of the caveats that apply to North-South trade also apply here. For trade to promote development, it needs to foster productive capacity and move away from specialization in commodities. In both cases, proactive policies are needed to ensure that the benefits of trade are widely shared and support a country's structural transformation. However, recent UNCTAD studies have shown that intraregional South-South trade can often be more conducive to diversification, structural change and industrial upgrading than overall trade. The way forward There is potential for considerable expansion of trade among the countries of the South. While this expansion is market-driven and can only be sustained through the private sector, governments have a vital role to play in creating the conditions for trade growth. In this area, the work of ITC to support trade facilitation is more important now than ever before. Particularly significant is the South-South Trade Promotion Programme that has raised awareness of trade potential between developing countries in various sectors. Through its technical assistance on legal, finance, packaging and export quality management issues, ITC continues to strengthen trade promotion infrastructure. Similarly, through its supply and demand surveys on countries and products, ITC fills trade information gaps, encourages information exchange and helps to harmonize inspection and certification procedures. The United Nations Conference on Trade and Development (UNCTAD) has also long supported South-South cooperation, for example with the establishment of the Global System of Trade Preferences, which was launched at UNCTAD XI in Sao Paulo in 2004 to provide a framework for mutual trade and economic co-

Crucially, we need to shift our focus so that inclusive development is at the forefront of the policy agenda with responses integrated across sectors, communities and countries. With the right principles, partnerships and policies, we have an opportunity to rebalance the world economy.

operation among developing countries through the exchange of market concessions. UNCTAD further supports exchange of experiences and is proposing to establish a network of policymakers across the South. These interventions are vital to strengthening the links across developing countries that can stimulate political as well as economic cohesion. However, more radical global reforms are needed if we are to prevent a recurrence of the crisis and to ensure inclusiveness and sustainability. As the dust begins to settle on the recent financial turmoil, it is increasingly apparent that a return to business-as-usual is a road to disaster. What is needed now is a greater collective effort to address the underlying causes of the crisis. The world is more integrated and more interdependent than ever before, thus a more encompassing global economic governance regime is required in order to ensure its smooth functioning. The current market structure was formed under the efficient market hypothesis, which is now widely known to be flawed. It lacks the appropriate institutions and mechanisms to regulate international financial flows and manage global macroeconomic imbalances. The current crisis-laden world requires global coordination that goes beyond the recent efforts by the G20.

UNCTAD XIII In April 2012, the thirteenth session of the UN Conference on Trade and Development will take place in Doha. The theme of the conference is Development-centred globalization: Towards inclusive and sustainable growth and development. At this week-long event, representatives from member States as well as the private sector and non-governmental organizations will come together to discuss and formulate global trade policy to enhance economic and social development. South-South trade and cooperation will be a key component and we expect to make considerable progress in moving towards a new global agenda. The recent economic chaos, while a source of great instability, has created an opportunity for major change. UNCTAD XIII will provide a forum to design major reforms to the global economic framework and to devise strategies for inclusive and sustainable global trade and development. Crucially, we need to shift our focus so that inclusive development is at the forefront of the policy agenda with responses integrated across sectors, communities and countries. With the right principles, partnerships and policies, we have an opportunity to rebalance the world economy, to turn recent growth spurts into rising living standards for all, and to secure a healthy environment for future generations.

FORUM ISSUE 1 2012  7


World view

pinning down policies for INTERNATIONAL INVESTMENT

D

James Zhan

Director, Investment and Enterprise Division United Nations Conference on Trade and Development

8  FORUM ISSUE 1 2012

espite turmoil in the global economy, global foreign direct investment (FDI) rose by 17% in 2011 to US$ 1.5 trillion. This sum surpassed average global FDI before the 2008 financial crisis. However, the fragility of the world economy will have an impact on FDI flows this year. Both cross-border merger and acquisition activity and greenfield investments slipped in the last quarter of 2011, indicating risks and uncertainties for further FDI growth in 2012. Thus the World Investment Forum (WIF) 2012 comes at a time when the future of international investment is not clear: will it continue its recovery, heading towards previous record levels, or will it stall just when it is most needed for job creation, poverty reduction and development? With this in mind, how can this year’s forum catalyse thinking on international investment and encourage more action on the part of governments, companies, investment promotion agencies and international organizations? Now in its third cycle, the WIF began in 2008 in Accra, Ghana. The second forum, in Xiamen, China in 2010, established the international reputation of the WIF as the global forum for open and high-level international investment discourse and policymaking. Over 1,800 highlevel participants from 120 countries attended the 2010 forum, including heads of state, ministers, heads of international organizations, senior business executives and global media representatives. The forum pushed several issues further up on the agendas of policymakers and companies, such as green investment, and it fa-

cilitated a number of investment deals, leaving a tangible legacy. This year’s forum, taking place in Doha, Qatar in April, will seek to address several policy challenges facing the international investment community. It will also provide a valuable networking opportunity for countries seeking to attract investment and businesses looking for ways to safely unlock cash reserves. The forum is distinguished by its emphasis on investment that has concrete poverty reduction effects – pro-poor investment for sustainable development – and its concern with responsible investment practices. The forum will not only seek to identify investment opportunities, but also consider how governments can develop the right policy mix to ensure greater benefits from international investment and how investors can improve the development impact of their investment decisions in a responsible and sustainable way. One session of the WIF that will address these issues directly covers not private companies, but sovereign wealth funds (SWFs) that have become increasingly influential in the international investment mix. With assets under management of US$ 4-5 trillion, much of which is owned by emerging countries in the South, SWFs could make a greater contribution to sustainable development. They offer huge potential for further international investment that remains untapped. Recognizing this opportunity, the WIF will focus on how to encourage SWF investment for sustainable development and will review some of the challenges faced by SWFs in international investment. The WIF brings together senior executives from SWFs, ministers and international experts to hammer out a vision for the role of SWF investment in productive sectors, infrastructure development and agriculture. Another trend in international investment that was examined at WIF 2010 is the burgeoning market in green investment opportunities. The transition to a low-carbon economy is creating a growth sector, boosting employment and disseminating technologies. In many cases, growth results from international investment by transnational corporations. But in a competitive environment for international investment, how can governments attract investment to this specialized sector? The WIF provides a forum for sharing best practice and experience, and link-


ing companies to potential investment sites in developing and transition economies. International investment can transfer capital, technology and skills across sectors. It can generate employment and increase fiscal revenues, create trade links and strengthen export capacities, for example by linking domestic companies to global value chains. The growing importance of these chains, along with nonequity modes of investment, such as contract manufacturing, can have an important pro-poor dynamic, integrating marginalized communities and small suppliers into global or regional value chains as producers, suppliers or goods and services providers. However, the development benefits of international investment are not automatic and depend on countries’ regulatory and policy environments. For international investment to contribute effectively to sustainable and inclusive development, measures aimed at attracting foreign investment have to be balanced with regulatory measures ensuring that investors act responsibly with respect to environmental and labour standards. Government policy is also essential to keep transnational companies from crowding out domestic industries or locking local producers into lower value activities in the production process. The increasing complexity of global value chains requires countries to be proactive in capturing higher value activities that could create higher skilled jobs and have a significant impact on development and poverty reduction. One of the headline events at the WIF, the ministerial roundtable, aims to address the nexus

between investment policies and other policies that can support domestic industrial upgrading and the integration of domestic industry into global value chains. The roundtable is expected to devise a set of key elements for a new generation of policy frameworks on investment and enterprise for sustainable development. As well as addressing specific international investment areas and how to maximize their contribution to sustainable development, the WIF provides a platform for discussion about global investment policymaking. According to the United Nations Conference on Trade and Development (UNCTAD), there are some 6,300 international investment agreements, including bilateral investment treaties and other regional investment agreements, creating a jumble of overlapping, inconsistent and complex regulation. UNCTAD has also highlighted the increasingly bipolar nature of national investment policy measures that have included increasing regulation and deregulation in investment policymaking. Investment policymaking is at a crossroads, leading the WIF to consider an investment policy framework for sustainable development that encompasses all these issues. The need is to continue supporting international investment, particularly in the poorest economies, such as the least developed countries where its impact can be significant. International investment can provide much needed financial flows, jobs and added value in the productive sectors of the global economy. This will be a way to stimulate stable and sustainable growth after a period of persistent economic turbulence.

The challenges facing the international investment community are varied and quite profound. They range from problems attracting and facilitating investment in key development sectors, to new actors in the investment landscape, such as SWFs, and to policy questions about the governance of international investment flows. In today’s global economic governance landscape, discussion and institutions dealing with investment are conspicuously absent. Unlike trade, which has the World Trade Organization, and finance with the International Monetary Fund, investment lacks a global forum. The WIF aims to fill the gap by establishing a global platform that is inclusive and universal at the highest policymaking level. The forum has become a front-line stakeholder event in the search for solutions to the global jobs and growth crisis. But it is not about investment at any cost. The WIF maintains a distinct position: international investment must provide wide development benefits and accord with international social and environmental responsibility standards. Only by following these principles can international investors provide long-term, inclusive and sustainable results that lift the world’s poorest out of poverty.

The challenges facing the international investment community are varied and quite profound. They range from problems attracting and facilitating investment in key development sectors, to new actors in the investment landscape, and to policy questions about the governance of international investment flows.

FORUM ISSUE 1 2012  9


FEATURE

towards inclusive growth A NEW MODEL for CAPITALISM planet and, on any given day, 2 billion consumers will use a Unilever product. This enormous distribution reach gives the company the caPaul Polman Chief Executive Officer pacity to effect change on a large scale. Take the provision of hygiene. Public Unilever health experts agree that one of the most effective interventions that can be made is to encourage people to wash their hands at key itizens around the world have lost moments in the day: before meals, after going confidence, understandably, in the to the toilet and so on. The principal marketing ‘quarterly capitalism’ model that re- strategy for Unilever’s Lifebuoy brand is a camquires businesses to be managed paign to educate mothers and their children to exclusively for short-term shareholder value. do just this. When the strategy was tested in a At Unilever, the lesson we have learned is that clinical trial in Mumbai, India, results showed business is part of society. As such, it has obli- the population that had been exposed to the gations not only to deliver a good return for its Lifebuoy behaviour change programme had a shareholders, but to make a contribution to the 25% lower incidence of diarrhoea and signifioverall environmental and social well-being of cantly fewer days of school absence due to illthe countries where it operates. Doing so can ness than the control group. open up new markets, lead to the development The campaign is now being rolled out of new products and drive growth. across South Asia and Africa. When executed Although there is still much to do, manag- well, it delivers a triple win. The consumer ing business in this way can also have a posi- starts to enjoy the benefits of basic hygiene, tive impact on social and economic develop- society gains from reduced health costs and ment, suggesting a new form of capitalism: Unilever profits from increased sales of soap. Another example is Pureit, Unilever’s reone that focuses on the long term and sees business as part of society, not separate from cent entry into the water purification market. it; one in which companies seek to address the As populations grow and per capita availability big social and environmental issues that con- of water diminishes, so its quality deteriorates. front humanity; one where the needs of citizens This is creating a need for simple, low-cost and communities carry the same weight as the systems that will enable people to purify water. Pureit does this. It makes water drinkable, even demands of shareholders. from very contaminated sources, and does so Supporting change at a price that is less than that of boiling the Unilever products are sold in nearly every coun- water and up to 15 times cheaper than bottled try of the world, including some of the poorest. water. The product has already been successThey are present in half the households on the fully launched in India and is now making its

C

10  FORUM ISSUE 1 2012

way into other markets, including Bangladesh, Indonesia, Brazil and Mexico. Products like Lifebuoy and Pureit have a positive impact on social and health indicators, but it is in agriculture that Unilever has the greatest effect on the environment. Global agriculture Unilever has a broad and deep presence in global agriculture. The company buys 12% of the world’s black tea crop, 3% of its tomatoes, 3% of its palm oil and large quantities of onions, soy and rapeseed oil. It works with large, industrial-scale farmers as well as smallholders. There are three areas where Unilever’s agricultural sourcing can have positive environmental and biodiversity impacts. The first is on land use. The need here is to ensure that suppliers of high-volume commodity crops, such as palm and soy, do not expand their output by encroaching on tropical forests. In an effort to tackle the problem of deforestation, Unilever helped found both the Roundtable on Sustainable Palm Oil and the Round Table on Responsible Soy. In 2011, the company drew over 800,000 tonnes of palm oil from certified sustainable sources and it has started on a similar journey with soy. Together with industry peers, the company is starting to transform these commodity markets and slow the rate of tropical deforestation. The second area where Unilever can have an impact on global agriculture is in mandating sustainable farming practices for its suppliers around the world. The company’s Sustainable Agriculture Code, developed over the past 15 years, requires the adherence of suppliers. The


03

01

01 Children using Lifebuoy in Viet Nam. © Unilever

02 T  he Pureit machine & 03 is now available in 5 countries – India, Bangladesh, Mexico, Indonesia and Brazil; here it is used by an Indian woman in her household. © Unilever 

02

Code covers everything from pesticide and fertilizer use, to irrigation, soil quality and biodiversity loss. When applied properly, it improves yields and reduces environmental impacts. Finally, Unilever’s agricultural sourcing can have a positive effect on economic development through engagement with smallholder farmers. According to Oxfam, there are more than half a billion smallholder farms, and improving their lot is one of the most effective levers to alleviate poverty. In one way or another, Unilever comes into contact with over a million smallholder farmers. In some instances, such as tea in Kenya, the company has been able to engage directly with the farmers to improve their productivity. This has been done in partnership with the Kenya Tea Development Agency and the UK Department for International Development (DFID).

In India, Unilever has had an even more profound impact on livelihoods by linking small gherkin farmers into its global supply chain. This has been done partly through training, helping the farmers with issues such as seed selection and drip irrigation, and partly by giving them access to a large market. Each of these examples – Lifebuoy, Pureit and Kenyan tea farmers – shows how companies can deliver positive social and environmental benefits to the communities where they operate. Often, these benefits are delivered in partnership with non-governmental organizations. Sometimes they are funded by money from bodies such as the United States Agency for International Development and DFID. These examples also illustrate the thinking that underpins the Unilever Sustainable Living Plan, a 10-year strategy designed to enable Unilever to double in size without increasing its overall

environmental impact. The basic premise is that Unilever can decouple business growth from resource utilization and environmental impact. The three principal goals of the Unilever Sustainable Living Plan are: to help a billion people take action to improve their health and well-being, to halve the environmental footprint of Unilever products, and to source 100% of agricultural raw materials sustainably. These overarching aims are complemented by more than 50 quantitative, time-bound targets covering everything from the use of renewable energy in factories to the quantities of salt, sugar and fat in products. Over its 120-year history, Unilever has learned that business based on these concepts can have a positive and inclusive impact on development and trade. It can also help win back the confidence of society by showing that business is more than about making money: it can also be socially useful.

FORUM ISSUE 1 2012  11


FEATURE

where art meets global development

01

12  FORUM ISSUE 4 2011


06

03

01 Jewellery line by Lucia Joseph from Trinidad and Tobago. © Kerron Lemessy

02 J ordanian handicraft manufacturers meeting with buyers from the Louvre Museum in Paris. © ITC

03 Handmade  candle holders from Jordan. © Silsal

02

WRITES

Arran Riddle Trade Forum Editorial

M

any small and developing countries have a rich cultural heritage and a living tradition of craftsmanship that their populations can draw on when creating artisanal products that will appeal to buyers abroad. Growing commercialization of the arts has created an opportunity for more of these artisanal products to be sold around the world. That said, while the creative industries sector accounts for 7% of global GDP and is growing by 8.7% annually, developing countries account for a mere 1% of total exports. ITC is at work in many countries to address this disparity, removing the barriers between artisans and buyers abroad. Raising the profile of Jordanian handicrafts abroad ITC started the Enhancing Arab Capacity for Trade (EnACT) programme in 2009 with funding from the Canadian International Development Agency and the aim of developing a more diversified export base in North Africa and the

Middle East for goods produced in Algeria, posure of Jordanian handicrafts to international Egypt, Jordan, Morocco and Tunisia. markets. In September 2011, EnACT arranged One of the first areas of focus was Jordan’s for three companies – Silsal Ceramics, Jordan handicraft sector, in part because of the high pro- River Foundation (JRF) and Nadia Dajani Jewelportion of women involved in creating artisanal lery – to take part in the international handicraft products, largely in rural workshops spread fair Maison & Objet in Paris. This created a great across the country. In spring 2010, ITC conduct- deal of enthusiasm and momentum through new ed a survey to determine the productive capacity business contacts and an understanding of deand export readiness of the sector, gauge poten- sign adjustments and pricing that would be retial demand and understand the buyer require- quired for export products. A meeting arranged ments to which producers would need to adapt. with the purchasing department of the Louvre The study revealed that, while traditional Jorda- museum also led to an order for Silsal Ceramics nian crafts are seen as beautiful and marketable and an interest in products from Nadia Dajani objects, they suffer from a lack of innovation that and JRF products for future buys. restricts the product range to a limited number of Nadia Dajani manages a group of 30 womtraditional forms and designs. In addition, prod- en from less privileged backgrounds and trains ucts are not competitively priced in comparison them in the skills needed to make jewellery. to equivalent goods produced in Asia. She says, ‘We really need to expand into more Nevertheless, the potential for developing international markets. The more work we give the sector is recognized by the Jordanian gov- to the ladies, the more they can upgrade their ernment. It established a National Strategy for standard of living. Confidence levels are growTourism Handicrafts 2010-2015 with a focus on ing and they are thinking about their future and preserving Jordan’s cultural heritage, generat- about what their daughters should be doing as ing income for producers and increasing the the next generation comes along.’ country’s attractiveness as a tourist destination. One area where the EnACT programme Promoting CARIFORUM creative industries team determined it could make an immediate Caribbean countries are characterized by creand positive impact was in increasing the ex- ative and cultural expression. They do, how-

FORUM ISSUE 1 2012  13


05

ever, have untapped potential to expand their exports, generating wealth and jobs in creative industries. ITC recently completed a one-year project with the World Intellectual Property Organization and the Caribbean Export Development Agency to develop the creative industries sector across Caribbean Forum of African, Caribbean and Pacific States member countries. The goals of the project included: • Improving product design and marketing skills among targeted producers; • Enhancing the performance of trade support institutions in providing marketing services; • Increasing awareness among a wide range of stakeholders, including policymakers, of the potential of the CARIFORUM creative industries sector. The project provided more than 15 training workshops and seminars on design, export marketing, data collection and business support organizations. The results of these interventions included a Web-based toolkit for export marketing and a study of the contribution

04

14  FORUM ISSUE 1 2012

06

whose work is export-ready, or nearly so, and women who are in earlier stages of product development and business preparation. For designers who have established themselves and are already selling their collections domestically and abroad, ITC aims to give them knowledge and resources to successfully enter the US market. Success in this objective will then trickle down to other women, as designers often employ people to sell or manufacture their collections. In 2011, ITC arranged for a group of these jewellers to attend a jewellery trade show in New York to gain insight into marketing their goods, build contacts and better understand the competitive landscape. For designers with less experience in producing work for export, ITC has engaged Mexican consultants to run a series of training sessions covering design and quality, as well as American consultants to train artisans in pricing and market-access requirements. The Bringing the work of Mexican jewellers to the initiative also targets trade support institutions, United States marketplace empowering them to better support jewellers in Mexico boasts a large population of jewellery extending their reach to markets abroad. The makers, predominantly women, operating at initiative was developed in collaboration with the micro level. The group is highly fragment- the Mexican Ministry of Economy and is suped, yet shares a heritage of craftsmanship and ported by the British government’s Department design, especially in silver and bead work. In for International Development. 2009, following ITC’s commitment during the annual Asia Pacific Economic Cooperation These projects are a few of many initiatives tak(APEC) Forum to contribute to the promotion en by ITC to develop creative industries. They of intra-regional trade among APEC countries, prove not only the power of putting knowledge ITC’s Women and Trade programme identified and resources in the hands of artisanal people, Mexico as one of the countries where women- but also the commitment of those people and owned businesses could be more effectively the trade support organizations they work with to generate employment and create high-qualilinked to buyers in the United States. ITC’s engagement in this sector divides ty goods that can open the door to international jewellery designers into two groups: women markets. of the creative industries sector to the economy of Trinidad and Tobago. The project also premiered a new line of collections, Contemporary Caribbean Design, that was exhibited to high acclaim at Design Caribbean, a trade fair launched by Caribbean Export in 2011 to promote the region’s creative products. Margaret McGhee lives in Jamaica and worked in advertising for 10 years before turning her creative skills to ceramics. She says, ‘Cultural industries are definitely not given the same sort of treatment as other major industries.’ Caribbean Export recognizes this problem and also proposes a solution. Executive Director Pamela Coke-Hamilton explains, ‘We need to begin to look at [creative] things as an economic venture rather than as a cultural venture. We need to look at them as foreign exchange goods, as possible economic turnarounds for all of our countries.’


07

08 09

04 '4 Ladies' by Laura Ward from Barbados. © Denyse MénardGreenidge 05- Workshops held 07  in Haiti, Barbados and the Dominican Republic. © Giulio Vinaccia

08 M  exican jewellery design by Isela Robles combines different materials and textures, inspired by the essence of Mexican's colourful nature. © Isela Robles García 09 Mexican Jewellery design reaches out to markets worldwide. 10 A  rtisans hand painting a watermark vase in Jordan. © Umiah Fakhouri

10

FORUM ISSUE 1 2012  15


FEATURE

fair and sustainable development AID FOR LEAST DEVELOPED COUNTRIES

T

frastructure, including agriculture, water and he principal goal of Turkey’s foreign sanitation, and energy. policy is to secure and nurture a peaceful, prosperous, stable and cooperative • Trade – Projects will consider expansion of duty-free, quota-free market access for environment that is conducive to human agricultural products. They will also extend development both locally and globally. To this H.E. Bozkurt Aran export-import bank lines of credit to governend, and in support of global efforts aimed at Ambassador, Permanent Representative of Turkey to the ments, financial institutions, regional develpoverty eradication and sustainable developWorld Trade Organization opment banks and other relevant entities of ment, Turkey is rapidly expanding its developPermanent Mission of the Republic LDCs on deferred credit terms for imports ment cooperation activities through wide-scale of Belarus to the UN Office and of goods and services from Turkey. Trade official development assistance (ODA) and other International Organizations in policy support will share experiences and more specific assistance dedicated to least deGeneva expertise in standards, networking, product veloped countries (LDCs). and market development, and trade facilitaRecently, Turkey has boosted its ODA tion. Bilateral institutional links will be made to countries affected by conflicts and other between business associations in LDCs and sources of instability such as natural disasters. their Turkish counterparts. This includes a range of development partnerships focused on the Balkans, the Caucasus • Investment – Concessional lending facilities will support infrastructure and productive and Central Asia, as well as countries in the capacity building. The United Nations DeMiddle East, Africa and Asia. Most of Turkey’s velopment Programme Istanbul International development cooperation projects between Center for Private Sector in Development will 2005 and 2010 focused mainly on social infracooperate in capacity building programmes structure, in response to requests by recipient for small- and medium-sized enterprises countries for assistance in education, health, (SMEs) and private sector development. One water and sanitation, and administrative and focus will be on investments in agriculture, civil infrastructure. agribusiness, infrastructure, manufacturing, Turkey’s assistance to LDCs has been energy, water, extractive industries and tourstrengthened by a US$ 200 million per year ism. Another will be on technical support to economic and technical cooperation package, establish or strengthen investment promotion developed after the country hosted the fourth institutions in LDCs. United Nations Conference on LDCs (LDC-IV) in Istanbul in May 2011. Priority projects within • Technology – The Scientific and Technological Research Council of Turkey in partthe package are being identified for rapid imAs a developing nership with the United Nations Educational, country itself, Turkey plementation in 2012, and cover the following fully understands the areas: Scientific and Cultural Organization and requirements of LDCs the United Nations Industrial Development and endeavours to Organization exchange of scientists and re• Developmental and technical cooperation – raise awareness searchers will coordinate technology transTurkey will allocate its assistance budget to of the international fer programmes through bilateral and trianprojects and programmes in line with the recommunity regarding gular cooperation. Projects will encourage spective populations and capacities of LDCs. development-related scientific institutions to network. Turkey will Projects will focus on education, training and issues and concerns. establish an international science, technolhealth, as well as productive sectors and in16  FORUM ISSUE 1 2012


In the post-conference phase, the momentum built in Istanbul must not be lost. The Istanbul Programme of Action adopted at the conference is a valuable, forward-looking document that reflects the international community’s strong political will to support the LDCs. It must be effectively followed up and implemented, and to ensure progress, Turkey has offered to host the Mid-Term Review Conference of the Istanbul Programme of Action in 2015. ODA and initiatives such as the Economic and Technical Cooperation Package for LDCs have become an integral part of Turkey’s proactive foreign policy. Based on its belief that ensuring comprehensive, fair and sustainable development is a common responsibility for the international community, Turkey will continue its engagement in international development activities and is committed to expanding its growing contribution to efforts aimed at finding lasting solutions to the most pressing global problems of our age.

forestry

water

technical

investment

The scope of the Economic and Technical Cooperation Package is ambitious and Turkey’s commitment to LDCs does not stop here. The country aims to increase its level of direct investment in LDCs, in particular from its private sector, which is currently approaching US$ 2 billion to a total of US$ 5 billion by 2015. It will then strive to increase the amount to US$ 10 billion by 2020. On a wider scale, Turkey has steadily increased the amount and geographical reach of its ODA in recent years. Combined official and private sector development assistance amounted to an estimated US$ 1.7 billion in 2010, while ODA alone reached US$ 1 billion. In the same year, Turkey provided development assistance to 131 countries that appeared on the list of aid recipients drawn up by the Development Assistance Committee of the Organisation for Economic Co-operation and Development. As a developing country itself, Turkey fully understands the requirements of LDCs and endeavours to raise awareness of the international community regarding development-related issues and concerns. It is with this understanding that Turkey hosted LDC-IV, which brought together governments, parliamentarians and academics, as well as representatives of civil society organizations and the private sector. The conference was a milestone in bringing the challenges of LDCs to the attention of the international community.

fair

technology

sustainable

technical

trade

policy

education

water

investment forestry policy

cooperation

sustainable agriculture

policy

agriculture fair forestry tourism technical trade development education climate change energy

ogy and innovation centre for LDCs that will also serve as a technology bank to help them access and use critical technologies. • Education – Over the next 10 years, Turkey will grant 1,000 scholarships to LDCs, predominantly covering postgraduate studies in agriculture, engineering and medicine. Support will be given to build educational infrastructure, especially for primary education, and for education and vocational training of girls and women. • Tourism – Projects will share tourism experiences to build capacity and tourism-related training will be provided. • Agriculture and forestry – The Food and Agriculture Organization of the United Nations and the World Food Programme (WFP) will share best practice in agriculture production. Projects will transfer modern irrigation techniques and provide technical assistance for land-use management. Technical assistance will also be available for afforestation, reforestation, dryland management, erosion control and desertification in partnership with the Secretariat of the United Nations Convention to Combat Desertification. Transfer of technology and technical assistance will support seed, sapling and fertilizer production, while training will enrich agriculture and forestry. Turkey, in partnership with the Food and Agriculture Organization, the WFP and the United Nations Conference on Trade and Development, will establish an international agriculture centre dedicated to LDCs. • Energy, water and climate change – Projects will focus on the transfer of technology and technical cooperation in power generation, including hydro, wind and solar. They will also support technical cooperation for disaster risk management and adaptation to climate change. Best practice in water resource management will be shared and there will be provision of water- and energy-related vocational training. • Technical and policy-level cooperation – Projects will share best practice in poverty alleviation programmes and in local authorities and their services. Turkey will implement this assistance package in cooperation with the United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States and relevant United Nations agencies.

FORUM ISSUE 1 2012  17


FEATURE

environmental policy CONTRIBUTING TO POVERTY

ERADICATION

W

Achim Steiner

Under-Secretary-General United Nations

Executive Director United Nations Environment Programme

18  FORUM ISSUE 1 2012

hen countries convene at this year’s United Nations Conference on Sustainable Development, Rio+20, both the venue, Rio de Janeiro in Brazil, and the overall objective of the conference, sustainable development, will be the same as 20 years ago at the United Nations Conference on Environment and Development. However, the environmental and social challenges of the 21st century have markedly changed the background conditions. The impacts of climate

change, desertification and the loss of biodiversity are a reality. Resource shortages resulting in water, food and energy insecurity are threatening human well-being. Moreover, these shortages disproportionately affect the poor who are highly dependent on nature’s resources. Despite two centuries of unprecedented economic growth, more than 2 billion people live in poverty. A common feature at the heart of these crises is gross misallocation of capital that has led to increased environmental risks, the loss of natural capital and, consequently, loss of livelihoods. As governments prepare for Rio+20, there is widespread recognition that a green economy can be a catalyst in assisting the implementation of sustainable development and poverty eradication. A United Nations Environment Programme (UNEP) report published in 2011, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, outlines the fact that investing 2% of global GDP in the transition to a green economy would grow the global economy at a higher rate in the medium to long term, while reducing the environmental risks and scarcities inherent in our existing brown economy. These findings demonstrate that economic development and investing in the environment do not have to be a trade off. A green economy can be thought of as one that is low carbon, resource efficient and socially inclusive. It is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, prevent the loss of biodiversity and ecosystems services, and reduce environmental risks. In a green economy, natural capital is maintained, enhanced and, where necessary, rebuilt as an economic asset and a source of livelihoods and public benefits. For instance, in the Makete District of the United Republic of Tanzania, forest and grassland resources are essential for watershed protection and for agriculture and livestock production. Using smallholder woodland management practices as a strategy for climate change adaptation has created a new stream of income for local communities in the district, while enhancing resilience to climate change. Indeed, a green economy offers multiple opportunities for developing countries, including least developed countries (LDCs), to increase livelihoods and preserve the natural environment. Our current economic growth model and the associated development approach have


failed to reduce poverty and generate employment among poor communities. In some developing countries, up to 90% of GDP is linked to nature or natural capital, such as forests and freshwater. For example, the results of a valuation exercise for the city of Kampala, Uganda, showed that the nearby Nakivubo Swamp provided an economic value of between US$ 1 million and US$ 1.75 million a year in waste water purification and nutrient retention services. Researchers concluded that services provided by the swamp created a much cheaper means of treating Kampala’s waste water than the expansion and maintenance of new facilities. Yet, natural capital that many poor communities rely on, such as the Nakivubo Swamp, has so far been undervalued. The transition to a green economy promotes investments in sectors linked to natural capital, such as renewable energy, organic agriculture, forestry, sustainable tourism and enhanced ecosystem services. These can enable developing countries and LDCs as well as the rural poor in middle-income countries to avoid the poverty trap. In turn, the economic opportunities generated by these investments can promote the integration of poor communities into the global economy. Shifting production and consumption patterns in the transition to a green economy will open up new or strengthen existing markets for environmentally, socially and economically sustainable products and services. Although nature-rich developing countries have a comparative advantage in providing these goods and services, most of the consumption takes place in developed countries. A green economy offers a real opportunity for developing countries to increase their trade in sustainable goods and services, and achieve economic growth through export revenues. For instance, tourism is one of the top three foreign exchange earners in 23 out of the 48 LDCs, and island LDCs in particular often rely heavily on earnings from tourism. Ecotourism operations are frequently small scale and community-led, preserving ecosystems and generating employment for unskilled rural labourers in regions that do not have the capital or facilities for industrial activities. Ecotourism has seen significant growth in the past decade and it is estimated to capture 25% of global tourism revenues in 2012. Revenues from international tourists could be as high as US$ 240 billion, and

as the majority of ecotourism destinations are in developing countries, the economic and development potential is clear. In the Lao People’s Democratic Republic, for example, ecotourism has become a thriving economic activity accounting for about half of total tourism revenue. Overall, the number of international arrivals in the country jumped from 1 million in 2005 to over 20 million in 2009. Trade in biodiversity-based products, such as natural cosmetics, medicines, food and food ingredients, is another area presenting an important trade opportunity for developing countries. Demand for these products has grown significantly and shows considerable potential for further growth. Profits from these developments can be significant. For example, the value of anti-cancer agents from marine organisms was estimated at up to US$ 1 billion in 2006. Many developing countries also have significant potential to harness renewable energy for development. Lack of electricity is a persistent impediment to economic development in many developing countries, making it difficult or impossible to light homes and schools, run communication networks, refrigerate food and medicines, and operate businesses and industry. In LDCs, 77% of the population does not have reliable access to electricity and many rural poor rely on biomass burning for energy. In turn, this contributes to deforestation, desertification, indoor pollution and poor health. Bringing electricity to poor communities is an important contribution a green economy can make to poverty eradication. Renewable energy is particularly promising as it can supply energy in regions without adequate grid infrastructure. Several LDCs, including Bhutan, Nepal, Senegal and the United Republic of Tanzania, have promoted rural electrification projects by including renewable energy as a central technology option in their domestic energy strategies, demonstrating green economy policies in action. United Nations Secretary-General Ban Ki-moon has designated 2012 as the International Year of Sustainable Energy for All to highlight the role of clean energy access in minimizing climate risks, reducing poverty and improving global health. All of humanity depends on ecosystem services and even wealthy populations are vulnerable to the consequences of ecosystem degradation in a globalized world. Nevertheless, it is poor communities that are highly dependent

The transition to a green economy promotes investments in sectors linked to natural capital, such as renewable energy, organic agriculture, forestry, sustainable tourism and enhanced ecosystem services. These can enable developing countries and LDCs as well as the rural poor in middle-income countries to avoid the poverty trap. In turn, the economic opportunities generated by these investments can promote the integration of poor communities into the global economy.

on nature’s resources and services that bear a disproportionate burden from the degradation of ecosystems and other environmental risks and scarcities. However, developing countries and LDCs have a multitude of economic and development opportunities available to them in the transition to a green economy. By putting in place required institutional and policy frameworks, the countries concerned can harvest these opportunities. At the same time, it is for the international community to provide technical and financial support to assist developing countries in the transition to a green economy. Rio+20 provides a unique opportunity to build on green economy momentum and commit to further green economy action, taking us closer to the common goal of sustainable development for 7 billion people, rising to some 9 billion by 2050.

FORUM ISSUE 1 2012  19


FEATURE

GREEN GROWTH an imperative of economic development

Clearly defining and measuring green growth outcomes and successes is an ongoing and fluid process, and depends significantly on local conditions on the ground.

01

Richard Samans

Executive Director Global Green Growth Institute

A

s the world recovers from the economic downturn that followed the 2008 financial crisis, it has become clear that industrial development models created in the past are increasingly unsustainable, both economically and environmentally. Economic progress and population growth, particularly in developing countries, have compounded the already enormous strain developed economies have put on the world’s natural resources and ecosystems. This has increased global commodity prices and stressed the environment and supply of natural resources, stymieing growth. The world needs to embrace a new economic growth paradigm, green growth, if emerging economies are to expand and prosper and developed countries are to maintain high standards of living. Put simply, green growth is a development model that does not view the concepts of economic growth and environmental sustainability as separate and distinct. All too often, development planners both in government and in the private sector view environmental protection as an obstacle to economic modernization or, at best, a luxury for nations that have passed through the industrialization phase of development. Conversely, environmental activists and climate change experts see market forces as the primary drivers of ecological degradation and destruc-

20  FORUM ISSUE 1 2012


01 A farmer using an Household Irrigation Technology (HIT) pump on his farm in Ethiopia. © GGGI/ Daniel Ogbonnaya

tion. These opposing views have been counterproductive and have impeded progress on both fronts. Green growth attempts to integrate key aspects of economic performance, such as poverty reduction, job creation and social inclusion, with those of environmental performance, such as the mitigation of climate change and biodiversity loss, and access to clean water and energy. Political will and technological breakthroughs have made it possible for emerging economies to skip the dirty stages of development that marked much of the 20th century and for developed countries to green their economies more rapidly. Through partnerships between governments, local and international institutions, and private players, numerous countries around the world are forming green growth policies. For instance, the Global Green Growth Institute (GGGI) has partnered with the governments of Cambodia, Ethiopia, Kazakhstan, Mongolia and the United Arab Emirates as well as a multitude of local and international organizations to assist countries in developing broad national green growth programmes tailored to meet specific national and local needs. Clearly defining and measuring green growth outcomes and successes is an ongoing and fluid process, and depends significantly on local conditions on the ground. In broad terms, the GGGI tends to measure success in terms of the implementation and continuation of green growth plans (GGPs), not only the level of commitment from partner governments and institutions and the number of stakeholders in the process, but also the degree to which the GGP is institutionalized at local and national levels, the internal capacity it has built, its development and diffusion of suitable green technology, and the level of financing it has received. A real world example of this is GGGI’s work in Ethiopia, one of the largest African countries in terms of population, with 85 million people and growth at over 3% per year. It has a diverse geography with a wide variety of climate zones and soil conditions. In recent years, the country has experienced rapid economic growth, and despite many challenges it has demonstrated significant capacity for further economic expansion. In this context, the GGGI partnered with the Ethiopian Government and others to draw up a comprehensive GGP designed to reinforce and provide the groundwork for the government’s broader Growth and Transformation Plan, an am-

02 HIT pump factory in Ethiopia. © GGGI/ Daniel Ogbonnaya

03 Farmers on an HIT irrigated farm in Ethiopia. © GGGI/ Daniel Ogbonnaya

02

03

bitious economic development plan intended to drive Ethiopia to middle-income status by 2025. The climate-resilient green economy strategy is designed to serve as a road map for the country’s green development. It includes efforts to strengthen the government’s institutional capacity to support the implementation of green growth policies. Local capacity is being built through the formation of sub-technical committee groups that transfer knowledge from green growth experts to the next generation of local green economy leaders. In addition, a cabinet level ministerial steering committee has been established to coordinate activities across government ministries and establish links to local organizations to facilitate buy-in and knowledge transfer. In terms of technology, Ethiopia’s green growth plans call for green technologies and techniques to be used in various sectors, including forestry, agriculture and energy. Extensive sectoral analysis found that Ethiopia could greatly reduce deforestation by boosting farmland productivity through more intense agriculture and introducing low-emission agricultural techniques. Productivity could be increased in part by accelerated use of green household irrigation technologies, essentially motor and manual pumps that can capitalize on Ethiopia’s significant water resources. These technologies are already used on more than 100,000 hectares of land and their use is growing at a rate of 30% per year. If scaled well, they could contribute to increasing income and food security for almost 700,000 farming households, approximately five million people, in five years.

If green growth in Ethiopia is implemented successfully it will have profound impacts and implications in the context of the country’s ambitious economic plans, and could have further impacts in the region by demonstrating that green growth is a viable economic model. Ultimately, however, broad green growth success on a national level will be determined by whether Ethiopia can, over time, consistently and rapidly grow and develop its economy while mitigating greenhouse gas emissions and minimizing other forms of environmental degradation that have been characteristic of economic development. This balance applies to all nations pursuing green growth. While GGGI focuses on partnering with developing economies, the dual threats of climate change and increasing resource scarcity have made it imperative that developed countries also adopt green growth strategies. Although governments are generally the most powerful actors in spurring green growth, sustained successful outcomes also require continued investment and creativity from the private sector and civil society. GGGI seeks to bridge these facets of society to accelerate and scale the transition of the world economy to a much more resource-efficient model of broad-based economic progress. Green growth as a concept may still be in its infancy, but the need to incorporate it into core economic policy and business strategy is urgent considering the environmental and economic circumstances we face today.

FORUM ISSUE 1 2012  21


FEATURE

sustainable results prove THE POWER OF INCLUSION Rachel Kyte

Vice President, Sustainable Development The World Bank

E

xport opportunities in global markets can spur growth and create jobs, but these opportunities are only sustainable if consideration is given to the environmental and social dimensions of trade development and the relationship between these and competitiveness. From an environmental standpoint, issues including natural capital management and the diffusion of green technologies are essential to competitive and sustainable growth opportunities. A common forum to address trade and environmental agreements could also benefit effective trade and enforcement issues. From a social perspective, gender inclusion is a proven driver of change for the better. It can not only improve skills in developing countries, but also increase the competitiveness of trade sectors. Environment and competitiveness For many countries, the fear of diminished competitiveness is one of the main barriers to the implementation of more stringent environmental policies. These countries worry that a change in policies could lead to the relocation of industries in countries with lower standards, so called pollution havens. However, recent studies in the World Bank report Greening Growth: a Path to Sustainable Development, show that 22  FORUM ISSUE 1 2012

environmental policies have little impact on competitiveness and there is no evidence that they lead to job losses due to an exodus of firms to pollution havens. Pollution abatement costs only represent a small share of production costs for most industries, with factors such as availability of capital, labour abundance, location, institutions and agglomeration effects usually being more important than environmental policies in determining where a company will be located and how it will compete. In the case of a sector that is highly dependent on natural capital, the implementation of a demanding environmental policy is a necessary condition for the long-term competitiveness of the sector. Without sound property rights, increased pressures from trade can lead to a rapid depletion of natural capital and any short-term benefits from increased trade can be negated by the subsequent collapse of the resource base. The improvement in natural capital management that stems from the establishment of secure property rights can be impressive. For example, in Rwanda land tenure regularization spurred a doubling of investment in soil conservation, with even greater investment when land was managed by women. Countries can use a well-managed natural resource base to move up the value chain, for instance by creating a downstream processing sector, and thus seize opportunities in global markets.

trary, the transfer of clean technology is more likely to be limited by tariffs on renewable energy technologies and subsidies for fossil fuels than by traditional patent protection. Few developing countries have the capacity to create frontier green innovation, but there is great potential for green catch-up innovation through the adoption and adaptation of existing green technologies. Such potential can be measured through the production and trade of green goods and services that embody green technologies. Environmental goods, defined by the Organisation for Economic Co-operation and Development as products that measure, prevent, limit, minimize or correct environmental damage to water, air and soil, as well as consider problems related to waste, noise and ecosystems, represent an increasing share of exports, with developing countries only slightly behind developed regions, as shown in the figure on exports of green goods and services. While the share of green exports in developing countries has stalled, with the exception of the East Asia and Pacific region, this does not negate the significant potential developing countries have to conquer new green sectors because they are already producers of non-green goods that are very close to green goods in terms of their input requirements or production technologies. Here the proximity between products can aid in evaluating broader capability for green exports. For Diffusion of green technologies example, a country with the ability to export Trade is central to helping developing coun- apples will probably have most of the conditries green their growth processes as it can tions suitable to exporting pears, but not necsupport the diffusion of green innovation. The essarily electronics. Incorporating this potenpursuit of these growth processes need not tial into analysis shows that trade in green and herald a new era of protectionism. On the con- close to green goods amounts to three to five


Gender and competitiveness Interventions in trade policies with a clear focus on gender ensure that a larger fraction of the population is able to upgrade its skills and an increasing number of producers can gain access to tools that will help them benefit from opportunities offered on world markets. As emphasized in a recent article by Elisa Gamberoni and José Reis, there is a direct link between an improved consideration of gender issues and the competitiveness of a trade-oriented sector. The existence of a strong gender imbalance in some sectors can be an indication that specific gender issues, such as inequality in access to training, keep the sector in a state of low productivity. An example is the garment sector of the Lao People’s Democratic Republic. This labour-intensive sector where women traditionally do the bulk of the work is the source of a high share of manufacturing exports for the country. A new initiative led by the

ness demonstrate positive trade outcomes and potential in developing countries. Individually, trade, environment and gender policies can be powerful drivers of sustainable development. Together they can support a magnitude of change.

Exports of Green Goods and Services (as % of all exports)

7% 6% 5% 4% 3% 2% 1%

2005

e o

m

ag

in

c

er

h

av

ig

g

H

n pi o d

ev

el

c

2000

e

a si a th u so

e e n ur t r op a ea l a nd si la a ti n a m er ic m a id d e n o le rt a h st su a fr a n bic d sa a h a r a n a fr ic a

A s pa i a a c n if d ic

0%

st

A common forum for trade and   environmental agreements Trade and global environmental agreements, for example on biodiversity and climate change, need to be discussed in a common forum. In January 2012 at the Green Growth Knowledge Platform Inaugural Conference in Mexico City, Brian Copeland from the University of British Columbia proposed that linking trade and climate talks would be a good means to address leakage and enforcement issues. For example, many countries have discussed using border tax adjustments (BTAs), an import tariff targeting pollution-intensive goods, to level the playing field between countries that impose little or no tax on such goods and those that impose high taxes. However, BTAs are extremely complex to set up, subject to misuse for protectionist reasons and could trigger trade wars if targeted countries decide to retaliate. Discussing trade and environmental issues together could encourage arrangements in which trading partners would instead agree to an export tax in the country of origin, leading to a better outcome. For instance, in the case of a dispute over softwood lumber trade between the United States of America and Canada, in which Canada was accused of subsidizing exports to the United States, the implementation of an export tax by Canada was not only a more efficient solution than a threatened countervailing import tariff by the United States, but also raised Canadian welfare above the free trade level.

World Bank, the Gender Action Plan, will assess the gender dimension of the current work organization with the ultimate goal of improving the competitiveness of the sector. These theories and practical examples of inclusion and its relationship to competitive-

Ea

times that of green goods alone, as shown in the figure on actual versus potential green exports in developing countries.

2010

Source: Dutz and Sharma, 2012, ‘Green Growth, Technology and Innovation’, Policy Research Working Paper 5932, Washington, DC: The World Bank

Actual vs. Potential Green Exports in Developing Countries (as % of total)

14

12

10

8

6

4

2

0 2000

2001

2002

2003

Green Exports (as share of total)

2004

2005

2006

2007

2008

2009

2010

Potential green exports (as share of total)

Source: Dutz and Sharma, 2012, ‘Green Growth, Technology and Innovation’, Policy Research Working Paper 5932, Washington, DC: The World Bank

FORUM ISSUE 1 2012  23


FEATURE

using insurance to drive trade

When asked what kinds of insurance they would like to be more widely available, small entrepreneurs in the developing world commonly mention the need to protect their productive assets.

Fonkoze and a new loan as soon as they are ready. Kore W operates through MiCRO, a microinsurance consortium based in Barbados. MiCRO is uniquely structured to provide parametric coverage through Swiss Re that is triggered when there are large-scale catastrophes. Health issues can result in considerable out-of-pocket expenses for entrepreneurs for hospitalization and medical treatment, as well as losses due to physical incapacity to manage their businesses. SMEs tend to rely on informal tion the need to protect their productive assets, protection mechanisms when entrepreneurs such as tools, sewing machines and livestock. cannot work. For example, in their absence They also see theft, fire and natural disasters as they may rely on a family member to manage Craig Churchill Sarah Bel serious threats to their business and, de facto, the business and minimize productivity loss, Communication Team Leader to their capacity to provide for their families as but this may not be sufficient to maintain inOfficer owners of small- and medium-sized enterprises come at its usual level. Microinsurance Innovation Facility To mitigate productivity loss, MicroFund (SMEs) are often critical to households in covInternational Labour Organization ering food, school fees, medical expenses, rent for Women in Jordan offers interesting cover: Caregiver is an affordable health insurance and electricity costs. Some microinsurance products are spe- product that covers some of the critical costs cifically designed to protect the assets of SMEs, borne by the clients of MicroFund for Women, such as property or livestock, and to contribute mostly women entrepreneurs, in accessing pubhe poor are more vulnerable to risks and to investments in productive activities. For ex- lic health care. Although every citizen has aceconomic shocks than the rest of the ample, property insurance can insure a small cess to public facilities for primary health care population. They are also the least able manufacturer’s inventory and productive as- in Jordan, background research by MicroFund to cope when a crisis occurs. Develop- sets, such as machines and a shop. Weather in- for Women showed dissatisfaction with public ment efforts tend to focus on strategies to boost dex insurance enables farmers to access credit health care, citing problems such as overcrowdincomes, build assets and create jobs, but it is for agricultural inputs because without protec- ed environments, the absence of important important to recognize that gains can be quickly tion banks are more cautious about lending. medicines and a lack of professionalism among lost when households at risk experience difficul- Disaster insurance is an emerging product for medical staff. The Caregiver product provides ties. Poor households can easily lose any gains SMEs vulnerable to floods, droughts or other ‘hospital cash’ to help offset the cost of accessthey may have made in improving their lot in life catastrophic events. As well as paying for an ing private health care facilities in emergencies if they experience illness, a death in the family or outstanding loan and helping entrepreneurs or cases of serious illnesses of the entrepreneur other crises, and they may be worse off than they with their immediate needs, disaster cover or her family members. Because women tend to were before. In this context, microinsurance, the can help entrepreneurs resume work quickly be family caregivers and take time off work if a child, parent or spouse is ill, the product covers provision of insurance to low-income people, is through a new loan. Fonkoze is Haiti’s largest microfinance the loss incurred when a female entrepreneur one development tool that can aid poor entrepreneurs in the informal economy to manage risks, institution, with branches across the country cannot focus on her business. One of the major factors constraining proreduce vulnerability and sustain productivity. serving 55,000 borrowers and 25,000 savers. However, there are challenges both on the de- It developed Kore W, an insurance product ductivity in the SME sector is a culture of risk mand and supply sides that must be tackled by that protects small entrepreneurs against hur- aversion among low-income entrepreneurs. innovative insurers and their delivery partners if ricanes, earthquakes, floods or destructive Not only does exposure to risks result in subwinds. The product is mandatory for all borrow- stantial financial losses, but vulnerable entrethey are to serve the market effectively. ers, who pay a premium of 3% of a loan’s prin- preneurs also suffer from ongoing uncertainty cipal. If a natural disaster occurs, clients are about if and when a loss might occur. This Protecting income-generating assets When asked what kinds of insurance they would eligible for a US$ 125 indemnity payout to meet perpetual apprehension means low-income like to be more widely available, small entrepre- emergency needs such as food, water and tem- entrepreneurs are less likely to take advantage neurs in the developing world commonly men- porary shelter, cancellation of their loan with of income-generating opportunities that may

T

24  FORUM ISSUE 1 2012


01 Making "Beedi" at home, in the village of Puttige, India. © ILO

reduce poverty. They tend to stay away from adding riskier investments to their activities and often lose out on higher rates of return and possibilities to grow. Microinsurance provides an alternative approach that can help poor entrepreneurs manage risk and contribute to long-term business sustainability. Reducing family vulnerability While all insurance is protective, life insurance can contribute peace of mind to low-income entrepreneurs and indirectly support business. The most common product SME owners can access is credit life insurance that covers an enterprise loan in the event of an entrepreneur’s death. Credit life primarily benefits the lending institution, which no longer has to worry about non-repayment in the case of death. To a lesser extent, it benefits the deceased borrower's family as it does not have to cover the entrepreneur’s debt. Credit life is often mandatory and the premium is paid through the loan as SMEs rarely opt in for insurance. Some policies only cover the share of an outstanding balance that is not in arrears. Credit life becomes more appealing when it provides extended benefits such as payment for funeral expenses, payment of utility and grocery bills following the death of the breadwinner, or covers additional risks such as disability or personal accidents for the borrower or fire coverage for business premises. For example, Opportunity Uganda Limited (OUL) provides short-term loans to a large number of vendors located in fire-prone market areas to purchase stock. OUL's credit life insurance offers protection not only in the event of the death of the borrower, but also in the event of fire. If fire destroys a vendor’s shop, the insurer pays off the outstanding loan. Having observed the devastating economic impact of a market fire on a number of its clients, OUL is exploring the possibility of extending fire cover to protect the entire inventory of the borrower, not just that which can be covered by the amount of the outstanding loan. Such cover could be easily added to the existing credit life product to protect a vendor’s accumulated assets.

FORUM ISSUE 1 2012  25


02 Vendor in a street stall in Zanzibar. © ILO

03 Toy shop in Damascus, Syria. © ILO

02

03

More sophisticated life insurance policies that include a savings element may be well suited to poor entrepreneurs because they build up value over time and policyholders do not feel they have wasted their money if an insured event does not occur. Just as it supports a business investment mindset, insurance helps to protect microentrepreneurs and their families from falling into poverty. It can help them plan for the future of their loved ones. For example, insured entrepreneurs will be less likely to have to choose which child to send to school and more likely to seek preventive medical care and accumulate assets to pay for education, for daughters as well as sons. Improving supply, consolidating demand Insurance has great productive and preventive potential for SMEs, but supply and demand issues tend to constrain its effective use in the sector. On one hand there is generally weak demand for insurance among SMEs. Entrepreneurs tend to rely on informal risk protection mechanisms such as subscribing to a neighbourhood security service or taking equipment home every evening in order to secure assets. Insufficient use of insurance certainly does not reflect a lack of risk and most entrepreneurs are keenly aware of the risks they face, but they assume insurance is unaffordable, risk carriers are not trustworthy and are generally not

26  FORUM ISSUE 1 2012

fully aware of where to purchase a policy. Even if adequate insurance products were available at a reasonable cost, it is not clear that many SMEs would voluntarily sign up for them without a large investment by insurers in marketing and financial education. Another strategy to stimulate demand is to design products that offer more than just risk cover. As in the example of life insurance that accumulates savings, low-income clients need to get some value from a product even if they do not make claims. If value-added benefit can reduce claims, such as weather information to insured farmers or health education to reduce the incidence of preventable diseases, everyone benefits. On the other hand low demand is connected to the lack of products that provide good value propositions to cover enterprise risks. The risks of low-income entrepreneurs are very specific and each type of SME may have different needs. This implies a potentially significant actuarial burden for a risk carrier seeking to provide insurance to the SME market and difficulty in finding a large enough pool of clients to distribute the risks. The latter challenge could be addressed with a group policy delivered through the sector’s aggregators such as trade associations or chambers of commerce. Fraud is another major concern for risk carriers. For example, it can be difficult to de-

HIGH I

termine the remaining stock in case of a fire or robbery, or identify a dead animal as one that was insured. Insurers have to find a balance between controlling fraud and maintaining efficiency and low costs if they are to provide quality insurance services. For example, livestock insurance is critical to mitigating losses incurred by livestock deaths, but insurance claims are often high because of the prevalence of moral hazard and fraud, reducing the availability of affordable coverage. IFFCO-Tokio, a cooperative insurer in India, tested a model to reduce fraud by injecting an identification device based on radio frequency identification technology behind the ear of insured animals. Although the project is still at the pilot stage, the claims ratio is more than five times less than before, which suggests the technology is working. Reducing fraudulent claims has also led to improved value propositions for smallholders with faster claims settlement and lower premiums. Microinsurance and other financial tools can certainly support the growth of low-income business activities in developing countries, but quality products are needed to cater to the specific needs of the sector. Innovative approaches using alternative delivery channels and technology may be able to convert insurance into a profitable business for insurers and a valuable proposition for low-income entrepreneurs.


FEATURE FOCUS BUSINESS

breaking barriers BUILDING BUSINESS EUROPE 88% EASTERN & CENTRAL ASIA

68%

EASTERNEASTERN EUROPE E 88% & CENTRAL 88%EASTERN & CENTRAL ASIA EUROPE OECD EASTERN EUROPE 88% OECD 68% 68% MIDDLE EAST & CENTRAL ASIA 88% EASTERN EUROPE EASTERN EUROPE HIGH INCOME & CENTRAL ASIA 61% OECD 88% INCOME 88% 68% & NORTH AFRICA & CENTRAL ASIA & CENTRAL ASIA EASTERN EUROPE OECD SOUTH ASIA 68% GH OECD INCOME 88% OECD MIDDLE EAST 68% 68% & CENTRAL ASIA COME MIDDLE EAST 61% H INCOME GH INCOME OECD 61% & NORTH AFRICA MIDDLE EAST 68% SOUTH ASIA & NORTH AFRICA 61% 63% SOUTH ASIA MIDDLE EAST INCOME &MIDDLE NORTH AFRICA EAST MIDDLE EAST 61% SOUTH ASIA 61% 61% SOUTH && NORTH AFRICA NORTH AFRICA & NORTH AFRICA SOUTH ASIA ASIA SOUTH ASIA 63% MIDDLE EAST 63% 61% 63% & NORTH AFRICA SOUTH ASIA 63% 63% 63% 53% 78% 63%

OECD GH INCOME

58%

LATIN AMERICA & CARIBBEAN

SUB-SAHARAN 53%53% 78% 53% 78% 78% AFRICA EAST ASIA 53% 78% 53% 78% LATIN AMERICA 58% 53% 78% LATIN AMERICA & 58% PACIFIC LATIN AMERICA 58% SUB-SAHARAN SUB-SAHARAN & CARIBBEAN & CARIBBEAN SUB-SAHARAN LATIN AMERICA 58% LATIN AMERICA 58% & CARIBBEAN AFRICA 53% 78% AFRICA SUB-SAHARAN LATIN AMERICA 58% SUB-SAHARAN AFRICA && CARIBBEAN CARIBBEAN EAST ASIA EAST AS SUB-SAHARAN AFRICA AFRICA EAST ASIA & CARIBBEAN & PACIFIC EAST ASIA & PACI EAST ASIA LATIN AMERICA AFRICA &58% PACIFIC SUB-SAHARAN ASIA & EAST PACIFIC

& CARIBBEAN

AFRICA

& PACIFIC

& PACIFIC EAST ASIA & PACIFIC

SHARE OF ECONOMIES WITH AT LEAST ONE DOING BUSINESS REFORM MAKING IT EASIER TO DO BUSINESS SHARE OF ECONOMIES WITH AT LEAST ONE DOING BUSINESS REFORM MAKING IT EASIER TO DO BUSINESS

Source: Doing Business Report 2012, World Bank Group

FORUM ISSUE 1 2012  27


Augusto López-Claros

Director, Global Indicators and Analysis World Bank Group

D

evelopment as a global objective for improving the economic well-being of ordinary people is a relatively recent concept. It was first embodied in the Charter of the United Nations with: ’the United Nations shall promote higher standards of living, full employment, and conditions of economic and social progress and development.’ When the charter was signed in June 1945, what did people have in mind when they spoke about economic and social development? The concept was not well defined, but over time, at least among economists and policymakers, it has come to mean improved economic opportunity through increased production of goods and services. The implicit assumption has been that growth will lead to rising living standards, increases in longevity, reduced mortality and improved nutrition. Between 1950 and 2007, world GDP per capita expanded at an average annual rate of 2.1%. This expansion, although with considerable variation in different regions of the world, was associated with a remarkable evolution in three key indicators of human welfare. In the 40-year period to 2007: • Infant mortality fell from 140 to 44 per 1,000 live births; • Average life expectancy at birth rose from 43 to 66 years; • Illiteracy among adults fell from 53% to 18%. Equally impressive was a sharp drop in the incidence of poverty. Data from a comprehensive study by the World Bank shows that between 1990 and 2005, the share of the world’s population living in extreme poverty fell from

28  FORUM ISSUE 1 2012

42% to 25.2%. While this still left about 1.37 billion people living in harsh conditions, the progress and the trend was undeniable. It led many to ask themselves what could be done to accelerate growth everywhere, particularly in Africa and South Asia, the two regions of the world that still had very large numbers of poor people. These insights resulted in a remarkable re-examination among economists and policymakers of the relative importance of various factors, policies and institutions in creating the conditions for sustainable growth. Concretely, they questioned how factors, policies and institutions interact with each other and how successful countries have been in identifying and adopting them. To reach the varied answers to these questions, six factors are especially relevant. 1. Social inclusion refers to arrangements in place for education and health care that influence an individual’s capacity to live better. This is desirable for two reasons: as pointed out by Nobel laureate Amartya Sen, a healthy life prevents morbidity and premature mortality; and just as importantly, education and good public health allow more effective participation in the economic and political life of a nation. For example, illiteracy can be a major barrier to participation in economic activities. Without access to education and information, participation in the political process is likely to be vulnerable to the manipulations of demagogues, as seen in recent years in various corners of the world. 2. The quality of macroeconomic management is crucial. Many things happen when governments fail in their efforts to manage the

macroeconomic environment. First, government credibility is undermined in the private sector and civil society. The effectiveness of government policy is closely linked to government credibility, the equivalent of political capital that should never be wasted. Beyond issues of credibility, poor management of public resources limits choices and curtails the ability of government to respond to the most pressing needs, such as education, training and research, and development. As a consequence, countries fall behind with respect to others, and catching up, if it can be done at all, requires extra effort and expenditure of greater resources than would have been necessary in the presence of good policies. 3. Transparency and accountability have overriding importance. Societies operate better on some presumption of trust; the need is for openness and the freedom to deal with one another with a presumption of honesty underpinning human relations. This is tremendously important in preventing corruption, and financial and other abuses. Experience shows that where there is trust, citizens and business pay their taxes. In turn, this enables governments to formulate policies to achieve various social ends. As societies see the fruits of these efforts, trust in government is reinforced and a country enters into a 'virtuous cycle' of development. Of course, ‘vicious cycles’ are also possible and have been seen more often than anyone would care to remember. 4. The role of technology and innovation has received particular attention in sustainable development. As countries make considerable progress in establishing more stable macroeconomic frameworks, attention turns to other


drivers of productivity, and technology and innovation play an increasingly important role. Economic output is no longer just a function of capital and labour. Increasingly, it is about knowledge and its acquisition. These issues are critical because technological differences have been shown to explain much of the variation in productivity between countries. In recent years, the relative importance of technology adoption and innovation for national competitiveness has increased as progress in the dissemination of knowledge and the growing use of information and communications technologies (ICT) has become more widespread. For example, strong productivity growth recorded in the United States over the past 20 years has been linked to the widespread adoption of information technologies, with notable productivity increases registered in sectors using ICT intensively. 5. Economic opportunities refer to the chances individuals have to utilize economic resources for the purpose of consumption, production or exchange. Freedom to enter markets can make a significant contribution to development. Indeed, a considerable share of the progress made in India and China over the past 20 years reflects a reorientation of policies that relaxed barriers to entry to goods, labour and financial markets. 6. The quality of rules underpinning the business environment in which the private sector operates is also an integral element in creating a framework for sustainable growth. Governing often translates into the issuing of licenses and permits. From cradle to grave, the average citizen has to enter into transactions with government offices or other bureaucracies to obtain a birth certificate, get a passport, pay taxes, open a new business, drive a car, register property, engage in foreign trade, sell a good or service to the government, hire an employee, use publicly provided health services, be allowed to build a house, and more. The World Bank Group’s Doing Business Report (DBR) has become an excellent annual compendium of the burdens and reforms of business regulation in 183 countries. For a large number of companies, the picture that emerges from the report is not attractive. For example, it takes 21 procedures in Equatorial Guinea to start a new business and an average of 177 days to fulfil them. It takes 1,442 days to

enforce a contract in Bangladesh and 819 in Greece. In Argentina, it takes 25 procedures to get a construction permit and 365 days to actually receive it. The data in the report eloquently highlight the extent to which many countries discourage the development of entrepreneurship in their private sectors. The sobering irony of the DBR is that countries with the greatest need for entrepreneurship and private sector development are those that generally create the greatest obstacles to the creation of new enterprises, or intervene in ways that retard the emergence of entrepreneurial capacities that are central to the development of an enabling environment for innovation. Not surprisingly, the prevalence of corruption is highly correlated with incidences of red tape and excessive regulation. The correlation coefficient between the country rankings of Transparency International’s Corruption Perceptions Index and the rankings for the World Bank’s DBR is close to 0.80: the greater the extent of bureaucracy and red tape, the greater the incidence of corruption. The early results of nearly a decade of Doing Business reports and the associated reforms the Doing Business project has generated are encouraging. Lower barriers to business start-ups are associated with a smaller informal sector. Lowering the cost of market entry encourages entrepreneurship, enhances

Data from a comprehensive study by the World Bank shows that between 1990 and 2005, the share of the world’s population living in extreme poverty fell from 42% to 25.2%. While this still left about 1.37 billion people living in harsh conditions, the progress and the trend was undeniable. It led many to ask themselves what could be done to accelerate growth everywhere, particularly in Africa and South Asia.

firm productivity and reduces corruption. Over the past six years, across all regions of the world, there have been substantial reductions in the time and cost to start a business, in the time it takes to transfer property between local firms and in the time it takes to import and export. More generally, we have seen a strengthening of the legal institutions underpinning the economy and covering issues such as property rights, contract enforcement, getting credit and resolving insolvency. While successful development has a broad range of interlocking components, creating a better regulatory climate for the private sector is crucially important. The World Bank Group’s Doing Business project is contributing to the achievement of that goal.

SHARE OF ECONOMIES IN SUB-SAHARAN AFRICA WITH AT LEAST ONE DOING BUSINESS REFORM

DB

20

06

DB

33%

20

07

67%

20

08

52%

20

09

61%

20

10

63%

DB DB DB

DB

20

DB

11

20

12

59% 78% Source: Doing Business Report, World Bank Group

FORUM ISSUE 1 2012  29


BUSINESS FOCUS

a private sector mandate THINK REGIONAL

Rajesh Aggarwal

Chief, Business and Trade Policy ITC

One of the reasons industry opts for a quick fix rather than grappling with the painstaking processes of regional integration is the high-risk perception of unpredictable policy environments and uncertain political commitment.

30  FORUM ISSUE 1 2012

‘T

he private sector is not thinking regionally’ is an echo I often hear in government circles charged with the responsibility of promoting intra-African trade. Basking in the comfort of supplying domestic markets, private businesses fear competition from across borders and vested interests stoke these fears. The private sector retorts, ‘Yes, we need to think regionally’, but if it is unable to get its goods to a domestic market due to procedural or infrastructure inhibitors, going beyond borders is a non-starter. Businesses are also tired of rhetoric and broken integration promises, and are disengaging slowly but surely from the integration process. Thus, private sector representatives in Africa are reluctant to embrace fully the idea of regional integration as a catalyst for increasing their trade. In 2010, Africa accounted for just 3% of global trade and 12.3% of intraregional merchandise trade compared to 52.6% in Asia. There is room for improvement, but how can the impasse be broken? Greater intraregional trade through regionalization of global supply chains has benefitted participating countries immensely and facilitated their integration with the global economy. South-South intraregional trade, particularly in Asia, is growing at a much faster rate than world trade and the export-led growth strategies of many countries have had a direct impact on alleviating poverty. In Viet Nam, for example, export-led growth rates of 7 to 8% contributed to reducing poverty rates from 58% in 1993 to 16% in 2006. East Asian countries that have pursued export-led growth strategies for many decades

have been exploring and exploiting the potential benefits of regionalization. They have taken advantage of geographical proximities and diversities to the extent that economies within the region are linked more closely to one another than economies in any other region. Production networks are at the heart of recent growth in intraregional trade and also play an important part in evolving global production and trade networks. ‘African countries do not trade enough among themselves. The growth of intra-African trade would lay the foundation for stronger and more sustainable economic growth,’ said Jean Ping, Chairman of the Commission at the opening session of the 18th Ordinary Assembly of the African Union on 29 January 2012. Understandably, the African Union has decided to fast track the African Continental Free Trade Area, due to be completed by 2017, by consolidating sub-Saharan Africa regional integration initiatives. Challenges and solutions At a fundamental level, the low level of intraAfrican trade is due to a lack of complementary production and product diversification among African countries and low levels of investment. These structural constraints are magnified by poor infrastructure, including roads, transportation, energy, telecommunications and customs systems, as well as by supply-side constraints that are experienced by entrepreneurs that can erode export competitiveness. Further, half-hearted attempts at regional integration, illustrated by continuing high tariffs on products of export interest to regional partners and the persistence of non-tariff barriers (NTBs), sustain unfulfilled processes. Such impediments and challenges have generated uncertainty, increased costs and lost significant time for businesses, all too often leading to their disengagement from the process of regional integration. For businesses to seize the trading opportunities offered by regional integration, these challenges must be overcome, typically through government and the private sector working in unison. For regional integration to succeed there needs to be strong regional business advocacy. However, instead of grasping the prospect of longer term trading benefits resulting from regional integration and becoming a proactive advocate of change, the private sector frequently succumbs to short-sighted-


One of the reasons industry opts ness. Change can only be achieved by a strong public-private partnership based on trust and for a quick fix rather than grappling with the painstaking processes of commitment to the cause of integration. regional integration is the high-risk Business logic underpins action perception of unpredictable policy Within the Andean region, regional integration environments and uncertain politiwas originally perceived as beneficial to the cal commitment. This is illustrated textile industry as it was suffering strong exter- by the experience of the Andean texnal competition from Asia and a lack of local, tiles industry. regional and global competitiveness. It benefitted from actions such as harmonized labelling Business advocacy campaigns and regionally pooled resources. But when ITC is encouraging businesses to take a Venezuela left the Andean group in 2006, the long-term view and work for greater integration regional project collapsed as the incentives to by aiding them in the identification of core isintegrate without a major local market became sues that inhibit regional trade and in mountless compelling. The business incentives of ing well-informed and structured advocacy the Andean countries are now located outside campaigns at regional and national levels. the region, for example Peru's and Colombia’s One case in point is the mango industry withfree trade agreements with the United States in the Economic Community of West African that distance them from the regional project. States (ECOWAS). It has embraced regional One point arising from this experience is that integration as a way to increase trade and has regional integration needs to have underlying advocated its support for initiatives that are fabusiness logic and possibilities, otherwise it cilitating regional trade, notably the ECOWAS Trade Liberalization Scheme, harmonization remains a paper project. of ROO, adoption of regional competition reguLook beyond quick wins lation, harmonization of national indirect tax Regional integration has played a role in the legislation and efforts towards completing the development of the textiles and clothing indus- common external tariff. The regional mango industry has bentry in the East African Community (EAC), but it has not been maximized. The industry has efitted from these initiatives, but feels it could benefitted from low hanging fruit, such as a re- benefit more if problems related to a number gional business directory, market information of NTBs, such as police and customs proceand a data centre that have helped connect it dures, are dealt with. This would significantly with potential business partners in the region. reduce the cost of integrating into regional These are easy developments to engage in be- value chains and consequently could lead to cause they are win-win and low cost. They are large gains in trade. An important and often logical first steps in any integration process, understated corollary of attempting to reduce but they mask the challenges of the next stages NTBs is an increase in business confidence in needed to alter the long-term competiveness of the direction of the regional project. Business advocacy efforts at the regional the industry and develop competitive regional value chains. Importantly, many of these inte- level are hampered by a lack of strong regional gration issues are horizontal and not specific to governance institutions. The mango industry in ECOWAS is frustrated that there is no authe textiles industry. To be more competitive on a global scale, thority vested with adequate power to redress the EAC textiles industry needs to build a re- its grievances and drive its agenda forward. gional market based on intraregional competi- Instead, it experiences the dominance of nation and a regional value chain that can be eas- tional politics over the regional agenda. This ily inserted into global supply chains. These is not unique to Africa. Other regions are beset fundamental contextual changes are essential, with similar problems, underlining the necesas is the harmonization of rules of origin (ROO), sity for the private sector to build and deliver its customs procedures, common external tariff own effective regional advocacy. structures and anti-smuggling procedures. However, the industry is shying away from ad- Deep regional integration vocating serious change that could entail in- Central America is a good example of a group of small developing countries that has made creased competition and rationalization.

progress in opening up and taking advantage of deeper regional integration, in this case in the financial services sector. The first phase of the project was very successful as Central America made significant progress in integration through accelerated cross-border activities. This resulted in more companies and financial institutions operating regionally and led to the consolidation and creation of a number of regional banks in Central America. However, the regional market in financial services for businesses and consumers has not been developed further by regional legislation covering issues such as mortgages, consumer rights and cross-border banking. In an area of weak regional institutions, devoid of supranational decision-making, the regulation and supervision of regional banks remains predominantly a national competence, which gets in the way of building on the earlier achievements of integration. The Central American case highlights the need for stronger regional institutions vested with real decision-making powers and the need for greater and more coherent business advocacy at the regional level. These are a few business perspectives on regional integration across different regions. They underscore the importance of developing more public-private initiatives to generate confidence and belief in the benefits integration can bring. Without such initiatives, businesses will continue to be reluctant to ‘think and act regionally’.

FORUM ISSUE 1 2012  31


BUSINESS FOCUS

tools to improve PRIVATE SECTOR OPERATIONS

Yannis Arvanitis

Dalya Elziniy

Research Economist Research Economist African Development Bank

T

he African Development Bank (AfDB) has a mandate to foster social and economic development and reduce poverty in its regional member countries. For many years, it has supported private sector development operations that seek to improve business-enabling conditions, but over the past decade the number of private sector operations (PSOs) approved by the bank has grown considerably, raising two fundamental questions. First, are the bank’s PSOs consistent with its mandate? Second, what can it bring to these operations that commercial operators cannot? In other words, how can the bank’s participation yield development outcomes and additionality in terms of value beyond the results delivered by commercial operations? To answer these questions, the bank put in place a decision-making tool to assess its private sector projects and ensure they contribute to the achievement of its mandate. In practice, this means testing non-sovereign operations for quality at entry against a predefined set of indicators measuring expected development outcomes and additionality. These are embodied in the ex-ante Additionality and Development Outcomes framework that is an integral part of the bank’s project selection process. The selection framework The framework ensures that each operation goes through an holistic economic assess-

32  FORUM ISSUE 1 2012

ment of direct costs and benefits for all relevant stakeholders. Potential investments are evaluated and rated against a multi-faceted set of expected development effects, including household, gender and social, government and environmental benefits, private sector and infrastructure development, macroeconomic resilience and business success. To reduce subjectivity and improve predictability in assessments, the bank uses core indicators and benchmarks established by the Evaluation Cooperation Group (ECG) to substantiate assessments. The ECG was set up in 1996 by the heads of evaluation in multilateral development banks to harmonize evaluation methodologies and performance indicators. These indicators reflect not only best practice, but also capture the bank’s mandate and strategic priorities, and reflect the realities of the African continent through clear, quantified and monitored development outcomes. A project may have a sound business rationale and potential development effects, but it may be that private entities can finance it on their own. The concept of additionality allows development financiers to judge whether financing is fully leveraged and potential development effects are maximized. The ECG considers that the inclusion of development financiers in PSOs yields additionality when their involvement achieves one or more of the following: lowers the perceptions of exposure to political risks; improves risk allocation between the public and private sectors; or improves a project’s quality from a developmental, social or environmental perspective. The concept of additionality is interesting as it allows financial institutions with a development mandate to add value to average PSOs, making them transformational and conducive to development. This

is important to ensuring social and economic inclusion objectives are met and that money is spent on appropriate projects. Social indicators in the assessment of PSO development outcomes Assessment of the social effects of projects includes measurement of outcomes with a communal dimension, such as related public health, gender and poverty alleviation. This means looking at specific indicators related to outcomes generated by projects. For example, indicators in education projects may include the number of students educated, and in improved access to health projects the number of people gaining access to health care. Indicators such as numbers of female jobs, jobs for unskilled or semi-skilled workers and youth employment may describe benefits accruing to marginalized members of society including women, minorities and other disadvantaged groups. There is particular emphasis on benefits accruing to poorer segments of society that are captured, for example, through the number of low-income beneficiaries covered and the share of beneficiaries from rural or remote areas. The effects have greater weight when projects are located in fragile states or post-conflict countries. Project effects related to income smoothing, access to better quality or a wider range of consumer goods or services are also assessed. If a project has negative externalities, for example population displacement, the assessment looks at the number of persons or businesses affected and whether compensation packages are in line with international best practice. To mitigate negative externalities, or as part of corporate social responsibility activities, project sponsors may put in place community development programmes. These are


often secondary and weighted as such in the assessment, but their outcomes are acknowledged, documented and monitored. Secondary effects can be transformational, for example in the case of projects that extend social and economic infrastructure to other users in the catchment area. From the private sector development perspective, projects targeting underserved market players are assessed favourably from a social and economic inclusion perspective. Specific indicators evaluated include the number of loans that are extended to financial intermediaries that lend on to micro and small enterprises, the number of smallholder farmers benefiting from a project, the volume of business between the project and small local firms, and training and technology transfer. Benefits accruing to disadvantaged members of society as a type of affirmative or corrective action are captured here too. South Africa’s Broad-Based Black Economic Empowerment programme provides an example. An illustration of a project approved for AfDB funding with potentially high social outcomes is a health sector private equity fund approved in 2009. The fund focuses on health insurance, pharmaceutical production and distribution in sub-Saharan Africa. Investing firms generate outcomes accruing primarily to households, with positive gender and social effects and effects on private sector development delivered by supporting small- and mediumsized enterprises (SMEs). The fund plans to create 1,750 jobs, supply 600,000 outpatient visits per year and provide health insurance to 450,000 individuals per year by investing in 20 to 30 brownfield SMEs. The assessment framework is also designed to flag projects with insufficient development outcomes, leading to improvement in project design or elimination from the pipeline. For instance, the quality at entry of an agribusiness project was assessed to be unsatisfactory because the terms of the underlying concession were unfair to the government and the communities in the project area. The assessment showed benefits sharing among stakeholders was highly skewed in favour of foreign investors and was not fully aligned with industry and international best practice. The assessment enabled the bank to act as an honest broker and facilitate a realignment of the transaction with its development mandate.

translates into poverty reduction. A shift in the international development community towards inclusive growth calls for the assessment framework to be refined and capture inclusiveness better, particularly social effects. In practice, integrating indicators with an inclusive dimension in the assessment framework involves refining the battery of existing sectorspecific indicators. By providing a relevant and clear set of criteria and measurable indicators to substantiate assessments, the screening tool enhances the mainstreaming of inclusiveness in projects. For instance, in projects involving lines of credit for SMEs, indicators such as the share of lending in fragile states, or the share of beneficiaries in rural or other underserved groups become more informative than indicators looking simply at the extent to which SMEs are assisted. While the number of jobs is a core ECG indicator, to capture inclusiveness an assessment should go further by looking at, for instance, the number of skilled versus unskilled positions, employment for locals versus foreigners and permanent versus seasonal jobs. It must also emphasize the qualitative dimensions of projects, for example, assessing whether an operation creates productive

employment in an underserved rural area with limited job opportunities. Development financiers can ensure these types of outcomes feature in average transactions at little cost to sponsors by coupling individual projects with technical assistance packages. For development banks such as the AfDB, using ex-ante cost-benefit analysis tools that capture both the value-added of their interventions and the extent to which they promote development effects is essential. The framework and tools support accountability for shareholders, providing a mechanism through which institutions can demonstrate there is value for money from their interventions and that they produce tangible effects that can be tracked on the ground. However, there are challenges related to keeping the framework dynamic and responsive to evolving priorities such as the recent inclusive development paradigm. Frameworks must be easy to adjust and flexible to capture both the quantitative and qualitative dimensions of interventions. Indicators must remain SMART – specific, measurable, achievable, relevant and time bound – and assessments must remain predictable to minimize measurement error and allow time series performance assessment.

Assessment of inclusive development effects Recently, it has become paramount for development efforts to go beyond strong, sustained growth and include growth that is shared and

FORUM ISSUE 1 2012  33


ITC IN ACTION

opening the door for AFRICAN EXPORTERS

Yaya Ouattara,

Adviser, Access to Finance for SMEs ITC

E

stelle Ahoyo is the chief executive officer of Ets Estella & Fils, a small enterprise in Benin that is involved in the production and export of fruit and vegetables. Her company has been growing steadily since it was established two years ago. Today, Ahoyo aims to avoid intermediaries and export products directly to Nigeria, Burkina Faso, Mali, Senegal and Niger. Looking forward, she would like to export to North African countries and eventually to European Union countries and the United States of America. The company has already identified potential clients, but lacks finance to increase production, buy appropriate packaging and comply with regional and international standards, which means these export plans have so far been just a dream. All attempts to get bank loans have been unsuccessful. The problem faced by Ets Estella & Fils is common to many small- and medium-sized enterprises (SMEs) in developing countries. According to Cyprian Bangirana, chairperson of the Kagango Coffee Farmers’ Association in Uganda, lack of trust between financial institutions and micro-, small- and medium-sized enterprises (MSMEs), farmers and cooperatives has worsened since the 2008 financial crisis. That said, he also recognizes that reluctance from the banking sector is justified as many MSMEs, especially in Africa, are not well managed, have no accounting systems, no collateral and are not sustainable. SMEs play a major role in economic development, particularly in developing countries

34  FORUM ISSUE 1 2012

where studies by the World Bank indicate that formal SMEs contribute up to 45% of employment and up to 33% of GDP. However, SMEs struggle to grow as they face various obstacles, the largest being lack of access to finance. In 2008, ITC responded to this problem with an Access to Finance for SMEs programme designed to bridge the gap between SMEs and financial institutions. The programme builds the capacity of SME managers in financial management, in particular strengthening their financial soundness and ability to submit bankable projects. The programme also helps financial institutions enhance their ability to understand the needs of SMEs, evaluate the potential and risks of projects and monitor the performance of loan recipients. When required, it can facilitate a line of credit or guarantee funds with a development bank or agency. Access to finance for small- and mediumsized pineapple enterprises in Benin The Access to Finance programme is supporting the Agon Project – agon is the word for pineapple in Fon, a Beninese language – an initiative that runs from 2010 to 2012 and is funded by the Government of Finland. The programme’s objective is to help export-ready and exporting MSMEs, cooperatives and associations gain access to finance. The project is in line with the Benin Government’s development strategy and aims to develop the pineapple sector in Benin by promoting South-South trade and cooperation, thus improving the livelihoods of more than 3,000 people in the value chain. This is being done through increased access to finance and the use of mobile solutions to enhance exports to neighbouring countries and the Maghreb region. In Benin, the pineapple industry has encountered several difficulties, mainly the high

price of freight, deficient refrigeration capacity and packaging of the fruit. Before the project started, the local pineapple value chain was poorly organized. Pineapples from Benin were informally exported to neighbouring countries that exported the fruit to Europe, denying the country a crucial marketing and branding opportunity. Poor organization also meant growers and SMEs could not secure loans from local financial institutions to enhance production and marketing. Viable business opportunities were not receiving the credit they needed because poor financial record keeping by SMEs made it difficult for financial institutions to judge the viability of entrepreneurs’ businesses. The ITC Access to Finance programme has been working since 2010 to address these barriers to trade and facilitate access to finance. Milestones in the programme include: • Organizing two training sessions for 36 financial management counsellors, 30 of whom have been certified; • Coaching 70 pineapple sector SMEs in financial management and development of business plans; • Improving SME and risk mitigation knowledge of Bank of Africa (BOA) and Banque Régionale de Solidarité (BRS); • Providing the Loancom credit scoring tool to BOA; • Facilitating two guarantee funds with the French Development Agency (AFD) and Fonds GARI, a West African development bank; • Negotiating a line of credit with Fonds National de Microfinance (FNM) to help microfinance institutions support SMEs. Aminatou Bagoudou, chairperson of an association of women processors, is one of the beneficiaries of the project. ‘I am very thankful to ITC and ABEPEC (the Benin agency for the promotion of commercial trade – Agence Béninoise de Promotion des Echanges Commerciaux) for their valued support. The Agon Project, through its Access to Finance programme, assigned us a financial management counsellor, Fructueux Agbo, who has helped us for more than six months to improve the financial management of our association and to develop a business plan. The bank has approved our loan application for FCFA 25 million (US$ 50,000) after visiting our premises and interviewing us. The loan will be used to update processing equipment and buy more appropriate packaging with the objective of exporting processed pineapple juice to Burkina Faso and Niger where ITC and ABEPEC have helped us to close deals with some clients.’ The project partnered with BOA, BRS and FNM, three banks that expressed inter-


03

01

est in increasing their SME portfolios and engaging in the pineapple sector. To enhance their appreciation of the potential and risks related to SMEs, a training session was organized for the lending officers of the financial institutions. Loancom, a tailored credit scoring tool that takes into account the financial and non-financial parameters of the SMEs and associations, was provided to BOA. This software will help the lending officers better assess the loan applications made by SMEs and associations. The Benin project has also facilitated two guarantee funds with the AFD and Fonds GARI that can be used by BOA and BRS for the benefit of those in the Beninese pineapple value chain. To ensure a multiplier effect and sustainability, ABEPEC has worked with ITC to implement all the project activities and has been provided with online financial management tools, essentially self-checkers, for its members. Léon Agba, a certified financial management counsellor and Agon Project project coordinator at ABEPEC, says, ‘The Agon Project is the first of its kind in Benin to address the needs of the agricultural sector in such an inclusive and holistic way. Having been actively involved in all the activities since the beginning of the project, ABEPEC has been empowered to sustain the achievements of the project and replicate them with other SMEs or in other sectors. As a financial management counsellor, the project has taught me a new methodology on how to coach SMEs effectively in risky sectors like the pineapple sector. Like the other financial management counsellors, I have built a long-term relationship with two SMEs and will continue to provide them with coaching and monitoring. As a staff member of ABEPEC, the project has

01 Cyprian Bangirana, coffee farmer and chairperson for the Kagango Coffee Farmers Association, explaining stock finance needs in his coffee farm in Bushenyi Dristict, Uganda. © ITC 02 Meeting with Kyangyenyi Coffee Farmers Association in Bushenyi District in Uganda on their access to finance issues. © ITC 03 Estelle Ahoyo applying for a loan to export to Maghreb, the European Union and the United States. © Estelle Ahoyo

02

been very beneficial both for me and my institution. The multiplier effect and sustainability are surely guaranteed.’ Access to finance in Zambia and Uganda In Zambia, supported by funding from the United States Agency for International Development and the Government of Japan, ITC is implementing a project coordinated by the African Management Services Company that seeks to complement the African Development Bank’s lines of credit with similar arrangements at Zanaco and Investrust, two banks in Zambia that are committed to increasing their SME lending portfolios. During this project, ITC has trained 16 Zambian financial management counsellors to provide coaching to 70 MSMEs. Eben Sibbuku, Senior Enterprise Development Officer at the Zambia Development Agency, says the agency has gained from the project. It has partnered with ITC to implement Access to Finance activities and has received three financial management self-checkers to upload to its website for the use of its members. ‘These self-assessment tools will help our member MSMEs better manage their accounting systems and make them more bankable when they apply for bank loans,’ Sibbuku says. According to Sebastian Kapalu, a financial management counsellor, the project is unique as it will not only change the way he works with SMEs, but also improve the distrustful relationships between financial institutions and SMEs. In Uganda, as part of the Netherlands Trust Fund project, ITC is building the capacity of the National Union of Coffee Agribusinesses and Farm Enterprises to access finance for its coffee farmer associations. Bangirana, from

the Kagango Coffee Farmers’ Association, has many expectations of the ‘great project that will help us get stock financing to pre-finance our production.’ He hopes ITC will help his association become financially sustainable and a real business. This entails aiding the association to diagnose its current financial management system and find durable solutions. The project is also expected to empower the association to provide efficient financial management and services solutions to its farmers. 04

04 Aminatou Bagoudou, chairperson of an association of women processors, is one of the beneficiaries of the Agon Project. © ITC 05 Sebastian Kapalu sharing his experience of coaching SMEs with fellow financial management counsellors during the 2nd training session in Lusaka, Zambia. © ITC

05

FORUM ISSUE 1 2012  35


ITC IN ACTION

committing to QUALITY IN KYRGYZSTAN WRITES

Miklos Gaspar Trade Forum Editorial

A

t a plant in the North-East of Kyrgyzstan’s capital Bishkek, a 20-minute ride from the city centre over potholed roads, 23-year-old Bakhtiyar Kudakeldiev works as a water bottling operator. He does not know it, but he benefits from an ITC programme designed to improve quality management. Kudakeldiev works for Shoro, Kyrgyzstan’s largest beverage company and a beneficiary of a World Bank-funded quality management certification project delivered by an ITC-trained consultant using ITC methodologies. Kudakeldiev, who has worked at the plant since moving to Bishkek from a small village in central Kyrgyzstan in 2007, has enjoyed a warmer and cleaner workplace, and monthly bonus payments ranging from 5% to a whopping 100% of his salary since the enhanced quality management process was introduced in the summer of 2011. Kudakeldiev has never heard of ITC. This is not surprising because he is an assembly line worker. Until recently, his production director, Nurdin Osmanbaev, who manages most of Shoro’s 300 workers, had never heard of ITC either. For Shoro, and many other companies in Central Asia, quality management is becoming essential to the successful export of products. A lack of quality management and assurance in production processes,

36  FORUM ISSUE 1 2012

a legacy of the region's Soviet past, means products often lack the consistent quality required for export. Conversely, where products are of a consistent quality, it can be difficult for companies to prove the case without quality management and certification processes in place. Between 2006 and 2008, ITC carried out a US$ 1 million project funded by the Swiss State Secretariat for Economic Affairs (SECO) that was designed to improve the export capacity of small- and medium-sized enterprises in Kyrgyzstan’s fruit and vegetable sector (see box page 37). Shoro, as a water bottling firm, did not qualify to participate, but it has since benefitted indirectly from the project, which trained 25 national consultants, some of whom continue to work on quality management improvement projects and certification preparation. Giulnara Jujsupjanova, one of the consultants trained by ITC, has advised five companies on quality management and productivity improvement since graduating from the course in 2007. Shoro is her largest client. Jujsupjanova and Shoro’s Quality Director, Gulmira Acanbekovna Ismanova, are responsible for retrofitting Shoro’s entire production system: plugging holes in the wall to keep insects out and heat in, and meeting sanitary and phytosanitary requirements. They have organized the replacement of old corroding doors and windows with new plastic ones, introduced compulsory uniforms and hair coverings for workers, arranged for personal lockers

to be built in changing rooms, and achieved a host of other measures as part of the process towards ISO 9001 certification. To earn a bonus, Kudakeldiev and his teammates must perform simple visual quality checks to make sure water bottles are closed properly, contain the right amount of water and have stickers that are glued on well. Pay climbs as the number of defects falls and productivity improves. The goal of the quality certification project, explains Ismanova, is to improve the company’s image as a producer of high-quality bottled water. The plant upgrade and certification will better position Shoro to take on competition from both local producers and suppliers of imported mineral water. Certification is also a prerequisite to expansion into foreign markets, primarily Kazakhstan and the Russian Federation. Osmanbaev hopes to begin exporting shortly after obtaining ISO 9001 certification towards the end of 2012. To carry out the necessary improvements, Shoro received funding from the World Bank’s Agribusiness and Marketing Project, which has funded quality management improvement projects since 2008. Could the developments at Shoro have been accomplished without ITC’s involvement? Jujsupjanova, who became Kyrgyzstan’s first certified quality management adviser in 2003, well before ITC’s trade promotion project, says Shoro would not be where it is now without it. She explains, ‘ITC has provided me with a comprehensive understanding of quality


02 Quality bubbling to the surface at Shoro. © Arthur Aliev

01 Akhtiyam Koshveev's Osko is one of the growing members of Kyrgyz food exporters. © Arthur Aliev

management, an understanding that goes beyond individual certifications and has helped Shoro to make both general quality management and food safety improvements.’ According to a report by three external evaluators, the ITC project was ‘very success-

ful’. They concluded that the ‘biggest asset of [the] project’s sustainability is [the] change of mind of various stakeholders.’ Now, three years later, the project is really bearing fruit and its indirect benefits have become evident, says Jujsupjanova.

Since ITC completed its first project in the country, several agencies, including the World Bank, the United States Agency for International Development, the German Agency for International Cooperation and the European Union, have offered assistance to fund quality management projects in the agribusiness sector. ITC, in the meantime, is halfway through the implementation of a similar project targeting Kyrgyzstan’s clothing sector, which has been identified as a key industry for export promotion in the country’s national export strategy. According to Kyrgyz officials, ITC’s involvement contributed to the industry’s 15% growth in the first 11 months of 2011. ‘[The ITC programme] has been practical and successful in sectors with substantial problems. The task of bringing the food processing and clothing sectors [up] to international standards and [making them] an impulse for positive economic development of the Kyrgyz Republic is tremendous,’ says Deputy Economy Minister Oleg Pankratov. Further funding from donors permitting, ITC plans to move into other sectors and geographic areas of Kyrgyzstan. ‘Our formula has been proved. Sometimes it takes a year after our intervention, sometimes two or three, but sooner or later our approach produces sustainable export growth,’ concludes ITC Project Manager Armen Zargaryan.

THE TASTE OF SWEET SUCCESS: DRIED FRUIT AND ORGANIC JUICE

Kyrgyz dried fruit entrepreneur Akhtiyam Koshveev hoped a Moscow trade fair he attended in 2007 would land him a few new clients. It landed much more. Business contacts he made at the Prodexpo fair have enabled him to quadruple his production and double his workforce. ‘We are nowhere near the same business anymore,’ says Koshveev of his company, Osko. ITC supported six companies to participate in the trade fair as part of a 2006-2008 project to increase the export capacity of fruit and vegetable processing companies in Kyrgyzstan. The US$ 1 million project was financed by the Swiss State Secretariat for Economic Affairs (SECO). Three years after Koshveev received final technical assistance from ITC, Osko employs 80 people directly and has bought farmland where it provides stable employment for another 500 farm workers, many of whom had lived hand to mouth. The company is now completing its first audit ahead of plans to raise US$ 1 million in foreign investment. These funds are crucial to increasing production capacity and meeting the demands

of the company’s distributors in the Russian Federation and Kazakhstan. ‘They are pushing me to produce more and increase the product range,’ says Koshveev. In response, Koshveev and his partners have found a sweet spot in the market by diversifying from dried fruits to produce fruit juices marketed as organic. Half of the total production of the nascent agriprocessing sector in Kyrgyzstan is now shipped abroad, up from virtually nothing seven years ago, says Dilyara Alimjanova, director of the Association of Fruit and Vegetable Processing Enterprises. Combined employment of 3,500 people is up 20% across the association’s 32 member companies, despite an uncertain business climate over the past few years. She also believes farm employment has grown as a result of ‘The help of ITC was key,’ Alimjanova says, referring to ITC’s first project in the country in 2004 when it assisted the association in kick-starting its export marketing efforts. ‘At that time, nobody offered this kind of assistance,’ she adds. Besides providing marketing advice and financing participation in trade fairs, ITC helped the companies

put quality management practices in place. ITC also trained 25 national consultants, some of whom continue to work on quality management improvement projects and certification preparation at various companies in the agribusiness industry (see main story). Two of the six fruit and vegetable processing companies received ISO quality certification at the end of the ITC project. Aliana, which makes tomato puree and canned vegetables, has hired a quality assurance director to make sure the improvements can be sustained following the end of the project. Koshveev has decided not to invest in renewing Osko’s ISO certification as there has been no demand to do so from his clients in the Russian Federation and Kazakhstan. In 2009, just after obtaining certification, he found new buyers for his products in Germany, but exchange-rate fluctuations made the venture too risky. The improvements leading up to certification have been useful, however, and Koshveev estimates that two-thirds of the processes introduced are still in place. Looking forward, he says he will renew the ISO certification as markets mature and his buyers become more demanding.

FORUM ISSUE 1 2012  37


ITC In ACTION

boosting trade policy IN PAKISTAN Mohammad Owais Khan

Programme Officer, EU funded Trade-Related Technical Assistance (TRTA II) programme, Islamabad, Pakistan ITC

T

he experiences of countries around the world demonstrate that sound trade policies and public-private dialogue are essential to successful exporting. In Pakistan, sustainable trade expansion is hampered by a lack of training to build a cohort of well-informed policymakers and a deficit of engagement between the public and private sectors. To remedy these shortfalls, ITC is working with government and training organizations on trade-related technical assistance for Pakistan, a programme funded by the European Union. Its aim is to build the capacity in Pakistan needed to formulate trade policies that enhance export competitiveness. Contributing factors essential to formulating optimal trade policies include: • A high level of expertise among policymakers that matches constantly evolving trading systems; • Policy research capacity that is responsive to policymakers’ needs; • A n understanding of commercial dynamics and the business implications of trade policy measures and a regulatory framework; • A structured public and private consultation mechanism that has an impact on national decision-making; • A n effective and efficient implementation, monitoring and evaluation mechanism. While these factors have been promoted in Pakistan, further efforts are required as, all too often, issues preventing trade competitiveness either fail to reach policymakers due to weak public-private consultation, or they are not addressed through proper policy interventions due to lack of capacity.

38  FORUM ISSUE 1 2012

To address these shortcomings, the Business and Trade Policy section at ITC has designed interventions that recognize current domestic conditions, international best practice and the need for continuity in activities once the programme has ended: • Institutional capacity building of key local training institutes, which is intended to have an immediate effect on the capacity of government officers working on trade policy issues; • Fostering comprehensive, regular and wellinformed public-private dialogue. Strengthening technical capacity To comprehend trade policy issues and design interventions to address them, policymakers need knowledge of often complex multilateral and domestic trading environments. One way to advance such knowledge in a sustainable, predictable and cost-effective manner is through the development of trade-related expertise in local training and research organizations. To meet this objective, ITC assisted in the development of a partnership agreement between the Pakistan Institute of Trade and Development (PITAD) and the World Trade Institute (WTI). The agreement covers the development of master trainers and training modules under the guidance of WTI mentors. These will become part of a joint WTI-PITAD certified course on International Trade Law and Commercial Diplomacy. Seven trade policy areas, including trade in services, trade in agriculture, international trade negotiations, trade policy formulation, competitive analysis, regional integration, and measurement methodologies, were selected for the training of master trainers and module development in 2011. An additional seven areas have been identified for 2012, covering trade remedies, intellectual property, dispute settlement, non-tariff measures, preferential trade agreements, trade and environment, and trade and investment.

The training modules will be utilized by PITAD in its nine-month pre-service training course for the commerce and trade section of the civil service of Pakistan, as well as in short training courses for commercial diplomat designates and officers of the Ministry of Foreign Affairs. Additionally, the programme provides for PITAD to hold ad-hoc training for government officers on pressing trade issues. These activities are intended to strengthen the requisite skills and understanding of government officers on trade, regulatory and negotiation issues. In 2011, two short training sessions were organized and 66 officers and researchers from various ministries and government departments received training on trade policy formulation, competitive analysis and regional integration. Fostering public-private dialogue Recognizing the need to strengthen private sector participation in the formulation of trade policies and regulatory reforms in Pakistan, ITC has designed activities to institutionalize comprehensive, regular and well-informed public-private dialogue (PPD) among stakeholders on the issues of trade policy formulation and implementation. To promote the legitimacy of the dialogue, a steering committee comprising equal representation of the public and private sectors has been established with the formal approval of the Ministry of Commerce of Pakistan. Its mandate is to oversee the planning, implementation and monitoring of PPD on key issues. During 2011, two PPDs were held, informed by commissioned research studies that were peer reviewed by international experts. The aim of the PPDs was to define policy recommendations that would promote the export of professional, transport and computer-related services, and enhance regional trade in the made-up textile and light engineering sectors. The recommendations derived from the PPD process are now being refined before submission to the steering committee for endorsement and final submission to the decision-making level of the Government of Pakistan. Sustainability is a key focus in the design of ITC programme interventions. In Pakistan, the expertise of master trainers and stronger training institutions can be used by the government to train and educate trade policymakers beyond the life of the programme. Improvements in trade policy processes and the formal recognition of a steering committee to manage public-private dialogue will further address the trading community’s need for export competitiveness on a sustainable basis.


DIRECTORY

ITC PUBLICATIONS

Resources on trade and export development for exporters, trade support institutions and policymakers

New publications

New technical papers

To order online visit www.intracen.org/about/e-shop

For free download please visit: www.intracen.org/ publications

01

Public-Private Collaboration for Export Success

Case studies from Barbados, Ghana, India, Thailand and Malaysia This guide is a showcase of successful public-private dialogue in developing countries. It demonstrates the value of business advocacy on trade policy issues featuring the Barbadian tourism industry, customs services in Ghana, Thailand’s automotive industry, Penang, Malaysia’s export hub for electronics, and India’s textile parks. This publication is available in English, French and Spanish.

ORDERIng DETAILS

ITC publications

To order ITC books online Publications are listed online with prices and can be ordered at ITC’s e-shop www.intracen.org/about/e-shop and via the National Book Network (NBN) at: https://unp.un.org To buy books by mail United Nations Publications Customer Service c/o National Book Network PO Box 190 Blue Ridge Summit, PA 17214 USA email: unpublications@nbnbooks.com In Europe, Africa, and the Middle East: Turpin Distribtuion Pegasus Drive Stratton Business Park Biggleswade SG18 8TQ United Kingdom email: custserv@turpin-distribution.com Publications are free in limited numbers for official traderelated institutions. For print copies, contact ITC Publications at email: itcreg@intracen.org.

The Coffee Exporter’s Guide

02

This guide is the world's most extensive, hands-on and neutral source of information on the international coffee trade. It covers trade issues relevant to coffee growers, traders, exporters, transportation companies, certifiers, associations, authorities and others in coffee-producing countries. This third edition marks the Guide's 20th anniversary and includes new material on climate change, the role of women in the coffee sector and comparison of sustainability schemes. This publication is available in English and will be available in French and Spanish. Export Quality Management

A Guide for Small and Medium-Sized Exporters

03

Published in 15 versions and customized to meet the needs of 18 countries in eight languages, this second edition of the 2001 best-seller, Export Quality Management: An Answer Book for Small and Medium-Sized Exporters, brings together information about various issues such as standardization, conformity assessment, metrology, technical regulations, accreditation, sanitary and phytosanitary measures, and WTO Agreements on Technical Barriers to Trade.

•W  omen in cotton: Results of a Global Survey (available in English)

•C  laim Statements For Natural

Products: the United States Market (available in English)

• Lab  elling of Natural Products for the United States Market (available in English)

• Inclusive Tourism: Environmental Management and Climate Change (available in English)

•B  urkina Faso: Company perspectives ITC series on non-tariff measures (available in French)

•T  he North American Market for Natural Products: Prospects for Andean and African Products (available in English)

• Product Carbon Footprinting

Standards in the Agri-Food Sector (available in English)

• THE CHINESE MARKET FOR CLOTHING (available in English)

01 PublIC-PRIvATE COllAbORATIOn FOR EXPORT SuCCESS

USD 50 ISBN 978-92-9137-393-2

USD 70 ISBN 978-92-9137-394-9

EXPORT IMPACT FOR GOOD

United Nations Sales No. E.12.III.T.1

04 04

03

This book helps the private sector and government policymakers weigh benefits and costs of trade policy options, and shows how reform can boost competitiveness. Cases and examples show how trade policy reform can help individual companies and industry sectors to become more competitive. Most importantly, this publication assists in the fostering of a culture of informed public-private dialogue, which is an essential component of the democratic process of policy formulation.

Export Quality Management

National Trade Policy for Export Success

A Guide for Small and Medium-Sized Exporters SECOND EDITION

USD 70 ISBN 978-92-9137-393-2

This publication is available in English and will be available in French and Spanish. United Nations Sales No. E.11.III.T.2

THIRD EDITION

EXPORT IMPACT FOR GOOD

United Nations Sales No. E.11.III.T.2

National Trade Policy for Export Success

The Coffee Exporter’s Guide

CASE STuDIES FROM bARbADOS, GhAnA, InDIA, ThAIlAnD AnD MAlAySIA

This publication is available in English and will be available in French and Spanish.

02

USD 70 ISBN 978-92-9137-402-1

United Nations Sales No. E.12.III.T.3

EXPORT IMPACT FOR GOOD

FORUM ISSUE 1 2012  39


In our next issue:

EMpowering women, powering trade

SUBSCRIPTIONS: forum@intracen.org PRINT SUBSCRIPTION:   US$ 60/year (Free to trade support institutions and firms in developing countries)


Forum2012 issue rick