Denis Nkala, Regional Representative (Asia & Pacific) of United Nations Development Programme, delivers a speech at the forum on world internet & modern logistics of the 3rd World Emerging Industries Summit (WEIS 2015)

The Role of Industry in Development Cooperation

World Emerging Industries Summit

April 2015

Zhengzhou, People's Republic of China

Denis Nkala

Regional Representative (Asia-Pacific)

UN Office for South-South Cooperation

United Nations Development Programme

The Chairman, Honorable Guests, Excellences, Ladies and Gentleman, Friends.

“The UN is working with Governments, civil society and other partners to shape an ambitious sustainable development framework to meet the needs of both people and planet, advancing social justice and protecting the environment,” (The future we want, 2012). A notable omission is that the private sector is only included in the “others” group and not specifically mentioned like government and civil society. This omission underplays the centrality of the private sector in the new development agenda.  Since the 2002 Monterey Consensus and 2008 Doha Declaration on financing for development emphasized development financing beyond the public, private, domestic  and international sources to include trade, debt as well as domestic and international enabling environment, global financing has become more complex with the private sector at its core. The private sector is firmly a third pillar of development.

Following the two mentioned conferences, the UN is working on another comprehensive framework on financing for development which will be discussed and finalized in Addis Ababa on 13-16 July 2015.  Therefore the year 2015 is a challenging year to the multilateral institutions, governments, private sector and civil society alike as we leave behind the Millennium Development Goals and usher in the new framework of the Sustainable Development goals. That framework needs a complementary financing framework including resources, enabling environments, capacities built and incentives to allocate resources created.

In many developing countries, the informal private sector is frequently the way to eke out a livelihood and perhaps to emerge from poverty through the small and medium enterprises. In 2004 UNDP estimated that of all the nonagricultural private sector actors in Sub-Saharan Africa and Asia, an estimated 70–80% are in the informal sector.[1] Within the informal sector, women are estimated to be about two-thirds of self-employed entrepreneurs.[2] Small and medium enterprises are usually the most important source of employment, innovation drivers, sources of goods for trade and for economic growth.  They however face credit shortages of up to $2.5 trillion in developing countries and $3.5 trillion globally.

Private sector financing for development has to come from domestic and international sources. Domestic capital markets in many developing countries remain underdeveloped, constraining the availability of finance. Credit available is also predominantly short term as there are no angel investors or venture capitalists.  There is a need for pooling of funds and sharing of risk between the public and private sectors and to ensure that public–private partnerships have development impacts.

International financing comes predominantly from private investment in productive sectors for profit. The new framework will call for more investments in sustainable industrialization, infrastructure development, energy development, transport and ICT.  One major problem is that it is not the countries that need the investment the most that get it. Of course there is a responsibility for the countries to get the policies right as well, to provide an enabling environment and appropriate incentives.  There will be a call to increase Greenfield FDI which has declined since its peak in 2008.

The sources of financing from the international community can come from philanthropic sources by individuals and foundations, corporate social responsibility (CSR by major firms). Remittances from people in the diaspora to their home countries remains a significant source of funds as will be crowd sourcing.

Lastly but not least, technology and innovation and diffusion of the technologies will remain an important part of enhancing development. An example is that 74% of people in developed countries use Internet compared to 26% in developing countries. In places where there is access to Internet, people use mobile phones for transferring funds, running their small businesses, communication and providing financial services.  It will be important for technology to be provided and for research and development functions to be strengthened to customize science and technology to the environment and local skills.

The new development framework will need the private sector to  “engage as reliable and consistent partners in the development process,” as called for in the Monterrey Consensus.

Thank you for your attention.

References

UNDP, 2004. Unleashing Entrepreneurship: Making Business Work for the Poor. Report of the Commission on the Private Sector and Development to the UN Secretary-General. New York. Available at: http://web.undp.org/cpsd/documents/report/english/fullreport.pdf

UN Millennium Project. 2005. Investing in Development: A Practical Plan to Achieve the Millennium Development Goals. New York. Available at: http://www.unmillenniumproject.org/reports/fullreport.htm

U.N. Secretary-General (March 2015) “Coherence, coordination and cooperation in the context of financing for sustainable development and the post-2015 development agenda”.

http://www.un.org/ga/search/view_doc.asp?symbol=E/2015/52&Lang=E

Annex 1. 2002 Monterrey Consensus

The 2002 Monterrey Consensus included specific reference to the private sector as partners in poverty reduction:

“23. While Governments provide the framework for their operation, businesses, for their part, are expected to engage as reliable and consistent partners in the development process. We urge businesses to take into account not only the economic and financial but also the developmental, social, gender and environmental implications of their undertakings. In that spirit, we invite banks and other financial institutions, in developing countries as well as developed countries, to foster innovative developmental financing approaches. We welcome all efforts to encourage good corporate citizenship and note the initiative undertaken in the United Nations to promote global partnerships.

“24. We will support new public/private sector financing mechanisms, both debt and equity, for developing countries and countries with economies in transition, to benefit in particular small entrepreneurs and small and medium-size enterprises and infrastructure. Those public/private initiatives could include the development of consultation mechanisms between international and regional financial organizations and national Governments with the private sector in both source and recipient countries as a means of creating business-enabling environments.”

Annex 2

Some definitions

Angel Investor: Probably an affluent person that provides capital for a business start-up in exchange of convertible debt or ownership equity.

Greenfield FDI:FDI for new facilities rather than joint ventures or acquisitions.

Institutional Investors: Include big investors such as investment banks, pension funds, mutual funds, endowment funds, hedge funds and commercial trusts.