Contributing to Environmental Protection and Regional Balance in Asia

Contributing

to environmental protection and regional balance

Asia

2013 2016 Agence Française de Développement Action Plan

CONTENTS

Executive summary 04 I.

A critical region for the future of the planet

07

A region at the core of climate change challenges Environmental pressure fuels tensions Rising to the challenges of poverty, urbanisation and conflicts

08 09 11

II. AFD in Asia, relevant action for regional challenges

13

Asian countries, strategic partners for France Positioning adapted to diverse contexts A relatively new player with an increasing level of commitment Tangible activities to promote sustainable public policies

14 15 16 17

III. A strategy for 2013-2016 focused on the environment and regional balance

19

Five priorities to support Asia as it tackles the challenges of the 21st century AFD in Asia, vector of France’s diplomatic influence

20 24

IV. Making the most of resources and synergies

25

Capitalising on AFD’s assets Strengthening synergies within AFD Group and NGOs Working together with “Team France” Enhancing partnerships with other donors

26 27 28 28

Annexes 31 AFD intervention framework in Asia – 2013 to 2016 32 Bibliography 34

EXECUTIVE SUMMARY

Asia now represents an essential engine of the world economy: more than half the world population lives in Asia and the region’s international trade share is rapidly growing. At the same time, Asia’s development is also critical to the future of the planet, as the region faces important challenges with local, national and global implications.

Asia’s rapid development is causing an exponential demand for energy, mostly met by fossil fuels. It is also putting more and more pressure on the environment, natural resources and biodiversity that are paying a heavy price for the region’s booming economy. The continent produces more than a third of global greenhouse gas emissions, and 12 of the 20 most polluted cities on earth are in Asia.

The social issues at stake are huge, from the challenges resulting from the exponential growth of urbanisation, to the poverty which still affects much of its population. While economic growth has resulted in a fall in extreme poverty and the rise of the middle class, more than two thirds of the world’s poor live in Asia. More than six out of every ten Asians are at risk of food insecurity and almost a billion people still do not have access to electricity

In addition, conflicts and tensions, both internal and between states, represent an important threat to regional and global stability.

4

Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

Over the last ten years, AFD has significantly expanded its activities and financial commitments in Asia.

Given the considerable contextual variety in Asian countries, AFD has adapted its positioning according to the diversity of its intervention countries.

In emerging and middle-income countries, AFD has been involved in promoting green and inclusive growth, with the aim of supporting environmental protection and reducing social inequality. Between 2009 and 2011, AFD approved more than 1.5 billion euros to fund projects addressing climate change.

In failed or fragile states and least developed countries, AFD has supported initiatives strengthening social cohesion and regional balance. AFD has also financed many projects carried out by French NGOs.

Given the scale of the environmental, social and regional challenges facing Asian countries, AFD has defined two major goals for the 2013-2016 period: • Limiting the environmental impact of Asia’s rapid development, particularly in emerging countries and in urban areas. The challenge is to promote greener, less polluting and more resource-efficient development models and solutions that help populations facing global threats such as biodiversity loss and climate change.

• Contributing to regional balance by supporting the catch-up process for least developed and fragile countries, by promoting more inclusive growth, and also by encouraging geopolitical stability.

With these goals in mind, AFD will continue to offer its diverse financial tools to political decision makers and project operators, both public and private. AFD is also actively developing synergies with French partners and stakeholders in order to capitalise on their expertise. AFD wishes to strengthen its relationships and co-funding arrangements with other donors present in Asia (ADB, JICA, EU, etc.) in order to consolidate its position in the region.

5

1

A CRITICAL REGION

FOR THE FUTURE OF THE PLANET

1 A CRITICAL REGION

FOR THE FUTURE OF THE PLANET

A region at the core of climate change challenges Asia’s development path has a critical impact on global stability, from

climate change

to migration to trade patterns

The “Asian Century” More than half the world’s population lives in Asia, and by 2050 the region may count more than 5 billion inhabitants. It produces more than a third of world GDP and could account for more than 50% by 2050. With growth rates of around 6% in 2012 and 2013, Asia is now the engine of the world economy.

An energy guzzler Asia accounts for more than half of the world’s fossil fuel consumption, with an energy mix that is particularly dependent on coal1. Over the next 15 years its requirements may double, making the region more and more dependent on hydrocarbon imports, as the region own substantial fossil fuel resources cannot meet demand. By 2030 the continent may well be importing 80% of its oil and 50% of its gas, a growth pattern that will increase its influence on the flow of energy resources and world prices.

This increase in demand, due to economic growth, urbanisation and the rise of Asia’s middle class, is creating substantial challenges regarding: • Development and internal stability: 900 million Asians have no access to electricity.

In 2011 and 2012 lengthy power cuts led to rioting in both India and Pakistan.

• Geopolitical issues affecting regional and global stability: The race for access to hydrocarbons (particularly in Central Asia), the demarcation of economic exclusion zones in the South China Sea, as well as the growing number of dam projects (in a region where water stress is already a major issue), are all sources of tension and possibly even conflicts.

• Climate: One of the major challenges of the next few decades is the growing increase in greenhouse gas emissions in Asia, as well as the related issues of energy intensity and the energy mix.

1 In China, 80% of electricity is generated from coal, in India the figure is 68%

8

Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

Environmental pressure fuels tensions More and more Asian governments are incorporating

climate concerns into their development policies, investing

in clean energy

and adopting ambitious plans to reduce

their emissions

and adapt to global warming

One third of the world’s greenhouse gas emissions While emissions per capita are still relatively low, three of the six largest emitters of greenhouse gases (GHG) are in Asia: China (1st, ahead of the United States), Indonesia (3rd) and India (6th). Reasons include large-scale investments in new coal-fired power plants, urbanisation, the increasing number of cars and extensive deforestation. If these trends continue as projected, Asia will be the source of 45% of world greenhouse gas emissions by 2030.

A region particularly threatened by the effects of climate change The concentration of population and economic activity in coastal areas, as well as a high dependency on agriculture and fishing, means that Asia is one of the regions most threatened by the effects of global warming. These threats include sea level rise, falling harvests due to droughts and water shortages, increasing frequency of extreme weather events (cyclones, tsunamis, flooding), etc. In addition, the melting of the Himalayan glaciers threatens the flow of the main Asian rivers on which millions of people depend for their livelihood.

Asia has suffered more natural disasters2 than any other region during the last decade, with ten times as many occurring in the 2000s as in the 1980s. In addition, the expected drop in agricultural productivity as a result of climate change could seriously affect the region, particularly in South East Asian countries, which could lose up to 6.7%3 of GDP per year by 2100, twice the fall expected at a global level.

In light of these risks, countries in the region need to strengthen their capacity to cope with the effects of global warming and prepare themselves to deal with large movements of people: between 150 and 300 million “climate refugees” are expected in Asia by 2050.

2 In 2009 more than 40% of natural disasters recorded worldwide were in Asia, accounting for more than 90% of all victims.

3 The Economics of Climate Change in Southeast Asia: A Regional Review, Asian Development Bank, 2009.

9

Asia’s vulnerability to the consequences of climate change is exacerbated by the degradation of some ecosystems, which play a crucial role in the protection of coasts, soil and river basins

Natural resources under threat, source of tension Five of the world’s eighteen mega-diverse countries4 are in Asia. The continent is also home to several important ecosystems, including 15% of the world’s forests, 40% of its mangroves and 35% of all corals. However these are among the most threatened natural resources, subject to the twin pressures of population growth and booming economies.

The region is also host to eight of the world’s 34 hotspots5 including four of the eleven hotspots that have been reduced to less than 10% of their original footprint.

These hotspots include a great variety of ecosystems, from the deserts of the Caucasus to the forests of the Ghats, the glaciers of Central Asia and the forests of Java and Sumatra.

The pressure put on land, water and forests is having dramatic consequences: • For Biodiversity: As a result of the growth of aquaculture and tourism as well as population pressures in coastal regions, Asia has recorded the greatest loss of mangroves since 1990 of any world region. Deforestation and the conversion of land to agricultural use means Asia has also seen the highest increase in the risk of extinction of birds and mammals.

• For populations and local economies which are highly dependent on natural resources and ecosystems: More than 250 million people in Asia and the Pacific depend on coral reefs for food. Half of all Indonesians are dependent on forests for their livelihood. More than 90% of the world’s fishing communities live in Asia, where in some countries fish accounts for more than half of the animal protein intake.

• For regional stability: The degradation of soil, river basins and water quality is a significant factor that creates tensions in a region already severely affected by food insecurity and water stress. Rows over the sharing of water in the Syr Daria and land disputes in the Fergana region of Central Asia, contention between India and Pakistan over the management of the Indus, and between India, Nepal and Bangladesh on the diversion of the Ganges and the Brahmaputra, as well as current tensions around Chinese and Laotian projects on the Mekong are all examples of conflicts which could degenerate into “water wars”. The context of poverty and rampant urbanization creates other tensions such as rural unrest related to arable land distribution.

4 Countries are deemed to be mega-diverse if they contain at least 1% of the world’s 300,000 species of vascular plants.

5 Regions of the world which have more than 1,500 endemic plant species, and where more than 70% of habitats have been destroyed.

10

Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

Rising to the challenges of poverty, urbanisation and conflicts Asia is host to twelve of the world’s

20 most polluted cities

Unprecedented urban concentration Asia’s urban population is expected to grow from 1.9 billion to 3.3 billion by 2050.

As of now, 13 of the world’s 23 megacities (those with more than 10 million people) are in Asia. By 2025 there will be 21 such cities in Asia, out of 37 worldwide. Seven of the world’s ten metapolises (urban areas with more than 20 million people) will be in Asia: Tokyo, Delhi, Shanghai, Mumbai, Dhaka, Beijing and Karachi.

In this context, Asian countries face serious challenges in terms of urban planning, job creation, housing, waste management, energy supply, infrastructure and other public services aimed at reducing urban poverty and damage to the environment. Cities must also cope with serious issues of public health such as pollution and the risks associated with pandemics.

The challenge now is to make Asian growth more inclusive, by stimulating domestic demand and checking

rising inequality

Home to two thirds of the world’s poor Economic growth across the region has resulted in a reduction in poverty and rise of the middle classes6. Half of all Asians were defined as middle class in 2010, compared to one in five in 1990.

Nevertheless Asia is still home to two thirds of the world’s poor (those who live on less than a dollar a day) and to a similar proportion of those facing a high level of food insecurity and malnutrition, even though several Asian countries are agricultural exporting powerhouses. India alone has more poor people than all of sub-Saharan Africa.

Inequality, in terms of access to services and basic infrastructure, has grown alongside income inequality, all indicators of unequal and non-inclusive development.

More than 30% of the continent’s urban population lives in slums and squats, which house millions more migrants every year. In the next few decades a growing share of the Asian poor, who currently live in rural areas, will move to cities.

6 This is according to a wide definition of the concept of the middle class, those living on between two and 20 dollars a day.

11

Tensions on the continent Apart from Afghanistan, which has been in conflict for more than thirty years, Asia also has multiple hotbeds of instability, fuelled by contentious borders, growing socio-economic inequality, as well as issues of identity that have a strong ethnic component. These issues feed off each other and, in certain cases are exacerbated by the failure of the state apparatus (corruption7, governance, human rights).

The fragile nature of certain states is not just an obstacle to sustainable development but is also a source of regional instability which could potentially become a threat to global security.

Main armed conflicts in Asia since 2009 RUSSIA

MONGOLIA

KAZAKHSTAN

GEORGIA AZERBAIJAN

UZBEKISTAN

NORTH KOREA SOUTH KOREA

KYRGYZSTAN

TURKMENISTAN

JAPAN

TAJIKISTAN CHINA

AFGHANISTAN

NEPAL

PAKISTAN

INDIA

TAIWAN BHUTAN

MYANMAR

LAOS THAILAND

VIETNAM

CAMBODIA

Internal conflicts Inter-state tensions SRI LANKA

MALAYSIA

INDONESIA

Source : Atelier de cartographie de Sciences Po, 2010

7 South Asia is the most corrupt region in the world after sub-Saharan Africa according to Transparency International (2011).

12

PHILIPPINES

2

AFD in Asia,

relevant action for regional challenges

2 AFD IN AsiA,

relevant action for regional challenges

Asian countries, strategic partners for France A strategic region for the future of the planet, Asia is also of vital interest to France.

At a geopolitical level France is seeking to strengthen its presence and to become a strategic partner for countries in the region that are playing an increasing role in international relations. China, India, Indonesia, South Korea and Japan are all members of the G20, and India wishes to join China as a permanent member of the United Nations Security Council. French diplomacy is seeking allies in Asia who will help to strengthen its positions on the international stage and will join forces with it on issues such as regulating globalisation, the fight against climate change, the preservation of biodiversity, and the maintenance of peace and security.

France has a particular relationship with the Indochinese peninsula as a result of a shared history, nowadays reflected in a strong bond of solidarity, and the country is therefore keen to consolidate its presence there, particularly in the cultural, linguistic and commercial spheres. France’s diplomatic activities in that region, as well as in less developed Asian countries, also aim to promote a better regional balance of power and counter dominance of emerging countries.

France also wishes to strengthen its presence in the countries of the Caucasus and Central Asia. Their proximity to Europe and to a number of conflict zones as well as their significant natural resources means these countries are of both geostrategic and European interest.

At an economic level France wants to capitalise on opportunities offered by Asia’s economic dynamism. France is particularly interested in supporting development in Asia, by focusing its efforts on areas of excellence in the French economy, particularly in the green sector, such as clean energy, energy efficiency, water and sanitation, public transport, etc.

In this way France can play a key role in the introduction of new practices and facilitate an improvement in environmental and social standards across Asia.

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Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

Positioning adapted to diverse contexts Over the last ten years AFD has considerably extended its reach in Asia, from five countries in 2004 to 18 countries in 2014. It now has nine local branches, of which three are regional offices, as well as an Asian technical hub based in Bangkok.

Kazakhstan (2011) Uzbekistan (2011) Georgia (2011) Armenia (2011) Azerbaijan (2011) Afghanistan (2004)

Bangladesh (2011)

Pakistan (2006)

India (2006)

Myanmar (2012) Thailand (2003)

China (2003) Laos (1993) Cambodia (1993)

Philippines (2009)

Vietnam (1993)

Sri Lanka (2005) Indonesia (2005)

First intervention mandate (2011) AFD local agencies or representation offices

AFD’s positioning in Asia takes account of the needs of its partners and is designed to accommodate the range of countries in which it operates.

• In emerging and middle-income countries: AFD’s activities were initially focused on global public goods (combating climate change, preserving biodiversity and controlling pandemics). They have since evolved to include a range of activities aimed at promoting green and inclusive growth, which preserves the environment and reduces social inequality. AFD also intends to promote best practice in terms of financial transparency, social and environmental responsibility and combating money laundering.

• In fragile and less developed countries, AFD contributes to the development of social cohesion and greater regional balance by supporting activities which improve living conditions for the population, strengthen the legitimacy of the state and contribute to the growth of regional initiatives, especially regarding water management.

• In Central Asia and the Caucasus, AFD’s activities aim to support a less polluting form of economic development, as well as a move towards European standards in countries involved in the EU’s neighbourhood policy.

15

A relatively new player with an increasing level of commitment AFD’s activities in Asia over the last few years have targeted the fight against global warming, the preservation of biodiversity and the promotion

AFD’s financial commitments in Asia grew by an average of 24% a year between 2007 and 2012. Such growth reflects the dynamism of the AFD’s interventions in certain countries, particularly Vietnam and China, as well as the start of activities in new ones (Indonesia and Pakistan in 2008, India and the Philippines in 2009, Bangladesh in 2012).

AFD’s operations in its newer areas of intervention have largely involved non-concessional or only slightly concessional loans. Only a very small proportion of the public funds it receives from the French government has been allocated to Asia.

Grants have been limited and mainly concentrated on Afghanistan8. Certain countries, among the least developed in the region, have however benefited from grants, such as Cambodia, Laos and Myanmar.

of regional balance

AFD activity in Asia by country (funding granted in millions of euros) 1000

Others: Maldives, regional projects, Vanuatu

800

Myanmar Bangladesh Pakistan

600

Afghanistan Laos Cambodia

400

Sri Lanka Philippines Thailand

200

India China Vietnam

0

2007

2008

2009

2010

2011

2012

Indonesia

8 Afghanistan is a country in crisis and is eligible under the objective to concentrate grant aid, as defined by AFD and organisms under its administrative supervision.

16

Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

Tangible activities to promote sustainable public policies AFD’s activities have been largely oriented towards state entities Between 2010 and 2012, 78% of funding has been granted via loans contracted with, or guaranteed by, sovereign states, proof that Asian public decision makers recognise the added value offered by AFD in the areas of climate and sustainable development.

This is especially true in the larger emerging countries where governments are looking for technical expertise, the sharing of experience and new high value-added approaches, in addition to finance.

• In the climate area, AFD financed 52 projects between 2009 and 2012, totalling more than 2 billion euros. This funding has served to support the efforts of Asian states as well as the fulfilment of French commitments to counter global warming and to help developing countries adapt to climate change (the Fast Start initiative9).

This should result in the reduction in emissions of 7 million tonnes of CO2 equivalent over the lifetime of these projects.

AFD has also been involved in supporting Asian states in drawing up and executing national or local “climate plans” as well as in funding innovative projects.

The Agency has thus positioned itself as a benchmark partner for sectoral policies in the area of emissions reduction (in China, Indonesia, Pakistan and Vietnam) as well as in the area of adaptation, as a result of its experience on hydro-agricultural infrastructure in Vietnam.

• In the field of biodiversity the Agency has financed three projects dedicated to the protection of forest and marine ecosystems. These have helped to bolster France’s message at the World Conference on Biodiversity in Nagoya in 2010, and are part of the commitments made by France to preserve forests, within the framework of the Fast Start initiative.

• In fragile States AFD has targeted the provision of basic services (water, health and electricity) and the agriculture sector, in order to improve the living conditions of populations (particularly women) and has also promoted social cohesion in conflict situations. AFD has also financed numerous projects implemented by French NGOs10, particularly pilot programmes in the areas of agriculture, energy and education in Afghanistan.

9 France committed to making 1.26 billion euros available between 2010 and 2012 within the framework of commitments made by the European Union (7.2 billion euros) in 2009.

10 Since 2007 AFD has made specific funding available to innovative projects undertaken by international solidarity organisations through the Sectoral Innovation Facility for NGOs (FISONG).

17

Strengthen regional balance To strengthen regional balance, AFD has financed: • Two regional projects (support for the Mekong Commission and for the recognition of protected geographic indications).

• The agricultural and vocational training sectors in less developed countries to help them adapt to the growing economic power of their larger neighbours.

• Projects implemented by French NGOs which target local civil society, the promotion of democratic governance and human rights.

A dynamic partnership with the ADB and JICA Over the last number of years AFD has strengthened its synergies with other stakeholders involved in Asian development, particularly the Asian Development Bank (ADB) and the Japanese International Cooperation Agency (JICA), who are strategic partners for AFD in the region.

AFD and the ADB have co-financed 28 projects between 2003 and 2013, making AFD one of ADB’s most important bilateral partners.

The two institutions renewed their partnership framework agreement in 2013.

AFD and the Japanese International Cooperation Agency (JICA) have created a specific partnership in Asia focusing on the pioneering co-financing of national plans to combat climate change (Indonesia, Vietnam).

JICA has now become AFD’s second most important bilateral partner after Germany’s KfW.

18

3

A STRATEGY FOR 2013-2016 FOCUSED ON THE ENVIRONMENT AND REGIONAL BALANCE

3 A STRATEGY FOR 2013-2016

FOCUSED ON THE ENVIRONMENT AND REGIONAL BALANCE

Five priorities to support Asia as it tackles the challenges of the 21st century By matching its mandate to the challenges facing Asian countries, AFD has established two goals for its activities for the 2013-2016 period: Limit the environmental impact of Asia’s rapid development: In countries posting growth rates above the world average, the challenge is to promote a model of development which is less polluting, more economical in terms of natural resources and which includes measures to protect populations from the effects of climate change.

Contribute to regional balance by action at the economic level (catch up for least developed countries and fragile states), the social level (more inclusive growth, social cohesion) and the geopolitical level (stability and a reduction in factors which lead to conflict).

In this context, and in light of the challenges facing Asia, AFD has set five operational objectives: • Promote sustainable urban development Against a backdrop of exponential urbanisation, this objective goes beyond climate issues and the promotion of less polluted cities. Supporting sustainable urban development means encouraging integrated approaches to urban management able to respond efficiently to problems such as urban sprawl, run-down areas, environmental degradation and insecurity.

In response to strong local demand, and drawing on French expertise, AFD is financing projects which aim to improve services in urban environments, such as transport systems to facilitate urban mobility (dedicated bus lanes, metro systems and trams), water and sanitation systems, waste management, highway improvements and public lighting. AFD is also encouraging countries and local authorities to bring in newer, more integrated and more participatory approaches to urban planning. This is also a priority sector for France in terms of developing its bilateral economic relations with countries in the region.

20

Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

In its strategy “Climate 2012-2016” AFD has committed to ensuring that 70% of its project funding in Asia will have a positive impact on climate change

• Support Asian countries facing the climate change challenges This is a key objective for France, which has made strong commitments in this area and which wants to enhance its bilateral activities, particularly in the context of the Paris climate conference in 2015 (COP 21). As a result AFD wishes to support efforts by Asian governments to reduce their greenhouse gas emissions as well as to support countries as they adapt to the consequences of global warming (early warning systems for water level rise and for droughts, safeguarding agricultural production, etc.). Such support may be put into action through support for public policy (”Climate plans”, “Nationally Appropriate Mitigation Actions” – NAMAs, etc.).

AFD will also continue to finance energy efficiency projects for buildings, transport, industry, municipal services (water and sanitation, public lighting) as well as the development of renewable energy (biomass, geothermal, hydroelectricity, and to a lesser degree, wind and solar power). AFD will also support forest protection and silviculture initiatives that facilitate carbon sequestration.

• Promote the sustainable management of natural resources The objective here is to limit the negative impacts of economic growth and population pressures on ecosystems by encouraging more sustainable and rational exploitation of land, water and forests. AFD has chosen to concentrate its efforts on finding better ways to manage and protect forest and aquatic ecosystems because of their significance in terms of food security, reduction of greenhouse gases and protection against the effects of climate change, as well as the potential to utilise French expertise.

AFD wants to contribute to the commitments made by France at Nagoya, regarding the earmarking of official development assistance for biodiversity, particularly in emerging countries. For example, it seeks to finance sustainable forest management projects or wetland protection programmes in China, India or Indonesia.

Financing pilot projects which are replicable in Asia or Africa should produce useful evidence to support France’s message, and would also bolster its official position on the management of these public goods (for example at the Conferences of the Parties to the Convention on Biological Diversity).

Lastly, AFD’s interventions aim to encourage regional dialogue and cooperation, in order to reduce tensions arising from the increasing scarcity and unequal distribution of natural capital.

21

• Supporting the productive sector in least developed countries Given the overwhelming weight of the larger emerging economies, AFD is seeking to boost economic growth in least developed countries. This is driven by a concern to rebalance economic forces, as well as influence within regional fora. AFD is planning to focus its attention on driving sectors of the economy (which create added value, are pilot sectors or sectors of critical importance for the country). AFD’s support should facilitate an increase in productivity in these sectors, by strengthening vocational training, developing irrigation infrastructure or by creating financial tools which are appropriate to the situation.

• Strengthen social cohesion and human capital Given the hotbeds of instability in the region and growing socio-economic inequality, AFD’s funding programmes also aim to improve living conditions for the poor and for women in particular, by guaranteeing food security and access to basic services such as medical care and water. Therefore AFD wishes to support programmes which strengthen the link between the public and the State and which promote social cohesion.

Main countries receiving loans (funding allocated in millions of euros) 2000 1800

Central Asia/Caucasus Kazakhstan

1600

Uzbekistan Georgia

1400

Armenia South East Asia

1200

Vietnam Philippines

1000

Indonesia Thailand

800

Cambodia China

600

South Asia

400

Pakistan Sri Lanka

200

Bangladesh India

0

22

2013

2014

2015

2016

Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

Increasing financial commitments Over the period 2013-2016 AFD’s financial commitments in Asia are expected to continue growing, for the following reasons: • The expansion of its geographic scope of operations, which is likely to continue in conjunction with specific issues (Mongolia).

• New countries, such as Cambodia, are now eligible for AFD’s sovereign loans, and Myanmar and Laos may also be eligible in future.

• The development of non-sovereign loans (India, Indonesia, Vietnam, and Thailand).

AFD’s four principal countries of operation (India, Indonesia, China and Vietnam) will remain important, but their share will reduce because of projected growth of activity in new countries such as Bangladesh, Sri Lanka and Uzbekistan.

The use of budgetary resources allocated by the French state to AFD will remain limited in the Asian region, and will be excluded from cooperation frameworks with very large emerging countries, with the exception of technical assistance.

Better understanding of Asian developments AFD has outlined four areas for priority research in Asia for the period 2013-2016. These should help the Agency improve its knowledge of the main challenges facing the region, inform its strategic thinking, clarify its funding choices and support the development of Asian public policies. The studies financed should, in particular, help answer the following questions: • How can donors use their activities to leverage social and environmental responsibility among Asian companies?

• What are the best ways to support the development and implementation of national and local policies to adapt to climate change in Asia?

• How to support the development of renewable energy in Asia?

• What is the role and place of emerging Asian donors in Asia?

AFD also plans to fund studies to provide the Agency with a more detailed understanding of the development challenges in Central Asia and the Caucasus.

23

AFD in Asia, vector of France’s diplomatic influence AFD’s goal is to strengthen French influence in Asia, particularly in the diplomatic and economic spheres, in accordance with its mission.

• At the geopolitical level, AFD is part of France’s positioning strategy in regions and countries which are of geostrategic importance or are geographically close to the European Union. AFD also helps to mediate dialogue and alliances between France and Asian countries on the most pressing common challenges, such as climate, biodiversity and natural resources. In addition AFD plays a major role in terms of fulfilling France’s financial commitments in these spheres, as a pivotal player in the field of bilateral development cooperation.

• At the economic level, AFD supports French influence and standing by highlighting how French vision, experience and competence can help deal with the challenges of the region. It also helps create opportunities which are likely to generate positive benefits for the country’s national economic interests.

As well as positioning itself in areas where French know-how is well regarded and therefore most likely to be sought (collective urban transport, vocational training, forests, water systems, waste management, irrigation, and energy efficiency) AFD also promotes French expertise and economic interests. Although this is a crosscutting approach, it is implemented in different ways depending on the development stage of AFD’s partner countries. It is a critical approach for the Agency in emerging countries, where it will choose to finance activities according to the presence of French economic stakeholders (companies, consultants) who are likely to be in a position to tender for the project involved. In these countries however, certain activities may primarily be undertaken as part of an influencing strategy related to important common interests such as biodiversity or climate.

This proactive approach requires close partnership with the entire French public and private sector at both an institutional and operational level: - AFD’s headquarters in Paris is in regular contact with institutional partners such as the supervisory ministries, MEDEF International, Ubifrance and so on, to ensure that its activities fit with France’s diplomatic and economic policy. It is also in touch with French companies, in order to target the most valuable sectors and to inform them ahead of time about projects to be financed.

- AFD’s field offices in Asia work closely with embassies and more globally with other members of “Team France”, such as economic missions, Ubifrance branches, and chambers of commerce. The field offices operate as part of France’s economic diplomacy, organising workshops for French companies on AFD projects and upcoming tenders and taking part in promotional activities with its partners (Ubifrance workshops, ASEAN forum, etc.).

24

4

MAKING THE MOST

OF RESOURCES AND SYNERGIES

4 MAKING THE MOST

OF RESOURCES AND SYNERGIES

Capitalising on AFD’s assets While the environment may be quite competitive, AFD has carved out its own space as a

strategic bilateral

donor in Asia, thanks to its wide-ranging toolkit and its high-value synergies with other players

As AFD consolidates its presence in the region and builds partnerships with new countries it can draw on a wide range of resources: • Its diverse financial toolkit AFD offer includes a wide range of loans available to public decision makers and project operators, both public and private. Where markets conditions allow, AFD can also make loans available in local currency, which eliminates currency risk for its counterparts.

• A package which includes finance, expertise and knowledge production From now on AFD will offer technical assistance in support of its financing plans through a dedicated fund, FEXTE. It also seeks to finance research for its partners on structural themes which support the creation of sustainable development policies. In addition the Agency offers specialised training on subjects connected to its financing activities (public private partnerships, green lines of credit) at its CEFEB training centre.

• Highly regarded expertise in support of public policy Through its aid programmes, particularly in the areas of climate and biodiversity where it has developed pioneering projects, AFD wants to strengthen its collaboration with Asian authorities and support their initiatives to create growth while respecting the environment.

• Support for local authorities Local authorities have ever increasing responsibilities in terms of protecting the environment and the climate (waste, water and sanitation, building energy efficiency, public transport, etc.). Where the legal system allows, such support can be made available through direct loans or through municipal funds, lines of credit and assistance at national level for programmes which support the process of decentralisation.

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Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

• Recognised know-how in the field of non-sovereign loans Direct financing of banks and public enterprises can be a significant lever to promote green investment. In this area, AFD wants to concentrate its support on those stakeholders who have been tasked by national governments to implement public policies. The Agency also seeks to promote public-private partnerships to boost low carbon investments, particularly when it comes to infrastructure.

Strengthening synergies within AFD Group and NGOs As part of its objective to strengthen social cohesion and human capital, AFD intends to finance projects undertaken by French NGOs, which complement its own activities. These will focus on reducing poverty, strengthening local civil society, promoting better governance as well as respect for human rights in Asia. The priority areas to develop this partnership with NGOs11 are the Indochinese Peninsula, Myanmar, Afghanistan as well as support for sub-regional initiatives.

AFD is also looking to increase its co-financing arrangement with the French Global Environment Facility (FGEF)12, within the limit the facility has allocated to the region (3 million euros a year for Asia). The FGEF’s expertise and its grant aid programme both add value to AFD’s activities, and make its proposition more attractive in Asia.

In the same vein the Agency and PROPARCO (AFD’s subsidiary focusing on the private sector) are working to develop a common roadmap for public-private partnerships on the subjects of cities and sustainable transport, green lines of credit and microfinance.

Three-way synergies are also being sought with the Asian Development Bank, which is interested in the AFD Group’s private sector activities.

PROPARCO in Asia Apart from Vietnam, Laos and Cambodia, where its portfolio is more wide-ranging, PROPARCO is concentrating its Asian activities on sectors which are in tune with AFD’s regional strategy, such as climate projects, food and agriculture production and processing, microfinance, health, education, sustainable tourism and the urban environment.

In 2013 PROPARCO advanced 121 million euros in new financings in the region and is forecasting a similar annual volume for the period 2014-2016. PROPARCO is also seeking to diversify its activities in South and Central Asia.

11 In keeping with the objective of concentrating AFD’s funding for NGOs on poor priority countries of Sub-Saharan Africa.

12 A bilateral public fund founded in 1994, the FGEF is one of the instruments of French cooperation and development policy in the field of global environmental protection. AFD is responsible for the fund’s administrative and financial management. It subsidises sustainable development projects, which are related to multilateral environmental agreements signed by France.

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Working together with “Team France” AFD seeks to promote synergies and leverage between its financial instruments and those of its French partners in order to put forward a consolidated “French proposal” to its Asian counterparts.

It also works on putting together a package of financial tools which blends the resources of AFD with those of the Ministry for Finance (Emerging countries reserve, Funds for study and aid to the private sector, FASEP) so as to facilitate an optimum use of public resources for the shared benefit of France and the country involved.

As part of the process of decentralisation in Asian countries AFD intends to continue its collaboration with French local authorities, to add value and support to their initiatives to strengthen capacities and governance among their Asian counterparts on common concerns such as water and waste management and transport. There have been several examples of success in China and Laos.

Enhancing partnerships with other donors Since it began operations in Asia in the 1990s, AFD has actively sought to build solid partnerships with other donors in the region. In fact co-financing activities are essential to strengthen the Agency’s position and help it gain a foothold in new areas.

The partnership with the Asian Development Bank (ADB), a major institution in the region, is the most systematic, involving 28 co-financing projects since 2003 totalling 3 billion euros, a co-financing framework agreement, and staff exchanges.

AFD is particularly keen to draw on ADB’s experience when it is launching its initial programmes in new countries. The objective is to increase co-financing activities, particularly in Bangladesh, Central Asia and the Caucasus, while strengthening the sharing of know-how in terms of financial packages and knowledge production. For its part the ADB wants to benefit from AFD’s know-how in the area of non-sovereign loans, an area in which it has limited experience.

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Co n t r i b u t i n g to e n v i ro n m e n ta l p rot ec t i o n a n d r eg i o n a l b a l a n c e

Among bilateral Asian donors the Japanese International Cooperation Agency (JICA) is a strategic partner for AFD, particularly when it comes to co-financing national programmes to combat climate change. This was first done in Indonesia, and later in Vietnam, and the two agencies are now studying new opportunities particularly in the Philippines.

AFD is also hoping to build relationships with South Korea’s development organisations (KOICA and Korea Exim Bank) and Australia’s development cooperation, which are all extremely active in the region (the Agency has signed framework agreements with these agencies) as well as with Singapore’s cooperation programme.

AFD would like to build long-term operational relationships with other priority partners in Asia such as the European financial institutions. To facilitate such a development and to promote aid effectiveness, AFD has recently signed an agreement with the German organisation KfW and the EIB, which grants mutual recognition to each other’s procedures.

AFD is also actively seeking synergies with the European Bank for Reconstruction and Development (EBRD) and the European Commission by the mobilisation of two newly created facilities aimed at Asia, the Asian Investment Facility (AIF) and the Investment Facility for Central Asia (IFCA). In addition, the Agency has agreed to take part in a pilot scheme for medium- to long-term aid programming by European aid institutions, in both Laos and Afghanistan.

In other developments, the British cooperation agency (DFID) provided a grant of five million pounds sterling (6.2 million euros) to AFD in 2011, to undertake feasibility studies and identify low-carbon projects which could subsequently be financed by AFD. This delegation of funds was continued into 2013-2015 with a second funding tranche of 12 million pounds (15 million euros). This partnership, which is currently confined to Indonesia, could be extended to other countries, making DFID a major partner for AFD in the region.

Finally, AFD wishes to learn more about emerging Asian donors such as China, India and Thailand by taking part in studies to better understand the strategies and operating methods of these new institutions. The objective is to identify complementarities and possible synergies with AFD in Asia but also in Africa. The hope would be to encourage these new donors to get more involved in aid programmes for the world’s poorest countries and in particular to inculcate best practice in terms of social and environmental responsibility.

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annexeS

AFD intervention framework

in Asia – 2013 to 2016

Limit the environmental footprint of rapid development

Operational Objectives

% amount allocated

Promote sustainable urban development

42 %

Support Asian countries in tackling climate change

Promote sustainable management of natural resources

Contribute to regional balance

Support the productive sector in less developed countries

Strengthen social cohesion and human capital

Activities

Make use of French expertise and promote French economic interests

Strengthen French influence in Asia

Goals

31 %

9 %

13 %

5 %

Promote energy efficiency Improve public services in urban areas Develop renewable energy Support water regulation and prevent flooding

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Activities

70% of funding allocated each year has a positive impact on climate

Climate target

Main countries

All countries including Central Asia and the Caucasus

Bangladesh Cambodia China India Indonesia Laos Philippines Pakistan Sri Lanka Vietnam Afghanistan Armenia Bangladesh Myanmar Cambodia Laos Vietnam

Afghanistan Bangladesh Myanmar Cambodia Laos Pakistan

Sustainable exploitation and protection of forest and aquatic ecosystems Support productivity in growth-driving sectors Strengthen access to basic services and income-generating agricultural activities

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Bibliography Addressing Climate Change and Migration in Asia and the Pacific Asian Development Bank, 2012 Annual Energy Ouytlook 2012 U.S. Energy Information Administration, 2012 Asia 2050: Realizing the Asian Century Asian Development Bank, August 2011 Asian Development Outlook 2011: South-South Economic Links Asian Development Bank, April 2011 Asian Development Outlook 2012: Confronting Rising Inequality in Asia Asian Development Bank, 2012 Key Indicators for Asia and the Pacific 2010: The Rise of Asia’s Middle Class Asian Development Bank, August 2010 Lasserre F. et Descroix L., Water and Land: tension, cooperation and the geopolitics of water, Quebec University Press, 2011 Rural Poverty Report 2011 International Fund for Agricultural Development, December 2010 The State of World Fisheries and Aquaculture United Nations Food and Agriculture Organisation, 2010 World Population Prospects, the 2010 Revision United Nations Economic and Social Affairs Department, 2011 World Urbanization Prospects, the 2011 Revision United Nations Economic and Social Affairs Department, March 2012

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AFD, the Agence Française de Développement, is a public development-finance institution that has worked for seventy years to alleviate poverty and foster sustainable development in the developing world and in the French Overseas Provinces. AFD executes the French government’s development aid policies.

Working on four continents, AFD has seventy-one field offices and bureaus, including nine in France’s overseas provinces and one in Brussels. The Agency provides financing and support for projects that improve living conditions, promote economic growth, and protect the planet.

In 2013, AFD committed €7.8 billion to projects in developing and emerging countries and in the French Overseas Provinces. These AFD-financed projects will provide schooling for children, improve maternal health, promote equality between men and women, support farmers and small businesses, and bolster access to drinking water, transportation and energy. These newly-funded projects will also help mitigate climate disruption by abating nearly 3.3 million metric tons of carbon dioxide-equivalent annually.

Agence Française de Développement (AFD) 5, rue Roland Barthes - 75598 Paris cedex 12 France Tél. : + 33 1 53 44 31 31

www.afd.fr/lang/en/home Création : Arc en Ciel - septembre 2014