MakingItIndustry for Development

Number 4, 2010

Ontracktoprosperity?

n Renewables in thedeveloping world

n Entrepreneurship n Industrial policy

in African Kiribati’s big

sacrifice

A quarterly magazine.Stimulating, critical andconstructive. A forum fordiscussion and exchangeabout the intersection ofindustry and development.

Number 1, December 2009lRwanda means business: interview with President Paul KagamelHow I became an environmentalist: A small-town story with global

implications by Phaedra Ellis-Lamkins, Green For Alll ‘We must let nature inspire us’ – Gunter Pauli presents an alternative

business model that is environmentally-friendly and sustainablelOld computers – new business. Microsoft on sustainable solutions

for tackling e-wasterlGreen industry in Asia: Conference participants interviewedlHot Topic: Is it possible to have prosperity without growth? Is ‘green

growth’ really possible?lPolicy Brief: Greening industrial policy; Disclosing carbon emissions

Number 2, April 2010l ‘After Copenhagen’ – Bianca Jagger calls for immediate steps to

avoid climate catastrophe lThe Interational Energy Agency’s Nobuo Tanaka looks at energy

transitions for industry l ‘Energy for all’ – Kandeh Yumkella and Leena Srivastava on what

needs to be done to improve energy access lWomen entrepreneurs transforming Bangladesh l ‘Everywhere under the sun’ – Suntech CEO, Zhengrong Shi,

on the power of solar lHot Topic: The pros and cons of biofuels lPolicy Brief: Financing renewable energy; Feed-in tariffs

Number 3, July 2010lChina’s stunning economic rise: interview with minister of

commerce, Chen Deming l Jayati Ghosh on politicizing economic policy l ‘Towards a more productive debate’ – Ha-Joon Chang calls for

an acceptance that industrial policy can work lThe World Bank’s Robert Zoellick on modernizing

multilateralism l ‘Greening the Mexican economy’ – Juan Rafael Elvira Quesada lHot Topic: Does microfinance work? lPolicy Brief: The private sector and development;

The power of patient capital

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The theme of this – the fourth – issue of Making It: Industryfor Development is the challenge facing the world’s 49 LeastDeveloped Countries (LDCs), and in particular theimportance of strengthening productive capacity.

In the keynote article, the UN’s High Representative forLDCs, Cheick Sidi Diarra, argues that by improvingproductive resources, entrepreneurial capabilities, andproduction linkages, these countries can strengthen theirresilience to external shocks and lessen their dependenceon external assistance. But they will only succeed if theyimplement new policies, devise new forms of developmentgovernance, and receive more effective multilateral support.

Ahead of the Fourth UN conference on LDCs that willtake place in May next year, Debapriya Bhattacharyapreviews the issues to be discussed, and highlights thedilemma of how to marry economic growth with povertyreduction.

Our country feature looks at the Pacific Island nation ofKiribati, an LDC and a Small Island Developing State thatfaces a threat to its very existence in the form of rising sealevels and temperatures. Kiribati’s president, Anote Tong,

talks about his country’s remarkable gesture to help savethe Pacific Ocean’s fish stocks and preserve global

biodiversity.There are also articles on community bankalternatives to microfinance, renewable energy

trends in the developing world, the relevanceof entrepreneurship for economicdevelopment, and much more.

Making It’s website –www.makingitmagazine.net – containsnot only all the content of the printversions but other original articles andfeatures too. The website is also aninteractive platform for exchange of views

and ideas, and we invite you – our readers– to join in the debate about global

industrial development issues.

Editorial

Editor: Charles Arthureditor@makingitmagazine.netEditorial committee: Ralf Bredel,Tillmann Günther, Sarwar Hobohm,Kazuki Kitaoka, Ole Lundby, Wilfried Lütkenhorst (chair), Cormac O’ReillyWebsite and outreach: Lauren Brassawoutreach@makingitmagazine.netCover illustration: Paresh NathDesign: Smith+Bell, UK –www.smithplusbell.comThanks for assistance to Donna Coleman

Printed by Gutenberg Press Ltd, Malta –www.gutenberg.com.mt

on PEFC certified paper To view this publication online and toparticipate in discussions aboutindustry for development, please visitwww.makingitmagazine.netTo subscribe and receive futureissues of Making It, please send anemail with your name and address tosubscriptions@makingitmagazine.netMaking It: Industry for Developmentis published by the United NationsIndustrial DevelopmentOrganization (UNIDO)Vienna International Centre, P.O. Box 300, 1400 Vienna, AustriaTelephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69E-mail: unido@unido.orgCopyright © 2010 The UnitedNations Industrial DevelopmentOrganization No part of this publication can beused or reproduced without priorpermission from the editorISSN 2076-8508

Contents

GLOBAL FORUM6 Letters8 On the climate frontlines – Pacific IslanderKrishneil Narayan calls for action to savethe region from looming disaster10 Hot topic – Wim Naudé and RanilDissanayake discuss the relevance ofentrepreneurship for economicdevelopment

14 Business matters – News, trends, events

FEATURES18 Helping the world’s Least DevelopedCountries – Debapriya Bhattacharya previews the Fourth United Nations Conference on LeastDeveloped Countries (LDCs) in May 2011

22 The power of the community –Milford Bateman on community bank alternativesto microfinance

24 KEYNOTE FEATUREStrengthening productive capacity – The UN’sCheick Sidi Diarra argues that the LDCs should –and can – produce more, and better quality, goodsand services

MakingItIndustry for Development

The designations employed and thepresentation of the material in this magazinedo not imply the expression of any opinionwhatsoever on the part of the Secretariat of theUnited Nations Industrial DevelopmentOrganization (UNIDO) concerning the legalstatus of any country, territory, city or area orof its authorities, or concerning thedelimitation of its frontiers or boundaries, orits economic system or degree ofdevelopment. Designations such as“developed”, “industrialized” and “developing”are intended for statistical convenience and donot necessarily express a judgment about thestage reached by a particular country or area inthe development process. Mention of firmnames or commercial products does notconstitute an endorsement by UNIDO.The opinions, statistical data and estimatescontained in signed articles are theresponsibility of the author(s), including thosewho are UNIDO members of staff, and shouldnot be considered as reflecting the views orbearing the endorsement of UNIDO.This document has been produced withoutformal United Nations editing.

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Number 4, 2010

30 Renewables: the new global landscapeTwo recent reports provide an insight intorenewable energy in developing countries34 Country feature: Kiribati, small country, bigsacrifice – Interview with His ExcellencyAnote Tong, President of Kiribati38 Industrial policy in Africa: what needs to bedone – Mallam Sanusi Lamido Sanusi,Governor, Central Bank of Nigeria40 The challenge on our doorstep – The WorldBusiness Council for SustainableDevelopment’s Marcel Engel and FilippoVeglio give a business view of development

POLICY BRIEF 42 Renewables investment in India 43 Promoting industry’s innovation capacities 45 Biodiversity: policy challenges in a changingworld

46 Endpiece – Patricia Francis, ExecutiveDirector of the International Trade Centre, onclimate change and trade

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LETTERS

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On microfinance“Does microfinance work?”(Making It, number 3) is to becommended for highlighting anumber of the most pressingissues concerning microfinancetoday, especially since it isproduced by a staff member ofone of the internationaldevelopment agencies (UN-DESA) with a major interest inlocal economic development.With honourable exceptions,the main internationaldevelopment agencies seek tohugely underplay the verysignificant damage inflictedupon developing and transitioneconomies thanks tomicrofinance, preferringinstead to follow the lead set bythe World Bank, the IMF, andUSAID.

A wider and longer-termproblem with microfinancethat the article should reallyhave flagged up much morethan it did, especially since thisis a key concern of UNIDO andsome other UN agencies(UNCTAD in particular), is thatmicrofinance clearly helpsfacilitate the further de-industrialisation andinfantilization of the typicallocal economy in developingand transition countries. Thisoccurs precisely becausemicrofinance institutionsoverwhelmingly support onlythe very tiniest and verysimplest of microenterprises –that is, street-vending, cross-

border shuttle trading, pettyservices, and some simpleproduction-based activitiesthat add value very quickly. So,to the extent that local savingsand remittance income areincreasingly channelled intosuch simple activities via therapid growth of microfinanceinstitutions, and so channelledaway from more sophisticatedand scaled-up activitiesassociated with small andmedium enterprises, the morethe economic structure of thatcountry, region or locality isinevitably going to beundermined and destroyed.

One other aspect ofmicrofinance beloved of itssupporters and touched uponin this article is theempowerment of women angle.The author of this article goesalong with this understanding.But this angle is far more bluffthan reality. Most independentresearchers report the reverse:women are actuallydisempowered as they getsucked more and more into the(under)world of microfinanceand microdebt peonage. In fact,what microfinance advocatesare aiming at is actually to getpoor women to accept that themarket is the sole avenue forimproving their position; just

forget the state, trade unions,collective organisations,pressure groups and so oncoming to your assistance likein the past. Today, as intended, awomen in poverty isincreasingly permitted onlyone avenue to escape poverty –try to ‘make a go’ of amicroenterprise. In otherwords, and this is hugelyimportant in helping explainmicrofinance, it is markets thatare being empowered here, notwomen.lMilford Bateman, author ofWhy Doesn’t MicrofinanceWork? (See pages 22-23)

Should the poor have the samelevel access to credit as themiddle-class and affluent do?Of course! This access allowspeople to achieve more thanthey could with their ownresources: credit is a socialservice. And just as the middle-class and affluent should not beburdened by debts/mortgageforeclosures/credit card traps,the poor also should not beburdened by microdebt. Accessto financial services must bepaired with financialresponsibility and fair/ethicallending practices.lDan Lundmark, received byemail

DecouplingI enjoyed reading the lastedition of Making It whichoffered a number of concisearticles on relevant topics ofindustrial development. Whilethe articles were short and easy

to read, they conveyed clearand differentiated messages. Iespecially liked the two articleson the renaissance ofindustrial policy written byWilfried Lütkenhorst and Ha-Joon Chang, respectively. Bothemphasize the need for apragmatic industrial policywithout underestimating thesubstantial risks ofgovernment failure.

Also, I would like tocongratulate the editor forhighlighting the need for greenindustrial policies, both in thecontributions by Lütkenhorstand by Mexico’s environmentminister. Decoupling economicgrowth from resourceconsumption is likely tobecome the most importanttask of industrial policy over thenext decades. Governments willhave to set more effectiveincentives for theinternalization ofenvironmental costs and the

The Global Forum section of Making It is a space for interaction anddiscussion, and we welcome reactions and responses from readers aboutany of the issues raised in the magazine. Letters for publication inMaking It should be marked ‘For publication’, and sent either by email to:editor@makingitmagazine.net or by post to: The Editor, Making It, Room D2138, UNIDO, PO Box 300, 1400 Wien, Austria. (Letters/emailsmay be edited for reasons of space).

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deployment of resource-efficient technologies. To do thisin a way that is compatible withpoverty reduction is one of themost pressing challenges ahead. lDr. Tilman Altenburg, Headof the Competitiveness andSocial Developmentdepartment, GermanDevelopment Institute, Bonn,Germany

Wilfried Lütkenhorst’s “AChanging Climate for IndustrialPolicy” (Making It, number 3)points out that markets are nohelp in stopping climate change.No surprise there: markets are ahuman invention, not naturallaw – but businessmen,economists, and politiciansseem reluctant to acknowledgethis. Given their full agendas, abrief summary of some hometruths may be useful: lManufacturing industrycreates material goods.Material goods require naturalinputs. We have one planet.Material resource scarcity istherefore built into industrialgrowth, global trade or not. l Industry is driven by privateenterprise. Private enterprisehas positive and negativepublic consequences; amongthe latter are pollution andunsustainable resource use. l In addition to upsettingnatural processes (e.g. throughmonocultures, large-scalelogging, and badly controlledmining), the careless use ofscarce resources pushes uptheir price. Those who suffermost from higher prices arethose with the lowest incomes.

lA good analysis of theincreasing number of “natural”disasters will show that they areat least in part man-made, andthat industrial growth has oftenindirectly contributed to them.Those at the bottom of thesocial ladder suffer most.

Taking into account thesesimple points, industrialpolicies may become morerealistic. For, if development,sustainability, and humansecurity are not balanced, noneof the three will be achieved. l Paul Hesp, Vienna, Austria

Enlightening“From steam engines to humanconsciousness” (Making It,number 3) is indeed a veryenlightening piece of work.The human element has alwaysbeen, by default, the culprit ofthe so-called “economicprogress.” Unless newapproaches to economicdevelopment are developed, thehuman being will always be theculprit, despite our goodintentions.lAnare Matakiviti, EnergyProgramme Coordinator,International Union forConservation of Nature, Fiji

Freetown calling Thank you for sending the newissue of Making It. Establishedin 1989, Friends of the EarthSierra Leone (FOESL) has beenworking to createenvironmental awareness andprotection, as well as working toimprove the living conditions

of our society. Sierra Leone isnow at the crossroads ofsustainable development.Which way are we to go as anation? As we venture along thepath to environmentalsustainability, we have come torealize the impoverishment ofSierra Leone. A majorproportion of the populationlives close to the land, andsubsistence farming is thelifeblood of the country. Barelytwenty years ago, Freetown wassurrounded by green hills.Today, they lie barren andexposed. The alarming rate oftree-felling for wood, shelter,charcoal, and timber, hasoutstripped the forest’s abilityto regenerate.

Important natural resourcesare at risk. Other areas ofconcern are land degradation,overfishing, and the pollutionof fresh water resources due tomining and municipal waste.The country’s environmentalwealth is threatened by poornatural resourcesmanagement. While generalawareness has increasedamong a number ofenvironmental NGOs, there isstill need to support advocacy,policy development,community empowerment,and greater involvement innatural reserves managementand development action.FOESL is currently educatinglocals about the role of trees insoil conservation, and isupgrading its nurseries in theSierra Leone Peninsula andmountain communities. Theorganization is using the

popular medium of radio toraise awareness of its activities,as well as to create a forum fordiscussion of sustainableenvironment and developmentissues.

Presently there are severalNGOs at work in Sierra Leonebut few directly addressing theoverriding concerns of thecountry – which areenvironmental education andsustainable development.FOESL would like to establisha strong North–South workingrelationship withenvironmental NGOs as a wayto help the North understandThird World environmentalproblems and solutions. lOlatunde Johnson, ExecutiveDirector, Friends of the EarthSierra Leone, Freetown, SierraLeone

PraiseMaking It is getting better andbetter with each issue!!!Number 3 is particularlyinteresting and relevant,especially because of the leadstory, “China’s stunningeconomic rise” – a topic ofgreat interest in India. I reallybelieve that trade and industry,as well as policymakers and allother stakeholders here, willbenefit a lot from the insightsand analyses that Making Itoffers. My compliments to youfor bringing out thiswonderful and highlyeducational magazine. l Shipra Biswas, NationalProgramme Officer, UNIDO,New Delhi, India

For further discussion of theissues raised in Making It, pleasevisit the magazine website atwww.makingitmagazine.net andthe social networking Facebooksite. Readers are encouraged tosurf on over to these sites to joinin the online discussion anddebate about industry fordevelopment.

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Human-induced climate change andrising sea levels are negatively affectingSmall Island Developing States (SIDS), andan uncertain future lies ahead for themillions of people who live in these islandcountries. In the Pacific Ocean, the sealevel will rise to inundate whole islands,forcing local populations to leave theirhomelands forever. Island nations likeTuvalu and Kiribati are amongst those thatface the most immediate threat.

Climate refugees are likely to be thelargest and fastest-growing category ofenvironmentally displaced people. Tuvaluis the first country that has been forced toevacuate residents because of rising sealevels. Many Tuvaluans have also migratedinternally, from outer, low-lying islands tothe larger atoll of Funafuti.

An elderly man from the Solomon Islandstold me, “They talk about us moving. But weare tied to this land. Will we take ourcemeteries with us? For, we are nothingwithout our land and our ancestors.”

As a young Pacific Islander myself,spending my twenty-three years of life sofar growing up in Fiji, I know how muchthe land means to us. Our lands areconnected to our thousands-of-years-oldculture, our identity, our traditions, andour sense of belonging. Now, across thePacific region, many are helplessly seeingthe effects of climate change tear away partof their lives.

In different places, people areconsidering relocation from low-lyingislands after being affected by extremeweather events or climatic change that isdamaging the food and water supply.Perhaps the best-known case is that of theCarteret Islands in Bougainville, PapuaNew Guinea, where Ursula Rakova and thelocal NGO, Tulele Peisa, are assistingfamilies to resettle on church-donatedland on the main island of Buka.

The rapidly changing climate sciencehas highlighted the need for much morestringent greenhouse gas (GHG)reduction targets than set out in existingpolicies, if we are to avoid catastrophicconsequences for low-lying atoll nations.Rather than a two degree target, theAlliance of Small Island States (AOSIS),which most of the Pacific Island countriesare a part of, has called for “well below 1.5degrees Celsius”, and many developingnations are calling for greenhouse gases tobe stabilized well below 350ppm. (Aconcentration of carbon dioxide in theatmosphere of 350 parts per million iscurrently regarded as the safe upper limitto avoid runaway climate change.)

As politicians continue to debate thetechnicalities of emissions tradingschemes, a global climate treaty, and howmuch compensation to provide the coalindustry, it’s important we come back tothe human dimension. We must never losesight of the fact that climate change in itsessence is about people. Climate change isa matter of human security, as itundermines peoples’ rights to life,security, food, water, health, shelter, andculture. By failing to tackle climate changewith urgency, developed countries areeffectively violating the human rights ofmillions of the world’s poorest people,including people in the Pacific Islands.

While our leaders and governments arefailing to act responsibly on this urgentthreat, a group of young leaders from thePacific Islands and Australia areresponding to the calls of these poorPacific Island people. Project SurvivalPacific (PSP) is a solely youth-ledinitiative which believes that the worldneeds to listen to the voices of those onthe climate frontlines. It is working tosupport these Pacific Islanders inadapting to climate change, providingleadership and life skills, as well ashelping to amplify the voice of the Pacificregion on climate change and to increasethe capacity of Pacific country delegationsto have their say at internationalnegotiations, including the United

KRISHNEIL NARAYAN is a Pacific youthleader against climate change, and is part ofthe Project Survival Pacific media team.

On the climate frontlines

Industry accounts for almost 40% of global CO2 emissions,and CO2 is one of the main contributors to the greenhouseeffect. Pacific Islander Krishneil Narayan calls for action tosave the region from looming disaster.

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Nations climate change conferences (theConference of the Parties – COP).

Last year, PSP supported a delegation ofPacific Island youths to the UN COP15 inCopenhagen. This year again, PSP willassist some Pacific Islanders to go to theUN COP16 in Cancún, Mexico, so that thevoices of Pacific people are not drownedout by the greed of the bigger andpowerful nations.

In June 2010, PSP, together withconcerned youth leaders of the Pacific,initiated the region’s first ever PacificClimate Leadership Programme. Justabout everyone who participated hadstories to share of flooded villages, risingseas, disappearing coastlines, andimmediate and visible degradation ofnatural surroundings of all kinds, not tomention increasing erosion of the region'scultural richness. But, they still had hope;hope that they will survive at the end ofthis fight, and hope for a betterenvironment and life in the future.

They also have the following questionsto ask the people of the powerfulindustrialized nations.

As GHG emissions increase, changingthe global climate, triggering rises in sealevels, changes in rainfall patterns,bleaching corals, eroding shorelines, andreducing our fisheries, we, the PacificIslanders, would like to know what you inthe industrialized economies would do ifthe situation was reversed?

Would you want us to be concernedabout your future survival and that of yourchildren, or to merely consider you ascollateral damage in order to maintain acomfortable lifestyle?

Sustainable technological systems thatcan provide the world’s population withsignificantly more energy services than arecurrently provided by high GHG-emittingsources have been developed, but notdeployed, due to perceived higher costs.For example, the world’s oceans have many

times the energy needed by the globalpopulation, and it can be harvested withlimited GHG emissions.

How would you feel if you were a citizenof the Pacific Islands and you knew therewere low carbon energy alternativesavailable that can provide the globalpopulation with productive andenjoyable lifestyles many times over, andthus spare us from destruction, but it’sconsidered too much of an economic

sacrifice to adopt them?For thousands of years, the people living

on small island states have generally beenresponsible stewards of their environment,and have acted as custodians of almost aquarter of the world’s oceans, aresponsibility that is taken very seriously.We have also played major roles in theevolution of the global maritime andtourism industries, with the tourism sectoraccounting for between 45% and 80% ofgross domestic product in most smallisland states today.

We wish to continue welcoming visitorsto our islands, and we also want to enjoysome of the luxurious lifestyle enjoyed bymany in the developed countries – alifestyle that can continue on the basis ofalternative, sustainable energy sources thatcan help reduce the unprecedented rate ofGHG emissions. n

“They talk about us moving. Butwe are tied to this land. Will wetake our cemeteries with us?For, we are nothing without ourland and our ancestors.”

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WIM NAUDÉ is Senior Research Fellow atthe United Nations University – WorldInstitute for Development EconomicsResearch (UNU-WIDER), and directed itsPromoting Entrepreneurial Capacityproject. He is editor of Entrepreneurshipand Economic Development, and co-editorof Innovation, Entrepreneurship andDevelopment.

Entrepreneurs, called “heroes” by TheEconomist in March 2009, appear upon closerscrutiny to be rather irrelevant, and evenimpotent, in many developing countries.Three decades ago, Nathan Leff was of theopinion that “entrepreneurship is no longera problem” nor a “relevant constraint on thepace of development” in developingcountries. As development economists like topoint out, the vast majority of entrepreneursin developing countries are involved in microand small enterprises (MSE), often informal,contributing little to poverty alleviation andgrowth. The enthusiasm for promotingentrepreneurship is even more perplexing inthe light of weak and ambiguous statisticalevidence on whether entrepreneurshipcauses economic growth. Results do notseem to be very robust with regard to

definitions, time periods, quality of data, orestimation methods; reverse causality cropsup. Some economists even report a negativerelationship between entrepreneurial activityand economic growth.

Added to this is the danger that well-intentioned support policies forentrepreneurship may have unintendednegative consequences. These includepatronage, corruption, and rent-seeking,and the prolonging of the life of inefficientand low-productivity firms. Moreover, asProfessor William Lazonick has noted,policies that “place too much stress onentrepreneurship as the key to economicdevelopment can undermine collective andcumulative processes of organizationallearning required for innovation”. Also,general policies to facilitate the entry ofentrepreneurs may disproportionately

encourage entrepreneurs with low“entrepreneurial ability”, leading banks toreduce their overall extension of credit.

Given that entrepreneurs may bepotentially irrelevant and/or impotent, andthat entrepreneurship policies can befraught with potential pitfalls,governments, donors, the UN-system, anddevelopment agencies need to treadcarefully. A two-year WIDER researchproject has investigated howentrepreneurship can be promoted fordevelopment, and why entrepreneurshipmatters for development. This articleshares some of the ideas emanating fromthe project.

Why entrepreneurship mattersDespite this rather pessimisticintroduction, the project confirmed thatentrepreneurship does matter. The reasonthat the relationship betweenentrepreneurship and economicdevelopment is so precarious in empiricalstudies is because these studies very oftenuse either inadequate measures ofentrepreneurship and development, orrelatively small sample sizes. Most measureeconomic development in terms ofeconomic growth, per capita income, orproductivity. While these are important,economic development, and, more broadly,human development, are about more thanjust growth or monetary measures ofperformance. With data and measurementsproblems continuing to bedevil policyresearch in entrepreneurship, the small butsteady recent trend towards randomizedfield experiments and studyingentrepreneurship and human well-being isto be welcomed.

Although many economists aredismissive of entrepreneurship indeveloping countries, many others are not.Many consider MSEs, including informaland “survivalist”-type entrepreneurs, to beimportant for poverty alleviation.

Entrepreneurshipand industrialization:tread carefully!

In what is a regular feature, distinguished contributors consider one ofthe controversial issues of the day. Is entrepreneurship important fordeveloping countries, and, if so, what is the best way to support it?

“Well-intentioned supportpolicies for entrepreneurshipmay have unintendednegative consequences”

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Employment growth in the MSE sector indeveloping countries is often substantial.With the majority of MSEs in developingcountries owned by women, theircontribution to female empowerment andto the health and welfare of households ispotentially important.

The WIDER project studiedentrepreneurship across a spectrum ofcircumstances that entrepreneurs couldface: from high growth, innovativesituations, to those marred by armedconflict and economic stagnation. Thetenacity and dynamism of entrepreneurswas clear – from driving innovation indeveloping countries, to providing survivaland resilience in conflict situations. High-growth entrepreneurship was found to beprevalent even in the least developedcountries. Firms that survive persistentconflict do so because of entrepreneurswho are able to adjust their businessmodels in the face of conflict, for instance,by reducing technological sophistication,relocating supply chains and productionlocations, or reducing long-terminvestment. These adjustments may reduceprofitability or even the size of firms, butultimately they contribute towards thefirms’ survival. And firm survival duringconflict situations is important becauseentrepreneurial activity may quicklyrebound once hostilities cease.

What role for policy?The fact that entrepreneurship may matterfor development does not automaticallyimply that government policies shouldsupport it. Designing policies fordevelopment through the promotion ofentrepreneurship is complicated. To avoida number of potential pitfalls, it may behelpful to underpin policies by answeringat least two questions.

First, what is the rationale for wanting tosupport entrepreneurs? Many see therationale to be market failures. Markets ‰

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Good institutionsImportant as it no doubt is, buildingappropriate institutions in developingcountries is notoriously difficult.Institutions are endogenous and relativelylittle is known about the co-evolution ofinstitutions and entrepreneurialbehaviour. Well-intended institutionalreform itself may create uncertainties thatcan have unwanted outcomes, such as theentrenchment of former elites and rent-seeking behaviour.

Moreover, not everybody agrees thatencouraging the building of ‘goodinstitutions’ is all that should be done. Therange of entrepreneurship rates acrosscountries, even when controlled forvariations in institutional quality, suggeststhat specific policies may have an influenceon the supply and quality of entrepreneurs.And just restricting government’s role toimproving the environment for ‘doingbusiness’ may not work. Entrepreneurshiphas been vital in the rise of such emergingeconomies as Brazil, China, and India.What all three of these countries have incommon is a very low score and rank onthe World Bank’s Doing Business index.Brazil is ranked 122nd, China 83rd andIndia 120th, out of 178 countries in 2008.But their development success may beargued to be at least partly due to proactivegovernment support for entrepreneurs.

In India, venture capital funding standsout; in China, the transformation andprivatization of state-owned enterprises,learning from foreign firms through

encouraging the inflow of FDI, the explicitencouragement of high-techentrepreneurship, and huge investments ininfrastructure, particularly trade andtransport-related infrastructure, providedexamples. The cases of India and China areilluminating, but by no means unique.Countries which are seen as‘entrepreneurial’ today – particularly theUSA, had important proactive state supportfor private sector development.

‘Industrial policy’Such ‘industrial policy’ is, in thisperspective, a form of entrepreneurshipdevelopment. Selective industrial policies– whether explicitly termed as such, orreferred to as ‘competitiveness’ policies –will increasingly take centre stage after theglobal economic and financial crisis, asgovernments grapple with the impacts ofrising commodity prices, growinginequality, sluggish growth, murkyprotectionism, and the imperative to adoptlow-carbon methods of industrialization.The dangers inherent in broader selectiveindustrial policy are well-known, and inmany cases are similar to what has beendiscussed here. Hence, extreme caution isrequired. A strong case emerges for a newdebate on industrial policy, in particularsupported by new research and a morenuanced understanding of how to supportentrepreneurship as a central plank ofindustrial development.

A measure of the success ofentrepreneurship development policies indeveloping countries is that one would seean initial reduction in the rate ofentrepreneurship. This would reflect thefact that fewer people have to becomeentrepreneurs by necessity, and can insteadchoose to enter wage employment. Goodentrepreneurship policy gets people withlow entrepreneurial ability out ofentrepreneurship and into jobs. It does thisby creating the conditions where people

fail in many respects but particularlywhere there are externalities.Entrepreneurs’ innovation may have morebenefits to society as a whole than to theindividual entrepreneur; entrepreneursmay furthermore create incentives forpeople to invest in their human capitalbecause they demand skilled labour;entrepreneurs illustrate to followers theadoption of new technology, they provideinformation to external parties on whatkind of business may be profitable in aparticular location, and they may influencethe general business environment foreverybody by pressuring or lobbyinggovernment for regulatory changes.Understanding the main rationale isimportant in thinking about how thepositive externalities associated withentrepreneurship can be maximized – andhow the negative externalities ofsupporting entrepreneurs (such as that thequality of the pool of entrepreneurshipmay be lowered by too easy access) can beminimized.

Second, can entrepreneurs in a particularcontext be practically supported, even ifthere is a rationale? One view is thatgovernments cannot raise the supply ofentrepreneurs, but can merely influencethe allocation thereof. Accordingly, all thata government should do is “get theinstitutions right”, i.e. ensure theprotection of property rights and a well-functioning legal system, and maintainmacroeconomic and political stability andcompetitive tax rates. Others argue thatgovernments’ best course of action is toimprove the environment for ‘doingbusiness’. The World Bank publishes a setof Doing Business indicators, and countriesare encouraged to improve on these, interalia for the sake of encouragingentrepreneurship.

HOT TOPIC‰

“Good entrepreneurshippolicy gets people withlow entrepreneurial abilityout of entrepreneurshipand into jobs”

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with a strong ability for entrepreneurshipwill see it in their interest to start up newfirms, to create jobs, to grow their firms insize, to raise the incentives for educationand migration to urban agglomerations bydemanding skilled labour, contributetowards diversifying an economy byuncovering its production possibilities,and demonstrate and facilitate theadoption of new technology.

Ultimately, such successfulentrepreneurship would result in aneconomy whose structure is dominated bythe service sector, populated by high-technology firms and highly educatedworkers. Entrepreneurial flourishing, andappropriate support for entrepreneurship,is at the heart of the process of structuraldevelopment and industrialization. Thefailure of structural development andindustrialization, and the failure of manycountries to compete, is thereforeultimately a failure of entrepreneurshipdevelopment policy. n

entrepreneurship contributes to economicdynamism have been largely ignored.

Specifically, three crucial aspects of thedebate have been underplayed: l that entrepreneurship has long existedin a vibrant form throughout Africa andAsia, and in some cases for centuries; l that those countries that transitionedinto major industrial economieselsewhere were distinguished by changingeconomic systems, structures and lawsrather than entrepreneurship; and l entrepreneurship does not have thesame benefits in all economic systems – itis under true capitalism that it hasgenerated the returns we associate with itin the West.

To focus on entrepreneurs is to neglectthe difficult but potentially far moredynamic aspects of economicdevelopment that developing countrieslack. The question is not ‘doesentrepreneurship support economicdevelopment’, but ‘under whatcircumstances does it do so?’

The entrepreneurial impulseThat entrepreneurship is in no shortsupply in the developing world is self-evident. If entrepreneurship is taken to bethat characteristic that finds or createseconomic opportunity and seeks toexploit it, it is difficult to think of a singleplace in Africa where it is not abundant. Inrural Malawi today, if you expressadmiration for the pattern of a dress ordesign of a shirt, you will either be offereda roll of the same material or the item ofclothing itself. This aim of transforming

RANIL DISSANAYAKE was trained as aneconomist and historian. He nowspecializes in aid effectiveness, havingadvised the Government of Malawi in thisfield for almost four years, before taking asimilar post in Zanzibar. He can also befound blogging at AidThoughts.

Recent debate on the role ofentrepreneurship in the economicdevelopment of the world’s poorestcountries has been largely misconceived.While many have focused on the need tosupport entrepreneurs or to expand theiropportunities, the historical and structuralaspects that form the context in which

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what some of these issues were. In TheBirth of the Modern World, the historianChris Bayly looks at this very question:what was it about Europe and NorthAmerica that transformed theirentrepreneurship into massive trans-national economic entities, while othercountries languished? He comes up witha range of characteristics, some of whichare no longer relevant today. However, anumber still are.

First among these was the importanceof establishing transport links, bothinternally where an internal market exists,and externally where tradingopportunities are available. This remainsa massive drawback, particularly forAfrica: the World Bank’s Doing Businessreport suggests transport costs in Africaare significantly higher than elsewhere.Entrepreneurship requires access tosufficient markets to be fully realized.

Bayly also cites the move to modernforms of intensive, investment-heavyagriculture which produced the domesticsurplus required to power theurbanization and industrialization ofEuropean and North Americaneconomies, without requiring too great animport burden. Yet, food security in muchof Africa remains fragile, largely becauselandholding patterns rule out the move tomore intensive, commercial farming.

Additionally, the stability (geographicaland political) of dominant groups createdan incentive to invest – the possibility ofaccumulation of the returns to

entrepreneurship provided a powerfulaccelerant to its realization.

The Mystery of CapitalThe other two central areas that Baylycites are the importance of theemergence of modern financialinstitutions to provide credit, and newlegal structures to stabilize the legalstatus of risk and returns to ownership.These factors form the central concern ofHernando De Soto, whose book, TheMystery of Capital, is probably the mostimportant contribution made in the lasttwenty years to the question of ThirdWorld entrepreneurship. De Soto’sargument is essentially thatentrepreneurship is limited by theavailability of capital. What makes thisargument so powerful is that heconceives capital in a far more complexway than it is commonly thought of.

De Soto shows that the value of assetsheld in the Third World is immense –several trillion dollars. Yet little of thiscan count as ‘capital’ since it is notbound by the central factor that createscapital: a functioning, efficient legalsystem that recognizes and regularizesthe popular notions of property. Onceassets are converted into legal property,they obtain a number of characteristicsthat convert them into capital. Theireconomic potential is fixed in theprocess of legally defining what theycontain of value; they become part of asingle network of information, whichenables them to be traded, accumulatedand acquired with ease; the owners aremade accountable and legally liable forthe asset, thus reducing risk associatedwith borrowing on them and so on.Combined with a strong borrowing andlending system, capital provides the fuelfrom which entrepreneurs can powertheir economic schemes.

For De Soto, therefore, our concern for

desires into profit is the essence ofentrepreneurship, and the inventivenesswith which it is achieved is staggering. Atthe port in Dar es Salaam, it is possible tocharge a mobile phone at small stationswhere a car battery is used to power arange of phone chargers for a fee.Aggregated over the numbers of travellersembarking on ferries daily, this providesthe basis of a sustainable company ofsorts. The entrepreneurial impulse ispowerful in Africa. It is, however, oftenunable to find expression or is limited tosmall enterprises.

This should be no surprise for scholarsof the developing world. As far back as the18th and 19th centuries, Chinese, Arab,Asian, and African merchants were takingopportunities provided by new tradingrelationships and routes to move theirgoods across the world in return forincreased profits. While Europeansgenerated the lion’s share of the value-added in these relationships, they wereresponding to an acute entrepreneurialimpulse. A range of historians haveshown that vivid successes were beingmade even in the pre-colonial period inAfrica, Asia, and the Arab world.

Addressing the constraintsEntrepreneurship is therefore abundant,and has historically been so. Its absence isnot the constraint to industrialization ordynamism in the economic path of thedeveloping countries. The issue is thatentrepreneurship struggles to find anappropriate outlet through which it canachieve the massive accumulation andgrowth that has characterized theEuropean economies. It is addressing theconstraints to this outlet that we shouldbe devoting our energies. Again, ahistorical analysis can help us untangle

“Crucially for Westerndevelopment, the stability ofelite groups allowed them toreap the benefits of investmentand entrepreneurship”

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issues that Bayly identified as crucial forWestern development was that thestability of elite groups allowed them toreap the benefits of investment andentrepreneurship.

A similar argument is the root of KarlMarx’s analysis of why capitalism as asystem allows entrepreneurs the freedomto power economic progress. Marxdemonstrated that capitalism was morethan markets or entrepreneurs. Thesehave existed since time immemorial: it isdifficult to think of any society inrecorded history where each did not exist.What distinguishes capitalism fromearlier systems are the specific relationsbetween those who have the means toaccumulate, and those who must work fora wage. Essentially, under capitalism someentrepreneurs are able to accumulatecapital, and can maintain this capital with

some stability, in the sense that it is notarbitrarily seized from them; they thenapply labour from a pool of property-lessunemployed to their capital in order togenerate profits. Because the capitalistdoes not use his own labour and takes theexcess of revenue after wages are paid ashis profit, his incentive is always to applymore capital to his property and to hislabour force in order to increase therevenue generated from a constant labourforce.

Incentives and potential A smallholder, or a small self-employedentrepreneur, does not have the sameincentives or potential. His horizons arelimited on two dimensions: if he himselfis his primary source of labour, hisincentives as an entrepreneur, and as alabourer who values rest and recreation,are not in harmony; secondly, his limitedasset holdings restrict the amount ofcapital he can access – the problem DeSoto identified. As Lindsay Clinton notedin a recent article for The Wall StreetJournal, a focus on entrepreneurstherefore gives no guarantee that the vastnumbers of unemployed will see anybenefits. We should instead be looking toallow a smaller pool of entrepreneurs tobuild the economic empires that canemploy thousands, and form the basis of acompetitive economy.

None of this is to suggest thatentrepreneurship is unimportant. It is anecessary but insufficient condition foreconomic development, one that isalready satisfied in almost all countries.Our focus should be on the supportingconditions that are necessary to giveentrepreneurs the platform and capacityto catalyze economic growth andemployment. n

entrepreneurs is misconceived. We shouldbe far more exercised by the need toconvert their assets into capital, subjectcurrently to one major constraint. Thisconstraint is the legal system. In far toomany countries, there is currently eitherno recognition of what is socially acceptedto be private capital or there areintolerable barriers of bureaucracy. Toown legal property in Haiti, for example,takes up to 19 years.

The importance of stabilityYet, even if we resolve the outstandingissues concerning transport links, theneed for commercialized agriculture, andthe currently inadequate legal andfinancial systems, there may still be afundamental constraint thatentrepreneurs must overcome: theexistence of stable capitalism. One of the

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nThe United Arab Emiratesand Malaysia are the twohighest-ranking developingcountries in the GlobalInnovation Index 2009/10. Theindex looks at 132 countries andcompares the enablers thatstimulate innovation and theoutputs that are the results ofinnovation activities. The fiveenablers are institutions;human capacity; general andICT infrastructure; marketsophistication; and businesssophistication. The two outputsare scientific outputs, and

producing countries, particularlyon infrastructure developmentprojects, will fuel regionalgrowth of an annual average rateof 4.6% in 2012-15.

Countries in North Africa,which are highly dependent onthe European Union (EU) as anexport market for both goodsand services, and as a source ofworkers’ remittances, will recordmore modest growth, given thesubdued economic outlook forthe EU and some appreciation intheir currencies. Growth isunlikely to be sufficient to reducecurrently high levels ofunemployment among thesecountries’ typically youngpopulations. (EconomistIntelligence Unit)

The recently published 2010Global ManufacturingCompetitiveness Index, acollaboration between Deloitteand the US Council onCompetitiveness, is based on theviews of more than 400 seniormanufacturing executivesworldwide. By drawing directlyon the experience ofmanufacturers, the index deliversa unique perspective on theglobal competitive landscape.

According to the seniormanufacturing leaders whoparticipated in the study, themost important drivers of globalmanufacturing competitivenessare the classic factors ofproduction – labour, materials,and energy.

The next four drivers are“contributory” governmentforces: economic, trade, financialand tax systems; the quality ofphysical infrastructure;government investments inmanufacturing and innovation;and the legal and regulatorysystem.

The final three drivers aremore ‘localized’: the suppliernetwork; the dynamics of thelocal business environment,including the size of the marketopportunity and the intensity oflocal competition; and the qualityand availability of healthcare.

The executives were asked torate the overall manufacturingcompetitiveness of 26 countries,currently, and in five years time.The results reveal that a newworld order for manufacturingcompetitiveness has emerged.

The rise of three countries inparticular – China, India, and theRepublic of Korea – appears toparallel the rapidly growing andimportant Asian market. Thedominant manufacturingsuperpowers of the late 20thcentury – the United States,Japan, and Germany – are nowlagging in comparison to thesethree Asian juggernauts.

A review of the remainingcountries on the index indicatesthat several newcomereconomies are soaring inimportance as manufacturinghubs. In particular, executivesexpect Brazil, Mexico, Poland,and Thailand, to improve theirmanufacturing competitivenessin the next five years, either dueto their natural resources or theattributes of their workforce. Alsoexperiencing significant progresson the index are the economiesof Eastern Europe and Russia,which are showing strongcompetitive potential.

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1 China 2 India 3 Republic of Korea 4 Brazil 5 United States of America 6 Mexico 7 Japan 8 Germany 9 Poland 10 Thailand – 2010 Global ManufacturingCompetitiveness Index

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creative outputs and well-being.The index, produced by theINSEAD business school, incollaboration with theConfederation of IndianIndustry, uses a mixture of harddata collected by internationalorganizations, and survey datafrom the executive opinionsurvey conducted annually bythe World Economic Forum.

At the top of the list of the 132countries included in the indexare Iceland and Sweden. The toptwo in Africa are South Africaand Tunisia; in Asia: China,

Hong Kong SAR and Singapore;and in Latin America: Costa Ricaand Chile. Of the 15 LeastDeveloped Countries covered,Mauritania and Lesotho headthe list. (INSEAD)

nThe Economist IntelligenceUnit reports that economicgrowth in the Middle East andNorth Africa has picked up in2010, supported by higher oilprices and a stronger globaleconomy. In 2011, higher oiloutput and persistently highgovernment spending in oil-

Manufacturingcompetitiveness in2015 – top 10 countries

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nThe 2010 Ibrahim Index ofAfrican Governance showsrecent gains in manycountries in human andeconomic development, butdeclines in political rights,personal safety, and the rule oflaw. In the SustainableEconomic Opportunitycategory, 41 of Africa’s 53states improved. Ten of thesewere cited as having seennotable improvements overthe past five years: Angola,Burundi, Cape Verde, Egypt,Liberia, Malawi, Mauritius,Namibia, Sierra Leone, andSwaziland. (The Mo IbrahimFoundation)

A company producing low-cost,high-quality, durable solarlanterns has won the prestigiousAshden Award for SustainableEnergy for 2010. The d.lightdesign company makes solar-rechargeable LED lanterns thatare lighting up the lives ofpeople in developing countrieswho previously relied onkerosene lanterns and candles.

The solar lanterns aredeveloped and tested at thecompany’s headquarters inChina, Hong Kong SAR, aremanufactured and assembled inShenzhen, China, and are thensold in over 32 countries acrossthe world, with the main marketsin India and East Africa.Founded in 2007, d.light recentlyannounced that sales of itslanterns had brought bright,clean, and affordable lightingalternatives to a total of over oneand a half million people.

Until now, people indeveloping countries who livewithout access to electricity havehad to rely on kerosene andother fuel-based sources for

lighting. These produce health-damaging fumes and smoke,provide poor light, and are a firehazard. Kerosene is alsoexpensive, eating up as much as ahalf of some household’smonthly income. The d.lightlanterns cost between US$10 andUS$45, depending on the model.

For d.light, innovation indistribution channels is asimportant as innovation inproduct design and technology.The lanterns are marketedthrough the usual network ofdistributors and dealers, but alsoby ‘rural entrepreneurs’ (REs),people with some standing intheir community who buy a fewsolar lanterns at a time fromdealers and sell them at a profitin their own village. Some REsallow potential customers to try alantern for a few days beforecommitting to buying it.

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n International Green EnergyConference November 22-23, Kuala Lumpur, Malaysiawww.greenenergyconference.org

nUN Climate Change Conference – COP16 November 29 – December 10,Cancún, Mexicowww.cc2010.mx/en

nWorld Climate SummitDecember 4-5, Cancún, Mexicowww.wclimate.com/World_Climate_Summit

nThe Water and BusinessConferenceDecember 8-9, London, UKwww.ethicalcorp.com/water2010

nCCS World MENA 2010 December 13-15, Doha, Qatarwww.terrapinn.com/2010/ccsmena

nWorld Future Energy SummitJanuary 17-20, 2011, Abu Dhabi, UAEwww.worldfutureenergysummit.com

nGlobal Biofuels SummitJanuary 26-27, 2011, Barcelona, Spainwww.flemingeurope.com/energy-conferences/europe/global-biofuels-summit-2011

nThird annual event on theWomen’s EmpowermentPrinciples March 9-10, 2011, New York, USAwww.unglobalcompact.org/Issues/human_rights/equality_means_business.html

The Economist’s second annualIdeas Economy: Innovationevent: Entrepreneurship in adisruptive world March 23-24, 2011, Haas School of Business,University of California,Berkeley, California, USAhttp://ideas.economist.com

events

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How is it decided which country is an LDCand which isn’t?Within the United Nations system, and ingeneral within the community which is deal-ing with the definition and the concept of theLDC group, there is a lot of debate about cri-teria which can really definitively distinguishthese countries from the rest of the countriesin the world. And these criteria have under-gone various metamorphoses that haveevolved over time. The current three majorcriteria which are used to identify LDCs arethe following:l A low-income criterion, based on a three-year average estimate of the gross nationalincome (GNI) per capita (under US$905 for in-clusion, above US$1,086 for graduation);l A human capital status criterion, based onindicators of nutrition – the percentage ofpopulation undernourished; health – themortality rate for children aged five years orunder; education – the gross secondary schoolenrolment ratio; and the adult literacy rate;l An economic vulnerability criterion, basedon indicators of population size; remoteness;merchandise export concentration; share of

Are there enough benefits to being an LDCthat if I was president of a country I wouldwant that, or is there so much stigma attachedthat I wouldn’t want it?There is a stigma attached to it because youare somehow perceived as one of the onesamongst the poor. When this category was in-troduced, two countries really didn't want tobe there. One of them was Ghana. The otherwas Zimbabwe. They were allowed to opt outbecause, if you don't want to be there, nobodycan force you to be there. But on the otherhand, you also exclude yourself from the ben-efits or the preferences which are associatedwith being included.

Although there is a bit of a stigma, the ideais that you are going to utilize this window ofopportunity provided by the support meas-ures and get off that list as soon as possible.So, the issue is rather that by being recognizedas structurally handicapped, you use what isbeing made available to you in the way of sup-port measures, and you make good use of this.

Unfortunately – and that is the whole issuenow – notwithstanding the use of supportmeasures over a period of 30 to 40 years, only

Helping the world’s Least Developed Countries

DEBAPRIYA BHATTACHARYA is a specialadvisor to the Secretary-General of theUnited Nations Conference on Trade andDevelopment, and is tasked withpreparing the strategy documents whichwill feed into the preparatory process forthe 2011 UN LDC conference.

Debapriya Bhattacharya previews the issues to bediscussed at the Fourth United Nations Conference onLeast Developed Countries (LDCs) which will be heldin Istanbul, Turkey, in May 2011. A central dilemma, heexplains, is that economic growth in the LDCs hasfailed to lift enough poor people out of poverty.

agriculture, forestry and fisheries in gross do-mestic product; homelessness owing to natu-ral disasters; instability of agriculturalproduction; and instability of exports ofgoods and services.

So, income, human assets, and vulnerabil-ity – these are the three sets of criteria whichessentially identify the list of LDCs. The UNhas a mechanism where every three years thislist is reviewed and new countries are in-cluded, and if we are lucky, some countriesgraduate from the list.You said that the UN has its processes, its stan-dards and its numbers, and assesses who is inand who is out. Why does it matter who hasLDC status?Among the developing countries, these leastdeveloped countries have been singled out toreceive more focused public support and in-ternational support measures, and to givethem more attention so that they can over-come their structural problems, their struc-tural handicaps, or their impediments todevelopment. So, it is basically for targetingthose countries that need the most interna-tional support. ‰

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two countries have graduated from thisgroup. Cape Verde recently, and before that, itwas Botswana.

And now there are three countries in thepipeline which might graduate next year. Oneof them is the Maldives, again a small islandcountry which is threatened by climate changeand other things. Samoa is the second one, andthe third is Equatorial Guinea. The latter has alot of oil, and its current per capita income isin the world’s highest income category.How is this group of countries different or thesame from Paul Collier’s “bottom billion” de-scription of the world’s poorest people?The issue is that this ‘bottom billion’ cutsacross many countries. It is a set of popula-tions who are the poorest of the poor. But weare not talking about poor people here. We aretalking about poor countries. The most im-portant thing here is that these countries arehandicapped in certain ways which are noteasy to overcome by relying solely on their do-mestic efforts. Some handicaps can never beovercome. For example, you have dozens oflandlocked countries, like Bhutan, Nepal, andsome in Africa – low income, but at the sametime landlocked. This is a major problem forthem. Similarly, you have island countries,with very small populations, which can getwashed away by every tidal wave.

These are major handicaps which have tobe taken into account. Haiti is a classic exam-ple of how vulnerable these economies are. Acountry can be hit, not only by man-made dis-asters, but also by natural shocks. The samething happened with the tsunamis in the Pa-cific a couple of years back. So, even if you aredeveloped, but you are very vulnerable, yourachievements are very fragile and any one ex-ternal shock can wipe them out, just like that.So, it is more than just a matter of nationalincome.So this class of countries, with these particularproblems, will be the focus of the conferencethat you are responsible for preparing for inMay 2011. How is this - the Fourth UN LDCconference - going to be different, and whatare the things that you would hope that mightbe achieved there that would help these coun-tries in ways they haven’t been helped before?In order to design new methods, new inter-ventions, new support measures, or the newgeneration of public policies to accelerate thegrowth process of development in these coun-tries, we need to understand how they havebeen performing during the last decade.

If we take a very close look at these coun-tries, we see that during the last decade before2006/07, before the food crisis, the fuel crisis,

and the financial and the economic crises setin, they were doing pretty fine in terms ofgrowth. They were expanding exports, and re-ceiving relatively high levels of foreign directinvestment (FDI). Official development assis-tance flows had also increased at a certainlevel. But what was very curious was thatnotwithstanding all the apparently improvedperformances of these countries, and the im-proved macroeconomic indicators as well, wesaw that the role of the manufacturing sector,the processing industries which can providegood quality jobs and even incremental jobs,was not growing. So there was growth, butthere was no modern sector growth.

Then, in terms of exports, there was noproduct diversification. It was one commod-ity which was dominating, either the manu-facturing of textiles or extractive industries –fuel or other minerals, in the case of most ofAfrican countries. There was no diversifica-tion. In the case of FDI, most of the invest-ment went into mining and the extractiveindustries.

So, the question we must address is hownew support measures can change these cir-cumstances in order to achieve inclusive, evenbroad-based, productive growth. Productivegrowth means manufacturing growth andagriculture sector growth because agriculturewas very neglected during the last decadebefore the latest food crisis. And it also meansservices which can support the investment en-vironment and all these other areas by creat-ing jobs for people.Is the enabling environment for the growth ofthese sectors largely in the control of the richcountries or the larger developed countries, oris this mostly about domestic policy decisionsthat would be made by the leadership withinthe LDCs themselves?What we are talking about here is a compact,a development understanding between thedeveloped countries and the LDCs. And nowwe have a third party, the emergingeconomies. So, you have the developed coun-tries, the advanced developing countries, andthe least developed countries. So, these threewill come together with what we call ‘sharedbut differentiated responsibility’. The objec-tives are shared, but in terms of how to deliverthem, there is a differentiated responsibility,depending on the sector.

Domestic policy, good governance, anti-corruption measures, a good legal system, allthese things are very important, and are in thecontrol of the LDCs themselves. But in orderto modernize them, they might need re-sources, and these resources and expertise are

not always available internally. And given thecompeting nature of their investment de-mands or their public expenditures for healthand education, in order to meet that gap theywould need some kind of support. One wayobviously is of course to get more foreign aid.The second way is to get into new marketswhere they can sell their products. And thethird is to bring in investment into the areaswhich creates good jobs – sustainable devel-opment by way of investment in areas otherthan the extractive sectors.

All these issues will be coming together in

TheAmericas

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Least DevelopedCountries

* Also Small Island Developing States (SIDS)# Also Landlocked Developing Countries (LLDCs)

Small Island Developing States are marginalizedfrom the global economy by the combinedadverse consequences of their small size,remoteness from large markets, and higheconomic vulnerability to economic and naturalshocks beyond domestic control.

Landlocked Developing Countries face seriousconstraints on their overall socio-economicdevelopment in the form of lack of territorialaccess to the sea, remoteness and isolation fromworld markets, and high transit costs.

1. Haiti *

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terms of how to precipitate a structuralchange in these countries so that they canbecome better integrated into the globalizedworld, so that the benefits of developmenttrickle down to the poorest of the poor, and tomeet some of the Millennium DevelopmentGoals, too.When we think of aid, trade, and investment,we usually focus on the policies of the highincome countries, but of course, as you pointout, we now have these big emerging marketeconomies that are increasingly powerful, withmarkets that are sometimes larger than those

of the rich countries. How do they factor intothis discussion with the LDCs?One of the major areas that has changed, thenew context for the development challengesfacing the LDCs that has changed since 2001when the last conference took place, is theemergence of the global south, the new emerg-ing economies. LDCs now sell more than 50%of their exports to the developing economies.But the problem is that most of these exportsare minerals and fuels. The less than 50% oftheir exports that go to the developed countriesare all manufactured goods, including textiles.

There is a question of quality versus quan-tity here. The issue now is how the LDCs canget access to these new emerging marketswith better products, and whether this canhelp with diversification and also in terms oftechnology transfer. This is the new context,and this is where the shared responsibilityissue comes back again.lThe above is an edited and abridged version of aninterview conducted by Lawrence MacDonald forthe Centre for Global Development, and broad-cast as part of the Centre’s Global ProsperityWonkcast series.

Africa33

Asia and the Pacific

15

1. Afghanistan #2. Bangladesh3. Bhutan #4. Cambodia5. Kiribati *6. Lao People’sDemocratic Republic #7. Maldives *8. Myanmar9. Nepal #10. Samoa *11. Solomon Islands *12. Timor-Leste *13. Tuvalu *14. Vanuatu *15. Yemen

1. Angola2. Benin3. Burkina Faso #4. Burundi #5. Central AfricanRepublic #6. Chad #7. Comoros *8. Democratic Republicof the Congo9. Djibouti10. Equatorial Guinea11. Eritrea

12. Ethiopia #13. Gambia14. Guinea15. Guinea-Bissau *16. Lesotho #17. Liberia18. Madagascar19. Malawi #20. Mali #21. Mauritania22. Mozambique23. Niger #24. Rwanda #

25. São Tomé andPríncipe *26. Senegal27. Sierra Leone28. Somalia29. Sudan30. Togo31. Uganda #32. United Republic ofTanzania33. Zambia #

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Local communities in LDCs across the globehave been hit hard by the global financialcrisis, with the already meagre economic andsocial gains made in recent years beingabruptly put into reverse. Increasingly urgentcalls are now being made for the internationalcommunity to ‘do something’ to assist withjob creation and income-generating initia-tives to attempt to repair the situation, espe-cially in the very poorest of communities. Asin previous years, one of the most commonly-heard solutions being put forward is microfi-nance which, so the argument runs, is per-fectly situated to help kick-start a ‘bottom-up’recovery and a development trajectory ani-mated by the poor themselves through self-employment and microenterprises.

In spite of much heady rhetoric and up-lifting PR surrounding the microfinancemodel this past thirty years, even long-timemicrofinance supporters now accept that itstrack record is actually very weak indeed. Forothers, the evidence reveals that microfinanceis more likely a part of the development prob-lem, and not part of the solution: LDCswanted sustainable development, but arelargely ending up with microdebt peonage.

With the dominant, commercialized mi-crofinance model increasingly seen as prob-lematic, many international developmentagencies, and LDC governments too, are start-ing to examine what might be better forms oflocal financial institutions to assist the poor.And what they are finding is that there aremany local financial models and community-based financial institutions that actually havea very impressive record of promoting sus-tainable development and poverty reduction.

The CLP examplePerhaps the most important requirement of alocal financial system in the LDCs is that itshould not simply ameliorate poverty andunder-development, but should move to per-manently eradicate these problems over time.Well-designed and managed community de-velopment banks can do this. The Caja Labo-ral Popular (CLP) in the Basque region ofnorthern Spain is one such locally-owned andcontrolled institution that has succeeded insupporting enterprise development in a his-torically backward and conflict-affectedregion. The CLP is a development bank that

supported cooperative enterprises as thelynchpin around which the community couldbegin to develop and rapidly reduce poverty ina socially optimal manner. For example, co-operatives were founded near to where themembers lived so they could easily travel toand from work, a decision that gave membersmore free time to enjoy their family lives.Thanks to its deep roots in the community,and because of various democratic checks andbalances, the CLP has managed to successfullysteer clear of both corruption and misman-agement. All told, in a little over 30 years, aonce poor region was turned into one ofEurope’s richest, most socially inclusive, andculturally vibrant regions.

Is the CLP experience a one-off? Not at all.Broadly similar results were achieved innorthern Italy after 1945, when a network ofcooperative banks and special credit institu-tions (SCIs) were decisive in reconstructingthe physical and social infrastructure de-stroyed during the Second World War. Byquickly mobilizing savings and then recyclingthese savings into long-term investmentfunds geared up to support potentially sus-

tainable and/or fast-growth businesses, espe-cially cooperative enterprises, these commu-nity-based financial institutions helped aconflict-ravaged region become perhapsEurope’s most economically and socially ad-vanced. Importantly, they were able to developmethodologies to identify the best businessprospects and then to carefully support themdown the years. In some cases, government fi-nancial support was needed (as in the case ofthe SCIs), but this expenditure could not beseen as anything other than a fantastic invest-ment, given the economic development andpoverty reduction outcome achieved.

Governance issuesSpurred on by such uplifting examples, agrowing number of LDCs have begun to(re)explore the idea of local cooperative banksand other community-based financial insti-tutions. Many accept that the cooperativebanking concept is a sound one, but the para-mount issue is how to get the governanceissues right. Privately owned, profit-driven fi-nancial institutions in many LDCs very oftenundermine trust in the community and create

Milford Bateman arguesthat it is community-drivenfinancial institutions ratherthan microfinance that canhelp poor people in LeastDeveloped Countries moveout of poverty

MILFORD BATEMAN is a researchfellow at the Overseas DevelopmentInstitute in London, United Kingdom,specializing in access to finance andenterprise development issues.

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economic chaos, as seen most recently inNigeria, where the licenses of 224 small pri-vately owned microfinance banks were termi-nally revoked by the Central Bank because ofexcessive risk-taking and bad corporate gov-ernance. Of course, the cooperative model hasnot escaped similar forms of abuse and cor-ruption, as seen, for example, with the col-lapse of many financial cooperatives in Haitiin 2002. But experience shows that commu-nity-ownership and control can help to in-crease the chances of there being properaccountability to both its savers and to thewider community, as well as enhance effi-ciency as a financial institution.

Some LDCs have been inspired by suc-cesses with the development bank concept atthe national level in emerging economies, asin the case of Brazil. But, at the communitylevel too, there are many creative examples ofwhat can be done. For example, AkwandzeAgricultural Finance (AAF), in South Africa’sMpumalanga province, is a 50-50 joint venturebetween a farmer-owned cooperative(Liguguletfu Co-operative Ltd) and a sugarprocessor (Tsb Sugar). AAF has been able to

help its poor farmer-members permanentlyescape poverty by turning subsistence farm-ing operations into family farms, operatingwell above the minimum efficient scale. In-volving more than 900 of the local sugarfarmers who are members of Liguguletfu, injust a few years AAF has been able to help itsfarmer-members with access to affordableloans (16% interest rates), not just to under-pin their normal operations, but also – cru-cially, in view of the need to scale-up in orderto be successful into the longer term – to sup-port their expansion plans. The farmers knowthat they need to grow beyond the minimumefficient scale if they are to really becomesecure and enjoy a decent return on theirlabour. Importantly, any profit in AAF is notchannelled away to external shareholders, butrecycled back into AAF to develop more serv-ices, as per the farmer-members’ wishes.

But it is not just development-driven, localfinancial institutions that can help LDCs todevelop. Many analysts argue that promotingsavings within poor communities is often anequally beneficial way of dealing with poverty.For example, helping the poor to save up for

important purchases, rather than pay high in-terest rates on simple consumer loans ob-tained from microfinance providers, would bea major help to them. And here, dedicatedcommunity-based, saver-owned and con-trolled institutions have very often proved tobe just the ticket. The idea is an old one, ofcourse, stretching back to the building soci-ety movement founded in the United King-dom (UK) in the late 18th century. For morethan 150 years, the UK’s building societiesworked extremely well for the local commu-nity, providing affordable loans for house pur-chases and small business development. Theyonly floundered when they were demutual-ized and commercialized in the early 1990s.The positive experience of such community-based savings institutions can be replicated inmany LDCs – given technical support and,perhaps, some initial capitalization too.

Real empowermentIndeed, there are now many experiments un-derway using credit union-type community-owned organizations. For example, OxfamAmerica’s ‘Saving for Change’ programme inMali involves upwards of 300,000 womenmanaging over US$4m in their group funds.The women are helped to avoid contact withthe local loan sharks and commercial micro-finance institutions, and instead begin savingwith their own institution. They save for reg-ular ‘big-ticket’ items of expenditure and alsofor unforeseen emergencies, but they can alsoquickly access sufficient, affordable funds tostart or expand a real business, as opposed tojust a simple trading operation. This is realempowerment, achieved via a community-owned financial institution, not gradual en-trapment in microdebt.

The conclusion to be drawn from the expe-riences of developed countries, and elsewhere,is that local financial institutions are over-whelmingly best configured as community-owned and controlled bodies, especially tomaximize the chances that they remain fo-cused on local development. Financial cooper-atives, community development banks, andcredit unions, have been very successful localfinancial-sector innovations in many devel-oped countries, and their experience is ur-gently needed as the LDCs design their ownfinancial institutions in the wake of the globalcrash. Above all, the lesson seems to be that weneed to take local financial systems out of thehands of would-be Wall Street-types and ag-gressive, commercialized microfinance insti-tutions, and return them to their rightfulowners: local communities and local people. n

The Ikidia Saving for Changegroup holds a weeklymeeting in Domba, Mali.

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STRENGTHENING PRODUCTIVE

CHEICK SIDI DIARRA was appointed the United Nations’ Under-Secretary-General and High Representative for the Least Developed Countries, Landlocked Developing Countries, and Small Island Developing States, in 2007. At the time of thisappointment, Mr Diarra was serving as the Permanent Representativeof Mali to the United Nations in New York. During his longdiplomatic career, Mr. Diarra has been actively involved in furtheringAfrican integration efforts and the African development agenda at theinternational level. He has served as one of the lead negotiators onthese issues at the African Union summits since 1982.

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CAPACITYAs the world’s Least Developed Countries(LDCs) increasingly feel the effects of theglobal economic crisis, the UN’s CHEICKSIDI DIARRA argues that, in order to buildup their resilience, these countries should –and can – increase their productive capacity.By strengthening three core elements,productive resources, entrepreneurialcapabilities, and production linkages, theLDCs can produce more – and betterquality – goods and services. But, for thisprocess to succeed, they also need toimplement new policies, devise new formsof development governance, and receivemore effective multilateral support.

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resilience

partn

ersBefore the global economic crisis in 2008/2009,

the group of least developed countries (LDCs)registered impressive economic advances withreal GDP growth averaging 6% per annum overthe preceding five years. The recent financial cri-sis had its immediate reverberations in develop-ing countries, which were closely linked to theglobal financial markets, as capital took refuge insafe havens and there was a rapid flight of capi-tal from emerging markets to the advancedeconomies, and particularly the United States.The initial impact on the LDCs, however, wassomewhat muted given that many, if not all, werenot as integrated into the global financial mar-ket. However, with the deepening of the financialcrisis, freezing of credit, and the sharp fall in themarket value of private wealth, the LDCs weredrawn into a global crisis of the real economy.

According to the United Nations Conferenceon Trade and Development (UNCTAD), the valueof exports from the LDCs to major importingcountries declined by over 43% in 2009, com-pared to the first half of 2008, whereas the globalvalue of exports declined by only around 32%during the same period. This sharp decline inexport earnings is largely due to a decline incommodity prices and is associated with declin-ing government revenues and investment.According to the World Bank, remittances todeveloping countries were down by 6% in 2009,although a slight recovery is possible in 2010. Ofparticular concern is the long-term impact thecrisis is likely to have on the LDCs, given theirinherent economic vulnerability and suscepti-bility to external shocks.

Productive capacity mattersIn this context, it is generally agreed that a keystrategy towards building the internal resilienceof LDCs is the strengthening of productivecapacity. Productive capacities, as defined byUNCTAD, are the productive resources, entre-preneurial capabilities, and productive linkages,which together determine the capacity of a coun-try to produce goods and services, and enable itto grow and develop. In May 2001, the ThirdUnited Nations Conference of the Least Devel-oped Countries adopted the Brussels Pro-gramme of Action for the decade 2001-2010, acomprehensive results-oriented poverty reduc-tion strategy, tailored to the special needs of theLDCs. The Brussels Programme of Action iden-tified the building of productive capacities, inorder to ensure that LDCs benefit from global-ization, as one of seven key commitmentsbetween LDCs and their development partners.

By developing their productive capacities,LDCs can rely increasingly on domestic resourcemobilization to finance their economic growth,lessen their dependence on aid, and attract pri-vate capital inflows of a type that can supporttheir development process. Enhanced produc-tive capacities will also allow LDCs to compete ininternational markets for goods and serviceswhich go beyond primary commodities andwhich are not dependent on special marketaccess preferences.

Productive capacity is also of great impor-tance in the struggle to reduce poverty in theLDCs. There is a growing amount of evidenceindicating that aid transfers to the LDCs are

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pincreasingly being used to alleviate human suf-fering, but substantial and sustained povertyreduction cannot be achieved with such expres-sions of international solidarity alone. This out-come will require wealth creation in the LDCs,and the development of domestic productivecapacities in a way in which productive employ-ment opportunities expand.

How LDCs can strengthen productive capacityGiven the magnitude of the challenges faced byLDCs in terms of capacity building, there is anurgent need for development partners to furthertheir engagement in the form of private sectordevelopment, industrial upgrading, and theenhancing of an enabling environment, such asquality infrastructure and services. At the sametime, LDCs must tackle the challenge of improv-ing their physical infrastructure, especiallyenergy, transport, and communications. Energysupply is critical, as, together with transport andcommunications, it facilitates the internal andinternational connectivity of economic agents.

Another major component in capacity build-ing is social infrastructure, especially for healthand education, which directly relates to the suf-ficiency of human resources supply, skills, andmanagerial capabilities. Moreover, establishingfunctional financial systems, and securing suffi-cient investment in research and development,technological learning, and innovation systems,are crucial to enable LDCs to confront the crisisand accelerate modernization.

For LDCs to expand production, they need tostrengthen three core elements: productive

resources, entrepreneurial capabilities, and pro-duction linkages. l Firstly, LDCs need to effectively utilize andexpand productive resources that includehuman, physical, financial, and natural capital.Investment in human development is a criticalpart of developing productive capacities. l Secondly, a better utilization of the entrepre-neurial capabilities and of enterprises’ core com-petencies in skills, knowledge, and information,can facilitate the mobilization of productiveresources in order to transform inputs into out-puts, and to invest in, innovate, and upgradeproducts and improve their quality, and even tocreate markets. l Thirdly, the successful mobilization of pro-ductive resources and better utilization of entre-preneurial capabilities should be married todiversified production linkages. These includelinkages between enterprises of different andsimilar sizes, and can take the form of outsourc-ing and sub-contracting relations.

In the actual process of developing produc-tivity capacity, the foremost stage is to accumu-late capital. The accumulation of capital essen-tially relies on an elevated scale of foreigninvestment and private savings, both domesticand foreign. Therefore, LDCs need a set of incen-tives for savings and investment, as well as aneffective financial system that can attract andmobilize financial resources and developdomestic enterprises.

Further measures are also required to pro-mote technology transfers and increase theproductivity of the labour resource. Enhanced

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aid compet

supporttechnological capabilities enable productsfrom LDCs to compete in international mar-kets, and they can also generate more produc-tive employment and build linkages with theglobal economy.

The role of agriculture and industryIn addition, the strategies for developing pro-ductive capacities devised by the LDCs, especiallythose in Africa, which comprise 33 of the 49LDCs, should encompass agriculture. Agricul-ture will have to receive new domestic and inter-national policy attention for it requires increasedinvestment and technological upgrading. Thenew generation of agricultural policies shouldnot focus solely on agricultural production, butwill have to be developed in the context ofagribusiness and value chain development. Abalance will have to be struck between staplesand cash crops, in order to allow a strengtheningof food security, while also permitting thegrowth of exports;

With a set of pre-conditions and enhancedadaptive capabilities to use modern technologyand commercialize new knowledge, LDCs canleapfrog several stages of development and moveinto higher degree of industrialization. The chal-lenge is to reach the threshold of competitive-ness in the global market, and in this contextmuch depends on the path that the LDCs take tobenefit from regional integration.

How can aid be more effective?During their industrial development process,the capacity of LDCs to incur financial obliga-

tions and mobilize adequate domestic publicand private resources remains seriously handi-capped by various structural constraints. Theseinclude the low diversification of the economicbase and the ensuing high economic vulnerabil-ity, persistent poverty levels, the inadequacy ofbasic infrastructure, geographic disadvantages,and most importantly, the ominously highresource gap. Hence the international commu-nity has been providing aid and loans that havebeen playing a vital role in financing nationalinvestment in order to attain the MillenniumDevelopment Goals (MDGs) in those countries.

To attain a higher level of effective aid man-agement and utilization of aid resources, allstakeholders should address the aid effective-ness issues. To make aid work for the MDGs,donors should indicate their long-term com-mitment to assist LDCs, and recognize thatfinancial support is the most deliverable long-term strategy to assist these countries. To sup-port the development of productive capacity,aid and other assistance should increase in vol-ume, be more effectively delivered, and bemore demand-driven, including taking intoaccount the concerns of the private sector andcivil society.

As each country has its own conditions, inde-pendent monitoring and evaluation of aid per-formance at the level of the recipient country isnecessary. In addition, LDC-specific measuresand a country-oriented approach are needed topromote country ownership, channel aid to sec-tors where its impact is greatest, and enhance theefficiency of utilization of such aid.

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Furthermore, LDCs need to strengthen theirproductive capacities for planning and projectimplementation, improve monitoring andevaluation, and ensure better institutionalcoordination among various government agen-cies involved in negotiating and utilizing aid.

Additionally, the Aid for Trade initiative andthe Enhanced Integrated Framework (EIF)should become effective vehicles for develop-ing LDCs’productive capacities. LDCs shouldbe granted duty-free and quota-free access forgoods in major markets. Such measures mustbe complemented by favourable rules of originand the elimination of non-tariff barriers. LDCgovernments also need to have policy flexibil-ity to adopt agricultural, trade, and industrialpolicies which promote local value added andtechnological learning. LDCs should also begranted enhanced access conditions for thetemporary movement of services providers.

Changing development policiesA sustainable reduction of poverty requireshigh and sustained rates of economic growth,which create productive employment opportu-nities for the poor and help to increase theirhousehold incomes. The only way to achievethese objectives is through the development ofproductive capacities. It should be a core con-cern of both policymakers and developmentpartners in LDCs. The development of produc-tive capacities, however, requires a considerablechange in development policies. It requires anew strategic orientation of development andpoverty reduction strategies that are LDC-spe-

cific, and it thus also requires a new strategicorientation of development assistance.

Firstly, there is even more reason now torefocus policy attention on developing produc-tive capacities. This means that policies shouldbe oriented towards stimulating productiveinvestment, building technological capabilities,and strengthening linkages within and acrosssectors and between different enterprises.Strengthening domestic productive capacitiesshould also be aimed at producing a widerrange of more sophisticated products

Secondly, it is necessary to build a new devel-opmental state. This is not a matter of goingback to old-style development planning, butrather a question of finding new forms ofdevelopment governance appropriate for the21st century. Such development governancewould be founded on a strategic collaborationbetween the State and the private sector thatwill encourage the structural transformation ofLDCs from agrarian to post-agrarianeconomies.

Thirdly, it is necessary to ensure effectivemultilateral support to LDCs. This is not sim-ply a question of more and better aid. Therules that govern international economic rela-tionships with regard to trade, finance, invest-ment and technology flows must be designedin ways that support development in LDCs. Itis also critical that support for LDCs does notimpose unnecessary limits on the measuresthat governments can take to promote devel-opment, structural transformation, andpoverty reduction. n

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The growing importance ofrenewable energy relative to

conventional energy sources isclear, but to what extent is thedrive to invest in and develop

clean energy services a preserve of the developed countries? Two recent reports provide an insight into the status of

renewable energy in developing countries.

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Policy targetsPolicies to promote renewable energyexisted in a few countries in the 1980sand early 1990s, but have been put inplace in many countries, states,provinces, and cities during the past 15years and especially during the period2005–2010. Developing countries nowmake up over half of all countries withpolicy targets (45 out of 85 countries).

Renewables 2010 GlobalStatus ReportPublished by the RenewableEnergy Policy Network for the21st Century (REN21)

Brazil aims to maintain or increase its existing shares oftotal energy (48%) and electricity (85%) from renewablesthrough 2030. Thailand increased its primary energy targetto 20% by 2022. The Philippines national plan calls for4.5GW of new renewables capacity during the period 2003–2013. Egypt targets 20% of electricity by 2020, including 12%from wind power. Kenya plans 4GW of geothermal by 2030.Other developing countries that added new national targetsduring 2009 include Ghana, Ethiopia, Jordan, Kuwait,Morocco, and Tuvalu.

Renewable energy has animportant role in providingmodern energy access to thebillions of people that continue todepend on more traditionalsources of energy. Some 1.5billion people worldwide still lackaccess to electricity, andapproximately 2.6 billion arereliant on wood, straw, charcoal,or dung for cooking their dailymeals. Many heat their food onopen fires that are very inefficientin providing heat; more than one-third of the world’s people arecooking almost as they werehundreds or even thousands ofyears ago. For lighting,households without electricitygenerally rely on kerosene lampsthat are very poor in transformingenergy into light.Communications is limited toradios powered by expensive drycell batteries. In many rural areasof developing countries,connections to electric grids maytake decades or may beeconomically prohibitive.

Today, there are goodalternatives to grid electricity andcarbon-based fuels that do nothave to wait for the expansion ofgrid electricity systems. Theseinclude a wide array of new andrenewable energy systems thatcan provide for both specific enduses and general rural energyservices. Thus, there is apossibility to speed up thetransition to modern energyservices through the accelerationof off-grid renewable energysystems.

Rural transitionA rural transition from traditionalto more modern forms of energyis clearly under way in householdsand small industries in manycountries. “Traditional” and“modern” refer both to the typeof fuel and the technologies thatuse it. Wood, for example, can beburned very inefficiently in atraditional open fire with highlevels of pollutants, or wood

Ruralrenewableenergy

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India’s current five-year plantargets 12.5GW of addedrenewables by 2012 (includingwind, small hydro, and biomasspower), and in 2009 the countryadopted targets for solar powerof 1GW by 2013 and 20GW by2022 (including 1GW of off-gridsolar PV by 2017).

China aims for 15% of finalenergy consumption fromrenewables by 2020, even as totalenergy demand continues to growat nearly double-digit annualrates. (China already met its 2010renewables target for 10% ofprimary energy two years early, in2008.) The country’s most recentdraft development plan targets300GW of hydro, 150GW of wind,30GW of biomass, and 20GW ofsolar PV by 2020.

The Renewables 2010 Global Status Report finds many recenttrends reflecting the increasing significance of developingcountries in advancing renewable energy. Collectively,developing countries now have more than half of globalrenewable power capacity. China leads in severalindicators of market growth. India is ranked fifthworldwide in total existing wind power capacity, and israpidly expanding many forms of rural renewables, suchas biogas and solar photovoltaics (PV). Brazil producesvirtually all of the world’s sugar-derived ethanol, and hasbeen adding new biomass and wind power plants.Renewables markets are growing at rapid rates incountries such as Argentina, Costa Rica, Egypt, Indonesia,Kenya, Tanzania, Thailand, Tunisia, and Uruguay, to namea few.

The geography of renewable energy is changing inways that suggest the advent of a new era. For example,wind power existed in just a handful of countries in the1990s but now exists in over 82 countries. Manufacturingleadership is shifting from Europe to Asia as countrieslike China, India, and the Republic of Korea continue toincrease their commitments to renewable energy. In 2009,China produced 40% of the world’s solar PV supply, 30%of the world’s wind turbines (up from 10% in 2007), and77% of the world’s solar hot water collectors. LatinAmerica is seeing many new biofuels producers incountries like Argentina, Brazil, Colombia, Ecuador, andPeru, as well as an expansion in many other renewabletechnologies. At least 20 countries in the Middle East,North Africa, and sub-Saharan Africa have activerenewable energy markets.

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chips can be gasified andburned as a high-quality“modern” cooking fuel, with highcombustion efficiency and verylittle pollution. In the case ofhousehold lighting, kerosene is atraditional form of lighting,offering poor light and lowefficiency, whereas electric lamps(for example powered by solar)give off 100 times more lightcompared to kerosene lamps orcandles. Electric light enableshouseholds to read, socialize, andbe more productive during theevening, and also has beenassociated with greater schoolattendance by children.

In even the remotest areas,many renewable energy sourcessuch as PV household systems,micro-hydro-powered mini-grids,and solar pumps can providesome of the basic necessities ofmodern life, including qualitylighting, communications, motivepower, and heating and cooling.More recently, there have beenencouraging developments withbiofuels-based generatingsystems.

The number of ruralhouseholds served by renewableenergy is difficult to estimate, butruns into the tens of millionsconsidering all forms ofrenewables. Micro-hydroconfigured into village-scale orcounty-scale mini-grids servesmany of these. More than 30million households get lightingand cooking from biogas made inhousehold-scale digesters. Anestimated 3 million householdsget power from small solar PVsystems. Biomass cookstoves areused by 40% of the world’spopulation, and a new generationof more-efficient “improved”biomass cook stoves has emergedover the years. These stoves arebeing manufactured in factoriesand workshops worldwide, andmore than 160 millionhouseholds now use them.(Renewables 2010 Global StatusReport)

Rural renewable energy (cont)Global Trends in SustainableEnergy Investment 2010Published by the United NationsEnvironment Programme (UNEP) andBloomberg New Energy Finance

In Thailand, plans to set up a 73MW PV plant nearBangkok will require an investment of nearlyUS$270m. The project is expected to be completedin 2011. The incentives offered by the Thaigovernment for renewable energy projects,including tax holidays and soft loans, will helpmake the project commercially viable. State-ownedutility, Electricity Generating Authority of Thailand,said it will invest US$880m for renewable energyprojects through to 2025. The investment is inresponse to the government’s target for 20% of allenergy to be derived from renewable sources by2023. The country currently sources about 5% of itsenergy from renewables (excluding large hydro).

The Philippines has an established geothermal sector,and is currently the second largest producer in theworld after the United States. During 2009, geothermalfirm Energy Development Corporation said it plans todevelop 200MW of greenfield projects. The country isaiming to double its renewable energy capacity to 9GWby 2020, though this figure includes the contributionof large hydro. Geothermal power is expected to play amajor part in this target, with the Department ofEnergy estimating that it will produce 4.5GW.

Outside the ‘big two’ in AsiaNew investment in Asia (excluding Chinaand India) fell from US$3.1bn in 2008 toUS$2.5bn in 2009. This equated to just 6%of overall new investment in Asia,reflecting the dominance of China in thattotal, as well as the more modest scale ofcapital commitments elsewhere. Of thosedeveloping countries outside the big twoin Asia, Taiwan (Province of China) saw thelargest investment at US$900m in 2009, upfrom US$300m the previous year. Pakistan,Indonesia, Thailand, Philippines andVietnam ranked next by investment.

Investment trendsGlobal Trends in Sustainable Energy Investment 2010 confirms that the rapidly industrializingeconomies of China, Brazil, and India have transformed the new energy investmentlandscape in recent years. China became the world’s largest recipient of renewableinvestment in 2009, while Brazil and India are now ranked respectively fifth and eighth inglobal terms. Together, the three attracted a total representing 37% of global financialinvestment in clean energy in 2009. But what of the investment in developing countriesoutside the ‘big three’?

New financial investment in the developing countries in Asia, Latin America, and Asia,excluding Brazil, China and India, was US$7.5bn in 2009, up from US$6bn in 2008, with theincrease being provided mostly by Latin America. In contrast, Asia and Africa saw reducedinvestment in 2009 compared with 2008. These developing countries in these three regionsaccount for 6.3% of total new global investment in clean energy.

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During 2009, Pakistan’s AlternativeEnergy Development Agencyannounced its aim to source a 14%share of the national energy mix fromrenewables by 2022. This implied acumulative capacity addition of 17GWof renewable energy. The majority ofthis is likely to come from windpower.

A large share of the investment inclean energy in Indonesia ischannelled into exploiting thepotential of geothermal energy. Itis estimated that Indonesianvolcanoes possess around 28GWof exploitable geothermalpotential, though only 1.1GW ofcapacity is currently installed.

Vietnam plans to have 5% of its totalelectricity output coming from renewablesources by 2020. The country is estimatedto have potential for 2GW of wind power,though access to finance is constrainingproject development.

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The government of Peru concluded atender process in November 2009that was designed to add 500MW ofnew renewable generation capacity by2012. The government’s first formalrenewables target, adopted in 2008,calls for a renewables share ofgeneration capacity of 5% by 2013.Biomass projects accounted for310MW of 412MW successfullytendered in the initial phase.

Chile enacted a law stipulating that 5% of totalproduction in new energy contracts must beprovided by non-conventional sources. By 2024 itmust be 10% of total energy production, equivalentto a figure of 3,410MW.

During 2009, Mexico released a plan featuring specifictargets for installed capacity and electrical generation fromwind, geothermal, biomass, and biogas by 2012. Even thoughthe targets are non-binding, they represent a cleargovernment commitment to develop renewable energy. Theprogramme calls for increasing the nation’s installedrenewable energy capacity from approximately 3.3% of thetotal in 2008 to 7.6% by 2012, with wind power being theprime beneficiary.

In Colombia, the national governmenthas issued a directive that all new vehiclesmust have E85 flex-fuel capability by 2012.Colombia is second behind Brazil inbiofuels production in South America,expecting to produce 137 million gallonsof ethanol in 2010. Meanwhile, inArgentina, the government launched a1GW renewable energy tender as part ofits new Renewable Energies Law thataims to achieve 8% of energy sourcedfrom renewables by 2016.

Africa lags behindAfrica remains a relatively minor player on theglobal clean-energy landscape. Investment fell toUS$900m in 2009, from US$1bn the previousyear, and the continent accounted for less than1% of the global total.

The Department of Energy in South Africa launched its firstnational Integrated Resource Plan in 2009, outlining measures forincentivizing energy efficiency, and the development andcommercialization of renewable power. The plan outlines energyguidelines that public utility Eskom and the National EnergyRegulator must follow. It stipulates that 1,145MW of power mustcome from renewable energy projects in the private sector by 2012.The plan focuses on saving energy, rather than building newpower stations. It includes plans to install solar panels ongovernment buildings, as well as to fit one million low cost,government-built homes with solar water geysers before 2014.

A funding deal for Frenchinstitutions to invest US$283.4million in Ethiopia’s 120MWAshegoda wind farm was agreedin 2009. The total project cost ofAshegoda stands at US$315m,with 90% financed by banksand the balance from theproject developer, EthiopianElectric Power Corporation.The Ashegoda farm, located inthe north of Ethiopia anddeemed the first of its kind inthe country, is in the initialstages of construction.

Latin America leadsNew clean energy financial investment in LatinAmerican countries, excluding Brazil, wasUS$3.8bn in 2009, up from US$1.9bn in 2008.Mexico was the largest individual countryrecipient of new investment, recording US$2bnduring the year. Chile was the next largest withUS$700m, followed by Peru, with the latterseeing a jump in investment to US$500m fromUS$100m in 2008.

Egypt attracted the most investment,with the wind sector being the majorrecipient in that country. The largestinvestment in 2009 was in a US$490m,200MW wind project in the Gulf of ElZayt. This project forms a further piece ofEgypt’s expanding wind ambitions in theGulf of Suez region.

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At a small village inTarawa, Kiribati, treesare dying as a result ofthe rising sea level.

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country, Small

Kiribati (pronounced “Kiribas”), lying midwaybetween Hawaii and Fiji, is one of the mostisolated countries in the world. Spread overabout 3.5 million square kilometres in thecentral Pacific, the Republic of Kiribaticonsists of 33 low-lying atolls and coral islandsgiving a total land area of only 811 squarekilometres. The country is divided into threeisland groups: the Gilbert Islands (from wherethe name Kiribati comes), the Phoenix Islands,and the Line Islands. The population,numbering around 100,000, is concentrated onthe Gilbert Islands which include Tarawa, thecapital. A former British colony, Kiribatiattained independence in 1979.

The main economic activities are subsistenceagriculture and fishing. The principal exportsare seaweed, fish, and copra – the dried whiteflesh of the coconut from which coconut oil isextracted. The manufacturing sector is verysmall, consisting of a handful of state-ownedenterprises processing copra, andmanufacturing handicrafts. There is howeverpotential for expansion of the food-processingsector. The government is currently negotiatinga joint venture with a Chinese fishing companythat could see the development, in Tarawa, ofcold-storage and packing facilities for locallycaught tuna fish.

Phosphate has been one of the only availablenatural resources, and in 1956 Kiribatiestablished a sovereign wealth fund to act as astore of wealth for the country’s earnings fromphosphate mining. Commercially viablephosphate deposits were exhausted by the timeof independence, but the fund continues to actas an important source of finances forgovernment expenditure. The economy islargely dominated by the public sector whichrelies on foreign aid, and revenue from fishinglicense fees granted to distant nations andremittances sent back by seamen workingabroad. A small tourism sector contributesaround 25% of Gross Domestic Product.

According to the Asian Development Bank,Kiribati has some unique advantages overother Pacific countries – healthy foreignreserves, a history of sound fiscal management,and a strong culture that promotes socialstability and family welfare. However, therecent global economic crisis has reduced thevalue of the sovereign wealth fund, and thegovernment’s large drawings on this fund inrecent years are not sustainable. Rapidpopulation growth and urban migration toSouth Tarawa are putting pressure ontraditional family structures. More than 40% ofthe population is under the age of 15, ‰

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Kiribati

COUNTRYFEATURE

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How do the people of Kiribati feel about thefact that their fate lies in the hands of people infar-away countries? There is a sense of injustice, but also an un-derstanding that, until recently, people weren’taware of the impact of their actions. However,knowing what we do today, carrying on as if itwere business-as-usual is irresponsible and im-moral. Failing to take action borders on an actof criminality. But we are not the only onesfacing this future. Other island nations, as wellas low-lying countries and coastal areas, are alsoat risk. We could all be victims – even theUnited States, with Hurricane Katrina and firesin California.

Kiribati is a highly Christian nation. For along time people saw flooding and otherdamage as acts of God. But now some peopleare coming to the realization that sea levels are

haps the greatest since slavery. The interna-tional community readily condemns terrorism,genocide, and nuclear proliferation, but whycan’t we see the injustice of our inaction on cli-mate change? As a country on the frontline ofclimate change, we are going to be one of thefirst affected by the lack of action by others. So,we are asking people to run the extra mile onthe weekend, to make sacrifices.

To this end, Kiribati has made a sacrifice.We have established the Phoenix Islands Pro-tected Area which effectively closed much ofour territorial waters to fishing. We had to fightour own internal political battles and opinionto arrive at this decision, but it is a very largestatement on our part.

Fishing accounts for about 45% of govern-ment tax revenue, and is an important sourceof livelihoods. Our move is a contribution to

rising, and it’s only going to get worse. Peopleare mobilizing. They want help. Now there is afeeling that the people who contribute most tothe problem should be part of the solution. Is there a message you would like to convey tothe broader public? We must get away from the idea that oneperson, one action, cannot make a difference.One million is one plus one plus one, and soon. Every person and every action is important.The Pacific is one ocean. What you throw in thesea in California will end up on our shores. So,we need to work together.

We are asking the people of the world tomake a sacrifice. The fate of our people, our cul-ture, our memories, are at stake. I don’t thinkanyone wants to drown a people, yet that iswhat will happen.

Climate change is a moral challenge, per-

and the workforce is estimated to increasefrom 45,000 in 2002 to 68,000 in 2012.

Kiribati was added to the list of LeastDeveloped Countries (LDC) in 1986. Sincethen, it has met two of the three thresholdsthat would qualify it for graduation from LDCstatus – those relating to improvements inincome and human assets. However,graduation from the LDC classification has notbeen recommended to the UN GeneralAssembly which is responsible for the finaldecision on the list of LDCs. The countryremains far from meeting the third threshold,relating to reduced economic vulnerability.Both copra and seaweed production havefluctuated sharply in recent years, contributingto a high level of export instability.

Tourism has also undergone sharp

fluctuations associated with internationaldemand. There has been little progress inaddressing major development constraints.Limited natural resources, especially land andfreshwater, hamper development across widelyscattered and sparsely populated islands,making access to international marketsdifficult and creating little potential foreconomies of scale.

Kiribati’s vulnerability to natural shocks isalso increasing as the impact of climate changegrows. Rising sea levels and sea temperaturesare likely to result in coastal erosion andflooding, and the loss of mangroves and coralreefs, with consequent negative impacts onfreshwater supplies, agriculture, and fish stocks.

The World Bank reports that the people ofKiribati rely on healthy coral reef systems to

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Kiribati

COUNTRYFEATURE

Interview with His Excellency Anote Tong, President of Kiribati

‘We are talkingabout the fate ofa people here’

Seaweedfarming atTabiteuea,Kiribati.

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biodiversity, as well as to marine fish stocks.Conservation of our fisheries resources bringsbenefits to the rest of the ocean. ‘No catch’zones boost fish populations in outside areas.

Through the Pacific Oceanscape framework,we have brought together 16 countries to takesimilar measures to protect ocean resources.The Pacific Oceanscape area is larger than thecombined landmass of the United States,Canada, and Mexico. It is an idea that is so log-ical. Countries that share the Pacific should havebeen collaborating on issues a long time ago. Will the establishment of the Phoenix IslandsProtected Area (PIPA) attract tourists to Kiri-bati? Our biggest problem with the development oftourism has been the lack of regular flight serv-ices, but we are working on this. We are just twohours from Hawaii. The PIPA has certainly cre-

ated a lot of publicity, especially around theissue of climate change facing Kiribati, which isimportant, since how can you care about acountry that you don’t know?

There is much we can offer tourists – the at-traction is definitely there. We have some of thebest fishing in the world, and our reefs aresome of the most pristine. There is very littlehabitation or disturbance, which makes thearea a living laboratory for climate change re-search. It can serve as a baseline for studies. Do you have difficulty policing your waters inorder to protect them from illegal fishingfleets? We have a huge exclusive economic zone – 3.5million square kilometres (1.35 million squaremiles) of ocean – and only a single patrol boat!So, indeed it is a problem, but we have an agree-ment with the United States. We have observersaboard their ships. We also get assistance fromother countries. We have a plan to increase sur-veillance through the use of over-flights byneighbouring countries. What gives you hope for the future? I refuse to believe that any individual with aconscience would deliberately continue on abusiness-as-usual path knowing that their ac-tions would result in the demise of others.

It is important not to forget we are talkingabout the fate of a people here. We’re not talk-ing about polar bears. I think the polar bearsare precious, and I do not wish to see them dis-appear. But nor would I want to see our peopledisappear.l Interview by Rhett Butler, mongabay.com – a web-site that seeks to raise interest in and appreciation ofwild lands and wildlife, while examining the impactof emerging trends in climate, technology, economics,and finance on conservation and development.

“Fishing accounts forabout 45% of governmenttax revenue, and is animportant source oflivelihoods. Our move is a contribution tobiodiversity, as well as to marine fish stocks.”

protect the shorelines of their atolls andprovide a habitat for fish that are integral notonly to the food security of their own nation,but are also an important export. On his returnfrom a recent trip to some of the outer islands,Aranteiti Tekiau, a research officer at theMinistry of Fisheries and Marine ResourceDevelopment, said, “Unfortunately we foundserious coral bleaching at Tamana. The peopleon the outer islands may not notice it or seewhat it is, but it definitely has an impact ontheir lives and on getting what they need fromthe ocean. If coral health is declining, fishabundance will decline as well. This is ourmain source of food and where we get ourprotein from. In Kiribati, it is especiallyimportant that our coral is healthy.”

Ribwanataake Awira, the secretary of the

Ministry of Fisheries and Marine ResourceDevelopment, told the World Bank, “Anincrease in temperature is one of the majorfactors that will affect the coral as we know it.Even if there is only an increase by 1 degree, itwill start to die off. That is what we are worriedabout now, especially in areas like Kiribatiwhere we depend entirely on the growth andhealth of the reefs.”

This reliance on fish cannot be overstated.Each inhabitant of Kiribati is estimated to eatsomewhere between 72kg and 207kg ofseafood every year. Kiribati also encompassesthe largest exclusive economic zone in thePacific with over 3.5 million square kilometersof ocean and fisheries that are estimated to beworth more than US$150 million annually tothe international market.

The above makes Kiribati’s decision to closeoff to fishing more than 11% of the totalnational territory (400,000 square kilometers)all the more remarkable. The Phoenix IslandsProtected Area (PIPA) recently earnedinscription by UNESCO as one of five new,natural World Heritage sites for its “pristinenature and importance as a migration routeand reservoir”. The PIPA is part of PresidentAnote Tong’s bigger, more ambitiousinitiative, the Pacific Oceanscape, which plansto set aside 38.5 million square kilometers ofocean as a contribution to improvingmanagement of fisheries, protecting andconserving biodiversity, furthering scientificunderstanding of the marine ecosystem, andreducing the negative impacts of humanactivities. n

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Since the industrial revolution, manufactur-ing activity has been regarded as a majorsource of economic growth in any nation. Thecontinuing drive to develop the sub-sector is areflection of the universal benefits that itbrings to an economy. For the countries ofAfrica, manufacturing provides a rational al-ternative as a way to jump-start developmentthrough the optimal exploitation of its richhuman and natural resources on a long-termsustainable basis. However, despite theseabundant resources, Africa remains the world'spoorest and most underdeveloped continent.

Over 80% of its people are surviving on lessthan US$1 a day, and the average growth rateon the continent is below the 7% required tomeet the Millennium Development Goals.Africa continues to play a marginal role in

world trade – around 3% in 2009 according tothe UN Economic Commission for Africa, andits meagre contribution to global Manufac-tured Value Added (MVA) is still on the decline.

Clearly, the industrial policies of the con-stituent states of Africa have not focused onthe growth driver in which the continent hascomparative advantage – manufacturing.There is an urgent need for strategic diagno-sis, at national and regional levels, in order toidentify and assess the challenges facing theindustrialization and diversification ofAfrica’s economy.

The policy mixAfrica must find the appropriate policy mixthat will address the continuing poor per-formance of the growth area – the manufac-turing sub-sector. In this regard, essentialconditions for economic growth include stablemacroeconomic and political environments, astable foreign exchange market, single digit in-flation, and good corporate governance.

A major challenge is a lack of investablefunds. In this context, there is a need tounlock the credit market with innovative in-terventions. Developing internal capacity willlessen the risk of lending to the manufactur-ing sub-sector. This is crucial in view of the

Mallam Sanusi LamidoSanusi, Governor, Central Bank of Nigeria,identifies the essentialingredients for a policy mixthat will help Africa realize itsmanufacturing potential.

Industrial policy in Africa:

what needs to be done

MALLAM SANUSI LAMIDOSANUSI was appointed the 10th Governor of the CentralBank of Nigeria in June 2009. On taking office, he implementeda dramatic and far-rangingoverhaul of Nigeria’s banking andaccounting regulation. A prolificwriter, he has written and has hadpublished numerous papers onbanking, politics, religion, andsociety.

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need for Africa to reduce its reliance on ex-ternal sources to finance its development.Dwindling donor funds and donor fatiguehave been amplified by the global economicdownturn. Therefore, there must be increasedefforts geared towards mobilizing local re-sources by increasing the national savingsrate, expanding the revenue base, improvingthe efficiency of tax collection, and eradicatingcorruption. Central banks can support theseefforts by targeted and focused interventions.

An additional stream of foreign exchangeearnings for the state has developed now thatmany emerging economies are becomingmajor importers of natural resources. Thisincreased demand for natural resourcesmakes improved resource management evenmore vital.

Enabling environmentAttention must also be given to the en-abling environment that will lead to im-

provements in total factor productivity(TFP), such as the removal of tariffs and

barriers to intra-state trade, and the con-struction of efficient infrastructure. Mone-tary policies must focus, not only on pricestability, but on the development of the realsector and economic activities that increaseemployment generation. Infrastructure defi-ciencies are still high compared to other partsof the world. According to one recent esti-mate, Africa needs to invest US$31bn annuallyin order to bridge the infrastructure gap.

Equally important is Africa’s technologychallenge. Business incubators and scienceparks, which are critical for growth, should beestablished in order to provide support for theinformation, communications, software,biotech, electronics, and precision machineryindustries. Africa should take note of the Dig-ital Hub, established in Ireland in 2003 as a

knowledge-intensive innovation centre fo-cused on digital content and technology re-search. This initiative made a significantcontribution to Ireland’s recent dramatic

economic growth.

‘New agriculture’Agriculture offers tremendous hope for thecontinent as a core component of developmentstrategy because it offers employment to over70% of the one billion-strong population, and,if well-harnessed, could be a sustainable spring-board for much awaited industrialization. Agri-culture can provide raw materials for industries,as well as promote backward integration. ButAfrican agriculture needs to move away fromthe smallholder or sub-optimal commercial

and segmented forms which operate in isola-tion, to a ‘new agriculture’ based on integratedsystems, differentiated production, and riskmanagement. For this to be achieved, the agri-cultural business strategy in Africa must changefrom the rudimentary methodology to the agri-cultural value chain (AVC) approach which inturn should be within the context of globalvalue chain perspective. The AVC approachcovers the full range of activities involved inmoving agricultural products from the farmer’sfield to the consumer’s table. It includes pri-mary production and sourcing of inputs, fi-nancing, processing capacity, technology andmarket access, and trade. Large injections offunds will be required for value chain financ-ing. Unlocking access to bank financing foragriculture, and developing risk-sharing ap-proaches, are therefore critical for stimulatingthe innovations in agricultural lending that will,in turn, increase food production and eventu-ally industrialize the continent.

Using the principles of competitiveness tomotivate African farmers to consider the pro-duction and processing of agricultural mate-rials as an industry would scale upagricultural production. Rural communitiesthat produce agricultural crops with highcommercial value in large quantities shouldbe integrated and designated as AVC indus-trial centers. This approach offers opportuni-ties for diversification of the product base, andwill enhance intra-Africa trade.

Multiplier effectsFinancing the development of indigenoustechnology in order to enhance its value ad-dition, and minimizing post-harvest losses byprocessing agricultural produce into refinedmanufactured products are essential ingredi-ents for Africa’s industrialization. The resultwill be dramatic, as many food processing in-dustries will be established, with concomitantmultiplier effects on jobs and wealth creation,poverty reduction, and the promotion of in-digenous technology in the manufacturingand food processing industry at large.

With over 70% of the population below theage of 30, Africa is one of the youngest conti-nents in the world. This has implications fordevelopment. On the one hand, there is un-derutilized capacity that can be employed toincrease output. On the other, this populationof over 700 million young people represents avibrant and dynamic market for manufac-tured goods. The need for a deliberate indus-trial policy framework to promote andengender economic growth and developmentin Africa is imperative. n

MakingIt40

Poverty reduction efforts in developing coun-tries used to be neatly divided into aid that wasdoled out to governments, and trade and com-merce, deployed to boost these economies andcreate individual prosperity. That world nolonger exists. These two sides are now con-verging, creating a new and ever-changingmosaic.

Increasingly, reducing poverty and spurringdevelopment are creating opportunities – andchallenges – for business, too. Business cannotthrive in countries that fail. By better under-standing socio-economic and environmentalconcerns in developing countries, companiescan better manage the risks that underpin theirlicense to operate. Further, companies can cap-italize on significant market expansion oppor-tunities by developing inclusive businessmodels. These are commercially viable busi-ness ventures that enhance access to goods andservices for the poor, as well as increase workprospects in low-income communities.

Even though global poverty has fallen byabout one fifth since 1990, the task of continu-ing to whittle down the poverty rate is about toget much harder. That is because our planet’spopulation is expected to grow by half, toppingnine billion by 2050. Every week, about threemillion people are pouring into the cities ofdeveloping countries.

This challenge is already on our doorstep.The United Nations has warned that morepeople went hungry last year, in absolute terms,than at any point in human history, due inlarge measure to population growth, a spike in

the price of wheat and other staples, and theglobal economic downturn.

Keeping up with the needs of a growing andever more urbanized population in the devel-oping countries, and the aspirations of thesecountries’ middle classes, is increasing globaldemand for energy and natural resources. Thisis also putting greater stress and strain on theworld’s ecosystems.

Bettering livelihoods, while safeguarding theenvironment, will necessitate a transformationof our current system, to an economy that ismore inclusive, lower in carbon, and more re-source efficient. It will require massive invest-ments in new green cities, energy, water, andtransportation systems. This is the purview ofbusiness. Business is the leader in building ef-ficient infrastructure. Unleashing business in-vestment will be absolutely essential for thesemega-building projects, given that businesssupplies 85% of all global flows of capital.

The companies that are best able to meet therising demand for food, health care, and shelter,will be the winners of tomorrow. In a recentreport by the World Business Council for Sus-tainable Development (WBCSD), a CEO-ledgrouping of 200 global companies, the organi-zation makes a strong case for marshalling busi-ness action on all these fronts.

The WBCSD points out that by factoring inlow-income populations to the supply, produc-tion, distribution, and marketing of goods andservices, companies will access new markets,while generating new jobs and income, andbuilding up the technical and skills base of thelocal workforce. What is more, poorer con-sumers will get affordable products and serv-ices attuned to their daily needs.

But we also need to move beyond singlecompany efforts, and find wide-scale, market-based answers. For that, business needs gov-ernments at national, regional, and global levelsto set the ground rules, so markets can flourish,especially in developing countries.

Notably, regulations must be geared towardsupholding the rule of law, boosting entry to the

The World Business Council for Sustainable Development’sMarcel Engel and Filippo Veglio see a flourishing partnershipfor economic growth and environmental well-being.

The challenge on our doorstep: A business view of development

MARCEL ENGEL is Managing Director of theWBCSD’s Development Focus Area and RegionalNetwork, and FILIPPO VEGLIO is the Deputy Directorof the WBCSD’s Development Focus Area.

WBCSD members are drawn from over 35 countriesand 22 major industrial sectors. The WBCSD providesa platform for companies to explore sustainabledevelopment, share knowledge, experiences, and bestpractices, and to advocate business positions onthese issues in a variety of forums, working withgovernments, and non-governmental andintergovernmental organizations. Ph

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formal economy, and stamping out corruption;providing training and access to capital, especiallyfor small and medium-sized companies; and formaking core investments in roads, ports, energyand telecommunications systems – the life sup-port system of daily commerce; and last, theymust promote a fair and competitive market.

Governments, civil society, and business mustbe prepared to join forces in establishing the ap-propriate framework conditions for develop-ment that is rapid, widespread, and sustainable.

Good governance is also fundamental tomanage the global environmental and securitycommons, and to restore worldwide financialstability.

The task of developing sustainably is simplytoo large and too complicated for business tohandle alone. For that, partnerships must bestruck, even with former adversaries.

Indeed, the formerly conflict-ridden rela-tionship between business and non-govern-mental organizations (NGOs) is evolving intoone of constructive dialogue. Partnerships andcollaborations, assembling business, govern-ment, and civil society around the same table,are needed to find fresh answers to solve diffi-cult problems, such as delivering clean water,sanitation, and other services to the poor inurban slums or remote villages.

To promote greater cooperation amongthese entities, the WBCSD has forged partner-ships with a wide range of stakeholders, frommultilateral development banks to environ-mental NGOs.

NGOs, development agencies, governments,and civil society alike, must change the way theyview business. Business must no longer be seenas a purveyor of resources. It must be viewed asan enabler of social and economic progress, anda partner in a common effort to build a more in-clusive and sustainable world.

For, the world must not be divided bymaking a false choice between either economicgrowth or environmental well-being. Economicgrowth and environmental well-being are in-terdependent. We must choose both. n

POLICY BRIEF

MakingIt42

By WENDY STEPHENSON, CEO of TheConverging World, a UK-based charity thatmakes mission-related investments.

At The Converging World (TCW), we makemission-related investments in renewableenergy. These investments are designed togenerate a positive environmental impact,in addition to providing a financial returnto support our sustainable developmentwork with communities around the world.We face the same challenges as manyother investors in the field, however, andneed stable, sufficient, long-termincentives.

The much talked-about energy gap ismoving closer. In India, where we havewind power investments, there is talk of‘peak coal’. They already have a 15% netdeficit in supply, and not everyone hasaccess to energy. By 2020, energy supplywill need to double, but coal to the nationis no longer a certainty. So, renewableenergy is not just about climate change, itcan underpin stable economic and socialdevelopment, and provide the security ofenergy supply that is crucial to peace andthe avoidance of social unrest.

When we installed our first two windturbines in India two years ago, the onlyincentive was carbon finance throughapplying for Clean DevelopmentMechanism-regulated carbon credits. Thisapproach, often through ‘carbonoffsetting’, is critical to the financialviability of the project. However, it is not a

perfect instrument, as it is slow andovercomplicated. We have been in theprocess for three years now; our projectdefinitely needs carbon finance, it isevidenced time and again, but every day welose more carbon credits which areessential. There isn’t even an appealsprocess. Given this experience, we willdefinitely be looking for an alternativesolution to help finance our wind turbinesin the future.

What of other regulatory and fiscalincentives? In the United Kingdom (UK),the feed-in tariff immediately had apositive effect on solar PV, and suppliersare filling their books. We have to doeverything we can, and this could be asuccess story for the UK, as it has been formany other countries, but how to fundsuch policies in developing countries? SirNicholas Stern is of the opinion that weneed to reduce CO2, however, andwherever, it is cheapest to do so.

Recent changes to regulatory and fiscalpolicy around renewable energy in Indiaare making it possible to increase thereturns on investment in renewableenergy. Even so, to borrow in India iscostly, with rates at 12% and loans treated

Renewablesinvestmentin India

“More investors, whether inbusinesses, foundations orgovernment departments,need to consider mission-related investment.”

“The beauty of The Converging World’s model is that thereinvestment process will continually increase the greenenergy provision, carbon reduction, and socialdevelopment funding for all beneficiary communities,even if no fresh funding is targeted at the region.”

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POLICY BRIEF

By LYNN K. MYTELKA, a Professorial Fellow atthe Maastricht Economic and Social Researchand Training Centre (UNU-MERIT) in theNetherlands.

Innovation is a process of learning,adaptation and change in technology,organizational structures and institutionalpractices, in which the application ofknowledge plays a central role. In industry,especially in developing countries, itconsists of the process by which firmscreate and use knowledge to master andimplement the design, development, andproduction of goods and services that arenew to them – irrespective of whether theyare new to their competitors, theircountries, or the world. Access toknowledge and information, the capacityto reverse-engineer existing products, toabsorb and adapt imported technologies,transfer knowledge from universities andresearch institutes to producers or endusers, and networking to solvetechnological problems, are all parts of aninnovation process.

Tomorrow’s industrial processes willneed to be energy and water-efficient,resilient, and sustainable. Strengtheningthe innovation capacity of industry isessential in meeting these objectives.

Many national and internationalorganizations have promoted researchwith a view to enhancing thecompetitiveness and innovation capacitiesof industry. A review of case studies of anumber of international institutions,

active in Europe, Asia, and Africa, and oftheir role in strengthening nationalinnovation systems, finds that the way tosupport and promote the industrialdevelopment of developing countries haschanged considerably over the course ofthe last three or four decades.

In the present context, access to a widerange of knowledge inputs, an emphasison continuous learning and innovation inboth new and traditional industrialsectors, and networking and collaborationthrough knowledge exchanges, jointresearch and technology partnerships,have all emerged as critical elements in thecontemporary portfolio of industrialinnovation support programmes andpolicy instruments. So, too, has theimportance of engaging in a continuousprocess of dialogue and evaluation thatenables the overall programme to meet itsobjectives through adaptive changes in thecentres themselves, as well as in theiractivities.

Some examples from three of the casestudies:lThe International Institute for SoftwareTechnology (UNU-IIST), located in China,Macao SAR, is one of the research andtraining centres of the United NationsUniversity. UNU-IIST's mission is to helpdeveloping countries strengthen theireducation and research in computerscience and their ability to producecomputer software. The UNU-IISTexperience is a good example of how acentre that was not designed as a

Promoting industry’sinnovation capacities

as personal loans (not as infrastructurefunding) to be paid back over seven years.There are also limits on how muchoverseas borrowing you can introduceinto a project, and taxes arediscouragingly high.

But there is hope; India has recentlyintroduced more incentives, and taxationis currently under review. In addition tothis, the recent visit to India by BritishPrime Minister David Cameron led to anagreement on an Indo-British CEOforum. This could be a way of workingtogether to overcome some of thecurrent trade barriers, and incentivizeoverseas investment for much-neededrenewable energy.

We are trying to raise funds from theUK, but here we tend to fall betweengrant givers and investment committees.Investment committees of foundationsand charities are often charged withseeking the highest possible marketreturn. What we at TCW are offering is aninvestment with modest financialreturns, but with very significant, evenessential, social benefits.

More investors, whether in businesses,foundations or governmentdepartments, need to consider mission-related investment. In our case, theinstrument (carbon credits) available toprojects like ours is challenging, and attimes dysfunctional. The fiscal andfinancial incentives are coming, but areall too often too slow, and the financialsector can sweep these away through thelack of infrastructure funding and highinterest rates.

The easiest solution would be forinvestors to consider trading off asmaller financial return for a muchlarger social and environmental return.Mission-related investment is little-known or used, but it could make asignificant difference to the crucialdeployment of renewable energy. n ‰

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POLICY BRIEF

network can integrate networkingbehaviour into its earlier organizationalstructures and institutional practices.

After initially focusing on China andneighbouring countries, in the mid-1990sUNU-IIST training activities spread tocountries across Asia, and in 1995 it begantwo-week courses in Francophone Africawith funding from the World Bank. In1996, UNU-IIST extended its activities toLatin America, and then graduallyexpanded its research agenda to includethe design and development of universitycurriculum for formal softwaredevelopment, and later, with 11 universitypartners from industrial countries, beganto train university lecturers fromdeveloping countries.

A determined networking approach hashelped UNU-IIST to establish the Centrefor Electronic Governance with fundingfrom the Government of Macao SAR, theMicrosoft Corporation, UNDP, the UNAsia Pacific Center for ICT Development,the UNU Joint Activities Fund, and theInternational Fund for Animal Welfare.The Centre has over 25 partners, includinggovernment ministries from eightdeveloping countries and the Republic ofKorea, and universities from all but threeof these, as well as Universities in theUnites States, the United Kingdom,Canada, and Eygpt.lThe experience of the European Union'sEnterprise Europe Network illustrates theimportance of engaging in a continuousprocess of dialogue and evaluation thatenables the overall programme to meet itsobjectives through adaptive changes in thecentres themselves, as well as in theiractivities.

Since 2001 the network has adapted theoriginal model to widen the service rangefor greater viability, create new financialincentives to stimulate transnationaltechnology transfer, define targetedclientele and be visible to them, and

develop better mechanisms for follow-through to ensure that services had theimpact desired.

The Enterprise Europe Network has notonly strengthened its role in supportingsmall and medium-sized enterprises(SMEs), but has further developed itsimpact assessment studies andstrengthened its feedback mechanism,'Listening to Enterprises', thus learningmore about, and more quickly, how theirservices are impacting upon SMEs. Since2007, the renewed network has intensifiedit business co-operation and technologytransfer services, produced ordisseminated 11,500 partnershipproposals, held a variety of brokerageevents in which 15,000 SMEs participated,and produced 1,525 signed partnershipagreements.

“The way to support andpromote the industrialdevelopment of developingcountries has changedconsiderably over the course ofthe last three or four decades.”

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Installing energyefficiency equipment ata hotel in Chavuma,Zambia. An AREEDinitiative.

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POLICY BRIEF

lThe objective of the United NationsEnvironment Programme’s Africa RuralEnergy Enterprise Development Initiative(AREED) is to develop new sustainableenergy enterprises that use clean, efficient,and renewable energy technologies.Through local partner organizations, manyof which are African non-governmentalorganizations, AREED offers rural andperi-urban energy entrepreneurs in Mali,Ghana, Tanzania, Senegal, and Zambia, acombination of enterprise developmentand advisory services, and start-upfinancing. This integrated financial andtechnical support allows entrepreneurs toplan and structure their companies forgrowth. It also makes possible eventualinvestments by mainstream financialpartners, with whom AREED works.

A central lesson from the AREEDexperience is that although thecombination of enterprise developmentsupports and seed financing can beeffective at expanding energy access, it isoften not enough to get entrepreneursfocused on rural markets. A significantproportion of potential users, who couldnot afford to pay upfront for the productsand services offered by the AREEDentrepreneurs, could not be reached.AREED addressed this problem byengaging more with microfinanceinstitutions and local banks to facilitateflows of end-user financing to the existingand potential customers of clean energyenterprises. n

Biodiversity is the variety of all life andnatural processes on Earth, includingdiversity within species, between species andof ecosystems. Biodiversity provides food andmedicine, fresh air and clean water,protection from natural disasters and greenspaces for humans. Studies show thatbiodiversity is in grave danger from habitatloss, invasive species, pollution, climatechange, and overexploitation.

Sir John Beddington, the Chief ScientificAdviser to the Government of the UnitedKingdom, and Professor of AppliedPopulation Biology at Imperial College,London, has recently delivered severallectures on the theme of ‘Biodiversity andecosystems in a changing world’.

According to Beddington, “The challengeswe face in providing enough safe, clean and

affordable energy, water, and food for ourgrowing global population, which is movinginto cities, are intimately linked to thechallenge of mitigating and adapting toclimate change. It is clear that any effective wayto solve these challenges should continue torecognize the importance of maintaining ourrich ecosystems. Scientists are increasing theirunderstanding of the benefits that well-functioning ecosystems provide ‘behind thescenes’, for example, in sequestering ourcarbon, purifying our water, and pollinatingour crops. It is vital that we continue to bringthese issues to the attention of policymakers.”

The graphic above shows the complexinterrelation between food, energy, and watersecurity in the context of climate change.Beddington asks if this is a ‘perfect storm’ thatcould lead to civil unrest and conflict. n

Key questions1. Can nine billion people befed equitably, healthily andsustainably?2. Can we cope with thefuture demands onwater?3. Can we provideenough energy tosupply the growingpopulation comingout of poverty?4. Can we mitigateand adapt to climatechange?5. Can we do all this in thecontext of redressing thedecline in biodiveristy andpreserving ecosystems?

Biodiversity: policy challengesin a changing world

Increased demand 50% by 2030 (IEA)

Energy

WaterIncreased demand

30% by 2030

(IFPRI)

FoodIncreased demand

50% by 2030

(FAO)

Climate Change

Increased demand 50% by 2030 (IEA)

Energy

WaterIncreased demand

30% by 2030

(IFPRI)

FoodIncreased demand

50% by 2030

(FAO)

Climate ChangeClimate Change

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ENDPIECE

As an appetizer for the next issue which willlook at trade, Making It spoke to PATRICIAFRANCIS, Executive Director of theInternational Trade Centre (ITC), about thecarbon footprint of trade and the implicationsfor Least Developed Countries.

How do you see climate change having animpact on development, and what do yousee as the role of trade?Climate change is one of the gravestthreats facing humanity, and thus themajor development challenge thiscentury. Least Developed Countries(LDCs) have done little to cause climatechange, yet face its harshest impacts andhave the weakest capacity to adapt to theseimpacts. Trade can help developingcountries with adaptation, throughgenerating export earnings and accessingtechnologies. Trade also has a role inmitigation of climate change, throughdisseminating low carbon technologies.

Keeping trade open and withoutdiscrimination is thus an effective climatechange policy. ITC’s mission – ExportImpact for Good – very much encompassesthat goal.Should we be concerned about the carbonfootprint of trade?Trade is an increasingly importantproportion of the world’s GDP. Itstimulates economic growth, and thus theemissions of greenhouse gases. As a result,trade, and particularly transport of goodsaround the world is associated withcausing climate change. However, 90% of

internationally traded goods are carried bysea. Maritime transport is an efficientmode of transport, with only 10-15 gramsof CO2 emissions per tonne kilometre.

The response of consumers in thenorthern hemisphere to “buy local” inorder to reduce emissions from transportmay, at first glance, seem an intuitivedecision. However, studies show that foodproducts imported from the southern

hemisphere can often have a lower carbonfootprint than products grown in thenorthern hemisphere. This is the case forcounter-seasonal fruits and vegetablesfrom some developing countries whichbenefit from more favourable growingconditions than in the northernhemisphere. Depending on specific cases,the low emissions from agriculturalproduction in warmer climates can morethan compensate for emissions from theirtransport to markets in the North.

The key driver of carbon-intensivegrowth is not trade, but the lack ofregulation governing carbon use.Fundamental obstacles that we still face toreducing this level of dependence are thecontinued existence of fossil fuelsubsidies, and the lack of a multilateralagreement to put a price on carbon. What do you mean by carbon-intensivegrowth?Economic growth is linked to theemissions of carbon dioxide and othergreenhouse gases because the type oftechnology used to drive economic growthhas a direct bearing on the level ofemissions per unit of GDP. Developedcountries that have more advancedtechnologies, thus produce at lower levelsof carbon intensity.

However, they are also net importers ofconsumer goods from China, and otheremerging economies, where the carbonintensity of production is higher.Although these products are consumed inEurope, the emissions from their

Climate change and trade

Patricia Francis,Executive Directorof the InternationalTrade Centre (ITC).

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production count in China’s inventoryof emissions. We know from theCarnegie Institute’s research thatEurope is thus effectively“outsourcing” over a third of itsemissions to the developing world.Assigning responsibility for theseemissions needs more debate. It hasobvious implications for climatechange negotiators, but also at theconsumer level, where peopleincreasingly want to know more abouthow much carbon is emitted inmaking a consumer item and inproviding services. Are barriers to trade emerging inresponse to climate change?The fastest developments are takingplace at the private sector level.Retailers are putting informationabout carbon on products, particularlyfood. This means they require theirsuppliers to provide information onemissions in the supply chain.

Leading corporations now reportpublicly on their emissions, and makeinvestments to reduce them. Thisdecision is driven both by the need toreduce costs, but also to demonstrateenvironmental responsibility, alongwith other ethical commitments. Ithink this trend will intensify, andbecome part of the mainstream ofdoing business. What does this mean for exporters inLDCs?The agri-food exporters with whom wework in Africa are concerned thatcarbon labelling standards are beingdeveloped without their involvement.There are many different schemes,usually employing their ownmethodologies. As they are notharmonized, and do not recognizeeach other as “equivalent”, exportersare faced with the costs of multiplecertifications, even in the same

destination markets. Themethodologies for certification arealso complex, and require data thatdoes not always exist in developingcountries, which can lead to uncertainmeasurements.Does that make the consumer ‘king’?The consumer and retailer are indeedsetting some important “rules of thegame” in trade. Consumers arebringing about positive change, butcan also cause negative impacts andfail to address core issues.

Product carbon footprint labels mayseem reassuring for the ethicalconsumer, but do not includeemissions from driving to thesupermarket or preparing the food,which are both carbon-intensiveactivities. Ethical consumers are alsoprone to “moral offsetting”, wherebythey make one ‘green’ shoppingchoice, but then feel licensed to make amore damaging one, like buying aplane ticket for a weekend city break.How does this issue relate to povertyreduction and ITC’s work?The sustainability consumer market isgrowing. The organic food andcertified timber markets for example,are worth around US$50bn, withdeveloping countries having a 2%share of this. Farmers and theircommunities both benefit from thesehigher incomes and a cleanerenvironment. However, we must becareful that consumers and retailers donot damage these prospects throughmisplaced advocacy and standards thatdevelop in discriminatory and non-transparent ways.

ITC, along with its developmentpartners, is working hard through itsenvironmental technical assistanceprogramme to strengthen the capacityof developing countries to compete inthis demanding new marketplace.n

MakingIt 47

Bateman, Milford – Why Doesn’t Microfinance Work?:The Destructive Rise Of Local Neoliberalism

Birdsall, Nancy and Savedoff, William – Cash OnDelivery Aid: A New Approach to Foreign Aid

Chang, Ha-Joon – 23 Things They Don’t Tell You AboutCapitalism

Daniels, Steve – Making Do: Innovation in Kenya’sInformal Economy

Ellwood, Wayne – No-Nonsense Guide toGlobalization

Fues, Thomas and Wolff, Peter (eds.) – G20 and GlobalDevelopment: How can the new summitarchitecture promote pro-poor growth andsustainability?

Heinberg, Richard and Lerch, Daniel (eds.) – The PostCarbon Reader: Managing the 21st Century’sSustainability Crisis

Leonard, Annie – The Story of Stuff: How OurObsession with Stuff Is Trashing the Planet, OurCommunities, and Our Health – and a Vision forChange

Naudé, Wim (ed.) – Entrepreneurship and EconomicDevelopment

Organization of American States – SustainableDevelopment in the Caribbean: ContemporaryIssues, Challenges and Opportunities

Oxfam Australia/Oxfam New Zealand – The Future isHere: Climate Change in the Pacific

Parkin, Sara – The Positive Deviant: SustainabilityLeadership in a Perverse World

Sévérino, Jean-Michel and Ray, Olivier – Le Temps del’Afrique

World Business Council for Sustainable Development– Business and Development: Challenges andOpportunities in a Rapidly Changing World

http://aidthoughts.org – Aid Thoughts – digesting thedifficult decisions of development

http://blogs.cgdev.org/global_prosperity_wonkcast/ –Global Prosperity Wonkcast – Lawrence MacDonaldinterviews Centre for Global Development expertsand others on innovative, practical policy responsesto poverty and inequality in a globalizing world

http://youthprojectsurvival.org – Project SurvivalPacific

www.climate.gov.ki/index.html – Climate change inKiribati

www.theconvergingworld.org – UK-based charity thatinvests in renewable energy projects in thedeveloping world

www.thedigitalhub.com – An Irish governmentinitiative to create an international centre ofexcellence for knowledge, innovation, and creativity,focused on digital content and technologyenterprises.

www.ldcwatch.org – LDC Watch is a global alliance ofnational, regional and international civil societyorganizations, networks, and movements based inthe LDCs

www.sidsnet.org – Small Island Developing StatesNetwork

www.un.org/wcm/content/site/ldc/home – The 4thUnited Nations conference on the Least DevelopedCountries

www.unohrlls.org – United Nations Office of the HighRepresentative for the Least Developed Countries,Landlocked Developing Countries, and Small IslandDeveloping States

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